Telekom Annual Report 2014-ENG.Indd

Annual report for 2014 of the Telekom Slovenije Group and Telekom Slovenije, d. d.

Stories that are worth creating.

http://annualreport2014.telekom.si Publisher: Telekom Slovenije, d. d., Cigaletova 15, 1000 Ljubljana Text and editing: Telekom Slovenije Group and Studio Kernel d.o.o. Translation: Amidas, KPMG, Ljubljana Creative idea and graphic layout: Pristop, Ljubljana, d. o. o. Photography: Telekom Slovenije, d. d. Official website of Telekom Slovenija: www.telekom.si Online TSG Annual Report: http://porocilo2014.telekom.si/ Ljubljana, April 2015

2 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Annual report for 2014 of the Telekom Slovenije Group and Telekom Slovenije, d. d. integrated with reporting on sustainable development indicators in accordance with the GRI Guidelines

A year has passed that was full of stories that we shared with our users, shareholders, business partners and employees. Together we achieved successes both great and small, led by the desire for constant development, innovation and the provision of high-quality solutions and services in superior networks. As we enter the next chapter in the realisation of our vision, we wish to share with you the stories created in 2014, stories that represent the foundation for the future.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3 Contents

1. the TELEKOM SLOVENIJE GROUP IN 2014 7

1.1. about the Telekom Slovenije Group 7 1.1.1. The Telekom Slovenije Group is the leading communications service provider in Slovenia and one of the most comprehensive communications service providers in the region 7

1.2. highlights of the Telekom Slovenije Group in 2014 8

1.3. Letter from the President of the Management Board 12

1.4. Statement of responsibility of the Management Board 14

1.5. Markets and companies 15

1.6. Changes in the composition of the Group 15

1.7. Commitments and membership in associations 16

1.8. Inclusion and participation of stakeholders 17

1.9. about the annual report 19

1.10. Development strategy and plans 21 1.10.1 Vision, mission and values 21 1.10.2 Achievement of planned objectives by the Telekom Slovenije Group in 2014 22 1.10.3 Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019 23 1.10.4 Key strategic projects 25

1.11. Significant events and achievements in 2014 25

1.12. report of the Supervisory Board 28

1.13. Corporate governance 30 1.13.1 Corporate Governance Policy 30

1.14. Corporate governance statement 40

1.15. Ownership structure and share trading 46

2. BUSINESS REPORT 53

2.1. Financial results of the Telekom Slovenije Group 53

2.2. Financial management and performance 56

2.3. Investments in fixed assets and financial investments 59

2.4. risk management 61

2.5. Business environment and trends in the sector 69 2.5.1 Impact of the macroeconomic environment on operations 69 2.5.2 Trends in the ICT sector and development of ICT markets 71 2.5.3 Regulation of electronic communications 77 2.5.4 Competition protection, and procedures before the courts and inspectorates 78

4 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.6. Sales and marketing 81 2.6.1 Market and market shares in key service segments 81 2.6.2 Management of the brand portfolio 85 2.6.3 Sales and marketing activities 89 2.6.4 Responsibility to users 94 2.6.5 Customer satisfaction 97 2.6.6 Market communication 97 2.6.7 Procurement function, logistics and environmental responsibility 99

2.7. Network, technology and IT 101 2.7.1 Research and development services 101 2.7.2. Convergent core network 102 2.7.3. Fixed access network 104 2.7.4. Development of information technology 106

2.8. Social responsibility 109

2.9. responsibility to employees 111

2.10. environmental responsibility 122

2.11. responsibility for the security of buildings, systems, information and information technologies 133

2.12. Content according to GRI reporting guidelines 134

2.13. Statement of the independent auditor regarding the sustainability report 139

Content of the Accounting Report 140

3. ACCOUNTING REPORT OF TELEKOM SLOVENIJE GROUP AND TELEKOM SLOVENIJE, D. D. FOR THE FINANCIAL YEAR 2014 143

3.1. Introductory notes 143

3.2. accounting Report of Telekom Slovenije Group 144 3.2.1 Financial Statements of Telekom Slovenije Group 144 3.2.2 Notes to the Consolidated Financial Statements 149 3.2.3 Independent Auditor’s Report 210

3.3. accounting Report of Telekom Slovenije, d.d. 211 3.3.1 Financial Statements of Telekom Slovenije, d.d. 211 3.3.2 Notes to the financial statements of Telekom Slovenije, d.d. and summary of significant accounting policies 217 3.3.3 Independent Auditor‘s Report 272

4. APPENDIX 273

4.1. telekom Slovenije Group companies 273

4.2. abbreviations of technical terms 276

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 5 Experiences that are worth making possible. With the most advanced services for business and leisure time, we are blurring the boundaries of time and space. We connect different generations, even though there are decades and thousands of kilometres between them.

6 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1. THE TELEKOM SLOVENIJE GROUP IN 2014

1.1. about the Telekom Slovenije Group

1.1.1. The Telekom Slovenije Group is the leading communications service provider in Slovenia and one of the most comprehensive communications service providers in the region.1

The Telekom Slovenije Group is one of the most comprehensive communications service providers in South- Eastern Europe. In addition to being the national telecommunications operator in Slovenia, it also operates through its subsidiaries in Kosovo, Macedonia, Bosnia and Herzegovina, Croatia, Serbia, Montenegro and Germany.

The Telekom Slovenije Group inspires its users with innovative technologies. It opens up new professional and personal avenues for them, and together cultivates an environment for the development of a community of opportunities.

The activities of the Telekom Slovenije Group comprise: ¬ fixed and mobile communication services, ¬ digital content and services, ¬ multimedia services and digital advertising, ¬ system integration and cloud computing services, ¬ the development and implementation of solutions for managing business content and relations, and tools for managing and monitoring operations, ¬ the construction and maintenance of telecommunication networks, and ¬ the preservation of natural and cultural heritage in the Sečovlje Saltpans Regional Park.

Company: Telekom Slovenije, d. d. Registered office: Ljubljana Address: Cigaletova ulica 15, 1000 Ljubljana Registration number: 5014018000 VAT ID number: SI98511734 Entry in the companies register: 1/24624/00, Ljubljana District Court Number of shares: 6,535,478 Ticker symbol of no-par-value shares: tLSG

Tel.: 00386 1 234 10 00 Fax: 00386 1 231 47 36 Website: http://www.telekom.si Email: [email protected]

The shares of Telekom Slovenije, d. d. are listed on the prime securities market of the Ljubljana Stock Ex- change. See section 1.15 for more information.

Telekom Slovenije Group companies. See section 4.1. for more information.

Contact for investors Information is also available to investors, shareholders and other interested parties at the following e-mail addresses: [email protected], [email protected] and [email protected].

Contact for information regarding the annual report and sustainable development report2 Telekom Slovenije, d. d., Cigaletova ulica 15, 1000 Ljubljana Public Relations [email protected]

1 GRI G4-3, G4-5, G4-9 2 GRI G4-31 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 7 1.2. highlights of the Telekom Slovenije Group in 20143

In 2014 the Telekom Slovenije Group: Pincreased the number of mobile telephony users by 4.8%, the number of fixed 1. broadband connections by 2.1% and the number of TV connections by 6.6%,

generated a total of EUR 756.5 million in net sales revenue (a decrease of 2. 3% relative to 2013), despite the adverse macroeconomic conditions and a decrease in revenues from mobile voice services due to the migration to new, more affordable packages for subscribers,

introduced a number of innovations and improvements to services and 3. networks aimed at increasing the mobility of users,

erected 141 new base stations in Slovenia with the aim of upgrading the 4. broadband mobile network with LTE technology, which covered more than 75% of the population at the end of the year, and

generated EBITDA of EUR 170.1 million 5. or 22.5% of net sales revenue.

The operating results of the Telekom Slovenije Group in 2014 marked of one-off events that had a current effect on the Group’s operating results for 2014 but, for the most part, otherwise represent a solid foundation for future operations (see section 2.1 Financial results).

Plans for 2015 and the main conditions that affect the Group’s operations are presented below in section 1.10 Development strategy and plans.

Financial indicators4

in EUR thousand 2014 2013 Ind 14/13 Revenue 756,454 779,360 97 Other operating income 8,442 19,819 43 Operating revenues 764,896 799,179 96 EBITDA 170,051 239,868 71 EBITDA margin 22.5% 30.8% 73 EBIT 11,412 71,540 16 Return on sales: ROS (EBIT/net sales revenue) 1.5% 9.2% 16 Net profit 1,594 51,057 3 Assets 1,343,421 1,391,869 97 Equity 693,901 758,582 91 Return on assets (ROA) 0.1% 3.5% 3 Return on equity (ROE) 0.2% 6.8% 3 Equity ratio 51.7% 54.5% 95 Net financial debt 344,057 341,807 101

3 GRI G4-9 and G4-EC1 4 Pursuant to the requirements of IAS 1 and IAS 8, the financial statements for the comparative period, as presented in all tables and graphs below, have been adjusted for a change to an accounting policy. More information can be found in the Financial Report on page 140.

8 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Other economic performance indicators in EUR thousand 2014 2013 Ind 14/13 Distributed economic value 664,990 640,280 104 Value added 162,008 214,011 76 Value added per employee (in EUR) 35,934 45,974 78 Investment in property, plant and equipment (CAPEX) 176,481 113,289 156 EBITDA – CAPEX -6,430 126,579 - Ratio of (EBITDA-CAPEX) to EBITDA (cash margin) -3.8% 52.8% - Labour costs 138,887 142,440 98 Corporate income tax 1,032 -2,194 - Payments to owners – dividends 65,055 78,066 83

Social indicators – employees

2014 2013 Ind 14/13 Number of employees 4,431 4,586 97 Employee turnover at companies in Slovenia 6.5% 4.4% 148 Number of training hours per employee 23.0 23.9 96 Direct training costs in EUR thousand 1,386 1,662 83

Social indicators – community

Connections / % 2014 2013 Ind 14/13 Mobile telephony 2,312,025 2,206,010 105 Fixed voice telephony 641,285 655,468 98 Retail broadband 352,987 345,668 102 Funds earmarked for sponsorships and donations as a 0.4% 0.4% 100 proportion of operating revenues

Environmental indicators (Telekom Slovenije)

2014 2013 Ind 14/13 Electricity consumption (in million kWh) 78.3 79.9 98 Direct environmental costs* (in million EUR) 10.3 11.6 89

* Includes the consumption of electricity by Telekom Slovenije, TSmedia, Avtenta and RTV locations. ** Telekom Slovenije’s direct environmental costs include the costs of electricity and fuel for the car fleet and heating, and the costs of cleaning and municipal services.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 9 Operating revenues (in EUR million) 900 6,000 and number of employees of the 800 Telekom Slovenije Group 5,000 700

600 4,000

500 3,000 765 400 Operating revenues in EUR million 300 2,000

200 1,000 4,431 100 Number of employees 0 0 2010 2011 2012 2013 2014 Operating revenues 846 825 795 799 765 Number of employees 4,841 4,760 4,724 4,586 4,431

EBITDA (in EUR million) and EBITDA margin (as a percentage of net sales revenue) of the Telekom Slovenije Group 300 35%

250 30%

25% 170 200 EBITDA in EUR million 20% 150 15% 100 22.5% 10% Margin EBITDA as a percentage 50 of net sales revenue 5%

0 0% 2010 2011 2012 2013 2014 EBITDA in mio EUR 247 256 241 240 170 EBITDA margin in% 29.4% 31.4% 30.7% 30.8% 22.5%

EBIT and net profit (in EUR million) of the 100 Telekom Slovenije Group 50

0 1.6 -50 Net profit -100

-150 11 -200 EBIT - Net profit from operation -250 2010 2011 2012 2013 2014 Net proﬁt -210,3 34,0 44,6 51,1 1,6 EBIT - Net proﬁt from operation -178 63 64 72 11

10 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Structure of the Telekom Slovenije Group’s equity and liabilities and net debt (in EUR million) 100% 600 90% 500 80% 70% 400 650 60% Liabilities 50% 300 40% 200 30% 694 20% Equity 100 10% 0% 0 2010 2011 2012 2013 2014 Liabilities 850 753 738 633 650 Equity 808 787 786 759 694 344 Net ﬁnancial debt 526 406 346 342 344 Net financial debt

Investments in property, plant and

equipment (CAPEX, in EUR million), and 200 25% as a proportion of net sales revenue 180 160 20% 140 176 120 15% CAPEX in EUR million 100 80 10% 60 23.3 40 5% Share in net 20 operation revenues in % 0 0% 2010 2011 2012 2013 2014 CAPEX in EUR million 114 92 123 113 176 Share in net operation revenues in % 13.4% 11.0% 15.6% 14.5% 23.3%

Composition of distributed economic value 5 69.2% 9.8% Opex (Operating expenses Dividends - depreciation and amortisation 20.9% 0.1% Staff costs Income tax expense

5 GRI G4-EC1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 11 1.3. Letter from the President of the Management Board6

Dear shareholders, investors, business partners and co-workers,

The year 2014 was very dynamic for the Telekom Slovenije Group. Worthy of note is the fact that we achieved all established strategic objectives during the period. The year was characterised by one-off events and additional activities that affected the results of the Telekom Slovenije Group, but otherwise represent sound foundations for future operations.

Despite a decrease in revenues from mobile voice services due to the migration to new, more affordable packages for subscribers, the Telekom Slovenije Group generated a total of EUR 756.5 million in net sales revenue. We generated EBITDA of EUR 170 million or 22.5% of net sales revenue. Due to one-off events, we recorded a net profit of EUR 1.6 million. Excluding the aforementioned one-off events, the Group would have generated EBITDA of EUR 215 million and a net profit of EUR 64 million. We earmarked EUR 176 million for investments in the network, the purchase of radio frequencies, IT and service platforms. Natural disasters (sleet and floods) caused EUR 6.2 million in damage to Telekom Slovenije’ cable network, while shareholders were paid dividends of EUR 65.1 million.

One-off events that affected the results of the Telekom Slovenije Group were necessary to maintain our competitive and stable position in the future. We therefore created new impairments in the amount of EUR 43.6 million. As part of the consolidation of operations in Macedonia, we concluded an agreement with the Telekom Austria Group on the merger of operators. The completion of activities was planned for 2014. However, activities were postponed to 2015 due to the complex procedures involved and the time required to obtain the consent of the Macedonian regulatory body. Planned consolidation in Bosnia and Herzegovina was also postponed until 2015. Telekom Slovenije and Simobil signed an agreement in 2014 on mutual relations by which the two companies set in order open issues regarding mutual relations and laid down the conditions for future business cooperation. The agreement represents an important step aimed at mitigating risks associated with lawsuits, which further enhances the Company’s value for owners. The Group sold its 50% participating interest in Gibtelecom during the year. We assess that the investment was sold v the best possible time as further regulatory changes at the EU level and the necessary flow of continuous investment in the telecommunications infrastructure will also impact Gibtelecom’s future operations. With the aforementioned changes, we have taken an important step towards achieving established objectives on the markets where the Telekom Slovenije Group is present, while all activities were in line with the Strategic Business Plan of the Telekom Slovenije Group for the period 2014 to 2018.

6 GRI G4-1, G4-DMA

12 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 The Telekom Slovenije Group’s strategy is to be the leader in Slovenia and a profitable alternative operator in terms of market share on markets outside of Slovenia. Ipko in Kosovo increased its share of the mobile telephony market to 36.4%, while the company enjoys a share of the digital TV and broadband access markets of around 50%. The Telekom Slovenije Group increased the number of mobile telephony users by 4.8%, the number of fixed broadband connections by 2.1% and the number of TV connections by 6.6%. With the most advanced services for business and leisure time, we are blurring the boundaries of time and space. The ability to adapt quickly, our flexibility and the recognition of trends allow us to be the best possible partner, even to business customers with the most demanding requirements and expectations. For them, we are changing once complex systems into simple and comprehensible services, and thus consolidating our position on the market of integrated, high-quality and reliable IT services, as well.

The Group has geared many activities to cost optimisation and the rationalisation of operations. By further standardising the range of Telekom Slovenije services, we have cut the number of contractual terms and conditions by more than half. We have also optimised labour costs, which were cut by 3%. We have achieved financial stability at the Telekom Slovenije Group level through a comprehensive approach that includes ensuring a long-term sustainable structure of sources of financing, the fulfilment of financial commitments in loan agreements, the effective management of working capital, investing cash in line with risk criteria for investments, and maintaining an appropriate level of liquidity reserves.

Telekom Slovenije shares were one of the most heavily traded shares on the prime market of the Ljubljana Stock Exchange, and ranked second in terms of market capitalisation. At the same time, activities to sell the government’s stake in Telekom Slovenije were carried out throughout the entire year.

In accordance with the Group’s established strategy, we continued to migrate from individual quality systems to an integrated quality management system and business excellence. We thus introduced a system for the comprehensive monitoring of energy consumption with the aim of responsibly managing the Group’s impacts on the environment, resulting in a 2% reduction in energy consumption in 2014. The ISO 50001 energy management system and the ISO 14001 environmental management system were recertified, while the Group received the ISO 27001 certificate for its information security management system. All previously received certificates were maintained at subsidiaries.

The Telekom Slovenije Group actively identifies opportunities where it can contribute to the development of the social and economic environment in which it operates with its expertise, and financial resources and other resources. We build the principle of sustainable development into our operations, products, services and content, while it is our responsibility and commitment to contribute to sustainable improvement in the economic, social and natural environment. To that end, we support sport, culture, humanitarian activities and education, and strive for equal opportunities for anyone who is part of our common story.

The Telekom Slovenije Group is planning a net profit of EUR 66 million, EBITDA of up to EUR 198 million and investments of EUR 107 million in 2015.

Established objectives in South-Eastern Europe will be achieved by increasing the number of users and consolidating individual markets. In Slovenia we will maintain our position as the leading, comprehensive provider of communication services. This will be achieved through cross-sales of services, the development of new services and new subscriber models, through differentiation and a range of exclusive content, by further improving the user experience and by providing standardised cloud computing services. The superior quality of its services will continue to be the Telekom Slovenije Group’s competitive advantage in the future. The Group’s development will continue to be based on high standards of social responsibility and sustainable development.

Rudolf Skobe, MSc President of the Management Board

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 13 1.4. Statement of responsibility of the Management Board

The members of the Management Board of Telekom Slovenije, d. d., responsible for compiling the annual report of Telekom Slovenije, d. d. and the Telekom Slovenije Group for 2014, hereby declare that, to the best of our knowledge, the annual report and all its constituent parts, including the corporate governance statement, have been compiled and published in accordance with the International Financial Reporting Standards and the Companies Act.

The annual report of Telekom Slovenije, d. d. and the Telekom Slovenije Group, including the financial statements and notes, presents a true and fair picture of the assets and liabilities, financial position and operating results of Telekom Slovenije, d. d. and the Telekom Slovenije Group, and includes a fair view of information on major transactions with related parties in accordance with applicable regulations.

The Management Board also declares that the financial statements of the Group and the Company have been compiled on a going-concern basis, that the chosen accounting policies have been consistently applied and that any changes have been disclosed.

The Management Board is responsible for taking measures to prevent and detect fraud and irregularities, and for securing the value of the assets of Telekom Slovenije, d. d. and the Telekom Slovenije Group.

Management Board of Telekom Slovenije, d. d.

Rudolf Skobe, MSc, Tomaž Seljak, MSc, Mateja Božič, MSc, Zoran Janko, Vesna Lednik, President of the Vice-President of Member of the Member of the Member of the Management Board the Management Management Board Management Management Board Board Board and Workers Director

14 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1.5. Markets and companies7

The Telekom Slovenije Group comprises the parent company Telekom Slovenije, d. d. (hereinafter: Telekom Slovenije) and the subsidiaries, associates and joint ventures shown in the figure below with corresponding participating interests.

The detailed composition of the Telekom Slovenije Group is presented at http://www.telekom.si/en/company/ organisation.

GVO Telekommunikation GmbH 100% GVO, d.o.o. 100%

AVTENTA, d.o.o. 100%

TSmedia, d.o.o. 100%

Antenna TV SL 49%

Germany SOLINE, d.o.o. 100%

M-Pay, d.o.o. 50% SETCCE d.o.o. 36%

Slovenia a SIOL d.o.o. 100% Croatia

Bosnia and SIOL d.o.o. Beograd 100% Serbia BLICNET d.o.o. Banja Luka 100% Herzegovina (entry into register: 13 February 2015)

SIOL d.o.o. Sarajevo 100% IPKO Telecommunications LLC 93,11% SIOL d.o.o. Podgorica 100% Kosovo Montenegro

SIOL DOOEL Skopje 100 % Macedonia (entry into register: 14 January 2015) Alban ija ONE DOOEL Skopje 100 %

DIGI PLUS DOOEL MULTIMEDIA Skopje 100 % (entry into register: 21 January 2015)

Subsidiary Company, owned by subsidiary Associated company Joint venture

Fixed and mobile service provider International point of presence Network construction and maintenance

1.6. changes in the composition of the Group8

¬ Pursuant to the agreement on the sale and transfer of the 100% participating interest in its subsidiary Media Works, which was concluded on 18 December 2013, the IPKO Telecommunications LLC in Kosovo completed the transfer of its ownership stake in Media Works to the buyer on 9 January 2014. ¬ Based on the sales agreement concluded on 17 November 2014, the payment of consideration and the fulfilment of other conditions, Telekom Slovenije sold and transferred its 50% participating interest in Gibtelecom Limited to the government of Gibraltar. ¬ Telekom Slovenije transferred its 100% participating interest in the subsidiary DIGI PLUS MULTIMEDIA DOOEL Skopje to ONE DOOEL Skopje. The transfer was entered in the companies register on 21 January 2015. ¬ In Serbia, Telekom Slovenije established SIOL DOO Beograd, and became the latter’s 100% owner. The company was entered in the companies register in Belgrade on 13 February 2015.

7 GRI G4-4, G4-6, G4-8 8 GRI G4-13

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 15 1.7. commitments and membership in associations9

Through its membership in numerous professional organisations and associations, Telekom Slovenije builds successful business links, creates development opportunities and ensures the flow of professional information. Telekom Slovenije Group companies are likewise members of commercial and other associations in the countries in which they operate.

Our employees are active members of their management boards, expert and strategic councils, and other bodies as follows:

Slovenia Membership in international organisations ¬ Marketing Society of Slovenia, ¬ European Telecommunications Network ¬ Electrotechnical Association of Slovenia, Operators’ Association (ETNO), ¬ Slovenian Chamber of Commerce and ¬ European Telecommunications Standards Industry and its Information Technology and Institute (ETSI), Telecommunications Association, ¬ GSM Association, ¬ INIS – Institute for Non-Ionising Radiation for the ¬ Institute of Electrical and Electronics Engineers Forum EMS project, (IEEE, Slovenian Section), ¬ Institute for Corporate Security Studies, ¬ UM TS Forum, ¬ Institute for Labour Law at the Faculty of Law in ¬ Broadband Forum, and Ljubljana, ¬ American Chamber of Commerce. ¬ Institute for Labour Relations and Social Security at the Faculty of Law in Maribor, Social, environmental and economic ¬ Commercial Law Institute, initiatives in which Telekom Slovenije and ¬ Slovenian Advertising Chamber, Group companies are included: ¬ Slovenian Institute for Standardisation, i ¬ Slovenian Advertising Chamber, ¬ Slovenian Project Management Association, ¬ the Family-Friendly company certificate, ¬ Slovenian Association of Risk Management and ¬ signatories of the European Framework for Safer Insurance Management, Mobile Use by Younger Teenagers and Children, ¬ IPv6 Institute – go6, ¬ United Nations Association of Slovenia for ¬ Chamber for the Development of Slovenian Sustainable Development, Private Security, ¬ support of activities for safer internet use – SAFE. ¬ Association of Employers of Slovenia, SI (Telekom Slovenije and TSmedia), ¬ Cable Operators Association of Slovenia, ¬ a code for regulating hate speech on websites (siol. ¬ Association of Slovenian Digital Television net website), Operators, ¬ Sinergija – network of socio-commercial benefit, ¬ Slovenian Association of Works Councils, and ¬ signatory of the Slovenian corporate integrity guidelines

9 GRI G4-15, G4-16

16 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1.8. inclusion and participation of stakeholders10

Cooperation with stakeholders and their inclusion in the Group’s activities are based on recognised mutual influences and interests. Stakeholder groups and the strategy for communication and cooperation with those groups are defined in Telekom Slovenije’s Corporate Governance Policy.

Stakeholders What is important to them? How are they included? Shareholders - Relevant and timely Regular and comprehensive communication with information. existing and potential shareholders: - Operations that facilitate the - Investor relations section of the Company’s website, payment of dividends. - publications for shareholders, - Effective corporate - broadcasting of the General Meeting of governance. Shareholders over the internet, - participation in investment conferences at home and abroad, - participation in roadshows organised by the Group and other institutions, - regular publication of information in the Ljubljana Stock Exchange’s SEOnet system, and - publication of the electronic online TLSG newsletter. Users - High-quality networks and Communication with users regarding new services innovative services. and technologies: - The best quality-to-price ratio - personal contact with highly-trained employees, for services. - web services for users. - Advanced and innovative - regular communication regarding the range of services that facilitate open, products and services via media relations and flexible, and scalable products communication via other channels (invoices, and services, and attractive direct mailing, catalogues, etc.), content. - communication via social networks, - A reliable, stable and far- - the possibility of selecting a return call option to reaching network. avoid extended waits for responses to calls to the - Simple and prompt contact centre, and communication with the - reorganisation of automated response systems Group. with the aim of offering users tailored content at various selected points. Waiting room at Telekom centres with accompanying advisers. Waiting room at Telekom centres with accompanying advisers. Employees - Career development Creating a culture of mutual trust, respect, continuous opportunities. learning, and efficient and responsible work: - Acquisition of additional - briefing of employees on business events at knowledge. Telekom Slovenije and within the Group via - Professional and effective established channels (the TIP and Oglasi se management. portals, bulletin boards, electronic messages, the system of meetings, etc.), - cooperation with the Works Council and trade unions, and - activities relating to employee health via the Modro jabolko (Wise Apple) portal.

10 GRI G4-24, G4-25, G4-26, G4-27

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 17 Stakeholders What is important to them? How are they included? Suppliers and - Compliance with business Establishment of long-term relationships and other business agreements. strategic partnerships with suppliers. partners - Consistent settlement of - Compliance with the Code of Ethics and Rules agreed liabilities. on the Procurement of Goods at Telekom - Clear supplier selection Slovenije and other internal acts. criteria. Regulatory and - Compliance with Expert responses to decisions of regulatory government regulations and decisions of bodies. bodies the regulatory body. - Participation in the drafting of legislation, - Provision of high- with expert comments. quality access to telecommunication services. Analysts and - Continuous and Presentations and meetings attended by the other financial comprehensive information President and member of the Management Board publics regarding current and responsible for finance (e.g. investor conferences, planned operations. webcast presentations, etc.), publication of the TLSG electronic newsletter and direct broadcasts of the General Meeting of Shareholders. Local and wider - Sponsorship and donation Selection of projects with an emphasis on social community activities in the areas of responsibility, and the monitoring of associated sport, culture, science and effects. Assessment of environmental impacts as humanitarian causes. an integral aspect of all development activities. - Access to fixed and mobile è Sponsorship of Slovenian athletes at the services. Winter Olympic Games in Sochi. - Limitation of environmental è Support for humanitarian organisations impacts. and individuals affected by environmental - Responsible expansion of disasters. the infrastructure (fixed è Investments in fixed assets in the amount and mobile network). of EUR 173 million, the majority for the expansion and quality of networks. Media - Continuous and current - Management of media relations (regular information about the press conferences, press releases and the operations of the Telekom organisation of events). Communication is Slovenije Group. proactive, and we continuously answer media - Continuous communication questions. about current activities - Communication about new services and within the Telekom Slovenije products. Group and the latest news regarding the development of products and services.

Key: è new in 2014

Telekom Slovenije’s Corporate Governance Policy is accessible at http://www.telekom.si/aboutcompany/ENG_Politika%20upravljanja%20Telekoma%20Slovenije%20V1-za%20 objavo_EN-US.pdf.

18 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1.9. about the annual report

Principles of reporting – transition to the latest guidelines

Reporting on the operations of the Telekom Slovenije Group and Telekom Slovenije is carried out in line with the requirements of national legislation and the International Financial Reporting Standards. The Group’s economic, social and environmental impacts are explained in the integrated annual report in which we combine financial and non-financial performance indicators. The Group reports on sustainable development and corporate social responsibility in accordance with the international Global Reporting Initiative (GRI). In 2014 we transitioned to the latest guidelines, GRI G4, and took into account recommendations for the telecommunications sector and the media. Based on an expert examination of the impacts of the Telekom Slovenije Group’s operations and interaction with key stakeholders, we identified the following material aspects:11

Category ECONOMIC IMPACTS ENVIRONMENTAL IMPACTS Aspects - Economic performance - Energy - Indirect economic impacts - Biodiversity - Emissions - Effluents and waste - Compliance

Category SOCIAL IMPACTS Subcategory Labour practices Human rights Society Product and decent work responsibility Aspects ¬ Employment ¬ Investments ¬ Anti-corruption ¬ Product and ¬ Labour/ ¬ Non- ¬ Public policies service labelling management discrimination ¬ Competition ¬ Marketing com- relations ¬ Child labour protection munications ¬ Occupation ¬ Forced or ¬ Accessibility to health and compulsory media content safety labour ¬ Education ¬ Diversity and equal opportunities. ¬ Equal remuneration for women and men

In accordance with the development strategy, we present the relevant content for our stakeholders, in which we strive for clarity and transparency. Content is defined in accordance with strategic objectives, the interests of stakeholders and legal requirements.

11 GRI G4-19

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 19 Long-term profitable growth Corporate governance ¬ Analysis of financial performance ¬ Functioning of management bodies and indicators, sales and the achievement of activities aimed at the strategic coordination strategic objectives. of subsidiaries’ operations. Investments for long-term growth. Human resource development Optimisation of costs ¬ Employee development activities for ¬ Activities and projects to increase optimisation of business processes and operational efficiency. increasing labour productivity.

Development of technologically advanced services and networks Operations according to the principles of ¬ New technologies, products and sustainable development services, with priority given to increased ¬ Long-term achievement of profitability and user mobility. business excellence. ¬ Investments and activities to modernise ¬ Measurable impacts on the economic, social networks. and natural environment in which the Group ¬ Friendly and secure user experience. operates.

Drafting of the report and scope of sustainable development reporting12 The Telekom Slovenije Group’s annual report presents sustainable development indicators for the previous calendar year. The report is primarily intended for shareholders, the financial public, users and employees.

In addition to reporting at the Group level and at the level of the parent company Telekom Slovenije, sustainable development reporting is carried out by other Group companies. Reporting on non-financial indicators relates to the Telekom Slovenije Group. Where standard reporting guidelines are not yet in place for the entire Group, it is specifically stated that the indicators apply to the parent company.13

The most recent annual report, for 2013, was published on 30 April 2014. Data and information are captured with the help of a structure questionnaire, the content of which is prepared by experts for specific areas from Telekom Slovenije, GVO, TSmedia, Soline, Avtenta, Ipko, One and Blicnet. Telekom Slovenije’s Accounting and Controlling Sector and the Public Relations coordinate the preparation and the issue of the report.

There were no other significant changes to data from previous years and boundaries of reporting.

In the event of changes in a methodology used to disclose data, those changes and the reasons for those changes are clarified in the accompanying comments.

Verification of reporting14 The sustainable development report is submitted for independent external verification, which includes the verification of reporting according to the GRI guidelines. The statement regarding the external verification of the sustainability report according to the GRI Guidelines may be found on page 139.

12 GRI G4-18, G4-22, G4-23, G4-28, G4-29, G4-30 13 GRI G4-20, G4-21 14 GRI G4-32

20 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1.10. Development strategy and plans

The main objectives of the Telekom Slovenije Group’s operations are to maximise value for its owners and achieve a higher level of satisfaction of its employees, business partners and users. The Group has adopted the Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019, which defines the future growth of the Group.

Highlights in 2014

Adoption of the Strategic Business Plan of the Telekom Slovenije 1. Group for the period 2015 to 2019.

The Telekom Slovenije Group achieved the majority of its 2. established objectives in 2014.

1.10.1 Vision, mission and values15

Vision We are reliable and innovative. The Telekom Slovenije Group is a trustworthy Through quality, reliability, innovation and flexibili- partner to its users, with whom it creates a ty, we offer our users the freedom to combine and society of opportunities. intertwine our services, packages, content and products. Mission The Telekom Slovenije Group inspires its users We act responsibly. with innovative technologies. We open up new Our actions are ethical, heartfelt, responsible professional and personal avenues for them, and sustainable with respect to the society and and together cultivate an environment for the environment in which we operate. We encourage development of a community of opportuni- the development of knowledge, the exchange of ties. With open, flexible, and scalable prod- experiences, the creation of innovative solutions, ucts and services, and attractive content, we and operations that are people and environmen- continuously provide our users with effective, tally friendly. useful, reliable, entertaining and constantly evolving tools for business and leisure. We create connections. Telekom Slovenije Group employees work in a cre- Values ative environment. We achieve excellent results We live with the user. because we are connected to one another, pro- Our guiding principle is a satisfied customer. active, experienced and value an entrepreneurial We understand and respect their wishes and mindset. We respect our agreements and keep needs, and provide services that are simple, our promises. useful and tailored to those needs. Whenever they need information, advice or assistance, we are there to provide it.

The key strategic policies of the Telekom Slovenije Group for the period 2015 to 2019 are presented below in point 1.10.3.

15 GRI G4-56

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 21 1.10.2 achievement of planned objectives by the Telekom Slovenije Group in 2014

The Telekom Slovenije Group actively and successfully achieved the majority of objectives for 2014 set out in the Strategic Business Plan for the period 2014 to 2018.

Strategic objectives from the strategic bussines plan and their realisation in 2014

Strategic objective Steps and achievements in 2014

¬ Maintain the number of users in Slovenia ¬ The Group maintained the highest market share and achieve the highest level of profitability in all segments on the Slovenian market. possible. ¬ The total number of mobile telephony ¬ Optimise the sale network. connections was up 4,8%, while the number of broadband connections was up 2,1%. ¬ Activities to maintain the number of subscribers – Loyalty Programme. ¬ We continued with sales activities in the field. Field technicians represent an important sales channel as they are in direct contact with users. ¬ We introduced an additional category (D2D) for field sales, with the aim of making services more appealing to users. ¬ We continued to renovate points of sale and consolidate the agent network. ¬ Achieve growth in the number of users and ¬ Ipko strengthened its share of the mobile EBITDA on the markets of South-Eastern telephony market in Kosovo to 36.4% at the end Europe. of the third quarter of 2014, an increase of 2.7 ¬ Optimise costs at subsidiaries in South-Eastern percentage points on the end of 2013. Europe. ¬ The Group recorded an increase in the number of users in the mobile telephony segment at all companies in South-Eastern Europe (by a total of 10%), while the total number of VoIP connections was up 47%. The number of broadband connections was up in Kosovo and Bosnia and Herzegovina. ¬ Develop new services and subscriber models ¬ A total of 141 base stations were erected that will provide new revenue sources. in Slovenia with the aim of upgrading the ¬ Achieve a high level of quality of all services at broadband mobilea network with LTE Telekom Slovenije Group companies. technology. ¬ Provide contemporary ICT solutions and ¬ Telekom Slovenije was one of the first operators services. in the world to offer gigabit internet and IPV6 internet services. ¬ We updated fixed and mobile voice telephony subscriber packages. ¬ Achieve growth in revenues from international ¬ We strengthened sales of international data data services. services. ¬ We began to fully exploit the regional fibre optic network, which represents the main link to subsidiaries, as well as the greatest potential for growth in revenues from international wholesale services.

22 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Strategic objective Steps and achievements in 2014 ¬ Optimisation of the employee structure and ¬ Human resource restructuring, interviews with labour costs. employees, reassignment within the Company ¬ Human resource development. and the termination of employment contracts ¬ Transformation from a technologically oriented for business reasons. company to a sales and service oriented ¬ Conclusion of an agreement with social company. partners. ¬ The number of employees was reduced by 3% relative to 2013. ¬ Labour costs were down 2% on the previous year. ¬ Despite the rationalisation of operations, 85.3% of all employees were included in some form of education or training. ¬ A total of 11% of employees who have been identified as having high development potential (of which 1.3% are young perspective employees) are included in a special programme for key personnel. ¬ Pursue sustainable development policies while ¬ We assisted individuals affected by natural taking into account the principle of efficiency, disasters in Slovenia and Bosnia and and Telekom Slovenije’s attitude to other people Herzegovina, and enhanced our support for and the natural environment. humanitarian and volunteer organisations. ¬ We introduced a system for the targeted monitoring of energy consumption. ¬ The information security management system was certified (ISO/IEC 27001).

Fulfilment of the business expectations of the Telekom Slovenije Group for 2014

Planned in 2014 Achieved in 2014 Capex up to EUR 137 million EUR 176 million EBITDA up to EUR 212 million EUR 170 million Net profit EUR 63 million EUR 1.6 million

1.10.3 Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019

The Telekom Slovenije Group will withstand the forecast of a continuing decline in revenues through a range of new, superior quality services, by reducing all types of costs, by searching for synergies between associated companies and through the consolidation of individual markets. The Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019 defines the Group’s future development and strategic policies. A summary is published on the Company’s website.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 23 Key strategic policies of the Telekom Slovenije Group for the period 2015 to 2019

¬ Consolidation on individual markets The Telekom Slovenije Group’s strategy is to be the leader in Slovenia and in terms of market share a profitable alternative operator on markets outside of Slovenia.

¬ Maintaining the number of users in Slovenia Like the majority of incumbent operators in Europe, Telekom Slovenije is faced with a declining number of users as the result of stiffer competition and regulation. We will maintain the number of users while maintaining the highest possible level of profitability: through cross-sales of services, the development of new services and new subscriber models, through differentiation and a range of exclusive content, by improving the user experience, by providing standardised cloud computing services. We will also offer business users a comprehensive range of ICT services that will focus on individual vertical markets.

¬ New revenue sources at Telekom Slovenije The Group will search for opportunities for growth in revenues in the following areas: mobility (e-call service in the event of a traffic accident and vehicle telematics), connected home services (safe and secure home), security (security ecosystems), financial services, energy and healthcare.

¬ Growth in number of users and EBITDA in South-Eastern Europe All subsidiaries in South-Eastern Europe will continue to optimise costs, which will have a positive impact on EBITDA. Future growth in the latter will derive primarily from growth in the scope of operations. In Kosovo, Ipko will increase the number of mobile users and market share by exploiting the opportunities presented by the 3G network, through the expansion of geographical coverage and by offering services that will continue to be the best on the market.

¬ Financial stability The Telekom Slovenije Group will achieve financial stability by ensuring a long-term sustainable structure of financing, by fulfilling financial commitments in loan agreements, through the effective management of working capital, by investing cash in line with risk criteria for investments, and by maintaining an appropriate level of liquidity reserves.

¬ Restructuring of personnel The Group will ensure the optimal number of employees, taking into account the needs of the work process at individual companies, and will optimise labour costs.

¬ Quality Quality is the primary advantage of the services provided to users by Telekom Slovenije Group companies. We will continue to ensure continued development and provide a range of the most state-of-the-art services and solutions.

¬ Social responsibility The Telekom Slovenije Group actively identifies opportunities where it can contribute to the development of the social and economic environment through its knowledge and financial and other sources. The principles of sustainable development will continue to be built into our operations, products, services and content, while we will responsibly manage the economic, social and environmental impacts of our operations.

Visit the following website for more information: http://www.telekom.si/en/company/strategic-objectives.

Key business expectations of the Telekom Slovenije Group for 2015 ¬ Investments: up to EUR 107 million. ¬ EBITDA: up to EUR 198 million. ¬ Net operating profit: EUR 66 million

24 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 1.10.4 Key strategic projects

¬ Consolidation of the business support system (BSS): Telekom Slovenije’s objective is to consolidate and simplify the IT environment with the aim of ensuring a quick response to changing busi ness requirements.

¬ Atlas: The objective of the Atlas project is to introduce new cloud computing services, which represents the development trend in the IT sector. We dedicated a great deal of attention to this area in 2014 and, following the successful implementation of the project, are planning to become the leading provider of cloud computing services, including for the largest business users.

¬ eBadge: The objective of the eBadge project, which is co-financed by the EU, is to set up a pilot international smart grid, with an emphasis on supply and demand services. The grid will be located in Austria, Italy and Slovenia. Telekom Slovenije will serve in a visible role between stakeholders in the development of smart networks in Slovenia and the EU.

¬ Evolution of mobile data services (LTE): LTE technology represents a major upgrade over existing UMTS and HSPA technologies, and facilitates the future development of the mobile network. With the implementation of the EMPS executive project, we are establishing a long-term business model for the marketing of Telekom Slovenije’s mobile data network and ensuring that the latter is highly competitive. We continued to expand the LTE network in 2014, and will continue to develop and upgrade it in the future.

¬ WFM (Work Force Management) project: The project has been completed. The first effects of optimisation can be seen in an increased number of activities per employee. The system will be expanded both within Telekom Slovenije and at Group companies.

1.11. Significant events and achievements in 2014

First quarter

January ¬ On behalf of nine consortium partners from ¬ T elekom Slovenije receives the ISO 50001 six countries, Telekom Slovenije secures a international certificate, which represents the new European project in the area of SUNSEED standard that enables organisations to effectively (Sustainable and Robust Networking for Smart and consistently manage energy. Electricity Distribution) smart networks. The ¬ T elekom Slovenije supports the “Stay Off the Line aforementioned project is part of the European to Stay Alive!” preventive campaign organised by Commission’s Seventh Framework Programme the Slovenian Traffic Safety Agency with the aim (FP7). of warning about the dangers of using a telephone March while driving. ¬ T elekom Slovenije presents its TViN service, which February combines web TV services, video-on-demand and ¬ Slovenia is hit by an ice storm at the beginning of multimedia cloud storage services, at one of the February, resulting in numerous power outages. most important events in the sector, TV Connect, The Company maintains the functioning of the which takes place in London. TViN also places on mobile network using its own generators. Telekom the shortlist of candidates for the prestigious TV Slovenije’s cable network is also severely damaged Connect Awards 2014. by the ice storm. ¬ A t the Slovenian Advertising Festival (SOF), ¬ A vtenta is the only company in the Adriatic region TSmedia announces the introduction of large to be awarded the Gold Competency status outdoor digital screens on the Slovenian from Microsoft for CRM. Partners with the Gold advertising market. Competency status are distinguished by their high level of knowledge and experience.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 25 Second quarter

April to receive the aforementioned quality designation ¬ In the scope of the sale of the majority of at the EU level. Piran salt is produced by hand using shares issued by Telekom Slovenije, Slovenska traditional methods dating back 700 years. odškodninska družba publishes an invitation to ¬ T elekom Slovenije erects the first two advanced submit declarations of interest. The deadline for the LTE/4G base stations in its mobile network in the submission of declarations is set for 23 April 2014. 800 MHz radio frequency band. Users in rural areas ¬ A t the auction of frequencies for the provision of will benefit most from the expansion and upgrading public mobile communication services organised by of the network, which facilitates the receipt of the AKOS, Telekom Slovenije secures an appropriate frequencies in the 800 MHz band, while improving number of the relevant frequency bands that will be the reception of the LTE/4G signal will further used in the future to offer users the most state-of- enhance accessibility in cities and towns. the-art services and the best coverage in a superior June network. The Company pays EUR 64.5 million for the ¬ T elekom Slovenije receives the ISO/IEC 27001:2005 aforementioned frequencies. certificate from the Slovenian Institute of Quality ¬ T elekom Slovenije is the first operator in Slovenia and Metrology (SIQ). The aforementioned certificate to offer its subscribers the service of listening represents the standard for a high-quality and to music via Deezer. This new service allows secure information security management system. subscribers to listen to music via various devices, ¬ One adds three cloud computing services to its anytime and anywhere. Deezer is currently range of services, enabling simplified operations available in more than 180 countries, has 12 million for its users. One offers e-archiving, customer active users a month and 5 million subscribers. relationship management (CRM) solutions and May virtual private cloud servers. ¬ T he European Commission includes Piran salt ¬ Blicnet launches the TViN service which facilitates produced by Soline in the register of protected the viewing of TV programmes on computers, designations of origin, the 21st product from Slovenia tablets and smart phones.

Third quarter

July September ¬ T ogether with Ipko and Iskratel, as well as the ¬ T elekom Slovenije and Microsoft sign an Administration of the Republic of Slovenia for Civil agreement based on which Telekom Slovenije Protection and Disaster Relief and the Slovenian now also offers Microsoft solutions to the largest Automobile Association, Telekom Slovenije Slovenian companies and other organisations participates in the eCall pilot project, the aim with more than 250 employees. This makes the of which is to develop an effective system for Company one of Microsoft’s most important saving lives using communication technology in partners in the region of Central and Eastern vehicles. The introduction of the eCall system in EU Europe. countries is planned for next year, while every new ¬ Ipko celebrates the 15th anniversary of car on the EU market must have a built-in device the company’s founding. During this time, for automatic calls for assistance from 2017 on. the company has become the leading ¬ Blicnet signs an agreement with Telrad Net from telecommunications company in Kosovo with a Bijeljina on the purchase of a 100% participating 50% share of the internet access and digital cable interest in the latter. television market, and is approaching a 40% share of the national mobile telephony market. August ¬ A vtenta becomes the first certified SAP HANA ¬ Pursuant to the requirements of the mobile Support Partner in Slovenia, thereby providing frequency auction held in 2013, One introduces expert consultancy services and support for HANA fourth generation LTE/4G mobile technology in systems in accordance with strict SAP standards. Macedonia. In doing so, the company is able to offer users new packages that make all of the advantages of this technology available to users.

26 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Fourth quarter

October rating report for Telekom Slovenije, confirming the ¬ T elekom Slovenije and the Telekom Austria Group company’s current rating of Ba2 with a negative agree to merge the Macedonian operators ONE outlook. DOOEL Skopje and VIP OPERATOR DOOEL Skopje. ¬ T elekom Slovenije and Simobil sign an agreement Telekom Slovenije will hold a 45% participating on mutual relations by which the two companies interest in the newly established merged company, set in order open issues regarding mutual relations while the Telekom Austria Group will hold the and lay down the conditions for future business remaining 55% stake. The agreement also includes cooperation. This r epresents an important step a call and put option for Telekom Slovenije’s aimed at mitigating risks associated with lawsuits, withdrawal from the merged company within three which further enhances the Company’s value for years after the conclusion of the merger. owners. ¬ ON E DOOEL Skopje, a member of the Telekom November Slovenije Group, and VIP OPERATOR DOOEL Skopje, ¬ T elekom Slovenije becomes the only Slovenian a member of the Telekom Austria Group, sign an company to serve as coordinator of international agreement to merge the two companies. The FP7 projects in the field of ICT in the period 2007 to entire transaction will be completed when consent 2013 for the development of smart electricity grids. is received from the Macedonian regulatory body ¬ T elekom Slovenije Group employees participate in and other conditions are fulfilled. the “Daruj kapljico življenja” (Give a Drop of Life) ¬ Ipko, the fastest growing mobile operator in blood drive at 11 locations throughout Slovenia. Kosovo, officially announces the introduction December of LTE/4G in the centre of Prishtina and at the ¬ T elekom Slovenije receives the entire amount international airport close to the capital. The of consideration (EUR 47.7 million) for its 50% aforementioned technology will provide users participating interest in Gibtelecom Limited. in Kosovo with the fastest mobile data transfer ¬ T he ratings agency Moody‘s issues a new credit service currently available.

Recognitions and awards received in 2014:

¬ T elekom Slovenije receives the title of Trusted Brand in the categories of telecommunications services, mobile services and internet services. ¬ Gold Quill award from the International Association of Business Communicators (IABC) for the Eurobasket/ Good Life campaign. ¬ SoMoBorac 2014 award for the Eurobasket/Good Life campaign. ¬ W EBSI 2014 – first place for the Tvitajmo za naše project, second place for Itak Job, second place for TViN and second place for Itak Ven. ¬ DiGGI T 2014 – grand prize for Digital Innovation for TViN. Grand prize in the Digital Advertising category for the Eurobasket/Good Life campaign. Gold medal for Itak Ven in the ICT category. ¬ T elekom Slovenije received two gold medals and two silver medals, and the grand prize for Itak Ven at the Slovenian Advertising Festival. ¬ T wo WEBSI Spletni prvaki 2014 awards for the Planet Siol.net online media outlet. ¬ Netko 2014 – first place for Planet Siol.net for the Zgodbe (Stories) project in the Media and information portal category. ¬ Sporto awards 2014 – two awards for Telekom Slovenije projects: Tvitajmo za naše and Uspehe množimo, ko jih delimo. Two awards for TSmedia projects: First place for the 19th Volkswagen Ljubljana marathon and second place for the 2014 Sochi Winter Olympic Games on Planet Siol.net. ¬ Outstanding – three awards for Telekom Slovenije: first place in the Citylight category, second place in the Metrolight category and third place in the Billboard category. ¬ E ffie 2014 – placement among finalists for the Itak Job project. ¬ MasterCard Transport Ticketing Award in the category “Most successful payment systems on mobile phones” for the upgraded mobile application for the Urbana bus pass.

Significant events after the balance sheet date are presented in the Financial Report on pages 208 to 209 and 270 to 271.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 27 1.12. report of the Supervisory Board

The Supervisory Board has nine members, six of whom are shareholder representatives and three of whom are employee representatives. Members are fully liable for the performance of their supervisory function and for supervising the management of the Company’s transactions. Shareholder representatives are elected by the General Meeting of Shareholders, while employee representatives are elected by Telekom Slovenije’s Works Council. Their appointment and recall are carried out in accordance with applicable laws and the Company’s Articles of Association. Members of the Supervisory Board are elected for a period of four years and may be re-elected when their term of office expires.

In terms of employee representatives, the composition of the Supervisory Board changed during the 2014 financial year, with the resignation of Milan Richter and Martin Gorišek in April. In May the Works Council elected Primož Per and Samo Podgornik to replace Mr Richter and Mr Gorišek as employee representatives on the Supervisory Board. The replacement employee representatives were elected to the Supervisory Board for the remainder of the current term of office, which expires on 14 November 2017.

The Supervisory Board elects a president and two vice-presidents, one from the Company’s shareholder representatives and one from its employee representatives. Borut Jamnik was President and Adolf Zupan, MSc and Dean Žigon served as Vice-Presidents of the Supervisory Board at the end 2014.

Work of the Supervisory Board Telekom Slovenije’s Supervisory Board met at a total of 18 sessions in 2014, of which 14 were regular sessions and four were correspondence sessions. Sessions were held at the Company’s registered office.

The Supervisory Board prudently and responsibly monitored and supervised the operations of Telekom Slovenije and the Telekom Slovenije Group as a whole. It adopted the Group’s Strategic Business Plan for the period 2015 to 2019, approved the appointment of managing directors at subsidiaries, the sale of the participating interest in Gibtelecom and the consolidation of the markets in Macedonia and Bosnia and Herzegovina. It approved the settlement reached with Simobil and regularly monitored the sale of the majority stake in the Company.

The Supervisory Board will continue to regularly monitor the implementation of the Company’s business plans and new strategy, which will help the Company and Group achieve the planned results in the future, while operations will be comparable with the best companies in the sector.

28 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Work of Supervisory Board committees The Supervisory Board had four committees in 2014. Those committees discussed topics related to the Supervisory Board’s work and advised the latter in important matters. This contributed significantly to improving the work and effectiveness of the Supervisory Board.

The work of committees is described in detail in the section, Corporate governance, in the Business Report section of the annual report.

Assessment of the work of the Management Board and Supervisory Board On the basis of the aforementioned continuous monitoring and supervision of the management of Telekom Slovenije and Group companies during the 2014 financial year and based on the consolidated annual report of the Telekom Slovenije Group for 2014, compiled and submitted by the Management Board, the Supervisory Board assesses that the annual report and disclosures contained therein reflect the actual situation and position of the Telekom Slovenije Group.

The Supervisory Board assesses the work of the Management Board in the current economic conditions and the specific period in which the company operates as successful. The Management Board and Supervisory Board worked well together at sessions, while the presidents of the Management Board and Supervisory Board communicated regularly between sessions.

The Supervisory Board monitored possible conflicts of interest between its members, and in two cases excused members of the aforementioned body from discussions.

Approval of the annual report and the proposed use of the distributable profit for 2014 The Supervisory Board thoroughly reviewed the annual report of Telekom Slovenije, d. d. and the Telekom Slovenije Group for 2014 by the legally prescribed deadline. The Supervisory Board finds that the Telekom Slovenije Group operated in accordance with forecasts during the 2014 financial year.

The Supervisory Board was briefed on and discussed the audit report, in which the certified auditors of KPMG, d. o. o. find that the financial statements, which are an integral part of the annual report, present a true and fair picture of the financial position of the Company and the Group, their operating and financial results and changes in equity. The Supervisory Board had no comments or reservations regarding the audit report that would prevent the adoption of a decision to approve the annual report and consolidated annual report.

Pursuant to Article 282 of the Companies Act, the Supervisory Board hereby approves the annual report of Telekom Slovenije, d. d. and the consolidated annual report of the Telekom Slovenije Group, with the accompanying audit report for 2014.

Borut Jamnik, President of the Supervisory Board of Telekom Slovenije, d. d.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 29 1.13. corporate governance

Uniform principles of corporate governance have been introduced at subsidiaries, in accordance with the valid regulations of individual countries. The Group follows the principles of its Corporate Governance Policy and comprehensive social responsibility in accordance with the principles of sustainable development. We respect valid legislation, the recommendations of the Slovenian Corporate Governance Code, the Corporate Governance Code for Companies with State Capital Investments and international recommendations such as the OECD Principles of Corporate Governance.

Highlights in 2014

Changes in the composition of the Management Board and 1. Supervisory Board of Telekom Slovenije.

T he Management Board adopted the Corporate Governance Rules of 2. the Telekom Slovenije Group.

1.13.1 corporate Governance Policy

Corporate governance within the Telekom Slovenije Group is based on the principles and guidelines of the Corporate Governance Policy of Telekom Slovenije, d. d., valid since December 2011. In performing their tasks, the Management Board and Supervisory Board took into account the interests of stakeholders and forms of mutual cooperation, the policy of linking the parent company and subsidiaries, and the commitments, powers and responsibilities of the two aforementioned bodies. The latter derive from valid legislation and are also defined in the rules of procedure of the Management Board and the Supervisory Board, and the Articles of Association of Telekom Slovenije, d. d. In April 2014 the Supervisory Board approved new rules of procedure of the Management Board (additional information at http://www.telekom.si/en/company/organisation/ management-board. pdf).

The Corporate Governance Policy and the other documents listed above are accessible at the website http:// www.telekom.si/en on the sub-page Presentation, organisation and governance, under the tab Corporate governance http://www.telekom.si/en/company/corporate-governance.

General Meeting of Shareholders16

Work of the General Meeting of Shareholders The shareholders of Telekom Slovenije met at the 25th General Meeting of Shareholders held on 30 May 2014. A total of 698,876 shares (40.08% of 1,743,820 shares with voting rights) were represented which, according to Article 40 of the Company’s Articles of Association, is a sufficient level of attendance for a second convening. Attendance increased to 724,858 shares or 41.57% of all shares with voting rights for the third item on the agenda.

Shareholders adopted the following decisions: ¬ the proposed use of distributable profit for the 2013 financial year was approved, and official approval conferred on the Management Board and Supervisory Board for 2013; ¬ the audit firm KPMG Slovenija, d. o. o. was appointed to audit Telekom Slovenije’s financial statements for the 2014 financial year.

No challenges were announced.

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30 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Exercise of shareholders’ rights Shareholders exercise their rights at the General Meeting in the manner set out in the Companies Act (ZGD- 1) and Telekom Slovenije, d. d.’s Articles of Association. The convening of the General Meeting of Shareholders and other important matters related thereto are set out in the Articles of Association.

The corporate governance system of Telekom Slovenije and its communication strategy for shareholders and the Company’s other stakeholders ensure the equal treatment of shareholders, and facilitate the consistent exercise of their rights. Internal acts define the protection of the confidentiality of trade secrets and inside information, while mechanisms have also been established to prevent the leakage of inside information. The convening of the General Meeting of Shareholders and all materials, including the agenda and proposed resolutions, were published on the Company’s website at http://www.telekom.si/en/investor-relations/shareholders-meeting and on the stock exchange’s electronic notification system at http://seonet.ljse.si.The convening of the General Meeting of Shareholders was also published on the website of Agency of the Republic of Slovenia for Public Legal Records and Related Services. Both counter-proposals of shareholders were also published on the same websites. The timely publication of materials for the General Meeting of Shareholders and proper procedures for the convening of the General Meeting of Shareholders enabled shareholders to actively exercise their rights. The resolutions of the General Meeting of Shareholders, documentation from previous meeting and recordings of General Meetings, which can also be viewed live, are published on the Company’s website at http://www.telekom.si/en/investor- relations/shareholders-meeting.

Shareholders may address their proposals and suggestions to the Company via the Investor relations email at ir@ telekom.si. There were no such suggestions received in 2014.

Supervisory Board in 2014

Work of the Supervisory Board In the scope of its powers and in line with the principles of corporate governance, the Supervisory Board was regularly briefed on the operations of Telekom Slovenije and the Telekom Slovenije Group. It met at 14 regular sessions and four correspondence sessions.

Members of the Supervisory Board regularly discussed strategically important activities and proposals by the Management Board, and actively responded to those proposals and provided their opinions. The work of the Supervisory Board is presented in more detail in the Report of the Supervisory Board.

Significant activities of the Supervisory Board: ¬ it was briefed on the progress of significant projects at the Company and on the operations of Group companies; ¬ it adopted the Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019; ¬ it gave its consent to the appointment of managing directors of subsidiaries; ¬ it approved the sale of the participating interest in Gibtelecom; ¬ it approved the settlement reached with Simobil; ¬ it approved the consolidation of the markets in Macedonia and Bosnia and Herzegovina; and ¬ regularly monitored the sale of the majority stake in the Company.

Composition of the Supervisory Board17 The Supervisory Board of Telekom Slovenije comprises nine members, six of whom are shareholder representatives and three of whom are employee representatives. Shareholder representatives were appointed based on the proposal of owners and selected via public tender, while employee representatives were elected by the Works Council. Members of the Supervisory Board must possess the appropriate expertise and competences to perform their supervisory tasks. All members of the Supervisory Board submitted statements of compliance with the criteria of independence for 2014 in accordance with the Corporate Governance Code (the statements are published on the Company’s website at: http://www.telekom.si/o-podjetju/upravljanje-druzbe/izjave-2013.pdf).

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Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 31 The composition of the Supervisory Board changed several times during the 2014 financial year. At the beginning of April, Milan Richter resigned from the Supervisory Board, while Martin Gorišek resigned at the end of April. In May the Works Council elected Primož Per and Samo Podgornik to replace Mr Richter and Mr Gorišek as employee representatives on the Supervisory Board. The replacement employee representatives were elected to the Supervisory Board for the remainder of the current term of office, which expires on 14 November 2017.

The Supervisory Board comprised the following members as at 31 December 2014:

Shareholder representatives: 6. Bernarda Babič, MSc, member 1. Borut Jamnik, President - hold a master’s degree in business policy and - holds a bachelor’s degree in mathematical organisation, with a major in banking; engineering; - President of the Supervisory Board of VGP Novo - President of the Management Board of Modra mesto, d. d. zavarovalnica, d. d.; - President of the Management Board of PDP, d. d.; Employee representatives: - President of the Slovenian Directors’ Association. 1. Dean Žigon, Vice-President - Sales Manager; 2. adolf Zupan, MSc, Vice-President - employed in the Sales Sector, Sales Department - holds a bachelor’s degree in law and master’s – Private Users; degree in science; - President of the SINEKS trade union. - member of the Supervisory Board of Drava d. d., Ptuj. 2. Samo Podgornik, member - electrical and electronic engineer; 3. Matej Golob Matzele, member - employed in the Network Access Sector; - holds a bachelor’s degree in economics; - President of the Nova Gorica chapter of Telekom - Executive Director at Abanka Vipa, d. d.; Slovenije’s trade union; - President of the Supervisory Board of - member of the Works Council. Aleasing, d. o. o. 3. Primož Per, member 4. Marko Hočevar, PhD - master’s degree in technical security - holds a bachelor’s degree and doctorate in engineering; economics; - employed in Office of the Management Board, - full professor of accounting and auditing at the Human Resource Department; University of Ljubljana’s Faculty of Economics; - member of the Works Council. - member of the Supervisory Board of the Slovenian Press Agency.

5. Tomaž Berločnik, MSc, member - holds a bachelor’s degree in mechanical engineering and a master’s degree in economics; - President of the Management Board of Petrol, d. d.; - Supervisor at IGES, d. o. o.; - member of the Supervisory Board of Geoplin, d. o. o., Ljubljana.

32 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Composition and function of Supervisory Board committees18 The Supervisory Board has four committees that discussed individual areas of expertise in accordance with their respective competences and tasks defined in the Company’s Corporate Governance Policy. Presented below are the most important areas addressed by committees, and the composition of those committees at the end of 2014.

The Audit Committee functioned in accordance with the Companies Act, the Rules of Procedure of Telekom Slovenije, d. d.’s Audit Committee and the recommendations for the Audit Committee. The Audit Committee met at 13 sessions in 2014, one of which was a correspondent session.

The committee’s members were as follows as at 31 December 2014: ¬ Bernarda Babič, MSc (chairperson), ¬ Marko Hočevar, PhD, ¬ Matej Golob Matzele, ¬ Dean Žigon, and ¬ Barbara Nose (external committee member).

The committee discussed the following topics at its meetings: ¬ the annual report of the Telekom Slovenije Group for 2013, and quarterly business reports of Telekom Slovenije and the Telekom Slovenije Group in 2014, ¬ post-audit letter to the management, ¬ proposal for the selection of an auditor for 2014, ¬ internal audit reports and half-yearly reports on the work of the Internal Audit Service, ¬ quarterly risk management reports, ¬ management of claims and exposure to subsidiaries, ¬ monitoring of costs and supplier management, ¬ the anonymous reporting system, ¬ compliance monitoring, ¬ assessment of the independence of the external and internal audit functions, and ¬ management of risks in the area of marketing.

The Audit Committee performed a self-assessment in March 2014, the results of which it presented at a session of the Supervisory Board.

Two sessions were attended by the certified auditor of KPMG, while representatives of Telekom Slovenije’s Internal Audit Service were regularly invited to sessions.

Members of the Audit Committee participated in both sessions of the Committee to Monitor Strategic Projects and the Drafting of the Strategic Plan. The Audit Committee worked with the Technical Committee when the subjects of IT auditing and security were discussed.

The Technical Committee met at six sessions. The most important topics of discussion included procedures relating to auction of frequencies, the progress of the consolidation of the business support system (BSS), IT auditing and security.

The committee’s members were as follows as at 31 December 2014: ¬ Tomaž Berločnik, MSc (chairman), ¬ Borut Jamnik, ¬ Samo Podgornik.

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Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 33 The Human Resource Committee met at 11 sessions, one of which was a correspondent session. The following important topics were discussed at sessions: the definition of objectives and criteria for members of the Management Board for 2014, procedures for the appointment of members of the Management Board whose terms of office expired in 2014 and the procedures for the appointment of candidates for management functions at Group subsidiaries. In procedures linked to the appointment of Management Board members, the committee worked with an external human resource agency that searches for and selects management staff.

The committee’s members were as follows as at 31 December 2014: ¬ Adolf Zupan, MSc (chairman) ¬ Borut Jamnik, ¬ Primož Per.

The Committee to Monitor Strategic Projects and the Drafting of the Strategic Plan met at two meetings, where it discussed in detail Telekom Slovenije’s Strategic Business Plan for the period 2015 to 2019. All members of the Supervisory Board were invited to both sessions.

The committee’s members were as follows as at 31 December 2014: ¬ Adolf Zupan, MSc (chairman) ¬ Marko Hočevar, PhD, ¬ Matej Golob Matzele, ¬ Dean Žigon.

Remuneration of Supervisory Board members Shareholders adopted a resolution at the 24th General Meeting by which it reversed the resolution of the 20th General Meeting of Shareholders of 31 August 2011 and redefined remuneration of Supervisory Board members. Supervisory Board members are entitled to attendance fees, basic payment for performing their functions and additional payments for participation in Supervisory Board committees. The amount of payments were fixed by resolution. Also defined were the maximum annual amounts of and eligibility criteria for the reimbursement of transportation expenses, daily allowances and costs of overnight stays. The amounts of payments made to members of the Supervisory Board are given in the Financial Report.

Management Board19

Work of the Management Board Telekom Slovenije’s Management Board manages transactions and represents the Company independently, and is liable for its own actions in that regard. It makes decisions that are in line with the Company’s strategic objectives and in the interest of shareholders. The Management Board met and made decisions at 79 regular and 29 correspondence sessions in 2014. It drew up the Strategic Business Plan for the period 2015 to 2019, completed the sale of the participating interest in Gibtelecom and actively implemented consolidation activities on the Macedonian market. It also participated in the sale of the majority stake in Telekom Slovenije in the scope of its powers. The focus of its work included: ¬ business process re-engineering, ¬ the continued optimisation of costs, ¬ activities to strengthen sales, and ¬ the development of new services and networks at Group companies.

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34 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Composition of the Management Board Members of the Management Board are appointed for a term of office of four years, which begins on the day of appointment. They are appointed by the Supervisory Board, taking into account the relevance of their expertise and managerial competences.

Telekom Slovenije is managed by a five-member Management Board, comprising the following members:

1. Rudolf Skobe, MSc (President) 3. Zoran Janko (member) - holds a master’s degree in management - holds a bachelor’s degree in economics; and organisation, and a bachelor’s degree in - was head of finance, accounting and electrical engineering; controlling at Mobitel from 1996. Assumed the - employed by Telekom Slovenije and Group position of Mobitel’s Chief Executive Officer companies since 1996. Worked as Director of in March 2010, and following the merger of Sales and Marketing since 2004, then served Telekom Slovenije and Mobitel became the as Managing Director of SiOL and Managing head of the procurement and logistics sector; Director of Planet, which was merged with - began his term of office on 27 October 2011. Najdi.si and renamed TSmedia; - began his term of office on 1 September 2012. 4. Mateja Božič, MSc (member) - holds a master’s degree in management 2. Tomaž Seljak, MSc, Vice-President of the and organisation, and a bachelor’s degree in Management Board construction; - holds a master’s degree and a bachelor’s - is an experienced internal auditor; degree in electrical engineering; - served in several positions of responsibility and - employed for 17 years at the Company in management positions at Petrol, Kapitalska positions of responsibility relating to the družba pokojninskega in invalidskega network, most recently as Director of the zavarovanja and Zavarovalnica Triglav; Network Access Sector; - began her term of office on 1 January 2013. - began his term of office on 1 May 2014. 5. Vesna Lednik, (member and Worker Director) Zoran Vehovar, MSc served as Vice-President of the - 22 years of work experience, the last 15 years Management Board until 30 April 2014. in management positions at the Company; - began her term of office on 23 April 2014.

Darja Senica served as member of the Management Board and Workers Director until 7 April 2014.

Remuneration of the Management Board The composition and amount of earnings of the Management Board are set out in members’ employment contracts and are in line with the Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities (ZPPOGD). The conditions for profit sharing by the Management Board are governed by the Company’s Articles of Association. The earnings of the Management Board in 2014 are presented in the Financial Report.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 35 Management and governance of subsidiaries20

As parent company, Telekom Slovenije manages and supervises Telekom Slovenije Group companies in accordance with Slovenian law, the applicable laws in the countries of Group companies and the valid acts of the Company and Group. In all business areas, subsidiaries act in accordance with local legislation, business cooperation agreements with Telekom Slovenije and with internal rules and instructions adopted by the management of an individual subsidiary or Management Board of the parent company.

Telekom Slovenije’s Management Board adopted the Corporate Governance Rules of the Telekom Slovenije Group in March 2014. The aforementioned document sets out the rules, criteria and mechanisms for managing and supervising Telekom Slovenije Group companies and is in line with Telekom Slovenije’s Corporate Governance Policy. The management and supervision of the operations of Group companies is based on the following core principles: ¬ links with the Group’s strategy; ¬ governance via management by objectives, where those objectives derive from the Group’s strategy; ¬ clearly defined roles (tasks, competences and responsibilities) of those responsible for the management and supervision of the Group; and ¬ simplicity and flexibility (the ability to adapt to changes in the organisation and operations of the Group).

In the scope of those rules, the Management Board of Telekom Slovenije actively monitored and supervised the operations of subsidiaries through membership in their supervisory bodies. The following persons may be appointed as members of a supervisory body: Management Board members, sector directors, and heads of independent departments within the Office of the Management Board, theA ssistant to the President of the Management Board and other persons appointed by the Management Board of Telekom Slovenije. As a rule, a member of a supervisory body is the member of the Management Board responsible for a specific subsidiary. The strategic bodies of subsidiaries meet once a month in 2014 to facilitate the regular and timely sharing of information between the Management Board of Telekom Slovenije and the management boards of the subsidiaries.

Composition of management and supervisory bodies at subsidiaries of the Telekom Slovenije Group as at 31 December 2014

Slovenia

GVO, d. o. o. Managing Director: Borut Radi Edo Škufca served as Managing Director until 28 February 2014.

AVTENTA, d. o. o. Managing Director: Vedran Krevatin Miha Praunseis was appointed Managing Director for a term of office of four years, effective 1 January 2015.

TSmedia, d. o. o. Managing Director: Tomaž Pernovšek, MSc

SOLINE, d. o. o. Managing Director: Klavdij Godnič

M-Pay, d. o. o. Managing Director: Janez Stajnik Based on the resignation submitted by Dr Dean Korošec, the company’s supervisory board relieved the latter of his position as Managing Director as of 31 January 2014, and appointed Janez Stajnik to take his place, effective 1 February 2014.

