annual report 2017 Page

Transcription

1 annual report Page

2 Table of Contents 1 Directors Report VIEO Group Financial Review Risks Research and Development Code of Conduct Sharing VIEO s Values Employees Corporate Social Responsibility (CSR) Board of Directors Outlook 15 2 Consolidated Financial Statements Consolidated Statement of Profit or loss and Other Comprehensive Income for the period ended 31 December Consolidated statement of Financial Position as at 31 December Consolidated Statement of Cash Flows for the period ended 31 December Consolidated Statement of Changes of Equity for the period ended 31 December Notes to the Consolidated Financial Statements 21 3 Company Financial Statements Company Statement of Profit or Loss and Other Comprehensive Income for the period ended 31 December Company statement of Financial Position as at 31 December Company Statement of Cash Flows for the period ended 31 December Company Statement of Changes of Equity for the period ended 31 December Notes to the Company Financial Statements 76 4 Other Information Articles of Profit Appropriation Report from the Auditor 84 5 Other Abbreviations Publishing Details Investor Relations Forward-Looking Statements 99 Page i

3 1 Directors Report At VIEO, our mission is to support and connect the global citizens with mobile telecommunications to connect families and friends wherever they are. We strive to build the Company on a strong commitment to our customers enabled by technological innovation to deliver services that will help improve the digital lives of our customers. 1.1 VIEO Group VIEO B.V. VIEO B.V. (hereinafter stated as VIEO or Company ), a Dutch Company with its registered domicile in Amsterdam, was incorporated on August 21, with a share capital of 5,000 by Palmarium Netherlands B.V., a Dutch Company with its registered domicile at Herengracht 124 in Amsterdam. VIEO B.V. is owned for 99.99% by VIEO AG (formerly Palmarium Finance AG ), a subsidiary of Palmarium Holding AG and owned for 0.01% by Palmarium Netherlands B.V., also a subsidiary of Palmarium Holding AG. VIEO B.V. is a parent Company with 100% shareholdings in Lebara Group B.V. and two Lebara trademark companies, Yokara Trademarks S.a.r.l and Yokara Global Trademarks S.a.r.l (together VIEO Group or the Group ). Lebara Group B.V. includes Lebara Mobile Group B.V., that comprises the Lebara mobile operations and the Lebara Digital Group B.V. that holds several digital businesses designed to create content for the mobile business, Lebara Service Centre Ltd as well as two intermediate finance companies based in the Netherlands (together hereinafter stated as Lebara Group). The two Yokara entities hold the Intellectual Property (hereinafter stated as IP ) for the Lebara brand globally. VIEO B.V. is active in the telecommunication business and operates under the name of Lebara. Lebara Group is a Mobile Virtual Network Operator (hereinafter stated as MVNO ) which targets the historically under-served and migrant communities. Lebara Group s primary offering comprises of prepaid mobile services which make it easier for its customers to stay in touch with family and friends globally. Lebara Group offers simple-to-use prepaid mobile SIM cards that are compatible with all standard mobile handsets. These SIM cards enable customers to make national and international calls, send text messages and browse the internet from their phones at very competitive rates either through our classic prepay proposition or value bundles. Lebara SIM cards can be purchased through the Group s highly targeted channel of independent distributors. Supported with relationships with more than 120 operators worldwide Acquisition of Lebara and Yokara To finance the acquisition of Lebara Group B.V., Yokara Trademarks Sarl and Yokara Global Trademarks Sarl, VIEO B.V. issued on September 7, a 400 million 5 years Senior Secured Callable Bond (ISIN No ) in Norway (of which 350 million was drawn). On 14 September, Palmarium Holding AG ( Palmarium ), through VIEO B.V., completed the acquisition of 100% equity interest in Lebara Group B.V., Yokara Trademark S.a.r.l. and Yokara Global Trademark S.a.r.l. (together Lebara ) for a combined purchase price of million. Page 2

4 On September 14, VIEO B.V. acquired Lebara Group B.V. for an amount of million. In conjunction with the acquisition of Lebara Group B.V., the related party Palmarium Finance AG acquired the shares in the Yokara trademarks entities for 85.3 million. The shares of these entities have subsequently been contributed in-kind to VIEO B.V. by Palmarium for an amount of 85.3 million Organisation structure and staffing View of the Group VIEO B.V. is an integrated telecommunications and technology holding company. Its main assets currently consist of 100 % Shareholdings in Lebara Group B.V. and the two Lebara Trademark companies Yokara Trademarks S.a.r.l. and Yokara Global Trademarks S.a.r.l. Lebara is present in six main markets and has access to over 275,000 points of sale in: Germany Netherlands United Kingdom Denmark France, and Spain (sold in 2018) Below illustrates the Group Structure: 1.2 Financial Review Summary Since the acquisition of Lebara on September 14th,, we have made significant progress in identifying opportunities to implement cost reductions as well as establishing a clear understanding of customer needs, developing new propositions and identifying where improvements can be made towards sales and marketing effectiveness. This resulted in a stronger focus on attracting and retaining profitable customers. The benefits of this strategy will begin to show during 2018 as we execute the required changes on a country by country basis. Management made substantial progress in streamlining the organisation. A simpler headquarters structure has been implemented which has resulted in clear accountabilities and significantly reduced headcount. During 2018, we have re-balance the sales and marketing approach by improving product competitiveness by offering better value, investing more in local marketing and focussing subscriber acquisition investments with partners who generate profitable customers. This approach resulted in a lower reported customer base and reduced revenues during 2018 with growth returning during the second half of During the period, improved mobile network operator terms allowed us to maintain or improve gross margins in the operating countries. EBITDA improvements will be managed by more tactical deployment of subscriber acquisition cost (SAC), significant cost reductions resulting from organisational re-structuring and procurement savings. Page 3

5 Our Mobile Network Operator partners have responded well to the change of ownership and have been willing to materially improve terms which will enable us to compete more effectively with lower costs and less restrictive contract terms Markets In all markets competition remained intense with the main focus on data allowances as customers seek to combine their need for international calls with being able to make full use of their smartphones. The most notable change to market dynamics occurred in Germany. The introduction of a legal requirement to register all pre-pay customers has resulted in lower sales in the pre-pay segment and a reduction in customer volumes during the period. The new registration criteria have reduced the number of short-term sim users with a beneficial impact on customer quality, measured by increased APRU and lower churn. Customer Base At the end of December, the Group customer base was 2.9 million. This is 0.3 million below the base reported in September. The average customer base of Lebara Group B.V. during was 3.3 million. The main drivers of the reduction relate to seasonality, the impact of German registration and specific targeted marketing actions taken by management to improve long-term profitability by focusing on attracting higher quality customers. Overall churn in the reporting period was 16.2%. The seasonality effects are two-fold; lower monthly sales based on lower visitor volumes and the continued churn of customers acquired during the summer months. Approximately of the customer base reduction can be attributed to this effect. Germany The new registration requirements in Germany resulted in a customer base loss of Overall, ARPU has increased and the impact on total revenue in Germany was insignificant. The Netherlands In the Netherlands, Lebara has focused on improving its post-pay product and increasing the number of customers taking bundles. New data rich propositions were launched in February Revenue and ARPU in the Netherlands have been impacted by the reduction in mobile termination revenues. The impact during H2-17 was ( 4.4 million) on revenue and ( 1.1) impact on ARPU. Bundle penetration reached 45%. Spain (sold in 2018) In Spain, we saw a customer base reduction of resulting from churn of short-term customers acquired during a big summer sales push. Since then, the focus has been on attracting better quality customers and this has resulted in the launch of a stronger data proposition and the launch of a strong Morocco proposition to increase Lebara s appeal to this important segment. Page 4

6 France In France, Mobile Network Operators (MNO) are competing aggressively offering low priced data bundles. Lebara has focused on its core ethnic calling segment and introduced a new proposition to grow share amongst the North African communities. United Kingdom In the UK, the end of a seasonal promotion to certain African routes and uncompetitive propositions resulted in customer losses during the period. New propositions were launched in February with the aim of closing the gap between Lebara and its competitors. Combined with renewed marketing focus and a new sales team, performance has improved. Denmark Denmark grew through the period, ending the year with a higher customer base. The Danish business continues to perform according to plan. ARPU Overall, Average Revenue Per User (ARPU) increased by 1.3% during Q4. There were 2 notable developments in ARPU. In Germany, we saw an ARPU increase of 9.4% in Q4 resulting from Lebara attracting fewer low spending customers post the implementation of new registration rules. Gross Margin Although VIEO B.V. was incorporated on August 21 st,, this Gross Margin section refers to the financial performance of VIEO B.V. including the acquired entity Lebara Group and the Yokara entities for the period January 1 st, till December 31 st,. On a full year basis, group gross margin for Lebara Mobile Group is 29%. The timing of MNO renegotiations and competitive conditions in France slightly reduces gross margin. However, increases in data usage are being offset by reducing costs of international termination, which leads to broadly stable margins. Gross Margin for Lebara Mobile Group is 31% in the fourth quarter. This represents an increase compared to previous quarters as several MNO deals were completed which included retrospective savings from prior quarters. The reported margin is slightly higher than the operating countries. The margin increase includes the carrier business and the benefit of the annual calculation of purchased but unused airtime. The deferred revenue recorded at the time of customers purchase is then recognized as realized revenue once the voucher purchased has expired. The calculation of contract assets and contract liabilities (before deferred revenue) normally takes place in Q4. New wholesale airtime deals were secured in Netherlands, Spain and Denmark, with a consequential benefit on gross margin Lebara Group s Results The Lebara Group includes the mobile and non-mobile operations of Lebara Mobile B.V., Lebara Service Centre Limited and Lebara Digital Group B.V which includes Lebara Media Services Ltd. Lebara Group Revenues for the full year were million, of which million were generated by the mobile operations. Other revenues include those from the non-mobile products Page 5

7 including Lebara Talk and Lebara Money. Gross margin for was million generated almost entirely by the mobile operations. The full year loss of 20.3 million was driven by higher costs in the first half of the year plus exceptional items of 18.5 million which include full year redundancy costs, fees related to the sale of Lebara and donations to the Lebara Foundation. Overall, the non-mobile products generated a total Full Year gross revenue of 7.3 million. Other revenues include those derived from the Group s Money business and profit from disposal of Play business. During the last quarter steps were taken to close down the unprofitable Lebara Talk business. This resulted in there being no active customers at the end of December. The app had failed to achieve the scale anticipated in the original business plan. After a period of consistently low sales Lebara has not seen any further value in pursuing this venture. During early sales of the Lebara Play product were impacted by significant competition in the set top box market as well as technical delays. This placed pressure on revenues and the customer base development. Costs have been managed by controlling technical, marketing and content costs. There were 17,000 new set top box activations in the year, and customer base grew from an opening base of 36,000 to 50,000 at the end of September. As part of the acquisition of Lebara it was agreed that the Play business would be acquired by the former owners of Lebara for 1 and that the direct costs of running the business during the transition period are reimbursed and a management fee ( 2.8 million) will be received from the new owners, from the date of acquisition. As of May 2018, Lebara has ended the management services regarding the Play business. Lebara Money is a remittance business operating in the UK. During the business focused on growing the UK customer base. The product achieved significant milestones during the year including surpassing one hundred thousand transactions, gaining a 5-star Trust Pilot rating and launch of the ios app. During Q4 the new management team took the action of increasing gross margin and reducing costs to minimise the EBITDA impact during 2018 until the reorganisation is completed. In April 2018, the Lebara Money product was replaced by a partnership with a third party remittance service provider. The intention of this partnership is to provide a broader range of remittance services to Lebara customer base. This move marks the closing down of Lebara Digital business Capital Investment During 2018, we expect CAPEX to be carefully managed with the main investment areas being Sim Only, on-line, improved Customer Management and upgrades to several network platforms. 1.3 Risks Risk Factors The Board of Directors have overall responsibility for the establishment and oversight of the Group s risk management framework. The Group s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Group has identified the following significant risk Page 6

8 factors: market risk, operational risk, financial risk, liquidity risk, credit risk, currency risk, and regulatory and compliance risk. The Group s financial risk management objectives and policies, as well as its exposure to credit, liquidity and currency risks, are discussed in Section of the consolidated financial statements Industry and Market Risk Governance VIEO s principal activities are managed by managing directors, who are responsible for the day-today management of the business. The managing directors are appointed at the shareholder s meeting. The managing directors are responsible for, among other things, the overall supervision and administration of the business activities, the appointment and removal of executive officers, the reviewing of financial statements and approval of the budgets for VIEO and its subsidiaries. The Board of Directors of VIEO are overall responsible for the VIEO operations and in particular the Lebara and Yokara activities. The Board of Directors of VIEO are represented by Raphael Auerbach, Suzanei Archer, Alexander Zito and Patrick Wild. The Directors of Lebara Group manage the operating sector of the VIEO Group. Economic Conditions Company s performance is influenced by economic conditions in the markets in which it operates. The following may significantly impact the Group s earnings and financial position: (i) slowdown in the economy and in the telecommunications sector; (ii) a deterioration in business and consumer confidence, employment trends and (iii) drop in consumer spending. Any of these factors may affect the Group s ability to grow its subscriber base and the price charged to its customers. The Group continuously monitors financial and economic drivers to anticipate possible significant impacts to the business. Appropriate measures and changes to the business plan are taken to ensure any possible negative impacts are minimised. Health risks relating to electromagnetic and radio frequency emissions The electromagnetic signals from mobile devices and base stations have raised concerns over potential health risks. If negative campaigns around the potential effect of radio signals on health were to increase or litigation were to arise, this could lead to negative publicity, potential reduction in customer intake and usage. The Group monitors scientific developments, monitors public perception and encourages the delivery and transparent communication of scientific research. It is committed to complying with international guidelines and standards aimed at addressing this issue. Competition from other operators Company s operations face competition from other full, hybrid or light MVNO s in the markets in which they operate, as well as Mobile Network Operator (hereinafter stated as MNOs) and integrated fixed-mobile network operators. The Group s main competitors in Germany are Lyca Mobile and Ortel. In France, the Netherlands and Denmark the main competitor is Lyca Mobile. In UK the main competitors are Lyca Mobile, Talk Talk and giffgaff. Competition from current market participants, potential new entrants and new products and services may adversely affect the Group s performance. Increased competition could lead to an increased customer churn and a decrease in customer growth rates as well as negatively affect the prices the Group charges for its Page 7

9 products and services. The Group continuously monitors trends and competitor behaviour. Steps are taken to ensure customers are retained and our product and service offerings maintain a competitive edge Operational Risk Future investments in maintaining, upgrading and expanding network and IT infrastructure VIEO s success is dependent on its ability to continue its investments in intelligent network platforms, operational IT systems which support sales and customer care as well as systems which support the digitalization of key operating aspects of the business. The Group has made investments in its international switches, its retailer support platforms and customer analytics capabilities and is expected to continue with those investments. However, there are some factors that are outside the control of the Group that could restrict or limit the Group s ability to continue with those investments. These include the availability of new and attractive products in the market, the ability of equipment suppliers to deliver their products in an effective and satisfactory manner, and the Group s ability to negotiate with its suppliers. Relationship with suppliers VIEO Group depends on a limited number of suppliers and vendors to provide equipment and services to develop and upgrade its products and operate its businesses. The integrity and continuity of this supply chain is critical to the Group s operations, and therefore a significant risk to its business. The Group s suppliers of international switches, web platforms, security, hosting, financial reporting and customer relationship management software may not continue to provide services to the Group on terms that are favourable or may withdraw products or discontinue support for such products. International carriers and MNO s may not continue to supply mobile airtime or traffic routing to specific destinations on terms which are favourable or they may withdraw such services. The Group may experience problems such as the availability of new services, higher than anticipated prices negotiated on contracts and potential difficulties with handset or SIM card suppliers. Any failure in relation to the supply chain may have a material adverse effect on the Group s financial and operational performance. The Group maintains regular contact with key suppliers to ensure that it is aware of potential risk to the supply. Where an alternative provider exists the group maintains relationships to ensure that it is aware of technical or commercial developments. Where a supplier is the sole provider of a service the Group seeks to negotiate supply agreements with a multiyear timeframe and reasonable run off provisions. Risk related to digitalization In line with the rest of the telecommunication industry the Group will experience a steady shift towards digital sales channels with less reliance on physical sales outlets. Such a shift in sales share may erode the Company s competitive advantage of extensive retail distribution in key customer segments. The Group is investing in the development its own digital sales channels via the web and also its own mobile application to ensure that it is able to capture customers who choose to purchase services through this channel. The Group will continue to develop its Lebara Retail portal which enables physical retailers to sell and service customers quickly and reliably thus ensuring that the physical retail experience keeps pace with wider market developments. Risk related to increased churn Higher levels of customer churn could arise if the Group is actively targeted by aggressive competitor pricing or if the Company is unable to deliver an adequate level of network or service Page 8

10 quality. The Group partners only with reliable mobile and international network partners and takes active steps to monitor international call quality. The Group constantly monitors competitor pricing in all markets and is able to negotiate with its suppliers to mitigate normal competitive developments. In addition the Group runs dedicated customer retention programmes. Data protection and privacy laws As a major data controller and processor of customer information around the world the Group recognizes the importance of adhering to data privacy laws. Failure to comply with data protection and privacy obligations may result in financial penalties, regulatory oversight, significant brand damage, legal action (class action or breach of contract), customer churn and shareholder divestment. The European General Data Protection Regulation ( GDPR ), which came into force in the EEA in May 2018, will significantly increase the financial penalties that can be imposed on the Group as the result of any non- compliance with data protection and privacy obligations. The Group has invested to meet GDPR requirements and has a dedicated Data Protection Officer to monitor compliance. Risk related to fraud The Group has recognized there is a threat from internal and external fraud. The Group continues to monitor and strengthen its internal control system to mitigate its risk from fraud. Management consciously lead by example and display high standards of ethical behaviour. The same is expected of the staff and an open culture is encouraged. As the Group increases, the Board of Directors will consider internal audit and compliance processes. Risk related to staffing and quality Poor product and delivery are risks that the Group would face. The Group monitors its customer service and also the quality of the people hired in terms of qualification for the roles to be performed Financial Risk The Group has a number of assets and liabilities. These include web and other software, network equipment and software, deposits with, bonuses due from MNO s, inventories and deferred tax assets on the asset side. Liabilities include deferred income, accruals to MNO s and international carriers and deferred tax liabilities. Errors in the valuation of these assets and liabilities could materially impact the Group s balance sheet. Where valuation is deemed complex, such as valuation of trademarks, customer relations and other intangible assets, the Group engages the services of qualified professionals in determining the valuation of assets and liabilities Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group monitors its risk to a shortage of funds, and its objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts. The liquidity risk also includes the risk that the Company will be unable to meet its financial covenants, to obtain sufficient financing, or that it can be obtained only at significantly higher cost. Due to the financing structure of the Group, the Group uses a significant part of its cash flow for Page 9

