Annual Report 2009 II

Financial highlights - IFRS HT accounting policies

T-HT Group Financial highlights

in HRK million Jan - Dec 2009 Jan - Dec 2008 % of change 09/08 Revenue 8,517 8,791 -3.1 % EBITDA before exceptional items 3,859 4,009 -3.8 % EBITDA 3,695 3,964 -6.8 % EBIT (Operating profit) 2,294 2,602 -11.9 % Net profit 2,023 2,310 -12.4 % EBITDA margin before exceptional items 45.3 % 45.6 % -0.3 p.p. EBIT margin 26.9 % 29.6 % -2.7 p.p. Net profit margin 23.8 % 26.3 % -2.5 p.p. CAPEX 1,553 1,624 -4.4 % CAPEX / Revenue ratio 18.2 % 18.5 % -0.3 p.p. At 31 Dec 2009 At 31 Dec 2008 % of change 09/08 ROE 16.6 % 18.5 % -1.9 p.p. Financial leverage ratio 0.20 0.22 -7.9 % Quick ratio 3.17 3.14 1.0 % Number of employees 6,116 6,487 -5.7 %

Balance Sheet

in HRK million At 31 Dec 2009 At 31 Dec 2008 % of change 09/08 Total non current assets 8,175 7,977 2.5 % Total current assets 6,297 7,227 -12.9 % Total assets 14,472 15,205 -4.8 % Total issued capital and reserves 12,012 12,440 -3.4 % Total non current liabilities 556 565 -1.5 % Total current liabilities 1,904 2,200 -13.5 % Total equity and liabilities 14,472 15,205 -4.8 % III

Operational highlights

T-Com Segment Operational highlights Key operational data Dec 2009 Dec 2008 % of change 09/08 Fixed telephony Total POTS and FGSM mainlines 1,390,568 1,444,356 -3.7 % Total ISDN mainlines 93,020 105,767 -12.1 % Total (POTS+FGSM+ISDN) 1,483,588 1,550,123 -4.3 % Payphones 8,034 8,948 -10.2 % Total mainlines 1,491,622 1,559,071 -4.3 % (POTS+FGSM+ ISDN+Payphones) Total Traffic (thousands of minutes) Jan - Dec 3,464,391 3,797,966 -8.8 % To national fixed network 2,926,481 3,177,675 -7.9 % To national mobile network 310,937 365,003 -14.8 % To VAS 65,346 66,119 -1.2 % To international networks 119,445 133,210 -10.3 % Remaining traffic(1) 42,182 55,959 -24.6 % Average monthly voice revenue per voice 138 150 -7.9 % access (ARPA) (HRK) Internet services Internet access customers Number of Internet subscribers 596,978 551,869 8.2 % Dial-up users 766,429 761,324 0.7 % Active dial-up users 41,983 79,215 -47.0 % ADSL mainlines 554,995 472,654 17.4 % IPTV customers 235,980 135,573 74.1 % Fixed-line customers 1,152 1,026 12.3 % VPN connection points 3,528 2,395 47.3 % Data services Total Data lines and connection points 6,153 6,289 -3.7 % Wholesale services Customers CPS 227,879 235,869 -3.4 % NP 348,210 272,687 27.7 % ULL 123,054 87,072 41.3 %

(1) Includes payphone traffic, operator assisted services, additional services (such as CLIP, CLIR, CFR, conference call, inquiries services and fixed SMS) and calls to satellite. IV

T-Mobile Segment

Key operational data Dec 2009 Dec 2008 % of change 09/08 Operational highlights Subscribers No. of pre-paid subscribers 1,938,867 1,879,377 3.2 % No. of post-paid subscribers 919,991 810,615 13.5 % Total T-Mobile subscribers 2,858,858 2,689,992 6.3 % % of post-paid subscribers 32.2% 30.1% 2.0 p.p. Minutes of use (MOU) MOU per average subscriber 112.0 122.3 -8.5 % Average revenue per user (ARPU) (HRK) Blended ARPU 98.0 117.0 -16.3 % (monthly average for the period in HRK) (4) i (5) Blended non-voice ARPU 23.1 24.5 -5.5 % (monthly average for the period in HRK) SAC per gross add 198.7 269.9 -26.4 % Churn rate (%) Churn rate total 1.9 1.4 0.5 p.p. Churn rate post-paid 0.8 0.7 0.1 p.p. Churn rate pre-paid 2.3 1.7 0.6 p.p. Penetration (2) 137.7 132.4 5.3 p.p. Market share of subscribers (%) (2) 46.7 45.8 1.0 p.p. Market share by revenue (%) (1) (3) 48.7 50.1 -1.3 p.p.

(1) Market share by net revenue (2) Source: published VIPnet’s and Tele2’s quarterly report for 4Q 2008. Number of subscribers for VIPnet and Tele2 for 4Q 2009 are internally estimated. (3) Source: Telekom Austria Quarterly report for 4Q 2008. Tele2 Quarterly report for 4Q 2008. VIPnet’s and Tele 2 total revenue for 2009 are internally estimated. Market shares are based on unconsolidated revenue for T-Mobile (i.e. not net of T-Com revenue). (4) Blended ARPU is effected by restating of previous year for IFRIC 13. (5) 6% contribution fee on mobile revenues is included in blended ARPU for 2009. Presentation of information in the Annual Report Unless the context otherwise requires, references in this publication to ‘‘T-HT Group’’ or ‘‘the Group’’ or “T-HT” are to the Company — HT—Hrvatske telekomunikacije d.d., together with its subsidiaries. References to ‘‘HT’’ or the ‘‘Company’’ are to the Company — HT—Hrvatske telekomunikacije d.d. Following the merger of T-Mobile d.o.o. with HT - Hrvatske telekomunikacije d.d. (HT d.d.), the Group is from 1 January 2010 organized into two business units: Business and Residential. Therefore, references to ‘‘T-Mobile’’ are to business operations performed in previous periods by the Company’s wholly-owned subsidiary, T-Mobile Croatia d.o.o. References to ‘‘T-Com’’ are to business operations including the fixed network, wholesale, broadband, data, on-line services and ICT solutions that were in previous years performed by the Company’s business Unit T-Com.

Because of inter-segment transactions, the sum of the financial results of the two individual segments does not equal the Group’s financial results in total. References to ‘‘Iskon’’ are to the Company’s wholly-owned subsidiary, Iskon Internet d.d. References in this publication to ‘‘Agency’’ are to the Croatian National Regulatory Authority, the Agency for Post and Electronic Communications. Content

II Financial Highlights III Operational Highlights

7 Introduction 8 Letter to Shareholders 11 Corporate Profile 12 Investor Information 16 Management Board 19 Supervisory Board 20 Supervisory Board’s Report 25 Corporate Governance Code Compliance Statement

31 Business Review 2009 32 Croatian Telecommunication Market Overview 34 Regulatory Environment 37 Group’s Strategy 39 Organization of the Group 41 T-Com 47 T-Mobile 50 Network and Information Technologies 52 Human Resources

55 Corporate Social Responsibility 56 Donations and sponsorships 59 Ecology

61 Financial Review 2009 62 Consolidated Revenue 62 Consolidating Operating Expences 62 T-HT Group Profitability 63 Financial Position 63 CAPEX 64 Financial Results of the T-Com Segment 65 Financial Results of the T-Mobile Segment

67 Consolidated Financial statements 68 General information 69 Independent Auditor’s Report 72 Consolidated statement of comprehensive income 73 Consolidated statement of financial position 75 Consolidated statement of cash flows 76 Consolidated statement of changes in equity 77 Notes to the consolidated financial statements

124 Index

I. Introduction

Letter to Shareholders Corporate Profile Investor Information Management Board Supervisory Board Supervisory Board’s Report Corporate Governance Code Compliance Statement Introduction 8 8 more customer-focused organization. organization. customer-focused more even and integrated an into T-Mobile and T-Com of operations the merging by business our in chapter new a began and infrastructure in investments substantial made results, business good achieved we competition, ever-increasing and economy the Despite business. our on have would they impact the out pointed openly we year the throughout environment, economic our of aware being contrary, the on neglected, not were facing were we challenges The market. telecommunications Croatian the of leadership its confirmed again T-HT Croatia, in and globally both conditions, economic unfavorable extremely by characterized year a In Dear Shareholders, Letter toShareholders the SupervisoryBoardhavemade aproposaltothe healthy cashposition,theManagement Boardand Considering theGroup’sgood performanceandits exceeded theCROBEXindexby20pp. the valueofT-HTshares2009,aperformancethat Furthermore, investorssawa37.8%increasein telecommunications sector. time, raisingstandardsacrosstheentireCroatian driving ourowncompanyforwardandatthesame even fastertocustomerandmarketrequirements, business customerswillenableustorespond Our newoperationalfocusonresidentialand such asFacebookandTwitter. SMS andT-MobileWAPaswell asonsocialnetworks mobile handsetsandreceivecontent updatesvia Users cannowaccesstportal through PDAsand being addedtoitsalreadybroadrangeofcontent. which wasredesignedin2009withnewsections leading positionofourinformationportal-tportal, The importanceofcontentisalsoreflectedinthe marketing offers. packages, constantserviceupgradesandattractive achieved withanexcellentvarietyofprogram 236,000 homesattheendofyear-afeat subscribers numberby74.1%toreachalmost service wasalsoaresoundingsuccess,increasing by 17.4%nearly555,000.Ourinteractivetelevision services, increasingthenumberofADSLsubscribers excellent resultsfrombroadband-basedinternet T-Com, ourfixed-networkbusinessunit,achieved 2009. August in Government the by introduced services, telephony of newtaxes,includinga6%excisetaxonmobile personal spendingintherecession,andbecause a declineinrevenuesascustomerstightened For thefirsttime,however,T-Mobileexperienced customers’ needs. offers andconstantimprovementofservicestomeet to ourcontinuingcommitmentinnovativepricing which nowexceed2.8million.Webelievethisisdue leadership byrevenuesandsubscribernumbers, T-Mobile, oursubsidiary,maintaineditsmarket internet. mobile high-speed for appetite increasing an driving saturation, mobilebroadbandandnew3Gdevices reaching telephony mobile trends; global with line in telephony fixed-line for demand decreasing content, web for demand growing television, strong developmentofbroadbandandinteractive telecommunications experiencedfamiliartrends: Looking backat2009,theCroatian d.d. tosetthedividendatHRK34.05pershare. General AssemblyofHT-Hrvatsketelekomunikacije reduced by4.2%toHRK1,553 million.Themajority increase. Asaconsequence,capital expenditurewas broadband andmobileInternet servicescontinuesto telecommunications system,even asdemandfor to maintainthehighqualityandefficiencyof expenditure toalevel,whichwillstillenableus the Groupdeemeditprudenttoreducecapital Taking intoconsiderationtheeconomicsituation, optimization program. payments relatedtoimplementationofaheadcount staff costsduetotheprovisionsmadeforseverance control. Savingswereachieveddespiteanincreasein also totheGroup’scontinuingcommitmentcost variable costsassociatedwithfallingrevenues,but operating costswasduenotonlytothedecreasein declining slightlymorethencosts.Thefallin HRK 3,859million,whichistheresultofrevenues EBITDA beforeexceptionalitemsfellby3.8%to broadband andrelatedservices,suchasMAXtv. clearly showingthevalueconsumersplaceon services increasedby27.7%toHRK1,145million, respectively. Bycontrast,revenuefromInternet and wholesaledecreasedby10.2%3.3% in previousyears,revenuefromfixedtelephony crisis-management measuresbecamefelt.As as therecessionandimpactofGovernment’s which occurredmostlyinthesecondhalfofyear attributable tothe5.0%fallinT-Mobilerevenues, million fallinrevenues,HRK207are fell 3.1%toHRK8,517million.Ofthis274 Despite a5.0%fallinCroatianGDP,T-HTrevenues small andmediumenterprises. 2009 witharangeofICTproductsandservicesfor Technologies (ICT),enteringthemarketinNovember attention toInformationandCommunications in thetelecommunicationssector,weturnedour technologically advancedandattractiveservices At thesametimeasT-HTcontinuedtodevelop offered inthissegment. services the and liberalization market of result the is which users, ULL of numbers increasing generate to continued services wholesale T-Com’s

Introduction 9 10 Introduction Zagreb, March2009 National SoccerTeam. INmusic Festival;andoursponsorshipoftheCroatian Contemporary Art,theKulTuristProject,T-Mobile care centers;ourfinancialsupporttotheMuseumof emergency medicalassistanceandlocalhealth our donationstohealthinstitutions,particularly made evidentbyourpartnershipwithUNICEF; our environmentalprotectionstrategy.Thisisalso activities andbythecontinuingimplementationof resources andsponsorshipforsociallybeneficial nongovernmental organizationsbyprovidingT-HT educational, culturalandscienceinstitutions and developmentofsociety-incooperationwith numerous activitiesweundertakeforthebenefit observed inouractionscanalsobeseenthe in ourcorporatecitizenship.Thehighstandards in ourmarketleadershipandstrength,butalso The successofouroperationsisreflectednotonly and relatedplatforms. MAXtv, andtodevelopmentof2G3Gnetworks of broadbandaccessandadvancedservicessuchas of capitalinvestmentsweredirectedtotheextension

Supervisory Boardfortheirsupportintheyear2009. colleagues fromtheManagementBoardand for theircommittedanddiligentwork,tomy for thetrustplacedinus,toGroup’semployees I wouldliketoexpressmythanksallshareholders customers. our of satisfaction increased the and efficiency and quality in improvements growth, unchanged: remain will priorities Our market. telecommunications the of focused onmaintainingleadershipinallsegments remain will we pressures these of face the In period. business a demanding expect we services, mobile on tax excise 6% introduction ofcrisistax,andconsideringthe of personalspending,dueto,amongotherthings, decrease as well as unemployment, of increase in Croatia,thedropGDPandalarming Taking intoaccounttheextentofcrisis challenges. many bring will year coming The President of Management Board Management of President vc Mudrinić Ivica

Veterans andTheirFamilies, pursuant totheLawon War Homeland Croatian for Fund the to d.d. HT in shares its of 7% transferred Croatia of Republic As of17February2005,theGovernment ofthe ownership. in share 51% a with shareholder majority the became thus and d.d. HT in share 16% further DTAG, andon25October2001DTAGpurchaseda to d.d. HT in share 35% a sold Croatia of Republic the 1999, October 5 on 68/01), No. and 65/99 No. Gazette (Official d.d. telekomunikacije Hrvatske of Pursuant tothetermsofLawonPrivatization commenced itsoperationson1January1999. Company The d.d.). (HP d.d. pošta Hrvatska - HP and d.d.) (HT d.d. telekomunikacije Hrvatske - HT companies, stock joint new two into transferred and separated was p.o.) s (HPT telekomunikacije i pošta Hrvatska - HPT former the of operation business the which by Telecommunications, Croatian and Post Croatian into Telecommunications and Post Croatian of Separation the on Act the of provisions the to pursuant Croatia, of Republic the in 1998 December 28 on incorporated was It (DTAG). AG Telekom Deutsche by owned majority company stock joint a is Company) the or d.d. (HT d.d. telekomunikacije Hrvatske - HT and IncorporationHistory with GSMandUMTSmobiletelephonenetworks. (lease of lines, ATM, X.25 and Frame Relay), operating provides Internet services, data transmission services network supplementary services), the Group also telephony line access and traffic, as well as fixed the provision of fixed telephony lines services (fixed networks within the Republic of Croatia. In addition to and construction of electronic communications of electronic communications services and the design d.d. and subsidiary companies comprise the provision The basic activities of HT-Hrvatske telekomunikacije legal entity),T-Mobileandothersubsidiaries. business throughT-Com(whichwasnotaseparate and Businessunits,havingpreviouslyconducted Group conductsitsbusinessthroughResidential Internet anddataservices.Asof1January2010,the and mobiletelephonyservicesaswellwholesale, telecommunications servicesinCroatia,offeringfixed The T-HTGroupistheleadingproviderof At aGlance Corporate Profile Residential andBusinessunits. 2010, afterwhichtimetheGroup wasorganisedinto to exist.Themergercameinto effecton1January merger cameintoforcewherebyT-Mobileceased expiry of31December2009alltheeffects court registeron31December2009andwiththe telekomunikacije d.d.Themergerenteredintothe T-Mobile CroatiawasmergedintoHT-Hrvatske In October2009,anagreementwassignedbywhich private andinstitutionalinvestorshold38.5%. Croatia reduceditsholdingfrom9.5%to3.5%,while Post in June2008,theGovernmentofRepublic employees ofT-HrvatskiTelekomandCroatian Following thesaleofsharestopresentandformer institutional investors. international and Croatian among distributed were 7.5% while retail, Croatian to went 25% shares, of 32,5% the From (IPO). Offering Public Initial by shares ordinary T-HT of 32.5% sold Croatia of Republic the 2007, October 5 on 68/01), No. and 65/99 No. Gazette (Official d.d. telekomunikacije Hrvatske of Privatization on Law the of provisions the to Pursuant Croatia. in providers alternative leading the of one d.d., Internet Iskon of shares of 100% acquired Group the 2006, May 30 of As the mobileoperationsbusinessunit,T-Mobile. also provided wholesale, Internet and data services,the fixed andnetwork operations business unit, marksT-Com, for which the two separate business units ofcorporate the Group: level was followed by the creationDeutsche Telekom.Thechangeofidentityat of trade T-HT, thusbecomingapartoftheglobal„T“family On 1 October 2004, the Company was re-branded as T-Mobile Croatiad.o.o.(T-Mobile). the companynamewasofficiallychangedto activities on1January2003andinOctober2004, commercial its commenced HTmobile services. telecommunication mobile of provision the for d.d. HT by owned wholly subsidiary and entity legal separate a as established was (HTmobile) d.o.o. komunikacije mobilne HT 2002, During and 8/2001). 65/99 No. Gazette (Official d.d. HT of Privatization 11 Introduction 12 Introduction Investor Information in businessallhadanimpactonconfidence. taxes, newlevies,crisesingovernmentandscandals results, liquidations,risingunemployment,increased environment formarketrecovery.Poorcorporate The Croatianeconomyprovidedadifficult the 67.1%fallitsufferedin2008. economy, its16.4%gainwasscantcompensationfor final quarter.Althoughcommendableinsuchapoor end 16.4%upontheyear,evenafterafallin but recoveredstronglyinthefollowingmonthsto benchmark CROBEXindexreachedalowinMarch, Zagreb StockExchangehalvedagainin2009.The Following apooryearin2008,volumesonthe confidence inthestockmarkettooklongertoreturn. For economiessuchasCroatia’s,however, the largesteconomieswereemergingfromrecession. well in2009,drivenmainlybypositivesentimentthat the secondhalfof2008,stockmarketsrecovered After theturbulencethathitworld’sinvestorsin performance Economic environment and share price 110 130 140 100 120 150 160 January 2009 -31 2009 2009. December January Telecommunications Stoxx Europe Dow Jones and toIndex CROBEX 1 compared as T-HT GDR and Share 80 60 70 90 Jan Feb Mar T-HT GDR T-HT Share Apr May DJ EuroStoxxTelecommunicationsIndex CROBEX Jun for theunderperformanceagainstindexin2008. largest telecom companies), more than compensating that measurestheperformanceofsomeEurope’s leading indicatorofthetelecommunicationsindustry Dow JonesEuroStoxxTelecommunicationsIndex(a In addition,T-HTsharesstronglyoutperformedthe the attractivenessofT-HTsharesasaninvestment. telecommunication servicestotheeconomyand 2009, andwebelieveitreflectstheimportanceof new taxesonmobileservicesleviedfromAugust This goodperformancewasachieveddespite 20 percentagepointsforthesecondyearinarow. well, beatingtheCROBEXaveragebymorethan Against thisbackdrop,T-HTsharesperformed again drivingthemarketupwards. continuation ofEUaccessiontalks,confidenceis the newPrimeMinister,NATOaccessionand stability, strongandwell-receivedinitiativesby But withagoodtouristseason,continuingfinancial Jul Aug Sep Oct Nov Dec Offering inOctober2007: the prospectusthataccompanieditsInitialPublic The DividendpolicyoftheCompanywassetoutin Dividend policy T-HT Share - are tradable on London Stock Exchange. Depositary Receipts(GDRs)-eachrepresentingone Market oftheZagrebStockExchange,Global Besides T-HTsharesbeinglistedontheOfficial weighting wassetat15%oftheindex. At thelastrevisionofCROBEXindex,T-HT’s Zagreb StockExchange). of thetotalmarketcapitalizationbyvalue(source: 22.5 billion(EUR:3.1billion)representing16.6% company onZSE,withamarketcapitalisationHRK As at31December2009,T-HTwasthelargest trade byvalueofsharesin2009. turnover, accountingfor23.7%oftheZSE’stotal Zagreb StockExchange,withHRK1.8billionof T-HT wasonceagainthemosttradedshareon being HRK201.03(source:ZagrebStockExchange). highest closingpricewasHRK274.95,thelowest 199.22 atwhichtheyclosedin2008.Theyear’s representing anincreaseof37.8%ontheHRK T-HT SharesendedtheyearatHRK274.50, and generaleconomicclimate). other Europeantelecommunications operators regulatory considerations,payment practicesof performance, andotherfactorsincludingtax business prospects,cashrequirements,financial time (includingbutnotlimitedtotheCompany’s and itsworkingcapitalneedsattherelevant on theoverallfinancialpositionofCompany preceding year.Anyannualdividendshalldepend distributable profitsearnedintheimmediately shall rangefrom50%to100%oftheCompany’s following theyearinwhichOfferingtakesplace, dividends declared and paid in respect of any year The futuredividendpolicyshouldbethatany the dividendyieldwas12.8%. average closingsharepriceover2009,HRK233.78, 274.50, onthefinaltradingdayofyear.Using yield of10.9%onT-HT’sclosingsharepriceHRK At theendof2009,thisrepresentedadividend being paidtoshareholdersinMay2009. with theresidualamountofHRK17.15pershare of HRK12.84persharewasmadeinMarch2009, Pursuant totheabove,anadvancedividendpayment representing adividendpayoutratioof106%. amount ofHRK2.456billion(HRK29.99pershare), decided onadividendpaymenttoshareholdersinthe In April2009,theGeneralAssemblyofCompany Dividend for the 2008 financial year 13 Introduction 14 Introduction day oftheGeneralAssembly,plannedfor21April2010.Thedividend The dividendwillbepaidtoshareholdersregisteredattheCentra entered intocourtregisteron31December2009. signed on29October2009betweenT-MobileHrvatskad.o.o.and HT-Hrvatsketelekomunikacijed.d., and unallocated incomeinthetotalamountofHRK2,622,093,708.24 formedaccordingtotheMergerAgreement HRK 896,079,447.08,retainedearningsfromearlierperiodsinam The totalamountofHRK3,548,217,633.26representsthesum HTd.d.’snetincomefor2009inamount of allocate toretainedearnings.ThedividendofHRK34.05pershar distribution toshareholdersintheamountofHRK2,788,304,616.75and The ManagementBoardandSupervisoryofHT-Hrvatsketelekomunikacije d.d.proposeadividend Dividend proposal for the 2009 financial year share capitaloftheCompany. As at31December2009,morethan250,000Croatiancitizensheld T-HTShares,representing24.2%ofthetotal Government oftheRepublicCroatiaholding3.5%.Institutionalandprivateinvestorsownremaining38.5%. Deutsche Telekomisthemajorityshareholderwitha51%holding.TheCroatianWarVeterans’Fundowns7% Shareholder Structureasat31December2009 Financial Calendar Republic ofCroatia War Veterans’Fund Private andinstitutionalinvestors Deutsche Telekom Total numberofsharesissued:81,888,535 The above-mentioneddatesaresubjectto change Release offirstninemonths2010 results Release offirsthalf2010results Release offirstquarter2010results The GeneralAssemblyoftheCompany Release offullyear2009results l ClearingDepositoryAssociation(SKDD)onthe e willbepaidon17May2010. ount ofHRK30,044,477.94andretained paymentshallbeexecutedon17May2010. theamountofHRK759,913,016.51to February 16,2010 October 29,2010 April 30,2010 April 21,2010 July 30,2010 38.5% 51.0% 3.5% 7.0% Date E-mail: [email protected] Fax.: Tel.: 10000 Zagreb Savska cesta32 HT-Hrvatske telekomunikacijed.d. Investor RelationsDepartment Investor Relations United StatesofAmerica New York10004 New York 13th Floor 4 NewYorkPlaza JPMorgan ChaseBank,N.A., The depositoryfortheGDRis: Each GDRrepresentsoneShareondepositwiththeCustodian. Nominal value: Type: Number ofShares: Bloomberg: Reuters: Portal Rule144AGDRlistingsymbol: LSE GDRtradingsymbol: ZSE Sharetradingsymbol: Rule 144AGDRs: Regulation SGDRs: Shares: General information on Shares and GDRs +385 14911115 +385 14912012, +385 14911884 +385 14911114, +385 14912000, Croatia 10000 Zagreb Račkoga 6 Privredna BankaZagreb The Custodianis: HRK 100 Ordinary share 81,888,535 THTC LI,HTRACZ THTC.L, HT.ZA P443296108 THTC HT-R-A ISIN: US4432961088 ISIN: US4432962078 ISIN: HRHT00RA0005 15 Introduction Management Board 16 Introduction

Božidar Poldrugač, Branka Skaramuča, Jürgen P. Czapran, Ivica Mudrinić, Irena Jolić Šimović

Ivica Mudrinić General Manager of Hrvatska pošta i telekomunikacije President of the Management Board and CEO (Croatian Post and Telecommunications). Since the separation of Croatian Post and Telecommunications Ivica Mudrinić was born in 1955. He graduated in on 1 January 1999, he has served as President of the electrical engineering from the University of Toronto Management Board of HT-Hrvatske telekomunikacije. in 1978. His first job was in the Product Development Department of Motorola Communications, and in 1985 Jürgen P. Czapran he founded his own company, MX Engineering Inc. In Member of the Management Board 1990, he returned to Croatia and soon became adviser Chief Financial Officer for communications to the President of the Republic. At the end of the following year, he became Assistant Jürgen P. Czapran was born in 1952. He started his Minister for Maritime Affairs, Transportation and career as a graduate economist in 1979 with Philips Communications, and in 1992 was appointed Minister. GmbH, where he served as director for more than 20 From 1994 Ivica Mudrinić also served as President of years, primarily in the area of consumer electronics and the Telecommunications Council. He held the post customer communications. In 2000, he was appointed of President of the Management Board of Hrvatska Executive Vice President of Financial Controlling in radiotelevizija (Croatian Radio and Television) from T-Mobile International, and in December 2004 he took 1996 until 15 October 1998, when he was appointed the position of Member of the Management Board 17 Introduction

and Chief Financial Officer of T-Mobile Croatia. On 12 Božidar Poldrugač February 2007, he was appointed Member of T-HT Member of the Management Board Management Board and Chief Financial Officer. Chief Technical and Chief Information Officer Irena Jolić Šimović Božidar Poldrugač was born in 1967. He graduated Member of the Management Board from the Faculty of Electrical Engineering and Chief Operating Officer, Business Computing, Zagreb University in 1992 and earned a master’s degree from the same faculty Irena Jolić Šimović was born in 1969. She graduated from in 2000. He began his career at Croatian Post & the Faculty of Economics in Zagreb and received an MBA Telecommunications in 1993. Since 1994, he from IEDC, Bled, Slovenia. Prior to joining HT-Hrvatske has participated in all the development activities telekomunikacije, she worked at Croatian Radio and related to implementation of the first GSM network Television (HRT) and the Ministry of the Sea, Transport in Croatia. After the separation of Croatian Post & and Communications and Ministry of Immigrations. She Telecommunications, he continued his career in has been at HT-Hrvatske telekomunikacije since 1998. Hrvatski Telekom, where he served as Member of She was Executive Director for Corporate Strategy and the Management Board and Director for Mobile Business Development until August 2006. She was Communications from October 1999 to October appointed Member of T-HT Management Board and 2001. He was Chief Technical Officer for Mobile Chief Human Resources Officer in August 2006. She Communications at Hrvatski Telekom from October has been Chief Operating Officer T-Com since October 2001 to 1 January 2003, when the subsidiary company 2008 until December 2009. On 1 January 2010 she was founded - T-Mobile Croatia. On 13 March 2007, he assumed the role of Chief Operating Officer Business, was appointed Member of the Management Board and with responsibility for the Business unit, including Sales, Chief Technical and Chief Information Officer Group. Marketing, Customer Service, Wholesale and ICT Business Solutions. Rainer Rathgeber Member of the Management Board and Chief Branka Skaramuča Operating Officer T-Mobile, President of the Member of the Management Board Management Board and CEO of T-Mobile Croatia Chief Human Resources Officer until 30 September 2009. Branka Skaramuča was born in 1958 and in 1982 obtained a master’s degree in Psychology at the Johan Busé Faculty of Philosophy, University of Zagreb. She Member of the Management Board started her career in 1985 in Pliva where she worked in Chief Operating Officer, Residential Personnel from 1985 until 1989. Between September Johan Busé is appointed MB member and Chief 1989 and March 1993 she was Marketing Manager Operating Officer Residental and he will take up his after which she returned to human resources in the post in HT on 1 April 2010. position of HR Director for Croatia and then Global HR Director until February 2002. She was appointed the Management Board member and Chief Human Resources Officer of HT in 2002. Since March 1, 2004 has been a Management Board member and Chief Human Resources Officer of T-Mobile Hrvatska. In September 2008 the Supervisory Board of T-Hrvatski Telekom appointed Branka Skaramuča a Member of the Management Board and Chief Human Resources Officer of T-HT. 18 Introduction Christmas bonus. company carusage,taxfreechildrengiftand The benefitinkindamountedHRK182,119for to MTIP2006amountedHRK74,400net. amounted toHRK262,533net.Paymentaccording part, inaccordancewith2008goalsachievement, net monthlyinstalmentsofHRK54,906.Variable annual grossamountofHRK1,286,480inaverage Board, wasin2009paidafixedsalarycontracted Božidar Poldrugač,memberoftheManagement 354,363 forrental,insuranceandotherbenefits. 4,382,416. TheamountofbenefitinkindwasHRK salary contractedinannualgrossamountofHRK Board, wasin2009paidafixedandvariable Rainer Rathgeber,memberoftheManagement 291,570 forrental,insuranceandotherbenefits. 3,869,796. TheamountofbenefitinkindwasHRK salary contractedinannualgrossamountofHRK Board, wasin2009paidafixedandvariable Jürgen P.Czapran,memberoftheManagement and taxfreeChristmasbonus. amounted toHRK218,270forcompanycarusage 2006 amountedtoHRK182,644net.Benefitinkind to HRK784,220net.PaymentaccordingMTIP accordance with2008goalsachievement,amounted monthly instalmentsofHRK83,203.Variablepart,in gross amountofHRK2,013,974inaveragenet Board, waspaidafixedsalarycontractedinannual In 2009, Ivica Mudrinić, President of the Management members in 2009: Compensation to the Management Board Christmas bonus. to HRK158,942forcompanycarusageandtaxfree to HRK101,118net.Thebenefitinkindamounted T-HT). PaymentaccordingtoMTIP2006amounted December 31st2008-sincesheisMBmemberof amounted toHRK68,929net(fromOctober1st part, inaccordancewith2008goalsachievement, net monthlyinstalmentsofHRK54,934.Variable annual grossamountofHRK1,354,242inaverage Board, wasin2009paidafixedsalarycontracted Branka Skaramuča,memberoftheManagement and taxfreeChristmasbonus. 120,285 forcompanycarusage,taxfreechildrengift 46,537 net.ThebenefitinkindamountedtoHRK Payment accordingtoMTIP2006amountedHRK goals achievement,amountedtoHRK238,554net. 59,861. Variablepart,inaccordancewith2008 2009, inaveragenetmonthlyinstalmentsofHRK in periodJanuarytoApril2009andforNovember salary contractedingrossamountofHRK619,037 Fund. MsJolićŠimovićwaspaidin2009afixed paid attheexpenseofCroatianHealthInsurance October 27th2009andinthisperiodhersalarywas Board, wasonthematernityleavesinceApril1stuntil Irena JolićŠimović,memberoftheManagement the Companyinpreviousmonth, onlygrossamountsareshowntherein. Since theremunerationof SupervisoryBoardmembersisbased Member Dr. Ralph Rentschler Member Fridbert Gerlach Deputy president Dr. sc. Ivica Mišetić President oftheSupervisoryBoarduntil21April2009 Michael Günther President oftheSupervisoryBoardfrom4May2009 Member from21April2009 Guido Kerkoff Supervisory Board Compensation totheSupervisoryBoardmembersin2009isasfollow Supervision duetoarespectivepolicyofDTAG.NoloansweregrantedthemembersSupervisoryBoard. company paid in the preceding month. DTAG representativesCommittee of the do Supervisorynot receive Boardany remuneration in the amountmonth. for of theTo 1.25 amembership member of the of average inthe the Supervisory monthly net Board salary Boardwho ofis in thein the theemployees amount same time ofof 1.25 thea Member of the of average the Compensation monthlymonth. ToamemberoftheSupervisoryBoardwhoisinsametimeMemberAuditCommittee net and salary Nomination of the employees of the companyBoard inpaid the in amount the preceding of 1.5 of the average monthly To amemberoftheSupervisoryBoardwhoisinsametimetheChairmanAuditCommittee net salary of the employees of the company member receivestheamountofoneaveragenetsalaryemployeesCompanypaidinproceedingmonth. paid in the preceding of 1.25theaveragenetsalaryemployeesCompanypaidinproceedingmonthiswhileanyother average net salary of the employees of the CompanyAs specified paid inby thethe proceedingCompany, the month. chairman To the of deputythe Supervisory chairman, Boardthe amount receives remuneration in the amount of 1.5 of the Compensation to the Supervisory BoardCompensation members in 2009 to the Supervisory Josip Pupić Ivica Mišetić Slavko Leban Kathryn Hall 1 January2009 1 January2009 1 January2009 1 January2009 Period inwichcompensationispaid From Dr. Steffen Roehn Member Dr. Slavko Leban Member WaltKathryn Hall Member Siegfried Pleiner Member Josip Pupić Member from21April2009 onnetaveragesalarypaidto the employeesof 31 December2009 31 December2009 31 December2009 31 December2009 s: To 186,136.27 148,909.05 159,309.37 121,500.99 Gross HRK