SETCCE d.o.o. Managing Director: Aleksej Jerman Blažič

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36 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Other countries

IPKO Telecommunications LLC, Kosovo Board of Directors: Rudolf Skobe, MSc (President), Bujar Musa (Vice-President), Artan Lahaj, Dr Ciril Kafol and Robert Erzin, MSc CEO: Robert Erzin, MSc

ONE DOOEL Skopje, Macedonia Managing Director: Dr Ciril Kafol

DIGI PLUS MULTIMEDIA DOOEL Skopje, Macedonia Managing Director: Metodija Mirčev Janez Marovt resigned from his position as Managing Director, effective 31 May 2014. The general meeting of shareholders appointed Metodija Mirčev as new Managing Director, effective 1 June 2014.

Blicnet d. o. o. Banja Luka, Bosnia and Herzegovina Managing Director: Igor Bohorč, MSc

SIOL d. o. o. , Zagreb, Croatia Managing Director: Janez Marovt Igor Rojs, MSc has been Managing Director since 1 February 2015.

SIOL, d. o. o., Podgorica, Montenegro Managing Director: Igor Bohorč, MSc Igor Rojs, MSc has been Managing Director since 1 February 2015.

SIOL, d. o. o., Sarajevo, Bosnia and Herzegovina Managing Director: Igor Bohorč, MSc Igor Rojs, MSc has been Managing Director since 1 February 2015.

Communication with stakeholders Managing communications with key stakeholders follows the communications strategy, which represents an integral part of the Corporate Governance Policy of the Telekom Slovenije. Telekom Slovenije introduced proactive and two-way communication strategy in 2014. The aforementioned strategy focuses on achieving correct, stable and long-term relations with key stakeholders. It is based on the guiding principles of understanding, openness and objectivity.

Telekom Slovenije also reports on its communications with individual groups of stakeholders in sections that comprehensively address responsibility to employees, investors, shareholders, suppliers, other business partners and the local and wider communities.

Information of a public nature The new Access to Public Information Act (ZDIJZ) entered into force in 2014 and expanded the range of those responsible for access to public information, including at companies under the controlling influence of the government. Companies under the controlling influence of the government, self-governing communities and other public entities are obliged to ensure access to public information: ¬ by facilitating access based on individual requests for access; and ¬ by proactively publishing information on their websites.

To that end, the Telekom Slovenije Group appointed two public information officers, set up an internal portal with all information for employees, and established the email address [email protected] where all requests for access to public information are received. The Telekom Slovenije Group received four requests for information under the ZDIJZ in 2014. All responses were provided by the legally prescribed deadline. Basic information regarding donation, sponsorship, consultancy and copyright agreements are published regularly on the websites of the parent company and Group companies, which are deemed liable under the ZDIJZ, and regarding payments under such agreements.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 37 Communication with the media21 The parent company is responsible for communication regarding corporate topics relating to the Telekom Slovenije Group, while individual subsidiaries communicate independently regarding other topics, taking into account basic communication principles that apply to the entire Group.

The media is regularly informed about the latest developments in the areas of technology-development, services and sales (the organisation of events, the drafting of press releases, etc.) and about the operations of the Group during regular press conferences that take place every quarter, while the general public is informed about the most important business events via the Ljubljana Stock Exchange’s SEOnet system. Journalists’ questions are answered regularly and in a timely manner, or by no later than the legally prescribed deadlines.

A total of 16,795 articles regarding Telekom Slovenije were recorded in 2014, an increase of 9% on 2013. Positive articles accounted for 72% of the total, neutral articles for 21.9% and negative articles for 6.1%. The majority of articles were on the topic of shares and the stock exchange, the sale of the government’s stake in Telekom Slovenije, and sponsorship of the Premier Football League and athletes who participated in the Olympic Games.

Communication with regulatory and government bodies22 The telecommunications sector is one of the most regulated economic sectors. We ensure consistent compliance with applicable regulations, recommendations and decisions of regulatory bodies, and respond with sound expert arguments, as necessary. Through their expert proposals, the Group also plays an active role in the process of drafting legislation in the field of electronic communications.

In addition to the Agency for Communication Networks and Services of the Republic of Slovenia (AKOS) and similar bodies in countries in which Group companies operate, the competent ministries and other government bodies also play an important, primarily legislative role.

Internal controls related to financial reporting Risks are managed and internal controls carried out at Telekom Slovenije at all levels. The management of the parent company and Group companies is responsible for the functioning of the internal control system. Internal controls are a part of business processes and systems.

The objectives of internal controls are as follows: ¬ to ensure the compliance of operations with the law, other regulations, standards, agreements and the Company’s internal acts; ¬ to ensure reliable and irreproachable accounting and executive information; ¬ the protection of assets; ¬ the efficiency and successfulness of operations; and ¬ the achievement of the Company’s strategic objectives.

The internal control system ensures the achievement of objectives and the management of key risks. It is controlled via management supervision, internal audits, the external audit of financial statements and other independent assessments.

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38 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Internal auditing The Internal Audit Service functions in accordance with the standards for the professional practice of internal auditing and the code of professional ethics. Internal auditing is conducted for all group companies. The areas and scope of its work are defined in its annual work plan, which is adopted by the Management Board, subject to the approval of the Supervisory Board’s Audit Committee. The service regularly verifies the implementation of recommendations. The Internal Audit Service reports periodically to the Management Board and Supervisory Board’s Audit Committee on findings and recommendations for improvements.

Audits in 2014 focused on improving the effectiveness of the Telekom Slovenije Group’s risk management system. To that end, the service pursued established objectives relating to improving the effectiveness of governance, the control of procurement and sales processes and the appropriateness of information technology management.

In the scope of its advisory tasks, the service reviewed existing possibilities for reporting irregularities and unlawful acts, and proposed improvements to the process of receiving and handling reports in accordance with best practices and Slovenian guidelines on corporate integrity (whistle-blowing). The Internal Audit Service also participated in other transactions of an advisory nature and in internal assessments for ISO standards.

External auditing At Telekom Slovenije’s 25th General Meeting of Shareholders, the audit firm KPMG Slovenija, d. o. o. was appointed to audit the financial statements for the 2014 financial year. Audit costs are disclosed in the Financial Report of Telekom Slovenije, d. d.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 39 1.14. corporate governance statement

Statement of compliance with the Corporate Governance Code

In accordance with the provision of the fifth paragraph of Article 70 of the Companies Act (ZGD-1), the Corporate Governance Code for Companies with Capital Assets of the State and the Corporate Governance Code, Telekom Slovenije, d. d. hereby issues the following as part of its annual report

CORPORATE GOVERNANCE STATEMENT

The Management Board and Supervisory Board of Telekom Slovenije, d. d. (hereinafter: Telekom Slovenije) hereby declare that the governance of Telekom Slovenije during the 2014 financial year was in line with the Companies Act, the Financial Instruments Market Act, the Rules of the Ljubljana Stock Exchange and other applicable regulations.

The corporate governance statement is an integral part of the 2014 annual report and is available on the Company’s website at www.telekom.si.

Explanations in accordance with the Companies Act

Pursuant to the fifth paragraph ofA rticle 70 of the Companies Act (ZGD-1), which sets out the minimum content of the corporate governance statement, Telekom Slovenije hereby issues the following explanations:

1. description of the main features of the Company’s internal control and risk management systems in relation to the financial reporting process: The Telekom Slovenije Group and Telekom Slovenije manage risks and carry out internal controls at all levels. The management of the parent company and Group companies is responsible for establishing a functioning internal control system (also stated in point 9.8 of the Rules on Corporate Governance and point 4 of the Consolidation Manual). Internal controls are built into business processes and systems. The objectives of internal controls are to ensure compliance with the law and other regulations, standards, agreements and the Company’s internal acts, to ensure reliable and irreproachable financial and executive information, to protect assets, to ensure the effectiveness and success of operations, and to achieve strategic objectives. The internal control system ensures the achievement of objectives and the management of key risks. The functioning of the internal control system is controlled via management supervision, internal audits, the external audit of financial statements and other independent assessments (ISO and others).

2. Significant direct and indirect ownership of the Company’s securities in terms of achieving a qualifying holding as set out in the Takeovers Act: There were two holders of a qualifying holding as set out in the Takeovers Act as at 31 December 2014: the Slovenian government with 4,087,569 shares or 62.54% and Kapitalska družba, d. d. with 365,175 shares or 5.59%.

3. Explanations regarding each holder of securities that provide special controlling rights: Telekom Slovenije has issued 6,535,478 ordinary registered no-par-value shares. All shares are of the same class and bear the same rights, meaning that their holders have no special controlling rights arising from the ownership of Telekom Slovenije shares.

40 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 4. R estrictions on voting rights: Pursuant to the first paragraph of Article 70 of the Takeovers Act (ZPre-1), the Securities Market Agency controls the implementation of the aforementioned act. In decision no. 0600-50/2010-1-25 of 25 January 2013, the agency found that the Slovenian government, KAD, SOD, Aerodrom, Nova KBM, Luka Koper, Fund for Financing the Decommissioning of the Krško Nuclear Power Plant and Zavarovalnica Triglav act in concert and exceed the takeover threshold in the target company Telekom Slovenije. In that decision, the agency prohibited the aforementioned legal entities from exercising their voting rights in the target company Telekom Slovenije, until together, one of them on behalf of and for the account of all or several of them makes a takeover bid for the shares of the target company in accordance with the ZPre-1 or until the companies set out in the decision that are holders of voting rights in the target company dispose of TLSG shares so that the takeover threshold can no longer be reached by all of them together, by one of them or by several of them. Because none of the aforementioned legal entities issued a takeover bid and thus changed the legal circumstances for the withdrawal of the sanction (prohibition on the exercising of voting rights), that prohibition remains in force.

5. Company’s rules on the appointment and replacement of members of the management and supervisory bodies, and change to the Articles of Association: The Company complies with valid legislation in full. The Company’s rules do not specifically regulate the appointment and replacement of members of management and supervisory bodies.

6. Powers of senior management, in particular powers to issue or purchase treasury shares: The 24th General Meeting of Shareholders of Telekom Slovenije held on 1 July 2013 authorised the Management Board to purchase treasury shares. The proportion of the Company’s share capital accounted for by purchased treasury shares, together with the shares the Company already holds, may not exceed 10% of share capital or 653,547 shares. Authorisation to purchase treasury shares is valid for 36 months from the day the relevant resolution is adopted.

7. Information regarding the functioning of the Company’s General Meeting of Shareholders and its key competences, and a description of the rights of shareholders and how those rights are exercised: Shareholders exercise their rights at the General Meeting of Shareholders. The General Meeting of Shareholders is convened when it benefits the Company or whenever required in accordance with the law and Articles of Association, at a minimum once a year. The competences and functioning of the General Meeting of Shareholders are set out in the Companies Act (ZGD-1), the Articles of Association and the Rules of Procedure of the General Meeting of Shareholders. Shareholders have the right to participate in the management of the Company, the right to dividends and the right to an appropriate share of residual assets after the Company’s liquidation or bankruptcy. Shareholders exercise their right to information in accordance with the first paragraph of Article 305 of ZGD-1 at the General Meeting of Sharehodlers. Detailed information regarding shareholders’ rights set out in the first paragraph of Article 298, the first paragraph of Article 300, Article 301 and Article 305 of ZGD-1 are available on the Company’s website at www.telekom.si/o-podjetju/za-vlagatelje/skupscina-delnicarjev following publication of the convening of the General Meeting of Shareholders. Shareholders who are entered in the central register of securities at the KDD (Central Securities Clearing Corporation) at the close of business four days prior to the General Meeting of Shareholders (cut-off day) are entitled to participate and vote at the General Meeting of Shareholders, if they have registered in writing at the Company’s registered office at least three days prior to the General Meeting of Shareholders. The 25th General Meeting of Shareholders was held on 30 May 2014. The agenda, results of voting, adopted resolutions and other information regarding the course of the General Meeting of Shareholders were published on the website of the Ljubljana Stock Exchange, in the scope of SEOnet electronic notification system, and on the Company’s website.

8. Information regarding the composition and functioning of management and supervisory bodies and their committees: Management and supervisory bodies and their committees are presented in section 1.13 (Corporate governance) of the 2014 annual report.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 41 Telekom Slovenije, whose shares are listed on the prime market of the Ljubljana Stock Exchange, strives to the best of its ability to comply with the following codes and recommended best business practices in the area of management and governance: - the Corporate Governance Code for Companies with Capital Assets of the State, which was adopted by Slovenski državni holding, d. d. on 19 December 2014, and the Recommendations and Expectations of Slovenski državni holding from December 2014 (both documents are accessible at the website www.sdh.si); - the Corporate Governance Code for State Capital Assets of 15 May 2013, which was in force until 19 December 2014, and the Recommendations of the Manager of Indirect and Direct State Capital Assets of 12 April 2013, which applied until December 2014 (both documents are accessible on the websites www.so-druzba.si or www.sdh.si); and - the Corporate Governance Code of 8 December 2009 and the Recommendations to Public Companies Regarding Notification of 1 February 2013, issued by the Ljubljana Stock Exchange (both documents are accessible on the Ljubljana Stock Exchange’s website at www.ljse.si).

There were no major deviations in the implementation of the aforementioned codes and recommendations by Telekom Slovenije in 2014. Deviations from individual recommendations are explained below. In its operations, Telekom Slovenije also complies with the internal acts and the Code of Business Ethics of Telekom Slovenije, d. d. of 27 March 2012 and 5 June 2012, which is accessible on the Company’s website at www.telekom.si, and strives to improve corporate governance practices.

Corporate Governance Code for Companies with Capital Assets of the State

Section: Corporate governance framework for companies with capital assets of the state Telekom Slovenije’s governance system is based on legal provisions, internal acts and rules of procedure. The Corporate Governance Policy of Telekom Slovenije, which was adopted in December 2011 as an internal governance code, represents the Company’s commitment to work in this area. It defines groups of stakeholders, a communication strategy and cooperation with those groups, a policy governing links between the parent company and its subsidiaries, a commitment to identify conflicts of interest and the independence of members of the Supervisory Board and Management Board, the system used to segregate responsibilities and competences between members of management and supervisory bodies, the role of Supervisory Board committees and the protection of employees’ interests. Telekom Slovenije is focused on achieving its established business objectives and the implementation of its vision and development strategy. All operational business decisions to achieve objectives are made in the scope of the Strategic Business Plan and Annual Business Plan. The Company’s Supervisory Board discussed and approved the Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019 in November 2014.

Section: Supervisory board Selection of candidates for members of supervisory bodies and formulation of proposals for a general meeting – point 6.1.7: One of the key proprietary mechanisms of corporate governance is the right and duty of owners to appoint independent and professionally qualified individuals to supervisory bodies, who responsibly and professionally supervise the work of the management boards of companies, and work with them in the governance process. In 2012 the Supervisory Board defined the Criteria and Procedures for Determining the Appropriateness of Candidates for Members of the Supervisory Board. The Supervisory Board has a Human Resource Committee that functions as a nominations committee. The Human Resource Committee comprises two shareholder representatives and one employee representative of the Supervisory Board. The chairman of the Human Resource Committee is a shareholder representative. There is no external expert on the Supervisory Board’s Human Resource Committee. External experts are included as required.

Evaluation of the efficiency of the work of supervisory boards – point 6.11: The Audit Committee performed a self-assessment in March 2014, and reported its findings at a session of the Supervisory Board. Activities to assess the effectiveness of the Supervisory Board, which were not completed in full in 2014, continued in February 2015.

42 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Audit Committee of the Supervisory Board – point 6.12.2: Telekom Slovenije deviates in part from this recommendation, as the Audit Committee held more sessions than set out in the recommendation.

Directors and officers (D&O) insurance – point 7.3.10: Liability insurance for members of the Management Board and Supervisory Board of Telekom Slovenije deviates in part from the recommendation, as the existing insurance policy does not envisage a deductible. The policy was underwritten when the valid recommendations of the manager of indirect and direct state capital investments did not envisage a deductible.

Section: Management board or senior management Remuneration of members of a management board – point 7.3: The Supervisory Board takes into account the Act Governing the Earnings of Management Staff at Companies under the Majority Ownership of the Republic of Slovenia and Self-Governing Local Communities (UL RS, Nos. 21/10 and 8/11) when defining the remuneration of Management Board members.

Section: Adoption of a code of ethics and corporate integrity Code of ethics – point 10.1.1: Telekom Slovenije revised the Code of Business Ethics of Telekom Slovenije, d. d. in 2014.

Corporate integrity – point 10.2: By signing the Slovenian corporate integrity guidelines on 14 October 2014 (www.korporativna-integriteta. si/Smernice/Smernice(SSKI).aspx), Telekom Slovenije joined the group of corporate integrity ambassadors. By doing so, it committed itself to respecting and strengthening corporate integrity in its operations, and to raising awareness about the importance of operating in accordance with the law and ethical standards as the core principles of socially responsible operations within the Slovenian economy as a whole. Immediately after signing the aforementioned guidelines, Telekom Slovenije addressed the comprehensive arrangement of this area. Activities continue in 2015.

Recommendations and Expectations of Slovenski državni holding

Three-year business planning by a company/group – point 1: Telekom Slovenije deviates in part from this recommendation, as it treats its annual and strategic business plans as trade secrets. Their disclosure would have an adverse impact on the competitive position of the Company and Group. A summary of the Annual Business Plan of the Telekom Slovenije Group for 2015, with highlights from the Strategic Business Plan for the period 2015 to 2019, is published in the Ljubljana Stock Exchange’s SEOnet system (http://seonet.ljse.si/default.aspx?doc=SEARCH&doc_id=56107).

Periodic reporting on the performance of a company/group – point 2: Telekom Slovenije deviates in part from this recommendation, as it reports on the performance of the Company and Group in accordance with the valid legislation to which it is bound as a joint stock company.

Transparency of procedures of making business deals involving company expenditure (ordering goods and services, donations and sponsorship) – point 3: The procedures for the selection and conclusion of transactions, as envisaged by this recommendation, are carried out in accordance with the Company’s internal acts. The use of funds for the purposes of sponsorships, donations and the procurement of goods and services is determined through interim and annual reports on operations. The Supervisory Board has set up a system of controls that is implemented on the basis of mandatory quarterly reporting by the Management Board.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 43 In accordance with the Company’s business interests and in order to protect trade secrets arising from contractual relations and information whose disclosure would be detrimental to the competitive position of the Company or could cause damage to Telekom Slovenije, the Company does not publish data regarding a selected tenderer (procurement of goods and services), the type of transaction or the value of the concluded transaction on its website. Until the new Access to Public Information Act (ZDIJZ-C) entered into force, the Company published information regarding the most important sponsorship and donation projects, provided that the recipients of funds agreed in advance with such publication. As a rule, the Company did not publish data regarding the value of a transaction. With the entry into force of the ZDIJZ-C, the Company is now obliged to provide access to public information, as it is deemed a business entity under controlling influence of a public entity. The Company regularly publishes public information on its website (www.telekom.si/o-podjetju/ijz) relating to donation, sponsorship, advisory and other copyright or intellectual services.

Optimisation of labour costs in 2015 – point 4: Telekom Slovenije deviates in part from this recommendation, as it does not publish collective agreements binding for the Company or agreements concluded with employee representatives that relate to remuneration for work because it does not have the consent of employee representatives for such publication.

Achieving quality and excellence in the operations of a company/group – point 5: In accordance with the Group’s established strategy, we continued in 2014 with development from individual quality systems to an integrated quality management system and business excellence. We achieved the following objectives: - successful periodic assessment and accreditation of the energy management system (SIST EN ISO 50001, SIQ and Slovenian Accreditation), - successful periodic assessment and accreditation of the environmental management system (SIST EN ISO 14001), - successful certification of the information security management system (SIST ISO/IEC 27001), - completion of the project to introduce a business continuity management system (SIST EN ISO 22301), - successful accreditation of the Internal Rules of Telekom Slovenije (Archives of the Republic of Slovenia), and - all previously acquired certificates at subsidiaries were maintained.

In the more specific field of business excellence, we completed the Leaders for Excellence Level 1 training programme at the European Foundation f or Quality Management (EFQM), and participated in the Operational Excellence at State-Owned Companies training organised by the SOD and in the PRSPO 2014 consultations. Discussions were also held with potential suppliers for assistance in the self-assessment process.

In terms of achieving quality, we implemented all recommendations, with the exception of recommendations 5.2 and 5.4 (discussions by supervisory bodies; ISO 27001 and ISO 22301 were presented, while the presentation of other systems is planned for March 2015). The implementation of recommendations to achieve business excellence is planned in 2015 and 2016; we originally planned a pilot assessment in 2014, but implementation was subsequently postponed until 2015.

Corporate general meetings – point 6: Telekom Slovenije deviates in part from this recommendation, as it does not disclose the employment earnings of employee representatives of the Supervisory Board in its annual report because it does not have their consent. Telekom Slovenije and Group companies disclose the earnings of management bodies in accordance with the provisions of the ZDIJZ-C.

44 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Corporate Governance Code

Section: Relations with shareholders Recommendation 5.2: The Company did not organise the collection of powers of attorney for the General Meeting of Shareholders in 2014, nor did it receive notification regarding the organised collection of notifications from individuals or institutions.

The corporate governance statement relates to the period 1 January 2014 to 31 December 2014. There have been no changes or new deviations from the end of the accounting period until the publication of this statement. Any deviations from the given statement of compliance with the aforementioned codes and recommendations will be published promptly by the Company.

Telekom Slovenije, d. d. will continue to abide by the recommendations of the Corporate Governance Code for Companies with Capital Assets of the State, the Recommendations and Expectations of Slovenski državni holding and the recommendations of the Corporate Governance Code in the future, and enhance its corporate governance system accordingly.

mag. Rudolf Skobe, Borut Jamnik, President of the Management Board President of the Supervisory Board

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 45 1.15. ownership structure and share trading23

The value of Telekom Slovenije shares (TLSG) rose by nearly one fifth from the beginning until the end of the year. Telekom Slovenije shares were one of the most heavily traded shares on the prime market of the Ljubljana Stock Exchange, and ranked second in terms of market capitalisation.

Highlights in 2014

H aving recorded growth of 19.3%, Telekom Slovenije shares 1. (TLSG) ended the year in positive territory.

T here were no significant changes in the ownership structure; individual 2. shareholders, who increased their stake in the Company by 0.45 percentage points to 11.66%, recorded the most significant change.

Market capitalisation stood at EUR 947.64 million at the end of the year, 3. ranking TLSG shares second on the market in this regard.

General information regarding Telekom Slovenije, d. d. shares as at 31 December 2014

General information regarding shares 2014 Ticker symbol TLSG Listing Ljubljana Stock Exchange, prime market Share capital (EUR) 272,720,664.33 Number of ordinary registered no-par value shares 6,535,478 Number of shares held in treasury 30,000 Number of shareholders as at 31 December 2013 11,498

Ownership structure and largest shareholders As at 31 December 2014 there were 11,498 shareholders entered in Telekom Slovenije’s register of shareholders, a decrease of 131 on the end of 2013. The most significant decline (of 125) was recorded by the category of individual shareholders.

There were no significant shifts in the ownership structure, as there was no change exceeding 1 percentage point in any category. Domestic corporates decreased their stake slightly, by 0.47 percentage points to 8.40%, while individual shareholders increased their stake by 0.45 percentage points to 11.66%. The Company’s largest shareholder at the end of 2014 remained the government, together with Kapitalska družba, Slovenski državni holding and Modra zavarovalnica. Collectively, 73.82% of the Company’s shares were directly or indirectly held by the government at the end of the year.

23 GRI G4-7, G4-13

46 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Ownership structure as at 31 December 2014

Republic of Slovenia 62.54%

Slovenian Sovereign Holding , d.d. 4.25%

Individual shareholders 11.66%

Domestic corporations 8.40%

Kapitalska družba d.d. (pension fund manager; KAD) 5.59% Institutional investors 2.96%

Foreign corporations 4.04%

Brokerage houses 0.10%

Treasury shares 0.46%

Changes in the ownership structure by shareholder category

% % Annual ownership ownership change in Shareholder as at 31 as at 31 percentage December December points 2014 2013 Republic of Slovenia 62.54 62.54 - Slovenska odškodninska družba, d. d. (SOD) 4.25 4.25 - Individual shareholders 11.66 11.21 0.45 Other Slovenian corporate investors 8.40 8.87 –0.47 Kapitalska družba, d. d. 5.59 5.59 - Investments funds and management companies 0.02 0.07 –0.05 Foreign corporate investors 4.04 4.93 –0.89 Banks 0.87 0.92 –0.05 Mutual and other funds 1.53 0.87 0.66 Telekom Slovenije, d. d. (treasury shares) 0.46 0.46 - Insurance companies 0.54 0.17 0.37 Brokerage firms 0.10 0.12 –0.02 Total 100.00 100.00

* Slovenski državni holding (SDH) was established in June 2014 with the entry into force of the ZSDH-1, and assumed the responsibilities and obligations of Slovenska odškodninska družba (SOD).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 47 Ten largest shareholders As at 31 December 2014 the ten largest shareholders held 77.83% of the Company’s share capital, up 0.06 percentage points on the end of 2013. Changes occurred in the structure of the ten largest shareholders, as Perspektiva FT doubled its ownership stake, while The Bank of New York Mellon and Telekom Slovenije (through treasury shares) also ranked among the top ten, replacing Intersvet and NFD 1, mešani fleksibilni podsklad.

Shareholder as at 31 December 2014 % Shareholder as at 31 December 2013 %

1 Republic of Slovenia 62.54 Republic of Slovenia 62.54 2 Kapitalska družba d.d. 5.59 Kapitalska družba, d. d. 5.59 3 Slovenski državni holding, d.d.* 4.25 Slovenska odškodninska družba, d. d. 4.25 4 Perspektiva FT d.o.o. 1.51 Modra zavarovalnica, d. d. (PPS) 1.44 5 Modra zavarovalnica d.d. – PPS 1.44 Intersvet, d. o. o. 1.10 6 NLB d.d. 0.55 Perspektiva FT, d. o. o. 0.75 7 Triglav vzajemni skladi – delniški Triglav 0.51 NLB, d. d. 0.55 8 KD Galileo, fleksibilna struktura naložb 0.51 Triglav vzajemni skladi – delniški Triglav 0.52 9 The Bank of New York Mellon - fiduciarni 0.47 NFD 1, mešani fleksibilni podsklad 0.52 10 Telekom Slovenije d.d. 0.46 KD Galileo, fleksibilna struktura naložb 0.51 Total 77.83 Total 77.77

* Previously Slovenska odškodninska družba, d. d.

Shares held by the Management Board and the Supervisory Board of Telekom Slovenije Members of the Management Board and Supervisory Board held 1,549 TLSG shares as at 31 December 2014 (see table below). Other members of the aforementioned bodies did not hold the Company’s shares.

Trading in corporate shares by representatives of the Company and reporting on such transactions are governed at Telekom Slovenije by applicable legislation and the internal Rules Restricting Trading in Corporate Shares Based on Inside Information.

Number of Name Office % of equity shares Management Board Rudolf Skobe, MSc President of the Management Board 300 0.00459 Zoran Janko member of the Management Board 31 0 .00047 Tomaž Seljak, MSc Vice-President of the Management Board 4 0.00006

Supervisory Board Adolf Zupan, MSc Vice-President of the Supervisory Board 1,094 0.01674 Matej Golob Matzele member of the Supervisory Board 22 0.00034 Samo Podgornik member of the Supervisory Board 92 0.00141 Primož Per member of the Supervisory Board 5 0.00008 Dean Žigon member of the Supervisory Board 1 0.00001 Total 1,549 0.02370

48 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Share trading and key share-related financial data

Movement in the TLSG share price The price of TLSG shares ended 2014 in positive territory, and stood at EUR 145.00 on the last trading day of the year. The share price thus rose by 19.29% in year-on-year terms. The SBI TOP index, which represents the largest and most liquid shares on the regulated market of the Ljubljana Stock Exchange, gained 19.59% over the same period.

Market capitalisation stood at EUR 947.64 million at the end of the year, ranking TLSG shares second on the market in this regard. In terms of trading volume, TLSG shares were the second most heavily traded securities in 2014.

Trading statistics for TLSG shares on the Ljubljana Stock Exchange

Standard price in EUR I – XII 2014 I – XII 2013 Highest daily volume 159.10 122.95 Lowest daily volume 120.00 77.50 Average daily volume 139.70 101.39 Volume in EUR thousand I – XII 2014 I – XII 2013 Total volume for the year 46,494.00 33,632.74 Highest daily volume 1,165.05 1,536.83 Lowest daily volume 0.91 1.36 Average daily volume 187.48 136.72

Movement in the TLSG share price compared to the SBI TOP index and volume of trading in TLSG shares

EUR Index 160 900 TLSG 150 850

140 800 SBITOP 130 750

120 700

110 650

100 600 1. 2. 14 1. 14. 14 1. 24. 14 2. 5. 14 2. 17. 142. 27. 143. 11. 14 3. 21. 14 4. 2. 14 4. 14. 144. 28. 14 5. 12. 14 5. 22. 14 6. 3. 14 6. 13. 14 6. 26. 14 7. 8. 14 7. 18. 147. 30. 148. 11. 14 8. 22. 14 9. 3. 14 9. 15. 14 9. 25. 14 10. 7. 1410. 17. 1410. 29. 1411. 11. 1411.21. 14 12. 3. 14 12. 15. 1412. 30. 14

TLSG in EUR SBITOP EUR 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1. 2. 14 1. 14. 14 1. 24. 142. 5. 14 2. 17. 142. 27. 14 3. 11. 14 3. 21. 144. 2. 14 4. 14. 14 4. 28. 14 5. 12. 14 5. 22. 146. 3. 14 6. 13. 14 6. 26. 147. 8. 14 7. 18. 14 7. 30. 14 8. 11. 14 8. 22. 149. 3. 14 9. 15. 14 9. 25. 14 10. 7. 14 10. 17. 1410. 29. 1411. 11. 1411. 21. 1412. 3. 14 12. 15. 1412. 30. 14

Source: Ljubljana Stock Exchange, archive of Volume in EUR share prices

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 49 Key financial data relating to shares

31. 12. 2014 31. 12. 2013 Standard price (P) of one share on the last trading day of the period in EUR 145.00 121.55 Book value (BV)1 of one share in EUR 112.36 119.89* Earnings per share (EPS)2 in EUR 2.76 7.87* P/BV 1.29 1.01 Capital return per share during the year3 19.29% 27.28%

* Adjusted data for 2013

Notes: 1 The book value of one share is calculated as the ratio of the book value of Telekom Slovenije’s equity on the last day of the period to the weighted average number of ordinary shares during the accounting period excluding treasury shares. 2 Earnings per share is calculated as the ratio of Telekom Slovenije’s net operating profit for the accounting period to the weighted average number of ordinary shares during the accounting period excluding treasury shares. 3 The capital return per share is calculated as the ratio of the share price on the final trading day of the period minus the share price on the first trading day of the period to the share price on the first trading day of the period.

Investor relations24 Telekom Slovenije provides high-quality information to investors and other interested parties in a timely manner (more in point 1.8). The transparency of Telekom Slovenije Group’s operations is achieved by taking into account the criteria for the issuers of shares on the prime market and the information disclosure policy.

We carried out the following activities with the aim ¬ following the publication of operating results, we of high-quality investor relations: issued the quarterly TLSG newsletter for registered ¬ in March we presented Telekom Slovenije to domestic and foreign recipients; domestic and foreign investors (primarily ¬ prior to the regular General Meeting of Shareholders, institutional investors) during a webcast we issued the Telekom Shareholder magazine, presentation intended for the most prominent which provides shareholders key information Slovenian issuers. The presentation was organised regarding the General Meeting and the Company’s by the Alta Group and Alta Invest; operations; and ¬ in May we participated in individual meetings at an ¬ we organised a General Meeting of Shareholders investment conference in Zagreb organised by the and broadcast it live over the internet. Ljubljana and Zagreb Stock Exchanges; We also communicated regularly with investors, ¬ we communicated with interested domestic shareholders and other interested parties via and foreign investors and analysts at individual the following email addresses: [email protected], meetings and teleconferences; [email protected] and [email protected].

Press releases The Company regularly publishes price-sensitive and other important information on its website in the Investor relations section and on the Ljubljana Stock Exchange’s SEOnet website. A total of 33 press releases were issued in 2014, with simultaneous publication in Slovene and English.

Financial calendar The financial calendar for 2015 was published in the Ljubljana Stock Exchange’s SEOnet system, and is also accessible on the Company’s website at http://www.telekom.si/en/investor-relations/financial-calendar, where any changes to the financial calendar in 2015 will be published.

24 GRI G4-26

50 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Dividend policy Telekom Slovenije’s dividend policy is adapted to the investment strategy and is aimed at ensuring the Telekom Slovenije Group’s long-term growth and development. It is formulated in line with the expectations of the Company’s owners.

At the 25th General Meeting of Shareholders, shareholders supported the counter proposal on the use of distributable profit for 2013, and adopted a resolution that the full amount of distributable profit be earmarked for the payment of dividends. This means the payment of dividends in the gross amount of EUR 10.00 per share.

Data and explanations related to the Mergers and Acquisitions Act There were no changes in content related to mergers and acquisitions legislation. The situation as at 31 December 2014 was as follows: ¬ There were no changes in the structure of Telekom Slovenije, d. d.’s share capital. ¬ All TLSG shares were freely transferable. ¬ Telekom Slovenije, d. d. did not hold any securities providing special controlling rights, nor did it have any limitations on voting rights. ¬ The Company was not aware of any agreements between shareholders that might place any limits on the transfer of securities or voting rights. ¬ At the 24th General Meeting of Shareholders, management was authorised to purchase treasury shares. ¬ The Company’s rules on the appointment and replacement of members of management bodies, and regarding changes to the Articles of Association and the powers of management are set out in the Articles of Association.

Pursuant to the first paragraph of Article 70 of the Takeovers Act (ZPre-1), the Securities Market Agency controlled the implementation of the aforementioned act at the target company Telekom Slovenije. In proceedings, the agency found that the Slovenian government and certain companies (KAD, SOD, Aerodrom Ljubljana, Nova KBM, Luka Koper, Fund for Financing the Decommissioning of the Krško Nuclear Power Plant and Zavarovalnica Triglav) acted in concert with respect to the target company Telekom Slovenije according to the ZPre-1, as their total proportion of voting rights achieved and exceeded the takeover threshold. Because none of the aforementioned legal entities issued a takeover bid and thus changed the legal circumstance for the withdrawal of the sanction (prohibition on the exercising of voting rights), that prohibition remains in force.

The Company had two shareholders with a significant direct holding of its securities (i.e. a qualifying holding of 5% or more of voting rights) as at 31 December 2014. They were the Republic of Slovenia with 4,087,569 shares, representing 62.54% of the Company’s share capital and Kapitalska družba with 365,175 shares, representing 5.59% of share capital.

Treasury shares The Company held 30,000 treasury shares as at 31 December 2014, representing 0.46% of equity. The number of treasury shares has remained unchanged since their acquisition in 2003.

At the 24th General Meeting of 1 July 2013, shareholders adopted a resolution authorising the Management Board to purchase treasury shares. That authorisation is valid for 36 months from the date the aforementioned resolution was adopted.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 51 Trust that is worth building. Our guiding principle is a satisfied customer. We understand and respect their wishes and needs, and provide services that are simple, useful and tailored to those needs.

52 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2. bUSINESS REPORT

2.1. Financial results of the Telekom Slovenije Group

The Telekom Slovenije Group’s net profit of EUR 1.6 million (compared with planned net profit of EUR 63 million) was impacted by one-off events, the postponement of certain activities from 2014 until 2015 (consolidation of the Macedonian market) and the creation of provisions in Slovenia.

Highlights in 2014 T he Telekom Slovenije Group’s net sales revenue amounted to EUR 1. 756.5 million, down 3% on 2013, primarily as a reflection of the cutting of prices of electronic communication services across the European market.

2. Net profit amounted to EUR 1.6 million.

Key financial performance indicators of the Telekom Slovenije Group25

in EUR thousand 2014 2013* Ind 14/13 Revenue 756,454 779,360 97 Other operating income 8,442 19,819 43 Operating revenues 764,896 799,179 96 EBITDA 170,051 239,868 71 EBITDA margin 22.5% 30.8% 73 EBIT 11,412 71,540 16 Return on sales: ROS (EBIT/net sales revenue) 1.5% 9.2% 16 Net profit 1,594 51,057 3 Assets 1,343,421 1,391,869 97 Equity 693,901 758,582 91 Return on assets (ROA) 0.1% 3.5% 3 Return on equity (ROE) 0.2% 6.8% 3 Equity ratio 51.7% 54.5% 95 Net financial debt 344,057 341,807 101 NFD / EBITDA 2.0 1.4 142

Investment in property, plant and equipment (CAPEX) 176,481 113,289 156 EBITDA-CAPEX -6,430 126,579 - Ratio of (EBITDA-CAPEX) to EBITDA (cash margin) -3.8% 52.8% - Number of employees as at 4,431 4,586 97 Investments as a proportion of operating revenues 23.1% 14.2% 163

* Pursuant to the requirements of IAS 1 and IAS 8, the financial statements for the comparative period, as presented in all tables below, have been adjusted for a change to an accounting policy. More information can be found in the Financial Report on page 140.

25 GRI G4-EC1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 53 The operating results of the Telekom Slovenije Group Austria Group agreed to merge operators on in 2014 marked the following one-off events that had the Macedonian market. Due to the complex a current effect on the Group’s operating results for procedures involved and the time required to 2014 but, for the most part, otherwise represent a obtain the consent of the Macedonian regulatory solid foundation for future operations: body, the planned consolidation of operations in ¬ Slovenia was hit by an ice storm at the beginning Macedonia was postponed from the final quarter of of the year and by floods in the middle of the year. 2014 until 2015. The ice storm resulted in numerous power outages ¬ In July Blicnet in Bosnia and Herzegovina signed and severe damage to Telekom Slovenije’s cable an agreement on the purchase of a 100% network, which was also damaged by the floods. participating interest in Telrad Net, d. o. o. The The Company repaired the cable network at a cost procedure, however, is still ongoing. The planned of EUR 6.2 million. acquisition represents the further strengthening of ¬ At April’s auction of frequencies for the provision of Blicnet’s position on the Bosnian market. public mobile communication services organised ¬ In accordance with its adopted Strategic Business by the AKOS, Telekom Slovenije secured an Plan for the period 2014 to 2018, Telekom Slovenije appropriate number of the relevant frequency signed an agreement with the government of bands that will be used in the future to offer users Gibraltar in November on the sale of its 50% the most state-of-the-art services and the best participating interest in Gibtelecom Limited. The coverage in a superior network. The Company transaction was completed in full in December. paid EUR 64.5 million for the aforementioned ¬ Telekom Slovenije and Simobil signed an frequencies. agreement in December on mutual relations by ¬ At the 25th General Meeting of Shareholders which the two companies set in order open issues held in May, shareholders supported the counter regarding mutual relations and laid down the proposal on the use of distributable profit for 2013, conditions for future business cooperation. The and adopted a resolution that the full amount signing of the agreement represents an important of distributable profits of EUR 65.1 million be step aimed at mitigating risks associated with earmarked for the payment of dividends in the lawsuits, which further enhances the Company’s gross amount of EUR 10.00 per share. value for owners. ¬ In October Telekom Slovenije and the Telekom ¬ Provisions of EUR 43.6 million were created.

Income statement analysis26

The Telekom Slovenije Group’s operating revenues totalled EUR 764.9 million, down 4% on those achieved in 2013.

Net sales revenue amounted to EUR 756.5 million, down 3% on 2013. Other operating revenues were also down, by EUR 11.4 million. Telekom Slovenije’s net sales revenue was down relative to 2013 primarily due to lower revenues from traditional voice telephony, which is in line with the declining number of traditional connections and their replacement by IP and mobile telephony. Lower revenues in the mobile segment were the result of lower revenues from calls due to the rising proportion of subscriber packages that include higher quantities of services, and due to lower revenues from roaming (lower prices of calls in the EU and Croatia’s entry to the EU). The reason in the fixed segment lies in stiff competition on the broadband connection market and more affordable packages aimed at maintaining the level of users.

Net sales revenue at Slovenian companies was up 4% relative to 2013, primarily on account of GVO, which recorded a rise in revenues as the result of an increase in the scope of work due to the elimination of errors in Telekom Slovenije’s network caused by an ice storm. Higher net sales revenue was also achieved by companies outside of Slovenia, but the increase was not enough to offset the drop in revenues on the domestic market.

26 More information can be found in the Financial Report on page 140.

54 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 At EUR 757.5 million, the Group’s operating expenses were 3% higher than the previous year, as the result of an increase in other operating expenses of EUR 30 million. The latter were up primarily due to the correction and write-off of the value of claims at the parent company and the settlement with Simobil. We continued to consolidate operations, and re-engineer and optimise processes within the Telekom Slovenije Group. The majority of costs were down relative to 2013. Only the historical cost of goods and materials sold and the costs of services were higher, by 9% and 2% respectively. Amortisation and depreciation costs were also lower, by 6%, as were labour costs, by 2%.

Earnings before interest, taxes, amortisation and depreciation (EBITDA) totalled EUR 170.1 million, or 22.5% of net sales revenue. Excluding one-off effects, a comparable EBITDA of EUR 215 million would have been achieved in 2014.

Return on sales amounted to 1.5%.

Earnings before interest and taxes (EBIT) was EUR 11.4 million.

Finance income totalled EUR 17.1 million, which is EUR 12.1 million or 2.5 times higher than the finance income recorded the previous year. Finance costs in the amount of EUR 20.5 million were down 10% or 2.2 million.

Following the calculation of income tax in the amount of EUR 1.0 million, the Telekom Slovenije Group generated a net profit of EUR 1.6 million in 2014.

Balance sheet analysis

Total assets stood at EUR 1,343.4 million as at 31 December 2014, down 3% or EUR 48.4 million on the previous year.

Non-current assets totalled EUR 1,009.8 million, a decrease of 8%. The decrease in non-current assets was primarily the result of the reclassification of non-current assets of One and Digi Plus to assets for disposal (current assets) in the amount of EUR 63.6 million. Investments in associates and joint ventures were also down, by EUR 44.4 million, due to the sale of the investment in Gibtelecom. As a result, the proportion of Company’s total assets accounted for by non-current assets was down 3.8 percentage points to stand at 75.2%.

Current assets totalled EUR 333.7 million, an increase of 14% relative to the last day of the previous year, primarily as the result of the recording of assets for disposal in the amount of EUR 90.9 million by One and Digi Plus. EUR 63.6 million of the aforementioned amount was accounted for by the reclassified non-current assets of the aforementioned companies.

Equity and reserves totalled EUR 693.9 million, representing 51.7% of total assets.

Non-current liabilities in the amount of EUR 444.6 million represented 33.1% of total assets and were up 3% on the previous year primarily due to an increase in provisions in the amount of EUR 37.9 million.

Current liabilities in the amount of EUR 204.9 million were 2% higher than the previous year and represented 15.3% of total assets.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 55 Segment reporting

The operating segments by which the Group reports are Slovenia, Macedonia, Kosovo and other countries, where the criterion for segment reporting is the registered office where an activity is performed by an individual company.

The disclosure of operations by segment is based on the financial statements of Telekom Slovenije Group companies. Sales between segments are carried out at market value.

More detailed information is provided in Section 3.2.2 Notes to the consolidated financial statements and summary of significant accounting policies of Telekom Slovenije Group, in point 4 Segment reporting.

2.2. Financial management and performance

The core objective of financial policy is to ensure solvency and sustainable structure of capital in the long term. Implementation of the financial policy and the determination of the key guidelines in the area of financial management for all companies in the group is the responsibility of the parent company. Capital adequacy and solvency at the Group level were ensured through the effective planning and balancing of cash flows of individual companies, the management of financial debt, short-term and long-term financing within the Group, the optimisation of working capital and cash on the accounts of individual companies and the management of key financial risks.

As liquidity reserves, the Group had at its disposal long-term and short-term revolving credit lines at Highlights in 2014: domestic and foreign banks in the total amount of EUR 196.5 million. The Group’s total liquidity reserves Total financial liabilities were down amounted to EUR 229.8 million at the end of 2014. 10.3% relative to 2013. 1. Additional liquidity was provided in the form of cash T he maturity breakdown improved and overdraft limits on transaction accounts, and 2. in favour of long-term financial short-term bank deposits. Credit lines are subject to sources. periodic rollover.

Successful first issue of commercial Nine-month commercial paper in the nominal 3. paper. amount of EUR 50 million and a maturity of December 2014 was issued for the first time in March 2014 with the aim of securing alternative, non-banking sources of financing. The issue was well-received by investors, as interest in purchases exceeded the value of the issue significantly.

The Group’s total financial liabilities stood atE UR 369.3 million at the end of 2014, down 10.3% on 2013 as a result of the regular repayment of loans in accordance with loan agreements, and a reduction in liabilities for the purchase of a participating interest in a subsidiary. The majority of the Group’s financial liabilities comprised issued bonds and long-term bank loans raised by the parent company.

56 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 As a rule, subsidiaries secure short-term and long-term borrowings from the parent company, which is responsible for financing the Group. Through internal financing within the Group and the reallocation of cash, we are able to exploit synergies that derive from more favourable financing terms that apply to the parent company and from more efficient cash management, which together ensure the optimisation of net financial flows. At the same time, such financing reduces the Group’s exposure to external borrowing and ensures greater flexibility in managing the liquidity of all Group companies.

Composition of financing and net debt The ratio of equity to total liabilities of the Telekom Slovenije Group stood at 1.07 at the end of 2014. The Group’s total equity was down primarily due to the payment of dividends by the Telekom Slovenije in the amount of EUR 65.1 million.

In addition to a decrease in the amount of financial liabilities in 2014, there was also a change in the maturity breakdown, with a rise in the proportion of long-term sources of financing, which contributed further to financial stability.

Structure of financing within the Group

100% 90% 80% 48% 45% 48% 70% 60% 50% 40%

30% 52% 55% 52% 20% 10% 0% 1.1.13 31.12.13 31.12.14 Equity Liabilities

Maturity breakdown of financial liabilities

100% 10% 8% 6% 90% 80% 70% 60% 50% 90% 92% 94% 40% 30% 20% 10% 0% 1.1.13 31.12.13 31.12.14 Non-current ﬁnancial liabilites Current ﬁnancial liabilites

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 57 Composition of and changes in net financial debt The Group’s net financial debt amounted to EUR 344.1 million at the end of 2014, an increase of 0.7% relative to 2013, despite a decrease in financial liabilities. This can be attributed to a lower balance of cash and deposits as a result of the payment of dividends in the amount of EUR 65.1 million and the purchase of mobile licences totalling EUR 64.5 million.

Net financial debt thousand EUR 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1.1.13 31.12.13 31.12.14 Financial liabilites Cash and cash deposits Net ﬁnancial debt

Market sources of financing and borrowing costs

Structure of market sources of financing 100% 90% 80% 70% 60% 70% 76% 83% 50% 40% 30% 20%

10% 30% 24% 17% 0% 1.1.13 31.12.13 31.12.14 Bank loans Bonds Other

* Note: a part of commercial papers that matured on 5 December 2014 was not paid due to a temporary order issued by the court.

Ratio of variable to fixed (and hedged) financial liabilities

100% 90% 21% 16% 17% 80% 70% 79% 84% 83% 60% 50% 40% 30% 20% 10% 0% 1.1.13 31.12.13 31.12.14 Hedge ﬁxed liabilities Variable liabilities

58 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 All loans raised bear variable interest rates, while the coupon rate on issued bonds is fixed at 4.875%. The weighted mark-up on the variable portion of the interest rate on all loans within the Group stood at 5 basis points at the end of the year.

Fulfilment of financial commitments As lenders, banks require that the Group maintain the predefined contractual values of certain financial items and indicators. Failure to meet those values could result in the forced early repayment of loans. All contractual provisions at the Group level were met as at 31 December 2014.

Credit rating review In December 2014 the international ratings agency Moody’s Investors Service Ltd. published a new credit rating report in which it confirmed the Company’s credit rating of Ba2 from December 2013 with a negative outlook. According to Moody’s rating, the adverse macroeconomic conditions in Slovenia and increased regulatory and competitive pressures are also expected to have a negative effect on the Telekom Slovenije’s operations and results. Moody’s based its rating on increased pressure on the Company’s liquidity position, particularly in light of the refinancing risk associated with existing liabilities and its high dependence on the domestic banking system. Also affecting the assessment is the uncertainty linked to the intended sale of a stake in the Company.

Risk management The primary focus of the Group’s financial risk management was on liquidity and solvency risk and on interest- rate and credit risk. A detailed description of the financial risk management processes is found in the section 2.4 Risk management.

2.3. investments in fixed assets and financial investments

Investments in fixed assets27 The Telekom Slovenije Group earmarked EUR 176.5 million for the construction, modernisation and development of networks and services, an increase of 56% or EUR 63.2 million on 2013 and representing 23.1% of operating revenues. Of the aforementioned amount, EUR 151.2 million was earmarked for investments by Telekom Slovenije, including the purchase of licences for the frequency domain (frequencies) in the amount of EUR 64.5 million, while the remainder was earmarked for investments in the development of networks in South Eastern Europe.

Investments in fixed assets

in EUR thousand 2014 2013 Ind. 14/13 Telekom Slovenije 151,158 72,890 207 Other companies in Slovenia 1,560 3,034 51 Ipko - Kosovo 13,944 13,070 107 Companies in Macedonia 9,078 20,455 44 Other companies abroad 3,355 6,811 49 Elimination and adjustment -2,614 -2,971 88 Telekom Slovenije Group 176,481 113,289 156

27 GRI G4-EC7, IO1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 59 Breakdown of investments in fixed assets

200,000 Total 176,481 180,000 6,904 160,000 16,289 11,678 140,000 Total 113,289 20,210 120,000 11,860 100,000 11,603 7,457 64,540 80,000 14,549 60,000

40,000 67,820 56,860 20,000

0 2013 2014 Network Frequencies IT

Equipment Serv. platform Other

Breakdown of investments in fixed assets in 2014

Network 32%

Frequencies 36%

IT 11%

Equipment 8%

Serv. platform 9%

Other 4%

Financial investments Telekom Slovenije accounts for the majority of financial investments within the Group. Investments in subsidiaries and joint ventures, and investments in the form of loans to Group companies account for the majority of financial investments.

The Group carried out the following activities in 2014: ¬ the sale of its 50% participating interest in Gibtelecom Limited for EUR 47.7 million, and ¬ a reduction in the share capital of Avtenta for EUR 3.6 million.

60 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.4. risk management

The Telekom Slovenije Group takes a well-planned and systematic approach to risk management. We updated the risk management system in 2014 with the aim of the timely identification, and appropriate assessment and management of the key risks to which the Group is exposed. We defined acceptable degrees of risk and additional measures for the management of those risks in the event of deviations.

Highlights in 2014 1. Definition of acceptable degrees of risk.

2. Regular updating of the list of identified risks and reporting. 3. Inventory and assessment of risks at the overall Group level. 4. Definition of the monitoring of risk management measures as a priority. A dditional proposed measures for managing risks in all categories of identified 5. risks.

6. Strengthening of the culture of the responsible assumption of risks.

Risk management system The Telekom Slovenije Group’s risk management system is based on the Risk Management Policy, which is binding for all Group companies. The aforementioned policy includes the basic guidelines for managing risks, including powers and responsibilities. For the Group, risk means uncertainty regarding an undesirable event that may have a positive or negative impact on the achievement of objectives. Risk is, by nature, incorporated into all business processes and decisions.

The risk management system within the Group entails: ¬ reporting on significant risks; ¬ the development of methodologies and tools; ¬ drawing attention to the potential risks in individual areas and business functions; and ¬ cooperation and expert assistance in the implementation of risk management processes.

The Finance Department works closely with the Internal Audit Service, which plans annual audits on the basis of the risk assessment and inventory. The Risk Committee, which is chaired by the competent member of the Management Board, plays a special role in guiding and coordinating risk management activities. In addition to its other tasks, the aforementioned committee advises and offers assistance in the integration of risk management into business processes.

Risk identification and management Every business plan and all major business decisions and projects include the identification and analysis of risks, and a plan for the continued management of potential risks. This process includes systematic communication and consultation. It also includes defining, analysing, assessing, amending, controlling, monitoring and reviewing risks.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 61 All identified risks are classified into the following major categories: ¬ strategic or business risks, ¬ financial risks, ¬ operational risks, and ¬ regulatory and compliance-related risks.

Risk assessment is carried out according to the adopted methodology, where the degree of risk is calculated as the product of the probability of the realisation of a particular risk and its impact (effect). The criteria for assessing the consequences of an event are financial effects and the sensitivity of the area in question, where assessment focuses on the impact on the satisfaction of users and a potential deterioration in the Company’s reputation.

In managing risks, the Group decides between strategies that include assuming risk, avoiding risk, transferring risk to a third party and mitigating risk.

The following measures were used to mitigate The following risk owners play an important role risks: in the risk management process: ¬ the establishment of internal controls; ¬ members of the Management Board, ¬ the implementation of scenarios to reduce ¬ managing directors of Group companies, risks to an acceptable level; ¬ directors of sectors, ¬ the execution of money-market transactions; ¬ heads of departments and other organisational and units, and ¬ the use of derivatives, in particular interest- ¬ project managers and authorised experts. rate swaps and interest-rate caps.

The aforementioned parties are responsible for the initial identification of risks in their own areas, for the monitoring of risks, and for the implementation of necessary measures. The list of identified risks, both current and potential, is updated regularly. The implementation of measures is monitored quarterly, and the Management Board and Supervisory Board informed accordingly. An enclosure regarding perceived risks is an integral part of the material submitted to the Management Board in decision-making processes.

Key risks within the Telekom Slovenije Group and activities in 2014

Significant risks identified by the Telekom Slovenia Group include: ¬ risks from the external environment: market and regulatory risks, and risks associated with failure by users and operators to fulfil obligations, and risks associated with climate change; and ¬ internal risks: risks associated with the control and efficiency of processes, risks associated with the functioning and security of ICT, and employee-related risks.

Market risks, the impact of the economic crisis and the competitive environment Similar to the majority of other incumbent operators, Telekom Slovenije is faced with a declining number of users. The aforementioned decline is the result of the adverse economic conditions and stiff competition. Among market risks and risks linked to the competition, the risk of the migration of business and residential users to the networks of competitors remains elevated. Competition and market-related risks are managed by: ¬ adapting the range of products and services, which is contemporary and differs from the competition, ¬ optimising the sales network, ¬ implementing activities to promote sales, ¬ emphasising the value that our superior network offers, ¬ implementing activities aimed at maintaining existing subscribers, and ¬ improving user support processes.

62 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Activities aimed at managing market shares increase the risk of diminishing profitability for subscribers. This type of risk is managed through the optimisation of content and pricing, and through clear rules regarding the allocation of benefits and discounts.

Natural disasters such as floods and sleet represent a risk to Telekom Slovenije’s infrastructure and as such bring financial consequences. Risk is transferred to an insurance company in the scope of defined coverage limits.

Regulatory risks Conditions in the area of regulation on the markets of fixed and mobile telecommunications remain uncertain. The European Commission has drawn up a draft regulation laying down measures for a single European electronic communications market and to achieve a Connected Continent. The aforementioned regulation was also debated by the European Parliament, while the final content of the regulation could change significantly during the ratification process. If the regulation is adopted, legislative changes will be introduced significantly faster compared with directives that must be transposed to national legislation.

Despite implemented measures to mitigate regulatory risks (presented in the overview of risks to which Telekom Slovenije is exposed), risks associated with procedures before the regulatory body and legal risks linked to lawsuits and legislation persist.

Risks associated with the outflow of revenues in billing processes Revenue-loss risk from centralised data capture to the billing process is managed using an established system to prevent the outflow of revenues.

Risks associated with the functioning and security of information and communication technology (ICT). Special attention is given to managing operational risks associated with ICT networks, services and devices. We are planning updates and an increase in capacities through redundancy in those network segments where we have identified increased functional and security-related risks. Key measures for managing the risks associated with the functioning and security of ICT are given below in the table Operational risks. The risks associated with the malfunctioning of connections and services provided by other entities are managed by introducing processes to monitor and report on SLA indicators on leased networks, and by standardising requirements vis-à-vis network providers for newly leased networks. Continuous notification regarding planned works on the networks of operators has been established.

Employee-related risks Employee-related risks are primarily linked to achieving the internal restructuring plan, which could threaten the strategic objective to optimise the employee structure, the number of service providers and knowledge for the Company’s continued development. Employees are assigned to areas where staff shortages have been identified.

Key risks by individual company and market

Key risks at individual companies and on markets, and the risks that the Group assesses it will be exposed to in the future are presented in the table below. Risk management measures are presented for each identified risk. The monitoring and analysis of implemented measures are carried out by Telekom Slovenije’s Finance Department in close cooperation with individual risk holders. The reasons for the ineffectiveness of adopted measures are analysed and corrective measures drafted on the basis thereof.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 63 Risks for Telekom Slovenije

Strategic and business risks Strategic and business risks are linked to the successful implementation of the Group’s strategy, the ability to generate operating revenues in the short and long term, and to maintaining the value of assets and the Group’s reputation.

Risk Method of management Risk of a reduction in the number of users - Adapting the range of products and services to users and trends in the sector. due to their migration - Providing competitive solutions in Telekom Slovenije’s networks. to the networks of - Providing high-quality services and systems. competitors and the - Renovation of points of sale. emergence of new - Marketing activities. ‘alternative’ solutions on the market Risk of diminishing - Optimisation of the range of products and services in terms of content and price.

profitability of users - Optimisation of the sales network. Risks associated with the consolidation - Active involvement in the consolidation process. of the electronic - Proper evaluation of synergies and the realisation of market opportunities. communications market in Slovenia Risk of diminishing - Improvement of user-support processes. user satisfaction due - Mentoring and monitoring of the work of call centre employees; measurement of - to failure to fulfil the customer satisfaction following each contact. expectations and - Internal and external education and training. requirements of users Risk that the market will not recognise the - Appropriate positioning of the umbrella brand. transfer of capital - Adjustment of the scope, type and frequency of all communication activities. and brand strength to - Development of the range of products and services in line with opportunities presented by the corporate brand the umbrella brand. within the established timeframe. - Following the objectives of simplicity and clarity, and focus on a specific user segment in the introduction of new services. - Testing of new products and equipment in the laboratory and via test users, and measuring the impact on other segments, improved project management and efficiency calculations, Risk of introducing new and the gradual launch of new services and monitoring their impact on existing services. services and products, - Monitoring key market trends, motivating employees to provide innovative ideas and and the modification of improvements, timely response to users’ needs, and shortening the time from idea to existing services realisation. - Defining and managing business processes, and IT support for those processes. - Intensive monitoring of the quality of services immediately following their introduction, and prompt measures to address identified deficiencies.

Type of risk Impact Probability Degree of risk Risk of the migration of users to other service providers 3 3 9 Risk of diminishing profitability of subscribers 3 3 9 Risks associated with the consolidation of the electronic 3 3 9 communications market Risk of diminishing user satisfaction 3 3 9 Risk of an untimely market response to the strengthening of the 3 1 3 corporate brand Risk of introducing new services and products 2 2 4

Impact: 1-low, 2-moderate, 3-significant, 4-very high Probability: 1 – unlikely; 2 – possible; 3 – very likely; 4 – almost certain Risk level: grey – low (1-3); blue – medium (4-6); dark blue – high (8-9); dark grey – very high degree of significance (12-16)

64 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Financial risks The table below summarises key financial risks and the measures used to manage them. The aforementioned risks are discussed in greater detail in the financial report.

Identified financial risks

Risk Method of management - Planning and managing cash flows. - Short-term and long-term revolving loans and credit lines at domestic and foreign banks. - Management of cash surpluses. Solvency risk - Criteria for monitoring and planning cash flows at other Group companies. - Short-term and long-term financing within the Group and the use of cash surpluses within the Group (cash pooling). - Ensuring an adequate level of working capital and capital adequacy. -Ensuring an appropriate debt-to-equity ratio. Risk of an inadequate -Maintaining the current credit rating, thus ensuring the possibility of raising long- capital structure term sources of financing. - Identifying needs for sources in a timely manner with the help of cash flow forecasts. - Maintaining business partnerships with banks. Risks associated with - Timely refinancing procedures. securing sources of - Search for alternative, non-banking sources of financing – issue of commercial financing paper in 2014. - The management of this risk will also depend on a change in ownership and its impact on the credit rating. - Monitoring of daily shifts in a subscriber’s traffic with regard to average use, and informing subscribers of increased usage. - Collateral for potential claims when concluding agreements with suppliers. Risk of subscriber - Taking into account subscribers’ credit ratings in the sales process and the default implementation of measures. - Management of customer codes. - Regular collection according to a schedule. - Introduction of a credit risk management system for operators. - Regular monitoring of receivables and liabilities, and collection under existing Risk of operator regulations. default - Introduction of instructions for implementing procedures in the event of default on the domestic wholesale market. - Verification of operators’ credit ratings when concluding new agreements. Interest-rate risk - Continuous monitoring of the financial markets.

Type of risk Impact Probability Degree of risk Solvency risk 4 1 4 Risk of an inadequate capital structure 4 1 4 Risks associated with securing sources of financing 4 2 8 Risk of subscriber default 3 3 9 Risk of operator default 3 2 6 Interest-rate risk 1 2 2

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 65 Operational risks Identified operational risks include the risks of losses resulting from inadequate or failed internal processes, the conduct of people or the functioning of systems, and from external factors. They are presented in the table below.

Identified operational risks

Risk Method of management

Risks associated with the - Assignment of employees to areas with identified personnel deficits. optimisation of human resources - Dismissal of employees on business grounds.

- Human resource meetings with sector directors. Risks associated with diminishing - Upgrading of the management by objective system. employee loyalty and commitment - Training and development of managers at all levels, concern for employees. - Consistent implementation of the training plan. Risks associated with the outdated - Information regarding the use of new internal channels. or insufficient knowledge of - Promoting the internal transfer of knowledge and a system of internal employees lectures. Risks associated with occupational - Regular training in the area of occupational health and safety. health and safety - Regular control of work procedures by direct supervisors. Risks associated with media exposure and uncertainty among - Monitoring of events in the internal and external environment. employees due to the sale of the - Active management of information in the shareholder environment. government’s stake in the Company - Implementation of preventive measures with the aim of detecting possible problems and critical points; testing and training of personnel for Risks associated with the appropriate action. functioning and security of ICT - Implementation of an information security management system networks and devices (ISMS) for the regular functioning and upgrading of business continuity management (BCM) and measures in the event of extraordinary events. Risk associated with the - Regular and additional measures to replace systems and ensure functioning and security of the redundancy. circuit switched mobile core - Continuous acquisition of expert knowledge in all areas. Risks associated with planning and - Testing and validation of solutions. developing ICT - Continuous monitoring of trends. - Implementation of a dual vendor strategy where possible. - Definition of procedures for managing partners in the process of Risk of dependency on external developing IT solutions, and the formalisation of the process of managing service providers IT needs. - Development of strategic partnerships with suppliers. - Standardised requirements demanded by Telekom Slovenije from network providers for newly leased networks. Risks associated with the non- - Adaptation of IT systems to facilitate automatic and continuous functioning of connections and notification regarding planned works on the networks of operators. services provided by other entities - Organisation of processes for monitoring and reporting indicators according to a service-level agreement (SLA) on leased networks. - Introduction of new technological solutions. - Upgrading of the network, taking into account real disposable resources. Risks associated with network and - Preventive maintenance, replacement of critical elements, acquisition of technology obsolescence additional backup equipment from equipment that has been removed, and migration of services from the copper-based network to the fibre optic network. - Use and upgrade of systems to prevent abuse (FMS – fraud management system). Risk of abuse - Use of existing systems to protect the Company’s facilities. - Improvement of the security culture of employees. - Introduction of new technologies to increase the security of services. - The building of an appropriate communication culture to reduce the Risks associated with losses due to uncontrolled outflow of information that could cause harm to the Company. the disclosure of trade secrets - Implementation of general acts to strengthen the security culture. Revenue-loss risk in “switch to bill” - The use of a system to prevent the outflow of revenues (RAS – revenue processes assurance system).

66 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Risk Method of management

Risk associated with the - Use of a business process methodology. effectiveness of processes - Business process re-engineering project.

- Active defence before the courts and the contesting of lawsuits, efforts to reach out-of-court settlement of disputes, consulting with internal and external legal experts to avoid further lawsuits in sensitive business Legal risks decisions. Additional details about provisions for likely liabilities from lawsuits are provided in the Financial Report. - Cooperation in the search for legislative solutions through participation in the legislative process by issuing expert proposals. Risk of damage/destruction of - Risk is transferred to an insurance company in the scope of defined property – direct damage coverage limits.

Type of risk Impact Probability Degree of risk Risks associated with the optimisation of human resources 3 3 9 Risks associated with diminishing employee loyalty and commitment 2 2 4 Risks associated with the outdated or insufficient knowledge of employees 2 2 4 Risks associated with occupational health and safety 1 1 1 Risks associated with corporate media exposure 3 3 9 Risks associated with the functioning and security of ICT networks and 3 2 6 devices Risk associated with the functioning and security of the circuit switched 4 3 12 mobile core Risks associated with planning and developing ICT 3 2 6 Risk of dependency on external service providers 3 2 6 Risks associated with the non-functioning of connections and services 3 3 9 provided by other entities Risks associated with network and technology obsolescence 3 2 6 Risk of abuse 2 3 6 Risks associated with losses due to the disclosure of trade secrets 3 2 6 Revenue-loss risk in “switch to bill” processes 3 3 9 Risk associated with the effectiveness of processes 3 3 9 Legal risks 3 3 9 Risk of damage/destruction of property – direct damage 3 2 6

Regulatory and compliance-related risks Regulatory risks are risks that derive from legal and regulatory requirements.

Identified regulatory risks

Risk Method of management Risk of pressure from the regulatory body regarding - Proactive participation in all regulatory proceedings by submitting price-related, technical and remarks, positions and the appropriate analyses. technological obligations Risks in proceedings before the - Active defence in procedures, consultation with external and internal Competition Protection Office lawyers in the adoption of sensitive business decisions. - Restrictive policy on the allocation of software for use. Compliance risk associated with - Employee awareness about the importance of using legal software tools. the use of software licences - Replacement of licenced software with open-source software. Risks associated with quality - Maintenance and upgrading of formalised quality management systems. assurance and environmental - Start-up activities for the project on the efficient use of energy and the management monitoring of indicators.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 67 Type of risk Impact Probability Degree of risk Risk of regulatory pressures 3 3 9 Risks in proceedings before the Competition Protection Office 4 2 8 Compliance risk associated with the use of software licences 3 2 6 Environmental risks 2 3 6

Key risks in the development of digital content and media (TSmedia) ¬ The risk of a decline in leased advertising space is managed by investing in the technical and creative development of products. ¬ The risk associated with the stability and continued development of the Najdi.si web product will be mitigated by strengthening administrator and development teams, and through the development of a new generation product on a new platform.

Key risks for Avtenta ¬ Risks associated with declining revenues from public administration projects are managed by strengthening efforts to secure new projects on the external market.

Key risks for Soline ¬ Uncertain weather conditions result in risks associated with the loss of salt and thus the loss of revenue as weather conditions have a significant impact on the production of sufficient levels of salt. The commercial success of Lepa Vida Thalasso Spa also depends in part on the weather.

Key risks for Macedonia ¬ Credit risk remains one of the key risks on the Macedonian market. It is managed through regular collection activities, negotiations and potential legal measures. ¬ We will mitigate the risks associated with the proper provision of services in the mobile telephony segment by implementing the next phase of network modernisation and by modifying the configuration of the network. ¬ Risks associated with falling regulated and unregulated prices persist.

Key risks for Kosovo ¬ Competitive-market risks are managed through a proactive market approach to attracting new subscribers and through measures for maintaining existing subscribers in all segments. ¬ The risk of lower revenues from the termination of calls from the rest of the world is managed by carefully monitoring market developments and performing business analyses. ¬ The risk associated with a change to the conditions that facilitate the use of the transmission network of the energy operator is managed by analysing legal bases and planning various technical scenarios.

Key risks in Bosnia and Herzegovina ¬ The risks associated with the limited availability of public IP addresses, which are required to provide internet services, will be mitigated by purchasing the lacking public IP addresses or by implementing a Carrier Grade Network Address Translation (CG NAT) system. ¬ Legal risks associated with the placement of equipment are managed by searching for alternative locations. ¬ There is a risk that the broadcasting of certain channels will be terminated due to the disorganised legal environment in the area of programme rights. ¬ Competitive pressure, both in terms of price and the range of services, remains a significant risk factor. The Company regularly monitors the operations of the competition and regularly updates its own range of services.

68 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.5. business environment and trends in the sector

2.5.1 impact of the macroeconomic environment on operations

Slovenia Improving conditions in the international environment, the easing of tensions on the financial markets and an upswing in government investment activity contributed to improving economic conditions in Slovenia in 2014. In the context of a recovery in activity in the international environment, an increase in infrastructure investment linked to the disbursement of EU funds and a gradual recovery in household consumption, GDP rose by 2.6 % in the year 2014. Following a significant drop over the previous two years, private consumption recorded modest growth as a result of the recovery of the labour market, which is reflected in wage growth and a rise in employment.

Economic activity is expected to continue recovering in 2015 and 2016 (with growth of 2.4% and 2.0% respectively), while forecast growth in investment spending is also slightly higher as the result of strengthening growth in exports and the recovery in private consumption. Risks are primarily linked to the possibility that the recovery in economic activity in Slovenia’s main trading partners will be slower than current assumptions, which would be reflected relatively quickly in slower economic growth in Slovenia, as well. It is also possible that growth in the main trading partners will be higher than expected due to the positive impact of lower oil prices and the depreciation of the euro. In the domestic environment, fiscal policy strategies are clearer and continue to pursue the objective of reducing the general government deficit to below 3% of GDP next year.