11 payment of liabilities related to the Bonds (interest payments), resulting in a material reduction of its flexibility in its cash flows. As part of its liquidity risk management VIEO shall ensure that the Group complies with its financial covenants during the term of the 350 million Senior Floating Rate Notes due in This is in accordance with the requirements set out in the BOND TERMS for VIEO B.V. FRN 350 million Senior Secured Callable Bond Issue /2022 (ISIN NO ) (hereinafter stated as Bond Terms ) as amended by the Written Resolution (hereinafter stated as Written Resolution ), approved on 12 December 2018 (hereinafter stated as Effective Date ) which supersedes the first and second amendments of the Bond Terms dated respectively 6 July 2018 and 1 August As of the Effective Date of the Written Resolution VIEO undertakes to comply with the Financial Covenants at all times (with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied), such compliance to be measured on each Quarter Date and certified by VIEO by the delivery of a Compliance Certificate, with the delivery of each Annual Financial Statements or Interim Accounts. Bond terms and agreed amendments For further details of the Senior Secured Callable Bonds we refer to note of the consolidated financial statements. The Written Resolution amendments to the Bond Terms are effective as of the Effective Date. An important objective of the liquidity risk management of VIEO is to ensure compliance with the bonds terms and agreed amendment (including the financial covenant as of the Effective date of the Written Resolution). Leverage Ratio Covenant According to the Bond Terms the Group shall ensure that the Group maintains a maximum leverage ratio (hereinafter stated as Leverage Ratio ) of 5.50x up to and including 31 December. The Leverage Ratio means the ratio of Net Interest-Bearing Debt to EBITDA as per definition within the Bond Terms amended by the Written Resolution. As of the Effective Date of the Written Resolution VIEO undertakes to comply with the Leverage ratio at all times with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied. As from Q the Bond Terms require a leverage ratio of 5.00x, during the year x and during x. Event of Default of Bond Terms The event of default of Bond Terms non related to non-payments but other non-compliance with provisions of the Bond Terms occurred and continued since the issue of the Bonds till the Effective Date of the Written Resolution. According to the Bond Terms the Bond Trustee may, in its discretion, in order to protect the interests of the Bondholders, or upon instruction received from the Bondholders declare that the Outstanding Bonds, together with accrued interest and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, at which time they shall become immediately due and payable. Waiver and classification of Bonds as current liabilities As of the Effective Date of the Written Resolution, any breach of the Financial Covenants in respect of the reporting period ended 31 December shall be permanently waived and Financial Covenants shall be disapplied for the Q4 and Q1 to Q periods. Furthermore as of the Page 10

12 Effective Date of the Written Resolution the Liquidity covenants which was included in the Bond Terms shall be disapplied. These events occurred subsequent to the balance sheet date. The date of the approval of the Written Resolution is 12 December 2018, and therefore it is an event subsequent to the balance sheet date and in accordance with the applied accounting standards, the classification of liabilities are based on circumstances present at the balance sheet date. Consequently, the issued Bonds are classified as current liabilities until the Effective Date of the Written Resolution (and are classified as current liabilities in the consolidated and company statement of financial position as at 31 December ). Q3 and Q4 Compliance Report As of the Effective Date of the Written Resolution the Compliance Certificate in respect of the reporting period ending 30 September shall be conclusive evidence that the Financial Covenants) of the Bond Terms were met at all times during that period. Financial Covenants are disapplied for the Q4 and Q1 to Q periods, therefore there is no reference in these financial statements to the Q4 Compliance Report. Other relevant terms The following other terms are considered to be relevant for the understanding of the liquidity risk of the Group (as included in the Bond Terms and in the Written Resolution amendments to the Bond Terms): The Maturity Date of the Bonds shall be 7 September 2020; VIEO s obligation to procure that the Cash Injection occurs cease and the Buy-Back offer will be offered exclusively if VIEO has received the Cash Injection; The Tranche 2, the Tranche 3 and the Additional Margin Amount and October Crystallized Interest obligations cease; Adjusted timelines for financial reporting Going concern The Company assessed the going concern assumption on the basis of which the Group s financial statements have been prepared. In assessing the Group s ability to continue as a going concern, the Board of Directors reviewed the financial position of the Group, with reference to the ability of the group to meet its covenants with the bondholders, forecasted revenue growth, cost saving initiatives, reorganisation plans and cash flow projections as budgeted under a range of assumptions. Financial position For the purpose of the acquisition of Lebara the Company issued million Senior Secured Callable Bonds on 6 September to finance the acquisition. The Bonds mature on 7 September 2020 and are subject to VIEO s call option as of the Effective Date of the Written Resolution. In addition a subordinated loan amounting to 4.6 million was granted by the parent company. The net liability position of the Group as per 31 December amounted to 55.2 million and its solvency rate amounted to negative 10.4%. Financial results In the Group incurred a net loss of million. The negative result particularly arose from the impairment of Goodwill million, the impairment of Trademark 13.3 million, the Page 11

13 impairment of Customer relationships 3.5 million, restructuring expenses for the reorganisation Lebara Digital and related increased employee expenses 8.1 million and the net finance costs 9.0 million. Net cash flows from operating activities amounted to positive 10.9 million. The amount of Cash and cash equivalents as per the balance sheet date is 31.1 million. Material uncertainties and measures of the Board of Directors in relation to the risks The Board of Directors recognises that the circumstances described in this paragraph represent material uncertainties that may cast significant doubt to the Company's ability to continue as a going concern. Compliance with the financial covenant Leverage Ratio as from Q The Board of Directors is proactively working to realise revenues growth initiatives, cost savings initiatives by negotiating contracts with strategic suppliers and restructuring activities to meet its financial covenant. Not meeting these financial covenant may result into the Company being required to repay the outstanding bond liabilities. This may result in the Company being unable to fulfil its liabilities when they fall due. The realisation of the forecasts is subject to a range of uncertainties: - Realizing forecasted revenue growth; - Achieving the cost savings initiatives; - Accomplishing the reorganisation plans; - Realizing the forecasted cash flow projections. It should be noted that achieving these results and the anticipated timing and extent of the initiatives cannot be certain and involves market, timing and other risks. Projected scenarios show tight headroom on the financial covenants. In particular with reference from the commencement of the third quarter of 2019 (when according to the terms of the Written Resolution no reorganisation of the Group shall be permitted without the consent of the Bond Trustee, acting on the instructions of Bondholders representing a simple majority of the Voting Bonds). As from the third quarter of 2019 the EBITDA used for the calculation of the Leverage Ratio shall be the consolidated amount reported for VIEO (and no longer the EBITDA reported for Lebara Mobile Group B.V. and its Subsidiaries according to the definition included in the Written Resolution). The ability of the Group to complete the reorganization by 30 June 2019 and achieve the related costs savings and revenues growth, or to obtain the required consent of the Bond Trustee to extend the Permitted Reorganization period, represent material uncertainties that may cast significant doubt to the Company's ability to continue as a going concern. The maturity date of the Bonds is 7 September 2020 According to the Written Resolution the maturity date of the Bonds shall be 7 September 2020 instead of 7 September 2022 which was the maturity date from the Bond Terms. The refinancing risk refers to the risk that the Company will be unable to refinance the Bonds, or that this can be executed only at a significantly higher cost. Currently a significant part of the generated cash flows from the Group are used for the payment of interest related to the Bonds, resulting limited flexibility in its cash flows. Page 12

14 The refinancing risk represents a material uncertainty that may cast significant doubt to the Company's ability to continue as a going concern. Management assessment The Board of Directors believes that on the basis of the progresses made in delivering cost saving across the business and implementing a sustainable growth strategy, the support experienced from its bondholders in relation to the agreed waivers and amendments to the bond terms in combination with the business plan the Company will have the ability to meet its covenants and obligations at least until the end of 2019, considering the material uncertainties as set out above. On the basis of the actions, plans and expectations, the financial statements have been prepared on a going concern basis Credit Risk Credit risk refers to the risk that a counterparty to the Group will be unable to meet its obligations and thereby causes a loss to the Group, mainly attributable to trade accounts receivables. Customer credit risk is managed by each business unit subject to the Group s established policy (terms of up to 30 days), procedures and controls relating to customer credit risk management. Credit quality of a customer is assessed and credit limits are defined in accordance with this assessment Foreign Exchange Risk Exchange rate fluctuations affect the Company s financial results through translation of the profit and loss accounts and balance sheets of foreign subsidiaries to EUR (translation exposure). The Company s reporting currency is EUR, while a contribution comes from (a) the UK which uses GBP and (b) Denmark which uses DKK as the functional currency. Additional currency risks arise when subsidiaries enter into transactions that are denominated in currencies other than their functional currency, including agreements with equipment suppliers, MNOs and International Carriers. The currency transaction risk is associated with changes in the value of USD and GBP relative to EUR. Although the Group does hedge a proportion of its annual foreign exchange rate exposure via forward contracts, the Company may be exposed to foreign exchange risks affecting, inter alia, the overall reported earnings of the Group and a material adverse movement in the applied currencies may have an adverse consequence on the financial condition of the Company. At the date of this report the Group discontinued hedging Financial reporting The Group has complex accounting issues that require a degree of judgment and estimation and this is noted in section With financial reporting there is also a financial reporting risks thus the Group ensures that the controls over the financial system are evaluated regularly and staff are trained in how to apply accounting standards, guidelines and procedures. Page 13

15 1.4 Research and Development No significant research took place during the period and is not intended for the coming year. Development activities undertaken comprised the continued development of the Group s internal systems. 1.5 Code of Conduct The Group is committed to acting responsibly and ethically. It is committed to building productive, fair and ethical relationships with its employees, customers, suppliers and distributors. The Group s Code of Conduct and related Policies includes a range of policies, including those relating to whistleblowing, conflict of interest, business ethics, anti-bribery, modern slavery, communications and discrimination. 1.6 Sharing VIEO s Values VIEO is committed to acting responsibly and ethically. It is committed to building productive, fair and ethical relationships with its employees, customers, suppliers and distributors. The Group s Code of Conduct includes a range of policies, including those relating to whistleblowing, conflict of interest, business ethics, communications and discrimination. 1.7 Employees VIEO is an equal opportunities employer and believes that everyone should have full and fair consideration for all vacancies, promotions, training and development. The Group treats all people equally, fairly, with respect and without prejudice. Employee diversity is critical in an organization which support customers from so many different backgrounds. The Group actively encourages and fosters diversity in the organization as an employer and in our customer base. The Group s customers are diverse, and it values the same diversity within the business, promoting a culture of opportunity for all, regardless of background. 1.8 Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR) is vital for the Group s on-going success and creating value for shareholders. Our current CSR strategy focuses on being Responsible to the Environment and being Responsible to People. Our Responsible to the Environment programme involves us undertaking activities such as the recycling of office equipment, used mobile phones and parts. We also actively encourage recycling of office waste and packaging. Our Responsible to our People & Customers programme involves us involving employees either as partners or as beneficiaries in activities such as protecting staff volunteering time, encouraging charitable activity and fund raising. We also encourage agile and flexible working which leads to reduced travel and lower consumption of fuel, electricity and space. Key Achievements and Volunteering: In recent years, several platforms have been created to achieve our CSR objectives: Page 14

16 The GAYE (Give As You Earn) scheme introduced in 2012 has resulted in employees contributing from their pay to various charities. The staff of the Group have been involved in many ways through volunteering both locally (UK) and internationally. 1.9 Board of Directors The Board of Directors consists of the following persons: Mr Raphael Auerbach Miss Suzanei Archer Mr Patrick Wild Mr Alexander Zito Composition of the Board fails to meet the minimum requirements of gender diversity of 30%, both shareholders and the board members are aware and when vacancies occur, they will seek to address this deficiency Outlook The 2018 period is key for the transformation of the Group. Indeed, the Company has to prepare the future in (i) building a platform for growth and increase its profit in (ii) reorganising the Group and (iii) delivering the cost rationalization. Event after balance sheet date are disclosed in note Building a Platform for Growth VIEO will pursue growth in focusing on client needs and in transforming the Group. As already initiated in, the Company will get back to the basics in 2018 and improve (i) marketing returns, (ii) brand awareness (iii) customer satisfaction, (iv) increase the customer life time value (hereinafter stated as CLTV ) and (v) broaden the relevance of our offering to the target market. Capital expenditure will focus on the modernisation of existing platforms, the move to a digital sales platform and initiatives which drive OPEX savings such as improving the customer experience and ensuring lower running costs. New products will be launched to increase the appeal to new customer segments. No significant expenditure is expected relating to research and development Reorganising the Lebara Group As defined in the Bond the Permitted Reorganisation means the contemplated reorganisation of the Group (through a solvent winding up, transfer, merger, de-merger or any other split or consolidation of Group Companies), and where any step required in this respect shall not be restricted by any provisions of these Bond Terms provided it does not have a Material Adverse Effect. To mirror this fact, the EBITDA definition has been adapted to take into consideration this Permitted Reorganisation the following way: For the purposes of the bond covenant calculations, EBITDA means, in respect of any Relevant Period, the Group s aggregate earnings before interest, taxes, depreciation and amortisation as Page 15

17 reported for that Relevant Period (without taking into account any gains from any buy-back of Bonds, including the Buy-Back Offer). The Group shall mean the consolidated amount reported for Lebara Mobile B.V. and its Subsidiaries until completion of the Permitted Reorganisation, at which time the Group shall have the meaning as set forth as defined otherwise in the Bond Terms. The Lebara Service Centre and The Lebara Digital Group are covered by the Permitted Reorganisation. As per the Written Resolution, signed 12 December 2018 between VIEO BV and the Bond Trustee, no reorganisation of the Group shall be permitted from the commencement of the third quarter of 2019 without the consent of the Bond Trustee (acting on the instructions of Bondholders representing a simple majority of the Voting Bonds). On completion of the Permitted Reorganisation any remaining activities of the Lebara Service Centre Limited will be incorporated into the day to day operations of the mobile business. On completion the current activities of the Lebara Digital Group will have been discontinued either by winding down or by sale Costs Rationalization In addition to the restructuring described in Section the Company will pursue its cost rationalization measures that have been initiated in including in (i) restructuring the technology operations (ii) reducing operating costs (iii) restructuring the headquarter (iv) improving processes and (v) optimizing sourcing terms and processes. Staff numbers will be regularly reviewed as the Group evolves. Efficiencies are expected as new technology is implemented and the group moves to greater standardisation across its country operations. Cost optimisation initiatives are an important element of the Groups profitability in future years. In addition, the development of the customer base by adding post pay customers who have much lower levels of churn will help drive overall profitability. Date: 21 December, 2018 On behalf of the Board of Directors of VIEO B.V. Raphael Auerbach Chairman of the Board of Directors VIEO B.V. Suzanei Archer Member of the Board of Directors VIEO B.V. Alexander Zito Member of the Board of Directors VIEO B.V. Patrick Wild Member of the Board of Directors VIEO B.V. Page 16

18 2 Consolidated Financial Statements 2.1 Consolidated Statement of Profit or loss and Other Comprehensive Income for the period ended 31 December The notes on pages 22 to 72 are an integral part of these consolidated financial statements. The Consolidated Statement of Profit or Loss and Other Comprehensive Income covers a period less than one year, from August 21, till December 31,. Page 17

19 2.2 Consolidated statement of Financial Position as at 31 December in Note Dec-31 Property, plant and equipment ,686 Intangible assets and goodwill ,133 Financial assets ,112 TOTAL non-current assets 397,931 Inventories ,349 Trade and other receivables ,504 Current tax assets (C) 5,216 Cash and cash equivalents ,130 TOTAL current assets 112,199 TOTAL ASSETS 510,130 Share capital ,005 Share premium Foreign currency translation reserve ,111 Retained earnings - Undistributed result (146,444) Subordinated loan ,555 EQUITY attributable to owners of the company (55,473) Non-controlling interest TOTAL GROUP EQUITY (55,448) Other liabilities ,373 Deferred tax liabilities ,258 TOTAL non-current liabilities 25,631 Bonds ,705 Trade and other payables ,856 Finance lease liabilities ,183 Other liabilities ,784 Provisions ,959 Derivatives ,582 Current tax liabilities (D) 1,790 Deferred income ,088 TOTAL current liabilities 539,947 TOTAL EQUITY AND LIABILITIES 510,130 The notes on pages 22 to 72 are an integral part of these consolidated financial statements. Page 18

20 2.3 Consolidated Statement of Cash Flows for the period ended 31 December The notes on pages 22 to 72 are an integral part of these consolidated financial statements. The Consolidated Statement of Cash Flows covers a period less than one year, from August 21, till December 31,. Page 19

21 2.4 Consolidated Statement of Changes of Equity for the period ended 31 December The notes on pages 22 to 72 are an integral part of these consolidated financial statements. The Consolidated Statement of Changes in Equity covers a period less than one year, from August 21, till December 31,. Page 20