19 Introduction 20 Introduction Supervisory Board’sReport • • • • The contentofthisreportincludes: financial reportsforthebusinessyear2009 and ontheresultsofexaminationbusiness on performed supervision during REPORT the business year 2009 submits to the General Assembly this workers of HT d.d., Members of the SupervisoryLeban, Board, M.D and Mr. Josip Pupić, representativeMr. ofSiegfried the Pleiner, Ms. Kathryn Walt Hall,Steffen Mr. Slavko Roehn, Mr. Fridbert Gerlach, Dr. Ralph Ph.D., DeputyChairmanoftheSupervisoryBoard,Dr. Rentschler, Chairman of the Supervisory Board, Mr. Ivicathe Mišetić, day of issuance of this report, of Mr. Guido(hereinafter Kerkhoff, referred to as “the Company”), Hrvatskeconsisting, telekomunikacije on d.d. Zagreb, Savska telekomunikacije d.d.,theSupervisoryBoardofHT- cesta 32, 31 of the Articles of Association of HT - Hrvatske 300.c, paragraph2,oftheCompaniesActandArticle Pursuant toArticle263,paragraph3,and Receipts (GDR), each representingStock one Exchange(1) HT d.d. since share, 5 October 2007.The Company’s Global Depository shares have been listedof 12July2002. on the Zagreb services of the Central Clearing The sharesoftheCompanyareincludedindepository Depository Association as hold 38.5%. owns 7% of shares while private Warand Veteran’sinstitutional Fund investors(hereinafter The Republic of Croatia owns 3.5% of shares. The Croatian referred to as “Fund”) is the majority owner of the Company Deutsche TelekomAG(hereinafterreferredtoas“DTAG”) with a 51% stake. Profile Corporate

thereof. with the governing company and affiliatedthe results companies of the examination ofthe the business report yearon relations 2009, Board report on the status of business the resultsofexaminationManagement operations for utilization oftheprofit, auditor’s report as well as of thestatements proposal as for of the31 December 2009the together results withof the examination ofBoard duringthebusinessyear2009, the annual financial the CompanyhasbeenmonitoredbySupervisory in whichmannerandtoextentthemanagingof of theSupervisoryBoardas4May2009. 2009. Later,Mr.GuidoKerkhoffwaselectedasChairman as new Members of the SupervisoryMr. Board Guido as Kerkhoff of 21 April and Dr. Steffen Roehn were elected Board with effect from 21 April Günther,2009. has resigned from his positionsThe Chairman in theof theSupervisory Supervisory Board, Mr. Michael the Companychangedasfollows: During 2009, the composition of the Supervisory Board of Board Supervisory Workers’ CouncilofHTd.d. independent members and one memberAG, appointedone member by representing the the BoardRepublic has offive Croatia, members two representing On the Deutsche day of Telekomissuance of this Report, the Supervisory October 2007. have been listed on the London Stock exchange since 5 • Board membership: The followingsectionliststhechangesinManagement Board oftheCompanyhasfive(5)members. On the day of issuance of this report, the Management Walt Hall,Member,arethemembersofthisCommittee. Chairman, Dr.RalphRentschler,Member,andMs.Kathryn On the day of issuance of this report: Mr. Guido Kerkhoff, Compensation and Nomination Committee are themembersofthisCommittee. Member, andMr.SiegfriedPleiner, Ph.D., Mišetić, Ivica Mr. Chairman, Nolden, Kay Mr. report: this of issuance of day the On Committee Audit Management Board Management during the absence of Ms. Irena Jolić Šimović due to during theabsenceofMs.IrenaJolić Šimovićdueto Management Board and CEO, Mr. Ivicawere Mudrinić,temporarily performed by theOperating President Officer of the Fixed and Broadbandof the (COOMember T-Com) of the Management Activities fallingwithintheOfficer’sresponsibilities Board and Chief

• decisions as follows: The Supervisory Board passed two (2) out-of-session of the Supervisory Board of the Association oftheCompany,andBy-LawsonWork Company. tasks in accordance with the Companies Company’s businessoperationsandperformedother Act, the Articles of The SupervisoryBoardsupervisedthemanagingof Board and one (1) telephone conferenceIn 2009 session.there were five (5) sessions of the Supervisory 2009 year Performed during supervision the business • • • • of a decision of the General Assembly to give the of adecisiontheGeneralAssembly togivethe Decision on granting the prior approval for the proposal Jolić Šimović, Member of the Management Board. Jolić Šimović,MemberoftheManagementBoard. Business (COO Business) were assignedTasks setto Ms.to theIrena function of Chief Operating Officer and CEO. the function of the President ofthese the ManagementOfficer’s responsibilitiesBoard of are his temporarily term of office added as to of 1 AprilResidential 2010. Until (COO thatResidential), date withthe Managementcommencement Board and Chief OperatingMr. Johan OfficerBusé was appointed as the Member of introduced. Operating Officer Business (COO Officer Residential(COOResidential)andChief Business) were ceased to exist while functions and ChiefOperatingOfficerMobile(COOMobile) of Chief Operating Operating Officer Fixed and Broadband 1 January2010.InlinetherewithfunctionsofChief (COO T-Com) of Residential and Business units,to HTapplicable - Hrvatske as telekomunikacijeof connected withthemergerofT-MobileCroatiaLLC d.d. and creation competences among Management BoardThe MembersSupervisory Board has adopted the new division of 30 September 2009. Operating OfficerMobile(COOMobile)effectiveasof as a Member of the Management BoardMr. Rainerand Chief Rathgeber resigned from his position October 2009. maternity leave, i.e. in the period from 1 April to 27

• • • • • • • • • • • approvals andrecommendations detail, and the Supervisory Boardbusiness provided development, respective theprior issues operations oftheCompanyandjointconsultationson below were discussed in of theCompanyonresultsandstatusbusiness Aside from regular reports of the Management Board •

Stock Exchange. representing the Company’s sharesthe on Zagreb the London Stock Exchange and theof listingthe Company of GDR’s following the listing Capital MarkettrendsandContinuing obligations of its shares on (S-OX) complianceandCroatianAuditAct, Board andupdateswithrespecttotheSarbanes-Oxley Reports of the Audit Committee ofMembers andremunerationproposals, the Supervisory and target-achievement proposalsCommittee related toof thethe MBSupervisory Board,Reports target-setting of the Compensation and 2011- 2012, Nomination Annual Business Plan for 2010 andInternational activitiesoftheCompany, Strategic Plan for Management Boardasoutlinedabove, in the composition of the Membershipamong ofManagement the Board Members andCorporate Governance,divisionofcompetences changes Hrvatske telekomunikacijed.d.inrelationthereto, telekomunikacije d.d. and the newMerger organization of T-Mobile of HTCroatia - LLC tomanagement system, HT - Hrvatske and activities, headcount development,HR accomplishments performance and challenges,Regulatory framework, strategy, plans management programs,investmentplanning, Broadband penetration,tariffoptions,cost optical infrastructure, projects, networkstrategy-platformdevelopment,fiber IP basedservicesandqualityofservice,ITmain programs, serviceorientationandfocusoncustomer, development, growth opportunities, Strategic program-Focusonbroadband,IPTV customer retention Company shares. shares aswellforanyredemptionoftheacquired a processofacquiringandmanagingCompany need apriorapprovaloftheSupervisoryBoardtostart shares stipulating that the ManagementDecision Board in relation shall to this acquisitionof Companyshares, of Company authority to the Management Board for the acquisition 21 Introduction 22 Introduction Bosnia and Herzegovina. Bosnia andHerzegovina. Board in their efforts to protect the interestsThe Supervisoryof HT d.d. inBoard supported the Management Agenda. Board as outlined above were also covered by 2009. ChangesintheMembershipofManagement their began preparing the target evaluation procedure began thetarget-settingprocedurefor2010andalso for In 2009, the Compensation and Nomination Committee • • • • • • • • • • • • • issues, especially: held five (5) regular sessions and discussedIn various 2009, the Audit Committee of the Supervisory Board

Internal auditingprogramfor2010. reporting, businesscontinuityactivities,etc.), management, valuesteeringandqualityofrevenue and customerdataprotection,complaintorder and auditreports(e.g.complianceaudits,ITsecurity Supervision over the realization of audit measures program), Audit program 2008/2009 (execution, planning activities from 2008, Measures monitoring and closing the remainingManual, Update oftheInternalAuditCharterand Risk Assessment results, Status ofAnti-FraudManagementandCompliance Reports ofthecomplianceofficer, Fraud Report and Risk Reports for T-HT Group,Status, Frame Contracts Litigation Status), related toDTK/Ducts,ConsumerProtectionLitigation Significant risks and exposures (Legal frameworketc.), accounting anddisclosurerequirementsin2009, Independence, Reportonauditorengagement,new External Auditor’s Report (quarterly reports,project Auditor’s in T-HT & Testing results, over financial reporting according to S-OX; ImplementationS-OX 404 and effectiveness of internal2009 control Audit Plan provided by external auditor,2008 year-end closing of T-HT Group, • acted asfollows: - Hrvatske telekomunikacije d.d., the Supervisory In theprocessofmergerT-MobileCroatiaLLCtoHT Board HT -Hrvatske telekomunikacije d.d. Merger of T-Mobile Croatia LLC to • • • the previous business year. on utilization of the profit realized by the status ofthebusinessoperations, andthedraftdecision Company during together with the audit report, the annual reportannual onfinancial the statements for the businesssubmitted year 2009 to the Supervisory Board of the Company The ManagementBoard,withinthelegaldeadlines, the merger i.e.didnotexiston1January2010. 2009 asthedayofentryincourtregister T-Mobile ceased to exist with the expiry of legal relationshipsofthetransferorcompany,whereby 31 December of thetransferorcompanyandtherebyenteredintoall company, HT d.d. became the universal legal entry ofthemergerintocourtregister,transferee successor Commercial Court in Zagreb on 31 December 2009.The mergerBy was entered into the court register of the

the mergerofT-MobiletoHTd.d.; for T-HT organization and transformation in Therelation Supervisory to Board supported the target blueprint Croatia LLC.; Agreement withtheManagementBoardofT-Mobile telekomunikacije d.d.forsigningoftheMerger to the Management Board of HT - Hrvatske The SupervisoryBoardgranteditspriorapproval ended 31August2009; financial statements of T-HT Group for the periodHT d.d. and special purpose interim consolidatedspecial purpose interim financial statements The SupervisoryBoardgaveitsconsentforthe of Association oftheCompany. procedure inaccordancewiththeLawandArticlesof that the transferee company implemented the and legal reasons for the merger, and determinedthe Merger Agreement and accepted the economicManagement Boards of HT and T-Mobile, as wellmerger as and the joint merger report of the The SupervisoryBoardexaminedtheintended necessary in the circumstances. We believe thatperforming suchotherprocedures asweconsidered our Company’s compliance with those requirementsincluded and examining, on a test basis, evidenceInternational about the Standards on Auditing and, accordingly,Our examination was conducted in accordance with on our examination. management’s assertion about HT’s complianceLaw. based Our responsibility is to express an opinionrequirements on of Article 497 of the Croatian telekomunikacijeCompany d.d.’s (“HT”) compliance withManagement is responsible for HT - Hrvatske Report) fortheyearended31December2009. the governingandaffiliatedCompanies(RelatedParty Hrvatske telekomunikacije d.d. on the relationships in theattachedReportofManagementBoardHT- with We have examined management’s assertions, includedQuote: of IndependentReport Accountants following confirmationontheauditofabovereport: reported on the results of its audit and issuedThe Company’sthe auditor, Ernst & Young d.o.o. Zagreb, regular prices. relationships, standardconditionsandtheapplicationof the scope of ordinary business and entrepreneurialaffiliating and other undertaken legal actions, (calendar) year2009intotal,realizedbycontractual were within relationships ofaffiliatedcompaniesinthebusiness In the opinion of the Management Board, the conscientious andtruthfulreporting. Companies Actandinaccordancewiththeprinciplesof in accordance with Articles 474 and 497 of thethereof (Report of the Dependent Company), compiledwith the governing company and affiliated companiesBoard the Report of the Management Board on The ManagementBoardsubmittedtotheSupervisory relations company and affiliated companies thereof Board report on relations with the governingResults of the examination of the Management financial statements for the year 2009. the Company’s auditor, for the examination ofThe the Supervisory annual Board issued an order to Ernst & Young, 2009 decision and draft on utilization of profit business operations for the business yearManagement Board Report on the status of financial statements and auditor’s report,Results of the examination of the annual without anydamagetotheCompany. received arespectivecounter-actionforeachlegalaffair, governing companyandtheaffiliatedcompaniesthereof, the ManagementBoardReportonrelationswith undertaking the legal affairs and actions statedto the in circumstances that were known at the Supervisory BoardstatesthattheCompany,according time of Board and the results of the auditor’s examination,companies the thereof, the statement of the Management relations withthegoverningcompanyandaffiliated After considering the Management Board Report on affiliated companiesthereof. Report onrelationswiththegoverningcompanyand of theauditor’sexaminationManagementBoard The SupervisoryBoardhasnoobjectionstotheresults End ofquote. 8 February2010 Croatia Zagreb Ernst &Youngd.o.o. by anyone else. of HTandisnotintendedtobeshouldused This report is intended solely for the information and use 2009 arefairlystated,inallmaterialrespects. Related Party Report for the year ended 31 DecemberIn our opinion, management’s assertions provided in the requirements. on the Company’s compliance with specified Our examinationdoesnotprovidealegaldetermination examination provides a reasonable basis for our opinion. Slaven Đuroković 23 Introduction 24 Introduction retained earnings from earlier periods in the amount retained earningsfromearlierperiods intheamount income for2009intheamountHRK 896,079,447.08, HRK 3,548,217,633.26 which represents a sum proposalof net of the Management Board that the amountTherefore, of the Supervisory Board gives its approval to the Republic of Croatia. and isinaccordancewiththepositiveregulationsof protects the Company’s and shareholders’ interestsaccordance with the business plan for the currentprofit year,is in accordance with the business results, proposal oftheManagementBoardonutilization is in The Supervisory Board holds the opinion that the best knowledgetruthfulintheirentirety. that theanswersgiventothisquestionnairearetheir be completedbytheZagrebStockExchangeandstates answers withintheattachedquestionnairerequestedto Board has no objections to the statements made applied givenwithintheaboveReport.TheSupervisory in the to thestatementonCodeofCorporateGovernance Furthermore, theSupervisoryBoardhasnoobjections year 2009 and has no objections to the deliveredon the report. status of business operations for the The Supervisory Board has considered the Annual Report business Assembly. Supervisory Board and are to be presented toestablished the General by both the Management Board andstatements. the The said financial statements areand considered gives its approval of the delivered auditedfinancial financial statements delivered by the Management The SupervisoryBoardhasnoobjectionstotheaudited Board statements for the business year 2009. report on the examination of the annual financialThe Supervisory Board has no objections to thecorrect propertyandbusinessstatusoftheCompany. auditor’s in the Company’s ledgers and that they indicatefinancial the statements were made in line with the decisionsofGeneralAssembly,thatannual the situation accordance withthelaw,actsofCompanyand established that the Company acted in 2009 infinancial statementsforthebusinessyear2009, The SupervisoryBoard,afterconsideringtheaudited • accordingly: into courtregisteron31December2009,shallbeused and HT-Hrvatsketelekomunikacijed.d.,entered 29 October 2009 between T-Mobile Hrvatska d.o.o.formed according to the Merger Agreement signedincome on in the total amount of HRK 2,622,093,708.24 of HRK30,044,477.94andretainedunallocated • Summary Chairman oftheSupervisoryBoard Guido Kerkhoff the Company’sbusinessoperationsin2009. Report ontheperformedsupervisionofmanaging deliver to the General Assembly of the CompanyPursuant this to all of the above, the Supervisory Board will Company’s businessplanfortheyear2010. Supervisory Board considered and approved the Aside fromthefinancialresultsforyear2009, business was successful. parameters wererealizedandthattheCompany’s indicators, it was assessed that the planned the Companyandmonitoringchangesinfinancial business After analyzingthereportsofManagementBoard of theCompany’sbusinesspolicyforyear2009. planned results and the implementation of the basic goals The Supervisory Board analyzed the realization of the management of the Company’s business operations.and organizational and other changes relatedbusiness, to the status of assets and liabilities, informed theSupervisoryBoardofCompany’s revenues, The Management Board of the Company regularly

in theamountofHRK34.05pershare; HRK 2,788,304,616.75forpaymenttoshareholders HRK 759,913,016.51toretainedearnings Code ComplianceStatement Corporate Governance • relevant time. These exceptions are as follows: are not, practical for the Company to implement at the the Code, with the exception of those that were not, or The Company complies with all recommendations of Zagreb Stock Exchange (www.zse.hr). 46/07). The Code is published on the website of the Decision dated 26 April 2007 (“Official Gazette”, No Inc. Zagreb, and which was adopted by the Agency’s to as “the Agency”) and the Zagreb Stock Exchange Services Supervisory Agency (hereinafter referred that was jointly prepared by the Croatian Financial The Company applies the Corporate Governance Code (hereinafter referred to as “Annual Report”). on the Status and Business Operations of the Company of the Company and the Consolidated Annual Report Annual Report on the Status and Business Operations Group for the Business Year 2009, consisting of the and Business Operations of the Company and the T-HT Annual Report of the Management Board on the Status 118/03, 107/07, 146/08 and 137/09), has prepared the (“Official Gazette” Nos. 111/93, 34/99, 121/99, 52/00, with Article 250b, paragraph 4 of the Companies Act referred to as “the Company”) has, in accordance HT - Hrvatske telekomunikacije d.d. (hereinafter •

The Company does not publicly announce and The Company does not publish on its web pages web-site (Part 2.5.1. of the Code). a link to the Central Clearing Depository Associations’relevant regulations. The Company’s website contains shareholders on its website in accordance withwhich the regularly publishes the list of the ten by theCentralClearingDepositoryAssociation, biggest while a detailed list of shareholders is maintained structure isshownontheCompany’swebsite, of shareholders on a weekly basis. The ownership Company tracksitstradingperformanceandnumber T-HT hasmorethan250,000shareholders.The number and class of shares they own because update thecompletelistofshareholderswith the Management Board of the Company. However,are owned by Members of the Supervisory Boardrecords or of securities issued by the Company that

• • • • • • The Company does not provide, without additional The date on which the shareholder becomes entitled The Company sets the conditions for participation at The Companysetstheconditionsforparticipationat At previous General Assembly meetings, The Supervisory Board is not composed mostly of The SupervisoryBoardisnotcomposedmostlyof The Company does not have a long-term succession to the public on the Company’s website (PartServices 2.5.3.). Supervisory Agency and are also announced the relevantstockexchanges,CroatianFinancial to privileged information, are promptly reported related tothemandotherpersonswhohaveaccess to members of the Management Board, persons closely undertaken bymembersoftheSupervisoryBoard, all dealings in the Company’s shares that are shareholders’ instructions (Part 3.1.1.7.). suitable proxies who will vote in compliance Assembly shouldattheirowndiscretiondetermine with the who are not in a position to vote in person with theshareholders’instructions.Shareholders at the those proxies will vote at the Assembly in compliancereason arenotabletovoteattheAssembly,suchthat expense, proxies for shareholders who for whatever accordance with the Companies Act (Part 3.1.3.2.) accordance withtheCompaniesAct(Part3.1.3.2.) decision on dividend payment was passed as inof the holding of the General Assembly at whichby the the Code. The dividend date was set as theto datepayment of dividend was not set as recommended Association (Part3.1.5.). Companies Act and the Company’s Articles of the General Assembly in accordance with the (Part 3.1.8.). (Part 3.1.8.). in the future to the extent that it is practical technologies. Suchparticipationwillbeimplemented to participatebymeansofmoderncommunication shareholders have not been given the opportunity members (Part 3.2.2.). Supervisory Board members are independent independent members. Only two out of nine plan. TheCompanyhasintroduced anumberof

25 Introduction 26 Introduction Company was established in April 2002. The AuditThe Audit Committee of the Supervisory Board of the Internal Control and Risk Management • • • • • • Remuneration received by the members of the The Compensation and Nomination Committee is The CompensationandNominationCommitteeis The Audit Committee is not composed mostly of The remuneration strategy adopted for Management of itsworkinthepastperiod(Part3.2.15.). The Supervisory Board did not prepare an evaluation The remuneration paid to the independent external The remunerationpaidtotheindependentexternal succession plan can be developed. (Part 3.2.3.). their fullimplementation,ameaningfullong-term related traininganddevelopmentactivities.Upon assessment throughperformancereviews,with Human Resources projects, including management (Part 3.2.5.). contribution to the efficiency of the Company contribution totheefficiencyofCompany not according to Supervisory Board members’ average net salary of Company employees and Supervisory Board is determined in relation to the Supervisory Board (Part 3.2.11.1. and 3.2.11.2.). Supervisory Board(Part3.2.11.1.and3.2.11.2.). members isanindependentmemberofthe the SupervisoryBoard.OneoutofthreeCommittee not composed mostly of independent members of member of the Supervisory Board (Part 3.2.11.3.). member oftheSupervisoryBoard(Part3.2.11.3.). out of three Committee members is an independent independent membersoftheSupervisoryBoard.One are disclosed within the Annual Report (Partthe 3.3.3.). Management Board and the Supervisory Boardwas not composed separately. The remuneration of theManagementBoardandSupervisory of needs. The Statement of the policy of remunerationDeutsche Telekom’s Guidelines, adapted for localBoard andSupervisorymembersisbasedon (Part 4.1.). disclosed withintheAnnualfinancialstatements auditors for the audit and other services rendered is

• • authorized to: In executing its activities, the Audit Committee is Supervisory Board. credibility oftheinformationandreportssubmittedto Committee isresponsibleforensuringtheobjectivityand recommendations to the Supervisory Board. Theby Auditthe auditors or the management team and makesissues broughttotheattentionofAuditCommittee the Company(internalandexternal),discussesspecific The AuditCommitteeoverseestheauditactivitiesof with the Sarbanes Oxley Act and the Croatian2006, Audit amended Act. in 2008 and adjusted in accordance Committee’s termofreferencewereadoptedinNovember audit activitieswithintheCompany.RevisionstoAudit decisions in relation to the controlling, reporting and thesupervisionofimplementationsuch and of the decisions of the Supervisory Board ofCommittee’s the Company principal responsibilities are the preparation • • 2008 and updated in DecemberAudit 2009. of the Company, which Boardwas amended adopted in the February Audit Manualof operationalof the Corporate efficiency. Internal Incontributes totheminimizationofrisksandimprovement February 2006, the Managementimprovements). Implementationcomprehensive of the annual audit Audit reports Program Management(findings andBoard proposed and informsindependent monitoringfunctiononbehalfofthe managers with The Corporate Internal Audit of the Company performs an participate at meetings held within the Company participate atmeetingsheldwithintheCompany workers, employees of the Company and from external documentation from the management and senior request the necessary information and supporting obtain, at the Company’s expense, external legalpermanent or basis or case-by-case if needed, appoint advisorstotheAuditCommitteeona responsibilities of the Audit Committee, on issuesthatfallunderthescopeofactivitiesand of activitiesandresponsibilities. is needed for the fulfillment of the Committee’swithin scope its terms of reference provided that othersuch adviceindependent professional advice on any matter

MB Member and Chief Technical Chief Information MB MemberandChiefTechnical ChiefInformation Operating OfficerFixedandBroadband (COOT-Com); the ManagementBoardandCEO; MBMemberandChief Management Board had six members: the Presidentbetween of five and seven members. Throughout 2009of Association, the the Management Board consistsof ofre-appointment. Pursuant to the Company’sTheir Articles term of office is up to five years, withare theappointed possibility and removed by the Supervisory The PresidentandMembersoftheManagementBoard Board. Association Of Articles functionsits and the Amendments to the Appointment of the Management Board, Supervisory Board,owns63sharesintotal. total and Mr. Ivica Mišetić, Ph.D., deputy ChairmanPupić, Supervisory of the Board Member, owns 1,069 Šimović, MBMember,owns45sharesintotal;Mr.Josip shares in MB Member, owns 200 shares in total; Mrs. Irenaowns Jolić185 shares in total; Mrs. Branka Skaramuča,shares in total; Mr. Jürgen P. Czapran, MB Member,telekomunikacije d.d., Mr. Ivica Mudrinić, ownsThe PresidentoftheManagementBoardHT-Hrvatske 4,569 and foreign institutional investors. shares are owned by Croatian citizens and byFund domestic owns 7.0 per cent of shares, while 38.5 Croatia owns3.5percentofshares.TheWarVeterans’ per cent of Telekom, with51percentofshares.TheRepublic The majority owner of the Company is Deutsche SignificantCompany Shareholders • • • • • Company’s financial reporting by: The Financial Reporting Audit ensures the reliability of the of management. Conducting adhocauditsattherequest independence, would notconflictwiththeprinciplesofobjectivityand Providing supportinTOPprojectsawaythat and, if necessary, escalating problems, Monitoring theimplementationofauditmeasures Performing audits of areas of risk, Identifying risks and areas of improvement, General Assembly. amendments to the Articles of Association at the SupervisoryBoardifitwishestoproposeany the Annual The Management Board needs prior approval from (CHRO). and MB Member and Chief Human Resources Officer Chief TechnicalandInformationOfficer(CTO/CIO) Officer Business (COO Business); MB Member and(COO Residential); MB Member and Chief OperatingMB Member and Chief Operating Officer ResidentialCEO; MB Member and Chief Financial Officer (CFO);members: the President of the Management Boardthe andManagement Board consists of the following Management Boardmembers.Asof1January2010, Board has agreed the division of responsibilitiesof Residential among and Business units, the Supervisory As part of the reorganization of the Company and creation relationships of the transferor company. transferor company and thereby entered into all legal HT d.d. became the universal legal successor of the ceased to exist. The transferee company, December 2009 and thereby T-Mobile Croatia LLC register of the Commercial Court in Zagreb on 31 telekomunikacije d.d. was entered into the court The merger of T-Mobile Croatia LLC with HT - Hrvatske from hispositioneffectiveasof30September2009. Officer Mobile(COOMobile)RainerRathgeberresigned Member of the Management Board and Chief Operating Member and Chief Financial Officer (CFO). Chief OperatingOfficerMobile(COOMobile)andMB Human ResourcesOfficer(CHRO);MBMemberand Officer Group(CTO/CIOGroup);MBMemberandChief activities and to pass all the resolutions thatCompany. it considers It is obligated and authorized to performresponsibility all the for managing the business affairs Articles ofAssociation,theManagement Boardhas of the Pursuant totheCompaniesActandCompany’s Members Authorities of the Management Board