Key macroeconomic indicators in Slovenia

Real growth in % 2011 2012 2013 2014 2015 GDP (real growth in %) –0.2 –2.5 –1.0 2.6 2.4 GDP in EUR million (current prices) 35,639 35,319 36,144 37,246 38,558 Registered unemployment rate, in % 11.8 12.0 13.1 13.1 12.5 Labour productivity (GDP per employee) 1.6 –1.7 0.5 2.0 1.5 Inflation (year-end rate) 2.0 2.7 0.7 0.2 0.4 Inflation (annual average) 1.8 2.6 1.8 0.2 -0.2 Private consumption (real growth in %) –0.3 –4.8 –3.9 0.3 1.1 Government consumption (real growth in %) –0.9 –1.3 –1.1 –0.5 –0.4

Data sources: SORS (preliminary data for 2014, February 2015), Bank of Slovenia, ECB, and Spring Forecast of Economic Trends IMAD, March 2015

Changes in real GDP relative to the previous year in %

-2

-4

-6

-8 2009 2010 2011 2012 2013 2014 2015 EU 28 Slovenia

Sources: International Monetary Fund, World Economic Outlook Database, IMAD Spring Forecast, March 2015

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 69 South-Eastern Europe Economic growth has revived in Macedonia, where the recovery is expected to continue. The forecast growth of 3.4% in 2014 is actually expected to be exceeded in the year 2015, and the highest among four comparable markets according to IMF forecasts.

Following a weak year, Kosovo is expected to make strides forward again with GDP growth forecast at 2.7%. The economy remains dependent on economic and employment developments in Germany and Switzerland, which are the main hosts of emigrants and which dictate transfers and direct foreign investment.

Following modest growth of around 1%, GDP growth is expected to strengthen next year to 3.5% in Bosnia and Herzegovina. Its more prudent economic policy is expected to yield long-awaited results, to which higher foreign demand also makes a positive contribution. At the same time, however, high unemployment of around 26% is expected to persist.

Significant macroeconomic indicators for the markets of South-Eastern Europe

GDP in the countries of South-Eastern Europe where the Telekom Slovenije Group operates is at the level of emerging countries, and in some countries as much as six times lower than Slovenia’s GDP. The aforementioned countries are characterised by high unemployment, resulting in prices of telecommunication services that are well below prices in Slovenia.

Macroeconomic indicators for the markets of South-Eastern Europe

Slovenia Macedonia Kosovo BiH GDP per capita in EUR 2012 17,506 3,608 2,786 3,388 2013 17,550 3,713 2,926 3,479 Forecast 2014 18,065 3,885 3,027 3,583 Forecast 2015 18,635 4,233 3,177 3,804 GDP growth in % 2012 –2.6 –0.4 2.8 –1.2 2013 –1.0 2.9 3.4 2.1 Forecast 2014 2.6 3.4 2.7 0.7 Forecast 2015 2.4 3.6 3.3 3.5 Inflation (consumer prices) in % 2012 2.7 3.3 2.5 2.0 2013 0.7 2.8 1.8 –0.1 Forecast 2014 0.2 1.0 1.0 1.1 Forecast 2015 0.4 1.5 1.6 1.5 Unemployment rate in % 2012 12.0 31.3 30.9 28.0 2013 13.1 30.0 30.0 27.0 Forecast 2014 13.1 29.0 n/a 25.5 Forecast 2015 12.5 28.0 n/a 24.5

Sources: Slovenia: IMAD, Spring forecast, march 2015, SORS GDP revision in accordance with ESA 2010; SEE: IMF Outlook October 2014, except the unemployment rate in Kosovo, which is provided by the Statistical Office, end of 2013.

70 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.5.2 Trends in the ICT sector and development of ICT markets

Technological trends in the ICT sector In 2014 the ICT sector was again characterised by sharp growth in activities relating to wireless data transfer and mobile telephony. The latter now generates some 25% of global internet data traffic.A t the same time, the extensive establishment of LTE networks across the world is in progress. Such networks are already in place at 331 operators in 112 countries, with more than 380 million users, representing annual growth of 131%. Telekom Slovenije is also following the aforementioned trend, with the intensive development of its LTE network (see section 2.7.2.2 for more information).

In terms of connections for data centres and applications that require the shortest delays, 100 GE (Gigabit Ethernet) is becoming the new standard. Fully integrated solutions of this type are now available. In the context of reduced energy consumption, continued growth in transfer speeds will result in photonics that will facilitate a new record in data transfer of 250 Tb/s (250,000 Gb/s) via a single fibre using 50 wavelengths (DWDM). The storage of and quick access to data will be crucial in the context of ever increasing transfer speeds. NAND flash technology already facilitates the storage of 128 Gb on a single chip (Samsung), while a 1 TB flash drive has even been promised in 2015.

The social media networks that contribute most to the global flow of data play an extremely important role in the development of the ICT sector. One response to growth in data traffic is the introduction of new analytical tools that offer added value in different areas of use: audio, cash transactions and healthcare (e.g. Google Voice Search, OpenGov, Wealthfront and Zephyr). Research indicates that the following devices are used most frequently to receive information:

35 % 27 % 26 % 12 %

IDC is predicting that 90% of all IoT (Internet of Things) services will be hosted by cloud solution providers in the future. This represents an opportunity for telecommunication operators to provide these types of solutions regionally using their ICT infrastructure and established security protocols. The IoT is also becoming a reality in terms of connecting home devices, and encourages major operators to search for interoperable solutions to stimulate market growth.

With the standardisation of the so-called eSIM card (electronic SIM card), which will be built into devices during the manufacture process itself, telecommunication operators have the opportunity to offer security mechanisms and processes as additional services. GSMA envisages the use of eSIM cards in the fields of logistics, industry automation, smart energy grids and e-healthcare. A built-in, so-called soft SIM card has already been presented by Apple in its new iPhones, although for a different business model. This represents a major threat to telecommunication operators, as it will facilitate migrations between operators without switching SIM cards.

Electronic payments using mobile phones is poised to be the next breakthrough, provided that an appropriate level of security, the anonymity of data and simplified administration are ensured. This has been promised by the Apple Pay solution in connection with NFC terminals. MasterCard has introduced a competitive electronic money solution with fingerprint identification built into the card, which eliminates the need to enter a PIN as a form of authentication.

The transfer of messages in the mobile segment has shifted from SMS to mobile instant messaging applications. These represent the greatest threat to mobile operators, as they are recording annual growth in the number of users and messages of more than 100%. For example: WhatsApp SnapChat 400 million users 1.2 billion 50 billion messages a day messages a day

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 71 In the area of cloud computing, the linking of Microsoft and IBM will bring benefits primarily to business users, as IBM’s business solutions (Websphere, MQ, DB2 and Pure Application) are now available on the Microsoft Azure platform. IBM and Apple have also announced a link that will be intended for iPad business users and the users of IBM’s business services. These types of integrations narrow the playing field for other regional operators and providers of cloud computing services.

Annual global growth in sales of tablet computers is 52%. Users of the aforementioned devices spent USD 10 billion on applications on the iOS platform alone. There is also a notable trend of declining smart phones prices (by 5% annually).

With access to mobile and continuously connected devices, electronic, cardless and cashless transactions are coming to the fore, representing an opportunity for telecommunication operators to generate revenue. Some major operators are already transforming mobile telephones into e-wallets in cooperation with banks. NFC, the technology that facilitates the latter, is available on an increasing number of devices.

Wide-open online education, which is already used by millions of users around the world, represents a new breakthrough in ICT.

State of the European telecommunications sector Revenues on the European telecommunications market were down again in 2014. Forecasts indicate a continued fall in revenue. However, the decline will slow after 2014 and revenues will stabilise by 2016.

Forecast of telecommunications sector revenues: Eight Western European (source: Analysys Mason, 2014) countries

Forecast Growth rate EUR billion 2010 2011 2012 2013 2014 2015 2016 13–16 Mobile telephony and data transfer 113.8 109.9 103.2 93.5 88.7 85.5 84.1 –3.5% Mobile telephony 79.9 72.0 63.5 53.8 48.1 43.9 40.9 –8.7% Mobile data transfer 33.9 37.9 39.7 39.7 40.6 41.6 43.2 2.8% SMS 18.0 18.3 17.4 15.4 13.7 12.3 11.1 –10.3% Mobile data transfer 15.9 19.6 22.3 24.3 26.9 29.3 32.1 9.7% Fixed telephony and internet services 88.7 86.2 84.4 82.4 80.8 79.6 78.9 –1.5% Fixed telephony 45.4 42.0 39.3 36.4 33.2 30.5 28.2 –8.2% Internet services 43.3 44.2 45.1 46.1 47.6 49.1 50.7 3.2% Pay-TV 22.9 23.7 24.6 25.5 26.6 27.8 28.9 4.3% Total revenues (with pay-TV) 225.4 219.8 212.2 201.5 196.1 192.9 191.9 -1.6%

* Germany, France, United Kingdom, Italy, Spain, Netherlands, Belgium and Portugal. Source: Arthur D. Little, Exane BNP Paribas estimates, March 2014

A decline in revenues is forecast for the telecommunications market until 2016 due to declining revenues from mobile services (–3.5%) and fixed services (–8.2%). The aforementioned decline will be offset by growth in internet services (+3.2%) and pay TV services (+4.3%). The mobile telephony segment (telephony and SMS) is having the most significant impact on the fall in revenue overall due to regulation and aggressive competition. The decline in revenue is expected to slow, primarily due to the easing of regulatory policy and growth in fixed broadband connections.

The analysts and consultants of Analysys Mason (source Analysys Mason, 2014) are forecasting a drop in revenues from telecommunication services in Western Europe until 2019. The aforementioned fall will be driven primarily by a decline in revenues from mobile telephony, SMS, fixed telephony and mobile broadband access. They are forecasting the highest growth for M2M devices and mobile data transfer on mobile phones. Fixed broadband access and pay TV services will achieve somewhat lower growth.

72 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Declining revenues from services is also forecast for Central and Eastern Europe until 2019. Similar to Western Europe, the highest growth is being forecast for M2M devices and mobile data transfer on mobile phones. In contrast to trends in Western Europe, growth in revenues from mobile broadband access services is forecast for Central and Eastern Europe.

Revenue from telecommunications services and the proportion of GDP it accounts for in the period 2009 to 2019 – Western, Central and Eastern Europe (Source: Analysys Mason, 2014)

Telecoms revenuue by retail and wholesale and as proportion of GDP, Western Europe, 2009-2019 (Source: Analysys Mason, 2014)

350 2.5%

300 2.0% 250

200 1.5%

150 1.0%

100 Proportion of GDP Revenue (EUR billion) 0.5% 50

0 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Mobilel retail Mobile wholesale Fixed retail (including IPTV) Fixed wholesale Pay TV (excluding IPTV) Total telecoms Mobile

Telecoms revenuue by retail and wholesale and as proportion of GDP, Central and Eastern Europe, 2009-2019 (Source: Analysys Mason, 2014)

90 3.0% 80 2.5% 70 60 2.0% 50 1.5% 40 30 1.0% Proportion of GDP

Revenue (EUR billion) 20 0.5% 10 0 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Mobilel retail Mobile wholesale Fixed retail (including IPTV) Fixed wholesale Pay TV (excluding IPTV) Total telecoms Mobile

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 73 Development of ICT markets

Moderate growth in fixed broadband connections market The number of broadband connections continues to rise in the EU, although the annual growth rate is low and has stabilised between 1% and 1.3%.

Penetration rates for household broadband internet access in Slovenia and the EU-27

80% 74.2 72.573.3 75.9 50% 67.3 67.0 61.362.0 60% 56.7 56.2 50% 48.649.7 42.2 43.7 40% 33.6 30% 30.4 23.0 20% 14.9 19.4 10.2 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 EU27 SI Source: European Commission, Digital Agenda Scoreboard, July 2014

Net growth in the revenues of new operators has outstripped the growth recorded by incumbent operators for the last eight years. Major changes in the overall market share of new operators are not expected due to low market growth. Incumbent operators still account for 42% of all fixed broadband internet access connections. With a 35% market share in the third quarter of 2014, Telekom Slovenije is below the average of incumbent EU operators.

According to figures from the European Commission (January 2014), Slovenia is below the EU average of 27% in terms of household broadband penetration, while growth in the previous period was also lower and below the EU average. This is also true for connections with higher transfer speeds, i.e. in excess of 10 Mbps. The prices of high-speed fixed broadband internet access services are falling in all EU Member States, while prices in Slovenia are among the highest.

Growth in the fixed broadband services market

2009 2010 2011 2012 2013 2014 600,000 3% 5% 5% 3% 500,000 7% 8% 8% 10% 8% 400,000 13% 20% VoIP 300,000 32% IP TV BB connections

200,000 7% 8% 7% 5% 12% 100,000 30%

1Q20092Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014

Source: AKOS, SORS, Q4 2014

Growth in mobile broadband access Mobile broadband access is the fastest growing segment of broadband services, although growth has slowed slightly. It is used for the most part as an alternative form of access to the internet and does not represent a replacement for fixed access. More than 30% of EU households have the latter, while only 8% have only mobile access. The majority of mobile broadband subscriptions are used on smart phones, followed by tablets and laptop computers.

74 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 According to forecasts by Analysys Mason, the European mobile broadband internet market will be characterised in the future primarily by growth in mid-screen devices (tablets and e-readers) and by a decline in large-screen devices (desktop and laptop computers, and netbooks).

Packages with leased data transfer services account for the highest proportion in Slovenia, followed by standard packages with voice services and data packages intended for use on other devices.

Development of fibre optic connections for higher speeds Slovenia still ranks among the leading countries in Europe in terms of household fibre optic access penetration (FTTx), and stands above the EU average in this regard, although that rate is growing faster in other countries. Broadband FTTx connections accounted for 21.8% of all broadband connections in Slovenia at the end of 2014, compared with 6% in the EU (January 2014).

Telekom Slovenije provides the fibre optic network with the highest level of quality, reliability and security of services. Users were provided SiOL internet services with speeds of up 1 Gb/s on the fibre optic network in 2014.

Growth in the pay TV market Digital IPTV services and multimedia content (video-on-demand, HD content, interactive TV content and internet television) continue to record growth. IPTV accounts for 45.6% of all TV connections in Slovenia (Q4 2014) and continues to grow. Cable TV is also recording growth in connections, primarily on account of the number of digital connections. At 52.9% (Q4 2014), the Telekom Slovenije Group holds the highest share of the IPTV market. According to AKOS figures, 71.4% of Slovenian households have pay TV (Q4 2014).

According to forecasts by Analysys Mason, the pay TV market in Western Europe is expected to grow by 21% from 2013 to 2019, with growth in OTT (over-the-top) and IPTV services contributing most to overall growth. Cable TV will remain the leading technology in the pay TV market, although it is expected to decline by 4.4% until 2019. Pay TV household penetration will exceed 64% in Western Europe over the same period.

OTT services for households will grow, primarily as a second TV receiver, as users will wish to reduce TV costs. A total of 3.2% of households in Western Europe will use OTT as their primary receiver by 2019, while 47.7% will use the aforementioned technology as their secondary receiver.

Growth in mobile voice telephony compared with fixed telephony More than two thirds (68%) of EU households have fixed telephony. According to forecasts by Analysys Mason, the fixed telephony penetration rate (residential users) will fall to 62% in Europe by 2019. With a fixed telephony penetration rate of around 76%, Slovenia stands above the European average, although that rate is in constant decline. In the mobile segment, Slovenia has the lowest per capita penetration rate of active mobile telephony users in the EU (112.8% in 2014), giving it sufficient room for further development. The penetration rate in Slovenia is constantly rising.

Mobile SIM card penetration in EU Member States (2013) 231% 172% 168% 166% 163% 160% 156% 153% 150% 149% 147% 135% 132% 132% 130% 129% 127% 126% 123% 122% 121% 121% 120% 119% 118% 114% 113% 111% 109%

LV FI LT IT BG PT AT EE DK LU SE PL MT EU UK CY DE CZ EL IE SK HR NL ES BE HU RO FR SI 27

Source: European Commission, Digital Agenda Scoreboard, July 2014

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 75 The proportion of households with both fixed and mobile telephony is higher in Slovenia (73%) than in the EU28 (61%). In contrast, the proportion of households with only mobile telephony is lower in Slovenia (23%) than in the EU28 (31%). The proportion of households with only mobile telephony can be expected to rise is Slovenia in the future, resulting in a decline in fixed telephony connections. The proportion of traffic from the mobile network and VoIP is also rising, while the proportion of traffic from the fixed network is on the decline. That trend is quite obvious in Slovenia, as traffic from the fixed network accounted for just 17.7% of total traffic in the fourth quarter of 2014 compared with 82.3% from the mobile network.

The migration from prepaid to subscriber services is characteristic of the EU mobile telephony market, where the average is 54%, while Slovenia is among the countries with the highest proportion of subscriptions (73%).

Rising proportion of package services, in particular triple play and quadruple play With the aim of maintaining existing customers and attracting new customers, European operators are offering more varied packages that combine fixed telephony, the internet, TV and mobile telephony (quadruple play). The popularity of such packages is on the rise, while the number of independent broadband access connections is falling.

Slovenia is also recording growth in all packages, most notably in quadruple play. The main reasons lie in affordability and the fact that these packages are the newest on the market. With the most advanced network, Telekom Slovenije also has great potential for further growth in this segment.

January 2014 Slovenia EU28 Proportion of households with mobile telephone access 94% 92% Proportion of households with a fixed telephone connection 76% 68% Proportion of households with broadband internet access 67% 60% Proportion of households with internet access via mobile telephone 52% 52%

Sources: European Commission: E-Communications Household Survey, January 2014

IT market and cloud computing Trends in the ICT sector dictate the need for new sales strategies on the management consulting and cloud computing services market. The aforementioned market is expanding in line with the development of information technology, as companies are increasingly searching for internal reserves and focusing on their core activity, while hiring management consultants for other areas. The entire ICT is following that trend by accelerating the development of cloud computing services, and services based on the latter. Even leading advisory and analytical service providers such as Gartner and IDC are forecasting growth in this sector in the future. Major telecommunication companies are focusing on an additional range of ICT services accordingly, as they expect to compensate for the drop in revenues from the provision of basic telecommunication services.

We have witnessed significant changes on the Slovenian ICT market, as major transactions are becoming increasingly rare due to a lack of investment funds. A small number of large transactions can thus transform into a large number of smaller transactions that are indispensably linked to an external provider of ICT and cloud computing services. This area represents a significant opportunity forT elekom Slovenije and is also one of its advantages over other ICT service providers, as the Company is already an experienced provider of such services.

Notable progress has also been made in the development of integrated solutions that facilitate the advanced use of telecommunication services. Trends are geared towards the upgrading and/or transformation of standard telecommunication and TV solutions into OTT28 and IPTV solutions – pay TV. These will facilitate the use of the same services on different platforms and devices, offer additional functions and thus increase usefulness and added value.

28 OTT relates to the broadcasting of the broadband audio and video signal with the help of the internet and the involvement of a systems administrator in the control and broadcasting of content.

76 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.5.3 regulation of electronic communications

Slovenia

Electronic communications development strategy In August the Ministry of Education, Science and Sport published the points of departure for the drafting of strategic documents relating to the information society and electronic communications (in the scope of the Digital Slovenia 2020 initiative). The aforementioned points of departure also include a development plan for next generation broadband networks until 2020.

Self-regulatory code In March electronic communication operators signed a self-regulatory code governing sanctions for the non- functioning or poor functioning of public communication services in the Republic of Slovenia.

Frequencies The AKOS successfully completed the public auction for the allocation of radio frequencies in the 800, 900, 1800, 2100 and 2600 MHz radio frequency bands. All of the aforementioned frequency bands are intended for the provision of mobile services and are technologically neutral. Telekom Slovenije acquired radio frequencies in the 800 MHz, 900 MHz, 1800 MHz and 2600 MHz frequency bands for a period of 15 years.

Relevant markets and roaming ¬ In August the AKOS once again defined Telekom Slovenije, Simobil, Tušmobil and T-2 as operators with significant market power on market 7 (call termination on mobile networks – inter-operator market). It imposed the obligation to facilitate operator access, the obligation to ensure equal treatment, the obligation to ensure transparency, and the obligation of price control on the aforementioned operators. It also set a call termination price in mobile networks of EUR 0.0114/minute, effective since September 2014, which represents the “pure BU LRIC” (long-run incremental cost). ¬ In September the AKOS defined Telekom Slovenije and other operators with a network at a fixed location as operators with significant market power on the call termination market in individual public telephone networks at a fixed location (inter-operator market). It imposed the obligation to facilitate operator access (the obligation of IP network interconnection), the obligation to ensure equal treatment, the obligation to ensure transparency, and the obligation of price control on the aforementioned operators. It set a call termination price in fixed networks of EUR 0.000876/minute, effective since November, which represents the “pure BU LRIC”. ¬ Roaming prices for calls, SMS and data transfer were cut again in July in accordance with the European regulation governing roaming in public mobile communication networks.

International operator voice and data services remain largely unregulated. Nevertheless, local regulation has a commercial impact on both the domestic market and markets outside of Slovenia.

Universal services In November the AKOS granted Telekom Slovenije the right to provide the universal services of connecting users to the public communications network and providing access to public telephone services at a fixed location for a period of two years. It also granted the Company the right to make and receive national and international calls. It also named Telekom Slovenije the provider of the universal service of ensuring public payphones or other access points for the purpose of public voice telephony for a five-year period.

Data retention At the initiative of the Information Commissioner, the Constitutional Court of the Republic of Slovenia struck down Articles 162 to 169 of the Electronic Communications Act (ZEKom-1) in July, and tasked operators with the immediate destruction of all retained data.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 77 Regulatory developments in South-Eastern Europe

Kosovo The regulatory agency in Kosovo continues to analyse the markets in that country. PTK is deemed an operator with significant market power on the majority of markets, while Ipko is an operator with significant market power on the fixed call termination market.

During the year the aforementioned agency adopted a number of implementing regulations relating to the separation of accounting records, authorisation, the numbering plan and market analyses.

In December an independent media committee began public consultations on the draft strategy for transition to digital broadcasting.

Macedonia A new Electronic Communications Act was adopted in March with the aim of harmonising this area with the European regulatory framework from 2009. Implementing regulations are also being harmonised gradually. Data indicate a relatively high level of regulation. Certain areas are over-regulated, which limits the freedom of operations.

The AEK regulatory agency adopted a decision to reduce fees for frequencies in 2015 by 20% relative to 2014.

Bosnia and Herzegovina In January the national regulatory body in Bosnia and Herzegovina (RAK) issued a decision on the call termination market in individual public telephone networks at a fixed location. Blicnet was grouped with other operators as an operator with significant market power and tasked with price controls (a general reduction in termination prices is envisaged, with asymmetry in favour of alternative operators).

The RAK published its analyses of markets 4 and 5 in December. Public consultations regarding both documents are in progress.

The RAK prohibited operators from charging payments for the issue of confirmation regarding the settlement of all liabilities, which users require to transfer their number to another operator.

2.5.4 competition protection, and procedures before the courts and inspectorates29

Slovenia

In 2014 there were seven significant proceedings against Telekom Slovenije before the Competition Protection Agency (CPA) regarding the breach of competition rules and monopolistic practices. No new proceedings were initiated against Telekom Slovenije during the year.

Telekom Slovenije and its subsidiaries were party to the following significant proceedings before the courts, competition protection bodies and inspectorates in 2014:

¬ Telekom Slovenije received a lawsuit from the company Akton on 14 April 2014 for the payment of EUR 2,402,820.82 with appertaining costs. Akton is claiming payment for damages it is alleged to have incurred due to unlawful acts by Telekom Slovenije and damage to its image. The lawsuit relates to a criminal complaint filed against Akton, which in pre-trial proceedings was suspected of the crime of commercial fraud. The competent state prosecutor closed the matter based on the report he received from the National Bureau of Investigation. Telekom Slovenije filed an appeal against the lawsuit by the legally prescribed deadline, and will prove in the course of proceedings that the lawsuit is entirely without basis.

29 GRI G4-SO7

78 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 ¬ Telekom Slovenije received a ruling from the Supreme Court of the Republic of Slovenia regarding the payment of damages to the company ABM informacijski inženiring due to failure to include a CD-ROM in ISDN packages. During the review process, the Supreme Court reversed the decisions of the courts of the first and second instances, such that Telekom Slovenije is obliged to pay ABM EUR 941,262.26 plus legally prescribed default interest. In the remaining part, the Supreme Court rejected ABM’s request for review, and ruled that each party must pay their own legal costs. Based on and in accordance with the ruling of the Supreme Court of the Republic of Slovenia of 23 May 2014, Telekom Slovenije paid to ABM the full, legally awarded amount of principal, default interest and procedural costs totalling EUR 2,238,429.38 on 8 and 11 July 2014.

¬ On 15 July 2014 Telekom Slovenije received a lawsuit from the Ljubljana District Court in which the company Quantum sued for the payment of damages in the amount of EUR 450,000.00 due to the alleged abuse of a dominant position. Between 1994 and 1998 Telekom Slovenije is alleged to have prevented Quantum from pricing calls on internet hubs through user access at the local tariff via a range of 9xxx call numbers, as the result of which Quantum incurred damages. Telekom Slovenije filed an appeal against the lawsuit, and will prove in the course of proceedings that the lawsuit is entirely without basis.

In October Telekom Slovenije laid down conduct in the event of inspection proceedings initiated against the company, and began activities to established centralised records. The most frequent inspections were in the areas of personal data, the environment, consumer protection, unfair business practices in relations with consumers, illegal work, occupational safety and fire safety. The aforementioned inspections were carried out as regular controls in accordance with the law and based on reports. We received four fines for breaches in 2014 in the total amount of EUR 5,500. Two of the aforementioned fines related to the marketing of products and services.30

In accordance with best practices and Slovenian guidelines on corporate integrity, in Telekom Slovenije we introduced the possibility of reporting irregularities and unlawful acts, and proposed improvements to the process of receiving and handling reports. Employees may report irregularities and unlawful acts by email, using the relevant online form and by ordinary post. All reports are studied carefully, and the appropriate action taken with regard to content. In this way, the Group strives for efficient and fair operations based on competitiveness. The Whistleblowing Committee handled three reports, two of which were anonymous, from 1 July 2014 (when the aforementioned committee was established) until the end of the year. In two cases, the committee adopted resolutions that the reports in question were inappropriate in formal terms and declined to address them. In the other case, it adopted a resolution to reject the report in question as unfounded.31

Due to the government’s participating interest in Telekom Slovenije, the Company is not permitted to finance political parties in accordance with the Act Governing Political Parties.32

South-Eastern Europe

¬ One filed two reports with the Macedonian Commission for Protection of Competition (one in 2012 and the other in 2013) relating to the company T-Mobile, requesting an investigation of the abuse of a dominant position and collusion between T-Mobile and T-Home. In both cases, the committee rejected One’s request to initiate an investigation against T-Mobile. Appeal proceedings are in progress before the Higher Administrative Court in one case, while the other case is before the administrative court of the first instance (One initiated proceedings in both cases).

30 GRI G4-DMA, G4-SO8, G4-PR7 31 GRI G4-DMA, G4-SO3 32 GRI G4-SO6

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 79 Successes are multiplied, when shared. Partnerships with global providers of services and content, as well as knowledge, experience and a superior workforce are confirmation that we are well-prepared for the challengesof the future.

80 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.6. Sales and marketing

We offer users numerous new features in the range of contemporary technologies and services, by which we ensure superior quality and access to the most-advanced services. The Group maintained and increased customer satisfaction, and improved the user experience through enhanced and targeted sales. Access to services has been expanded through the development of the most state-of-the-art networks.

Highlights in 2014

1. We maintained the highest market share in all segments in Slovenia. We increased customer satisfaction in the 2. majority of segments. We upgraded fixed and mobile telephony packages with the aim of 3. giving subscribers an improved user experience. We introduced a wireless internet subscriber package in locations 4. where fixed broadband access is not possible. We introduced a range of new information security services for 5. business users.

6. We enhanced sales by adding a field team. We connected the first base stations to the most state-of-the-art 7. LTE Advanced technology.

2.6.1 Market and market shares in key service segments

Slovenia The saturated Slovenian telecommunications market is highly competitive, while complicating the operations of service providers are the growing expectations of users who demand high-quality services at low prices. Because there is increasingly less room to attract new users, providers are focusing on maintaining existing subscribers. Trends in fixed-mobile convergence and the use of services are also spreading to the segment of business users, as all major providers of fixed services also offer mobile telephony services.

In terms of the range of fixed-mobile convergence products, the Telekom Slovenije Group is the most comprehensive and highest-quality service provider on the Slovenian market, and maintains the highest market share in all segments.

Alternative operators gain market share primarily through an aggressive pricing policy that we cannot follow due to the limitations imposed by the regulatory body and the principles of good management. The aforementioned fall is being offset by optimising the sales network, through cross-sales of services, the development of new services and new subscriber models, through differentiation and the exclusivity of content, by improving the user experience, by providing standardised cloud computing services, and through a comprehensive range of ICT services.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 81 Number of connections in Slovenia

2,500,000 2,326,386 2,283,573 2,168,548 2,241,160 2,100,435 2,121,950 2,000,000

1,500,000

1,000,000 834,759 820,461 798,215 767,308 746,780 730,220

500,000 512,937 528,825 555,838 442,623 472,221 497,033 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 mobile telephony ﬁx telephony BB connections

Sources: SORS, Q4 2014, internal data Telekom Slovenije

Telekom Slovenije Group market shares at the end of 2014 in key segments

FIXED BROADBAND ACCESS IP TV 35.1% 35.6% Market share of Telekom Slovenia Market share of Telekom Slovenia Annual change: - 2.0 perc.points Annual change: -0.8 perc.points 199,542 connections 162,042 connections Annual change: -1.3 % Annual change: + 5.3 % 64 .9% 64.4% Market share other operators Market share other operators

VoIP MOBILE TELEPHONY 52.9% 48.4% Market share of Telekom Slovenia Market share of Telekom Slovenia Annual change: -1.5 perc.points Annual change: -0.8 perc.points 136,539 connections 1,125,365 connections Annual change: + 5.0 % Annual change: +0.1% 47.1% 51.6% Market share other operators Market share other operators

* The graph for VoIP does not include VoIP services on IP PBX or Centrex connections. Sources: AKOS, report for 4th quarter of 2014

82 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Fixed broadband access Fixed broadband access penetration in Slovenia is continuously growing: the household broadband penetration rate stood at 72.0%1 in the fourth quarter of 2014, while the population penetration rate stood at 27.7%. There were more than 555,000 broadband connections in Slovenia (compared with 530,000 in 2013), 86.3% of which was accounted for by residential connections.2 Telekom Slovenije maintains the leading market share followed by Telemach and T2.

There was a notable trend of increasing speeds in this segment, which can be attributed to the increased proportion of FTTH technology (fibre-optic networks) and the range of high-speed internet services included in the packages of service providers. At the end of the fourth quarter of 2014, the number of active fibre-optic connections in Slovenia exceeded 121,000, accounting for 21.8% of all connections. The number of fibre-optic connections rose by 14% in one year. Telekom Slovenije had more than 42,000 users on FTTH connections at the end of the fourth quarter of 2014.

Television market The household penetration rate of fixed-line television connections stood at 71.4% at the end of the fourth quarter of 2014. At 48.5%, cable TV holds the highest market share, primarily on account of digital cable TV, followed by IPTV at 45.6%.

Telekom Slovenije still holds the highest share of the IPTV market at 52.9%, which is falling slightly, followed by T-2 and Amis.

Mobile telephony market The number of active users rose by 41,000 in 2014 relative to the figure at the end of 2013. The increase in the number of users is driven primarily by dual SIM cards (SIM2). The increase in the number of the latter, in turn, is driven by growth in data services. The penetration rate has risen to 112.6%.

At 48.4% at the end of 2014, Telekom Slovenije held the leading share of the mobile telephony market, followed by Simobil, which held a 29.3% market share. Telekom Slovenije’s share of the mobile telephony market

100 90 80 70 60

% 50 40 30 20 10 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2010 2011 2012 2013 2014 Telemach 0.1 0.1 0.1 0.1 0.2 0.4 0.4 0.5 0.6 T-2 0.9 1.0 1.2 1.3 1.3 1.4 1.5 1.7 1.9 2.1 2.2 2.2 2.3 2.4 2.4 2.5 2.5 2.7 2.8 2.8 Izi mobil 2.3 2.4 2.5 2.5 2.6 2.6 2.6 2.5 2.4 2.5 2.5 2.4 2.4 2.5 2.6 2.5 2.6 2.4 2.4 2.4 Debitel 4.4 4.4 4.4 4.4 4.5 4.4 4.4 4.4 4.3 4.3 4.2 4.0 3.9 3.8 3.8 3.8 3.8 3.9 3.9 3.9 Tušmobil 8.2 7.8 7.8 7.9 8.1 8.6 9.7 10.1 10.4 11.2 11.4 11.2 11.4 11.8 11.9 11.9 12.2 12.5 12.6 12.7 Simobil 28.1 28.2 28.6 29.2 29.6 29.6 29.2 29.5 29.7 29.6 29.7 29.6 29.9 29.9 29.9 29.7 29.4 29.4 29.4 29.3 Telekom Slovenia 56.1 56.1 55.4 54.7 53.9 53.4 52.6 51.8 51.2 50.4 49.9 50.4 50.0 49.5 49.3 49.2 49.1 48.7 48.4 48.4

Sources: AKOS, report for 4th quarter of 2014

1 Source: AKOS – new methodology for counting households (EU-SILC), calculated as the ratio of the number of residential and business user connections to the number of households in the Republic of Slovenia. 2 Source: AKOS, Q4 2014; SORS, Q3 2014

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 83 Market shares of mobile broadband internet access operators

100% 8% 5% 4% 7% 7% 90% 7% 11% 12% 80% 10% 70% 31% 32% 32% 60% in % 50% 40% 30% 45% 44% 20% 43% 10% 0% 2012 2013 2014 Telekom Slovenia Si.mobil Tušmobil T-2 Debitel Izi mobil Telemach

Sources: AKOS, report for 4th quarter of 2014

Inter-operator segment (wholesale) The international operator environment offers numerous business opportunities and opportunities for growth, despite the significant impact of the economic crisis. Telekom Slovenije is strengthening its presence in the area of international wholesale services in the region, which is reflected in sharp year-on-year growth in revenues.

The majority of inter-operator services are regulated on the domestic market. The regulatory body defines Telekom Slovenije as an operator with significant market power on the majority of relevant markets. The Company thus generates the highest proportion of revenues from regulated services. There are still, however, numerous opportunities for growth, particularly in the area of multimedia services and content, in the leasing of data connection capacities, in facilitating access to open broadband networks and in the resale of retail services.

Markets of South-Eastern Europe

Ipko remains the leading provider of broadband connections in Kosovo and one of the leading mobile telephony operators. According to figures of the regulatory authority (ARKEP),33 there were 183,127 broadband connections in Kosovo at the end of the third quarter, meaning a household penetration rate of 61.4% and a population penetration rate of 10.5%. Ipko holds a 50.2% market share. There were nearly 1.8 million mobile telephony users, translating to a population penetration rate of 97.1%. Ipko recorded a significant increase in its market share in 2014, from 33.7% at the end of 2013 to 36.4% in the third quarter of 2014. We assess that there were around 172 thousand digital TV connections at the end of the third quarter, meaning a household penetration rate of 60%, while Ipko’s assessed market share is 49%.

According to figures of the regulator authority (AEK),34 there were 343,222 broadband connections in Macedonia at the end of the second quarter of 2014, meaning a population penetration rate of 16.6%. The mobile telephony market is saturated, with a population penetration rate of 108.7% at the end of the second quarter. The total number of mobile telephony users exceeded 2.2 million, while One’s market share was 25.1%. The fixed telephony market continues to decline. There were 391 thousand fixed telephony connections at the end of the second quarter, meaning a population penetration rate of 18.9%.

According to figures of the regulatory authority (RAK),35 there were 534,444 broadband connections in Bosnia and Herzegovina, meaning a population penetration rate of 13.9%, accompanied by a positive growth trend.

33 Source: Kosovo ARKEP regulatory authority, Q3 2014 report. 34 Source: Macedonian AEK regulatory authority, Q2 2014 report. 35 Source: Bosnia and Herzegovina RAK regulatory authority, Q3 2014 report.

84 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Growth also continues on the mobile telephony market, which comprises 3.5 million users or 90.7% of the population. The decline continues on the fixed telephony market, which comprises 858,664 users, translating to a population penetration rate of 22.3%. The aforementioned market is tracking trends on developed markets and points to the further loss of market share by incumbent operators, while alternative operators are enjoying double-digit growth and gaining market share. Blicnet’s assessed share of the broadband access market stood at 4.6%, while its estimated share of the pay TV market is 6.5%.

Telekom Slovenije began to fully exploit the regional fibre optic network in 2014, which represents the main link to subsidiaries, as well as the greatest potential for growth in revenues and margin from international wholesale data services. The network facilitates a transfer speed of 100 Gb/s and facilitates the implementation of the broadest possible range of data services, including MPLS functionality.

2.6.2 Management of the brand portfolio36

The Group is present on the market under the Telekom Slovenije umbrella brand, which comprehensively covers all services that we offer to users: broadband internet services, and fixed, mobile services and ICT services. The brand portfolio also includes specifically profiled segment brands such as the Itak brand for young persons, and partner brands such as Moneta and WiFreeLjubljana.

Key elements of the identity of the umbrella brand are presented through market communication activities: ¬ we build trust and relationships; ¬ we provide a comprehensive range of products and services; ¬ we maintain the best network; ¬ we offer more for the user’s money; and ¬ we encourage innovation and social engagement.

We continued to gradually consolidate the strength and value of the Mobitel, SiOL and Mobi brands (registered trademarks of Telekom Slovenije) under the umbrella brand. We achieved the target values of key brand management performance indicators, as the brand has established Telekom Slovenije as the most comprehensive provider of telecommunication services in the fixed and mobile segments. The umbrella brand continues to lead in both segments in terms of spontaneous and aided recall, and is gradually gaining its own profile and assuming its target position.

We will continue to achieve the desired brand identity in the future by systematically monitoring and improving the user experience at key brand experience points with Telekom Slovenije users.

CORPORATE BRAND Brand/product Description Description of service/note Market Covers the entire portfolio of the Company’s services, and is used for Umbrella brand communication with all stakeholder Private Business groups (users, investors, employees and the media).

36 GRI G4-4

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 85 PORTFOLIO OF TELEKOM SLOVENIJE BRANDS Brand/product Description Description of service/note Market

Covers the segment of young Segment brand Private persons.

Covers cashless payment services B2B Partner brand with mobile phones. business sales

Partner brand Covers free WiFi network services. Private Business

We introduced several innovations for service and product brands at the Telekom Slovenije Group level in 2014. Ipko launched the Zog segment brand in Kosovo in September. The composition of the Telekom Slovenije Group also changed with the sale of Gibtelecom in December.

The Telekom Slovenije Group is present on the market with its composite logo, which comprises the names of companies and is developed in Slovenian and English versions.

Telekom Slovenije Group

Telekom Slovenije Avtenta TSmedia GVO Soline Ipko One Blicnet

In addition to the corporate brand, the portfolio of subsidiaries in Slovenia also includes a description of the key sub-brands of individual companies and the services they provide. A detailed description of individual brands and services can be found on the websites of the relevant companies.

Portfolio of brands:

PORTFOLIO OF BRANDS of subsidiaries in Slovenia Brand/product Description Description of service/note Market

Corporate brand Corporate brand TSmedia Private Business

Planet Siol.net Leading Slovenian digital media. Private Business

General commercial television station (49% ownership stake). Planet TV Private Business Joint-venture with the Greek media corporation Antenna Group.

86 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 PORTFELJ BLAGOVNIH ZNAMK odvisnih družb v Sloveniji blagovna znamka/produkt Opis opis storitve/opomba trg

najdi.si Access point to the Slovenian web. Private Business

bizi.si Business directory Business

Slovenian telephone Universal telephone directory. Private Business directory.

1188 Value added call centre services. Private Business

1977 Value added call centre services. Private Business

Dajmedol Video-on-demand brand Private

Covers large corporations and public institutions in Slovenia and the wider region, and combines advanced and verified business Corporate brand Business solutions for the optimisation and improvement of the efficiency of companies, organisations and public administration.

ICT training programmes that are based on personal contact Avtenta.iqt Business and programmes adapted to the individual.

Comprehensive services in the area of designing, Umbrella brand constructing and maintaining Business telecommunication and electricity networks.

Soline salt production umbrella Umbrella brand Private Business brand.

Solnce (salt Food line Private Business cellar)

Lepa Vida Lepa Vida cosmetic line and Private Business (Beautiful Look) Thalasso spa

Sečovlje Logo for the park and related eco- Saltpans Private Business tourism, used on park souvenirs. Regional Park

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 87 PORTFOLIO OF BRANDS of subsidiaries in South-Eastern Europe Country/company Brand/product Description Products/services Market Bosnia and Herzegovina – Blicnet Mobile telephony, fixed telephony – VoIP, internet, cable TV, TViN service, cloud storage, operator selection/pre-selection, Umbrella brand bandwidth leasing, network Private Business interconnection, convergent services – service packages, web hosting, web design, email solutions, registration of domains, integrated solutions. Kosovo – Ipko

Mobile telephony – GSM, SMS, MMS, WAP, VMS, mobile data Corporate brand transfer – 3G, 4G, GPRS/EDGE, internet, fixed telephony – VoIP, bandwidth leasing, network Private Business interconnection, digital cable Hej and Zog – television, convergent services segment brands – service packages, web portal – news and entertainment, email solutions.

Macedonia – One, Digi Plus

Mobile telephony – GSM/UMTS, Corporate brand SMS, MMS, WAP, VMS, mobile data transfer – GPRS/EDGE/UMTS/ HSDP, internet, cloud services, fixed telephony – PSTN, fixed/ mobile, VoIP, bandwidth leasing, network interconnection, mobile Private Business portal (WAP), Live TV – mobile Boom TV and TV, news and entertainment, On.net – service FunDial – ringtones, digital brands video broadcasting - terrestrial (DVB-T), web portals - news and entertainment.

88 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.6.3 Sales and marketing activities37

The Group maintained the number of mobile telephony users in Slovenia at the 2013 level, and recorded 10% growth in the number of mobile telephony connections on the markets of South-Eastern Europe in the context of the continuing decline in the number of traditional voice telephony connections. The most significant growth was recorded in Bosnia and Herzegovina, where Blicnet entered the mobile telephony market at the end of 2013.

Telekom Slovenije Group connections and services by type and market38

Broadband connections

Number of retail connections as at 31.12.2014 31.12.2013 Ind. 14/13 Slovenia 199,542 202,158 99 SE Europe 153,445 143,510 107 Macedonia 38,552 39,563 97 Kosovo 90,219 82,427 109 BiH 24,674 21,520 115 Telekom Slovenije Group 352,987 345,668 102

Fixed and mobile telephony connections

Number of retail connections as at 31. 12. 2014 31. 12. 2013 Ind 14/13 Slovenia, mobile telephony 1,125,365 1,123,867 100 Slovenia, fixed voice telephony 401,599 421,701 95 SE Europe, mobile telephony: 1,186,660 1,082,143 110 Macedonia 558,090 527,928 106 Kosovo 626,817 554,010 113 BiH 1,753 205 855 SE Europe, fixed voice telephony 41,068 54,929 75 Telekom Slovenije Group 2,754,692 2,682,640 103 VoIP services 2,682,640 103 Slovenia 162,042 153,911 105 SE Europe 36,576 24,927 147 Telekom Slovenije Group 198,618 178,838 111

Number of mobile and fixed telephony connections/services

Number of retail connections as at 31.12.2014 31.12.2013 Ind. 14/13 Total mobile telephony 2,312,025 2,206,010 104.8 Total fixed voice telephony services* 641,285 655,468 97.8 Telekom Slovenije Group 2,953,310 2,861,478 103

* Sum of fixed voice telephony connections and VoIP services.

37 GRI PA4 38 GRI G4-9

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 89 Net sales revenue of the Telekom Slovenije Group The Telekom Slovenije Group’s net sales revenue amounted to EUR 756.5 million, down 3% on the figure achieved in 2013.

Breakdown of net sales revenue by company39

in EUR thousand 2014 2013 Ind. 14/13 Telekom Slovenije 643,057 658,493 98 Other companies in Slovenia 54,357 52,409 104 TSmedia 9,542 11,083 86 Avtenta 7,766 6,759 115 GVO 33,598 30,910 109 Soline 3,451 3,657 94 Ipko Group - Kosovo 69,465 68,388 102 Companies in Macedonia 75,662 75,468 100 Other companies abroad 21,227 21,266 100 Total - unconsolidated 863,768 876,024 99 Elimination and adjustment -107,314 -96,664 111 Telekom Slovenije Group 756,454 779,360 97

Telekom Slovenije’s net sales revenue was down 2% relative to the previous year. The decline in revenues in the retail segment was driven primarily by a decrease in revenues from mobile telephony subscribers and prepaid users, broadband services, traditional voice telephony and data services. Market competition was stiff. We therefore strove at all times to maintain existing customers (loyalty programme) and attract new users in the fixed broadband and mobile segments via various special offers and new, more affordable packages for users. With the aim of increasing revenues, we introduced new products and services such as Deezer, roaming options, HT internet, Mobitel EU Unlimited, the promotion of advanced pay TV functions, etc. The decline in the retail segment was partially offset by growth in wholesale revenues, where primarily revenues from international transit traffic, unbundled access (FTTH and PRD), broadband access and network leasing were up.

TSmedia’s net sales revenue was down 14% relative to the previous year. Revenues from information services have been in decline for several years, as users are using other sources to gather such information. Thus, the number of calls to the 1188 number is in constant decline. The decline in revenues from the marketing of advertising space was driven by declining fees.

Avtenta’s net sales revenue was up 15% on the revenues generated in 2013. The adverse market conditions and the resulting postponement of public administration projects affected both operations and the level of revenues. However, sales of SAP HANA resulted in an increase in revenues. The company achieved growth in revenues on the external market in all key programmes (e-business solutions and SAP), which is an extraordinary achievement given market conditions, as the Slovenian IT market continues to contract. The company’s market share is growing in the e-business solution segment, while its role as an SAP provider outside the Telekom Slovenije Group is strengthening.

The increase in GVO’s revenues is the result of the increased scope of investment works within the Telekom Slovenije Group, and due to the increased scope of maintenance works on account of unfavourable weather conditions in 2014: the repair of damage caused by the ice storm and floods. Growth in revenues is also the result of an increased number of connections on previously constructed open broadband networks (OBNs).

39 GRI G4-EC1

90 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 The net sales revenue of Ipko in Kosovo was up by 2% relative to 2013. The company compensated for falling revenues from international traffic due to the increased use of free internet voice applications such as Skype and Viber with higher revenues from the end-user market, in both the mobile and fixed segments (TV and broadband services).

The net sales revenue of companies in Macedonia was at the level recorded in 2013. Revenues were down slightly in the prepaid segment of the mobile market, primarily due to a number of more affordable packages (on/off-net minutes and unlimited call minutes). Revenues from mobile telephony subscribers were higher, resulting in higher total revenues in the mobile segment. Lower revenues in the fixed segment were the result of falling revenues from traditional fixed telephony services, which is a typical trend given current technological development.A reduction in termination prices and the introduction of symmetry at the end of 2013 has resulted in a decline in revenues in the wholesale segment.

The net sales revenue of Blicnet was up considerably on the previous year, by 10%. Both markets – the end- user and wholesale market – recorded growth, primarily due to an increase in the number of users in all main segments of telecommunication services and on account of growth in revenues from transit traffic.

Sales and marketing activities on the Slovenian market

Fixed voice telephony services We offered users several new features in the area of traditional telephony: ¬ cross-selling with options for the more favourable use of mobile services for residential users (valid for TDM subscribers); ¬ a range of subscriber packages with included call minutes; ¬ a new range of options – we updated and supplemented call options; and ¬ cross-selling of mobile telephony and internet access services.

Mobile voice services Telekom Slovenije updated certain subscriber packages that it uses to reach users and provide users the freedom of communication. We also: ¬ added unlimited call minutes and messages to packages, which provides the user worry-free communication; and ¬ facilitated the secure use of mobile services within the EU (roaming).

Internet and multimedia services (broadband services) We upgraded the range of fixed and mobile packages on all networks where we market internet and multimedia services.

Fixed internet services: ¬ Telekom Slovenije was one of the first operators to offer gigabit internet services. ¬ We offered the Secure Internet, an advanced service for managing andprotecting internet traffic. We supplemented and updated our range of security services for protecting users’ computers, data servers and mobile communication devices with the Android operating system (for tablets, PDAs, mobile telephones, etc.). ¬ We were one of the first operators in the world to offer IPV6 internet services.

Mobile internet services ¬ We introduced a wireless internet subscriber package intended for users at locations where fixed broadband access is currently unavailable or under construction, thus providing a 3G or LTE mobile signal to these users.40 ¬ We connected the first base station to theLT E Advanced technology, which represents the next step in the development of the fourth generation of mobile technology (4G) and provides users even higher and more stable data transfer speeds. operaterji na svetu ponudili internetne storitve IPV6 (internetni protokol).

40 GRI PA1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 91 Points of sale and agent network Telekom Slovenije sped up the continuing process of renovating points of sale during the year, when four renovated centres were opened. We introduced a new feature at Telekom centres – the Waiting Room. Receptionists use this tool to set visitors to Telekom centre in order and guide them to free advisers at numbered counters. The application is also used to process data regarding activities carried out at Telekom centres. A D2D (door-to-door) sales team began working in the field in December in areas where investments in the network have been completed, resulting in additional or new sales opportunities. The agent network was consolidated in parallel with the renovation of points of sale.

Premium services The trend of growth in payments via mobile phones continued. The Moneta system was upgraded with new functionalities and improvements: ¬ We improved Moneta mTerminal solutions, and simplified operations for the providers of Moneta Internet and Moneta SMS services for the quick and simple receipt of remote payments. ¬ We introduced membership fees for the users of Moneta services. ¬ We offered numerous benefits to users in cooperation with major service providers.

Management services for business users Management services include the product portfolio of communication, application and convergent services.

We offered the following tolarge business users: ¬ the migration from traditional voice services to advanced VoIP/video communication (videoconferencing) services and integration with cloud computing services; ¬ the development of additional business functionalities (e.g. a prepayment system, control of usage and integrated clients); and ¬ new information security services.

We offered the following tosmall and medium-sized business users: ¬ the adaption of the range of products and services to the needs of users or the segment; ¬ benefits for new subscribers; ¬ cross-sales of business packages with ICT services; and ¬ a comprehensive range of cloud computing services (XaaS services) and connectivity.

Integrated solutions In terms of security services, we focused primarily on stabilising the platform for IP Infranet services, which will facilitate the more successful transition to the new technology. Securities solutions in 2015 will include the launch of a new video surveillance service. In the area of telecare, we are planning to update products and business models with the aim of increasing the number of subscribers in the context of more aggressive market communication.

Inter-operator segment (wholesale) We recorded an increase in revenues from broadband services for operators, in particular from unbundled access. We carried out several marketing activities with the aim of including new broadband connections and preventing a downward trend in terms of the utilisation of Telekom Slovenije’s network capacities.

International wholesale services Through proactive personal sales and participation in specialised events for international operators, we increased the presence and recognisability of Telekom Slovenije as a regional provider of telecommunication services, and recorded exceptionally high growth in revenues from international wholesale services.

ICT-standardised solutions We continued to expand our portfolio of Customised Office services in 2014. We added the ERP service Pantheon Roaming (business information system), which was very well received on the market. In terms of demand for Customised Office services, we provided a free domain and additional discounts on selected services from the portfolio to business users who subscribed to a business package.

92 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 TSmedia Via the Planet Siol.net digital media outlet, we introduced the most advanced format for sharing content – multimedia stories enhanced by text, photos, video and sound. We also launched the Mali junaki Slovenije (Young Slovenian Heroes) project.

We updated the access point to the Slovenian web (najdi.si) which, through a more transparent offer, provides an improved user experience and more opportunities for advertisers.

Updating the online Slovenian telephone directory resulted in the first true yellow pages in Slovenia. Easier searching for telephone numbers and other contact data with the most advanced advertising possibilities offers advertisers more opportunities.41

We introduced outdoor digital advertising screens at elite and high-traffic locations in Ljubljana, and at service stations.

Avtenta – upravljanje poslovnih vsebin in odnosov Sales activities supported the established range of products and services (e.g. SAP maintenance, general CRM solutions, DMS for corporate entities and public administration), and were also aimed at new solutions adapted to substantive verticals (e.g. insurance, banking, health care, energy sector, etc.). The following objectives were achieved in 2014: ¬ SAP solutions: Avtenta became the first certified SAP HANA Support Partner in Slovenia, thereby providing expert consultancy services and support for HANA systems in accordance with strict SAP standards. ¬ We attracted new users for the introduction and maintenance of SAP systems, and significantly increased revenues generated by such services on the Slovenian market. ¬ Management systems were re-accredited according to the ISO 9001 and ISO 27001 systems, while the Si.Hramba was also re-accredited. We are thus continuing to verify processes and systems, including after a change in the scope of operations and the adaption of the work method to new conditions. ¬ We continued to adapt Avtenta’s mode of operation and the business strategy of the smaller company, which will facilitate its sustainable development going forward.

GVO GVO’s net sales revenue was up 9% in 2014 relative to the previous year. The aforementioned increase was primarily driven by an increased scope of works due to the clearance of faults in Telekom Slovenije’s network as the consequence of the ice storm, and on account of the completion of assembly works in Germany. In 2014 GVO built additional subscriber connections for end-users on the open broadband networks that it manages, and increased penetration on all of the aforementioned networks.

Sales and marketing activities on the markets of South-Eastern Europe In Macedonia, One introduced promotional tariff models (Select PROMO, SMART and ONE promo) in the mobile segment, as well as specialised tariff models for iPhone users. It presented 4G/LTE packages at the end of the year. In the fixed segment, the company offered new SMART packages that include telephony, internet and TV services enriched with unlimited calls in One’s network for lower tariffs and unlimited calls and data transfer for higher tariffs. It also offered subscribers exclusive packages to TV channels as part of the monthly subscription fee, attractive tablet and laptop computers for minimal monthly payments, and free tablet computers as part of the most expensive triple play packages. One also enhanced its TV programme scheme with Fox, HBO and Cinestar. The company added three cloud computing services to its range of services: Virtual Private Server (VPS), eArhivaCloud and eCRMCloud.

41 GRI TA2

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 93 Ipko in Kosovo was the first to introduce 3G technology, as well as a 4G network at the end of 2014. The latter will facilitate the fastest data transfer for users. The company presented new mobile broadband data packages. At the end of September it entered the mobile telephony market with the new Zog Mobile sub-brand, which currently offers users the most affordable basic services (calls and SMS). In cooperation withA pple, the company was the exclusive supplier of iPhone 5 and iPhone 6 mobile phones. In the fixed segment, Ipko offered a special digitalT V package with no connection fee in certain rural areas. It continued to expand its programme schemes and introduce new set-top box functions, including recording, video-on-demand and a video library. Fixed VoIP telephony now facilitates free calls within Ipko’s fixed network. The company offered users the special 2015 MB New Year’s package forE UR 2.15 and the Ipko Junior New Year’s promotional package, as we well as promotional discounts on its TV and Ipko Duo Plus packages. Ipko became the first operator with a loyalty programme, which was expanded to new partners.

Blicnet in Bosnia and Herzegovina offers users comprehensive telecommunications solutions: analogue and digital TV, internet, and fixed and mobile telephony. The company achieved several significant milestones in 2014. Blicnet expanded its geographical coverage to five new cities in the north-western part of Bosnia and Herzegovina. The company became the only official distributor of Apple iPhone 5s and iPhone 6 mobile phones. In the area that it covers, the company increased internet speeds on the cable infrastructure significantly, and thus became the most competitive operator. With the new TViN service, the company facilitates the receipt of TV programmes on various devices (computers, tablets and smart phones), while also facilitating 5 GB of cloud storage.

2.6.4 responsibility to customer42 93% 0.39% 10.5 mio customer satisfaction overall complaint rate invoices issued for services relative to invoices

In contact centres of Telekom Slovenije we monitor customer satisfaction at all key contact points. Assessed satisfaction remains high, and stood at 93% in 2014 (an assessment of 4 or 5 was given). Those assessments that indicate improvements are necessary are given special attention and individual treatment. In order to ensure highly qualified and professional employees, we once again provided for periodic and additional training during the year, and regularly monitored employees’ work.43

Telekom Slovenije is aware that loyal and satisfied users are crucial to our operations. We will therefore continue to create strong ties with them in the future, and reward them with advanced forms of telecommunication engagement. In accordance with recommendations issued by the AKOS, we increased the transparency of our range of archive services. Due to changes to the Consumer Protection Act, we revised sales documents, and drafted and published conditions for the procurement of goods and services.

Significant activities in 2014: The uniform loyalty programme introduced at the end of 2013 was upgraded with numerous advanced and useful functions. The point-based reward system was expanded to sole traders and subscribers to traditional telephony services.

The Moj Telekom (My Telekom) portal was thoroughly updated and linked to the www.telekom.si website and online store via a single login, while the loyalty programme remains part of the aforementioned portal. By making the portal highly useful, we have created a superior user experience, as all information regarding services are accessible in one place, while the portal facilitates the management of subscriber relations, likewise in one place.

42 GRI G4-DMA 43 GRI G4-DMA, G4-PR5

94 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Communication with users and technical help desk services44 The users of the Group’s services most frequently turn to key contact points with their questions and problems: the User Advice Department and the Technical Help Desk Department. Both are available 24 hours a day, seven days a week. In 2014 we created a single access point for technical assistance for both mobile and fixed services within the Technical Help Desk Department. Using a workforce management (WFM) system, a dispatch service was organised within the Technical Help Desk Department that is responsible for the efficient allocation of tasks between users and technicians.

In addition to material damage, the ice storm at the beginning of the year resulted in the considerable lengthening of typical fault clearance times and thus an increase in the number of calls and other user contacts. The effects of the ice storm and floods were felt throughout the year. Therefore, following the introduction of the WFM system, we also introduced a voice response system that communicated the envisaged fault clearance time to users. A call-back function was also introduced due to lengthy waiting periods for calls to help lines.

Our contact centres received 2,744,349 calls in 2014, a decrease of 18% relative to 2013. The 11% increase in the average length of calls with advisers was the result of new features, campaigns and legislative changes. We therefore reorganised automated response systems with the aim of offering users tailored content at various selected points. We included automated response systems in the 080 8000 and 041 700 700 call services for the purpose of obtaining information about current overdue claims. In the final quarter of 2014, when the aforementioned service was introduced, we recorded a 30-hour reduction in calls on that subject.

In written communication with users, we responded to 300,301 messages, a slight decrease relative to 2013. We resolved 1,060,197 technical issues and made 458,628 outgoing calls to users, an increase of 23% on the previous year.

Telekom’s interactive assistant TIA sent 66,933 responses via the internet. Users had a direct conversation with an adviser in 33,712 cases, an increase of 28% on the previous year. Users took part in conversations primarily with regard to questions for which a quick response was expected. Customer support was also offered via Twitter and Facebook, which represent an additional channel for communication with users.

A total of 2,022,936 calls were processed by the 1188 Call Centre Service, which thus recorded a 28% decline relative to the previous year, as expected, primarily as a result of the increased use of internet services (data accessible on the internet, and numbers saved in mobile and other portable devices). Reasons also include lower purchasing power and the economic crisis. In cooperation with TSmedia, we secured a concession to provide 1188 services for the next five years. We signed an annex to the relevant network interconnection agreement that will facilitate access to 1977 services by Simobil subscribers.

We improved authentication in registration systems due to the occasional abuse of email. Users are now provided with a significantly higher level of security, thus reducing the probability that they will appear on the black lists of other operators.

In the business and personal advice segment, we carried out various call campaigns with the aim of maintaining and improving customer satisfaction, and maintaining existing users and attracting new users. Monitoring feedback and market demand helps us develop new ranges of services and equipment. We dedicated special care and attention to the small and medium-sized business user segment during the year. We began to publish the 080 7070 number, intended for advisory services for business users, on all forms of print material at the beginning of the year.

The proportion of calls was down again during the year due to the increased use of other communication channels. The Moj Telekom (My Telekom) portal, intended for subscriber and the users of Telekom Slovenije’s services, also plays an important role.

44 GRI G4-26, G4-27

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 95 Transparency in the charging of services45 The unified control of invoices for fixed and mobile services and the elimination of potential system errors prior to the issue of invoices of services remain our concern. This contributes to customer satisfaction and a reduction in the number of complaints. We standardised invoices for mobile and fixed services in visual and functional terms. In terms of content, we added missing data in accordance with the AKOS’s recommendation and standardised logical controls for billing data.

In accordance with legal requirements, we took all necessary steps to issue e-invoices to budget users. E-invoices were introduced in the SAP SD segment, on ad-hoc invoices and credit notes, and on Moneta invoices. In parallel, we included additional data with the aim of better fulfilling the wishes of our users.

In 2014 we received 41,474 complaints on more than 10.5 million invoices issued for services. The overall complaint rate relative to invoices issued averaged 0.39%.

Concern for children's internet and TV security46 Encouraging safe internet use, in particular among the most vulnerable segment of the population – young children and adolescents – remains an important activity. Telekom Slovenije has been a participant in the Slovenian Safe.si initiative for the safe use of the internet since its inception, and is a signatory of the code of mobile operators and internet providers aimed at user protection. Telekom Slovenije is also a signatory of the ETNO Corporate Responsibility Charter.

We have set up the tab Nasveti za varno rabo mobilnih naprav (Recommendations for the safe use of mobile devices) on the telekom.si website. In 2014 we actively participated in The Power of Words campaign against internet violence among young people.

We drafted 10 golden rules for safe internet use for adolescents and their parents. The same recommendations are also useful when accessing the internet via mobile telephones. We added the possibility of reporting hate speech at the Spletno oko (Online Eye) point via the Planet Siol.net online media outlet. We also review and moderate comments by users of the aforementioned media outlet. Comments that encourage hate speech are not published.

The Macedonian company One offered the new “Netfiltering” cloud service aimed at children’s internet security.

Access to Dajmedol brand content on SiOL TV is protected by a parental password and a warning that the content is inappropriate for children.

Broad access to Group services47 We provide more affordable access to the Group’s services by special user groups. We offer students and pensioners specially priced packages of broadband services, and fixed and mobile voice telephony services. We developed a special offer in 2014 for disabled persons based on the new Decree on Measures for Disabled End-Users. We provide them the appropriate services, terminal equipment and a list of public telephones and terminals accessible by wheelchair. In cooperation with the Slovenian Association of Deaf and Hearing Impaired People, we developed a new Gluhi Plus (Deaf Plus) package for the deaf and hearing-impaired, which provides users unlimited calls to all Slovenian networks via the following services for a monthly fee of EUR 19: Telephony, Video-telephony and Communicator, an unlimited SMS/MMS messaging service and 3 GB for data transfer. Volunteer protection and rescue organisations were offered mobile service packages with no subscription fee.

Access to ICT services is also ensured in remote, less populated regions. Our mobile telephony signal is accessible across the entire territory of Slovenia, while a large portion of the territory is also covered by broadband internet access and fixed telephony. We have significantly improved access to broadband services over the last two years with the LTE network upgrade and the introduction of satellite-based broadband access. The LTE/4G network covered more than 75% of the population at the end of 2014.48

45 GRI PA10 46 GRI G4-DMA, G4-M4, PA2 47 GRI PA1, PA2 48 GRI PA4

96 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Group companies in South-Eastern Europe have also contributed to exceeding digital divisions in their own environments. The Macedonian company One worked as a subcontractor until the end of the year in a government project aimed at providing wireless internet access, even in more remote areas. Ipko ensures a high level of coverage in Kosovo with its mobile signal, while Blicnet provides access to state-of-the-art telecommunications to the rural population via a wireless triple play package.

2.6.5 customer satisfaction49

Customer satisfaction – fixed services Customer satisfaction with Telekom Slovenije’s fixed services is measured twice a year. The results serve as an important tool for developing and improving products that are tailored to the user. Users perceive SiOL services as technologically powerful, with advanced TV services (including HD content), and appropriate for every family. In this regard, users emphasise the stability of the network and quality of services.

The greatest advantages of SiOL’s internet are its extensive network and stable functioning. SiOL TV has a significant impact on the overall level of satisfaction with services. Relative to the users of other services, SiOL Box users are more satisfied with the latter’s advanced functions such as the time function, content on demand and the video library. SiOL TViN, which allows users to watch TV anywhere, anytime, also stands out in terms of satisfaction.

Users express a high level of satisfaction with the friendliness, professionalism and correctness of the operator, and with sales campaigns (responsiveness and speed).

Customer satisfaction – mobile telephony Exceptional recognisability, selection and use characterise Telekom Slovenije’s mobile services. The most advanced users (technology enthusiasts) are the most satisfied with services, followed by users with simple requirements. Users are most satisfied with the quality of voice services, coverage and the stability of the network. Telekom Slovenije’s image as the company with the best mobile network is enhanced by LTE technology, while the range of products and services for young people brings a trendy image, creativity and innovation.

Customer satisfaction at other companies Customer satisfaction is also measured at other subsidiaries. TSmedia measures satisfaction with online products on a daily basis through the use of online statistics and by receiving user opinions. It also measures satisfaction at least once a year via a research study. With the aid of a questionnaire, GVO regularly measures customer satisfaction after the completion of construction, and once a year by performing an analysis in accordance with the ISO 90001 standard. The proportion of the aforementioned company’s users who assessed its work as excellent was up 5% (61% of users).

Ipko conducts an annual quantitative study of customer satisfaction in Kosovo for the mobile and fixed segment. The satisfaction and loyalty of mobile service users improved again in 2014. On a scale from 1 to 5, the company scored 4.6, compared with 4.4 the previous year. Customer satisfaction fell for all operators in Kosovo in the fixed services segment, with Ipko achieving a score of 3.5, compared to its 2013 score of 3.7. Satisfaction with digital TV services was 3.6 compared with 3.7 in 2013. One did not carry out any customer satisfaction studies. A brand research study, however, indicates a customer satisfaction rate of 85% and a customer loyalty rate of 61%.

Blicnet monitors customer satisfaction on a monthly basis via the number of complaints received and interventions.

2.6.6 Market communication50

Telekom Slovenije achieved its long-term marketing strategy in 2014, which was established when Telekom Slovenije and Mobitel merged in 2011. We effectively established the combinedT elekom Slovenije umbrella brand, under which we have woven a comprehensive range of fixed and mobile technologies. At the end of the year the brand achieved first place in terms of recall among Slovenian telecommunication operators.

49 GRI G4-DMA, G4-PR5 50 GRI G4-DMA

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 97 The basis of Telekom Slovenije’s communication activities is a long-term standard platform. Those activities are based, in turn, on previous market analyses, experiences and the carefully segmented addressing of target groups.

Through carefully planned market communication activities in 2014, we successfully supported a range of comprehensive telecommunication services, while the messages in communication campaigns were effectively combined with the use of innovative communication channels.

We began the year with a market communication story that was linked to the Olympic Games in Sochi and derived from years of sponsorship of Slovenian Olympic representatives. The campaign included top Slovenian athletes and, under the umbrella slogan Uspehe množimo, ko jih delimo (Successes are Multiplied When Shared), linked them to a winning story intertwined with Telekom Slovenije’s range of mobile, fixed and content services.

The presentation of the Deezer advanced music service at Telekom Slovenije was supported by an imaginative advertising campaign, in which we transformed a Ljubljana acity bus into a travelling “music room” with the Deezer services.

During the summer we used the single Zgodbe, ki jih je vredno deliti (Stories Worth Sharing) platform to present a comprehensive offer that included new packages and an attractive summer offer. We continued using the single platform during the autumn, and ended the year with the emotional Želje, ki jih je vredno uresničiti (Wishes You’ll Want to Make Come True) advertising campaign aimed at attracting users to the Company’s offer. The campaign was accompanied by a selected Slovenian pop hit. In 2014 we also continued the successful and now traditional use of top Slovenian songs in Telekom Slovenije’s holiday market communication campaigns.

We actively supported a campaign in the small and medium-sized business user segment bearing the positional slogan Zgodbe, ki jih je vredno ustvarjati (Stories Worth Creating). We presented the advantages of our range of products and services using actual scenarios of use that are in line with needs of business users.

The Itak package for young people delivered the main message: Pogasi sovražnost. Govori ljubezen (Put an End to Hate. Speak the Language of Love). The Itak campaign calls on young people to join in a tolerant and respectful dialogue, and to support the socially responsible initiative Moč besed (The Power of Words), which was developed and carried out in cooperation with the Slovenian Friends of Youth Association. The Power of Words initiative thus appeared on all social networks, where users can find pictures and videos posted by co-supporters of the initiative, various instructions and advice about protection. We organised urban events in Koper, Maribor and Ljubljana, in which well-known artists created street paintings. Itak Ven also joined the initiative with an event, in the scope of which young people visited festivals throughout Europe to spread The Power of Words initiative.51

The first technical research in Slovenia on hate speech among young people on the web was carried out as part of The Power of Words initiative, and revealed that young people frequently encounter various forms of hate speech. Some 58% of young people between the ages of 15 and 25 have already received SMS/MMS with offensive content, while 47% of those surveyed have received offensive comments on social networks. A total of 35% of those surveyed have found false information about themselves on social networks, while 32% have received hate messages. Also of cause for concern is the fact that 11% of those surveyed during the research feel that they have been shamed via the web. More than 7% believe that they have been excluded from their respective societies in communication via the web.

In terms of online communication, we continued with the consolidation and centralisation of Telekom Slovenije’s online presence. A standardised online approach provides for the functional interaction of content and a uniform user experience on all portals. A total of 4.4 million visitors, 12.5 million visits and more than 56 million page views were recorded on the telekom.si website.

