1 ANNUAL REPORT 2007
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THE ΟΤΕ GROUP
WHO: STELIOS WHEN: SATURDAY WHERE: ATHENS WHO: VASSILIKI WHEN: ΤUESDAY WHERE: ΤΟΚIΟ WHO: MANOS WHEN: FRIDAY WHERE: ATHENS THE OTE GROUP 12 THE OTE GROUP
ROMANIA
SERBIA
BULGARIA
FYROM
ALBANIA
GREECE THE OTE GROUP 13
GREECE Fixed-line and mobile telephony Fixed-line subscribers: 5,854,000 ADSL subscribers: 825,000 Mobile telephony subscribers: 6,269,000
ROMANIA Shareholder Structure Fixed-line and mobile telephony May 15, 2008 Fixed-line subscribers: 3,035,000 35.3% ADSL subscribers: 360,000 International Institutional Investors Mobile telephony subscribers: 3,616,000
BULGARIA 28.0% Mobile telephony Hellenic State Subscribers: 3,873,000 20.0% ALBANIA Deutsche Telekom Mobile telephony Subscribers: 1,195,000
FYROM 9.8% Mobile telephony Greek Institutional Investors Subscribers: 593,000 6.8% Other Since 2006, the OTE Group owns 90% of GERMANOS S.A., the largest distributor of technology-related products in Southeast Europe with 769 stores.
SERBIA Fixed-line and mobile telephony OTE owns 20% of Telekom Srbija THE OTE GROUP 14 GROUP STRUCTURE
Fixed-Line Telephony
Mobile Telephony OTE SA 100% ΟΤΕGLOBE Greece Greece Other Operations
100% ΟΤΕNET Greece
100% 54%
Cosmote RomTelecom 100% ΟΤΕestate Greece Romania Greece
AMC 82% 100% Globul 99% Hellas Sat Albania Bulgaria Greece
Cosmofon 100% 70% Cosmote Romania 94% ΟΤΕSat-Maritel FYROM Romania Greece
90% Germanos 100% ΟΤΕplus S.E. Europe Greece
100% OTEAcademy Greece
61% CosmoONE Greece WHO: VASILIS WHEN: SUNDAY WHERE: ATHENS THE OTE GROUP 16
ΟΤΕ GROUP KEY FINANCIAL & OPERATIONAL HIGHLIGHTS (all amounts are in € mn unless otherwise stated)
Operating Income before Depreciation and Amortization (OIBDA)*
1,971.5 2,167.0 2,240.8
05 06 07 * Excluding impact of OTE fixed-line Voluntary Retirement Program (provision of €939.6 mn in 2005, reversal of €49.8 mn in 2006, and €22.1 mn provision in 2007) and non-recurring gains related to Cosmote Romania in 2005
Net Income/ (Loss)
(216.8) 574.6 662.6
05 06 07 Dividend per Share
€0.00* €0.55 €0.75**
05 06 07
* There was no dividend distribution in 2005 ** Proposed dividend THE OTE GROUP 17
Revenue Breakdown by Region Key Operations Revenue Contribution (2007) (2007)
74.5% 50.0% Greece Fixed-line
35.6% Mobile telephony*
25.5% 14.4% Other countries Other operations
* Germanos S.A. is included in Other operations THE OTE GROUP 18
OTE ADSL Subscribers (000)
155 488 825
05 06 07
Mobile Telephony Subscribers (000) Greece, Albania, Bulgaria, Romania, FYROM
8,204 11,177 15,546
05 06 07
OTE Employees
11,348 11,755 14,741
07 06 05 THE OTE GROUP 19
RomTelecom ADSL subscribers (000)
8 89 360
05 06 07
Net Income/ (Loss) per Share (€)
(0.44) 1.17 1.35
05 06 07
RomTelecom Employees
12,257 12,512 13,078
06 07 05 THE OTE GROUP 20 OTE GROUP OPERATIONS
THE ΟΤΕ GROUP Consisting of the parent company OTE S.A. and its subsidiaries, the Group offers fixed-line (voice, broadband, data and leased lines) and mobile telephony services in Greece and Romania, as well as mobile telephony services in Albania, Bulgaria and in the Former Yugoslav Republic of Macedonia (FYROM). The Group is also present in Serbia through its 20% stake in the country’s incumbent operator, Telekom Srbija. OTE Group is also involved in a range of activities in Greece, notably in real-estate, satellite telecommunications and professional training.
FIXED-LINE OPERATIONS IN GREECE MOBILE TELEPHONY OPERATIONS IN GREECE AND ABROAD OTE (OTE S.A.) is the main provider of fixed-line services (voice, Cosmote, OTE Group’s mobile telephony operator, is the leading broadband, data and leased lines) in Greece. provider of mobile communications in Greece. The company also enjoys significant mobile telephony market shares in Albania, Strategy: Focused on broadband promotion, development of Bulgaria and FYROM, and is expanding rapidly in Romania. competitive products (focus on bundled services), adoption of a Cosmote also owns the largest distributor of technology-related dynamic tariff policy, investments in infrastructure and strong products in Southeast Europe, Germanos (Germanos S.A.) relationship with customers. Strategy: Aims to maintain its leading position in the Greek market and boost its profitability abroad.
51% Investments
44% OIBDA
43% Revenues 38% Revenues
37% OIBDA
27% Investments
Note: The charts display the contribution of each segment in Group revenues, operating income before depreciation and amortization (OIBDA) and capital expenditure in 2007. THE OTE GROUP 21
FIXED-LINE OPERATIONS IN ROMANIA (ROMTELECOM) OTHER OPERATIONS IN GREECE AND ABROAD OTE owns 54% of RomTelecom, the main telecommunications In Greece, the Group is involved in a range of activities notably in operator in Romania, providing fixed-line services (voice, real-estate, satellite communications, and professional training. broadband, data and leased lines) and satellite TV services to the The Group is also present in Serbia through its 20% stake in the local market. country’s incumbent operator Telekom Srbija.
Strategy: Focused on launching competitive products, Strategy: Aims to add value to the real-estate portfolio by strengthening its customer-oriented policy and increasing its establishing a real-estate investment company, and to develop market share in broadband and satellite TV services. synergies between the various companies of the Group.
19% Investments
13% OIBDA
12% Revenues 7% Revenues 5% OIBDA 3% Investments
Note: The charts display the contribution of each segment in Group revenues, operating income before depreciation and amortization (OIBDA) and capital expenditure in 2007. THE OTE GROUP 22 2007 AT A GLANCE
MERGERS, ACQUISITIONS AND SALES COMMERCIAL HIGHLIGHTS: FOCUS ON BROADBAND PROMOTION In March, OTE presents the highlights of its 3-year Business Plan (2007-2009) at an analyst-investor meeting in London. In June, OTE’s ADSL ports pass the one million mark, double the prior-year level. In May, the European Commission approves the Greek State’s contribution of €390 mn towards OTE’s pension fund, TAP-OTE, to In July, OTE’s successful package connx-talk is expanded, offering cover for the 2005-2006 voluntary retirement program. unlimited local and long distance calls 24 hours a day, 7 days week, combining voice services with broadband Internet connection In May, OTE resolves to absorb its ISP subsidiary OTENET. In speeds. this context, in December 2007 OTE holds 100% of OTENET’s share capital and the Board of Directors approves the launch of In July, OTE’s Educational Mobile Unit OTE on the Broadband-OTE the merger proccedures, via absorption, by OTE, which will be Broadband Services completes a road-show that had been launched concluded in 2008. in July 2006, travelling around 33 Greek cities to inform the public and promote broadband services. In June, the Greek State completes the sale of 52,446,092 common shares of OTE (corresponding to 10.7% of the company’s share In July, the OTE retail store network, ΟΤΕshops, create capital) to Greek and foreign qualified investors, by means of an conn-xperience, a dedicated area within the stores to allow accelerated book-building process. Following this, the Greek State’s customers to experience fast Internet access at real speeds and get stake in OTE’s share capital is reduced to 28.03%. acquainted with broadband services and conn-x applications.
In November OTE makes a public offer to acquire the 32.2% In September, OTE launches the innovative, broadband e-Learning minority interests in the share capital of its subsidiary, COSMOTE, service School powered by conn-x which provides students with at a price of €26.25 per share. an opportunity to enhance their performance at school via a user-friendly, interactive broadband environment. In December, OTE completes the 100% sale of its subsidiary, InfOTE (printed and electronic directory services), to Rhone Capital LLC and Zarkona Trading Limited, for a total consideration of €300.2 mn. THE OTE GROUP 23
In December, OTE announces a reduced conn-x tariff plan, cutting prices by up to 44.5%, and introduces a new speed of up to 24 Mbps. In 2007, overall price reductions across the conn-x product range amounted to 30%-50%.
ORGANIZATIONAL CHANGES
In December, the General Division of Business and Residential Customers of OTE is separated into the Division of Corporate and Business Customers, and the Division of Residential Customers. The management of OTE proceeds with this organizational change in view of market competition levels, technological integration trends, increasing customer demands for state-of-the art products and services, and in line with common international practice.
CORPORATE RESPONSIBILITY
OTE’s 2006 Corporate Social Responsibility Report is certified in October according to the international “G3” standards of the Global Reporting Initiative (GRI) network. THE OTE GROUP 24 THE OTE GROUP 25 CONTENTS
THE OTE GROUP OTHER OPERATIONS IN GREECE AND ABROAD Message from the Chairman 26 ΟΤΕestate 108 Hellas Sat 110 ΟΤΕ GROUP OPERATIONS OTESat-Maritel 114 Broadband Services 33 OTEplus 115 ΟΤΕNET 39 OTEAcademy 116 Traditional Fixed-Line Services 42 CosmoONE 118 Services for Telecom Operators 46 Telekom Srbija 119 International Telephony - ΟΤΕGLOBE 52 InfOTE 121 Investments in Fixed-Line 56 Regulatory Framework 62 FINANCIAL STATEMENTS Human Resources 64 Annual Financial Statements 127 Corporate Responsibility 68 Corporate Governance 72 Share Information 80 Mobile Telephony 82 Greece (Cosmote) 83 Albania (AMC) 88 Bulgaria (Globul) 90 FYROM (Cosmofon) 91 Romania (Cosmote Romania) 92 Germanos S.A. 94 RomTelecom 98 THE OTE GROUP 26 MESSAGE FROM THE CHAIRMAN
Athens, June 2008
In 2007 OTE SA’s net income increased by 8.5%, to €576.5 mn, In Greek fixed-line telephony, we focused our efforts last year on compared to €531.2 mn in 2006. Operating income before optimizing and expanding our broadband network. The number of depreciation and amortization climbed from €790.3 mn or 29.1% ADSL connections sold at the end of the year amounted to 825,000 of revenues in 2006, to €835.0 mn or 31.4% of revenues in 2007. compared to 488,000 at 2006 year end, while installed connections Consolidated net income increased by 15.3% to €662.6 mn, went from 764,000 to 1,232,000 over the same period. Unbundled compared to €574.6 mn in 2006, while operating income before Local Loops in operation jumped from only 19,000 at the end of depreciation and amortization was €2,240.8 mn, or 35.5% of 2006 to 274,000 one year later. OTE was also able to boost ADSL revenues, compared to €2,167.0 mn, or 36.8% of revenues, in 2006. access speeds and lower tariffs. The digital gap between Greece and European averages is continuously narrowing and, based on the rate Reflecting this financial performance, which met and in many cases of growth Greece is currently witnessing, it is expected to disappear exceeded our Group Business Plan targets, we are proposing a in a few years. While at the beginning of 2007 the number of OTE dividend of €0.75 per share, compared to €0.55 for 2006. local exchanges with physical collocation services was only 31, at the end of the year it had reached 146. In 2007, we continued the reorganization of the Group which begun in 2005 and aims at strengthening OTE against heightening In 2007 we focused our efforts on cost reduction. The scope in competition and increasing regulatory pressure. In this context, this area is limited, however, because labour laws applying to we launched last year the buyout of Cosmote minorities and the OTE decouple compensation from productivity. As I have stated absorption of OTENET by OTE, both of which were completed in several times in the past, the employment regime of OTE had early 2008. These organizational changes will result in notable cost been established at a time when the company was a monopoly. savings as we better exploit synergies across Group companies. The deregulation of the telecommunications market requires the In addition, late last year, we sold INFOTE, the Group’s directory alignment of OTE’s working standards with those of its competitors. subsidiary, generating a net gain of €174 mn. With regard to human resources, in 2007 OTE implemented, for the second year, an evaluation system for executives as well as a new evaluation system for all other OTE personnel, both of which are based on transparency and objectivity. THE OTE GROUP 27
The absorption of OTENET and the establishment of a separate Developments that originated in late 2007 and are being completed General Directorate for large corporate customers were also in the first half of 2008 are speeding up the transformation of the aimed at enhancing OTE’s performance and potential against Group. tough competition. The pilot offering of IPTV services continued successfully, with a target to launch commercial operations in 2008. I am referring principally to two major changes. One, which I The potential collaboration of Hellas Sat with a major international already mentioned, is the buy out of the Cosmote minorities which satellite operator is being assessed. is now a 100% OTE subsidiary but retains its corporate autonomy. OTE’s intention to proceed with this move had been known to the Cosmote remained the most dynamic and profitable member of market for a long time and is considered very beneficial for the the Group. Thanks to the addition of the Germanos retail network, prospects of the Group. Cosmote was able to capture a growing share of revenues and to consolidate its leadership in the mobile market of Southeast Europe. The other change is that Deutsche Telekom, one of Europe’s leading The key challenge is Cosmote Romania where the company is incumbent telecommunications operators, has become a significant rapidly gaining market share in the face of tough competition. shareholder in OTE alongside the Greek State. This is a very positive development, guaranteeing that OTE will continue to be managed In late 2007 Romtelecom managed to contain customer churn with professionalism, unburdened by interferences irrelevant to the though it is still early to judge whether this will be a permanent interests of its shareholders, employees and customers. trend. We are encouraged by the successful take-up of the company’s broadband and satellite TV offering. 2007 was an intense year for OTE. In the second half, management and senior executives spent a great deal of time on issues which In 2007, revenues generated outside of Greece were 26% of the had little to do with OTE’s main business objectives. Despite this it total, up from 23% in the prior year. Fixed and mobile telephony is a sign of the Group’s vigour that the hard work and diligence of all accounted for 50% and 36% of total revenues, respectively, employees at all levels enabled us to meet our objectives and to build compared to 56% and 34% in 2006. The contribution to total Group the foundations for continuing improvement. revenues from other operations, which make up the balance, was higher in 2007, reflecting the full-year consolidation of Germanos.
A major problem remains the reluctance of the Regulator to see that to survive in telecoms a company needs critical mass and that the Greek market is too small to support the fragmentation which EETT has encouraged for years. It is a historic mistake at the expense of all concerned and of the economy of the country. Saturation in mobile telephony and technological change are leading the big mobile companies to market products directly competitive to fixed telephony. At the same time the Regulator stops OTE from defending itself by developing similar products. We shall continue Panagis Vourloumis Chairman of the Board of Directors our efforts to prove that the telecom market in Greece is now Chief Executive Officer of OTE SA fully competitive and regulatory intervention hinders its smooth functioning. WHO: IFIGENIA WHEN: TUESDAY WHERE: ATHENS Ετήσιος Απολογισμός 2007 29 ΟΤΕ GROUP OPERATIONS
WHO: ΜΙΜΙΚΑ WHEN: WEDNESDAY WHERE: ROME WHO: IRENE, ΤΑΤΙΑΝΑ, IVAN, ZORA, PAVEL, ILIJA WHEN: SATURDAY WHEN: GREECE, ROMANIA, ALBANIA, SERBIA, BULGARIA, FYROM, OTE GROUP OPERATIONS GREECE 33 BROADBAND SERVICES Impressive growth as a result of reduced prices and high ADSL access speeds
MARKET TRENDS broadband Internet, IPTV and mobile telephony with traditional 2007 could be heralded as the “Year of Broadband” characterized voice and Internet services. They also adopted competitive pricing by key developments in the broadband market. During the year, policies, targeted specific client categories and offered integrated OTE proceeded with the launch of new, higher ADSL access solutions to companies and individuals. speeds, reduced the tariff plan for conn-x services and focused on developing its infrastructure further by increasing ADSL points of OTE’s market share in retail ADSL remained above 50%, at the end of presence in the telecommunications network. In addition, OTE 2007, despite the rapid growth of Local Loop Unbundling (LLU). introduced new types of voice services in its broadband Internet packages, aiming to respond to growing market demands for At the end of 2007, the number of broadband subscribers sold in specialised bundled products. Greece doubled, exceeding 1.13 million at year end. Broadband penetration levels reached 10%, thus approaching the European As a result, the Greek broadband market continued to grow at average. an impressive rate, reflecting the growth in retail broadband connections sold by OTE, in wholesale connections provided by OTE The chart displays the evolution of the sold OTE ADSL and LLU and distributed by alternative operators, and also the increase of connections in Greece during the period 2004-2007. unbundled local loop connections from alternative operators.
Alternative operators expanded their products and services portfolios, adding bundled x-play packages combining voice, OTE GROUP OPERATIONS GREECE 34
OTE ADSL and LLU Subscribers According to the World Broadband Statistics survey for 2007, (000 lines) published by Point Topic, Greece ranked 7th in the world amongst the countries with the fastest-growing number of broadband 310 LLU subscribers, with an annual increase rate of approximately 120%. 2007 +121%
825 ΟΤΕ ADSL
25 Broadband Population LLU Penetration 2006 (Total ADSL & LLU lines) +217% 488 ΟΤΕ ADSL
10.2% 2007
7 LLU 4.6% 2005 2006 +247% 155 ΟΤΕ ADSL
3 1.5% LLU 2005 2004 44 ΟΤΕ ADSL 0.4% 2004 OTE GROUP OPERATIONS GREECE 35
DEVELOPMENT AND PROMOTION OF BROADBAND of presence throughout the country. Out of the 1.2 million ADSL SERVICES ports, about 660,000 have been installed outside the Attica region. The joint effort of the State, through its initiatives as part of the European “Information Society” (EU Strategy for Information and As part of its strategy to promote broadband services, OTE’s Communication Technologies, “i2010”) and the domestic “Digital initiatives in 2007 included the countrywide broadband road-show Strategy 2006-2013” and OTE (with a series of dynamic initiatives OTE on the Broadband – OTE Broadband Services, aimed at in the fields of IT and broadband Internet) in 2007, led to a rapid raising public awareness of the benefits of broadband services growth of broadband services in the country. (which was organised for a second year by OTE) and the conn-xperience, an application, that was set up at the OTEshops OTE focused on launching competitive products and services to allow customers to familiarize themselves with broadband and and further developing its infrastructure across the country (as a conn-x services. Taking part in a project organized by the National means to respond to rapidly increasing demands for broadband Research and Technology Network and contributing to the efforts services) through the increase of Internet access speeds and the of the State to promote broadband penetration, the company launch of public awareness campaigns highlighting the benefits of awarded more than 12,500 first-year, top university students with broadband services. €500 credit towards the purchase of a portable computer combined with a six-month free Conn-X 768 Home subscription (through With regards to its infrastructure, OTE made considerable its OTEShop network). In addition, the company also offered free investments, during 2007, in the ADSL network (especially in rural 2 Gbps Internet connection of OTE’s network with the National areas) and as a result broadband services were available at the end Research and Technology network. Free conn-x subscriptions were of the year in most areas of the country. Today, about 95% of all also offered to 4,500 top university students. fixed-line connections in Greece have access to broadband services.
By the end of 2007, OTE had installed more than 1.2 million ports on the ADSL network, realizing also the target of 1,300 points
ADSL Points of Presence (PoP) Installed ADSL Ports (000 Ports)
1.400 Points of Presence 1.400 Total Number of Ports 2007 Other Regions Other Regions 2007 1.200 1.200 Attica Region Attica Region 2006 1.000 1.000
800 800 2006
600 600
2005 400 400
2005 200 200
0 0 OTE GROUP OPERATIONS GREECE 36
PRODUCTS AND SERVICES the new conn-x view service that allows for remote area In 2007, OTE enriched its broadband product conn-x with new surveillance and entertainment by establishing user-communities nominal speed packages and specialized services. The company for data sharing (video, images, etc). During the same year, the proceeded with the upgrade of 1 Mbps and 2 Mbps speeds, and company offered a new value-added service VPN Class of Service offered new access speeds of 4 Mbps, 8 Mbps and 24 Mbps. Apart (CoS) for permanent IP VPN connections, which allows for the from faster data transfer, the new higher speeds also allow for segmentation of total connection capacity and the provision of the provision of advanced broadband services that call for greater services at different quality levels. OTE also introduced an innovative network capacity. broadband e-Learning service School Powered by conn-x which provides students with the opportunity to enhance their The conn-x talk plan (combining fast Internet connection with performance at school via a user-friendly interactive broadband voice services and unlimited local and long distance calls on certain environment. days and hours) was supplemented by the new conn-x talk 24/7 package, allowing for unlimited local and long distance calls 24 Moreover, during 2007, the company upgraded the quality of its hours a day, 7 days a week. In January 2007, OTE also introduced services by underpinning pre- and post-sale customer support, achieving thereby a higher degree of customer satisfaction and loyalty for conn-x products and services. 24756/1024 OTE ADSL Access Speeds (Kbps) In 2008 the company anticipates the launch of IPTV services, which will facilitate the broadcast of television programs through broadband connections, enhance co-operation with content providers (that will expand consumer options) and finally allow for the development of bundled products (combining voice, fast Internet and television), as part of OTE’s strategy to provide double and triple play services.
8192/384
4096/256
2048/256 2048/256
1024/256 1024/256 768/192
Dec 06 Dec 07 OTE GROUP OPERATIONS GREECE 37
PRICING POLICY Contributing to the further increase of broadband penetration levels in Greece, OTE reduced its monthly tariffs for ADSL connections and conn-x onDSL Home packages through three consecutive price cuts during 2007, representing an overall tariff reduction, for current speeds, of 30%-50%.
The graph displays the price evolution of OTE broadband packages during the period 2006-2008
Monthly Fee (€)
45
40
35
30 24Μb 8Μb 25 4Μb 20 2Μb <1Μb 1Μb 15 JAN. 07 JAN. 08 JAN. FEB. 07 FEB. OCT. 07 OCT. APR. 07 APR. JULY. 07 JULY. DEC. 06 MAY. 07 MAY. NOV. 07 NOV. AUG. 07 AUG. SEPT. 07 SEPT. DEC. 07 MAR. 07 MAR. JUNE. 07 JUNE. WHO:DARIA WHEN: WEDNESDAY WHERE:CONSTANTINOPLE OTE GROUP OPERATIONS GREECE 39
ΟΤΕNET Enhancing OTE Group’s positioning in the broadband market
2007 is considered a milestone year with regards to the Group’s OTE Group’s efficiency and competitiveness are thus significantly broadband Internet offerings. OTE’s decision to absorb its subsidiary enhanced by this merger as this introduces a new reality for the OTENET, which enjoys a strong position in the ISP and broadband broadband Internet operations of the parent company and also Internet markets, signals the realization of the Group’s vision for establishes a single point of contact and support for broadband a single, dynamic and competitive positioning in the broadband Internet customers. Following the absorption of OTENET by OTE, the market. OTENET brand name will continue to be used for Internet services.
This development allows the Group to respond effectively to In this context, during 2007, OTENET focused on the alignment technological trends and other key developments in the broadband, of its operations and service practices with those of OTE. The aim fixed-line and/or mobile telephony market. Technological was to seamlessly incorporate its portfolio of services within those convergence trends coupled with the demand for integrated of OTE and to further increase competitiveness. The company telecommunication services through a single operator, call for the was also engaged in further developing its integrated IT and merger of competences of different companies or different divisions telecommunication services for businesses and focused on the within a company (operating in the same field) into a single, unified consolidation of its position in the respective market. At the same and integrated instrument of strategy and services. time, emphasis was placed on projects that will add value to OTE in due time. These projects relate either to new products and services or changes in processes that will ultimately enhance service quality and reduce operating costs. OTE GROUP OPERATIONS GREECE 40
OTENET’s services, which are now part of OTE’s commercial In 2008 OTENET also completed a significant number of portfolio, mainly cover: projects for business customers as part of its integrated IT and • Internet access services telecommunications solutions portfolio. • Networking and Virtual Private Network services ( IP MPLS VPN, VPDN) In 2008 OTE will focus on the implementation of all necessary • Integrated telecom and IT business solutions (surveillance, procedures for the smooth completion of OTENET’s absorption, fully network management and support, equipment, systems and incorporating OTENET’s services in those of OTE and transfering applications services and also procurement/ customization OTENET’s client base to the mother company. installation/equipment support) • Application development and operation services for websites In 2007, OTENET’s revenues amounted to €127.8 mn, up 16% from and Internet portals the 2006 level, whereas operating income before depreciation and • Data Center and systems and applications hosting services amortization amounted to €10 mn.
As part of OTE’s fixed-line commercial strategy, in 2007, ΟΤΕNET offered the following products and services: • New ADSL packages with new speeds (4Mbps/256Κbps, 8Mbps/384Κbps, 16Mbps/384Κbps) • New Internet access products via Leased Lines at speeds of 5, 10, 20 and 34Mbps • Surveillance and management services (managed services) for IP MPLS VPN with reporting potential through specially designed web applications • Pilot run of IPTV service: design of technical solution, installation and customization of technological infrastructure, customization, control, provision and technical support of television and Video On Demand services for pilot users in the Attica region. • Development and operation of Internet portals, with general content, such as otenet.gr with the impressive number of visitors of more than 1 million per month, as well as Internet portals with specific content, such as travel.gr, 2x4.gr, zuper.gr. WHO: KOSTAS WHEN: ΤUESDAY WHERE: PARIS OTE GROUP OPERATIONS GREECE 42 TRADITIONAL FIXED-LINE SERVICES New products and services for a highly competitive market
MARKET TRENDS to the development, promotion and distribution of products, In 2007 the telecommunications market was marked by dramatic their involvement in the fixed-line market strongly intensifies changes. The trend but also the need for consolidation significantly competition. altered the telecommunications landscape. Alternative operators acquired other companies and formed strategic alliances in order With regards to sales and distribution networks, new acquisitions to establish stronger ventures that will be able to withstand and co-operations emerged amongst the various operators in the competition, both at infrastructure and service level, which will market, with certain alternative operators focused on setting up also corner greater market shares in fixed-line across all types of their own stores and with a significant expansion of the mobile services. operators’ sales network.
At the same time, infrastructure-related investments by alternative Competition in 2008 intensified through the introduction of new operators also grew significantly compared to the previous year, bundled products that combine voice, broadband Internet, IPTV and leading to a sharp rise in the number of unbundled Local Loops. mobile telephony services. Today it is evident that the Greek fixed- During the year, new, competitive products, offering unlimited calls line market has entered a more competitive phase, characterized were introduced in the fixed-line market and the broadband market by the presence of stronger alternative operators, an increase of continued to grow at a fast pace (encouraged by the introduction of investments in Local Loop Unbundling and the introduction of new higher DSL connection speeds). bundled products and services (double play, triple play) as a result of increased broadband penetration. The fixed-to-mobile substitution rate remained unchanged in 2007, since mobile operators offered products that combined OTE’s strategy and response to these challenges is strongly fixed and mobile telephony, either by using alternative operators’ oriented towards sustained growth, the development and launch infrastructure or via the provision of fixed-line services through of innovative bundled products that combine fixed telephony and mobile GSM networks. However, given the powerful brand names broadband Internet services, as well as the optimization of sales and the increased capabilities of mobile operators with regards and customer-support networks. OTE GROUP OPERATIONS GREECE 43 TRADITIONAL
FIXED-LINE PRODUCTS AND SERVICES The following products had continuing success in 2007: In 2007, the company broadened its service offering, providing • OTEPILOGES package, offering significantly lower rates business and residential customers with new flat-rate voice plans. for phone calls to selected local, long-distance and mobile numbers, as well as for international calls to selected Three attractive ΟΤΕ talk programs were offered to residential countries SERVICES customers: OTE Talk 24/7 for unlimited local and long-distance • Smart Fixed Telephone package, offering services such calls, 24 hours a day, 7 days a week, OTΕ Talk Evenings and as caller identification, call-waiting, call-diversion, call Weekends for unlimited local and long-distance calls on weekday completion on busy lines and an enhanced package of voice- evenings (20:00-08:00) and weekends, and ΟΤΕ Talk 1,2,3 for mail services. unlimited local and long-distance calls to 1 and up to 3 fixed-line • Pre-paid phone cards with €4 and €10 talk time (with numbers designated by the subscriber (within ΟΤΕ’s network). additional free talk time of €1), the Chronokarta range of pre-paid cards with €6, €13 and €25 talk time (with Moreover, the new OTE mobile service, offers customer calls from additional free talk time of €0.36, €0.25 and €0.55 fixed to mobile numbers at a lower cost. The OTE Mobile programs respectively) for domestic and international calls from any follow the mobile telephony pricing model, offering pre-paid talk fixed-line number, OTEkarta for local, long-distance and time for calls to domestic mobile numbers. OTE presented four international calls to mobile numbers from any phone, and new OTE mobile programs: OTE mobile 30, OTE mobile 60, OTE the pre-paid talk time card ALLO OTE that offers reduced mobile 120 and OTE mobile 240. OTE Mobile programs may be rates for calls to selected Balkan, Eastern European, Asian combined with all other existing OTE plans. and African countries. • The 65+ program that supports retired people over the age In order to address specialized customer needs, the company of 65, offering them free local and long-distance calls at no launched the Katexochin program targeting residential customers extra cost with each bimonthly bill. who own a country home. This specific program offers a telephone • The Student Pack package that is aimed at University and connection, which is in operation for a total period of six months College students offering them €4 of free time for Internet (four months during the summer, one month at Christmas and one access and long-distance calls. month at Easter). In 2007, OTE also added the new OTEbusiness plus Advantage In 2007, OTE also added new information categories to its directory program to its sevice portfolio for business customers, which enquiries service line, 11888. Today the 11888 line provides not only addresses both large corporate clients or small business customers fixed number directory services, but also mobile number directory with large call volumes, offering tiered discounts on local, long- services and also handles content enquiries (such as contact details distance and international calls. of travel agencies, hotels, emergency pharmacies and hospitals, restaurants, and provides information regarding events in Athens, Thessaloniki, Patra etc.,and various types of businesses). The 11888 line has been accessible from all mobile phones since August 2007.
OTE SMS, a short text messaging service, was also launched in 2007, offering customers the opportunity to send and receive SMS from/to both an OTE fixed-line and mobile phone. OTE GROUP OPERATIONS GREECE 44
RETAIL DISTRIBUTION NETWORK OTE’s specialized customer-service centers include the following: ΟΤΕ Shops • “134”, customer service and sales call center, comprising OTE’s retail distribution network comprises 364 stores (OTEshops) 4 Call Centres with 200 workstations, fitted with state-of- throughout Greece. Of this total, 127 have received ISO 9001:2000 the-art equipment certification and 19 are franchise shops. OTEshops recorded an • www.oteshop.gr, electronic store increased number of customer visits in 2007, as evidenced by the • OTELINE call center for outbound Telemarketing services collection of 27 million and a total of 4.35 million OTE and Cosmote • “1502”, call center for the issue of citizenship related bills respectively. certificates • European emergency number 112 In 2007 the company focused on the optimization of the • “121”, for technical fault reporting geographical distribution of OTE shops, the upgrade of their • Service center for people with hearing disabilities operation and the maximization of synergies with the Germanos • OTEAlert center for residential and business alerts retail distribution network, in order to meet the needs of customers • Operator service for national, international calls as well as across the country. international directory enquiries, “129-139” • National and international Telegrams center, “136” Germanos Stores OTE Group’s recent acquisition of the retail distribution network In relation to its customer service traffic and quality evaluation, Germanos (which specialises in telephony and technology-related in 2007, OTE recorded the following customer service statistics: products) with 410 stores in Greece (as at December 2007), has Customer Service Centers Number of Calls/Visits 2007 significantly enhanced OTE Group’s distribution network and is 134 Customer service and Sales Call Center > 4.9 milion calls expected to contribute considerably in the distribution of new Average 134 response time 22 sec bundled products that will be introduced in the market in the years 134 customer satisfaction rate 95.1% to come. The Germanos stores recorded an increased number of Online store: www.oteshop.gr 1.9 milion visits customer visits in 2007 which reached 12.5 million, posting an oteshop.gr customer satisfaction rate 91.3% 8% increase compared to 2006 and evidencing the appeal that the Germanos network enjoys in the market. The performance of OTE’s Call Centers and oteshop.gr, in 2007, exceeded all expectations, as 40% of the calls led to sales of The OTE Group remains focused on building a single, unified retail products and services, while customer satisfaction levels reached distribution network through the merging of current individual 95%. distribution networks (OTE, Germanos, Cosmote). OTE’s targets for 2008 with regards to its customer service include: CUSTOMER CARE • A 20% increase in calls that are handled by the Call Centers Call Centers (> 9 million inbound and outbound calls) OTE’s Call Centers, which operate in four key areas, comprise of • Upgrade of technological equipment of “ 134” 1,000 workstations and handle customer requests from all over • Development of Web Self Care applications on oteshop.gr the country. The call centers are ISO 9001:2000 certified, employ • Sustainability of high levels of customer satisfaction highly trained personnel and operate state-of-the-art equipment, whilst ΟΤΕ’s Customer Care team (134, telemarketing, 121, 11888, OTEshop.gr) is backed by CRM applications. WHO: MELISSANTHI WHEN: FRIDAY WHERE: ATHENS OTE GROUP OPERATIONS GREECE 46 SERVICES FOR TELECOM OPERATORS Accelerating growth rate of Local Loop Unbundling services
In 2007, the market of services for telecom operators grew There are 43 fixed-line and mobile telephony providers operating dramatically. This was the outcome of considerable investments in within the Greek telecommunications market today, of which, 19 infrastructure which were implemented by OTE, boosting not only are interconnected with OTE’s network, while another 16 operators the take up of Local Loop Unbundling (LLU) and related services offer services via Local Loop Unbundling. Potential mergers or (Co-location and Transmission Services), but also the offering of acquisitions of telecom operators, the upgrade of their network specialized products and services from all operators. The increasing infrastructure, as well as the entry of mobile operators in the fixed- growth rate of Local Loop Unbundling intensified competition line market are expected to transform the market landscape even for OTE and other operators providing retail services, as well as further. for the rest of operators with privately owned infrastructure and alternative network services such as Ethernet, ADSL and wireless broadband access services. OTE GROUP OPERATIONS GREECE 47
INTEGRATED SERVICES FOR TELECOM OPERATORS • Publication of 19 volumes of the Integrated Telephone OTE develops and provides services and integrated solutions to Directory to respond to directory enquiries for fixed-line and telecom operators. Specifically, OTE offers the following services: mobile telephony throughout the country • Broadband • Activation of electronic filing systems for Local Loop • Local Loop Unbundling Unbundling, ADSL and Carrier Pre-selection requests • Data Transmission • Upgrade of the www.otewholesale.gr website, aiming to • Voice and Network Interconnection provide consistent information and promote OTE services • Value-added Services • Development and implementation of marketing plans to promote OTE services Aiming to enhance its service portfolio and develop new offerings, in 2007, OTE proceeded with the following: • Increase of ADSL speeds up to 24 Mbps • Design and development of broadband access services that address telecom operators’ need for infrastructure that will accommodate technology convergence and triple-play services • Upgrade of the “Integrated Central Connection to the ADSL Network” (O.K.SY.A II service) up to 10 Gigabit Ethernet • Offering of fast data-transfer services, such as IP Backbone and Metropolitan Ethernet • Offering of Co-location and Local Loop Unbundling services as well as all related facilities to 152 Local Exchange Offices of OTE throughout the country • Development and offering of E.L.X.I.S SDH services for the transfer of data from co-location areas to operators’ premises • Development of capacity provision services of 622 Mbps (STM-4), 2,5 Gbps (STM-16) and 10 Gbps (STM-64), through the model of “Rights of Use” that refers to long-term occupancy of increased capacities, depending on the needs of the operator • Activation of access to OTE’s Call Centre “11888” for mobile telephony users as part of the networks’ interconnectivity potential • Offering of new SMS services via the interconnection of OTE’s network with mobile networks • Offering of networks interconnection services, called “Imi-Zevksis” • Establishment of a single Fault Report Center for all operators, operating on a 24/7 basis • Planning of wholesale services upgrade, as part of the SLA provision • Commercial operation of the Universal Directory Service that offers directory enquiry services on fixed and mobile numbers OTE GROUP OPERATIONS GREECE 48
62% Full unbundling LOCAL LOOP UNBUNDLING (LLU) SERVICES The highly increased uptake of Local Loop Unbundling services in 2007 contributed to the faster penetration of broadband services and the rapid growth of the number of broadband subscribers, 38% Partial unbundling which surpassed the 1 million mark.
LLU (000 lines)
7 25 310
05 06 07
Operators’ requests for access via Local Loop Unbundling increased 2006 significantly during the year. As a result, by the end of 2007, more than 232,000 loops were fully unbundled and 41,500 loops partially unbundled by OTE, compared to 12,000 and 7,000, respectively, in 85% 2006. Full unbundling
15% Partial unbundling
2007 OTE GROUP OPERATIONS GREECE 49
In 2007, demand for services relating to LLU, such as ADSL FOR TELECOM OPERATORS Co-location and Transmission services, also grew significantly. Wholesale ADSL connections exceeded 222,000, compared to OTE provided Remote Co-location services in 87 local exchanges, 159,000 in 2006, posting an increase of 40%. Total capacity of the while the number of Remote Co-location service agreements Integrated Central Connection to the ADSL Network (O.K.SY.A) amounted to 240, compared to less than 180 in 2006. At the same reached 24 Gbps, compared to 21 Gbps in 2006. time, in 2007, 508 Physical Co-location services became effective in 146 local exchanges, compared to 90 Co-location agreements WHOLESALE LEASED LINES AND DATA SERVICES made available in 31 exchanges in 2006. The total number of leased line circuits in 2007 reached 13,400, down by 2.9% from the previous year’s figure of 13,800. Of these lines, interconnection leased line circuits amounted to 7,238, 508 compared to 7,561 at the end of 2006. Demand for high-capacity Physical co-location lines and Backhaul SDH and Metro Ethernet networks increased. agreements
INTERCONNECTION SERVICES With regard to interconnection services for telephone networks, alternative operators’ traffic volume terminating at OTE’s network increased by over 5%, reaching 5.8 billion minutes in 2007, compared to less than 5.5 billion in 2006. Mobile operators’ traffic volume terminating at OTE’s network increased by almost 6%, reaching 1.99 billion minutes in 2007, as opposed to 1.87 billion in 2006. Origination and transit traffic minutes decreased by more than 5%, reaching 6.4 billion minutes in 2007, compared to 6.8 billion in 2006.
During the second half of the year, customers migration from the 146 ΟΤΕ exchanges Carrier Pre-Selection service (CPS) to bundling services, increased 90 considerably, along with the amount of portable geographic Physical co-location agreements numbers.
31 ΟΤΕ exchanges
2006 2007 OTE GROUP OPERATIONS GREECE 50
HIGH GROWTH RATES In 2007, revenues from wholesale services increased by 32%, as presented below:
Wholesale Revenues (€ mn)*
283.3 2007
+32%
Wholesale Revenue Breakdown 214.2 2007 2006 +11% 41.3% 193.6 Interconnection/ Roaming 2005 / Termination
27.5% Wholesale leased lines
21.9% Wholesale ADSL
9.3% LLU
* Each year displays the total revenues from Interconnection/ Roaming/ Termination/ Leased Lines, Wholesale ADSL/ LLU/ Co-location OTE GROUP OPERATIONS GREECE 51
QUALITY ASSURANCE FOR CUSTOMER SERVICES OTE consistently monitors the Greek telecommunications market throughout the year in order to identify market trends, record the increasing needs of customers, create individual customer profiles and enhance the overall customer service system.
The implementation of the Wholesale CRM (W-CRM) system has enhanced OTE’s efficiency with regards to the management and support of services, as well as the company’s product offering to alternative operators. Customer service quality has greatly improved through the electronic filing, monitoring and processing of requests for Local Loop Unbundling, Co-location, ADSL connections, number portability and Carrier Pre-selection services.