27 Introduction 28 Introduction Management Board. Board. Management may berepresentedbyanyoftwomembersthe Company the Association, of Articles the Under and decisions. required from the Supervisory Board for certainof the matters Company, subject to such approvals asnecessary may be to successfully manage the business affairs Committee andtheAuditCommittee. Board establishestheCompensationandNomination the approvalofSupervisoryBoard.The term indebtednessorsignificantappointmentsrequire major capitalexpenditureitems,theassumptionoflong- affairs. Certain large or uncommon transactions supervising themanagementofCompany’sbusiness such as removal of Management Board members as well Supervisoryas for Board is responsible for the appointmentone is appointed and by the Company’s employees. members areelectedbytheGeneralAssemblyand The Supervisory Boardconsistsofninemembers.Eight Pursuant totheCompany’sArticlesofAssociation, Board Supervisory The composition and functions of the

30 Uvod II. Business Review 2009

Croatian Telecommunication Market Overview Regulatory Environment Group’s Strategy Organization of the Group T-Com T-Mobile Network and Information Technologies Human Resources Business Review 2009 32 • • • • • • • • • • For T-HT,thekeyeventsof2009included: Croatian economy. intensified competitionandtheseriousdownturnin in theCroatiantelecommunicationsmarketdespite T-HT Groupsuccessfullymaintaineditsleadingposition economy Strong performancedespite achallenging November 2009. 2009. November MAXtv reachesits200,000th customerin management servicethusexpanding itsICTportfolio. and medium-sizedenterpriseslaunchingitsdesktop and communicationstechnologies)marketforsmall In November2009,T-HTenteredtheICT(information and Businessunits. 2010, theGrouphasbeenorganizedintoResidential reorganisation, whichbecameeffectiveon1January HT d.d.remainingthesolelegalentity.Followingthis entities werecombinedatthebeginningof2010,with a MergerAgreementbasedonwhichthetwolegal On 29October2009,T-MobileandHTsigned 2009 comparedtothesamequarterof2008. largest componentofGDP,decreasedby9.4%inQ2 consumption expenditureofhouseholds,asthe official releasefromSeptember2009,thefinal Based ontheCroatianNationalBureauofStatistics’ measures tocombattherecession. entered intoforceaspartoftheGovernment well asa6%taxonmobiletelephonyrevenues, On 1August2009thenewpersonalincometax,as 3GS becameavailableinT-Centers. From 31July2009thehighlyanticipatednewiPhone 500 thousandADSLbroadbandcustomers. In May2009T-HTGroupexceededthenumberof broadband andbroadband-relatedservices. triple-play offer,highlightingT-HT’sstrategicfocuson introduced itsownIPTVservicetogetherwitha In April2009Iskon,T-HT’swhollyownedsubsidiary, became effectivefromMarch,withdecreasesupto20%. new fixed and mobile interconnection chargesAlso that in February, the Regulator decided on themarket wortharoundHRK15billion. confirming itsleadershippositioninafully-liberalised results fortheyearended31December2008 In February2009,T-HTGroupreleaseditsfinancial Market Overview Croatian Telecommunication

Macroeconomic environment mobile broadband. mobile dataservices,drivenbysmartphonesand approaching saturationandincreasingdemandfor in linewithworld-widetrends,mobilepenetration Internet content,continueddeclineinfixedtelephony in broadbandandIPTV,increasingdemandfor 2008 remainedsignificantin2009:stronggrowth The mostimportanttelecommunicationstrendsof Market trends Fixed-line market inflation rateof2.4%. Inflation remainedstablewithanaverageannual compared to13.7%inDecember2008. unemployment at16.6%inDecember2009, Unemployment rosethroughout2009withregistered 2009 -oneofthebiggestfallsinpasttenyears. Croatian GDPisestimatedtodecreaseby5.0%in According totheCroatianMinistryofFinance, according totheNationalRegulatoryAgency. penetration, whichreaches42%ofthepopulation, in 2009.Therewasnosignificantchangefixed-line the numberoffixed-lineminutesdecreasedby6.8% According to the Croatian Central Bureau of Statistics, the T-ComandT-Mobilesalesorganizationsin2009. strengthened itssaleschannelswiththeintegrationof segments. Insupportoftheseefforts,T-HT offers tailoredtosuittheneedsofspecificcustomer Group isdedicatedtohigh-qualityservicesand nine operatorsactivein2009,thesameas2008. Fixed telephonyremainscompetitiveinCroatia,with economic downturn economic hit badlyby global economy the Croatian market decline expected against T-HT leadership maintained Internet Mobile telecommunications recording, andreadingmailsfrominbox. services includingvideo-on-demand,webandSMS Croatian andinternationalTVfilms,withpremium IPTV services.Itnowhas125channelsoffering MAXtv hasbecomeoneofEurope’smostsuccessful customer base.SinceitslaunchinSeptember2006, customers representing43%ofT-HT’stotalADSL By theendof2009,therewas235.980IPTV compared toanaverageof55%inWesternEurope. Croatian householdsconnectedviabroadband growth opportunityforT-HT,withjust35%of Croatia’s broadbandmarketremainsasignificant Despite thestrongincreaseinsubscribernumbers, subscribers, upfrom472.654in2008. ADSL of 554.995 had Group the 2009 of the end At service. IPTV Group’s the - MAXtv as such services premium with it augmenting and offering MAXadsl high-speed its of out roll the expand broadband servicesinCroatia,continuingto T-HT Groupisbyfarthelargestproviderof encouraged customerstoincreasedatausage. promoting mobilebroadbandofferingsthat significant featureof2009,withallthreeoperators Increasing demandformobileInternetwasa mobile marketminutesincreasedby6%in2009. served bythreeoperatorssince2005.TotalCroatian with mobilepenetrationofanestimated137,4% T-Mobile remainedtheleaderinasaturatedmarket, launches Europe’s of one IPTV MAXtv successful most T-HT market; dominates broadband growing the internet for mobile demand increasing with market, in amaturing leadership T-Mobile maintained Data Wholesale sectors. government and corporate the targeting networks own their develop to continued competitors service data main Group’s The business customers. revenues, itrepresentsanimportantservicefor representing lessthan2%oftotalCroatiantelecom Although thedatamarketisrelativelysmall, to morecosteffective,IP-basedservices. migrating fromtraditionalunmanageddataservices T-HT maintaineditsleadershipofamarketthatis 123.054 in2009. to 2008 in 87.072 from increased customers ULL of number continued, liberalisation market the As 2009. in stable remained market wholesale Croatian overall the revenues, market total of terms In operate thelocalloop. products toconsumers,eveniftheydonot enabling competitorstooffertheirownbroadband market Croatian the in available are offers bitstream and loop) local (unbundled ULL Both, Croatia. in operators fixed-network and operators mobile-network all with interconnection established Group T-HT leading position leading position T-HT’s secures service of quality services; to IP-based Market migration continuing network coverage network extensive player most the largest the with T-HT competition; international and Domestic 33 Business Review 2009 Business Review 2009 34 Regulatory Environment telecommunications services granted to the the to granted services telecommunications as other licensesandnotificationsforprovidingwell as sector force telecommunications in the in previously were that regulations of basis the on concluded agreements, concession T-Mobile regime. authorization general the Agency, the in linewiththeprescribedtransitiontowardsto notifications prior submitted and Iskon T-Mobile Company, the 2009 February In portability; Ordinanceonreferenceoffers. numbers andaddresses;Ordinanceonnumber on theAgency’sfees;Ordinanceallocationof addresses andradiofrequenciesfees;Ordinance the feeforrightofway;Ordinanceonnumbering, related equipment;Ordinanceonthecertificateand of theelectroniccommunicationsinfrastructureand the methodandconditionsforaccesstojointuse services inelectroniccommunications;Ordinanceon networks andservices,Ordinanceonuniversal conditions forprovidingelectroniccommunications most importantare:Ordinanceonthemethodand force. FromtheGroup’sperspectivesomeof In 2009severalnewOrdinancesenteredinto services, andthepreventionoffraudabuse. universal provisioning, service of fees, conditions right-of-way issues, infrastructure and duct aspects ofelectroniccommunicationsincluding encompasses authority its Thus, legislation. subordinate pass to authorized is - (the “Agency”) Communications Electronic and Post for Agency Croatian the - Authority Regulatory National Croatian the Communications, Electronic on Law new the with accordance In onto Croatia’selectroniccommunicationsmarket. Framework Regulatory EU 2002 the regime transposed regulatory Croatian new The July 2008. since 1st, force in been has Telecommunications, on Law previous the replaced which Communications, Electronic on Law new The the middle of 2008 up to the middle of 2009. 2009. of middle the to up 2008 of middle the new a round ofmarketanalysesintheperiodbetween undertook Agency the recommendations, EU latest the account into taking and framework, regulatory new this with line In SMP). with of operators existence the (i.e. effective is insufficiently market relevant the on competition that determined is it and analyzed and defined are markets relevant after only imposed be may remedies regulatory which in introduced was framework regulatory new a Communications, Electronic on Law new the of consequence a As in was that force untilJuly2008. framework regulatory old the on was based designation SMP Such 2007. December operators in SMP of list a of publication the by Agency’s reiterated was markets these in Iskon and T-Mobile Company, the of status SMP The networks. telecommunications mobile and inthemarketforpublicvoiceservices market interconnection the in operator an SMP as designated been has T-Mobile Since 2004 network. telecommunications fixed in transmission other and images documents, voice service andthemarketforvoice,sound,data, public fixed for market the in the with Company power market significant joint as holding designated was Iskon subsidiary the 2007 Company’s In network. telecommunications in fixed transmission other and images documents, and themarketforvoice,sound,data, interconnection for market the lines, leased market the for fixedpublicvoiceservice,themarket in status power) market (significant SMP held has Company the 2002 Since certificate on receiptofpriornotifications. Agency’s the of issuance of as date the apply of to ceased Iskon, and T-Mobile Company, in place before the market analysis ceased to to ceased analysis market the before were place that in remedies operators, SMP as were designated Company/T-Mobile/Iskon where markets In and T-Mobile inthesemarkets. Company the upon imposed existing all obligations withdrew thus and of regulation, scope ex-ante under fall longer no they that concluded With regardtomarketsunder6-9,theAgency above. 5 under market the in the operator as SMP designated was T-Mobile while 2, market under the in operator SMP the as was Iskon designated above, 4 and 3 2, 1, under markets in operator SMP the as Company the designated Agency the 2009, July of decisions its By 9. 8. 7. 6. 5. 4. 3. 2. 1. obligations forthefollowingmarkets: regulatory of removal or imposition the status and SMP on decisions Agency’s July the in by 2009 finalized were procedures analysis Market SMS termination on individual public mobile mobile network public individual on termination SMS communications network public fixed the in services transit mobile communications networks public on origination call and access mobile in electronic communicationsnetworks service telephony available publicly network public mobile individual on termination call voice wholesale broadbandaccess access) atafixedlocation unbundled fully or shared (including access infrastructure network (physical) wholesale location fixed a at provided network communications call terminationonindividualpublic location fixed a at provided network call originationonthepubliccommunications essentially unregulated. unregulated. are tariffs essentially Other level”. “affordable an must at set be services universal for tariffs review. addition, In ex-post to subject is pricing retail other whereas Agency, the by approval ex-ante and cost-orientation to subject are lines network leased and fixed the in service voice for public prices retail markets, these in obligations to existing According remains. 2007, in Agency the determined by as network, telecommunications in fixed transmission other and images data, documents, sound, voice, and service voice public for markets in Iskon and Company the of status in the marketforleasedlines,andjointSMP Company the of status SMP existing The • • • • • and T-Mobile wholesaleprices: Company following the the decreased 2009, Agency July of decisions its by addition, In IV. III.

by the Agency’sdecisionsfromJuly2009: imposed were remedies following and apply, V. II. I. mobile termination fee was reduced to 0,56 0,56 kuna/min, witheffectfromJanuary1st,2010 to reduced was fee termination mobile 1st, 2010 January from effect with abolished, was call set-upfeeinfixednetworkof1,5lp/min peak), witheffectfromJanuary1st,2010 fixed network wasreducedto6,7lp/min(50%off- in fee termination call tandem single peak), witheffectfromJanuary1st,2010 fixed network wasreducedto6,8lp/min(50%off- in fee origination call tandem single 2009, 1st, October from effect HRK, with 21,46 to reduced was price ULL shared Company; cost accounting project, which was was initiated intheendof2008,isongoing) which project, accounting cost Company; Accounting separation(appliesonlytothe Price controlandcostaccounting Transparency Non-discrimination facilities Network accessanduseofspecialnetwork 35 Business Review 2009 Business Review 2009 36 enter force on October 1st, 2010. 2010. 1st, October on force will enter which Act, Competition Croatian new adopted the Parliament Croatian the 2009, June In 2009. 16th, on September expired which license, radiofrequency defined GSM technologically the replaced license radiofrequency new This 2024. October until period the for bands, MHz 1800 and the in MHz 900 T-Mobile by used already for frequencies the T-Mobile, to licenses radiofrequency neutral a decision ontheissuanceofnewtechnology- passed Agency the 2009 31st, August On services and SMSMMSservices. voice of provision from of realized 6% of revenues amount the in budget state’s the to monthly a fee pay to obliged is Group the law, this entered intoforceonAugust1,2009.Based Networks Communications Electronic in Mobile Services Providing for Fee on Law new The T-HT Group Vision: T-HT Group Mission: Group’s Strategy our share experience, ideas,andthoughts. to services Internet-based and using mobile colleagues, and friends families, our with on show TV the screenofamobilephoneandstayintouch favorite our watch airport, our the on to way business do can We fun. more lot a lives faster, leaving uswithmoresparetimeandmakingourproblems solving easier, life making works us, for Technology endless. are possibilities The quality ofservice. are constantlydemandingfasteraccessandbetter home, intheofficeandonourmobilephoneswe We takeforgrantedthatwecanaccesstheInternetat we spendourfreetimeandthewaydobusiness. everyday life.TheInternethasrevolutionisedtheway Checking e-mailandusingtheInternetarepartofour of variety input devices. wide a through time any at and used be needs can people’s to tailored are these applications more, and More month. every of members millions new attract Twitter and Facebook as such communities virtual while day, every Internet viewed the and to uploaded are clips film and of photos volumes Enormous platforms. and international forums virtual through ways individual highly in communicating people more more with and networked, increasingly are lives Our touch. in staying and communicating offer countlesspossibilitiesforsocializing, technologies communication and information and need human basic a is Communication T-HT - Leader in Connected LifeT-HT &Work -Leader in Connected Always &Everywhere &Entertainment, Information Communication,

strategic areas: four on based is strategy Group’s The top ofourcoretelcoofferings. on remains building broadbandandvalue-addedserviceson focus strategic our why is and This content ICT. as such services newer to calls as voice such services commodity value traditional in from shift a witnessing are providers Telecom Key strategic directions I Top line growth coming years. the years. in coming offerings ICT its expanding to is committed Group The businesses. medium-sized and of adesktopmanagementservice aimedatsmall We followed thisinNovember2009withthelaunch enterprises. large for solutions business new introduced Group the 2009, of quarter second Group’s the existing telecommunicationsbusinesses.Intheof extension natural a represent (ICT) Technologies Communications and Information services. products and innovative of development continuous through segment entertainment in and media position the its strengthen to is goal Group’s tportal, the and MAXtv of success the by Encouraged such asIPTVandothercontentforgrowth. products broadband-related and looking broadband to therefore is Group The and telephony. fixed of mobile markets traditional the in limited are As themarketleader,opportunitiesforgrowth IV III II I Information and Communications Technologies Communications and Information growth MAXtv and broadband strong Continued Service &culture Quality &efficiency Loyalty Top linegrowth 37 Business Review 2009 Business Review 2009 38 II LoyaltyII IV Service &culture Service IV &efficiency Quality III services andthesimplicityoftheiruse. customer segments,increasingthequalityofour services customizedtothespecificneedsofdifferent are continuouslyworkingonnewandinnovative of excellenceincustomerservice.Therefore,we organisation thatconstantlyachievesahighstandard The Groupaimstobevaluedbyitscustomersasan environment. competitive increasingly an in margins protect and costs operating Group optimise to intended initiatives are these Together, opportunities. future growth support to needs expenditure reviewing capital time same the at while structure, its cost benchmarking and analyzing and processes redesigning by operations its of efficiency quality and the improving continuously is Group The internet. mobile and content rich such MAXtv, as services, bandwidth-heavy to future all networks enable optical-access and core all-IP investing new, are in We services. T-HT all of the - enabler network key our in investment significant require services quality high of maintenance the and satisfaction customer of improvement Continuous MAXtv. as such offerings innovative and bundles attractive quality services, premium pricing, competitive residential customers, and business for tariffs and tailor-made packages with base subscriber its and strengthening protecting to committed is Group The Building a superior service culture service Building asuperior margin profit class best-in- maintaining and management Cost Investing in ournetwork business core the strengthening and Protecting divisions, T-ComandT-Mobile. Group structurebaseduponthefixedandmobile effective on1January2010,replacingtheformer and businesscustomers.Thereorganisationbecame business tofocusonthedistinctneedsofresidential commitment, wehavereorganisedtheHTd.d. relationship management.Centraltothis key aspectsofcustomerserviceand The Groupisconstantlyimprovingandsimplifying business. our build people us help to first-rate retain and attract to way, able this are In we service. of standard to high a order in maintain staff of training and education the in employees areitskeyasset,theGroupinvests service-focused that and obsolete rapidly becomes knowledge that Recognising retention. customer relationships andencouragingcustomer building for vital is and technologies new needs customer understands that workforce service-oriented and skilled a of the development challenges, market constant and changes technological dynamic facing market a In aligning organization to strategy aligning organization processes, Improvement customer-related of employeesTop-class Corporate Structure Organization oftheGroup activities important to the business. contract negotiation with suppliers and many other savings through the consolidation of marketing, operations enables significant synergies and cost Furthermore, the reorganization of internal business especially forbusinesscustomers. ability to provide tailor-madeThe andresult comprehensive will be improved solutions, customer care and an increasedoffering the full range of productscustomers and with services dedicated we offer.sales way wedobusiness,providingBusinessandResidential organizations capable of Transformation of the business enables us to improve theeven moreefficientandcustomerfocusedarecreated. for further continuation in newpursuing T-HT. ourWith goal these of transformationbecomingoperational changes, functions the premisesto provideAt the maximum same time, support we havefor thereorganized our technical and end oftheyear. completed with the merger ofJuly T-Mobile 2009 withinto theHT d.d.realignment at theBusiness units.Theprocessofreorganisationbeganin of sales teams and was replaced byanewstructurebaseduponResidentialand serving fixed and mobile markets January 2010,theolddivisionsofT-ComandT-Mobile, respectively, were Croatia LLC with HT d.d. andof the the related Group andtransition. consequently OnIt 1 isthe challenges merger of likeT-Mobile these that have driven the transformationcustomers aremorelikelytochurn. investment isrequiredtosupportnewtechnologiesand telephony, the mobile marketThe is resultbecoming is saturated,a continuing more decline in the use of fixed same time as their spending and customer expectations become more demanding at the power comes under pressure. new technologies bring both competitionopportunities is andincreasing challenges fromchanging. new and Against existing a backdropoperators,Croatia’s of economic telecommunications uncertainty, market is constantly HT -Hrvatske telekomunikacije d.d.HT -Hrvatske LLC T-Mobile of Croatia Merger with Organisational Structure shareholders. Law, and that it serves the wasbenefit carried of theout Companyon the basisand The ManagementBoardisoftheopinionthatmerger its of and in accordance with the obligations towardsemployeesandothercreditors). limitation to obligations towardsits predecessor, suppliers, T-Mobiletax obligations, Croatiatransferor LLC (including,company HT d.d.but withoutwilltransferred be liable to forHT d.d.all obligationsAs the well asthecapitaloftransferorcompany,wereentirely universal of legal successor the mergerprocedure,assets,rightsandobligations,as of the register of the merger i.e. ofdid 31 not December exist on2009 1 Januaryas the daycompany,2010. of Inthe whereby entry inT-Mobile the court ceasedthereby to enteredexist with into the all expiry legalthe relationshipsuniversal legal of successorthe transferorBy ofthe the merger, transferor the transferee company and company, HT d.d. became December 2009. court registeroftheCommercialCourtinZagrebon31 was approved,andthemergerenteredinto Assembly ofthetransferorcompanybywhichmerger by HTd.d.andT-Mobileuponthedecisionof On 29 October 2009 a Merger Agreement was signed residential customers. includes Marketing,Salesand CustomerServicefor Residential (COOResidential) andinparticular Residential isheadedbyChief OperatingOfficer customers, ICTBusinessSolutionsandWholesale. Marketing, SalesandCustomerServiceforbusiness Business (COOBusiness)andinparticularincludes Business isheadedbyChiefOperatingOfficer smaller subsidiaries. functions (CEO,CFOandCHRO)anumberof technical functions(CTO/CIO),supportandsteering facing unitresidential(hereinafter:Residential), facing unitbusiness(hereinafter:Business),customer The Group’sneworganizationisbasedoncustomer Residential Business Group 39 Business Review 2009

T-Com

Overview Major Achievements in 2009 Business Review 2009 42 T-Com POTS and FGSM, 6.2% were ISDN, and the remaining were payphones. remaining the and ISDN, were 6.2% FGSM, and POTS As at31December2009,93.2% ofmainlineswere increase inVoIPusage. attributable tothefixed-to-mobilesubstitutionand 138, comparedtoHRK150in2008.Thedecreaseis per access(ARPA)alsodecreasedby7.9%toHRK The averagemonthlyrevenuefromvoiceservices generated bycallstonumberswithinCroatia. minutes (2008:HRK3.80billion),mostofwhichwas Total trafficdecreasedby8.8%toHRK3.46billion revenue comparedtolastyear’s53.8%. 2,506 million,whichaccountsfor49.7%ofT-Com’s Revenue fromfixedtelephonydroppedby10.3%toHRK 1.49 million,comparedto1.56millionattheendof2008. The totalnumberofmainlinesdecreasedby4.3%to Fixed telephony Major Achievements in 2009 • • • • • • despite ever-increasingcompetition. leading positioninallfixedtelephonymarketsegments, Throughout 2009,T-Comcontinuedtoholditsmarket- Overview ADSL andIPTV. the increase in revenue from Internet services, particularly mobile substitution.Thedecreasewaspartiallyoffsetby telephony customerbase,mainlycausedbythefixed-to in revenueismainlyduetothedecreaseoffixed million in2009.(2008:HRK5,191million).Thedrop T-Com’s totalrevenuedecreasedby2.8%toHRK5,044

Packages T-Com continuedwiththeofferingofNetPhone remained thetopplayeronwholesalemarket Thanks toitsextensivenetworkcoverage,T-Com to almost236,000 The numberofIPTVcustomersincreasedby74.1% almost 555,000 The numberofADSLlinesincreasedby17.4%to T-Com’s revenue to HRK1,149million,accountingfor22.8%of Revenue fromInternetservicesincreasedby27.7% The totalnumberofmainlineswasalmost1.5million 17.3% and 10.2%). 10.2%). and 17.3% revenue and13.4%oftheGroup’s revenue(2008: T-Com’s of 22.8% for accounting million), 899 and amountedtoHRK1,149million(2008: Internet servicescontinuedtoshowstronggrowth Internet services (net ofVAT). social welfare,withamonthlysubscriptionofHRK30 Super 30,alow-costpackageforthosereceiving for allmembersofCroatiansociety,T-Comoffers As partofitscommitmenttoprovidetelecomservices and thus toincreaserevenues. satisfaction customer improve to models, fee order toencouragecustomersusefutureflat- in promos) 500 Super Business and 150 Super customers totheSuperpackages(Super60, T-Com continuedwiththemigrationofHalotariff up feecharged. Vrijeme Plusonlyinoff-peaktime),withtheset Both tariffsoffer60minutesoffreecalls(Slobodno new flattariffsNonStopandSlobodnoVrijemePlus. In ordertoboostgrowthintraffic,T-Comintroduced 1,400,000 1,800,000 1,000,000 1,200,000 1,600,000 T-Com total T-Com 400,000 800,000 200,000 600,000 - 2007 1,624,879 2008 1,559,071 2009 1,491,622 content availabletosubscribers. pricing andconstanteffortstoenrichmultimedia combination ofincreasedADSLspeeds,attractive mainlines. Thisincreasewasachievedthrougha in astronggrowthofADSLby17.4%to554,995 low-bitrate dial-upaccesstobroadbandresulted with strongpromotionalincentivestoswitchfrom The popularityofbroadbandInternetcombined installation forHRK1aspermanent offer. for smallandmediumenterprises)introductionof Phone customersconnectedviaADSL-a(packages as aresultofpromotionalcampaignstargetingNet An improvementinIPtelephonyhasbeennoted, quality network. and providingInternetservicesthroughitshigh- focusing oncustomerneeds,offeringattractiveprices T-Com managedtokeepitsmarketleaderpositionby increasingly attractivepromotionsofotheroperators, the useofbroadbandservices.Regardless of strongpromotionalactivitiesaimedatincreasing from ADSLperuser)increasedby3.8%asaresult The ADSLARPU(theaveragemonthlyrevenue T-Com ADSL users ADSL T-Com 100,000 300,000 400,000 200,000 500,000 600,000 - 2007 334,925 2008 472,654 2009 554,995 tportal hastooffer,includingmore than40regular daily andwebmailarejustsmall fractionofwhat Services likeshopping,playtoy, fonoteka,maxzona, photo andvideocoverage. related totheelectionextensively,throughnews, for presidentialelectionswhichcoveredtheevents thematic microsites,suchasaseparatewebsite tportal’s mostimportantprojectsin2009included independent Internettrafficresearchagency. unique visitorspermonthaccordingtoGemius,an the largestCroatiannewsportal,with700,000 In 2009,tportalmaintaineditspositionasoneof tportal with separatelynegotiatedrightsforhotels. including anewgraphicuserinterfaceandcontent A newT-ComIPTVserviceforhotelswaslaunched, standard andforthestand-aloneMAXtvpackage. marketing initiativeswerelaunchedbothforthe months, oragadgetcomingalongwithMCD.All a HRK1subscriptionfeeforcertainamountof promo campaignsofferingtheTryandBuyconcept, supported bystrongadvertisingandnumerous Attractive MAXtvmarketingcampaignswere and NBC. titles frommajorstudiosincludingMGM,Paramount as wellanincreasingnumberofVideoonDemand including HBO,HBOComedyandondemand, packages offerexclusivechannels&programs and attractivepromooffers.Thepremiumcontent premium content,constantproductimprovement success maybeattributedtothecombinationof which isa74.1%increasecomparedto2008.This IPTV services,hadalmost236,000subscribers, At theendof2009,MAXtvandIskon.TV,Group’s IPTV proved tobepopularwithresidentialcustomers. and TV)tripleplayserviceinCroatiawhich,which able tolaunchthefirstfullyintegrated(voice,data to theendofyear.WithIPTVonboard,Iskonwas biggest growthengineintheresidentialsegmentup the IPTVserviceinApril,whichturnedouttobe The maineventin2009forIskonwasthelaunchof 43 Business Review 2009 Business Review 2009 44 purposes (261MDFlocations), operatorsarepresent own infrastructure.Inaddition toco-locationforULL and expansionoflocalinterconnections viatheir 2009 wererelatedtotheactivationofnewULLs The mainactivitiesoftheWholesalebusinessin same paceasinthepreviousyear. and thevolumeoftheirusage,althoughnotat interconnection market,duetothevarietyofservices The year2009sawaslightgrowthofthe market wholesale Domestic commercial models(interconnectiononT-Comside). leased linesdecreasesasaresultofmigrationtonew while revenuesfrominterconnectionservicesvia the migrationofcustomerstobroadbandservices, 2008. Revenuefromdial-uptrafficdroppeddueto million. Thisisadecreaseof9.2%comparedto T-Com’s totalrevenue,amountingtoHRK1,049 Revenues fromwholesaleaccountfor20.8%of successful yearforT-Comonthewholesalemarket. increased activitiesofforeignoperators,2009wasa Even withstrongerdomesticcompetitionand Wholesale this segmentaswell. and qualityofservice,T-Comisthemarketleaderin 3.7% comparedto2008.Dueitsnetworkcoverage The numberoflinesprovidedbyT-Comdecreased Internet Protocol). as MetroEthernetandIPVPN(virtualnetworkvia more advancedandfasterIP-basedservicessuch customers fromtraditionaldataservicestowards T-Com continuedtofocusonthemigrationof Data services enjoy acustomizedinterfacewhenbrowsingtportal. and Twitter.Inaddition,T-MobileiPhonecustomers WAP portal,andonsocialnetworkslikeFacebook mobile devices,SMSinformationalertsandT-Mobile content sections.ContentisavailablethroughPDAs, crossings’ pointsofpresence. crossings andcapacityupgradesofexistingborder improved alsoduetotheintroductionofnewborder T-Com’s positionontheinternationalmarket the regionalmarket. and strengtheningofT-Com’scompetitivepositionin previous year,asaresultofincreasedsalesactivities wholesale increasedby14%comparedtothe traffic terminatedtoCroatianfixednetworkviaT-Com recession influences,thevolumeofinternational 2009. Despitethefixedtomobilesubstitutionand and datainterconnectionsfrom47in2008to60 in anincreasethenumberofinternationalvoice T-Com’s flexibleinterconnectionpolicyresulted market wholesale International mobile substitution. mobile broadbandservicesandincreasingfixed-to- biggest capacityconsumersduetothegrowthof lower margins.Mobileoperatorsremainedthe throughout 2009despitestrongcompetitionand The Data/Capacitymarketremainedstable revenue driverontheVASmarket. services which,upto2008,havebeenthemain changes inthelegalenvironmentpertainingto (VAS) marketstagnatedin2009asaresultof As inthepreviousyear,ValueAddedServices terminating minutes. base alsocontributedtoslightincreaseinnational to 123,054whilethegrowthinULLcustomer of 2009,thenumberdeliveredULLsincreased were realizedviatheirowninfrastructure.Attheend at 63localexchanges,and44%ofICrelations 45 Business Review 2009