Through an expanded presence on social networks, we provide users the possibility of co-creating content and thus an enriched user experience. In addition to Facebook and Twitter, we expanded our presence to other social networks such as LinkedIn and Google+. We recorded growth in requests for information and user technical support via the aforementioned channels in 2014.

51 GRI G4-M4

98 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Telekom Slovenije and TSmedia are signatories of the Slovenian Advertising Code. Compliance with the code is verified regularly, every time a communication project is planned. No procedures relating to breaches of the code were completed in 2014. TSmedia also adheres to examples of best practices prepared by the Slovenian Advertising Chamber (accessible at: www.soz.si/projekti_soz/dobra_praksa/), while links to report hate speech have also been introduced via the Spletno oko (Online Eye) application. One and Ipko also respect general professional advertising codes.52

2.6.7 Procurement function, logistics and environmental responsibility53

Procurement function Improving the efficiency of procurement processes and the effective corporate governance of the overall procurement process were the focus during the year. To that end, we developed and implemented a number of new solutions and activities aimed at improving efficiency and mitigating risks in the procurement process. We also: ¬ improved IT support for the procurement process, and for the monitoring of procurement procedures and contract administration; ¬ revised Rules on the Procurement of Goods and Services at Telekom Slovenije, and general procurement conditions; ¬ introduced standard contractual clauses and a methodology for assessing offers; and ¬ improved the methodology used to assess suppliers.

In the scope of strategic objectives in the area of procurement, we are also reducing the number of suppliers, combining numerous procurement procedures and developing supplier relations. The majority of Telekom Slovenije’s suppliers are from Slovenia or Europe. Supply from the Slovenian market accounted for 73.6% of total procurement in 2014, while suppliers outside of Europe accounted for merely 0.51%. There were no major changes in the structure of the Telekom Slovenije Group’s domestic and foreign suppliers.

Logistics Several major activities to raise the productivity in the area of logistics were implemented in 2014. In January we moved the central warehouse for the construction and maintenance of base stations to a location where technicians are housed. By locating an internal service department within the central warehouse for merchandise and terminal equipment, we reduced the time required for logistical movements and reduced distribution costs. At the end of the year we discontinued the last warehouse activity at receipt and distribution points in Celje, by adapting and transferring work activities to ensure smooth operations.

Through further computerisation of the car fleet, we facilitated the faster and more transparent monitoring of costs according to several criteria and areas. By regularly reviewing the number of work-related kilometres travelled, we are implementing a vehicle rotation system to ensure even use; by organising and participating in safe driver training, we are ensuring improved road traffic safety and the more rational use of vehicles.

Reduction of environmental impacts through efficient procurement and logistics We introduced transportation for employees between locations in Ljubljana via a minibus, and thus reduced the use of private vehicles. By adapting the timetable and routes during the year, we further increased the use of the aforementioned transportation. We ensure optimal vehicle capacity when transporting employees to training and

other business events. New vehicle purchases follow the trend of a reduction in permissible CO2 emissions per kilometre travelled.

52 GRI G4-PR7 53 GRI G4-12, G4-13

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 99 Innovation, that is worth fostering. We believe in constant development and are not daunted by challenges. We were therefore among the first in Europe to offer our users the use of 4G mobile technology. We provide them the fastest internet in Slovenia and one of the best television experiences.

100 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.7. network, technology and IT

We achieved all key target indicators associated with the management of access devices for fixed services, transmission systems, electromechanical devices and real estate used for technological purposes. We continued to implement measures to increase energy efficiency and reduce the costs of maintaining systems under management. We accelerated the process of updating and enhancing the functional reliability of the convergent core network. Highlights in 2014

Slovenia was hit by an ice storm in February which, for the most part, 1. severely damaged Telekom Slovenije’s cable network. The auction of frequencies for the provision of public mobile 2. communication services was completed successfully. We modernised the mobile radio network in the scope of the evolution of 3. mobile data services (EMDS) project.

4. We connected the first base station to the TEL Advanced technology. 5. We exceeded more than 100,000 users in the LTE/4G mobile network. We introduced a package with the fastest internet access, with a speed of 6. up to 1 Gbit/s.. Telekom Slovenije was the first operator in Slovenia to introduce coded 7. connections at the L1 level via DWDM transfer systems.

2.7.1 research and development services54

Our research work in the scope of major public research and development projects focuses primarily on the infrastructure development of smart electricity grids, and the new services and products associated with them. Telekom Slovenije coordinates FP7 projects, including eBADGE (http://www.ebadge-fp7.eu/) and SUNSEED (http:// sunseed-fp7.eu/) in the total amount of EUR 9.7 million. In the scope of the aforementioned projects, Telekom Slovenije and the consortia it works with received EUR 6.2 million in grants.

Other research activities in 2014 focused primarily on the development in the following areas: ¬ fourth-generation mobile broadband networks (LTE), ¬ the Internet of Things (smart grids, connected homes, smart cities, e-healthcare, etc.), ¬ cloud computing, ¬ data mining, and ¬ big data as a service.

Telekom Slovenije is the general sponsor of the multimedia study programme at the University of Ljubljana’s Faculty of Electrical Engineering. In 2014 we earned the pro universitate labacensi plaque, which the University of Ljubljana awards to organisations that make a significant contribution through funds or work to the university’s material opportunities or to the training of its staff. Telekom Slovenije continued its cooperation with research organisations in Slovenia and Europe in 2014. In the scope of European projects from the Seventh Framework Programme (FP7) and the Horizon 2020 programme (H2020), we worked with the Jožef Stefan Institute, the Vienna University of Technology (TUW), the Austrian Institute of Technology (AIT), the Netherlands Organisation for Applied ScientificR esearch (TNO), Aalborg University, the University of Kent, the University of Essex, the University of Ljubljana and the Fraunhofer Society.

54 GRI GRI-EC7, IO1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 101 We applied our technical knowledge in the development or upgrading of various Telekom Slovenije Group products and services, either as a participant or as the lead organisation.

We developed websites and applications for SiOL TV, TViN and reality shows. We participated in the development and upgrading of the Planet Siol.net and najdi.si web portals.

2.7.2. convergent core network55

All signalisation and traffic service flows from Telekom Slovenije’s networks run through the convergent core network. The latter encompasses technologies that facilitate fixed telephony, mobile telephony, mobile broadband data access, fixed broadband access, and other network services.

Convergent core segments include: ¬ the fixed and mobile aggregation of traffic from the access network, ¬ the fixed and mobile core network, ¬ the backbone network and network interconnection, including roaming technologies, ¬ the internal business network with management services, ¬ platforms for value-added services, and ¬ continuous control (24/7/365) of networks and services, security, the development of control and support systems, and quality control.

Aided by the Group’s strategy and plan, we achieved established objectives through the formulation of five framework strategic policies to ensure: ¬ network and service reliability, ¬ modernisation and development, ¬ cost-efficiency, ¬ the optimal functioning of the Telekom Slovenije Group in the area of core networks, and ¬ the development and cooperation of employees, and the functioning of the organisation.

In terms of the management and maintenance of the convergent core network, we achieved all key target indicators regarding availability, accessibility, integrity and durability that we influence. We revised conditions for maintaining and upgrading software for key mobile network systems, operational support systems (OSS) and the broadband network. We also optimised costs (maintenance costs were reduced by 13% relative to 2013) and managed risks to the greatest extent possible.

We carried out numerous updates to systems with the aim of ensuring their reliable functioning. We also: ¬ replaced hardware in the Broadsoft environment; ¬ continued the TDM to IP migration in the fixed segment and shut down 17 TDM Si2000 telephone exchanges; ¬ set up a system against DDoS (distributed denial-of-service) attacks; ¬ set up an SACC system in the packet core; and ¬ upgraded the video conferencing system and RAN BSC controllers (for the radio mobile access network).

55 GRI PA4, PA6

102 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 In terms of the development of the network and services, we expanded capacities as required and introduced new functionalities. To that end we: ¬ assumed management of and control over a number of solutions in the area of administrative services, which remain one of our highest priorities; ¬ introduced the DSC platform to facilitate the routing of LTE roaming and other Diameter Signalling Controllers; ¬ enhanced internal development of control systems (SMARTS) and SLAM competences; ¬ developed an application to control the quality of wholesale traffic; ¬ developed the SOS mobile application; ¬ developed a single anti-fraud platform for voice traffic, including incoming calls; ¬ introduced a system for real-time calculations (OpenCloud platform); and ¬ erected 141 new LTE base stations.

At the Group level, we continued with intensive cooperation, harmonisation and control activities. To that end, we actively centralised operational support systems (OSS) and the co-use of the HSS (Home Subscriber Server) for LTE and major joint tenders.

In terms of control over the entire network and services, we implemented a number of measures aimed at the consolidation and centralisation of control, and combined and reorganised the network and service control centre. We also: ¬ consistently implemented procedures relating to the information security management system and the business continuity management system; and ¬ enhanced work relating to the quality of data in OSS, where there are still numerous market opportunities for development and thus increased customer satisfaction. We maintained the latter at a high level in the mobile segment, while there is notable improvement in the fixed segment.

In planning, constructing, managing, maintaining and controlling the network, we ensure a high level of functional availability of network elements and services. We are thus able to influence the level of availability in a specific phase through redundant connections and devices, and redundant power and air-conditioning systems. The functioning of devices and services is monitored continuously using control tools throughout the year, 24 hours a day, seven days a week. All faults are analysed, and recommendations and an action plan to raise the level of quality adopted, which is also one of the Telekom Slovenije Group’s primary strategic policies. Availability of systems was maintained at a high level, while only minor outages were recorded56

Key functionality indicators for convergent core networks in 201457

Backbone network Fixed core network Mobile core network

¬ Functional availability of the core ¬ IX availability: 99.999% ¬ Functional availability: 99.9986% IP/MPLS network: 99.991% ¬ SX NGN availability: 99.998% ¬ Success rate of incoming ¬ Functional availability of the ¬ IPC TX Mediator connections: 95.2% core segment of the IP/MPLS availability: 99.999% ¬ Success rate of outgoing RAR network: 99.9911%; and the ¬ IPC TX BW availability: 99.999% connections: 99.88% BRAS network: 99.988% ¬ SBC availability: 99.999% ¬ P ESQ 2G: 3.74 ¬ Maximum number of PPPoE ¬ P ESQ 3G: 4.00 users: 217,021 ¬ CP availability: 99.997% ¬ 2G connection time: 5.99 s ¬ Maximum bit rate: 59.7/34.3 Gbps ¬ 3G connection time: 3.62 s ¬ Functional availability of the mobile packet core network: 100% ¬ Maximum number of contexts: 157,898 + 57,989 PDP/EPSB ¬ Maximum bit rate: 2.75/0.58 Gbps 2,75/0,58 Gbps

56 GRI PA3 57 GRI PA3

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 103 2.7.3. Fixed access network

At the beginning of February, Slovenia was hit by extraordinary weather conditions as the result of an ice storm that tore down power lines, columns and poles, and broke and knocked down trees in forests. The population was initially affected by power outages, and subsequently the failure of telecommunication services as a direct result. The dedicated work of all employees contributed significantly to the fact that the Telekom Slovenije’s services were down to a considerably lesser extent and for considerably less time than those of other operators.

Damage to the network exceeded EUR 6 million in Slovenia and about EUR 65,000 in BiH. The repair of damages has been in progress since March, through the restoration of the network to its original condition, new solutions (FTTH, FTTN and ground implementation) and additional generators at base stations. Repairs will continue in 2015 due to the extent of damage.58

Management and maintenance of the telecommunication cable network The majority of maintenance activities focused on repairing the damage caused to the cable network by the ice storm. In addition to the implementation of technical solutions, we controlled the work of contractors, ensured the faster and higher-quality clearance of faults, marked the course of our segment of the cable network and implemented measures to limit maintenance costs.

Major investment projects in 2014 focused on the following: ¬ the construction of FTTH cable networks; ¬ the shortening and segmentation of FTTN copper networks; ¬ joint construction works with other investors in other infrastructure projects; and ¬ the laying of fibre optic cables to TEL base stations and business users.

Access devices Telekom Slovenije strives to achieve the European and national objectives of the Digital Agenda 2020, and to provide a speed of 30 Mbit/s to all Slovenian citizens. To that end, we continued to shorten copper pairs and thus provided users broadband services with higher transfer speeds. Upgrades were made in areas where users have not had sufficient opportunities in the past to use broadband services.59

We continued to optimise equipment and migrate gradually to IP for voice telephony. We expanded the coverage of the largest Wi-Fi network in Slovenia, from the initial coverage of the city centre to coverage of the entire area within the Ljubljana bypass.

We offered residential users broadband access with speeds of up to 1 Gb/s.

Transmission systems The number of equipment suppliers in the transmission systems segment was optimised, thus reducing support and maintenance costs significantly. Obsolete elements of the access segment of transmission systems were replaced at 47 locations with more cost-efficient and energy efficient elements.

In 2014 Telekom Slovenije was the first operator in Slovenia to introduce coded FC GBE connections at the L1 level via the DWDM (dense wavelength division multiplexing) transfer system. Coding is carried out at the user level, which facilitates user control over the entire connection.

58 GRI G4-EC2 59 GRI G4-DMA

104 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 We continued with the gradual upgrade of the backbone section of the DWDM network (DWDM MUX/DEMUX locations in the ROADM topology), which led to a significant increase in network flexibility and the provision of connections. We assumed full management of the DWDM transfer system on the Slovenia–Zagreb–Banja luka– Sarajevo–Pljevlja–Bijelo Polje–Peč–Prishtina–Skopje route in January, and configured connections through it.T he process of selecting a supplier for the completion of the Balkan DWDM ring on the Skopje–Sophia–Belgrade–Zagreb route was also completed, with a deadline for implementation set for the first quarter of 2015.

Given the growth in traffic, we increased the capacity of the network core with additional 10GE DWDM channels.

Electromechanical devices We continued to optimise and increase the scope of internal maintenance works, and thus reduced the associated costs relative to 2013. We achieved a reduction in prices for 2014 in negotiations regarding the electricity supply price. Activities aimed at reducing electricity consumption continue, despite an increase in the number of users (data centres), in particular at the Company’s registered office.

Major projects included the organisation of data centre premises at the Maribor location, and the installation of a ventilation system and an additional electricity generator for that purpose. The environmental and energy management systems (ISO 14001 and ISO 50001) passed periodic assessment.

We also continued to replace obsolete and inadequate air-conditioning devices in legal and energy terms, and one-way and alternating systems for ensuring a continuous and back-up power supply in the fixed, mobile and commercial real estate segments.

Radio network The radio access network in Slovenia is being upgraded gradually and successfully. With new base stations from the RBS600 family, we are expanding coverage by the fastest LTE/4G mobile network, and replacing older GSM and UMTS radio equipment. At the end of 2014, there were 372 LTE base stations (141 of which were connected during the year), 1,070 GSM base stations, 902 UMTS base stations and 1,256 repeaters in Slovenia. Nearly half all base station locations are linked by fibre optics, which facilitate the migration to the All-IP platform. In building radio networks, we take into account the environmental aspect of electromagnetic radiation, which is reported in point 2.10.2.

In June we were the first in Slovenia to connect the first two advancedTE L /4G base stations in the network in the 800 MHz radio frequency band. Users in rural areas and the inhabitants of cities where the receipt of the LTE/4G signal in buildings will be even better will benefit most from the expansion and upgrading of the network. During the year we also joined a small number of operators who already offer TEL in the 900 MHz frequency band.

At the end of the year we connected the first base station in our mobile network to the TEL Advanced technology, which represents the next step in the development of the fourth generation of mobile technology (4G), and provides users even higher and more stable data transfer speeds. During testing, we achieved transfer speeds of up to 300 Mb/s to the user and up to 50 Mb/s from the user. We will gradually connect more base stations of this type in the future, primarily in areas with the most mobile service users.

We provided Ipko technical support in planning, radio measurements and testing the UMTS and LTE network, thus making Ipko the first operator in Kosovo to offer its users the use of 4G technology.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 105 2.7.4. Development of information technology

We achieved the long-term objectives and development strategy of Telekom Slovenije’s IT architecture through numerous activities to ensure a quality IT environment.

Projects and initiatives to consolidate the IT architecture Highlights in 2014 Key projects and innovations to upgrade IT solutions in Implemented activities 2014 included: focused on the following: ¬ BSS consolidation programme: includes five mutually connected projects to optimise processes the optimisation of processes and and consolidate IT solutions to support processes 1. the consolidation of IT solutions; related to the fulfilment and billing of services. ¬ Capitalisation of the database of users: a single support for the redesign and infrastructure and processes have been set standardisation of Telekom 2. up in the scope of the project with the aim of Slovenije’s internet presence, and for carrying out advanced analyses, segmentation, the introduction of new services and predictive analyses and the management of sales marketing campaigns; and campaigns. support for the Company’s current ¬ Workforce management system (WFM) to 3. operations (optimisation/upgrades of optimise field work: through the implementation solutions and provision of support), of this project, we finalised the integration of the and for subsidiaries. information system for the optimisation of field work into comprehensive solutions that support processes related to the fulfilment, provision and billing of services. ¬ Consolidation of customer relationship management solutions: we continued the consolidation of customer relationship management solutions and carried out activities aimed at standardising solutions for the management of business partners and contacts.

¬ Consolidation of systems for international and inter-operator billing on a single software platform. ¬ Consolidation of data environments and environments for business reporting on a single platform. ¬ Set up of single database of agents, and the start of its use in all IT solutions. ¬ Central portal for users: redesign and standardisation of Telekom Slovenije’s internet presence, and mobilisation of websites. ¬ Redesign of the single invoice, support for the new method for charging provisions, and the standardisation of invoices in all systems. ¬ Migration to the charging of GPRS roaming via Quota Server. ¬ Migration of TSmedia to the single SAP ERP environment (system of integrated IT solutions).

106 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Support for operations (changes/improvements/operations) ¬ Improvements to the process of managing needs and integration with the process of managing the project portfolio at the Company level. ¬ Support for regulatory requirements and open broadband network requirements: adaptation and optimisation of IT support for order fulfilment processes, and the fulfilment and billing of services. ¬ Support for the introduction of new services and marketing campaigns: we made numerous updates to systems for ordering, customer relationship management, and order and billing management in order to implement changes in the range of existing products and services and new services in the fixed and mobile segments. ¬ Adaptation of IT solutions and support process with the aim of shortening reporting deadlines. ¬ Adaptation of processes and systems for the optimisation of support business processes, and adaptations to legal requirements. ¬ Implementation of support for business support systems (BSS) for the subsidiary One, through periodic updates for new product support and monthly billing. ¬ Continuous updating of versions of programming environments to ensure the smooth functioning of IT solutions and the sustainable development of the information system.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 107 Responsibility, that is worth striving for. It is our responsibility to contribute to sustainable improvement in the economic, social and natural environment. To that end, we support sports, culture, humanitarian activities and education. And we strive for equal opportunities for anyone who is part of our common story.

108 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.8. Social responsibility60

The Telekom Slovenije Group is part of the social environment in which it operates. We have therefore helped to shape it for a number of years through our knowledge, support and funding. This is achieved through professional and responsible customer relations, the rejection of any form of discrimination, respect for human rights and support for sporting, cultural, educational, environmental and humanitarian projects.

Highlights in 2014

We remain one of the most important sponsors and donors at the 1. national and regional levels.

2. We also supported Slovenian athletes during the Olympic Games. In a year marred by natural disasters, we enhanced our support for 3. humanitarian and volunteer organisations and groups.

We demonstrate our social responsibility by including employees in the Company’s activities, by supporting the functioning of Slovenian sport and culture, and by supporting vulnerable groups and individuals. We also support projects in the fields of science, education and environmental protection. Social impacts are reported in the sections and sub-sections Concern for users, Market communication, Responsibility to employees and Regulation of electronic communications.

Areas of activity, target groups and the extent of support for socially responsible projects were selected in accordance with the sponsorship and donation strategies of individual Group companies. To that end, we took into account added value for the Group’s users.

The Telekom Slovenije Group is among the most visible sponsors of and donors to sporting, cultural, educational, humanitarian and environmental projects in Slovenia and the region. Funds earmarked for this purpose Responsibility, amounted to EUR 2.7 million in 2014, or 0.4% of the Group’s operating revenues. that is Allocation of sponsorship and donation funds by purpose worth striving Sport 74.9% Culture 13.8% for. Other 4.6% Humanitarian 3.3%

Education and science 3.3%

60 GRI G4-DMA, G4-EC1

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 109 Major sponsorships and donations

Sports Science, education and conferences

The year in sports was characterised primarily by Special attention is given to supporting the Post the participation of Slovenian athletes at the Winter and Telecommunications Museum in Polhov Gradec, Olympic Games in Sochi. which Telekom Slovenije co-founded. We support numerous other events in the fields of science and ¬ Sponsorship of sporting events: the 2014 Sochi education. Winter Olympic Games and cooperation with the Slovenian Olympic Committee, qualification for Major events include: the 2016 European Football Championship, the ¬ the Gazela 2014 project, 2014 World Cup ski flying competition in Planica, ¬ the House of Experiments, the Franja Marathon and international swim meet ¬ the Reading Badge and Happy School projects, and in Radovljica. ¬ the graduation parade. ¬ Sponsorship of sporting associations: the Slovenian Ski Association, the Slovenian Football Environmental projects Association (the national team and Slovenian First Football League), the Ice Hockey Federation ¬ Partnership cooperation in the Eco-Quiz project of Slovenia, the Slovenian Athletics Association with the aim of educating primary school and the Slovenian Judo Federation. students about the environment. ¬ Sponsorship of the sporting clubs: support of Humanitarian projects basketball clubs (Union Olimpija, Slovan, Krka and Helios Domžale), handball clubs (Pivovarna Laško, The global economic crisis and two natural disasters Krim and Gorenje Velenje) and the Maribor football (an ice storm and floods) left a significant mark club. on 2014. The Telekom Slovenije Group responded ¬ Sponsorship of individual Slovenian athletes: quickly and effectively to calls for assistance, and Primož Kozmus, Jakov Fak, Filip Flisar, Peter helped find a solution via several activities, including Kauzer and Vasilij Žbogar. funds to individuals and humanitarian organisations and other forms of assistance. In addition to major sporting events and top athletes, we also provided significant support Our support includes: to local events, individuals and groups. To ¬ Humanitarian organisations: Friends of Youth that end, special attention is given to children Association, the Slovenian Red Cross, the Slovenian and adolescents, who represent a particularly Hospice Association and the Slovenian Association vulnerable group in the current adverse economic of Telephone Counsellors for Persons in Distress. conditions. ¬ Fire Fighters Association of Slovenia. ¬ We participate in campaigns to raise funds for Culture persons in social distress via call centres and SMS We continue to earmark support for certain cultural donations. events that have grown over the years into high- ¬ Smaller voluntary humanitarian organisations profile cultural gatherings that have even expanded and institutions, and socially disadvantaged beyond the borders of Slovenia: individuals. ¬ Liffe, the Ljubljana Summer Festival and the Lent Festival. ¬ We have been a sponsor of the National Opera and Ballet in Maribor and the Ljubljana Puppet Theatre for many years.

110 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.9. responsibility to employees

In managing human resources, the Group ensures professional development, occupational health and safety, and the right work-life balance. We ensure equal opportunities for employees, regardless of personal circumstances, which is also one of the principles of Telekom Slovenije’s governance policy.

Highlights in 2014

1. The number of employees fell by 3%. The average assessment of the organisational climate at the 2. Telekom Slovenije Group level was down by 0.04 points, while the assessment of employee satisfaction was down by 0.05 points. The number of workplace injuries was down 18% in 2014 relative 3. to the previous year.

Code of Business Ethics61 The Code of Business Ethics is the core document that defines conduct at Telekom Slovenije. The code defines the core principles and rules by which employees, members of the Supervisory Board, and other persons performing work for the Company are bound to act. Other Group companies have their own codes of business ethics. The code includes the principles of ethical conduct, relations between employees, with the employer, customers, shareholders and the wider community, the protection of information and data, and the principles of communication. It represents the standard for conduct, governance and management of the parent company and other Group companies. The Code is accessible at http://www.telekom.si/aboutcompany/kodeksPE_ang_small_pdf.pdf.

The Telekom Slovenije Group respects the dignity of its employees and rejects all forms of indirect or direct discrimination, as stated in the code. The Group has found no evidence of the possible use of child or forced labour in any of the activities of Group companies or at its suppliers.62

Ensuring equal opportunities for employees regardless of personal circumstances is also one of the principles of Telekom Slovenije’s governance policy. Mechanisms for identifying potential discrimination are set out in individual codes of business ethics of the parent company and subsidiaries. Avtenta adopted Rules on the Prevention and Elimination of Mobbing this year.

Work procedures are defined consistently at One with the aim of preventing discrimination. The company also has a specially qualified committee to handle possible reports of mobbing. At Ipko, these mechanisms are set out in the code of conduct, while an email address has been created where confidential complaints about such matters may be sent.

No cases of discrimination were recorded at Group companies.63

Structure of employees64 The Telekom Slovenije Group had a total of 4,431 employees as at 31 December 2014, with Slovenian companies accounting for 3,366 of that number. The number of employees fell by 3%, primarily due to the termination of employment for business reasons and retirements. The structure of employees at Slovenian companies changed slightly due to organisational changes. Employee turnover was 6.5% at the Telekom Slovenije Group level in 2014, compared with 6.9% at companies in Slovenia, which is up somewhat on the previous year (4.4%), primarily due to an increased number of departures from Telekom Slovenije.

61 GRI G4-56, G4-DMA 62 GRI G4-HR5, G4-HR6 63 GRI G4-HR3 64 GRI G4-LA1, G4-9

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 111 Structure of employees at Telekom Slovenije Group companies65

31. 12. 2012 Change in year number of employees as at 31. 12. 2013 31. 12. 2014 Ind. 14/13 adjusted* 2014 SLOVENIJA 3,616 3,571 3,366 -205 94 Telekom Slovenije 2,926 2,887 2,749 -138 95 Other companies in Slovenia 690 684 617 -67 90 TSmedia 140 103 90 -13 87 Avtenta 60 52 44 -8 85 GVO 394 437 394 -43 90 Soline 96 92 89 -3 97 SEE EUROPE 1,108 1,015 1,065 50 105 Ipko - Kosovo 488 482 524 42 109 Companies in Macedonia 437 423 420 -3 99 Other companies abroad 183 110 121 11 110 Blicnet - BiH 103 110 121 11 110 Primo - Albanija 80 0 0 0 - TELEKOM SLOVENIJE 4,724 4,586 4,431 –155 97 GROUP * For comparability with 2013, the figures for 2012 are adjusted to the organisational structure after the transfer of a portion of activities of Avtenta and TSmedia to Telekom Slovenije, which was completed in April 2013. GVO Telekommu nikation GmbH performs work in Germany using GVO’s workers, and has no employees since 1 July 2014 when it completed an extensive project in north-western Germany.

Number of new employees by age group66

Telekom Slovenije Telekom Other companies in Companies in SEE Group Slovenije Slovenia Age New hires Departures New hires Departures New hires Departures New hires Departures group 00–30 93 73 7 10 26 26 60 37 31–40 56 84 7 41 3 28 46 15 41–50 4 56 2 25 0 26 2 5 51–60 1 84 1 69 0 14 0 1 61–65 0 12 0 10 0 2 0 0 Total 154 309 17 155 29 96 108 58

A total of 98.1% Telekom Slovenije Group employees have employment contracts based on collective agreements or standard employment contracts. The remaining 1.9% of employees have contracts outside the collective agreement system. These are primarily employees in management positions.67

Proportion of employees by contract type68

Telekom Other com- Telekom Companies as at 31. 12. 2014 Slovenije panies in Slovenije in SEE Group Slovenia Employees covered by collective bargaining 98.1 % 98.1 % 98.5 % 97.7 % Employees outside the collective bargaining system 1.9 % 1.9 % 1.5 % 2.3 % Total 100 % 100 % 100 % 100 %

65 GRI G4-1O 66 GRI G4-LA1 67 GRI G4-11 68 GRI G4-11

112 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Employees by type of employment and gender69 A total of 85% of employees in the Telekom Slovenije Group are employed permanently, while 15% of employees are employed for a fixed period of time. The main reason Slovenian companies employ workers for a fixed period of time is to cover absences or temporary increases in the work load. Of a total of 2,749 employees at Telekom Slovenije, 44 were employed for a fixed period of time. More employees are employed for a fixed period of time at companies abroad than in Slovenia, which is a reflection of the legislation of the country in question and the employment policy of the individual company.

Proportion of employees by contract type70

Telekom Other Other Telekom As at 31. 12. 2014 Slovenije companies companies Slovenije Group in Slovenia in SEE Permanent employment 85 % 98.4 % 88.2 % 48.5 % Fixed period of employment 15 % 1.6 % 11.8 % 51.5 % Total 100 % 100 % 100 % 100 %

Men account for 65.7% and women for 34.3% of employees at the Group level. This ratio differs from company to company depending on their activity. Men are prevalent at companies in Slovenia, while the gender ratio is almost equal at companies abroad.71

Full-time employees account for the largest proportion (97.7%) of employees at the Group level, while part-time workers account for a smaller proportion (2.3%).72

Retiring Telekom Slovenije Group employees are entitled to severance pay in accordance with valid legislation and the provisions of the collective agreement, where it applies. Telekom Slovenije has no special pre-retirement training programmes for employees, while the average age of employees at the majority of other companies is so low that such programmes are not required.73

Educational structure of employees There was some change to the educational level at the Group level at the end of the year. There was a 30% decrease in the number employees with an educational level of between I and IV. The number of employees with level VI and VIII education has been on the rise for a number of years.

Employment of disabled persons There were 129 employees of various disability levels working in the Group at the end of the year. Of those persons, 45% are full-time workers, while the remainder work a reduced number of hours. The majority of our companies in Slovenia regularly exceed the legally prescribed quota of disabled persons, which is the result of our active concern for further facilitating the employment of disabled employees. Telekom Slovenije and GVO again exceeded the quota, which is 2% for information and communication activities and 3% for the construction sector. These companies were therefore entitled to compensation in the amount of 25% of the minimum monthly wage for each disabled employee over the prescribed quota. Companies abroad do not have a compensation system for exceeding the quota of disabled persons.

Number of employees with regard to the FTE indicator The Telekom Slovenije Group also monitors the FTE (full-time equivalent) indicator, which represents the number of employees based on hours. All worked and paid hours charged to the Company are divided by the planned annual number of hours. In this way, we monitor FTEs for employees, students and temporary workers hired through employment agencies.

69 GRI G4-10 70 GRI G4-10 71 GRI G4-10, G4-LA12 72 GRI G4-10 73 GRI G4-EC3

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 113 Number of employees with regard to the FTE indicator (period average)

Change in Ind. period average 2014 2012 2013 year 14/13 1. Number of full-time employees (FTEs) from regular work 3,722 3,808 3,742 –20 99 2. Number of full-time employees (FTEs) from overtime 70 57 51 19 136 3. Number of full-time workers from unexploited hours (FTEs), e.g. annual leave, holiday, all types of education, extraordinary paid leave, sick leave at a company’s expense, etc.) 698 718 714 –16 98 I. Total (1 + 2 + 3) 4,490 4,583 4,507 17 100

II. Conversion of actual hours to FTEs for students 159 310 155 4 102 III. Conversion of actual hours to FTEs for employees through employment agencies 103 149 115 –12 90 Total (I + II + III) 4,752 5,042 4,778 26 99

Training and HR development74 Professionally qualified, competent, innovative, satisfied and dedicated employees represent one of the keys to the success of every company. The Telekom Slovenije Group strives to achieve this through employee training and development. During a period of general austerity measures and rapid technological development and the resulting high number of new products and services on the market, training and development are that much more important.

We have a well-developed and functioning internal system aimed at the transfer of knowledge, which will remain one of the key points of our development in the future. The majority of internal lecturers are experts and specialists from the fields of information technology and sales. They also share their knowledge with agents, other companies and professional circles in Slovenia and abroad.

In the scope of our training programmes: ¬ we follow developments in the field of information and communication technology; ¬ we encourage experts to obtain additional certificates that represent added value for the Company and its employees; ¬ we enhance the internal transfer of knowledge; ¬ we train internal lecturers appropriately to ensure that they are successful and effective in sharing their knowledge; ¬ we promote the importance of employee dedication and motivation with the aim of achieving excellence in all areas; ¬ we upgrade the management by objectives system; and ¬ we give special attention to perspective and key personnel.

This year saw an increase in the proportion of employees included in education and training programmes relative to the previous year, from 77.4% in 2013 to 85.5%. A total of 79.9% of education and training programmes were organised internally. These programmes were adapted to the work specifics and needs of the Group, and were thus beneficial in terms of time, price and location. Men accounted for 72% and women 28% of all employees included in education and training programmes, which corresponds to the overall gender ratio, as training is based on workplace needs, with no distinction made by gender.75

74 GRI G4-DMA 75 GRI G4 LA9

114 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Due to a reduction in total direct training costs at the Group level, the number of training hours and average number of training hours per employee have also declined for several years, by 5% and 4% respectively.

Key figures regarding employee training within the Telekom Slovenije Group76

Telekom Slovenije Group Telekom Slovenije Ind. Ind. 2012 2013 2014 2012 2013 2014 14/13 14/13 Number of training 4,263 3,548 3,847 108 2,634 2,566 2,596 101 participants Number of training hours 135,531 109,380 103,454 95 94,140 70,344 76,055 108 Proportion of employees 90.2 % 77.4 % 85.5 % 110 90.8 % 88.9 % 95.0 % 107 included in training Average number of training 28.7 23.9 23.0 96 34.2 24.4 27.6 113 hours per employee

Structure of training by type The greatest emphasis was placed on content relating to information and telecommunications technologies, sales, and business communication and business skills. Special attention is also given to protecting the personal data of our users. Telekom Slovenije therefore organised eight workshops on the security culture in 2014. A total of 188 hours of training were conducted, while 192 hours of training were conducted at One.77

The structure of training by type is presented in the figure below.

Structure of training by type in 2014 Telecommunication technologies 19.6%

Sales 15.3 %

Business communication and skills 14.8 %

Security and health at work 14.8 %

Other trainings 13.7 %

Management 8.0 %

Information science 7.3 %

Foreign languages 2.8 %

Legislation 1.9 %

Economics 1.0 %

Communication 0.6 %

Energetics and engineering 0.2 % Key and perspective personnel A system for identifying and managing perspective and key personnel has been in place for several years at Telekom Slovenije. A total of 11% of employees were deemed key personnel back in 2013. Of that amount, 1.3% were young perspective employees. That list did not change in 2014. We introduced training for department heads, with an emphasis on two areas: the identity of a department head and a department head as coach. Perspective personnel are young employees with a high level of development potential, for whom we organised a series of workshops entitled Strast za rast (Passion for Growth).

We also implemented a rotation programme for perspective personnel between various organisational units. The programme was completed by four employees in May, while the next four employees began their rotation programme in September. A third quartet of employees is set to begin their rotation programme in January 2015.

76 GRI G4-LA9 77 GRI G4-HR2

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 115 Applying the same methodology used by Telekom Slovenije, key personnel were also identified in 2012 at TSmedia. No upgrades were carried out this year due to numerous organisational changes. A total of 11% of employees were identified as key personnel at One this year.

Lifelong learning, scholarships and the recruitment of new personnel78 The Telekom Slovenije Group supports the enhancement of professional knowledge, and therefore finances the study of employees and facilitates paid absence to prepare for study requirements. At the end of 2014, a total of 39 employees had contracts with the Group to obtain a higher level of education, compared with 66 in 2013. One employee is completing a voluntary apprenticeship with the court.

At the end of the year, the Telekom Slovenije Group had no active scholarship agreements. We provided scholarships to 11 pupils and students in 2013. One of them finished their studies in 2014 and was subsequently employed. An agreement with one scholarship recipient was terminated, as the person involved did not complete their studies and will therefore return the scholarship funds. Two students are in the final phase of their studies.

Motivation of employees Telekom Slovenije uses material and non-material forms of motivation to remunerate employees who deviate significantly from the average in achieving established objectives. Material remuneration is paid in accordance with the company-level collective agreement and other internal acts. Individual remuneration depends on the achievement of personal objectives (e.g. incentives, bonuses and life insurance), while collective employee remuneration depends on achieved business results.

Employee satisfaction and motivation to work is promoted through numerous forms of non-material remuneration. These include employees’ choice of education or training, paid absence from work, foreign language courses, gifts for children and first-graders, visits to professional trade fairs, membership in professional associations, etc. Employees are also offered unpaid extraordinary leave, subject to prior agreement with the relevant department head and if the work process allows such absence. Employees returning from extended periods of sick leave are afforded the opportunity to take part in preventive and recreational treatment at a spa.

Full-time and temporary employees enjoy the same benefits, except the payment of voluntary pension insurance premiums, which the Company covers after one year of employment. Telekom Slovenije, GVO, TSmedia and Avtenta pay the aforementioned premium for employees who have been employed by their respective company for at least one year. The amount paid is 5.844% of the defined base, except forA vtenta, which has a fixed premium of EUR 26.70 in place.79

Companies outside Slovenia pay their employees compulsory contributions for pension insurance in accordance with local laws, but do not yet pay premiums for additional pension insurance for them.

An employee’s base salary is equivalent to the value of the wage grade for a particular position for which an employment contract has been concluded, and is not dependent on gender, location or activity.80

Professional library The Group’s libraries house more than 9,000 items of reading material in the fields of telecommunications, information technology, economics, law, management and other sciences. Books account for 72% of the aforementioned amount, followed by periodicals and standards at 21% and e-material at 7%. The parent company boasts the most extensive professional library. One and Ipko have libraries that are accessible to all employees.

78 GRI G4-LA10 79 GRI G4-LA2 80 GRI G4-DMA, G4-LA13

116 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Telekom Slovenije’s library has been a member of the COBISS virtual library in Slovenia since 1992. Telekom Slovenije’s library fund increased by 85 books, 119 periodicals and standards and 93 units of e-material. Inter- library lending from domestic and foreign libraries is increasingly replacing purchases of business and technical literature. Membership in 47 professional associations, 45 individual memberships and access to 19 business databases and services was organised. A total of 2,696 publications were forwarded to 712 users.

Cooperation with research institutions We cooperate with various research and educational institutions with the aim of achieving the best results in the development of new services, content and business practices, and in the development and management of technologically advanced networks. See point 2.7.1 Research and development of services for more information.

Subsidiaries in South-Eastern Europe also cooperate with universities, institutes and research organisations in their local environment, in particular the subsidiaries One and Ipko.

Organisational climate, employee satisfaction and culture Organisational climate was measured at the Telekom Slovenije Group level in autumn for the sixth consecutive year. The overall score fell by 0.04 relative to the previous year, from 3.66 to 3.62.

A drop in the overall score was recorded at the majority of companies, with Avtenta (3.26) and GVO (3.33) recording the lowest scores. Two companies in South-Eastern Europe recorded an increase in their overall score: Ipko by 0.05 and One by 0.18.

The responsiveness of employees in the study on the measurement of the organisational climate was at the level recorded in 2013, as 3,013 employees or 67.8% of all employees at Group companies completed the questionnaire, compared with 68% in 2013.

Changes in the organisational climate in the period 2010 to 2014

Change Company 2014 2010 2011 2012 2013 2014–2013 Telekom 3.69 3.71 3..67 3,71 3.76 –0.07 Slovenije GVO 3.33 3.29 3.30 3.61 3.36 –0.03 Avtenta 3.26 3.38 3.46 3.63 3.66 –0.40 TSmedia 3.49 3.36 3.42 3.42 3.62 –0.13 Change Company 2014 2010 2011 2012 2013 2013–2014 Blicnet 3.56 3.36 3.33 3.62 3.57 –0.01 Ipko 3.69 3.56 3.56 3.76 3.64 +0.05 One 3.60 3.49 3.08 3.23 3.42 +0.18

Employee satisfaction The average assessment of employee satisfaction was also down slightly relative to 2013, from 3.77 to 3.72. We deem the drop in satisfaction to be the result of a general deterioration in conditions in Slovenia and the continued rationalisation of costs in all areas, including labour costs. The directors and heads of organisational units presented the results of the research to their employees. They discussed results and prepared action plans in areas where the results deviated from the average. We also adopted action plans that will contribute to an improvement in employee satisfaction.

Employees were notified of the research results at the Company level via the intranet.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 117 Annual appraisal interviews81 Management by objectives has been carried out at the Telekom Slovenije Group for a number of years now. Annual appraisal interviews were also conducted at the majority of companies in 2014. Interviews covered the assessment of the achievement of the objectives and job performance of employees, the setting of objectives for the current year, and employee training and development plans.

Annual appraisal interviews were conducted with all employees at companies in Slovenia, except those employees on lengthy sick leave or maternity leave, new employees and reassigned employees, and employees in the process of employment termination. In terms of gender, the ratio was similar to the employee structure.

We drafted a proposal for upgrading the management by objective system and organised presentational workshops for managers with the aim of increasing the added value of the aforementioned system. The system will be upgraded in 2015.

Managing innovation Telekom Slovenije promotes employee innovation in various ways. One such effort is the Brihta project, the aim of which is to collect innovative proposals from employees with the help of a web portal. The project includes the selection of the most promising proposals and their implementation in normal business processes. Such proposals bring the Company some financial benefit or simplify work processes, improve the competitiveness of the range of products and services, lower costs or contribute to the overall satisfaction of users and employees.

The employees of TSmedia and Avtenta are also able to submit proposals for improvements, ideas and innovations in individual areas through the aforementioned companies’ internal processes. Ipko employees can submit their proposals at weekly meetings with department heads, while One employees can forward their suggestions using the Big Idea Box on the company’s website.

Cooperation with employee representatives82 In accordance with the Workers’ Participation in Management Act (notifications, joint consultations, issuing of consents, etc.), the Telekom Slovenije Group cooperates constructively with the Works Council, and maintains constant social dialogue with trade union representatives. Telekom Slovenije’s Supervisory Board includes three employee representatives, while the Management Board includes the Workers Director. Employees and their representatives are informed about the implementation of significant changes in accordance with valid legislation.

Responsibility for employees and their ¬ at the end of the year gifts were given to the activities outside the workplace children of employees, and to minors and the The Telekom Slovenije Group provided support school children of deceased employees, with some to employees in various ways, including leisure companies awarding scholarships; activities and activities outside the workplace. ¬ recreational activities were organised for employees We devoted special attention to our employees’ by leasing various sporting facilities, while sports children and pensioners. organisations functioning at Group companies were supported; Activities were carried out differently by ¬ Telekom Slovenije pensioners clubs were supported; individual companies in accordance with their ¬ at the end of the year, we gave gifts to retired policies: employees; ¬ sporting and social events were organised for ¬ we worked with the alpine climbing club of Pošta employees; Slovenije and Telekom; ¬ we gave gifts to children of employees born ¬ we facilitated the purchase of discounted tickets for during the year; certain sporting and cultural events; and ¬ we gave gifts to employees’ children who ¬ we organised preventive examinations, treatments entered first grade during the year; and vaccinations for employees.

81 GRI G4-LA11 82 GRI G4-DMA, G4-LA4

118 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Occupational health and safety83 Telekom Slovenije implemented all measures relating to occupational health and safety, and fire protection. We took regular measurements of environmental conditions and lighting in the work environment for all locations where deemed necessary. Employees participated in various occupational health and safety training events, the majority of which were organised internally. Training was carried out in the following areas: workplace injuries, fire safety, work at height and training for those persons responsible for carrying out evacuations. We carried out regular inspections of personal protective equipment and supervised its use.

We updated the Modro jabolko (Wise Apple) health portal in 2014. Via the aforementioned portal, we notify employees of preventive examinations, vaccinations against various dangerous diseases and current health content. We also promote a healthy lifestyle by publishing useful articles and information about physical activity and a healthy diet.

Occupational health and safety is incorporated into the collective agreement of Telekom Slovenije and GVO. This area is also governed by the declaration of safety with risk assessments, including at companies with no collective agreement in place. Telekom Slovenije has six employees in formal health and safety committees that help advise on and monitor occupational health and safety programmes.84

At other companies abroad, this area is governed by the laws of individual countries and by the business policies of individual companies.

Risk assessments were carried out for individual jobs at One, and the necessary personal protective equipment provided based on those assessments. Safety at work training was also carried out. Training was also carried out at Ipko and Blicnet, with an emphasis on work at height at the latter.

Healthcare Preventive medical examinations were organised for employees at Telekom Slovenije and other subsidiaries in Slovenia in accordance with the law. The Group continued to offer vaccination against tick-borne meningoencephalitis (TBE) for employees working in forests.85 Interest was lower, which we attribute to the fact that employees who are exposed to infection have already received vaccinations. Flu vaccinations were offered to all employees, although we have recorded diminishing interest for several years. Information on health topics and preventive care were also provided to employees via internal web communications. The systematic organisation of these types of vaccinations has not yet been introduced at companies abroad.

Significantly fewer workplace injuries and associated lost working days and hours were recorded relative to the previous year.

Healthcare and workplace injuries86

Ind. Safety at work and Healthcare 2014 2012 2013 14/13 Number of workplace injuries 71 44 36 82 Number of working days lost 2,197 1,136 1,090 96 Number of working hours lost 16,267 8,862 8,431 95 Number of medical examinations 989 1,690 1,124 67 - Preliminary examinations 226 159 588 370 - Periodic examinations 808 1.536 1,060 69 Number of employees vaccinated against flu number 177 116 79 68 Number of employees vaccinated against TBE 281 133 55 41 Number of deaths 0 0 0 -

Telekom Slovenije has no employees at high risk to occupational diseases.87

83 GRI G4-DMA 85 GRI IO3 84 GRI G4-LA8, G4-LA5 86 GRI G4-LA6 87 GRI G4-LA7

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 119 Fire safety Two small fires were recorded in the Telekom Slovenije Group in 2014: at a base station due to a lightning strike and in a coffee machine. We drafted fire rules, and revised evacuation and fire plans for buildings where major changes were made. Fire extinguishers and hydrant networks were inspected and serviced in all buildings, and several evacuation drills were conducted. Fire safety training is an integral part of workplace safety training programmes.

Family-Friendly Company certificate As a holder of a full Family-Friendly Company certificate, Telekom Slovenije continues with the successful implementation of activities for the more efficient management of human resources, in particular the more efficient balancing of employees’ work and family life.

We carried out several different activities during the year: ¬ open house for ninth-graders and secondary school students at BrihtaLab; ¬ we opened the doors of call centres in the scope of International Call Centre Week; ¬ we participated in the intergenerational Simbioza project; ¬ we organised daycare for the children of employees during school holidays; ¬ we collected food and necessities for socially disadvantaged families; ¬ we organised a lecture for employees during Children’s Week; ¬ we organised an art contest entitled, “Creating Sporting Stories”; and ¬ we gave gifts to newborns and first-graders, and organised a visit by Father Christmas for preschool children.

Subsidiaries in Slovenia also carry out activities for employees and their families.

Parental leave88 The use of parental leave is one of the indicators that are included in measures relating to the Family-Friendly Company certificate. Employees with the right to parental leave exercise that right in full. Mostly mothers opt to use parental leave, but there has been an increase in the number of fathers exercising the aforementioned right. Of the 144 employees who were on parental leave from Telekom Slovenije Group companies in 2014, 84 were from Telekom Slovenije, 14 from other companies in Slovenia and 46 from companies in South-Eastern Europe. In most cases, employees return to their jobs after using parental leave (the rate of return is 87.5% at the Group level and 97.6% at Telekom Slovenije).

Telekom Telekom Slovenije Slovenije Group 2014 2010 2011 2012 2013 2014

Number of employees on parental leave 144 202 221 90 89 84

of which: women 136 108 124 79 81 77 men 8 94 97 11 8 7

Number of employees who returned 126 202 214 89 86 82 to work following parental leave

of which: women 118 108 117 79 78 75 men 8 94 97 10 8 7

88 GRI G4-LA3

120 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Communication with employees89 The Telekom Slovenije Group uses various communication channels and tools to communicate with its employees. All Group employees have access to the intranet news portal, through which we spread news about current events, activities or sales offers at Group companies. The portal was developed in Slovene and English. In addition, each Group company has its own separate portal.

The main tool for communicating with Telekom Slovenije employees is the Telekom intranet portal, which facilitates the fast, up-to-date and secure transfer of internal information, while serving as a dynamic and motivational centre. Numerous internal sub-portals function within the main portal, providing employees access to detailed information about individual projects and areas. Various documents, such as manuals, rules, instructions and forms, are also accessible. Employees may also pose questions to the President of the Management Board via the portal (via email).

In addition to the intranet portal, other tools are used to communicate with employees. They include councils, working meetings and workshops, emails, notice boards and special events for employees.

Organisational structure A change was made in the organisational structure at GVO on 1 May 2014. There were no organisational changes at other companies.

89 GRI G4-DMA, G4-26, G4-27

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 121 2.10. environmental responsibility90

The rational use of energy and concern for the environment are built into the Telekom Slovenije Group’s strategy. Progress is monitored using measurable energy and environmental indicators.

Highlights in 2014

In Telekom Slovenije we introduced computer support system for the targeted 1. monitoring of energy consumption. As the most significant energy source, we reduced the consumption of electricity and 2. associated costs by 2% and 13% respectively. Progress in the area of energy management at Telekom Slovenije was confirmed by the 3. regular and acreditation audit and accreditation of compliance with the requirements of SIST EN ISO 50001. No instances of non-compliance were identified. We achieved full compliance with all environmental requirements concerning 4. electromagnetic radiation. In Telekom Slovenije a total of 224 additional comprehensive measurements of environmental impacts were carried out due to the expansion of the LTE fourth generation mobile network. We successfully completed the certification of the information security management 5. system (SIST ISO/IEC 27001) for processes focused on external customers, and the certification of Telekom Slovenije’s internal rules. We continued to enhance our responsibility for energy and environmental impacts at 6. subsidiaries in Slovenia and South-Eastern Europe.

The basic guidelines of Telekom Slovenije’s energy and environmental policy are as follows: ¬ the methodical prevention and reduction of the impacts of the Group’s activities on the environment and the world we live in; ¬ the regular monitoring of the use of resources, in particular energy consumption and costs; ¬ the setting of strategic (framework) and energy-related and environmental operational objectives that are balanced against the particularities of the Group’s operations and development; ¬ the continuous improvement of environmental protection activities; ¬ the transfer of best internal and other sound energy and environmental practices to all Group companies; ¬ the inclusion of globally recognised energy and environmental development guidelines in the development of the Group’s services; ¬ the monitoring of and compliance with the requirements of valid Slovenian and European legislation; and ¬ compliance with regulatory and ethical energy and environmental commitments that exceed legislative frameworks.

Energy and environmental report of Telekom Slovenije in 2014 Telekom Slovenije was very active this year in the area of quality systems. This was particularly true for the integrated energy and environmental management system.

Among the most important activities was the introduction of computer support system for the targeted monitoring of energy consumption, which went live at the end of the year. The aforementioned system facilitates an overview of the consumption of electricity (for 1,700 locations and devices) and heating at the 32 most important locations (representing 90% of this type of consumption). The upgrading of the system with the aim of integrated energy bookkeeping and accounting is also in progress. The introduction of the aforementioned system in regular work tasks will be completed in 2015.

90 GRI G4-DMA

122 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Energy management – system for targeted monitoring of energy The Energy Act adopted in Slovenia in 2014 led to a significant increase in the importance of ensuring systematic energy efficiency, an activity that Telekom Slovenije also pursues. The aforementioned act governs energy performance certificates and energy audits. With 56 energy audits performed over a three year period, we are among the leaders in Slovenia. In accordance with the new act, annual savings due to the system will be around EUR 50,000 in terms of energy audits alone. A member of the core project team completed training and the examination for certified European energy manager (EUREM). We also enhanced control over the purchase of products manufactured outside of the EU, particularly in terms of safety and energy labels, and CE markings (European product compliance; requirements of implementing regulations based on the Energy Act).

Employee awareness about the environment and energy efficiency is given a great deal of weight. We therefore enhanced internal communication activities on the efficient use of energy on the intranet sites of the Company and Group. A one-hour training programme (energy and environmental primary school) remains the key building block in this area. Every employee of Telekom Slovenije, GVO, TSmedia and Avtenta participates in occupational and fire safety training once every three years. The e-training in the area of energy and the environment carried out in 2013 was upgraded in 2014 with the testing of knowledge. We continue to support the Eco-Quiz project aimed at educating primary school students about the environment, nature and ecology.

We recorded increased interest on the part of business users for quality certificates again in 2014. Evidence regarding certificates obtained was enclosed to around 50 responses to requests for offers or questionnaires. There is notable growth in interest regarding the ISO 14001 environmental certificate, while we received our first enquiry about the OHSAS 18001 occupational safety certificate. There were practically no enquiries by residential users.

The Group’s strategic objective to be a qualified candidate for the assessment of business excellence according to the EFQM model by the end 2015 remains achievable.

Regular and transparent reporting to the regulatory body and other government authorities (e.g. ARSO, SURS, CURS/ FURS, AKOS, ETNO and Intrastat) also represent an important element of the Group’s energy and environmental activities. The Group received no objections regarding reports submitted in 2014. Telekom Slovenije received no fine for the breach of environmental legislation in 2014.91

91 GRI G4-DMA, G4-EN29

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 123 Overview of energy and environmental objectives in Telekom Slovenije92

Table: assessed achievement of energy and environmental objectives in 2014

COMMITMENT I: To reduce energy consumption and emissions into the environment Framework objective A: To reduce electricity consumption by 7% by 31 December 2015 (in kWh; base year 2009). Supplemented during the year with a procedural key performance indicator for the Company – decrease of 2% relative to 2013 (achieved). Operational objective Deadline Assessment and comment A1. Energy management system and 30 October 2014 Basic requirements met; optimisation of effects system for the targeted monitoring of energy still required. consumption operable – at least 90% of consumption included.

A2. To install analysers at the time of the works Phased approach Around 60 analysers included – multi-year task of electrical connections: 2014 objective – 20 (phase milestone: continues in 2015 in a reduced scope. locations (additional use of air conditioning 31 December 2014) units). A3. To install air conditioning units with simple Phased approach Around 50 minor air conditioning installations ventilation at locations less exposed to heat: (phase milestone: completed at base stations. Multi-year task objective for 2014 – 5 locations. 31 December 2014) continues in 2015 in a reduced scope. A4. To replace defective air conditioning units Phased approach Around 100 units replaced in 2014; activities with energy efficient systems. (phase milestone: continue in 2015. 31 December 2014) A5. To identify and eliminate/reduce the power Phased approach Implemented primarily at locations where we used by technologically redundant equipment (phase milestone: are separating from Pošta Slovenije’s system; and delivery points – minimum of three 31 December 2014) additional closure of premises and shut of locations a year. TSmedia’s Stegne delivery point. 30 June 2014 Previous activities successfully completed; A6. To raise temperature limit values in key technological rooms. Phase 3 – control over further control over implementation required. implementation. A7. To accelerate the server virtualisation. Phase objective: Process continues – virtualisation rate of 67% 31 December 2014 exceeded. Framework objective B: To improve the efficiency of fuel consumption in the car fleet by 5% by 31 December 2015 (in litres/100 km; base year 2009). B1. To reduce the number of company 31 December 2014 The number of vehicles was reduced by 1% vehicles by 2% relative to the situation as at 31 relative to 2013. The number of vehicles was December 2011. down by 7% relative to 2011 (the figure in 2011 did not take into account the merger of Mobitel). B2. To reduce the number of work-related Phased approach The number of work-related kilometres travelled kilometres travelled by 2% relative to 2011. (phase milestone: was up 2% relative to 2013. The aforementioned 31 December 2014) increase was the result of an increase in the scope of field sales and the elimination of the effects of extraordinary environmental conditions at the beginning of the year (ice storm). B3. To improve the age structure of the car fleet; 31 December 2014 Improvement in the age structure is slower than reduce the average vehicle age by three months planned due to organisational changes in specific relative to the situation as at 1 July 2011. years and shorter vehicle replacement cycles. B4. To define criteria for the purchase of 31 December 2014 Objective achieved. vehicles under normal procurement procedures (max. 160 gCO2eq /km). B5. To optimise deliveries to common locations 31 December 2014 Achieved – rationalisation of deliveries to – phase 3. specific locations. B6. To comprehensively analyse the effects 1 September 2014 Analysis completed; transport supplemented and development of transport between with the Vojkova 58 and Litostrojska locations. locations by minibus. B7. To upgrade analytics and monitor the costs 1 November 2014 The reporting system was upgraded for analytical of the car fleet, and take immediate steps when purposes in 2014. Major deviations are now being major deviations are identified. monitored and measures implemented.

92 GRI G4-EN6

124 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 COMMITMENT II: To reduce the quantity of general waste and emissions Framework objective C: To reduce the volume of mixed municipal waste by 10% by 31 December 2015 (base year 2009). C1. To eliminate 10 additional locations, where 31 December 2014 Objective 60% achieved; several municipalities there is no municipal waste, from the collection have adopted ordinances that significantly system. hinder realisation. C2. To secure/cross-link two ecological islands 31 December 2014 Objective carried forward to 2015 due to a lack of in 2014. funds in 2014. C3. To introduce fixed recyclable Phased approach Implemented; in final phase. transportation packaging – phase 3. (phase milestone: 31 December 2014) Framework objective D: To connect 100% of treated wastewater to public sewerage systems by 31 December 2015, and to control costs and water consumption. D1. To draft an action plan addressing 30 September 2014 Plan drafted (legally defined deadline: 2017). the public sewerage system and individual treatment facilities. D2. To update the records of locations that are 1 December 2014 Records established in SUN. not connected to the public sewerage network.

D3. To verify the availability of documentation 1 November 2014 Partially implemented; some activities in on oil traps and whether that documentation is progress. up to date. Framework objective E: To ensure complete safety when handling hazardous materials (reduce risks of spills, etc.). E1. To purchase and maintain functioning Permanent task All know needs fulfilled. equipment for measures in the event of a spill of hazardous materials. E2. To replace standard batteries for the back- Phased approach Objective achieved (Krško). No additional up power supply with valve regulated systems (phase milestone: replacements are envisaged in 2015. – 1 location + regular maintenance of existing 31 December 2014) systems. E3. To update documentation regarding tanks, 30 September 2014 Tanks – 17 locations; other areas to a lesser oil traps, hydrants and sewerage systems. degree. Not yet completed at all locations. E4. To replace air conditioning units that use 31 December 2014 In the final phase; units are being replaced when Freon 22 with a more environmentally friendly they malfunction. Activities continue in 2015. refrigerant (regulatory requirement). Framework objective F: To reduce noise and emissions into the atmosphere by modernising technological devices. F1. To upgrade generators – one new generator 30 December 2014 One new generator (Brežice); control over 10 in 2014/2015. To reduce emissions and noise additional generators. No generators were below levels required by environmental permits; eliminated, as even old ones proved useful during elimination at two locations and control over the spring ice storm. additional locations. F2. To conduct energy audits (2014: technical Phased approach Several energy audits were performed as inspections for four buildings – recording of (phase milestone: planned (a total of 56 over three years). situation and analysis; enhanced monitoring of 31 December 2014) the implementation of measures). F3. To draw up the required energy Phased approach Not yet completed for all locations that are in the performance certificates for Telekom Slovenije (phase milestone: process of being sold or under long-term leases. facilities. 31 December 2014) Objective in 2015, as well.

F4. To identify and regulate locations where Phased approach Carried out at two locations (Litija and Kidričeva savings in heating are possible (turning off (phase milestone: in Nova Gorica), and in progress at locations central heating without additional investment, 31 December 2014) in Šempeter and Velenje. Activities continue in completion of campaign with Pošta Slovenije). 2015, as progress depends on investments by Pošta Slovenije. F5. To record the situation with regard to Phased approach Situation report not yet completed – funds were external lighting. (phase milestone: secured for replacement prior to the extension 31 December 2014) of the legally prescribed deadline (Kranj and Dragomer completed; in progress in Celje Golovec, Koper Vojkova location).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 125 Other energy and environmental objectives in 2014* G0. To allocate energy costs by those 31 December 2014 A systematic solution is required; the responsible for such costs. objective is therefore carried forward to 2015 (implementation in progress). G1. Fire safety: to conduct measurements and Phase milestone: Intensive field work (Ljubljana and Maribor); update documentation for lightning conductors 31 December 2014 additional activities required at major locations and installations. (measurements planned for 2015). G2. To update the environmental communication 31 December 2014 Enhanced energy and environment plan and participate in at least three environmen- communication: increased number of electronic tal campaigns with external service providers. publications. G3. To conduct environmental training in 31 December 2014 Annual meeting in the form of multi- the form of at least two internally organised purpose seminars by sector and department. seminars for 400 Group employees in 2014 at Environmental primary school in the scope of the “environmental primary school”. mandatory occupational and fire safety training. G4. To establish records of locations in SAP 30 June 2014 Application not yet completed. Systematic – upgrading, technical documentation, co- decision between possible solutions required. locations, co-ownership and locations of the former Mobitel. G5. Explosive areas – to conclude operational 30 April 2014 Less than 10 locations with standard batteries; activities for all locations and training. number continues to decline. G6. Fire traps – inspection and records of Phased approach Numerous activities (Maribor, Nova Gorica and status by location; organisation of contractual (phase milestone: Ljubljana – four locations). Regular maintenance relations; rehabilitation following inspections. 31 December 2014) required; objective thus remains open.

* Objectives not directly linked to the integrated energy and environmental management system, but managed together with energy and environmental objectives for the sake of efficiency.

Objective achieved Objective partially achieved Objective not achieved Objective abandoned

Energy and environmental bookkeeping We are monitoring energy efficiency in more detail and more systematically since the introduction of the system for the targeted monitoring of energy consumption at Telekom Slovenije in 2014. The system will be further upgraded. For several consecutive years, the Group has ensured comparability in terms of energy consumption in the scope of international energy and environmental benchmarking organised by the European Telecommunications Network Operators’ Association (ETNO). Benchmarking is carried out by calculating energy consumption in kilograms of CO2 equivalent (carbon footprint). Telekom Slovenije’s carbon footprint (Scope 1 and 2 only) was estimated to be slightly less than 50,000 tonnes in 2014, while that of the Telekom Slovenije Group was estimated at 70,000 tonnes. The majority of emissions are generated by electricity, as Slovenia has

one of the largest carbon footprints in Europe, with more than a half a kilogram of CO2eq per kWh of electricity supplied.

In addition to energy, the comparable data include certain other environmental aspects such as the use of paper. Telekom Slovenije recorded a small reduction in consumption (of one tenth) relative to 2013.

Electricity93 Prior to the launch of the ISO 50001 project, energy and environmental costs totalled nearly EUR 20 million at the Telekom Slovenije Group and EUR 14 million at the parent company. Those costs were down by nearly EUR 3 million in 2014. Two thirds of the aforementioned costs are accounted for by the cost of electricity. Production by own solar power plants accounted for 0.24% of total electricity consumption.

93 GRI G4-EN3

126 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Energy and environmental costs at Telekom Slovenije

14 i n o j i l i M 12

0 2009 2010 2011 2012 2013 2014 electricity fuel for the car ﬂeet heating fuel remediation and municipal services

Sum of electricity costs, fuel for the car fleet, heating fuel, and remediation and municipal services linked to Telekom Slovenije’s integrated energy and environmental management system.

The Group used 2% less electricity relative to 2013, resulting in a 13% decrease in associated costs. The reduction was partly the result of extreme weather conditions, as two thirds of months were either the warmest (during the winter) or coldest (during the summer) in the six years since Telekom Slovenije has systematically striven for efficient energy consumption.

Electricity and fuel consumption, and remedial measures at Telekom Slovenije

Telekom Slovenije 2014 2013 Ind 14/13 Electricity costs (in EUR) 7,076,704 8,171,251 87 Electricity consumption (in MWh)* 78,358 79,968 98 Cost of fuel for car fleet (in EUR)* 281 287 98 Cost of fuel for heating (in EUR) 36,3 34,7 105 Costs of remedial measures (in EUR) 1,336,649 1,360,443 98 Electricity costs (in EUR) 637,862 788,044 81 Remediation and municipal services** (in EUR) 1,284,961 1,346,545 95

Source: SAP; except for electricity consumption – internal IS SDO * Includes the consumption of electricity by Telekom Slovenije, TSmedia, Avtenta and RTV locations. ** Costs of remediation measures include the costs of cleaning, municipal services, water, waste management, chimney sweeping services and other remediation measures (rat extermination, disinfection services, etc.).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 127 Fuel for the car fleet and heating94 The average number of vehicles at Telekom Slovenije was reduced by 1% in 2014. The number of work-related kilometres travelled was up 2% and the consumption of motor fuels up 4% relative to 2013 due to an increase in the scope of field sales and the elimination of the effects of extraordinary environmental conditions at the beginning of the year (ice storm). Vehicle fuel costs were down 2% due to lower prices of refined petroleum products during the second half of the year.

Telekom Slovenije is implementing additional initiatives to reduce environmental impacts and fuel costs. Employees are transported between locations in Ljubljana by minibus, while employees took the initiative to car-pool on the Ljubljana-Celje-Maribor route. Heating costs were down 19% relative to 2013 due to the previously mentioned weather conditions and declining fuel prices.

Average number of vehicles by fuel type and consumption in litres at Telekom Slovenije*

Diesel Diesel Petrol Petrol Total Total Telekom Average no. Consump- Average no. Consump- Average no. Consump- Slovenije of vehicles tion in litres of vehicles tion in litres of vehicles tion in litres 2012 236 421,745 537 634,893 773 1,056,638 2013 235 378,698 524 628,993 758 1,007,691 2014 246 410,382 507 641,202 753 1,051,529 Source: SAP Note: Average number of vehicles at Telekom Slovenije, where consumption was recorded.

Waste management95 Given the nature of its activities, Telekom Slovenije is not a major polluter in Slovenia or the other counties in which it is present. In terms of quantity, we generated the most construction waste in Slovenia. The latter totalled 1,072 tonnes in 2014. We forwarded more than 429 tonnes of separated waste (excluding construction and mixed municipal waste) compared with 454 tonnes in 2013. Hazardous waste totalled 33 tonnes compared with 67 tonnes in 2013. The overall quantity was down due to a sharp decrease in the quantity of lead batteries, which previously accounted for more than two thirds of Telekom Slovenije’s hazardous waste.

The quality of municipal waste monitoring across Slovenia varies widely, as the reports of different companies are in various units (e.g. kg, m3, m2 and population units). The difference in monitoring is even more evident on the other markets of South-Eastern Europe, where environmental management standards are still looser than in Western Europe and Slovenia. The estimated annual volume of municipal waste generated by Telekom Slovenije is around 200 tonnes, and nearly 600 tonnes according to the formula prescribed by the Slovenian Environment Agency (ARSO) and the Statistical Office of the Republic of Slovenia (SURS): 1m3 = 1,000 l = 177 kg.

Volumes of separated waste at Telekom Slovenije in 2014 in tonnes (excluding mixed municipal waste)

1.000

800

600

400

200

0 metal* waste WEEE construction rest of ** others ** waste 2014 2013 * Portion of metals (9.6 tonnes) included in construction waste ** Excluding mixed municipal waste WEEE – waste electrical and electronic equipment

94 GRI G4-EN3 95 GRI G4-DMA, G4-EN23

128 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Electromagnetic radiation96 A total of 224 additional comprehensive measurements of environmental impacts due to the expansion of the fourth generation mobile network were carried out. The level of radiation has increased slightly at base stations where we are introducing LTE technology. However, the base stations remain environmentally acceptable and within the limits established by Slovenian law, which in some respects is even stricter than European law. All reports regarding the measurement of electromagnetic radiation were turned over to the ARSO, where the latest data regarding environmental impacts is stored and accessible for review by all citizens.

Group companies outside of Slovenia also measure environmental impacts in accordance with local legislation.

Key environmental indicators at other Telekom Slovenije Group companies The parent company provides the majority of energy and environmental services for companies in Slovenia in operational terms, but subsidiaries are also taking greater responsibility for their own environmental impacts. GVO transported teams to and from Germany by bus. Electricity consumption for all functional open broadband network (OBN) locations is monitored comprehensively on a monthly basis, with an established objective of reducing consumption by 3% in the period 2013 to 2015.

Due to its social and environmental importance, Soline remains a symbol of the Telekom Slovenije Group’s sustained awareness, and is therefore presented in more detail below.

Soline Under a concession agreement concluded with the Republic of Slovenia, Soline manages the Sečovlje Saltpans Regional Park. The Sečovlje Saltpans Regional Park is on the list of Wetlands of International Importance under the Ramsar Convention, and is part of the EU’s Natura 2000 ecological network. The saltpan ecosystem is specific to the coastal wetlands. All land and other real estate within the park, covers 750 hectares, are owned by the government.97

The salt production does not produce any environmentally harmful by-products, as the entire process relies on traditional, 700 year-old processes, and is based entirely on components from the local environment. The use of the civil works and traffic infrastructure is kept to a minimum.

Invasive exotic species have not been introduced to the saltpans due to the production process. Research confirms that the presence and number of such species are not yet so high as to have significant consequences for ecosystems or communities. Soline continues to produce salt using traditional processes, as the latter are crucial for maintaining the cultural landscape and biodiversity. The number of species in the Sečovlje Saltpans Regional Park has not fallen over the last ten years; on the contrary, we have recorded continuous growth in populations. Additional measures aimed at the state of the hydrological regime have led to an increase in the number of natural habitats for which halophilus plants are characteristic. No major changes in ecological processes were seen in 2014.

Key administrative objectives for the period 2011 to 2021 were set out in the plan for managing the Sečovlje Saltpans Regional Park adopted by the Slovenian government. They include the preservation of the wetland characteristics of the saltpan ecosystem, its biodiversity and the economic and cultural values of the region.98 These objective are achieved by: ¬ maintaining the saltpan ecosystem; ¬ preserving traditional salt production processes and centuries-old technological processes; and ¬ continuing the production of salt, which has been the driving force behind the economic development of the region for ages.

The local community is included in the management of the park through its participation in the Sečovlje Saltpans Regional Park Committee. This cooperation is also ensured through the organisation of joint events and on-site presentations.