22 2.5 Notes to the Consolidated Financial Statements These notes form an integral part of the financial statements About this Report Comparison to prior year As VIEO B.V. (hereinafter stated as VIEO or the Company ) has been incorporated on August 21, (incorporation date), this is the first set of company and consolidated financial statements and therefore no comparative information is included in this report. The financial statements of the Group covers for a period less than a year, it covers the period August 21, till December 31, (the period) Reporting entity VIEO is a finance and holding company (Chamber of Commerce number ). VIEO is incorporated on August 21, and is domiciled in the Netherlands. VIEO registered office is Herengracht 124, 1015 BT Amsterdam. The consolidated financial statements of VIEO as of and for the period ended December 31, comprise VIEO and its subsidiaries (hereinafter stated as the Group ). The principal activities of the subsidiaries are primarily involved in offering prepaid mobile telecommunication services to international callers. VIEO is owned by VIEO AG (formerly Palmarium Finance AG), incorporated in Zurich, Switzerland. The ultimate parent of VIEO is Palmarium Holding AG. The financial statements for the period ended December 31, of VIEO were approved for issue by the board of directors on 21 December, Basis of preparation The consolidated financial statements have been prepared in accordance with both International Financial Reporting Standards as endorsed by the European Union ( IFRS ), and the statutory provisions of article of Part 9, Book 2 of the Netherlands Civil Code. The financial statements have been prepared on the going concern basis. Notes , , , and of the consolidated financial statements include information on the VIEO s cash and cash equivalents, bonds, finance lease liabilities, financial risk management objectives and exposure to interest, foreign exchange, credit, liquidity and market risks. The financial statements are presented in Euros, which is the functional of the Company and presentation currency of the Group. All financial information presented in Euros have been rounded to the nearest thousand (), unless otherwise stated Going concern The Board of Directors recognises that the circumstances described in this paragraph represent material uncertainties that may cast significant doubt to the Company's ability to continue as a going concern. Page 21

23 Compliance with the financial covenant Leverage Ratio as from Q The Board of Directors is proactively working to realise revenues growth initiatives, cost savings initiatives by negotiating contracts with strategic suppliers and restructuring activities to meet its financial covenant. Not meeting these financial covenant may result into the Company being required to repay the outstanding bond liabilities. This may result in the Company being unable to fulfil its liabilities when they fall due. The realisation of the forecasts is subject to a range of uncertainties: - Realizing forecasted revenue growth; - Achieving the cost savings initiatives; - Accomplishing the reorganisation plans; - Realizing the forecasted cash flow projections. It should be noted that achieving these results and the anticipated timing and extent of the initiatives cannot be certain and involves market, timing and other risks. Projected scenarios show tight headroom on the financial covenants. In particular with reference from the commencement of the third quarter of 2019 (when according to the terms of the Written Resolution no reorganisation of the Group shall be permitted without the consent of the Bond Trustee, acting on the instructions of Bondholders representing a simple majority of the Voting Bonds). As from the third quarter of 2019 the EBITDA used for the calculation of the Leverage Ratio shall be the consolidated amount reported for VIEO (and no longer the EBITDA reported for Lebara Mobile Group B.V. and its Subsidiaries according to the definition included in the Written Resolution). The ability of the Group to complete the reorganization by 30 June 2019 and achieve the related costs savings and revenues growth, or to obtain the required consent of the Bond Trustee to extend the Permitted Reorganization period, represent material uncertainties that may cast significant doubt to the Company's ability to continue as a going concern. The maturity date of the Bonds is 7 September 2020 According to the Written Resolution the maturity date of the Bonds shall be 7 September 2020 instead of 7 September 2022 which was the maturity date from the Bond Terms. The refinancing risk refers to the risk that the Company will be unable to refinance the Bonds, or that this can be executed only at a significantly higher cost. Currently a significant part of the generated cash flows from the Group are used for the payment of interest related to the Bonds, resulting limited flexibility in its cash flows. The refinancing risk represents a material uncertainty that may cast significant doubt to the Company's ability to continue as a going concern. The Board of Directors believes that on the basis of the progresses made in delivering cost saving across the business and implementing a sustainable growth strategy, the support experienced from its bondholders in relation to the agreed waivers and amendments to the bond terms in combination with the business plan the Company will have the ability to meet its covenants and obligations at least until the end of 2019, considering the material uncertainties as set out above. On the basis of the actions, plans and expectations, the financial statements have been prepared on a going concern basis. Page 22

24 2.5.3 Significant accounting judgements, estimates and assumptions The preparation of the Group s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Management have identified the following accounting estimates and assumptions which it considers to be critical due to their impact on the Group s financial statements Business combinations and goodwill When the Group completes a business combination, the fair values of the identifiable assets and liabilities acquired, including intangible assets, are recognised. The determination of the fair values of acquired assets and liabilities include management judgements. If the purchase price consideration exceeds the fair value of the net assets acquired then the incremental amount paid is recognised as goodwill. The group does not have any indefinite lived assets other than goodwill. The customer relationships were valued using the multi-period excess earnings method. The fair value is equal to the present value of the after-tax cash flows attributable to the customer relationship. The estimations of the cash flows as well as the discount rate require significant judgement. Refer to note for further detail on the accounting of the business combinations and goodwill Assessment of control on the Lebara Play business The assessment of control on the Lebara Play business is based on all relevant factors (i.e. the Transitional service agreement, the Asset purchase agreement, voting rights) which require a high degree of judgement. The structure of the transaction indicates that VIEO is primarily engaged to act on behalf and for the benefit of the former owner and therefore VIEO does not control the Lebara Play business. Therefore the acquisition of the Lebara Play business is not accounted for as part of the business combination Intangible assets Intangible assets other than goodwill include the Group s aggregate amounts spent on computer software, web platforms, development costs, customer relationships and trademarks. Development costs relate to costs incurred in the development of the Group s products meeting the criteria specified under IAS 38. Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred. Development costs are capitalised in accordance with the accounting policy. Initial capitalisation of costs is based on management s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone. Refer to note for further details Impairment of goodwill and other intangible assets The impairment of goodwill and other intangible assets is based on estimates and assumptions which require high degree of judgement or complexity. Detailed information about each of these estimates and judgements is included in note Page 23

25 Deferred tax Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. Refer to note for further details on deferred taxes Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Details of the Group s financial risk management objectives and policies, and fair values of financial instruments, are included in note Classification and measurement of the bonds The classification and measurement of the bonds following the breach requires applying significant judgement in interpreting the bond contract. Furthermore the estimation of payments (timing and amount) of interest and principal following the breach requires a high degree of judgement. Detailed information about each of these estimates and judgements is included in note Provisions and contingent liabilities The Group exercises judgement in measuring and recognising provisions and the exposures to contingent liabilities. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual losses may be different from the originally estimated provision Summary of significant accounting policies The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied by all Group entities in. The consolidated financial statements have been prepared on the historical cost basis, unless otherwise stated Basis of consolidation VIEO B.V. is the parent company of the Group and holds principally direct majority shareholdings in Lebara Group B.V. (NL), Yokara Trademarks Sarl (LU) and Yokara Global Trademarks Sarl (LU). The consolidated financial statements comprise the financial statements of VIEO and its subsidiaries (hereinafter stated as the Group ) as at December 31,. Subsidiaries are entities controlled by VIEO. VIEO controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Where necessary, accounting policies of subsidiaries have been aligned with the policies endorsed by the Group. All intra- group transactions, including Page 24

26 any gains, losses, balances, incomes or expenses between group companies, are eliminated in full on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries consist of the amounts of those interests at the date of the original business combination and non-controlling share of changes in equity since the date of the combination. Note to the Company financial statements include details of the Group s subsidiaries. Associates are those entities in which the Group has a significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Associates are accounted for using the equity method and are initially recognised at cost, which includes transaction costs. The consolidated financial statements include the Group s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that it ceases Foreign currencies Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences on monetary assets and liabilities arising on translation are recognised in profit or loss, on line item finance costs. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates ruling at the date the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into Euros (the Group s presentational currency) at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated at the dates of the transactions. Exchange differences arising from the translation of foreign operations are reported as an item of other comprehensive income and accumulated in the foreign currency translation reserve in equity. When a foreign operation is disposed of, such that control is lost, the entire accumulated amount in the foreign currency translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment. Revenues are presented net of sales taxes, rebates, discounts and after eliminating intercompany sales. A warranty provision is recognized covering the expected expenses for future warranty expenditure. Prepaid voucher sales (airtime). Proceeds from prepaid vouchers sales (airtime) are deferred and recognised as revenue in the statement of profit or loss as the airtime is used. Prepaid vouchers Page 25

27 have a predefined validity period. Any unused vouchers are recognised as revenue. Airtime credited to customers accounts has a predefined validity period. Handsets, set top boxes and SIM cards. Sales of handsets, set top boxes and SIM cards are recognised as revenue when the significant risks and rewards of ownership of the handsets, set top boxes and SIM cards are transferred to the buyer. Any airtime sold on SIM cards is recognised in accordance with the airtime policy described above. Bundles. Where a bundle comprising a handset, SIM card and airtime is sold together as a single package, revenue is first allocated to the airtime at face value less sales taxes and discounts, and deferred in accordance with the policy described above. The balance is allocated to handset revenue, which is recognised on sale when the significant risks and rewards of ownership are transferred to the buyer. Distributor commission. Revenue and deferred revenue are presented net of distributor commission costs. In sales transactions where use is made of solution providers who provide a processing and cash collection service for a fixed fee, the Group is considered a principal and commission paid to such agents is treated as a cost of sale Business combinations and goodwill A business combination is a transaction or event in which VIEO obtains control over one or more businesses. A business combination involves the bringing together of separate entities or businesses into one reporting entity. VIEO uses the acquisition method of accounting for business combination transactions per the date VIEO obtains control. All items of consideration, including contingent consideration, transferred by VIEO are measured and recognised at fair value as of the acquisition date. Transaction costs incurred by VIEO in connection with the business combination, other than those associated with the issuance of debt instruments, do not form part of the cost of the business combination transaction but are expensed as incurred. VIEO measures the identifiable assets acquired and the liabilities assumed at the fair value at the date of acquisition. The excess of the consideration transferred, plus noncontrolling interest (the Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets) in the acquiree plus the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The Page 26

28 cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance costs are charged to the statement of profit or loss during the financial period in which they are incurred. When material component parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in the statement of profit or loss. Property, plant and equipment is depreciated using the straight-line method, based on their respective estimated useful lives, taking into account residual value. The estimated useful lives of the principal property, plant and equipment categories are as follows: Network equipment 5 to 7 years Computer equipment 3 years Furniture and fittings 8 years Motor vehicles 4 years Leasehold improvements 8 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date Leases Finance leases are leases which transfer substantially all the risks and benefits incidental to ownership of the leased asset to the Group. Leased assets acquired by way of finance leases are stated at an amount equal to the lower of their fair value and present value of the minimum lease payments at inception of the lease, less accumulated depreciation. When sale and leaseback transactions are entered into and the sales price is in excess of the current net book value of the assets sold, the profit arising on the sale is deferred and released to income over the period of the lease. Operating lease payments are recognised as an expense in the statement of profit or loss on a straight-line basis over the lease term Intangible assets Expenditure on research activities is recognised in the income statement as an expense as incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group intends, has the technical ability and has sufficient resources to complete development, future economic benefits are probable and if the Page 27

29 Group can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads and capitalised borrowing costs. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and less accumulated impairment loss. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses. All the Group s intangible assets have finite lives and are amortised over the useful economic life and assessed for impairment whenever there is indication that the intangible asset may be impaired. The amortisation period and method are both reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset that are considered to modify the amortisation period or method, as appropriate, are treated as changes in accounting estimates. The amortisation expense is recognised in the statement of profit or loss, and the estimated useful lives of the Group s intangible assets are as follows: Trade-marks 20 years Customer relationships 4 to 7 years Software and web platform 5 years Development costs 5 years Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset. Such gains and losses are recognised in the statement of profit or loss when the asset is derecognised Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, the Group estimates the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or Cash-Generating Unit s (CGU) fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future pre-tax 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 the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of up to five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the final year. Page 28

30 Impairment losses are recognised in the statement of profit or loss in the expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such an indication exists, the Group estimates the asset s or CGU s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss. Goodwill is tested for impairment annually on 31 December and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods Financial assets Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale. The Group determines the classification of its financial assets at initial recognition, and currently only has financial assets at fair value through profit or loss, and loans and receivables. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs or finance income in the statement of profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method, less impairment. The effective interest rate amortisation is included in finance income in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs for loans and in operating expenses for receivables. Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance income in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs. Available for sale financial assets are subsequently measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, are recognized in Other Comprehensive Income and accumulated in the fair value Page 29

31 reserve. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss. A financial asset is derecognised when: the rights to receive cash flows from the asset have expired or when the Group has transferred its rights to receive cash flows from the asset, and either when the Group has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantively all the risks and rewards of ownership but has transferred control of the asset. The Group assesses at each reporting date whether there is objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably measured. Evidence of impairment may include indications that the debtors are experiencing significant financial difficulty, default or delinquency in interest or principal repayments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For all financial instruments measured at amortised cost, and interest-bearing financial assets, interest income is recorded using the effective interest rate. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the statement of profit or loss Financial liabilities Financial liabilities are classified as financial liabilities at fair value through profit or loss (including derivatives) or as liabilities at amortised cost. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs, and subsequently at amortized cost (excluding Derivative financial instruments). All the transaction costs will be allocated to and included in the carrying amount of the non-derivatives host contract on initial recognition. The Group s financial liabilities include bonds, trade and other payables, and derivative financial instruments. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires Subordinated loan The Group s subordinated loan represents an amount granted by the parent company. The subordinated liability is classified as equity, because it bears discretionary coupons, do not contain any obligation to deliver cash or other financial assets and do not require settlement in a variable number of the Group s equity instruments. Discretionary coupons thereon are recognised as dividend distributions on approval by the Company s shareholders. Page 30

32 Derivative financial instruments Although the Group does not apply hedge accounting in accordance with IAS 39 Financial Instruments: Recognition and Measurement and there are no hedging relationships as defined in the standard, it does use forward exchange contracts to hedge its foreign currency risk. Such derivative financial instruments are initially recognised at fair value on the date on which the forward exchange contract is entered into and are subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive, and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss, in line item finance income. If a financial instrument contains an embedded derivative whose economic characteristics and risks are not closely related to those of the host contract, the Group separates the embedded derivative the host contract and accounted for is as a derivative at fair value through the profit or loss Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously Fair value of financial instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments that are traded in an active market at each reporting date is determined by reference to quoted market prices or dealer price quotations. For financial instruments, derivatives and FVTPL instruments, not traded in an active market, the fair value is determined using appropriate valuation techniques, which may include using recent arm s length market transactions, reference to the current fair value of another instrument that is substantially the same, or a discounted cash flow analysis or other valuation models Inventories SIM cards and handsets held by the Group are valued at the lower of cost or net realisable value. SIM cards and handsets are used to generate future economic benefits through the subsequent sale and use of minutes by the Group s customers. Inventories of set top boxes are valued at the lower of cost or net realisable value. Cost is determined on a first in, first out basis. The net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses Pensions and other employment benefits Short-term employee benefits. Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Page 31

33 Defined contribution plans. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in the statement of profit or loss in the periods during which services are rendered by employees. Termination benefits. Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted Cash and cash equivalents Cash comprises cash on hand, current accounts with banks, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits defined above, net of outstanding bank overdrafts. Cash and cash equivalents are initially measured at fair value, and subsequently at amortised costs Share capital The share capital consist of ordinary shares. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12, refer to note Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, 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 obligation. When the Group expects some or all of the provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to the provision is presented in the statement of profit or loss net of any reimbursement. Restructuring provisions are recognised only when the recognition criteria for provisions, as described above, are fulfilled. The Group has a constructive obligation when a detailed formal plan identifies the part of the business concerned, the location and number of employees affected (who have been notified of the plan s main features), a detailed estimate of the associated costs, and an appropriate timeline Dividends Dividends are only declared to the shareholders when such distribution has been resolved in a General Meeting and approved by the Board of Directors, and both the equity and liquidity tests (as required by the Netherlands Civil Code) have been passed. The equity test ensures that the equity of the Group s holding company, VIEO B.V., including its share capital, is at least equal to its reserves that are required to be kept by law and its articles of association. The liquidity test determines whether all due debts can be paid after the distribution has been made. Page 32

34 Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following: temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred taxes relate to the same taxable entity and the same taxation authority. Page 33

35 New standards, interpretations and amendments New standards, interpretations and amendments not yet effective: IFRS 9 Financial Instruments (mandatorily effective for periods beginning on or after January 1, 2018); IFRS 15 Revenue from Contracts with Customers (mandatorily effective for periods beginning on or after January 1, 2018); and IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019). IFRS 9 Financial instruments IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. Classification of financial assets IFRS 9 contains a new classification and measurement approach tor financial assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, Fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. The Group currently has financial assets at fair value through profit or loss, and loans and receivables. Their classification under IFRS 9 will not impact their current measurement. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss (ECL) model. VIEO will need to apply an expected credit loss model when calculating impairment losses on its trade and other receivables (both current and non-current). This might result in increased impairment provisions and greater judgement due to the need to factor in forward looking information when estimating the appropriate amount of provisions. In applying IFRS 9 VIEO must consider the probability of a default occurring over the contractual life of its trade receivables and contracts asset balances on initial recognition of those assets. Classification of financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. VIEO has no financial instruments held for trading and has not designated any financial liabilities at FVTPL. This means that VIEO will continue to measure its financial liabilities, at amortised cost. VIEO has also concluded that the recent clarification by the IASB in October regarding certain modifications of financial liabilities does not have an impact on the VIEO s financial liabilities on transition to IFRS 9. The Group s financial liabilities include the bonds, finance lease liabilities, trade and other payables, and derivative financial instruments. Their classification under IFRS 9 will not impact their current measurement. Page 34