Focused on managing relationships with alternative operators effectively and handling their requests in the most efficient manner, OTE issues statistics and reports for ADSL, Carrier Pre-selection services and Local Loop Unbundling products, and places special emphasis on post-sale support.
The capacity and data transfer market is expected to grow significantly in 2008, chiefly due to the soaring growth rate of broadband services (offered by fixed-line and mobile operators). The transition to Local Loop Unbundling services is expected to continue, as a result of operators’ initiatives to provide products and services based on their own infrastructure.
In 2008, OTE aims to: • Leverage on its infrastructure and on the implementation of new technologies • Offer high quality services that respond to the needs of fixed-line and mobile telephony operators in an environment that promotes the convergence of markets • Adopt a customer-oriented policy which places strong emphasis on pre- and post-sale customer service OTE GROUP OPERATIONS GREECE 52 INTERNATIONAL TELEPHONY ΟΤΕ GLOBE Enhancing international telephony’s network infrastructure in Southeast Europe
Capitalising on its strategic location and advanced infrastructure, OTEGLOBE operates in a market where continuously increasing OTEGLOBE is considered the Group’s “Network-Bridge” connecting broadband penetration levels call for significant investments in the Middle East with Europe through the Balkans. The company infrastructure. Coupled with fierce competition, these investments offers integrated international wholesale telephony services in inevitably bring voice, data and capacity services prices down year Greece and abroad, and caters for the increased demands for on year. Whilst international wholesale voice services (fixed and broadband services in the region. mobile) continue to pool most of the sales volume, the uptake of data services (mainly the global Internet Feed service) seems to be OTEGLOBE, which launched its commercial operations in October growing rapidly as well. 2000, offers a wide range of integrated interconnection, data, capacity and voice services via its three privately owned networks: Within this environment, OTEGLOBE enjoys the competitive the Multiple Service International Platform MPLS/IP (MSP), and the advantage of owning two independent networks in Southeast two, super-high speed, fiber-optic networks, based on DWDM/SDH Europe. This path diversity guarantees the non-stop operation of technology, GWEN and Transbalkan (TBN). OTEGLOBE’s networks, since, asides from being independent, TBN and GWEN may function as back up of one to the other. By virtue The largest volume of broadband and inbound/outbound voice of the multi-gigabit capacity that both TBN and GWEN provide, traffic between Southeast Europe and the rest of the world is OTEGLOBE owns the most comprehensive network infrastructure carried through OTEGLOBE’s networks. in the region. The operation of two networks allows OTEGLOBE to offer maximum network availability at an optimal price. OTE GROUP OPERATIONS GREECE 53
COMMERCIAL ACTIVITIES International Wholesale Hubbing OTEGLOBE offers a broad portfolio of innovative, world-class One-stop shopping service that offers high-quality and low-cost telecommunication services based on its networks and its strategic routing of telephony traffic to all international destinations alliances with operators worldwide. OTEGLOBE offers three types International Wholesale VoIP of services: Inexpensive solutions for international IP traffic transfer International Wholesale Inbound • International Data Services via the International Network Traffic termination, through the most extensive network in the IP/MPLS country, for international telecommunication companies Data/IP Services for Businesses Other Voice services Integrated business end-to-end interconnection solutions International Wholesale Freephone, International Wholesale (International Managed Clear Channel, Frame Relay, MPLS VPN, Signaling and Roaming, Home Country Direct and International Ethernet, Managed CPE), complemented with guarantees (SLAs) ISDN for installation time, damage repair, high quality and availability of service. KEY DEVELOPMENTS IN 2007 Data Services for Operators Control of OTE’s International Cable Systems Internet Transit for Carriers (for global Internet routing), GPRS 2007 was a key year for OTEGLOBE. Through a corporate spin-off Roaming Exchange (for global GPRS roaming traffic of mobile and a share capital increase, OTE’s International centers and Cable operators), Ethernet for alternative operator networks (Ethernet Systems operation was passed on to OTEGLOBE. As a result, the Transport) and business networks (Ethernet VPN). company now manages the total assets and agreements relating to international centers, such as the international cable infrastructure, • International (wholesale) capacity services for operators via international IP network, MSP network, license agreements private cable infrastructure for the use of the INTEC-ITU pricing system and the relevant Based on OTEGLOBE’s GWEN and TBN fiber-optic network international agreements. Through this development, OTEGLOBE infrastructure, international capacity services (International Full has also, in essence, aligned its operations management model Circuit SDH Services - IFCS) provide full international digital circuits with that of other European operators who have adopted a similar from certain points in Greece to key telecommunication centers vertical organization approach, aiming to respond to the needs in Europe, such as London, Frankfurt, Paris, Amsterdam, Brussels, of two distinct telecommunications markets, those of retail and Milan, Zurich etc. international wholesale. In control of the international telephony infrastructure, OTEGLOBE may now transact more effectively with All services available via the GWEN network include end-to-end and the Group’s local and foreign competitors and manage the quality of fully protected interconnection solutions, such as E3 / DS3, STM-1, its services more effectively. STM-4, STM-16, STM-64 and 10 Giga Ethernet, fully protected SDH interconnection from Greece to the 11 GWEN PoPs in Western The Transbalkan Network (TBN) Europe or in other European cities, and Wavelength services at 10 OTEGLOBE’s Transbalkan Network (TBN), whose operation was Gpbs (STM-64/10 Giga Ethernet interfaces). commenced in November 2007, covers the increased demand for broadband services in the Balkan region. Transbalkan Network spans International capacity services include the international leased-line from Greece to Frankfurt through Central Europe and the Balkans, service (International Private Leased Circuit - IPLC), a traditional with transmission rates from 34 Mbps to 10 Gbps. It is an exclusively solution for the provision of high quality capacity on a half-circuit terrestrial network, the only one in Greece connecting the Middle basis, available in capacities from 64 kbps to 155 Mbps, via cables East with Europe through the Balkans, following a geographical route worldwide. to Western Europe which differs from that of the current, private, super-high speed network GWEN, which passes through Italy. These • International telephony services for international wholesale two distinct, super-high speed routes guarantee an unobstructed flow operators and Greek fixed-line and mobile telephony of services, since both networks complement each other. Through operators the Transbalkan Network, OTEGLOBE provides connectivity with the IP MPLS (MSP) platform and the GWEN network, high reliability, OTE GROUP OPERATIONS GREECE 54
competitive prices due to the privately owned infrastructure and customer care services on a 24/7 basis. The network will be expanded with new nodes and upgraded operations, and will stay fully protected until the end of 2008.
OTHER DEVELOPMENTS IN 2007 In 2007 OTEGLOBE incorporated Soft Switch NGN technology in its MPLS/IP international network, increased the backbone capacity of MPLS/IP by 75% (28 Gbps from 16 Gbps) and raised the GWEN network capacity to 80 Gbps. Aiming to continuously improve the quality of its services, OTEGLOBE introduced new management systems, such as CRM, Flexible Billing, etc. Finally, OTEGLOBE’s share capital was increased by €30 mn, as part of the company’s new investment plan financing.
2008 OUTLOOK OTEGLOBE’s targets for 2008 involve a revenues increase from alternative and international operators, as well as from domestic and foreign mobile operators (generating new sources of income for the Group), the consolidation of the company’s position as a network bridge, connecting the Middle East with Europe through the Balkans, and the expansion of its strategic alliances (so as to participate in infrastructure development projects in the region and support OTE Group’s business plans in the region). OTEGLOBE will also continue to pursue the maximization of its international cable infrastructure uptake. In 2008, the company will also place special emphasis on the provision of Internet Transit over Ethernet, introduce new voice services based on the new generation technology Softswitch and will target, jointly with OTE, business customers with international connection needs through the MSP platform (IP MPLS technology) that offers advanced IP services.
As far as the financial performance of OTEGLOBE is concerned, 2007 was a successful year in terms of voice and data service sales. Pursuant to the recent agreement with OTE, however, and due to the absorption of OTE’s International Telephony and Infrastructure segment by OTEGLOBE, 2007 figures are not comparable with those of 2006. Total revenues in 2007 reached €165 mn with revenues from voice over MPLS services, that OTEGLOBE exclusively offers, climbing to €50 mn. Operating income before depreciation and amortization amounted to €14 mn. WHO: ELENI WHEN: MONDAY WHERE: BARCELONA OTE GROUP OPERATIONS GREECE 56 INVESTMENTS IN FIXED-LINE Upgrading the network and enhancing broadband and Local Loop infrastructure
The rapid expansion of broadband services, along with the The gradual transformation of the TDM network into a Next increased demand for network technologies that facilitate the Generation Network (NGN) along with the further expansion of provision of bundled services, underline the necessity of access broadband services, remain the key priorities of OTE’s 2006-2008 networks’ transformation and the upgrade of transmission systems planning and investment program. Next Generation Networks are and backbone network architecture. based on TISPAN IMS architecture that allows for, amongst other things, fixed-line and mobile telephony convergence. Transition The transformation of access networks poses a significant to next generation networks is underlined by the need for greater challenge for telecommunication companies. For this reason, since bandwidth availability, as well as the need for super-high speed 2006, OTE has been upgrading and transforming its infrastructure networks, limiting thereby or replacing copper loops with fiber and developing a broadband platform that will support technology optic cables. convergence and allow for the provision of new bundled services. OTE GROUP OPERATIONS GREECE 57
The technology and network architecture required to respond to FIXED-LINE NETWORK INFRASTRUCTURE AND QUALITY these needs (FTTx) are part of the Next Generation Access Network’s OTE’s fixed-line network consists of approximately 2,400 (NGA) features, making therefore the development of NGA exchanges. The installed capacity of OTE’s exchanges, as of 31 networks a key target for the company. December 2007, stood at 5.9 million PSTN lines, 668,000 ISDN BRA lines and around 10,000 PRA lines. Specific projects, related to the transformation of the network, which were launched in 2007 include the following: In 2007, network quality indicators were as follows: • Implementation of a pilot offering of IPTV and VoD (Voice on 2006 2007 Demand) services Fault frequency per year (per 100 connections) 13 12 • Expansion of the Metro Ethernet infrastructure in all major Unsuccessful calls rate 2.6% 1.6% Greek cities and provision of symmetric leased-line circuits Ratio of faults repaired within one working day 78.6% 85.4% through optic access points on the Metro Ethernet (Ε-Line) Response time for voice mail services 15 sec 15 sec network Response time for directory enquiries 15 sec 20 sec • Completion of the evaluation process of three pilot WiMax systems (two of which are in the Attica region) aiming Fixed-line operations are also supported by data-transfer networks to provide broadband access services in areas where such as: cable network access is not available or requires a long connection wire that doesn’t allow for sufficient speeds The ΑΤΜ (HELLASTREAM) Network, a data package transfer • Preparation of a study relating to the transformation of network based on ATM technology, with 47 points of presence all OTE’s network, especially with regards to the design of over Greece. Through the ΑΤΜ network, customers are provided IMS-NGN architecture and Next Generation Access (NGA) with Cell Relay circuits at 2 Mbps-155 Mbps and Frame Relay up to issues 2 Mbps. The ATM network also carries broadband traffic from ATM DSLAMs. In 2008, OTE is planning to: • Install and customize IPTV services in five major cities The Digital Leased-Lines Network (HELLASCOM Service), with (Athens, Thessaloniki, Patra, Larisa, Iraklio) so as to provide 12,608 nodes installed, serves 15,886 active circuits. This network television, VoD and other value-added services provides digital leased circuits of nX64 Kbps up to 2 Mbps. • Expand availability of Metro Ethernet and other related services, such as IP VPN IP ACCESS • Offer VoIP services over OTE’s broadband networks (initially The ΙΡ Access Network consists of 82 points of presence across the over the ADSL network), in order to provide additional country and supports services such as: IP VPNs, IP Transit, VoIP fixed-line numbers to all interested ADSL customers VPNs, Central Connection to the ADSL Network (O.K.SY.A) and • Employ the WiΜΑΧ network for the provision of broadband Dial-Up Internet access. Aiming to ensure the efficient operation of services in remote areas where broadband connection via the ADSL network in 2006, the network was supported with BRAS OTE’s cable network is impossible technology and, as a result, points of presence climbed from 12 to • Upgrade the IP backbone network by installing Terabit 15. The number of systems that correspond to these PoPs grew routers at major PoPs (Points of Presence) in Athens, from 30 to 37. Thessaloniki and Patra in order to provide broadband services. IP BACKBONE OTE’s IP Backbone Network consists of 7 points of presence within and outside Athens. Network nodes are connected via nX10 Gbps, 2.5 Gbps or nX622 Mbps circuits. The network supports all broadband and IP services offered by OTE. OTE GROUP OPERATIONS GREECE 58
ΙP-NGN NETWORK WIRELESS ACCESS A total of 43 points of presence are equipped with IP-NGN By the end of the year, there were 167 wireless multi-point narrow infrastructure with Media Gateways and also one Softswitch band systems (Point-to-MultiPoint) installed in the 1.5 GHz, 2.5 and eight Sip Servers. IP-NGN equipment currently supports the GHz and 3.5 GHz bands. In 2008, three pilot WiMAX systems are provision of VoIP services as part of the state-sponsored “SYZEFXIS” expected to become fully operational, offering broadband data project. (Internet, VPN) and voice (VoIP) services. In addition, there are plans for 20 new WiMAX systems to be installed throughout the country. ETHERNET By December 31, 2007, the Metro Ethernet network had 209 points of presence throughout the country compared to 87 in 2006. Metro Ethernet offers broadband Internet and leased-line (E-Line) services. Key network features include high voice, data and image transfer capabilities, high data transfer speeds (up to 10 Gbps) and high network availability.
The provision of Metro Ethernet services as an integrated product started in May 2007. Indicative products and services based on IP and Ethernet include: • IP VPNs • IP Transit • VoIP VPNs • E-Line (Layer 2 VPNs) • Integrated Central ADSL Connection • Dial-Up Internet Access
ADSL In 2007, OTE reinforced its presence in the ADSL market, raising the number of installed ADSL ports from 760,000 at the end of 2006, to 1.1 million in 2007. The service is now available countrywide, with 1,300 points of presence and more than 3,300 DSLAMs, covering areas with less than 500 telephone connections. Broadband Internet services and VoIP services (as of the beginning of 2008 and onwards) are provided through DSLAMs. IPTV services will also be available in 2008, through Ethernet DSLAMS.
LOCAL LOOP By the end of 2007, there were 274,000 local loops, compared to 19,000 in 2006, fully or partially unbundled as well as 146 physical Co-locations in OTE’s local exchanges and 87 remote Co-locations. WHO: DIMITRIS WHEN: SUNDAY WHERE: ATHENS WHO: ALEXANDROS WHEN: WEDNESDAY WHERE: ATHENS WHO:NIKOS WHEN: SATURDAY WHERE: THESSALONIKI OTE GROUP OPERATIONS GREECE 62 REGULATORY FRAMEWORK Intense regulatory activity as part of the implementation of electronic communications regulation
REGULATORY FRAMEWORK product offerings do not imply technological convergence. They Law 3431/2006 defines the regulatory framework for electronic are in fact based on the utilization of OTE’s mobile telephony communications and networks in Greece, as well as the operation network and wholesale products, such as Local Loop Unbundling, and responsibilities of the National Regulatory Authority (Hellenic Carrier Pre-selection, etc., for the provision of bundled services. Telecommunications and Post Commission – EETT). Policy-making This has led to stronger competition from operators that are not procedures, implemented by EETT for market protection, ‘newcomers’ in the market. expansion and increasing competition levels include conducting hearings and consultations, regulatory and restraining measures At the same time, ‘traditional’ alternative fixed-line operators and fines. gained access to 152 physical co-location areas that cover 85% of OTE’s local exchanges, and increased their market share REGULATORY MARKET DEVELOPMENTS IN 2007 significantly through product offerings to OTE’s subscribers. Key developments in the telecommunications market in 2007 EETT amended the relevant Reference Offer in 2008, thus raising include the increased alternative operator activity with regards to standards with regards to OTE’s infrastructure and wholesale voice and broadband infrastructure, via the Local Loop, as well as services. the launch of fixed-line service offerings by mobile operators. OTE’s viewpoint is that a fully competitive market, consisting of During the year, mobile telephony operators entered the fixed- companies keen to invest in their infrastructure, has a positive line market, offering competitive bundled products that combine effect on consumers as well as companies that operate in fixed-line, mobile and/or broadband access services. These the market. Further more, OTE consistently responds to the OTE GROUP OPERATIONS GREECE 63
obligations and requirements set by the regulatory authorities Furthermore, during 2007, OTE provided input in the following and State institutions, regarding customers and alternative EETT consultations: providers. Nevertheless, current developments are shaping a • Public consultation for the provision of Universal Service competitive environment that little resembles that of the early obligation years of deregulation, stirring up discussions on the status of the • Public consultation for the quality indicators of electronic existing regulatory framework, Its capacity to adapt to the latest communication services trends, and thus underlining the necessity for regulatory certainty, • Public consultation for the terms of General Licenses that legal security and consumer rights protection. On this basis, OTE govern the provision of voice services, VoIP and/or aims to put forward and defend its standpoint (before regulatory Voice-over-Internet Services, web access services and authorities, national, European and international bodies) on consumer protection issues issues that refer to the following: • Public consultation to set the tariffs for wholesale • Enhancement of the company’s competitive position through broadband access, etc. the reduction of regulatory obligations in markets where the desired level of competition appears to have been achieved 2008: CHALLENGES • Protecting new technology investments against excessive The key regulatory issues on OTE’s strategic agenda for 2008 regulation or regulatory interference include the protection of company’s investments in new • Compliance with the obligations relating to OTE’s status as technologies (such as Next Generation Access Networks) against Universal Service provider and intention to minimise costs excessive regulation or interference, the review of European incurred by these obligations Commission’s proposal on the amendment of the European • Assurance of consistency in regulatory intervention Framework by means of introducing ‘functional separation’ as • Protection of consumer rights a regulatory remedy. OTE also monitors Greek State’s initiatives • Assurance of personal data and communications with regards to the future Fiber Τo Τhe Home (FTTH) project, confidentiality which is part of the State’s strategic plan to develop broadband infrastructure. Finally, OTE will also be aiming for a reduction of REGULATORY ISSUES IN 2007 its regulatory obligations in markets where the desired level of The main regulatory issues with which the company was involved competition appears to have been reached. in 2007 were the revision and approval of OTE’s Reference Offer for Local Loop Unbundling and all relevant issues (co-location etc.), issues relating to wholesale broadband access, the revision of the Reference Interconnection Offer (RIO), the approval of various tariff plans by EETT and finally the undermined consumer confidence incurred by certain alternative operator promotional practices.
The company also followed closely all regulatory developments at a European level, regarding the development of Next Generation Access networks and the relevant implications for the regulatory environment, as well as European Commission’s proposal on the amendment of the European Framework, regulatory interventions and their effect. OTE has proposed amendments to EU’s proposal concerning the new regulatory framework. OTE GROUP OPERATIONS GREECE 64 HUMAN RESOURCES Building an integrated system for the development and management of human resources
2006 VOLUNTARY RETIREMENT PROGRAM: REVIEW SIGNIFICANT HEADCOUNT REDUCTION On the basis of the Voluntary Retirement Program, which was In 2007, OTE’s headcount declined by 3.5% compared to 2006, completed in 2006, 4,759 employees decided to leave the company reaching 11,348 employees. This staff reduction reflects the normal (699 in 2005 and 4,060 in 2006). The program’s total cash cost retirement of 161 employees and the early retirement of 487 has been allocated in the fiscal years 2005-2012. In 2007, the employees through an employee exit plan with Incentives, which was cost related to pension fund contributions and benefits for enacted in February. retiring employees amounted to €219.8 mn, while payroll savings (including an annual 4% raise) reached €215.1 mn. The qualitative Following the completion of the 2006 Voluntary Retirement Program impact of the plan’s execution involves a drop in the average age and the recruitment of 241 new employees, the average age of OTE’s of OTE employees, the potential ability to identify and recruit new employees dropped to 45 years. The age mix of OTE employees, in talents, and the ability to restructure the company. 2007, was as follows:
OTE Employees OTE Employees Age Mix 2007
14,741 56% 2005 35-49 age
11,755 29% 2006 50-65 age 2007 11,348
15% 20-34 age OTE GROUP OPERATIONS GREECE 65
The 241 new employees, who were recruited in 2007 enhanced INTERNAL PERSONNEL REGULATION company competences in the areas of technology and IT, OTE’s latest Internal Personnel Regulation, allows company’s management and finance. The following graph depicts the management to adopt and implement an integrated Human distribution of OTE employees at the end of 2007 per function: Resources (HR) Management and Development Program, improving thereby company’s operational performance in a highly competitive and constantly changing market environment. As a result of the implementation of the revised Internal Personnel OTE Employees per Function Regulation, the company was given the opportunity to renew its 2007 workforce, via the recruitment of highly trained and experienced new employees, either from within the companies of the Group or 55% Technical directly from the market, and simplify or rationalize its recruitment and evaluation processes.
COMPANY’S POLICY REGARDING DISPARATE EMPLOYEE CATEGORIES 29% All OTE employees, including those seconded from subsidiaries, fall Commercial-Administrative under the same performance evaluation and reward system, as well as to the same regulations regarding working hours, job rotation and promotions, irrespective of the years of employment with the company.
Furthermore, following the completion of OTENET’s absorption 10% Other by OTE, the 400 OTENET employees will be incorporated in OTE’s
6% organizational structure, in accordance with applicable legislation Finance (the process is expected to be completed within 2008). These employees will continue to be subject to the same regulatory and payroll provisions which already apply for them. They will however be incorporated in the evaluation and reward system that applies for existing OTE employees. In addition, they will be eligible for promotions to senior positions under the same terms and conditions that apply for OTE’s employees.
MANAGEMENT OF HUMAN RESOURCES The administration of human resources is being implemented via the application of various IT solutions. Notwithstanding, the new Internal Personnel Regulation, as well as the existence of several different payroll systems (depending on the years of employment, academic qualifications and type of employment contract) require an integrated IT solution.
In 2007, OTE commissioned a new Human Resources Management software to replace all existing solutions and ensure optimal results. OTE GROUP OPERATIONS GREECE 66
2007 OVERVIEW DEVELOPMENT OF HUMAN RESOURCES Key projects carried out by the OTE Human Resources Department The demanding and highly competitive environment in which in 2007 include: OTE operates presupposes the adoption and implementation of • Codification of the new Internal Personnel Regulation a comprehensive human resources development program. This • Implementation of an early retirement program for 487 program ought to be customized and also address the special employees features of each position in the company. • Induction of OTENET employees into OTE’s workforce • Implementation of a stock option plan for executives On this basis, one of the key projects for 2008 involves the • Implementation of a benefits plan for employees with more identification of job tasks and operations per business function, than two children based on the new job descriptions and their classification into job • Preparation and implementation of an evaluation program families. This project will set the foundations for the development for non-executive staff members of Human Resources Management Systems that will involve: • Revision of the company’s organizational chart 1. Professional development and career advancement • Development and application of «Environmental opportunities Management System» (ISO 14001) and «Health and Security 2. Compensation, benefits and incentives for employees at Work» (ELOT 1801) systems in business functions, and 3. Training, specialization and personnel’s optimal expansion of the Quality Management System (ISO 9001) management for OTEshops, in particular applied to 11 new stores, now reaching 127 EVALUATION SYSTEM • Launch of implementation of the “OTE-BPM” project which In 2007, the company implemented a new personnel evaluation system refers to “the provision of development services for OTE’s for non-executive staff, aiming to motivate and reward employees. Business Practise Framework, Ownership Model, and Methodological Development and Management of Business The new system aims to evaluate employee skills based on individual Practice Framework” performance, their efficiency, dedication and performance with regards • Completion of the digitalization of all company circulars and to task completion and target realization. of their web upload A key breakthrough in this system involves the interactive feature of an In 2008 the company will also focus on the following: interview that is held between the ‘appraiser’ and the employee that • Identification of personnel needs, pursuant to new job is being evaluated. The interviewer, evaluates the performance of the descriptions employee during a given period in time, identifies the employee skills • Procurement of new software for Human Resources that need to be further developed and then thoroughly presents and Management and Development justifies his/her viewpoint and evaluation summary to the interviewee. • Completion of OTENET’s personnel induction into OTE’s workforce The new evaluation system aims to: • Design and development of Integrated Management • Upgrade the role of the employee in the evaluation process Systems (ISO 9001, ISO 14001, ELOT 1801) across company by promoting active participation and the exercise of self- divisions awareness on the part of the emloyee • Company Bylaws’ update • Enhance the transparency of the evaluation process • Ensure fair rewarding • Motivate professional development and excellence • Identify training needs
Moreover, the new evaluation system endorses the applicable job rotation policy of the company and therefore prepares employees for a change either in tasks or position. OTE GROUP OPERATIONS GREECE 67
COMPENSATION POLICY In 2007, 6,800 ΟΤΕ Group employees (almost double compared to OTE’s compensation policy and more specifically the rewarding 3,500 employees in 2006) attended training seminars in the fields system, was implemented for the first time in 2007 in line with the of: target-setting, evaluation and personnel rewarding system, which • Telecommunication Technologies is defined by a regulated process based on fair distribution. Reward • IT in the form of ‘bonuses’ may be granted by the management team • Customer Service to employees, in cases when performance and task realization • Sales exceed predetermined targets. • Human Resources Development • Regulatory Issues PERSONNEL TRAINING • Finance OTE’s active contribution to the technologically advanced and constantly evolving telecommunications setting underlines the During the year, 830 employees holding executive positions importance of life-long training and professional development of attended training seminars on the implementation of the its employees. As a result, OTE’s foremost objective is to provide company’s evaluation system. access to new training opportunities that will ensure successful careers and personal development for all employees. The realization of this important goal has been assigned to OTEAcademy (further information on page 116)
Employee participation in training programs organized either by OTE or by professional development institutions, has increased over the past two years. The collaboration between OTE’s Human Resources Department and OTEAcademy (a company of the Group, responsible for the organisation of professional development programs) has resulted in the development of educational seminars that open the doors to new and specialized fields of expertise. Upon completion of the training programs, trainees are awarded vocational qualification certificates.
The topics that are covered in the seminars vary, depending on the training needs derive from the company’s goal-setting system and employee requests and recommendations. Overall, OTEAcademy seminars respond to the training needs arising from the rapid developments in the telecommunications market and reflect OTE’s momentum for excellence in business practices. OTE GROUP OPERATIONS GREECE 68 CORPORATE RESPONSIBILITY Building Ties
Corporate Responsibility is an integral part of OTE’s corporate BUILDING TIES WITH THE MARKETPLACE strategy and business operations. The company is committed to The company responds to market trends and challenges through optimising and building upon its “Building Ties” CR program that the optimal management of its infrastructure and technological entails OTE’s social participation and responsibility towards society, competence, aiming to provide best-of-class products and services. the environment, the marketplace and the employees of the With broadband promotion as key objective: Group, placing emphasis on OTE’s key operations, telephony and • €900 mn was invested in networks and broadband service broadband services. infrastructure, in the years 2006-2008 • 28,000 visitors in 33 major cities became familiar with During 2007, OTE’s “Building Ties” Corporate Responsibility program broadband technology and services via the “OTE on the reflected OTE Group’s strategy, which endorses the development Broadband” road-show, that concluded its countrywide of a dynamic, socially responsible and financially robust business tour in 2007 model in all of OTE Group’s countries of operation. • Top students are provided with free broadband connection • Specialized products and services are offered to people with The development of the program is based on international physical disabilities (customized telephone equipment, standards. The strategic directions of the program as well as customer service for people with hearing disabilities, card the practices of the company resulted in OTE program’s rating phones for people with physical disabilities) “C”, according to the Global Reporting Initiative for Social and Environmental Reports (GRI) and the Sustainability Reporting BUILDING TIES WITH SOCIETY Guidelines. Throughout its business operations, the company reinforces its role as “social partner”, supporting people in need, endorsing research In 2007, as part of the “Building Ties” program, OTE implemented and development and upholding the country’s cultural heritage. numerous projects with regards to the marketplace, employees, society and the environment. OTE GROUP OPERATIONS GREECE 69
Within this context, OTE : • Supports, during the last ten years, the helpline “Children Moreover, the 54 OTE Employees Culture Centres across the SOS–1056”, of “The Child’s Smile” organization, offering country organise cultural and entertainment activities, addressing telecommunications services and covering its operating more than 20,000 active members of the OTE Group. The company costs also offers to almost 47,000 members of the Organisation of OTE • Raised more than 1,800 units of blood, in 2007, from 3,000 Employees Holiday Resorts Centers affordable vacations in two employees through its Voluntary Blood Donation program resorts and various other lodgings. • Supported financially 2,500 students, in 2007, through its employment programs in Athens, Thessaloniki, Patra and A full account of OTE’s corporate responsibility activities is provided Iraklio in the “2007 Corporate Responsibility Annual Report”. • Welcomed more than 12,000 visitors, in 2007, at OTE’s Telecommunications Museum, the only one operating in Greece since 1990
BUILDING TIES WITH THE ENVIRONMENT As part of the company’s commitment to environmental protection and the reduction of energy consumption, OTE is strongly geared towards the reduction of energy consumption levels, recycles used materials, opts for recyclable materials and supports Environmental NGOs (Non Governmental Organizations). In 2007, the company: • Recycled 280 tons of paper in the Attica region alone • Placed recycling bins for telecommunication devices and batteries in 100 OTEShops. About 20 tons of telecommunication devices were collected in the Attica region and more than 3.3 tons of batteries throughout
Since 1994, 197 photovoltaic systems are operative, powering telecommunications facilities in rural areas. The company also transports 1,000 employees, daily, to and from OTE’s Headquarters via 22 coaches in order to help reduce the air pollution in Athens.
BUILDING TIES WITH EMPLOYEES Placing special emphasis on team building and cooperation amongst its workforce and fostering life-long professional development for its employees, the company adopts and implements an equal opportunities policy and provides its employees with considerable benefits and opportunities. Along these lines, in 2007:
• 147,398 hours of professional training for OTE employees were carried out by OTE Academy • 761 employees received financial support via the company’s “Mutual Aid Fund” WHO: RANIA WHEN: TUESDAY WHERE: LAMIA WHO: SOTIRIS WHEN: SATURDAY WHERE:KALYMNO OTE GROUP OPERATIONS GREECE 72 CORPORATE GOVERNANCE Working to ensure an effective framework of Corporate Governance
The OECD defines the following as PRINCIPLES AND FRAMEWORK OF CORPORATE transparency, efficient management and optimal operational key principles and best practices of GOVERNANCE performance, OTE follows practices which are not required by law corporate governance: Τhe term Corporate governance refers to the system whereby but allow for company’s adherence to best practices. • Ensuring the basis for an effective corporate governance framework companies are managed and controlled. The distinction between • Protection of shareholders’ rights ownership and management, which is standard practice in Key Indicative and Decisions which touch on corporate governance • Equal treatment of all most traded companies, stresses the need to focus on corporate issues, in Greece and abroad, are: shareholders governance issues. Corporate governance therefore, involves • Law 2190/1920, as amended by Law 3604/2007 • Acknowledgement of the role of issues such as the relationship between the Management (of a • Law 3016/2002 on Corporate Governance, as amended by stakeholders • Acknowledgement of the role of company) and shareholders, the rights and equal treatment of all Law 3091/2002 and Law 3340/2005 the Board of Directors shareholders, transparency and information disclosure and finally, • Decision 5/204/2005 of the Hellenic Capital Market the operation of Company’s Board of Directors. Commission, as amended by Decision 7/372/2006 of the Hellenic Capital Market Commission Corporate governance refers to a number of principles adopted by • Law 3556/2007 on Transparency a company, aiming to uphold its performance and the interests • US legislation concerning Corporate Governance, including of its shareholders and all stakeholders. A corporate governance the 2002 Sarbanes-Oxley Act, and the US Securities and system refers to the interactions between company’s Management Exchange Commission regulations team, the Board of Directors, its shareholders and all stakeholders involved in the company’s operations. Such a system contributes All relevant provisions and practices are incorporated in the to the setting of specific company targets, the identification of all company’s Articles of Incorporation, Internal Operations necessary actions for the realization of these targets and enhances Regulation, the Code of Business Conduct and Ethics, the Internal the review process of end results. Personnel Regulation and other company by-laws regulating its operations. Recognizing the importance of corporate governance principles and the benefits derived from their adoption, OTE follows CORPORATE GOVERNANCE PRACTICES IN OTE international practice and standards in this area and opts for the The fundamental principles of OTE’s corporate governance system systematic implementation of these principles throughout its involve the assurance of transparency and effective control of operations. management procedures, the two-way communication between company stakeholders and company’s Management as well as More precisely, as a large capitalization company, listed on the the assurance of operational efficiency. The principles of corporate Athens, New York and London Stock Exchanges, OTE complies governance, which are embraced by both employees and with applicable domestic and international corporate governance Management, define all stakeholder relations. legislation, incorporating regulations and compliance practices within its operations. At the same time, aiming to uphold OTE GROUP OPERATIONS GREECE 73
OTE applies corporate governance regulations and practices on the BOARD OF DIRECTORS, MANAGEMENT TEAM AND CONTROL basis of three key priorities which include the definition of the role 1. Board of Directors of the Board of Directors and executive members, the protection The Board of Directors is the top administrative body of the company. Its of shareholder rights, and the enhancement of transparency and aim is to safeguard the general interests of the company and ensure its information disclosure. operational efficiency.
• Board of Directors, Management team and Control As part of its responsibilities, OTE’s Board of Directors: The participation of non executive and independent members in • Convenes Ordinary or Extraordinary General Assemblies of the Board of Directors enhances the protection of shareholder Shareholders and proposes on their agenda rights, while the Audit Committee and the Compensation and • Prepares and approves company’s annual financial statements Human Resources Committee monitor the decisions and actions and submits them to the General Assembly of Shareholders of the management team effectively. • Approves company’s strategy and decides upon the • Protection of Shareholder Rights establishment of subsidiaries or upon the company’s Minority rights and all shareholder rights are upheld via the participation in other companies’ (domestic or international) implementation of the ‘one share-one vote’ principle, the share capital transparent and effective operation of the General Assembly of • Decides upon share capital increases through the issue of Shareholders and the equal treatment of all stakeholders. new shares and convertible bonds, pursuant to authorisation • Transparency and Information Disclosure granted by the General Assembly The accuracy of financial statements and the timely disclosure • Decides upon the issue of common convertible or exchangeable of any corporate information, through press releases and bonds. electronic media communication (corporate website and investor relations website), guarantee the timely and fair information The Board of Directors may choose to transfer its authority and dissemination of to all stakeholders, on a continuous basis. competence to its members, or to other company executives, third parties or Committees.
The Board of Directors holds an inaugural meeting after each new election of its members by the General Assembly of Shareholders, or whenever the positions of Chairman, Managing Director or Vice-Chairman have been made vacant. The Board consists of nine or THE ROLE OF THE BOARD PROTECTION OF eleven members, which may be shareholders of the company or not OF DIRECTORS AND THE SHAREHOLDERS’ RIGHTS MANAGEMENT TEAM and which are elected for a three-year term. One-third of the members of the Board are renewed each year. The Board of Directors is eligible for re-election and their office may be terminated at any time, following resolution by the General Assembly of Shareholders. Since June 2004, TRANSPARENCY OTE’s Board of Directors consists of eleven members. These members are AND INFORMATION executive or non-executive, of which, two at least are independent. The DISCLOSURE members of the Board of Directors are elected by the General Assembly of Shareholders, which also appoints the independent members. In 2007, the Board of Directors consisted of one executive member and ten non-executive members, of which four were independent.