96 GRI PA8, G4-14 97 GRI G4-EN11 98 GRI G4-DMA

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 129 There are no endangered species from the IUCN’s global list of endangered species present in the Sečovlje Saltpans Regional Park.99 Around 20 bird species, two species of fish, four amphibious species and one reptilian species are included in the annexes to the EU’s Bird and Habitat Directive. At least 45 plants are included on the national list of endangered plant species. The region is one of two that are of national importance to the migration of birds according to the EU’s Bird Directive. Many more species are included on national lists of endangered groups and species.

Electric-powered vehicles were introduced in 2013 for the transportation of employees and the limited movements of visitors. Only emergency vehicles, basic maintenance vehicles and certain department-specific vehicles are allowed to enter the park. The use of cars and buses in the park by visitors is no longer permitted. This measure has led to an

annual reduction in CO2 emissions in the park of more than 9 tonnes. Similar limitations apply to the southern part of the park (Fontanigge). The purchase of a common vehicle for the aforementioned area via European funding has been postponed until next year.100

We strive to continuously improve energy efficiency. The consumption of electricity was reduced by 20% through changes in the regime for managing cooling and heating devices in visitor buildings. The Group consumed 347.39 MWh of electricity in 2014 (415.66 MWh in 2013) and 4,413 m3 of natural gas (3,545 m3 in 2013). We estimate that the use of videoconferencing and mobile telephones reduced work-related travel in terms of international cooperation in the area of park management by 20% to 30% in 2014. The car fleet at Soline used 51,057 litres of fuel (58,504 litres in 2013).101

Companies in South-Eastern Europe102 The countries of South-Eastern Europe are also gradually tightening environmental and energy standards. This principle is being followed by Telekom Slovenije Group companies which, in line with the strategic policy of sustainable operations, are gradually implementing principles of responsible environmental and energy management. With the help of environmental and energy bookkeeping and accounting, companies in South-Eastern Europe monitor indicators regarding the consumption of electricity, refined petroleum products, heating and municipal services, which for the moment are only monitored in terms of costs.

Changing costs in this segment can be attributed in part to an improved monitoring system and in part to growth in the scope of operations. The higher proportion accounted for by fuels is the result of less stable electricity supply on certain markets. For example, Ipko uses generators to produce electricity in the event of outages. Nevertheless, fuel costs were down everywhere relative to the previous year. If energy costs are normalised per EUR 1,000 of revenue generated, the energy efficiency of companies in Macedonia and Kosovo is lower than the parent company, while Blicnet remains the most energy efficient company.

Costs of electricity at companies in South-Eastern Europe

Ind v EUR 2014 2013 2012 14/13 One 1,575,621 1,778,315 1,288,020 89 Ipko 1,209,181 1,094,843 1,045,748 110 Blicnet 98,542 80,482 69,070 122

Costs of fuel at companies in South-Eastern Europe

Ind v EUR 2014 2013 2012 14/13 One 340,528 376,741 275,583 90 Ipko 393,964 413,041 687,755 95 Blicnet 51,140 53,365 43,232 96 Sources: internal information systems of companies

99 GRI G4-EN14 100 GRI G4-EN19 101 GRI G4-EN3 102 GRI G4-EN3

130 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Responsibility for quality systems In addition to internal audit and management reviews, external audit are a key mechanism in the independent verification of and countinuous improvements to quality systems. The Group passed external audit for all previously obtained certificatesin 2014. Worthy of special note was the accreditation of the energy management system (control over periodic assessment by Slovenian Accreditation Institute), where we were the only company in Slovenia without instances of non- compliance.

We successfully completed the certification of theinformation security management system (compliance with the requirements of SIST ISO/IEC 27001 for processes focused on external customers) and upgraded the business continuity management system for key technological processes in accordance with the requirements of SIST EN ISO 22301. An independent external audit of the latter is planned for 2015. Of importance at subsidiaries was the certification of the environmental management system in accordance with the requirements of ISD 14001 at the Macedonian company One.

The Archives of the Republic of Slovenia certified the Company’s Internal Rules. This ensures that Telekom Slovenije’s Internal Rules are in line with the Act Governing the Protection of Documentary and Archive Materials, and Archives (ZVDAGA) and the provisions of other laws and implementing regulations relating to the retention of documentary materials in physical and electronic form.

An overview of quality systems at Telekom Slovenije and within the Telekom Slovenije Group as at 31 December 2014 are presented in the figure and table below.

The figure illustrates management systems at the parent company. White indicates those systems for which an independent external audit and certification have been carried out. Light blue denotes systems for which certain activities were carried out, but not an independent external audit of the functioning of the system in terms of quality.

Quality management systems at Telekom Slovenije ETNO CORE + ANNUAL INTERNATIONAL CHARTER IN BENCHMARKING

ISO 50001 ENERGY ISO 14001 MANAGEMENT ENVIRONMENTAL MANAGEMENT OHSAS 18001 EN 50518 OCCUPATIONAL SECURITY HEALTH AND SAFETY CONTROL CENTRE (SCC) MANAGEMENT

ISO 27001 SYSTEMS INFORMATION SECURITY Note: The Corporate Responsibility Charter of the European Telecommunications ISO 22301 INTERNAL BUSINESS ISO 9001 Network Operators' Association RULES CONTINUITY QUALITY SYSTEM - Telekom Slovenije has been a signatory of the aforementioned since 2000 (when it was still an environmental protection charter), and has been a signatory of the GRI current charter on corporate SUSTAINABILITY REPORTING responsibility charter since January GUIDELINES 2012. See section 1.14 Corporate EFQM governance statement for a BUSINESS description of EFQM activities at EXCELLENCE Telekom Slovenije.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 131 Quality systems at other Telekom Slovenije Group companies

GVO ISO 9001 Quality management system ISO 14001 Environmental management system Avtenta ISO 9001 Quality management system ISO/IEC 27001 Information security management system One ISO 9001 Quality management system ISO 14001 Environmental management system ISO/IEC 20000 ICT service management system

ISO/IEC 27001 Information security management system

132 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.11. responsibility for the security of buildings, systems, information and information technologies

The dynamic environment in which the Telekom Slovenije Group operates requires continuous investment in the development of corporate security. Doing so mitigates various security risks and ensures the business continuity of all companies.

Security policy implementation The careful implementation of the Group’s security policy ensures the safety of employees, business partners, visitors, customers and the users of our services, as well as the security of companies’ property, information and services. The protection of information and data, information and communications technologies, and electronic communications systems and services is further ensured through the implementation of the Group’s information security policy.

Security of information and information technologies Telekom Slovenije received the international ISO 27001 certificate from the Slovenian Institute of Quality and Metrology (SIQ) in 2014. The aforementioned certificate represents the standard for a high-quality and secure information security management system. The aforementioned certificate is received by organisations that meet the highest information security requirements.

An amendment to the Electronic Communications Act in 2014 required a major change in business processes with regard to the handling and storage of data regarding traffic. Special attention was also given to updating the business continuity management function, the upgrading of the fraud prevention system and, above all, the continued spreading of the security culture. Through numerous training events within and outside the Company, we spread awareness about the secure use of information technologies, preventative security measures and personal protection.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 133 2.12. content according to GRI reporting guidelines103 Content according to GRI G4 – basic option (“in accordance” – Core) GENERAL STANDARD DISCLOSURES Comments/ Disclosure Description Section/page external assurance 104 Strategy and analysis G4-1 Statement of the highest decision-making 1.3/pp. 12  body on the importance of sustainable The Group’s sustainable development objectives are development for the organisation and strategy. defined in the Strategic Business Plan of the Telekom Slovenije Group for the period 2015 to 2019, which was adopted by Telekom Slovenije’s Management Board. Organisational profile G4-3 Organisation name. 1.1.1/p. 7  G4-4 Brands, products and services. 1.5/p. 15  2.6.2/p. 85 G4-5 Registered office of the organisation. 1.1.1/p. 7  G4-6 Number of countries where the organisation 1.5/p. 15  operates, and names of countries where either the organisation has significant operations or that are specifically relevant to the sustainability topics covered in the report. G4-7 Ownership structure and legal form. 1.15/pp. 46  G4-8 Markets (geographical and sectoral breakdown 1.5/p. 15  and types of customers). G4-9 Scale of the organisation (number of 1.1.1/pp.7  employees, number of activities, sales revenue, 1.2./pp. 8,9 liabilities/equity, number of products and 2.6.3./pp. 89 services). 2.9./pp.111 G4-10 Employees by type of employment, type of 2.9./p.112  contract, region and gender. G4-11 Percentage of employees covered by collective 2.9./p. 112  agreements. G4-12 Description of the organisation’s supply chain. 2.6.7./p. 99  G4-13 Significant changes regarding the 1.5./pp.15  organisation’s size, structure, ownership and 1.15/pp. 46 supply chain. 2.6.7./p. 99 G4-14 Clarification of how the organisation takes into 2.10./p. 129 account the precautionary principle. G4-15 External documents, principles and other 1.7 p. 16  economic, environmental and social initiatives to which the organisation is a signatory or supports. G4-16 Membership in organisations. 1.7/p. 16  Identification of material aspects and boundaries G4-17 List of entities included in the consolidated 3.2.2./p. 149  financial statements. G4-18 Process of defining report content and aspect 1.9/p. 20  boundaries. The process of defining content is described in more detail on the following website: http://porocilo2014.telekom.si/. G4-19 List of all material aspects identified in the 1.9/p. 19  process of defining report content. The process of defining content is described in more detail on the following website: http://porocilo2014.telekom.si/. G4-20 Material aspect boundaries within the 1.9/p. 20  organisation. The selected disclosures are essential for Tele- kom Slovenije and the Telekom Slovenije Group, as explained for each indicator. G4-21 Material aspect boundaries outside the 1.9/p. 20  organisation. Material aspect boundaries outside the organisation are explained for each indicator. G4-22 Effects of restatements of information provided in 1.9/p. 20  previous reports, and the reasons for such restatements.

103 GRI G4-32 104 The statement regarding verification of the sustainability report according to the GRI Guidelines may be found in point 2.12 on page 127. 134 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 G4-23 Significant changes from previous reporting 1.9/p. 20  periods in the scope and aspect boundaries. Stakeholders engagement G4-24 List of stakeholder groups engaged by the 1.8/pp. 17  organisation. G4-25 Basis for identification and selection of 1.8/pp. 17  stakeholder groups with whom to engage. G4-26 Approaches to stakeholder engagement and 1.8./pp. 17  frequency of engagement by stakeholder 1.13./p. 38 group. 1.15./p. 50 2.6.4./p. 95 2.9./p. 121 Stakeholders are indirectly included in the preparation of the report. See disclosure G4-18. G4-27 Key topics and concerns that have been 1.8/pp. 17  raised through stakeholder engagement, and 1.13./p. 38 how the organisation has responded to them, 2.6.4./p. 95 including through reporting. 2.9./p. 121 Report profile G4-28 Reporting period. 1.9/p. 20  G4-29 Date of most recent previous report. 1.9/p. 20  G4-30 Reporting cycle (annual, quarterly). 1.9/p. 20  G4-31 Contact point for questions regarding the 1.1.1/p.7  report. G4-32 Content according to GRI Guidelines. 2.12./pp. 20, 134  G4-33 External assurance of reporting. 2.13./p. 139 We regularly submit the annual report for external assurance since 2009, when the GRI Sustainability Reporting Guidelines were first included in the report. The scope and basis of external assurance are evident from the sustainability report verification statement. Governance G4-34 Governance structure of the organisation, 1.13./pp. 30, 31, 33, 34, 36  including committees of the highest governance body. Etika in integriteta G4-56 Values, principles, standards and norms, such 1.10.1/p. 21  as codes of conduct and ethics. 2.9./p. 111 We regularly submit the annual report for external assurance since 2009, when the GRI Sustainability Reporting Guidelines were first included in the report. The scope and basis of external assurance are evident from the sustainability report verification statement.

SPECIFIC STANDARD DISCLOSURES Disclosures on Reasons for management External approaches Material aspects Section/page omission/ assurance (DMA) and explanations indicators Economic impacts Ekonomska uspešnost DMA 1.3./pp. 12 G4-EC1 Direct economic value generated and distributed, 1.2./pp. 8, 11  including revenues, operating costs, employee 2.1./p. 53 compensation, donations and other community 2.6.3./p. 90 investments and payments to shareholders. 2.8./pp. 109 Note 8/p. 153 G4-EC2 Financial implications and other risks and opportunities 2.7.3./p. 104  for the organisation’s activities due to climate change. G4-EC3 Coverage of the organisation’s defined benefit plan obligations. 2.9./p. 113  Indirect economic impacts DMA 2.7.3./pr. 104 G4-EC7 Development and impact of infrastructure investments 2.3./p. 59  and services supported by the organisation. 2.7.1/p. 101

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 135 ENVIRONMENTAL IMPACTS Energy DMA The governance approach is described separately on the following website: http:// porocilo2014.telekom.si/. G4-EN3 Energy consumption within the organisation. 2.10./ppr. 126, 128,  130 G4-EN6 Reduction of energy consumption. 2.10./p. 124  Biodiversity DMA 2.10./p. 129 G4-EN11 Location and size of land owned, leased or managed 2.10./p. 129  in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas. G4-EN14 Number of IUCN Red List species and national  conservation list species with habitats in areas 2.10./p. 130 affected by operations, by level of extinction risk. Emissions DMA The governance approach is described separately on the following website: http:// porocilo2014.telekom.si/. G4-EN19 Reduction of greenhouse gas emissions. 2.10./p. 130  Effluents and waste DMA 2.10./p. 128 G4-EN23 Total weight of waste by type and disposal method. Quantitative  2.10./p. 128 data regarding disposal methods are not included. Compliance DMA 2.10./p. 123 G4-EN29 Value of significant fines and non-monetary sanctions for 2.10./p. 123  non-compliance with environmental laws and regulations. SOCIAL IMPACTS: labour practices and decent work Employment DMA 2.9./p. 111 G4-LA1 Total number and rate of new employee hires and 2.9./pp. 111, 112 Data by gender are  employee turnover. not disclosed. G4-LA2 Benefits provided to full-time employees that are not 2.9.p. 116  provided to temporary or part-time employees, by significant locations of operation. G4-LA3 Return to work and retention rates after parental leave, 2.9./pp. 120  by gender. Labour/management relations DMA 2.9./pp. 111, 114 G4-LA4 Minimum notice period regarding significant 2.9./p. 118  operational changes, including whether these are specified in the collective agreement. Occupational health and safety DMA 2.9./p. 118 G4-LA5 Percentage of employees in health and safety 2.9./p. 119 The Group does  committees that help advise on and monitor not report on occupational health and safety programmes. this indicator in numerical terms. G4-LA6 Occupational injury rate. 2.9./p. 119 Reporting relates  to the number of incidents. G4-LA7 Employees at high risk to occupational diseases. 2.9./p. 119  G4-LA8 Health and safety topics covered in formal agreements 2.9./p. 119  with trade unions (collective agreement).

136 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Training and education DMA 2.9./p. 114 G4-LA9 Average hours of training per year per employee by gender 2.9./p. 114, 115 Data are not  and by employee category. disclosed by employee category. G4-LA10 Programmes for skills management and lifelong learning 2.9./p. 116  that support the continued employability of employees and assist them in managing career endings. G4-LA11 Percentage of employees receiving regular performance 2.9./p. 118  and career development reviews by gender. Diversity and equal opportunities. DMA 2.9./p. 111 G4-LA12 Composition of governance bodies and the breakdown of 2.9./p. 113  employees by employee category (gender, age, minority We report on the number group membership and other relevant indicators of diversity. of employees by gender. Equal remuneration for women and men DMA 2.9./p. 116 G4-LA13 Ratio of basic salary and remuneration of women to 2.9/p. 116  men, by significant locations of operation. SOCIAL IMPACTS: human rights Investment DMA 2.9./p. 111 G4-HR2 Total hours of employee training on policies and 2.9./p. 115 Training on human  procedures concerning aspects of human rights that rights focused are relevant to operations, including the percentage of on the protection employees trained. of personal data. The Group does not report on the percentage of employees included in training. Non-discrimination DMA 2.8./p. 109 2.9./p. 111 G4-HR3 Total number of incidents of discrimination and corrective 2.9./p. 111  actions taken. Child labour DMA 2.9./p. 111 G4-HR5 Operations and significant suppliers identified as having 2.9./p. 111 The majority of the  significant risk for incidents of child labour, and measures Telekom Slovenije taken to contribute to the effective abolition of child labour. Group’s suppliers are from European countries. Prisilno ali obvezno delo DMA 2.9./p. 111 G4-HR6 Operations and significant suppliers identified as having The majority of the  significant risk for incidents of forced or compulsory 2.9./p. 111 Telekom Slovenije labour, and measures to contribute to the elimination of Group’s suppliers all forms of forced or compulsory labour. are from European countries. SOCIAL IMaPACTS: society Anti-corruption DMA 2.5.4./p. 79 G4-SO3 Number and percentage of activities assessed for 2.5.4/p. 79  risks related to corruption and the significant risks identified. Public policy DMA G4-SO6 Value of the organisation’s political contributions. 2.5.4/p. 79 

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 137 Competition protection DMA 2.5.3./p. 63 Upravljavski pristop je posebej opisan na spletnem mestu http:// porocilo2014.telekom.si/. G4-SO7 Number of legal proceedings for anti-competitive behaviour, 2.5.4/p. 78  anti-trust and monopoly practices and their outcomes. Compliance DMA 2.5.4./p. 79 G4-SO8 Monetary value of fines and number of non-monetary 2.5.4/p. 79  sanctions for non-compliance with laws and regulations. SOCIAL IMPACTS: product responsibility Product and service labelling DMA 2.6.4./p. 94 2.6.5./p. 97 G4-PR5 Results of surveys measuring customer satisfaction. 2.6.4./p. 94 Quantitative data  2.6.5./p. 97 is not reported externally. Marketing communications DMA 2.6.6./p. 79 G4-PR7 Total number of incidents of non-compliance with 2.6.6./p. 79, 99  regulations and voluntary codes concerning marketing 2.5.4./p. 79 communications, including advertising, promotion and 2.6.7./p. 99 sponsorship, by type of non-compliance and by outcomes. SPECIFIC SECTOR INDICATORS (MEDIA) Accessibility to media content DMA 2.6.4./p. 96 G4-M4 Measures to improve accessibility to media content 2.6.4./p. 96 and the protection of vulnerable audiences. 2.6.6,/p. 98 SPECIFIC SECTOR INDICATORS (TELECOMMUNICATIONS) Internal operations IO1 Infrastructure investments in the telecommunications 2.3./p. 59 network by region. 2.7.1./p. 101 IO3 Health and safety measures for field personnel. 2.9./p. 119 Provision of access to ICT products and services PA1 Policies and practices for providing access to the 2.6.3./p. 91 telecommunications infrastructure, products and services 2.6.4./p. 96 to the population in remote, less populated regions. PA2 Policies and practices for overcoming obstacles in 2.6.4./p. 96 accessing and using telecommunication products and services relating to the language, culture, illiteracy, deficient education, revenues, special needs and age. PA3 Policies and practices for ensuring the availability and 2.7.2./p. 103 reliability of telecommunications products and services. PA4 Quantitative level of available telecommunication 2.6.3./p. 89 products and services in operating regions. 2.6.4./p. 96 2.7.2./p. 102 PA6 Programmes for providing and maintaining 2.7.2./p. 102 telecommunication links and services in extraordinary circumstances and in the event of natural disasters. PA8 Policies and practices to publicly communicate on 2.10./p. 129 EMR-related issues. PA10 Initiatives to ensure the clarity of charges and tariffs. 2.6.4./p. 96 Technological applications TA2 Examples of telecommunication products, services 2.6.3./p. 93 and applications that can replace some physical form of use (e.g. online telephone directories, video conferences, etc.).

138 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 2.13. Statement of the independent auditor regarding the sustainability report105

105 GRI PA8, G4-14

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 139 Contents

3. ACCOUNTING REPORT OF TELEKOM SLOVENIJE GROUP AND TELEKOM SLOVENIJE, D. D. FOR THE FINANCIAL YEAR 2014 143

3.1. Introductory notes 143

3.2. accounting Report of Telekom Slovenije Group 144 3.2.1 Financial Statements of Telekom Slovenije Group 144 3.2.2 Notes to the Consolidated Financial Statements 149 1. Reporting entity 149 2. Basis for preparation 149 3. Summary of significant accounting policies 156 5. Revenue 174 6. Other operating income 174 7. Cost of services 174 8. employee benefits expense 175 9. Other operating expenses 175 10. Finance income and finance costs 176 11. Income tax expense, deferred tax assets and deferred tax liabilities 176 12. earnings per share 177 13. Intangible assets (IA) 178 14. Property, plant and equipment (PPE) 181 15. Investments in joint ventures and associates 183 16. Other investments 184 17. Other non-current assets 186 18. Investment property 186 19. Assets and liabilities held for sale 187 20. Inventories 188 21. Trade and other receivables 189 22. Short-term deferred costs and accrued income 190 23. Current financial assets 190 24. Cash and cash equivalents 191 25. equity and reserves 191 26. Long-term deferred income 194 27. Provisions 194 28. Non-current operating liabilities 195 29. Interest-bearing borrowings 196 30. Other non-current financial liabilities 197 31. Trade and other payables 197 32. Other current financial liabilities 197 33. Short-term deferred income 198 34. Accrued costs and expenses 198 35. Carrying amounts and fair values 198 36. Commitments and contingencies 200 37. Related party transactions 201 38. Auditor’s fees 204 39. Financial risk management 204 40. General authorisation and the rights to use radio frequency and block numbers 207 41. events after the balance sheet date 208 3.2.3 Independent Auditor’s Report 210

140 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3.3. accounting Report of Telekom Slovenije, d.d. 211 3.3.1 Financial Statements of Telekom Slovenije, d.d. 211 3.3.2 Notes to the financial statements of Telekom Slovenije, d.d. and summary of significant accounting policies 217 1. General information 217 2. Basis of preparation 217 3. Summary of significant accounting policies 221 4. Revenue 233 5. Other operating income 233 6. Cost of services 234 7. employee benefits expense 234 8. Other operating expenses 235 9. Finance income and finance costs 236 10. Income tax expense, deferred tax assets and deferred tax liabilities 236 11. Intangible assets (IA) 238 12. Property, plant and equipment (PPE) 239 13. Investments in subsidiaries, associates and joint ventures 242 14. Other investments 245 15. Other non-current assets 246 16. Investment property 247 17. Assets held for sale 248 18. Inventories 248 19. Trade and other receivables 249 20. Short-term deferred costs and accrued income 250 21. Current financial assets 250 22. Cash and cash equivalents 251 23. equity and reserves 251 24. Long-term deferred income 254 25. Provisions 254 26. Non-current operating liabilities 256 27. Interest-bearing borrowings 256 28. Other non-current financial liabilities 257 29. Trade and other payables 257 30. Other current financial liabilities 257 31. Short-term deferred income 258 32. Accrued costs and expenses 258 33. Carrying amounts and fair values 258 34. Commitments and contingencies 260 35. Related party transactions 261 36. Auditor’s fees 265 37. Financial risk management 265 38. General authorisation and the rights to use radio frequency and block numbers 269 39. events after the balance sheet date 270 3.3.3 Independent Auditor‘s Report 272

4. APPENDIX 273

4.1. telekom Slovenije Group companies 273

4.2. abbreviations of technical terms 276

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 141 Objectives, that are worth achieving. It is important in business to have a well-developed strategy that serves as a signpost. The superior quality of its services will continue to be the Telekom Slovenije Group’s competitive advantage in the future. The Group’s development will continue to be based on high standards of social responsibility and sustainable development.

142 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3. ACCOUNTING REPORT OF TELEKOM SLOVENIJE GROUP AND TELEKOM SLOVENIJE, D. D. FOR THE FINANCIAL YEAR 2014 3.1. introductory notes

In addition to the introductory notes, the accounting report herein comprises two major sections: - Accounting Report of Telekom Slovenije Group, and - Accounting Report of Telekom Slovenije, d. d.

The financial statements of the Telekom Slovenije Group and Telekom Slovenije, d.d. were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU.

The auditing firm KPMG SLOVENIJA, d. o. o. has audited both accounting reports and issued separate independent auditor’s reports, which are enclosed to each accounting report.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 143 3.2. accounting Report of Telekom Slovenije Group 3.2.1 Financial Statements of Telekom Slovenije Group

Consolidated Income Statement of Telekom Slovenije Group as at 31 December 2014

2013 EUR thousand Note 2014 adjusted* Revenue 5 756,454 779,360 Other operating income 6 8,442 19,819 Share of profit or loss in joint ventures 4,058 5,097

Cost of goods and material sold –73,120 –66,804 Cost of material and energy –14,877 –19,260 Cost of services 7 –324,971 –318,886 Employee benefits expense 8 –138,887 –142,440 Amortisation and depreciation expense 13, 14, 18 –158,639 –168,328 Other operating expenses 9 –47,048 –17,018 Total operating expenses –757,542 –732,736

Profit from operations 11,412 71,540

Finance income 10 17,104 4,961 Finance costs 10 –20,495 –22,708 Share in profit or loss of associates and jointly controlled entities 10 –5,395 –4,930 Profit before tax 2,626 48,863

Income tax expense 11 –286 –143 Deferred tax 11 –746 2,337

Profit for the period 1,594 51,057

Basic and diluted earnings per share (in EUR) 12 0.25 7.85 * Adjustments and effects are disclosed in section f, chapter 2. Notes to the financial statements given on pages from 149 to 209 are integral part of these consolidated finacial statements. Consolidated Statement of Other Comprehensive Income of Telekom Slovenije Group as at 31 December 2014

2013 EUR thousand Note 2014 adjusted* Profit for the period 1,594 51,057 Other comprehensive income that may be reclassified subsequently to profit or loss Translation reserve 270 267 Change in revaluation of actuarial deficits and surpluses -2,280 600 Change in revaluation of available-for-sale financial assets 25 289 141 Deferred tax 11 –49 –24 Change in deferred tax due to restatement of tax rate 0 –14 Change in revaluation surplus of available-for-sale financial assets (net) 240 103 Other comprehensive income that will not be reclassified subsequently to profit or loss Change in deferred tax due to restatement of tax rate 0 –197 Change in revaluation surplus on property, plant and equipment (net) 0 –197 Other comprehensive income for the period, net of tax -1,770 773

Total comprehensive income for the period –176 51,830

** Adjustments and effects are disclosed in section f, chapter 2. Notes to the financial statements given on pages from 149 to 209 are integral part of these consolidated finacial statements.

144 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Consolidated Balance Sheet as at 31 December 2014

31 Dec 2013 1 Jan 2013 EUR thousand Note 31 Dec 2014 adjusted* adjusted* ASSETS Intangible assets 13 187,537 149,163 154,663 Property, plant and equipment 14 751,307 839,308 900,871 Investments in associates and joint ventures 15 127 44,576 42,914 Other investments 16 13,440 10,168 7,516 Other non-current assets 17 28,027 27,447 19,482 Investment property 18 4,076 4,119 6,378 Deferred tax assets 11 25,232 24,424 21,222 Total non-current assets 1,009,746 1,099,205 1,153,046 Assets held for sale 19 95,338 4,478 3,846 Inventories 20 29,837 23,876 22,386 Trade and other receivables 21 150,888 155,614 187,888 Short-term deferred costs and accrued income 22 32,321 38,278 33,105 Income tax credits 69 618 17,567 Current financial assets 23 1,320 10,566 61,807 Cash and cash equivalents 24 23,902 59,234 44,074 Total current assets 333,675 292,664 370,673 Total assets 1,343,421 1,391,869 1,523,719 EQUITY AND LIABILITIES Called-up capital 25 272,721 272,721 272,721 Capital surplus 25 169,459 169,459 172,910 Revenue reserves 25 218,492 265,210 254,014 Legal reserves 51,561 51,630 51,612 Treasury share reserve 3,671 3,671 3,671 Treasury shares and interests -3,671 -3,671 -3,671 Statutory reserve 54,854 54,854 54,924 Other revenue reserve 112,077 158,726 147,478 Retained earnings 25 27,391 43,126 78,574 Retained earnings from previous periods 25,797 2,960 58,490 Profit for the period 1,594 40,166 20,084 Revaluation surplus 25 7,066 9,564 9,498 Translation reserve 25 -1,228 -1,498 -1,765 Total equity and reserves 693,901 758,582 785,952 Long-term deferred income 26 11,545 9,800 7,747 Provisions 27 78,299 40,421 45,706 Non-current operating liabilities 28 7,663 3,435 2,938 Interest-bearing borrowings 29 35,827 59,586 92,534 Other non-current financial liabilities 30 309,589 317,124 315,278 Deferred tax payables 11 1,683 1,728 1,583 Total non-current liabilities 444,606 432,094 465,786 Assets and liabilities held for sale 19 22,592 0 0 Trade and other payables 31 120,229 126,249 193,030 Income tax payable 161 40 230 Interest-bearing borrowings 29 23,765 33,012 35,284 Other current financial liabilities 32 98 1,885 8,834 Short-term deferred income 33 10,878 10,794 10,621 Accrued costs and expenses 34 27,191 29,213 23,982 Total current liabilities 204,914 201,193 271,981 Total liabilities 649,520 633,287 737,767 Total equity and liabilities 1,343,421 1,391,869 1,523,719 * Adjustments and effects are disclosed in section f, chapter 2. Notes to the financial statements given on pages from 149 to 209 are integral part of these consolidated finacial statements.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 145 Consolidated Statement of Changes in Equity of Telekom Slovenije Group as at 31 December 2014*

Revenue reserve Revaluation Revaluation Revaluation surplus of Total equity Retained surplus on surplus of EUR Called-up Capital available- Translation of owners Treasury Other earnings or property, actuarial thousand capital surplus Legal Treasury Statutory for-sale reserve of the com- share revenue losses plant and deficits and reserves shares reserves financial pany reserve reserves equipment surpluses assets (net) Balance at 1 Jan 2014 272,721 169,459 51,630 3,671 –3,671 54,854 158,726 43,126 7,722 714 1,128 –1,498 758,582 Profit for the period 1,594 1,594 Other comprehensive income for the period 240 -2,280 270 -1,770 Total comprehensive income for the period 0 0 0 0 0 0 0 1,594 0 240 -2,280 270 -176 Dividends paid –65,055 -65,055 Transacti- ons with owners 0 0 0 0 0 0 –65,055 0 0 0 0 -65,055 Transfer to retained earnings 458 –458 0 Transfer from other revenue reserves –46,567 46,567 0 Other –69 –82 701 550 Balance at 31 Dec 2014 272,721 169,459 51,561 3,671 –3,671 54,854 112,077 27,391 7,264 954 –1,152 –1,228 693,901

* More details in Note 25.

146 Annual report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Consolidated Statement of Changes in Equity of Telekom Slovenije Group as at 31 December 2013

Revenue reserve Revaluation Revaluation surplus of Revaluation Total equity Retained surplus on EUR Called-up Capital available- surplus of Translation of owners Treasury Other earnings or property, actuarial thousand capital surplus Legal Treasury Statutory for-sale reserve of the com- share revenue losses plant and deficits and reserves shares reserves financial pany reserve reserves equipment surpluses assets (net) Balance at 1 Jan 2013 – initially reported 272,721 172,910 51,619 3,671 –3,671 54,924 147,478 78,609 8,359 611 528 –1,765 785,994 Impact of the changed accounting policy 65 65 Adjustment of error –7 –100 –107 Balance at 1 Jan 2013 - adjusted 272,721 172,910 51,612 3,671 -3,671 54,924 147,478 78,574 8,359 611 528 –1,765 785,952 Profit for the period 51,057 51,057 Other comprehensive income for the period –197 103 600 267 773 Total comprehensive income for the period 0 0 0 0 0 0 0 51,057 –197 103 600 267 51,830 Dividends paid –78,556 -78,556 Transacti- ons with owners 0 0 0 0 0 0 –78,556 0 0 0 0 -78,556 Transfer to reserves 11,645 –11,645 0 Transfer to retained earnings 440 –440 0 Other –3,451 18 –70 –397 3,256 –644 Balance at 31 Dec 2013 adjusted 272,721 169,459 51,630 3,671 –3,671 54,854 158,726 43,126 7,722 714 1,128 –1,498 758,582

Notes to the financial statements given on pages from 149 to 209 are integral part of these consolidated finacial statements.

Annual report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 147 Consolidated Statement of Cash Flows of Telekom Slovenije Group as at 31 December 2014

EUR thousand Note 2014 2013 Cash flows from operating activities Profit before tax 2,626 48,863 Adjustments for: Depreciation and amortisation of intangible assets and property, plant and equipment 13, 14, 18 158,639 168,328 Impairment and write-offs of intangible assets, property, plant and equipment 872 2,427 Gain or loss on disposal of property, plant and equipment 468 -23 Gain on disposal of investment property 0 258 Finance income 10 -17,104 -4,961 Finance costs 10 25,891 26,338 Change in assets held for sale -1,786 -632 Change in trade and other receivables -5,829 32,274 Change in deferred costs and accrued income -5,479 -5,172 Change in other non-current assets -599 -5,756 Change in inventories -8,218 -1,490 Change in provisions 38,065 -5,285 Change in non-current and short-term deferred income 4,378 2,226 Change in accrued costs and expenses 2,511 5,231 Change in trade and other payables 5,947 -65,357 Income tax paid 342 15,134 Net cash from operating activities 200,724 212,404 Cash flows from investing activities Receipts from investing activities 61,900 71,046 Proceeds from sale of property, plant and equipment 459 2,480 Dividends received 3,756 3,581 Interest received 330 1,529 Proceeds from disposal of investment property 0 990 Disposal of non-current investments 48,403 1,288 Disposal of current investments 8,952 61,178 Disbursements from investing activities -182,015 -136,755 Acquisition of property, plant and equipment -80,178 -78,936 Acquisition of intangible assets -96,394 -34,518 Acquisition of investments 0 -5,469 Investments in subsidiaries and associates -1,226 -8,061 Interest bearing loans -4,217 -9,771 Cash used in investing activities -120,115 -65,709 Cash flows from financing activities Receipts from financing activities 85,900 0 interest-bearing borrowings 37,000 0 Issue of current commercial papers 48,900 0 Disbursements from financing activities -201,841 -131,535 Maturity of current commercial papers -48,856 0 Repayment of current borrowings -37,000 0 Repayment of non-current borrowings -32,949 -35,260 Interest paid -17,990 -17,616 Dividends paid -65,046 -78,658 Cash flow used in financing activities -115,941 -131,535 Net increase/decrease in cash and cash equivalents -35,332 15,160 Closing balance of cash 23,902 59,234 Opening balance of cash 59,234 44,074 Notes to the financial statements given on pages from 149 to 209 are integral part of these consolidated finacial statements.

148 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3.2.2 notes to the Consolidated Financial Statements

1. Reporting entity

The Telekom Slovenije Group (hereinafter: ‘Group’ or ‘Telekom Slovenije Group’) comprises the parent company Telekom Slovenije, d. d. (hereinafter: ‘Telekom Slovenije’ or ‘Company’) and its subsidiaries and jointly controlled entities.

Telekom Slovenije with its registered office at Cigaletova 15, Ljubljana, Slovenia, is a public limited company, incorporated and domiciled in the Republic of Slovenia. Its shares are listed on the Ljubljana Stock Exchange.

As at 31 December 2014, the Republic of Slovenia, as the majority shareholder, held 4,087,569 shares, representing a 62.54 % equity interest in Telekom Slovenije.

The core activity of the Group is the provision of telecommunications services and products. These include fixed and mobile telephony services, internet and television services, the installation and maintenance of telecommunications networks, systems integration of business solutions, digital content and advertising.

2. Basis for preparation

a. Statement of compliance The accompanying consolidated financial statements of the Telekom Slovenije Group have been prepared in accordance with International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC), as adopted by the European Union.

The Management Board approved the consolidated financial statements for release on 9 March 2015.

b. Subsidiaries and jointly controlled entities106 The Telekom Slovenije Group comprises the parent company Telekom Slovenije and following subsidiaries and jointly controlled entities or groups of subsidiaries:

106 GRI G4-17

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 149 SUBSIDIARIES

Share in Share in Carrying amount of equity voting rights voting rights Profit or loss Share in as at Company Address Country Core activity Tax rate equity (%) (%) (%) 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2014 2013 2014 2013 SLOVENIA 1. GVO, gradnja in vzdrževanje Cigaletova 10, building and maintenance works on Slovenia 17% 100% 100% 100% 16,027 15,994 142 778 telekomunikacijskih Ljubljana telecommunication networks omrežij, d.o.o. 2. Avtenta, napredne Stegne 19, Slovenia systems integrator 17% 100% 100% 100% 1,513 5,477 –346 115 poslovne rešitve, d.o.o. Ljubljana 3. TSmedia, medijske Cigaletova 15, Slovenia multimedia and internet services 17% 100% 100% 100% 4,350 5,257 –908 –1,023 vsebine in storitve, d.o.o. Ljubljana 4. SOLINE Pridelava soli, Seča 115, production of salt and preservation Slovenia 17% 100% 100% 100% 3,191 3,697 –347 –717 d.o.o. Portorož and management of a natural park OTHER COUNTRIES Lagija Ulpiana, 5. IPKO Telecommunications Rruga „Zija Kosovo telecommunication services 10% 93% 93% 93% 7,243 5,981 564 1,395 LLC Shemsiu“, nr 34, Prishtina Majke Jugovića Bosnia and 6. Blicnet d.o.o., Banja Luka telecommunication services 10% 100% 100% 100% 13,131 12,597 534 489 25, Banja Luka Herzegovina Bul. Kuzman 7. ONE DOO Skopje* Josifovski Pitu 15, Macedonia telecommunication services 10% 100% 100% 100% 22,986 26,758 –4,045 –1,051 Skopje Bul. Partizanski 8. DIGI PLUS MULTIMEDIA odredi, no. 70, Društvo za telekomunikaciski Macedonia digital TV services 10% 100% 100% 100% 344 304 39 57 DTC Aluminka, uslugi DOOEL Skopje* Skopje Margaretska 3, 9. SIOL, d.o.o. Croatia telecommunication services 20% 100% 100% 100% 571 516 59 43 Zagreb 10. „SiOL“ d.o.o., društvo za pružanje Tešanjska ulica Bosnia and telecommunication services 10% 100% 100% 100% 1,678 1,631 47 –29 telekominikacijskih 24 a, Sarajevo Herzegovina usluga, Sarajevo 11. D RUŠTVO ZA Bulevar Svetog TELEKOMUNIKACIJE Petra Cetinjskog Montenegro telecommunication services 9% 100% 100% 100% 2,667 2,652 15 7 „SIOL“ DOO PODGORICA br.106, Podgorica 12. GVO Telekommunikation Daimlerstr. 3, building and maintenance works on Germany 15% 100% 100% 100% –53 –530 490 –555 GmbH Stadtlohn telecommunication networks

* As at 22 October 2014, Telekom Slovenije, d.d. and Telekom Austria Group have reached an agreement on merging two operators on the Macedonia market, namely the ONE DOOEL Skopje, a Telekom Slovenije Group company, and the operator VIP OPERATOR DOOEL Skopje, which is a Telekom Austria Group company. As at 30 December 2014, the management boards of ONE DOOEL Skopje and VIP OPERATOR DOOEL Skopje signed the contract on the respective merger. With respect to the signed contract and provisions of IFRS 5, the companies ONE DOO and DIGI PLUS MULTIMEDIA were reclassified in Company’s financial statements among ‘assets held for sale’.

150 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 JOINTLY CONTROLLED ENTITIES AND ASSOCIATES

Share in Share in Carrying amount of voting voting Profit or loss Share in equity as at Company Address Country Core activity Tax rate equity rights (%) rights (%) (%) 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2014 2013 2014 2013 1. M-P AY, Družba za mobilno Ul.Vita processing of mobile phone plačevanje, storitve in Kraigherja 3, Slovenia 17% 50% 50% 50% 224 208 15 11 payments trgovino d.o.o. MARIBOR Stegne 19, 2. Antenna TV SL, d.o.o. Slovenia TV-related services 17% 49% 49% 49% –14,625 –6,078 –11,048 –10,073 Ljubljana research and development- Tehnološki park 3. SETCCE D.O.O. Slovenia related activity in other areas of 17% 36% 36% 0% 448 0 30 0 21, Ljubljana natural science and technology

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 151 Telekom Slovenije is the sole owner (100 %) of Ipko as a result of an agreement concluded with minority shareholders on the acquisition of the remaining equity interest. The Group controls the company Ipko and accordingly discloses in the consolidated financial statements no liability to minority shareholders.

As at 9 January 2014, the company Ipko sold 100 % equity interest in its subsidiary Media Works and thereby transferred the ownership to the buyer. As at the date of sale, the company Media Works was excluded from the consolidated financial statements of the Telekom Slovenije Group.

As at 17 November 2014, Telekom Slovenije d.d. sold the 50 % equity interest in the jointly controlled entity Gibtelecom Limited. The company Gibtelecom Limited was included in the consolidated financial statements until November 2014 by applying the equity method.

The company GVO is the sole owner (100 %) of the company GVO Telekommunikation GmbH in Germany.

Telekom Slovenije d. d. holds a 50 % equity interest in the joint venture M-Pay, and a 36 % interest in the company Setcce. As of 4 February 2013, Setcce was reorganised from an institute into a company and at 1 January 2014 included in the Telekom Slovenije Group as an associate. Both companies were included in the consolidated financial statements according to the equity method.

The company TSmedia discloses an investment in the company Antenna TV SL with a 49 % shareholding. The company is included in the consolidated financial statements according to the equity method.

c. Basis of preparation of financial statements The consolidated financial statements have been prepared based on the going concern assumption and are not of seasonal nature. The consolidated financial statements have been prepared on a historical cost basis except for the measurement of available-for-sale financial assets that are measured at fair value, and land and buildings that are valued by using the fair value model (refer to accounting policy 3.e. Property, plant and equipment).

d. Presentation and functional currency, foreign currency transactions The consolidated financial statements are presented in euro, rounded to the nearest thousand, which is the functional and presentation currency of the Group.

Monetary assets, receivables and liabilities in foreign currency are translated at the exchange rate of the functional currency prevailing at the reporting date. Non-monetary assets and liabilities in a foreign currency and measured at fair value are translated using the exchange rates at the date when the fair value was determined. All differences resulting from foreign currency translation are recognised in the income statement.

e. Use of estimates and judgements The preparation of the financial statements requires managements to make certain judgements, estimates and assumptions that impact the carrying values of Group’s assets and liabilities and the disclosure of contingent items at the reporting date and the reported amounts of income and expenses for the period then ended.

Future events and their effects cannot be perceived with certainty.A ccordingly, the accounting estimates made require the exercise of judgment, and those used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Group’s operating environment changes. Actual results may differ from those estimates. The formulation of estimates and related assumptions and uncertainties are discussed in individual items of segment 3. Summary of significant accounting policies.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

152 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Depreciation rates of property, plant and equipment The preparation of the financial statements requires management to make estimates on the useful life. Defining of useful lives is founded on experiences relating to similar assets, to the expected technological development and changes in the wider economic environment. The Group verifies the adequacy of estimated useful lives on an annual basis.

Allowances for doubtful receivables Allowances for current trade receivables are formed based on the creditworthiness of individual customers. The Group assesses the creditworthiness of individual customers by means of in-house developed credit rating model, which is based on the combination of an external credit rating and the payment discipline of companies, as well as the payment history of individuals. The estimate depends upon the general economic situation in the country. In 2014, the Group checked the adequacy of allowances for doubtful receivables formed by analysing the appropriateness of the internally developed credit-rating model, which thereupon confirmed the respective suitability.

Deferred taxes Management is required to assess whether the actual deferred tax is required to be restated. A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised.

In order to assess this possibility, the Management Board will have to take into account several factors including previous business results, business plans, tax loss brought forward and by compiling a tax strategy. Derogations from estimates or actual results and the requirement of adjusting the estimates in future periods, can have a negative impact on the operating results, the statement of financial position and cash flows. Should the estimate on the future use of deferred tax change, the recognised deferred tax must be reduced in the income statement or directly in equity, depending on the method of initial recognition.

Tax authorities may, at any time within five years after the year of tax assessment, inspect the operations of the Company, which may result in additional tax liabilities. The Company applies internal controls that have so far proved as appropriate.

Network interconnection Management compiles estimates also in view of recognising revenue and expenses relating to network interconnection. The relevant revenue and expenses are recognised on the basis of the estimated expected value with respect to turnover recorded in the previous month. Differences between estimates and the actual revenue occur primarily because of the tolerance margin in data on turnover and the price change. The tolerance margin differs from contract to contract but does not exceed 2 % of contractual value.T he differences are included in profit or loss when the actual amount of revenue is determined.

Provisions and contingent liabilities Significant assessments are required in case of measurement and recognition of Group’s exposure to contingent liabilities arising from unresolved disputes. Provisions for probable liabilities from legal actions are formed on the basis of the estimation made by the relevant departments of the actions’ outcome. The formation of provisions is assessed by the Group individually in view of the amount of the legal action, its subject matter, the plaintiff’s assertions and the course of each individual procedure. As this assessment process is generally uncertain, the actual loss may differ from the loss initially assessed. Management’s estimates can change if the Group obtains new information. Adjustments of relevant estimates can have a significant impact on business results. Effects and detailed information on legal actions and provisions formed are not disclosed because it is labelled by the management as confidential.

Provisions for jubilee premiums and retirement benefits are formed on the basis of the actuarial calculation, which is based on assumptions and estimates applicable at the calculation date and subject to changes in the future. This applies primarily to the defining of the discount rate the estimate on staff fluctuation, and the estimate on the wage growth. The provisions-related estimate can in future change due to the complexity of the actuarial calculation and its long-term nature.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 153 Other non-current financial liabilities Other non-current financial liabilities include liabilities relating to the acquisition of the minority interest at fair value. Valuation models and related effects are deemed by the management as confidential, hence they are not disclosed.

f. Change in accounting policies and retrospective restatement As of 1 January 2014, the accounting policy of recording a portion of program rights was changed i.e. from costs of multimedia services to the item of intangible assets.

Prior to the respective change, the Group recognised costs of program rights among costs of multimedia services in the period when they occurred. Pursuant to the policy’s change, it is recognised, upon the contract’s signing, among intangible assets, which is amortised on a straight-line basis throughout the contract’s duration.

According to changes made, contracts concluded in connection with program rights are recognised as an item of intangible assets if: - the contracts are concluded for a specified period, - the contract’s value can be reliably defined and does not depend on the number of subscribers.

The Group believes that the change in accounting policy provides for a proper presentation of the balance sheet and Group’s operations and thereby a better comparability with the financial statements of other entities that are engaged in the same or similar activity.

IAS 38, which discusses intangible assets, does not comprise specific provisions regarding disclosures of the respective change in accounting policy, thus the Telekom Slovenije Group observed provisions of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, and adjusted the financial statements for previous periods in compliance with IAS 1 – Presentation of Financial Statements. The change in the accounting policy was applied retrospectively; hence, the Group restated the financial statements for previous periods i.e. from 1 January 2011 onwards.

The Group adjusted the data for 2013 also by restatements from previous periods. These value adjustments were carried out for the purpose of providing data comparability between individual years. Group’s consolidated financial statements were adjusted and restated by following errors made in previous years: - intragroup eliminations in the amount of EUR 2,323 thousand were transferred from intangible assets to property, plant and equipment, - impairment of loans and receivables of the company Primo in the amount of EUR 1,589 thousand was not recognised in the financial statements for 2013, - during the merger of companies in Bosnia and Herzegovina, the amount of goodwill (EUR 107 thousand) was not properly recognised; in addition, the reclassification of goodwill to other property, plant and equipment in the amount of EUR 817 thousand was not carried out and thereby also depreciation for these assets in the amount of EUR 163 thousand was not accounted. The goodwill failed to be impaired in the amount of EUR 37 thousand, - false depreciation rates were assessed items of infrastructure and equipment in Bosnia and Herzegovina; consequently, the depreciation-related calculation for 2013 was adjusted and thereby lower from the initially disclosed by EUR 176 thousand.

Management eliminated the errors made in previous periods and adjusted the comparable data, which resulted in the restated impact on the balance sheet, the income statement and the statement of changes in equity as at 31 December 2013.

154 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Effects of the changed accounting policies in the consolidated financial statements are as follows:

Consolidated income statement of the Telekom Slovenije Group as at 31 December 2013

Impact of Previously changed Impact of EUR thousand Adjusted reported accounting restatement policy Revenue 804,276 804,276 Cost of services –320,976 2,090 –318,886 Amortisation and depreciation expense –166,371 –2,078 121 –168,328 Other operating expenses -16,692 –326 –17,018 Other costs –228,504 –228,504 Finance income 4,961 4,961 Finance costs –26,338 –1,300 –27,638 Income tax –136 –7 –143 Deferred taxes 2,342 –6 1 2,337 Total impact on the income statement 52,562 6 -1,511 51,057

Earnings per share – basic and diluted (in EUR) 8.08 7.85

Consolidated balance sheet as at 1 January 2013

Impact of Previously changed Impact of EUR thousand Adjusted reported accounting restatement policy ASSETS Intangible assets 148,955 2,853 2,855 154,663 Property, plant and equipment 903,833 -2,962 900,871 Other investments 7,516 7,516 Deferred tax assets 21,238 -16 21,222 Trade and other receivables 187,888 187,888 Deferred tax assets 17,566 1 17,567 Current investments 61,807 61,807 Other assets 172,185 172,185 Total assets 1,520,988 2,838 -107 1,523,719 EQUITY AND LIABILITIES Non-current operating liabilities 210 2,728 2,938 Trade and other payables 193,030 193,030 Accrued costs and expenses 23,937 45 23,982 Other liabilities 517,817 517,817 Total liabilities 734,994 2,773 0 737,767 Retained earnings 78,609 65 –100 78,574 Retained earnings from previous period 58,494 –4 58,490 Profit for the period 20,115 69 –100 20,084 Revenue reserves – Legal reserves 51,619 –7 51,612 Other items of equity and reserves 655,766 655,766 Total equity and reserves 785,994 65 –107 785,952 Total equity and liabilities 1,520,988 2,838 –107 1,523,719

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 155 Consolidated balance sheet as at 31 December 2013

Impact of

changed Impact of EUR thousand Previously Adjusted accounting restatement reported policy ASSETS Intangible assets 144,309 3,465 1,389 149,163 Property, plant and equipment 840,721 –1,413 839,308 Other investments 11,168 –1,000 10,168 Deferred tax assets 24,444 –21 1 24,424 Trade and other rece ivables 155,903 -289 155,614 Current deferred costs and accrued income 38,277 1 38,278 Income tax credits 618 618 Current investments 10,866 -300 10,566 Other assets 163,730 163,730 Total assets 1,390,036 3,444 -1,611 1,391,869 EQUITY AND LIABILITIES Non-current operating liabilities 1,001 2,434 3,435 Trade and other payables 126,237 13 –1 126,249 Income tax payables 32 8 40 Current deferred income 10,789 5 10,794 Accrued costs and expenses 28,292 926 –5 29,213 Other liabilities 463,556 463,556 Total liabilities 629,907 3,373 7 633,287 Retained earnings 44,666 71 –1,611 43,126 Retained earnings from previous period 2,995 65 -100 2,960 Profit for the period 41,671 6 –1,511 40,166 Revenue reserves – Legal reserves 51,637 –7 51,630 Other items of equity and reserves 663,826 663,826 Total equity and reserves 760,129 71 –1,618 758,582 Total equity and liabilities 1,390,036 3,444 –1,611 1,391,869

3. Summary of significant accounting policies

a. Basis of consolidated The consolidated financial statements comprise the financial statements of Telekom Slovenije and its subsidiaries and jointly controlled entities as at 31 December 2014. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In the event of inconsistencies in accounting policies, individual companies make the relevant modifications in their financial statements, which form the basis for the consolidated financial statements.

Subsidiaries are entities controlled indirectly or directly by Telekom Slovenije, d. d. Control exists when the Group has the ability to make decisions on the company’s financial and business policies in order to obtain benefits from its operations. Joint venture is a joint arrangement, which is jointly controlled by Telekom Slovenije and another entity. Joint control is the contractually agreed sharing of control over the arrangement, which exists when important decision-making depends on the consent of both parties that jointly control the arrangement. Associate is an entity, in which Telekom Slovenije, d. d. has significant influence but not control over their financial and operating policies.

156 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Business combinations are accounted for by using the acquisition method on the date when control is transferred to the parent company or when the Group company controls the subsidiary.

Subsidiaries are de-consolidated from the date that control of the parent company or the Group company over the subsidiary ceases. If control over a subsidiary ceases during the year, the consolidated financial statements include the results of the subsidiary until the date that such control over the subsidiary still existed.

Investments in joint ventures and associates are accounted for by using the equity method. Part of profit or loss relating to joint ventures and associates and attributable to the Group, are recognised in the consolidated income statement i.e. the part relating to the telecommunications activity is recognised among operating expenses, whereby the part relating to other activities is recognised among finance income or costs.

All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated from consolidated financial statements.

Mergers that occur within the Group are considered business combinations under joint control. To account for these mergers, the Group applies the pooling of interests method, where carrying amounts of the acquired and the acquiring companies are pooled as presented in the consolidated financial statements. The entire operations of the acquired company are included in the financial statements of the acquiring company as from the acquisition date. b. Foreign currency transactions As at the reporting date, the financial statements of subsidiaries located abroad are translated into the presentation currency of the consolidated financial statements. The ECB exchange rate prevailing as at the reporting date is used, while the weighted average exchange rates for the reporting year are used in the income statement.

Exchange differences arising on the translation of functional currencies into the presentation currency are recognised as translation reserve directly in equity and the statement of other comprehensive income, until a foreign subsidiary is sold, when the foreign exchange differences are recognised in the income. c. New standards and interpretations not yet adopted Telekom Slovenije Group companies have not adopted any standards or interpretations issued and not yet effective.

The following new standards and interpretations are not yet effective for the annual period ended 31 December 2014 and have not been applied in preparing these consolidated financial statements.

Amendments to IAS 19 – Defined Benefit Plans:E mployee Contributions (Effective for annual periods beginning on or after 1 February 2015. The amendments apply retrospectively. Earlier application is permitted.)

The amendments are relevant only to defined benefit plans that involve contributions from employees or third parties meeting certain criteria. Namely that they are: ¬ set out in the formal terms of the plan; ¬ linked to service; and ¬ independent of the number of years of service.

When these criteria are met, a company is permitted (but not required) to recognise them as a reduction of the service cost in the period in which the related service is rendered.

The Group does not expect the amendment to have any impact on the financial statements since it does not have any defined benefit plans that involve contributions from employees or third parties.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 157 IFRIC 21 - Levies (Effective for annual periods beginning on or after 17 June 2014; to be applied retrospectively. Earlier application is permitted.)

The Interpretation provides guidance as to the identification of the obligating event giving rise to a liability, and to the timing of recognising a liability to pay a levy imposed by government.

In accordance with the Interpretation, the obligating event is the activity that triggers the payment of that levy, as identified in the relevant legislation and as a consequence, the liability for paying the levy is recognised when this event occurs.

The liability to pay a levy is recognised progressively if the obligating event occurs over a period. If the obligating event is the reaching of a minimum activity threshold, the corresponding liability is recognised when that minimum activity threshold is reached.

The Interpretation sets out that an entity cannot have a constructive obligation to pay a levy that will be triggered by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period.

It is expected that the Interpretation, when initially applied, will not have a material impact on the financial statements, since it does not results in a change in the Group’s accounting policy regarding levies imposed by governments.

IFRS 3 – Business Combinations The amendment to IFRS 3 Business Combinations (with consequential amendments to other standards) clarifies business combinations that when contingent consideration is a financial instrument, its classification as a liability or equity is determined by reference to IAS 32, rather than to any other standard. It also clarifies that contingent consideration that is classified as an asset or a liability shall be measured at fair value at each reporting date.

The Group does not expect the amendment to have a significant impact on the financial statements since it does not have contingent considerations.

d. Intangible assets Group companies recognise an item of intangible assets if it is probable that the future economic benefits that are associated with the item will flow to the entity and the cost of the item can be measured reliably.

All items of intangible assets have finite useful lives.

Intangible assets include: - licences for the use of the radiofrequency spectrum for mobile telephony, - software licences, - program rights, - software acquired separately from hardware and used for more than one year, and - other intangible assets.

Intangible assets with finite useful lives are stated at cost less accumulated amortisation less impairment losses.

Useful lives and residual value of significant items of intangible assets are reassessed on an annual basis and if expectations differ significantly from earlier estimates, amortisation rates are restated for the current and future periods. The effect is explained in the report of the period in which the change occurred.

Intangible assets are amortised on a straight-line basis over their estimated useful lives, from the date that they are available for use.

158 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Estimated useful lives of intangible assets

Groups of intangible assets Useful lives in years - concessions, patents and trademarks, licences 10 to 22 - software – application software 3 - program rights 1 to 4 - other concessions, patents, licences, trademarks and similar right 3 to 5

Expenditure on licences for the use of the radio frequency spectrum and computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful life, which ranges between 10 and 22 years (refer to Note 40).

Program rights (provision of TV channels) are recorded as an item of intangible assets on the basis of the signed contracts if: - the latter was concluded for a certain period, generally longer that one year, - the contract’s value does not depend on the number of subscribers.

An item of intangible asset that arises on program rights shall be amortised on the first day of the following month, when the Company obtains the right for using an individual TV channel (when a certain TV channel is shown for the first time). Period of amortisation equals the right to use the assets.

Costs of software are capitalised at cost and amortised on a straight-line basis in the estimated useful life i.e. 3 years. Individual licences for the use of software are amortised during the contract’s duration, which is generally 3 and 5 years.

Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. The Group monitors and ensures via project administrators that only costs, which comply with the defined criteria, are capitalised.

As at the year-end, the Group checks the carrying amounts of significant assets in order to establish whether there is any need to impair an item of intangible assets. Significant intangible assets are those, whose carrying amount exceeds 5 % of the carrying amount of total intangible assets, should they account for at least 5 % of total assets’ value. On an annual basis or as at the date of financial statements, it is checked whether any indications of impairment of intangible assets exist, i.e. it is reassessed whether significant technological changes, market changes or a significant decrease in interest rates occurred. If so, the recoverable amount of such assets is determined. Impairment is carried out if the carrying amount of intangible assets significantly exceeds their recoverable amount.

Impairment is recorded in the income statement among other operating expenses under the item ‘impairment of intangible assets and property, plant and equipment’.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 159 e. Property, plant and equipment Property, plant and equipment owned by Group companies are at acquisition recognized at cost. Property, plant and equipment includes all expenditures that are necessary to make the asset ready for its intended use including costs of preparing the construction site and easement fees.

Estimated costs of restoring leased locations for broadcasting stations to their original condition are an integral component of the asset’s cost and are amortised over the asset’s residual useful life. Provisions required for establishing the original condition, discounted to present value, are reported under long-term provisions.

The cost of self-constructed assets includes the cost of material, direct labour and an appropriate proportion of production overheads. Costs of construction of property, plant and equipment that are included in cost are recognised as lower costs within profit or loss. Recognition of these assets is subject to equal criteria as those applied with intangible assets. The recognition of these costs is subject to the same criteria as applied with intangible assets.

When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment.

Measurement upon recognition Cable network, cable lines, exchange switches and mobile network equipment are upon initial recognition measured at cost less depreciation costs or impairment.

Land and buildings are upon initial recognition measured at fair value as at the date of valuation less depreciation costs and impairment losses. The revaluation to fair value of these assets is based on a report of an independent licensed appraiser. The fair value is reassessed when market conditions significantly change or at least every five years.

For the purpose of valuation, properties are divided into three groups in terms of their carrying amount recorded as at the valuation date, namely: - properties whose carrying amount exceeds EUR 5 million, - properties whose carrying amount ranges from EUR 1 to 5 million, - properties whose carrying amount is up to EUR 1 million.

As for properties whose carrying amount exceeds EUR 5 million, the Group applies all three valuation methods (the market approach, the income approach and the asset approach) as stipulated by the International Valuation standards (IVS). In case of properties whose carrying amount ranges between EUR 1 million and EUR 5 million, the Group applies the market approach and the asset approach, whereas for properties with a carrying amount of up to EUR 1 million, the market approach is carried out. With respect to the intended use, the fair value hierarchy is applied for each asset separately.

When an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised in other comprehensive income, net of related deferred tax and presented in equity as a revaluation reserves. The increase is recognised in the income statement if this increase is eliminated by a decrease in the revaluation of the same asset that was previously recognised in the income statement. Decrease in the carrying amount as a result of revaluation is recognised as a revaluation expense in the income statement. The decrease is recognised in other comprehensive income but only to the amount in which the increase of the same asset was previously recognised.

160 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed asset’s revaluation reserves to retained earnings is carried out by the Group on an ongoing basis.

Residual values and useful lives of significant items of property, plant and equipment are reassessed on an annual basis and if expectations differ significantly from earlier estimates, depreciation rates are adjusted for the current and future periods. The effect of the change in estimate is recognised in the financial statements in which the change in estimate occurred.

Significant items of property, plant and equipment are in individual companies defined as assets recording a high purchase cost, such as assets whose value at acquisition exceeded 5 % of the carrying amount of the account to which the item is classified to, if the carrying amount of the total account amounts to at least 10 % of the value of property, plant and equipment.

Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment.

Estimated useful lives of groups of property, plant and equipment

Groups of property, plant and equipment Useful lives in years - buildings 50 - electrical and mechanical installations 15 to 30 - cable lines 33.3 - cable network – air 10 - cable network – land 20 - other network 2 to 12.5 - exchange switches 4 to 15 - other equipment 2 to 15

Land and assets under construction are not depreciated. An item of property, plant and equipment under construction is recognised at cost and depreciated when brought to working condition for its intended use.

The Group assesses annually whether there are any internal or external circumstances (significant technological changes, market changes, obsolescence or physical wear and tear of the asset, etc.) that could provide indication that an item of property, plant and equipment might be impaired. If such indication is present, the recoverable amount of the asset is determined.

An item of property, plant and equipment is subject to impairment if its carrying amount exceeds its recoverable amount. The recoverable amount equals the fair value less costs of sale or the value in use, whichever is higher. Value in use is assessed as the present value of expected future cash flows, whereby the expected future cash flows are discounted to the present value by the use of the discount rate before taxes.

Impairment is recognised in the income statement, except when the value of the asset was increased prior to the impairment and the related impact recorded as a revaluation surplus on property, plant and equipment in equity. In such cases, the revaluation surplus is to be decreased first.

Reversal of impairment of property, plant and equipment is recognised if the recoverable value of an asset increases and if this increase can be related objectively to an event occurring after the recognition of impairment. An impairment loss is reversed only to the extent of the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 161 f. Investments Investments in associates and joint ventures Associate is an entity, in which Telekom Slovenije has significant influence but not control over their financial and operating policies. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Joint venture is a joint arrangement, which is jointly controlled by Telekom Slovenije and another entity. Joint control is the contractually agreed sharing of control over the arrangement, which exists when important decision-making depends on the consent of both parties that jointly control the arrangement. Investments in associates and joint ventures are accounted for using the equity method.

After the equity method is applied, investments in an associate or joint venture are initially recognised in the income statement at cost, whereas the carrying amount is increased or decreased by the share in profit or loss that belongs to this entity. The investment in an associate or joint venture is recognised on the date of contract, when the Group assumes ownership over this investment. The equity method is no longer applied from the date when Group’s significant influence over the subsidiary ceases.

Upon applying the equity method, the Group verifies whether any indication on impairment of investments in associates exists. Indications of impairment of investments is assessed on the basis of following criteria: - comparing as at the reporting date the carrying amount of the investment with the proportional part of the carrying amount of the subsidiary’s total equity. Indication of impairment exists when at that date the carrying amount of the investment exceeds the proportional part of equity by more than 30 %; and - comparing the key ratios for the financial year with projections.

In case of a newly established company, indication of impairment is not established in the first two years of business operations in compliance with the company’s business plan.

Recognition and measurement of financial assets Investments are upon initial recognition classified as:

- investments in loans and receivables, or - available-for-sale financial assets.

Loans and receivables are recognised by the Group as at the day of their accrual. Available-for-sale financial assets are recognised as at the date of purchase, when significant benefits are transferred to the buyer.

Available-for-sale financial assets include investments designated as available for sale and not classified as loans and receivables. Investments are initially measured at fair value and added costs of transaction that arise directly from sale or issue of the financial asset.

Investments in debt and equity securities classified as available-for-sale financial assets are carried at fair value. The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the fair value of financial assets that are not listed on the stock exchange cannot be reliably determined (since the Group has no impact on obtaining information in order to assess the fair value), they are stated at cost and the Group determines on an annual basis whether indication on impairment of these investments exists.

Any gains or losses arising on revaluation are recognised in other comprehensive income and presented directly in equity (in net amount) as revaluation surplus. When an investment is derecognised, accumulated gains or losses previously recognised in equity are reclassified to the income statement.

Interest on debt securities is recognised in the income statement at the effective interest rate.

162 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Loans and receivables are measured at amortised cost using the effective interest method, less impairment losses. The Group recognises loans and receivables as at the date of their accrual.

Impairment of investments The Group assesses at the reporting date whether available for sale investments are required to be impaired. An objective evidence that debt securities and loans must be impaired exists in case of major financial problems on the part of the debtor (liquidity issues, company’s capital decrease, non-fulfilment of contractual obligations, etc.) or other indications that the debtor may start bankruptcy proceedings. As for investments in debt securities, an objective evidence of impairment is considered to exist when the value of an item of financial assets or investments has been significantly (by more than 30 % of its cost) or permanently (by more than 12 months) reduced or when there is indication that a company in which the Group holds an interest, may start bankruptcy proceedings. In this case, the allowance of its initially disclosed value is to be charged against revaluation finance costs.

Available-for-sale financial assets When a decline in the value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity shall be removed from equity and recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is removed from equity and recognised in profit or loss shall be the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

Impairment losses recognised in profit or loss shall not be reversed through profit or loss, unless the fair value of a debt instrument classified as available for sale increases subsequently and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. The impairment loss shall in such case be reversed, with the amount of the reversal recognised in profit or loss.

Loans The Group monitors the repayment of loans and in case of default assessed whether there is any indication of required impairment. If there is objective evidence that an impairment loss on loans has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The amount of the reversal is recognised in profit or loss as long as the carrying amount of the asset does not exceed the amortised cost at the date of reversal.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 163 g. Other non-current assets Prepaid rentals include mostly leases of premises and land for setting up base stations, and lease of optical fibres. Rentals are deferred over the contract period and are on a straight-line basis transferred to rental expenses, whereas transfer to costs starts on the date of the contract.

Sales incentives given to subscribers are recognised in the amount of the negative difference between the selling and the average sliding price, under the condition that subsidies will be covered by the average subscription fee earned over the expected life of the subscriber contract. The negative difference between the selling price and the average sliding price is reported within deferred costs, depending on the anticipated subscription period. Over the period of the subscription agreement, deferred costs are amortised on a monthly basis proportionally to the cost of sales incentives, starting on the first day of the following month with respect to the actual inception of the contractual period. If a subscription agreement is terminated or a subscriber is disconnected from the network due to the non-payment of invoices, subsidies are fully impaired accordingly.

Other non-current assets comprise long-term granted discounts, which are deferred in the anticipated duration of the subscription period, and the sale of goods with deferred payment that falls due in a period longer than 12 months.

h. Investment property Investment property is initially stated at cost comprising the purchase price and costs that may be directly attributed to the acquisition. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation and impairment losses.

Depreciation is calculated on a straight-line basis over the useful lives of the assets. Land is not depreciated.

Useful life of investment property is 20 years.

If the investment property does not generate the expected return, the Group checks whether there is indication for impairment in compliance with IAS 36 Impairment of assets.

i. Assets held for sale

Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale or distribution rather than through continuing use, are classified as held for sale or distribution. The sale of assets bust be highly probable and anticipated in the coming 12 months. The sale is highly probable when the management adopts the decision on the sale and respective sales activities are launched.

Assets (or assets held for sale) are measured at the lower of their carrying amount and fair value less costs to sell. Intangible assets and property, plant and equipment that are classified among assets held for sale are no longer subject to amortisation or depreciation.

Impairment losses on initial classification as held for sale are recognised in profit or loss.

The Group checks on an annual basis whether the asset meets the requirement for being classified as held for sale. If the asset no longer meets these criteria, the Group reclassifies it back as an item of property, plant and equipment.

164 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 j. Inventories Inventories are initially recognised at cost comprising the purchase price inclusive of discounts granted, import duties and other non-refundable purchase duties, as well as costs directly attributable to the acquisition.

Inventories are accounted for using the weighted average price method.

Subsequently, inventories are measured at the lower of cost and their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. k. Trade receivables Trade receivables are recognised at amortised cost less any impairment losses. Upon initial recognition, receivables are recorded at amortised cost less impairments.

The Group forms allowances for receivables based on the creditworthiness of individual customers by means of an internally developed credit rating model, which is based on the combination of an external credit rating and the payment discipline of companies, as well as the payment history of individuals.

Receivables for which individual assessment of collectability was made by management are not taken into account while forming allowances for trade receivables.

Receivables for which allowances are formed are recorded as disputed receivables. l. Deferred costs and accrued income The item of deferrals and accruals includes deferred costs, accrued income for services rendered and goods supplied, accrued income and deferred costs in connection with international services, and short-term portion of sales incentives. An individual item of deferrals and accruals is transferred to profit or loss on a straight-line basis. Short-term deferred costs and accrued income are recorded among short-term discounts granted which are deferred in the anticipated period of subscription. m. Cash and cash equivalents Cash and cash equivalents include cash in hand and bank balances, short-term deposits with 3-month maturity, where the risk of fair value change is minimal. n. Dividends Dividends are recognised as a liability in the period in which they are declared during the General Meeting of Shareholders. o. Long-term deferred income Long-term deferred income comprises co-locations billed in advance and the lease of fibre optics network. Short-term deferred income from co-locations and leases is recognised among operating revenue over the contractually agreed term of lease or co-location.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 165 p. Provisions Provisions are recognised in the financial statements when the Group has a present legal or constructive obligation 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 amount of the obligation. If material, provisions are determined by discounting the expected future cash flows.