T-Mobile

Overview Major Achievements in 2009 Business Review 2009 48 1)Source:publishedVIPnet’s andTele2’squarterlyreportfor4Q2008. NumberofsubscribersforVIP • 137.7 increased from132.4%attheendof2008to Mobile penetrationintheRepublicofCroatia • • • • • to 32.2%during2009. postpaid inthetotalcustomerbaserosefrom30.1% to switchpostpaidaccounts,T-Mobile’sshareof campaigns aimedatencouragingprepaidcustomers (2008: 1,879,377).Byaseriesofsuccessfulmarketing (2008: 810,615)and1,938,867prepaidcustomers of 2009,T-Mobilehad919,991postpaidcustomers a 46.7%shareofSIMs(2008:45.8%).Attheend T-Mobile maintaineditsmarket-leadingpositionwith T-Mobile Major achievements in 2009 The year2009wasmarkedbythefollowingmarket Overview

accomplishments: was reached, hardware. full businesssolution,integratingvoice,dataand van, thefirstproductonmarketprovidinga The businesssegmentneedsweremetUredza first timeonthemarket, a SimpaInternetdailyoptionwereofferedforthe Unique weeklyoptionsforprepaidcustomersand fitting theneedsofyoungpeople, A uniquepostpaidtariffwasofferedonthemarket, segment, customer residential were createdtomeetspecificneedsinthe options and Stick2CARNet) netbooks, (e.g. offered was products/services new of array An customers million 2.86 almost of number The market witha46.7%SIMshare, competitive Croatianmobilecommunications T- Mobileconfirmedmarketleadershiponthe 1 %attheendof2009.

of Simpaaccount. data trafficthatcouldbeobtainedaftertopping-up offered toitsprepaidcustomersExtraminutesand in March.Duringthelastquarterof2009,T-Mobile Additionally, theSimpaZabavatariffwaslaunched prepaid customersandachievedgreatsuccess. the market,T-Mobilelaunchedweeklyoptionsfor different customersegments.Forthefirsttimeon products createdtofulfillspecificneedsof During 2009,T-Mobileofferedanarrayofnew Products andservices net andTele2for4Q2009 areinternallyestimated. 1,000,000 1,500,000 3,000,000 2,000,000 2,500,000 T-Mobile 500,000 0 2007 1,700,042 684,817 2,384,859 T-Mobile Prepaid T-Mobile Postpaid 2008 1,879,377 810,615 2,689,992 2009 1,938,867 919,991 2,858,858 seasonal offer. (Flex BusinessStarttariff)andtheFlexTeam Crafts, a new tariff designed for start-up companies designed incooperationwiththeChamberof segments. Forexample,anoffertargetingcrafts order tosatisfycustomerrequirementsinthose solutions targetingspecificmarketsegmentsin development. Additionally,T-Mobilehasoffered voice, dataandhardware,continueditssuccessful that providesafullbusinesssolution:integrating offers. Uredzavan,thefirstproductonmarket of oursuccessfulFlexTeamandUredzavan Business segmentneedsweremetbyextension version oftheiPhonedevice-3GS. T-Mobile offeredtoitscustomersanew,upgraded Lenovo netbookoffers.Exclusivelyonthemarket, option, aswellwiththelaunchofAsusand Simpa Internetofferanddailypaid addressed withtheMobileInternetpromooffer, customers’ needsindatasegmentwere for CARNetusers-Stick2CARNet.Residential T-Mobile hasalsoofferedapackagedesigned launched thePlayNowPlusoption. customers towhommusicisimportant,T-Mobile benefits withoutworryingaboutmonthlyfee.For needs ofcustomersthatwanttoenjoypostpaid po momtariffwaslaunchedinordertosatisfythe when signingtheircontract.Additionally,theTarifa choose oneoftheofferedpaidoptionsforfree to allowflexibilitypostpaiduserstheycould tariffs designedspecificallyforfamilies.Inorder second birthdayoftheverysuccessfulFlexObitelj of youngpeople.Also,T-Mobilecelebratedthe on themarket,namedMrak,fittingtoneeds T-Mobile alsolaunchedthefirstpostpaidtariff • • • • • T-Com and T-Mobile and sales integrated T-Com Major achievementare: resident customers. enterprises, tosmallandmediumenterprises central organizationalunits:salestokeyandlarge The organizationofsalesoperationsutilizesthree fixed andmobilenetworkproductsservices. All saleschannelsareusedtoofferthecustomersof sale andtoupgradeprovisionofcustomerservice. efficiency, toincreasetheservicelevelatpointsof In 2009,activitiescontinuedtoimprovesales

sales channelsandconsultingapproach. customer segment,harmonizationwithvarious Development ofbusinessoperationinthe bills paymentinT-Centers. Introduction ofpaymentmachinesforcustomers’ malls). closer to the customer (stands in selected shopping Introduction ofthenewsaleschannelstobeeven T productportfolio. deeper marketcoverageandharmonizationofthe Reinforcement oftheindirectpartnersnetworkby relocation ofsometheexistingones. opening ofnewT-Centersandrefurbishment/ Reinforcement oftheownretailnetworkthrough 49 Business Review 2009 Business Review 2009 50 • • broadband, transportandIP/MPLSplatformswere: During 2009,thefocusinareaoffiberoptical, infrastructure andopticalinhouseinstallations. customer’s acquisitiononopticalfiberaccess fiber optic,asprerequisiteforfurthercommercial to fiberaccessnetwork,insistingonbitstream access networkaswellwithtootherby-laws,related advance itsdetailedplanforterminationofcopper to T-HTannounceotheroperators5yearsin The Croatianregulatorybodyimposedobligation telephony provisiononBBport. should be functionally upgraded to enable VoIP been started.Besidesthat,existingPSTNnetwork Therefore, in these segments, investment cycle has network. (GPON) and selective modernization of copper access new optical access network, optical access platform Access networktransformationiscarriedoutthrough must bedone. That meansaccessandvoicenetworktransformation one commonbroadband(BB)networkport. T-HT haschosenstrategytoprovideallservicesvia efficient, flexibleandreliableinfrastructure. achieve amaximumofcustomersatisfactionwithcost of T-HT.AccordingtoT-HTstrategy,thegoalis underlying infrastructureisliterallythebackbone The areaofNetworkandServicePlatformswiththe Platforms and Service Network Network andInformationTechnologies commercial customer’sacquisition; network, asprerequisiteforfurtheropticalfiber must beofferedonthenewopticalfiberaccess QoS basedvoiceandIPTVrequestsBSA services (BSA).BSAareextendedwith obligations toT-HTintheareaofbitstream Regulatory Agency(HAKOM)issuedadditional provisioned; customers connectedwithbroadbandservices 34,740 customersreachedand2,114commercial customers reached,FTTH(fibertothehome)- nodes installed,FTTA(fibertothearea)-215,228 fiber-optic infrastructure.EoYresults:40GPON Continuous broadbandroll-outdeploymenton • • • • • • Metro EthernetandATMnetwork platforms; relay datanetwork)customers havebeenmigratedto and reduction.Inaddition,CROLINE(legacyframe T-HT platformstrategythatfocusesonsimplification is thefirstdataplatformthatmigratedaccordingto and IP/MPLSproducts.AftertheTelex-platform,this business customerstofuture-proofMetro-Ethernet Termination ofX.25platformandmigrationits ready formigrationpilot; Residential VoIPplatform(preIMS)istested,and to supportfutureresidentialvoice(VoIP)platform. Voice service(HALO)redefinitionisdoneinorder finished, too; adding middlewareservers.Hoteluserinterfaceis network andvideoondemandresources,onlyby platform channellineup,digitalrightsmanagement, functional. HotelplatformreusesresidentialMAXtv Small-scaleplatformforHotelIPTVsolutionisfully access network; of videoqualitydototheinsufficient VQE thateliminatesautomaticallyminordegradation are protectedwithanerrorcorrectiontoolcalled up to300.000customers.Also,allMAXtvchannels T-HT’s customers.Regardingcapacity,itisextended interactive features and better customer experience to server andclientsoftware-inordertoprovidemore upgraded tonewsoftware-HomeEntertainment3.0 T-HT’s IPTVplatform(InternetProtocolTelevision)is T-Mobile network; and 280MSPPequipmentaremainlyinstalledfor capacities extensions.50newradio-relaylinks SWOP Projecthasbeensupportedbytransport DSLAM cascadesortoconnectnewDSLAMs.UMTS installed toimproveQoSADSLplatformbyremoving enabled migrationto10Gbit/sEthernet.40CWDM 3 andRegion2(internationalconnectivitytoBiH) of newregionaltransport(DWDM)ringinRegion 4 -westringandRegion3eastdeployment Extension offiberopticbackbonenetworkinRegion in ordertocopewithincreasingcapacitydemand. MPLS routersand45Ethernetswitchesinstalled) Continues upgradeofcoretransportplatform(16IP/ ports havebeendeployed; of 802,000ports.In2009,additional175,000ADSL of Croatianpopulationbytheend2009withatotal Line AccessMultiplexer)infrastructurecovering98% Further roll-outofprovenDSLAM(DigitalSubscriber improve internal efficiency. integration of services that work across the market andbusinessintelligencecapabilities,tothe T-HT Group to delivery processes,developingadvancedcustomer, Significant effort is directed towards improving our service new products. product developmentandreducingtimetomarketfor internal efficiency,atthesametimeasenhancing the Group’sdrivetoincreaserevenuesandimprove for informationtechnologyinitiativesthatsupport Information andBusinessSystemsUnitisresponsible powerful tooltoimprovecustomerservice.T-HT’s enablers inthetelecommunicationsindustryanda Information Technologyisoneofthekeybusiness Information technologies • • touch provisioningandremoteCPEmanagement. infrastructure. ImplementedACSsystemforzero- for customerservicesmigrationtoFTTH performed. Deployedoperationalprerequisites culture educationprogramfor600technicians equipped withcorporateuniformsandservice implemented. Technicalfieldpersonnelare mio HRK.Serviceculturedevelopmentprogram completed. Totalfinancialimpactfor2009is39 Phase Ifor6projectsofSixSigmaprogram savings of8.4%inrelationtoyear2008; aggregation ofexistingSLAsandachievedcost equipment maintenance,resultingwith providers inareaoftelecommunication Level Agreements)withmajorrelevantservice Completed theconsolidationofSLAs(Service • • • • • • • Notable projectachievementsin2009include: area ofMediationsystems. certificate inbothfixedandmobilebusinessthe 27001 standard.WehaveachievedISO in ordertoachievecertificationundertheISO/IEC an informationsecuritymanagementsystem(ISMS) level ofdatasecurity,theGroupbeganimplementing T-HT toberecognizedasacompanywiththehighest customer-tailored servicesandoffers.Inorderfor The Groupisconstantlyfocusedonhighqualityof automate relatedprocesses; national intercarrierbillingsystem,toimproveand of astandardsolution(Intec’sInterconnect)forthe NICB (NationalIntercarrierBilling):Implementation and mitigatebusinessrisks; Carrier CockpitR6.1.tooptimizemaintenancecosts Upgraded AscadeCarrierCockpitrelease4.5to OSS andWholesaleareas; analytical supportforSalesandMarketing,Finance, Finalization ofDataWarehouseenableadvanced Enterprise ServiceBus(TIBCO)implemented; services; an integratedanduniqueapproachtocustomer cashier solutionsinT-ComandT-Mobiletoprovide TRGO application:Replacementofthelegacy upgrade, etc; (Commission CalculatingSystem);Genevasystem Management; Accountsseparation(AS);CCS (COMPASS) forNGNservices;BusinessProcess Complete ArchitecturalSolutionandSupport 51 Business Review 2009 Business Review 2009 52 Human Resources business strategy Making the most of our talent to enhance cooperation withitssocialpartners. Group maintainsconstantdialogue andaspiritof the and Agreement Collective ongoing the by governed are benefits and rights Employee develop theirowncapabilities.and perform to colleagues for place attractive workplace andtheambitiontomakeT-HTanthe in respect and integrity of importance the efforts, our of driver key as satisfaction customer guiding principlesforallemployees.Theydefine spirit, T-HTimplementedanewsetofcorporate on trust,serviceorientationandastrongteam In ordertofosteracorporateculturebased focus. the in customer internal - HRasthepartnertobusiness,whichputs organization centric customer towards changed the organisationalstructureofHRDepartmentwas In ordertoenableefficienttransformation,in2009 compared with6,487in2008. end oftheyear,Grouphad6,116employees,the At 2009. in continued program optimization headcount the that meant competitiveness Group the keep to necessary technologies of advanced introduction the and changes Organizational performance andcompetence. individual with compensation align that place in are systems management performance and an individuallevelandacrosstheHTincentive both at performance high for prerequisite a As and performance. efficiency in improvements constant upon based culture corporate a nurture to and colleagues to enhanceprofessionaldevelopmentofour therefore vitalthatwetakeallpossiblesteps knowledge andskillsofitsemployees.Itis T-HT’s businessperformancedependsonthe and challenging telco market. market. telco challenging and competitiveness ofcompanyinthedeveloping future the assure to and applications and technologies new of implementation the to support professionals young of training and recruitment Furthermore, T-HTplacedstrongemphasisonthe technical area. development (RasT)whichwaslaunchedinthe were intensifiedthroughtheprogramforexpert development career expert for initiatives 2009, In 2009. in programs participated inatleastoneofoureducational employees 3,500 than more Overall, competence. professional and management project skills, relationship customer improving management, middle of skills leadership the building on focused mainly were programs Educational improvement, achievehigherstandardsofservice. this though and staff its of capabilities throughout 2009inordertoenhancethe learning, knowledgeandskillsdevelopment systematic of program its continued Group The High standards of employee development excellent servicetocustomers. to identifyandrewardemployeeswhoprovide and T-HT within service outstanding to promote order in goal this of support in undertaken notably theServiceRoleModelAward,were highest priorityfortheGroup.Severalprojects, customer-oriented organizationremainsthe and service-focused a of development The The customer is central to what we do feedback skillswasintroduced. a structuredinitiativefordevelopingandenabling Furthermore, tofosteracultureofopenfeedback, prospects andtheeffectivenessofstaffmanagement. with theorganization,perceptionofcareer factors suchasthelevelofemployeesatisfaction regularly conductsemployeesurveystounderstand In ordertoachieveconstantimprovement,T-HT Feedback matters employees. of lives personal and professional as acontributiontobalancebetweenthe checks aswellsportandrecreationactivities of itsemployees.TheGroupoffersregularhealth well-being and health the supports strongly T-HT Work-life balance 1,000 2,000 3,000 4,000 5,000 6,000 7,000 by segments Number ofemployees 2008 6,487 T-Com T-Mobile 2009 6,116 100% 10% 30% 40% 80% 20% 50% 60% 70% 90% by education Employees 2008 Semi-skilled Unskilled, PrimarySchool, Secondary School Skilled, Highly College D. Sc.,M.Sc,UniversityDegree 2009 53 Business Review 2009

III. Corporate Social Responsibility

Donations and sponsorships Ecology 56 Corporate Social Responsibility III. CorporateSocialResponsibility protection strategy. the implementationofastrongenvironmental useful purposes; sponsorshipofworthyprojectsand socially for resources T-HT of provision the as wellwithnon-governmentalorganizations: educational, culturalandscientificinstitutions social responsibilityinclude:cooperationwith Important aspectsofourworkincorporate community. the to support in providing engage directly employees T-HT’s that means them are bothinternalandexternalinnature,which of many and efficiency better their ensures Most ofourprojectsarelong-termschemes,which impact. significant a make can technologies modern which in projects and education issues, humanitarian towards orientation an have involved is Group the which in projects social that natural is it company, communications a Being activities. important of number a through society Croatian wider the improve to works it and operations Group T-HT of part integral an is result, CSR a As (CSR). responsibility social corporate of standard high a set to aspires and society Croatian in responsibilities its of aware fully is Group T-HT company, successful and strong a As Donations and sponsorships awareness about another crucial issue - the foster foster care ofchildren. the - issue crucial another about awareness raised also has partnership This project. worthy UNICEF this to directly contribute to services its for servicesthatmadeitpossibleusersof bills with slips donation out sent and created regular financialsupportfortheproject,T-HT increase and encourage to order In disabilities. of parentswhosechildrenhavedevelopmental encouraging responsibleparentingtoagroup of project year’s previous the expanding by the project“TheFirstThreeMatterEvenMore”, with strengthened was Croatia in UNICEF and In 2009,thefive-yearpartnershipbetweenT-HT The Group its general importance for society as a whole and its generalimportanceforsociety asawholeand Service was selected as a recipient because of protection and rescue of human lives. The Ambulance communication isoftenessential whenitcomesto Our support was based on the premise that efficient Group went to emergency medical treatment centers. customers. In2009,holidaydonationsoftheT-HT purchasing holiday gifts for business partners and donate significantfundstogoodcausesinsteadof For thesecondsuccessiveyear,T-HTchoseto Zagreb. in Tanay Studio at children with work therapeutic and creative for support provided also T-HT people. impaired and mobility- wheelchair-bound for lifts as well as vehicles for equipment purchased T-HT East, Center Zagreb Health the for addition, In Vinkovci). from (“Bubamara” Persons Disabled of Association with SpecialNeeds(“Mi”fromPožega);the Children of Parents of Association the Children; Phone -aHotlineforAbusedandNeglected Support wasprovidedtoprojectsincluding:Brave milion. 1,1 HRK than more totaling funds awarded and 2009 in selected were projects 25 Croatia, over all from received applications 178 of Out experiences andtheenvironmentaroundthem. proposing projectsbasedupontheirownand needs identifying project, the in role key the have employees T-HT’s because unique continued forthefourthsuccessiveyear.Itis The project“TogetherWeAreStronger”was purposes. humanitarian to went number the donation calling by raised amount full the Thus its income. waive T-HT initiatives these all In Kaptol). Zagreb Club Rotary - Life into (Step education university a receive to children abandoned or Foundation); andprovidingsupportforfostered Rukavina (Ana cells stem blood of donation the encouraging moje); Milo (Foundation treatment of pediatrichospitalinOsijekwithbetter disease (AssociationDebra);providingpatients skin severe and rare a from suffering patients aims oftheseprojectsincluded:supportfor The campaigns. important socially of a number in used was number 060 the year, last the In free 060numberstohelpthemachievetheiraims. of humanitarianinitiativeswiththeprovision number large a supported has T-HT 2001, Since were selected who not only fulfill their faculty obligations andhaveexcellent resultsintheir faculty their fulfill only not who selected were of ElectricalEngineeringinOsijek, 11seniors and NavalArchitectureinSplit andtheFaculty Engineering Mechanical and Electrical of Faculty the Zagreb, in Computing and Engineering Electrical of Faculty the from candidates excellent Among Scholarship”. “T-HT for competition a existing projectofT-Mobileandannounced already the expanded Group the year, Last of its employees. participation direct the through and both financially Zagreb, of Center Volunteer the of work the of Croatiansociety.Itcontinueditssupportfor segments different benefited that projects smaller of number a supported also T-HT partnerships, long-standing or initiatives larger from Apart Croatia. across from facultiesandothereducationalinstitutions T-HT’s business partnersandmanyofthebeststudents from representatives as well as politicians, and people business leading by attended was media, the in extensively covered was which conference, This life. everyday of irrationalities the and poverty combat to need the potential, human of wealth the of issue the addressed and economist DanArielydeliveredinspiringlectures Prize winnerMuhammedYunusandbehavioral Nobel The world. the throughout audiences speakers whosebooksandideashaveinspired through Knowledge”,featuringworld-renowned conference forthesecondtime,entitled“Growing In October2009,T-HTorganizeditsannual institutions andhealthcentersalloverCroatia. needed supplies to emergency medical treatment for medical devices, equipment, vehicles and other so far, nearly ten million kunas have been donated services, which was initiated by T-Mobile in 2006, Brod. Within continuing support to the emergency centers inVukovar,Šibenik,DubrovnikandSlavonski Medical Treatment Institution in Rijeka and to health „Sestre milosrdnice“inZagreb,theEmergency one millionkunaswasdonatedtoUniversityHospital healthcare profession, equipment worth more than residence orsocialstatus.Followingtheadviceof for individuals as well, regardless of age, gender, Osijek, Split, Rijeka and Varaždin, as well as the the as City DramaTheaterGavella in Zagreb. well as Varaždin, and Rijeka Split, Osijek, in Theaters National Croatian sponsoring of In 2009T-HTcontinueditslongstandingtradition telecommunications services. its with museum new the to support provide to Apart fromfinancialsupport,T-HTcontinues 2009. December in building representative a new in opened was which Museum, the in be will exhibited - competition received well and established T-HT’s collection-worksofartfeaturedinthis Art. Contemporary of Museum the and T-HT also markedthethirdyearofcooperationbetween The third„[email protected]“competition well aseconomicperformance. in referencetosocialandecologicalquality,as composed ofthesharesleadingcompanies region, CEE the for Exchange Stock of Vienna the index sustainability the is Universe) Investment season 2010.TheCEERIUS(CEEResponsible in theCEERIUSSustainabilityIndex membership granted was HT 2009 December In on avarietyofsubjects. national andinternationalforumsconferences or infrastructureandequipmentforanumberof communities. Inaddition,T-HTprovidedfunding its and sector telecommunications the to related events other and competition 100” as theMIPROconference,“VidiWebTop conference inCroatia,WinDays2009,aswell technological biggest the supported again T-HT gender equality,maternalhealthetc.of promotion the education, primary providing poverty, and famine as such issues global for solutions technological envisage to world the which gatheredstudentteamsfromallover with Microsoft tosupportthe“ImagineCup2009”, partnered T-HT running, year second the For broad personalsuccess. versatility andmotivationforachievements or cultural activities,associations,i.e.showmaturity, sports in engaged actively are and things other studies, butarealsointerestedinanumberof 57 Corporate Social Responsibility 58 Corporate Social Responsibility locations overthepasttwoyears. now beendonatedtochildren’s homesat29 throughout thecountry.MAXtvandMAXadslhave 17 children’shomesandtheirregionalbranches TV programsviaMAXtv.Thedonationextendedto computers forInternetaccessandfreeviewingof free accesstoMAXadslhigh-speedInternet,personal launched in2001,providingchildren’shomeswith T-Com continuedtheproject“NetinSchool“, judged thebestCroatiannovelin2008. “Three”, novel his for prize main the awarded being Glamuzina Drago with competition, literary “[email protected]“ the for received were entries literary prize in Croatia, worth HRK 100,000. More than 50 lucrative most the awarded tportal.hr portal Internet T-Com’s running, year second the For Theater, ZagrebDoxandLibertasFilmFestival. Festival, SplitSummer,VukovarFilmUlysses events sponsoredlastyearincludes:PulaFilm notably majorfilmandtheaterevents.Thelistof to popularizeandassistculturaleventsinCroatia, association withthe“KulTurist”project,inorderto For thefifthsuccessiveyear,T-Comcontinuedits League. Football Croatian First the of Association the of sponsorship year football team,inadditiontoitsextensivemulti- national Croatian the sponsors T-Com the project, Within Croatia. in sport team popular most as the football of development the for environment Love FooTball”,ensuringamorefavourable of sportingculturethroughtheproject“I development the supported T-Com 2009, In T-Com community members. valuable become and goals their achieve to order in hard work to people young of encouragement the and competition fair namely Games, Olympic values ofT-HTwiththenoblesttraditions Olympic Committeein,thusaligningthe longstanding cooperationwiththeCroatian its sponsor, main as continued, Group the sport, of society on influence huge the Given and becametheEuropeanchampion. European ChampionshipintheFinnclassBulgaria Ivan KljakovićGašpić,whowonthegoldmedalat T-Mobile isalsopersonalsponsoroftheyachtsman addition toitssponsorshipofprestigiousregattas, In 2009,T-Mobileactivelysupportedsailing. musicians, ZlatanStipišić-Gibonni. cooperation withoneofthebiggestCroatian renewed by marked also was year The perform atT-MobileINmusicfestival.to opportunity the given was band winning The T-Mobile. of sponsorship the under held bands was new of festival Minival successive third The Ferdinand, Tricky,Anthraxandmanyotherperformers. performances of Kraftwerk, Lily Allen, Moby, Franz successful to date. It will be remembered for excellent INmusic festival, considered to be the most One of the biggest highlights of 2009 was T-Mobile’s area surroundingtheschool. to relatingwastedisposalandlandscapingtheprojects with helped T-Mobile addition, In 2009. in support its continue to delighted was T-Mobile year and each renewed is Coordination, International protection. Thisstatus,awardedbyEco-Schools environment of importance the of aware them make and children educate to programs special present eco-schools International eco-school. international an become to candidacy its in school elementary school“Nadlipom”andsupportedthe In 2007,T-MobilebecameapatrontotheZagreb 2004. since than 80,000oldmobilephoneshavebeencollected more that fact the by evidenced excellent, been has initiative this to response Customer batteries. and phones mobile old of disposal safe ecologically and collection the launch to Croatia in operator first the was T-Mobile management, waste conscientious and environment the for care to committed company a As T-Mobile rooms useecologicallyfriendly naturalgasfor boiler of number large A environment. the ones thatdonotusesubstances harmfulto are beingreplacedbynewand moreefficient systems conditioning air Older-generation fuel. friendly environmentally most being used moreextensively,asgasisconsideredthe are vehicles gas-driven addition, In factors. emission CO2/km better with vehicles new of purchase the by renewed constantly is fleet T-HT’s harmful emissionsproducedbyGroupactivities.of amount the reducing and protection climate conservation, resource to paid is attention Special disposal ofoldmobilephonesandbatteries. provided inallT-Centersforthecollectionandsafe on theenvironment.Inaddition,facilitieshavebeen e-vouchers etc.toreducetheimpactofitsservices uses innovativesolutionssuchasWebBill,e-bill, to meettheexpectationsofitscustomers.It In itsenvironmentalefforts,theCompanystrives practices. best and guidelines international to according management committed itselftoenvironmentprotection has T-HT which by Charter, Development Sustainable the to signatory a also and Protection, Environmental on Charter the to signatory Network Operators’Association(ETNO)a Telecommunications European the of member published. Inaddition,T-HThasbeenalong-time was Progress on Communication first the In 2009, protection. environment including business, ethic of principles the advocates which Compact, Global Nations United the to signatory a is T-HT T-HT. including companies related and DT across agencies, assessment and citizens customers, to approach transparency, alignpoliciesanddevelopasingle increase to order in Group Telekom Deutsche management certificatewaslaunchedbythe to introduceajointISO14001environmental business processes.During2009,aproject has beenanimportantconsiderationinmajor protection environmental years, several For Ecology moor was cleaned up and endemic species of the Adriatic confluenceweremonitored. the of species endemic and up cleaned was moor along theriverSavawereimproved,Trstenikpastures Plain, Odra the in corncrake bird of areas nesting from removed was underwood which in “Preservation ofHabitatsEndangeredSpecies”, project the with continued commitment Our Croatia. in regions four of each in land of hectares twenty reforest to 2008 in project collaboration withtheGreenCommunication and ecologywasexpandedin2009,after protection environmental in involvement T-HT’s waste. of generation T-HT isinthefirstplacetoavoidoratleastreduce in management waste of aim The the environment. on impact their reduce to order in operators of infrastructure(e.g.antennapoles)withother use shared encourages and locations network power supplyofplantsonremotemobile electric for energy wind and solar uses T-Mobile in protectedareassuchasnationalparks. preferred is diesel bio of Use supplies. power emergency for used are units supply power central heating,whilebiodiesel-drivenmobile 59 Corporate Social Responsibility

Financial Review 2009

Consolidated Revenue Consolidating Operating Expences T-HT Group Profitability Financial Position CAPEX Financial Results of the T-Com Segment Financial Results of the T-Mobile Segment 62 Financial Review 2009 Financial Review2009 by 27.7%. telephony, whileinternetservicesrevenuehasgrown primarily by lower revenues from fixed and mobile8,517 million in 2009 from 8,791 million in Total2008 drivenconsolidated revenue decreased by 3.1% to HRK Consolidated Revenue T-HT Group Financial Results assets and employee benefits expenses. assets andemployeebenefitsexpenses. were partially offset by a higher write down expenses, servicesexpensesandotherwhich of current decrease is visible in merchandise, materialHRK and 5,204 energy million, (2008: HRK 5,264 million).depreciation This and amortization decreased by 1.1%Total consolidatedoperatingexpensesbefore to Expenses Operating Consolidated impact inyear2008. is todecreaseEBITDAbyHRK19.3million;no The impact of IFRIC 13 for the period 2009 financial year • • • The effectofIFRIC13ontherevenueisfollowing: obligations tosupplyawards. of revenue as a liability until they have fulfilled points grantedtothecustomeranddeferthisamount their IFRIC 13 requires companies to estimate the orvalue services of the if and when the customers redeemfor the their points. obligation to provide free or discounted credits whenbuyinggoodsorservicesshouldaccount goods how companiesthatgranttheircustomersloyaltyaward have been prepared accordingly. IFRIC 13 addressesbeginning of 2009 and comparable figures forAccounting 2008 standard IFRIC 13 was introduced at the Impact of IFRIC13