The Board of Directors convenes whenever necessary or pursuant to a request submitted to its Chairman by at least two members. The Board is in quorum and convenes validly when half-plus-one of its members are present and decisions are reached by absolute majority. In 2007, the Board of Directors met 31 times. OTE GROUP OPERATIONS GREECE 74
Recognizing the important role of In 2007, ΟΤΕ’s Board of Directors consisted of the following members: the Board of Directors’ independent NAME CAPACITY COMMENCEMENT TERMINATION OF OFFICE members, the company has established a specific procedure OF OFFICE whereby the incompatibility of Panagis Vourloumis Chairman and Managing Director 21-6-2007 (most recent) 21/6/2010 independent, non-executive members is examined and controlled. This / Executive Member procedure ensures, on the one hand, Iakovos Georganas Vice-Chairman / Non Executive Member 16-6-2005 ‘’ 16/6/2008 the compliance of the company Georgios Bitros Non Executive Member 22-6-2006 ‘’ 22/6/2009 with applicable legislation (Law 3016/2002, as currently in force), as Charalambos Dimitriou Non Executive Member 22-6-2006 ‘’ 22/6/2009 well as the credibility and integrity of Georgios Gerapetritis Independent, Non Executive Member 16-6-2005 ‘’ 16/6/2008 independent, non executive members during the course of their office term. Ilias Gounaris Non Executive Member 21-6-2007 ‘’ 21/6/2010 Xeni Skorini-Paparrigopoulou Independent, Non Executive Member 22-6-2006 ‘’ 22/6/2009 Nikolaos Stefanou Non Executive Member 21-6-2007 ‘’ 21/6/2010 Panagiotis Tabourlos Independent, Non Executive Member 21-6-2007 ‘’ 21/6/2010 Georgios Tzovlas Independent, Non Executive Member 21-6-2007 ‘’ 21/6/2010 Theodoros Veniamis Non-Executive Member 16-6-2005 ‘’ 16/6/2008
2. Board of Directors Committees The Audit Committee holds four ordinary meetings each year Α. Audit Committee (following the preparation of quarterly financial statements and In April 1999, OTE’s management established an Audit Committee. prior to their publication). The committee may also convene in According to its Regulation, the Audit Committee is comprised extraordinary sessions whenever this is deemed necessary. The of three independent non-executive members of the Board of Audit Committee meets quorum requirements and lawfully Directors, of which, at least one is an economics expert. One of the convenes when its Chairman and one more member are present. members is appointed as Chairman. The role of the Committee is In the event that such quorum exists, the third member may be to supervise company’s Internal Auditors and to assist OTE’s Board represented by the Chairman or the Audit Committee member that of Directors with its overseeing responsibilities by monitoring the is present. Resolutions of the Audit Committee are adopted upon financial information published by the company, its audit systems, an absolute majority of the total number of its members. Since June as well as the evaluation and coordination of the auditing process 2006, the Audit Committee consists of the following members: and control procedures, in compliance with applicable legislation. Panagiotis Tabourlos (Chairman), Xeni Skorini-Paparrigopoulou and The Audit Committee aims to support the company’s Board of Georgios Tzovlas. Directors during the exercise of its supervising role and its attempt to fulfil its obligations towards shareholders, the investment Β. Compensation and Human Resources Committee community and third parties, especially with regards to the OTE’s Board of Directors established the Compensation and Human financial reporting process. Resources Committee in 2004. This Committee is appointed by the company’s Board of Directors and consists of a minimum of three In 2007, the Audit Committee dealt with all issues, provided in its members, at least two of which are non executive. The Chairman Regulation, including, amongst others: of the Committee is also appointed by the Board of Directors. The • The approval and monitoring of the company’s Internal Committee’s main duties, as described in its Regulation, are the Audit activities following: • The assessment of accuracy and consistency of Financial • Setting of the principles of the company’s human resources Statements policy that will guide the decisions and actions of the • The assurance of Chartered Auditors’ independence Management • The recruitment of employees for Internal Audit Services • Definition of the company’s compensation and remuneration policy OTE GROUP OPERATIONS GREECE 75
• Approval of the compensation, benefits plans, stock option • Focuses on and engages in the consistent development and plans and reward plans for target achievement operation of Internal Audit units across the companies of • Proposal, to the Board of Directors, on the remuneration the Group and benefits of the Managing Director • Identifies and investigates telecommunications fraud cases • Study and processing of human resources issues • Examines and evaluates the capabilities, the operation as • Setting of the principles of Corporate Social Responsibility well as the efficiency of applicable security measures in the policies. company’s IT and telecommunications systems The Compensation and Human Resources Committee proposes The proper conduct of the Internal Audit unit is ensured by the issues, relative to its responsibilities, to the Board of Directors and fact that the Internal Audit is an independent business unit which the Board of Directors either approves them or proposes them reports directly to the Board of Directors, is supervised by the Audit to the General Assembly of Shareholders, whenever decisions Committee and operates within a strict framework of methodology ought to be made by the General Assembly of Shareholders. Along and business ethics. these lines, in 2007, the Compensation and Human Resources Committee was involved with the following issues: 4. External Audit • Adoption of stock option plan for OTE executive directors The company’s regular audit is carried out by chartered auditors. To and for executive directors of its affiliated companies, in this end, the General Assembly of Shareholders approves every year accordance with article 42e of the new Law 2190/1920 and the appointment of a company or consortium of auditors for the article 13 par. 9 of new Law 2190/1920 audit of the company’s accounting and management position over • Determination of the Chairman and CEO’s special premium a specified term. based on performance for 2006 and his remuneration for 2007, as well as the remuneration of the Board of Directors, OTE’s General Assembly of Shareholders in June 2007, approved Audit Committee and of the Compensation and Human the appointment of the company “KPMG Kyriakou Chartered Resources Committee members for 2007. Accountants S.A.” as chartered auditors of OTE for the fiscal year 2007 and assigned them with the audit of the company’s financial The Committee meets at least twice a year and reports directly to statements for 2007 in accordance with the International Financial the Board of Directors. Since June 2005, the Compensation and Reporting Standards (IFRS). Their fee, which was also approved by Human Resources Committee consists of the following members: OTE’s General Assembly of Shareholders in June 2007, was set at Iakovos Georganas (Chairman), Georgios Gerapetritis and Ilias €450,000. Gounaris. 5. Code of Ethics and Business Conduct 3. Internal Audit The Code of Ethics and Business Conduct includes a set of rules The Internal Audit unit assists the company’s Management with the and practices which contribute to the smooth operation of the decision making process, regarding the optimization of the various company as well as to the proper business conduct of employees. applicable auditing mechanisms. These auditing mechanisms aim The Code abides by applicable legislation and mainly refers to to ensure the efficiency of all operations and activities, set by the issues that define company’s relations with employees, suppliers, company’s business plans. Specifically, as part of its responsibilities shareholders, competitors and other external audiences. the Internal Audit unit: • Examines and evaluates the company’s auditing systems 6. Internal Operations Regulation and procedures OTE’s Internal Operations Regulation -covers issues that relate to • Performs systems and procedures audit controls and the company’s decision-making bodies (and their responsibilities), assessment and compliance audits the company’s organizational structure, the recruitment and • Identifies risks and suggests relevant solutions to the Board evaluation of executives, the internal committees and regulatory of Directors frameworks, as well as to the provisions for transactions between liable individuals or between affiliated companies. OTE GROUP OPERATIONS GREECE 76
7. Management Members Aiming to ensure the effective management and operation of Α. Managing Director the company, the company’s articles of Incorporation prohibits The Managing Director is the company’s chief executive officer and the members of the Board of Directors and their relatives (up to heads all the departments of the company. The Managing Director 2nd degree), executive directors and their relatives (up to the 2nd defines the daily agenda to be discussed at the Board of Director’s degree) and the company’s personnel in general from: meetings, presides over these meetings and administrates their • Effecting, either on separate occasions or on a professional operations. The Managing Director is elected by the Board of basis, any commercial activities similar to the objects of Directors during its inaugural meeting. The Managing Director the company, for their own account or on behalf of third mainly: parties without the consent of the General Assembly of • Participates, represents and binds the company in all Shareholders General Assemblies of Shareholders of the affiliated • Being members of the Board of Directors, senior managers, companies employees, or agents of companies having objects similar to • Decides upon and executes agreements of an object, up to those of the company the amount specified by resolution of the Board of Directors • Participating in the capacity of partner or holding a • Decide upon the company’s internal organization and takes substantial interest in the share capital of another all necessary measures for the development and optimal company, having similar objects to those of the company management of the company’s human resources, and the realization of the company’s objectives • Represents and binds the company in all the issues related to the negotiation and conclusion of operational collective labour conventions • Represents the company before all authorities
Β. Management Team In 2007, OTE’s management team consisted of:
NAME POSITION
Panagis Vourloumis Chairman and Managing Director Iordanis Aivazis Chief Operating Officer Ilias Drakopoulos (since 20/12/2007) Chief Commercial Officer for Corporate and Business Customers Athanassia Evans (until 20/12/2007) Chief Commercial Officer for Business and Residential Customers Maria Efthimerou Chief Technology Officer Konstantinos Kappos Chief Information Officer Andreas Karageorgos Chief Regional Officer Christos Katsaounis Chief Officer of National Wholesale Services Kosmas Liaros Chief Internal Audit Officer Paraskevas Passias General Counsel Konstantinos Ploumbis Chief Regulatory Officer Panos Sarantopoulos (since 20/12/2007) Chief Commercial Officer for Residential Customers Christini Spanoudaki Chief Financial Officer Nikolaos Tsatsanis Chief Human Resources Officer OTE GROUP OPERATIONS GREECE 77
8. Stock-Option Plan for Company Executives • Request the audit of the company by the appropriate court On April 3, 2007, and following the relevant resolution of the (having jurisdiction in the region where the company has its Extraordinary General Assembly of Shareholders the company registered offices) in cases when it appears likely that the adopted a stock option plan based on performance criteria for its management of the company affairs was not conducted in executive directors and the directors of affiliated companies (as per a manner compatible with ethical and sound management Article 42e of new Law 2190/1920). principles
The plan aims to reward but also to commit executive directors to Β. Allocation of Profits contribute to the company’s operational performance through the According to the company’s Articles of Incorporation, allocation of creation of value for the company and its shareholders. profits is preceded by the withholding of the amount necessary for It is a long-term plan and is linked directly to the performance ordinary capital reserve. Such withholding is no longer mandatory indicators of the 3-year business plan of the company. Amongst by way of law, when the capital reserve is equal to at least 1/3 of the other things, the plan encourages the participation of executive paid-in share capital. The minimum permissible limit of the dividend directors of subsidiaries in the implementation of OTE’s strategy. is set at the greatest of 6% of the company’s share capital or 35% of net profits. The Articles of Incorporation allow for the General SHAREHOLDERS Assembly of Shareholders to decide to allocate the remaining profits 1. Shareholders Rights at its own discretion. Α. Minority Rights According to the company’s Articles of Incorporation and Law C. Payment of Dividend 2190/1920 as this was amended by Law 3604/2007, minority The shareholders participate in the net profits of the company upon shareholders have the right (depending on the case) to: approval of the annual financial statements by the General Meeting • Request from the Board of Directors to convene an of Shareholders. The amount approved to be allocated is paid to Extraordinary General Assembly of Shareholders, setting shareholders according to the Athens Stock Exchange regulation precisely the items of its agenda which is each time in force. • Request the inclusion of additional items in the agenda of a General Assembly of Shareholders that has already 2. General Assembly Of Shareholders convened, provided that this request takes place within the According to Law 2190/1920, as currently in force, and the time restrictions set by Law company’s Articles of Incorporation, the General Assembly of • Request, from the Chairman of the General Assembly of Shareholders is the foremost body of the company and has the Shareholders, only once, to defer a resolution and set the right to resolve upon all matters concerning the company, unless date of its adjournment. otherwise specified in the Articles of Incorporation. • Request, in view of a General Assembly of Shareholders, information on company matters and its business The General Assembly of Shareholders is convoked by the Board of assets. Provided this request takes place within the Directors, at least once a year, and in any case always within the time restrictions set by the Law, the company’s Board of first six months, as of the expiry of every fiscal year, when also the Directors is obliged to provide this information (with the annual financial statements are approved and when the chartered exception of certain instances specified by Law) auditors, as well as the members of the Board of Directors, are • Request the adoption of a resolution to be effected on a absolved from any potential indemnity. The Board of Directors may name-by-name basis. convoke the General Assembly of Shareholders in an extraordinary • Request the audit of the company by the appropriate court Assembly if deemed necessary. The invitation to the General (having jurisdiction in the region where the company has Assembly of Shareholders is published according to the law in the its registered offices) in cases when it is considered likely Official Government Gazette, and in a political, financial and local that the provisions of law or of the company’s Articles of newspaper. In the event of repetition of the General Assemblies of Incorporation or of the resolutions of the General Meeting Shareholders and provided that the date and venue of a potential of Shareholders have been violated adjourned meeting are stated in the initial invitation, no additional announcement is required. Shareholders wishing to participate in OTE GROUP OPERATIONS GREECE 78
the General Assemblies of Shareholders must reserve in part or in • Publication of financial and other types of corporate full their shares through their custodian and submit evidence of documents (Annual Report, 20-F, Corporate Social such reservation at the company’s counters at least five days prior Responsibility Report), enhancing thereby the continuous to the Assembly and may attend the Assembly either in person or flow of information on issues that relate to the company’s through a proxy. One share provides the right for one vote. strategy, targets, operation and performance. • Establishment of a two-way communication channel The General Assembly is in quorum and convenes validly on the between company representatives and the investment issues of the agenda when it is represented by one-fifth (1/5) of community, through the organization of conferences, its paid-in share capital, except for special cases, as provided in corporate presentations, road-shows (in Greece and the Articles of Incorporation, when 2/3 of its paid-in share capital abroad) conference calls, both on a regular basis (i.e on is present or represented. In the event that a quorum does not the announcement of quarterly financial results) and exist during the first convocation a new repeated assembly is held occasionally, whenever deemed necessary. within 20 days. In case quorum is achieved this repeated assembly convenes validly, irrespective of the present or represented paid-in 2. Investor Relations share capital. In cases when special quorum is required 1/2 of the OTE’s Investor Relations Department is responsible for the provision paid-in share capital must be present or represented, otherwise of information and support to shareholders. Investor Relations’ a second repeated assembly is convened where 1/5 of the paid-in activities include: share capital must be present or represented. The resolutions of the • Provision of information to institutional investors and General Assembly, when ordinary quorum is required, are adopted financial analysts, in Greece and abroad upon an absolute majority of the votes represented at the assembly. • Timely and equal distribution of information to all In cases when special quorum is required, 2/3 of the present shareholders and support in relation to the exercise of their shareholder votes are required for the adoption of the General rights Assembly’s resolutions. • Assurance of the company’s compliance with the legal framework, regulating the capital markets and stock INFORMATION DISSEMINATION AND TRANSPARENCY exchanges on which the company is listed. 1. Established Procedures Ensuring Transparency Placing special emphasis on transparency, OTE has established a The Investor Relations Department is headed by Mr Dimitris Tzelepis. His details are as follows: regulated information disclosure process, on the grounds of Law Tel: +30 210 6111574 3556/2007, Decision 1/434/3.7.2007 and Circular (letter) No.33 of Fax: +30 210 6111030 E-mail: [email protected] the Hellenic Capital Markets Commission that refer to information Address: 99 Kifissias Ave., Maroussi, Athens disclosure and transparency requirements for companies which are Call Centre: +30 210 611 1000 publicly traded on organized markets (stock exchanges). The aim of Investor Relations Webpage: this disclosure process is to inform, in a timely and valid manner, the www.ote.gr/english/investorrelations investment community and all interested parties of any changes in participations (acquisitions or sales of share capital and voting rights participations), under Law 3556/2007 and to ensure OTE’s compliance with applicable law .
In compliance with Law 3340/2005 (referring to the protection of the Greek capital market from actions of individuals with access to inside information and from intended actions to manipulate the market), OTE has incorporated in its Internal Operations Regulation a transactions disclosure process for all individuals liable (as defined by applicable law) under applicable law, as well as a process that deters the improper use of inside information.
Apart from established procedures that ensure transparency, OTE has adopted a number of other practices that enhance information dissemination to all interested parties, such as: • Posting of information, relating to corporate developments, on OTE’s corporate website, which contributes to a faster, and more effective communication of information and also to the granting of equal access to information to all interested parties WHO: KATERINA WHEN: THURSDAY WHERE: ITHACA OTE GROUP OPERATIONS GREECE 80 SHARE INFORMATION
OTE’s shares are traded on the Athens Exchange, the New York The chart below illustrates OTE’s stock performance between Stock Exchange (in the form of ADRs) and the London Stock January 2007-January 2008, in relation to the European Exchange (in the form of GDRs). telecommunications index DJ STOXX (SXΚE) and the Athens Athens NYSE Exchange General (source: Bloomberg). During this period, OTE’s Stock Exchange Ticker Symbol OTE OTE stock price rose by 3%, while the SXKE benchmark index rose by Bloomberg 13.7% and the Athens Exchange General Index by 4%. Throughout Ticker Symbol HTO GA OTE US the year, OTE’s share price performance was stable, in line with the Reuters performance of the Athens Exchange General Index. Apart from Ticker Symbol OTEr.AT OTE.N the overall conditions that affected the Greek equity market, other December 31, 2007 factors that may have affected OTE’s short-term price performance Capitalisation €12,351.8mn - in the first half of 2007 were the following: the presentation Year High € 26.98 $ 19.31 of the 2007-2009 Business Plan by OTE’s management and Year Low € 19.92 $ 13.31 the placement of a 10.7% stake by the Greek State to foreign Average Daily Trading Volume 2,139,423 58,536 institutional investors. Other significant events that may have had a considerable impact on the performance of OTE’s stock price during the year were, firstly a new significant investor that appeared in the *1 ADR=0.5 ΟΤΕ share company’s registry in the second half of 2007, whose participation rose to almost 20% in the Company’s share capital, as well as the OTE is included in 35 stock exchange indices, the most important launch of the successful public offer to acquire the minority shares being the following: in Cosmote.
Symbol Description Percentage The Dow Jones EURO STOXX Telecommunications index (SXKE) ASE ASE General Index 8,15% is a capitalization-weighted index, which includes twelve EU- FTASE FTSE/ASE 20 Index 8,30% based telecommunications stocks (excluding the UK). At the end BE 500 Bloomberg Europe 0,13% of December 2007, the total market capitalization of the index SXXE DJ Euro Stoxx PR 0,21% exceeded €300 bn. SXKE DJES Euro Telecom 3,04% E300 FTSE Eurοfirst 300 0,12% SPEU S&P Euro Index 0,23% SEUTELS S&P Euro Telecom 2,90% MSER MSCI EURO 0,19%
Last update March 31, 2008 OTE GROUP OPERATIONS GREECE 81
Relative Performance Graph from 1/1/07 to 15/1/08
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120 OTE
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60 JUL. 07 JAN. 07 JAN. 08 JAN. FEB. 07 FEB. JUN. 07 JUN. OCT. 07 OCT. APR. 07 APR. DEC. 07 MAY. 07 MAY. NOV. 07 NOV. AUG. 07 AUG. SEPT. 07 SEPT. MAR. 07 MAR.
ΟΤΕ Share Performance Graph (€) from 1/1/07 to 15/1/08 30,0
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25,0 OTE 22,5
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10,0 JUL. 07 JAN. 07 JAN. FEB. 07 FEB. JUN. 07 JUN. OCT. 07 OCT. APR. 07 APR. DEC. 07 MAY. 07 MAY. NOV. 07 NOV. AUG. 07 AUG. SEPT. 07 SEPT. MAR. 07 MAR.
For more info: American Depository Receipts (ADRs): ΟΤΕ Investor Relations The Bank of New York 99 Kifissias Ave., 15124 Maroussi, Athens, GREECE 101 Barclay Street, New York, NY 102 86 USA Tel: +30-210-6111574 Shareholder Relations: + 1-888-269-2377 (888BNY-ADRS) Fax: +30-210-6111030 Website: www.adrbny.com Ε-mail: [email protected] OTE GROUP OPERATIONS SE EUROPE 82 MOBILE TELEPHONY Over 15 million subscribers in Southeast Europe
Cosmote, the mobile arm of the ΟΤΕ Group, maintained its leading In 2007, following the acquisition of GERMANOS S.A. (Germanos) position in the Greek mobile telephony market in 2007, remains by the OTE Group, Cosmote sustained its outstanding performance the leading provider of mobile communications services in Albania, both in the mature Greek market and also in the developing mobile while its mobile operations in Bulgaria, FYROM and Romania are markets of Southeast Europe. Compared to 2006, subscriber rapidly growing. numbers increased by 20.1% in Greece, 20.7% in Albania, 18.4% in Bulgaria and 25.5% in FYROM. In Romania, where commercial activity was launched in December 2005, the total number of subscribers increased by 195%.
Capitalizing on the Germanos retail distribution network, OTE Groups’ mobile customer base, including all markets in which Cosmote operates, exceeded 15.5 million (surpassing the target Customer Base (000) of 15 million customers that the management had set for 2009), posting an increase of 39.1% compared to the previous year. This 6,269 figure corresponds to more than one-third of the region’s (in which 07 the company operates) total population.
5,218 06 4,644 05
3,873 3,616 07 07 3,271 06
2,394 05
1,226 1,195 06 07 06 990 05 593 781 07 06 473 49 05 05 384 Greece Romania Bulgaria Albania FYROM OTE GROUP OPERATIONS GREECE 83 GREECE (COSMOTE) Sustained Growth In Greece
Leading the Greek market in terms of subscriber numbers since June In 2007, Cosmote responded to an increased demand for 2001, Cosmote commanded a 38.6% market share at the end of high-speed internet access through mobile telephony networks, 2007, which corresponds to 6.27 million subscribers. with HSPA-technology products and services through its 3G network. Despite the high mobile telephony penetration rate in Greece, which is estimated at 150% (based on data published by mobile With regards to mobile telephony activities, along with the gradual operators) for 2007, latest trends indicate that there is further maturity of the market, the right conditions are in place for the room for growth within the Greek mobile market with regards to development of new individual markets oriented towards cost customer numbers as well as to voice traffic and services. The data control and the development of innovative products and services, services market also provides further room for growth. Cosmote combining voice (fixed and mobile), data and image services. intends to place further emphasis on data services, capitalizing on its significant competitive advantage in 3G and HSPA coverage.
4,229 Customer Base (000) Pre-paid Greece
3,368 Pre-paid 2,920 Pre-paid
2,039 1,850 Contract 1,725 Contract Contract
2005 2006 2007 OTE GROUP OPERATIONS GREECE 84
MOBILE NETWORK INFRASTRUCTURE • Increase of contract subscribers number, exceeding 2 Mobile telephony services are supported by the GSM/GPRS million at the end of 2007 and posting an increase of 10% and UMTS (3rd generation) networks. The GSM/GPRS network year on year provides voice, text messaging and data switching services across • Increased take up of voice services the country through GPRS technology. The 3rd generation UMTS • Commercial launch of innovative products and services, network provides video telephony and data switching services, such such as the FREEZE service and contract services based on as i-mode, Multimedia Messaging Service (MMS), WAP services, the “HomeZone” application Internet access, e-mail services and Intranet access speeds reaching • Operation of HSPA technology, with a countrywide up to 7.2 Mbps etc. coverage, which allows for Internet access from the 3G network at speeds of up to 7.2 Mbps In December 2007, the GSM/GPRS network covered 99.6% of the country’s population, 96% of its mainland and approximately The significant growth of Cosmote’s customer base, in 2007, 98% of its territorial waters. The 3rd generation network covers reflects the company’s successful commercial policy, the acquisition most major Greek cities and 84% of the Greek population. During of the Germanos retail distribution network as well as the strong 2007, Cosmote boasted an almost 99% call success rate while the penetration of the FROG brand in the pre-paid customer segment. successful call restoration rate exceeded 99%. COMPETITIVE PRODUCTS AND SERVICES In 2007, Cosmote continued to upgrade its network, aiming to provide Aiming to respond to constantly growing market demands, wireless HSPA broadband services throughout the country. Cosmote Cosmote introduced innovative communication products has also developed a Fixed Wireless Access (LMDS) mainly offered to (e.g. FREEZE) and proceeded with the upgrade of its infrastructure business clients, in the greater areas of Athens and Thessaloniki. (e.g. 3G network), so as to provide advanced broadband services (Broadband HSDPA). In 2008, Cosmote expects to increase its network capacity in order to meet the demand for new, advanced, value-added services. As Contract Services far as the 3G (UMTS) services are concerned, the company plans Cosmote maintained its successful performance, in terms of to expand the 3G network’s bandwidth and capacity. The overall subscriber numbers, in a highly competitive environment, planned expansion of the 2G and 3G networks in Greece, as well achieving the 1st place in this market segment in 2007. The as in all other countries where Cosmote operates, is expected to company’s products and services portfolio was enhanced in 2007 respond to the needs of a growing subscriber base in the upcoming with the introduction of new, innovative services (e.g. FREEZE, year. Finally, in 2008 Cosmote will further upgrade and develop its OnePhone), new tariff plans (such as the zero-tariff plan etc), and Fixed Wireless Access (LMDS) network, mainly in the Attica region. the further development of existing products such as the cost-control plan, marketed as Kartosimvolaio. DYNAMIC PERFORMANCE As a result of the continuous investments in the upgrade of its The following services outperformed in terms of sales in 2007: network infrastructure, Cosmote today owns a technically superior • Cosmote FREEZE service, whereby call charges freeze network. Moreover, through its extensive distribution network the between the 3rd and the 30th minute company continuously provides the market with new, competitive • Cosmote One Phone service, providing fixed telephony and innovative products that meet customer needs. As a result of charges for calls from mobile phones to fixed telephony these activities, Cosmote retained its leading position in Greece at numbers. Calls originate from within the user’s home, thus the end of 2007, with 6.27 million subscribers. offering more flexibility to customers wishing to call all destinations while using only one handset During 2007, and as part of its commercial strategy, Cosmote achieved the following: • Consolidation of its leading position in the market with almost 1.1 million new subscribers, a 20% increase compared to 2006 OTE GROUP OPERATIONS GREECE 85
Pre-paid Services In 2007, Cosmote’s performance in the highly competitive market of pre-paid services was very successful, as the company managed to reinforce its presence and consolidate its leading position in this market segment through the utilization of alternative distribution channels and the development of innovative product offerings.
During the year the company offered a series of competitive and innovative services including the free SMS service with every top-up card for all WHAT’S UP subscribers, call charges of only €0.01/ minute for calls to two selected Cosmote numbers, top-up cards worth €3, etc.
The pre-paid connection pack FROG which managed to capture a considerable share of the pre-paid telephony market and counter competition in Greece, was also successfully expanded in the Balkan region (Bulgaria, FYROM).
Business Programs In the traditionally competitive market segment of business New Net Contract customers, and in response to its business customers’ needs, Additions (000) Cosmote offers a wide range of specially designed low-cost Greece 190 2007 programs and services for businesses. The products and services that outperformed in 2007 in terms of sales included the new attractive contract programs, the Microsoft e-mail service, the VPN SMS service and the international calls service. In addition, Cosmote was the first operator to offer mobile broadband HSDPA services at speeds of 1.8 Mbps and 3.6 Mbps, as well as HSUPA services (at 384 Kbps access speed), through its extensive 3rd 125 2006 generation network in Greece.
Roaming Services By the end of 2007, Cosmote had 436 roaming agreements in 190 countries, of which, 356 in 170 countries, were already in operation. At the same time, the company provided its pre-paid customers with full roaming services in agreement with 76 networks in 35 countries. Contract customers, gained access to the company offered a GPRS Roaming service in co-operation with 148 networks in 80 countries, and the 3G Roaming service with 39 networks in 25 countries.
Moreover, Cosmote provides subscribers of 135 foreign networks (using Cosmote’s network) with access to a Virtual Home Environment (VHE) service, which provides access to home short codes. OTE GROUP OPERATIONS GREECE 86
RETAIL DISTRIBUTION NETWORK In 2007 mobile traffic volume increased by 29% on an annual basis Recognizing the importance of a comprehensive sales and while the average customer usage amounted to 170 minutes per distribution network within a highly competitive environment, month, compared to 153 minutes in 2006. Cosmote restructured its distribution network in 2007 as part of its strategy to increase the efficiency of its sales network operations The company’s revenues increased by 6.5%, to €1,735.9 mn and and enhance its customer care. operating income before depreciation and amortization grew by 3.2%, reaching €724.4 mn. At the end of 2007, Cosmote’s distribution network consisted of 410 Germanos stores throughout the country (compared to 370 Cosmote Greece Financial Data Summary in 2006)with a dynamic wholesale distribution presence, of 383 (€ mn) 2006 2007 Change OTEShops, 24 exclusive Cosmote shops, as well as a considerable number of freelance partners in both retail and wholesale markets. Total Revenues 1,630.6 1,735.9 6.5%
CUSTOMER CARE Operating income before 702.1 724.4 3.2% In 2007 Cosmote invested considerably in its customer service depreciation & amortization and support system, upgrading IT systems (e.g. implementation of SIEBEL platform) and simplifying customer care procedures. Operating income before 43.1 41.7% -1.4pp Customers’ positive feedback on the company’s customer care depreciation & amortization and services, differentiates the company from its competitors. In margin response to increased competition Cosmote remains focused on building upon its customer relations.
Cosmote’s Customer Care department handles both oral and written requests from corporate clients, residential contract subscribers and pre-paid subscribers. More than 1.2 million calls and 200,000 customer changes in services and tariff plans are handled and processed each month. Aiming to respond to a large volume of requests in the least possible time, the company provides for best-of-class customer care at every sale point.
REGULATION OF MOBILE TELEPHONY MARKET The EU (European Union) Roaming Regulation was enacted in June 2007. Since August 30, 2007, the Eurotariff roaming service is available to EU subscribers with charges of €0.49/min for outgoing and €0.24/min for incoming calls. WHO: YIOLA WHEN: WEDNESDAY WHERE:ATHENS OTE GROUP OPERATIONS ALBANIA 88 ALBANIA (ΑΜC) Consolidation of the leading position in the Albanian mobile telephony market
Cosmote has been present in Albania since 1996 through its AMC Financial Data Summary subsidiary, AMC. Until August 2001, AMC was the sole mobile (€ mn) 2006 2007 Change operator in the country. In 2007, the company continued to hold its leading market position, with a 52% share in a market with three Total Revenues 151.0 176.2 16.7% mobile operators. The company operates a 2nd generation network which supports both GSM 900 and DCS 1800 services, providing Operating income before 91.0 109.3 20.1% a geographical and population coverage of 98.91% and 86.24% depreciation & amortization respectively. Operating income before 60.3% 62.0% +1.7pp COMMERCIAL ACTIVITIES depreciation & amortization In 2007, AMC continued to offer the successful tariff plans that had margin been launched at the end of 2006, aiming to attract new business customers. In September 2007, the company also introduced the Customer Base WHAT’S UP package, a pre-paid telephony product that targets (000) young customers. 1,195 AMC’s retail distribution network consists of 63 exclusive stores and 2007 an extensive number of dealers. 990 2006 During the course of the year, AMC increased its customer base 781 by 20.7% compared to 2006, reaching 1,195,183 subscribers. The 2005 largest part of the mobile market, as well as AMC’s subscriber base (nearly 93%) is comprised of pre-paid customers.
In terms of financial performance, AMC’s revenues amounted to €176.2mn, up 16.7%, while the operating income before depreciation and amortization margin increased by 1.7 percentage points despite the rapid growth of the company’s customer base. WHO: MARY WHEN: SATURDAY WHERE: THESSALONIKI
ALBANIA (ΑΜC) OTE GROUP OPERATIONS BULGARIA 90 BULGARIA (GLOBUL) Sustained market share despite the emergence of a third mobile operator
In Bulgaria, Cosmote’s subsidiary, Globul, ranks second in terms of Globul achieved significant customer growth in 2007, both in terms of subscriber numbers. Globul owns one of the three mobile telephony total customer numbers and contract subscriber numbers, as a result licenses of the country, one of the three 3rd generation (3G) network of the company’s dynamic commercial policy and the integration of (UMTS) licenses, as well as one fixed-line telephony license. the Germanos distribution network. The company relays its products and services to the end-consumer through a countrywide distribution Globul operates 2G (GSM),2.5G (GPRS) and 3G (UMTS, HSDPA) network that comprises 846 points of sale, including 36 exclusive networks. In 2007, the company continued to invest in the upgrade Globul stores, 125 Germanos stores, an additional network of sales of its network infrastructure, aiming to respond to the needs of an representatives and Globul’s direct sales team for business customers. enlarged customer base and accomodate an increasing mobile traffic. At the end of 2007, Globul’s 2nd generation network covered 99.95% Globul’s revenues, in 2007, rose by 20.4% , while operating income of the population and 98.86% of the country’s geographical area, while before depreciation and amortization increased by 28.0% compared to its 3rd generation network covered 49.03% of the population. 2006, reaching €161.7 mn. The operating income before depreciation and amortization margin improved by 2.3 percentage points in 2007, In April 2008, the Bulgarian Regulatory Aythority announced its as a result of sustained efforts focused on reducing expenses. intention to grant a free frequency band of 2x5MHz in 1800MHz. Based on available interest this frequency band will be granted with or Globul Financial Data Summary without an auction. (€ mn) 2006 2007 Change
COMMERCIAL ACTIVITIES Total Revenues 342.3 412.1 20.4% In collaboration with the Germanos distribution network, Globul focused on attracting contract subscribers, and on introducing Operating income before 126.3 161.7 28.0% innovative value-added services such as the Blackberry® service, for depreciation & amortization contract subscribers. Moreover, in September 2007 and, for the first time in the Bulgarian market, Globul offered to its business customers Operating income before 36.9% 39.2% +2.3pp the Globul Office Zone product, an integrated solution combining depreciation & amortization fixed and mobile telephony services. Finally, the company launched the margin FROG pre-paid telephony service in February 2008, aiming to address the needs of a specific market segment.
Globul’s customer base, at the end of 2007, amounted to 3.9 million,
up by 18.4% compared to 2006. Contract subscribers (comprising 3,873 more than 43% of the total customer base), increased by 46% over the Customer Base 2007 prior year. Globul’s market share remained at 40%, despite the entry of (000) 3,271 2006 a third operator in the Bulgarian mobile telephony market at the end of 2005. 2,394 2005 OTE GROUP OPERATIONS FYROM 91 FYROM (COSMOFON) Sharp rise in profitability in FYROM
Cosmofon, which launched its commercial operations in June 2003 In 2007, revenues amounted to €62.2 mn, while the operating as the owner of the second mobile telephony license in the country, income before depreciation and amortization margin improved by today ranks second in terms of subscriber numbers. A third mobile 13.7 percentage points, reaching 31.0%. operator entered the market in September 2007, thus raising competition for the existing players. Cosmofon Financial Data Summary (€ mn) 2006 2007 Change Cosmofon owns a 2nd generation network( 2G and 2.5G) which operates in the GSM 900 and DCS 1800 frequency bands, covering Total Revenues 53.7 62.2 15.8% almost 99.9% of the country’s population. In January 2008, the company also acquired a 3rd generation network license. Operating income before 9.3 19.3 107.1% depreciation & amortization COMMERCIAL ACTIVITIES In June 2007, Cosmofon launched its new corporate identity as part Operating income before 17.3% 31.0% +13.7pp of Cosmote’s group of companies.In October 2007 the company depreciation & amortization launched the FROG pre-paid telephony service, which targets margin customers that opt for basic mobile telephony services at very attractive tariffs.
Cosmofon’s distribution network consists of 10 exclusive Cosmofon stores, 31 Germanos stores, 2 main representatives and an additional network of dealers.
2007 was characterised by an increased take up of mobile telephony services and the significant expansion of Cosmofon’s customer base. As a result, Cosmofon achieved significant growth in revenues,improved its operating income before depreciation and amortization and for the first time since the launch of its 593 Customer Base 2007 473 commercial operations, the company achieved profitability. The (000) 2006 total number of customers increased by 25.5% from 2006, while the 2005 384 number of contract subscribers increased by 65% year on year . OTE GROUP OPERATIONS ROMANIA 92 ROMANIA (COSMOTE ROMANIA) Over 3.6 million subscribers within two years of commercial operation
Cosmote Romania is expected to play a significant role in OTE COMMERCIAL ACTIVITIES Group’s future growth, due to the favourable demographics and In 2007, Cosmote Romania introduced a range of competitive the promising outlook of the Romanian mobile telephony market. packages, offering low rates, for on-net calls, to pre-paid users and As early as 2007, the company attained key targets which had been attractive tariff plans to contract subscribers. Furthermore, the defined as milestones by the management. Within two years of company provides contract subscribers, as well as pre-paid users commercial operation, Cosmote Romania’s customer base amounts with considerably attractive packages that combine on-net voice to 3.6 million, while the company’s market share jumped to 16% in and SMS services. Having achieved brand awareness in the highly 2007, from less than 7% at the end of 2006. competitive Romanian market, during the second quarter of 2007 Cosmote Romania launched new contract-based plans for business Cosmote Romania, which was founded by RomTelecom in January and residential customers. 1999, is today Romania’s third largest mobile GSM operator. In July 2005 Cosmote acquired a 70% stake in the company’s share capital, Following the acquisition of the Germanos distribution network, and in December 2005 Cosmote Romania launched operations as Cosmote Romania today owns the most effective distribution Cosmote Romania, parting with the Cosmorom name. network in the country. This quality is reflected in the 195% growth of the company’s customer base in 2007. In the second half of Cosmote Romania’s telecommunication network operates in the 2007 more than 21% of Cosmote Romania’s new customers EGSM 900 and GSM 1800 frequency bands. In 2007, the company were contract subscribers, mostly with two-year contract continued to invest heavily in the expansion, upgrade and increase terms, compared to only 13% in the first half of the year. At the of its telecommunications network’s capacity and coverage. Today, end of 2007, the number of contract subscribers had rocketed Cosmote Romania’s network covers 98.2% of the population by 192%, compared to2006. Given Cosmote’s state-of-the-art and more than 87.5% of the country’s territory, catching up with telecommunications network, the increase in the number of competition, within two years of operation and surpassing it in terms contract subscribers underlines the success of the company’s of network quality. Significant network investments will continue in commercial policy and the efficiency of the distribution network, 2008, as a means to respond to the increasing needs of the company’s two factors that are expected to contribute even further to the expanding customer base and to provide better coverage, increased future growth of this operation. network capacity and offer new services in the Romanian market. OTE GROUP OPERATIONS ROMANIA 93
The company’s distribution network comprises over 830 stores, Customer Base including those of Cosmote, Germanos, RomTelecom, Internity (000) and other representatives, while the number of points of sales throughout the country exceeds 20,000. The number of Germanos 3,616 stores, offering exclusively Cosmote Romania products and services 2007 since November 2006, was 203 at the end of 2007, compared to 144 in 2006.
Losses at the level of operating income before depreciation and amortization were contained in 2007, as a result of the significant increase of the company’s customer base. The impact of the company’s strategic initiatives, which involve amongst others, the 1,226 attraction of new customers, will become more apparent in 2008, 2006 through the realization of Cosmofon’s target of increased operating revenues and profits. 49 2005 Cosmote Romania Financial Data Summary (€ mn) 2006 2007
Total Revenues 43.8 155.6
Operating income/(Loss) (65.7) (39.2) 421 2007 before depreciation & amortization New Net Contract Additions (000)
191 2006 OTE GROUP OPERATIONS SE ΕUROPE 94 GERMANOS S.A. Leveraging on the competitive advantage of the leading telecommunications retail distribution network in Southeast Europe
At the end of 2006, Cosmote acquired GERMANOS S.A. through its telephony revenues. In 2007, the Germanos retail network subsidiary holding company COSMOHOLDING CYPRUS LIMITED. contributed to Cosmote’s customer base growth by adding The Germanos retail distribution network plays an integral role approximately 2.4 million new subscribers, compared with 1.2 in the implementation of Cosmote’s and OTE Group’s strategy million in 2006. with regards to fixed and mobile telephony as well as broadband services. Germanos boosts the Group’s growth both locally and abroad based on the competitive advantages of an extended distribution network (at retail and wholesale levels). Cosmote New Net Additions per Retail Network With 769 stores, at the end of 2007, and operations in four (000)* Southeast European countries, Greece, Bulgaria, FYROM and 2,416 Romania, Germanos boasts the leading telecommunications retail Germanos distribution network in the region.
The chain of (Germanos) stores and the consumer products 1,748 Cosmote & others distribution network are the company’s two key operations. 1,550 Cosmote & others The retail store chain covers a broad geographical area, and
underpinned by a successful marketing strategy, has resulted 1,199 in high brand awareness for Germanos in telecommunications Germanos products and services both locally and abroad. In addition, the company’s largest distribution network is one of the largest in Greece and Romania, with a market share that exceeds 30%.
Germanos is the springboard for Cosmote’s customer base growth in all geographical markets, leading to higher market shares (especially in contract subscribers), enhancing the qualitative aspects of the customer base and, therefore, boosting mobile 2006 2007 * Excluding the Albanian market OTE GROUP OPERATIONS SE ΕUROPE 95
The Germanos retail chain has also contributed strongly in In all other Southeast European markets, the number of customer Cosmote’s market share gains in Greece and Romania. In the Greek visits at Germanos stores increased significantly compared to 2006: market, following the acquisition of Germanos, Cosmote retained • +34% annual growth in Bulgaria its dominant position in the number of new customer additions, • +31% in Romania both contract and pre-paid. During the year, Cosmote won 49% of • +32% in FYROM the market’s total net additions, with Germanos contributing 87% of Cosmote’s new customers. OTE Group gained control of Germanos through Cosmote, at the end of 2006. Consequently, 2007 is the first year that Germanos’s COMMERCIAL ACTIVITIES results have been fully consolidated in OTE Group’s financial In 2007, Cosmote continued to expand its retail store network with statements. In 2007, revenues for Germanos amounted to €992.6 the number of Germanos stores increasing from 610 at the end of mn, operating income before depreciation and amortization 2006, to 769 a year later. At the end of 2007, Germanos had 410 reached €31.7 mn, for an operating income before depreciation and stores in Greece, 125 are located in Bulgaria, 31 in FYROM and 203 amortization margin of 3.2%. in Romania. At the same time, the company expanded its pre-paid telephony distribution network in Greece and Romania. Germanos Financial Data Summary (€ mn) The impressive growth in the number of customer visits at 2007 Germanos stores is indicative of the strong Germanos brand in Greece. Customer visits increased by 8% from 2006 levels and Total Revenues 992.6 stood at 12.5 million at the end of 2007, despite the fact that since May 2007 the company sells exclusively Cosmote’s products and Operating income before 31.7 services. depreciation & amortization
Operating income before 3.2% depreciation & amortization margin Germanos and Cosmote Retail Distribution Networks
410 Germanos
203 Germanos
125 Germanos
63 Cosmote 36 31 24 16 Cosmote Germanos Cosmote Cosmote 10 Cosmote
Greece Romania Bulgaria FYROM Albania WHO: NEKTARIOS WHEN: MONDAY WHERE: AIGINA WHO:MICHAEL WHEN: SATURDAY WHERE: STOCHOLM OTE GROUP OPERATIONS ROMANIA 98 ROMTELECOM Rapid growth in broadband Internet and Pay-TV services
Population Penetration RomTelecom Market Shares Romania (based on subscribers) 2007 2007
102% Mobile telephony
RomTelecom, an OTE Group subsidiary since 1998, is the incumbent fixed-line operator in Romania, offering besides 70% traditional voice services, broadband access, data services and Fixed-line satellite TV.
MARKET TRENDS The company operates in a rather unique telecommunications market, compared to neighbouring countries (with similar levels of development and economic growth). Fixed-line penetration in Romania is considerably low, while mobile telephony and cable TV penetration levels approximate the average penetration levels of highly developed European markets. As a result, RomTelecom is faced with the challenge to respond not only to growing fixed-to- mobile substitution trends but also to the strong competition from cable TV companies which offer broadband and traditional voice services at competitive rates.
The Romanian telecommunications market, boosted by the country’s increased annual economic growth rate, over the last years, the dynamic growth of the construction industry, the surge of new businesses and Romania’s recent (in 2007) accession to the European Union, provides opportunities for further growth. During 2007, total revenues of the telecommunications industry stood at €4.2 bn. Of this total, mobile telephony services accounted for €2.7 bn, followed by fixed line services (€0.8 bn), cable TV (€0.4 bn), and broadband services (€0.3 bn).