Group companies’ treatment of obligations with uncertain timing and amount depends on management’s estimation of the amount and timing of the obligation and the probability of an outflow of resources embodying economic benefits that will be required to settle the obligation, either legal or constructive.

Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the Group companies.

Management of each Group company assesses on a monthly basis contingent liabilities continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, provisions are recognized in the financial statements of the period in which the change in probability occurs.

Provisions are reduced directly by costs or expenses for covering the purpose for which they were created.

Provisions for probable liabilities from legal actions are formed on the basis of the estimate made by the relevant departments of the actions’ outcome. The formation of provisions is assessed by the Group individually in view of the amount of the legal action, its subject matter, the plaintiff’s assertions and the course of each individual procedure.

Provisions for retirement benefits and jubilee premiums In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay jubilee premiums and retirement benefits. Employee benefit liabilities are calculated by a certified actuary. Liabilities are formed in the amount of estimated future payments of retirement benefits and jubilee premiums discounted at the reporting date. A calculation is made per individual employees taking into account the cost of retirement benefits and the cost of all expected jubilee premiums by the time of retirement. At each year-end, the amount of provisions is assessed and either increased or decreased accordingly. Assumptions applied are disclosed in Note 27-Provisions.

Provisions for costs of removal of base stations Provisions are made for costs of the removal of base stations and the restoration of leased property to its original condition. Provisions are considered the best estimate for the removal of base stations and formed by applying the discount rate during the concession’s duration. The used discount rate is based on the long-term return rate of the risk-free securities. The cost analysis on the removal of base stations, which is compiled every three years, is used as basis for the estimate. At year-end, the amount of provisions is assessed to confirm the amounts.

Provisions for performance bonds issued are created if the amount can be reliably estimated based on service contracts. At year-end, the amount of provisions is assessed to determine if the provision is adequate and any necessary revisions are made accordingly.

q. Interest-bearing borrowings Interest-bearing borrowings are recognized initially at their fair value.

Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the period of the loans on an effective interest rate basis.

Interest-bearing borrowings are derecognised when all contractual obligations and liabilities are fulfilled, annulled or statute-barred.

166 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 r. Other financial liabilities The item of other financial liabilities includes liabilities arising on bonds and commercial papers. s. Trade and other payables Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other payables are stated at amortised cost. t. Short-term accrued costs and deferred income The item of short-term deferred income comprises deferred income from international services valued by turnover for which calculations were not yet confirmed, short-term portion of colocations, deferred income from sale of prepaid phone cards, deferred income from customer loyalty programme, and other deferred income from invoiced services and goods.

Accrued costs comprise costs of staff holidays not taken, accrued payroll costs, awards and costs of international services assessed on the basis of services rendered for which invoices have not yet been issued, and other costs. Differences between accrual and actual costs are included in profit or loss upon the receipt of invoices. If no invoice is received for the already accrued costs, the Group eliminates them upon the expiry of 3 years from accrual of costs. The latter does not apply in case of costs accounted for international services.

An individual litem of short-term deferred costs and accrued income are transferred within the income statement on a straight-line basis. u. Revenue The item of revenue includes the sales value of goods sold and services rendered in the accounting period. Revenue from services is recognised when services are rendered and there are no significant uncertainties regarding recovery of the consideration due. Revenue from sale of goods and material is recognised upon sale. Revenue is recognised in net amounts exclusive of value added tax, other taxes and through sale of related possible discounts.

Revenue relating to the mobile segment includes revenue from connection fees, subscriptions, messages, data transfer, roaming out and additional services (adequate service with added value, M-pay), and revenue from sale of mobile phones and additional equipment.

Revenue from sale of prepaid cards is deferred and recognised in the period when the customer uses its prepaid services. Should the customer fail make use of them (benefit), the revenue is recognised when the validity of an individual prepaid account expires.

The fixed-line segment comprises revenue from connection fees, subscriptions, conversations, and revenue from the sale of merchandise. Fixed-line services account for revenue from broadband services, classic fixed- line phone services and Centrex, fixed-line data services (services with added value) data communication, IT- services and goods, convergence services and goods, and revenue from other telecommunications services.

Connection fees on the mobile and fixed-line segment are recorded in the period, when the connection of the customer is completed. The subscriptions are accounted on a monthly basis. During sales promotions, when the customers are offered a discount on the monthly subscription (provided that contracts are concluded for a definite period), the remaining subscriptions are discounted throughout the entire subscription period. Revenue from services with added value is recorded and disclosed on the net basis in the amount of the contractual commission. Revenue from IT services and goods (e.g. system integrations, cloud computing, management of integrated IT solutions) is recorded in relation to the contractual relationship with the customer. In case of providing maintenance services, the revenue is charged on a monthly basis and deferred in the contract period. Revenue generated from the sale of licences or IT products is recognised in the period when the sale is made.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 167 Under the customer loyalty programme, customers are encouraged to buy goods and services. Once included into the loyalty programme (purchase of goods and services) customers are granted bonuses, which lowers revenue. Cash received through the customer loyalty programme can be cashed in form of discounts at purchasing goods and services. Cash is collected during the calendar year. The credit period lasts until 31 March of the next year. Balances are due upon this date and recognised as revenue.

Revenue from sales on the domestic market comprises broadband access, stream broadband access, network interconnection, lease of network, national tracking, and inter-operator services. Revenue from sales on international markets include primarily international operator services, and roaming of foreign users in our network.

Revenue from network interconnection are recognised on the basis of the estimated value in view of the traffic that was performed in the previous month. Differences between estimates and actual revenue arise mostly as a result of the tolerance allowed with data about traffic, and the price changes.T he tolerance allowed is different in individual contracts but can exceed mostly up to 2 % of the monthly amount. The said differences are included in profit or loss when the actual balance of revenue is established. Revenue is recognised on the gross basis, as the Group provides services by means of own network and equipment and contractually defined prices. Revenue is recognised in the period when the services are rendered.

Other revenue and other merchandise include revenue generated through rendering supporting services to subsidiaries, lease of business premises and equipment, tourism, other non-telecommunications services, sale of material and other merchandise.

The Group in all previously mentioned cases observes the policy of concurrent recognition of revenue and costs in the period when the service is rendered or goods supplied, regardless of when the payment was made.

v. Finance income and finance costs Interest income and expenses are recognised in the profit or loss as the interest accrues (using the effective interest rate method, i.e. the rate that directly discounts estimated future cash flows over the expected life of the financial instrument) to the net carrying amount of the financial instrument.

Dividend income from other companies is recognised in the income statement on the date that the right to receive dividends is established.

w. Income tax expense Income tax for the year comprises current and deferred tax.

Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive incomer or directly in equity

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustments to tax payable in respect of previous years.

Deferred tax is calculated using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised.

168 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Deferred tax is charged or credited directly to equity, if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.

Deferred tax is recognised by the Group for temporary differences between the carrying amount and fair value of assets of subsidiaries. x. Statement of cash flows The statement of cash flows is compiled using the indirect method based on data from the balance sheet as at 31 December 2014 and 31 December 2013, the income statement for the financial year 2014, and additional information necessary to make adjustments of cash inflows and outflows.

4. Segment reporting

Telekom Slovenije Group has four operating segments. Segment reporting disclosures comply with requirements of the management relating to reporting for internal users.

The criterion for segment reporting is the registered office where an activity is performed, namely: Slovenia, Macedonia, Kosovo and other countries. Thus, the Group reports on the following segments: Slovenia – encompasses companies with a registered office in Slovenia and activities in the areas of fixed and mobile telephony telecommunication services, the installation and maintenance of telecommunications network, the provision of multimedia and internet services, and digital content and television. This segment includes Telekom Slovenije, GVO, Avtenta, TSmedia and Soline. Macedonia – includes companies with a registered office in Macedonia, i.e. One and Digi Plus Multimedia. Activities in this segment include telecommunication services and the marketing of digital television services. Kosovo – includes Ipko, which provides telecommunication services in Kosovo. Other countries – comprises other Group companies, namely Blicnet, Siol Zagreb Siol Sarajevo, SIOL Podgorica, and GVO Telekommunication GmbH from Germany. The core activity of this segment is the provision of telecommunication services.

Segment reporting is based on the financial statements of the Telekom Slovenije Group. Sale transactions between individual segments are effected at market values. Intragroup transactions are eliminated in the consolidation procedure and included among eliminations and adjustments.

The Group does not disclose finance income and expenses per segments as the Group’s financing is centralised and conducted on the level of the parent company.

Disclosures on revenue from external sales relating to reach product and service or each group of similar products and services, is provided in Note 5 Revenue.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 169 Operating segments 2014

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment External sales 631,695 57,595 55,975 11,189 0 756,454 Intersegment 65,719 18,067 13,490 10,038 –107,314 0 sales Total segment 697,414 75,662 69,465 21,227 –107,314 756,454 revenue Other revenue 8,145 650 116 1,489 –1,958 8,442 Share in profit or loss of joint 0 0 0 4,058 0 4,058 ventures Cost of goods and –74,175 –2,787 –1,067 –115 5,024 –73,120 material sold Cost of material –19,034 –2,021 –1,812 –791 8,781 –14,877 Cost of services –308,581 –53,465 –35,061 –14,966 87,102 –324,971 Employee –130,416 –5,344 –5,271 –1,666 3,810 –138,887 benefits expense Amortisation and depreciation –127,196 –12,318 –19,015 –3,032 2,922 –158,639 expense Other operating –45,793 –2,058 –218 –547 1,568 –47,048 expenses Total operating –705,195 –77,993 –62,444 –21,117 109,207 –757,542 expenses Operating profit 364 –1,681 7,137 5,657 –65 11,412 per segment Finance income 17,104 Finance costs –20,495 Share of profit or loss in associates –5,395 and jointly controlled entities Profit before tax 2,626 Income tax –286 expense Deferred tax –746 Profit for the 1,594 period

170 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Other segment information at 31 Dec 2014

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment Segment assets 1,398,721 95,695 139,084 32,398 –322,477 1,343,421 Carrying amount 0 0 0 580 0 580 of goodwill Investments in associates and joint ventures by -5,395 0 0 410 0 –4,985 applying equity method Investments in 93,175 371 2,708 14 0 0 96,394 intangible assets Investments in property, plant 57,395 8,332 11,236 3,215 0 80,178 and equipment Segment liabilities 642,696 72,365 131,841 14,404 –211,786 649,520

Revenue per market in 2014

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment Revenue from the sale of products 466,076 53,105 55,121 10,960 0 585,262 and services in domestic market Revenue from the sale of goods 63,211 2,280 1,102 134 0 66,727 and material in domestic market Total sale in 529,287 55,385 56,223 11,094 0 651,989 domestic market Revenue from the sale of products 102,290 2,210 –248 18 0 104,270 and services in foreign market Revenue from the sale of goods and 118 0 0 77 0 195 material in foreign market Total sale in 102,408 2,210 –248 95 0 104,465 foreign market

Total revenue 631,695 57,595 55,975 11,189 0 756,454

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 171 Business segment in 2013 - adjusted

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment External sales 654,416 60,876 51,884 12,184 0 779,360 Intersegment 56,486 14,592 16,504 9,082 –96,664 0 sales Total segment 710,902 75,468 68,388 21,266 –96,664 779,360 revenue Other revenue 15,139 4,382 750 149 -601 19,819 Share in profit or loss of joint 0 0 0 5,097 0 5,097 ventures Cost of goods and –64,187 –2,992 –1,093 –74 1,542 –66,804 material sold Cost of material –20,096 –2,310 –1,729 –857 5,732 –19,260 Cost of services –301,991 –52,177 –32,668 –14,897 82,847 –318,886 Employee –132,379 –5,761 –5,259 –2,056 3,015 –142,440 benefits expense Amortisation and depreciation –137,117 –13,204 –17,924 –2,863 2,780 –168,328 expense Other operating –12,353 –2,229 –1,813 –971 348 –17,018 expenses Total operating –668,123 –78,673 –60,486 –21,718 96,264 –732,736 expenses Operating profit 57,918 1,177 8,652 4,794 –1,001 71,540 per segment Finance income 4,961 Finance costs –22,708 Share of profit or loss in associates –4,930 and jointly controlled entities Profit before tax 48,863 Income tax –143 expense Deferred tax 2,337 Profit for the 51,057 period

172 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Other segment information at 31 Dec 2013

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment Segment assets 1,441,192 98,418 142,027 37,232 –327,000 1,391,869 Impairment of –919 0 0 0 0 –919 segment assets Investments in associates and joint ventures by –4,930 0 0 1,656 0 –3,274 applying equity method Investments in 19,567 11,931 1,877 1,143 0 34,518 intangible assets Investments in property, plant 53,595 8,525 11,193 5,668 0 78,981 and equipment Segment liabilities 630,803 71,356 136,046 20,574 –225,492 633,287

Revenue per market in 2013

Elimination Other EUR thousand Slovenia Macedonia Kosovo and Consolidated countries adjustment Revenue from the sale of products 510,816 55,897 35,020 11,943 0 613,676 and services in domestic market Revenue from the sale of goods 53,595 2,621 566 171 0 56,953 and material in domestic market Total sale in 564,411 58,518 35,586 12,114 0 670,629 domestic market Revenue from the sale of products 89,815 2,358 16,298 70 0 108,541 and services in foreign market Revenue from the sale of goods and 190 0 0 0 0 190 material in foreign market Total sale in 90,005 2,358 16,298 70 0 108,731 foreign market Total revenue 654,416 60,876 51,884 12,184 0 779,360

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 173 5. Revenue

EUR thousand 2014 2013 Mobile services on end-customer market 316,436 326,900 Fixed-line telephone services on end-customer market 237,947 243,919 Wholesale market 180,938 182,397 Other revenue and other merchandise 21,134 26,144 Total revenue 756,454 779,360

The decline in revenue is mostly attributable to lower revenue generated through mobile services and prepaid cards, broadband services, fixed-line telephone services, data services and fixed-line merchandise. Other revenue and other merchandise include revenue from investment construction, maintenance and elimination of faults, sale of other merchandise and similar.

6. Other operating income

EUR thousand 2014 2013 Revenue from elimination of provisions 839 6,650 Government grants 2,196 2,616 Gains on disposal of property, plant and equipment 240 231 Other revaluation operating income 69 87 Other income 5,098 10,235 Total other operating income 8,442 19,819

The item of other income comprises primarily revenue from damages or compensations.

7. Cost of services

2013 EUR thousand 2014 adjusted Telecommunications services 127,514 125,043 Costs of leased lines 10,191 9,773 Multimedia services 28,552 27,893 Sales incentives 26,863 25,718 Sales commission 11,339 9,686 Maintenance of property, plant and equipment 30,732 32,168 Lease of property, plant and equipment 17,312 18,379 Cost of fairs, marketing, sponsorships and entertainment 21,365 23,901 Professional and personal services 12,221 12,288 Refund of work-related costs 1,053 1,331 Insurance premiums 4,269 4,071 Cost of postal services and transportation 4,012 4,222 Banking services 2,114 1,698 Other services 27,434 22,715 Total cost of services 324,971 318,886

Cost of telecommunication services include network interconnection, roaming and international services. These increased mostly due to a higher transit traffic, which results also in higher revenue. Significant items among the cost of other services include services rendered by sub-contractors, in addition to costs of collection, court fees and administrative charges.

174 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 8. Employee benefits expense

EUR thousand 2014 2013 Salaries and wage compensation 102,661 106,419 Social security contributions 22,260 22,913 - of which pension insurance contributions 13,760 14,051 Other employee benefits expense 15,011 13,873 Provisions for retirement benefits and jubilee premiums 5,992 2,484 Capitalised own products and services –7,037 –3,249 Total employee benefits expense 138,887 142,440

Increase in capitalised own products and services in 2014 is attributable to a systematic approach in defining contents that can be subject to capitalisation in compliance with provisions of IAS 38 Intangible assets. More details are provided in Note 13 Intangible assets and Note 14 Property, plant and equipment.

In 2014, the Telekom Slovenije Group employed in average 4,511 staff (2013: 4,655).

Group’s staff structure in terms of education

Average no. of staff Average no. of staff based on hours based on hours No. of staff in terms of 31 Dec Changes in 1 Jan 2014 worked and in worked and in required education 2014 2014 terms of education terms of education in 2014 in 2013 Level I 69 54 –15 62 62 Level II 73 67 –6 70 78 Level III 15 14 –1 15 15 Level IV 527 482 –45 505 534 Level V 1,453 1,356 –97 1,405 1,500 Level VI 855 887 32 871 845 Level VII 1,417 1,390 –27 1,404 1,447 Master‘s and PhD degree 177 181 4 179 174 Total 4,586 4,431 –155 4,511 4,655

9. Other operating expenses

2013 EUR thousand 2014 adjusted Provisions 35,644 -659 Loss on disposal of intangible assets and property, plant and equipment 708 466 Write-off of inventories 2,345 801 Impairment and write-off of receivables 5,473 10,609 Impairment of intangible assets and property, plant and equipment and investment 872 2,464 property Capitalised own products and services -1,251 -789 Other expenses 3,257 4,126 Total other operating expenses 47,048 17,018

In 2014, the expenses for provisions increased from creating provisions for probable liabilities for legal actions (Note 27). In 2014, the Group did not change the valuation approach used in forming allowances for receivables. The amount of allowances formed in 2013 was higher based on the individual assessment.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 175 10. Finance income and finance costs

2013 v tisoč EUR 2014 adjusted Income on dividends 108 140 Other income on interests 3,042 818 Interest income 2,419 3,191 Change in fair value of derivatives 314 804 Other finance income 11,221 8 Total finance income 17,104 4,961 Bonds issued 15,122 15,122 Commercial papers issued 1,100 0 Interest expense 2,306 2,446 Net exchange losses 28 962 Impairment of available-for-sale investments 204 1,335 Impairment and write-off of loans 222 2,041 Other finance costs 1,513 802 Total finance costs 20,495 22,708

Financial result –3,391 –17,747

Share of profit attributable to associates and jointly controlled entities –5,395 –4,930

Other income on interests has been generated through the disposal of companies MediaWorks and Gibtelecom Limited.

11. Income tax expense, deferred tax assets and deferred tax liabilities

2013 EUR thousand 2014 adjusted Current tax expense –286 –143 Deferred tax assets/liabilities 207 3,287 Other taxes not included in other items –953 –950 Income tax expense charged against profit or loss –1,032 2,194

Adjustment between the actual and accounted tax expenses by taking into account effective tax rates

2013 EUR thousand 2014 adjusted Profit or loss before tax 2,626 48,863 Income tax using the domestic corporate tax rate –446 –8,307 Tax-free dividends 262 597 Non-taxable profit from disposal of equity interest 228 0 Tax incentives used in the current period 2,357 4,357 Reversal of tax incentives used in previous periods –49 3,526 Change in the tax rate 0 2,807 Non-deductible expenses –2,406 –1,536 Other –978 750 Total income tax expense –1,032 2,194

Effective tax rate 39.30 % 0 %

176 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Deferred tax assets

Throught 2013 EUR thousand 2014 profit and adjusted loss Intangible Assets and property, plant and equipment 7,985 7,058 230 Investments 2,638 2,627 10 Trade receivables 5,601 5,469 133 Tax loss 5,395 5,342 54 Provisions 3,613 3,928 –314 Deferred tax assets 25,232 24,424 113

Deferred tax liabilities

Through Through compre- EUR thousand 2014 2013 profit or loss hensive income Intangible assets and property, plant and 1,488 1,582 94 0 equipment Investments 195 146 0 –49 Deferred tax liabilities 1,683 1,728 94 –49

12. Earnings per share

Earnings per share are calculated by dividing the profit attributable to holders of ordinary shares by the weighted average number of ordinary shares in issue during the year.

The weighted average of ordinary shares in issue during the year is calculated in respect of shares in issue during the period, taking into account any possible redemptions and sales in that period and the period during which these shares generated profit.

Adjusted earnings per share are not calculated, as the parent company has no adjustable potential ordinary shares outstanding.

EUR thousand 2014 2013 Profit attributable to holders of ordinary shares of the parent company 1,594 51,057 Weighted average number of ordinary shares for net earnings per share 6,505,478 6,505,478

Treasury shares were not included in the calculation of the weighted average number of shares.

Weighted number of ordinary shares

EUR thousand 2014 2013 Weighted average number of ordinary shares for net earnings per share 6,535,478 6,535,478 Less the company’s treasury shares –30,000 –30,000 Total 6,505,478 6,505,478

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 177 13. Intangible assets (IA)

Concessions and licences Concessions refer primarily to the use if the frequency spectrum GSM, UMTS and LTE for mobile telephony in the area of Republic of Slovenia and GSM in Kosovo in the total amount of EUR 89,376 thousand. Licenses that were related to Macedonia, were in respect to provisions of IFRS 5, transferred to ‘assets held for sale’. Other licences refer to the use of computer software.

As at 31 December 2014, the carrying amounts of licences obtained in Slovenia for UMTS amounted to EUR 27,938 thousand (2013: EUR 32,017 thousand), EUR 1,995 thousand for GSM (2013: EUR 3,837 thousand), and EUR 25,728 thousand for LTE. As for Kosovo, the carrying amount of GSM licences amounted to EUR 33,715 thousand (2013: EUR 38,420 thousand) as at the reporting date.

The Agency for communication network and services has issued the Company Telekom Slovenija a decision on 26 May 2014 regarding the use of the frequency spectrum 2 x 10 MHz in the 800 MHz band, 2 x 15 MHz in the 900 MHz band, 2 x 25 MHz in the 1800 MHz band, 2 x 35 MHz in the 2600 MHz band, and 1 x 25 MHz in the 2600 MHz TDD band. The Company started to use the respective frequencies (their validity expires on 31 May 2029) in 2014, whereby the other part of the spectrum in the amount of EUR 37,705 thousand (with their validity expiring on 4 January 2031) will be put to use in 2016 and is recorded among intangible assets under construction. The total licence allowance is recorded at EUR 64,540 thousand (Note 40).

Group companies have unlimited property rights on intangible assets, which are free of encumbrances.

178 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movements in intangible assets as at 31 December 2014

Conces- IA under EUR thousand Goodwill sion and Software Other IA construc- Other Total licences tion

Cost Balance at 1 Jan 2014 105,472 264,776 123,064 34,564 32,837 33 560,746 Translation to the pres- 0 63 1 2 45 0 111 entation currency Additions 0 10,867 202 136 80,825 0 92,030 Increase by internal 0 0 0 0 4,364 0 4,364 development Transfer to use 0 39,698 14,957 9,201 -63,856 0 0 Decrease 0 -3,861 -10,902 0 -84 0 -14,847 Write-offs 0 -21 -8 0 -73 0 -102 Transfer of companies‘ assets to assets held 0 -27,072 -631 -177 -42 0 -27,922 for sale Other transfers* 0 12 16 -2 -491 90 -375 Balance at 31 Dec 2014 105,472 284,462 126,699 43,724 53,525 123 614,005 Accumulated amortisation Balance at 1 Jan 2014 104,892 166,680 112,422 27,322 267 0 411,583 Translation to the pres- 0 10 0 1 0 0 11 entation currency Decrease 0 -3,721 -10,879 0 0 0 -14,600 Write-offs 0 -13 -8 0 0 0 -21 Transfer of companies‘ assets to assets held 0 -5,618 -327 -45 0 0 -5,990 for sale Other transfers* 0 158 0 1 0 0 159 Amortisation 0 21,731 12,688 903 0 4 35,326 Balance at 31 Dec 2014 104,892 179,227 113,896 28,182 267 4 426,468 Carrying amount Balance at 1 Jan 2014 580 98,096 10,642 7,242 32,570 33 149,163

Balance at 31 Dec 2014 580 105,235 12,803 15,542 53,258 119 187,537

* Other transfers comprise transfers between intangible assets and property, plant and equipment, transfers between groups of assets and transfers to inventories.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 179 Movements in intangible assets as at 31 December 2013

Conces- IA under EUR thousand Goodwill sion and Software Other IA construc- Other Total licences tion

Cost Balance at 1 Jan 2013 – 107,922 263,086 132,373 32,438 27,141 0 562,960 initially reported Impact of the changed 0 3,687 0 0 0 0 3,687 accounting policy Correction of error -107 0 0 3,382 0 0 3,275 Balance at 1 Jan 2013 - 107,815 266,773 132,373 35,820 27,141 0 569,922 adjusted Translation to the pres- 0 -224 -105 -38 0 0 -367 entation currency Additions 0 3,745 618 37 28,361 0 32,761 Increase through internal 0 0 0 0 1,757 0 1,757 development Transfer to use 0 10,703 9,863 3,856 -24,422 0 0 Write-offs -1,535 -1,069 -6,571 -242 0 0 -9,417 Decrease 0 -403 -736 0 0 0 -1,139 Other transfers* -808 -14,749 -12,378 -4,869 0 33 -32,771 Balance at 31 Dec 2013 - 105,472 264,776 123,064 34,564 32,837 33 560,746 adjusted Accumulated amortisation Balance at 1 Jan 2013 – 105,471 163,370 116,369 28,528 267 0 414,005 initially reported Impact of the changed 0 834 0 0 0 0 834 accounting policy Correction of error 0 0 0 420 0 0 420 Balance at 1 Jan 2013 - 105,471 164,204 116,369 28,948 267 0 415,259 adjusted Translation to the 0 -122 -96 -20 0 0 -238 presentation currency Write-offs -1,535 -985 -6,197 -243 0 0 -8,960 Decrease 0 -27 -38 0 0 0 -65 Impairment 956 0 0 0 0 0 956 Other transfers* 0 -14,754 -12,819 -2,470 0 0 -30,043 Amortisation 0 18,364 15,201 1,107 0 0 34,672 Balance at 31 Dec 2013 - 104,892 166,680 112,422 27,322 267 0 411,583 adjusted Carrying amount Balance at 1 Jan 2013 – 2,451 99,716 16,004 3,910 26,874 0 148,955 initially reported

Balance at 1 Jan 2013 - 2,344 102,569 16,004 6,872 26,874 0 154,663 adjusted

Balance at 31 Dec 2013 - 580 98,096 10,642 7,242 32,570 33 149,163 adjusted

* Other transfers comprise transfers between intangible assets and property, plant and equipment, transfers between groups of assets and transfers to inventories.

180 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 14. Property, plant and equipment (PPE)

Property, plant and equipment are disclosed at cost, except for land and buildings that are recorded at fair value.

Significant additions in property, plant and equipment refer in 2014 to the acquisition of properties and cable lines in amount EUR 12,081 thousand, to the construction and upgrade of the cable network in amount EUR 10,351 thousand, and to the acquisition of telecommunication and other equipment in amount EUR 50,862 thousand. Group companies have unlimited property rights on property, plant and equipment, which are free of encumbrances.

Movements in property, plant and equipment as at 31 December 2014

Equip- PPA Land, build- Switch- Other Cable ment for under EUR thousand ings, cables ing ex- equip- Other Total network mobile con- and lines changes ment telephony struction Cost Balance at 1 Jan 2014 425,005 941,410 274,834 698,713 490,756 46,279 38 2,877,035 Translation to the presentation 18 5 0 184 39 28 0 274 currency Increase by inter- 147 1,882 0 1,303 7,462 65,823 22 76,639 nal development Transfer from assets under 0 0 0 0 0 3,539 0 3,539 construction Decrease 12,081 10,351 2,973 23,691 24,198 -73,294 0 0 Write-offs -983 0 -872 -2,249 -11,890 -151 0 -16,145 Increase by inter- -118 0 -67 -2,771 -17,253 -41 0 -20,250 nal development Transfer of companies‘ assets to -4,658 -1,290 0 -57,530 -8,709 -6,194 0 -78,381 assets held for sale Other transfers* 882 -697 -2 -52 -11,907 12,128 59 411

Balance at 31 Dec 2014 432,374 951,661 276,866 661,289 472,696 48,117 119 2,843,122

Accumulated depreciation Balance at 1 Jan 2014 116,154 722,403 263,538 528,511 395,687 11,434 0 2,037,727 Translation to the presentation 7 0 0 67 8 0 0 82 currency Additions 354 0 0 165 47 0 0 566 Decrease -457 0 -841 -2,237 -10,455 0 0 -13,990 Write-offs -108 0 -66 -2,749 -17,102 0 0 -20,025 Impairment 0 0 0 0 9 0 0 9 Amortisation 16,377 26,355 3,381 42,564 34,593 0 0 123,270 Transfer of companies‘ assets to -2,349 0 0 -28,744 -4,413 0 0 -35,506 assets held for sale Other transfers* 21 2 -2 -11 -284 -44 0 -318 Balance at 31 Dec 2014 129,999 748,760 266,010 537,566 398,090 11,390 0 2,091,815 Carrying amount Balance at 1 Jan 2014 308,851 219,007 11,296 170,202 95,069 34,845 38 839,308

Balance at 31 Dec 2014 302,375 202,901 10,856 123,723 74,606 36,727 119 751,307

* Other transfers comprise transfers between intangible assets and property, plant and equipment, transfers between groups of assets and transfers to inventories.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 181 Movements in property, plant and equipment as at 31 December 2013

Equip- PPA Land, build- Switch- Other Cable ment for under EUR thousand ings, cables ing ex- equip- Other Total network mobile con- and lines changes ment telephony struction Cost Balance at 1 Jan 2013 – initially 425,578 928,659 277,172 767,827 495,928 56,587 702 2,952,453 reported Correction of error 0 0 0 0 -3,382 0 0 -3,382 Balance at 1 Jan 425,578 928,659 277,172 767,827 492,546 56,587 702 2,949,071 2013 -adjusted Translation to the presentation -103 -39 -42 -972 -181 -66 0 -1,403 currency Additions 142 1,799 7 2,254 12,211 61,563 3 77,979 Increase through internal 0 0 0 0 0 957 0 957 development

Transfer from assets under 6,374 17,400 2,248 23,180 24,055 -73,257 0 0 construction Write-offs -768 0 -295 -1,900 -6,978 -72 0 -10,013 Decrease -1,655 -2,453 -4,254 -1,778 -15,883 -63 0 -26,086 Other transfers* -4,563 -3,956 -2 -89,898 -15,014 630 -667 -113,470 Balance at 31 Dec 425,005 941,410 274,834 698,713 490,756 46,279 38 2,877,035 2013 - adjusted Accumulated depreciation Balance at 1 Jan 2013 – initially 108,190 696,961 262,812 574,235 394,988 11,434 0 2,048,620 reported Correction of error 0 0 0 0 -420 0 0 -420 Balance at 1 Jan 108,190 696,961 262,812 574,235 394,568 11,434 0 2,048,200 2013 -adjusted Translation to the presentation -77 -7 -23 -749 -152 0 0 -1,008 currency Additions 55 0 0 56 74 0 0 185 Write-offs -662 0 -295 -1,859 -6,953 0 0 -9,769 Decrease -152 -949 -4,168 -312 -11,442 0 0 -17,023 Impairment 0 0 0 -243 -220 0 0 -463 Depreciation 17,951 26,398 5,214 47,012 37,031 0 0 133,606 Other transfers* -9,151 0 -2 -89,629 -17,219 0 0 -116,001 Balance at 31 Dec 116,154 722,403 263,538 528,511 395,687 11,434 0 2,037,727 2013 - adjusted Carrying amount Balance at 1 Jan 2013 - initially 317,388 231,698 14,360 193,592 100,940 45,153 702 903,833 reported

Balance at 1 Jan 317,388 231,698 14,360 193,592 97,978 45,153 702 900,871 2013 -adjusted

Balance at 31 Dec 308,851 219,007 11,296 170,202 95,069 34,845 38 839,308 2013 - adjusted

* Other transfers comprise transfers between intangible assets and property, plant and equipment, transfers between groups of assets and transfers to inventories.

182 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Land and buildings were valued by a licensed appraiser to fair value as at 1 October 2012. The Slovenian real estate market is still recording a downward trend and properties’ price cutting but less than in 2012, when the properties were appraised. The fall in prices is the result of the ongoing crisis in the construction industry and the relatively low demand.

The licenced appraiser has as of 31 October 2014 checked the values of land and properties which were established on 1 October 2012. Given the comparable and available market prices, the appraiser has established that the value of properties as at 31 October 2014 still reflects the fair value of real properties.

As at 31 December 2014, the fair value of properties amounted to EUR 164,664 thousand (2013: EUR 167,287 thousand).

If the properties were measured at cost, the carrying amount would as at 31 December 2014 amount to EUR 160,687 thousand (2013: EUR 163,930 thousand).

The fair value measurement was for all properties categorised at Level 3.

15. Investments in joint ventures and associates

As at 17 November, the Group sold the 50 % equity interest in the company Gibtelecom Limited, which offers telecommunications services in Gibraltar and was as at that date excluded from the consolidated financial statements of the Telekom Slovenije. Profits are recognised only for the period from January to November 2014, when the Group still controlled the company. The purchase price for the 50 % equity interest amounted to EUR 47.7 million.

As at the end of 2014, the Telekom Slovenije Group recorded following investments in joint ventures and associates: - a 50 % equity interest in the company M-Pay, which is engaged in mobile payment services, other services and goods, - a 49 % equity interest in the associate Antenna TV SL, which manages the TV programme and is engaged in developing a commercial television in Slovenia, - a 36 % equity interest in the associate Setcce, which is engaged in the research and development-related activity in other areas of natural science and technology.

Companies are not listed at any of the public stock exchanges and are included in consolidated financial statements under the equity method.

31 Dec Profits and Dividends 31 Dec EUR thousand Increase Sale 2013 losses paid 2014 Gibtelecom 44,470 0 4,058 –3,648 –44,880 0 M-Pay 106 0 8 0 0 114 Antenna SL TV 0 5,414 –5,414 0 0 0 Setcce 0 2 11 0 0 13 Total 44,576 5,416 –1,337 –3,648 –44,880 127

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 183 A summary of financial information on investments in the associate Antenna TV SL is provided below. The financial information on the subsidiary M-Pay and the associate Setcce is not disclosed as it is deemed insignificant.

EUR thousand 2014 2013 Ownership share 49 % 49 % Non-current assets 1,675 2,480 Current assets 10,495 7,556 Total assets 12,170 10,036 Non-current liabilities 17,314 9,100 Current liabilities 9,481 7,013 Total liabilities 26,795 16,113 Total net assets –14,625 –6,077 Revenue 7,465 4,203 Costs/expenses –17,863 –14,092 Finance income 255 28 Finance costs –905 –212 Taxes 0 0 Net loss –11,048 –10,073 Other comprehensive income for the period per taxes –11,048 –10,073 Group‘s shares in loss –5,414 –4,936

16. Other investments

2013 EUR thousand 2014 adjusted Investments in other shares and interests 3,224 3,141 Total available-for-sale investments 3,224 3,141 Loans to companies 9,478 5,967 Loans to employees 738 1,060 Total loans given 10,216 7,027 Total other investments 13,440 10,168

All investments in shares and interests are classified as available-for-sale investments. Of the total amount of EUR 3,224 thousand, EUR 1,466 thousand (2013: EUR 1,177 thousand) relates to financial assets quoted on the stock market, which are recognized at fair value.

Other equity securities that are not listed are recognised at cost, since the Group cannot obtain information in order to evaluate the fair value. Group determines on an annual basis whether indication on impairment of these investments exists.

In 2014, the Group impaired investments in shares and interests in the amount of EUR 204 thousand.

As at 31 December 2014, the Group has written off investments in Banka Celje, which were fully impaired in 2013 in the amount of EUR 143 thousand. In 2014 the shares of Banka Celje were deleted from the register of securities pursuant to decisions of the Bank of Slovenia.

Investments are not pledged as collateral and are free of encumbrances.

184 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Loans given

2013 EUR thousand 2014 adjusted Non-current loans 10,216 7,027 Loans given 9,478 5,967 Loans to employees 738 1,060 Current loans 925 1,953 Portion of non-current loan that is due within 12 months – loans given 679 688 Portion of non-current loan that is due within 12 months – loans to employees 205 212 Current loans and interest 41 1,053 Balance of loans given 11,141 8,980

The interest rate applied for loans extended ranges between 1.31 % and 4.23 %, whereas the interest rate applied for housing loans extended to employees ranges between 3.00 % and 6.23 %.

Apart from housing loans extended to employees, the loans are secured with blank bills, suretyships, by assignment of existing and future receivables or pledged with rights on real properties. The Group may demand a new collateral if it assesses that a certain loan is no longer sufficiently or properly secured.

Maturity of loans

2013 EUR thousand 2014 adjusted - up to 3 months 322 1,298 - 3 to 12 months 603 655 - 1 to 5 years 9,968 6,759 - more than 5 years 247 268 Total 11,141 8,980

Aging structure of loans as at 31 December 2014

Past due Less than 3 3 to 12 More than EUR thousand Undue 1 to 5 years Total months months 5 years Loans given 11,054 53 34 0 0 11,141

Aging structure of loans as at 31 December 2013

Past due Less than 3 3 to 12 More than EUR thousand Undue 1 to 5 years Total months months 5 years Loans given 8,889 46 6 39 0 8,980

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 185 17. Other non-current assets

EUR thousand 2014 2013 Prepaid rentals 10,230 11,077 Deferred costs of sales incentives 2,898 3,156 Non-current trade receivables 1,499 2,964 Other long-term deferred costs 13,400 10,250 Total other non-current assets 28,027 27,447

Prepaid rentals include primarily leases of premises and land for setting up base stations, and lease of optical fibres.

Other non-current trade receivables include also the sale of subsidised goods (on instalment terms).

Other non-current trade receivables are exclusive of receivables which were as at the balance sheet date subject to value adjustments in their the current portion within the item ‘trade and other receivables’.

Movement in non-current assets exclusive of non-current trade receivables and long-term deferred costs

Sales EUR thousand Rentals incentives Balance at 1 January 2013 10,345 4,692 Additions 2,260 16,790 Transfer to costs –1,528 –18,326 Balance at 31 December 2013 11,077 3,156 Additions 580 18,186 Transfer to costs –1,427 –18,444 Balance at 31 December 2014 10,230 2,898

18. Investment property Movements in investment property in 2014

EUR thousand Land Buildings Total Cost Balance at 1 January 2014 3,602 861 4,463 Additions 0 0 0 Balance at 31 Dec 2014 3,602 861 4,463 Accumulated depreciation Balance at 1 Jan 2014 0 344 344 Depreciation 0 43 43 Balance at 31 Dec 2014 0 387 387 Carrying amount Balance at 1 Jan 2014 3,602 517 4,119

Balance at 31 Dec 2014 3,602 474 4,076

186 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movements in investment property in 2013

EUR thousand Land Buildings Total Cost Balance at 1 Jan 2013 4,563 2,371 6,934 Additions 0 0 0 Decrease 0 –1,510 –1,510 Balance at 31 Dec 2013 4,563 861 5,424 Accumulated depreciation Balance at 1 Jan 2013 0 556 556 Decrease 0 –262 –262 Impairment 961 0 961 Depreciation 0 50 50 Balance at 31 Dec 2013 961 344 1,305 Carrying amount Balance at 1 Jan 2013 4,563 1,815 6,378

Balance at 31 Dec 2013 3,602 517 4,119

Investment property refers to land and buildings in Sečovlje.

Investment properties are carried at cost but in 2013, the Group started to apply for real properties in Sečovlje the fair (market) value.

The valuation of investment property was carried out on 12 July 2013 and 23 August 2013 by a certified appraiser, who is also a construction expert. Given the purpose and valuation method, the established value is defined as the market value. As at the year-end, the Group assessed whether there is any indication of impairment and has upon completing the procedures established otherwise.

The fair value measurement of investment property was categorised at Level 3.

Revenue generated on the lease of investment property in 2014 is recognised in profit or loss in the amount of EUR 10 thousand (2013: EUR 35 thousand). Expenses relating to investment property are recognised in the income statement in the amount of EUR 90 thousand under ‘cost of services’, ‘maintenance of property, plant and equipment’ and under ‘other costs of services’ (Note 7), and within the item ‘other expenses’ (Note 9) under operating expenses.

19. Assets and liabilities held for sale

Assets held for sale primarily include land and buildings that Group companies will no longer use for business purposes and that are to be sold in the next 12 months according to decisions adopted by companies’ management boards.

Upon their reclassification, assets held for sale are transferred to current assets at an amount equal to the lower of their carrying amount or fair value, less costs of sale. Prior to their transfer, the fair value of assets is assessed by a certified appraiser. As at 31 December 2014, the value of transferred assets amounted to EUR 4,485 thousand. The Group is conducting sales activities on a regular basis.

The sale of equity interest of two subsidiaries i.e. One and Digi Plus Multimedia are planned for the next year by the Group. As at 31 December 2014, assets and liabilities of these two companies were at their carrying amount reclassified to assets and liabilities held for sale.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 187 Assets and liabilities held for sale amounted as at 31 December 2014 as follows:

EUR thousand Intangible assets and property, plant and equipment 69,292 Other non-current assets 19 Inventories 2,257 Trade and other receivables 21,991 Cash and cash equivalents 1,779 Assets held for sale 95,338 Provisions 187 Trade and other payables 19,138 Other non-current financial liabilities 3,267 Liabilities held for sale 22,592

Due to reclassifying assets, the Group recognised in 2014 an impairment loss in the amount of EUR 357 thousand as the difference between the carrying amount and fair value of land and buildings. Impairment loss is recognised in the income statement under the item ‘other operating expenses’, within ‘impairment of intangible assets and property, plant and equipment’ (Note 9).

20. Inventories In 2014, inventories were measured at realisable value, whereas their write-off was recognised among other operating expenses. In 2014, EUR 2,273 thousand (2013: EUR 801 thousand) of inventories were written off. EUR 1,006 thousand of material (2013: EUR 468 thousand) and EUR 324 thousand of merchandise (2013: EUR 383 thousand) were valued at realisable value. Other inventories are valued at original cost, since no write-offs were required to be made.

EUR thousand 2014 2013 Material 8,173 7,003 Products 417 708 Merchandise 21,238 16,147 Advances for inventories 9 18 Total inventories 29,837 23,876

Inventories of merchandise increased as a result of higher inventories of fixed-line merchandise and smart phones.

188 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 21. Trade and other receivables

2013 2014 adjusted

EUR thousand Gross value Allowances Net value Net value

Operating receivables 143,802 –29,097 114,705 114,165 Receivables due from foreign operators 17,225 –783 16,442 16,045 Receivables due from domestic operators 20,209 –9,117 11,092 15,641 Total trade receivables 181,236 –38,997 142,239 145,851 Advances and securities 1,663 0 1,663 981 VAT and other tax receivables 6,389 0 6,389 7,547 Other receivables 604 –7 597 1,235 Total other receivables 8,656 –7 8,649 9,763 Total trade and other receivables 189,892 –39,004 150,888 155,614

Other trade receivables include advance payments, securities and VAT receivables. As a rule, these receivables are not subject to assessment in order to establish whether allowances should be formed.

Trade receivables are non-interest bearing.

Movement of allowances for receivables

EUR thousand 2014 2013 Balance at 1 January –59,164 –56,639 Allowances –14,957 –17,996 Reversal of allowances 30,355 13,564 Write-off 4,796 1,630 Exchange differences –34 277 Balance at 31 December –39,004 –59,164

The method of forming allowances for receivables has not changed with respect to the previous year. In 2013, allowances were formed in a higher amount based on an individual assessment.

Trade receivables and related allowances referring to the companies One and Digi Plus Multimedia are disclosed among ‘assets held for sale’.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 189 Age analysis of receivables as at 31 December 2014

2014 2013 adjusted

Gross Gross EUR thousand Allowance Net value Allowance Net value value value Total trade receivables 181,236 –38,997 142,239 204,962 –59,111 145,851 Undue trade receivables 118,912 –397 118,515 118,385 –5 118,380 Past due up to 30 days 14,242 –136 14,106 14,510 –150 14,360 31 to 60 days 5,970 –90 5,880 6,358 –184 6,174 61 to 90 days 1,322 –98 1,224 2,377 –58 2,319 91 to 120 days 1,195 –663 532 2,185 –944 1,241 More than 121 days 39,595 –37,613 1,982 61,147 –57,770 3,377 Total past due trade 62,324 –38,600 23,724 86,577 –59,106 27,471 receivables Other operating receivables 8,656 –7 8,649 9,816 –53 9,763 Total receivables 189,892 –39,004 150,888 214,778 –59,164 155,614

22. Short-term deferred costs and accrued income

EUR thousand 2014 2013 Deferred costs 10,957 10,406 Accrued income for services rendered and goods supplied (not yet invoiced) 3,135 1,058 Accrued income and deferred costs – international services 5,323 6,706 Current portion of sales incentives 12,846 19,864 Current portion of sales commissions 0 244 Other 60 0 Total short-term deferred costs and accrued income 32,321 38,278

23. Current financial assets

2013 EUR thousand 2014 adjusted Other current loans 925 1,953 Bank deposits 395 8,613 Total current financial assets 1,320 10,566

The lowest interest rate applied with deposits in 2014 was 0.05 % p.a., whereby the highest was 0.85 % p.a. The average interest rate in 2014 was 0.15 % p.a.

Maturity of current loans and other accompanying information is outlined in Note 16.

190 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 24. Cash and cash equivalents

EUR thousand 2014 2013 Cash in hand and bank balances 23,436 57,923 Bank deposits with a maturity of up to three months 466 1,311 Total cash and cash equivalents 23,902 59,234

Bank balances bear interest at bank rates for positive cash balances, while over-night deposits bear interest at contractually agreed rates.

Short-term deposits are made for varying periods of between one to three months. Deposits bear interest at the respective short-term deposit rates.

Credit lines are outlined in Note 29 Interest-bearing borrowings.

25. Equity and reserves

31 December 31 December EUR thousand 2014 2013 adjusted Called-up capital 272,721 272,721 Capital surplus 168,927 168,927 Revenue reserves 217,042 263,609 Legal reserves 50,434 50,434 Treasury share reserve 3,671 3,671 Treasury shares and interests -3,671 -3,671 Statutory reserves 54,544 54,544 Other revenue reserves 112,064 158,631 Retained earnings or losses 65,055 65,160 Retained earnings or losses from previous periods 47,129 25,897 Profit or loss for the period 17,926 39,263 Revaluation surplus 7,199 9,547 Revaluation surplus on property, plant and equipment 7,264 7,721 Revaluation surplus on financial instruments 954 714 Revaluation surplus on actuarial deficits and surpluses -1,019 1,112 Total equity and reserves 730,944 779,964

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 191 Called-up capital Authorised, issued and fully paid-up capital amounts to EUR 272,721 thousand and is divided into 6,535,478 ordinary no-par value shares.

Ownership structure

31 Dec 2014 31 Dec 2013 Shareholder No. of shares Share (%) No. of shares Share (%) Republic of Slovenia 4,087,569 62.54 4,087,569 62.54 Individual shareholders 762,295 11.66 732,594 11.21 Domestic corporations 548,930 8.40 579,434 8.87 Kapitalska družba, d. d. 365,175 5.59 365,175 5.59 Foreign corporations 263,794 4.04 322,296 4.93 Slovenski državni holding, d.d. (SDH)* 277,839 4.25 277,839 4.25 Banks 56,656 0.87 60,208 0.92 Mutual and other funds 99,738 1.53 56,897 0.87 Treasury shares 30,000 0.46 30,000 0.46 Insurance companies 35,306 0.54 10,970 0.17 Brokerage houses 6,646 0.10 8,046 0.12 Investment agencies and management fund 1,530 0.02 4,450 0.07 companies Total 6,535,478 100.00 6,535,478 100.00

* Formerly: Slovenska odškodninska družba, d.d.

The balances and changes in equity are illustrated in the Statement of Changes in Equity. The number of issued shares did not change in the reporting period.

Capital surplus Capital surplus includes the surplus paid-up arising from ownership transformation in previous years (EUR 130,118 thousand) and the transfer of the non-taxable part of revaluation reserves for property, plant and equipment in the total amount of EUR 39,431 thousand. The movement of capital surplus is outlined within the statement of changes in equity. The capital surplus can be used for purposes specified in the applicable legislation and are not distributable.

Revenue reserves The Group discloses revenue reserves as stated below.

Legal reserves are formed so that together with capital surplus they account for 20 % of share capital.

Treasury share reserve is formed in the amount paid for these shares. These reserves are not distributable. The Group has not acquired any new treasury shares.

As at 31 December 2014, the parent company recorded 30,000 treasury shares representing 0.46 % of equity and totalling to EUR 3,671 thousand. The number of treasury shares has not changed since their acquisition in 2003. The Group may acquire treasury shares for purposes as defined by the relevant law.

Statutory reserves are used for forming the treasury share reserve, for covering losses, for share capital increases, and for covering diverse operating and other risks. Group companies form statutory reserves until their amount reaches 20 % of share capital of individual company. These shares are not distributable.

192 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 While compiling the Annual Report, the Group can form other revenue reserves up to 50 % of the profit for the year, less amounts used for statutory or legal reserves. Other revenue reserves can be used for any purpose in accordance with the law, the Company’s Act and Articles of Association, business policy and resolutions adopted by the General Meeting of Shareholders.

Retained earnings or losses Retained earnings include retained earnings from previous periods and profit for the period. Based on the decision adopted by the General Meeting of Shareholders on 30 May 2014, the accumulated profit for 2013 in the amount of EUR 65,055 thousand is used for dividend pay-out i.e. EUR 10.00 per share (in 2013, dividends for the fiscal year 2012 were paid out in the amount of EUR 78,065 thousand or EUR 12.00 per share).

Proposed dividend pay-out for 2014 Amount of dividend paid: EUR 65,054,780.00 Dividend per ordinary share: EUR 10.00

Revaluation surplus on property, plant and equipment

Change in revaluation surplus for fair value of property, plant and equipment

EUR thousand 2014 2013 Balance at 1 Jan 7,722 8,359 Transfer to retained earnings –458 –440 Change of tax rate 0 –197 Balance at 31 Dec 7,264 7,722

A decrease of EUR 197 thousand in 2013 relates to the calculation of deferred tax liability as a result of the higher tax rate from 15 % to 17 %.

Revaluation surplus on financial instruments Revaluation surplus on financial instruments includes changes in the fair value of available-for-sale investments.

Change in revaluation surplus for fair value of available-for-sale investments

EUR thousand 2014 2013 Balance at 1 Jan 714 611 Revaluation of available-for-sale financial assets (value increase) 289 141 Deferred taxes (liabilities) –49 –24 Change of tax rate 0 –14 Balance at 31 Dec 954 714

Revaluation surplus on actuarial deficits and surpluses Actuarial surplus or deficit refers to changes in the present value of payables to employees due to changed actuarial assumptions and on the basis experience-based adjustments. As at the reporting date, revaluation surplus declined by EUR 2,280 thousand and as at 31 December 2014 amounted to EUR –1,152 thousand (2013: EUR 1,128 thousand).

Translation reserve The translation reserve arises from foreign currency differences arising upon consolidation of financial statements of subsidiaries. In 2014, the translation reserve increased by EUR 270 thousand and as at the year- end amounted to EUR –1,228 thousand (2013: EUR –1,498 thousand).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 193 26. Long-term deferred income

EUR thousand 2014 2013 Co-location billed in advance 7,227 5,590 Government grants and PPE obtained free of charge 1,885 1,870 Other long-term deferred income 2,433 2,340 Total long-term deferred income 11,545 9,800

Co-location relates to payments received in advance for renting certain premises and equipment to other operators. The increase is attributable to conclusion of new contracts.

27. Provisions

Movement of provisions in 2014

Change in Exchange EUR thousand 2013 Use Elimination Formation discount differ- 2014 rate ences Provisions for probable payments resulting 22,969 –5,409 –990 38,701 0 5 55,276 from legal actions Provisions for retirement benefits and 9,548 –279 –1,370 2,347 715 0 10,961 jubilee premiums Provisions for estimated costs of 3,030 –28 –3 33 0 0 3,032 base stations removal Other provisions 1,826 –462 –36 402 0 0 1,730

Provisions 3,048 –3,048 0 7,300 0 0 7,300 for restructuring

Total provisions 40,421 –9,226 –2,399 48,783 715 5 78,299

Movement of provisions in 2013

Change in Exchange EUR thousand 2012 Use Elimination Formation discount differ- 2013 rate ences Provisions for probable payments resulting 28,084 –861 –4,273 70 0 –51 22,969 from legal actions Provisions for retirement benefits and 9,369 –220 –675 635 439 0 9,548 jubilee premiums Provisions for estimated costs of 3,750 –100 –959 30 309 0 3,030 base stations removal Other provisions 2,658 –1,130 –64 362 0 0 1,826

Provisions 1,845 –797 0 2,000 0 0 3,048 for restructuring

Total 45,706 –3,108 –5,971 3,097 748 –51 40,421

194 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Provisions for probable payments resulting from legal actions Provisions for probable payments resulting from legal actions are created on the basis of the estimated outcome of the actions. The date of payment cannot be determined. The relevant actions refer primarily for claims due to the alleged abuse of holding a monopoly of markets, where Telekom Slovenije conducts business operations. In addition, the Competition Protection Office of the Republic of Slovenia began several ex officio processes in previous years to determine an alleged abuse of Telekom Slovenije’s dominant position on the market. Actions in relation to which provisions were formed are at various stages. The Group was primarily successful in cases that finally concluded up to this date, which is also published in accordance with the Stock Exchange’s rules.

The Group utilised in 2014 provisions in the amount of EUR 5,409 thousand in connection with the legal action filed by the companyA BM against Telekom Slovenije, and the lawsuit filed by the companyAE C Macedonia against the company ONE.

In 2014, total damages claimed by pending legal actions brought against Telekom Slovenije Group companies amount to EUR 298,774 thousand (2013: EUR 585,360 thousand). The amount is exclusive of possible amounts claimed by the Competition Protection Office (AVK), which may amount from 0.5 % to 10 % of annual revenue.

Provisions for retirement benefits and jubilee premiums Provisions for retirement benefits upon retirement are based on actuarial calculations. The calculations applied the discount rate of 2.25 %, whereas the rate of fluctuation takes account of the age interval ranging from 0 % to 3.5 % (2013: discount rate of 4.10 %, rate of fluctuation ranging from 0 % to 3.5 %). Company’s liabilities equal the present value of estimated future payments. Liabilities recorded by individual Group companies equal their present value of estimated future payments. The Group records no other retirement-related liabilities.

Provisions for estimated costs of the removal of base stations Provisions were formed in the amount of the estimated cost of removal discounted to present value by using the discount rate of 2.25 % p.a. (2013: 4.10 % p.a.) which equals the 2014 year-end yield on 15-year gilt-edged bonds from euro area issuers, increased by a local risk premium.

Provisions for restructuring activities Pursuant to the business plan, the Group created provisions in the amount of EUR 7,300 thousand for restructuring activities that shall be used for severance pay. The relevant provisions will be utilised in 2015 and 2016.

28. Non-current operating liabilities

2013 EUR thousand 2014 adjusted Contractual liabilities under program rights 7,487 2,434 Other 176 1,001 Total non-current operating liabilities 7,663 3,435

Contractual liabilities grew in 2014 as a result of newly recognised contracts for TV contents.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 195 29. Interest-bearing borrowings

This note provides information about the contractual terms of the Group’s interest-bearing borrowings. For more information relating to interest rate and foreign currency risk management refer to Note 39 – Financial risk management.

EUR thousand 2014 2013 Long-term borrowings Borrowings from banks 59,525 92,473 - current portion of long-term borrowings –23,698 –32,887 - long-term portion of borrowings 35,827 59,586 Total long-term portion 35,827 59,586 Short-term borrowings Borrowings from banks 62 62 Current maturity of long-term borrowings 23,698 32,887 Interest 5 63 Total short-term portion 23,765 33,012

The Group records short-term and long-term credit lines or revolving loans, which are secured by blank bills of exchange. Short-term and long-term credit lines or revolving loans mature in 2015 and are subject to a variable interest rate and a premium ranging from 2.05 % to 4.10 %. In addition, the Group concluded agreements with banks on bank-account overdrafts subject to an interest rate of between 6.00 % and 6.65 %.

Contractual terms agreed on borrowings

Long-term Short-term Agreed interest Last payment EUR thousand portion portion Collateral rate due 31 Dec 2014 31 Dec 2014 6mEURIBOR bank 2017 –0.025 % guarantee 3mEURIBOR Non-current 2017 none financial +0.083 % 35,827 23,698 liabilities to 3mEURIBOR bank 2017 banks –0.018 % guarantee 3mEURIBOR 2017 none +0.105 % Current blank bills of 6mEURIBOR liabilities to 62 exchange + +3.75 % banks guarantee

Borrowings from banks denominated in euro apply variable interest rates or fixed interest rate. Banks that have approved non-current loans require that certain debt covenants specified in loan agreements be maintained, including: consolidated total debt, consolidated net tangible worth, EBITDA, consolidated total debt/EBITDA. Failure to achieve these covenants may result in a demand for early repayment of these borrowings. As at 31 December 2014, the Group complied with all of its debt covenants.

In accordance with provisions of two foreign loan contracts, the related liabilities must be secured with guarantees of a bank or other financial institutions.

196 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 30. Other non-current financial liabilities

EUR thousand 2014 2013 Bonds issued 299,471 298,899 Other financial liabilities 10,118 18,225 Total other non-current financial liabilities 309,589 317,124

In December 2009, Telekom Slovenije issued bonds in the nominal amount of EUR 300,000 thousand. The bonds bear interest at a rate of 4.875 % and mature in December 2016. They are measured using the amortised cost method, applying an effective interest rate of 5.047 %.

31. Trade and other payables

2013 EUR thousand 2014 adjusted Trade payables 83,404 86,390 Payables to domestic operators 2,402 6,417 Payables to foreign operators 8,180 8,437 VAT and other tax payables 8,248 6,848 Payables to employees 10,250 8,829 Payables for advances and securities 779 1,051 Other payables 6,966 8,277 Total trade and other payables 120,229 126,249

Trade payables are non-interest bearing and are generally settled from between 8 and 120 days. Payables to operators are non-interest bearing and are normally settled from between 10 and 90 days.

32. Other current financial liabilities

EUR thousand 2014 2013 Bonds issued –131 –131 Interest-rate swaps 0 314 Finance lease 34 181 Commercial papers issued 45 0 Other financial liabilities 150 1,521 Total other current financial liabilities 98 1,885

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 197 33. Short-term deferred income

2013 EUR thousand 2014 adjusted Deferred income from the sale of prepaid cards 5,599 5,332 Subscriptions billed in advance and short-term co-locations 1,927 3,386 Current portion of government grants for property, plant and equipment 135 125 Other deferred income 3,217 1,951 Total short-term deferred income 10,878 10,794

34. Accrued costs and expenses

2013 EUR thousand 2014 adjusted Accrued costs and expenses for services rendered and goods supplied 14,452 13,318 Accrued costs and deferred income – international services 6,694 9,551 Accrued wages and bonuses 595 172 Accrued costs for unused vacation days 4,675 5,247 Other 775 925 Total accrued costs and expenses 27,191 29,213

35. Carrying amounts and fair values

Carrying amounts and fair values at 31 December 2014

Carrying EUR thousand Fair value Level 1 Level 2 Level 3 amount Land and buildings 164,664 164,664 164,664 Investment property 4,076 4,076 4,076

Available-for-sale financial assets 3,224 3,224 1,466

Loans given 10,216 10,216 10,216 Other non-current assets 28,027 28,027 Current financial assets Loans given 925 925 925 Bank deposits 395 395 Cash, cash equivalents and 23,971 23,971 income tax receivables Operating receivables 150,888 150,888 Non-current financial liabilities Bonds 299,471 315,150 315,150 Interest-bearing borrowings 35,827 35,827 35,827 Other financial liabilities 10,118 10,118 Current financial liabilities Bonds –131 –131 Interest-bearing borrowings 23,765 23,765 23,765 Other financial liabilities 229 229 Trade payables 120,229 120,229

198 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Carrying amounts and fair values at 31 December 2013 – adjusted

Carrying EUR thousand Fair value Level 1 Level 2 Level 3 amount Land and buildings 167,287 167,287 167,287 Investment property 4,119 4,119 4,119

Available-for-sale financial assets 3,141 3,141 1,177

Loans given 7,027 7,027 7,027

Other non-current assets 27,447 27,447

Current financial assets Loans given 1,953 1,953 1,953 Bank deposits 8,613 8,613 Cash, cash equivalents and 59,852 59,852 income tax receivables Operating receivables 155,614 155,614 Non-current financial liabilities Bonds 298,899 315,150 315,150 Interest-bearing borrowings 59,586 59,586 59,586 Other financial liabilities 18,225 18,225 Current financial liabilities Bonds –131 –131 Interest-bearing borrowings 33,012 33,012 33,012 Other financial liabilities 2,016 2,016 Trade payables 126,249 126,249

Fair value hierarchy

In the recognition and disclosure of the fair value of financial instruments using the assessed value model, we applied the following hierarchy: 1. Level 1: determination of fair value directly by referencing the official published price on an active market; 2. Level 2: other models used to determine fair value based on assumptions and significant impact on fair value in line with observed current market transactions with the same instruments either directly or indirectly; and 3. Level 3: other models used to determine fair value based on assumptions and significant impact on fair value that are not in line with observed current market transactions with the same instruments and investments recognised at cost.

Fair value of securities that are valued at cost in the total amount of EUR 1,758 thousand (2013: EUR 1,964 thousand) is not established relevant information in not available; however, the Group does assess on an annual basis whether there is indication of impairment. Consequently, these securities were not included in the fair value categorisation.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 199 36. Commitments and contingencies

Liabilities and receivables under the finance lease

Group companies as the lessee Liabilities from operating leases include property, plant and equipment and primarily relate to leased lines, business premises leases and base stations leases.

Lease payments for cable lines abroad are formed with respect to the demand and offer and by taking account of framework fees that apply for domestic operators. Inter-operator leases in Slovenia are defined by published price lists. Long-term leases are subject to conclusion of contracts with a fixed-term period of maximum 15 years.

Lease payments for business premises and base stations are defined on the basis of the lessor’s price list. Lease contracts are concluded for an indefinite period of time or for 15 years with the possibility of prolongation if negotiated so by parties. In case of significant lease contracts, where the leased objects could be sold, same terms and conditions for purchase apply for the Group as lessee.

Non-cancellable operating leases are payable as follows:

Payables in (EUR thousand) 2014 2013 - 1 year 18,136 19,332 - 1 to including 5 years 63,393 71,646 - more than 5 years 70,316 80,557

In 2014, the Group recorded in the income statement EUR 22,199 thousand (2013: EUR 22,859 thousand) of lease costs from operating lease contracts.

Group companies as the lessors Receivables from operating leases relate to the lease of property, plant and equipment. They refer primarily to co-locations, lease of business premises and base stations. For the purpose of determining possible lease payments, sample contracts are provided for regular services whereby commercial tariffs are applied for unconventional services.

Payables in (EUR thousand) 2014 2013 - 1 year 15,050 3,353 - 1 to including 5 years 18,813 13,412 - more than 5 years 37,625 16,766

For the purpose of determining possible lease payments, sample contracts are provided for regular services whereby commercial tariffs are applied for unconventional services. Lease contracts for joint use of premises, co-locations and base stations are concluded for an indefinite period of time.

As at 31 December 2014, total income from operating leases recognised in the income statement amounted to EUR 3,763 thousand (2013: EUR 2,535 thousand).

Contingencies from legal actions EUR thousand 2014 2013 Contingencies from legal actions 298,774 585,360

200 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 At the 31 December 2014, the Group recorded 90 pending legal actions brought against it, whereby in case of the biggest in terms of value, no development was reported (apart from the Simobil’s legal action that was withdrawn). The relevant cases are at various stages, namely: - a procedure in the first instance is in progress and both parties are filing their case, - the main hearing was fixed and the taking evidence is in progress, - a case is concluded in the first instance with a judgement issued, which is not final yet, or - a decision was issued in the second instance and the judgement was final but a revision was filed as extraordinary appeal.

As of 29 December 2014, the Company concluded with Simobil d.d. an Agreement on settling mutual relations in which they have settled open matters and defined the terms and conditions for future business cooperation. On 22 January 2015, the company Simobil d.d. has withdrawn its legal action at the District Court in Ljubljana in the amount of EUR 286,392 thousand and other charges; the competent court halted the said legal action on the basis of the decision dated 26 January 2015.

Based on the opinions of legal advisors, the management boards of Group companies expect the liabilities from the said legal actions to amount to EUR 55,276 thousand (refer to Note 27). Given the proceedings’ progress, it is difficult to provide an estimate of the completion of individual matter.

Guarantees provided The Group has provided following securities

EUR thousand 2014 2013 Performance bonds and guarantees for repairs 3,516 4,386 Guarantees provided for contractual obligations 680 680 Other securities 2,142 966 Total guarantees 6,338 6,032

Commitments for intangible assets and property, plant and equipment At the end of 2014, Group companies disclose commitments for intangible assets in the amount of EUR 2,518 thousand (2013: EUR 2,799 thousand), mainly relating to the implementation of information systems and software licences.

Commitments for property, plant and equipment amounted to EUR 4,531 thousand (2013: EUR 6,584 thousand) in 2014 and primarily relate to the construction of the telecommunication network.

None of the stated liabilities meets the terms for recognition among balance sheet items. Thus, no related material consequences are expected.

37. Related party transactions

Related parties of Group companies include the Republic of Slovenia, as the majority shareholder of Telekom Slovenije, and other shareholders, members of the Management Board and the Supervisory Board and their close family members.

Transactions with individuals Natural persons or individuals (the President and members of the Management Board, and the Chairman and members of the Supervisory Board members) hold a total of 1,549 shares in the Company, representing an equity holding of 0.0237 %.

No loans were extended to related individuals in 2014.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 201 Data on groups of persons

Loans Participation in profit based Total gross on the decision Outstanding as EUR thousand Repaid in 2014 receipts of the General at 31 Dec 2014 Meeting of Shareholders Management Board members 863 - - - - Rudolf Skobe 181 - - - - Zoran Vehovar 85 - - - - Tomaž Seljak 101 - - - - Mateja Božič 167 - - - - Zoran Janko 176 - - - - Darja Senica 78 - - - - Vesna Lednik 75 - - - Supervisory Board members 252 - - - Members of Supervisory Board Committees 10 - - - Other managers and staff employed under individual contracts that are not subject to 4,400 - 26 6 the tariff part of the collective agreement

Loans to other managers and employees under individual employment contracts were approved at interest rates ranging from 4.01 % to 4.13 % p.a. The loans were approved with a repayment period of up to 15 years.

The Company has not granted any advances or guarantees to the respective groups of persons and does not record any liabilities.

Remuneration paid to Management Board members – breakdown

Reimbur- Ho- Variable Insurance Total Total EUR Salary se-ment liday Benefits PDPZ earnings premiums gross * net ** of costs pay

Rudolf Skobe 145,284 17,630 1,845 - 1,044 12,589 2,819 181,211 70,817 (1 January - 31 December) Zoran Vehovar 49,850 31,803 472 - 378 1,907 940 85,350 37,144 (1 January – 30 April) Tomaž Seljak 95,434 - 1,080 - 885 2,014 1,879 101,292 45,008 (1 May - 31 December) Mateja Božič 145,284 9,445 1,371 - 1,287 6,645 2,819 166,851 71,537 (1 January - 31 December) Zoran Janko 145,284 16,416 1,458 - 1,044 8,437 2,819 175,458 71,257 (1 January - 31 December) Darja Senica 40,632 32,896 355 - 386 2,454 758 77,481 32,829 (1 January – 7 April) Vesna Lednik 69,075 - 1,166 - 885 2,059 1,879 75,064 34,155 (23 April - 31 December) Total 690,843 108,190 7,747 0 5,909 36,105 13,913 862,707 362,747

* The total gross amount includes all types of employee benefits expense (reimbursement of costs), insurance premiums, benefits and voluntary supplementary pension insurance (PDPZ). ** The total net amount comprises the sum of net earnings of Management Board members, inclusive of insurance premiums and benefits, which actually reduce the net earnings of Management Board members, and exclusive of PDPZ, which is remitted to the pension company. Members of the Management Board did not receive any shares in profit, options, commissions or other earnings.

202 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Remuneration paid to Supervisory Board members (breakdown)

Basic salary Attendance Travel Liability Total Total EUR for holding Committees fees allowance insurance gross* net** the office External members Borut Jamnik 3,740 28,000 3,260 - 753 35,753 25,455 (1 January - 31 December) Tomaž Berločnik 3,960 19,250 1,540 - 753 25,503 18,001 (1 January - 31 December) Adolf Zupan 4,180 22,400 2,816 2,309 753 32,458 23,059 (1 January - 31 December) Bernarda Babič 3,964 19,250 3,036 947 753 27,950 19,781 (1 January - 31 December) Marko Hočevar 4,184 21,000 2,816 - 753 28,753 20,364 (1 January - 31 December) Matej Matzele Golob 4,624 21,000 2,376 - 753 28,753 20,364 (1 January - 31 December) Internal members Martin Gorišek 1,320 5,444 880 - - 7,644 5,560 (1 January – 22 April) Milan Richter 1,045 6,098 1,716 - - 8,859 6,443 (1 January – 8 April) Primož Per 3,135 10,952 1,320 - - 15,407 11,205 (15 May - 31 December) Samo Podgornik 2,640 10,952 220 - - 13,812 10,045 (15 May - 31 December) Dean Žigon 4,730 20,503 1,936 - - 27,169 19,760 (1 January-31 December) Total 37,522 184,849 21,916 3,256 4,518 252,061 180,037

* The total gross amount includes the sum of all attendance fees, basic salaries for holding the office, payments by committees, including net earnings (travel allowance) and liability insurance. ** The total net amount represents the sum of net earnings of Supervisory Board members, inclusive of liability insurance, which actually reduces net earnings of Supervisory Board members, and travel expenses.