Merchandise cost decrease of 4.4% to HRK 1,054energy expenses and decrease in services expenses. due todecreaseinmerchandise, materialand 2,320 million(2008:HRK2,459 million).Thiswas The material expenses decreased by 5.7% to HRK expenses Material 2009 -HRK-28.7million T-Com: Jan-Dec2008-HRK-6.5million; 2009 -HRK+6.6million; T-Mobile: Jan-Dec2008-HRK-18.8million; Dec 2009-HRK-22.1million T-HT Group:Jan-Dec2008-HRK-25.3million;Jan-

T-HT Group Profitability software. software. is related to replacement of packet core network costs ofintangibleassetsinmobilebusiness,which in 2009. This is mainly a result of higher amortizationfrom HRK million 1,362 in 2008 to HRK 1,402 millionDepreciation andamortizationincreasedby2.9% amortization and Depreciation of lowercollectionreceivablesduetorecession. to HRK 110 million (2008: HRK 94 million) as Thea result write-down of current assets increased assets of byWrite-down 16.6% expenses. expenses andtemporaryworkpersonnelleasing decrease inadvertisingexpenses,rentalandleasing million (2008:HRK1,508million)mainlydueto Other expenses decreased by 2.4% to HRK 1,472 expenses Other 6,487 employeesat31December2008. 2009, theGrouphad6,116employeescomparedto million (2008:HRK1,203million).Asat31December exceptional items increased by 8.2% to HRK 1,302Consequently, employee benefits expenses after for redundancy versus HRK 45 million in 2008. In 2009provisionsofHRK152millionweremade in 2008. 0.8% to HRK 1,150 million from HRK 1,158 million items relatedtoredundancycosts,decreasedby Total employee benefits expenses, before exceptional Employeeexpenses benefits fixed, mobileandwholesaleservices. services which are related to net revenue decreaseservices in and international telecommunications 1,357 million)duetolowerdomesticinterconnection decreased by 6.7% to HRK 1,266 million (2008: direct andindirectchannels.Servicesexpenses HRK reduced sales of mobile merchandise through bothmillion (2008:HRK1,102million)isaresultof operating incomedecrease. million) asaresultofnetrevenue andother by 3.8%toHRK3,859million (2008: HRK4,009 EBITDA (beforeexceptionalitems)decreased EBITDA Financial Position Financial activities decreased by 11.7% as a result ofCompared change to 2008, net cash flow from operating capital investmentsanddividend distributions. source of funds, enabling the Group to finance Cash flowfromoperatingactivitiesisT-HT’sprincipal FlowCash amount ofHRK2,023million. in million vs.realizedprofitfor2009financialyear due to higher dividend paid in amount of HRKbecause 2,421 of the lower retained earnings than 12,012 million(2008:HRK12,440million),mainly in 2008 Total issued capital and reserves decreased paymentto HRK and investment activities. 31 December 2009, is mostly related to the dividendmillion at 31 December 2008 to HRK 6,297 millionThe decrease at in total current assets from HRKbroadband accessandthecoreinfrastructure. 7,227 31 December2009duetoincreasedinvestmentin million at 31 December 2008 to HRK 8,175 millionTotal non-current assets at increased from HRK 7,977 related tothedividendpayment. (cash andcashequivalentstimedeposits) mainly asaresultofdecreaseincurrentassets HRK 14,472million(2008:15,205million), The totalvalueofassetsdecreasedby4.8%to Sheet Balance with lowerfinancialincome. operating profitdecrease,isadditionallyaffected million in2008.Thisdecrease,comparedwith to HRK2,023millionin2009,from2,310 Consolidated netprofitdecreasedby12.4% profit Net in redundancyanddepreciationcosts. was mainly due to decrease in revenue and increase to HRK2,294million(2008:2,602million).This Consolidated operatingprofitdecreasedby11.9% profit (EBIT) Operating items allrelatedtoredundancycosts. In 2008, there was HRK 45 million of exceptionalreorganizational cost. for redundancy costs and HRK 11 million relatedout ofto which HRK 152 million is related to provisionsThere were HRK 163 million of exceptional items,Exceptional items 2G and3Gnetworkplatforms. because of further investment in the developmentto HRK of 470 the million (2008: HRK 467 million), T-Mobile’s capitalexpenditureincreased slightlyby0.6% mainly network andfleet. mainly duetolowerinvestmentinbroadbandaccess to HRK1,083million(2008:1,157million), T-Com’s capitalexpendituredecreasedby6.4% HRK 1,553million(2008:1,624million). Capital expendituredecreasedby4.4%in2009to CAPEX 2008 by1.0%. a result of dividend payments and is higheris 3 monthsin2008.Netcashflowfromfinancing than in from depositsover3monthstolessthan and change in maturity structure of time deposits,treasury bills in amount of HRK 818 million effectsin 2009 in 2009 and 2008 financial year, purchasedecreased of by 210.4% as a result of combined lower EBITDA.Netcashflowfrominvestingactivities and decreaseindayspayableoutstanding December bills (one-time net effect is HRK -88in billingmethodforsubscriptionfee(fixedvoice)on million) T-HT CAPEX Group 1,400 1,800 1,000 1,200 1,600 2,000 400 800 200 600 0 2007 875 1,248 374 1,157 2008 1,624 467 T-Com T-Mobile 2009 1,083 1,553 470 63 Financial Review 2009 64 Financial Review 2009 particularly ADSLandIPTV. increase inrevenuesfromInternetservices, The decreasewaspartiallybalancedbyasignificant competition. and increased substitution fixed-to-mobile by caused traffic fixed-telephony in decrease a to due primarily to HRK5,044million(2008:5,191million), Total revenuefromT-Comdecreasedby2.8% Revenue Financial Results of the T- Com Segment reaches nearly236,000subscribers (including MAXtv, theGroup’sinternetTV service,now and retainthelargestmarketshare inCroatia. T-Com inordertoincreasebroadband penetration year, becauseofthestrongpromotionsofferedby 3.8% comparedtothesameperiodinprevious 472,654 in2008.ARPUADSLincreasedby in 2009representinganincreaseof17.4%from ADSL customerbasereached554,995customers Dec 2009andHRK93millionin2008. amounted toHRK123millionintheperiodJan- Iskon’s contributiontorevenueafterconsolidation and growth of new internet services. is a result of shift from dial-up to broadband revenue) fromHRK899millioninpreviousyear.This services to HRK 1,149 million in 2009 (22.8% of total Revenue fromInternetservicesincreasedby27.7% T-Com Revenue services Internet from to-mobile trafficin2009. lower internationaltrafficand14.8%fixed- produced 7.9%lowernationaltraffic,10.3% 75,523 users.Thecombinationofthesefactors 227,879 butnumberportability(NP)increasedby remained stableduring2009atthelevelof continued in2009;thenumberofCPScustomers ULL). MigrationtootheroperatorsthroughULL in customermigrationtootheroperators(CPS, substitution andincreasedcompetitionresulting fixed-telephony trafficcausedbyfixed-to-mobile The decreaseisprimarilyduetoain representing 49.7%ofT-Com’srevenues. to HRK2,506million(2008:2,793million), Fixed-telephony revenuesdecreasedby10.3% revenue Fixed-telephony because of decrease in the services expenses and and other expenses. expenses services the in decrease of because million (2008:HRK3,516million),primarily 3,509 HRK to 0.2% by decreased amortization Operating expensesbeforedepreciationand Expenses Operating than lastyearduetoincreaseofsoldcapacity. international IPaccessgeneratedhigherrevenue services forotherfixedoperators.Furthermore, by higherrevenuefromprovidinginfrastructure On theotherhand,positivetrendsaredriven prices imposedbyHAKOM(regulatoryagency). origination revenuesdecreasedduetolowerIC negatively affectedrevenues.Terminationand international hubbingvolumedecreasedand services resultedinlowerrevenues.Nationaland destinations andpricedropofinternationaldata side). Decreaseofinternationaltraffictomobile commercial models(interconnectiononT-Com than lastyearasaresultofswitchingtonew interconnection leasedlinesservicesarelower to broadbandservices.Further,revenuesfrom in dialuptrafficoccurredduetoexpectedshift 2009 fromHRK1,155millionin2008.Decrease decreased by9.2%toHRK1,049millionin of totalT-Com’srevenue.Wholesalerevenue Wholesale businesssegmentrepresents20.8% Revenue from Wholesale services such asMetroEthernetandIPVPN. customers fromtraditionaldatatonewservices data strategy,T-Comhasfocusedonmigrating IP-based services.Asapartofitslong-term from traditionaldataservicestolowerpriced, million) duetothemigrationofourcustomers by 8.0%toHRK183million(2008:199 the totalT-Com’srevenues.Itdecreasedin2009 Revenue fromdataservicesrepresents3.6%of Revenue from Data services beginning oftheyear. Iskon’s IPTV),anincreaseof74.1%fromthe modems andterminalequipment forservices 508 million)mainlyduetohigher costof slightly decreasedtoHRK507 million(2008:HRK The costofmerchandise,material andenergy T-ComProfitability development andhigherdepreciationcost. (2008: HRK1,133million)asaresultofEBITDA EBIT decreasedby16.0%toHRK952million EBIT 39.9%). exceptional items)marginwas40.0%in2009(2008: and otheroperatingincome.TheEBITDA(before 2,071 million),primarilybecauseoflowerrevenue decreased by2.5%toHRK2,019million(2008: 159 millionin2009andHRK452008) In 2009,EBITDA(beforeexceptionalitemsofHRK EBITDA HRK 908million(2008:893million). Depreciation andamortizationincreasedby1.7%to of lowercollectionreceivablesduetorecession. million in2008toHRK432009asaresult The writedownofassetsincreasedfromHRK28 advertising expenses. occurs inrentalandleasingexpenses million (2008:HRK890million).Maindecrease Other expensesdecreasedby1.6%toHRK876 continuing headcountreductionprogramme. (2008: HRK 931 million), mainly as a result of the in 2008)decreasedby1.3%toHRK920million items of HRK 148 million in 2009 and HRK 45 million Total employee benefits expenses (before exceptional and wholesaleservices. as aresultoflowerrevenuefromfixedtelephony international telecommunicationsservicescosts and domestic in decrease of because primarily million) 1,114 HRK (2008: million 1,015 HRK to 8.9% by decreased expenses Services lower materialexpenses. with out leveled and IPTV and such asADSL two quartersin2009. levy imposedonmobiletelephonyservicesinthelast adverse effectsofnewGovernmenttaxes,including6% economic recession,highermarketpenetrationand of revenuesfromprepaidandpostpaidisaresult increase ofothermobilerevenues(+27.9%).Decrease (-5.0%) revenues,thatwerepartiallycompensatedwith was aresultoflowerprepaid(-13.9%)andpostpaid comparison totheyear2008.Revenuedecrease T-Mobile’s totalrevenuedecreasedby5.0%in Revenue Financial Results of the T- Mobile Segment to 21.5%ofrevenues(2008:22.3%revenues). capex tosalesratiodecreasedby0.8percentagepoints investment inbroadbandaccessnetworkandfleet.The million (2008:HRK1,157million),mainlyduetolower Capital expendituredecreasedby6.4%toHRK1,083 CAPEX connected witheconomicsituationinthecountry. Direct costs decrease is, as well as in case of revenues, interconnection cost. commissions related to SAC/SRC, as well as decrease of decrease: decrease of costs of mobile merchandise and This drop in expenses mainly resulted from direct costs HRK 2,635 million), representing a decrease of 5.8%. depreciation and amortization of HRK 2,481 million (2008: In 2009 T-Mobile had total operating expenses before Expenses Operating million in2008. of 2.9%toHRK234millionin 2009fromHRK228 Total employeebenefitsexpensesshowedincrease use fromApril2009. in is that price termination new to due lower were costs Interconnection channels. indirect and direct both through merchandise mobile of sales reduced of result a mainly was decrease This year. previous in million 1,615 HRK from 2009 in million 1,469 HRK to 9.1% by decreased expenses Material 65 Financial Review 2009 66 66 Financial Review 2009 11.2% (2008:10.6%ofrevenues). to revenueratioroseby0.6percentagepoints 3G networkandplatforms.Consequently,theCapex mainly investedinfurtherdevelopmentofthe2Gand HRK 470million(2008:467million).Itwas Capital expenditureslightlyincreasedby0.6%to CAPEX T-MobileProfitability a resultoftheabovementionedreasons. million fromHRK1,469million.Thisdecreasewas telephony decreasedby8.7%toHRK1,341 In comparisonwithpreviousyearEBITformobile EBIT 43.9% andonthesamelevelaspreviousyear. The EBITDA(beforeexceptionalitems)marginis contribution feeonmobileservicesof6%). measures (VATrateincreaseandspecific previous year were negative effects of governmental Main reasonsforEBITDAdecreasecomparedto with the cost reduction (-5.8%). This isresultof5.0%lowerrevenuescompensated 5.1% (to HRK 1,840 million from HRK 1,938 inmillion 2008). in 2009) for mobile telephony decreasedIn 2009, by EBITDA (before exceptional items ofEBITDA HRK 4 of packetcorenetworksoftware. intangible assets,whichisrelatedtoreplacement mainly aresultofhigheramortizationcosts million fromHRK469in2008.Thisis amortization increasedby5.2%toHRK494 In 2009,mobiletelephonydepreciationand previous year. Other expensesareonthesamelevelasisin 67

Consolidated financial statements 31 December 2009 Consolidated financial statements General information Independent Auditor’s Report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements General information 68

Management report In preparing those consolidated financial statements, the responsibilities of the Board include ensuring that: Overview of operations for 2009 according to the best • suitable accounting policies are selected and then knowledge of the Board contains true presentation of applied consistently; development and results of operations and position of • judgements and estimates are reasonable and the Issuer and entities included in consolidation, with prudent; Consolidated financial statements description of significant risks and uncertainties for • applicable accounting standards are followed; and the Issuer and entities. • the consolidated financial statements are prepared on the going concern basis unless it is inappropriate Responsibility for the consolidated to presume that the Group will continue in business. financial statements The Board is responsible for keeping proper accounting Pursuant to the Croatian Accounting Act in force, the records, which disclose with reasonable accuracy Board is responsible for ensuring that consolidated at any time the consolidated financial position of the financial statements are prepared for each financial Group and must also ensure that the consolidated year in accordance with International Financial financial statements comply with the Croatian Reporting Standards (IFRS) as issued by the Accounting Act in force. The Board is also responsible International Accounting Standards Board (IASB) for safeguarding the assets of the Group and hence which give a true and fair view of the financial position for taking reasonable steps for the prevention and and results of the Group for that period. detection of fraud and other irregularities.

The Board has a reasonable expectation that the The accompanying consolidated financial statements Group has adequate resources to continue in were approved for issuance by the Management Board operational existence for the foreseeable future. on 8 February 2010. For this reason, the Board continues to adopt the going concern basis in preparing the consolidated financial statements.

HT - Hrvatske telekomunikacije d.d. Savska cesta 32 On behalf of the Group, 10000 Zagreb Republic of Croatia Ivica Mudrinić President of the Management Board 8 February 2010 Independent Auditor’s Report 69

To the Shareholders of HT - Hrvatske An audit involves performing procedures to obtain telekomunikacije d.d.: audit evidence about the amounts and disclosures in the financial statements. The procedures selected We have audited the accompanying consolidated depend on the auditor’s judgement, including the financial statements (“the financial statements”) assessment of the risk of material misstatement of the of HT - Hrvatske telekomunikacije d.d. (“HT d.d.”, financial statements, whether due to fraud or error. In “T-HT” or the “Parent Company”) and its subsidiaries making those risk assessments, the auditor considers Consolidated financial statements (together, the Group) which comprise a Consolidated internal control relevant to the entity’s preparation and statement of financial position as at 31 December fair presentation of the financial statements in order 2009, a Consolidated statement of comprehensive to design audit procedures that are appropriate in the income, a Consolidated statement of changes in circumstances, but not for the purpose of expressing equity, a Consolidated statement of cash flows for an opinion on the effectiveness of the entity’s the year then ended, and a summary of significant internal control. An audit also includes evaluating accounting policies and other explanatory notes (as the appropriateness of accounting policies used and set out on pages 77 to 122). the reasonableness of accounting estimates made by management, as well as evaluating the overall Management Responsibility presentation of the financial statements.

Management is responsible for the preparation and We believe that the audit evidence we have obtained fair presentation of these financial statements in is sufficient and appropriate to provide a basis for our accordance with International Financial Reporting audit opinion. Standards. This responsibility includes: designing, implementing and maintaining internal control Opinion relevant to the preparation and fair presentation of financial statements that are free from material In our opinion, the financial statements present fairly, misstatement, whether due to fraud or error; selecting in all material aspects, the financial position of the and applying appropriate accounting policies; and Group as at 31 December 2009 and of the results making accounting estimates that are reasonable in of its operations and cash flows and changes in the circumstances. equity for the year then ended in accordance with International Financial Reporting Standards. Auditor’s Responsibility Emphasis of Matter Our responsibility is to express an opinion on these financial statements based on our audit. We Without qualifying our opinion, we draw your attention conducted our audit in accordance with International to the following matters: Standards on Auditing. Those standards require that we comply with ethical requirements and plan and Ownership over and right to use ducts and claim perform the audit to obtain reasonable assurance by the City of Zagreb whether the financial statements are free from material misstatement. Independent Auditor’s Report (continued) 70

As explained in more detail in Note 11, part of T-HT’s Dominant position abuse assets (including the ducts as part of infrastructure) does not have all necessary documents required As explained in more detail in Note 28 a), there under Croatian legislation and a major part is still have been several complaints made by T-HT’s not registered in the land registry. In this regard and T-Mobile Hrvatska d.o.o. competitors towards intrusions in T-HT ducts by competitors and some the Competition Protection Agency and Croatian Consolidated financial statements claims of ownership over these assets made by Telecommunications Agency in regard to T-HT’s local authorities (primarily the City of Zagreb who is and T-Mobile’s alleged abuse of dominant position. claiming the ownership over ducts on the area of the Several proceedings are in progress. City of Zagreb and demanding a payment in amount of HRK 120 million plus interest, as explained in more T-HT and T-Mobile Hrvatska d.o.o. are vigorously detail in Note 28 c)), may have a material effect on the defending these matters. There is no history of financial statements in the case that T-HT will not be significant settlements in Croatia under either the able to legally prove its ownership rights. Competition Law or imposed by misdemeanour courts. Due to lack of relevant practice and due to The Group assessed and declared the existence the fact that the proceedings are still in progress, of the risks thereon, including obtaining a legal the Group is not able to positively determine the opinion with respect to certain of the issues involved; likelihood of the possible outcome of these cases, however, due to the fact that these issues are very however management believes that any settlement complex and dependant on future legal proceedings if ultimately required on final resolution will be and determinations. The Group was not able to significantly less than maximum penalties outlined positively determine the likelihood of possible in Note 28 a). outcome and whether it will result in any impairment of the DTI assets concerned due to inability to prove title or as a result of the additional right of way charges that may be imposed, which could have a retrospective effect. 71

Consumer Act claims

As explained in more detail in Note 28 b), T-HT is involved in legal proceedings for the alleged breach of the Consumer Protection Act in regard to the method of charging voice services and in regard to the monthly access charges. The claimants are residential Consolidated financial statements customers of T-HT as well as the consumer protection association. T-HT has filed a counteraction and proceedings are in progress.

Management and the Group’s legal advisers consider that these claims are without merit and the Group considers it was charging its consumers in accordance with its Concession Agreement in force at that time, as approved by the Government.

No adjustments have been made to these consolidated financial statements relating to any of these matters.

Ernst&Young d.o.o. Slaven Đuroković Zagreb Republic of Croatia

8 February 2010 Consolidated statement of comprehensive income For the year ended 31 December 2009 72

Notes 2009 2008 HRK millions HRK millions Restated Rendering of services 8,414 8,709 Consolidated financial statements Sale of goods 103 82 Revenue 3 8,517 8,791 Other operating income 213 278 Merchandise, material and energy expenses (1,054) (1,102) Service expenses 4 (1,266) (1,357) Employee benefits expenses (1,302) (1,202) Gross salaries (868) (867) Taxes, contributions and other payroll costs (266) (273) Redundancy expenses 6 (152) (48) Other long-term employee benefits 20 (16) (14) Work performed by the Group and capitalised 169 159 Depreciation and amortisation 5 (1,365) (1,346) Impairment of non-current assets 5 (36) (17) Write down of current assets (110) (94) Impairment of investments 12 - (1) Other expenses 7 (1,472) (1,507) Total operating costs (6,436) (6,467) Operating profit 2,294 2,602 Interest income 301 356 Financial expense (41) (34) Income from investment in joint venture 13 12 17 Share of profit of associate 12 - 1 Profit before taxes 2,566 2,942 Taxation 8 (542) (632) Profit for the year 2,024 2,310 Valuation losses from available for sale financial assets 14 (2) (3) Other 6 11 Other comprehensive income for the year, net of tax 4 8 Total comprehensive income for the year, net of tax 2,028 2,318 Earnings per share - basic and diluted, for profit for the year attributable to 9 HRK 24.72 HRK 28.21 ordinary equity holders of the Company

The accompanying accounting policies and notes are an integral part of this consolidated statement of comprehensive income. Consolidated statement of financial position As at 31 December 2009 73

Notes 31 December 31 December Notes 2009 2008 2009 2008 HRK millions HRK millions HRK millions HRK millions Restated Restated ASSETS Consolidated financial statements Non-current assets Intangible assets 10 1,021 972 Property, plant and equipment 11 6,507 6,428 Investments in associate 12 2 2 Investment in joint venture 13 373 365 Available-for-sale investments 14 115 37 Goodwill 77 77 Non - current receivables 33 37 Deferred tax asset 8 46 60 Total non-current assets 8,174 7,978 Current assets Inventories 16 255 314 Trade and other receivables 17 1,466 1,319 Prepayments and accrued income 84 105 Income tax prepayments 39 - Available-for-sale investments 14 257 53 Time deposits 18 b) 2 213 Cash and cash equivalents 18 a) 4,195 5,223 Total current assets 6,298 7,227 TOTAL ASSETS 14,472 15,205 Consolidated statement of financial position(continued) As at 31 December 2009 74

Notes 31 December 31 December 2009 2008 HRK millions HRK millions Restated EQUITY AND LIABILITIES Consolidated financial statements Issued capital and reserves Issued capital 23 8,189 8,189 Legal reserves 24 409 409 Fair value reserves (3) (1) Retained earnings 25 3,417 3,843 Total issued capital and reserves 12,012 12,440 Non-current liabilities Provisions for legal cases and other provisions 22 116 90 Provisions for redundancy 6 113 - Employee benefit obligations 20 192 187 Deferred income 21 103 128 Long-term loans and other long-term liabilities 25 21 Total non-current liabilities 549 426 Current liabilities Trade and other payables 19 1,459 1,657 Provisions for redundancy 6 7 139 Other accruals 26 183 157 Deferred income 21 261 342 Income tax payable - 41 Short-term borrowings and current portion of long-termloans 1 3 Total current liabilities 1,911 2,339 Total liabilities 2,460 2,765 TOTAL EQUITY AND LIABILITIES 14,472 15,205

The accompanying accounting policies and notes are an integral part of this consolidated statement of financial position.

Signed on behalf of HT Group on 8 February 2010:

Ivica Mudrinić Jürgen P. Czapran Consolidated statement of cash flows For the period ended 31 December 2009 75

Notes 31 December 31 December Notes 2009 2008 2009 2008 HRK millions HRK millions HRK millions HRK millions Restated Restated Operating activities Net profit 2,024 2,310 Consolidated financial statements Depreciation charges 5 1,365 1,346 Impairment loss of non-current assets 5 36 17 Income tax expense 8 542 632 Interest income (262) (328) Gain on disposal of assets - (13) Income from investment in joint venture 13 (12) (17) Decrease/(increase) in inventories 59 (111) Increase in receivables and prepayments (205) (151) (Decrease)/increase in payables and accruals (212) 98 Increase/(decrease) in employee benefit obligations 20 5 (14) Interest paid (6) (7) Increase in provisions 7 15 Value adjustment of inventories - 27 Other non-cash items (6) 7 Taxes paid (599) (699) Net cash flows from operating activities 2,736 3,112 Investing activities Purchase of non-current assets 10,11 (1,553) (1,624) Proceeds from sale of non-current assets 24 39 Purchase of non-current financial assets (75) - Proceeds from sale of non-current financial assets 2 14 Purchase of current financial assets (310) - Proceeds from sale of current financial assets 319 2,376 Interest received 280 380 Dividend received 4 - Net cash flows (used in)/from investing activities (1,309) 1,185 Financing activities Repayment of long-term borrowings - (1) Repayment of lease liability (2) (11) Dividends paid 25 (2,456) (2,421) Net cash flows used in financing activities (2,458) (2,433) Net (decrease)/increase in cash and cash equivalents (1,031) 1,864 Effect of F/X rate changes on cash and cash equivalents 3 (8) Cash and cash equivalents at 1 January 5,223 3,367 Cash and cash equivalents at 31 December 18 a) 4,195 5,223

The accompanying accounting policies and notes are an integral part of this consolidated statement of cash flows. Consolidated statement of changes in equity For the year ended 31 December 2009 76

Issued Legal Fair value Retained Total capital reserves reserves earnings HRK millions HRK millions HRK millions HRK millions HRK millions (Note 23) (Note 24) (Note 25)

Consolidated financial statements Balance as at 1 January 2008 8,189 409 2 3,943 12,543 Paid dividends - - - (2,421) (2,421) Profit for the year - - - 2,310 2,310 Other comprehensive income - - (3) 11 8 Balance as at 31 December 2008 8,189 409 (1) 3,843 12,440 Paid dividends - - - (2,456) (2,456) Profit for the year - - - 2,024 2,024 Other comprehensive income - - (2) 6 4 Balance as at 31 December 2009 8,189 409 (3) 3,417 12,012

The accompanying accounting policies and notes are an integral part of this consolidated statement of changes in equity. Notes to the consolidated financial statements For the year ended 31 December 2009 77

2 Corporate information The Group’s consolidated financial statements are presented in Croatian Kuna (HRK) which is the HT - Hrvatske telekomunikacije d.d. (“HT d.d.”, Group’s functional currency. All amounts disclosed “T-HT” or the “Company”) is a joint stock company in the consolidated financial statements are stated whose majority shareholder is Deutsche Telekom in millions of HRK if not otherwise stated. AG (“DTAG”) (51%).

The consolidated financial statements are Consolidated financial statements The registered office address of the Company is prepared in accordance with International Savska cesta 32, Zagreb, Croatia. Financial Reporting Standards (IFRS). The total number of employees of the Group as at 31 December 2009 was 6,116 (31 December 2.2 Changes in accounting policy and 2008: 6,487). disclosures The accounting policies adopted are consistent The principal activities of the Group are described with those of the previous financial year, except as in Note 3. follows: The Group has adopted the following new and The consolidated financial statements of amended IFRS and IFRIC interpretations during HT - Hrvatske telekomunikacije d.d. for the year the year. When the adoption of the standard or ended 31 December 2009 were authorised interpretation is deemed to have an impact on the for issue in accordance with a resolution of the financial statements or performance of the Group, Management Board on 8 February 2010. These its impact is described below. consolidated financial statements are subject to approval of the Supervisory Board as required by IFRS 2 Share based payment: Vesting the Croatian Company Act. Conditions and Cancellations, and Group Cash- settled Share based Payment Transactions 2.1 Basis of preparation (early adopted) The IASB issued an amendment to IFRS 2 which The consolidated financial statements have been clarifies the definition of vesting conditions and prepared under the historical cost convention, prescribes the treatment for an award that is except for available-for-sale investments stated at cancelled. The Group adopted this amendment as fair value (Note 14), as disclosed in the accounting of 1 January 2009. It did not have an impact on the policies hereafter. financial position or performance of the Group.