The key challenge for RomTelecom, in response to the unique 20% 20% market conditions, is to succeed in reducing customer churn rate in Fixed-line Broadband services traditional services and attracting new customer groups through 17% Cable TV the launch of new, innovative services and product offerings. Within this context, during 2007 RomTelecom placed special emphasis on 9% the promotion of services in the rapidly growing markets of Pay-TV Broadband services 8% DTH TV and broadband services, as well as on customer retention through 9% improved tariff policies and specialized customer care centers. DTH TV OTE GROUP OPERATIONS ROMANIA 99
COMMERCIAL ACTIVITIES Net Line Additions/ (Losses) As part of the company’s restructuring plan, and aiming to improve (000) customer service and support, in 2007 the company split it’s 11 Commercial Division into two separate entities, the Division of Q4 ‘07 Residential Customers and the Division of Business Customers. The new organizational structure will enable the development of new products and services that respond to the specialized needs of specific customer groups, and enhance customer relations, building upon the existing Technical Service and Support Center
communication channels. (63) Q3 ‘07 In December 2007, for the first time after three years of decline, the company managed to contain fixed-line customer churn rate. This was a result of the combined efforts of all company divisions,
enhanced by the new tariff policies and the specialized customer (135) care centers. These initiatives enhanced the competitiveness Q2 ‘07 of product offerings and reflected the new customer- oriented approach adopted by the company. As a result, the company (181) managed to retain customers that could have otherwise reverted to Q1 ‘07 competition and attract new customers through its broadband and DTH-TV offering.
In 2007, the company focused on increasing its market share in the fast developing segments of broadband services and Pay-TV. A new, more competitive tariff policy was adopted, connection speeds were doubled at mid-2007 and attractive packages combining broadband services with PC’s were offered. As a result, the total number of ADSL customers increased by 270,000 year on year, reaching a total of 360,000 at year end.
At the same time, RomTelecom’s satellite TV service Dolce, which had been launched in November 2006, was further promoted and as a result, the total number of subscribers at the end of 2007 reached 390,000, corresponding to an 8% market share of the total Pay-TV market.
Moreover, during the year the company marketed its bundled voice services for residential and business customers (introduced in 2006) successfully, and recorded an increased take up of its value-added data services (VPN, IPFix, Metronet) for business customers.
NETWORK RomTelecom’s fixed telephony services are supported by a 3-tier (555) network which comprises 2 international gateways, ten fully- 2006 connected transit switches and 97 local switches. Intelligent and value-added services are supported by IN and messaging platforms. OTE GROUP OPERATIONS ROMANIA 100
New Services Subscribers 390 (000) Satellite TV
360 ADSL
89 ADSL
8 15 ADSL Satellite TV
0 Satellite TV 2005 2006 2007
The IP/MPLS network is built on two hierarchical levels: edge technologies. The fiber optic network has over 31,900 Km of fiber and core. Connections between IP/MPLS edge and core network optic cable deployed on 3 levels: backbone (3,500 Km), regional elements are dual-home, based on DWDM wavelengths in core and (9,600 Km) and local (18,800 Km). Besides the support of all EoSDH regional rings in edge, served by 242 nodes. Metropolitan service networks, the transmission network is used to provide long Ethernet networks operate in Bucharest and in all major towns, distance leased lines. based on Gigabit Ethernet technology. The IP/MPLS network is connected to six upstream networks for Internet access (total The upgrade of the IP/MPLS network was completed in February capacity of 15.6 Gbps) and has major national peering links with 2008, while continuous efforts are made to shorten the local loop, providers (total capacity of 18.5 Gbps). in order to facilitate ADSL higher bandwidth. The company also launched various VoIP-related pilot projects (for residential and Fixed-line and IP/MPLS networks are supported by a solid business customers) during the year and examined the feasibility of transmission network, based on optical fiber, DWDM and SDH Dolce DTH service provision to multiple homes, aiming to reduce the line of sight restrictions and installation costs. OTE GROUP OPERATIONS ROMANIA 101
REGULATORY DEVELOPMENTS 2008 OUTLOOK In 2007 certain key developments altered the regulatory RomTelecom’s strategy for 2008 involves a further revenue growth framework, such as the setting of a retail prices cap and from new services, the establishment of new retail distribution the symmetry in mobile termination rates for domestic and channels and the introduction of new broadband technologies international calls to mobile operators. Since August 2007, (VDSL / FTTB) and new bundled products. The company also plans termination rates for calls to cable TV companies that provide to set up a specialized call centre for business customers and launch telephony services, have also been lowered. a door-to-door campaign in order to win-back customers, targeting less competitive areas, such as rural areas. At the same time, cost reduction effected by the optimal management of human resources and the adoption of more efficient operational procedures in all supporting functions, remain high on the company’s agenda. These cost reductions will partly offset the inevitable increase in customer acquisition costs and the decline in revenues from traditional voice services.
RomTelecom’s revenues for 2007, which amounted to 871.9 mn declined by approximately 2.6% year on year, mainly due to the reduction of fixed-line subscribers and the lower tariff rates for voice and broadband services, which were adopted during the second quarter of 2007. Operating income before depreciation and amortization stood at €300.4 mn, decreased by 11.2% compared Revenue Breakdown to 2006. 2007
62.2% PSTN - ISDN*
6.0% Data & value-added services
15.4% Interconnections & wholesale 4.3% leased lines ADSL
6.1% Other 4.6% Equipment
1.2% Content services
(*Including revenues from monthly connection fees and calls) WHO: GEORGE WHERE: SUNDAY WHERE: ATHENS OTHER OPERATIONS IN GREECE AND ABROAD
WHO: DENIS (4 years old) WHEN: MONDAY WHERE: ATHENS WHO: ELLI WHEN: SATURDAY WHERE: PATRA WHO: MANOS WHEN: SUNDAY WHERE: CHANIA OTHER OPERATIONS IN GREECE AND ABROAD 108 ΟΤΕ ESTATE Highlighting the value of OTE’s real estate assets
OTE’s subsidiary, OTEestate, which was established in 2003, is Space (1,14 mn sq. m.) allocation responsible for the management of the Group’s real estate assets
and for the generation of incremental value for the Group, through 53.4% the efficient management and commercial exploitation of its real Office space estate portfolio.
REAL ESTATE PORTFOLIO The real estate portfolio managed by OTEestate consists of a large number of buildings, land, offices and stores across Greece. 73% of the buildings have been built after 1985, 5.5% of them are situated 25.3% Local exchanges in the centre of urban areas. OTEestate’s real estate portfolio includes, amongst others, the following:
Plots/Land 11.0% Total Number 2,293 Shops Total Surface 9.25 million sq. m. Number of Plots with Buildings 1,771 6.6% Storage
3.6% Buildings Facilities Total Number 2,258 Total Surface 1.14 million sq. m.
The largest part of the value of OTEestate’s portfolio is derived from a small number of plots and buildings. The OTE Headquarters building alone accounts for almost 15% of the total real estate value, while the 150 largest real estate assets account for 70% of During 2007, OTEestate placed emphasis on the optimal the total real estate value. Moreover, 50% of the value of the total management of vacant and unutilized buildings and office space, real estate portfolio is derived by land and buildings in the broader following the completion of OTE’s 2006 Voluntary Retirement area of Athens. Program. As a result of the VRP (Voluntary Retirement Program), a significant number of employees left the company, providing the Based on their use, OTEestate’s buildings are classified as follows: company with the opportunity to optimize free space utilization. In this context, OTEestate together with OTE, implemented a personnel OTHER OPERATIONS IN GREECE AND ABROAD 109
relocation program, whereby employees were relocated either within but simply revaluate their assets (subsequently reporting revaluation the same building or to suitable nearby premises, so as to maximize gains or losses in their financial statements). At the same time, occupancy. This optimization process released a large number of efficient management as well as portfolio diversification, both buildings which are now available for lease by third parties. required by law, enable return maximization and risk minimization. In view of these key advantages, OTEestate has decided to proceed Another key project, implemented by OTEestate during 2007, was with the set up of a real estate investment company under the name the valuation (by an independent appraisal firm) of its real estate “OTE Properties – Real Estate Investment Company” and has filed the portfolio in accordance with International Financial Reporting relevant application with the Hellenic Capital Market Commission Standards, so as to indicate/reveal its fair value. The present value in order to get the necessary permission. OTEestate plans to list “OTE of OTEestate’s portfolio was calculated on the basis of OTE’s lease Properties – Real Estate Investment Company” on the Athens Stock agreements with OTEestate, and the result (including all necessary Exchange by the end of 2008. adjustments) was included in OTEestate’s financial statements. This value of the company’s real estate portfolio, as at December 31, As part of its strategy for growth, during 2008, OTEestate will 2007 amounted to €1.8 bn. To OTEestate’s advantage, this valuation proceed with the following: process effected the development of a solid database of comparative • Adoption of a new policy with regards to workspace values (based on market-rate lease agreements), which will assist allocation the company with the evaluation of alternative projects and will also • Amendment of the master lease agreement between serve as a reference tool for all future valuations. OTE and OTEestate, so as to rationalize occupancy in OTE buildings and incorporate them in the Real Estate Other projects completed by OTEestate in 2007 include: Investment Company portfolio • Signing of lease agreements with organizations and • Investments in selected real estate assets (stores, self- companies outside the Group, which led to an increase in contained properties etc.) which will ultimately enhance revenues from third parties. These currently account for 4% both OTEestate’s and the Real Estate Investment Company’s of total revenues, a revenue contribution which OTEestate portfolios intends to increase further in the near future • Increase in revenues from other OTE Group subsidiaries • Completion of technological and economic studies related • Increase in revenues from the development of commercial, to the reformation of the company’s land and buildings in business and residential projects Agravli (Kifisia), Taraboura (Patras), Haidari Forest (Athens), • Reduction of energy consumption in buildings, certification and the development of the former warehouses in Florina of mechanical equipment, infrastructure optimization in line and Aharnes (Athens) with EU regulations, antiseismic and structural evaluation of • Completion of development studies related to key real estate buildings assets of the company • Identification of attractive projects within the real estate In 2007, OTEestate’s revenues amounted to €71.9 mn, up by 8.2% market compared to the previous year, as a result of new leases signed with • Implementation of civil engineering studies and projects public and private sector entities and physical persons. Operating (maintenance, refurbishment, installations) related to income before depreciation and amortization increased significantly, buildings occupied by OTE from €55.6 mn in 2006, to €161.3 mn in 2007, following the revaluation of real estate assets to their fair value. One of OTEestate’s key projects for 2008 involves the establishment and subsequent listing on the Athens stock exchange of a Real Estate Investment Company (REIC), as a means to create value for the Group’s shareholders. Real estate investment companies enjoy considerable tax benefits such as transfer tax relief, while their annual tax fee obligation is fulfilled with the payment of a 0.3% tax on the average value of real estate capital investments each year. Furthermore, real estate investment companies do not depreciate OTHER OPERATIONS IN GREECE AND ABROAD 110 HELLAS SAT Consolidating OTE Group’s position in the satellite services market
Hellas Sat provides international fixed satellite services through BROADBAND INTERNET VIA SATELLITE its wholly owned satellite Hellas Sat 2, which occupies the orbital Since January 2006, through Hellas Sat Net!, Hellas Sat provides position of 39 degrees East. The company offers satellite capacity satellite broadband services to areas where no other type of services for video broadcasting applications and wholesale broadband access is possible. Hellas Sat aims to contribute to data services in Europe, the Middle East and South Africa. More the Group’s efforts for the rapid expansion of broadband services specifically, the company offers: and provide a new range of products that will have a positive • Satellite capacity for: effect on citizens’ lives and on businesses’ operational efficiency. Broadcasting (DTH, Video contribution, Program distribution) Two-way satellite Internet is an ideal means of point-to-point IP trunking & direct access services interconnection for remote geographical areas and is thus, Corporate networks currently chosen by corporations whose facilities are located in Occasional use remote geographical areas, and who need to be connected with • Retail broadband services central inventory and office automation systems, or need to transfer data, inspect the security of their premises via remote In 2007, Hellas Sat consolidated its position in the international camera or need to have access to other value-added services satellite market of Europe placing emphasis on its strong presence such as e-mail, webhosting etc. Demand for satellite broadband in Greece and Cyprus, where occupied capacity approached 100%. services increased significantly during 2007 and as a result the At the end of 2007, total occupied capacity of the total of 28 satellite number of terminals installed, reached 520, compared to 320 in transmitters reached 79% (from 70% in 2006), and is expected to 2006. exceed 85% by the end of 2008. Reflecting the successful take up of the “Dolce” DTH platform in Romania, launched by OTE’s subsidiary Aiming to extend its operations to the residential customers’ RomTelecom, as well as of the relevant “Bulsatcom” platform in market, in 2007, the company promoted Internet access services Bulgaria, the total number of DTH subscribers on the satellite by means of user-friendly and low-cost equipment, low monthly exceeded 1 million. Moreover, in 2007 the company extended tariffs and high access speeds. its operations to South Africa, following collaboration with the country’s telecoms incumbent. Today, Hellas Sat, with more than Hellas Sat’s new broadband services are based on the successful 100 customers in 35 countries, provides satellite capacity services to completion of the SATMODE project, sponsored by the European Europe, the Middle East and South Africa. Space Agency and implemented by the company in collaboration with major manufacturers of satellite systems. In order to enhance On the occasion of the 50th Anniversary of the launch of the first its value-added services offering, Hellas Sat will soon acquire a satellite in space, the European Satellite Operators Association state-of-the-art digital platform for Internet access via satellite. (ESOA) together with the OTE Group welcomed delegates from the field of satellite technology, in Athens, in May 2007, for an event In 2007, the company participated in a series of European dedicated to the promotion of broadband services and the bridging programs and initiatives that aimed to develop and promote of the digital gap between European countries, through satellite satellite broadband services, such as the “HOST” project. This technology. project is sponsored by the European Space Agency (ARTES 3) and OTHER OPERATIONS IN GREECE AND ABROAD 111
relates to the design, implementation and commercial use of a Revenue Breakdown DVB-RCS satellite network, with pilot applications in the fields of 2007 89.0% distance-learning, distance-medicine, secure government data Capacity networks, corporate operations and Internet access through local (long-term agreements) wireless and satellite backbone networks. The same project will involve the design and construction of a vehicle that will enable the provision of satellite as well as terrestrial fixed-network connection in areas affected by natural disasters, as a means to repair telecommunication network damages. Hellas Sat also participates in other programs, such as the RURAL WINGS program which is sponsored by the European Union and focuses on the pilot use of applications such as distance-learning in remote areas via the Eutelsat and Hellas Sat satellites, and the “Small GEO” program which is sponsored by the European Space Agency and aims to develop a low-cost and low-weight satellite equipped with thirty transmitters, to be placed at geostatic orbit.
Given that Hellas Sat has utilized most of its free capacity with respect to Europe and the Middle East, during 2008, the company 5.1% Occasional transmissions intends to promote all available satellite capacity in the area of South Africa. At the same time Hellas Sat aims to increase its customer base, increasing revenues both in terms of absolute numbers as well as in terms of income per transmitter.
In addition, the company aims to target remote residential users in Greece and Cyprus with the launch of a new broadband Internet 3.9% Broadband services service offering at an attractive rate. & terminals
In 2007, Hellas Sat’s total revenues increased by 57.6% compared to 2006 and reached €23.5 mn while operating income before depreciation and amortization stood at €13.1 mn, compared to a
negative €1.4 mn the previous year. This improvement in revenues 2.0% was effected by the consolidation of the company’s position in Other income the markets of Central and Eastern Europe, and the signing of agreements with new customers. WHO: NATASSA WHEN: FRIDAY WHERE: PATRA WHO: DIMITRA WHEN: TUESDAY WHERE: ATHENS OTHER OPERATIONS IN GREECE AND ABROAD 114 OTESAT-MARITEL Integrated telecom solutions for the Greek and global shipping industry
OTESat-Maritel, is one of the four major providers of Immarsat and Iridium systems. The company also plans to further expand its satellite maritime communication services providers in the world, international operations, and capitalise on the commercial launch holds a 54% market share of the ship-to-shore communications of new value-added services through the provision of integrated market in Greece, while the company’s operations extend to Cyprus, telecom solutions, bundling terminal equipment, software, airtime, Turkey, the United Kingdom, USA, Dubai, Singapore and Hong Kong. commercial and technical support.
OTESat-Maritel has been a member of the ΟΤΕ Group since 1996. Its OTESat-Maritel’s, revenues for 2007 reached €22.0 mn, while main activities include the provision of Immarsat services with global operating income before depreciation and amortization stood at coverage through the “Thermopyle” earth satellite station as well as €1.2 mn. of integrated telecommunication solutions for the Greek and global maritime industry, combining satellite and earth telecommunication networks and IT applications. In addition, the company offers value- added services such as account clearance services for ships (via the Revenue Breakdown 2007 GR01 and GR12 codes), ship-to-shore data transfer services, and crew telecommunications (telephony and mail for the crew). 91.2% Satellite telecommunications
In 2007, OTESat-Maritel signed further commercial and business agreements that significantly enhance the company’s service portfolio such as: • Agreement with Immarsat, to operate as Distributor Partner for Fleet Broadband Services • Agreement with Iridium, to offer the latter’s products and services • Agreement with Thrane & Thrane A/S, to operate as Certified Partner for the resale of satellite and terminal equipment • Agreement with Monarch Telecom Limited, to offer the latter’s products and services in Cyprus and the Middle East
During the course of the year, the company upgraded its systems and processes, so as provide its customers with best-of–quality services at attractive rates. The company also upgraded all relevant pre- and post-sales customer care systems, allowing for the provision of seamless technical and commercial support to customers 24 hours a 3.9% day, seven days a week. Sales of equipment
In 2008, OTESat-Maritel plans to introduce new satellite systems 3.1% Other income such as: Immarsat Fleet Broadband, Iridium Open Port 128 Kbps, 1.9% Other telecommunications and an IP Signature software for broadband services on Immarsat services OTHER OPERATIONS IN GREECE AND ABROAD 115 OTE PLUS Specialized consulting services on technological transformation and organizational development
ΟΤΕplus, a member of the OTE Group since 1987 provides consultancy services and integrated solutions, related to technological upgrade and corporate restructuring issues, to companies of the Group and other public and private entities.
KNOW-HOW AND CONSULTING SERVICES ΟΤΕPlus provides feasibility studies related to specialised technological upgrades (CRM, DWH/BI, portals, e-Government, etc.) and to IT and telecom systems development. With regards to its business solutions, ΟΤΕplus develops business plans, new procedures and key performance indicators (KPIs), and offers organisational and commercial restructuring solutions. The company also offers human resources management solutions, including systems for the development of personnel skills, as well as Customer Mix by Sector appraisal and reward systems for private and public entities. 2007 65% During 2007, ΟΤΕPlus launched a number of key long-term Business operations projects, such as: • Provision of specialised support services for OTE’s cost accounting system • Provision of technical support and consultancy services on issues that relate to the infrastructure, management and operation of OTE’s network • Provision of technical support and consultancy services to OTE’s IT Department 20% • Development and operation of support systems for the Technology Business and Technology Development Centers, run by the Ministry of Development 15% • Business processes restructuring services,within the context Research & of OTE’s CRM (Customer Relations Management) program Development • Supply chain management and optimization services • Consultancy services related to OTE’s distribution network, call centers and HelpDesk operations.
OTEPlus’ revenues for 2007 rose by 26.4%, compared to 2006, to €31.5 mn, while operating income before depreciation and amortization exceeded €1.7 mn, posting a 16.8% increase. OTHER OPERATIONS IN GREECE AND ABROAD 116 ΟΤΕ ACADEMY Integrated professional development services for the Group, the wider public and private sectors
OTEAcademy offers advanced vocational training as part of OTE’s aim OTEAcademy’s activities in 2007 included the following: to deliver professional development choices that cater for training • Expansion of the range of topics covered in its seminars needs of both ΟΤΕ Group employees and of the wider public and (new courses on Strategy and Management, Sales, Project private sectors. Management, Regulatory Framework, Health and Security and others were developed) OTEAcademy is a certified Cisco Academy, providing CCNA training • Development of new courses tailored to the needs of and certification, and an authorised examination center, approved specific customer groups by Certiport, for Microsoft Office Specialist and IC3. The company • Collaboration and signing of agreements with also operates certified Vocational Training Centres in Athens and major companies and institutions from the IT and Thessaloniki. OTEAcademy’s philosophy and training programs are Telecommunications industry, which enable the company to based on the LEAP (Learn & Apply) concept and on a blended learning offer specialised courses on new technology related issues model, combining class teaching, evidential training, e-Learning, • Agreements for the exclusive provision of educational business games and other activities. services that lead to certification • Design and execution of training programs for special social groups (unemployed, part-time employed etc.), sponsored by the European Social Fund OTHER OPERATIONS IN GREECE AND ABROAD 117
As a result of these initiatives, OTEAcademy currently provides an enhanced integrated training services portfolio which will contribute greatly to the increase of company’s penetration levels in the vocational training market.
During 2007, OTEAcademy, in collaboration with certain departments of OTE, monitored closely the training needs OTE Group’s employees, and then proceeded with the development of an integrated employee vocational training program, which responds to both general training requests as well as to specialized training needs in the fields of Management, Sales, Engineering for Non-Engineers, Finance for Non-Financials and courses in other subject areas, which are in demand by OTE Group’s employees. Finally during 2007, OTEAcedemy completed an Induction Course for OTE’s 1,300, newly hired employees.
OTEAcademy’s revenues in 2007 increased by 49% year on year and amounted to €5.3mn.
Seminar Subject Areas Breakdown 2007 34% Technical
22% IT 21% Specialized courses 20% Management
3% OTE’s induction course OTHER OPERATIONS IN GREECE AND ABROAD 118 COSMOONE E-commerce applications for businesses
The expansion of broadband services in Greece, coupled with Besides the companies of the Group, CosmoONE’s largest increased public awareness on the opportunities introduced customers include companies from the telecommunications, by the Internet, and a series of EU (European Union) initiatives, banking, insurance, technology and commerce industries. contributed to the high growth of the domestic e-commerce CosmoONE’s services do not entail the installation of hardware or market in 2007. software to clients, but rather relate to the efficient operation of e-commerce systems, where CosmoONE’s know-how and expertise CosmoONE, a member of the OTE Group operates an electronic enhance customers’ business processes efficiency. marketplace for the provision of B2B (Business to Business) electronic commerce applications and services. The company During 2008 the company will launch a new product, a portal provides services that cover the whole spectrum of the commercial environment with e-commerce applications, portalONE. This supply chain, from sourcing to invoicing. CosmoONE’s major product will be marketed as software and not as service and will sources of revenue during 2007 were: be gradually enhanced with new, additional features. Additionally, as part of its commercial strategy for 2008, the company intends to actively promote its e-supply services to the wider public sector via presentations, exhibitions and the implementation of pilot programs.
CosmoONE’s revenues for 2007 amounted to €1.9 mn.
Revenue Breakdown 3.4% 2007 Electronic offers
42.5% Electronic orders
3.2% Invoice transfers
24.8% Electronic auctions
17.9% Special projects & services
2.2% Electronic sales 5.0% Smart reports 3.4% Electronic offers
1.1% Resources management OTHER OPERATIONS IN GREECE AND ABROAD 119 TELEKOM SRBIJA Growth primarily driven by mobile telephony
OTE Group is present in the Serbian telecommunications market through its 20% stake in Telekom Srbija, the Serbian telecoms
incumbent, offering fixed telephony (voice and broadband Internet Mobile Telephony Customer Base services), mobile telephony as well as Pay-TV services. (000)
4,300 The fixed-line population penetration rate in Serbia stands at 39%, Pre-paid subscribers mobile telephony penetration exceeds 100%, while broadband 3,500 penetration rate is only 2%. Telekom Srbija’s fixed -line market share Pre-paid subscribers is 100%, while the company also enjoys a 60% market share in mobile telephony and a 50% market share in broadband.
Mobile telephony operations were the driver of growth for the company in 2007, as the migration of customers from pre-paid to contract services continued at a rapid pace, while broadband 987 Contract subscribers services take up increased significantly. The company’s mobile 619 telephony customer base grew by 28% compared to 2006, reaching Contract subscribers 5.3 million in total, with contract subscribers reaching 987 thousand, increased by 60% year on year. 2006 2007 OTHER OPERATIONS IN GREECE AND ABROAD 120
The company has also entered the e-commerce and entertainment Revenue Breakdown (€ mn) markets (e.g. Telekom Srbija web portal: Nadlanu and Mondo), and 2007 601 has communicated its intention to enter the IPTV and satellite TV 540 Fixed-line markets as well. Fixed-line
In 2008, Τelekom Srbija plans to launch new broadband, 349 multimedia, and bundled services, which refer to, amongst other Mobile telephony things, IPTV services, triple-play packages, web-hosting, and audio- 273 Mobile telephony video streaming services.
Telekom Srbija’s retail distribution network comprises of 70 mobile telephony and 29 fixed-line stores. In 2007, Telekom Srbija’s distribution network was enhanced through the launch of m:shops in supermarkets and the establishment of an electronic sales 2006 2007 system. With regards to customer care, the company operates separate call centers for fixed-line and mobile telephony services and customer requests.
Telekom Srbija continued with the upgrade of its fixed-line network in 2007, whose digitalization level reached 94% at the end of 2007, compared to a digitalization level of 83% in 2005. The company aims for the full digitalization of the network by the end of 2008. Telekom Srbija is also planning to install CDMA technology and increase the number of IP-based exchanges. As part of its strategic objectives with regards to mobile telephony, the company plans the upgrade of its GSM and UMTS networks. It should also be noted that Telekom Srbija owns a 3G (3rd generation) network since 2006.
Finally, during the year, Telekom Srbija acquired 65% of Telekom Srpske (the incumbent telecom operator of Republika Srpska). By virtue of this acquisition, Τelekom Srbija expands its geographical footprint, and is presented with the opportunity to leverage on the untapped potential of developing telecommunications markets.
In 2007, Telekom Srbija’s revenues increased by 17% year on year and reached €950 mn, while operating income before depreciation and amortization amounted to €332 mn. Telekom Srbija’s financial results are not consolidated in OTE Group’s financial statements. OTHER OPERATIONS IN GREECE AND ABROAD 121 INFOTE The sale of “Yellow Pages” as part of the rationalization of OTE Group’s operations
From 2001 until the end of 2007, OTE offered directory services via Until December 2007, when InfOTE was sold, the company’s printed and electronic media through its 100% owned subsidiary, revenues amounted to €57.5 mn, while operating income before InfOTE. depreciation and amortization stood at €10.5 mn.
As part of the Group’s restructuring and portfolio rationalization, InfOTE was sold to the companies Rhone Capital LLC and Zarkona Trading Limited, for a total consideration of €300 mn. WHO: TINA WHEN: THURSDAY WHERE: ATHENS WHO: XENIA WHEN: TUESDAY WHERE: KALAMATA WHO: LILA WHEN: WEDNESDAY WHERE: ATHENS ΠΟΙΟΣ: ΑΛΕΚΑ ΠΟΤΕ: ΣΑΒΒΑΤΟ ΠΟΥ: ΑΘΗΝΑ
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS 127
Annual Financial Statements (Separate and consolidated) for the year ended 31 December 2007 in accordance with International Financial Reporting Standards FINANCIAL STATEMENTS 128 FINANCIAL STATEMENTS 129
HELLENIC TELECOMMUNICATIONS 31 DECEMBER 2007 31 DECEMBER 2006 ORGANIZATION S.A. Notes COMPANY GROUP COMPANY GROUP BALANCE SHEETS (SEPARATE AND CONSOLIDATED) ASSETS AS AT 31 DECEMBER 2007 Non - current assets (Amounts in millions of Euro) Property, plant and equipment 4 2,361.9 6,371.4 2,704.4 6,583.5 Goodwill 5 - 541.5 - 540.8 Telecommunication licenses 6 3.4 396.2 3.8 384.2 Investments 7 4,104.9 158.4 1,826.4 158.7 Advances to pension funds 16 229.8 229.8 188.1 188.1 Deferred taxes 19 158.3 94.6 204.2 127.4 Other non-current assets 8 98.0 678.6 86.6 709.7 Total non - current assets 6,956.3 8,470.5 5,013.5 8.692,4 Current assets Inventories 34.7 201.7 36.1 205.4 Trade receivables 9 758.6 1,172.0 710.1 1,160.5 Other current assets 10 180.8 372.5 227.0 447.8 Cash and cash equivalents 11 453.1 1,316.3 814.7 2,042.5 Total current assets 1,427.2 3,062.5 1,787.9 3,856.2 TOTAL ASSETS 8,383.5 11,533.0 6,801.4 12,548.6 EQUITY AND LIABILITIES Equity attributable to shareholders of the Company Share capital 12 1,171.5 1,171.5 1,171.5 1,171.5 Share premium 12 485.9 485.9 485.9 485.9 Statutory reserve 13 312.1 312.1 283.3 283.3 Consolidation reserve 7 - (2,533.8) - (580.3) Retained earnings 13 1,596.9 2,595.8 1,309.0 2,304.4 3,566.4 2,031.5 3,249.7 3,664.8 Minority interests - 1,023.1 - 1,223.9 Total equity 3,566.4 3,054.6 3,249.7 4,888.7 Non – current liabilities Long-term loans 15 1,285.2 3,947.1 1,301.9 4,037.3 Provision for staff leaving indemnities 16 211.5 230.3 182.8 198.5 Provision for voluntary leave scheme 16 217.5 217.5 361.4 361.4 Cost of Youth account 16 273.5 273.5 277.3 277.3 Other non – current liabilities 17 41.4 233.6 79.5 126.9 Total non – current liabilities 2,029.1 4,902.0 2,202.9 5,001.4 Current liabilities Suppliers 608.9 931.5 562.2 938.0 Short-term loans 18 1,494.2 1,497.4 - 25.2 Short-term portion of long-term loans 15 17.5 83.3 16.1 528.0 Income tax 19 24.6 83.0 70.5 142.0 Deferred revenue 135.3 189.2 109.0 196.2 Cost of voluntary leave scheme 16 200.2 200.2 316.7 316.7 Dividends payable 14 4.0 4.0 3.7 3.7 Other current liabilities 20 303.3 587.8 270.6 508.7 Total current liabilities 2,788.0 3,576.4 1,348.8 2,658.5 TOTAL EQUITY AND LIABILITIES 8,383.5 11,533.0 6,801.4 12,548.6
The accompanying notes on pages 134 – 180 form an integral part of these Financial Statements. The Financial Statements presented on pages 129 – 180, were approved by the Board of Directors on 19 March 2008 and are signed on its behalf by:
Chairman & Managing Director Vice-Chairman Chief Financial Officer Chief Accounting Officer Panagis Vourloumis Iakovos Georganas Christini Spanoudaki Konstantinos Vasilopoulos FINANCIAL STATEMENTS 130
HELLENIC TELECOMMUNICATIONS 2007 2006 ORGANIZATION S.A. Notes COMPANY GROUP COMPANY GROUP INCOME STATEMENTS (SEPARATE AND Revenues CONSOLIDATED) FOR THE YEAR ENDED 31 DECEMBER 2007 Domestic telephony 21 1,495.4 2,022.2 1,596.9 2,260.6 (Amounts in millions of Euro, except the number of shares International telephony 21 197.7 304.5 181.1 346.9 and per share data) Mobile telephony 21 - 2,210.0 - 1,975.8
Other income 21 963.8 1,783.1 936.5 1,308.0
Total revenues 2,656.9 6,319.8 2,714.5 5,891.3
Operating expenses
Employee costs (723.8) (1,241.3) (764.9) (1,241.6)
Cost of voluntary leave scheme 16 (22.1) (22.1) 49.8 49.8
Charges from international operators (146.8) (216.4) (143.9) (208.8)
Charges from domestic operators (323.9) (655.3) (366.8) (720.9)
Depreciation and amortization (502.2) (1,171.8) (528.0) (1,128.5)
Cost of telecommunications equipment (101.1) (672.8) (128.3) (363.5)
Other operating expenses 22 (526.3) (1,293.2) (520.3) (1,189.5)
Total operating expenses (2,346.2) (5,272.9) (2,402.4) (4,803.0)
Operating income before financial results 310.7 1,046.9 312.1 1,088.3
Financial Results
Interest expense (98.4) (238.7) (199.2) (278.8)
Interest income 47.1 77.8 45.7 70.8
Foreign currency differences (0.5) (4.8) 2.6 4.2
Dividend income 7 242.3 16.8 196.7 23.0
Gains from investments 7 287.1 256.8 297.9 176.3
Total financial results 477.6 107.9 343.7 (4.5)
Profit before tax 788.3 1,154.8 655.8 1,083.8
Income tax 19 (211.8) (381.8) (124.6) (353.0)
Profit for the year 576.5 773.0 531.2 730.8
Attributable to:
Shareholders of the parent 576.5 662.6 531.2 574.6
Minority interests - 110.4 - 156.2
576.5 773.0 531.2 730.8
Basic earnings per share 23 1,1762 1,3518 1.0837 1.1723
Diluted earnings per share 23 1,1762 1,3518 1.0837 1.1723
Weighted average number of shares 490,150.389 490,150,389 490,150,389 490,150,389
The accompanying notes on pages 134 – 180 form an integral part of these Financial Statements. FINANCIAL STATEMENTS 131
HELLENIC TELECOMMUNICATIONS Share Share Treasury Statutory Retained Total ORGANIZATION S.A. Capital Premium Shares Reserve Earnings equity STATEMENTS OF CHANGES IN EQUITY (SEPARATE) FOR THE YEAR ENDED 31 DECEMBER 2007 Balance at 31 December 2005 1,172.5 486.6 (5.9) 256.7 798.0 2,707.9 (Amounts in millions of Euro)
Appropriation to statutory reserve - - - 26.6 (26.6) -
Unrealized gains on available- for- sale securities - - - - 10.6 10.6
Treasury shares cancelled (1.0) (0.7) 5.9 (4.2) -
Net income recognized directly in equity (1.0) (0.7) 5.9 26.6 (20.2) 10.6
Profit for the year - - - - 531.2 531.2
Balance at 31 December 2006 1,171.5 485.9 - 283.3 1,309.0 3,249.7
Balance at 31 December 2006 1,171.5 485.9 - 283.3 1,309.0 3,249.7
Appropriation to statutory reserve - - - 28.8 (28.8) -
Dividends paid - - - - (269.6) (269.6)
Unrealized gains on available -for-sale securities - - - - 9.8 9.8
Net income recognized directly in equity - - - 28.8 (288.6) (259.8)
Profit for the year - - - - 576.5 576.5
Balance at 31 December 2007 1,171.5 485.9 - 312.1 1,596.9 3,566.4
The accompanying notes on pages 134 – 180 form an integral part of these Financial Statements. FINANCIAL STATEMENTS 132
HELLENIC TELECOMMUNICATIONS Attributable to equity holders of the parent ORGANIZATION S.A. STATEMENTS OF CHANGES Consolida- IN EQUITY (CONSOLIDATED) FOR THE YEAR ENDED Share Share Treasury Legal tion Retained Minority Total 31 DECEMBER 2007 Capital Premium Shares Reserve Reserve Earnings Total Interest equity (Amounts in millions of Euro) Balance at 31 December 2005 1,172.5 486.6 (5.9) 256.7 (238.8) 1,640.4 3,311.5 1,201.9 4,513.4
Appropriation to statutory reserve - - - 26.6 - (26.6) - - 0.0
Dividends paid ------(116.0) (116.0)
Treasury shares cancelled (1.0) (0.7) 5.9 - - (4.2) - - 0.0
Unrealized gains on available-for- sale securities - - - - - 10.6 10.6 - 10.6
Foreign currency translation - - - - - 90.8 90.8 100.3 191.1
Net change in investment in subsidiaries - - - - (341.5) 18.8 (322.7) (118.5) (441.2)
Net income recognized directly in equity (1.0) (0.7) 5.9 26.6 (341.5) 89.4 (221.3) (134.2) (355.5)
Profit for the year - - - - - 574.6 574.6 156.2 730.8
Balance at 31 December 2006 1,171.5 485.9 (0.0) 283.3 (580.3) 2,304.4 3,664.8 1,223.9 4,888.7
Balance at 31 December 2006 1,171.5 485.9 0.0 283.3 2,304.4 3,664.8 1,223.9 4,888.7
Appropriation to statutory reserve - - - 28.8 - (28.8) - - -
Dividends paid - - - - - (269.6) (269.6) (81.2) (350.8)
Unrealized gains on available-for-
sale securities - - - - - 9.8 9.8 - 9.8
Foreign currency translation - - - - - (82.6) (82.6) (84.7) (167.3)
Net change of investment in subsidiaries - - - - (1953.5) - (1,953.5) (145.3) (2,098.8)
Net income recognized directly in equity (371.2) (2,295.9) (311.2) (2,607.1)
Profit for the year - - - - (1953.5) 662.6 662.6 110.4 773.0
Balance at 31 December 2007 1,171.5 485.9 0.0 312.1 (2,533.8) 2,595.8 2,031.5 1,023.1 3,054.6
The accompanying notes on pages 134 – 180 form an integral part of these Financial Statements. FINANCIAL STATEMENTS 133
HELLENIC TELECOMMUNICATIONS 2007 2006 ORGANIZATION S.A. STATEMENTS OF CASH FLOWS COMPANY GROUP COMPANY GROUP (SEPARATE AND CONSOLIDATED) FOR THE YEAR ENDED Cash flows from operating activities 31 DECEMBER 2007 (Amounts in millions of Euro) Profit before taxes 788.3 1,154.8 655.8 1,083.8 Adjustments for: Depreciation and amortization 502.2 1,171.8 528.0 1,128.5 Cost of voluntary leave scheme 22.1 22.1 (49.8) (49.8) Provisions 159.5 198.5 183.1 221.0 Foreign currency translation differences 0.5 4.8 (2.6) (4.2) Investment (income)/losses (576.5) (351.4) (540.3) (270.1) Amortization of advances to EDEKT pension fund 35.2 35.2 35.2 35.2 Interest expense and related expenses 98.4 238.7 199.2 278.8 Adjustments for charges in working capital Decrease/ (increase) in inventories 1.4 (2.0) (6.4) (30.3) Decrease/ (increase) in trade receivables (102.4) (127.9) 100.1 75.8 Decrease in liabilities (except bank liabilities) (266.3) (292.6) (439.9) (293.6) Minus: Interest paid and related expenses paid (78.9) (216.4) (105.9) (178.5) Income taxes paid (158.5) (384.9) - (210.4)
Net cash from operating activities 425.0 1,450.7 556.5 1,786.2 Cash flows from investing activities Acquisition of subsidiaries, associates, joint ventures and other investments 2,137.3 (2,119.0) (192.3) (1,672.2) Loans granted (181.6) (121.6) (77.6) (66.4) Proceeds from loans 30.0 - 5.9 20.3 Other long-term liabilities - 144.5 Purchase of property, plant and equipment and intangible assets (295.0) (1,101.3) (225.7) (962.4) Proceeds from sale of property, plant and equipment and Investments 313.8 352.8 353.1 316.2 Interest received 39.4 52.1 28.2 42.8 Dividends received 229.5 12.3 186.5 13.6
Net cash from /(used in) investing activities (2,001.2) (2,780.2) 78.1 (2,308.1) Cash flows from financing activities Proceeds from minority shareholders for increase of subsidiary’s share capital - 12.6 - 12.0 Proceeds from issue of receipt of loans 1,500.0 1,500.0 - 2,369.1 Repayment of loans (16.1) (558.4) (662.6) (1,211.7) Dividends paid to shareholders of the Company (269.3) (269.3) (1.6) (1.6) Dividends paid to minority shareholders - (81.6) - (115.6)
Net cash from/(used) in financing activities 1,214.6 603.3 (664.2) 1,052.2
Net increase/(decrease) in cash and cash equivalents (361.6) (726.2) (29.6) 530.3
Cash and cash equivalents at beginning of year 814.7 2,042.5 844.3 1,512.2
Cash and cash equivalents at end of year 453.1 1,316.3 814.7 2,042.5
The accompanying notes on pages 134 – 180 form an integral part of these Financial Statements. FINANCIAL STATEMENTS 134
HELLENIC TELECOMMUNICATIONS 1. COMPANY’S FORMATION AND OPERATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Hellenic Telecommunications Organization S.A. (hereinafter referred to as the “Company” or “OTE”), was founded in 1949 in accordance STATEMENTS AS OF 31 DECEMBER 2007 with Law 1049/49, as a state-owned Société Anonyme and operates pursuant to Law 2246/94 (as amended), Law 2257/94 (OTE’s (Amounts in millions of Euro, Charter), Presidential Decree 437/95 and C.L. 2190/1920. OTE’s main activities are to provide telecommunications and other related unless otherwise stated) services.