36 Hedge accounting VIEO does not apply hedge accounting. Transition VIEO plans to apply IFRS 9 initially on January 1, 2018, using the modified retrospective approach. In assessing expected credit losses, the group considered reasonable and supportable information about past events, current conditions and reasonable and supportable forecasts of future economic conditions. The Group s revenue is predominantly prepaid and as such there exist no significant unusual concentrations of credit risk. The Group s assessment shows that the provision for doubtful debts as at 31 December will not be materially different compared to the provision under the ECL model. Therefore, there will be no adjustment to the opening balance of retained earnings at January 1, 2018 as a result of adopting IFRS 9. IFRS 15 Revenue from contracts with customers IFRS 15 Revenue from Contracts with Customers impacts the amount, timing and recognition of revenue and certain associated costs, as well as related disclosures. IFRS 15 Revenue from Contracts with Customers, was issued in May 2014 and subsequent amendments, Clarifications to IFRS 15 were issued in April 2016; both have been endorsed by the EU. IFRS 15, as amended, is effective for accounting periods beginning on or after 1 January IFRS 15 requires the Group to apportion revenue earned from contracts with customers to performance obligations the Group has with the customers, on the basis of the standalone selling prices. This is done through applying a five-step model: 1. Identify the contract with the customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligation in the contract. 5. Recognise revenue when (or as) the entity satisfies a performance obligation. In addition to the changes to revenue recognition described above, IFRS 15 also provides guidance in relation to certain costs incurred acquiring a customer or fulfilling the contract with the customer, requiring such costs to be deferred over time. The impact to the Group s reporting of revenue and costs is as follows: Deliverables in contracts with customers that qualify as separate performance obligations will be identified and the contractual transaction price receivable from customers must then be allocated to the performance obligations on a relative standalone selling price basis. Stand-alone selling prices will be based on observable sales prices; however, where stand-alone selling prices are not directly observable, estimates will be made maximising the use of observable inputs. Revenue will be recognised either at a point in time or over time when the respective performance obligations in a contract are delivered to the customer. Certain incremental costs incurred in acquiring a contract with a customer will be deferred on the consolidated statement of financial position and amortised as revenue is recognised under the related contract; this will generally lead to the later recognition of costs. The combined impact of the changes is expected to increase the gross profit, or reduce the gross loss, recorded at inception on many customer contracts; in such cases, this will typically reduce Page 35

37 the gross profit reported during the remainder of the contract; however, these timing differences will not impact the total gross profit reported for a customer contract over the contract term. The Group will adopt IFRS 15 with the cumulative retrospective impact reflected as an adjustment to equity on the date of adoption; and with disclosure of the impact of IFRS 15 on each line item in the financial statements in the reporting period. The Group s current estimate of the primary financial impact of these changes on the consolidated statement of financial position on adoption is a cumulative increase in retained earnings of 1.6 million. The primary movements contributing to the increase in retained earnings are the recognition of contract assets and the deferral of previously expensed contract acquisition costs. The implementation of IFRS 15 is not expected to have any financial impact on the consolidated statement of cash flows. However, as the transactions impacted by IFRS 15 are high in volume, value and complexity, the Group is continuing to assess the impact of these and other accounting changes that will arise under IFRS 15. IFRS 16 Leases IFRS 16 replaces IAS 17 Leases and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. It eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model where the lessee is required to recognise assets and liabilities for all material leases that have a term of greater than a year. The standard requires lessees to recognise a right of use asset and a liability for future payments arising from a lease contract. Lessor accounting requirements remain aligned to the current approach under IAS 17. Operating leases where VIEO is acting as a lessee, and the remaining commitments under these leases, are disclosed in note Initial impact assessment VIEO has completed an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the financial statement in the period of initial application will depend on future economic conditions, including VIEO s borrowing rate at 1 January 2019, the composition of the lease portfolio at that date, the latest assessment of whether it will exercise any lease renewal options and the extent to which VIEO choses to use the practical expedients and recognition exemptions. Transition VIEO plans to apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 (if any) will be recognized as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information. VIEO is assessing the potential impact of using several practical expedients on transition. Other There are a number of amendments to IFRS, effective for the year ending 31 December, which are not expected to significantly impact the Group s consolidated results or financial position Significant transactions Acquisition accounting Lebara On 14 September, Palmarium Finance AG (Palmarium), through a newly established acquisition vehicle, VIEO B.V., completed the acquisition of 100% equity interest in Lebara Group Page 36

38 B.V., Yokara Trademark S.a.r.l. and Yokara Global Trademark S.a.r.l. (together Lebara) for a combined purchase price of million. The following table summarises the consideration paid for Lebara, the recognised amounts of assets acquired and liabilities assumed at the acquisition date. Page 37

39 The Dutch tax claim ( 5.2 million) and Australian claim ( 4.2 million) are deferred consideration, relating to a Netherland VAT refund and the receipt of sale proceeds as a result of the asset deal of Australia PTY Ltd. respectively. The receipt of these claims are unconditional at acquisition date. The consideration transferred includes a 2.3 million fair value for the contingent consideration related to a tax refund receivable by Lebara Ltd and an adjustment for working capital to be finalised with the sellers. The estimated amounts, respectively, represent the expected amounts to be received from the taxing authorities and to be settled with the sellers at acquisition date and as of 31 December. Acquisition-related costs of 1.2 million (excluding any insurance costs) have been charged to General and administrative expenses in the consolidated statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December. Assets and liabilities denominated in foreign currencies were translated using the exchange rates as of the acquisition date. The gross contractual amount for trade and other receivables due was 95.5 million, of which 1.7 million are expected to be uncollectable, resulting in a fair value of the acquired trade and other receivables of 93.8 million. The fair value of the acquired identifiable intangible assets of million primarily relate to the Lebara brand and customer relationships. The goodwill of million arising from the acquisition has been allocated to the CGUs in the Netherlands, Germany, UK, France, Spain and Denmark and is attributable to the market share of Lebara in the different countries. None of the goodwill recognised is expected to be deductible for income tax purposes. The revenue included in the Consolidated Statement of Profit or loss and Other Comprehensive Income since 14 September contributed by Lebara Group was million. Lebara Group also contributed loss of 22.8 million over the same period. VIEO B.V. was founded on 21 August. Had Lebara Group been consolidated from 21 August with VIEO B.V. instead of acquisition date ad 14 September, the Consolidated Statement of Profit or loss and Other Comprehensive Income would not be materially different. This pro-forma information does not purport to represent what VIEO B.V. s actual results would have been had the acquisition actually occurred on 21 August, nor are they necessarily indicative of future results of operations. In determining the contributions, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same as if the acquisition had occurred on 21 August. Deferred and contingent consideration Share in Success: The SPA between the Company and the seller stipulated that qualifying (former) employees of the Group shall be granted a special bonus in an amount specified by the sellers under the conditions of the Lebara Share in Success incentive plan. The Lebara s original Share in Success incentive plan was replaced by a newly committed liability of the Group to pay 50% of the discretionary bonus ( 7.5 million) 6 months subsequent to the business combination and the remaining 50% ( 7.5 million) 24 months subsequent to the business combination. There are no further conditions to this incentive plan. There are no post-acquisition compensation costs to be recognised. Page 38

40 The Share in Success bonus is considered to be a component of the purchase consideration and a liability of the Group. The fair value of the deferred cash consideration on acquisition date, based on discounted cash flow model, is 14.8 million. The SPA between the Company and the seller stipulated that the purchase price should be increased by the gross amounts expected to be received by Lebara Group for the following claims: Dutch Tax Claim ( 5.2 million), Australian Claim ( 4.2 million) and the UK Tax Refund Claim ( 2.3 million). The Dutch Tax Claim ( 5.2 million) and the Australian Claim ( 4.2 million) are not contingent and are therefore included as receivables in in the net assets acquired. The respective amounts have been included as deferred consideration. The UK tax refund claim represents the claim by Lebara Ltd from HM Revenue & Customs. It is considered as probable that the tax refunds will be sustained. It is included in the net assets acquired. A corresponding amount is recorded as a contingent consideration. The contingent consideration is measured at fair value through profit or loss. The fair value as of the reporting date equals to the initial amount of 2.3 million. The amount of the non-controlling interests of 18 thousand in the Lebara Group were recognised at their proportionate share of the acquired net identifiable assets Segment information Description of segments The Group has the following CGU s, which are its reportable segments: UK, Germany, France, Denmark, Netherlands, Spain and Digital. Managements monitoring and decision-making activities are conducted on a geographical area level for its Mobile business. All 6 geographical areas in which Mobile is conducting business are considered separate reportable segments, representing the lowest level at which management directs and monitors the Mobile business. For the Digital business, one CGU has been identified and consists of the remittance (money) business and talk s business operations. Sales between segments are carried out at arm s length and are eliminated on consolidation. Segment assets are allocated based on the operations of the segment and the physical location of the asset. Page 39

41 Page 40

42 2.5.5 Revenue Rendering of services 131,741 Sales of goods 219 Other revenues 1, ,272 The main source of revenue of the Group is rendering of services, and the sale of goods. Rendering of services includes national and international consumer prepaid traffic airtime, which is recognised as such airtime is used. Sale of goods includes handsets, set top boxes and SIM cards. Other revenues include those derived from Voxygen Limited, Zap Travel Inc. and the Group s Money business Cost of sales Payments to telecommunications operators 83,230 Production and distribution costs 21,760 Depreciation and amortisation 3,805 Impairment of intangible assets (customer relationships) 2, ,637 Payments to telecommunications operators include content and programme rights costs, both minimum guarantee and amortised content fees. Production and distribution costs include bonuses and commission payable to distributors, printing and distribution costs of SIM cards and vouchers, and the cost of mobile handsets and set top boxes sold. The amortisation and depreciation relate mainly to the Lebara brand. The costs of inventories sold are not material Other income Other income of 1.4 million relates to the fee regarding to management services provided to the Lebara Play business, which has not been part of the business combination. The management contract ended in May 2018, following the sale of the Lebara Play business, refer to note for further details on the events after the balance sheet date. Page 41

43 2.5.8 Selling, operating, and general & administrative expenses The following items have been recorded as selling, operating, and general and administrative expenses: Pension charges amount to 285 thousand. Workforce The average number of full-time employees (FTE) employed by the Group was 667. The average number of full-time employees employed by the Group outside the Netherlands was 590. FTE Operation 208 Sales & Marketing 379 Admin 75 Executive Page 42

44 Expenses Related to Auditor s Services The following fees were charged by KPMG Accountants N.V. to the Company, its subsidiaries and other consolidated companies, as referred to in Section 2:382a(1) and (2) of the Netherlands Civil Code: : KPMG Accountants N.V. KPMG Network Total Audit of financial statements ,260 Other audit engagements 762 1,677 2,439 Tax-related advisory engagements services Other non-audit services ,600 2,243 3, Finance income and finance costs Finance income Interest income 3 Fair value change embedded derivative (zero floor) 2,089 Refer to note and for further details on the embedded derivative (zero floor). Finance costs 2,092 Interest expense - Bond 8,481 Interest expense other 185 Fair value change forward exchange contracts 1,135 Net foreign exchange loss 1,334 11,135 The net foreign exchange loss above includes gains and losses on foreign exchange transactions. The forward exchange contracts did not qualify for hedge accounting in terms of IAS 39 Financial Instruments: Recognition and Measurement. Page 43

45 Income tax A) Amounts recognised in the consolidated statement of profit or loss and other comprehensive income The major components of income tax expense are as follows: Income Tax Current tax Current income tax on profits for the period (269) Adjustments for current income tax of prior periods (7) (276) Total current tax expense therefore denotes 0.3 million. In addition to the P&L movement and payments made, an additional tax payable of 1.6 million has recorded through goodwill in relation to the acquisition of the Lebara Group. Deferred tax Deferred income tax for the period 10,533 Recognition of deferred tax assets previously unrecognized 2,356 Derecognition of deferred tax assets previously recognized (6,525) 6,364 Total income tax (expense) / benefit 6,088 B) Reconciliation of effective tax rate A reconciliation of the weighted average statutory income tax rate to the effective income tax rate is as follows: in % Loss before taxation (152,526) Tax (expense)/ benefit at weighted-average statutory rate 25,6% 39,067 Tax effects of Goodwill impairment not recognised for tax purposes -16.8% (25,588) Other non-deductible expenses -0.8% (1,185) Tax exempt income 0.4% 658 (de)recognition of previously (un)recognised DTA s for losses and temporary differences -2.7% (4,169) Current year losses/ temporary differences for which no DTA s are recognized -1.7% (2,666) Other income taxes 0.0% (29) Income tax (expense) / benefit 4.0% 6,088 The total effective tax rate percentage of 4.0% in is the result of the consolidated profit before tax against the weighted average statutory tax rate and is further predominantly driven by the impairment in goodwill which is not-deductible for tax purposes and the derecognition of previously recognized DTAs in France for which it is not considered probable anymore that sufficient taxable income will be available against which the carried forward losses can be offset. Page 44

46 C) Current tax assets The current tax assets comprise of 5.2 million tax receivable for the Yokara entities and for the Lebara Group. D) Current tax liabilities The current tax liabilities comprise of 1.8 million tax payable for the Lebara Group Property, plant and equipment The amount of borrowing costs capitalised to property, plant and equipment is nil. As at 31 December property, plant and equipment were not pledged as security. Page 45

47 Intangible assets and goodwill Included within software and development costs acquired through business combinations are assets under a sale and lease-back agreement with Lloyds Bank plc, refer to note for further details on the loan. The carrying value of the respective assets is 1.5 million as at 31 December. The amount of borrowing costs capitalised to intangible assets is nil. As at 31 December intangible assets were not pledged as security. Goodwill impairment testing Goodwill has been allocated for impairment testing purposes to six individual cash-generating units (UK, Netherlands, Germany, France, Spain and Denmark). Each CGU represents a major geographical region of operations. The carrying amount of goodwill allocated to UK, Netherlands and Germany is significant in comparison with the total carrying amount of goodwill, but the carrying amount of goodwill allocated to France, Spain and Denmark is not. Although the carrying amount of France, Spain and Denmark is less significant, the impairment test has been carried out for all CGUs in line with IFRS requirement. CGU In million s Goodwill 14 September Impairment Goodwill 31 December CGU NL (90.6) 87.1 CGU DE CGU UK (incl. WS) ,2 CGU FR 11.7 (11.7) - CGU SP CGU DK CGU Digital Total (102.3) 244.0* * Excluding the effect of foreign exchange rates Page 46

48 The recoverable amount of each CGU is determined based on fair value less cost of disposal, which is measured using discounted cash flow projections. The valuation is considered to be level 3 in the fair value hierarchy due to unobservable inputs used in the valuation. All calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions used in the projections are as follows: Revenue growth is based on actual experience, analysis of market growth and the expected market share development; Pre-tax cost reductions from restructuring initiatives of 6.0 million are estimated based on management's judgement and past experience with similar restructuring initiatives; EBITDA-margin development is based on actual experience and management s long-term projections; and An estimated cost of disposal of 1% of the total derived recoverable amount has been incorporated based on management's judgement and recent experience of selling of the business. For all CGUs, a terminal value was calculated based on the terminal value growth rate of 0.0 percent. This growth rate does not exceed the long-term average growth rate for the market in which the CGUs operate. The discount rates are determined for each CGU and range from 10.9 percent to 12.8 percent compared to 10.9 percent to 13.2 percent as of 14 September. Refer to the table below for other key assumptions per CGU: CGU CAGR revenue EBITDA margin 2022 WACC CGU NL 2.7% 17.3% 11.0% CGU DE 3.1% 20.2% 10.9% CGU UK (incl. WS) 6.6% 16.4% 11.4% CGU FR (3.0%) (3.3%) 11.3% CGU SP (0.3%) 13.9% 12.8% CGU DK 6.7% 24.2% 11.0% Total 2.7% 15.7% 11.0% In connection with our annual impairment testing of goodwill conducted in the fourth quarter of, we recorded impairment charges in the Netherlands and France, which are the Group s reportable segments. The impairment of goodwill and definite-lived intangible assets have been recorded in impairment loss on the income statement. The other CGUs have sufficient headroom. The group does not have any indefinite lived assets other than goodwill. The recoverable amount of CGU Netherlands of million compared to a carrying value of million resulted in an impairment of 90.6 million. The key factors contributing to the goodwill impairment in the Netherlands are due to regulatory changes in mobile termination charging as well as the regulation of roaming charging. This led to the decrease in margins observed in the impairment testing analysis. The re-launch of the Sim-only offering during in Q will partially offset the margin reductions as Management is expecting an increase in Customer Life Time value as a result of clear focus on high-quality customers. The recoverable amount of CGU France is (7.5) million compared to a carrying value of 21.1 million, which resulted in an impairment of 28.6 million. Given that the fair value less cost to sell is negative, we have determined the recoverable amount of the CGU France on the fair value less cost to sell using an estimated liquidation value. The liquidation value is estimated based Page 47

49 on PP&E and operating working capital items. Therefore, goodwill of 11.7 million and 16.9 million related to intangible assets (i.e. brand, customer relationships and software) have been impaired in France. France has suffered from high competition among the MNO s and relatively low margins due to the ethnic composition of its customer base. Due to the increase in data allowances in the fourth quarter, the performance in France has been lower than expected which has led to the impairment of goodwill and intangibles in France Financial assets Opening balance as at incorporation date - Acquisition through business combinations 5,010 Additions/(disposals) deposits 102 Balance as at 31 December 5,112 The Acquisition through business combinations includes Investment in Etihad ( 2.2 million) and Deposits ( 2.8 million). Refer to note for further details on the acquisition accounting. The Group s financial assets as per balance sheet date, comprise the following: Investment in Etihad Jawraa Telecommunications and Information Technology Company 2,217 Deposits 2,895 Balance as at 31 December 5,112 Etihad Jawraa Telecommunications and Information Technology Company (the Etihad ) is the owner of a telecommunications licence and operates an MVNO business in the Kingdom of Saudi Arabia, providing voice and data products and services. Etihad commenced operations in December In accordance with a management agreement between Etihad and the Group, the Group provides management services to Etihad for an annual fee. The fee recognised by the Group during the period was 0.3 million. The Investment has been classified as fair value through profit or loss. It has been concluded that the fair value for Etihad as assessed at the acquisition date (14 September ) represents the fair value as of year-end (31 December ). This is due to the fact, that the fair value analysis performed as part of the acquisition accounting, refer to note , was using the most recent financial information available at this point in time. Deposits comprise long-term deposits with mobile network operators as well as those in respect of the leases of local office premises and vehicles. The carrying value of deposits approximates its fair value. Page 48