The consolidated financial statements include the financial statements of HT - Hrvatske telekomunikacije d.d. and the following subsidiaries:

Ownership Interest

31 December 31 December Country of Business of Business Entity 2009 2008 T Mobile Hrvatska d.o.o. Republic of Croatia 100% 100% Iskon Internet d.d. Republic of Croatia 100% 100% KDS d.o.o. Republic of Croatia 100% 100% Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 78

The IASB issued an amendment to IFRS 2 that instruments recognised at fair value. In addition, a clarified the scope and the accounting for Group reconciliation between the beginning and ending cash-settled share-based payment transactions. The balance for level 3 fair value measurement is now Group early adopted this amendment as of 1 January required, as well as significant transfers between levels 2009. It did not have an impact on the financial in the fair value hierarchy. The amendments also clarify position or performance of the Group. the requirements for liquidity risk disclosures with Consolidated financial statements respect to derivative transactions and assets used for IFRS 3 Business Combinations (Revised) (early liquidity management. The fair value measurement adopted) and IAS 27 Consolidated and Separate disclosures are presented in Note 14. The liquidity Financial Statements (Amended) risk disclosures are not significantly impacted by the amendments and are presented in Note 30. The Group has early adopted the revised standard from 1 January 2009. IFRS 3 (Revised) introduces IFRS 8 Operating Segments significant changes in the accounting for business combinations occurring after this date. Changes IFRS 8 replaced IAS 14 Segment Reporting upon affect the valuation of non-controlling interest, its effective date. The Group concluded that the the accounting for transaction costs, the initial operating segments determined in accordance recognition and subsequent measurement of a with IFRS 8 are the same as the business segments contingent consideration and business combinations previously identified under IAS 14. IFRS 8 disclosures achieved in stages. These changes will impact the are shown in Note 3. amount of goodwill recognised, the reported results in the period that an acquisition occurs and future IAS 1 Presentation of Financial Statements reported results. The revised standard separates owner and non- IAS 27 (Amended) requires that a change in the owner changes in equity. The statement of changes ownership interest of a subsidiary (without loss in equity includes only details of transactions with of control) is accounted for as a transaction with owners, with non-owner changes in equity presented owners in their capacity as owners. Therefore, such in a reconciliation of each component of equity. transaction will no longer give rise to goodwill, nor In addition, the standard introduces the statement will it give rise to a gain or loss. Furthermore, the of comprehensive income: it presents all items of amended standard changes the accounting for recognised income and expense, either in one losses incurred by the subsidiary as well as the loss single statement, or in two linked statements. The of control of a subsidiary. The changes by IFRS 3 Group has elected to present one statement of (Revised) and IAS 27 (Amended) will affect future comprehensive income. acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. IAS 23 Borrowing Costs (Revised)

Both changes in accounting policy, IFRS 3 (Revised) The revised IAS 23 requires capitalisation of and IAS 27 (Amended) had no impact on the financial borrowing costs that are directly attributable to position or performance of the Group as no acquisitions the acquisition, construction or production of a have been made on or after 1 January 2009. qualifying asset. The Group’s previous policy was to expense borrowing costs as they were incurred. IFRS 7 Financial Instruments: Disclosures In accordance with the transitional provisions of the amended IAS 23, the Group has adopted The amended standard requires additional disclosures the standard on a prospective basis. Therefore, about fair value measurement and liquidity risk. Fair borrowing costs are capitalised on qualifying assets value measurements related to items recorded at fair with a commencement date on or after 1 January value are to be disclosed by source of inputs using a 2009. However, during the financial year that ended three level fair value hierarchy, by class, for all financial on 31 December 2009 the Group has not capitalised 79

any borrowing costs on qualifying assets as no be separated from a host contract when the Group borrowings were incurred. reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment IAS 32 Financial Instruments: Presentation and IAS is to be made based on circumstances that existed 1 Puttable Financial Instruments and Obligations on the later of the date the Group first became a Arising on Liquidation party to the contract and the date of any contract amendments that significantly change the cash Consolidated financial statements The standards have been amended to allow a flows of the contract. IAS 39 now states that if an limited scope exception for puttable financial embedded derivative cannot be reliably measured, instruments to be classified as equity if they fulfil the entire hybrid instrument must remain classified a number of specified criteria. The adoption of as at fair value through profit or loss. The Group early these amendments did not have any impact on the adopted this amendment, which did not have any financial position or the performance of the Group. impact on the financial position or performance of the Group, as the Group has not identified any such IAS 39 Financial Instruments: Recognition and embedded derivatives. Measurement - Eligible Hedged Items (effective for annual periods beginning on or after 1 July IFRIC 13 Customer Loyalty Programmes 2009) (early adopted) IFRIC 13 requires customer loyalty credits to be The amendment clarifies that an entity is permitted accounted for as a separate component of the sales to designate a portion of the fair value changes or transaction in which they are granted. A portion cash flow variability of a financial instrument as a of the fair value of the consideration received is hedged item. This also covers the designation of allocated to the award credits and deferred. This is inflation as a hedged risk or portion in particular then recognised as revenue over the period that the situations. The early adoption of this amendment by award credits are redeemed. The Group maintains the Group did not have any impact on the financial a loyalty point’s programme, T-Club, within its Fixed position or performance of the Group, as the Group and Mobile telephony segments and has historically has not entered into any such hedges. recorded a liability at the time of the sale based on the costs expected to be incurred to supply products IFRIC 9 Remeasurement of Embedded Derivatives in the future. IFRIC 13 has no specific provisions (early adopted) and IAS 39 Financial Instruments: on transition. Therefore, the Group has followed Recognition and Measurement IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, applying the changes This amendment to IFRIC 9 requires the Group retrospectively. The prior year financial information to assess whether an embedded derivative must has therefore been restated. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 80

As a result of the adoption of IFRIC 13, the following adjustments were made to the 2008 financial information:

As of 1 January 2008: HRK millions

Consolidated financial statements Net increase in liabilities: - Net decrease in opening retained earnings: -

As of 31 December 2008: HRK millions Decrease in other accruals and non-current provisions: (50) Increase in deferred income: 50 Decrease in rendering of services: (25) Increase in other operating income: 4 Decrease in merchandise, material and energy expenses and provisions for charges and risks: 21

There was no effect on earnings per share related to the restatement in 2008. For the amended revenue recognition policy refers to Note 2.4. o).

IFRIC 16 Hedges of a Net Investment in a Foreign the asset and liability. The Group’s early adoption of this Operation (effective from 1 October 2008) (adopted interpretation did not have any impact on its financial prospectively) position or performance as the Group has not made non- cash distributions to shareholders. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance IFRIC 18 Transfers of Assets from Customers on identifying the foreign currency risk that qualify for (effective from 1 July 2009) (early adopted) hedge accounting in the hedge of a net investment, where within the group the hedging instruments can IFRIC 18 clarifies the requirements of IFRSs for be held in the hedge of a net investment and how the agreements in which the Group receives from a Group should determine the amount of foreign currency customer an item of property, plant, and equipment that gain or loss, relating to both the net investment and the the Group must then use either to connect the customer hedging instrument, to be recycled on disposal of the to a network or to provide the customer with ongoing net investment. The Group’s adopted this interpretation access to a supply of goods or services (such as a supply prospectively and did not have any impact on the of electricity, gas, water or telephony). In some cases, financial position or performance of the Group, as the the entity receives cash from a customer that must be Group has not entered into any such hedges. used only to acquire or construct the item of property, plant, and equipment in order to connect the customer IFRIC 17 Distributions of Non-cash Assets to Owners to a network or provide the customer with ongoing (early adopted) access to a supply of goods or services (or to do both). The Group’s early adoption of IFRIC 18 did not have any This interpretation is effective for annual periods impact on its financial position or performance, as the beginning on or after 1 July 2009 with early application Group does not receive any considerations of this kind permitted. It provides guidance on how to account for from its customers. non-cash distributions to owners. The interpretation clarifies when to recognise a liability, how to measure it and the associated assets, and when to derecognise 81

Improvements to IFRSs Group amended its accounting policy accordingly, which did not result in any change in the financial position. In May 2008 and April 2009 the IASB issued omnibus of amendments to its standards, primarily with a view • IAS 18 Revenues: The Board has added guidance (which to removing inconsistencies and clarifying wording. accompanies the standard) to determine whether a There are separate transitional provisions for each

Group is acting as a principal or as an agent. The features Consolidated financial statements standard. The adoption of the following amendments to consider are whether the Group: resulted in changes to accounting policies but did • Has primary responsibility for providing the not have any impact on the financial position or goods or service performance of the Group. • Has inventory risk • Has discretion in establishing prices • IFRS 5 Non-current Assets Held for Sale and Discontinued • Bears the credit risk Operations: clarifies that the disclosures required in respect of non-current assets and disposal groups The Group has assessed its revenue arrangements classified as held for sale or discontinued operations are against these criteria and concluded that it is only those set out in IFRS 5. The disclosure requirements acting as principal in all arrangements except for of other IFRSs only apply if specifically required for such those cases where it acts as a mere provider of its non-current assets or discontinued operations. telecommunications infrastructure during the provision of value added services (VAS) by partner companies. • IFRS 8 Operating Segment Information: clarifies that When the Group acts as a principal, its revenue includes segment assets and liabilities need only be reported when the gross inflows of economic benefits received and those assets and liabilities are included in measures that receivable by the Group on its own account. In agency are used by the chief operating decision maker. As the or intermediary relationships, the amounts collected Group’s chief operating decision maker does review on behalf of the principal are not revenue. Instead, segment assets and liabilities, the Group has continued to revenue is exclusively the amount of commission and is disclose this information in Note 3. consequently reported on a net basis. The liability to the external supplier is recognised directly in the accounts of • IAS 1 Presentation of Financial Statements: Assets and the end customer. The Group has updated the revenue liabilities classified as held for trading in accordance recognition accounting policy accordingly. Due to the with IAS 39 Financial Instruments: Recognition and fact that all revenues connected to the provision of value Measurement are not automatically classified as current added services had previously been stated on a net basis, in the statement of financial position. The Group analysed the adoption of this amendment did not have any impact whether the expected period of realisation of financial on the financial position or performance of the Group. assets and liabilities differed from the classification of the instrument. This did not result in any reclassification of • IAS 20 Accounting for Government Grants and financial instruments between current and non-current in Disclosures of Government Assistance: Loans granted the statement of financial position. with no or low interest will not be exempt from the requirement to impute interest. Interest is to be imputed • IAS 7 Statement of Cash Flows: Explicitly states that only on loans granted with below-market interest rates. This expenditure that results in recognising an asset can be amendment did not impact the Group as no government classified as a cash flow from investing activities. This grants or assistance have been received. amendment did not have any impact on the presentation in the statement of cash flows of the contingent • IAS 23 Borrowing costs: The definition of borrowing costs consideration on the business combinations completed is revised to consolidate the two types of items that are in 2009 upon cash settlement as there were no business considered components of ‘borrowing costs’ into one - combinations in 2009. the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. The • IAS 16 Property, Plant and Equipment: Replaces the term “net selling price” with “fair value less costs to sell”. The Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 82

Group has amended its accounting policy accordingly • IAS 38 Intangible Assets which did not result in any change in its financial position. • IAS 39 Financial Instruments: Recognition and Measurement • IAS 36 Impairment of Assets: When discounted cash flows • IAS 40 Investment Properties are used to estimate ‘fair value less cost to sell’ additional • IFRIC 9 Reassessment of Embedded Derivatives disclosure is required about the discount rate, consistent • IFRIC 16 Hedge of a Net Investment in a Foreign Consolidated financial statements with disclosures required when the discounted cash Operation flows are used to estimate ‘value in use’. This amendment had no immediate impact on the financial statements of Standards issued but not yet effective the Group because the recoverable amount of its cash generating units is currently estimated using ‘value in use’. Standards issued but not yet effective up to the date of issuance of the Group’s financial The amendment clarified the largest unit permitted for statements are listed below: allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before IFRS 9 Financial Instruments aggregation for reporting purposes. The amendment has no impact on the Group as the operating segment is the On 12 November 2009, the IASB issued IFRS 9 same as the reporting segment. Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and • IAS 38 Intangible Assets: Expenditure on advertising and Measurement. IFRS 9 introduces new requirements promotional activities is recognised as an expense when for classifying and measuring financial assets that the Group either has the right to access the goods or has must be applied from 1 January 2013, with early received the service. This amendment has no impact on adoption permitted. The IASB intends to expand IFRS the Group because costs for such activities have also 9 during 2010 to add new requirements for classifying previously immediately been expensed. and measuring financial liabilities, derecognition of financial instruments, impairment and hedge The reference to there being rarely, if ever, persuasive accounting. By the end of 2010 the IAS 39 will be evidence to support an amortisation method of intangible completely replaced by IFRS 9. The Group plans to assets other than a straight-line method has been adopt this new standard on its effective date. removed. The Group reassessed the useful lives of its intangible assets and concluded that the straight-line IFRIC 19 Extinguishing Financial Liabilities with method was still appropriate. Equity Instruments

Other amendments resulting from improvements to On 26 November 2009, the IASB issued IFRIC IFRSs to the following standards did not have any 19 Extinguishing Financial Liabilities with Equity impact on the accounting policies, financial position or Instruments which clarifies the requirements of performance of the Group. International Financial Reporting Standards (IFRSs) when an entity renegotiates the terms of a financial • IFRS 2 Share-based Payments liability with its creditor and the creditor agrees to • IFRS 7 Financial Instruments: Disclosures accept the entity’s shares or other equity instruments • IAS 8 Accounting Policies, Change in to settle the financial liability fully or partially. The Accounting Estimates and Error Interpretation is effective for annual periods beginning • IAS 10 Events after the Reporting Period on or after 1 July 2010 with earlier application • IAS 19 Employee Benefits permitted. The Group does not expect IFRIC 19 to • IAS 27 Consolidated and Separate Financial have an impact on the financial statements as the Statements Group does not negotiate such terms with its creditors. • IAS 28 Investments In Associates • IAS 31 Interest In Joint Ventures • IAS 34 Interim Financial Reporting 83

Amendments to IAS 24 Related Party Disclosures material adjustment to the carrying amounts of assets and (effective for financial years beginning on or after 1 liabilities within the next financial year are discussed below: January 2011) Provisions and contingencies The amendments simplify the definition of a related party, clarifying its intended meaning and eliminating The Group is exposed to a number of legal cases and inconsistencies from the definition. They also provide regulatory proceedings that may result in significant Consolidated financial statements a partial exemption from the disclosure requirements outflow of economic resources. The Group uses internal for government-related entities. The implementation of and external legal experts to assess outcome of each these amendments will have no impact on the financial case and makes judgments if and what amount needs position or performance of the Group, however it may to be provided for in the financial statements as more impact the related parties disclosures. explained in Notes 22 and 28.

Amendment to IAS 32 Financial Instruments: Impairment of non-financial assets Presentation - Classification of Rights Issues (effective for financial years beginning on or after 1 February 2010) An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, The amendment changes the definition of a financial which is the higher of its fair value less costs to sell and its liability to exclude certain rights, options and warrants. value in use. The fair value less costs to sell calculation is The amendment will have no impact on the financial based on available data from binding sales transactions position or performance of the Group, as the Group does in an arm’s length transaction of similar assets or not have such instruments. observable market prices less incremental costs for disposing of the asset. The Group’s impairment test for Amendment to IFRS 1 First time adoption - Limited Goodwill is based on value in use calculations that use a Exemption from Comparative IFRS 7 Disclosures for discounted cash flow model. The cash flows are derived First-time Adopters (effective 1 July 2010) from the budget for the next ten years and do not include restructuring activities that the Group is not yet committed The amendment clarifies that first time adopters do not to or significant future investments that will enhance the need to provide comparative disclosures as introduced asset’s performance of the cash generating unit being by the IFRS 7 amendment issued in March 2009. The tested. The recoverable amount is most sensitive to the amendment does not affect the financial statements of discount rate used for the discounted cash flow model as the Group. well as the expected future cash inflows and the growth rate used for extrapolation purposes. Non-financial assets 2.3 Significant accounting judgments, estimates are tested for impairment when there are indicators that the carrying amounts may not be recoverable. Further and assumptions details including carrying values and effects on the result of the period are given in Notes 10 and 11. The preparation of the Group’s financial statements requires management to make judgments, estimates and Revenue recognition - T-Club loyalty program assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of The Group estimates the fair value of points contingent liabilities, during the reporting period or at the awarded under the T-Club program by applying reporting date respectively. However, uncertainty about statistical techniques. Inputs to the models include these assumptions and estimates could result in outcomes making assumptions about expected redemption that require a material adjustment to the carrying amount rates, the mix of products that will be available for of the asset or liability affected in future periods. The key redemption in the future and customer preferences. assumptions concerning the future and other key sources As at 31 December 2009, the estimated liability for of estimation uncertainty at the statement of financial unredeemed points was approximately HRK 70 position date, that have a significant risk of causing a million (31 December 2008: HRK 50 million). Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 84

2.4 Summary of accounting policies to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored a) Operating profit for internal management purposes.

Operating profit is defined as the result before income c) Investments in associates taxes and finance items. Finance items comprise interest

Consolidated financial statements revenue on cash balances in the bank, deposits, treasury In the Group’s financial statements, investments in bills, interest bearing available for sale investments, associated companies (generally investments with dividend income from associates and joint venture, an ownership interest of between 20% and 50% interest expense on borrowings, gains and losses on the in a company’s equity) where significant influence sale of available for sale financial instruments and foreign is exercised by the Group are accounted for using exchange gains and losses on all monetary assets and the equity method less any impairment in value. An liabilities denominated in foreign currency. assessment of investments in associates is performed when there is an indication that the asset has been b) Business Combinations and Goodwill impaired or the impairment losses recognised in previous years no longer exist. Business combinations are accounted for using the acquisition method. The cost of an acquisition d) Interest in joint venture is measured as the aggregate of the consideration transferred, measured at acquisition date, fair value and The Group has an interest in a joint venture which is a the amount of any non-controlling interest in the acquiree. jointly controlled entity, whereby the venturers have a For each business combination, the acquirer measures contractual arrangement that establishes joint control the non-controlling interests in the acquiree either at over the economic activities of the entity. The Group fair value or at the proportionate share of the acquiree’s recognises its interest in the joint venture using equity identifiable net assets. Acquisition costs incurred are method of accounting. The financial statements of the expensed. When the Group acquires a business, it joint venture are prepared for the same reporting period assesses the financial assets and liabilities assumed for as the parent company. appropriate classification and designation in accordance with the contractual terms, economic circumstances and Adjustments are made where necessary to bring the pertinent conditions as at the acquisition date. accounting policies into line with those of the Group. Adjustments are made in the Group’s financial statements If the business combination is achieved in stages, the to eliminate the Group’s share of unrealised gains and acquisition date fair value of the acquirer’s previously losses on transactions between the Group and its jointly held equity interest in the acquiree is remeasured to fair controlled entity. Losses on transactions are recognised value as at the acquisition date through statement of immediately if the loss provides evidence of a reduction in comprehensive income. the net realisable value of current assets or an impairment loss. Interest in the joint venture is derecognised at the Goodwill acquired in a business combination is initially date on which the Group ceases to have joint control over measured at cost being the excess of the consideration the joint venture. transferred over the Group’s net identifiable assets acquired and liabilities assumed. Following initial e) Intangible assets recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of Intangible assets are measured initially at cost. Intangible impairment testing, goodwill acquired in a business assets are recognised in the event that the future combination is, from the acquisition date, allocated to economic benefits that are attributable to the assets each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefit from will flow to the enterprise, and that the cost of the asset the synergies of the combination, irrespective of whether can be measured reliably. After initial recognition, other assets or liabilities of the Group are assigned to intangible assets are measured at cost less accumulated those units or groups of units. Each unit or group of units amortisation and any accumulated impairment losses. 85

Intangible assets are amortised on a straight-line basis Buildings 10 - 50 years over the best estimate of their useful life. There are no Telecom plant and machinery intangible assets that are assessed to have an indefinite Cables 10 - 18 years useful life. The amortisation method is reviewed annually Cable ducts and tubes 30 years at each financial year-end. Other 2 - 15 years Tools, vehicles, IT and office equipment 4 - 15 years Other property, plant and equipment 2 - 30 years Consolidated financial statements Amortization of the UMTS licence has started when operations for the UMTS network started its commercial Land is not depreciated. use, the amortization period is the term of the licence. The useful life, depreciation method and residual values are reviewed at each financial year-end, and if expectations Useful life of intangible assets is as follows: differ from previous estimates, the change(s) are accounted for as a change in an accounting estimate. UMTS licences 20 years Construction-in-progress represents plant and properties Patents and concessions 5 - 10 years under construction and is stated at cost. Software and other assets 5 years Depreciation of an asset begins when it is available for use. f) Property, plant and equipment g) Impairment An item of property, plant and equipment that qualifies The determination of impairment of assets involves the for recognition as an asset is measured at its cost. use of estimates that include, but are not limited to, the The cost of an item of property, plant and equipment cause, timing and amount of the impairment. Impairment comprises its purchase price, including import duties and is based on the large number of factors, such as changes non-refundable purchase taxes, after deducting trade in current competitive conditions, expectations of growth discounts and rebates, and any directly attributable costs in the industry, increased cost of capital, changes in the of bringing the asset to its working condition and location future availability of financing, technological obsolescence, for its intended use. discontinuance of services, current replacement costs, prices paid in comparable transactions and other changes In addition to directly attributable costs, the costs of in circumstances that indicate an impairment exists. internally constructed assets include proportionate The recoverable amount and the fair values are typically indirect material and labour costs, as well as determined using the discounted cash flow method which incorporates reasonable market participant assumptions. administrative expenses relating to production or the The identification of impairment indicators, as well as the provision of services. estimation of future cash flows and the determination of fair values for assets (or groups of assets) require After recognition as an asset, an item of property, plant management to make significant judgments concerning and equipment is measured at cost less accumulated the identification and validation of impairment indicators, depreciation and any accumulated impairment losses. expected cash flows, applicable discount rates, useful lives Each part of an item of property, plant and equipment with and residual values. Specifically, the estimation of cash a cost that is significant in relation to the total cost of the flows underlying the fair values of the business considers item is depreciated separately. Depreciation is computed the continued investment in network infrastructure on a straight-line basis. required to generate future revenue growth through the The useful life of newly acquired assets is as follows: offering of new data products and services, for which only limited historical information on customer demand is available. If the demand for those products and services does not materialize as expected, this would result in less revenue, less cash flow and potential impairment to write Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 86

down these investments to their fair values, which could j) Receivables adversely affect future operating results. Receivables are stated at the fair value of the If an available-for-sale asset is impaired, an amount consideration given and are carried at amortised cost, comprising the difference between its cost (net of any after provision for impairment. principal payment and amortisation) and its current fair Consolidated financial statements value, less any impairment loss previously recognised in k) Foreign currencies the statement of comprehensive income, is transferred from equity to the statement of comprehensive income. Transactions denominated in foreign currencies are Reversals in respect of equity instruments classified as translated into local currency at the middle exchange available for sale are not recognised in the statement of rates of the Croatian National Bank prevailing at the comprehensive income. Reversals of impairment losses date of the transaction. Monetary assets and liabilities on debt instruments are reversed through the statement denominated in foreign currencies are translated into of comprehensive income if the increase in fair value local currency at the middle exchange rates of the of the instrument can be objectively related to an event Croatian National Bank prevailing at the statement of occurring after the impairment loss was recognised in financial position date. Any gain or loss arising from a the statement of comprehensive income. change in exchange rates subsequent to the date of the transaction is included in the statement of comprehensive h) Goodwill income within financial income or financial expense, respectively. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate l) Operating leases that the carrying value may be impaired. Rentals payable under operating leases are recognised Impairment is determined for goodwill by assessing as an expense on a straight-line basis over the lease term, the recoverable amount, based on value in use even if the payments are not made on such a basis. estimations, of the cash-generating unit (or group of cash-generating units), to which the goodwill relates. m) Taxation Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than The income tax charge is based on profit for the year and the carrying amount of the cash-generating unit includes deferred taxation. Deferred taxes are calculated (group of cash-generating units) to which goodwill using the statement of financial position liability method. has been allocated, an impairment loss is recognised. Impairment losses relating to Goodwill cannot be Deferred income taxes reflect the net tax effects of reversed in future periods. The Group performs its temporary differences between the carrying amounts of annual impairment test of goodwill as at 31 December. assets and liabilities for financial reporting purposes and Please see Note 15 for more details. the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates i) Inventories expected to apply to taxable income in the years in which those temporary differences are expected to be recovered Inventories are valued at the lower of cost and net or settled based on tax rates enacted at the statement of realisable value, after provision for obsolete items. financial position date. Net realisable value is the selling price in the ordinary course of business, less the costs of completion, The measurement of deferred tax liabilities and deferred marketing and distribution. Cost is determined on the tax assets reflects the tax consequences that would arise basis of weighted average cost. from the manner in which the enterprise expects, at the statement of financial position date, to recover or settle the carrying amount of its assets and liabilities. 87

Deferred tax assets and liabilities are not discounted and The Group has concluded that it is acting as a principal in are classified as non-current assets and liabilities in the all of its revenue arrangements with the exception of the statement of financial position. Deferred tax assets are provision of its telecommunications infrastructure to third recognised when it is probable that sufficient taxable parties that offer value added services to its customer. profits will be available against which the deferred tax In these cases, the Group is acting as an agent. The assets can be utilised. following specific recognition criteria must also be met before revenue is recognised: Consolidated financial statements Current tax and deferred tax are charged or credited in other comprehensive income if the tax relates to items that Revenue from fixed telephony includes revenue from are credited or charged, in the same or a different period activation, monthly fees, calls placed by fixed line in other comprehensive income. subscribers and revenue from additional services in fixed telephony. Revenue from activation (connection n) Employee benefit obligations fees) is recognised on a straight-line basis throughout future periods depending on an average useful life of a The Group provides other long-term employee benefits (see Note 20). These benefits include retirement single customer line. and jubilee (length of service) payments, and are determined using a projected unit credit method. The Revenue from wholesale services includes projected unit credit method considers each period interconnection services for domestic and of service as giving rise to an additional unit of benefit international carriers. entitlement and measures each unit separately to build up the final obligation. Revenue from mobile telephony includes revenue from installation, monthly fee and call charges for post-paid Past service costs are recognised in other comprehensive mobile customers, call charges for pre-paid mobile income immediately in the period in which they occur. customers, call charges for customers of international Gains or losses on the curtailment or settlement of benefit mobile operators when roaming on the T-Mobile’s plans are recognised when the curtailment or settlement network, sale of mobile handsets and domestic occurs. The benefit obligation is measured at the present value of estimated future cash flows using a discount rate interconnection revenues related to mobile network. that is similar to the interest rate on government bonds where the currency and terms of the government bonds Revenue from unused tariff packages and prepaid are consistent with the currency and estimated terms of vouchers are recognised when they are realised. Before the benefit obligation. Gains and losses resulting from their realisation, they are recorded as deferred revenues. changes in actuarial assumptions are recognised in other Revenue arrangements with multiple deliverables comprehensive income in the period in which they occur. (bundled product offers) are recognised in accordance with industry specific US GAAP rule EITF 00-21 as The Group provides death in service short term allowed by IFRS. Revenue arrangements with multiple benefit which is recognised as an expense of the deliverables are divided into separate units of accounting. period in which it incurred. Arrangement consideration is allocated among the separate units of accounting based on their relative fair o) Revenue recognition values. The arrangement consideration allocable to a delivered item that does not qualify as a separate unit Revenue is recognised to the extent that it is probable of accounting within the arrangement is combined with that the economic benefits will flow to the Group and the the amount allocable to the other applicable undelivered revenue can be reliably measured. Revenue is measured item within the arrangement. Appropriate recognition of at the fair value of the consideration received, excluding revenue is then applied to those combined deliverables discounts, rebates, and sales taxes or duty. The Group as a single unit of accounting. The amount allocable assesses its revenue arrangements against specific criteria to a delivered item is limited to the amount that is not in order to determine if it is acting as principal or agent. contingent upon the delivery of additional items or Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 88

meeting other specified performance conditions (the non- r) Investments contingent amount). All investments, other than loans and receivables Revenue from Internet and data services includes revenue originated by the Group, are classified as available-for-sale. from leased lines, frame relay, ATM, Ethernet services, ADSL subscription and traffic, fixed line access, WEB hosting, VPN Available-for-sale investments are classified as current Consolidated financial statements online, internet traffic to T-Com call number, Multimedia assets if management intends to realise them within 12 services, IP phone (access and traffic) and IPTV. Such months after the statement of financial position date. All revenue is recognized in the accounting period in which it is purchases and sales of investments are recognised on the earned in accordance with the realization principle. settlement date.