The address of its registered office is: 99 Kifissias Avenue – 151 24 Maroussi Athens, Greece, while its website is www.ote.gr.
Up until 31 December 2000, based on an extension granted by the European Commission to the Greek State, OTE had the exclusive right to install, operate and exploit the public fixed switched telecommunications network in Greece and to provide public fixed switched voice telephony services. Effective 1 January 2001 and pursuant to the provisions of the new Telecommunications Law 2867/2000, which came into force in December 2000, amending certain provisions of the previous Law 2246/1994, the above mentioned exclusivity right expired and the relevant market is open to competition.
The accompanying Separate and Consolidated Financial Statements (hereafter the «Financial Statements») as at 31 December 2007 were approved for issuance by the Board of Directors on 19 March 2008 while they are subject to the final approval of OTE’s General Assembly.
The OTE Group (hereafter referred to as the “Group”) include the financial statements of OTE and the following subsidiaries over which OTE has control:
Company Name Line of Business Country Ownership interest
Direct ownership 31/12/2007 31/12/2006 • COSMOTE MOBILE TELECOMMUNICATIONS S.A. (“COSMOTE”) Mobile telecommunications services Greece 90.72% 67.00%
• OTE INTERNATIONAL INVESTMENTS LTD Investment holding company Greece 100.00% 100.00%
• OTE AUSTRIA HOLDING GMBH Investment holding company Austria - 100.00% • HELLAS SAT CONSORTIUM LIMITED («HELLAS-SAT”) Satellite communications Cyprus 99.05% 99.05% • COSMO-ONE HELLAS MARKET SITE S.A. (“COSMO-ONE”) E-commerce services Greece 58.87% 51.55%
• OTENET S.A. (“OTEΝΕΤ”) Internet services Greece 100.00% 94.59%
• HELLASCOM S.A. (“HELLASCOM”) Telecommunication projects Greece 100.00% 100.00%
• OTE PLC Financing services U.K. 100.00% 100.00%
• OTE SAT-MARITEL S.A. (“OTE SAT – MARITEL”) Satellite telecommunications services Greece 94.08% 94.08%
• OTE PLUS S.A (“OTE PLUS”) Consulting services Greece 100.00% 99.00%
• ΟΤΕ ESTATE S.A. (“ΟΤΕ ESTATE”) Real estate Greece 100.00% 100.00% Directory and other • INFOTE S.A. (“INFOTE”) information services Greece - 100.00% • OTE INTERNATIONAL SOLUTIONS S.A. (OTE- GLOBE”) Wholesale telephony services Greece 100.00% 100.00% • HATWAVE HELLENIC-AMERICAN TELECOMMUNICATIONS WAVE LTD. (“HATWAVE”) Investment holding company Cyprus 52.67% 52.67% • OTE INSURANCE AGENCY S.A. (“OTE INSURANCE”) Insurance brokerage services Greece 100.00% 100.00%
• ΟΤΕ ACADEMY S.A. (“OTE ACADEMY”) Training services Greece 100.00% 100.00% FINANCIAL STATEMENTS 135
HELLENIC Company Name Line of Business Country Ownership interest TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Indirect ownership 31/12/2007 31/12/2006 STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, • ROMTELECOM S.A. (“ROMTELECOM) Fixed line telephony services Romania 54.01% 54.01% unless otherwise stated) • S.C. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS S.A. (“COSMOTE ROMANIA”) Mobile telecommunications services Romania 79.71% 63.10%
• OTE MTS HOLDING B.V. Investment holding company Holland 90.72% 67.00% • COSMOFON MOBILE TELECOMMUNICATIONS SERVICES A.D. – SKOPJE (“COSMOFON”) Mobile telecommunications services Skopje 90.72% 67.00%
• COSMO BULGARIA MOBILE EAD (“GLOBUL”) Mobile telecommunications services Bulgaria 90.72% 67.00%
• COSMO-HOLDING ALBANIA S.A. (“CHA”) Investment holding company Albania 88.00% 64.99% • ALBANIAN MOBILE COMMUNICATIONS Sh.a (“AMC”) Mobile telecommunications services Albania 74.80% 55.24% • COSMOHOLDING CYPRUS LTD (“COSMOHOLDING CYPRUS”) Investment holding company Cyprus 81.65% 67.00%
• GERMANOS S.A. Retail services Greece 81.65% 66.35%
• E-VALUE S.A. Marketing services Greece 81.65% 46.44%
• GERMANOS TELECOM SKOPJE S.A. Retail services Skopje 81.65% 66.35%
• GERMANOS TELECOM ROMANIA S.A. Retail services Romania 81.64% 66.34%
• TEL SIM S.R.L Retail services Romania 81.65% -
• SUNLIGHT ROMANIA S.R.L. -FILIALA Retail services Romania 81.64% 66.34%
• GERMANOS TELECOM BULGARIA A.D. Retail services Bulgaria 81.65% 66.35%
• MOBILBEEEP LTD Retail services Greece 81.65% 67.00%
• GRIGORIS MAVROMICHALIS & PARTNERS LTD Retail services Greece 80.82% 65.68%
• GEORGIOS PROKOPIS & PARTNERS LTD Retail services Greece - 33.18%
• IOANNIS TSAPARAS & PARTNERS LTD Retail services Greece 41.64% 33.84%
• ALBATROS & PARTNERS LTD Retail services Greece 81.64% -
• VOICENET A.E. (“VOICENET”) Telecommunications services Greece 84.07% 79.52%
• ΟΤΕΝΕΤ CYPRUS LTD Investment holding company Cyprus 76.33% 70.02%
• ΟΤΕΝΕΤ TELECOMMUNICATIONS LTD Telecommunications services Greece 71.61% 67.14%
• HELLAS SAT S.A. Satellite communications Greece 99.05% 99.05%
• ΟΤΕ INVESTMENT SERVICES S. A. Investment holding company Greece 100.00% 100.00%
• OTE PLUS BULGARIA Consulting services Bulgaria 100.00% 99.00%
• OTE PLUS ROMANIA Consulting services Romania 100.00% 99.00% FINANCIAL STATEMENTS 136
HELLENIC TELECOMMUNICATIONS 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS ORGANIZATION S.A. NOTES TO THE FINANCIAL The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as these have STATEMENTS AS OF 31 DECEMBER 2007 been adopted by the European Union. (Amounts in millions of Euro, unless otherwise stated) The Financial Statements have been prepared on the historical cost basis except for specific assets and liabilities which are measured at fair values in accordance with IFRS. All amounts are presented in millions of Euro, unless otherwise stated.
The accounting policies presented below (See Note 3), have been applied consistently to all years presented by the Group entities.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied for the preparation of the accompanying Financial Statements under IFRS are as follows:
1. Basis of Consolidation and Investments:
a) Subsidiaries: The Consolidated Financial Statements include the financial statements of the Company and all subsidiaries controlled by the Company. Control exists when Company has the power to govern the financial and operating policies of the subsidiaries so as to obtain benefits from their activities. The financial statements of the subsidiaries are prepared as of the same reporting date with those of the parent, applying accounting policies consistently. Appropriate adjustments are made when necessary to ensure consistency in accounting policies used. Ιntercompany balances and transactions and any intercompany profit or loss on assets remaining within the Group, are eliminated in the Consolidated Financial Statements. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the purchase method of accounting that measures the acquiree’s assets and liabilities at their fair value at the date of acquisition.
b) Associates: Associates are those entities, in which the Group has significant influence, but not control, over their financial and operating strategy. Significant influence is presumed to exist when the Company has the right to participate in the financial and operating policy decisions, without having the power to govern these policies. Investments in associates in which the Group has significant influence are accounted for using the equity method. Under this method the investment is carried at cost, and is adjusted to recognize the investor’s share of the earnings or losses of the investee from the date that significant influence commences until the date that significant influence ceases and also for changes in the investee’s net equity. Gains or losses from transactions with associates are eliminated in proportion to the investors’ participation in there. Furthermore, the investment’s value is adjusted for any accumulated impairment loss.
When the Group’s share of losses exceeds the carrying amount of the investment, the carrying amount of the investment is reduced to nil and recognition of further losses is discontinued, except to the extent the Group has created obligations or has made payments on behalf of the associate.
Dividends received from associates are eliminated against the carrying value amount of the investment.
In the Separate Financial Statements, investments in subsidiaries and associates are accounted for at cost adjusted for any impairment where necessary.
2. Investments in Financial Assets: Financial assets are initially measured at their fair value, which is normally the acquisition cost. After initial recognition, according to the purpose for which the assets were acquired, they are classified in the following categories: Financial Assets at Fair Value Through Profit or Loss, Held-to-Maturity and Available for Sale Financial Assets. Financial Assets at Fair Value through profit or loss are measured at fair value and gains or losses are recognized in income. Held-to-maturity investments are measured at amortized cost using the effective interest method and gains or losses through the amortization process are recognized in income. Available for sale financial assets are measured at fair value and gains or losses are recognized directly in equity while upon sale realized gains or losses are recognized in the income statement. The fair values of quoted investments are based on quoted market bid prices. For investments where there is no quoted market price, fair value is determined using valuation techniques.
3. Use of Estimates and Judgements: The preparation of the Financial Statements in accordance with IFRS requires management to make estimates and assumptions which may affect the application of the accounting policies and the amounts recorded in the financial statements. These estimates and assumptions are revised on an on-going basis. These revisions are recognized in the period they incurred and affect the related reporting periods. These estimates and assumptions are based on existing experience and on FINANCIAL STATEMENTS 137
HELLENIC various factors considered reasonable, under the current conditions. These estimates and assumptions are the basis for decision TELECOMMUNICATIONS ORGANIZATION S.A. making relating to the accounting value of assets and liabilities, which are not available from other sources. The actual final results NOTES TO THE FINANCIAL may differ from these estimates and these variations may have significant effect on the Financial Statements. STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, 4 . Foreign Currency Translation: OTE’ s functional currency is the Euro. Transactions involving other currencies are translated into unless otherwise stated) Euro at the exchange rates, ruling on the date of the transactions. At the balance sheet date, monetary assets and liabilities, which are denominated in foreign currencies, are retranslated at the exchange rates at that date. Gains or losses resulting from foreign currency translation are recognized in Income.
Non-monetary items denominated in foreign currencies that are measured at historical cost are retranslated at the exchange rate at the date of the initial transaction. Non-monetary items denominated in foreign currencies that are measured at fair value are retranslated at the exchange rates at the date that the fair value was determined. The foreign currency differences arising from part of gains or losses from the change of the fair value and are recognized in Income or directly in equity depending on the underlying monetary item.
Except for operations in highly inflationary economies, where the financial statements are restated to current purchasing power prior to translation to the reporting currency, the functional currency of the Group’s operations outside Greece is the local country’s currency. Assets and liabilities of operations outside Greece, including goodwill and the fair value adjustments arising from consolidation, are translated into Euro using exchange rates ruling at the balance sheet date. Revenues and expenses are translated at the average exchange rates prevailing during the year which approximate the exchange rates ruling on the date of the transactions. All resulting foreign exchange differences are recognized as a separate component of shareholders’ equity and are recognized in the Income on the disposal of the foreign entity.
5. Goodwill: All business combinations are accounted for using the purchase method. For business combinations occurring subsequent to the date of transition to IFRS, goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired. For business combinations occurring prior to the date of transition to IFRS, goodwill is recorded at the carrying value at the date of transition, based on previous GAAP. Goodwill is tested for impairment at least annually. The goodwill impairment test is a process required by IAS 36 “Impairment of assets”. Thus, after initial recognition, goodwill is measured at cost less any accumulated impairment losses. An impairment loss recognized for goodwill shall not be reversed in a subsequent period. Goodwill on acquisition of subsidiaries is presented as an intangible asset. Negative goodwill on acquisition of subsidiaries is recorded directly in Income. Goodwill on acquisition of associates is included in the carrying amount of the investment. Goodwill arising on the acquisition of a minority interest in a subsidiary, where control already exists, is recorded directly in equity.
6. Property, Plant and Equipment: Items of property, plant and equipment are measured at cost, net of subsidies received, plus interest costs incurred during periods of construction, less accumulated depreciation and any impairment in value. Any statutory revaluations based on Greek legislation, are reversed.
Subsidies are presented as a reduction of the cost of property, plant and equipment and are recognized in Income over the estimated life of the assets through reduced depreciation expense.
The cost of self-constructed assets includes the cost of materials, direct labour costs, relevant general overhead costs, as well as the cost relating to asset retirement obligations in the period in which they are generated and to the extent that their fair value can be reasonably estimated.
The relevant asset retirement costs are capitalized as part of the value of the property, plant and equipment and are depreciated accordingly.
Repairs and maintenance are expensed as incurred. The cost and related accumulated depreciation of assets retired or sold are removed from the corresponding accounts at the time of sale or retirement, and any gain or loss is included in the income statement.
Expenditure relating to the replacement of part of an item of property, plant and equipment is added to the carrying amount of the asset if it is probable that future economic benefits will flow to the Group and its cost can be measured reliably. All other expenditures are recognized in the income statement as incurred. FINANCIAL STATEMENTS 138
HELLENIC 7. Depreciation: Depreciation is recognized on a straight-line basis over the estimated useful lives of property, plant and equipment, TELECOMMUNICATIONS ORGANIZATION S.A. which are periodically reviewed. The estimated useful lives and the respective rates are as follows: NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 Estimated Depreciation (Amounts in millions of Euro, Useful Life Rates unless otherwise stated) Classification
Buildings – building installations 20-40 years 2.5-5%
Telecommunication equipment and installations:
• Telephone exchange equipment 8-12 years 8-12.5%
• Radio relay stations 8 years 12.5%
• Subscriber connections 10 years 10%
• Local and International network 8-17 years 6-12.5%
• Other 5-10 years 10-20%
Transportation equipment 5-8 years 12.5-20%
Furniture and fixtures 3-5 years 20-33%
8. Employee Benefits:
a) Defined Contribution Plans: Obligations for contributions to defined contribution plans are recognized as an expense in Income as incurred. There are no further legal or constructive obligations to pay any further amounts.
b) Defined Staff Benefit Plans: Obligations derived from defined staff benefit plans are calculated separately for each plan by estimating the amount of future benefits employees have earned in return for their service as of the balance sheet date. These benefits are discounted to their present value after the deduction of the fair value of any plan asset. The discount rate is the yield of Greek Government bonds with maturity that approximates the term of the obligations. These obligations are calculated on the basis of financial and actuarial assumptions which are carried out by independent actuaries using the Projected Unit Credit Method. Net pension cost for the period is recognized in Income and consists of the present value of the accrued benefits, interest cost on the benefits obligation, prior service cost and actuarial gains or losses. Prior service costs are recognized on a straight-line basis over the average period until the benefits become vested. All actuarial gains or losses are recognised during the average remaining working life of active employees and are included in the service cost of the year, if at the beginning of the year they exceed 10% of the projected benefit obligation. Contributions that are related to employees who retire under the voluntary retirement program are recognized when employees accept the offer and the amounts can be reasonably estimated.
9. Taxes: Income taxes include current and deferred taxes. Current tax is measured on the taxable income for the year using enacted tax rates at the balance sheet date.
Deferred taxes are provided using the balance sheet method on all temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, measured at the tax rates that are expected to be applied when the differences are expected to reverse. Deferred tax assets are recognized for all deductible temporary differences and unused tax losses carried forward, to the extent that it is probable that future taxable profits will be available against which they can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilized.
Income tax for the year (current and deferred) is recognized in Income, except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. FINANCIAL STATEMENTS 139
HELLENIC 10. Cash and Cash Equivalents: For purposes of the Cash Flow Statement, time deposits and other highly liquid investments with TELECOMMUNICATIONS ORGANIZATION S.A. original maturities of three months or less, are considered to be cash. NOTES TO THE FINANCIAL STATEMENTS AS OF 11. Advertising Expenses: All advertising costs are expensed as incurred. 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 12. Research and Development Costs: Research and development costs are expensed as incurred.
13. Recognition of Revenues and Expenses: Fixed revenues primarily consist of connection charges and subscription fees, monthly network services fees, exchange network and facilities usage charges, other value added communication services fees, and sales of handsets and accessories. Revenues are recognized as follows: • Connection charges: Connection charges for the fixed network are deferred and amortized to income over the estimated service life of the connection. No connection fees are charged for mobile services. • Monthly network service fees: Revenues related to the monthly network service fees are recognized in the month that the telecommunication service is provided. • Usage Charges and Value Added Services Fees: Call fees consist of fees based on airtime and traffic generated by the caller, the destination of the call and the service utilized. Fees are based on traffic, usage of airtime or volume of data transmitted for value added communication services. Revenues for usage charges and value added communication services are recognized in the period when the services are provided.
Revenues from outgoing calls made by OTE’s subscribers to subscribers of mobile telephony operators are presented at their gross amount in the income statement as the credit and collection risk remains solely with OTE. Interconnection fees for mobile-to-mobile calls are recognized based on incoming traffic generated from other mobile operators’ networks. Unbilled revenues from the billing cycle date to the end of each period are estimated based on traffic.
Revenues from the sale of prepaid airtime cards and the prepaid airtime, net of discounts allowed, included in the Group’s prepaid services packages, are recognized based on usage. Such discounts represent the difference between the wholesale price of prepaid cards and boxes (consisting of handsets and prepaid airtime) to the Group’s Master Dealers and the retail sale price to the ultimate customers. Unused airtime is included in “Deferred revenue” on the balance sheet. Upon the expiration of prepaid airtime cards, any unused airtime is recognized to Income.
Airtime and acquisition commission costs due to the Group’s Master Dealers for each subscriber acquired through their network are expensed as incurred. Commissions paid for each contract subscriber acquired by the Master Dealers as well as bonuses paid to Master Dealers in respect of contract subscribers who renew their annual contracts, are deferred and amortized as expenses over the contract period. Bonuses for the achievement of mutually agreed targets and commissions based on revenues billed to each subscriber acquired by the Master Dealers are expensed as incurred. • Sales of telecommunication equipment: Revenues from the sale of handsets and accessories, net of discounts allowed, are recognized at the point-of-sale, when the significant risks and rewards of ownership have passed to the buyer. • Revenues from dividends: Revenues from dividends are recognized when the right to receive payment is established with the approval for distribution by the General Assembly of shareholders. • Interest income: Interest income is recognized as the interest accrues (using the effective interest method). • Revenues from construction projects: Revenues from construction projects are recognized in accordance with the percentage of completion method.
In a principal and agency relationship, amounts collected by the agent on behalf of the principal do not result in increases in equity of the agent and thus, they are not revenues for the agent. Revenue for the agent is the amount of commission received by the principal. On the other hand, the principal’s revenues consist of the gross amounts described above and the commission paid to the agent is recognized as an expense.
14. Earnings per Share: Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during each year.
15. Segment Reporting: IAS 14 “Segment Reporting” sets criteria for the determination of the reportable business and geographical segments of enterprises. Segments are determined based on the Group’s legal structure, as the Group’s chief operating decision makers review financial information separately reported by the Company and each of the consolidated subsidiaries. The reportable segments are determined using the quantitative thresholds required by the Standard. Information for operating segments that do not FINANCIAL STATEMENTS 140
HELLENIC constitute reportable segments is combined and disclosed in the “All Other” category. Each segment performance is evaluated based TELECOMMUNICATIONS ORGANIZATION S.A. on operating income and net profit. NOTES TO THE FINANCIAL STATEMENTS AS OF 16. Dividends: Dividends declared to the shareholders are recognized and reflected as a liability in the period they are approved by the 31 DECEMBER 2007 (Amounts in millions of Euro, Shareholders General Assembly. unless otherwise stated) 17. Long-term Assets/ Liabilities: Long-term assets and liabilities are initially recorded at their fair value. Subsequent to the initial recognition, they are measured at amortized cost and the differences between that cost and the amount of receipt/payment are recognized in Income over the life of the asset/ liability using the effective interest rate.
18. Share Capital Issuance Costs: Share issuance costs, net of related deferred tax, are reflected as a deduction of Share Premium.
19. Treasury Shares: Treasury shares consist of OTE’s own shares, which have been issued, subsequently reacquired by the Company and not yet cancelled. Treasury shares do not reduce the number of shares issued but reduce the number of shares in circulation. The gross cost of the shares reacquired is reflected as a reduction to equity. Upon retirement, the acquisition cost of treasury share reduces the Share Capital and Share Premium and any difference is charged to Retained Earnings.
20. Leases: A lease that transfers substantially all of the rewards and risks incident to ownership of property is accounted for by the lessee as the acquisition of an asset and the incurrence of a liability, and by the lessor as a sale and/ or provision of financing. Lease payments are apportioned between finance charges (interest),which are recognized in Income and reduction of the lease liability. Finance charges are recognized directly as an expense. Financial leases are presented at the lower amount, between their fair value and the present value of the minimum lease payments at the beginning of the lease, reduced by the accumulated depreciation and any impairment losses. If the lease does not transfer substantially all of the rewards and risks incident to ownership of property, it is classified as an operating lease by the lessee and the rental payments are recognized as an expense as incurred.
21. Related Parties: Related party transactions and balances are disclosed separately in the financial statements. Such related parties principally consist of a company’s principal owners and management, companies with common ownership and/ or management with the company and its consolidated subsidiaries, or other affiliates of such companies.
22. Telecommunication Licenses: Telecommunication licenses are accounted for at cost, are amortized over their term of life and they are tested for impairment at least annually.
23. Materials and Supplies: Materials and supplies are measured at the lower of cost and net realizable value. The cost is based on the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. In the case of any subsequent increase of the net realizable value of materials and suppliers that have been written-down, the amount of the write-down is reversed.
24. Trade Receivables and Allowance for Doubtful Accounts: Trade receivables are initially recognized at their fair value. Subsequently they are measured at fair value less an allowance for any probable uncollectible amounts. At each reporting and financial statements date, all trade receivables are assessed based on historical trends and statistical information and a provision for the probable and reasonably estimated loss for these accounts is recorded. The balance of such allowance for doubtful accounts is adjusted by recording a charge to Income at each reporting period. Any customer account balances written-off are charged against the existing allowance for doubtful accounts.
25. Intangible Assets: Intangible assets acquired separately are measured at cost, while those acquired from a business combination are measured at fair value on the date of acquisition. Subsequently, they are measured at that amount less accumulated amortization and accumulated impairment losses. The useful lives of the intangible assets are assessed to be either finite or indefinite. Intangible assets with a finite useful life are amortized on a straight-line basis over their useful life. Amortization of intangible assets with a finite useful life begins when the asset is available for use. Intangible assets with an indefinite useful life are not amortized but instead they are tested for impairment at least annually in accordance with IAS 36 Impairment. No residual values are recognized. The useful lives of the intangible assets are reviewed on an annual basis, and adjustments, where applicable, are made prospectively. Intagible assets are assessed for impairment at least annually on an individual basis or on a cash generating unit basis.
26. Borrowing Costs: Assumptions, legal and other direct costs incurred in connection with the issuance of long-term loans adjust the carrying amount of the loans and are amortized in Income using the effective interest rate method over the life of the loan. Borrowing costs incurred during the construction period of property, plant and equipment attributable to these assets, are capitalized to the cost of these assets. All other borrowing costs are recognized as an expense in the income statement when incurred. FINANCIAL STATEMENTS 141
HELLENIC 27. Borrowings: All loans and borrowings are initially recognized at fair value, net of direct costs associated with the borrowing. After TELECOMMUNICATIONS ORGANIZATION S.A. initial recognition, borrowings are measured at amortized cost using the effective interest rate method. Gains or losses through the NOTES TO THE FINANCIAL amortization process are recognized in Income as finance revenue or cost. STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, 28. Provisions: Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, unless otherwise stated) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are measured by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase of the provision due to the passage of time is recognized as a borrowing cost. Provisions are reviewed at each balance sheet date and if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, are reversed. Provisions are used only for expenditures for which they were originally recognized. No provisions are recognized for future operating losses. Contingent assets and contingent liabilities are not recognized. Provisions for restructuring are recognized when the Group has an approved, detailed and formal restructuring plan , which has either started to be implemented or has been publicly announced to those affected by it. Future operating costs are not provided for.
29. Impairment of Assets: The carrying values of the Group’s assets are tested for impairment, whenever indications exist that their carrying amount is not recoverable. In such cases, the recoverable amount is estimated and if the carrying amount of the asset exceed its estimated recoverable amount, an impairment loss is recognized in Income. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In measuring value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. If an asset does not generate cash flows individually, the recoverable amount is determined for the cash generating unit to which the asset belongs.
At each reporting date the Group assesses whether there is an indication that an impairment loss recognized in prior periods may no longer exist. If any such indication exists, the Group estimates the recoverable amount of that asset and the impairment loss is reversed, increasing the carrying amount of the asset to its recoverable amount, to the extent that the recoverable amount does not exceed the carrying value of the asset that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
30. Share-Based Compensations and Other Rights: The fair value of share-based compensations is recognized as an expense with a corresponding increase in equity, while the fair value of any other rights is recognized as an expense with a corresponding increase in liabilities.
Fair value is determined at the grant date and is allocated to the vesting period without any vesting conditions.
Fair value is measured based on generally accepted methods, taking into account the terms and conditions (except market conditions) under which these rights have been granted.
For share-based compensations, the amount expensed is revised to equal the actual number of equity instruments that ultimately vest, except for the case that the withdrawal of the right is due to the fact that share prices have not met the registration limit.
For all other rights, the liability is remeasured at each balance sheet date and at the date of settlement, with any changes in fair value recognized as interest expense.
31. Derivative Financial Instruments and Hedging Instruments: Derivative financial instruments include interest rate swaps, currency swaps and other instruments.
Derivatives for trading purposes: Derivatives that do not qualify for hedging, are considered as derivatives for trading purposes. Initially, these derivatives are recognized at their fair value (which is essentially the transaction cost) at the commencement date. Subsequent to the initial recognition, they are measured at fair value based on quoted market prices, if available, or based on valuation techniques such as discounted cash flows. These derivatives are classified as assets or liabilities depending on their fair value, with any changes recognized in the income statement.
Hedging: Hedging relationships are the following: Fair Value Hedge, where the exposure to changes in the fair value of a recognized asset or liability is hedged, or Cash Flow Hedge, where the exposure to variability in cash flows associated with a recognized asset or liability is hedged. At the inception of the hedge there is formal documentation which includes identification of the hedging FINANCIAL STATEMENTS 142
HELLENIC instrument, the hedged item, the hedging relationship, the nature of the risk being hedged and the Company’s risk strategy. TELECOMMUNICATIONS ORGANIZATION S.A. Furthermore, the documentation includes an analysis of whether the hedging is effective in offsetting the exposure to changes in NOTES TO THE FINANCIAL the fair value or cash flows attributable to the hedged risk. In a Fair Value Hedge, the gain or loss from remeasuring the hedging STATEMENTS AS OF 31 DECEMBER 2007 instrument at fair value is recognized in Income and the gain or loss on the hedged item adjusts the carrying amount of the hedged (Amounts in millions of Euro, item and is recognized in Income. In a Cash Flow Hedge, the portion of the gain or loss on the hedging instrument that is determined unless otherwise stated) to be an effective hedge is recognized directly in equity and the ineffective portion of the gain or loss on the hedging instrument is recognized in Income.
32. Presentation Changes: In the 2006 consolidated Financial Statements an amount of EUR 580.3 which was previously included under Retained Earnings was presented separately to conform with the presentation of the 2007 Consolidated Financial Statements. For further details on the nature of this amount see Note 7. For comparability reasons certain reclassifications on the disclosures were made. These reclassifications did not have an impact on the 2006 Financial Statements.
33. New Standards, Interpretations and Amendments to existing Standards not yet adopted: The International Accounting Standard Board (IASB) and the International Financial Reporting Interpretation Committee (IFRIC), have issued new IFRS, amendments and interpretations to existing standards that are not mandatory for the year ended 31 December 2007 and have not been applied in preparing these Financial Statements: • IFRS 8 Operating Segments is effective for financial periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14 and introduces the “management approach” to segment reporting. IFRS 8 will require the disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. The new Standard is not expected to have a significant effect on the Group’s financial statements. • IFRIC 11 – IFRS 2 Group and Treasury Share Transactions is effective for financial periods beginning on or after 1 March 2007. IFRIC 11 requires a share-based payment arrangement in which an entity receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments are obtained. It is not expected to have a significant effect on the Group’s financial statements. • IFRIC 12 –Service Concession Arrangements is effective for financial periods beginning on or after 1 January 2008. IFRIC 12 provides guidance on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. It is not expected to have any significant effect on the Group’s financial statements. • IFRIC 13 – Customer Loyalty Programmes is effective for financial periods beginning on or after 1 July 2008. IFRIC 13 addresses the accounting by entities that operate, or otherwise participate in customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. It is not expected to have any significant effect on the Group’s financial statements. • IFRIC 14 IAS 19 – The Limit in a Defined Benefit Asset, Minimum Funding Requirments and their Interaction is effective for financial years beginning on or after 1 Junary 2008. IFRIC 14 clarifies when refunds or reductions in the future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. It also addresses when a MFR might give rise to a liability. The Group has not yet determined the potential effect of the interpretation, which has not been approved by the European Union. • Amendments to IAS 1 Presentation of Financial Statements are effective for financial periods beginning on or after 1 January 2009. IAS 1 has been revised to upgrade the quality if the information presented in financial statements. The main changes relate to the statement of changes in equity, which is required to include only the transactions with the shareholders, the introduction of a new statement of comprehensive income, which presents all components of recognized income and expenses that are in the statement of comprehensive income and the requirement to present the effect of the application of new standards on prior periods in a separate column on the financial statements. The revised standard has not been approved by the European Union. • Revised IAS 23 Borrowing Costs is effective for financial periods beginning on or after 1 January 2009. It does not permit the option of immediately recognizing all borrowing costs as an expense and requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised standard is not expected to impact the Group’s Financial Statement given the fact that the Group already capitalizes all borrowing costs. The revised standard has not yet been approved by the European Union yet. • Revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements is effective for financial periods beginning on or after 30 June 2009. The revised IFRS 3 introduces a series of changes in the accounting treatment of business combinations which will affect the amount of the recognized goodwill, the income statement for the year that the FINANCIAL STATEMENTS 143
HELLENIC business combination takes place and future results. These changes include the recognition as expenses of the costs related to TELECOMMUNICATIONS ORGANIZATION S.A. the acquisition and the recognition of the future changes in fair value of the consideration in Income (instead the adjusting of NOTES TO THE FINANCIAL goodwill). STATEMENTS AS OF 31 DECEMBER 2007 Revised IAS 27 requires that acquisitions of minority interests are recognized in equity. Therefore, they do not affect goodwill or (Amounts in millions of Euro, create a result in Income (gain or loss). Furthermore, the revised standard is applicable for the transactions after the transition unless otherwise stated) date. The above mentioned changes have not yet been approved by the European Union. • Amendments to IAS 32 Financial Instruments and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments are effective for financial periods beginning on or after 1 January 2009. The amendments to IAS 32 require that puttable financial instruments and obligations arising in liquidation are classified as equity if and only if they meet certain conditions. The amendments to IAS 1 require disclosures with respect to the puttable financial instruments that are classified as equity instruments. These amendments are not expected to have a significant impact to the Group’s financial statements and have not been approved by the European Union yet. . FINANCIAL STATEMENTS 144
HELLENIC TELECOMMUNICATIONS 4. PROPERTY, PLANT AND EQUIPMENT ORGANIZATION S.A. NOTES TO THE FINANCIAL Property, plant and equipment is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, Telecom unless otherwise stated) Build- munication Transporta- Furniture Construction Investment COMPANY ings equipment tion Means and fixtures in progress supplies Total
31/12/2005
Cost 28.5 6,892.2 38.1 169.6 325.0 114.7 7,568.1
Accumulated depreciation (4.0) (4,343.0) (31.2) (157.7) - - (4,535.9)
Net Book Value 31/12/2005 24.5 2,549.2 6.9 11.9 325.0 114.7 3,032.2
1/1/2006
Net Book Value 1/1/2006 24.5 2,549.2 6.9 11.9 325.0 114.7 3,032.2
Additions 0.9 392.4 1.2 7.7 203.9 47.4 653.5
Other value adjustments - 463.6 - (0.5) - - 463.1
Disposals, cost (0.6) (271.3) (0.8) (2.8) (359.0) (58.3) (692.8) Disposals, accumulated depreciation 0.6 233.6 0.8 2.8 - - 237.8
Depreciation for the year (1.9) (516.4) (2.3) (6.8) - - (527.4) Other accumulated depreciation adjustments - (463.6) - 1.6 - - (462.0)
Net Book Value 31/12/2006 23.5 2,387.5 5.8 13.9 169.9 103.8 2,704.4
31/12/2006
Cost 28.7 7,476.9 38.5 174.0 169.9 103.8 7,991.8
Accumulated depreciation (5.2) (5,089.4) (32.7) (160.1) - - (5,287.4)
Net Book Value 31/12/2005 23.5 2,387.5 5.8 13.9 169.9 103.8 2,704.4
1/1/2007
Net Book Value 1/1/2007 23.5 2,387.5 5.8 13.9 169.9 103.8 2,704.4
Additions 1.7 224.3 2.2 7.5 243.8 81.2 560.7
Spin off OTE-GLOBE, Cost - (203.1) - - (5.1) - (208.2)
Disposals, cost - (10.4) (1.6) (5.0) (190.8) (74.5) (282.3) Disposals, accumulated depreciation - 10.4 1.5 5.0 - - 16.9
Depreciation for the year (1.5) (492.1) (1.6) (6.6) - - (501.8) Spin off OTE-GLOBE,accumulated depreciation - 72.2 - - - - 72.2
Net Book Value 31/12/2007 23.7 1,988.8 6.3 14.8 217.8 110.5 2,361.9
31/12/2007
Cost 30.4 7,487.7 39.1 176.5 217.8 110.5 8,062.0
Accumulated depreciation (6.7) (5,498.9) (32.8) (161.7) - - (5,700.1)
Net Book Value 31/12/2007 23.7 1,988.8 6.3 14.8 217.8 110.5 2,361.9
There are no restrictions on title on property, plant and equipment. The amount of borrowing costs capitalized during 2007 is EUR 5.2. FINANCIAL STATEMENTS 145
HELLENIC TELECOMMUNICATIONS Telecom Transpor Furniture Construc- Invest ORGANIZATION S.A. munication tation and tion in ment NOTES TO THE FINANCIAL STATEMENTS AS OF GROUP Land Buildings equipment Means fixtures progress supplies Total 31 DECEMBER 2007 31/12/2005 (Amounts in millions of Euro, unless otherwise stated) Cost 27.3 855.0 11,056.4 50.4 414.6 673.8 146.2 13,223.7 Accumulated depreciation - (245.2) (5,914.5) (40.0) (284.4) - - (6,484.1) Net Book Value 31/12/2005 27.3 609.8 5,141.9 10.4 130.2 673.8 146.2 6,739.6 1/1/2006 Net Book Value 1/1/2006 27.3 609.8 5,141.9 10.4 130.2 673.8 146.2 6,739.6 Subsidiary acquisition, cost 20.7 34.9 4.2 2.9 48.4 1.9 0.0 113.0 Subsidiary acquisition, accumulated depreciation - (7.2) (4.4) (0.7) (27.6) - - (39.9) Additions 0.3 30.1 804.0 5.3 34.8 441.1 141.9 1,457.5 Disposal of subsidiary, cost - (31.0) (280.2) (2.5) (4.6) (64.2) (5.5) (388.0) Disposal of subsidiary,accumulated depreciation - 9.5 160.3 1.8 3.6 - - 175.2 Other value adjustments (0.4) 7.6 438.8 (0.1) (3.1) - - 442.8 Disposals, cost - (3.8) (302.6) (2.3) (10.6) (440.8) (78.9) (839.0) Disposals, accumulatedDepreciation - 0.8 260.4 2.0 10.3 - - 273.5 Foreign exchange differences, cost 0.6 48.4 362.5 2.8 11.0 16.2 4.2 445.7 Foreign exchange differences,accumulated depreciation - (26.1) (216.7) (2.9) (7.1) - - (252.8) Depreciation for the year - (29.6) (1,023.0) (4.0) (35.2) - - (1,091.8) Sundry accumulated depreciation adjustments - (6.6) (448.3) 0.1 2.5 - - (452.3) Net Book Value 31/12/2006 48.5 636.8 4,896.9 12.8 152.6 628.0 207.9 6,583.5 31/12/2006 Cost 48.5 941.2 12,083.1 56.5 490.5 628.0 207.9 14,455.7 Accumulated depreciation - (304.4) (7,186.2) (43.7) (337.9) - - (7,872.2) Net Book Value 31/12/2006 48.5 636.8 4,896.9 12.8 152.6 628.0 207.9 6,583.5 1/1/2007 Net Book Value 1/1/2007 48.5 636.8 4,896.9 12.8 152.6 628.0 207.9 6,583.5 Additions 1.3 51.7 1,085.0 14.2 54.9 906.6 130.4 2,244.1 Disposal of subsidiary, cost (0.7) - (5.7) - (7.1) (15.7) - (29.2) Disposal of subsidiary, accumulated depreciation - - 5.7 - 5.6 - - 11.3 Other value adjustments - (3.0) 10.6 - (10.6) - - (3.0) Disposals, cost - (3.9) (173.0) (8.6) (14.9) (1,030.4) (166.1) (1,396.9) Disposals, accumulated depreciation - 1.1 165.2 7.7 13.2 - - 187.2 Foreign exchange differences, cost (0.5) (39.3) (312.6) (2.5) (10.6) (3.1) (10.9) (379.5) Foreign exchange differences, accumulated depreciation - 22.1 208.0 2.4 7.3 - - 239.8 Depreciation for the year - (35.3) (1,012.1) (5.5) (36.0) - - (1,088.9) Other accumulated depreciation adjustments - 3.0 (8.0) - 8.0 - - 3.0 Net Book Value 31/12/2007 48.6 633.2 4,860.0 20.5 162.4 485.4 161.3 6,371.4 31/12/2007 Cost 48.6 946.7 12,687.4 59.6 502.2 485.4 161.3 14,891.2 Accumulated depreciation - (313.5) (7,287.4) (39.1) (339.8) - - (8,519.8) Net Book Value 31/12/2007 48.6 633.2 4,860.0 20.5 162.4 485.4 161.3 6,371.4 FINANCIAL STATEMENTS 146
HELLENIC TELECOMMUNICATIONS 5. GOODWILL ORGANIZATION S.A. NOTES TO THE FINANCIAL Goodwill included in the Consolidated Financial Statements is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Net Book Value 1/1/2006 72.4 Additions 463.8 Transfer from acquired subsidiary 4.8 Foreign exchange differences (0.2) Net Book Value 31/12/2006 540.8 Foreign exchange differences 0.7 Net Book Value 31/12/2007 541.5
Additions to goodwill in 2006 arose from the acquisition of GERMANOS S.A. by COSMOTE.
Foreign exchange differences arise from the translation of the acquired goodwill on AMC in the reporting currency (Euro) with the current foreign exchange at each balance sheet date.
The above mentioned goodwill has been allocated to the reporting units that it relates. The fair value of the reporting units as at 31 December 2007 was above the carrying amount of such goodwill, thus there is no indication of impairment of goodwill.