50 Deferred taxes An overview, including the movements, of the Deferred Tax Assets (DTA) and (liabilities) (DTL) is provided below: (Charged) / (Charged) / Credited Opening Acquisition Credited through Balance as at balance as at through directly the 31 December incorporation business through Other statement date combinations Comprehensive of profit Income and loss Property, plant and equipment (23) Intangibles - (46,453) 5,203 - (41,250) Provisions Derivatives - (538) 23 - (515) Tax losses carried forward - 21,821 1,161-22,982 Total deferred tax assets / (liabilities) - (24,622) 6,364 - (18,258) Based on the profit forecast per ultimo and the impact of the fair value adjustments as a result of the acquisition of the Lebara group, the Company assessed the previously unrecognized tax losses and determined that it is probable that taxable profits will be available against which the tax losses can be utilised. As a consequence a DTA on tax losses carried forward (and limited amount of DTAs on temporary differences) of 18.3 million is recognized in this respect as per 31 December. The amount of losses currently not recognised amounts to million. These losses expire as to the table below: Tax losses Year Within 5 through 8 years 1,311 No expiration date or longer than 10 years 220, Inventories SIM cards 1,202 Voucher cards 143 Other 4 Balance as at 31 December 1,349 The cost price of inventories sold is recognised in cost of sales. Page 49

51 Trade and other receivables Trade receivables 34,130 Provision for doubtful debts (239) 33,891 Sales taxes receivables 6,859 Other receivables 24,857 Prepayments 8,892 Receivables from shareholders 5 Balance as at 31 December 74,504 The carrying value of trade and other receivables approximates its fair value. Trade receivables and provision for doubtful debts The movement on the provision for doubtful debts is as follows: Provision for doubtful debts Opening balance as at incorporation date - Charge to the statement of profit or loss during the period (236) Utilisation of provision - Effect of foreign exchange rates (3) Balance as at 31 December (239) The aging of the trade receivables is as follows: No past due, nor impaired 26,640 Past due 0 to 30 days 2,980 Past due 30 to 120 days 135 Past due more than 120 days 4,375 34,130 Sales taxes receivables This balance includes the Dutch Tax Claim ( 5.2 million), refer to note for further details on the acquisition of Lebara. Other receivables The other receivables include the, Australian Claim ( 4.2 million) and the UK Tax Refund Claim ( 2.3 million), refer to note for further details on the acquisition of Lebara. The other receivables furthermore comprise amounts due from mobile network operators in respect of volume rebates and overpayments. Furthermore, the other receivables include the fee regarding to services provided to the Lebara Play business, refer to note for further information. Page 50

52 Prepayments Prepayments comprise short-term amounts paid in advance for expenses Cash and cash equivalents Escrow 76 Cash on hand 37 Cash at bank 31,017 Balance as at 31 December 31,130 Cash at bank bears interest at floating rates based on daily bank deposit rates. Apart from the guarantees as detailed in note and the Escrow account of 76 thousand, there exist no restrictions on the Group s cash balances. The remaining maturity of the Escrow account is less than 3 months. The carrying value of cash and cash equivalents approximates its fair value Capital and Reserves Share capital Ordinary share capital Holders of these shares are entitled to dividends as declared form time to time and entitled to one vote per share at general meetings of the Company. All ordinary shares are ranked equally with regards to the Company s residual assets. Issue of ordinary shares The Company has been incorporated on August 21, by issuing 5,000 ordinary shares at a par value of 1 per share. The issuance of shares is unpaid and included as a receivable from shareholders. During the period ended 31 December, 85,000,000 ordinary shares, at a par value of 1 per share, were issued as a result of the acquisition of Yokara Trademarks and Yokara Global Trademarks (contribution in kind by the shareholder, refer to note for further details on the accounting of the acquisition). As per 31 December, 85,005,000 shares have been authorised and issued. Movement in number of shares: Opening balance as at incorporation date - Issuance of shares at incorporation 5,000 Issuance of shares for acquisition of Yokara entities 85,000,000 Balance as at 31 December 85,005,000 For the issuance of the shares the Company did not have material incremental direct attributable costs to be capitalized. Page 51

53 Pledge on the Company s shares VIEO AG (the parent company) and Palmarium Netherlands B.V. have created a first priority right of pledge over its Collateral, as defined in the Senior Deed of Pledge (shares in VIEO B.V., dividends, related assets, and recourse and subrogation claims), in favour of the bond trustee (Nordic Trustee AS) as per 14 September ( Senior Share Pledge ). The Senior Share Pledge has been amended as per 12 December VIEO AG and Palmarium Netherlands B.V. have granted in favour of the bond trustee a right of pledge over its Collateral and any accessory rights and ancillary rights attached to the Collateral ( Parent Share Pledge ). The Parent Share Pledge is subject to the Senior Share Pledge, certain rights of the pledge under the Parent Share Pledge may not, or not immediately, be exercisable due to the priority of the Senior Share Pledge over the Parent Share Pledge. Share premium For the acquisition of the Yokara entities the fair value of the consideration transferred amounts to 85.3 million, refer to note , of which 85.0 million relates to the value of the ordinary shares and 0.3 million relates to share premium. Foreign currency translation reserve The foreign currency translation reserve is a legal reserve and comprises foreign exchange currency differences arising from the translation of the financial statements of the Group s non- Euro denominated operations in Australia, Denmark, India, Malaysia, Hong Kong, Singapore, the Cayman Islands, the United States and the United Kingdom. Opening balance as at incorporation date - Exchange differences on translation of foreign operations and goodwill 1,111 Balance as at 31 December 1,111 Subordinated loan The parent company, VIEO AG (previously Palmarium Finance AG) converted its receivable to VIEO B.V., as result of paid acquisition costs, into a subordinated loan in the amount of 4.6 million (non-cash movement). VIEO B.V. has an unconditional right to avoid both the repayment of the principal as well the payments of coupons. In other words, VIEO B.V. has full discretion on any payments on the subordinated-called loan. As such, the instruments does not meets the conditions for classification as financial liability in accordance with IAS 32 and is therefore classified as equity instrument. Opening balance as at incorporation date - Conversion of amounts payables to shareholders into subordinated loan 4,555 Balance as at 31 December 4,555 Page 52

54 Non-controlling interest The non-controlling interest comprises the amounts of interests in non-wholly owned consolidated subsidiaries at the date of the original business combination and the non-controlling share of changes in equity since the date of the combination. Movement in the non-controlling interest during the period is as follows: Note Opening balance as at incorporation date - Acquisition through business combinations Profit after taxation for the period 6 Other comprehensive income for the period 1 Total comprehensive income for the period 7 Balance as at 31 December 25 Name of subsidiary Country Portion of NCI at 31 December Mind sky Design Labs Private Limited India 20% Sun TV network Europe Limited United Kingdom 5% Bonds Calculation of the carrying amount on initial recognition Bonds issue 350,000 Bond transaction cost (11,267) Separation embedded derivative (zero floor) (5,537) Carrying amount on initial recognition 333,196 Movement schedule Cash movements Non-cash movements Total Opening balance as at incorporation date Bonds issuance 342,389 (9,193) 333,196 Bonds interest and amortization - 8,481 8,481 Interest paid (5,972) - (5,972) 336,417 (712) 335,705 The Company issued million Senior Secured Callable Bonds (the Bonds ) on Page 53

55 6 September, as amended by the Written Resolution (hereinafter stated as Written Resolution ), approved on 12 December Refer to note for further details of the Written Resolution. The Bonds bear interest rate of 3 months Euribor %. The Euribor component is subject to a zero floor. The zero floor is accounted for as an embedded derivative (fair value), while the host (Bond) contract is accounted for at amortised cost. Changes in the fair value of the embedded derivative (zero floor) are accounted for though the profit or loss. The floor is presented separate from the host and included in the balance sheet caption derivatives (see note ). Movements in the Euribor rates impact the fair value of the derivative. The call and put options included in the Bond Agreement are closely related to the Bonds and therefore not bifurcated. The Bonds mature on 7 September 2020, and are subject to issuer s call option as of 12 December The non-cash movements consists mainly of a derivative of 5.5 million and a advisors origination fee of 3.5 million with Palmarium regarding the bond issuance. The balance as 31 December of the bonds includes interest payables (accrued between 7 December and 31 December) of 1.6 million. Event of Default of bond terms The event of default of Bond Terms non related to non-payments but to other non-compliance with provisions of the Bond Terms occurred and continued since the issue of the Bonds till the Effective Date of the Written Resolution (refer to note for further details on the Written Resolution). According to the Bond Terms the Bond Trustee may, in its discretion, in order to protect the interests of the Bondholders, or upon instruction received from the Bondholders declare that the Outstanding Bonds, together with accrued interest and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, at which time they shall become immediately due and payable. Accordingly the Bonds are reclassified from non-current liabilities to current liabilities in the consolidated and company statement of financial position as at 31 December. Waiver and classification of Bonds as current liabilities As of the Effective Date of the Written Resolution (refer to note for further details on the Written Resolution), any breach of the Financial Covenants in respect of the reporting period ended 31 December shall be permanently waived and Financial Covenants shall be disapplied for the Q4 and Q1 to Q periods. These events occurred subsequent to the balance sheet date. The date of the approval of the Written Resolution is 12 December 2018, and therefore it is an event subsequent to the balance sheet date and in accordance with the applied accounting standards, the classification of liabilities are based on circumstances present at the balance sheet date. Consequently, the issued Bonds are classified as current liabilities until the Effective Date of the Written Resolution. Fair value of the bonds The fair value of the Bonds (including the embedded derivative (zero floor)) on the reporting date is million, based on their quoted market price. Page 54

56 Other liabilities (non-current) Balance as at incorporation date - Acquisition through business combinations 7,349 Amortisation 24 Balance as at 31 December 7,373 Share in Success scheme Other liabilities relate to the Share in Success scheme, which is part of the PPA. The SPA between the Company and the seller stipulated that qualifying (former) employees of the Lebara Group B.V. shall be granted a special bonus in an amount specified by the sellers under the conditions of the Lebara Share in Success incentive plan. The Lebara s original Share in Success incentive plan was replaced by a newly committed liability of the Group to pay 50% of the discretionary bonus ( 7.5 million) 6 months subsequent to the business combination and the remaining 50% ( 7.5 million) 24 months subsequent to the business combination, which has been discounted as per balance sheet date. There are no further conditions to this incentive plan. There are no postacquisition compensation costs Trade and other payables Trade payables 37,696 Social securities and salaries taxes payable 471 Sales taxes payable 9,569 Other payables 3,877 Accruals 57, ,856 Accruals consist mainly of the unbilled cost at year end for the use of the networks of the local mobile network operators, all payable within one year. The carrying value of trade and other payables approximates its fair value Finance lease liabilities (current) Balance as at incorporation date - Acquisition through business combinations 1,766 Repayments (583) Non-cash movements: none - Balance as at 31 December 1,183 Page 55

57 Finance lease liability is in respect of an equipment sale and purchase agreement by Lebara Group with Lloyds Bank plc. The carrying value of the respective secured assets at year end is 1.5 million, against which the lease agreement is secured. Total finance charges payable over the term of the lease are 0.3 million, which represents an effective interest rate of 3.0% per annum. The liability is repayable in 12 quarterly instalments of 0.6 million Other liabilities (current) Balance as at incorporation date - Acquisition through business combinations - "Share-in-Success -scheme 7,500 Contingent consideration as a result of business combinations 2,298 Deferred consideration as a result of business combinations 9,986 Balance as at 31 December 19,784 Share in Success scheme Refer to note for further details on the Share-in-Success -scheme. Contingent consideration The contingent consideration relates to the UK Tax Refund claim of 2.3 million. Refer to note for further information on the acquisition of Lebara. Deferred consideration The deferred consideration mainly relates to the Dutch Tax claim of 5.2 million and the Australian claim of 4.2 million. The amounts will be paid out after these claims have been (finally) settled. Refer to note for further information on the acquisition of Lebara Provisions The movement during the period is as follows: Warranty Restructuring Other Total Opening balance as at incorporation date Acquired as part of business combination ,625 Charge to the statement of profit or loss during the period - 7,046-7,046 Utilisation of provision - (1,626) - (1,626) Reversal of provision - (86) - (86) Balance as at 31 December 238 5, ,959 The provisions are regarded as current. The Group performed an in-depth Executive Committee review of the organisational structure and future shape of the business is undertaken, identifying roles to be placed at risk. Full redundancy consultation process is carried out by internal HR team, commencing with formally placing roles at Page 56

58 risk and conducting consultation meetings with affected employees. The duration of consultation and therefore completion of the process is directly driven by numbers of roles involved within a 90 day timeframe. This process affects all Group s entities and businesses across all countries. The Group provides an enhanced redundancy payment structure which is paid on provision of a signed settlement agreement. Payment terms within settlement agreements are 30 days from date of signature and are strictly adhered to by the Group to ensure there is no breach of contract. Restructuring provision as at 31 December amounts to 6.0 million. A warranty provision has been raised on the sale of set top boxes. For certain products the Group has incurred an obligation to exchange the item if it breaks prematurely due to a lack of quality or give the client a refund if he is not satisfied. Revenue for the sale of the products is recognised once the good is delivered, however, a provision based on previous experience is recognised at the same time (revenue is adjusted for the amount of the provision). The other provisions relate to disputes with the Danish tax authorities regarding corporate income tax for the period 2012 up to the acquisition date Derivatives Foreign exchange forward contract liability 1,134 Embedded derivative ( zero floor ) 3,448 Balance as at 31 December 4,582 Foreign exchange forward contracts The Group uses foreign exchange forward contracts to manage some of its transaction exposures. The foreign exchange forward contracts are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally one to twelve months. As these contracts are not designated in hedge relationships, hedge accounting has not been applied and they are measured at fair value through profit or loss. The foreign forward exchange contract balances vary with the level of expected foreign currency purchases and changes in foreign exchange forward rates. Embedded derivative ( zero floor ) The movement during the period is as follows: Note Opening balance as at incorporation date - Separation embedded derivative for the bonds ,537 Fair value change to the statement of profit or loss during the period (2,089) Balance as at 31 December 3,448 Approximately 1.1 million of the balance as at 31 December is short term. The valuation of the floor was performed using the Bloomberg option pricing model, using market observable input (level 3). Page 57

59 Deferred income Opening balance as at incorporation date - Acquisition through business combinations 45,014 Charge to the statement of profit or loss during the period 16,074 Balance as at 31 December 61,088 Deferred income (all short-term related) comprises amounts received in advance for the sale of airtime which, apart from the included VAT portion, will be recognised as revenue upon usage in the future. The VAT portion will become payable upon redemption of the relating call credit. The carrying value of deferred income approximates its fair value Related parties Identification of related parties In the normal course of business, VIEO enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. VIEO AG is the parent of the VIEO B.V., Lebara Group B.V. and their subsidiaries, Yokara Global and Yokara Global Trademarks, are considered related parties of the Company. Palmarium Holding AG is the ultimate parent of the group. Transactions between related parties have taken place at an arm s length basis and include rendering or receiving of services. Transactions vary from financing activities to regular purchases and sales transactions. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties. The following parties are considered related parties of the Group: The following parties are considered related companies of the group: VIEO AG (formerly Palmarium Finance AG), Palmarium Capital AG, Palmarium Holding AG and Palmarium Advisors AG. The Company s directors: o Mr Raphael Auerbach o Miss Suzanei Archer o Mr Patrick Wild o Mr Alexander Zito The Lebara Foundation, a non-profit, philanthropic organisation. Subsidiaries of the Group, as detailed in note Members of the Executive Suite: The Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Marketing Officer, and General Counsel. Related party transactions The following related party transactions took place during the period 21 August to 31 December. Transactions within the Group (shared service centre and other recharges) are not included as they are eliminated on consolidation). VIEO AG has incorporated VIEO B.V. on August 21,. The Issued shares are unpaid and recorded as a receivable from shareholder. VIEO AG charged advisory fees of total 0.6 million to VIEO B.V. Page 58

60 Palmarium Advisors AG charged advisory fees of total 0.2 million to VIEO B.V. VIEO B.V. acquired the shares of both Yokara Global and Yokara Global Trademark of VIEO AG through a contribution in kind of 85.3 million. Purchases from Lebara Digital Pvt Ltd of 0.1 million. Conversion of intercompany payable to VIEO AG into a subordinated loan of 4.6 million (non-cash movement). Key management personnel The key management personnel consist of the Company s directors and members of the Executive Suite. Executive Suite includes The Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Marketing Officer and General Counsel. The Company s directors are not remunerated by VIEO B.V. or any of its subsidiaries. Instead, an amount of 0.6 million was paid to VIEO AG and an amount of 0.2 million was paid to Palmarium Advisors AG for the provision of key management personnel services. The remuneration of the members of the Executive Suite for the period is as follows: Short term employee benefits Termination benefits Post employment benefits Total Key management personnel 1, , Commitments and contingencies The Group leases a number of office buildings, cars and office related equipment under operating leases. The leases for office buildings typically run for a period of 5 years, with an option to renew the lease after that date. Some leases provide for additional rent payments that are based on changes in a local price index. Minimum payments under non-cancellable operating leases are as follows: Operating lease commitments Office rent Leased cars Equipment Total Less than 1 year 1, ,123 Between 2 and 5 years 2, ,877 After 5 years , ,000 Capital commitments As at 31 December, the Group had commitments of 5.3 million in respect of programme content and IT systems application and development. The commitments will be financed internally. Contingent liabilities The Group and its subsidiaries are currently involved in a number of legal proceedings and are aware of threatening litigations that are incidental to operations. Ongoing legal proceedings are Page 59