Members of the Supervisory Board received no other payments.

Remuneration of members of the Supervisory Board Committees (breakdown)

Basic salary Attendance Travel Liability Total Total EUR for holding the Committees fees allowance insurance gross* net** office External Committee members Barbara Nose 0 7,000 3,476 - - 10,476 7,619 (1 January - 31 December)

Total 0 7,000 3,476 0 0 10,476 7,619

* The total gross amount includes the sum of the basic salary for holding the office and payments by committees. ** The total net amount refers to net earnings of the Supervisory Board Committee member. Transactions with the Government of the Republic of Slovenia, entities and institutions under its control Group companies provide telecommunication services to the Government of the Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder.

In 2014, revenue from sales to government organisations was generated in the amount of EUR 23,228 thousand (2013: EUR 25,127 thousand). As at the year-end of 2014, receivables due from the government and due to be collected are recorded in the amount of EUR 3,988 thousand, whereof EUR 110 thousand are past due. The Group does not monitor nor collect information on sales to companies owned or partially owned by the Republic of Slovenia or entities under its control.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 203 38. Auditor’s fees

EUR thousand 2014 2013 Audit services 210 217 Other services of providing assurance 6 9 Other non-audit services 1 0 Total auditor‘s fees 217 226

Audit services encompass interim and annual costs of auditing.

39. Financial risk management

The most significant among financial risks are the credit risk, the long-term and short-term liquidity risk, and the interest-rate risk. Exposure to individual risks and measures for their management is conducted on the basis of effects on cash flows and finance costs. Exposure to foreign currency risk is estimated as low, hence no hedging instruments are applied. Significant financial risks, which are assessed on an ongoing basis as well as the adequacy of measures adopted for their management, are outlined below.

Credit risk The most important source of credit risk (failure to meet obligations) refers to non-payment of liabilities by customers (retail sale) and by operators (wholesale).

Trade and other receivables account for 45 % of Telekom Slovenije Group’s current receivables. The Group has a large number of customers, which include individuals and companies. Receivables due from operators account for 18 % of total receivables. Major portion of trade and other receivables refers to Group companies and the company One.

The Group companies introduced various procedures for managing receivables that include the monitoring of business partners’ credit rating, collateralisation of receivables, the monitoring of subscribers’ traffic, and the collection of bad debts. The collection procedure is conducted according to pre-defined time schedule, whereby the external collection is carried out via specialised agencies. To enter or change a subscription in Telekom Slovenije requires a preliminary authorisation, whereas also the launch of authorisations within sale of mobile phones is also in progress. As an additional measure for managing credit risk, the larger companies implemented systems to prevent frauds i.e. Fraud Management System (FMS), and those with a higher number of post-paid customers also the Credit Management System (CMS) was introduced.

As the result of introduced procedures for managing receivables and creating allowances, the Group assesses credit risk as manageable. The highest exposure to credit risk refers to the carrying amount of trade and other receivables.

Credit risk exposure

EUR thousand 2014 2013 Loans given 11,141 8,980 Investments 3,619 11,754 Trade and other receivables 150,888 155,614 - whereof trade receivables 142,239 145,851 Cash and cash equivalents 23,902 59,234 Total 189,550 235,582

The analysis of loans given is presented in the accounting report within the Note 16 Other investments, whereby operating liabilities and movement of allowances for receivables under Note 21 Trade and other payables.

204 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Short-term and long-term liquidity Liquidity is subject to effective management of cash and working capital, as well as investment dynamics. Group companies manage liquidity risk by careful monitoring and planning the liquidity of assets and liabilities. The parent company balances its liquidity by means of long-term and short-term revolving lines that are opened with foreign and domestic banks, and by means of bank overdrafts, current deposits with banks and bank balances, whereby subsidiaries are raising borrowings from the parent company and short-term revolving loans in order to cover their liquidity deficits. Current surpluses are placed by the parent company into short-term bank deposits, while subsidiaries use their surpluses for repaying revolving loans received or place them with the parent company in form of loans given.

The parent company is in charge of regulating the scope of borrowing for all Group companies and thus the related liquidity and solvency of Group companies. The liquidity of Group companies is secured by means of cash, cash flow planning and short-term and long-term financing within the Group.

Given the uncertainty referring to the privatisation procedure, a certain level of risk was detected in relation to renewing the existing short-term sources of financing, as well as in connection with refinancing short-term sources with long-term sources of financing. The respective risk is managed through advance talks held with banks regarding the required financing, and by means of timely performance of refinancing procedures.

Most of non-current financial liabilities refer to the issue of bonds in the amount of EUR 300 million that fall due for payment in December 2016. The Company is studying different possibilities of refinancing the existing issues.

Maturity profile of Group’s liabilities as at 31 December 2014 and 31 December 2013 based on contractual undiscounted payments

Less More Past On 3 to 12 1 to 5 EUR thousand than 3 than 5 Total due demand months years months years 2014 Loans and borrowings 0 0 4,877 18,888 35.827 0 59,592 Anticipated interest on loans 0 0 15 52 42 0 109 Other financial liabilities 195 0 0 -97 309,548 41 309,687 Anticipated interest on bonds 0 0 0 14,625 14,625 0 29,250 Trade payables 1,973 1,070 111,750 5,436 7,663 0 127,892 Total 2,168 1,070 116,642 38,904 367,705 41 526,530 2013 Loans and borrowings 0 0 7,780 25,232 59,245 341 92,598 Anticipated interest on loans 0 0 274 427 273 0 974 Other financial liabilities 141 0 306 1,438 317,050 74 319,009 Anticipated interest on bonds 0 0 0 14,625 29,250 0 43,875 Trade payables 12,141 2,649 104,867 6,592 3,426 9 129,684 Total 12,282 2,649 113,227 48,314 409,243 424 586,140

Interest rate risk Interest-rate risk is the risk of the negative impact of changes in market interest rates on the results of the Group’s operations. The interest structure of assets and liabilities items is not matched, since the amount of Group companies’ borrowings exceeds the amount of interest-bearing investments. Exposure to interest rate risk is assessed as low as most of Group’s financial liabilities (83.4 %) refer to bonds issued bearing a fixed interest rate. Other liabilities under interest-bearing borrowings are subject to variable interest rates bound by 3- or 6-month Euribor.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 205 With respect to Group companies’ exposure, the interest rate risk is assessed as low as most of borrowings are extended by the parent company and bear a fixed interest rate.

Interest rate risk table The following table illustrates the sensitivity of the Group’s profit before tax to a reasonably likely change in interest rates, with all other variables held constant. Changes in interest rate have no impact on the equity of the Telekom Slovenije Group.

Increase/decrease in basic interest rate Effect on profit or loss before tax (EUR thousand) 2014 EURO +100 bt -595 EURO -100 bt 595 2013 EURO +100 bt -925 EURO -100 bt 925

The table is exclusive of non-interest bearing financial instruments, as they are not exposed to interest rate risk.

Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and capital ratios in order to support its business and maximise shareholder value.

Group companies monitor capital using a debt/equity ratio, which is net debt divided by total net debt plus total equity. Group companies’ net debt includes interest-bearing borrowings and other financial liabilities less current investments and cash with short-term deposits. Ratios and financial covenants under loan contract are observed while adopting decisions relating to capital management.

2013 EUR thousand 2014 adjusted Interest-bearing borrowings and other financial liabilities 369,279 411,607 Less current investments and cash with short-term deposits -25,222 -69,800 Net debt 344,057 341,807 Equity 693,901 758,582 Balance sheet total 1.343.421 1.391.869 Net debt to equity 49.6 % 45.1 %

Equity ratio 51.7 % 54.5 %

206 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 40. General authorisation and the rights to use radio frequency and block numbers

Fixed line and mobile operations The provision of the electronic communications network or the provision of electronic communication services is subject to a general authorisation. Prior to the commencement of the provision of public communication networks or services, notification must be given in writing to theA gency for Communication Networks and Services (hereinafter: the Agency). An undertaking is not required to obtain an explicit decision or any other administrative act by the national regulatory authority before exercising the rights stemming from the authorisation.

In the past, Telekom Slovenije has issued notifications for the provision of the following electronic communication services: - public voice services in the fixed public telecommunications network, - voice services in the public mobile network, - inter-operator services and transit, - data-related services and internet access, - lease of public communication network, and - provisions of public communication networks.

Pursuant to notification, an annual fee must be paid in the amount of EUR 734 thousand (2013: EUR 775 thousand). The amount of the fee paid is defined by a tariff in a general act of the Agency.

Starting Concession agreement Period Concession fee date Concession agreement for telecommunication servi- 3 January Initial fee: ces with the use of the radio frequency spectrum in 15 years 2001 EUR 4,173 thousand GSM mobile telephony in the DCS1800 network Concession agreement for telecommunication servi- 15 years, 27 November Initial fee: ces with the use of the radio frequency spectrum in extended until 21 2001 EUR 91,804 thousand the mobile network system: UMTS/ITM-2000. September 2021 Concession agreement for telecommunication servi- up to 3 Initial fee: ces with the use of the radio frequency spectrum in 3 April 2013 January 2016 EUR 4,302 thousand GSM 900 mobile telephony Decision on allocating the radio frequency for LTE 31 May 2014 to Initial fee: 26 May 2014 800 MHz and UMTS 210 MHz 31 May 2029 EUR 26,835 thousand 4 January 2016 Decision on allocating the radio frequency the mobile Initial fee: 26 May 2014 to 4 January network system GSM 900, 1800 MHz, LTE 2600 MHz EUR 37,705 thousand 2031 Concession agreement for telecommunication servi- Initial fee: ces with the use of the radio frequency spectrum in 6 March 2007 15 years EUR 75,000 thousand the GSM mobile telephone services network in Kosovo Concession agreement for telecommunication servi- 21 November Initial fee: ces with the use of the radio frequency spectrum in 22 years 2001 EUR 28,000 thousand 2G-GSM 900 mobile telephony in Macedonia Concession agreement for telecommunication servi- 2 November Initial fee: ces with the use of the radio frequency spectrum in 10 years 2008 EUR 10,000 thousand 3G-UMTS mobile network system in Macedonia Concession agreement for the use of the radio 1 December Initial fee: frequency spectrum in the mobile network system 20 years 2013 EUR 10,300 thousand 890-1800 MHZ in Macedonia

Pursuant to legal requirements, Group companies paid following annual fees: - fee on revenue from public telecommunications network, - fee for the use of radio frequencies, and - fee for allocated block of numbers.

The total amount of fees amounted in the reporting year to EUR 6,854 thousand (2013: EUR 7,118 thousand).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 207 41. Events after the balance sheet date

January

¬ Telekom Slovenije received a judgement from the stations and compilation of the documentation District Court in Ljubljana in the economic dispute for 434 base stations. The trial is called for 9 of the plaintiff Akton, d.o.o. and fully rejected the April 2015 and the Company expects that SKY claim as unfounded. The company Akton, d.o.o. NET, d.o.o. will lodge a revision against the Higher already announced via media that it will appeal Court’s decision and the decree. against the judgement, whereas the Telekom Slovenije will respond to the latter announcement ¬ As a part of Telekom Slovenije Group’s in due time. consolidation in the Macedonian market, which includes the separation of the regional optical ¬ Telekom Slovenije received a proposal from the network from the ONE DOOEL Skopje subsidiary, District Court in Ljubljana to reopen proceedings Telekom Slovenije has established a new in the economic dispute filed by the company T-2, subsidiary SIOL DOOEL Skopje; the latter is 100 % d.o.o. against Telekom Slovenije. Telekom Slovenije owned by Telekom Slovenije, which transferred its will respond to the court proposal within the 100 % equity interest in the subsidiary DIGI PLUS legally prescribed period and demonstrate during MULTIMEDIA DOOEL Skopje to the company ONE the procedure that the proposal for reopening the DOOEL Skopje. case is entirely unfounded. ¬ As part of Telekom Slovenije Group’s consolidation ¬ Telekom Slovenije received a judgement from the in the Macedonian market, the Company Administrative Court of the Republic of Slovenia transferred its 100 % equity interest in the in which the court rejected the claim of Telekom subsidiary DIGI PLUS MULTIMEDIA DOOEL Skopje Slovenije for the annulment of the Competition to the subsidiary ONE DOOEL Skopje. The contract Protection Agency’s decision (which was filed on the sale and transfer of equity interest was against Telekom Slovenije for restricting ADSL concluded as at 9 January 2015, whereas the connections for operators to the end users with transfer was registered in the Companies’ register prior ISDN connection lease) and to terminate the of Skopje on 21 January 2015. relevant proceeding, with the decision that each party is obliged to pay its own costs incurred in ¬ Telekom Slovenije received at 27 January 2015 the process. Telekom Slovenije will in due time a decision from the District Court in Ljubljana lodge a revision against the judgement at the of 26 January 2015 regarding the commercial Supreme Court of the Republic of Slovenia. dispute between the plaintiff Simobil, d.d. and the defendant Telekom Slovenije for the payment of ¬ Telekom Slovenije, d.d. received a judgement and liabilities in the amount of EUR 286,392,223.00 a decree from the Higher Court in Ljubljana, in with interest and other charges. On 22 January which the latter fully rejected the primary claim 2015 Simobil, d.d., with the approval of Telekom in the economic dispute of the plaintiff SKY NET, Slovenije submitted an application on withdrawing d.o.o. against the defendant Telekom Slovenije from the legal procedure, and consequently the (payment of indemnification) and thus finally District Court issued a decision on stopping the completed the case in this part, and confirmed procedure. As already disclosed in the accounting the decree of the court of first instance (which report hereof, Telekom Slovenije and Simobil, d.d., dismissed the Sky net’s requirement to issue a have on 29 December 2014 signed an Agreement temporary decree). The court of first instance will on Settling Mutual Relations, based on which in a renewed procedure decide on the subordinate they settled all the open issues between the claim regarding the fulfilment of the agreement companies, and defined the conditions for future i.e. the order for the construction of 414 base business cooperation.

208 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 February

¬ Telekom Slovenije received a judgement from the regarding the process of determining the abuse Administrative Court of the Republic of Slovenia of dominant position in the carrier market for in the administrative dispute of the Company broadband bitstream access in the Republic of as plaintiff against the Slovenian Competition Slovenia, and on the carrier market of access to Protection Agency (AVK) for the annulment of physical network infrastructure in the Republic the decision in which AVK establishes that, in the of Slovenia. The Company will study the decision period between 1 December 2002 to 5 September of the AVK and on that basis adopt a decision on 2005, Telekom Slovenije abused its dominant further measures. position on the bit stream broadband access interconnection market through copper network ¬ With the purpose to fully manage the regional in the Republic of Slovenia and for termination optical network, Telekom Slovenije established of the proceeding at AVK. In the abovementioned the company SIOL DOO Beograd, where it owns judgement, the Administrative Court of the a 100 % equity interest; the company SIOL Republic of Slovenia rejected the plaintiff’s claim DOO Beograd was entered into the Belgrade’s for the annulment of the AVK decision and to Companies register on 13 February 2015. terminate the proceeding at AVK with decision that each party is obliged to pay its own costs ¬ Telekom Slovenije signed a contract on acquring incurred in the process. Telekom Slovenije will 100 percent equity interest in the company consider the judgement by the Administrative Debitel telekomunikacije, d.d. The business deal Court of the Republic of Slovenia and decide on will be closed upon obtaining the consent from further action appropriately. competent bodies for competition protection. Until completion of the business deal, Telekom ¬ Telekom Slovenije received a decision from the Slovenije will not disclosed any details incuding Slovenian Competition Protection Agency (AVK) the purchase price.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 209 3.2.3 independent Auditor’s Report

210 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3.3. accounting Report of Telekom Slovenije, d.d.

3.3.1 Financial Statements of Telekom Slovenije, d.d.

Income Statement of Telekom Slovenije, d.d. as at 31 December 2014

2013 EUR thousand Note 2014 adjusted* Revenue 4 643,057 658,493 Other operating income 5 6,025 11,362

Cost of goods and material sold -72,614 -63,315 Cost of material and energy -10,826 -12,448 Cost of services 6 -284,631 -277,646 Employee benefits expense 7 -111,016 -111,691 Amortisation and depreciation expense 11, 12, 16 -124,635 -134,720 Other operating expenses 8 -44,041 -11,506 Total operating expenses -647,763 -611,326

Profit from operations 1,319 58,529

Finance income 9 38,531 18,345 Finance costs 9 -21,048 -27,984 Profit before tax 18,802 48,890

Income tax expense 0 0

Deferred tax 10 -876 2,281

Profit for the period 17,926 51,171

* Adjustments are outlined in point e. Changes in accounting policies and retrospective restatement, in Section 2. Basis of preparation. Notes to the financial statements given on pages from 217 to 269 are integral part of these financial statements.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 211 Statement of Other Comprehensive Income of Telekom Slovenije, d.d. as at 31 December 2014

2013 EUR thousand Note 2014 adjusted* Profit for the period 17,926 51,171 Other comprehensive income that may be reclassified subsequently to profit or loss Change in revaluation of actuarial deficits and surpluses -2,131 584 Change in revaluation of available-for-sale financial assets 23 289 141 Deferred tax 10 –49 –24 Change in deferred tax due to restatement of tax rate 0 –14 Change in revaluation surplus on available-for-sale financial 240 103 assets (net) Other comprehensive income that will not be reclassified subsequently to profit or loss Change in deferred tax due to restatement of tax rate 0 –197 Change in revaluation surplus on property, plant and equipment 0 –197 (net) Other comprehensive income for the period, net of tax -1,891 490

Total comprehensive income for the period 16,035 51,661

212 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Balance Sheet of Telekom Slovenije, d.d. as at 31 December 2014

31 Dec 2013 1 Jan 2013 EUR thousand Note 31 Dec 2014 adjusted* adjusted* ASSETS Intangible assets 11 132,276 65,304 72,340 Property, plant and equipment 12 644,920 688,245 747,324 Investments in associates and joint ventures 13 45,846 117,796 121,918 Other investments 14 138,048 171,048 165,510 Other non-current assets 15 32,549 31,863 22,606 Investment property 16 4,076 4,119 6,378 Deferred tax assets 10 23,659 23,676 20,533 Total non-current assets 1,021,374 1,102,051 1,156,609 Assets held for sale 17 80,788 4,478 3,846 Inventories 18 25,549 16,278 14,168 Trade and other receivables 19 148,172 139,950 167,444 Short-term deferred costs and accrued income 20 31,411 28,420 25,433 Income tax credits 22 22 17,498 Current financial assets 21 8,504 30,285 79,254 Cash and cash equivalents 22 19,032 52,894 31,824 Total current assets 313,478 272,327 339,467 Total assets 1,334,852 1,374,378 1,496,076 EQUITY AND LIABILITIES Called-up capital 23 272,721 272,721 272,721 Capital surplus 23 168,927 168,927 168,927 Revenue reserves 23 217,042 263,609 251,701 Legal reserves 23 50,434 50,434 50,434 Treasury share reserve 23 3,671 3,671 3,671 Treasury shares and interests 23 -3,671 -3,671 -3,671 Statutory reserves 23 54,544 54,544 54,544 Other revenue reserve 23 112,064 158,631 146,723 Retained earnings 23 65,055 65,160 103,425 Retained earnings from previous periods 23 47,129 25,897 76,042 Profit for the period 23 17,926 39,263 27,383 Revaluation surplus 23 7,199 9,547 9,497 Total equity and reserves 730,944 779,964 806,271 Long-term deferred income 24 10,572 9,010 8,252 Provisions 25 74,740 35,916 39,125 Non-current operating liabilities 26 7,663 3,426 2,740 Interest-bearing borrowings 27 35,547 59,245 92,104 Other non-current financial liabilities 28 302,530 312,401 311,977 Deferred tax payables 10 1,683 1,728 1,583 Total non-current liabilities 432,735 421,726 455,781 Trade and other payables 29 115,337 110,169 168,264 Interest-bearing borrowings 27 23,703 32,869 35,101 Other current financial liabilities 30 64 473 8,795 Short-term deferred income 31 7,279 5,351 4,699 Accrued costs and expenses 32 24,790 23,826 17,165 Total current liabilities 171,173 172,688 234,024 Total liabilities 603,908 594,414 689,805 Total equity and liabilities 1,334,852 1,374,378 1,496,076

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 213 Statement of Changes in Equity of Telekom Slovenije, d.d. as at 31 December 2014*

Revaluation Revaluation Revaluation surplus on Revenue reserves Retained surplus on surplus on EUR Called-up Capital available- earnings or property, actuarial Total thousand capital surplus for-sale losses plant and deficits and Legal Treasury Treasury Statutory Other reve- financial equipment surpluses reserves share reserve shares reserves nue reserves assets (net) Balance at 1 Jan 2014 272,721 168,927 50,434 3,671 -3,671 54,544 158,631 65,160 7,721 714 1,112 779,964 Profit for the period 17,926 17,926 Other comprehensive income for the period 240 -2,131 -1,891 Total comprehensive income for the period 0 0 0 0 0 0 0 17,926 0 240 -2,131 16,035 Dividends paid -65,055 -65,055 Transactions with owners 0 0 0 0 0 0 0 -65,055 0 0 0 -65,055 Transfer to retained earnings 457 -457 0 Transfer from other revenue reserves -46,567 46,567 0 Balance at 31 Dec 2014 272,721 168,927 50,434 3,671 -3,671 54,544 112,064 65,055 7,264 954 -1,019 730,944

* More details in Note 23.

214 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Statement of Changes in Equity of Telekom Slovenije, d.d. as at 31 December 2013

Revaluation Revaluation Revaluation Revenue reserves surplus on Retained surplus on surplus on EUR Called-up Capital available- earnings or property, actuarial Total thousand capital surplus for-sale losses plant and deficits and Legal Treasury Treasury Statutory Other reve- financial equipment surpluses reserves share reserve shares reserves nue reserves assets (net) Balance at 1 Jan 2013 – initially reported 272,721 168,927 50,434 3,671 -3,671 54,544 146,723 103,350 8,358 611 528 806,196 Impact of the changed accounting policy 75 75 Balance at 1 Jan 2013 - adjusted 272,721 168,927 50,434 3,671 -3,671 54,544 146,723 103,425 8,358 611 528 806,271 Profit for the period 51,171 51,171 Other comprehensive income for the period -197 103 584 490 Total comprehensive income for the period 0 0 0 0 0 0 0 51,171 -197 103 584 51,661 Dividends paid -78,065 -78,065 Transactions with owners 0 0 0 0 0 0 0 -78,065 0 0 0 -78,065 Transfer to reserves 11,908 -11,908 0 Transfer to retained earnings 440 -440 0

Other 97 97 Balance at 31 Dec 2013- adjusted 272,721 168,927 50,434 3,671 -3,671 54,544 158,631 65,160 7,721 714 1,112 779,964

Notes to the financial statements given on pages from 217 to 269 are integral part of these financial statements.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 215 Statement of Cash Flows of Telekom Slovenije, d.d. as at 31 December 2014

EUR thousand Note 2014 2013 Cash flows from operating activities Profit before tax 18,802 48,890 Adjustments for: Depreciation and amortisation expense associated with intangible assets 11, 12, 16 124,635 134,721 and property, plant and equipment Impairment and write-offs of property, plant and equipment and intangible assets 747 2,041 Gain or loss on disposal of property, plant and equipment 264 3 Gain on disposal of investment property 0 258 Finance income 9 -38,531 -18,345 Finance costs 9 21,048 27,984 Change in assets held for sale 17 -7 -632 Change in trade and other receivables 19 -8,222 27,494 Change in deferred costs and accrued income 20 -2,991 -2,987 Change in other non-current assets 15 -643 -6,998 Change in inventories 18 -9,271 -2,110 Change in provisions 25 38,824 -3,209 Change in long-term and short-term deferred income 24, 31 3,490 1,410 Change in accrued costs and expenses 32 964 6,661 Change in trade and other payables 29 10,204 -58,732 Income tax paid 0 16,014 Net cash from operating activities 159,313 172,463 Cash flows from investing activities Receipts from investing activities 94,416 94,677 Proceeds from sale of property, plant and equipment 515 0 Proceeds from sale of investment property 0 990 Dividends received 3,756 3,697 Interest received 9,140 10,902 Disposal of non-current investments 59,133 9,186 Disposal of current investments 21,872 69,902 Disbursements from investing activities -171,944 -116,043 Acquisition of property, plant and equipment -59,086 -54,542 Acquisition of intangible assets -92,164 -18,349 Acquisition of investments 0 -5,125 Investments in subsidiaries and associates 0 -11,701 Interest bearing loans -20,694 -26,326 Net cash used in investing activities -77,528 -21,366 Cash flows from financing activities Receipts from financing activities 85,900 350 Interest-bearing borrowings 37,000 350 Issue of current commercial papers 48,900 0 Disbursments from financing activities -201,547 -130,377 Maturity of current commercial papers -48,856 0 Repayment of current borrowings -37,000 -350 Repayment of non-current borrowings -32,859 -35,080 Interest paid -17,786 -16,770 Dividends paid -65,046 -78,177 Cash flow used in financing activities -115,647 -130,027 Net increase/decrease in cash and cash equivalents -33,862 21,070 Closing balance of cash 22 19,032 52,894 Opening balance of cash 22 52,894 31,824 Notes to the financial statements given on pages from 217 to 269 are integral part of these financial statements. 216 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 3.3.2 notes to the financial statements of Telekom Slovenije, d.d. and summary of significant accounting policies

1. General information

Telekom Slovenije, d.d. (hereinafter also ‘Company’), with its registered office at Cigaletova 15, Ljubljana, Slovenia, is a public limited company. Its shares are listed on the Ljubljana Stock Exchange. As at 31 December 2014, the Republic of Slovenia, as the majority shareholder, held 4,087,569 shares which equals a 62.54 % equity interest in the Company.

Telekom Slovenije is the leading Slovenian provider of services in the field of mobile, fixed and IP communications, infrastructure and internet solutions, IT security and e-business solutions, as well as cloud solutions. In addition to multimedia contents and services, the Company provides also services of technical assistance and development of multimedia platforms.

2. Basis of preparation

a. Statement of compliance The accompanying separate financial statements of Telekom Slovenije have been prepared in accordance with International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC), as adopted by the European Union.

The financial statements were approved for release by the Management Board on 9 March 2015.

The Company compiles consolidated financial statements for the Telekom Slovenije Group, which are included in the accounting report of the Telekom Slovenije Group and are available at the registered office of Telekom Slovenije, d. d., at Cigaletova ulica 15, Ljubljana, Slovenia. The Management Board approved the consolidated financial statements on 9 March 2015.

b. Basis of preparation of financial statements The financial statements of the Company have been prepared based on the going concern assumption.

Company’s operations are not of seasonal nature.

The financial statements have been prepared on a historical cost basis except for available-for-sale financial assets that are measured at fair value; land and buildings are valued by using the fair value model.

c. Functional and presentation currency, foreign currency transactions The separate financial statements of Telekom Slovenije are presented in euro, which is the functional and presentation currency of the Company. Items in separate financial statements are presented in euro, rounded to the nearest thousand.

Foreign currency transactions are translated into the functional currency at the exchange rate prevailing on the date of the transactions.

Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional currency prevailing at the date of the statement of financial position. All differences resulting from foreign currency translations are recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates prevailing at the dates of the initial transactions. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 217 d. Use of estimates and judgements The preparation of the financial statements requires management to make certain judgements, estimates and assumptions that impact the carrying values of the Company’s assets and liabilities and the disclosure of contingent items at the reporting date and the reported amounts of income and expenses for the period then ended.

Future events and their effects cannot be perceived with certainty.A ccordingly, the accounting estimates made require the exercise of judgment and those used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from those estimates. The formulation of estimates and related assumptions and uncertainties are discussed in individual items of segment 3. Summary of significant accounting policies.

Depreciation rates of property, plant and equipment Defining of useful lives is founded on past experiences relating to similar assets, to the expected technological development and changes in the wider economic environment. The Company verifies the adequacy of estimated useful lives on an annual basis.

Allowances for doubtful receivables Allowances for current trade receivables are formed on the basis of the creditworthiness of individual customers. The Company assesses the creditworthiness of individual customers by means of an in-house developed credit rating model, which is based on the combination of an external credit rating and the payment discipline of companies, as well as the payment history of individuals. The estimate depends upon the general economic situation in the country. In 2014, the Company checked the adequacy of allowances for doubtful receivables formed by analysing the appropriateness of the internally developed credit-rating model, which thereupon confirmed the respective suitability.

Network interconnection Management compiles estimates also in view of recognising revenue and expenses relating to network interconnection. The relevant revenue and expenses are recognised on the basis of the estimated expected value with respect to turnover recorded in the previous month. Differences between estimates and the actual revenue occur primarily because of the tolerance margin in data on turnover and the price change. The tolerance margin differs from contract to contract but does not exceed 2 % of contractual value. The differences are included in profit or loss when the actual amount of revenue is determined.

218 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Provisions and contingent liabilities Significant assessments are required in case of measurement and recognition of Company’s exposure to contingent liabilities arising from unresolved disputes. Provisions for probable liabilities from legal actions are formed on the basis of the estimation made by the relevant departments of the actions’ outcome. The formation of provisions is assessed by the Company individually in view of the amount of the legal action, its subject matter, the plaintiff’s assertions and the course of each individual procedure. As this assessment process is generally uncertain, the actual loss may differ from the loss initially assessed. Management’s estimates can change if the Company obtains new information. Adjustments of relevant estimates can have a significant impact on business results. Effects and detailed information on legal actions and provisions formed are not disclosed because it is labelled by the management as confidential.

Other non-current financial liabilities Other non-current financial liabilities include liabilities relating to the acquisition of the minority interest at fair value. Valuation models and related effects are deemed by the management as confidential, hence they are not disclosed. e. Change in accounting policies and retrospective restatement As of 1 January 2014, the accounting policy of recording a portion of program rights was changed i.e. from costs of multimedia services to the item of intangible assets.

Prior to the respective change, the Company recognised costs of program rights (provision of TV channels) among costs of multimedia services in the period when they occurred. Pursuant to the policy’s change, it is recognised, upon the contract’s signing, among intangible assets, which is amortised on a straight-line basis throughout the contract’s duration.

The Company believes that the change in accounting policy provides for a proper presentation of the balance sheet and Company’s operations and thereby a better comparability with the financial statements of other entities that are engaged in the same or similar activity.

IAS 38, which discusses intangible assets, does not comprise specific provisions regarding disclosures of the respective change in accounting policy, thus the Company observed provisions of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, and adjusted the financial statements for previous periods in compliance with IAS 1 – Presentation of Financial Statements. The Company adjusted the financial statements for previous period i.e. from 1 January 2011 onwards.

Change in accounting policies and related impact on the Company’s financial statements as at since 1 January 2013 is outlined below.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 219 Income statement of Telekom Slovenije, d.d. as at 31 December 2013

Impact of changed accounting EUR thousand Previously Adjusted policy reported Cost of services -279,643 1,997 -277,646 Amortisation and depreciation expense -132,759 -1,961 -134,720 Other 461,256 461,256 Deferred taxes 2,287 -6 2,281 Total impact on the income statement 51,141 30 51,171

Balance sheet of Telekom Slovenije, d.d. as at 1 January 2013

Impact of changed accounting EUR thousand Previously Adjusted policy reported ASSETS Intangible assets 69,522 2,818 72,340 Other investments 165,510 165,510 Deferred tax assets 20,549 -16 20,533 Trade and other receivables 167,444 167,444 Income tax credits 17,497 1 17,498 Current financial assets 79,254 79,254 Other assets 973,497 973,497 Total assets 1,493,273 2,803 1,496,076 EQUITY AND LIABILITIES Non-current operating liabilities 12 2,728 2,740 Trade and other payables 168,264 168,264 Other liabilities 518,801 518,801 Total liabilities 687,077 2,728 689,805 Retained earnings or losses 103,350 75 103,425 Retained earnings from previous period 76,046 -4 76,042 Profit for the period 27,304 79 27,383 Other items of equity and reserves 702,846 702,846 Total equity and reserves 806,196 75 806,271 Total equity and liabilities 1,493,273 2,803 1,496,076

220 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Balance sheet of Telekom Slovenije, d.d. as at 31 December 2013

Impact of changed accounting EUR thousand Previously Adjusted policy reported ASSETS Intangible assets 62,731 2,573 65,304 Other investments 171,048 171,048 Deferred tax assets 23,697 -21 23,676 Trade and other receivables 139,950 139,950 Income tax credits 22 22 Current financial assets 30,285 30,285 Other assets 944,093 944,093 Total assets 1,371,826 2,552 1,374,378 EQUITY AND LIABILITIES Non-current operating liabilities 992 2,434 3,426 Trade and other payables 110,156 13 110,169 Other liabilities 480,819 480,819 Total liabilities 591,967 2,447 594,414 Retained earnings or losses 65,055 105 65,160 Retained earnings from previous period 25,822 75 25,897 Profit for the period 39,233 30 39,263 Other items of equity and reserves 714,804 714,804 Total equity and reserves 779,859 105 779,964 Total equity and liabilities 1,371,826 2,552 1,374,378

3. Summary of significant accounting policies a. New standards and interpretations not yet adopted The Company has not adopted any standards or interpretations issued and not yet effective.

The following new standards and interpretations are not yet effective for the annual period ended 31 December 2014 and have not been applied in preparing these financial statements.

Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions (Effective for annual periods beginning on or after 1 February 2015. The amendments apply retrospectively. Earlier application is permitted.)

When these criteria are met, a company is permitted (but not required) to recognise them as a reduction of the service cost in the period in which the related service is rendered.

The Company does not expect the amendment to have any impact on the financial statements since it does not have any defined benefit plans that involve contributions from employees or third parties.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 221 IFRIC 21 - Levies (Effective for annual periods beginning on or after 17 June 2014; to be applied retrospectively. Earlier application is permitted.)

The Interpretation provides guidance as to the identification of the obligating event giving rise to a liability, and to the timing of recognising a liability to pay a levy imposed by government. In accordance with the Interpretation, the obligating event is the activity that triggers the payment of that levy, as identified in the relevant legislation and as a consequence, the liability for paying the levy is recognised when this event occurs. The liability to pay a levy is recognised progressively if the obligating event occurs over a period. If the obligating event is the reaching of a minimum activity threshold, the corresponding liability is recognised when that minimum activity threshold is reached. The Interpretation sets out that an entity cannot have a constructive obligation to pay a levy that will be triggered by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period.

It is expected that the Interpretation, when initially applied, will not have a material impact on the financial statements, since it does not results in a change in the Company‘s accounting policy regarding levies imposed by governments.

The Company does not expect the amendment to have a significant impact on the financial statements since it does not have contingent considerations.

b. Intangible assets The Company recognises an item of intangible assets if it is probable that the future economic benefits that are associated with the item will flow to the entity and the cost of the item can be measured reliably.

All items of intangible assets have finite useful lives.

Intangible assets include: ¬ licences for the use of the radiofrequency spectrum for mobile telephony, ¬ software licences ¬ program rights, ¬ software acquired separately from hardware and used for more than one year, and ¬ other intangible assets.

Intangible assets with finite useful lives are stated at cost less accumulated amortisation less impairment losses.

Intangible assets are amortised on a straight-line basis over their estimated useful lives, from the date that they are available for use.

222 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Estimated useful lives of intangible assets

Groups of intangible assets Useful lives in years - concessions, patents and trademarks, licences 15 - program rights 1 to 4 - software – application software 3 - other concessions, patents, licences, trademarks and similar right 3 to 5

Program rights (provision of TV channels) are recorded as an item of intangible assets on the basis of the related contracts if: - the latter was concluded for a certain period, generally longer that one year, - the contract’s value does not depend on the number of subscribers.

An item of intangible asset that arises on program rights, shall be amortised on the first day of the following month, when the Company obtains the right for using an individual TV channel. Period of amortisation equals the right to use the assets, which is generally 1 and 4 years.

Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. The Company monitors and ensures via project administrators that only costs, which comply with the defined criteria, are capitalised.

The Company checks on an annual basis the carrying amounts of significant assets in order to establish whether there is any need to impair an item of intangible assets. Significant intangible assets are those, whose carrying amount exceeds 5 % of the carrying amount of total intangible assets, should they account for at least 5 % of total assets’ value. On an annual basis or as at the date of financial statements, it is checked whether any indications of impairment of intangible assets exist, i.e. it is reassessed whether significant technological changes, market changes or a significant decrease in interest rates occurred. If so, the recoverable amount of such assets is determined. Impairment is carried out if the recoverable amount of intangible assets significantly exceeds their carrying amount.

Impairment is recognised in the income statement among other operating expenses under the item ‘impairment of intangible assets and property, plant and equipment’. c. Property, plant and equipment Property, plant and equipment owned by the Company are stated at cost. The cost of an item of property, plant and equipment includes all expenditures that are necessary to make the asset ready for its intended use including costs of preparing the construction site and easement fees.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 223 The cost of self-constructed assets includes the cost of material, direct labour and an appropriate proportion of production overheads. Costs of construction of property, plant and equipment that are included in cost are recognised as lower costs within profit or loss. Recognition of these assets is subject to equal criteria as those applied with intangible assets.

When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment.

Significant items of property, plant and equipment include assets with high purchase costs, such as assets whose value at acquisition exceeded 5 % of the carrying amount of the account to which the item is classified to, if the carrying amount of the total account amounts to at least 10 % of the value of property, plant and equipment.

Measurement upon recognition Cable network, cable lines, exchange switches and mobile network equipment are upon initial recognition measured at cost less depreciation costs or impairment.

As for properties whose carrying amount exceeds EUR 5 million, the Company applies all three valuation methods (the market approach, the income approach and the asset approach) as stipulated by the International Valuation standards (IVS). In case of properties whose carrying amount ranges between EUR 1 million and EUR 5 million, the Company applies the market approach and the asset approach, whereas for properties with a carrying amount of up to EUR 1 million, the market approach is carried out. With respect to the intended use, the fair value hierarchy is applied for each asset separately.

When an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised in other comprehensive income, net of related deferred tax and presented in equity as revaluation surplus on fixed assets less deferred tax. The increase is recognised in the income statement if this increase is eliminated by a decrease in the revaluation of the same asset that was previously recognised in the income statement. Decrease in the carrying amount as a result of revaluation is recognised as a revaluation expense in the income statement. The decrease is recognised in other comprehensive income only up to the amount by which the increase of the same asset was previously recognised.

Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed asset’s revaluation surplus to retained earnings is carried out by the Company on an ongoing basis.

224 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. In a fiscal year, depreciation is allocated to individual periods on a straight-line basis.

Depreciation is calculated individually and the Company is free to determine annual depreciation rates based on the useful life of an individual item of property, plant and equipment.

Estimated useful lives of property, plant and equipment

Groups of property, plant and equipment Useful lives in years - buildings 50 - electrical and mechanical installations 15 to 30 - cable lines 33.3 - cable network 10 to 20 cable network – air 10 cable network - land 20 - exchange switches 7 - other equipment 2 to 15

Land and assets under construction are not depreciated.

An item of property, plant and equipment under construction is recognised at cost and depreciated when brought to working condition for its intended use.

The Company assesses annually whether there are any internal or external business circumstances (significant technological changes, market changes, obsolescence or physical wear and tear of the asset) that could provide significant indication that an item of property, plant and equipment should be impaired.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 225 d. Investments Investments in subsidiaries are accounted for at cost less impairment loss in the separate financial statements. Investments in subsidiaries are recognised on the date, when the controlling company assumes the risks and benefits i.e. upon obtaining control.

Indications of impairment of investments is assessed on the basis of following criteria: ¬ comparing as at the reporting date the carrying amount of the investment with the proportional part of the carrying amount of the subsidiary’s total equity. Indication of impairment exists when at that date the carrying amount of the investment exceeds the proportional part of equity by more than 30 %; and ¬ comparing the key ratios for the financial year with projections.

Investments in associates and joint ventures are measure at cost less possible impairment losses. Investments are recognised or derecognised as at the date of purchase or sale, respectively.

Associate is an entity, in which Telekom Slovenije has significant influence but not control over their financial and operating policies. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Joint venture is a joint arrangement, which is jointly controlled by Telekom Slovenije and another entity. Joint control is the contractually agreed sharing of control over the arrangement, which exists when important decision-making depends on the consent of both parties that jointly control the arrangement.

Indications whether there is need for impairment of investments in associates and joint ventures, are assessed under two criteria, namely: ¬ comparing the investment’s carrying amount with the proportionate share of the carrying amount of the total equity of the associate or the joint venture on the assessment date. Indication of impairment exists when the carrying amount of the investment exceeds on the said date the proportionate share of equity by more than 30 %; ¬ comparing the key ratios for the financial year with projections.

Other investments Other investments are upon initial recognition classified among following groups: ¬ available-for-sale financial assets, ¬ investments in loans and receivables.

Recognition and measurement of investments Initially, investments are measured at fair value increased by the cost of transactions that arise directly from the acquisition or issue of a financial instrument, with the exception of assets classified at fair value through profit or loss.

Available-for-sale financial assets include investments designated as available for sale and not classified as loans and receivables.

Investments in debt and equity securities classified as available-for-sale financial assets are carried at fair value.

The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the fair value of financial assets that are not listed on the stock exchange cannot be reliably determined (since the Company has no impact on obtaining information in order to assess the fair value), they are stated at cost and the Company determines on an annual basis whether indication on impairment of these investments exists.

226 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Available-for-sale investments are recognised as at the date of acquisition.

Interest on debt securities is recognised in the income statement at the effective interest rate.

Loans and receivables are measured at amortised cost using the effective interest method, less impairment losses. The Company recognises loans and receivables as at the date of their accrual.

Impairment of other investments The Company assesses at the reporting date whether available for sale investments are required to be impaired. An objective evidence that debt securities and loans extended to companies outside the Telekom Group must be impaired, exists in case of contracting parties fail to meet contractually defined financial commitments (i.e. late payment, failure to settle the principal amount and interest), major financial problems on the part of the debtor or other indications that the debtor may start bankruptcy proceedings, or if the active market for an individual investment disappears in addition to changes in the technological, economic, legal and market environment. As for investments in debt securities, an objective evidence of impairment is considered to exist when the value of an item of financial assets or investments has been significantly (by more than 30 % of its cost) or permanently (by more than 12 months) reduced or when there is indication that a company in which the Company holds an interest, may start bankruptcy proceedings. In this case, the allowance of its initially disclosed value is to be charged against revaluation finance costs.

Impairment losses recognised in profit or loss shall not be reversed through profit or loss, unless the fair value of a debt instrument classified as available for sale increases subsequently and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.

Loans The Company monitors the repayment of loans and in case of default assessed whether there is any indication of required impairment. If there is objective evidence that an impairment loss on loans has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognised in profit or loss as revaluation finance costs.

Most of loans given refer to subsidiaries. One of indicators that impairment is required includes also the lowering of investments; the Company, however, individually assesses the need for impairment with individual companies and, as a rule, does not impair loans.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 227 e. Other non-current assets Prepaid rentals include mostly leases of premises and land for setting up base stations, and lease of optical fibres. Rentals are deferred over the contract period and are on a straight-line basis transferred to rental expenses, whereas transfer to costs starts on the date of the contract.

The negative difference between the selling price and the average sliding price is reported within deferred costs, depending on the anticipated subscription period.

Over the period of the subscription agreement, deferred costs are amortised on a monthly basis proportionally to the cost of sales incentives, starting on the first day of the following month with respect to the actual inception of the contractual period. If a subscription agreement is terminated or a subscriber is disconnected from the network due to the non-payment of invoices, deferred costs of incentives are adequately impaired at least once a year.

If the sales incentive is not recognised in due time and the remaining useful life until the contract’s expiry is less than 6 months, then the difference between the selling and the average sliding price is not disclosed among deferred costs.

Other non-current assets comprise also long-term granted discounts, which are deferred in the anticipated duration of the subscription period.

f. Investment property Investment property is initially stated at cost comprising the purchase price and costs that may be directly attributed to the acquisition. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation and impairment losses.

Depreciation is calculated on a straight-line basis over the useful lives of the assets. Land is not depreciated.

Useful life of investment property is 20 years.

If the investment property does not generate the expected return, the Company checks whether there is indication for impairment in compliance with IAS 36 Impairment of assets.

g. Assets held for sale Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale or distribution rather than through continuing use, are classified as held for sale or distribution. The sale of assets bust be highly probable and anticipated in the coming 12 months. The sale is highly probable when the management adopts the decision on the sale and respective sales activities are launched.

Impairment losses on initial classification as held for sale are recognised in profit or loss.

The Company checks on an annual basis whether the asset meets the requirement for being classified as held for sale. If the asset no longer meets this criteria, the Company reclassifies it back as an item of property, plant and equipment.

228 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 h. Inventories Inventories is initially recognised at cost comprising the purchase price inclusive of discounts granted, import duties and other non-refundable purchase duties, as well as costs directly attributable to the acquisition.

Inventories are accounted for using the weighted average price method.

At least once a year (expectedly in third quarter), inventories are revalued to account for impairment if their carrying value exceeds their net realisable value. i. Trade receivables Trade receivables are recognised at historical cost less any impairment losses. Upon initial recognition, receivables are recorded at amortised cost less impairments.

The Company forms allowances for current trade receivables due from local and foreign customers based on the creditworthiness of individual customers by means of an internally developed credit rating model, which is based on the combination of an external credit rating and the payment discipline of companies, as well as the payment history of individuals.

Receivables due from subsidiaries and those for which individual assessment of collectability was made by the management are not taken into account while forming allowances for trade receivables due from local and foreign customers.

In certain cases, allowances may be formed for individual receivables based on the decisions adopted by the management.

Receivables for which allowances are formed are recorded as disputed receivables. j. Deferred costs and accrued income The item of deferrals and accruals includes deferred costs, accrued income for services rendered and goods supplied, accrued income and deferred costs in connection with international services, and short-term portion of sales incentives. An individual item of deferrals and accruals is transferred to profit or loss on a straight-line basis.

Short-term deferred costs and accrued income are recorded among short-term discounts granted which are deferred in the anticipated period of subscription. k. Cash and cash equivalents Cash and cash equivalents include cash in hand and bank balances, short-term deposits with 3-month maturity, where the risk of fair value change is minimal. l. Dividends Dividends are recognised as a liability in the period in which they are declared during the General Meeting of Shareholders.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 229 m. Long-term deferred income Long-term deferred income comprises co-locations billed in advance, the lease of fibre optics network and co- financed projects.

Long-term deferred income from co-locations and leases is recognised among operating revenue over the contractually agreed term of lease or co-location.

n. Provisions Provisions are recognised in the financial statements when the Company has a present legal or constructive obligation 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 amount of the obligation. If material, provisions are determined by discounting the expected future cash flows.

Company’s treatment of obligations with uncertain timing and amount depends on management’s estimation of the amount and timing of the obligation and the probability of an outflow of resources embodying economic benefits that will be required to settle the obligation, either legal or constructive.

Provisions are recognised when the Company has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company.

Contingent liabilities are assessed on a monthly basis by the management to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously treated as a contingent liability, provisions are recognised in the financial statements for the period in which the change in probability occurs.

Provisions are decreased directly by expenses for which they have been formed.

Provisions for probable liabilities from legal actions are formed on the basis of the estimated outcome of the action. The formation of provisions is assessed individually in view of the amount of the legal action, its subject matter, the plaintiff’s assertions and the course of each individual procedure.

Provisions for retirement benefits and jubilee premiums In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay jubilee premiums and retirement benefits. A certified actuary calculates employee benefit liabilities. Liabilities are formed in the amount of estimated future payments of retirement benefits and jubilee premiums discounted at the reporting date. A calculation is made per individual employees taking into account the cost of retirement benefits and the cost of all expected jubilee premiums by the time of retirement. At each year-end, the amount of provisions is assessed and either increased or decreased accordingly. Assumptions applied are disclosed in Note 25.

Provisions for removal of base station locations refer to costs of removing the base stations and restoring of the lease property to its original condition. The amount recognised as provisions is the best estimate of costs of the removal of base stations. Provisions are stated in the amount of the discounted value for the duration of the concession agreement. The used discounted rate is based on the long-term rate of return on risk-free securities. The relevant estimate is founded on the analysis of actual removal costs, which is prepared on a 3-year basis. As at the year-end, the Company assesses whether the amount of formed provisions is sufficient; if not the value is properly adjusted.

230 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 o. Interest-bearing borrowings Interest-bearing borrowings are recognized initially at their fair value. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the period of the loans on an effective interest rate basis. If the actual or agreed interest rate does not significantly differ from the effective interest rate, interest-bearing borrowings are disclosed in the statement of financial position at initial value reduced by any repayments.

Interest-bearing borrowings are derecognised when all contractual obligations and liabilities are fulfilled, annulled or statute-barred. p. Other financial liabilities The item of other financial liabilities includes liabilities arising on bonds, commercial papers and liabilities in connection with profit distribution. q. Trade and other payables Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other payables are stated at amortised cost. r. Short-term accrued costs and deferred income The item of short-term deferred income comprises deferred income from international services valued by turnover for which calculations were not yet confirmed, short-term portion of colocations, deferred income from sale of prepaid phone cards, deferred income from customer loyalty programme that are utilised while making benefits, and deferred income from co-financed projects. Short-term deferred income includes deferred income from sale of prepaid phone cards, deferred income, and other deferred income from invoiced services and goods

Accrued costs comprise costs of staff holidays not taken, accrued payroll costs, awards and costs of international services assessed on the basis of services rendered for which invoices have not yet been issued, and other costs referring to the period for which invoices have not yet been issued to the Company. Differences between accrual and actual costs are included in profit or loss upon the receipt of invoices.

An individual item of short-term accrued costs and deferred income is transferred to profit or loss on a straight- line basis.

If no invoice is received for the already accrued costs, the Company eliminates them within 3 years. The latter does not apply in case of costs accounted for international services. s. Revenue The item of revenue includes the sales value of goods sold and services rendered in the accounting period. Revenue from services is recognised when services are rendered and there are no significant uncertainties regarding recovery of the consideration due. Revenue from sale of goods and material is recognised upon sale. Revenue is recognised in net amounts exclusive of value added tax, other taxes and through sale of related possible discounts.

Revenue from sale of prepaid cards is deferred and recognised in the period when the customer uses its prepaid services. In case, the customer does not use the service (benefit), the revenue is recognised when the validity of an individual prepaid account expires.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 231 Connection fees on the mobile and fixed-line segment are recorded in the period, when the connection of the customer is completed. The subscriptions are accounted on a monthly basis. During sales promotions, when the customers are offered a discount on the monthly subscription (provided that contracts are concluded for a definite period), the remaining subscriptions are discounted throughout the entire subscription period. Revenue from services with added value is recorded and disclosed on the net basis in the amount of the contractual commission. Revenue from IT services and goods (e.g. system integrations, cloud computing, management of integrated IT solutions) is recorded in relation to the contractual relationship with the customer. In case of providing maintenance services, the revenue is charged on a monthly basis and deferred in the contract period. Revenue generated from the sale of licences or IT products are recognised in the period when the sale is made.

Under the customer loyalty programme, customers are encouraged to buy goods and services. Once included into the loyalty programme (purchase of goods and services) customers are granted bonuses, which lowers revenue. Cash received through the customer loyalty programme can be cashed in form of discounts at purchasing goods and services. Cash is collected during the calendar year. The credit period lasts until 31 March of the next year. Balances are due upon this date and recognised as revenue.

Revenue from sales on the domestic market comprises broad-band access, stream broad-band access, network interconnection, lease of network, national tracking, and inter-operator services. Revenue from sales on international markets includes primarily international operator services, and roaming of foreign users in our network.

Revenue from network interconnection is recognised on the basis of the estimated value in view of the traffic that was performed in the previous month. Differences between estimates and actual revenue arise mostly as a result of the tolerance allowed with data about traffic, and the price changes. The tolerance allowed is different in individual contracts but can exceed mostly up to 2 % of the monthly amount. The said differences are included in profit or loss when the actual balance of revenue is established. Revenue is recognised on the gross basis, as the Company provides services by means of own network and equipment and contractually defined prices. Revenue is recognised in the period when the services are rendered.

The Company in all aforesaid cases observes the policy of concurrent recognition of revenue and costs in the period when the service is rendered or goods supplied, regardless of when exactly the actual payment was made.

t. Finance income and finance costs Interest income and costs are recognised in the profit or loss as the interest accrues (using the effective interest rate method) to the net carrying amount of the financial assets.

Dividend income is recognised in the income statement on the date dividends are declared.

u. Income tax expense Income tax for the year comprises current and deferred tax.

Income tax is recognised in the income statement except to the extent that it relates to items directly recognised in other comprehensive income or in equity, in which case it is recognised in other comprehensive incomer or in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the reporting date, and any adjustments to tax payable in respect of previous years.

232 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using the expected tax rates.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised.

Deferred tax is charged or credited directly to equity, if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. v. Statement of cash flows The statement of cash flows is compiled using the indirect method based on data from the balance sheet as at 31 December 2014 and 31 December 2013, the income statement for the financial year 2013, and additional information necessary to make adjustments of cash inflows and outflows.

4. Revenue

EUR thousand 2014 2013 Mobile services on end-customer market 252,939 268,565 Fixed-line telephone services on end-customer market 197,267 205,068 Wholesale market 179,240 171,605 Other revenue and other merchandise 13,611 13,255 Total revenue 643,057 658,493

The decline in revenue is mostly attributable to lower revenue generated through mobile services (subscribers, prepaid cards), broad-band services, fixed-line telephone services, data services and fixed-line merchandise.

Other revenue primarily refers to rendering assistance-related services to subsidiaries and to lease of premises and equipment.

EUR thousand 2014 2013 Revenue from the sale of services in domestic market 458,077 499,756 Revenue from the sale of services in foreign markets 115,195 101,574 Revenue from the sale of merchandise and materials in domestic market 67,821 56,758 Revenue from the sale of merchandise and materials in foreign markets 1,964 405 Total revenue 643,057 658,493

5. Other operating income

EUR thousand 2014 2013 Revenue from reversal of provisions 803 2,749 Government grants 746 806 Gains on disposal of property, plant and equipment 260 196 Revaluation operating income 59 43 Other income 4,157 7,568 Total other operating income 6,025 11,362

The item of other income comprises primarily revenue from damages or compensations, which were in the comparable period higher due to a one-off event.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 233 6. Cost of services

2013 EUR thousand 2014 adjusted Telecommunications services 132,319 128,681 Costs of leased lines 11,731 10,795 Multimedia services 19,712 21,274 Sales incentives 19,130 19,082 Sales commission 7,579 6,302 Maintenance of property, plant and equipment 36,673 35,352 Lease of property, plant and equipment 11,344 12,411 Cost of fairs, marketing, sponsorships and entertainment 15,175 17,751 Professional and personal services 8,450 7,775 Refund of work-related costs 502 639 Insurance premiums 3,452 3,282 Cost of postal services and transportation 3,945 3,681 Banking services 1,491 1,130 Other services 13,128 9,491 Total cost of services 284,631 277,646

Cost of telecommunication services include network interconnection, roaming and international services. These increased mostly due to a higher transit traffic, which results also in higher revenue.

Significant items among the cost of other services include services rendered by sub-contractors, in addition to costs of collection, court fees and administrative charges.

7. Employee benefits expense

EUR thousand 2014 2013 Salaries and wage compensation 81,347 83,015 Social security contributions 17,955 18,089 - of which pension insurance contributions 11,956 12,070 Other employee benefits expense 11,618 10,641 Provisions for retirement benefits and jubilee premiums 5,941 2,369 Capitalised own products and services -5,845 -2,423 Total employee benefits expense 111,016 111,691

Increase in capitalised own products and services in 2014 is attributable to a systematic approach in defining contents that can be subject to capitalisation in compliance with provisions of IAS 38 Intangible assets. More details are provided in Note 11 Intangible assets and Note 12 Property, plant and equipment.

In 2014, the Company employed in average 2,818 employees (2013: 2,907 employees).

234 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Company’s staff structure in terms of education

Average no. of staff Average no. of staff based on hours based on hours No. of staff in terms of 31 Dec Changes in 1 Jan 2014 worked and in worked and in required education 2014 2014 terms of education terms of education in 2014 in 2013 Level I 14 13 -1 14 14 Level II 15 14 -1 15 16 Level III 10 9 -1 10 11 Level IV 216 197 -19 207 217 Level V 1,165 1,080 -85 1,123 1,191 Level VI 483 481 -2 482 477 Level VII 856 830 -26 843 854 Master‘s and PhD degree 128 125 -3 127 127 Total 2,887 2,749 -138 2,818 2,907

8. Other operating expenses

EUR thousand 2014 2013

Provisions 35,490 -797 Loss on disposal of intangible assets and property, plant and equipment 524 458 Write-off of inventories 2,258 766 Impairment and write-off of receivables 3,752 6,937 Impairment of intangible assets and property, plant and equipment and investment property 746 2,041 Capitalised own products and services -1,133 -355 Other expenses 2,404 2,456 Total other operating expenses 44,041 11,506

In 2014, the expenses for provisions increased from creating provisions for probable liabilities for legal actions (Note 25).

In 2014, the Company did not change the valuation approach used in forming allowances for receivables. The amount of allowances formed in 2013 was higher based on the individual assessment.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 235 9. Finance income and finance costs

EUR thousand 2014 2013 Income on dividends and interests 3,756 3,697 Other income on interests 10,925 610 Interest income 12,317 13,234 Net exchange gains 6 0 Other finance income 11,527 804 Total finance income 38,531 18,345 Interest expense on bonds issued 15,122 15,122 Commercial papers issued 1,100 0 Interest expense 2,062 2,196 Net exchange losses 0 9 Impairment of available-for-sale investments 204 1,335 Impairment of investments in subsidiaries 979 7,890 Impairment of loans 200 741 Other finance costs 1,381 691 Total finance costs 21,048 27,984

Financial result 17,483 -9,639

Other income on interests has been generated through the disposal of the 50-percent interest held in the company Gibtelecom Limited.

In the last quarter of 2014, the Company assessed the fair value of the investment in the subsidiary TSmedia. The Company impaired this investment TSmedia and recognised the difference in profit or loss as revaluation finance costs. The amount of the investment’s impairment is disclosed in Note 13 Investments in subsidiaries, associates and joint ventures.

10. Income tax expense, deferred tax assets and deferred tax liabilities

Income tax expense recognised in profit or loss

2013 EUR thousand 2014 adjusted Deferred tax assets/liabilities 77 3,232 Other taxes not included in other items -953 -951 Income tax expense charged against profit or loss -876 2,281

Other taxes not included in other items comprise in 2014 the write-off of withholding tax; the Company cannot enforce taxes paid abroad as it does not disclose a tax base and therefore no tax liabilities.

236 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Adjustment between the actual and accounted tax expenses by taking into account the effective tax rate

2013 EUR thousand 2014 adjusted Profit or loss before tax 18,802 48,890 Tax rate 17% 17% Income tax using the domestic corporate tax rate -3,196 -8,311 Tax-free dividends 607 597 Non-taxable profit from disposal of equity interest 882 0 Tax incentives used in the current period 3,547 4,210 Reversal of tax incentives used in previous periods -46 3,526 Change in the tax rate 0 2,740 Non-deductible expenses -1,688 -1,454 Non-deductible expenses in previous period -211 260 Non-deductible expenses in the current year -1,477 -1,714 Other items -982 973 Total income tax expense -876 2,281

Effective tax rate 4.66 % 0 %

Deferred tax assets

2013 Through EUR thousand 2014 adjusted profit or loss

Intangible assets and Property, plant and equipment 7,126 7,016 110 Investments 2,638 2,627 11 Trade receivables 5,348 5,170 178 Tax loss 5,323 5,345 -22 Provisions 3,224 3,518 -294 Deferred tax assets 23,659 23,676 -17

Deferred tax liabilities

Through Through compre- EUR thousand 2014 2013 profit or loss hensive income Intangible assets and Property, plant and 1,488 1,582 94 0 equipment Investments 195 146 0 -49 Deferred tax liabilities 1,683 1,728 94 -49

Deferred tax assets and liabilities are calculated using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, using tax rates enacted in future years. In 2014, the applicable income tax rate was 17 % (2013: 17 %).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 237 11. Intangible assets (IA)

Concessions refer primarily to the use if the frequency spectrum GSM, UMTS and LTE. As at 31 December 2014, the carrying amount of concession for UMTS amounted to EUR 27,938 thousand (2013: EUR 32,017 thousand), the carrying amount of the GSM concession to EUR 1,995 thousand (2013: EUR 3,837 thousand), and the carrying amount of LTE concession to EUR 25,728 thousand. Licences refer mostly to computer software.

The Agency for communication network and services has issued the Company a decision on 26 May 2014 regarding the use of the frequency spectrum 2 x 10 MHz in the 800 MHz band, 2 x 15 MHz in the 900 MHz band, 2 x 25 MHz in the 1800 MHz band, 2 x 35 MHz in the 2600 MHz band, and 1 x 25 MHz in the 2600 MHz TDD band. The Company started to use the respective frequencies (their validity expires on 31 May 2029) in 2014, whereby the other part of the spectrum in the amount of EUR 37,705 thousand (with their validity expiring on 4 January 2031) will be put to use in 2016 and is recorded among intangible assets under construction. The total licence allowance is recorded at EUR 64,540 thousand (Note 38).

The Company has unlimited property rights on intangible assets, which are free of encumbrances.

Movements in intangible assets in 2014

Concession IA under EUR thousand Goodwill Software Other IA Total and licences construction

Cost Balance at 1 Jan 2014 919 139,187 111,592 188 10,893 262,779 Additions 0 0 0 0 88,603 88,603 Increase by internal 0 0 0 0 3,561 3,561 development Transfer to use 0 39,511 13,647 0 -53,158 0 Decrease 0 -3,861 -10,902 0 -84 -14,847 Write-offs 0 0 -1 0 0 -1 Balance at 31 Dec 2014 919 174,837 114,336 188 49,815 340,095 Accumulated amortisation Balance at 1 Jan 2014 919 95,003 101,370 183 0 197,475 Decrease 0 -3,721 -10,879 0 0 -14,600 Write-offs 0 0 -1 0 0 -1 Other transfers 0 163 0 0 0 163 Amortisation 0 14,483 10,298 1 0 24,782 Balance at 31 Dec 2014 919 105,928 100,788 184 0 207,819 Carrying amount Balance at 1 Jan 2014 0 44,184 10,222 5 10,893 65,304

Balance at 31 Dec 2014 0 68,909 13,548 4 49,815 132,276

238 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movements in intangible assets in 2013

Concession IA under EUR thousand Goodwill Software Other IA Total and licences construction

Cost Balance at 31 Dec 2013 - 919 124,560 108,760 188 13,374 247,801 initially reported Impact of the changed 0 3,625 0 0 0 3,625 accounting policy

Balance at 1 Jan 2013 - 919 128,185 108,760 188 13,374 251,426 adjusted Increase 0 1,716 0 0 15,157 16,873 Increase through internal 0 0 0 0 1,475 1,475 development Transfer to use 0 10,252 8,861 0 -19,113 0 Decrease 0 -966 -6,029 0 0 -6,995 Balance at 31 Dec 2013 - 919 139,187 111,592 188 10,893 262,779 adjusted Accumulated amortisation Balance at 1 Jan 2013 - 0 83,485 94,612 182 0 178,279 initially reported Impact of the changed 0 807 0 0 0 807 accounting policy

Balance at 1 Jan 2013 - 0 84,292 94,612 182 0 179,086 adjusted Decrease 0 -953 -5,999 0 0 -6,952 Impairment 919 0 0 0 0 919 Amortisation 0 11,664 12,757 1 0 24,422 Balance at 31 Dec 2013 - 919 95,003 101,370 183 0 197,475 adjusted Carrying amount Balance at 1 Jan 2013 - 919 41,075 14,148 6 13,374 69,522 initially reported Impact of the changed 0 2,818 0 0 0 2,818 accounting policy

Balance at 1 Jan 2013 - 919 43,893 14,148 6 13,374 72,340 adjusted

Balance at 31 Dec 2013 - 0 44,184 10,222 5 10,893 65,304 adjusted

12. Property, plant and equipment (PPE)

Company’s property, plant and equipment are recorded at cost. Land and buildings are measured at fair value.

Significant additions in property, plant and equipment refer in 2014 to the acquisition of properties and cable lines in amount EUR 6,803 thousand, to the construction and upgrade of the cable network in amount EUR 9,719 thousand, and to the acquisition of telecommunication and other equipment in amount EUR 37,974 thousand.

Property, plant and equipment are free of encumbrances.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 239 Movements in property, plant and equipment in 2014

Write-offs -118 0 -67 -2,771 -16,752 0 -19,708

Other transfers 2 67 -2 -16 -51 0 0

Balance at 31 Dec 2014 394,222 896,456 275,700 553,394 448,601 32,820 2,601,193 Accumulated depreciation Balance at 1 January 2014 109,410 692,811 262,323 446,204 377,822 0 1,888,570 Increase 354 0 0 165 47 0 566

Decrease -451 0 -841 -2,215 -9,494 0 -13,001

Write-offs -108 0 -66 -2,749 -16,749 0 -19,672

Depreciation 14,940 21,912 3,381 29,157 30,420 0 99,810

Other transfers 0 2 -2 -11 11 0 0

Balance at 31 December 2014 124,145 714,725 264,795 470,551 382,057 0 1,956,273 Carrying amount Balance at 1 January 2014 279,102 193,859 11,345 100,259 75,172 28,508 688,245

Balance at 31 December 2014 270,077 181,731 10,905 82,843 66,544 32,820 644,920

240 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movements in property, plant and equipment in 2013

Land, Equipment Other PPA under buildings, Cable Switching EUR thousand for mobile equip- construc- Total cables network exchanges telephony ment tion and lines Cost Balance at 1 Jan 2013 386,652 878,468 272,740 531,851 440,555 34,757 2,545,023 Additions 0 0 0 543 4,738 48,469 53,750 Increase by internal 0 0 0 0 0 957 957 development Transfer from assets 3,981 8,202 2,248 16,948 24,207 -55,586 0 under construction Write-offs -768 0 -295 -1,900 -6,750 -72 -9,785 Decrease -1,426 0 -1,023 -930 -9,734 -17 -13,130 Other transfers 73 0 -2 -49 -22 0 0 Balance at 31 Dec 2013 388,512 886,670 273,668 546,463 452,994 28,508 2,576,815 Accumulated depreciation Balance at 1 Jan 2013 94,464 669,549 258,380 415,046 360,260 0 1,797,699 Additions 55 0 0 56 72 0 183 Decrease, write-offs -784 0 -1,261 -1,919 -15,596 0 -19,560 Depreciation 15,602 23,262 5,206 33,049 33,129 0 110,248 Other transfers 73 0 -2 -28 -43 0 0 Balance at 31 Dec 2013 109,410 692,811 262,323 446,204 377,822 0 1,888,570 Carrying amount Balance at 1 Jan 2013 292,188 208,919 14,360 116,805 80,295 34,757 747,324

Balance at 31 Dec 2013 279,102 193,859 11,345 100,259 75,172 28,508 688,245

Land and buildings were valued by a licensed appraiser to fair value as at 1 October 2012. The Slovenian real estate market is still recording a downward trend and properties’ price cutting but less than in 2012, when the properties were appraised. The fall in prices is the result of the ongoing crisis in the construction industry and the relatively low demand.

As at 31 December 2014, the fair value of properties amounted to EUR 164,664 thousand (2013: EUR 167,287 thousand). If the properties are measured at cost, the carrying amount would as at 31 December 2014 amount to EUR 160,687 thousand (2013: EUR 163,930 thousand).

The fair value measurement was for all properties categorised at Level 3.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 241 13. Investments in subsidiaries, associates and joint ventures

Subsidiaries

Share in Share in Carrying amount of voting voting Profit or loss Share in equity as at Company Address Country Core activity Tax rate equity rights (%) rights (%) (%) 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2014 2013 2014 2013 SLOVENIA 1. GVO, gradnja in vzdrževanje Cigaletova 10, building and maintenance works Slovenia 17% 100% 100% 100% 16,027 15,994 142 778 telekomunikacijskih Ljubljana on telecommunication networks omrežij, d.o.o. 2. Avtenta, napredne Stegne 19, Slovenia systems integrator 17% 100% 100% 100% 1,513 5,477 -346 115 poslovne rešitve, d.o.o. Ljubljana 3. TSmedia, medijske Cigaletova 15, Slovenia multimedia and internet services 17% 100% 100% 100% 4,350 5,257 -908 -1,023 vsebine in storitve, d.o.o. Ljubljana production of salt and 4. SOLINE Pridelava soli, Seča 115, Slovenia preservation and management 17% 100% 100% 100% 3,191 3,697 -347 -717 d.o.o. Portorož of a natural park OTHER COUNTRIES Lagija Ulpiana, 5. IPKO Rruga „Zija Kosovo telecommunication services 10% 93% 93% 93% 7,243 5,981 564 1,395 Telecommunications LLC Shemsiu“, nr 34, Prishtina 6. Blicnet d.o.o., Banja Majke Jugovića Bosnia and telecommunication services 10% 100% 100% 100% 13,131 12,597 534 489 Luka 25, Banja Luka Herzegovina Bul. Kuzman 7. ONE DOO Skopje* Josifovski Pitu Macedonia telecommunication services 10% 100% 100% 100% 22,986 26,758 -4,045 -1,051 15, Skopje 8. DIGI PLUS MULTIMEDIA Bul. Partizanski Društvo za odredi, no. 70, Macedonia digital TV services 10% 100% 100% 100% 344 304 39 57 telekomunikaciski uslugi DTC Aluminka, DOOEL Skopje* Skopje Margaretska 3, 9. SIOL, d.o.o. Croatia telecommunication services 20% 100% 100% 100% 571 516 59 43 Zagreb 10. „SiOL“ d.o.o., društvo za pružanje Tešanjska ulica Bosnia and telecommunication services 10% 100% 100% 100% 1,678 1,631 47 -29 telekominikacijskih 24 a, Sarajevo Herzegovina usluga, Sarajevo 11. DRUŠTVO ZA Bulevar Svetog TELEKOMUNIKACIJE Petra Cetinjskog Montenegro telecommunication services 9% 100% 100% 100% 2,667 2,652 15 7 „SIOL“ DOO br.106, PODGORICA Podgorica

* Transfer to assets held for sales

242 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Associates and joint ventures

Share in Share in Carrying amount of voting voting Profit or loss Share in equity as at Company Address Country Core activity Tax rate equity rights (%) rights (%) (%) 31 Dec 31 Dec 31 Dec 31 Dec 2014 2013 2014 2013 2014 2013 1. M-PAY, Družba za mobilno Ul.Vita processing pf mobile phone plačevanje, storitve in Kraigherja 3, Slovenia 17% 50% 50% 50% 224 208 15 11 payments trgovino d.o.o. MARIBOR research and development- Tehnološki park 2. SETCCE D.O.O. Slovenia related activity in other areas of 17% 36% 36% 0% 448 0 30 0 21, Ljubljana natural science and technology

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 243 Investments in subsidiaries

EUR thousand 2013 Increase Decrease Impairment 2014 GVO 5,758 5,758 TSmedia 14,494 -979 13,515 Avtenta 4,923 -3,600 1,323 Soline 147 147 Ipko 5,730 5,730 Blicnet 14,477 14,477 SIOL, Zagreb 501 501 One 30,398 -30,398 0 Digi Plus multimedia 200 -200 0 SIOL, Podgorica 2,620 2,620 SIOL, Sarajevo 1,710 1,710 Investments in subsidiaries 80,958 0 -34,198 -979 45,781 Gibtelecom 36,775 -36,775 0 M-Pay 63 63 Setcce 0 2 2 Investments in associates 36,838 2 -36,775 0 65 and joint ventures

Total investments in subsidiaries, associates and 117,796 2 -70,973 -979 45,846 joint ventures

As founder of the company Avtenta, The Company adopted a decision on 26 November 2013 to reduce the company’s share capital by EUR 3,600 thousand. Upon the decrease and the entry in the Companies register as at 30 December 2014, Avtenta’s share capital is recorded at EUR 1,269,170.