6. TELECOMMUNICATION LICENSES
Telecommunication Licenses is analyzed as follows:
2006 COMPANY GROUP Net Book Value 1/1/2006 4.2 393.0 Additions - 21.8 Foreign exchange differences, cost - 4.2 Amortization for the year (0.4) (32.8) Foreign exchange differences, accumulated amortization - (2.0) Net Book Value 31/12/2006 3.8 384.2 31/12/2006 Cost 6.2 511.8 Accumulated amortization (2.4) (127.6) Net Book Value 3.8 384.2 2007 Net Book Value 1/1/2007 3.8 384.2 Additions - 59.8 Foreign exchange differences, cost - (4.0) Amortization for the year (0.4) (47.2) Foreign exchange differences, accumulated depreciation - 3.4 Net Book Value 31/12/2007 3.4 396.2 31/12/2007 Cost 6.2 567.0 Accumulated amortization (2.8) (170.8) Net Book Value 31/12/2007 3.4 396.2 FINANCIAL STATEMENTS 147
HELLENIC TELECOMMUNICATIONS 7. INVESTMENTS ORGANIZATION S.A. NOTES TO THE FINANCIAL Investments is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, 2007 2006 unless otherwise stated) COMPANY GROUP COMPANY GROUP (a) Investments in subsidiaries 3,947.1 - 1,668.8 - (b) Other investments 157.8 158.4 157.6 158.7 4,104.9 158.4 1,826.4 158.7
(a) Investments in Subsidiaries is analyzed as follows: Country 2007 2006 • COSMOTE Greece 2,654.3 556.7
• OTE INTERNATIONAL INVESTMENTS LTD Cyprus 497.9 497.9 • OTE AUSTRIA HOLDING GMBH Austria - 0.1 • HELLAS-SAT Cyprus 194.7 194.7 • COSMO-ONE Greece 3.2 3.2 • OTENET Greece 32.1 24.7 • HELLASCOM Greece 8.4 20.4 • OTE SAT- MARITEL Greece 11.2 11.2 • OTE PLC U.K. 35.0 - • ΟΤΕ PLUS Greece 3.8 3.8 • ΟΤΕ ESTATE Greece 336.3 336.3 • INFOTE Greece - 12.4 • OTE-GLOBE Greece 163.7 0.9 • OTE INSURANCE Greece 0.6 0.6 • OTE ACADEMY Greece 5.9 5.9 3,947.1 1,668.8
Included in Investments in Subsidiaries are the amounts of loans granted by ΟΤΕ to its subsidiaries and are outstanding at the balance sheet date. As at 31 December 2007, the outstanding loans included in investments amount to EUR 35.0 and relate to a loan that OTE granted to OTE PLC.
The movement of Investments in Subsidiaries is as follows:
COMPANY Balance at 1 January 2006 1,526.3 Acquisition of additional shares in subsidiary 191.1 Sale of investments (55.0) Share Capital increase of subsidiary 6.4 Balance at 31 December 2006 1,668.8
Balance at 1 January 2007 1,668.8 Acquisition of additional shares in subsidiary 2,105.0 Sale of investments (12.4) Share Capital increase of subsidiary 162.8 Reduction of subsidiary’s share capital (12.0) Transfer of loan to subsidiary 35.0 Liquidation of subsidiary (OTE AUSTRIA HOLDING GMBH) (0.1) Balance at 31 December 2007 3,947.1 FINANCIAL STATEMENTS 148
HELLENIC The movements that took place during the year as presented in the table above are as follows: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Acquisition of minority of COSMOTE: STATEMENTS AS OF 31 DECEMBER 2007 As at 31 December 2006, OTE had 223,572,294 shares, which represented approximately 67.00% of the total issued share capital and (Amounts in millions of Euro, unless otherwise stated) voting rights of COSMOTE.
On 9 November 2007, following the Board of Director’s approval, OTE announced the submission of a public tender offer for the acquisition of the total outstanding common shares of COSMOTE at a consideration of EUR 26.25 (in absolute figure). As at that date OTE had 227,086,941 shares, which represent approximately 67.83% of the total issued share capital and voting rights of COSMOTE, out of which 3,154,647 shares were acquired through the Stock Exchange in 2007 at a total consideration of EUR 85.9. The public tender offer related to the 107,695,259 shares, which represented approximately 32.17% of total issued share capital and voting rights of COSMOTE.
At the same time, as required by law, OTE submitted the respective Information Prospectus with all the terms of the public tender offer for approval by the Stock Exchange Committee, the Board of Directors of which approved it on 29 November 2007.
Since the date of the Acceptance Period till 31 December 2007, OTE acquired through the Stock Exchange additionally 76,638,257 shares (or 22.89% of COSMOTE’s share capital) with the corresponding voting rights for a total consideration of EUR 2,011.7, resulting to a total holding of 303,725,198 shares which represented approximately 90.72% of COSMOTE’s share capital and voting rights.
The goodwill of EUR 1,946.5, which resulted from the acquisition of COSMOTE’s minority rights, was recognized directly in Equity in the Consolidated Financial Statements as it relates to the acquisition of minority in entities that control already exists.
Acquisition of shares in OTENET
On 24 February 2007 OTE’s Board of Directors decided to acquire the total remaining portion of OTENET’s minority shares. Following this decision OTE proceeded with the acquisition of the remaining 5.41% share capital of OTENET from minorities at EUR 7.4 increasing its participation in this subsidiary at 100%.
In May 2007 OTE’s management announced its decision to merge OTENET and incorporate its business activities. The absorption was approved by the Board of Directors of OTE on 18 December 2007 and by OTENET’s Board of Directors on 28 December 2007. The date of the conversion balance sheet, was set to be 31 December 2007. The absorption is expected to be completed within the first semester of 2008 after obtaining all necessary and required approvals by the authorized parties.
The goodwill of EUR 7.0 which resulted from the acquisition of OTENET’s minority, was recognized directly in Equity in the Consolidated Financial Statements as it relates to the acquisition of minority to entities that control already exists.
Total goodwill resulting from the acquisition of minority rights in entities that control already exists which in the Consolidated Financial Statements have been recognized directly in Equity, is analyzed as follows:
Entity 2007 2006 COSMOTE 2,351.9 405.4 GERMANOS 171.7 171.7 OTENET 12.3 5.3 HELLASCOM (3.3) (3.3) HELLAS SAT 1.2 1.2 2,533.8 580.3
Spin-Off of OTE-GLOBE
On 19 April 2007, OTE’s Board of Directors decided to spin-off international facilities and cables infrastructure of OTE as well as the licenses to use INTEC-ITU billing system (the “Sector”) and contribute these items to the subsidiary OTE-GLOBE. The demerge and spin-off were approved by OTE’s and OTE-GLOBE’s General Assembly on 21 June 2007 and 29 June 2007 respectively and were completed according to the provisions of Law 2166/1993 and Article 36 of Law 2937/2001. The Net Asset position of the Sector as this was determined by the Accounting Statements as of 31 March 2007, amounted to EUR 132.8 amount by which the share capital of OTE-GLOBE increased with the issuance of 45,330,534 registered shares of a nominal value of EUR 2.93 (in absolute figure) each with a corresponding increase of OTE’s investment in this subsidiary. FINANCIAL STATEMENTS 149
HELLENIC In October 2007 OTE following the Board of Directors’ decision participated in the share capital increase of the subsidiary OTE-GLOBE TELECOMMUNICATIONS ORGANIZATION S.A. in cash amounting to EUR 30.0 with the issuance of 10,238,907 registered shares at a nominal value of EUR 2.93 (in absolute figures) NOTES TO THE FINANCIAL each. OTE’s investment in the total share capital increase of its subsidiary, during the year amounts to EUR 162.8. STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, INFOTE Sale unless otherwise stated) On 19 December 2007, following the relevant Board of Directors’ decision, the sale of the wholly owned subsidiary INFOTE, which provides directory and information services, to Rhone Capital LLC and Zarkona Trading Ltd was completed. The total cash consideration amounted to EUR 300.2 and the relevant selling costs amounted to approximately EUR 5.4.
As a result of the above transaction and given that the carrying value of this investment in OTE’s books amounted to Euro 12.4, a pre- tax gain of Euro 282.4 was recognized, and is included in OTE’s Separate 2007 income statement under Gains from investments.
INFOTE is included in the Consolidated Financial Statements until the date the Group ceased to control that company (19 December 2007).
The following table presents INFOTE’s condensed income statements for the fiscal year 2006 and for the consolidated period 1 January 2007 - 19 December 2007: Period 1/1/2007- 19/12/2007 Year 2006 Turnover 57.5 62.2 Operating expenses (40.7) (48.7) Operating income before financial results 16.8 13.5 Financial results 0.3 0.2 Profit before tax 17.1 13.7 Income Tax (6.6) (4.6) Profit for the period 10.5 9.1
In the Consolidated Financial Statements, the gain from the sale was determined as the difference between the selling price less related expenses and the value of INFOTE’s net assets at the date of disposal.
The assets and liabilities of INFOTE at the date of disposal (19 December 2007) are as follows:
ASSETS Non current assets 29.0 Cash and cash equivalents 12.9 Other currents assets 25.2 Total Assets 67.1 LIABILITIES Long-term liabilities 1.8 Short-term liabilities 15.2 Total Liabilities 17.0
Net assets sold 50.1 OTE’s share in INFOTE’s net assets sold (100%) 50.1
Selling Price 300.2 Disposal expenses (5.4) OTE’s stake in INFOTE’s net assets (100%) (50.1) Gain from sale of investment in the Consolidated Income Statement 244.7
The effect of the above transaction on the Consolidated Cash Flow Statement is as follows: Selling Price 300.2 Less cash and equivalents disposed (12.9) Less expenses related to the completion of the sale (5.4) Net inflow from the sale of subsidiary 281.9 FINANCIAL STATEMENTS 150
HELLENIC Acquisition of minority of OTE PLUS TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Following the decision of the Board of Directors of 21 September 2006, on 8 February 2007 OTE acquired the remaining 1.0% minority STATEMENTS AS OF interests in OTE PLUS for a cash consideration of Euro 0.04. After the completion of the transaction OTE owns 100% of the share 31 DECEMBER 2007 (Amounts in millions of Euro, capital in OTE PLUS. unless otherwise stated) Share Capital reduction of HELLASCOM
In December 2007, HELLASCOM following the decision, of the Extraordinary General Assembly of the Shareholders dated 30 July 2007, proceeded with the reduction of its share capital by EUR 12.0 which was returned to OTE and accordingly reduced the investment value of the parent in the specific subsidiary.
Change in participation in COSMOHOLDING CYPRUS and completion of GERMANOS’ acquisition
On 15 January 2007 Mr. Panos Germanos acquired a participation of 10% in the share capital of COSMOTE’s subsidiary COSMOHOLDING CYPRUS, by subscribing 100 registered shares (Class B) for a total amount of Euro 144.5, through the 100% controlled by him Cypriot holding Company, MICROSTAR Ltd. In accordance with the issuance terms of Class B shares, for which COSMOTE guaranteed, these shares do not have dividend rights, return of capital rights or any capital, profit or any other kind of distribution rights.
These shares are redeemable by COSMOHOLDING CYPRUS or any other party indicated by COSMOTE on 31 December 2009 or on 31 December 2011, if the controlling shareholder MICROSTAR Ltd chooses to, at a price which depends on the achievement of certain corporate targets until the acquisition date. In addition, the Class B shares could be prematurely purchased after the request either of the holder in the case of change of control of COSMOTE or OTE, or COSMOHOLDING CYPRUS in the case COSMOTE decides to sell its stake in COSMOHOLDING CYPRUS to third parties not under its direct or indirect control. The amount of EUR 144.5 plus EUR 8.8 which relates to accrued interest presented in the Consolidated Balance Sheet under Other Long-Term liabilities (See note 17).
On 9 February 2007, GERMANOS Extraordinary General Assembly decided, following the request of COSMOHOLDING CYPRUS, the submission of application to the Capital Market Committee for the delisting of GERMANOS from the Athens Stock Exchange. The Capital Market Committee approved the above application on 8 March 2007. On 10 April 2007, the squeeze-out of the remaining shares of GERMANOS, was completed. During this process COSMOHOLDING CYPRUS paid for the acquisition of the remaining shares of GERMANOS for a total amount of EUR 31.4. According to the 427/95.2007 decision of the Board of the Capital Market Committee, the delisting of GERMANOS was approved since 11 May 2007.
Following the completion of the acquisition, the participation interest of COSMOHOLDING CYPRUS in GERMANOS is 99.998% and the Group’s indirect participation interest in COSMOHOLDING CYPRUS and GERMANOS as of 31 December 2007 is 81.65%.
On 21 November 2007, according to the Share Purchase Agreement dated 9 May 2006 between COSMOTE and Mr. P. Germanos, the return of the amount of EUR 20.0 by Mr. P. Germanos to COSMOHOLDING CYPRUS took place.
(b) Other investments
The movement of Other Investments is as follows:
COMPANY GROUP Balance at 1 January 2007 157.8 158.7 Other movements - (0.3) Balance at 31 December 2007 157.8 158.4
OTE’s Other Investments is analyzed as follows:
2007 2006 TELEKOM SRBIJA 155.1 155.1 Other 2.7 2.5 157.8 157.6
The Group has a participation stake to TELEKOM SRBIJA at 20%. The investment is stated at cost as the Group has no significant influence. FINANCIAL STATEMENTS 151
HELLENIC Dividend Income comes from the following entities: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL COMPANY 2007 2006 STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, COSMOTE 163.2 145.3 unless otherwise stated) OTE INTERNATIONAL INVESTMENTS LTD 57.3 - OTE ESTATE - 15.0 INFOTE 5.0 3.5 OTE-GLOBE - 2.5 OTESAT – MARITEL - 0.7 ARMENTEL - 6.8 TELEKOM SRBIJA 15.7 21.6 Other 1.1 1.3 242.3 196.7
GROUP 2007 2006 TELEKOM SRBIJA 15.7 21.6 Other 1.1 1.4 16.8 23.0
8. OTHER NON-CURRENT ASSETS
Other Non-Current Assets is analyzed as follows: 2007 2006 COMPANY GROUP COMPANY GROUP Loans and advances to employees 50.3 50.5 33.3 33.5 Discounting of loans (4.0) (4.0) (3.2) (3.2) Loans to COSMOFON 51.2 - 56.2 - Intangible assets due to the acquisition of GERMANOS - 534.6 - 555.8 Other intangible assets - 48.1 - 75.1 Deferred expenses (long-term) - 38.6 - 34.1 Other 0.5 10.8 0.3 14.4 98.0 678.6 86.6 709.7
Loans and Advances to Employees includes mainly loans granted to employees with service period exceeding 25 years against the accrued indemnity payable to them upon retirement. The effective interest rate on these loans is 1.58% for the financial year 2007 and 1.55% for the financial year 2006. The discounting factor of these loans is the difference between the above interest rate and the rate used for the actuarial valuation of staff leaving indemnities which is 4.8% for 2007 and 4.1% for 2006 (See Note 16).
Loans to COSMOFON relates to two loans of Euro 22.0 and Euro 34.2 granted by OTE. COSMOFON was OTE’s subsidiary until August 2005, when it was sold to COSMOTE. The loans were granted at 6.5% fixed interest rate and their maturity is to 2010 and 2012 respectively. During 2007, OTE collected EUR 5.0 from the first loan.
The Group’s Intangible Assets recognized in 2006 related to the acquisition of GERMANOS by COSMOTE and include mainly brand name (EUR 417.30) which has indefinite useful life. FINANCIAL STATEMENTS 152
HELLENIC TELECOMMUNICATIONS 9. TRADE RECEIVABLES ORGANIZATION S.A. NOTES TO THE FINANCIAL Trade Receivables is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, 2007 2006 unless otherwise stated) COMPANY GROUP COMPANY GROUP Subscribers 1,097.0 1,666.8 1,016.4 1,553.2 International traffic 121.7 205.1 116.9 201.2 Due from subsidiaries 1296.2 - 78.7 - Unbilled revenues 34.3 91.6 66.2 117.5 1,382.2 1,963.5 1,278.1 1,871.9 Minus
Allowance for doubtful accounts (623.6) (791.5) (568.0) (711.4) 758.6 1,172.0 710.1 1,160.5
The movement in the allowance for doubtful accounts is as follows:
COMPANY GROUP Balance at 1/1/2006 (504.1) (624.1) Addition for the year, net of receipts (65.5) (97.9) Write-offs 1.6 10.8 Foreign exchange differences - (0.2) Balance at 31/12/2006 (568.0) (711.4)
Balance at 1/1/2007 (568.0) (711.4) Addition for the year, net of receipts (55.7) (88.0) Write-offs 0.1 4.5 Foreign exchange differences - 3.4 Balance at 31/12/2007 (623.6) (791.5) FINANCIAL STATEMENTS 153
HELLENIC TELECOMMUNICATIONS 10. OTHER CURRENT ASSETS ORGANIZATION S.A. NOTES TO THE FINANCIAL Other Current Assets is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, 2007 2006 unless otherwise stated) COMPANY GROUP COMPANY GROUP Investments in financial assets 47.8 81.2 38.7 128.7 Advances to pension funds (See Note 16) 35.7 35.7 35.7 35.7 Due from State for income tax advance (See Note 19) - 21.4 53.2 61.4 Due from ΟΤΕ Leasing customers (See Note 27 (i)) 23.0 23.0 27.1 27.1 Loans and advances to employees 5.0 5.1 2.5 2.6 Tax on sale of investments 39.9 39.9 39.9 39.9 VAT recoverable - 25.2 - 13.4 Other prepayments 10.7 78.4 10.0 45.2 Deferred expenses 3.0 19.1 3.2 20.9 Other 15.7 43.5 16.1 72.3 180.8 372.5 227.0 447.8
Investments in Financial Assets arise from equity securities listed on the Athens Stock Exchange and are classified as Available for Sale Financial Assets. Except for the equity securities, Group’s Financial Assets include bonds and other securities.
11. CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents is analyzed as follows:
2007 2006 COMPANY GROUP COMPANY GROUP
Cash in hand 1.3 4.4 1.6 5.3 Short term bank deposits 451.8 1,311.9 813.1 2,037.2 453.1 1,316.3 814.7 2,042.5
12 SHARE CAPITAL
OTE’s share capital as at 31 December 2007 and 2006, amounted to EUR 1,171.5, divided into 490,150,389 registered shares, with a nominal value of EUR 2.39 (in absolute figure) each and the respective Share Premium as at 31 December 2007 and 2006 amounted to EUR 485.9.
The Hellenic State is OTE’a major shareholder. As at 31 December 2006 its direct participation was approximately 35.66% while together with D.E.K.A. S.A. its participation was 38.73%.
On 29 June 2007, Hellenic State, OTE’s major shareholder, sold 52,446,092 common registered shares embedding voting rights through an accelerated book build, representing 10.7% of the OTE’s Share Capital.
After the completion of the above transaction the direct participation of the Hellenic State changed from 35.66% (or 174,796,804 shares) to 24.96% (or 122,350,712 shares), while it’s indirect participation through D.E.K.A. S.A. is approximately 3.07% (or 15,052,773 shares) resulting in a total participation direct and indirect from 189,849,577 shares to 137,403,485 shares, with the corresponding voting rights, or from 38.73% to 28.03% respectively.
In July 2007 following the decision of the Capital Market Committee with reference number 12/435/12.7.2007, OTE was granted the permission to proceed with the sale of a total of 896,967 shares, which had not been dematerialized, on behalf of the beneficial owners of the securities. The sale of shares commenced on 23 July 2007 and is conducted according to the provisions and regulations of the Hellenic Capital Market Committee and the Athens Stock Exchange. FINANCIAL STATEMENTS 154
HELLENIC On 8 November 2007 the Extraordinary General Assembly convened and decided the following: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL a. Approved the acquisition by OTE of own shares in accordance with article 16 of C.L. 2190/1920 up to 10% of total paid up share STATEMENTS AS OF capital at a price ranging between EUR 15 to EUR 35 per share (in absolute figures) and simultaneous cancellation of the relevant 31 DECEMBER 2007 (Amounts in millions of Euro, decision of the General Assembly dated 21 June 2007. unless otherwise stated) b. The amendment of the Articles of Association with the addition of the new Article 5a (Shares) and amendment of Article 8 (Board of Directors), 10 (Composition and operation of the Board of Directors), 17 (Invitation, Agenda of Company’s Shareholders General Assembly) and 21 (extraordinary provision and majority)
On 31 December 2007 MARFIN Investment Group’s participation in OTE share capital, after purchases through Athens Stock Exchange, reached 18.89% or 92,592,156 shares and the corresponding voting rights.
The investment includes:
a.6.29% stake or 30,819,186 shares with embedded voting rights that MARFIN Investment Group owns directly and
b.12.60% stake or 61,772,970 shares with embedded voting rights that MARFIN Investment Group has the right to acquire in accordance with the total return equity swaps conditions which voting rights are exercised based of their instructions. It is noted that within the 12.60% stake are included the following: • 8.52% stake or 41,772,970 shares with corresponding embedded voting rights that derive from the total return equity swap agreement between MARFIN Investment Group and COMMERZBANK AG, and • 4.08% stake or 20,000,000 shares with corresponding embedded voting rights that derive from the total rerutn equity swap agreement between MARFIN Investment Group and ROYAL BANK OF SCOTLAND PLC.
13. STATUTORY RESERVE - RETAINED EARNINGS
Under Greek Company Law, entities are required to transfer a minimum of five percent of their annual net profit to a statutory reserve, until such reserve equals one-third of the issued share capital. As at 31 December 2007 and 2006, this reserve amounted to EUR 312.1 and EUR 283.3 respectively. This statutory reserve cannot be distributed to shareholders.
Retained Earnings include undistributable taxable profits and untaxed and specially taxed reserves which upon distribution will be subject to income tax.
During 2007, the Company in accordance with L.3299/2004 formed an untaxed reserve of EUR 30.0 which relates to investments in broadband network infrastructure and restricted from previously taxed profits EUR 7.5 as own contribution to the cost of the investment.
14. DIVIDENDS
Under Greek Company Law (per published financial statements), each year companies are generally required to declare from their statutory profits, dividends of at least 35% of after-tax profits, after allowing for statutory reserve, or a minimum of 6% of the paid-in share capital, whichever is the greater. However, companies can waive such dividend payment requirement with the unanimous consent of their shareholders.
On 21 June 2007 the General Assembly of OTE’s Shareholders approved the distribution of a dividend from the 2006 profits of a total amount of EUR 269.6 or EUR 0.55 (in absolute figure) per share.
The Board of Directors of OTE S.A. will propose to the Annual General Assembly of the Shareholders the distribution of a dividend from the 2007 profits of a total amount of EUR 367.6 or EUR 0.75 (in absolute figure) per share. FINANCIAL STATEMENTS 155
HELLENIC TELECOMMUNICATIONS 15. LONG-TERM LOANS ORGANIZATION S.A. NOTES TO THE FINANCIAL Long-term Loans is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 COMPANY 2007 2006 (Amounts in millions of Euro, unless otherwise stated) (a) Loan from European Investment Bank / Hellenic State 36.4 52.5 (b) Intercompany loans from ΟΤΕ PLC 1,266.3 1,265.5 Total long-term debt 1,302.7 1,318.0 Short-term portion (17.5) (16.1) Long-term portion 1,285.2 1,301.9
GROUP 2007 2006 (a) Loan from European Investment Bank / Hellenic State 36.4 52.5 (b) Consortium loans 500.0 500.0 (c) Eurobond EUR 1,100, 6.125%, maturity February 2007 - 491.2 (e) Global Medium-Term Note Programme 3,360.4 3,353.1 (f) Other bank loans 133.4 168.5
Total long-term debt 4,030.4 4,565.3 Short-term portion (83.3) (528.0) Long-term portion 3,947.1 4,037.3
COMPANY
(a) Loan from European Investment Bank/ Hellenic State
The long-term loan to OTE by the European Investment Bank / Hellenic State was granted in 1995 and is denominated in Euro. The loan bears interest at 8.3% and after an amendment to the agreement on 30 June 2003, is repayable in annual installments through to 2009. During 2007 OTE paid EUR 16.1 (2006: EUR 14.9) of capital against the loan (the installment amounted to EUR 20.5). The amount of capital that will be paid in July 2008 (EUR 17.5) has been transferred to the Short-term portion of Long-term loan.
(b) Intercompany loans from OTE PLC
The intercompany loans from OTE PLC as at 31 December 2007 are analyzed as follows: • Loan of EUR 1,209.0, interest rate 5.22%, issued in August 2003 maturing in August 2013. The outstanding balance as of 31 December 2007 is EUR 1,120.8 (2006: EUR 1,121.2). • Loan of EUR 650.0, interest rate 3.80%, issued in November 2005 maturing in November 2011. The outstanding balance as of 31 December 2007 is EUR 145.5 (2006: EUR 144.3).
GROUP
(a) Loan from European Investment Bank / Hellenic State
See the above analysis for the Company.
(b) Consortium Loans
On 2 September 2005, OTE PLC signed a Euro 850 million Syndicated Credit Facility with banks, guaranteed by OTE. The facility matures in September 2010 and has an extension option of 1+1 year subject to lenders’ consent. The facility consists of: a) a EUR 500 million Term Loan bearing interest at Euribor + 0.2125% and b) a EUR 350 million Revolving Credit Facility bearing interest at Euribor + 0.1875%. The margin is adjustable based on OTE’s long-term credit rating. In the loan agreement there is a change of control clause which is triggered when there is a change of control in OTE which will result in a credit rating of OTE or the new legal entity at a level lower of BBB/Baa2. In the case the clause is triggered, OTE PLC is obliged to notify the banks, which can request the immediate repayment of the loan. On 6 September 2005 OTE PLC drew EUR 500 million under the Term Loan. Up to 31 December 2007 no draw- downs have been made from the Revolving Credit Facility. FINANCIAL STATEMENTS 156
HELLENIC At OTE PLC’s request and the banks’ relative consent, the maturity of the Loan was extent as follows: TELECOMMUNICATIONS ORGANIZATION S.A. a) For EUR 25.8 (Term Loan) and EUR 18.0 (Revolving Credit Facility) to September 2010 NOTES TO THE FINANCIAL STATEMENTS AS OF b) for EUR 29.0 (Term Loan) and EUR 20.3 (Revolving Credit Facility) to September 2011 and 31 DECEMBER 2007 (Amounts in millions of Euro, c) for EUR 445.2 (Term Loan) and EUR 311.7 (Revolving Credit Facility) to September 2012. unless otherwise stated) Due to downgrading of OTE’s credit rating by Moody’s, the margins were adjusted as following: For the Term Loan from 0.2125% to 0.225% and for the Revolving Credit Facility from 0.1875% to 0.20%.
(c) Bond, EUR 1,100, 6.125%, maturity February 2007
On 7 February 2000 ΟΤΕ PLC issued a bond of EUR 1,100 fully and unconditionally guaranteed by OTE, bearing fixed interest at 6.125%, maturing on 7 February 2007.
On 6 February 2007 the Group through the subsidiary OTE PLC fully repaid the remaining balance , which after the completion of the Exchange Programme in order to refinance part of the loan in November 2005, amounted to EUR 491.6. This balance resulted from the bond exchange and the issuance of a new bond amounting to EUR 650 in November 2005.
(d) Global Medium Term Note Programme
In November 2001, OTE PLC established a Global Medium Term Note Program for guaranteed by OTE, of EUR 1,500 with 10 years maturity. In June 2003 the maturity was extended to 30 years.
OTE’s Board of Directors approved sequential increases of the aggregate principal amount with the corresponding increases of the guaranteed amounts provided by the parent company to its subsidiary, as follows: • In 2003 increase of the aggregate principle amount for EUR 1,500 to EUR 2,500. • In 2005 increase of the aggregate principle amount for EUR 2,500 to EUR 3,500. • In 2006 increase of the aggregate principle amount for EUR 3,500 to EUR 5,000. • In 2007 increase of the aggregate principle amount for EUR 5,000 to EUR 6,500.
As at 31 December 2007 notes for a total of EUR 3,400 under the Global Medium Term Note Programme were issued, as follows: (i) EUR 1,250.0 notes fixed rate 5%, issued in August 2003, maturing in August 2013. (ii) EUR 650.0 notes fixed rate 3.75%, issued in November 2005 maturing in November 2011. (iii) EUR 900.0 notes fixed rate 4.625%, issued in November 2006 maturing in May 2016. (iv) EUR 600.0 notes floating rate, issued in November 2006 maturing in November 2009. These bonds are traded in the Luxembourg Stock Exchange.
(e) Other bank loans
ROMTELECOM has obtained long-term loans in EUR and Korea Won, amounting to EUR 78.1 as at 31 December 2007. From these loans two with outstanding balances of EUR 15.9 and EUR 20.1 are in EUR with fixed interest rates of 6.12% and 5.00% maturing in 2009 and 2012 respectively. The remaining three loans with outstanding balances of EUR 12.3, EUR 17.9 and EUR 11.9 are in Korean Won with a fixed interest rate 4.20%, 2.50% and 2.50% and maturing in 2014, 2018 and 2020 respectively. During 2007, ROMTELECOM repaid an amount of EUR 20.3 out of its long-term debt.
On 10 May 2005, GLOBUL entered into a credit facility agreement with Bank Austria, with a three year credit facility of EUR 75.0, bearing interest at Euribor + 1.25 %. Draw-downs under the facility through to 31 December 2007, amounted to EUR 50.0, which were partially used for the repayment of the company’s short term borrowings.
E-VALUE, a GERMANOS subsidiary , entered into a credit facility of EUR 3.0 with EFG Eurobank, maturing in 2008 with a floating interest of EURIBOR +1.20%. the outstanding balance as at 31 December 2007 was EUR 2.0. FINANCIAL STATEMENTS 157
HELLENIC TELECOMMUNICATIONS 16. PROVISIONS FOR PENSIONS, STAFF RETIREMENT INDEMNITIES AND OTHER EMPLOYEE BENEFITS ORGANIZATION S.A. NOTES TO THE FINANCIAL OTE employees are covered by various pension, medical and other benefit plans as summarized below: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, Defined Contribution Plans: unless otherwise stated) (a) Main Pension Fund (TAP-OTE):
The TAP-OTE Fund, a multi-employer fund to which OTE contributes, is the main fund providing pension and medical benefits to OTE employees. The employees of the National Railway Company and the Greek Post Office are also members of this Fund.
According to Law 2257/1994, OTE was liable to cover the annual operating deficit of TAP-OTE up to a maximum amount of EUR 32.3, which could be adjusted with the Consumer Price Index. Pursuant to Greek legislation (Law 2768/1999), a fund was incorporated on 8 December 1999, as a société anonyme under the name of EDEKT-OTE S.A. (“EDEKT”), for the purpose of administering contributions to be made by OTE, the Hellenic State and the Auxiliary Pension Fund, in order to finance the TAP-OTE deficit. The Hellenic State’s and the Auxiliary Pension Fund’s contributions of the Fund were set to EUR 264.1 and EUR 410.9, respectively. Pursuant to Law 2937/2001, OTE’s contribution has been set at EUR 352.2, representing the equivalent to the net present value of ten (10) years’ (2002-2011) contributions to TAP-OTE. This amount was paid on 3 August 2001 and is being amortized over the ten-year period. Pursuant to Law 2843/2000, any deficits incurred by TAP-OTE are covered by the Hellenic State.
Pursuant to Law 3029/2002, TAP-OTE’s Pension Fund part only, was to merge with IKA-ETEAM (the main social security Fund in Greece) the latest by 1 January 2008. In accordance with the provisions of this Law, the duration of employers’ obligations to cover the annual operating deficits of their employees’ Pension Funds, as defined by Law 2084/92 will be determined through a Ministerial Decision.
(b) Auxiliary Pension Fund: (i) The Auxiliary Fund-Lump Sum sector provides members with a lump sum benefit upon retirement or death. (ii) The Auxiliary Pension Benefit Fund provides to those members, who were members prior to 1993, with a pension of 20% of salary after 30 years service. Law 2084/92 has fixed minimum contributions and maximum benefits, after 35 years of service, for new entrants from 1993.
Based on actuarial studies performed in prior years and on current estimations, these pension funds show (or will show in the future) increased deficits. OTE does not have a legal obligation to cover any future deficiencies of these funds and, according to management, neither does it voluntarily intend to cover such possible deficiencies. However, there can be no assurance that OTE will not be required (through regulatory arrangements) to make additional contributions in the future to cover operating deficits of these funds.
Loans and Advances to Pension Funds is analyzed as follows:
2007 2006
Loans and advances to:
EDEKT 105.7 140.9
Auxiliary Fund 4.2 4.7
Interest bearing loan to Auxiliary Fund 188.0 66.4
297.9 212.0 Unamortized discounted amounts based on imputed interest rates of 4.6% for 2007 and 4.0% for 2006 for: Auxiliary Fund advance (0.7) (0.6)
Interest bearing loan to Auxiliary Fund (67.4) (23.3)
Long-term portion 229.8 188.1
Loans and advances to:
EDEKT 35.2 35.2
Auxiliary Fund 0.5 0.5
Short-term portion (See Note 10) 35.7 35.7 FINANCIAL STATEMENTS 158
HELLENIC TELECOMMUNICATIONS Advances to pension funds are reflected in the financial statements at their present values, discounted by the use of risk-free interest ORGANIZATION S.A. rates prevailing in the Greek market, for periods approximating the periods of the expected cash flows. Discount derived from the NOTES TO THE FINANCIAL STATEMENTS AS OF initial recognition of present values and amortization are included in interest expense and interest income, respectively, in the income 31 DECEMBER 2007 statements. (Amounts in millions of Euro, unless otherwise stated) According to Law 3371 of 2005 and the provisions of the related Ministerial Decision, OTE should grant an interest bearing loan to the Auxiliary Fund in order to cover the Lump Sum benefits upon retirement due to the Voluntary Retirement Program. On 23 October 2006 the loan agreement was signed and its main terms are as follows: The total amount of the loan is up to EUR 180, which will be granted partially in accordance with the Fund’s needs, as determined by the above mentioned Law and the related Ministerial Decision. If the Lump Sum benefits exceed the amount of EUR 180, OTE will grant the additional amount, which could not exceed the amount of EUR 10. In this case the above mentioned contract will be amended in order to include the final amount of the loan and to update the repayment schedule. Following the above mentioned terms, on 30 October 2007 an amendment to the loan agreement was signed based on which an additional amount of EUR 8.0 was granted and the repayment schedule was updated. The loan is repayable in 21 years including a two year grace period, meaning that the repayment will start on 1 October 2008 through monthly installments. The loan bears interest at 2.90‰. Because the above rate does not reflect the current market conditions, OTE recognized a provision of EUR 63.1, which is included in Interest Expense in the 2006 Income Statement. As at 31 December 2007 the part of the provision (EUR 39.8) which relates to the amount of the loan that was not yet granted, was, included in Other Non-Current Liabilities (See Note 17), while as at 31 December 2007 due to the fact that the whole loan was granted the discounting effect is included in the receivable balance.
Defined Benefit Plans:
(a) Provision for Staff Retirement Indemnities
Under Greek labor law, employees are entitled to termination payments in the event of dismissal or retirement with the amount of payment varying in relation to the employee’s compensation, length of service and manner of termination (dismissal or retirement). Employees who resign (except those with over fifteen years of service) or are dismissed with cause are not entitled to termination payments. The indemnity payable in case of retirement is equal to 40% of the amount which would be payable upon dismissal. In the case of OTE employees, the maximum amount is limited to a fixed amount (EUR 0.02 and is adjusted annually according to the inflation rate), plus 9 months salary. In practice OTE employees receive the lesser amount between 100% of the maximum liability and EUR 0.02 plus 9 months’ salary. Employees with service exceeding 25 years are entitled to draw loans against the accrued indemnity payable to them upon retirement.
The provision for staff leaving indemnity is reflected in the Financial Statements in accordance with IAS 19 and is based on an independent actuarial study.
The components of the staff retirement indemnity expense are as follows:
2007 2006 Service benefits earned during the year 16.3 15.2 Interest cost on projected benefit obligation 13.5 15.7 Amortization of past service cost 7.8 7.8 Amortization of unrecognized actuarial loss 2.7 0.8 40.3 39.5 FINANCIAL STATEMENTS 159
HELLENIC The following is a reconciliation of the projected benefit obligation to the liability recorded for staff leaving indemnities in OTE’ s TELECOMMUNICATIONS ORGANIZATION S.A. Financial Statements: NOTES TO THE FINANCIAL STATEMENTS AS OF 2007 2006 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Projected benefit obligation at beginning of year 182.8 162.1 Service cost 16.3 15.2 Interest cost 13.5 15.7 Amortization of past service cost 7.8 7.8 Amortization of unrecognized actuarial loss 2.7 0.8 Benefits paid (28.1) (18.8) Termination benefits based on Voluntary Leave Scheme 16.5 - Projected benefit obligation at end of year 211.5 182.8
The assumptions underlying the actuarial valuation, in percentages, of staff leaving indemnities are as follows: 2007 2006 Discount rate 4.8% 4.1% Assumed rate of future salary increases 5.5% 5.5%
(b) Provision for Youth Account
The Youth Account provides OTE’s employees’ children a lump sum payment generally when they reach the age of 21. The lump sum payment is made up of employees’ contributions, interest thereon and OTE’ s contributions which can reach up to a maximum 10 months’ salary of the total average salary of OTE employees depending on the number of years of contributions.
The provision for benefits under the Youth Account is based on an independent actuarial study.
The amount of the Youth Account provision recognized in Income is as follows:
2007 2006 Service cost-benefits earned during the year 21.8 21.9 Interest cost on projected benefit obligation 11.8 10.0 Amortization of unrecognized actuarial loss 10.7 8.0 Amortization of past service cost 3.2 3.2 47.5 43.1
The following is a reconciliation of the projected benefit obligation to the liability recorded for the Youth Account benefits:
2007 2006 Projected benefit obligation at beginning of year 206.5 212.4 Service cost-benefits earned during the year 21.8 21.9 Interest cost on projected benefit obligation 11.8 10.0 Amortization of unrecognized actuarial loss 10.7 8.0 Amortization of past service cost 3.2 3.2 Benefits paid (51.5) (49.0) Projected benefit obligation at end of year 202.5 206.5 Employee’s accumulated contributions 71.0 70.8 273.5 277.3 FINANCIAL STATEMENTS 160
HELLENIC The assumptions underlying the actuarial valuation, in percentages, of the Youth Account benefits are as follows: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL 2007 2006 STATEMENTS AS OF Discount rate 4.5% 4.0% 31 DECEMBER 2007 (Amounts in millions of Euro, Assumed rate of future salary increase 4.5% 4.5% unless otherwise stated) Voluntary Leave Scheme
On 25 May 2005 OTE management and OME-OTE (the personnel union body) signed a collective labour agreement, which stipulates the staff hiring procedures. In accordance with this agreement, all new recruits by OTE will be covered with indefinite-pension service agreements.
The agreement became effective from the date the relevant law for the voluntary leave of OTE staff came into force.
The enactment of Article 74 of Law 3371/2005 (Government Gazette 178/14.7.2005) and the collective labor agreement signed between OTE and its employees on 20 July 2005, instituted the framework for the voluntary retirement scheme. Pursuant to this Law and the collective labor agreement, employees who would complete the number of years of service required for retirement up to 31 December 2012 will be entitled to full pension and other benefits.
To the employees that wished to come under the provisions of the above mentioned Law, with the decision of TAP OTE is recognized such factitious time insured as the one required for the vesting of the retirement right. The same decision of recognition of factitious time is taken by the Auxiliary Fund.
The costs of the components scheme are: • The cost of employer’s and employees’ contributions to TAP-OTE for the period required for the employees to be entitled to pension. • The amount of pensions TAP OTE will be required to prepay to these employees. • The total cost of employer’s and employees’ contributions to the Auxiliary Fund for the period required for the employees to be entitled to pension. • The amount of pensions the Auxiliary Fund will be required to prepay to these employees. • The total cost of employees’ contributions to Auxiliary Fund for the Lump Sum benefit. • The total cost of bonuses based on the collective labor agreement signed on 20 July 2005. • The termination payments upon retirement of the employees (staff retirement indemnities).
Because of the periodical payments of the majority of the above mentioned costs (payments through to 2012), the nominal amounts of these liabilities were discounted at their present values, and the initial cost was estimated in 2005 at EUR 939.6 which was included in the 2005 Income Statement under voluntary leave scheme cots.
Based on the actual data and the current estimations of the factors affecting the cost of the Voluntary Leave Scheme, on 31 December 2006 the cost was reassessed and the established provision was adjusted to reflect the best current estimation of the Company’s liability at the balance sheet date. The revised cost amounted to EUR 889.8 and the difference of EUR 49.8 was included in the 2006 Income Statement as a credit. The increase which resulted during 2006 due to the discounting of the provision due to the passage of time amounted to EUR 26.8 and was included in the 2006 Income Statement under Interest Expense. The increase which resulted during 2007 due to the discounting of the provision from the passage of time amounted to EUR 12.3 and is included in 2007 Income Statement under Interest Expense.