61 currently at early stages and the possibility of an outflow of economic benefits is not considered probable at this point. The contingent liability from the business acquisition relates to the agreement of the adjustment to the net working capital and the various claims as disclosed in note These liabilities are expected be settled by the Company upon finalisation of the settlement and once Lebara Group B.V. has settled the claims with the tax authorities. Guarantees issued by the Group The following guarantees have been issued by the Group s subsidiaries: By Lebara Group B.V. and Lebara Limited: Lebara Group B.V. and Lebara Limited jointly agreed to supply the necessary finance to Lebara France Limited to ensure that it is able to meet its liabilities under its MVNO contract. By Lebara Group B.V. and Lebara Mobile Limited: Lebara Group B.V. and Lebara Mobile Limited jointly agreed to supply the necessary finance to Lebara Germany Limited to ensure that it is able to meet its liabilities under its MVNO contract. By Lebara Group B.V.: Lebara Group B.V. has offered its financial support in respect of all UK subsidiary companies of the Group and has issued support letters to that effect. Lebara Limited acts as guarantor for bank guarantees totalling 350 thousand and DKK 6.6 million. Lebara B.V. acts as guarantor for bank guarantees amounting to 75 thousand. By Lebara Mobile Group B.V.: Lebara Mobile Group B.V. acts as guarantor for bank guarantees totalling 350 thousand and DKK 6.6 million. By Lebara Limited: Lebara Limited agreed to supply the necessary finance to its operations in Netherlands, Denmark and Spain to ensure that each is able to meet its liabilities under their respective MVNO contracts. Lebara Limited acts as guarantor for Lebara Mobile Limited. Sister company guarantee (GBP 75 thousand) on behalf of Lebara Germany Limited in favour of M&M Werbeagentur GmbH and 500 thousand in favour of its supplier for company cars. Lebara Limited Spain Branch acts as guarantor for bank guarantees totalling 167 thousand Financial risk management objectives and policies General objectives, policies and processes The Board has overall responsibility for the determination of the Group s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the Page 60

62 authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the Group Financial function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group is exposed through its operations to the following financial risks: Market risk Interest rate risk Foreign exchange risk Credit risk, and Liquidity risk. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risks: interest rate risk, currency risk, commodity price risk and other price risk (such as equity price risk). Financial instruments affected by market risk include lease liabilities, deposits and derivative financial instruments. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s exposure to the risk of changes in market interest rates is primarily limited to its bonds as well as cash balances on which interest is earned. As a result of this exposure to interest rate changes, any reasonable possible change in interest rates would have impact on the Group s profit before tax. The Senior Secured Callable Bonds issued by the Group bear interest of Euribor %, subject to a zero floor for the Euribor. Movements in the market interest rates impact both the interest expenses and the fair value of the floor. The zero floor is accounted for as an embedded derivative. Movements in the interest rates impact the fair value of the derivative. An increase of 100bps in Euribor would have increased the interest expense for the period by 0.8 million and would have resulted in a fair value gain on the interest rate floor of 2.8 million (impact on income after tax: gain of 1.6 million). A decrease of 100bps in Euribor would have resulted in a loss on the interest rate floor of 11.4 million (impact on income after tax: loss of 8.6 million). Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group s exposure to the risk of changes in foreign exchange rates relates primarily to the Group s operating activities in United Kingdom and to the fact that sales and purchases are often denominated in a currency other than the respective functional currencies of the Group s entities. At any given point in time, the Group hedges up to 90% of its estimated net foreign currency exposure in respect of forecast sales and purchases over the following twelve months using foreign Page 61

63 exchange forward contracts. The Group s net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term needs or imbalances. As at the year end, the Group had outstanding foreign exchange forward contracts entered into to mitigate a portion of the net foreign currency risk relating to trade receivables and payables. The outstanding value of the foreign exchange forward contracts at year end was USD 38.9 million, GBP 17.7 million and AUD 6.0 million. After taking into account the outstanding foreign exchange forward contracts at year end, the remaining net foreign currency exposure is offset by spot trading and entering into additional foreign exchange forward contracts after the year end date. The Group s material exposure to foreign exchange risk is as follows. The significant foreign currency balances included within trade receivables and trade payables, to which the Group is exposed should exchange rates fluctuate, are as follows: 000 Trade receivables in local currencies British Pound GBP 2,057 United States Dollar USD 3,919 Danish Krone DKK 10,299 Trade payables in local currencies British Pound GBP 2,530 United States Dollar USD 2,614 Polish Zloty PLN 1,262 Indian Rupees INR 430 Danish Krone DKK 7,492 The following significant exchange rates applied during the period: Average rate Year end rate Australian Dollar AUD British Pound GBP Danish Krone DKK Polish Zloty PLN United States Dollar USD Indian Rupees INR An analysis has been performed on the Group s exposure to movements in foreign exchange rates and its potential impact on profit and loss. The Group has taken out foreign exchange forward contracts to mitigate the foreign exchange risk relating to its monetary assets and liabilities denominated in foreign currencies. The value of these foreign exchange forward contracts in their respective currencies is in excess of the Group s net monetary position in those currencies, such that the impact of a movement in foreign exchange rates on profit and loss is not considered significant. A strengthening, or weakening, of the Euro is adequately hedged by the existing foreign exchange forward contracts, with the result that a movement in the underlying monetary asset is effectively mitigated by the commensurate movement in the derivative contract. Page 62

64 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities: primarily trade receivables, but also including its deposits with banks and mobile network operators, and foreign exchange transactions. The carrying amount of financial assets represents the maximum credit exposure, which is as follows: Financial assets 5,112 Trade, related party and other receivables 74,504 Cash and cash equivalents 31, ,746 There exist no significant unusual concentrations of credit risk. The largest concentrations of credit risk are found in the largest entities of the group. Refer to note for an aging analysis of the Group s trade receivables balance. Customer credit risk is managed by each business unit subject to the Group s established policy (terms of up to 30 days), procedures and controls relating to customer credit risk management. Credit quality of a customer is assessed and credit limits are defined in accordance with this assessment. Financial assets The Group s investment in Eithad Jawraa Telecommunications and Information Technology Company, a Company incorporated in Kingdom of Saudi Arabia. The equity price risk is not considered significant. The Deposits predominantly comprise deposits with mobile network operators. The mobile network operators are large institutions with respectable credit ratings and the Group accordingly evaluates the risk of default with respect to the deposits as low. The Group also evaluates the concentration of risk relating to deposits with mobile network operators as low as the mobile operators are located in several jurisdictions and operate in largely independent markets. Trade and other receivables The Group s customers comprise large national wholesalers, distributors and retailers who purchase SIM cards and vouchers to sell to the market. Customer credit risk is managed by each business unit subject to the Group s established policy (terms of up to 30 days), procedures and controls relating to customer credit risk management. Credit quality of a customer is assessed and credit limits are defined in accordance with this assessment. The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. As the risk of default by customers is considered low, the credit quality of receivables not past due nor impaired is regarded as high. The Group evaluates the concentration of risk with respect to trade and other receivables as low as its customers are located in several jurisdictions and operate in largely independent markets. Cash and cash equivalents Credit risk from balances with banks and financial institutions is managed in accordance with the Group s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. The Group evaluates the concentration of risk and the risk of default with respect to cash deposits as low as such cash deposits are made with a large number of reputable financial institutions in different jurisdictions. Page 63

65 Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group monitors its risk to a shortage of funds, and its objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts. The liquidity risk also includes the risk that the Company will be unable to meet its financial covenants, to obtain sufficient financing, or that it can be obtained only at significantly higher cost. Due to the financing structure of the Group, the Group uses a significant part of its cash flow for payment of liabilities related to the Bonds (interest payments), resulting in a material reduction of its flexibility in its cash flows. As part of its liquidity risk management VIEO shall ensure that the Group complies with its financial covenants during the term of the 350 million Senior Floating Rate Notes due in This is in accordance with the requirements set out in the BOND TERMS for VIEO B.V. FRN 350 million Senior Secured Callable Bond Issue /2022 (ISIN NO ) (hereinafter stated as Bond Terms ) as amended by the Written Resolution (hereinafter stated as Written Resolution ), approved on 12 December 2018 (hereinafter stated as Effective Date ) which supersedes the first and second amendments of the Bond Terms dated respectively 6 July 2018 and 1 August As of the Effective Date of the Written Resolution VIEO undertakes to comply with the Financial Covenants at all times (with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied), such compliance to be measured on each Quarter Date and certified by VIEO by the delivery of a Compliance Certificate, with the delivery of each Annual Financial Statements or Interim Accounts. Bond terms and agreed amendments For further details of the Senior Secured Callable Bonds we refer to note of the consolidated financial statements. The Written Resolution amendments to the Bond Terms are effective as of the Effective Date. An important objective of the liquidity risk management of VIEO is to ensure compliance with the bonds terms and agreed amendment (including the financial covenant as of the Effective date of the Written Resolution). Leverage Ratio Covenant According to the Bond Terms the Group shall ensure that the Group maintains a maximum leverage ratio (hereinafter stated as Leverage Ratio ) of 5.50x up to and including 31 December. The Leverage Ratio means the ratio of Net Interest-Bearing Debt to EBITDA as per definition within the Bond Terms amended by the Written Resolution. As of the Effective Date of the Written Resolution VIEO undertakes to comply with the Leverage ratio at all times with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied. As from Q the Bond Terms require a leverage ratio of 5.00x, during the year x and during x. Event of Default of Bond Terms Refer to note for further details on events of the event of default of bond terms. Waiver and classification of Bonds as current liabilities As of the Effective Date of the Written Resolution, any breach of the Financial Covenants in respect of the reporting period ended 31 December shall be permanently waived and Financial Page 64

66 Covenants shall be disapplied for the Q4 and Q1 to Q periods. Furthermore as of the Effective Date of the Written Resolution the Liquidity covenants which was included in the Bond Terms shall be disapplied. These events occurred subsequent to the balance sheet date. The date of the approval of the Written Resolution is 12 December 2018, and therefore it is an event subsequent to the balance sheet date and in accordance with the applied accounting standards, the classification of liabilities are based on circumstances present at the balance sheet date. Consequently, the issued Bonds are classified as current liabilities until the Effective Date of the Written Resolution (and are classified as current liabilities in the consolidated and company statement of financial position as at 31 December ), refer to note Q3 and Q4 Compliance Report As of the Effective Date of the Written Resolution the Compliance Certificate in respect of the reporting period ending 30 September shall be conclusive evidence that the Financial Covenants) of the Bond Terms were met at all times during that period. Financial Covenants are disapplied for the Q4 and Q1 to Q periods, therefore there is no reference in these financial statements to the Q4 Compliance Report. Other relevant terms The following other terms are considered to be relevant for the understanding of the liquidity risk of the Group (as included in the Bond Terms and in the Written Resolution amendments to the Bond Terms): The Maturity Date of the Bonds shall be 7 September 2020; VIEO s obligation to procure that the Cash Injection occurs cease and the Buy-Back offer will be offered exclusively if VIEO has received the Cash Injection; The Tranche 2, the Tranche 3 and the Additional Margin Amount and October Crystallized Interest obligations cease; Adjusted timelines for financial reporting. Contractual maturities of financial liabilities The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: After the reporting date, actions have been taken to achieve a waiver from the bondholders so to ensure that bonds are not early demanded, refer to note for more details on the events after the balance sheet date. Capital management The Group considers as capital its equity instruments (including the subordinated liabilities). The Group s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital. Page 65

67 In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt, taking into account the pledges on the Company s shares, refer to note for further details. Fair values The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities Level 2: other techniques for which inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. The bonds are listed at the Norwegian stock exchange and are actively traded and therefore classified as level 1. The Group s derivatives comprise foreign exchange forward contracts which have been marked to market at year end. The marked-to-market value has been determined by the Group s financial institutions and has been used to determine its carrying value. Accordingly, the fair value is equal to the carrying value. The Group s foreign exchange forward contracts are level 2. The Group s embedded derivative (zero floor) is a level 3 financial instrument. The fair value of the zero floor was determined by using the Bloomberg option pricing model. The unobservable input includes the volatility of the 3-month Euribor rate, forward rates in line with the curve and the EONIA curve for discounting (market practice). Refer to paragraph interest rate risk for the sensitivity of the embedded derivative. The Group s investment (Etihad) is a level 3 financial instrument. The fair value of the investments was determined by using a discounted cash flow model. Significant unobservable inputs as at 31 December include the Weighted Average Cost of Capital ( WACC of 11.8%) and terminal growth rate (2.0%). The growth rate and the WACC are not interrelated. A reasonably possible change in the growth rate of +/- 1.0% would result in: An increase in carrying value of 320 thousand (+1.0%) A decrease in the carrying value of 260 thousand (-1.0%) A reasonably possible change in the WACC of +/- 1.0% would result in: A decrease in carrying value of 219 thousand (+1.0% An increase in the carrying value of 268 thousand (-1.0%) The other financial assets comprise of deposits with mobile network operators. As the mobile network operators are obliged to repay the full amount of deposit, it is reasonable to assume that the fair values of such deposits approximate their carrying values. The other liabilities relate to deferred and contingent consideration and are classified as Level 3, valued using discounting cash flow model. It is reasonable to assume that their fair values approximate their respective carrying values. Page 66

68 Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables approximates their fair value. The table below summarises the carrying and fair values of the VIEO s financial instruments: Financial assets Carrying amount Fair value Financial assets 5,112 5,112 Trade, related party and other receivables 74,504 74,504 Cash at bank 31,130 31, , ,746 Financial liabilities Carrying amount Fair value Bonds, including the embedded derivative (zero floor) 339, ,250 Finance lease liabilities 1,183 1,183 Derivatives - Foreign exchange contracts 1,134 1,134 Trade and other payables 108, , , ,423 Based on quoted price (level 1), the fair value of the bonds (including the embedded floor) on the reporting date was million, however, due to the breach of covenant (refer to notes and for more details), the bonds became payable on demand and therefore in accordance with IFRS their fair value (including the embedded floor) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid. This amount is determined to be million, calculated by discounting the redemption value and accrued interest over a period of 60 days from the reporting date Events after the balance sheet date Bond terms and agreed amendments The Company amended the terms of the 350 million Senior Secured Callable Bond Issue /2022 (ISIN NO ) (hereinafter stated as Bond Terms ) by the Written Resolution (hereinafter stated as Written Resolution ), approved on 12 December 2018 (hereinafter stated as Effective Date ) which supersedes the first amendment of the Bond Terms dated 6 July 2018 between the Issuer and the Bond Trustee on behalf of the Bondholders (hereinafter stated as First Amendment ) and the terms of the written resolution and the proposal set out in the notice of written resolution dated 27 July 2018 (hereinafter stated as July Written Resolution ) which was adopted by the requisite majority on 1 August In the Written Resolution amendments to the Bond Terms it has been agreed, amongst others, that: The Maturity Date of the Bonds shall be 7 September 2020; The Leverage ratio Financial Covenants is disapplied for the Q4 and Q1 to Q periods; The Liquidity Financial Covenant is disapplied; Page 67

69 VIEO s obligation to procure that the Cash Injection occurs cease and the Buy-Back offer will be offered exclusively if VIEO has received the Cash Injection; The Tranche 2, the Tranche 3 and the Additional Margin Amount and October Crystallized Interest obligations cease; Amendments of several definitions and clarification of terms and measures included in the Bond Terms; and Adjusted timelines for financial reporting. As of the Effective Date of the Written Resolution the Group undertakes to comply with the Financial Covenants at all times (with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied), such compliance to be measured on each Quarter Date and certified by the Issuer by the delivery of a Compliance Certificate, with the delivery of each Annual Financial Statements or Interim Accounts. Leverage Ratio Covenant According to the Bond Terms the Group shall ensure that the Group maintains a maximum leverage ratio (hereinafter stated as Leverage Ratio ) of 5.50x up to and including 31 December. The Leverage Ratio means the ratio of Net Interest-Bearing Debt to EBITDA as per definition within the Bond Terms amended by the Written Resolution. As of the Effective Date of the Written Resolution the Group undertakes to comply with the Leverage ratio at all times with the exception of Q4 and Q1 to Q3 2018, during which Financial Covenants shall be disapplied. Liquidity Covenant According to the Bond Terms the Group shall ensure that the Group maintains minimum Liquidity (hereinafter stated as Liquidity ) of not less than 15 million. As per the Bond Terms, Liquidity means the sum of (i) the aggregate book value of the Group s Cash and Cash Equivalents; and (ii) undrawn committed revolving credit lines available to the Group (but excluding committed revolving credit lines with less than six (6) months to maturity). As of the Effective Date of the Written Resolution the Liquidity covenants is disapplied. Q3 and Q4 Compliance Report As of the Effective Date of the Written Resolution the Compliance Certificate in respect of the reporting period ending 30 September shall be conclusive evidence that the Financial Covenants) of the Bond Terms were met at all times during that period. Financial Covenants are disapplied for the Q4 and Q1 to Q periods, therefore there is no reference in these financial statements to the Q4 Compliance Report. Event of default of bond terms The event of default of bond terms non related to non-payments but other non-compliance with provisions of the Bond Terms occurred and continued since the issue of the Bonds till the Effective Date of the Written Resolution. According to the Bond Terms the Bond Trustee may, in its discretion, in order to protect the interests of the Bondholders, or upon instruction received from the Bondholders declare that the Outstanding Bonds, together with accrued interest and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, at which time they shall become immediately due and payable. Accordingly the Bonds are reclassified from non-current liabilities to current liabilities in the consolidated and company statement of financial position as at 31 December. Page 68