Revenues from the provision of its network to the provider Investments are initially measured at cost, which is the of value added services are reported on a net basis. fair value of the consideration given for them, including Revenues are exclusively the amount of the commission transaction costs. received. Revenue from dividends is recognised when the Group’s right to receive the payment is established. Available-for-sale and trading investments are subsequently carried at fair value without any deduction Interest revenue is recognised as interest accrues (using the for transaction costs by reference to their quoted market effective interest rate that is the rate that exactly discounts price at the statement of financial position date. receipts through the expected life of the financial instrument to the net carrying amount of the financial asset). The Group Gains or losses on measurement to the fair value of maintains a loyalty point’s programme, T-Club, within its available-for-sale investments are recognised in other Fixed and Mobile telephony segment. In accordance with comprehensive income, until the investment is sold IFRIC 13, customer loyalty credits are accounted for as a or otherwise disposed of, or until it is determined to separate component of the sales transaction in which they be impaired, at which time the cumulative gain or loss are granted. A portion of the fair value of the consideration previously recognised in other comprehensive income is received is allocated to the award credits and deferred. This included in the net profit or loss for the period. is then recognized as revenue over the period that the award credits are redeemed. Financial instruments are generally recognised as soon as the Group becomes a party to the contractual regulations p) Cash and cash equivalents of the financial instrument. However, in the case of regular way purchase or sale (purchase or sale of a financial Cash and cash equivalents comprise cash on hand, asset under a contract whose terms require delivery of demand deposits and short-term, highly liquid investments the asset within the timeframe established generally by that are readily convertible to known amounts of cash with regulation or convention in the marketplace concerned), original maturities of three months or less and which are the settlement date is relevant for the initial recognition subject to an insignificant risk of change in value. and derecognition. A financial asset is derecognised when the cash is collected or the rights to receive cash from the q) Borrowings assets have expired. A financial liability is derecognised when the obligation under the liability is discharged or Borrowing costs, which include interest and other costs cancelled or expires. incurred in connection with the borrowing of funds, including exchange differences arising from foreign s) Provisions currency borrowings, are expensed in the period in which they are incurred, except those which directly attributable A provision is recognised when, and only when, the to the acquisition, construction or production of qualifying Group has a present obligation (legal or constructive) as a assets and are capitalised. result of a past event and it is probable that an outflow of resources embodying economic benefits will be required Borrowings are initially recognised in the amount of the to settle the obligation, and a reliable estimate can be proceeds received net of transaction costs. made of the amount of the obligation. Provisions are 89

reviewed at each statement of financial position date and 3 Segment information adjusted to reflect the current best estimate. The primary segment reporting format is determined to Where the effect of the time value of money is material, be business segments as the Group’s risks and rates the amount of a provision is the present value of the of return are affected predominantly by differences expenditures expected to be required to settle the in the products and services produced. Secondary obligation. When discounting is used, the increase in information is reported geographically. The operating Consolidated financial statements provision reflecting the passage of time is recognised as businesses are organised and managed separately interest expense. according to the nature of the products and services provided, with each segment representing a strategic Provisions for termination benefits are recognised when business unit that offers different products and serves the Group is demonstrably committed to a termination different markets. of employment contracts, that is when the Group has a detailed formal plan for the termination which is T-Com segment provides fixed telephony, wholesale without realistic possibility of withdrawal. Provisions for services, internet services and data services. termination benefits are computed based on amounts paid or expected to be paid in redundancy programs. T-Mobile provides mobile telephony. t) Contingencies Management monitors the operating results of its business units separately for the purpose of making Contingent liabilities are not recognised in the decisions about resource allocation and performance financial statements. They are disclosed unless the assessment. Segment performance is evaluated based possibility of an outflow of resources embodying on operating profit or loss and is measured consistently economic benefits is remote. with operating profit or loss in the consolidated financial statements A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic Transfer prices between business segments are benefits is probable. set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, u) Share-based payment transactions segment expense and segment result include transactions between business segments. Those The cost of cash-settled transactions is measured initially transactions are eliminated in consolidation. at fair value at the grant date using a binomial model, further details of which are given in Note 33. This fair The Group’s geographical segments are based on the value is expensed over the period until the vesting date geographical location of its customers. with recognition of a corresponding liability. The liability is remeasured to fair value at each statement of financial Revenue from mobile terminating calls transited position date up to and including the settlement date through T-Com’s network are disclosed as revenue with changes in fair value recognised in the statement of from wholesale services in T-Com segment, while comprehensive income. on Group level they are reclassified to revenue from mobile telephony. v) Events after reporting period Revenue from sale of mobile trade goods through Post-year-end events that provide additional T-Com’s shops is disclosed as miscellaneous revenue information about the Group’s position at the statement in T-Com segment, while on Group level they are of financial position date (adjusting events) are reclassified to revenue from mobile telephony. reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 90

3 Segment information (continued)

The following tables present revenue and profit and certain assets and liabilities information regarding the Group’s business segments: Business segments

Year ended T-Com T-Mobile Reclassified Eliminations Total 31 December 2009 HRK millions HRK millions HRK millions HRK millions HRK millions

Consolidated financial statements Revenue Fixed telephony 2,505 - - - 2,505 Wholesale services 756 - (60) - 696 Internet services 1,146 - - - 1,146 Data services 183 - - - 183 Mobile telephony - 3,831 137 - 3,968 Miscellaneous 96 - (77) - 19 Sales to external customers 4,686 3,831 - - 8,517 Inter-segment sales 359 357 - (716) - Total revenue 5,045 4,188 - (716) 8,517 Results Segment results 953 1,341 - - 2,294 Net finance revenue 148 124 - - 272 Profit before income tax 1,101 1,465 - - 2,566 Income tax expense (240) (302) - - (542) Profit for the year 861 1,163 - - 2,024 As at 31 December 2009 Assets and liabilities Segment assets 10,573 5,142 - (1,618) 14,097 Investment in associate 2 - - - 2 Investment in joint venture 373 - - - 373 Total assets 10,948 5,142 - (1,618) 14,472 Segment liabilities 1,559 1,041 - (140) 2,460 Total liabilities 1,559 1,041 - (140) 2,460 Other segment information Capital expenditure: Property, plant and equipment 920 248 - - 1,168 Intangible assets 163 222 - - 385 Depreciation 737 292 - - 1,029 Amortisation 167 169 - - 336 Impairment losses recognised in statement of comprehensive income (3) (33) - - (36) Provisions and employee benefit liabilities 262 46 - - 308 91

Business segments

Year ended T-Com T-Mobile Reclassified Eliminations Total 31 December 2008 HRK millions HRK millions HRK millions HRK millions HRK millions Consolidated financial statements Revenue Fixed telephony 2,791 - - - 2,791 Wholesale services 836 - (117) - 719 Internet services 898 - - - 898 Data services 199 - - - 199 Mobile telephony - 3,975 200 - 4,175 Miscellaneous 92 - (83) - 9 Sales to external customers 4,816 3,975 - - 8,791 Inter-segment sales 376 436 - (812) - Total revenue 5,192 4,411 - (812) 8,791 Results Segment results 1,133 1,469 - - 2,602 Net finance revenue 241 99 - - 340 Profit before income tax 1,374 1,568 - - 2,942 Income tax expense (299) (333) - - (632) Profit for the year 1,075 1,235 - - 2,310 As at 31 December 2008 Assets and liabilities Segment assets 10,883 4,123 - (168) 14,838 Investment in associate 2 - - - 2 Investment in joint venture 365 - - - 365 Total assets 11,250 4,123 - (168) 15,205 Segment liabilities 1,746 1,187 - (168) 2,765 Total liabilities 1,746 1,187 - (168) 2,765 Other segment information Capital expenditure: Property, plant and equipment 1,000 342 - - 1,342 Intangible assets 157 125 - - 282 Depreciation 713 301 - - 1,014 Amortisation 167 165 - - 332 Impairment losses recognised in statement of comprehensive income (14) (3) - - (17) Provisions and employee benefit liabilities 250 27 - - 277 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 92

3 Segment information (continued)

Revenue - by geographical area

2009 2008 Consolidated financial statements HRK millions HRK millions Restated Republic of Croatia 7,806 7,949 Rest of the World 711 842 8,517 8,791

4 Service expenses

2009 2008 HRK millions HRK millions

Domestic interconnection 547 558 International interconnection 459 543 Other services 260 256 1,266 1,357

5 Depreciation, amortisation and impairment of non-current assets

2009 2008 HRK millions HRK millions Depreciation 1,029 1,014 Amortisation 336 332 1,365 1,346 Impairment loss 36 17 1,401 1,363

Notes 10 and 11 disclose further details on amortisation and depreciation expense and impairment loss. 93

6 Redundancy expenses

2009 2008 HRK millions HRK millions Provision at 1 January - current 139 231 Consolidated financial statements Additions charged to the statement of comprehensive income 39 48 Utilisation (171) (140) Provision at 31 December - current 7 139

2009 2008 HRK millions HRK millions Provision at 1 January - non current - - Additions charged to the statement of comprehensive income 113 - Provision at 31 December - non current 113 - 2009 2008 HRK millions HRK millions Redundancy expenses and provisions include the amount of gross severance payments for employees whose employment contracts will be terminated after 31 December 2009 and 31 December 2010, respectively, due to business reasons. 7 Other expenses 2009 2008 HRK millions HRK millions Restated Maintenance services 379 369 Advertising 234 287 Rent (Note 27) 142 187 Licence cost 121 105 Selling commission 118 129 Postal expenses 107 68 Contract workers 66 89 Non - income taxes & contribution 55 56 Education and consulting 45 56 Call centre and customer care support 39 12 Daily allowances and other costs of business trips 23 25 Insurance 16 14 Provision for charges and risks (Note 22) 11 22 Loss on disposal of fixed assets 9 7 Other operating charges 107 81

1,472 1,507 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 94

8 Taxation

a) Tax on profit

2009 2008 HRK millions HRK millions

Consolidated financial statements Current tax expense 528 620 Deferred tax expense 14 12 Taxation 542 632

b) Reconciliation of the taxation charge to the income tax rate

2009 2008 HRK millions HRK millions Profit before taxation 2,566 2,942 Income tax at 20% (domestic rate) 513 588 Tax effects of not taxable income: Dividends received and incentives (2) (3) Related to provision for bad debts and value adjustment (7) (3) Revenues taxed in previous years (4) - Lower depreciation (5) - Other (6) (11) Tax effects of expenses not deductible in determining taxable profits: Tax for previous years 10 11 Provision for bad debt, value adjustment and accruals 9 18 Entertainment expenses and car usage 4 5 Other 16 15 Deferred tax expense 14 12 Taxation 542 632 Effective tax rate 21.12% 21.48% 95

Components and movements of deferred tax assets and liabilities are as follows:

31 December Charge to statement of 31 December 2009 comprehensive income 2008

HRK millions HRK millions HRK millions Consolidated financial statements Deferred tax asset Property, plant and equipment write down 16 (5) 21 Deferred revenue from connection fees 15 (4) 19 Non-tax deductible value adjustments 12 (4) 16 Accruals for commissions - (3) 3 Other 3 2 1 Total deferred tax assets 46 (14) 60

of three years starts with the year that follows the year of The deferred tax asset of the Group arises on the prop- submission of tax declarations, i.e. 2010 for the 2009 tax erty, plant and equipment write down as a result of the liability. The counting of three years starts again with any fact that HRK 395 million of the write down reported in action of tax authorities with the purpose to collect tax, 2001 was not tax deductible in that year. Of this amount, interest or fines until the absolute statute of limitation of HRK 315 million became tax deductible in the period 6 years expires. from 2002 to 2009, and the remaining HRK 80 million will be tax deductible in future periods. 9 Earnings per share The Group has recognised deferred tax assets based on temporary differences coming out of revenue recognition Basic earnings per share amounts are calculated of connection fees in previous periods when the tax on by dividing net profit for the year attributable those revenues was paid, and due to deferring these fees to ordinary equity holders of the Group by the for the period of useful life of providing services to the weighted average number of ordinary shares customers for reporting purposes. outstanding during the year.

There are no formal procedures in the Republic of Diluted earnings per share amounts are equal to Croatia to agree the final level of tax charge upon basic earnings per share since there are no dilutive submission of the declaration for corporate tax and potential ordinary shares. VAT. However, such tax settlements may be subject to review by the relevant tax authorities during the The following reflects the income and share limitation period of three years. The limitation period data used in the basic and diluted earnings per share computations:

2009 2008 Profit for the year attributable to ordinary equity holders of the Company in HRK millions 2.024 2.310 Weighted average number of ordinary shares for basic earnings per share 81,888,535 81,888,535 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 96

10 Intangible assets

Licences and Software Other Assets under Total Consolidated financial statements concessions assets construction HRK millions HRK millions HRK millions HRK millions HRK millions Cost At 1 January 2008 568 1,433 26 148 2,175 Additions - 73 24 185 282 Transfers 55 180 41 (276) - Transfers from property, plant and - - - 22 22 equipment Disposal (15) (176) - - (191) At 31 December 2008 608 1,510 91 79 2,288 Additions 72 198 16 99 385 Transfers 41 97 4 (142) - Transfers from property, plant and - 62 - 53 115 equipment Disposals (44) (56) - - (100) At 31 December 2009 677 1,811 111 89 2,688 Accumulated amortisation At 1 January 2008 319 837 14 - 1,170 Charge for the year 69 251 12 - 332 Impairment loss 2 - - - 2 Transfers from property, plant and 1 2 - - 3 equipment Disposals (19) (172) - - (191) Transfers (3) 3 - - - At 31 December 2008 369 921 26 - 1,316 Charge for the year 65 253 18 - 336 Impairment loss 7 15 - - 22 Transfers from property, plant and - 62 - - 62 equipment Disposals (22) (47) - - (69) At 31 December 2009 419 1,204 44 - 1,667 Net book value At 31 December 2008 239 589 65 79 972 At 31 December 2009 258 607 67 89 1,021 97

The intangible assets of the Group as of 31 Decem- HRK 7 million and other software investments into ber 2009 include the UMTS licence with the carrying the Group’s intangible assets related to network and value of HRK 101 million (31 December 2008: HRK infrastructure of HRK 21 million. 108 million). The UMTS licence is amortised over a period of 20 years (starting from June 2005). Impairment loss

Assets under construction primarily relate to software During 2009, the Group recognised an impairment Consolidated financial statements and the various licences for the use of software. loss of intangible assets in the amount of HRK 22 million (2008: HRK 2 million) which mainly relates to Additions of intangible assets licences and software for transfer of data due to an advance in technology. The recoverable amount of Major additions in the reporting period relate to GSM that licences is its fair value less cost to sell, which is licence of HRK 50 million, GSM related software of based on the best information available to reflect the HRK 33 million, UMTS related software of HRK 14 amount that the Group could obtain, at the state- million, the billing software in the shops of HRK 9 ment of financial position date, from the disposal million, internal reporting software of HRK 9 mil- of the asset in an arm’s length transaction between lion, billing software of HRK 19 million, software for knowledgeable, willing parties, after deducting the business process management and optimization of costs of disposal.

11 Property, plant and equipment

Land Telecom Tools, Assets Total and plant vehicle under buildings and IT and office construction machinery equipment HRK millions HRK millions HRK millions HRK millions HRK millions Cost At 1 January 2008 1,723 9,257 903 551 12,434 Additions 14 446 54 828 1,342 Transfers 66 399 63 (528) - Transfers to intangible assets - - - (22) (22) Disposals (13) (128) (54) (4) (199) At 31 December 2008 1,790 9,974 966 825 13,555 Additions 84 759 44 281 1,168 Transfers 67 475 55 (597) - Transfers to intangible assets - (62) - (53) (115) Disposals (3) (58) (65) 22 (104) At 31 December 2009 1,938 11,088 1,000 478 14,504 Accumulated depreciation At 1 January 2008 653 5,064 560 4 6,281 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 98

11. Property, plant and equipment (continued)

Land Telecom Tools, Assets Total and plant vehicle under buildings and IT and office construction machinery equipment HRK millions HRK millions HRK millions HRK millions HRK millions Charge for the year 86 825 103 - 1,014 Consolidated financial statements Impairment loss - 10 - 5 15 Disposals (9) (126) (45) (3) (183) At 31 December 2008 730 5,773 618 6 7,127 Charge for the year 94 826 109 - 1,029 Impairment loss - 10 4 - 14 Transfers to intangible assets - (62) - - (62) Disposals (2) (54) (54) (1) (111) At 31 December 2009 822 6,493 677 5 7,997 Net book value At 31 December 2008 1,060 4,201 348 819 6,428 At 31 December 2009 1,116 4,595 323 473 6,507

Included within assets under construction of the between knowledgeable, willing parties, after deducting Group are major spare parts of HRK 35 million (31 the costs of disposal. December 2008: HRK 55 million), net of a provision of HRK 4 million (31 December 2008: HRK 3 million). Disposal of property, plant and equipment

Beginning in 2001, the Group has performed The disposal of the Group’s property, plant and additional procedures which have provided support equipment primarily relates to the disposal of for the existence of legal title to land and buildings telecommunications plant and equipment of HRK 40 transferred from HPT s.p.o. under the Separation Act million and disposal of old tools, IT and office equipment of 10 July 1998. The Group is still in the process of of HRK 65 million (all values stated as gross book values). formally registering this legal title. Ownership over ducts The Group does not have any material property, plant and equipment held for disposal, nor does it have any material Although the assets (including the ducts as a part idle property, plant and equipment. of the infrastructure) were transferred from the legal predecessor of the Company, HPT Public Company by Impairment loss virtue of the “Law on Separation of Croatian Post and Telecommunication” and contributed by the Republic In 2009, the Group recognised an impairment loss of of Croatia to the share capital at the foundation of property, plant and equipment of HRK 14 million (2008: the Company on 1 January 1999, according to other HRK 15 million) which mainly relates to hardware for Croatian legislation, part of T-HT’s infrastructure that may transfer of data due to an advance in technology. The be considered as a real estate which is also known as recoverable amount of that equipment is its fair value Distributive Telecommunication Infrastructure (DTI, TI less costs to sell, which is based on the best information or ducts) - does not have all the necessary documents available to reflect the amount that the Group could (building, use permits etc.) and the major part is not obtain, at the statement of financial position date, from registered in the land registry, which may be relevant to the disposal of the asset in an arm’s length transaction the issue of proving the ownership towards third parties. 99

Intrusions in T-HT’s ducts by other competitors and some Conditions for Access and Joint Use of Electronic Land Telecom Tools, Assets Total requirements of ownership over these assets by the local Communications Infrastructure and Related Equipment (Official Gazette No. 154/08 effective and plant vehicle under authorities (the City of Zagreb and City of Split present the majority of problems), may have a material effect on the as at 6 January 2009) which replaces the Terms for buildings and IT and office construction financial statements in the case that T-HT will not be able Joint Use and regulates the issue in similar manner. machinery equipment to prove its ownership rights for some ducts. In February 2009 the Agency passed an Ordinance HRK millions HRK millions HRK millions HRK millions HRK millions on Certificate and Fees for the Right of Way (Official The Company formed the Documentation and Gazette No. 31/09 effective as of 19 March 2009),

Infrastructure Operations Department that is responsible regulating the conditions for issuance of certificate Consolidated financial statements to assure that all network technology related assets and fees for right of way. The fees for right of way are properly legalised, documented and that this are determined, depending on the nature of the documentation is available to all relevant departments land in use, in the amount from 4 to 10 HRK/m2. and authorities. The overall process is slow and complex since the registration depends not only on In connection with the offer for sale of ordinary shares T-HT but also on local and state authorities. Since the held by the Government of Republic of Croatia year 2006 the actions of T-HT have been concentrated (RoC), the Company and Deutsche Telekom AG have entered into a Memorandum of Understanding on the conclusion of right of servitude contracts with on how the various issues relating to the Initial local municipalities and right of use contracts with Public Offering, including DTI infrastructure should Croatian and County roads. T-HT has concluded right be resolved. Inter alia this provides the underlying of servitude contracts with following cities: Rijeka, principles under which right of way charges and Dubrovnik, Varaždin, Čakovec, Gospić, Požega, Pula, shared usage issues will be based. Bjelovar, Slavonski Brod, Krapina, Karlovac, Šibenik, Vukovar, Virovitica, Sisak and many other smaller cities The Government of the Republic of Croatia has and communities. T-HT has also concluded right of use committed, within the limits of its authority, to use contracts with the state owned companies Croatian its reasonable efforts to provide for the appropriate Roads (for all of roads under their management) and with legislation and regulations under the Croatian legal County Roads (17 of 21 counties). system as soon as practicably possible.

The legalization process is to be speeded up due to The Group assessed and declared the existence of new Law on Electronic Communications which obliges the risks thereon, including obtaining legal opinions local municipality and other owners of land used for the with respect to certain of the issues involved; however, construction of telecommunication infrastructure to give due to the fact that these issues are very complex so T-HT the right of way if other solutions were not agreed. far the Group has not yet been able to determine the The new Law on Electronic Communications entered likelihood of the possible outcome and whether it will into force on 1 July 2008. The new Law on Electronic result in any impairment of the DTI assets concerned Communications and Ordinance on Certificate and due to any inability to prove title or as a result of the Fees for the Right of Way (entered into force on 31 additional right of way charges that may be imposed, March 2009) open new possibilities for negotiations with which could have a retrospective effect. Therefore, no local authorities and County Roads that do not want to adjustments were made to these financial statements conclude right of servitude and right of use contracts, in respect of this matter. since a new right of way contract is introduced that could settle outstanding legal and ownership issues. The net book value of all the Group’s ducts as at 31 December 2009 is HRK 887 million (31 December The new Law on Electronic Communications addresses this issue to a great extent in line with 2008: HRK 857 million). commitments spelled out in the Memorandum of Understanding (see below). However, it is possible that difficulties and challenges will arise in the current process of passing subordinate regulations under the 2008 Law by the Croatian Agency for Post and Telecommunications (“Agency”). In December 2008 the Agency passed an Ordinance on Manner and Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 100

12 Investments in associate

The net book value of investments in associate comprises:

Consolidated financial statements 31 December 31 December 2009 2008 HRK millions HRK millions

HP d.o.o. Mostar 2 2

HT d.d. has an ownership interest of 30.29% in its associate HP d.o.o. Mostar which is incorporated in the Republic of Bosnia and Herzegovina. The principal activity of the associate is provision of postal services.

The movement in investments in associates of the Group during the year ended 31 December 2009 and during the year ended 31 December 2008 was as follows:

2009 2008 The net book value HRK millions HRK millions

At 1 January 2 2 Share of profits - 1 Impairment of investments - (1) At 31 December 2 2 101

Summarised the Group’s share in aggregated financial information of associate is as follows:

31 December 31 December 2009 2008 Unaudited Audited

Share of the associates statements of financial position: HRK millions HRK millions Consolidated financial statements

Current assets 26 24 Non-current assets 20 29 Current liabilities (15) (12) Non-current liabilities (2) (11) Net assets 29 30 2009 2008 Unaudited Audited Share of the associate revenue and profit: Revenue 32 21 Profit - 1

13 Investment in joint venture

The net book value of investments in joint venture comprises:

31 December 31 December 2009 2008 HRK millions HRK millions

HT d.o.o. Mostar 373 365 373 365

HT d.d has an ownership interest of 39.1% in its joint venture HT d.o.o. Mostar which is incorporated in the Republic of Bosnia and Herzegovina. The principal activity of this company is provision of telecommunication services.

The Group’s share in HT d.o.o. Mostar unaudited results for the year ended 31 December 2009, is recognised in the statement of comprehensive income in the amount of HRK 12 million (2008: HRK 17 million was recognised based on unaudited results and comprise of HRK 6 million of profit for the year ended 31 December 2008 which was later confirmed by the audit report, and an additional upward adjustment of HRK 11 million after the jointly controlled entity’s final audited result for 2007 had been available).

On 4 August 2009 T-HT was paid a dividend of HRK 4 million by HT d.o.o. Mostar for the financial year of 2007. Accordingly the net book value of this investment in joint venture was reduced by the same amount. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 102

31 December 31 December 2009 2008 Unaudited Audited Share of the jointly controlled entity statement of financial position: HRK millions HRK millions

Consolidated financial statements Current assets 74 73 Non-current assets 617 600 Current liabilities (118) (115) Non-current liabilities (100) (85) Net assets 473 473 2009 2008 Unaudited Audited Share of the jointly controlled entity revenue and profit: Revenue 353 365 Profit 12 6

14 Available-for-sale investments

Non-current available-for-sale investments include the following bonds:

Currency Interest rate Maturity 31 December 31 December 2009 2008 Issuer HRK millions HRK millions Government of Croatia HRK 4.75% 8 February 2017 32 28 Government of Germany EUR 1.25% 11 March 2011 74 - Other equity securities HRK 9 9 115 37 103

Current available-for-sale investments include the following:

31 December 31 December 2009 2008 HRK millions HRK millions Unit holdings in money market funds: ZB Plus - 53 Bonds: Consolidated financial statements Government of France EUR 3.00% 12 January 2010 37 - Government of the Netherlands EUR 3.00% 15 January 2010 37 - Government of Germany EUR 3.00% 12 March 2010 73 - Government of Germany EUR 3.25% 9 April 2010 37 -

Foreign treasury bills: Government of Germany EUR 1.00% 12 May 2010 73 - 257 53

The estimated fair value of investments in treasury bills and bonds at 31 December 2009 is determined by reference to their market value offered on the secondary capital market which is an active market at the statement of financial position date and belong to the first financial instruments hierarchy category. No changes among financial instruments hierarchy categories.

15 Impairment testing of goodwill (2008: 8.67%) and cash flows beyond the ten-year period are extrapolated using a 2.0% growth rate Goodwill acquired through business combinations (2008: 2.2%). has been allocated to the T-Com cash-generating unit, which is also a reporting segment, for The calculation of value-in-use for T-Com unit is most impairment testing. sensitive to the assumptions on market penetration, market share, regulation and discount rate. The recoverable amount of the T-Com unit has been With regard to the assessment of value-in-use of determined based on the value in use calculation T-Com unit, management believes that no reasonably using cash flow projections from financial budgets possible change in any of the above key assumptions covering a ten-year period. The post-tax discount would cause the carrying value of the unit to rate applied to cash flow projections is 10.93% materially exceed its recoverable amount. 16 Inventories

31 December 31 December 2009 2008 HRK millions HRK millions Merchandise 106 175 Inventories and spare parts 149 139 255 314 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 104

17 Trade and other receivables

31 December 31 December 2009 2008

Consolidated financial statements HRK millions HRK millions Restated Trade receivables 1,392 1,234 Other receivables 74 85 1,466 1,319

The aging analysis of trade receivables is as follows:

Neither past Past due but not impaired Total due nor < 30 days 31-60 days 61-90 days 91-120 days >120 days impaired HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions 31 Dec 1,392 953 296 76 38 19 10 2009 31 Dec 1,234 794 292 89 28 17 14 2008

Value adjustments are made for all outstanding receivables older than 120 days, except for receivables for international settlement for which value adjustments are made according to the collection estimate. International settlement account for the majority of past due but not impaired receivables older than 120 days.

As at 31 December 2009, trade receivables with a nominal value HRK 946 million (31 December 2008: HRK 883 million) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:

2009 2008 HRK millions HRK millions At 1 January 883 878 Charge for the year 184 162 Unused amounts reversed (121) (157) At 31 December 946 883 105

18 Cash and cash equivalents and time deposits

a) Cash and cash equivalents Cash and cash equivalents included in the statement of cash flows comprise the following statement of financial position amounts: Consolidated financial statements

31 December 31 December 2009 2008 HRK millions HRK millions Cash on hand and balances with banks 465 35 Time deposits with maturity less than 3 months 3,730 5,188 Cash and cash equivalents 4,195 5,223

b) Time deposits with maturities more than 3 months

31 December 31 December 2009 2008 HRK millions HRK millions

Zagrebačka banka d.d. 1 2 Hrvatska poštanska banka d.d. 1 26 Erste Steiermarkische Bank d.d. - 135 Raiffeisenbank Austria d.d. - 50 2 213

c) Currency breakdown of cash and cash equivalents and time deposits:

31 December 31 December 2009 2008 HRK millions HRK millions

HRK 3,586 4,552 EUR 575 857 USD 36 27 4,197 5,436 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 106

19 Trade and other payables

31 December 31 December 2009 2008 Consolidated financial statements HRK millions HRK millions Restated Trade payables 1,355 1,544 Payroll and payroll taxes 68 72 VAT and other taxes payable 16 19 Other creditors 20 22 1,459 1,657

20 Employee benefit obligations Other long-term employee benefits include retirement and jubilee (length of service) payments. One off retirement benefits are dependent on employees fulfilling the required conditions to enter retirement and jubilee benefits are dependent on the number of years of service in the Group. All benefit entitlements are determined from the respective employee’s monthly remuneration.

Other long-term employee benefits are determined using the projected unit credit method. Gains and losses resulting from changes in actuarial assumptions are recognised as other comprehensive income/expense in the period in which they occur.

The movement in the liability recognised in the statement of financial position was as follows:

2009 2008 HRK millions HRK millions At 1 January 187 201 Service costs recognised in the statement of comprehensive income 16 14 Interest costs recognised in the statement of comprehensive income 12 - Payments made under scheme (16) (15) Actuarial gains (7) (13) At 31 December 192 187 107

The principal actuarial assumptions used to determine retirement benefit obligations as at 31 December were as follows:

2009 2008

% % Consolidated financial statements

Discount rate (annually) 6.5 6.5 Wage and salary increases (annually) 4.5 4.5

21 Deferred income

31 December 31 December 2009 2008 HRK millions HRK millions Restated

Connection fee 102 128 Other 1 - Deferred income - non current 103 128 Prepaid vouchers 140 208 Connection fee 33 35 Customer loyalty programme 70 50 Monthly fee - 23 Other 18 26 Deferred income - current 261 342 364 470

The billing procedure regarding the monthly fees for data and wholesale services was changed by the Group during the financial year from invoicing for the following month to invoicing for the current month. The Group now bills monthly fees for retail fixed, mobile, data, online services and wholesale services for the current month. The connection fee is recognised on a straight-line basis throughout future periods depending on the average useful life of a single customer line. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 108

22 Provisions for legal cases and other provisions

2009 2008 HRK millions HRK millions Consolidated financial statements Restated At 1 January 90 90 Additions (Note 7) 11 22 Asset retirement obligation 15 Reclassification of customer loyalty programme - (15) Utilisation - (7) At 31 December 116 90

As at 31 December 2009 the Group has provided estimated amounts for several legal actions and claims that management has assessed as probable to be decided against the Group.

23 Issued capital Authorised, issued, fully paid and registered share capital

31 December 31 December 2009 2008 HRK millions HRK millions

81,888,535 ordinary shares of HRK 100 each 8,189 8,189

The number of shares in issue remained unchanged between 1 January 1999 and 31 December 2009.

24 Legal reserves Legal reserves represent reserves prescribed by the Company Act in the amount of 5% of the net profit for the year, until these reserves amount to 5% of the issued capital. Legal reserves that do not exceed the above amount can only be used to cover current year or prior year losses. If the legal reserves exceed 5% of the issued capital they can also be used to increase the issued capital of the Group.