Based on the estimated period of payment, these obligations are classified as follows:
31/12/2007 31/12/2006 Short-term portion of provision for Voluntary Leave Scheme 200.2 316.7 Long-term portion of provision for Voluntary Leave Scheme 217.5 361.4 Total 417.7 678.1 FINANCIAL STATEMENTS 161
HELLENIC The movement on the provision for the Cost of the Voluntary Leave Scheme is as follows: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Balance at 1/1/2006 1,038.7 STATEMENTS AS OF 31 DECEMBER 2007 Payments during year 2006 (337.6) (Amounts in millions of Euro, unless otherwise stated) Adjustment due to re-estimation (49.8) Adjustment of discounted amount due to passage of time 26.8 Balance at 31/12/2006 678.1
Balance at 1/1/2007 678.1 Payments during year 2007 (256.2) Adjustment due to re-estimation (see note 16a) (16.5) Adjustment of discounted amount due to passage of time 12.3 Balance at 31/12/2007 417.7
Based on Law 3371/2005, the Hellenic State will contribute a 4% stake in OTE’ s share capital to TAP-OTE for the portion of the total cost that relates to employer’s and employees’ contributions to TAP-OTE and to the amount of pensions TAP OTE will be required to prepay. This contribution is subject to EU approval.
In May 2007 the European Commission by its relevant decision with reference number C 2/2006 (ex L 405/2005) judged that Hellenic State’s proposal to grant a 4% of its stake to TAP OTE, according to the Article 74 of L.3371/2005 was not against common market regulations as defined in Article 87 paragraph 3. The total contribution of the Hellenic State to TAP OTE according to the above decision could not exceed the amount of EUR 390.4. The exact amount will depend on the timing and the procedures that will be followed by the Hellenic Republic for the implementation of the decision.
On 28 February 2007 the management of OTE and OME-OTE (the employee’s union) signed a Collective Labor Agreement, according to which employees who would complete the number of years required for retirement by 29 December 2007 would be entitled to benefits in order to retire the latest by 31 December 2007. The deadline for the applications for participating in this Voluntary Scheme was due on 31 March 2007. Applications were irrevocable. The respective cost amounted to EUR 22.1 and is included in the cost of Voluntary Leave Scheme in 2007 results.
17. OTHER NON-CURRENT LIABILITIES
Other Non-current Liabilities is analyzed as follows:
2007 2006 COMPANY GROUP COMPANY GROUP Provision for employee’s contributions under Voluntary Leave Scheme 4.5 4.5 3.5 3.5 Asset retirement obligation - 5.5 - 5.0 Provision for obligation of free units 36.9 36.9 36.1 36.1 Deferred revenue (long-term) - 28.8 - 34.2 MICROSTAR (see Note 7) - 153.3 - - Discounted financial cost of the Auxiliary’s Fund loan (See Note 16) - - 39.8 39.8 Other - 4.6 0.1 8.3 41.4 233.6 79.5 126.9 FINANCIAL STATEMENTS 162
HELLENIC TELECOMMUNICATIONS 18. SHORT-TERM LOANS ORGANIZATION S.A. NOTES TO THE FINANCIAL The outstanding balance on 31 December 2007 amounts to EUR 1,497.4. The weighted average interest rates on short-term STATEMENTS AS OF 31 DECEMBER 2007 borrowings for the years ended 31 December 2007 and 2006, was approximately 4.5% and 4.2% respectively. The outstanding (Amounts in millions of Euro, balance of short-term loans is analyzed as follows: unless otherwise stated) • On 9 November 2007, OTE PLC signed a short term credit facility agreement for an amount of EUR 2.7 billion with a consortium of banks, under the full guarantee of OTE, for the financing of the acquisition of minority shares of COSMOTE by OTE. The loan has a tenor of 1 year with a 3-month extension option and bears interest defined as Euribor plus a margin adjustable on the basis of the long term credit rating of OTE. According to the current credit rating of OTE the margin was set at 0.30%.
As at 31 December 2007 OTE PLC had drawn-down EUR 1.5 billion and the related insurance expenses of EUR 6.8 are amortized over the duration of the loan, with the corresponding charge of EUR 1.0 in the 2007 results.
The proceeds of the loan were lent to OTE through an intercompany loan of an equivalent amount, signed also on 9 November 2007 which includes similar terms and conditions.
The loan agreement includes standard restrictions and among others, a Change of Control clause. This clause is triggered in case there is a change of control in OTE, and as a result of this change the credit rating of OTE or the surviving entity is downgraded below BBB/ Baa2. In the event that this clause is triggered, OTE should proceed with mandatory prepayment of the loan. • OTE PLUS and its subsidiaries draw-downs of EUR 1.6 and, • OTENET’s and its subsidiaries draw-downs of EUR 1.6.
19. INCOME TAXES - DEFERRED TAXES
In accordance with the Greek tax regulations (Law 3296/2004), the income tax rate ,was 29% for 2006 and 25% for 2007 and onwards.
Greek tax regulations and related clauses are subject to interpretation by the tax authorities and administrative courts of law.
Tax returns are filed annually but the profits or losses declared for tax purposes remain provisional until such time as the tax authorities examine the returns and the records of the tax payer and a final assessment is issued. Net operating losses which are tax deductible, can be carried forward against taxable profits for a period of five years from the year they are generated.
Under Greek tax regulations, an income tax advance calculation on each year’s current income tax liability is paid to the tax authorities. Such advance is then netted off with the following year’s income tax liability. Any excess advance amounts are refunded to the companies following a tax examination.
The parent company and its subsidiaries have not been audited by the tax authorities as described below: Company OPEN TAX YEARS Direct ownership • OTE From 2006 • COSMOTE From 2006 • OTE INTERNATIONAL INVESTMENTS LTD From 1998 • HELLAS SAT CONSORTIUM From 2003 • COSMO-ONE From 2002 • OTENET From 2007 • HELLASCOM From 2006 • OTE PLC From 2005 • OTE SAT-MARITEL From 2004 • OTE PLUS From 2005 • ΟΤΕ ESTATE From 2001 • OTE GLOBE From 2002 • OTE INSURANCE From 2003 • OTE ACADEMY From 2000 • HATWAVE From 1996 FINANCIAL STATEMENTS 163
HELLENIC Company OPEN TAX YEARS TELECOMMUNICATIONS ORGANIZATION S.A. Indirect ownership NOTES TO THE FINANCIAL • OTE INVESTMENTS SERVICES S.A. From 2005 STATEMENTS AS OF 31 DECEMBER 2007 • ROMTELECOM From 2001 (Amounts in millions of Euro, • AMC From 2006 unless otherwise stated) • COSMOFON From 2001 • GLOBUL From 2005 • COSMOTE ROMANIA From 2004 • GERMANOS From 2004 • E-VALUE S.A. From 2003 • GERMANOS TELECOM SKOPJE S.A. From 2003 • GERMANOS TELECOM ROMANIA S.A. From 2003 • SUNLIGHT ROMANIA S.R.L. -FILIALA From 2001 • GERMANOS TELECOM BULGARIA A.D. From 2005 • MOBILBEEEP LTD From 2005 • GRIGORIS MAVROMICHALIS & PARTNERS LTD From 2006 • IOANNIS TSAPARAS & PARTNERS LTD From 2004 • ALBATROS & PARTNERS LTD From 2006 • TEL SIM S.R.L Since establishment 2007 • HELLAS SAT S.A. From 2002 • VOICENET From 2004 • OTENET CYPRUS S.A. From 2000 • OTENET TELECOMMUNICATIONS LTD. From 2001 • OTE MTS HOLDING B.V. From 2001 • COSMO-HOLDING ALBANIA From 2007 • COSMO-HOLDING CYPRUS From 2006 • OTE PLUS ROMANIA -- • OTE PLUS BULGARIA Tax exemption
The tax audit of the parent company for the fiscal years 2002-2005 was completed early in 2008. Tax authorities imposed additional taxes and fines amounting to EUR 84.4 for years 2002-2004 and reduced 2005 tax losses carried forward which resulted to an increase of 2006 taxable profits and a corresponding increase in taxes by EUR 6.4, after the recognition of the expenses in 2006 that were disallowed by the tax authorities in 2005. The Company has formed a provision of EUR 42.0 in previous years. • In GERMANOS the tax examination for the years 2004 and 2005 is in progress, and is expected to be completed within 2008. • In ROMTELECOM, the tax examination of the company’s books for the fiscal years 2001 though to 2005 is in the final stage of completion. • In OTE ESTATE, the tax examination of the company’s books for the fiscal years 2001 and 2002 is in progress and is expected to be completed within 2008. • In OTESAT - MARITEL, the tax examination of the company’s books for the fiscal years 2004 and 2005 is in progress and is expected to be completed within 2008. • In OTENET, the tax examination of the company’s books for the fiscal years 2004 through to 2006 was completed in 2008. • In COSMOTE ROMANIA the tax examination for the fiscal years 2004 through to 2006 is in progress, and is expected to be completed within 2008. • In E-VALUE the tax examination of the Company’s books for the fiscal years 2003 through to 2005 is in progress and is expected to be completed within 2008.
The income tax changes to income statement is analyzed as follows:
2007 2006 COMPANY GROUP COMPANY GROUP Current income tax 165.9 341.5 87.6 316.4 Deferred income tax 45.9 40.3 37.0 36.6 Total income tax 211.8 381.8 124.6 353.0 FINANCIAL STATEMENTS 164
HELLENIC The reconciliation of income taxes included in Income to the amount determined by the application of the Greek statutory tax rate TELECOMMUNICATIONS ORGANIZATION S.A. (2007: 25%, 2006: 29%), to the profit before tax is summarized as follows: NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 2007 2006 (Amounts in millions of Euro, COMPANY GROUP COMPANY GROUP unless otherwise stated) Profit before tax 788.3 1,154.8 655.8 1,083.8 Statutory tax rate 25% 25% 29% 29% 197.1 288.7 190.2 314.3 Non-taxable and specially taxed income (42.7) - (80.4) - Effect of difference from tax rates of the combined - 19.1 11.9 6.4 Expenses non-deductible for tax purposes 13.1 26.2 13.4 29.2 Tax examination differences 48.8 48.8 - - Untaxed reserve (L. 3299/2004) (7.5) (7.5) - - Other 3.0 6.5 (10.5) 3.1 Income tax 211.8 381.8 124.6 353.0
Deferred taxes are recognized on the temporary differences arising between the carrying amounts of assets and liabilities foe financial reporting purposes and the amounts used for taxation purposes and are analyzed as follows:
2007 2006 COMPANY GROUP COMPANY GROUP Employee benefits 205.2 207.3 262.9 264.7 Provision for litigation and other liabilities 46.1 46.1 53.0 53.0 Net operating losses carried forward - 8.6 - 9.7 Property, plant and equipment (117.9) (106.6) (130.8) (123.4) Assets – Liabilities valuation 18.8 33.8 16.7 16.8 Subsidiary acquisition - (110.3) - (113.8) Other losses 6.1 15.7 2.4 20.4
Total deferred taxes 158.3 94.6 204.2 127.4
20. OTHER CURRENT LIABILITIES
Other Current Liabilities is analyzed as follows:
2007 2006 COMPANY GROUP COMPANY GROUP Employer contributions 53.8 74.3 50.4 70.7 Payroll 18.0 27.5 3.7 11.5 Other taxes - duties 28.1 79.5 15.3 57.5 Interest payable 30.6 66.2 27.0 67.4 Provision for employer contributions 5.0 5.0 3.7 3.7 Provisions for litigation and other liabilities 121.3 126.8 123.3 127.4 Customer advances 37.6 40.4 27.9 28.5 Other 8.9 168.1 19.3 142.0 303.3 587.8 270.6 508.7 FINANCIAL STATEMENTS 165
HELLENIC TELECOMMUNICATIONS 21. REVENUE ORGANIZATION S.A. NOTES TO THE FINANCIAL Revenue includes the following income categories: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, COMPANY GROUP unless otherwise stated) 2007 2006 2007 2006
(i) Domestic Telephony • Monthly network service fees 674.8 691.9 988.1 995.7 • Local and long-distance calls - Fixed to fixed 485.3 518.9 565.5 702.6 - Fixed to mobile 262.8 313.8 378.3 470.2 748.1 832.7 943.8 1,172.8 • Other 72.5 72.3 90.3 92.1 1,495.4 1,596.9 2,022.2 2,260.6
(ii) International Telephony • International traffic 71.0 76.6 108.1 132.3 • Dues from international operators 79.8 68.3 146.8 172.7 • Dues from mobile operators 46.9 36.2 49.6 41.9 197.7 181.1 304.5 346.9
(iii) Mobile Telephony - - 2,210.0 1,975.8
(iv) Other income • Prepaid cards 62.3 76.0 76.2 100.6 • Directories 1.3 1.7 55.1 58.0 • Leased lines and Data ATM communications 226.9 265.7 274.9 246.1 • Integrated Services Digital Network 144.5 142.7 166.1 158.9 • Sales of telecommunication equipment 61.4 90.2 679.8 341.6 • Internet/ ADSL 133.7 67.9 227.9 133.1 • Provision for services 179.3 160.5 94.6 74.9 • Interconnection charges 115.5 99.9 108.2 96.8 • Miscellaneous 38.9 31.9 100.3 98.0 Total other income 963.8 936.5 1,783.1 1,308.0 Total revenue 2,656.9 2,714.5 6,319.8 5,891.3 FINANCIAL STATEMENTS 166
HELLENIC TELECOMMUNICATIONS 22. OTHER OPERATING EXPENSES ORGANIZATION S.A. NOTES TO THE FINANCIAL Other Operating Expenses is analyzed as follows: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, COMPANY GROUP unless otherwise stated) 2007 2006 2007 2006
Third party fees 130.7 136.5 183.5 173.7 Cost of telecommunication materials, repairs and maintenance 77.3 75.3 201.8 199.0 Advertising and provision costs 47.2 39.9 208.3 164.0 Utilities 76.4 56.5 93.6 98.0 Provision for doubtful accounts 55.7 65.5 88.0 97.9 Other provisions 15.7 35.0 18.1 36.0 Travel costs 8.0 7.2 18.9 17.6 Commissions to independent commercial distributors - - 244.1 203.0 Payments to Audiotex providers 10.3 11.4 14.3 17.1 Rents 69.7 63.3 88.0 80.1 Other taxes,other than income taxes 14.4 9.6 56.3 47.1 Transportation 5.6 5.7 13.0 9.6 Other 15.3 14.4 65.3 46.4 526.3 520.3 1,293.2 1,189.5
23. EARNINGS PER SHARE
Earnings after income taxes, per share are calculated by dividing the profit attributable to the shareholders of the Company by the weighted average number of shares in circulation during the period, excluding the average number of own shares that the Company held during the period.
Earnings per share after income taxes is analyzed as follows:
COMPANY GROUP 2007 2006 2007 2006 Net earnings 576.5 531.2 662.6 574.6 Weighted average number of shares 490,150,389 490,150,389 490,150,389 490,150,389 Basic earnings per share 1.1762 1.0837 1.3518 1.1723 Diluted earnings per share 1.1762 1.0837 1.3518 1.1723 Earnings per share are in absolute figures.
24. SEGMENT REPORTING
The following information is provided for the reportable Segments, which are separately disclosed in the Financial Statements and is regularly reviewed by the Company’s chief operating decision makers.
Segments were determined based on the Group’s legal structure, as the Group’s chief operating decision makers review financial information separately reported by the parent company (OTE) and each of the Group’s consolidated subsidiaries.
Using the quantitative thresholds OTE, COSMOTE and ROMTELECOM, have been determined as Reportable Segments. Information about Operating Segments that do not constitute Reportable Segments has been combined and disclosed in an “All Other” category.
Accounting policies of the Operating Segments are the same as those followed for the preparation of the Financial Statements. The Group evaluates segment performance based on operating income and net income. FINANCIAL STATEMENTS 167
HELLENIC TELECOMMUNICATIONS Segment information and reconciliation to the Group’s consolidated figures are as follows: ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF ADJUSTMENTS- 31 DECEMBER 2007 Year 2007 OTE COSMOTE ROMTELECOM ALL OTHER TOTALS ELIMINATIONS GROUP (Amounts in millions of Euro, unless otherwise stated) Revenues from external customers 2,393.7 2,878.6 843.3 204.2 6,319.8 - 6,319.8
Intersegment revenues 263.2 181.7 28.6 269.4 742.9 (742.9) -
Interest income 47.1 21.6 10.1 191.7 270.4 (192.6) 77.8
Interest expense (98.4) (145.3) (5.4) (185.2) 434.3 195.6 (238.7)
Depreciation and amortization (502.2) (367.9) (255.8) (47.3) 1,173.2 1.4 (1,171.8)
Investment income 16.8 - - - 16.8 - 16.8
Income tax expense (211.8) (145.6) (2.4) (21.9) (381.8) - (381.8)
Operating income 310.7 618.0 44.6 74.6 1,047.8 (0.8) 1,046.9
Net income 576.5 361.3 15.5 58.4 1,011.8 (349.2) 662.6
Investments 157.8 - - 0.5 158.3 - 158.3
Segment assets 8,383.5 4,428.2 2,343.1 7,334.0 22,489.4 (10,956.4) 11,533.0
Segment liabilities 4,817.1 3,680.3 376.2 5,744.2 14,617.9 (6,139.5) 8,478.4
Expenditures for segment assets 295.0 564.5 207.2 34.6 1,101.3 - 1,101.3 ADJUSTMENTS- Year /2006 OTE COSMOTE ROMTELECOM ALL OTHER TOTALS ELIMINATIONS GROUP
Revenues from external customers 2,488.7 2,212.6 877.2 312.8 5,891.3 - 5,891.3
Intersegment revenues 225.8 169.7 17.6 182.4 595.5 (595.5) -
Interest income 45.7 18.2 13.5 134.5 211.9 (141.1) 70.8
Interest expense (199.2) (75.0) (8.5) (139.7) (422.4) 143.6 (278.8)
Depreciation and amortization (528.0) (318.9) (217.5) (67.7) (1,132.1) 3.6 (1,128.5)
Investments income 23.0 - - - 23.0 - 23.0
Income tax expense (124.6) (159.8) (16.3) (52.3) (353.0) - (353.0)
Operating income 312.1 557.5 120.8 95.5 1,085.9 2.4 1,088.3
Net income 531.2 360.5 91.6 77.1 1,060.4 (485.8) 574.6
Investments 157.8 - - 0.9 158.7 - 158.7
Segment assets 6,801.4 4,688.1 2,546.7 6,147.5 20,183.7 (7,635.1) 12,548.6
Segment Liabilities 3,551.7 3,992.9 424.1 4,648.3 12,617.1 (4,957.2) 7,659.9
Expenditures for segment assets 225.7 442.4 208.1 86.2 962.4 - 962.4 FINANCIAL STATEMENTS 168
HELLENIC TELECOMMUNICATIONS 25. RELATED PARTY TRANSACTIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL OTE’s related parties have been identified based on the requirements of IAS 24 and are the following: Its subsidiaries, the members of STATEMENTS AS OF 31 DECEMBER 2007 the Board of Directors, the key management personnel and their close family members. (Amounts in millions of Euro, unless otherwise stated) The Company purchases goods and services from these related parties, and provides services to them. Furthermore, OTE grants and receives loans to / from its subsidiaries and receives dividends.
OTE’ s purchases and sales with related parties are analyzed as follows: 2007 2006 ΟΤΕ’s Sales ΟΤΕ’s Purchases ΟΤΕ’s Sales ΟΤΕ’s Purchases COSMOTE 192.9 125.6 164.8 139.2 OTE INTERNATIONAL INVESTMENTS LTD 0.4 5.5 1.6 9.0 ROMTELECOM - - 2.5 0.3 ARMENTEL - - 1.3 0.4 HELLAS-SAT 0.6 1.7 0.5 1.8 COSMO-ONE - 1.0 - 0.9 OTENET 38.3 44.8 41.9 23.4 HELLASCOM 0.1 6.6 0.1 5.6 OTE SAT- MARITEL 0.9 2.1 1.1 2.2 ΟΤΕ PLUS 0.3 30.4 0.4 23.7 ΟΤΕ ESTATE 2.3 59.7 2.2 56.9 INFOTE 4.7 3.7 8.5 5.4 OTE GLOBE 22.4 64.3 0.7 40.9 OTE ACADEMY 0.3 5.1 0.2 3.4 263.2 350.5 225.8 313.1
OTE’s interest income and interest expense with related parties from the loans granted / received, are analyzed as follows: 2007 2006 OTE’ s interest ΟΤΕ’s interest ΟΤΕ’s interest ΟΤΕ’s interest income expense income expense ARMENTEL - - 0.1 - COSMOFON 3.6 - 3.4 - HELLAS-SAT - - 5.2 - OTE PLC 2.1 73.7 - 98.9 5.7 73.7 8.7 98.9
Dividends received from related parties, are analyzed as follows : 2007 2006 COSMOTE 163.2 145.3 OTE INTERNATIONAL INVESTMENTS LTD 57.3 - INFOTE 5.0 3.5 OTE GLOBE - 2.5 OTE ESTATE - 15.0 OTE SAT- MARITEL - 0.7 ARMENTEL - 6.8 225.5 173.8 FINANCIAL STATEMENTS 169
HELLENIC TELECOMMUNICATIONS OTE’s receivables and payables with its related parties from their operating transactions, are analyzed as follows: ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 2007 2006 31 DECEMBER 2007 ΟΤΕ’s ΟΤΕ’s ΟΤΕ’s ΟΤΕ’s (Amounts in millions of Euro, receivables payables receivables payables unless otherwise stated) COSMOTE 39.4 34.4 37.9 33.9 OTE INTERNATIONAL INVESTMENTS LTD 0.2 1.4 0.5 2.6 ROMTELECOM - - HELLAS-SAT 4.6 0.6 4.0 0.5 COSMO-ONE - 0.2 - 0.3 OTENET 30.9 22.0 16.4 17.1 HELLASCOM - 1.4 - 1.2 OTE SAT- MARITEL 0.3 0.5 1.1 0.5 ΟΤΕ PLUS 0.8 12.8 3.7 11.6 ΟΤΕ ESTATE 3.1 31.7 2.0 13.9 INFOTE - - 2.6 23.7 OTE GLOBE 49.4 73.2 10.4 27.3 OTE ACADEMY 0.5 0.8 0.1 0.8 129.2 179.0 78.7 133.4
OTE’s receivables and payables with its related parties from loans granted and received, are analyzed as follows:
2007 2006 ΟΤΕ’s ΟΤΕ’s ΟΤΕ’s ΟΤΕ’s receivables payables receivables payables COSMOFON 51.8 - 56.9 - OTE PLC 35.4 2,787.0 - 1,268.0 87.2 2,787.0 56.9 1,268.0
The nature of the transactions between Group companies is described below:
a. ΟΤΕ-GLOBE i. OTE-GLOBE has assumed the provision and administration on behalf of OTE of services relevant to International telephony to international provides and invoices OTE with its fees. ii. OTE-GLOBE invoices OTE and OTE invoices OTE-GLOBE for the telecommunication traffic which passes through international networks of OTE-BLOGE or international telephone networks of OTE as the case may be. In addition, the two entities have commercial transactions in relation to leased lines.
b. INFOTE (until the date that ceased being related party) i. INFOTE invoices OTE for the production of the white pages directories. ii. INFOTE earns revenues from the advertisement of its customers in the directories published. OTE collects these revenues from its subscribers on behalf of INFOTE and pays them back to INFOTE. iii. ΟΤΕ invoices INFOTE with a commission for the agency relationship described in (ii) above. iv. INFOTE invoices ΟΤΕ for a part of revenues generated from additional entries made in the directories.
c. OTENET i. OTE is acting as a dealer selling internet services and other products on behalf of OTENET and collects these amounts on behalf of OTENET and pays them back to OTENET. Additionally, OTE invoices OTENET with a commission for this agency relationship. ii. OTE purchases products and services from OTENET, which are sold to its customers.
d. OTE ESTATE i. OTE ESTATE earns rental revenue from OTE and its subsidiaries. ii. OTE invoices OTE ESTATE for additions made to the land and buildings that belong to OTE ESTATE. The related costs of these additions, representing labor and materials costs, are included in OTE’s Income. FINANCIAL STATEMENTS 170
HELLENIC e. ΟΤΕ INTERNATIONAL INVESTMENTS LTD TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL OTE INTERNATIONAL INVESTMENTS LTD invoices OTE and its subsidiaries for the administration services provided to foreign STATEMENTS AS OF subsidiaries. 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) f. COSMO-ONE COSMO-ONE invoices OTE and its subsidiaries for e-commerce services.
g. OTE SAT – MARITEL i. ΟΤΕ invoices ΟΤΕ SAT- MARITEL for the usage of OTE’s facilities for INMARSAT services. ii. OTE SAT - MARITEL invoices ΟΤΕ for fixed to mobile connection, which is invoiced by INMARSAT to OTE SAT - MARITEL.
h. OTE PLUS OTE PLUS provides consulting services to OTE.
i. COSMOTE i. OTE invoices COSMOTE with commissions for mobile connections made through OTE. ii. ΟΤΕ invoices COSMOTE for leased lines. iii. OTE and COSMOTE have income and expenses for interconnection depending to which of the two entities network the codes terminate, including International Telephony traffic which passes through the two networks.
j. OTE ACADEMY i. OTE ACADEMY subleases to OTE its Training Center facilities in Athens and Thessaloniki, which itself leases in the first place from OTE ESTATE. ii. OTE ACADEMY renders training services to OTE personnel and its subsidiaries.
k. HELLASCOM
Hellascom provides consulting services of technical nature to OTE and construction studies to its subsidiaries.
l. COSMOFON ΟΤΕ has granted an interest bearing long-term loans to COSMOFON.
m. HELLAS SAT i. HELLAS SAT invoices OTE for transmitter’s rental and the provision of satellite capacities. ii. ΟΤΕ invoices HELLAS SAT with a commission on the rental of satellite capacities.
n. OTE PLC ΟΤΕ PLC has granted interest bearing long-term loans to ΟΤΕ and subsidiaries.
Fees paid to the members of the Board of Directors and key management personnel compensation charged in the Income Statements of the year ended 31 December 2007 amounted to EUR 3.5. FINANCIAL STATEMENTS 171
HELLENIC TELECOMMUNICATIONS 26. STOCK OPTION PURCHASE OF OTE SHARES SCHEME ORGANIZATION S.A. NOTES TO THE FINANCIAL Based on OTE’s repeating General Assembly of 3 April 2007, the Board of Directors’ of 20 December 2007 approved the adoption of a STATEMENTS AS OF 31 DECEMBER 2007 management share option plan (the “Option Plan”) based on performance conditions for OTE’s management personnel and Directors (Amounts in millions of Euro, of subsidiaries. unless otherwise stated)
More specifically, the beneficiaries are entitled to obtain a certain number of options of the Company for a predefined price (Exercise price), by the end of a certain period of time, based upon the satisfaction of certain criteria of performance, individual and of the Company, during the respective period.
The Option Plan is expected to be implemented in 2007. The Option Plan, permits our Board of Directors to grant Option Rights to eligible employees on an annual basis. Upon their initial participation in the Option Plan, eligible employees become entitled to a number of initial options (“Basic Option Rights”), while, in subsequent years, the Board may also grant to eligible employees further option (“Additional Option Rights”) on an annual basis.
Basic Option Rights vest in stages over a three-year period (40%, 30% and 30% upon the first, second and third anniversaries, respectively, of the commencement of the Plan), while Additional Option Rights vest 100%, upon the third anniversary of the commencement of the Plan.
Each Option Right represents the right to one share. Beneficiaries may exercise vested Option Rights within the first four years from the vesting date of such rights for the first vested Option Rights under the Option Plan, the exercise price will be equal to the average closing price of our shares in the second half of the year immediately preceding the date on which the Board of Directors recommended the Option Plan to the General Assembly for approval. As for subsequent implementations, the exercise price will be equal to the average closing price of the shares during the month immediately preceding the date on which the Board of Directors granted such rights.
The number of granted Rights for the first implementation of the Option Plan, is adjusted according to the beneficiary’s seniority level, as follows: a. With respect to the Managing Director, the General Directors and Deputy General Directors, the maximum aggregate value of Option Rights that may be granted under the Option Plan, according to the exercise price can be up to five times the beneficiary’s annual gross salary with respect to Basic Option Rights and up to the annual gross salary with respect to Additional Option Rights. b. With respect to other beneficiaries, the following table sets out the maximum numbers of Basic and Additional Option Rights that, according to the beneficiary’s seniority level, may be granted under the Option Plan, in its first three years:
Maximum number of Maximum number of Basic Rights per Additional Rights per beneficiary beneficiary Beneficiaries (“Basic Option Rights”) (“Additional Option Rights”) Managing Directors of Subsidiaries 35,000 7,000 Department Supervisors 18,000 4,500 Sub-department, Division - Units 9,500 3,100
The total number of the Basic Option rights is 3.141.620 rights.
The date when beneficiaries were officially informed and accepted the Scheme is after 31 December 2007. As a result, the fair valuation of these Option Rights will be preformed in 2008 and booked through profit and loss during the vesting period of the Option Rights by the employee. FINANCIAL STATEMENTS 172
HELLENIC COSMOTE’s SHARE BASED PLAN TELECOMMUNICATIONS ORGANIZATION S.A. COSMOTE has established a Management Share Option Plan for the purchase of COSMOTE’s shares at discounted price. The Plan was NOTES TO THE FINANCIAL STATEMENTS AS OF approved by the resolution of the General Assemblies held on 31 July 2000 and 6 September 2000 and amended by the resolutions of 31 DECEMBER 2007 the General Assemblies held on 12 June 2001, 21 February 2002 and on 27 January 2006. (Amounts in millions of Euro, unless otherwise stated) The Plan, provides that the Board of Directors would grant options to participants every year, which gradually (40% upon the completion of a year of the grant, 30% upon the completion of the second year and 30% upon the completion of the third year) would be converted to final grant for the acquisition of ordinary shares with an aggregate value of, at maximum, 1-5 times annual gross salaries, depending on the position and the company, provided that the participants continue to work efficiently for the Company (Basic Options). Further options may be granted by the Board of Directors to participants at the end of each year, for the acquisition of ordinary shares with an aggregate value of, at maximum, one annual gross salary, depending on the position, for the executives of the Company in Greece and, at maximum, 0.75 annual gross salary for the subsidiaries’ executives abroad (Additional Options). The Basic Options granted to the Chairman of the Company vest in full after one year. Additional Options vest after 3 years.
Basic Options, once vested, can be exercised in whole or in part until the fourth year from their grant, while the Additional Options, once vested, can be exercised in whole or in part during their maturity year or the following year. Share options expire if the beneficiary leaves the company or is fired before the options vest, irrespective of their exercise date, or the individual performance of the beneficiary is assessed in the year that the stock option was granted to be lower than a specified lead.
The total number of the COSMOTE shares, which may be acquired under this Plan or under any other ongoing plan, cannot exceed 5% of its share capital on a five-year period on a rotation basis, and, in any case, the maximum number of shares, which may be issued if the participants exercise their options, cannot exceed 10% of the number of shares existing at the time of the approval of the Plan.
Stock option plan issued shares are fair valued on the date of departure. Fair value is charged to Income especially on the duration of the stock option vesting period by the employee.
Fair value per option has been calculated based on the Black Scholes model. The significant data input in this model is the share price, the exercise price, the dividend yield, the discount rate and the volatility of the stock. Volatility (standard variation of the share’s price) is calculated based on statistical analysis of the daily stock’s price for the last 12 months.
The following table provides information regarding Share Option rights.
2007 2006 Share Weighted Shares Weighted option (number average option (number average of shares) exercise price of shares) exercise price Outstanding shares at the beginning of the year 2,987,450 16.30 3,151,820 13.48 Granted shares during the year 2,011,220 18.45 1,079,580 18.84 Forfeited (662,450) 15.87 (149,860) 13.15 Exercised during the year (1,175,100) 14.37 (1,094,090) 11.10 Outstanding shares at the end of the year 3,161,120 17.38 2,987,450 16.30 Exercisable at the end of the year 3,966 16.01 869,069 14.46
The following weighted average assumptions were used:
2007 2006 Weighted average share price 23.00 19.03 Weighted average exercise price 19.59 18.84 Volatility 24.27% 24.79% Volatility of exercising the right 3 years 3 years Risk free interest rate 3.98% 3.97% Dividend yield 3.16% 3.37%
Volatility has been calculated using the standard deviation of COSMOTE’s shares during the relative year. FINANCIAL STATEMENTS 173
HELLENIC TELECOMMUNICATIONS 27. LITIGATION AND CLAIMS ORGANIZATION S.A. NOTES TO THE FINANCIAL The most significant legal cases on 31 December 2007 are the following: STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, (i) Lease agreements (OTE Leasing): On 11 December 2001, OTE disposed of its wholly owned subsidiary, OTE Leasing, to Piraeus unless otherwise stated) Financial Leasing S.A., a subsidiary of Piraeus Bank S.A. for a consideration of EUR 21.0. From the sale proceeds, EUR 5.9 was collected in cash and the balance of EUR 15.1 in shares in Piraeus Bank S.A. based on their fair value at that date. The disposal of OTE Leasing had no material effect on the Group’s financial position or results of operations. As prescribed in the agreements signed for the sale of OTE Leasing, OTE is committed to indemnify Piraeus Financial Leasing S.A. up to an amount of approximately EUR 28.0, for possible losses to be incurred from the non-performance of lessees for contracts signed through to the date of sale of OTE Leasing. The conditions under which a lessee’s contract will be characterized as non-performing are described in detail in the sale agreements. Such OTE’s obligation is in force for a period between 3.5-5.5 years, depending on the nature of the lease contracts.
(ii) Alpha Digital Synthesis S.A.: On 7 May 2003 Alpha Digital Synthesis S.A. submitted a request for arbitration according to the Greek Civil Procedure Code, claiming an amount of approximately EUR 254.2 plus interest for alleged damages incurred as a result of an alleged breach by OTE of the terms of a memorandum of understanding to provide subscribers television services. The Athens Arbitration Court in 2006 ruled in favor of Alpha Digital Synthesis S.A., and ordered OTE to pay an amount of approximately EUR 13.0. OTE appealed against this decision before the Athens Court of Appeals, was rejected and OTE paid the above amount plus interest. OTE appealed for conclusion of the decision before the Supreme Court which will be heard on 19 May 2008.
(iii) Hellenic Radio and Television S.A. (“ERT”): During May 2002, ERT filed a law suit against OTE before the Athens Multi-Member Court, claiming an amount of EUR 42.9 plus interest for damages incurred by it as a result of an alleged infringement by OTE of the terms of a Memorandum of Understanding signed by the two parties. The Court judged in 2005 that the case should be referred to arbitration. Till now ERT has not gone to arbritration.
(iv) Forthnet S.A.: In 2002, Forthnet S.A. filed a civil claim, claiming an amount of EUR 26.7 for damages incurred by it due to loss of customers as a result of OTE’s allegedly discriminatory policy in favor of OTENET. The hearing which was scheduled for 19 April 2007, was suspended and rescheduled for 5 June 2008. Furthermore, Forthnet S.A. filed a lawsuit against OTE before the Athens Multi- Member of First Instance Court, claiming EUR 4.1 in damages, due to suspension of it’s subscriber’s number portability. The hearing scheduled for 3 May 2006 has been suspended.
(v) Greek Telecom S.A.: In 2004, Greek Telecom S.A. filed a lawsuit against OTE before the Athens Multi Member of First Instance Court, claiming EUR 45.4 in damages, due to alleged breach of contractual obligations arising out of disconnection of telecommunication services. The hearing was held on 22 March 2006 and Court by its decision rejected Greek Telecom S.A.’s claim. Greek Telecom S.A. appealed against this decision before the Athens Court of Appeals. The case was heard on 4 October 2007 and the decision is expected.
(vi) Teledome S.A.: Teledome S.A. filed five lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 8.1 plus interest for alleged damages incurred by it as a result of OTE’s delay in delivering to it leased lines and the application of non cost oriented interconnection charges by OTE. The hearings of the above lawsuits were scheduled for various dates in 2007. The first lawsuit (EUR 1.6) was heard before the Court on 6 June 2007 and the decision is expected, the second lawsuit (EUR 1.0) was rescheduled for 17 September 2008, regarding the third lawsuit (EUR 0.3) the Court postponed the hearing, the fourth lawsuit (EUR 1.6) was heard on 7 February 2007 and the Court rejected it and for the fifth lawsuit (EUR 3.6) the Court ordered factual investigation. Furthermore, Teledome S.A. filed six lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming approximately EUR 10.8 plus interest in damages, due to suspension of it’s subscriber’s number portability and due to alleged breach of contractual obligations arising out of disconnection of telecommunication services. For two lawsuits totaling EUR 4.7, the Court rejected Teledome’s claims. Teledome appealed the decision before the Court of Appeals, which rejected them. A lawsuit of EUR 0.9 was rejected by the Courts on 25 January 2007. The lawsuit of EUR 4.4 was scheduled for 6 March 2008. For the lawsuit of EUR 0.2 the Courts ordered factual investigation and the lawsuit of EUR 0.6 was heard on 26 September 2007 and the decision is expected. FINANCIAL STATEMENTS 174
HELLENIC (vii) Newsphone Hellas S.A.: Newsphone Hellas S.A. filed a lawsuit against OTE before the Athens Multi Member Court of First TELECOMMUNICATIONS ORGANIZATION S.A. Instance, claiming an amount of EUR 7.2 plus interest for alleged damages incurred by it as a result of OTE’s refusal to include in its NOTES TO THE FINANCIAL recorded message that directories information services, except from OTE, are provided by Newsphone also. The hearing was held on STATEMENTS AS OF 31 DECEMBER 2007 17 May 2006 and the Court rejected Newsphone’s claims. (Amounts in millions of Euro, unless otherwise stated) (viii) TELLAS S.A.: TELLAS S.A. filed four lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 20.8 plus interest in damages due to suspension of its subscriber’s number portability. TELLAS S.A. resigned from the lawsuit claiming EUR 4.2 while the hearings of the remaining lawsuits were heard on 2 May 2007 and rejected.
(ix) LAN-NET S.A.: LAN-NET S.A. filed two lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of approximately EUR 2.2 plus interest in damages due to suspension of its subscriber’s number portability. The Court rejected the first lawsuit for the amount of EUR 1.5 and LAN-NET appealed. The appeal was heard on 1 November 2007 by the Court of Appeals and its decision is expected. The second lawsuit of EUR 0.7 was heard on 21 March 2007 and was rejected by the Court.
(x) ALGO-NET S.A.: ALGO-NET S.A. filed two lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of approximately EUR 0.9 plus interest in damages due to suspension of its subscriber’s number portability. The hearing of the first lawsuit for the amount of EUR 0.4 was held and the Court rejected the claim, while the hearing of the second lawsuit initially scheduled for 8 February 2006, has been suspended.
(xi) FASMA ADVERTISING TECHNICAL AND COMMERCIAL S.A.: FASMA ADVERTISING TECHNICAL AND COMMERCIAL S.A. filed a lawsuit against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 9.1 plus interest for breach of contract. The effort to settle the dispute outside the Court scheduled on 24 May 2007 failed and the hearing was scheduled for 8 November 2007. Subsequently, the company filed with the First Instance Multi Member Courts a new lawsuit against OTE for EUR 8.7 withdrawing from the previous lawsuit. The new effort of out-of-court settlement ,which was scheduled on 21 September 2007, failed again and the hearing by the Court was initially scheduled on 8 November 2007 and rescheduled for 23 October 2008.
(xii) Franchisers Suits: HELIAS KOUTSOKOSTAS & COMPANY filed a lawsuit against OTE claiming alleged damages for an amount of EUR 7.9. OTE filed a lawsuit against this company before the Multi-Member First Instance Court for an amount for EUR 0.7. The hearing, initially scheduled for 13 October 2005 has been suspended and a new hearing was scheduled for 21 February 2008. K. PRINIANAKIS S.A. filed a lawsuit against OTE claiming EUR 10.9 in damages. The hearing, of 15 November 2007 heard the Company’s claim and the decision is awaited. DEP INFO EPE filed a lawsuit against OTE claiming EUR 6.8 for damages. OTE has filed its own lawsuit against this company claiming EUR 1.7 in damages. Both hearings were held on 9 March 2006 and the court rejected DEP INFO EPE’s lawsuit, while it accepted OTE’s lawsuit. DEP INFO EPE filed an appeal against this decision which was heard on 24 January 2008. INFOSHOP S.A. filed a lawsuit against OTE claiming alleged damages for the amount of EUR 7.0. A hearing scheduled for 15 November 2007 has been suspended, and a new hearing has been scheduled for 13 November 2008.