70 Waiver and classification of Bonds as current liabilities As of the Effective Date of the Written Resolution, any breach of the Financial Covenants in respect of the reporting period ended 31 December shall be permanently waived and Financial Covenants shall be disapplied for the Q4 and Q1 to Q periods. These events occurred subsequent to the balance sheet date. The date of the approval of the Written Resolution is 12 December 2018, and therefore it is an event subsequent to the balance sheet date and in accordance with the applied accounting standards, the classification of liabilities are based on circumstances present at the balance sheet date. Consequently, the issued Bonds are classified as current liabilities until the Effective Date of the Written Resolution. Non substantial modification of the bond terms The amendments include non-substantial modifications of the bond terms. The estimated cumulative impact of the modifications amounts to a loss of 6.2 million as of the Effective Date of the Written Resolution. Bonds buy back offer The Written Resolution sets a revised deadline for VIEO AG (parent company) to make a capital injection of 15 million into the Company for the purposes of effecting a bond buy-back. VIEO AG s obligation to make this capital injection have been secured in favour of the bond trustee by a second ranking share pledge over the shares in the Company. The Written Resolution contains a revised deadline for receipt by the Company of the capital injection which is 60 Business Days after the annual financial statements are made available. Amendments to the pledge over the Company s shares The Senior Share Pledge (refer to note for further details) has been amended as per 12 December VIEO AG and Palmarium Netherlands B.V. have granted in favour of the bond trustee a right of pledge over its Collateral and any accessory rights and ancillary rights attached to the Collateral ( Parent Share Pledge ). The Parent Share Pledge is subject to the Senior Share Pledge, certain rights of the pledge under the Parent Share Pledge may not, or not immediately, be exercisable due to the priority of the Senior Share Pledge over the Parent Share Pledge. Third party remittance service provider On 1 April 2018, the Group appointed a third-party remittance service provider as its exclusive money transfer partner. This partnership provides a broader range of remittance services across all countries in which the Group has operations. This replaces Lebara Money product and marks the final closing down of Lebara Digital business. Sale of the Lebara Play business On 7 May 2018, the Company agreed with the previous shareholder of the Lebara Group the final settlement of the sale of the play business, amounting to 2.8 million. Sale of the Lebara Spain business On 20 November 2018, the Company sold certain assets that make up its Spanish business to MASMOVIL, one of the largest telecommunications operators in Spain, for 53 million. Page 69

71 Other Besides the previous events, there has been no other subsequent events between 31 December and the date of approval of the financial statements Scope of consolidation This Section sets out details of the Group structure of VIEO as well as note disclosures concerning subsidiary companies, associated companies and joint venture if applicable. Group structure VIEO B.V. is the parent company of the Group and holds principally direct majority shareholdings in Lebara Group B.V. (NL), Yokara Trademarks Sarl (LU) and Yokara Global Trademarks Sarl (LU). Group companies Name of subsidiary Country of origination % of Group ownership Lebara Aps Denmark 100% Lebara B.V. Netherlands 100% Lebara Group B.V. Netherlands 100% Lebara Digital Factory B.V. Netherlands 100% Lebara Digital Group B.V. Netherlands 100% Lebara Finance 1 B.V. Netherlands 100% Lebara Finance 2 B.V. Netherlands 100% Lebara France Limited United Kingdom 100% Lebara Germany Limited United Kingdom 100% Lebara Limited United Kingdom 100% Lebara Limited Sucursal en Espana Spain 100% Lebara Media Canada Limited Canada 100% Lebara Media Hong Kong Limited Hong Kong 100% Lebara Madia Malaysia Sdn Bhd Malaysia 100% Lebara Media Services Limited United Kingdom 100% Lebara Media Singapore Pte Limited Singapore 100% Lebara Mobile Group B.V. Netherlands 100% Page 70

72 Name of subsidiary Country of origination % of Group ownership Lebara Mobile Limited United Kingdom 100% Lebara Mobile Private Limited India 100% Lebara Money Limited United Kingdom 100% Lebara Nigeria Limited Nigeria 100% Lebara Services Centre Limited United Kingdom 100% Lebara Services Limited Gibraltar 100% Lebara USA Limited United Kingdom 100% Mind Sky Design Labs Private Limited India 80% Sun TV Network Europe Limited United Kingdom 95% Yokara Trademarks S.a.r.l. Luxembourg 100% Yokara Global Trademarks S.a.r.l. Luxembourg 100% Zap traval Inc. Cayman Islands 100% Page 71

73 3 Company Financial Statements 3.1 Company Statement of Profit or Loss and Other Comprehensive Income for the period ended 31 December The notes on pages 77 to 85 are an integral part of these Company financial statements. The Company Statement of Profit or Loss and Other Comprehensive Income covers a period less than one year, from August 21, till December 31, Page 72

74 3.2 Company statement of Financial Position as at 31 December The notes on pages 77 to 85 are an integral part of these Company financial statements. Page 73

75 3.3 Company Statement of Cash Flows for the period ended 31 December The notes on pages 77 to 85 are an integral part of these Company financial statements. The Company Statement of Cash Flows covers a period less than one year, from August 21, till December 31,. Page 74

76 3.4 Company Statement of Changes of Equity for the period ended 31 December The notes on pages 77 to 85 are an integral part of these Company financial statements. The Company Statement of Changes of Equity covers a period less than one year, from August 21, till December 31,. Page 75

77 3.5 Notes to the Company Financial Statements About this Report Comparison to prior year As VIEO has been incorporated in, no comparison with prior years will be available within this report Basis of preparation The Company financial statements have been prepared in accordance with both International Financial Reporting Standards ( IFRS ) as endorsed by the European Union, and the statutory provisions of article of Part 9, Book 2 of the Netherlands Civil Code. The financial statements for the year ended December 31, of VIEO were approved for issue by the board of directors on 21 December, For additional information on items not explained in the notes to the Company financial statements (including accounting policies), reference is made to the notes to the consolidated financial statements, including the disclosures relating to going concern in note The Company financial statements are presented in Euros, which is the company s functional and presentational currency. All values are rounded to the nearest thousand Euros () except where otherwise stated Summary of significant accounting policies The accounting policies used are the same as those explained in the notes to the consolidated financial statements prepared under International Financial Reporting Standards as endorsed by the European Union, except for the following: Investments in subsidiaries Investments in subsidiaries are stated at cost less accumulated impairment losses. The Company assesses at each reporting date whether there is an indication that its investments may be impaired. If any such indication exists, the Company makes an estimate of the investment s recoverable amount in order to determine the extent of the impairment loss. As investment s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the statement of profit or loss. Dividends received from subsidiaries are recognised in the statement of profit or loss if the Company is entitled to them and it is probable that the dividends will be received Changes in accounting principles Per 1 January 2018 IFRS 9 Financial Instruments and IFRS 15 revenue from contract with customers will come in place, it is expected that this changes will not have significant impact for the Company financial statements, as the Company does not have revenue. Page 76

78 3.5.4 Other income Refer to note in the Consolidated Financial Statements for further information General & administrative expenses General and administrative expenses '000 Management fees 800 Costs related to the acquisition of subsidiaries 1,226 Consulting and advisory fees 1,889 Costs regarding the services provided for the Play Business 1,421 Audit fee 675 Other 126 6,137 The disclosure note regarding split of auditors fees is included in the notes to the consolidated statement of profit or loss. Workforce The average number of full-time employees employed by the Company was nil. Remuneration of the Board of Directors VIEO does not employee any personnel in including key management and/or board of directors. Management fee for a total amount of 0.8 million was paid to VIEO AG ( 0.6 million) and Palmarium Advisors AG ( 0.2 million) for the provision of key management personnel services Finance costs and finance income '000 Interest charges on bond 8,481 Other interest charges 41 Finance costs 8,522 Change fair value embedded derivative (zero floor) 2,089 Finance Income 2, Income tax VIEO B.V., Lebara Group B.V., Lebara B.V., Lebara Digital Factory B.V., Lebara Mobile Group B.V., Lebara Digital Group B.V., Lebara Finance 1 B.V. and Lebara Finance 2 B.V. are part of a fiscal unity for corporate income tax purposes per 1 October, of which VIEO B.V. is the head. Based on the Tax Collection Act, VIEO B.V. and its Dutch subsidiaries are jointly and severally liable for the taxes payable of the group. Page 77

79 A reconciliation of the weighted average income tax rate to the effective income tax rate is as follows (all amounts in thousands of Euro): in % Profit / (loss) before tax (11,149) Tax (expense)/ benefit at statutory rate (25%) 25% 2,787 Tax effects of Non-deductible expenses -10.6% (1,183) Tax exempt income - - (de)recognition of previously (un)recognised DTA s for losses and temporary differences - - Current year losses/ temporary differences for which no DTA s are recognized -14.4% (1,604) Other income taxes - - Income tax (expense) / benefit 0.0% - Refer to note for further details on results on the consolidated group. The fiscal unity has 14.3 million of tax losses carried forward to be offset with future profits of the fiscal unity Investments in subsidiaries The Company has the following investments in the subsidiaries: Name of subsidiary Country of Incorporation % ownership '000 Lebara Group B.V Netherlands 100% 368,432 Yokara Trademark S.a.r.l & Yokara Global Trademark S.a.r.L Luxembourg 100% 85, ,732 The subsidiaries were acquired on 14 September Trade and other receivables '000 Other debtors 1,448 Prepaid expenses 875 Receivables from shareholders 5 2,328 The other debtors consist mainly of the fee regarding to services provided to the Lebara Play business, refer to note in the Consolidated Financial Statements for further information. Page 78

80 Cash and cash equivalents '000 Escrow 76 Cash at bank 2,126 Balance as at 31 December 2,202 Cash at bank bears interest at floating rates based on daily bank deposit rates. The remaining maturity of the Escrow account is less than 3 months. The cash at bank is free at the disposal of the Company. The carrying value of cash and cash equivalents approximates its fair value Shareholders Equity Refer to note of the consolidated financial statements for details regarding the capital and reserves. The share capital, retained earnings and undistributed result according to the Company financial statements are not identical to the corresponding figures in the consolidated financial statements. The reconciliation between the two is as follows: Proposed allocation of the result for the period It is proposed that the Company s undistributed loss of 11.1 million will be deducted from retained earnings Bonds Refer to note of the consolidated financial statements for further details of the Bonds Other liabilities (non-current) Refer to note of the consolidated financial statements for further details of the other liabilities (non-current). Page 79

81 Trade and other payables Trade payables 169 Accruals 2,396 Related party payable 10,676 13,241 The related party payable is to Lebara Group B.V., Lebara Limited, Lebara Media Services Limited, Lebara Germany Limited, Lebara France Limited, and Lebara Finance 2 B.V Other liabilities (current) Refer to note of the consolidated financial statements for further details of the other liabilities (current) Derivatives Refer to note of the consolidated financial statements for further details of the embedded derivative (zero floor) Commitments and contingencies Refer to note of the consolidated financial statements for further details of commitments and contingencies Financial risk management objectives and policies The Company s financial assets comprise other receivables and cash, and the financial liabilities comprise Bonds and other payables. The Board of Directors has overall responsibility for the determination of the risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Lebara Group B.V.'s finance function. The Board of directors receive period reports from the Group Financial Function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. Market risk As discussed in note of the consolidated financial statements, market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risks: interest rate risk, currency risk, commodity price risk and other price risk (such as equity price risk). The only significant market risk to which the Company is exposed is interest rate risk. The Company s exposure to the risk of changes in market interest rates is primarily limited to its bond, on which interest is paid. As a result of this exposure to interest rate changes, any reasonable possible change in interest rates would have impact on the Company s profit before tax. Page 80

82 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is solely exposed to credit risk from its other debtors and cash balances. The Company evaluates the concentration of risk and the risk of default with respect to cash deposits as low as such cash deposits are made with a more than one reputable financial institution. Liquidity risks Refer to note of the consolidated financial statements for further details on liquidity risks and the contractual maturities of financial liabilities. Foreign exchange risk The Company is exposed to foreign exchange risk to the extent of its non-euro bank balances. The Company s exposure to foreign exchange risk is not considered significant. Fair values The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities Level 2: other techniques for which inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on an observable market data For the most assets and liabilities the carry value is approximately the same as the fair value except for the Bonds. The Fair value of the Bonds, including the embedded derivative, is million and the carrying value is million. The Fair Value of the Bonds, including the embedded derivative, is classified as level 1. The Company s bifurcated embedded derivative (zero floor) is a level 3 financial instrument. Refer to note of the consolidated statements for the techniques used Related parties A full description of related parties of the Company are disclosed in Note of the consolidated financial statements. Related party transactions The following related party transactions took place during the period. Palmarium Netherlands B.V. Incorporation of VIEO B.V. 5 5 Palmarium Advisors AG Costs related to the issue of the bonds (3,594) Costs related to the acquisition of subsidiaries (961) (4,555) VIEO AG (formerly: Palmarium Finance AG) Issuance of subordinated loan 4,555 4,555 Page 81

83 Lebara Group B.V. Draw on current account (1,968) Interest (4) (1,972) Lebara Limited Draw on current account (233) Interest - (233) Lebara Finance 2 B.V. Draw on current account (7,000) Interest (12) (7,012) Lebara Media Services Limited Costs regarding the services provided for the Play Business (1,421) (1,421) Lebara Germany Limited Draw on current account (19) (19) Lebara France Limited Draw on current account (19) (19) Group companies current accounts The payable of the costs related to the issuance of the bonds and costs related to the acquisition of subsidiaries were converted into a subordinated loan by VIEO AG (non-cash movement). The interest of the liabilities to Lebara Group B.V., and Lebara Finance 2 B.V. amount approximates 3% per annum. Page 82

84 Events after the balance sheet date Refer to note of the consolidated financial statements. Date: 21 December, 2018 On behalf of the Board of Directors of VIEO B.V. Raphael Auerbach Chairman of the Board of Directors VIEO B.V. Suzanei Archer Member of the Board of Directors VIEO B.V. Alexander Zito Member of the Board of Directors VIEO B.V. Patrick Wild Member of the Board of Directors VIEO B.V. Page 83

85 VIEO B.V. Other information For the year ended 31 December 4 Other Information 4.1 Articles of Profit Appropriation Based on the articles of association of VIEO B.V. (article 22.1), the amount of profits shall be at the unrestricted disposal of the general meeting, to be used for distribution of dividends, to be carried to reserves or to be used for such other ends fitting the Company's objects as that meeting may resolve. 4.2 Report from the Auditor Independent auditor s report To: the General Meeting of Shareholders of VIEO B.V. Report on the audit of the financial statements included in the annual report Our opinion In our opinion the accompanying financial statements give a true and fair view of the financial position of VIEO B.V. as at 31 December and of its results and its cash flows for the first financial year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code. What we have audited We have audited the financial statements of VIEO B.V. (the Company) based in Amsterdam. The financial statements comprise: 1 the consolidated and company statement of financial position as at 31 December ; 2 the following consolidated and company statements for its first financial year ending 31 December : the statement of profit or loss and other comprehensive income, the statements of cash flows and changes in equity; and 3 the notes comprising a summary of the significant accounting policies and other explanatory information. Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the financial statements section of our report. We are independent of VIEO B.V. in accordance with the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Page 84

86 VIEO B.V. Other information For the year ended 31 December Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics). We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to the going concern paragraph in the notes of the financial statements which indicates that the going concern of the Company depends on the ability of VIEO B.V. to achieve certain financial targets and refinance its bonds liability. The events and conditions as disclosed in the aforementioned going concern paragraph indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter. Audit approach Summary MATERIALITY - Materiality of EUR million % of revenue GROUP AUDIT - 92% of total assets - 97% of revenue KEY AUDIT MATTERS - Acquisition of Lebara - Valuation of goodwill - Revenue recognition - VAT claims - Financial reporting UNQUALIFIED OPINION - Material uncertainty related to going concern Page 85

87 VIEO B.V. Other information For the year ended 31 December Materiality Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR million. The materiality is determined with reference to revenue (0.96%). We consider revenue as the most appropriate benchmark because the result before taxation is a loss and the main stakeholders are in addition to the result before taxation mainly focused on revenue. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons. We agreed with the Board of Directors that misstatements in excess of EUR 63,750 which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. Scope of the group audit VIEO B.V. is at the head of a group of components. The financial information of this group is included in the financial statements of VIEO B.V. Our group audit mainly focused on significant components that are (i) of individual financial significance to the group, or (ii) that, due to their specific nature or circumstances, are likely to include significant risks of material misstatement of the group financial statements. We have: Performed audit procedures ourselves at group components VIEO B.V., Yokara Global Trademarks S.à.r.l. and Yokara Trademarks S.à.r.l. Made use of the work of a local KPMG auditor in the United Kingdom, for other group entities. We sent detailed instructions to the component auditor, covering significant areas including the relevant risks of material misstatement and set out the information required to be reported to the group audit team. For the components in scope of the group audit, we held conference calls and physical meetings with the auditor of the components. We visited component locations in London, the United Kingdom, and we performed reviews of the audit file of the component auditor. During these meetings and calls, the planning, risk assessment, procedures performed, findings and observations reported to the group auditor were discussed in more detail and any further work deemed necessary by the group audit team was then performed. For the remaining components, performed analytical procedures at the aggregated group level in order to corroborate our assessment that there are no risks of material misstatements within these remaining group entities. By performing the procedures mentioned above at group components, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group s financial information to provide an opinion about the financial statements. Page 86

88 VIEO B.V. Other information For the year ended 31 December The audit coverage as stated in the section summary can be further specified as follows: Total assets 90% 2% Audit of the complete reporting package Audit of specific items Revenue 76% 21% Audit of the complete reporting package Audit of specific items Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Board of Directors of VIEO B.V. The key audit matters are not a comprehensive reflection of all matters discussed. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Acquisition of Lebara Description The acquisition of Lebara was significant to our audit due to its significance and complexity of, and the key assumptions involved in, the purchase price allocation for Lebara. Pursuant to the purchase price allocation being carried out, management recognised the acquired net assets and the goodwill amounting to EUR million and EUR million, respectively. Our response With respect to the accounting for the Lebara acquisition, we have, amongst others: read the share purchase agreement and verified if the appropriate purchase price accounting has been applied in accordance with IFRS 3; encountered difficulties in reconciling the consideration paid to the share purchase agreement and consequently performed additional procedures by inspection of the binding offer letter, inspection of Page 87