As at 22 October 2014, Telekom Slovenije, d.d. and Telekom Austria Group have reached an agreement on merging two operators on the Macedonia market, namely the ONE DOOEL Skopje, a Telekom Slovenije Group company, and the operator VIP OPERATOR DOOEL Skopje, which is a Telekom Austria Group company. As at 30 December 2014, the management boards of ONE DOOEL Skopje and VIP OPERATOR DOOEL Skopje signed the contract on the respective merger. With respect to the signed contract and provisions of IFRS 5, the companies ONE DOO and DIGI PLUS MULTIMEDIA were reclassified in Company’s financial statements among ‘assets held for sale’.

In April 2007, the Company acquired a 50 % equity interest in the company Gibtelecom Limited in the amount of EUR 36.8 million. In November 2014, the Company signed a contract with the Gibraltar’s government on selling its 50 percent stake in Gibtelecom Limited. The government of Gibraltar acquired the 50 % share in Gibtelecom Limited from Telekom Slovenije in December 2014 and paid EUR 47.7 million. In compliance with the company’s articles of association, the Gibraltar’s government had the pre-emptive right in the relevant acquisition process, whereas as at 11 December 2014 the purchase price was also settled in its full amount.

Telekom Slovenije records a 50 % share in the joint venture M-Pay and a 36 % equity interest in the associate Setcce (an institute which was on 4 February 2013 reorganised into a company).

Impairment of investments The Company monitors the business plans and implementation of operating ratios in subsidiaries. As there were objective signs of impairment, the Company assessed the fair value of its non-current investments in TSmedia, Ljubljana.

244 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 The recoverable amount of the company TSmedia which equals its value in use was determined as the present value of future free cash flows based on the company’s 5-year projections.T he discount rate before tax applied in the projection was 11.11 %, whereas cash flows over five years are extrapolated based on a 2 % growth rate. Based on the valuation, non-current investments in TSmedia were impaired in the total amount of EUR 979 thousand. A sensitivity analysis for the recoverable amount in relation to the weighted average costs of total equity ranging from 10.11 % to 12.11 % (-1 to + 1 % of discount rate applied) and the growth rate of the residual period within the range 1 % to 3 % in view of rates applied, indicates changes in the recoverable amount in the range between EUR 11,546 thousand at a discount rate of 12.11 % and a 1 % growth rate and EUR 16,577 thousand at a discount rate of 10.11 % and a 3 % growth rate.

14. Other investments

EUR thousand 2014 2013 Investments in other shares and interests 3,222 3,139 Total available-for-sale investments 3,222 3,139 Loans to other companies 134,146 166,956 Loans to employees 680 953 Total loans given 134,826 167,909 Total other investments 138,048 171,048

With respect to the planned merger in Macedonia, the non-current loans extended to subsidiaries in Macedonia were transferred to assets held for sale (Note17).

All investments in shares and interests are classified as available-for-sale investments. Of the total amount of EUR 3,222 thousand, EUR 1,466 thousand (2013: EUR 1,177 thousand) relates to financial assets quoted on the stock market, which are recognised at fair value.

As at 31 December 2014, the Company has written off investments in Banka Celje, which were fully impaired in 2013 in the amount of EUR 143 thousand. The shares of Banka Celje were deleted from the register of securities pursuant to decisions of the Bank of Slovenia.

Other equity securities that classified as held for sale and are not listed, are recognised at cost, since the Company cannot obtain information in order to evaluate the fair value. The Company determines on an annual basis whether indication on impairment of these investments exists. The investments were impaired in 2014 in the amount of EUR 204 thousand.

Investments are not pledged as collateral and are free of encumbrances.

Loans given

EUR thousand 2014 2013 Non-current loans 134,826 167,909 Loans given 134,146 166,956 Loans to employees 680 953 Current loans 8,109 21,822 Portion of non-current loan that is due within 12 months – loans given 4,794 7,028 Portion of non-current loan that is due within 12 months – loans to employees 179 187 Current loans and interest 3,136 14,607 Balance of loans given 142,935 189,731

Non-current loans refer primarily to loans extended to Group companies (98.8 %).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 245 As for the current loan structure, most of the loans were extended to Group companies (90.8 %). Loans extended to companies operating in Slovenia bear interest at the rate stipulated by the Rules on the Recognised Rate of Interest. The annual interest rate of these loans is ranging between 1.34 % and 3.61 %. Loans granted to subsidiaries abroad are subject to the weighted annual interest rate, applied by the parent company, and increased by a premium relating to credit risk pursuant to the internal manual. The interest rate for these loans ranges between 4.93 % and 5.10 %.

The interest rate applied for loans extended ranges between 1.31 % and 4.23 %, whereas the interest rate applied for housing loans extended to employees ranges between 3.00 % and 6.23 %.

Apart from housing loans extended to employees, the loans are secured with blank bills, suretyships, by assignment of existing and future receivables or pledged with rights on real properties. The Company may demand a new collateral if it assesses that a certain loan is no longer sufficiently or properly secured.

Maturity structure of loans

EUR thousand 2014 2013 - up to 3 months 1,762 1,475 - 3 to 12 months 6,347 20,347 - 1 to 5 years 56,981 154,295 - more than 5 years 77,845 13,614 Total 142,935 189,731

Aging structure of loans as at 31 December 2014

Past due Less than 3 3 to 12 1 to More than EUR thousand Undue Total months months 5 years 5 years Loans given 142,771 130 34 0 0 142,935

Aging structure of loans as at 31 December 2013

Past Less than 3 3 to 12 1 to More than EUR thousand Undue Total months months 5 years 5 years Loans given 189,664 46 5 16 0 189,731

15. Other non-current assets

EUR thousand 2014 2013 Prepaid rentals 14,757 16,106 Deferred costs of sales incentives 2,957 3,239 Non-current trade receivables 13,673 10,250 Other long-term deferred costs 1,162 2,268 Total other non-current assets 32,549 31,863

Prepaid rentals include primarily leases of premises and land for setting up base stations, and lease of optical fibres.

Non-current trade receivables include repayments of in the amount of EUR 13,479 thousand (2013: EUR 10,016 thousand).

246 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movement in non-current assets exclusive of non-current trade receivables and long-term deferred costs

EUR thousand Rentals Sales incentives Balance at 1 January 2013 15,919 4,692 Additions 2,242 16,897 Transfer to costs -2,055 -18,350 Balance at 31 December 2013 16,106 3,239 Additions 599 18,328 Transfer to costs -1,948 -18,610 Balance at 31 December 2014 14,757 2,957

16. Investment property Movements in investment property in 2014

EUR thousand Land Buildings Total Cost Balance at 1 January 2014 3,602 861 4,463 Balance at 31 December 2014 3,602 861 4,463 Accumulated depreciation Balance at 1 January 2014 0 344 344 Depreciation 0 43 43 Balance at 31 December 2014 0 387 387 Carrying amount Balance at 1 January 2014 3,602 517 4,119

Balance at 31 December 2014 3,602 474 4,076

Movements in investment property in 2013

EUR thousand Land Buildings Total Cost Balance at 1 January 2013 4,563 2,371 6,934 Decrease 0 -1,510 -1,510 Balance at 31 December 2013 4,563 861 5,424 Accumulated depreciation Balance at 1 January 2013 0 556 556 Decrease 0 -262 -262 Impairment 961 0 961 Depreciation 0 50 50 Balance at 31 December 2013 961 344 1,305 Carrying amount Balance at 1 January 2013 4,563 1,815 6,378

Balance at 31 December 2013 3,602 517 4,119

Investment properties refer to land and buildings in Sečovlje.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 247 Investment properties are carried at cost, whereby in 2013 the Company started to apply for real properties in Sečovlje the fair (market) value.

The valuation of investment property was carried out on 12 July 2013 and 23 August 2013 by a certified appraiser, who is also a construction expert. Given the purpose and valuation method, the established value is defined as the market value. As at the year-end, the Company assessed whether there is any indication of impairment and has upon completing the procedures established otherwise.

The fair value measurement of investment property was categorised at Level 3.

Revenue generated on the lease of investment property in 2014 is recognised in profit or loss in the amount of EUR 10 thousand (2013: EUR 35 thousand). Expenses relating to investment property are recognised in the income statement in the amount of EUR 90 thousand under ‘cost of material and energy’, ‘cost of services’, ‘maintenance of property, plant and equipment’, and under ‘costs of other services’ (Note 6), and within the item ‘other expenses’ (Note 8) other operating expenses.

17. Assets held for sale

Assets held for sale relate to land and buildings that Telekom Slovenije will no longer use for business purposes in accordance with the restructuring process and the optimisation of real estate, and that are to be sold in the next 12 months according to the decision of the Management Board. Upon their disposal, assets held for sale are transferred to current assets at an amount equal to the lower of their carrying amount and fair value, less costs of sale. Prior to their transfer, the value of assets was determined by a certified appraiser. As at 31 December 2014, assets held for sale are recorded at EUR 4,485 thousand. The Company is conducting sales activities on a regular basis.

As at 30 December 2014, the management boards of the company ONE DOOEL Skopje, a Telekom Slovenije Group company, and VIP OPERATOR DOOEL Skopje, a Telekom Austria Group company, signed a merger contract. As at 31 December 2014, the Company reclassified the investment in One and Digi Plus multimedia and the non-current loans extended to subsidiaries in Macedonia in the total amount of EUR 76,303 thousand to ‘assets held for sale’ in compliance with the signed contract and provisions of IFRS 5.

EUR thousand 2014 2013 Properties held for sale 4,485 4,478 Other assets held for sale 76,303 0 Total assets held for sale 80,788 4,478

In 2014, the Company recognised an impairment loss in the total amount of EUR 357 thousand as the difference between the carrying amount and fair value of land and buildings. The impairment loss is recognised in the income statement under other operating expenses i.e. ‘impairment of intangible assets and property, plant and equipment’ (Note 8).

18. Inventories

EUR thousand 2014 2013 Material 7,111 5,636 Merchandise 18,438 10,642 Total inventories 25,549 16,278

Inventories of merchandise increased as a result of higher inventories of fixed-line merchandise and smart phones.

248 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 In 2014, inventories were measured at realisable value, whereas their write-off in the amount of EUR 2,258 thousand was recognised among other operating expenses in the income statement (Note 8). EUR 309 thousand of inventories of merchandise and EUR 670 thousand of material were valued at the net realisable value, whereas other inventories were valued at initial cost, since no write-offs were required to be made. Inventories are not encumbered or pledged as collateral.

19. Trade and other receivables

2014 2013

EUR thousand Gross value Allowances Net value Net value

Trade receivables 132,845 -22,124 110,721 102,508 Receivables due from foreign operators 19,677 -783 18,894 17,497 Receivables due from domestic operators 20,134 -9,117 11,017 13,918 Total trade receivables 172,656 -32,024 140,632 133,923 Advances and securities 1,031 0 1,031 212 VAT and other tax receivables 5,585 0 5,585 4,707 Other receivables 924 0 924 1,108 Total other receivables 7,540 0 7,540 6,027 Total trade and other receivables 180,196 -32,024 148,172 139,950

Trade receivables disclose EUR 34,016 thousand of repayment of instalments (2013: EUR 19,380 thousand).

Other trade receivables include advance payments, securities and VAT receivables. As a rule, these receivables are not subject to assessment in order to establish whether allowances should be formed.

Trade receivables are non-interest bearing.

Movement of allowances for receivables

EUR thousand 2014 2013 Balance at 1 January -31,052 -28,884 Allowances -11,488 -15,922 Reversal of allowances 8,124 11,662 Write-off 2,392 2,092 Balance at 31 December -32,024 -31,052

The method of forming allowances for receivables has not changed with respect to the previous year. In 2013, allowances were formed in a higher amount based on an individual assessment.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 249 Age analysis of receivables

2014 2013

Gross Gross EUR thousand Allowance Net value Allowance Net value value value Total trade receivables 172,656 -32,024 140,632 164,975 -31,052 133,923 Undue trade receivables 120,496 -397 120,099 113,394 -5 113,389 Past due up to 30 days 12,166 -136 12,030 11,534 -118 11,416 31 to 60 days 5,549 -88 5,461 5,052 -56 4,996 61 to 90 days 1,081 -96 985 1,551 -27 1,524 91 to 120 days 900 -488 412 1,525 -760 765 More than 121 days 32,464 -30,819 1,645 31,919 -30,086 1,833 Total past due trade 52,160 -31,627 20,533 51,581 -31,047 20,534 receivables Other operating receivables 7,540 0 7,540 6,027 0 6,027 Total receivables 180,196 -32,024 148,172 171,002 -31,052 139,950

20. Short-term deferred costs and accrued income

EUR thousand 2014 2013 Deferred costs 9,424 6,487 Accrued income for services rendered and goods supplied 2,506 426 Accrued income and deferred costs – international services 6,437 7,304 Current portion of sales incentives 13,043 14,203 Other 1 0 Total short-term deferred costs and accrued income 31,411 28,420

The increase is the result of deferred costs, which are transferred in profit or loss in the subscription period.

21. Current financial assets

EUR thousand 2014 2013 Other current loans 8,109 21,822 Bank deposits 395 8,463 Total current financial assets 8,504 30,285

Other loans include EUR 7,366 thousand in loans extended to subsidiaries including the short-term portion of non-current loans and interest Maturity of current loans and other information is outlined in Note 14.

As at the reporting date, the Company recorded 1 bank deposit (2013: 2 deposits) in the total amount of EUR 395 thousand (2013: EUR 8,463 thousand) and the maturity of 91 days (2013: 91 to 102 days). The annual interest rate is 0.30 % (weighted annual interest rate in 2013 was 0.83 %).

The respective deposit is earmarked for securing the Moneta in the first three months of 2015. The deposits bear a fixed interest rate as a result of which the Company is not exposed to interest rate risk.

250 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 22. Cash and cash equivalents

EUR thousand 2014 2013 Cash in hand and bank balances 19,032 51,989 Bank deposits with maturity of up to three months 0 905 Total cash and cash equivalents 19,032 52,894

Bank balances bear interest at bank rates for positive cash balances between 0.01 % and 0.20 % p.a., while overnight deposits bear interest at contractually agreed rates between 0.20 % and 0.55 % p.a. (2013: 0.70 % to 0.80 % p.a.). The interest rate for a one-day deposit account is set at 0.02 % p.a.

Credit lines are outlined in Note 27 Interest-bearing borrowings.

As at 31 December 2014, the Company recorded no call deposit (2013: 1 call deposit bearing the annual interest rate at 0.70 %).

23. Equity and reserves

31 Dec 2013 EUR thousand 31 Dec 2014 adjusted Called-up capital 272,721 272,721 Capital surplus 168,927 168,927 Revenue reserves 217,042 263,609 Legal reserves 50,434 50,434 Reserves for own shares and interests 3,671 3,671 Own shares and interests -3,671 -3,671 Statutory reserves 54,544 54,544 Other revenue reserves 112,064 158,631 Retained earnings 65,055 65,160 Retain earnings from previous periods 47,129 25,897 Profit or loss for the period 17,926 39,263 Revaluation reserves for property, plant and equuipment 7,264 7,721 Revaluation reserves for financial instruments 954 714 Revaluation surplus on actuarial deficits and surplus -1,019 1,112 Total equity and reserves 730,944 779,964

Called-up capital Authorised, issued and fully paid-up capital amounts to EUR 272,721 thousand and is divided into 6,535,478 ordinary no-par value shares.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 251 Ownership structure

31 December 2014 31 December 2013 Shareholder No. of shares Share (%) No. of shares Share (%) Republic of Slovenia 4,087,569 62.54 4,087,569 62.54 Individual shareholders 762,295 11.66 732,594 11.21 Domestic corporations 548,930 8.40 579,434 8.87 Kapitalska družba, d. d. 365,175 5.59 365,175 5.59 Slovenski državni holding, d.d. (SDH)* 277,839 4.25 277,839 4.25 Foreign corporations 263,794 4.04 322,296 4.93 Mutual and other funds 99,738 1.53 56,897 0.87 Banks 56,656 0.87 60,208 0.92 Insurance companies 35,306 0.54 10,970 0.17 Treasury shares 30,000 0.46 30,000 0.46 Brokerage houses 6,646 0.10 8,046 0.12 Investment agencies and management fund 1,530 0.02 4,450 0.07 companies Total 6,535,478 100.00 6,535,478 100.00

* Formerly: Slovenska odškodninska družba, d.d.

The balances and changes in equity are illustrated in the Statement of Changes in Equity. The number of issued shares did not change in the reporting period.

Capital surplus Capital surplus includes the surplus paid-up arising from ownership transformation in previous years (EUR 126,135 thousand) and the transfer of the non-taxable part of revaluation reserves for property, plant and equipment in the total amount of EUR 42,792 thousand. The movement of capital surplus is outlined within the statement of changes in equity. The capital surplus can be used for purposes specified in the applicable legislation and are not distributable.

Revenue reserves The Company forms reserves as part of revenue reserves, which is illustrated below.

Legal reserves are formed in an amount so that the sum of legal reserves and the capital surplus, which is earmarked for establishing the legally required amount of capital surplus, is added to the 20 % of the Company’s share capital.

In accordance with the provisions of the Companies Act and the Company’s acts and Articles of Association as they relate to the statutory use of the net profit and the defined priority order, the Company did not create legal reserves or statutory reserves in 2014, as it already achieves the maximum allowed amount.

Treasury share reserve is formed in the amount paid for these shares. These reserves are not distributable. No treasury shares were acquired by the Company in 2014.

As at 31 December 2014, the Company recorded 30,000 treasury shares (own shares) representing 0.46 % of equity and totalling to EUR 3,671 thousand. The number of treasury shares has not changed since their acquisition in 2003. The Company may acquire treasury shares for purposes as defined by the law.

Statutory reserves are used for forming the treasury share reserve, for covering losses, for share capital increases, and for covering diverse operating and other risks. Company forms statutory reserves until their

252 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 amount reaches 20 % of share capital. These shares are not distributable. In each individual year, 20 % of net profit is used for the formation of statutory reserves; the profit is decreased by possible amounts used for covering retained losses, for formation of legal reserves and treasury share reserve.

Other revenue reserves can be used for any purpose in accordance with the law, the Company’s acts and articles of association, business policy and resolutions adopted during the General Meeting of Shareholders. In 2014, the amount of EUR 46,567 thousand was used for lowering other revenue reserves.

Retained earnings or losses Retained earnings include retained earnings from previous periods and profit for the period.

During the 25th General Meeting of Shareholders held on 30 May 2014 in Ljubljana, the Company adopted the decision (under Point 4.1) on the distribution of the accumulated profit. The accumulated profit for 2013 is recorded at EUR 65,054,780.00 and will be used in its full amount for dividend pay-out i.e. EUR 10.00 gross per share (in 2013, dividends for the fiscal year 2012 were paid out in the amount of EUR 78,065 thousand or EUR 12.00 per share.

Accumulated profit for 2014

in EUR Net profit for 2014 17,925,881.57 Retained earnings 561,451.87 Transfer from other revenue reserves 46,567,446.56 Total 65,054,780.00

Proposed dividend pay-out for 2014 Amount of dividend paid: eUR 65,054,780.00 Dividend per ordinary share: EUR 10.00

Revaluation surplus Revaluation surplus refers to the increase of the assets’ carrying amount by applying the valuation model. With respect to its prior occurrence, the Company applies a breakdown of revaluation surplus as shown in the table below.

Revaluation surplus on property, plant and equipment

Change in revaluation surplus for fair value of property, plant and equipment

EUR thousand 2014 2013 Balance at 1 January 7,721 8,358 Transfer to retained earnings or losses -457 -440 Change of tax rate 0 -197 Balance at 31 December 7,264 7,721

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 253 Revaluation surplus on financial instruments Revaluation surplus on financial instruments includes the change in value of available-for-sale financial assets and is recorded at EUR 954 thousand.

Change in revaluation surplus for fair value of available-for-sale investments

EUR thousand 2014 2013 Balance at 1 January 714 611 Revaluation of available-for-sale investments (value increase) 289 141 Deferred tax (liabilities) -49 -24 Change of tax rate 0 -14 Balance at 31 December 954 714

Revaluation surplus on actuarial deficits and surpluses Actuarial surplus or deficit refers to changes in the present value of payables to employees due to changed actuarial assumptions and on the basis experienc e-based adjustments. As at the reporting date, revaluation surplus declined by EUR 2,131 thousand and as at 31 December 2014 amounted to EUR -1,019 thousand (2013: EUR 1,112 thousand).

24. Long-term deferred income

EUR thousand 2014 2013 Co-location billed in advance 7,227 5,590 Government grants 488 553 Property, plant and equipment obtained free-of charge 404 465 Other long-term deferred income 2,453 2,402 Total long-term deferred income 10,572 9,010

Accrued co-locations relate to payments received in advance for renting certain premises and equipment to other operators. The increase is attributable to the conclusion of new contracts.

25. Provisions

Movement of provisions in 2014

Change in EUR thousand 2013 Use Elimination Formation discount 2014 rate Provisions for probable payments 21,553 -2,249 -803 36,538 0 55,039 resulting from legal actions Provisions for retirement benefits and 8,086 -244 -1,359 2,131 613 9,227 jubilee premiums Provisions for estimated costs of base 3,030 -28 -3 33 0 3,032 stations removal

Other provisions 199 -222 0 165 0 142

Provisions for restructuring 3,048 -3,048 0 7,300 0 7,300

Total provisions 35,916 -5,791 -2,165 46,167 613 74,740

254 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Movement of provisions in 2013

Change in 2012 EUR thousand Use Elimination Formation discount 2013 adjusted rate Provisions for probable payments 25,163 -861 -2,749 0 0 21,553 resulting from legal actions Provisions for retirement benefits 8,121 -177 -584 369 357 8,086 and jubilee premiums

Provisions for estimated costs of 3,750 -100 -959 30 309 3,030 base stations removal

Other provisions 246 -193 0 146 0 199

Provisions for restructuring 1,845 -797 0 2,000 0 3,048

Total provisions 39,125 -2,128 -4,292 2,545 666 35,916

Provisions for probable payments resulting from legal actions Provisions have declined in the reporting period by EUR 3,052 thousand. The amount EUR 2,871 thousand refers to provisions formed for the legal action filed by the company ABM, based on which the Supreme Court of the Republic of Slovenia decided in the revision in July 2014 that Telekom Slovenije ows ABM the amount EUR 941 thousand with legal default interest. In November 2014, In a case before the District Court in Ljubljana, the plaintiff Benedict d.o.o. and one of the three defendants ofT elekom Slovenia reached in November 2014 an out- of-court settlement. Based on judgements, the Company utilised provisions for the stated legal actions in the amount of relevant payment, and in the remaining part eliminated the provisions.

Provisions for probable payments resulting from legal actions are created on the basis of the estimated outcome of the actions, conducted with great caution. The date of payment cannot be determined. The relevant actions refer primarily for claims due to the alleged abuse of holding a monopoly of markets, where Telekom Slovenije conducts its business operations. In addition, the Competition Protection Office of the Republic of Slovenia (AVK) began several ex officio processes in previous years to determine an alleged abuse of Telekom Slovenije’s dominant position on the market. The Company was primarily successful in cases that finally concluded up to this date, which is also published in accordance with the Stock Exchange’s Rules. On the basis of management’s estimate and obtained legal opinions, provisions in the amount of EUR 55,039 thousand were formed for actions relating to the Competition Protection Office and grew in the reporting period by EUR 36,538 thousand.

In 2014, total damages claimed by pending legal actions brought against Telekom Slovenije amount to EUR 298,040 thousand (2013: EUR 584,991 thousand) as outlined in Note 34. The amount is exclusive of possible amounts claimed by the Competition Protection Office, which may amount from 0.5 % to 10 % of annual revenue, as the court rejected the Agency’s decision and remanded the case. Provisions were formed on the basis of proceedings, whose damages claimed were recorded in the total amount of EUR 275,328 thousand as at 31 December 2014.

Provisions for estimated costs of the removal of base stations Provisions were formed in the amount of the estimated cost of removal discounted to present value by using the discount rate of 2.25 % p.a. (2013: 4.10 p.a.) which equals the 2014 year-end yield on 15-year gilt-edged bonds from euro area issuers, increased by a local risk premium.

Provisions for retirement benefits and jubilee premiums Provisions for retirement benefits upon retirement are based on actuarial calculations. The calculations applied the discount rate of 2.25 %, whereas the rate of fluctuation takes account of the age interval ranging from 0 % to 3.5 % (2013: discount rate of 4.10 %, rate of fluctuation ranging from 0 % to 3.5 %). Company’s liabilities equal the present value of estimated future payments. The Company records no other retirement-related liabilities.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 255 Provisions for restructuring activities Pursuant to the business plan, the Company created provisions in the amount of EUR 7,300 thousand for restructuring activities that shall be used for severance pay. The relevant provisions will be utilised in 2015 and 2016.

26. Non-current operating liabilities

2013 EUR thousand 2014 adjusted Contractual liabilities under program rights 7,487 2,434 Other 176 992 Total non-current operating liabilities 7,663 3,426

Contractual liabilities grew in 2014 as a result of newly recognised contracts for TV contents.

27. Interest-bearing borrowings

This note provides information about the contractual terms of the Company’s interest-bearing borrowings. More information on interest rate and foreign currency risk management is provided in Note 37 – Financial risk management.

EUR thousand 2014 2013 Non-current borrowings Borrowings from banks 59,245 92,105 - short-term portion of non-current borrowings -23,698 -32,860 - long-term portion of borrowings 35,547 59,245 Total long-term portion 35,547 59,245 Current borrowings Current maturity of non-current borrowings 23,698 32,860 Interest 5 9 Total short-term portion 23,703 32,869

Contractual terms agreed on borrowings

Long-term Short-term Agreed interest Last payment EUR thousand portion portion Collateral rate due 31 Dec 2014 31 Dec 2014 6mEURIBOR bank 2017 –0.025 % guarantee 3mEURIBOR Non-current 2017 none financial +0.083 % 35,547 23,698 liabilities to 3mEURIBOR bank 2017 banks –0.018 % guarantee 3mEURIBOR 2017 none +0.105 %

The Company discloses short-term and long-term credit lines or revolving loans that are secured by blank bills of exchange. Short-term and long-term revolving loans fall due in 2015 and bear interest and a mark-up from 2.05 % to 4.10 % In addition, the Company concluded agreements with banks on bank-account overdrafts subject to an interest rate of between 6.00 % and 6.65 %.

Borrowings from foreign banks are denominated in euro and apply variable interest rates or fixed interest rate.

256 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Banks that have approved non-current loans require that certain debt covenants (i.e. balance sheet values and ratios) specified in loan agreements be maintained, including: consolidated total debt, consolidated net tangible worth, EBITDA, consolidated total debt/EBITDA. If the prescribed ratio values are not achieved, the banks may demand early repayment of loans. As at 31 December 2014, the Company met all contractual provisions. In accordance with provisions of two foreign loan contracts, the related liabilities must be secured with guarantees of a bank or other financial institutions.

28. Other non-current financial liabilities

EUR thousand 2014 2013 Bonds issued 299,471 298,899 Other financial liabilities 3,059 13,502 Total other non-current financial liabilities 302,530 312,401

29. Trade and other payables

2013 EUR thousand 2014 adjusted Trade payables 80,986 74,317 Payables to domestic operators 1,569 5,105 Payables to foreign operators 10,148 8,974 VAT and other tax payables 7,329 5,070 Payables to employees 8,918 7,397 Payables for advances and securities 209 168 Other payables 6,178 9,138 Total trade and other payables 115,337 110,169

The increase in trade payables is attributable mostly to maintenance of the telecommunications network and the supply of smart phones.

Trade payables are non-interest bearing and are generally settled between 8 and 120 days. Payables to operators are non-interest bearing and are normally settled between 10 and 90 days.

30. Other current financial liabilities

EUR thousand 2014 2013 Dividends paid 150 141 Bonds issued -131 -131 Commercial papers issued 45 0 Interest-rate swaps 0 314 Finance lease 0 149 Total other current financial liabilities 64 473

In 2014, Telekom Slovenije issued 270–day commercial papers in the total par value of EUR 50 million bearing interest at 3 % p.a. The commercial papers matured as at 5 December 2014.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 257 31. Short-term deferred income

EUR thousand 2014 2013 Deferred income from the sale of prepaid cards 2,022 1,925 Short-term portion of co-locations 1,927 1,568 Short-term portion of government grants for property, plant and equipment 135 125 Other deferred income 3,195 1,733 Total short-term deferred income 7,279 5,351

The item of other deferred income increased primarily as a result of launching the new customer loyalty programme in October 2013.

32. Accrued costs and expenses

EUR thousand 2014 2013 Accrued costs and expenses for services rendered and goods supplied 13,363 10,091 Accrued costs and deferred income – international services 6,848 9,532 Accrued wages and bonuses 548 80 Accrued costs for unused vacation days 3,983 4,123 Other 48 0 Total accrued costs and expenses 24,790 23,826

33. Carrying amounts and fair values

Carrying amounts and fair values at 31 December 2014

Carrying EUR thousand Fair value Level 1 Level 2 Level 3 amount Land and buildings 164,664 164,664 164,664 Investment property 4,076 4,076 4,076

Available-for-sale financial assets 3,222 3,222 1,466

Loans given 134,826 134,826 134,826 Other non-current assets 32,549 32,549 Current financial assets Loans given 8,109 8,109 8,109 Bank deposits 395 395 Cash, cash equivalents and 19,054 19,054 income tax receivables Operating receivables 148,172 148,172 Non-current financial liabilities Bonds 299,471 315,150 315,150 Interest-bearing borrowings 35,547 35,547 35,547 Other financial liabilities 3,059 3,059 Current financial liabilities Bonds –131 –131 Interest-bearing borrowings 23,703 23,703 23,703 Other financial liabilities 195 195 Trade payables 115,337 115,337

258 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Carrying amounts and fair values at 31 December 2013 - adjusted

Carrying EUR thousand Fair value Level 1 Level 2 Level 3 amount Land and buildings 167,287 167,287 167,287 Investment property 4,119 4,119 4,119 Non-current financial assets

Available-for-sale financial assets 3,139 3,139 1,177

Loans given 167,909 167,909 167,909 Other non-current assets 31,863 31,863 Current financial assets Loans given 21,822 21,822 21,822 Bank deposits 8,463 8,463 Cash, cash equivalents and 52,916 52,916 income tax receivables Operating receivables 139,950 139,950 Non-current financial liabilities Bonds 298,899 304,500 304,500 Interest-bearing borrowings 59,245 59,245 59,245 Other financial liabilities 13,502 13,502 Current financial liabilities Bonds -131 -131 Interest-bearing borrowings 32,869 32,869 32,869 Other financial liabilities 604 604 Trade payables 110,169 110,169

Fair value hierarchy

Fair value of securities that are valued at cost in the total amount of EUR 1,758 thousand (2013: EUR 1,962 thousand) is not established as relevant information in not available; however, the Company does assess on an annual basis whether there is indication of impairment. Consequently, these securities were not included in the fair value categorisation. The same applies for investments in subsidiaries, associates and joint ventures, which are also measured by applying the cost model (Note 13).

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 259 34. Commitments and contingencies

Liabilities under operating lease

Company as the lessee Liabilities from operating leases include property, plant and equipment and primarily relate to leased lines, business premises and leased base station.

Payable in (EUR thousand) 2014 2013 - 1 year 19,450 20,129 - 1 to including 5 years 70,862 77,166 - more than 5 years 79,700 88,468

Lease payments for business premises and base stations are defined on the basis of the price as agrees with the owner and with respect previous leases. In cases, when the operator is the owner, the amount of the lease is defined according to the latter’s price list and in view of its own price list for leasing premises. Lease contracts are concluded for an indefinite period of time, for the period of operations, or for 15 years with the possibility of prolongation if negotiated so by parties.

In 2014, Company’s income statement includes EUR 21,847 thousand of costs for operating lease (2013: EUR 22,481 thousand), which are disclosed among costs of lease of lines and of property, plant and equipment (Note 6).

Company as the lessor Receivables from operating leases relate to the lease of property, plant and equipment. They refer primarily to co-locations, lease of business premises and base stations.

Payable in (EUR thousand) 2014 2013 - 1 year 4,573 4,202 - 1 to including 5 years 18,294 16,808 - more than 5 years 22,867 21,011

As at 31 December 2014, income from operating leases recognised in the income statement amounted to EUR 4,573 thousand (2013: EUR 4,202 thousand); they are recorded among revenue from sale of services on the domestic and foreign market (Note 4).

Contingencies from legal actions

EUR thousand 2014 2013 Contingencies from legal actions 298,040 584,991

260 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 At the 31 December 2014, the Company recorded 50 pending legal actions brought against it, whereby in case of the biggest in terms of value no development was reported. The relevant cases are at various stages, namely: - a procedure in the first instance is in progress and both parties are filing their case, - the main hearing was fixed and the taking evidence is in progress, - a case is concluded in the first instance with a judgement issued, which is not final yet, or - a decision was issued in the second instance and the judgement was final but a revision was filed as extraordinary appeal.

In 2014, two new legal actions were filed against the Company by the company AKTON relating to a payment of EUR 2,403 thousand and by the company Quantum referring to the payment of EUR 450 thousand. During the course of proceedings, Telekom Slovenije shall prove that the claimed amounts are entirely unfounded.

As of 29 December 2014, the Company concluded with Simobil d.d. an Agreement on settling mutual relations in which they have settled open matters and defined the terms and conditions for future business cooperation. On 22 January 2015, the company Simobil d.d. has withdrawn its legal action filed against the Company at the District Court in Ljubljana in the amount of EUR 286,392 thousand and other charges; the competent court halted the said legal action on the basis of the decision dated 26 January 2015.

On the basis of management’s estimate and obtained legal opinion, provisions in the amount of EUR 55,039 thousand were formed for actions relating to the Competition Protection Office (Note 25).

Given the proceedings’ progress, it is difficult to provide an estimate of the completion of individual matter.

Guarantees provided

EUR thousand 2014 2013 Performance bonds and guarantees for repairs 2,495 3,419 Guarantees provided for contractual obligations 7,843 8,279 Other securities 870 50 Total guarantees 11,208 11,748

None of the stated liabilities meets the terms for recognition among balance sheet items. Thus, no related material consequences are expected.

Commitments for intangible assets and property, plant and equipment At the end of 2014, commitments for intangible assets amounted to EUR 3,031 thousand (2013: EUR 2,845 thousand), mainly relating to the purchase of software and licences, to software-related development, collection and preparation of technical documentation data.

Commitments for property, plant and equipment amounted to EUR 7,578 thousand (2013: EUR 10,323 thousand) in 2014 and primarily relate to the construction of the telecommunication network, purchases of telecommunications equipment, to the acquisition of property and provision of supply and air conditioning, to the purchase of mechanical equipment, PCs, and to equipment for servicing and upgrading SWUS BNET products.

Company records no contractual obligations for investment property.

35. Related party transactions

Company’s related entities refer to the Republic of Slovenia, as the majority shareholder of Telekom Slovenije, and to other shareholders, members of the Management Board and the Supervisory Board and their close family members.

Transactions with individuals Natural persons or individuals (the President and Vice President of the Management Board and its members, and the Vice Chairman of the Supervisory Board and its members) hold 1,549 shares in the Company, representing an equity holding of 0.0237 %.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 261 Data on groups of persons

Loans Participation in profit based Total gross on the decision Outstanding as EUR thousand Repaid in 2014 receipts of the General at 31 Dec 2014 Meeting of Shareholders Total Management Board members 863 - - - - Rudolf Skobe 181 - - - - Zoran Vehovar 85 - - - - Tomaž Seljak 101 - - - - Mateja Božič 167 - - - - Zoran Janko 176 - - - - Darja Senica 78 - - - - Vesna Lednik 75 - - - Supervisory Board members 252 - - - Members of Supervisory Board Committees 10 - - - Other managers and staff employed under individual contracts that are not subject to 4,400 - 26 6 the tariff part of the collective agreement

Loans to other managers and employees under individual employment contracts were approved at interest rates ranging from 4.01 % to 4.13 % p.a. The loans were approved in the total amount of EUR 67 thousand and with a repayment period of up to 15 years.

The Company has not granted any advances or guarantees to the respective groups of persons and does not record any liabilities.

Remuneration paid to Management Board members (breakdown)

Reimbur- Ho- Variable Insurance Total Total EUR Salary sement of liday Benefits PDPZ earnings premiums gross * net ** costs pay

Members of the Management Board did not receive any shares in profit, options, commissions or other earnings.

262 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Remuneration paid to Supervisory Board members (breakdown)

Attend- Basic salary Travel Com- Liability in EUR ance for holding the allow- Total gross* Total net** mittees insurance fees office ance

External members

Borut Jamnik 3,740 28,000 3,260 - 753 35,753 25,455 (1 January - 31 December) Tomaž Berločnik 3,960 19,250 1,540 - 753 25,503 18,001 (1 January - 31 December) Adolf Zupan 4,180 22,400 2,816 2,309 753 32,458 23,059 (1 January - 31 December) Bernarda Babič 3,964 19,250 3,036 947 753 27,950 19,781 (1 January - 31 December) Marko Hočevar 4,184 21,000 2,816 - 753 28,753 20,364 (1 January - 31 December)

Matej Matzele Golob 4,624 21,000 2,376 - 753 28,753 20,364 (1 January - 31 December)

Internal members

Martin Gorišek 1,320 5,444 880 - - 7,644 5,560 (1 January – 22 April) Milan Richter 1,045 6,098 1,716 - - 8,859 6,443 (1 January – 8 April) Primož Per 3,135 10,952 1,320 - - 15,407 11,205 (15 May - 31 December) Samo Podgornik 2,640 10,952 220 - - 13,812 10,045 (15 May - 31 December) Dean Žigon 4,730 20,503 1,936 - - 27,169 19,760 (1 January-31 December)

Total 37,522 184,849 21,916 3,256 4,518 252,061 180,037

Members of the Supervisory Board received no other payments.

Remuneration of members of the Supervisory Board Committees (breakdown)

Attendance Basic salary for Commit- Travel Liability Total Total EUR fees holding the office tees allowance insurance gross* net** External Committee members Barbara Nose 0 7,000 3,476 - - 10,476 7,619 (1 January - 31 December)

Total 0 7,000 3,476 0 0 10,476 7,619

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 263 Transactions with Group companies

EUR thousand 2014 2013 Receivables due from Group companies 154,422 202,288 Subsidiaries 154,036 201,859 Jointly controlled entities 18 17 Associates 368 412 Liabilities to Group companies 18,666 19,653 Subsidiaries 16,734 18,834 Jointly controlled entities 2 2 Receivables due from Group companies 1,930 817

EUR thousand 2014 2013 Revenue 26,433 22,808 Subsidiaries 24,786 21,338 Jointly controlled entities 66 157 Associates 1,581 1,313 Purchase of material and services from Group companies 62,892 60,701 Subsidiaries 59,989 58,724 Jointly controlled entities 8 8 Associates 2,895 1,969

Telekom Slovenije, d. d. generates rental income from the renting of business promises, property, plant and equipment to GVO, and revenue from the provision of telecommunication services and support services. The Company pays for the construction and maintenance of telecommunication capacities, whereas it records receivables due from GVO relating to non-current and current loan and related interest.

The Company records receivables due from TSmedia in connection with a non-current and current loan and related interest. TSmedia pays for telecommunication and call centre services, maintenance, for development and purchase of multimedia platforms and contents, for business support services and lease for business premises. TSmedia charges the parent company the sale and management of multimedia services and contents, for advertising in its media, and revenue relating to call centre services, which are charged to end- customers by the Company.

Telekom Slovenije generates income from Avtenta in connection with the lease of business premises, the provision of telecommunications services on location and support services. The parent company pays Avtenta for computer support services.

Company’s receivables due from the Ipko Group refer primarily to the non-current current loans and interest. Telekom Slovenije pays for international IP services, roaming, transit calls, and other services.

Company‘s receivables due from the subsidiary Blicnet include the non-current and current loan, in addition to accrued leases under IP-services fort he international market. The subsidiary charges the parent company the lease of lines and telecommunication services in the international traffic.

The aforementioned intragroup transactions are concluded on an arm’s length basis.

As at the reporting date, the Company records no guarantees and collaterals provided to subsidiaries.

264 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Transactions with the Government of the Republic of Slovenia, entities and institutions under its control The Company provides telecommunication services to the Government of the Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder.

In 2014, revenue from sales to government organisations was generated in the amount of EUR 23,228 thousand (2013: EUR 25,127 thousand). As at the year-end of 2014, receivables due from the government and due to be collected are recorded in the amount of EUR 3,988 thousand, whereof EUR 110 thousand are past due. The Company does not monitor nor collect information on sales to companies owned or partially owned by the Republic of Slovenia or entities under its control.

36. Auditor’s fees

EUR thousand 2014 2013 Audit services 140 142 Other services of providing assurance 4 9 Other non-audit services 1 0 Total auditor‘s fees 145 151

Audit services encompass interim and annual costs of auditing.

37. Financial risk management

Credit risk The most important source of credit risk (failure to meet obligations) refers to non-payment of liabilities by customers (retail sale) and by operators (wholesale).

Trade and other payables account for 47 % of Company’s current assets. In terms of the total receivables structure, 74 % of receivables relate to retail sales, while 26 % relates to wholesale activities. The Company records a large number of customers, which positively impacts the dispersal of risk. Receivables due from domestic companies account for 74 % of total receivables, whereas the difference refers to receivables due from customers abroad.

Credit risk is managed by establishing the business partners’ credit rating and a disciplined collection of receivables. In compliance with the Rules on receivables management, the more risky partners are required to provide insurance for possible receivables i.e. on the operator-related part of the bank guarantee and bills, as well as on the retail-related part of bills and sureties. As at 31 December 2014, receivables arising on the operator-related part were insured with bank guarantees in the amount of EUR 283 thousand.

The Company defines the credit ratings of business users based on its rating model, which contributes to efficient credit risk management and serves as an additional indicator for increasing customer services during sales procedures. The basic measure of credit risk management is an ongoing collection pursuant to the time schedule and the exclusion of non-payers at the end. Monitoring traffic, informing customers about increased use and prevention and early detection of fraud, are an additional measure.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 265 Pre-court and court collections are carried out in compliance with the policy adopted. Receivables are impaired pursuant to accounting policies, whereby the age criteria of each individual receivable is taken into account. Allowances are formed for trade receivables in view of the creditworthiness of each individual customer, past experiences and expectations in the accounting period. As the result of well-developed procedures for managing receivables, the Company assesses credit risk as manageable.

The Company’s maximum exposure to credit risk arises on the carrying amount of trade and other receivables. In terms of the structure of total exposure to credit risk, the highest exposure to individual customer in 2014 accounts for 3 %.

The Company is also exposed to certain credit risk in connection with bank balances and bank deposits, loans to subsidiaries, third parties and employees, and guarantees issued to third parties, in particular those issued to subsidiaries. The Company mitigates the credit risk that arises from the default of the counterparties based on collateral in loan and warranty agreements, the amount of which must be at least equal to the amount of the loan given or guarantee issued.

Credit risk exposure

EUR thousand 2014 2013 Loans given 142,935 189,731 Investments 3,617 11,602 Trade and other receivables 148,172 139,950 - whereof trade receivables 140,632 133,923 Cash and cash equivalents 19,032 52,894 TOTAL 313,756 394,177

The analysis of loans given in terms of maturity is provided in Note 14 Other investments, whereas the analyses on trade receivables and movement of allowances for receivables in Note 19 Trade and other receivables.

Short-term and long-term liquidity risk Liquidity risk refers to a deficit in available assets or the ability to provide foreign sources of liquidity for settling liabilities upon their maturity.

The liquidity risk was in 2014 assessed as medium, which mostly depends on the size of the impact that the relevant risk could cause. The probability of this risk was low as the Company is able to settle all its liabilities at any time.

The Company manages short-term liquidity risk by carefully managing and planning cash flows from operations. Liquidity is monitored on a daily basis and planned on a monthly, bi-monthly forecast and annual basis (daily monitoring of bi-monthly a forecast and annual forecast per months), which facilitates the timely detection of possible deficits in liquid assets and decision on the appropriate measures. Liquidity reserve in form of long-term and short-term unused revolving bank lines, bank overdrafts, current deposits with banks and bank balances provided an adequate current balancing of cash flows and thus reduced the liquidity risk. Company’s liquidity reserve amounted to EUR 224.9 million as at 31 December 2014.

266 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Given the uncertainty referring to the privatisation procedure, a certain level of risk was detected in relation to renewing the existing short-term sources of financing, as well as in connection with refinancing short- term sources with long-term sources of financing. With respect to the willingness of banks to provide funds, the risk arises also in connection with obtaining the required borrowing consents in compliance with the applicable regulation. The respective risk is managed through advance talks held with banks regarding the required financing, and by means of timely performance of refinancing procedures that are bound by the regulation. With the purpose to disperse the said risk and to obtain additional alternative sources of financing, the Company issued for the first time 9-month commercial papers in the par value of EUR 50 million.

The long-term liquidity risk is assessed as medium as a result of foreseeable cash flows, stable and successful operations, suitable capital structure, a proper long-term schedule for financial debt repayment and an active working capital management.

Maturity profile of Company’s liabilities as at 31 December 2014 and 31 December 2013 based on contractual undiscounted payments

Less More Past On de- 3 to 12 1 to 5 EUR thousand than 3 than 5 Total due mand months years months years 2014 Loans and borrowings 0 0 4,877 18,826 35,547 0 59,250 Anticipated interest on loans 0 0 15 52 42 0 109 Other financial liabilities 195 0 0 -131 302,530 0 302,594 Anticipated interest on bonds 0 0 0 14,625 14,625 0 29,250 Trade payables and other 0 209 111,551 3,577 7,663 0 123,000 operating liabilities Total 195 209 116,443 36,949 360,407 0 514,203 2013 adjusted Loans and borrowings 0 0 7,726 25,143 59,245 0 92,114 Anticipated interest on loans 0 0 274 427 273 0 974 Other financial liabilities 141 0 306 26 312,401 0 312,874 Anticipated interest on bills 0 0 0 14,625 29,250 0 43,875 received Trade payables and other 971 2,909 99,574 6,715 3,426 0 113,595 operating liabilities Total 1,112 2,909 107,880 46,936 404,594 0 563,432

Interest rate risk

Interest rate risk derives from changes in interest rates that have a negative impact on interest-sensitive financial liabilities and may result in higher costs for related liabilities.

Exposure to interest rate risk is assessed as low as 82.5 % of Company’s financial liabilities refer to bonds issued bearing a fixed interest rate. Other liabilities under interest-bearing borrowings are subject to variable interest rates bound by 3- or 6-month Euribor.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 267 Interest rate risk table The following table illustrates the sensitivity of the Company’s profit before tax to a reasonably likely change in interest rates, with all other variables held constant (due to the impact of floating rates for borrowings). Changes in interest rate have no impact on the equity but on profit or loss of the Company.

Increase/decrease in basic interest rate Effect on profit or loss before tax (EUR thousand) 2014 EURO +100 bt –592 EURO –100 bt 592 2013 EURO +100 bt –921 EURO –100 bt 921

The table is exclusive of non-interest bearing financial instruments, as they are not exposed to interest rate risk.

Capital management The primary objective of Company’s capital management is to ensure that it maintains a strong credit rating and capital ratios in order to support its business and maximise shareholder value.

The Company monitors capital using a debt/equity ratio, which is net debt divided by total net debt plus total equity. Company’s net debt includes interest-bearing borrowings and other financial liabilities less current investments and cash with short-term deposits. Ratios and financial covenants under loan contract are observed while adopting decisions relating to capital management.

The Company discloses relatively low borrowing rate, which is considered a good basis for achieving an adequate credit rating and accordingly lower borrowing costs. As the Company is to a large extend owned by the state, the credit standing is subject to the rating of the state.

2013 EUR thousand 2014 adjusted Interest-bearing borrowings and other financial liabilities 361,844 404,988 Less current investments and cash with short-term deposits –27,536 –83,179 Net debt 344,308 321,809 Equity 730,944 779,964 Balance sheet total 1,334,852 1,374,378 Net debt to equity 45.7 % 41.3 %

Equity ratio 54.8 % 56.8 %

268 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 38. General authorisation and the rights to use radio frequency and block numbers

Fixed line and mobile operations The provision of the electronic communications network or the provision of electronic communication services is subject to a general authorisation. Prior to the commencement of the provision of public communication networks or services, notification must be given in writing to the Agency for Communication Networks and Services (hereinafter: the Agency). An undertaking is not required to obtain an explicit decision or any other administrative act by the national regulatory authority before exercising the rights stemming from the authorisation.

In the past, Telekom Slovenije has issued notifications for the provision of the following electronic communication services: ¬ public voice services in the fixed public telecommunications network, ¬ voice services in the public mobile network, ¬ inter-operator services and transit, ¬ data-related services and internet access, ¬ lease of public communication network, and ¬ provisions of public communication networks.

Pursuant to notification, an annual fee must be paid in the amount of EUR 734 thousand (2013: EUR 775 thousand). The amount of the fee paid is defined by a tariff in a general act of the Agency.

Telekom Slovenije also has to pay right-of-use fees for radio frequencies and block numbers. The right-of- use fee for radio frequencies for the accounting period amounted to EUR 914 thousand (2013: EUR 751 thousand), while the right-of-use fee for block numbers amounted to EUR 438 thousand (2013: EUR 453 thousand). The amount of the fees to be paid is defined by a tariff in a general act of the Agency. These costs are disclosed in the income statement under cost of services in the last item costs of other services (Note 6).

Mobile phone services

Concession agreement Starting date Period Concession fee

Concession agreement for telecommunication services with the use of the radio frequen- 3 January 2001 15 years EUR 4,173 thousand cy spectrum in GSM mobile telephony in the DCS1800 network Concession agreement for telecommunication 15 years, services with the use of the radio frequen- 27 November extended until EUR 91,804 thousand cy spectrum in the mobile network system: 2001 21 September UMTS/ITM-2000. 2021 Concession agreement for telecommunicati- up to on services with the use of the radio frequen- 3 April 2013 EUR 4,302 thousand 3 January 2016 cy spectrum in GSM 900 mobile telephony Decision on allocating the radio frequency for 31 May 2014 to 26 May 2014 EUR 26,835 thousand LTE 800 MHz and UMTS 210 MHz 31 May 2029 Decision on allocating the radio frequency the 4 January 2016 mobile network system GSM 900, 1800 MHz, 26 May 2014 to EUR 37,705 thousand LTE 2600 MHz 4 January 2031

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 269 39. Events after the balance sheet date

January

¬ Telekom Slovenije received a judgement from and confirmed the decree of the court of the District Court in Ljubljana in the economic first instance (which dismissed the Sky net’s dispute of the plaintiff Akton, d.o.o. against requirement to issue a temporary decree). the defendant Telekom Slovenije (previously The court of first instance will in a renewed Mobitel, d.d.). The respective Court fully procedure decide on the subordinate claim rejected the claim as unfounded. The company regarding the fulfilment of the agreement i.e. Akton, d.o.o. already announced via media the order for the construction of 414 base that it will appeal against the judgement, stations and compilation of the documentation whereas the Company will respond to the latter for 434 base stations. The trial is called for 9 announcement in due time. April 2015 and the Company expects that SKY NET, d.o.o. will lodge a revision against the ¬ Telekom Slovenije received a proposal from Higher Court’s decision and the decree. the District Court in Ljubljana to reopen proceedings in the economic dispute filed ¬ As a part of Telekom Slovenije Group’s by the company T-2, d.o.o. against Telekom consolidation in the Macedonian market, Slovenije. Telekom Slovenije will respond to the which includes the separation of the regional court proposal within the legally prescribed optical network from the ONE DOOEL Skopje period and demonstrate during the procedure subsidiary, Telekom Slovenije has established that the proposal for reopening the case is a new subsidiary SIOL DOOEL Skopje; the entirely unfounded. latter is 100 % owned by Telekom Slovenije, which transferred its 100 % equity interest in ¬ Telekom Slovenije received a judgement from the subsidiary DIGI PLUS MULTIMEDIA DOOEL the Administrative Court of the Republic of Skopje to the company ONE DOOEL Skopje. Slovenia in which the court rejected the claim of Telekom Slovenije for the annulment of the ¬ Telekom Slovenije received a decision from the Competition Protection Agency’s decision District Court in Ljubljana of 27 January 2015 (which was filed against Telekom Slovenije for regarding the commercial dispute between the restricting ADSL connections for operators to plaintiff Simobil, d.d. and the defendant Telekom the end users with prior ISDN connection lease) Slovenije for the payment of liabilities in the and to terminate the relevant proceeding, with amount of EUR 286,392,223.00 with interest the decision that each party is obliged to pay and other charges. On 22 January 2015 Simobil, its own costs incurred in the process. Telekom d.d., with the approval of Telekom Slovenije Slovenije will in due time lodge a revision submitted an application on withdrawing from against the judgement at the Supreme Court of the legal procedure, and consequently the the Republic of Slovenia. District Court issued a decision on stopping the procedure. As already disclosed in the ¬ Telekom Slovenije, d.d. received a judgement accounting report hereof, Telekom Slovenije and and a decree from the Higher Court in Ljubljana, Simobil, d.d., have on 29 December 2014 signed in which the latter fully rejected the primary an Agreement on Settling Mutual Relations, claim in the economic dispute of the plaintiff based on which they settled all the open issues SKY NET, d.o.o. against the defendant Telekom between the companies, and defined the Slovenije (payment of indemnification) and conditions for future business cooperation. thus finally completed the case in this part,

270 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 February

¬ Telekom Slovenije received a judgement from the regarding the process of determining the abuse Administrative Court of the Republic of Slovenia of dominant position in the carrier market for in the administrative dispute of the Company broadband bitstream access in the Republic of as plaintiff against the Slovenian Competition Slovenia, and on the carrier market of access to Protection Agency (AVK) for the annulment physical network infrastructure in the Republic of the decision in which AVK establishes that, of Slovenia. The Company will study the decision in the period between 1 December 2002 to 5 of the AVK and on that basis adopt a decision on September 2005, Telekom Slovenije abused its further measures. dominant position on the bit stream broadband access interconnection market through copper ¬ With the purpose to fully manage the regional network in the Republic of Slovenia and for optical network, Telekom Slovenije established termination of the proceeding at AVK. In the the company SIOL DOO Beograd, where it owns abovementioned judgement, the Administrative a 100 % equity interest; the company SIOL Court of the Republic of Slovenia rejected the DOO Beograd was entered into the Belgrade’s plaintiff’s claim for the annulment of the AVK Companies register on 13 February 2015. decision and to terminate the proceeding at AVK with decision that each party is obliged to pay ¬ Telekom Slovenije signed a contract on acquring its own costs incurred in the process. Telekom 100 percent equity interest in the company Slovenije will consider the judgement by the Debitel telekomunikacije, d.d. The business deal Administrative Court of the Republic of Slovenia will be closed upon obtaining the consent from and decide on further action appropriately. competent bodies for competition protection. Until completion of the business deal, Telekom ¬ Telekom Slovenije received a decision from the Slovenije will not disclosed any details incuding Slovenian Competition Protection Agency (AVK) the purchase price.

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 271 3.3.3 independent Auditor‘s Report

272 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 4. APPENDIX

4.1. Telekom Slovenije Group companies

Telekom Slovenije, d. d. is the parent company of the Telekom Slovenije Group, which operates on the markets of South-Eastern Europe and Germany.

Company: Telekom Slovenije, d. d. Registered office: Ljubljana Address: Cigaletova ulica 15, 1000 Ljubljana Telephone: + 386 1 234 10 00 Website: www.telekom.si Twitter: @TelekomSlo Facebook: sl-si.facebook.com/TelekomSlovenije LinkedIn: www.linkedin.com/company/telekom-slovenije Email: [email protected]

Subsidiaries in the Group

Companies in Slovenia

Company: GVO, gradnja in vzdrževanje telekomunikacijskih omrežij, d. o. o. Registered office: Ljubljana Address: Cigaletova ulica 10, 1000 Ljubljana Telephone: + 386 1 234 1950 Website: www.gvo.si Email: [email protected]

Company: GVO Telekommunikation GmbH Registered office: DE 48703 Stadtlohn, NRW, Bundesrepublik Deutschland Address: Daimlerstr. 3 Telephone: +386 1 234 1950 Website: http://www.gvo.si/de Email: [email protected]

Company: AVTENTA, napredne poslovne rešitve, d. o. o. Registered office: Ljubljana Address: Stegne 19, 1000 Ljubljana Telephone: + 386 1 583 68 00 Website: www.avtenta.si Email: [email protected], [email protected]

Company: TSmedia, medijske vsebine in storitve, d. o. o. Registered office: Ljubljana Address: Cigaletova ulica 15, 1000 Ljubljana Telephone: + 386 1 473 00 10 Website: www.tsmedia.si Email: [email protected]

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 273 Company: Antenna TV SL, televizijska dejavnost, d. o. o. Registered office: Ljubljana Address: Stegne 19 Telephone: + 386 1 473 00 00 Website: www.planet-tv.si Email: [email protected]

Company: SOLINE Pridelava soli, d. o. o. Registered office: Portorož Address: Seča 115, 6320 Portorož/Portorose Telephone: + 386 5 672 13 43 Website: www.soline.si Email: [email protected]

Company: M-PAY, Družba za mobilno plačevanje, storitve in trgovino, d. o. o. Registered office: Maribor Address: Ul. Vita Kraigherja 3, 2000 Maribor Email: [email protected]

Company: SETCCE, družba za e-poslovanje, d. o. o. Registered office: Ljubljana Address: Tehnološki park 21, 1000 Ljubljana Website: www.setcce.si Email: [email protected]

Companies abroad

Company: IPKO Telecommunications LLC Registered office: Priština, Kosovo Address: Lagija Ulpiana Rruga »Zija Shemsiu« Nr. 34, Prishtine Telephone: + 381 38 700 700, Website: www.ipko.com Email: [email protected]

Company: ONE Telecommunication Services DOOEL Registered office: Skopje, Makedonija Address: Bulevar Kuzman Josifovski Pitu 15 Telephone: + 389 2 541 1000 Website: www.one.mk Email: [email protected]

Company: DIGI PLUS MULTIMEDIA DOOEL Skopje Registered office: Skopje, Makedonija Address: Bulevar Partizanski odredi 70, DTC Aluminka, 5. nadstropje

274 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Company: Blicnet d. o. o. Banja Luka Registered office: Banja Luka, Bosna in Hercegovina Address: Majke Jugovića 25 Telephone: + 387 51 921 000 Website: www.blic.net Email: [email protected]

Company: SIOL d. o. o. Registered office: Zagreb, Hrvaška Address: Margaretska 3

Company: SiOL d. o. o. Sarajevo Registered office: Sarajevo, Bosna in Hercegovina Address: Tešanjska 24a, Sarajevo Centar

Company: SIOL d. o. o. Podgorica Registered office: Podgorica, Črna gora Address: Bulevar Svetog Petra Cetinjskog 106

Company: SIOL DOOEL Skopje Registered office: Skopje, Makedonija Address: Bulevar Kuzman Josifovski Pitu 15

Company: SIOL d.o.o. Beograd-Palilula Registered office: Beograd, Srbija Address: 27. marta 11

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 275 4.2. abbreviations of technical terms

Abbreviation English term Slovene translation Agency for Communication Networks and Agencija za komunikacijska omrežja in storitve AKOS Services of the Republic of Slovenia Republike Slovenije ARPU Average Revenue Per User Povprečni prihodek na uporabnika BI Business Intelligence Poslovna inteligenca Javna agencija Republike Slovenije za varstvo AVK Slovenian Competition Protection Agency konkurence ATM Asynchronous Transfer Mode Asinhroni prenosni način BB BroadBand Širokopasovni dostop BI/DW Business Intelligence/Data Warehouse Poslovna inteligenca/podatkovno skladišče - Billing Sistem za zaračunavanje - Branding Znamčenje BSS Business Support System Sistem za podporo poslovanju Sistem za podporo poslovnega procesa/sistemi BSS/OSS Business/Operational Support System za operativni podporni proces BU PURE LRIC Long-Run Incremental Cost Dolgoročno prirastni stroški od spodaj navzgor - Bundle (packet) Skupek v paket povezanih storitev Sodobna rešitev za upravljanje z dokumentarnim - BusinessConnect gradivom B2B Business-to-Business Poslovanje med podjetji CAGR Compound Annual Growth Rate Povprečni letni prirast CAPEX Capital Expenditure Vrednost investicij CATV Cable Television Kabelska televizija CEM Customer Experience Management Upravljanje uporabniške izkušnje Cloud services Storitve v oblaku CRM Customer relationship management Sistemi za upravljanje z uporabniki - Cross-sale Navzkrižna prodaja CWDM Coarse wavelength division multiplexing Grobo valovno multipleksiranje Customs administration of the Republic of CURS/FURS Slovenia/Financial administration of the Carinska uprava RS/Finančna uprava RS Republic of Slovenia D2D Door to door Od vrat do vrat Razbremenjevanje mobilnih podatkovnih omrežij - Data offload na druge tehnologije DECT Digital enhanced cordless telecommunications Digitalne izboljšane brezvrvične telekomunikacije DDOS Distributed Denial of Services Porazdeljena zavrnitev storitve DMS Data management sistem Sistem upravljanja podatkovnih knjižnic Specifikacija (standard) prenosa podatkov prek Docsis Data Over Cable Service Interface Specification kabelskih sistemov DSC Diameter Signalling Controler Krmilnik signalizacije diameter DTV Digital television Digitalna televizija Digitalna video radiodifuzija s podporo prenosa IP DVB-x/IP Digital Video Broadcast – IP over x (C, S, T) podatkovnih paketov preko MPEG transportnega toka Digital Video Broadcasting-Terrestrial/Cable/ Prizemna/kabelska/satelitska digitalna video DVB-T/C/S Satelite radiodifuzija DWDM Dense Wavelength Division Multiplex Gosti valovni multipleks DVB-T Digital Video Broadcasting-Terrestrial Prizemna digitalna video radiodifuzija Dense Wavelength Division Multiplex DWDM ROADM Gosti valovni multipleks Reconfigurable Optical Add-Drop Multiplexer

276 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 Abbreviation English term Slovene translation Nastavljiv optični Gosti valovni multipleks multipleksor Dense Wavelength Division Multiplex Nastavljiv optični multipleksor za dodajanje in za dodajanje in odvzemanje odvzemanje DWDM ROADM Dense Wavelength Division Multiplex Gosti valovni multipleks Nastavljiv optični multipleksor European Foundation for Quality Management Evropska nagrada za poslovno odličnost za dodajanje in odvzemanje Earnings before interest, taxes, depreciation Dobiček iz poslovanja pred obrestmi, davki in EBITDA and amortization amortizacijo EFQM European Foundation for Quality Management Evropska nagrada za poslovno odličnost EU European Union Evropska unija FC Fiber channel Optični kanal (Evolved) Hiter prenos podatkov prek mobilnega omrežja – Enhanced Data rates for GSM Evolution EDGE nadgradnja kodne sheme GPRS na višje hitrosti EUREM European EnergyManager Evropski energetski menedžer FTTH Fiber To The Home Optično vlakno do hiše/stanovanja FTTH/B/N Fiber To The Home/Business/Node Optika do hiše/podjetja/vozlišča FTTx Fiber To The Exchange Optika do X Gradnja odprtega širokopasovnega omrežja (bele GOŠO Construction of Open Broadband network lise – subvencionirano s sredstvi EU) HFC Hybrid Fiber Coax Hibridno optično koaksialno omrežje IKT Information and Communication Technologies Informacijsko-komunikacijske tehnologije IMS IP Multimedia Subsystem Podsistem za IP večpredstavnostne komunikacije IoT Internet of Things Internet stvari IP Internet Protocol Internetni protokol IP TV IP television Televizija preko internetnega protokola IT Information Technology Informacijska tehnologija IP Multimedia Core Network Subsystem Voice IMS/VOLTE IP multimedijski sistem/govor preko LTE-omrežja over LTE (Long-Term Evolution) KFI Key Financial Indicators Ključni finančni indikatorji poslovanja KPI Key Performance Indicators Ključni kazalniki poslovanja KPSS Sečovlje Salina Nature park Krajinski park Sečoveljske Soline LTE Long Term Evolution 4G, post 4G, po 3 GPP mobilnem standardu M2M Machine to Machine Komunikacijska povezava med napravami MBB Mobile Broadband Mobilni širokopasovni dostop MMS Multimedia Messaging Service Multimedijski sporočilni sistem MVNO Mobile Virtual Network Operator Mobilni operater navideznega omrežja MUX/DEMUX Multiplexer/demultiplexer Multiplekser/demultiplekser NGA Next Generation Access Dostop naslednje generacije NGN Next Generation Networks Širokopasovna omrežja naslednje Multiplexer/demultiplexer Multiplekser/demultiplekser generacije Occupational Health and Safety Advisory OHSAS 18001 Svetovni standard za varnost in zdravje pri delu Services Standard OMS Order management system Sistem upravljanja naročil OPEX Operational Expenditure Stroški poslovanja brez amortizacije OŠO Construction of Open Broadband Odprta širokopasovna omrežja Storitve, ki delujejo neodvisno od omrežja – OTT Over-the-top distribucija video in avdio vsebin preko interneta

Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014 277 Abbreviation English term Slovene translation - Performance Management Zagotavljanje uspešnosti zaposlenih PLM Product lifecycle management Upravljanje življenjskega cikla produkta POP Point Of Presence Dostopovno vozlišče RAN Radio Access Network Radijsko mobilno dostopovno omrežje RAS Revenue Assurance System Sistem za preprečevanje odtekanja prihodkov Radijsko dostopovno omrežje, kontroler baznih RAN BSC Radio Access Network Base Station Control; postaj Radio access Network Transmission Razpis za posodobitev radijskega in prenosnega RAN TM Modernization omrežja - Resale Preprodaje maloprodajnih produktov ROO Regional Optical Network Regionalno optično omrežje SDV / VAS Value Added Services Storitve z dodano vrednostjo Zaračunavanje in kontrola prometa na podlagi SACC Service Aware Charging and Control; storitev SIST EN ISO Mednarodni standard za sisteme upravljanja z 50001 / SIST International Organization for Standardization energijo IEC ISO 27001 mednarodni standard za vodenje Resale Preprodaje maloprodajnih produktov informacijske varnosti SLA Service level agreement Nivo zagotavljanja storitve SME Small and Medium Eneterprises Majhna in srednja podjetja SMS Short Message Service Storitev kratkih sporočil SOA/BPM Service Oriented Architecture Proces upravljanja storitev SOHO Small Office Home Office Majhna pisarna, domača pisarna STS Telekom Slovenije Group Skupina Telekom Slovenije SURS Statistical office of Republic Slovenia Statistični urad Republike Slovenije TDM Time Division Multiplex Časovni multipleks UDC User Data Consolidation Poenotena baza uporabnikov Univerzalni mobilni telekomunikacijski sistem/ Universal Mobile Telecommunications System/ UMTS/HSPA protokol 3G, ki pomeni nadgradnjo omrežja UMTS High Speed Packet Access in omogoča večje prenosne hitrosti USO Universal Service Obligation Obveznost zagotavljanja univerzalnih storitev VOiP Voice over IP Govor prek IP-protokola WFM Work Force Management Sistem za optimizacijo terenskega dela Wi-Fi Wireless Fidelity Brezžično omrežje po IEEE 802.11 standardih WMS Warehouse management system Upravljanje skladiščnega poslovanja XaaS storitve Anything as a Service Ponudba celostne palete storitev v oblaku USO Universal Service Obligation Obveznost zagotavljanja univerzalnih storitev VOiP Voice over IP Govor prek IP-protokola WFM Work Force Management Sistem za optimizacijo terenskega dela Wi-Fi Wireless Fidelity Brezžično omrežje po IEEE 802.11 standardih WMS Warehouse management system Upravljanje skladiščnega poslovanja XaaS storitve Anything as a Service Ponudba celostne palete storitev v oblaku

278 Annual Report of the Telekom Slovenije Group and Telekom Slovenije, d. d. for 2014