(xiii) Employees’ Claims: ΟΤΕ’s current employees and pensioners have filed a number of lawsuits against OTE with a vast diversification.
(xiv) PERIVALLON AEBE: PERIVALLON AEBE filed against OTE a lawsuit before the Multi-Member First Instances Court requesting EUR 1.2 plus interest. The hearing was scheduled for 28 March 2007 and was suspended.
(xv) EFG EUROBANK ERGASIAS S.A.: EFG EUROBANK ERGASIAS S.A. filed against OTE before the Multi-Member First Instance Court a lawsuit for EUR 5.9 plus interest for pledged receivables of PERIVALLON AEBE which derive from the agreement with the Bank. The effort for out-of-court settlement which was scheduled on 11 October 2007 failed and the hearing before the Court was scheduled for 11 December 2008.
(xvi) Payphones Duties: From 1999 to 2005, the Municipality of Thessaloniki charged OTE with duties and penalties of a total amount of EUR 15.0 for the installation and operation of payphones within the area of its responsibility. OTE strongly disputed the above assessments and had filed appeals before the Thessaloniki Administrative Court of First Instance and prepaid 40% of the above duties and penalties, amount that will be refunded to OTE if the outcome of that case will be favorable to the Company. With its first two decisions, the Thessaloniki Administrative Court of First Instance has accepted OTE’s appeals and the Municipality of Thessaloniki has filed appeals to the Supreme Court FINANCIAL STATEMENTS 175
HELLENIC TELECOMMUNICATIONS (xvii) Hellenic Telecommunications and Post Commision (HTPC): On 26 July 2007 the Hellenic Telecommunications & Post ORGANIZATION S.A. Commision (HTPC) imposed a series of fines on OTE, for a total amount of EUR 27.4. OTE has filed lawsuits before the Athens Court NOTES TO THE FINANCIAL STATEMENTS AS OF of Appeals against this decision demanding its annulment and the hearing of the lawsuits is scheduled for various dates in 2008. 31 DECEMBER 2007 OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting in the suspension of the decisions till the (Amounts in millions of Euro, unless otherwise stated) authorized courts decide.
On 29 November 2006 HTPC imposed a fine on OTE of total amount of EUR 3.0. OTE has filed an appeal before the Athens Court of Appeals against this decision which was scheduled for 12 February 2008 while OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting to the suspension of the decisions till the authorized courts decide.
Finally, on 5 October 2007 HTPC imposed a fine for a total of EUR 3.0. Against this decision OTE has filed an appeal demanding its annulment which was scheduled to be heard before the Athens Court of Appeals on 11 March 2008. OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting in the suspension of the decisions till the authorized courts decide.
OTE has established appropriate provisions in relation to litigations and claims, the outcomes of which are probable and can be reasonably estimated.
28. FINANCIAL RISK MANAGEMENT
IFRS 7 “Financial Instruments: Disclosures” introduces additional disclosures in order to improve the quality of information provided and value the importance of the financial instruments on the financial position of the Company and the Group.
The Group is exposed to the following risks from the use of its financial instruments: 1. Credit risk 2. Liquidity risk 3. Market risk
This note presents information about the Group’s exposure to each of the above risks and management policies and procedures for the measuring and managing of these risks.
1. Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations.
Trade receivables could potentially influence negatively the liquidity of the Group. Due to the large number and the diversification of the customer base however there is no concentration of credit risk with respect to these receivables.
Concentration of credit risk is identified in the receivables from telecommunication operators due to the small number and their high revenues.
The Company and the Group have established specific credit policies under which each customer is analyzed for creditworthiness and an effective management of receivables before they become overdue but much more after they become overdue and doubtful.
In monitoring credit risk, customers are grouped according to the category they belong to, their credit characteristics, aging profile and existence of previous financial difficulties. Customers that are characterized as doubtful are reassessed at each balance sheet date for the estimated loss that is expected and impairment allowance is established. FINANCIAL STATEMENTS 176
HELLENIC Maximum credit risk to which the Company and the Group are exposed derives from the following: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL 2007 2006 STATEMENTS AS OF 31 DECEMBER 2007 COMPANY GROUP COMPANY GROUP (Amounts in millions of Euro, unless otherwise stated) Financial instruments available for sale 47,8 49,7 38,7 39,5 Financial instruments at fair value through income statement - 31,5 - 89.2 Trade receivable 758,6 1,172,0 710,1 1.160,5 Loans 226,8 175,7 136,0 80,1 Cash and cash equivalents 453,1 1.316,3 814,7 2.042,5 Total 1.486,3 2.745,2 1.699,5 3.411,8
From the categories above, cash and cash equivalents are considered of the lowest credit risk. Financial instruments available for sale at fair value include listed shares, while financial instruments at fair value through income statement include bonds and other securities. These two categories are not considered to expose the Company and the Group to a significant credit risk.
Loans include loans to employees which are collected either through the payroll or are netted-off with their retirement leave (See Note 16), loans and advances to Auxiliary Pension Fund mainly due to the Voluntary Leave Scheme (See Note 16) and at company level loan to COSMOFON (See Note 8). The above mentioned loans are not considered to expose the Company and the Group to a significant credit risk.
Trade receivables, which include receivables from telecommunication operators, is the category with the higher credit risk. For this category the Company and the Group assesses the credit risk following the established policies and procedures and has set required provision for impairment (See Note 9).
2. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Liquidity risk is kept at low levels by ensuring that there is sufficient cash on demand and credit facilities to meet the financial obligations when due.
The Group’s available cash as at 31 December 2007 amounts to EUR 1,316.3, its loans amounts to EUR 5.527,8 while the Group has a long-term credit (committed) line of EUR 350.0.
For the monitoring of liquidity risk, the Group prepares annual cash flows when drafting the annual budget and monthly rolling forecasts for three months’ cash flows, in order to ensure that it has sufficient cash reserves to service its financial obligations. FINANCIAL STATEMENTS 177
HELLENIC Below is an analysis of the maturity of the financial liabilities at Company and Group level: TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL COMPANY STATEMENTS AS OF 31 DECEMBER 2007 31 December 2007 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years (Amounts in millions of Euro, unless otherwise stated) Loan from the European Investment Bank 36,4 17,5 18,9 - - Consortium Loan through OTE PLC 1.266,3 - - - 1.266,3 Short-term Bridge Loan through OTE PLC 1.494,2 1.494,2 - - - Suppliers 608,9 608,9 - - - Total 3.405,8 2.120,6 18,9 - 1.266,3
31 December 2006 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 52,5 16,1 17,5 18,9 - Consortium Loan through OTE PLC 1.265,5 - - - 1.265,5 Short-term Bridge Loan through OTE PLC 562,2 562,2 - - - Total 1.880,2 578,3 17,5 18,9 1.265,5 GROUP 31 December 2007 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 36,4 17,5 18,9 - - Consortium loan OTE PLC 500,0 - - 500,0 - Medium Term Bond OTE PLC 3.360,4 - 598,7 629,4 2.132,3 Short-term Bridge Loan through ΟΤΕ PLC 1.494,2 1.494,2 - - - Other loan commitments 136,8 69,0 19,1 25,5 23,2 Suppliers 931,5 931,5 - - - Total 6.459,3 2.512,2 636,7 1.164,9 2.155,5
31 December 2006 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 52,5 16,1 17,5 18,9 - Consortium Loan OTE PLC 500,0 - - 500,0 - Bond EUR 1,100, 6,125% OTE PLC 491,2 491,2 - - - Medium Term Bond OTE PLC 3.353,1 - - 1.223,0 2.130,1 Other loan commitments 193,7 45,8 77,5 33,5 36,9 Suppliers 938,0 938,0 - - - Total 5.528,5 1.491,1 95,0 1.775.4 2.167.0
The increased loan commitments for 2008 as at 31 December 2007 are attributed to the short-term loan of EUR 1,494.2, which in February 2008 was refinanced with long-term borrowings (for further details see Note 29).
ΟΤΕ has guaranteed in favor of OTE PLC for total borrowings of: • As at 31 December 2007: EUR 5,4 billion. • As at 31 December 2006: EUR 4,4 billion. FINANCIAL STATEMENTS 178
HELLENIC 3. Market risk TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the STATEMENTS AS OF Group’s results or the value of its holdings of financial instruments. The objective of market risk management is to manage and 31 DECEMBER 2007 (Amounts in millions of Euro, control exposure within acceptable levels while optimizing the return on risk. unless otherwise stated) Below are described in further detail the individual risks that constitute market risk and the Group’s policies for administering them:
3.1 Interest rate fluctuation risk
Interest rate fluctuation risk is the risk that payments for interest on loans fluctuate due to changes in interest rates. Interest rate fluctuation risk mainly applies to long-term loans with fluctuating interest rates.
The hedging of interest rate fluctuation risk is managed through interest rate swap agreements in order to minimize the cost of borrowing at fixed interest rates and the hedging of favorable interest rates for the remaining duration of the loans commitments depending on the market conditions at each time.
As at 31 December 2007, the Group’s exposure to loan commitments at floating rates was approximately at 52%/48%. With the issuance of the fixed rates bonds on February 2008 and the refinancing of the short-term loan (for further details see Note 29), the Group’s relation of fixed to floating rate was approximately 80%/20%. The analysis of borrowings depending on the type of the interest rate is as follows:
2007 2006 COMPANY GROUP COMPANY GROUP Floating rate loans 1.494,2 2.647,2 - 1.167,2 Fixed interest loans 1.302,7 2.880,6 1.318,0 3.423,3 Total 2.796,9 5.527,8 1.318,0 4.590,5
The average remaining duration of floating interest rate borrowing as at 31 December 2007 is 1,4 years.
The average remaining duration of floating interest rate borrowing at 31 December 2007 excluding the short-term loan balance is 3 years.
The average remaining duration of floating interest rate borrowing at 31 December 2006 was 4 years.
To assess the interest rate risk below is a sensitivity analysis to changes in the interest rate (based on Euribor) for the Group.
Had the interest rates increased by 100 base units the effect would be:
GROUP Income for the year Equity 2007 2006 2007 2006 (10,0) (4,6) (10,0) (4,6)
3.2 Currency risk
Currency risk is the risk that the fair values or the cash flows of a financial instrument fluctuate due to foreign currency changes.
The Group operates in many Southeastern European countries and as a result is exposed to currency risk due to changes in currencies other than Euro. In the Group’s major foreign investment in ROMTELECOM, the currency risk is compensated mainly through charging telecommunication fees in Euro, managing a natural hedge. With respect to cash reserves and loan commitments of the Group, the currency risk is not material since the majority of them are denominated in Euro. FINANCIAL STATEMENTS 179
HELLENIC The main functional currencies within the Group is the Euro, Ron (Romania) and the Lek (Albania). The current risk for the Group is not TELECOMMUNICATIONS ORGANIZATION S.A. significant as presented in the table below: NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 GROUP (Amounts in millions of Euro, 31 December 2007 EUR RON LEK WON TOTAL unless otherwise stated) Trade receivables 1,083.6 39.2 49.2 - 1,172.0 Borrowings (5,449.4) (36.0) - (42.4) (5,527.8) Suppliers (883.0) (37.6) (10.9) - (931.5) Cash and Cash Equivalents 1,200.7 29.1 86.5 - 1,316.3 Total exposure (4,048.1) (5.3) 124.8 (42.4) (3,971.0)
31 December 2006 EUR RON LEK WON TOTAL Trade receivables 1,082.0 25.9 52.6 - 1,160.5 Borrowings (4,484.9) (48.0) - (57.6) (4,590.5) Suppliers (863.8) (57.7) (16.5) - (938.0) Cash and Cash Equivalents 1,971.0 28.9 42.6 - 2,042.5 Total exposure (2,295.7) (50.9) 78.7 (57.6) (2,325.5)
29. SUBSEQUENT EVENTS
The most important events that have occurred after 31 December 2007 are the following:
1. Public Offer for the acquisition of COSMOTE (squeeze out)
On 29 January 2008 the tender offer’s acceptance period for the acquisition of COSMOTE’s shares ended which commenced on 4 December 2007. The Public Offer was for 107,695,259 shares, which represent approximately 32.17% of the total paid-up share capital of COSMOTE, and 1,165,070 shares, the “New Shares”, which represent the maximum number of shares that could be issued and traded on the Athens Stock Exchange until the termination of the acceptance period of the Public Offer, following the exercise by the beneficiaries of their stock option rights.
The number of shares increased to 1,175,100 shares as a result of the changes of the maximum number of these New Shares as mentioned in the Base Prospectus Supplement as approved by the Board of Directors of the Stock Exchange Committee. As a result, the total number of the shares of the Public Offer became 108,870,359.
During January 2008 and with the completion of the deposit of the acceptance applications by 5,044 shareholders OTE received 27,503,293 shares of COSMOTE representing 8.187% of the total paid-up Share Capital. As a result on 29 January 2008, OTE held 331,228,491 shares of the company representing 98.592% of the total paid-up Share Capital with the corresponding voting rights of COSMOTE.
2. Squeeze out of COSMOTE
According to Article 27 of L.3461/2006. on 27 February 2008, OTE submitted to the Stock Exchange Committee a request for the squeeze out of the remaining shares (3.581.305) of COSMOTE at a price equal to that of the Public Offer, i.e. EUR 26.25 per share (in absolute figures) while OTE intends to cover the rights of E.X.A.E. which correspond to 0.08% of the value of the out-of the market transfer which in accordance with current legislation would burden COSMOTE’s shareholders. It is noted that according to Article 28 of the same Law, the remaining shareholders have the right to sell through the Stock Exchange market to the Proposing Party their shares within three months from the publication of the “Right to Entry” to which OTE proceeded on 31 January 2008.
After the end of the exercise right period and the “Right to Entry”, OTE intends to begin the procedure of the delisting of the COSMOTE’s shares from the Athens Stock Exchange and of the GDRs from the London Stock Exchange (L.S.E.).
3. Repayment of short-term loans and replacement with long-term loans
On 12 February 2008 OTE PLC completed the issuance of two bonds amounting to EUR 1,500 and EUR 600 under the Global Medium Term Note Programme, for the refinancing of the balance of the short-term loan of EUR 2,100 which was obtained in November 2007 FINANCIAL STATEMENTS 180
HELLENIC for the acquisition of COSMOTE’s shares by OTE. TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL Specifically, OTE PLC issued: STATEMENTS AS OF 31 DECEMBER 2007 j) A fixed rate bond of EUR 1,500, maturing on 14 February 2011 with a coupon for 5.375% and (Amounts in millions of Euro, unless otherwise stated) k) Fixed rate bond of EUR 600, maturing on 12 February 2015, with a coupon of 6.0%.
The bond terms include a step-up clause according to the credit rating of OTE. The bond coupon could increase by 1.25% in the case that: a) one or both of the two credit rating agencies (Moody’s and S&P) downgrades the rating to BB+, Ba1 and under (sub-investment grade), or b) both rating agencies (Moody’s and S&P) cease or are unable to perform the credit rating of OTE.
The coupon could increase only one during the whole bond duration and for the period the credit rating of OTE remains at sub- investment grade.
The bonds include a Change of Control clause applicable to OTE which is triggered if both of the following events occur: a) any person or persons acting in concert (other than the Hellenic Republic) at any time directly or indirectly come (s) to own or acquire (s) more than 50% of the issued ordinary share capital or of the voting rights of OTE, and b) as a consequence of (a), the rating previously assigned to the bonds by any international rating agency is withdrawn or down graded to BB+/Ba1 or their respective equivalents (non-investment grade), within a specific period and under specific terms and conditions.
In accordance with the terms and conditions of the bonds, in the event that the Change of Control clause is triggered, OTE PLC shall promptly give written notice to the bond holders who in turn shall have the option within 45 days to require OTE PLC to redeem the bonds (put option), at their principal amounts together with accrued interest up to the date of redemption.
4. Voluntary Leave Scheme with 2008 motives
On 28 February 2008, OTE’s management and OME-OTE (the employee’s union) signed a Collective Labor Agreement according to which employees who would complete the number of years of service required for retirement by 29 December 2008 will be entitled to benefits providing they leave by 30 December 2008. Eligible employees should submit irrevocable applications by 21 March 2008.
5. Sale of Subsidiaries OTEnet Cyprus Ltd and OTEnet Telecommunications Ltd
On 28 February 2008 OTE announced its intention to sell its total investment in OTEnet Cyprus Ltd and OTEnet Telecommunications Ltd which operate in the Telecommunication and Internet Services Section. OTE signed an agreement with Cyprus Trading Corporation PLC (CTC) for an amount of approximately EUR 3.9. The agreement is subject to the approval of the Cyprus Competition Committee.
6. Developments in the social security draft law
According to the new social security draft of law and with the provisions of Law 3029/2002, TAP-OTE’s Pension Fund is expected to be merged with IKA-ETEAM soon with the gradual adjustment (reduction) of TAP-OTE’s contributions to those of IKA. This adjustment is expected to commence in 2013 and is expected to be completed in 2023 in three equal installments.
It is provided that shares of TAP-OTE in the share capital of EDEKT – OTE will automatically be transferred to IKA-ETEAM as whole successor from the inception date of the pension sector of TAP-OTE.
7. Participation of MARFIN Investment Group to OTE’s Share Capital
On 17 March 2008, MARFIN Investment Group announced that it signed with Deutsche Telekom A.G. for the sale of 98,026,324 shares for EUR 26 (in absolute figure) each. According to the announcement, the transaction is expected to be completed by 7 May 2008 the latest and is subject to the approval of the relevant request of DEUTSCHE TELEKOM A.G. by the Interministerial Privatization Committee of Greece.
The agreement has been approved by the Board of Directors of MARFIN Investment Group and the Executory Board of DEUTSCHE TELEKOM A.G. and is subject to the approval of the Supervisory Board of DEUTSCHE TELEKOM A.G. FINANCIAL STATEMENTS 181
REPORT OF THE BOARD OF DIRECTORS OF HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. ON THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007
The Report of the Board of Directors of HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. (hereinafter referred to as “OTE” or “the Company”) was prepared in accordance with article 136 of the C.L. 2190/1920 and refers to the Annual Separate and Consolidated Financial Statements as of 31 December 2007 and for the year then ended. The OTE Group (the “Group”) apart form the Company also includes subsidiaries over which OTE has direct or indirect controls.
The Separate and Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (I.F.R.S.).
Α. SIGNIFICANT EVENTS OF THE YEAR
With respect to the Group activities, the following events that occurred during the year 2007 are of significance: • Increase in the stake of OTE in COSMOTE to 90.72% as at 31.12.2007. • Increase in the stake of OTE in OTENET to 100.00% as at 31.12.2007. • On 9 November 2007, OTE PLC signed a short-term credit facility agreement for an amount of EUR 2.7 billion with a consortium of banks, under the guarantee of OTE, for the financing of the acquisition of the minority shares in COSMOTE by OTE. The loan was fully repaid in February 2008 through the issuance of two bonds of EUR 1.5 billion and EUR 600 million respectively under the Global Medium term Note Programme. • Sale of 100% of the subsidiary company INFOTE A.E. (directory services) on 19 December 2007 to Rhone Capital LLC and Zarkona Trading Limited. • Spin-off of the International Facilities and International Cables Infrastructure Segment of OTE and the licenses to use the INTEC- ITU system to OTE-GLOBE.
Β. STRATEGY- OBJECTIVES
With respect to the strategy and prospects in the coming years, as these are presented in the 2008-2010 business plan of the Company, the main objective of management is the maximum utilization of the synergies in the Group and the improvement of the EBITDA margin in order to align it to that of other European companies within the industry.
For the achievement of the above mentioned objective the Company’s priorities are the sustainment of revenues against continuous competition and the reduction of operating expenses.
To support the above efforts are continuing with main emphasis on: • Exploitation of technological convergence with the creation of commercial proposals adjusted to each customer category and based on the continuous development of broadband. • Sustainability of retail market share and generation of new revenue streams and sources. • Optimization of the Sales Network and development of alternative sales channels. • Exploitation of OTE’s infrastructure and development of new business opportunities. Sustainability of wholesale market share. • Improvement of the quality of retail and wholesale customers service. • Gradual transformation of the network to new generation network development of new technology of broadband infrastructure and generation of an advanced basis of Management Information Technology, for the maximum possible automation of the Company’s operations as well as the introduction and support of competitive Services. • Securing the fair treatment of OTE in determining and supporting the regulating framework. • Establishment of a competitive employment environment. • Maintenance of the personnel cost / revenues factor at stabilized levels for the three year 2008-2010 through the development of a competitive employment environment.
C. DIVIDEND POLICY
The Company’s Board of Directors will propose to the Annual General Assembly of the shareholders the distribution of an from the 2007 profits of a total amount of EUR 367.6 million corresponding to EUR 0.75 per share. FINANCIAL STATEMENTS 182
D. FINANCIAL INSTRUMENTS
The targets and policies of the Company and the Group as far as managing financial risks is concerned and the exposure of the Company and the Group to these risks are analyzed in Note 28 to the Financial Statements.
E. FINANCIAL HIGHLIGHTS OF 2007
1. INCOME STATEMENT:
OTE Group Turnover increased by 7.3%, compared to 2006 and reached EUR 6,319.8 million.
This increase in turnover is mainly due to the following: • Increased revenues from mobile telephony, by 11.9% compared to the prior year, which is mainly due to the increase in the subscriber base of all mobile telephone entities of the Group (COSMOTE, AMC, GLOBUL & COSMOFON) as well as the mobile traffic volume enhancement in Greece. • The increase in telecommunication equipment sales by 99.0% as a result of the inclusion in the consolidated results of those of GERMANOS S.A. following its acquisition by COSMOTE in the fourth quarter of 2006. This contribution offsets the loss of revenues from the sale of the subsidiary of ARMENTEL on 16 November 2006 and as a result the non consolidation of its results for 2007. • The increase in revenues from ADSL and INTERNET by 71.2% in relation to the corresponding prior period, mainly due to the significant increase in broadband connections, the number of which doubled compared to 2006 exceeding one million connections. • Increased revenues from leased lines by 11.7% compared to prior year . • Increased revenues from international mobile carriers by 18.4% compared to the prior year.
The above increases offset the decrease of revenues from domestic telephony by 10.5% and the decrease in revenues from international telephony by 12.2% compared to the corresponding prior period.
OTE’s Turnover, which reached to EUR 2,656.9 million showed a decrease by 2.1% compared to prior year. This is a result of the decrease in revenues from domestic telephony by 6.4% and the decrease in telecommunication equipment sales and prepaid cards. These reductions were partially offset by the significant increase in revenues from international telephony by 9.2%, the significant increase of revenues from ADSL and Internet by 96.9% and the revenue in increase in income from interconnection services by 15.6% and income from services rendered by 11.7%.
The Group Operating Expenses reached EUR 5,272.9 and show an increase by 9.8% compared to 2006. This increase is mainly due to the increased cost of telecommunication equipment by 85.1% due to the consolidation of GERMANOS S.A. for a whole year in 2007 for contrast to the 2006 year when the consolidated results included only those of the 4rth quarter of GERMANOS S.A..
Furthermore, the variance is due to the issue in other operating expenses by 8.7% as a result of : • Increase in commissions to commercial agents by 20.2%. • Increase in advertising and promotion expenses by 27.0%. • Increase in various taxes, other than income taxes by 19.5%. • Increase third party fees by 5.6%. • Reduction of doubtful debts provisions by 10.1%. • Reduction of third party services by 4.5%.
Finally, the operating expenses of 2007 were burdened with EUR 22.1 million relating to the staff leaving with bonus costs of OTE personnel while in 2006 operating expense were reduced by EUR 49.8 million as a result of the adjustment for the provision for the voluntary leave scheme costs for 2005.
The Company’s Operating Expenses reached EUR 2,346.2 million and have decreased by 2.3% compared to 2006.
The fluctuations in the significant categories of Operating Expenses are the following: • 5.4% decrease in staff payroll. • 11.7% decrease in charges to domestic interconnection operators. • 4.9% decrease in depreciation. FINANCIAL STATEMENTS 183
• 21.2% decrease in the cost of telecommunication equipment, due to the absence in the current year of cost of the “SYZEYXIS” project which in 2006 of EUR 25.9 million.
As a result of all the above, Operating Profit before Financial Results of the Group reached EUR 1,046.9 million compared to EUR 1,088.3 million in the previous year showing a reduction by 3.8%. The Operating Profits before Financial Results of the Company reached EUR 310.7 million in 2007 remaining at the same levels as those of 2006.
In the Group Financial Results, interest expenses reached EUR 238.7 million, showing a decrease of 14.4 % compared to 2006, reflecting the 2006 increased discounting cost of the loan that the Company granted to the Auxiliary Pension Fund because it was given at a below the market interest rate. Interest income increased by 9.9% compared to 2006.
Income from dividends decreased by 27.0% mainly due to the lower dividend from TELECOM SRBJIA while investment income increased by 45.7%, reflecting mainly the profit of the Group of EUR 244.1 million from the sale of the subsidiary INFOTE S.A. in 2007.
Income Tax (expense) of the Group increased by 8.2% as compared to 2006 mainly because of the increased income tax of the Company by 70.0% compared to the prior year due to additional taxes imposed following the completion of the tax examination of years 2002 to 2005.
As a result of all the above, Group Net Profit after minority interest for the year 2007 amount to EUR 662.6 million compared to EUR 574,6 million in the previous year, showing an increase by 15.3%.
The Group’s Investment Plan which reached EUR 1,101.3 million shows an increase of 14.4%., compared to the prior year when it amounted to EUR 962.4 million The increase is due mainly to the increased investments plan of COSMOTE and its foreign investment but also to the investments by the Company and OTE-GLOBE.
The Group’s Debt increased by approximately 20.4% compared to the prior year and reached EUR 5,527.8 million, due to the short- term loan obtained by OTE PLC for financing COSMOTE’s acquisition by OTE, whereas the Group’s Net Debt increased by 65.3% and reached to EUR 4,211.5 million.
With respect to the results of the main subsidiaries of OTE which are included in the Consolidated Financial Statements the following should be noted:
COSMOTE GROUP: Maintenance of the leading position in the mobile market, with an increase in turnover by 28.5% and in EBITDA by 12.5%, compared to 2006. The subscriber base increased significantly compared to 2006 exceeding 15 million subscribers achieving much earlier the set for 2009 target, mainly due to the contribution of GERMANOS both in Greece and abroad.
During 2007, the total investments of the COSMOTE Group reached approximately EUR 547 million mainly due to the investment of the subsidiaries in Romania and Bulgaria. The Board of Directors of COSMOTE will propose to the General Assembly of the Shareholders the distribution of a dividend from 2007 profits of a total amount of EUR 245.3 million (EUR 0.73 per share).
ROMTELECOM: There was a decrease in turnover by approximately 2.6% and the result after taxes turned into a loss of EUR 21.2 million. The result is attributed to the reduced revenues reflecting the intense competition and to increased operating expenses mainly depreciation, advertising and promotion expenses, telecommunication equipment costs and finally income taxes as a result of the provision for additional taxes for the tax examination which is in the final stages.
ΟΤΕΝΕΤ GROUP: Increase in turnover by 15.0% compared to 2006, mainly due to the increase in its subscriber base especially the broadband ADSL connections.
F. IMPORTANT EVENTS AFTER THE YEAR END
The most important events after the balance sheet date (31 December 2007) to the date that the Financial Statements are approved by the Board of Directors are analyzed in Note 29 to the Financial Statements.
G. INFORMATION ACCORDING TO ARTICLE 11a, L. 3371/2005
(a) Share capital structure
The Company’s share capital amounts to one billion, one hundred seventy one million, four hundred fifty-nine thousand, four hundred twenty-nine Euro and seventy one cents (1,171,459,429.71) and is divided into four hundred ninety million, one hundred fifty thousand three hundred eighty nine (490,150,389) registered shares of a nominal value two Euro and thirty nine cents (EUR 2.39) each. FINANCIAL STATEMENTS 184
According to the Company’s share registry on 31 December 2007 the Company’s shareholding structure was as follows:
Shareholder Number of Shares Percentage HELLENIC STATE 122,350,712 24.96% DEKA S.A. 15,052,773 3.07% MARFIN INVESTMENT GROUP (direct and indirect) 92,592,156 18.89% FREE FLOAT 260,154,748 53.08 TOTAL 490,150,389 100.0%
All of the Company’s shares are common, registered with voting rights and there are special. The Company’s shares are listed on the Athens Stock Exchange under the High Capitalization category.
Each share incorporates all rights and obligations as these derive from C.L. 2190/1920 and the Company’s Articles of Incorporation the provisions of which are in line with the provisions of the Law.
Any shareholder that has in his possession any number of shares has the right to participate in the General Assembly of the shareholders of the Company either in person or by proxy committing either the total of his shares or part thereof. The Hellenic State, as shareholder, is represented at the General Assembly by the Minister of Finance or by representative.
Each share is entitled to one vote.
The Company’s shareholders are entitled to receive dividends. The minimum dividend provided to all the shareholders is set to be the greater of six percent (6%) of the paid-up share capital or thirty five percent (35%) of net to be profits (which is the highest).
According to the Articles of Incorporation of the Company the General Assembly may decide on the allocation of the remaining profits at its own discretion; for instance, the Assembly may decide on the distribution of shares to Company employees and its affiliated companies, which shares come from share capital increases through capitalization of profits or is covered by the shareholders themselves.
The General Assembly of shareholders maintains all its rights during liquidation.
Shareholder’s liability is limited to the nominal value of shares that they have at their possession.
Shareholders’ rights are the ones determined by the provisions of C.L. 2190/1920.
(a) Restrictions in the transfer of the Company’s shares
The Company’s shares are freely traded on the Athens Stock Exchange market and are transferred according to the Law.
Exceptionally, according to article 11, L. 3631/2008 the acquisition of state related entities as described in article 42C of C.L. 2190/1920 or by shareholders acting together in a harmonized way of voting rights of 20% and above of the share capital is subject to the approval of the Interministerial Privatization Committee of L. 3049/2002 which is granted under the requirements of this Law.
According to article 4 of L. 3016/2002, the independent non-executive members of the Board of Directors of the Company cannot possess any other shares representing a percentage above 0,5% of the paid-in share capital.
According to art. 13 of L. 3340/2005, the management personnel and their close relatives, without having restrictions on the acquisition or transfer of the Company’s shares, are obliged to disclose their direct and indirect transactions in the Company’s shares, exceeding the amount of EUR 5,0 on an annual basis. The obligation of such disclosures is dictated by Law and the decisions of Capital Market Committee.
According to article 26 of L. 3431/2006 Electronic Telecommunications, any change in control of the Company is approved by the Hellenic Committee of Post and Telecommunications (“EETT”). The approval of E.E.T.T. with respect to the change of control is also required by L. 703/1977 on Monopoly and Oligopoly Control and Protection of Free Competition (article 12, par. e of L. 3431/2006 on Electronic Communications)
(b) Significant direct or indirect investments
Significant direct ownership in the share capital of the Company as of 31 December 2007, according to L. 3556/2007: a) The Hellenic State which as shareholder holds directly 24,96% of the paid-up share capital of the Company and indirectly 3,07% of the paid-up share capital through DEKA S.A. making the total participation to 28,03% of the paid-up share capital of the Company. FINANCIAL STATEMENTS 185
b) MARFIN Investment Group S.A. holds 18,89% of the total share capital as follows: i) A percentage of 6,29 of the total share capital, corresponding to 30,819,186 shares with respective voting rights exercised directly by Investment Group Holding S.A.. ii) A percentage of 8,52 of the total share capital, corresponding to 41,772,970 shares which embody respective voting rights which Investment Group Holding S.A. held indirectly through COMMERZBANK AG and has the right to acquire according to financial instruments terms on which the respective voting rights are exercised following its guidelines. iii) A percentage of 4,08% of the total share capital, corresponding to 20,000,000 shares which embody the respective voting rights which Investment Group Holding S.A. holds indirectly through the ROYAL BANK OF SCOTLAND PLC and has the right to acquire according to financial instruments terms on which the respective voting rights are exercised following its guidelines.
The Company is not aware of any other shareholder who holds, has acquired or has transferred to a third person or corporate body the ownership of 5% or more of its paid-up share capital as of 31 December 2007.
(c) Owners of shares that offer special control rights
There are no issued shares of the Company that offer special control rights.
(d) Restrictions on voting rights-Deadliness in exercising relating rights
There are no restrictions on voting rights according to the Company’s Articles of Association. These restrictions derive directly from the provision of the above article 11 of L. 2631/2008, as mentioned above.
(e) Shareholder agreements for restrictions in the transfer of shares or in exercising of voting rights
There are no shareholder agreements regarding restrictions in the transfer of shares or in the exercising of voting rights that are known to the Company.
(f) Rules of appointment and replacement of members of the Board of Directors and amendment of the Company’s Articles of Incorporation if they differ from the provisions of C.L. 2190/1920.
The members of the Board of Directors are appointed and replaced according to the provisions of C.L. 2190/1920. The provisions according to the Company’s Articles of Incorporation are amended are provided by C.L. 2190/1920.
The provisions of the Company’s Articles of Incorporation in relation to the appointment and replacement of the BOD members and the amendment of its Articles of Incorporation are not amended by the provisions of C.L. 2190/1920.
In particular according to the provision in the Articles of Incorporation the Board of Directors consists of nine (9) or eleven (11) members, elected by the General Assembly, for a three-years term and renewed by one third (1/3) of every year. When eleven (11) Directors serve on the Board and in order to determine the number corresponding to one third (1/3) of renewable members for the year, the fraction that results is omitted for the first two years. In this case, for the third year of serve the remaining number of Directors is renewed up until the number of eleven (11) members. The service term of each Director commences on the day of his election by the General Assembly and terminates on the Annual General Assembly when the three years from election are completed.
By resolution of the General Assembly the Board of Directors are eleven (11).
The members of the Board of Directors may always be re-elected and can be revoked anytime by the General Shareholders Assembly.
(g) Jurisdiction of the Board of Directors for the issuance of new shares/share buy backs according to article 16 of C.L. 2190/1920
In accordance with article 6 of the Company’s Articles of Incorporation, the General Shareholders Assembly, following its decision (subject to the disclosure procedures specified by article 7b of C.L. 2190/1920) can transfer to the Board of Directors the authority to decide with a majority of two thirds (2/3) of its members and within five (5) years from the date of the relevant decision for: I. The increase of the share capital with the issuance of new shares. The amount of the increases cannot exceed the total amount of the paid-up share capital as at the date of the transfer of the relevant authority by the General Assembly to the Board of Directors. II. The issue of bonds up to an amount not exceeding the paid-up share capital, by issuing convertible bonds.
The above authorities of the Board of Directors may be renewed by the General Assembly for a period not exceeding five (5) years for each renewal. The General Assembly’s decision comes into force after the end of the five-year period. FINANCIAL STATEMENTS 186
Exceptionally, in the event the reserves of the Company exceed one fourth (1/4) of the paid-up share capital, a resolution of the General Assembly for the increase of the share capital through issuance of a new shares bond convertible into shares, will always be required.
There are no resolutions of the General Shareholders Assembly in force for the concession of the above authorities to the Board of Directors.
Following a General Shareholders Assembly resolution and pursuant to the regulations that are in force, the Company may acquire own shares corresponding to a maximum of 10% of each its paid-up share capital. Such resolutions of the General Assembly are reflected by Board of Directors’ decisions.
The General Shareholders Assembly decided on 8 November 2007 to approve the purchase of the Company shares, according to article 16 of C.L. 2190/1920, up to one tenth (1/10) of its total paid-in share capital for a period of 24 months. To date no Board of Directors decision has been taken to effect the resolution.
(h) Significant Company agreements that are in force/ amended/ terminated upon a change in control of the Company following a public offer
The Company has entered into various loan agreements and bond issue agreements in which a change of control clause of OTE is included. If the clause is achieved OTE must proceed with prepayment of the loan in line with contractually stipulated cases.
The wording of the specific clause varies in each contract test and the following are provided in more detail: 1) Consortium loan EUR 850 million, maturing in September 2012 and short-term loan EUR 2 700 million maturing in November 2008
In the above loan contracts, clause is activated if there is a change in control of OTE as a consequence of which the credit rating of OTE, or the reality new legal entity is downgraded below BBB/Baa2..
Control is defined as the ability of the new shareholder to control management and the procedures set by OTE either through voting rights, through contractual agreement or through other procedures.
In the event the clause is activated, OTE PLC must notify the banks, which have the right to demand the prepayment of the loan.
It is clarified that the short term loan of EUR 2,700 million was fully repaid in February 2008. 2) Bonds of OTE PLC guaranteed by OTE: • EUR 900 million, maturing in May 2016 and EUR 600 million maturing in November 2009, and • EUR 1,500 million, maturing in February 2011 and EUR 600 million maturing in February 2015.
According to the terms of these bonds, the clause is activated if both of the following events occur together: a) Any person or group of persons (other than the Hellenic State) acquires directly or indirectly more than 50 % of the share capital or of the voting rights of OTE and b) as a consequence of (a), the rating previously of the bonds by international agencies is withdrawn or downgraded to BB+/Ba1 or their equivalent (non Sub-investment grade), within a specific period and with specific terms.
In the terms of other bonds of the Group, no such clause is included.
According to the term of the bond, in case the change of control of OTE clause is activated OTE PLC must immediately notify in writing the bond owners who in turn have the right, within 45 days to demand from OTE PLC the prepayment i.e. the capital and the interest applicable to the date of prepayment.
(j) Company agreements with Board of Directors Members or personnel in case of resignation/unfair dismissal or service/ employment termination de to a public offer
The Company has not entered into any agreements with the members of the Board of Directors or its personnel corporate the persons, in case that because of the Public Offer for the acquisition or conversion or concession of shares are forced to resign or are dismissed unfairly or the services or employment are terminated.
Athens, 19 March 2008
Panagis Vourloumis Chairman and Managing Director FINANCIAL STATEMENTS 187
Independent Auditor’s Report (Translated from the original in Greek)
To the Shareholders of HELLENIC TELECOMMUNICATIONS ORGANISATION S.A.
Report on the Financial Statements
We have audited the accompanying Separate and Consolidated Financial Statements (the “Financial Statements”) of HELLENIC TELECOMMUNICATIONS ORGANISATION S.A. (the “Company”) which comprise the separate and consolidated balance sheet as at 31 December 2007, and the separate and consolidated income statements, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these Financial Statements in accordance with International Financial Reporting Standards, as adopted by the European Union. This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with the Greek Auditing Standards, which are harmonized with International Standards on Auditing. These Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Financial Statements give a true and fair view, of the separate and consolidated financial position of the Company as of 31 December 2007 and of its separate and consolidated financial performance and its separate and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union.
Report on Other Legal and Regulatory Requirements
The Board of Directors’ report is consistent with the accompanying Financial Statements.
Athens, 19 March 2008 KPMG Certified Auditors ΑΕ
Marios T. Kyriacou Michael Kokkinos Certified Auditor Certified Auditor ΑΜ SOEL 11121 AΜ SOEL 12701
The sketches included in the Annual Report 2007 were drawn by OTE Group employees, customers and associates.
These gave meaning to our work and this was the message of this Report. You
Thank You ΟΤΕ SA
Project Manager Dimitris Tzelepis Head of Investor Relations
Editor-in-Chief Daria Kozanoglou
Editorial Preparation Eftychia Tourna Nektarios Papagiannakopoulos Christina Chatzigeorgiou Eleni Agoglossaki Sofia Ziavra Dimitris Tsatsanis
Support of Publication Yiannis Kantzaris
Creative Concept –Design mnp www.mnpdesign.gr
Production Baxas SA, Graphic Arts
Printing May 2008
Copies of the Annual Report 2007 are available at OTE’s Registry, Stadiou str. 15, 105 61, Athens, Greece The Annual Report 2007 is also available electronically at: www.ote.gr/english/investorrelations 99, KIFISSIAS AVE. 151 24 MAROUSI GREECE WWW.OTE.GR