89 VIEO B.V. Other information For the year ended 31 December correspondence and requested confirmations from the company and its legal advisors on the interpretation of certain contract clauses; assessed the accounting of the purchase price and traced payments to bank statements; verified the identification and fair value valuation of the assets and liabilities acquired; and assessed the valuation assumptions such as discount and royalty rates by recalculating these, evaluating and challenging the assumptions used by the Board of Directors. In doing so we have also involved KPMG valuation specialists to assist us in the audit of the identification and valuation of the assets and liabilities acquired. We also assessed the adequacy of the Company s disclosures included in note in the financial statements. Our observation For observations related to the internal controls reference is made to our observations included in the section Financial Reporting of this report. Based on the procedures performed, we consider management s key assumptions for the purchase price allocation for Lebara to be within a reasonable range and determined that the Company s disclosure meets the requirements of EU-IFRS. Valuation of goodwill Description The carrying value of Goodwill as at 31 December is EUR million. The Company tested the goodwill, allocated to the identified cash generating units, as at year end. The impairment tests were considered to be significant to our audit due to the complexity of the assessment process, judgements and assumptions which are affected by expected future market and economic developments. Our response We challenged the assumptions included in the goodwill impairment tests by considering the reasonableness of forecasts made by the Board of Directors. Additionally, we critically assessed and tested management s key assumptions and methodologies in accordance with IAS 36. This included, but was not limited to, comparing the weighted average cost of capital and information to external and historical data (such as external market growth expectations) and by analysing sensitivities in the Company s valuation model. We also involved KPMG valuation specialists to assist us in these procedures. We specifically focused on the sensitivity in the available headroom for the cash generating units by evaluating whether a reasonably possible change in assumptions could cause the carrying amount to exceed its recoverable amount. Furthermore, we focused on the impairment loss recognised for the cash generating units The Netherlands and France. We also assessed the adequacy of the Company s disclosures included in note in the financial statements. Our observation For observations related to the internal controls reference is made to our observations included in the section Financial Reporting of this report. Based on the procedures performed, we consider management s key assumptions for the valuation of goodwill to be within a reasonable range and determined that the Company s disclosures meet the requirements of EU-IFRS. Furthermore we noticed that the Board of Directors, based on the goodwill impairment test, concluded that the amount of recorded goodwill related to the cash generating unit The Netherlands is sensitive for changes in management s key assumptions as disclosed in note Page 88

90 VIEO B.V. Other information For the year ended 31 December Revenue recognition Description We identified risks related to the complexity of IT systems and the required manual interventions to determine the amount of revenue to be recorded within the period, and a fraud risk related to the pressure from financial covenants including the realisation of EBITDA targets. Our response To undertake audit procedures over revenues, we involved KPMG IT specialists. The audit approach included testing of internal controls and other audit procedures covering, in particular: testing the IT environment in which charging, rating and other relevant support systems reside; testing IT application controls over rating, charging and reconciliations; performing testing of the end-to-end reconciliation from business support systems to the general ledger, this testing included validating material journals processed between the business support systems and the general ledger; and testing cash receipt for a sample of recorded revenue transactions. We also considered the application of the Company s accounting policies to check that the Company s accounting policies were appropriate in accordance with IAS 18. Our observation For observations related to the internal controls reference is made to our observations included in the section Financial Reporting of this report. The results of our testing were satisfactory and we considered the amount of recorded revenues and the estimate of recognised deferred revenues to be acceptable and recorded in the correct period. VAT claims Description The group operates in numerous countries, each of which have different VAT requirements. A number of VAT claims are raised in the Mobile Virtual Network Operators market, which includes the Group. Impact of such claims might be significant, even if the likelihood of such event is considered to be low. Our response To undertake audit procedures over VAT, we involved a VAT specialist. The audit approach included controls testing and substantive procedures covering, in particular: verifying the risks connected to VAT applied in the different countries; inspecting correspondence with the tax authorities; recalculations to determine the completeness of sales and purchases included in the VAT return; reconciliations with VAT statements; and verifying compliance with the appropriate recognition criteria in accordance with IAS 37. Page 89

91 VIEO B.V. Other information For the year ended 31 December Our observation The results of our testing were satisfactory and we considered the amount of recorded VAT receivables and payables to be acceptable and recorded in the correct period. Financial reporting Description This is the first financial year of the Company and the process of preparing its first annual report was not clearly defined. This was evident in the completion of audit procedures where control deficiencies were identified, particularly in relation to the accounting of the acquisition of Lebara, the valuation of goodwill and the recognition of revenue. Our response Based on the identified control deficiencies we adjusted the audit strategy and audit procedures to increase substantive procedures, in particular: we estimated an increased aggregation risk when determining the performance materiality; we performed additional substantive audit procedures; we extended audit procedures on the acquisition of Lebara, to analyse the relevant accounting consequences of the Sale and Purchase Agreement; we performed additional audit procedures to review management s assumptions and estimates used for the going concern assumption and the valuation of goodwill; we involved specialists to verify accuracy and completeness of data used by management for revenue recognition; and we also considered the possible impact on estimates and disclosure notes. Our observation The findings connected to the internal controls over financial reporting resulted in audit misstatements to various elements of the financial statements. Report on the other information included in the annual report In addition to the financial statements and our auditor s report thereon, the annual report contains other information that consists of: the Directors Report; the Other Information pursuant to Part 9 of Book 2 of the Dutch Civil Code; and Other, including Abbreviations, Publishing Details, Investor Relations and Forward-Looking Statements. Based on the following procedures performed, we conclude that the other information: is consistent with the financial statements and does not contain material misstatements; and contains the information as required by Part 9 of Book 2 of the Dutch Civil Code. Page 90

92 VIEO B.V. Other information For the year ended 31 December We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements. The Board of Directors of the Company is responsible for the preparation of the other information, including the Directors Report in accordance with Part 9 of Book 2 of the Dutch Civil Code and the other information pursuant to Part 9 of Book 2 of the Dutch Civil Code. Report on other legal and regulatory requirements Engagement We were engaged by the Board of Directors as auditor of VIEO B.V. on 13 September, as of the audit for the year, the Company s first financial year. Description of responsibilities regarding the financial statements Responsibilities of the Board of Directors for the financial statements The Board of Directors is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Board of Directors is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. As part of the preparation of the financial statements, the Board of Directors is responsible for assessing the company s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Board of Directors should prepare the financial statements using the going concern basis of accounting unless the Board of Directors either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Board of Directors should disclose events and circumstances that may cast significant doubt on the company s ability to continue as a going concern in the financial statements. Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit. Page 91

93 VIEO B.V. Other information For the year ended 31 December Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. A further description of our responsibilities for the audit of the financial statements is included in the appendix of this auditor's report. This description forms part of our auditor s report. Amstelveen, 21 December 2018 KPMG Accountants N.V. J.G. Kamphuis RA Appendix: Description of our responsibilities for the audit of the financial statements Appendix We have exercised professional judgement and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included among others: identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; obtaining an understanding of internal control relevant to the audit 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 Company s internal control; evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; concluding on the appropriateness of the Board of Director s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause a company to cease to continue as a going concern; evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Page 92

94 VIEO B.V. Other information For the year ended 31 December Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group components. Decisive were the size and/or the risk profile of the group components or operations. On this basis, we selected group components for which an audit or review had to be carried out on the complete set of financial information or specific items. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. We provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. Page 93

95 VIEO B.V. Other information For the year ended 31 December 5 Other 5.1 Abbreviations Corporate Terms Lebara Group B.V. Lebara Mobile VIEO Yokara refers to the company Lebara Group B.V. (NL) and is comprised of Lebara Mobile Group B.V. (NL), Lebara Service Centre Ltd (UK) and Lebara Digital Group B.V. (NL). refers to the company Lebara Mobile Group B.V. (NL). refers to the company VIEO B.V. (NL) and is comprised of Lebara Group B.V. (NL), Yokara Trademarks Sarl (LU) and Yokara Global Trademarks Sarl (LU). refers to the two companies Yokara Trademarks Sarl (LU) and Yokara Global Trademarks Sarl (LU). Telecommunication Terms ACPU ARPU AUPU CLV or CLTV Convergence GA is the abbreviation for the Average Costs Per User expressed per month if not specified otherwise. is the abbreviation for the Average Revenue Per User expressed per month if not specified otherwise. Is the abbreviation for the Average Usage Per User expressed per month if not specified otherwise. is the abbreviation for the Customer Lifetime Value and is a prediction of the net profit attributed to the entire future relationship with a customer. is generally understood in the telecommunications sector to mean the interplay of mobile and fixed-line technologies or products that comprise both mobile and fixed-line services. is the abbreviation for Gross Adds and is the total number of new subscribers added in a certain period and is a common KPI within the Telecommunication industry. Gross adds aren t adjusted to include the number of customers that cancelled service. IMR refers to the Telecommunications Industry Standard ICT is the abbreviation for Information and Communication Technology and refers to technologies that provide access to information through telecommunications. ICT is similar to Information Technology (IT), but focuses primarily on communication technologies, including the Internet, wireless networks, cell phones and other communication mediums. Interconnection means linking up the systems and services of two telecoms providers so as to enable the logical interaction of the connected telecoms components and services and to provide access to third-party services. Interconnection allows the customer of one telecoms provider to communicate with the subscribers of another provider. Under the terms of the Federal Telecommunications Act, market-dominant telecoms providers are required to allow their competitors interconnection at cost-based prices (LRIC, see below). Page 94

96 VIEO B.V. Other information For the year ended 31 December IoT LCR MNO MTR MVNA MVNE MVNO NPS OTT PAYG RLAH Roaming SIM TMT SAC Subs VAS is the abbreviation for Internet of Things and refers the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data. is the abbreviation for Least Cost Routing and refers to the process of selecting the path of outbound communications traffic based on cost. is the abbreviation for Mobile Network Operator and refers to a telecommunications service provider organization that provides wireless voice and data communication for its subscribed mobile users. is the abbreviation for Mobile Termination Rate and refers to the charges which one telecommunications operator charges to another for terminating calls on its network. is the abbreviation for Mobile Virtual Network Aggregator is the abbreviation for Mobile Virtual Network Enabler and refers to a company that provides network infrastructure and related services, such as business support systems, administration and operations support systems to a MVNO. is the abbreviation for Mobile Virtual Network Operator and denotes a business model for mobile communications. is the abbreviation for Net Promoter Score and is a key figure that gives an indication of customer satisfaction directly and willingness to recommend the service to other customers indirectly. is the abbreviation for Over the Top and refers to content distributed by service providers over an existing network infrastructure that they do not themselves operate. is the abbreviation for Pay As You Go and refers to a system of meeting costs as they arise or paying for a service before it is used. is the abbreviation for Roam-Like-At-Home and refers to the EU RLAH rules. enables mobile network subscribers to use their mobile phones when travelling abroad. is the abbreviation for Subscriber Identity Module and refers to a smart card inside a mobile phone, carrying an identification number unique to the owner, storing personal data, and preventing operation if removed. is the abbreviation for Telecommunication, Multimedia and Telecommunication and refers to the way in which these areas grow together in the course of digitisation. is the abbreviation for Sales Acquisition Costs and refers to cost to operator of net subscriber addition, typically including the cost of sales and marketing, and handset subsidies, if applicable. is the abbreviation for Subscribers and refers a person who has arranged to receive or access a service. is the abbreviation for Value-Added services and refers to a popular telecommunications industry term for non-core services. Page 95

97 VIEO B.V. Other information For the year ended 31 December Technical Terms 2G 3G 4G or LTE 5G Bandwidth Cloud Connectivity EDGE GB GPRS GSM HLR HSPA IP ISP LAN Petabyte is the second generation of mobile technology. is the third generation of mobile technology. refers to the abbreviation for Long Term Evolution. 4G/LTE is the fourth generation of mobile technology. At present, LTE enables mobile broadband data speeds of up to 150 Mbps. 5G is the fifth generation of mobile network technology. refers to the transmission capacity of a medium, also known as the data transmission rate. is an approach in which IT infrastructure such as computing capacity, data storage, and finished software and platforms can be accessed dynamically and according to need via the Internet. is a generic term used to denote IP services or the connection to the Internet. is the abbreviation for Enhanced Data Rates for GSM Evolution and is part of 2G and is a radio modulation technology used to enhance data transmission speeds in GSM mobile networks. is the abbreviation for Gigabyte and is a unit of information equal to one thousand million (10 9 ). is the abbreviation for General Packet Radio Service. GPRS is part of 2G and increases the transfer rates of GSM mobile networks. GPRS enables speeds of 30 to 40 kbps. is the abbreviation for Global System for Mobile communications network. GSM is a global digital mobile communication standard of the second mobile generation. In addition to voice and data transmission, it enables services such as SMS messages and phone calls to other countries and from abroad. is the abbreviation for Home location register and is a database from a Operator in which information from all mobile subscribers is stored. The HLR contains information about the subscribers identity, telephone number, the associated services and general information about the location of the subscriber. The exact location of the subscriber is kept in a VLR. is the abbreviation for High Speed Packet Access. HSPA is an enhancement of 3G. Compared to UMTS, HSPA enables large volumes of data to be transmitted at faster speeds. is the abbreviation for Internet Protocol. IP enables different types of services to be integrated on a single network. is the abbreviation for Internet Service Provider. An ISP is a provider of Internet-based services. Services include Internet connection, hosting and content provision. is the abbreviation for Local Area Network. A LAN is a local network for interconnecting computers. Unit of measurement for data size. 1 petabyte is equivalent to approximately terabytes or gigabytes. Page 96

98 VIEO B.V. Other information For the year ended 31 December PSTN PWLAN Router Streaming Terabyte UMTS VLR VoIP VoLTE WiFi Calling WLAN is the abbreviation for Public Switched Telephony Network and refers to the aggregate of the world's circuit-switched telephone networks that are operated by telephony operators. is the abbreviation for Public Wireless Local Area Network. PWLAN denotes a wireless, local public network based on the IEEE WiFi standard. is a device for connecting or separating several computer networks. Refers tp the transmission of audio and video signals via a network or the Internet without the need to store the data on the local device. Unit of measurement of data size. One terabyte is equivalent to approximately gigabytes. is the abbreviation for Universal Mobile Telecommunications System. UMTS is an international third-generation mobile communications standard that combines mobile multimedia and voice services. is the abbreviation for Visitor Location Register and contains the exact location of all mobile subscribers currently present in the service area. is the abbreviation for Voice over Internet Protocol. VoIP is used to set up telephone connections via the Internet. is the abbreviation for Voice over LTE and enables phone calls to be made via the LTE data network. enables users to make calls via mobile phones and the WLAN/WiFi network. is the abbreviation for Wireless Local Area Network A WLAN connects several computers with no cable to a central information system, printer or scanner. Other Terms AU CAGR CEO CFO CH CMO COO CTO DE DK EBIT EBITDA EOP EU is the ISO alpha-2 country code for Australia. means compound annual growth rate and is the mean annual growth rate of an investment over a specified period of time longer than one year. means Chief Executive Officer. means Chief Financial Officer. is the ISO alpha-2 country code for Switzerland. means Chief Marketing Officer. means Chief Operating Officer. means Chief Technology Officer. is the ISO alpha-2 country code for Germany. is the ISO alpha-2 country code for Denmark. means Earnings Before Interest and Tax and is an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. means Earnings Before Interest, Taxes, Depreciation and Amortization and is an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. is the abbreviation for the End of Period. is the abbreviation for the European Union. Page 97

99 VIEO B.V. Other information For the year ended 31 December Is the currency code used in the general industry to represent the euro, the official currency for more than half of the 27 members of the European Union. FR FTE GB or UK IFRS LU NL PoS PPA UN US USD USP VAT is the ISO alpha-2 country code for France means Full-Time Equivalent and is the unit to denote the number of full-time equivalent positions. is the ISO alpha-2 country code for the United Kingdom of Great Britain and Northern Ireland. is an abbreviation for International Financial Reporting Standards is the ISO alpha-2 country code for Luxembourg is the ISO alpha-2 country code for the Netherlands. is an abbreviation for point of sale and is the place in a shop where a product is passed from the seller to the customer. Is an abbreviation for Purchase Price Allocation is an abbreviation for United Nations. is the ISO alpha-2 country code for the United States of America. is the abbreviation for the U.S. dollar in the world of currency trading. is an abbreviation for Unique Selling Point. The USP of a product or service is a particular feature of it which can be used in advertising to show how it is different from, and better than, other similar products or services. is the abbreviation for value-added tax and is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at the PoS. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed. Page 98

100 VIEO B.V. Other information For the year ended 31 December 5.2 Publishing Details Publishing and Production This report has been published and produced by VIEO, Amsterdam. Language This report is available in English. Availability of the Report This annual report and compliance certificate together make up VIEO s reporting on. These publications are available online: at Investor Relations From early 2018, the Investor Relations will be managed by Lars Erik Hogh that can be reached at this following address: leh@vieo.net. 5.4 Forward-Looking Statements This Annual Report contains forward-looking statements. In this Annual Report, such forwardlooking statements include, without limitation, statements relating to our financial condition, results of operations and business and certain of our strategic plans and objectives. Because these forward-looking statements are subject to risks and uncertainties, actual future results may differ materially from those expressed in or implied by the statements. Many of these risks and uncertainties relate to factors which are beyond VIEO s ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors detailed in VIEO s past and future filings and reports, and in past and future filings, press releases, reports and other information posted on VIEO s websites. Readers are cautioned not to put undue reliance on forward-looking statements, which speak only of the date of this communication. VIEO disclaims any intention or obligation to update and revise any forward-looking statements, whether as a result of new information, future events or otherwise. Page 99

101 Page 1