25 Retained earnings In 2009 the Group paid a dividend of HRK 2,456 million (2008: HRK 2,421 million), respectively HRK 29.99 per share (2008: HRK 29.56). 109

26 Other accruals

31 December 31 December 2009 2008 HRK millions HRK millions Restated Consolidated financial statements Variable salary to employees 94 86 Unused vacation 35 33 Handset budget programme 52 37 Other 2 1 183 157

27 Commitments a) Operating lease commitments

The Group has operating lease commitments in respect of buildings, land, equipment and cars. Operating lease charges: 2009 2008 HRK millions HRK millions Current year expense (Note 7) 142 187

Future minimum lease payments under non-cancellable operating leases were as follows:

31 December 31 December 2009 2008 HRK millions HRK millions

Within one year 105 134 Between 2 and 5 years 378 494 Greater than 5 years 273 466 756 1,094

The contracts relate primarily to property leases and car leases.

b) Capital commitments The Group was committed under contractual agreements to capital expenditure as follows: 31 December 31 December 2009 2008 HRK millions HRK millions

Intangible assets 116 117 Property, plant and equipment 229 264 345 381 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 110

28 Contingencies Company turnover of the financial year preceding the a) Litigation year in which the infringement was committed. A similar complaint regarding Frame Agreements At the time of preparation of these consolidated financial has been addressed by fixed competitor OT - Optima statements, there are a number of claims outstanding Telekom d.o.o to the Croatian Telecommunications Consolidated financial statements against the Group. In the opinion of the management, the Agency (Croatian Agency for Post and Telecommunica- settlement of these cases will not have a material adverse tions under the 2008 Law) in June 2006. The Agency effect on the financial position of the Group, except for has referred this matter to the Ministry of Sea, Tourism, certain claims for which a provision was established (see Transportation and Development to assess whether a Note 22) and except for claims where the outcome can- misdemeanour has been committed. The decision of the not be reliably determined. telecommunications inspector is still pending; however, no progress in this case occurred. It should be pointed VIPnet d.o.o. (a competitor) complained to the Competi- out that the penalty for violations of the Law on Telecom- tion Agency regarding Frame Agreements that T-HT and munications could amount to between 1% and 5% of the T-Mobile Hrvatska d.o.o. signed with their key and large annual Company turnover of the financial year preceding business clients that allegedly contain anti competitive the year in which the infringement was committed. A pen- clauses. The Agency has initiated proceedings for as- alty based on 1% of the turnover for the relevant period sessing the compliance of the Frame Agreements and would amount to HRK 50 million. Appendices thereto with the Law on Protection of Market Competition. The Group had delivered to the Agency all Cable operator B.net Hrvatska d.o.o. submitted a claim requested Frame Agreements and Appendices thereto against T-HT to the Competition Agency in April and July as well as the Subscriber Contracts dated 1 January 2008, requesting that the Competition Agency declares 2003 onwards. The Agency has initiated administrative abuse of dominant position by T-HT on the markets of proceedings for assessing whether the Company and leased lines and transmission of television programs. The T-Mobile Hrvatska d.o.o. have abused their dominant po- main arguments of B.net are related to abuse of T-HT’s sition by conclusion of the Frame Agreements. On 12 July dominant position on the relevant markets through follow- 2007, the Competition Agency made a decision stating ing forbidden practices: (i) predatory pricing, (ii) margin that the Company and T-Mobile abused their dominant squeeze and (iii) leverage of market power. position by conclusion of these Frame Agreements. The Agency ordered modification of some provisions in sev- T-HT argues that it does not have dominant position eral of the analyzed Frame Agreements. The Agency’s re- on the relevant markets and therefore there can be no quest has been fulfilled. However, the Group also used its abuse of dominant position. As an alternative argument, right to challenge the decision before the Administrative T-HT claims the price of MAXtv service is cost oriented, Court. In the decision the Agency, inter alia, stated that including both the cost of necessary infrastructure and it would initiate proceedings before the Misdemeanour the copyright cost of the content for MAXtv, as well as all Court against the Company and T-Mobile Hrvatska d.o.o. other related costs. for determining whether the misdemeanour occurred and, if yes, for assessing a penalty. Misdemeanour Following the last memo of the Competition Agency, the proceedings have been initiated. The Group submitted a Company had to deliver information on average total and first memo containing written defence. On 10 November variable costs and the structure of average total and vari- 2009 hearing at Misdemeanour Court was held, where able costs of providing MAXtv service for each program written statements of defence were read. The plaintiff package, as well as pricing policy of MAXtv. was ordered by the Court to submit data regarding total turnover of the Company from 2002-2006 and data on B.net had previously submitted a similar complaint to the market shares of the Company acquired on relevant Croatian Post and Electronic Communications Agency, markets. New hearing has not been scheduled yet. The where T-HT successfully defended its position, which penalty for violations of the Law on Protection of Market resulted in B.net’s request being rejected. However, direc- Competition could amount to up to 10% of the annual tion of the investigation and in particular the latest request 111

of the Competition Agency to provide detailed information company and responsible persons). Also, all profits T-HT on the cost of MAXtv service indicate there is an increased gained by committing the offence would be seized. risk of the Competition Agency initiating formal proceed- ings. Therefore, T-HT has engaged external legal support Pecuniary penalties (fines) prescribed by the Competition for this matter. Act are in the amount of up to 10% of the annual turnover of the undertaking in the year preceding the year in which In addition, Amis Telekom submitted a similar com- the offence was committed. Additionally, the responsible Consolidated financial statements plaint to the Competition Agency against T-HT and person may be fined by the Misdemeanour Court in a Iskon claiming that T-HT and Iskon concluded an range between HRK 50 - 200 thousand. agreement on the retail price of broadband internet access service. Amis Telekom also submitted that T-HT T-HT and T-Mobile Hrvatska d.o.o. are vigorously and its subsidiary, Iskon, abuse their dominant position defending all these situations. There is no history of on the market by providing their services under preda- significant settlements in Croatia under either the Com- tory prices, with the aim to eliminate competition. petition Law or imposed by misdemeanour courts. Due to the lack of relevant practice and due to the fact that In its written response, T-HT challenged the jurisdiction of the proceedings are still in progress, the Group is not the Competition Agency. Also, the Company argued that able to determine the likelihood of the possible out- there has been no prohibited agreement between T-HT come of these cases, however management believes and Iskon and that there can be no abuse of dominant po- that any settlement will be significantly less than the sition by T-HT and Iskon through predatory pricing, since maximum penalties outlined above. the prices of Amis Telekom are lower than the prices T-HT or Iskon are charging for their services on the relevant b) Billing interval and Consumer Act claims market of broadband internet access. T-HT also argued that there is no division of the relevant market between On 29 January 2004, the State Inspectorate of the T-HT and Iskon since they both provide broadband inter- Republic of Croatia (hereinafter: the State Inspectorate) net access on the whole territory of Republic of Croatia. started an investigation on the implementation of the As for the wholesale market, T-HT submitted that it applies provisions of the Consumer Protection Act regarding the equal prices to all operators, on a non-discriminatory and method of charging voice services. The management of transparent basis, in accordance with regulatory obliga- the Company believes that the substance of the above tions introduced by Telecommunications Act and the mentioned investigation was transferred to the Consumer Electronic Communications Act. Fraud Litigation with the claimants being the same.

On July 17th 2009, in both of these cases (initiated by However, there has been no development on this B.net and Amis Telekom), the Competition Agency started issue since mid 2004 and the Company believes that formal proceedings. the case falls under the statute of limitations. Besides, a new Bylaw on telecommunication services was In the formal proceedings, the Competition Agency shall brought into force as of 1 January 2005. This Bylaw undertake a detailed economic analysis, in order to deter- requires the Company to introduce at least one tariff mine whether an abuse exists. The results of the analysis package that will have a billing interval of 1 second. should be delivered to the Company in the form of State- Immediately after the Bylaw on telecommunication ment of Objections and T-HT should have an opportunity services has entered into force, T-HT had introduced to challenge the results. a new tariff system with a per second billing interval. This significantly decreases the risk as it does not In case that the Competition Agency finds that T-HT did prohibit tariff packages with intervals longer than 1 abuse its dominant position on the relevant markets, the second which was the subject of the State Inspec- Competition Agency would submit a request to initiate the torate investigation. proceedings before the Misdemeanour Court, in order to determine whether an offence was committed and subse- The Company is currently involved in legal proceed- quently to decide on the amount of pecuniary fines (for the ings for alleged breach of the Croatian consumer Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 112

law. The claimants are residential customers of the before the Zagreb Municipality Court based on the same Company (as well as consumer protection association) substance as adjudicated by the non-final Consumer and are contending that the Company’s monthly ac- Fraud Litigation judgment. Both T-HT and State Attorney cess charges in its consumer contracts are unjust and objected. The Company believes that individual claims in breach of the Consumer law. The claimants are also, cannot even be discussed while the substance stands similarly as in the above described case of the State under appeal within the Consumer Fraud Litigation. Consolidated financial statements Inspectorate investigation, contending the Company’s The Company’s lawyers remain of a firm belief that the billing interval of 60 seconds. judgment of the Zagreb Municipality Court from 12 April 2007 will not stand at the appeal-court. On 12 April 2007, the Municipal Court in Zagreb an- nounced a judgement against the Company and in favour c) Ownership claim of Distributive of the six claimants resulting in a potential settlement of Telecommunication Infrastructure (DTI) HRK 12 thousand for the period claimed for and including by the City of Zagreb interest to 30 June 2007. With respect to the ducts issue mentioned under Within the litigation and after delivery of the written Property, plant and equipment (Note 11), on 16 judgment, all of the litigants (Plaintiff - Consumer As- September 2008 the Company received a lawsuit sociation, Municipality State Attorney representing the filed by the Zagreb Digital City Ltd. branch of the Republic of Croatia and the Company) have submitted Zagreb Holding Ltd. (hereinafter: ZHZDG) against an Appeal against the Court of First instance before the Company. ZHZDG is claiming the ownership of the Zagreb County Court. the City of Zagreb over DTI on the area of the City of Zagreb and demanding a payment of HRK 120 million The Company has been informed that approximately plus interest. 42,000 consumers signed a collective petition in respect of this matter in 2003 and that it is possible that the Com- The suit is based on the legal acts adopted by the pany could potentially face many thousands of additional Administration and Assembly of the City of Zagreb claims from these consumers on a similar basis, although in the years 2006 and 2007 by which DTI has been it is anticipated by the Company’s legal advisors that declared a communal infrastructure owned by the many of these petitioners would be invalid. The maximum City of Zagreb. These acts have been challenged by exposure with respect to 42,000 petitioners could amount the Company before the Constitutional Court of the to approximately HRK 100 million, including interest. The RoC and the suit was filed in front of the Commercial exposure could be greater than this if additional consum- Court in Zagreb claiming that contracts concluded ers are able to join in the present claim, if the period in between ZHZDG and other operators based on legal respect of which claims may be brought is extended, or acts in question are to be declared invalid. These if the Company is required to pay additional interest than legal proceedings are still ongoing. currently envisaged. The Company had approximately 1,350,000 consumers at the time of the claim. The Company’s attorney in the case of the ZHZDG lawsuit who is also the representative of the Company The Company vigorously denies the validity of these in the ongoing proceedings in front of the Constitu- claims. It believes that it should win on appeal. Manage- tional and Commercial courts, is of the firm belief that ment and T-HT’s legal advisers consider that this claim is ZHZDG cannot succeed with its claim neither regards without merit and the Company considers it was charging DTI ownership determination nor regards the HRK 120 its consumers in accordance with its Concession Agree- million claimed payment, if the court decision will be ment in force at that time, as approved by the Govern- based on the positive legislation of the RoC. ment. Furthermore, tariffs were subsequently confirmed by the Regulator in April, 2007 without further comment. No adjustments have been made to these consolidated Since the judgment has been made, five members of financial statements relating to any of these matters. the Consumer Association filed an individual claims 113

29 Balances and transactions with related These transactions included the sending and receiv- parties ing of international traffic to/from these companies during year ended 31 December 2009 and 2008. The transactions specified in the table below Further, DTAG and T-Mobile Germany provided primarily relate to transactions with the compa- technical assistance to the Group of HRK 30 million nies owned by Deutsche Telekom AG (DTAG). (2008: HRK 36 million). The Group enters into transactions in the normal Consolidated financial statements course of business on an arm’s length basis.

The main transactions with related parties during 2009 and 2008 were as follows:

Revenue Revenue Expenses Expenses 2009 2008 2009 2008 Related party: HRK millions HRK millions HRK millions HRK millions Deutsche Telekom AG, Germany 23 24 8 13 HT Mostar, Bosnia and Herzegovina 43 47 75 73 T-Mobile, Germany 27 27 14 17 Others 52 64 36 57 Total international settlements 145 162 133 160 Deutsche Telekom AG, Germany - - 30 54 T-Systems Enterprise Services, Germany - - 14 4 Others - - 6 - Total intercompany services - - 50 58 T-Systems Enterprise Services, - - 3 - Germany Others - - 1 1 Total capital expenditure - - 4 1 Total related parties 145 162 187 219 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 114

The statement of financial position includes the following balances resulting from transactions with related parties:

Receivables Receivables Payables Payables 31 December 31 December 31 December 31 December 2009 2008 2009 2008 Consolidated financial statements Related party: HRK millions HRK millions HRK millions HRK millions Deutsche Telekom AG, Germany 4 5 2 1 HT Mostar, Bosnia and Herzegovina 8 16 13 20 T-Mobile, Germany 3 3 44 41 Others 21 16 79 78 Total international settlements 36 40 138 140 Deutsche Telekom AG, Germany - - 6 9 T-Systems Enterprise Services, - - 1 3 Germany Others - - 1 1 Total intercompany services - - 8 13 Total related parties 36 40 146 153

The Group operates in Croatia in the telecommunica- ing month is paid while any other member receives the tions market. As a result of Group’s strategic position amount of one average net salary of the employees within the Croatian economy, a portion of its business of the Company paid in the preceding month. DTAG is transacted with the Croatian Government, its depart- representatives do not receive any remuneration for ments and agencies and companies owned by the the membership in the Supervision due to a respective Croatian Government. policy of DTAG.

The Group provides telecommunications services In 2009, Group paid a total amount of HRK 0.8 million to the Government of Republic of Croatia, its depart- (2008: HRK 0.6 million) to the members of its Supervi- ments and agencies and companies owned by the Cro- sory Board. No loans were granted to the members of atian Government on normal commercial terms and the Supervisory Board. conditions, such as are no more favourable than those available to other customers. The telecommunications Compensation to key management personnel services provided to the Government of Republic of Croatia, its departments and agencies and companies In 2009 the total compensation paid to key manage- owned by the Croatian Government do not represent a ment personnel of the Group amounted to HRK 49 mil- significant component of the Group’s revenue. lion (2008: HRK 52 million). Compensation paid to key management personnel relates to short-term employee Compensation of the Supervisory Board benefits. Key management personnel include mem- bers of the Management Boards of the Company and As specified by the Company, the chairman of the Su- its subsidiaries, the Executive Board of T-Com and the pervisory Board receives remuneration in the amount operating directors of the Company, who are employed of 1.5 of the average net salary of the employees of the by the Group. Company paid in the preceding month. To the deputy chairman, the amount of 1.25 of the average net salary of the employees of the Company paid, in the preced- 115

30 Financial risk management objective provisions for impairment recognised at the statement of and policies financial position date. The Group is exposed to international service-based Additionally, the Group is exposed to risk through cash markets. As a result, it can be affected by changes in deposits in the banks. As at 31 December 2009 the Group foreign exchange rates. The Group also extends credit had business transactions with eight banks (2008: eight terms to its customers and is exposed to a risk of default. banks). With three banks (Zagrebačka banka d.d., Splitska Consolidated financial statements The significant risks, together with the methods used to banka d.d. and Privredna banka Zagreb d.d.) the Group manage these risks, are described below. The Group does had balances accounting for the almost exclusive amount not use derivative instruments either to manage risk or for of its total cash and deposits. The management of the risk speculative purposes. is focused on dealing with most reputable banks in foreign and domestic ownership in the domestic market and on a) Credit risk contacts with the banks on a daily basis. For all domestic banks with foreign ownership the Group received guar- The Group has no significant concentration of credit risk antees for deposits given from parent banks which have a with any single counter party or group of counterparties minimum rating of BBB+. with similar characteristics. The Group procedures are in force to ensure on a permanent basis that sales are made b) Liquidity risk to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit. The Group policy is to maintain sufficient cash and cash equivalents or to have available funding through an The Group does not guarantee obligations of other parties. adequate amount of committed credit facilities to meet its The Group considers that its maximum exposure is commitments for the foreseeable future. reflected by the amount of debtors (see Note 17) net of

Any excess cash is invested mostly in available-for-sale investments.

Trade and other payables Due in Due in Due in Due in Due in Total all amounts in HRK millions 0-30 31-60 61-90 91-120 >120 days days days days days

Year ended 31 December 2009 1,379 19 43 8 10 1,459 Year ended 31 December 2008 1,373 29 42 131 82 1,657

Other long-term liabilities on less than 3 to 12 1 to 3 3 to 5 > 5 Total all amounts in HRK millions demand 3 months months years years years

Year ended 31 December 2009 - - - 6 3 16 25

Year ended 31 December 2008 - - - 8 3 10 21 Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 116

c) Interest rate risk

The Group’s exposure to the risk of changes in The following table demonstrates the sensitivity to market interest rates relates primarily to the Group’s a reasonably possible change in interest rates, with available-for-sale investments, cash and cash all other variables held constant, of the Group’s equivalents and time deposits. profit before tax (through the impact on floating Consolidated financial statements rate investments).

Increase/decrease Effect on Effect on profit in basis points equity before tax HRK millions HRK millions

Year ended 31 December 2009 Croatian Kuna +100 7 26 -100 (7) (26) Euro +100 3 6 -100 (3) (6) Year ended 31 December 2008 Croatian Kuna +100 - 46 -100 - (46) Euro +100 - 7 -100 - (7) 117

d) Foreign currency risk A significant amount of deposits in the banks, available for sale investments and cash equivalents are made The Group’s functional currency is the Croatian Kuna in foreign currency, primarily in Euro. The purpose of (HRK). Certain assets and liabilities are denominated these deposits is to hedge foreign currency and foreign in foreign currencies which are translated at the currency denominated liabilities. prevailing middle exchange rate of Croatian National Bank at each statement of financial position date. The The following table demonstrates the sensitivity to a Consolidated financial statements resulting differences are charged or credited to the reasonably possible change in the Euro exchange statement of comprehensive income but do not affect rate, with all other variables held constant, of the short-term cash flows. Group’s profit before tax due to changes in the fair value of monetary assets and liabilities.

Increase/decrease Effect on profit before tax in Euro rate HRK millions Year ended 31 December 2009 +3% 26 -3% (26)

Year ended 31 December 2008 +3% 20 -3% (20)

e) Fair value estimation The fair value of securities included in available-for-sale The Group manages its capital structure and makes ad- investments is estimated by reference to their quoted mar- justments to it, in light of changes in economic conditions. ket price at the statement of financial position date. The To maintain or adjust the capital structure, the Group Group’s principal financial instruments not carried at fair may adjust the dividend payment to shareholders, return value are trade receivables, other receivables, long-term capital to shareholders or issue new shares. No changes receivables, trade and other payables. The historical cost were made in the objectives, policies or processes during carrying amounts of receivables and payables, including the years ended 31 December 2009 and 31 December provisions, which are all subject to normal trade credit 2008 (see Note 25). terms, approximate their fair values. f) Capital management

The primary objective of the Group’s capital management is to ensure that it supports its business and maximise shareholder value. The capital structure of the Group consists of equity attributable to shareholders, comprising issued capital, reserves and retained earnings. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 118

31 Financial instruments

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments:

Consolidated financial statements Carrying amount Fair value 31 December 31 December 31 December 31 December 2009 2008 2009 2008 HRK millions HRK millions HRK millions HRK millions

Financial assets Cash and cash equivalents 4,195 5,223 4,195 5,223 Time deposits 2 213 2 213 Available-for-sale investments, non-current 115 37 115 37 Available-for-sale investments, current 257 53 257 53

Financial liabilities Interest-bearing loans 17 17 17 17

Market values have been used to determine the fair value of listed available-for-sale financial assets. The fair value of loans has been calculated by discounting the expected future cash flows at prevailing interest rates.

32 Authorization for Services ously valid regulations can continue to provide services in accordance with the provisions of the new Law. Following and Applicable Fees HT d.d.’s prior notification on the provision of electronic The Group is party to the following Authorization for Ser- communication services as of 6 February 2009 and HA- vices, none of which are within the scope of IFRIC 12: KOM’s Certificate on the submission of the prior notifica- tion as of 9 February 2009, HT d.d. is entitled to provide a) Service authorization for the performance of the following electronic communication services: telecommunication services in a fixed network • Publicly available telephone service in the fixed electronic On 1 July 2008 a new Law on Electronic Communica- communications network, tions, in compliance with EU framework, entered into • Lease of electronic communication network and/or lines force and introduced general authorization for all elec- • Transmission of image, voice and sound through tronic communications services and networks. It should electronic communication networks (which excludes be noted that, as under the EU framework, individual services of radio diffusion), licenses are granted for certain modalities of usage of • Value added services, radio-frequency spectrum. • Internet access services, • Voice over Internet protocol services, The new Law on Electronic Communications terminated • Granting access and shared use of electronic the Concession Agreement valid until then. Additionally, communications infrastructure and associated facilities, it provided that a person/entity authorized under previ- • Other services. 119

Pursuant to the Law on Electronic Communica- Following above mentioned the T-Mobile is now en- tions, HAKOM and the relevant Ministry of the Sea, titled to provide services and perform its rights based Transport and Infrastructure passed new by-laws on on general authorisation and licenses for use of the applicable fees which entered into force on 1 January radio frequencies. 2009. These regulations prescribe the calculation and the amount of fees HT d.d. is obliged to pay for the On 1 January 2009 new ordinances entered into use of address, numbers and assignment and usage force, regulating new fees structure and amounts for Consolidated financial statements of radio-frequency spectrum. These fees are paid one the usage of frequency and numbering resources year in advance. and for financing Agency’s other tasks and they are applicable on the T-Mobile starting on that date. As In addition to the above mentioned fees, HT d.d. is per new method of calculation, the fee for the right obliged to pay a fee for HAKOM’s other operations of radio spectrum usage has been considerably in the amount of 0.32% of the total annual gross rev- increased; it covers the usage of unpaired radio enues realized in the previous year from the provision spectrum 1MHz bandwidth, using the formula in of electronic communication networks and services. which the parameters are spectrum price unit, spec- trum congestion coefficient and population cover- Furthermore, pursuant to the Law on Audio-visual age coefficient. Furthermore, for each year of radio Services, which entered into force in July 2007, the spectrum usage, a licence fee is paid, amounting Company is obliged to pay 1% of the annual gross 50.000.000 HRK in the first year of the new licence, revenues realized from the provision of audio-visual or respectively 0.5% of total annual revenue in sec- services, to the state budget of the Republic of ond and every other year of the licence validity. The Croatia as a contribution to the funding of National annual fee per one mobile radio station subscriber Programme for Promotion of Audio-visual Works. is 120 HRK per year. The radio spectrum usage fee which is paid to Agency amounts 241,809.00 HRK Additionally, in accordance with HAKOM’s decision of per MHz and the fee for carrying out the other tasks 28 November 2005 HT d.d. is designated as an Uni- of the Agency is 0.32% of total annual revenue. versal electronic communication services provider for a period of five years, commencing from the adoption Licences for the use of radio frequency in GSM system of the Decision. issued based on the old Telecommunications Act continued to be valid until 16 September 2009 but b) Service authorization for Telecommunications on 3 March 2009 the Agency passed the decision on Services with the usage of radio frequency harmonization of the conditions for assignment and spectrum in the global mobile network use of radio frequencies in the licences in accordance system - GSM with the provisions of the ECA.

Pursuant to this Agreement, T-Mobile had the Before the expiration of the above-mentioned right to develop and operate telecommunications licences, in accordance with the provision of ECA, services with usage of radio frequency spectrum the T-Mobile submitted a request for issuing of new in the global mobile network system - GSM until licence for the use of radio spectrum, and after public 18 February 2009. discussion has been performed, the Agency issued the new technological neutral licence for the use of Initial Concession duration as defined in this Agree- radio spectrum for the period from 17 September ment was 10 years starting on 16 September 1999. 2009 to 18 October 2024. Whereas the Agency issued a certificate confirming the submission of the prior notification in accordance Based on the licences for the use of radio frequencies with the Electronic Communications Act (ECA) the T-Mobile is obliged to ensure the coverage of at least provisions this Agreement ceased to be valid on 18 95% of the population of the Republic of Croatia and at February 2009. least 75% of the territory of the Republic of Croatia. Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 120

c) Service authorization for frequencies for provision 33 Share-based payment transactions of public telecommunications services with the usage of radio frequency spectrum in third generation mobile Various mid-term incentive plans (MTIPs) exist at T-HT’s network system UMTS parent Group Deutsche Telekom AG (DTAG) and on T-HT Group level to ensure competitive total compensation for Pursuant to this Agreement, T-Mobile had the right to members of the Management Board, senior executives Consolidated financial statements develop and use a public mobile telecommunications net- and other beneficiaries. The plans promote the medium work and to operate public telecommunications services and long-term value enhancement of the Group, thus in the third generation system UMTS on the territory of the aligning the interests of management and shareholders. Republic of Croatia until 18 February 2009. MTIPs have been issued by DTAG on an annual basis since 2004. Certain members of the Board of HT d.d. The initial Concession duration as defined in this Agree- participate as beneficiaries of DTAG’s MTIP. ment was 20 years, starting from 18 October 2004. Whereas the Agency issued a certificate confirming the DTAG’s MTIP is generally set up as a cash-based plan submission of the prior notification in accordance with the linked to two equally weighted, share-based perfor- ECA provisions this Agreement ceased to be valid on 18 mance parameters - one absolute and one relative. February 2009. If both performance targets are achieved, then the total amount earmarked as an award to the benefi- Following that T-Mobile is now entitled to provide services ciaries by the respective employers is paid out; if one and perform its rights based on general authorisation performance target is achieved, 50 percent of the and license for use of the radio frequencies spectrum amount is paid out, and if neither performance target Following the initial concession fee paid in the amount is achieved, no payment is made. of HRK 132 million, T-Mobile paid an annual concession fee of 1% of total revenues realised in the UMTS mobile The absolute performance target is achieved if, at the network in the period between 2005 and 2007. In Decem- end of the individual plans, DTAG share price has risen ber 2008 the Agency issued the invoice for the fifth year by at least 30 percent compared with its share price at of this Agreement’s validity, decreased in accordance the beginning of the plan. The benchmark for the as- with the amendment to the relevant bylaw, thus T-Mobile sessment is the non-weighted average closing price of paid the amount of 0.5% of total annual revenue realised DTAG shares in XETRA trading at the Frankfurt Stock in the UMTS network. T-Mobile also had to pay until end Exchange during the last 20 days prior to the begin- of year 2008 the annual radiofrequency fee of HRK 5 mil- ning and end of the plan. lion per one assigned frequency block of 5 MHz in UMTS network (altogether 4 blocks). The relative performance target is achieved if the total return of the DTAG share had outperformed the Dow The secondary legislation that has been mentioned in Jones EURO STOXX Total Return Index on a percentage respect to the GSM concession by which the new fees basis during the term of the individual plan. The bench- structure and amounts were prescribed, applies in the mark is the non-weighted average of DTAG shares (based same manner to UMTS network usage. on XETRA closing prices) plus the value of dividends Licences for the use of radio frequency in the UMTS paid and reinvested in DTAG shares, bonus shares etc., system issued based on the old Telecommunications and the non-weighted average of the Dow Jones EURO Act continued to be valid until 18 October 2024, but on 3 STOXX Total Return Index during the last 20 trading day March 2009 the Agency passed the decision on harmo- prior to the beginning and end of the plan. nization of the conditions for assignment and use of radio frequencies defined in the licences in accordance with Based on the finding of the Supervisory Board Gen- the provisions of the ECA. eral Committee, the Management Board will establish whether the target has been achieved for DTAG and all Based on the licence for the use of radio frequencies participating companies as a whole and will announce T-Mobile is obliged to ensure coverage of at least 50% of this decision. The aforementioned targets have therefore the population of the Republic of Croatia in the period of 5 been applied to all plans issued to date by DTAG. years from the grant of the concession. 121

The MTIP 2004, 2005 and 2006 expired on 31 Decem- For MTIP 2008, both targets are equally weighted and ber 2006, 31 December 2007 and 31 December 2008 cannot be changed during the MTIP duration. While the respectively. While the performance targets were not first target is based on a fixed EBITDA multiple, the other met either by the MTIP 2004 or MTIP 2005 and accord- target is based on the comparison of the share price ingly no payments were made, for MTIP 2006 HRK 0.2 movement compared to the complex return index. MTIP million was paid out to the Group’s participants. As of the 2009 also has two targets which are equally weighted reporting date, the only DTAG MTIP in which the Group’s and cannot be changed during the MTIP duration. In Consolidated financial statements employees are still participating is MTIP 2007 which has contrast to MTIP 2008, both targets are linked to the expired on 31 December 2009. Until the reporting date, development of the Company’s share price. One target the Group has not received any information by DTAG on is based on the increase of the share price by a certain the final decision with respect to the MTIP of 2007. How- percentage, the second target is related to the share price ever, respective amounts are expected to be immaterial movement compared to the complex return index. for the Group. If only one target of the Group’s MTIPs is reached, Additionally, the Group is remunerating its key employees the participants receive 50 percent of the targeted with its own mid-term incentive plan (MTIP 2008, MTIP incentive. The incentives themselves consist of 15 2009) independent from the aforementioned plans is- percent, 20 percent or 30 percent of the participants’ sued by DTAG. individual annual salary as contracted on 1 January 2008 for MTIP 2008 and 20 percent or 30 percent of The duration of MTIP 2008 covers the period from 1 the participants’ individual annual salary as contracted January 2008 to 31 December 2010 while MTIP 2009 on 1 January 2009 for MTIP 2009, depending on the covers the period from 1 January 2009 to 31 December management level of the participant and according to 2011. The payment of the awarded sum is subject to the the Supervisory Board decision. Participants’ indi- achievement of two share value based performance vidual annual salary is defined as the annual amount targets. Upon expiry of the term of the plan, the Supervi- of total fixed salary and the amount of variable salary sory Board of the Company shall determine whether each in case of a 100 percent target achievement. of the targets has been achieved. Based on the findings of the Supervisory Board, the Management Board shall determine and announce the level of target achievement.

For the reporting period, all gains and expenses out of changes of the related provisions for all MTIP plans recognised for employee services received during the year are shown in the following table:

2009 2008 HRK millions HRK millions Expenses for providing for cash-settled share-based payment transactions 5 - Gains arising from cancellation of provision for cash-settled share-based payment 1 3 transactions Notes to the consolidated financial statements (continued) For the year ended 31 December 2009 122

34 Auditor’s fees

The auditor of the Group’s financial statements, Ernst & Young d.o.o., has rendered services of HRK 6 million in 2009 (2008: HRK 4 million). Ser- vices rendered in 2009 and 2008 relate to audits Consolidated financial statements and reviews of the financial statements.

35 Events after reporting period

On 29 October 2009 a Merger Agreement was signed by HT d.d. and T-Mobile and upon the deci- sion of the Assembly of the transferor company by which the merger was approved, and the merger was entered into the court register of the Commer- cial Court in Zagreb on 31 December 2009.

By entry of the merger into the court register, the transferee company, HT d.d. became the universal legal successor of the transferor company and thereby entered into all legal relationships of the transferor company, whereby T-Mobile ceased to exist with the expiry of 31 December 2009 as the day of the entry in the court register of the merger i.e. did not exist on 1 January 2010. Disclaimer 123

This document does not constitute or form part of any current views, expectations or beliefs concerning offer or invitation to sell or issue, or any solicitation of future events. Such statements are subject to risk any offer to purchase or subscribe for, any securities and uncertainties, most of which are difficult to of the Company nor should they or any part of them or predict and are generally beyond Company’s control. the fact of their distribution form the basis, or be relied If these or other risks and uncertainties materialize, on in connection with, any contract or investment or if the assumptions underlying any of these decision in relation thereto. Statements prove incorrect, Company’s /Group’s actual results may be materially different from those The third party information contained herein has been expressed or implied by such statements. Company obtained from sources believed by the Company to can offer no assurance that its expectations or be reliable. Whilst all reasonable care has been taken targets will be achieved. to ensure that the facts stated herein are complete and accurate and that the opinions and expectations In addition, some key performance indicators utilized contained herein are fair and reasonable, no by the Company (non-IFRS measures, such as representation or warranty, expressed EBITDA) serve as additional indicators or implied, is made by the Company or its advisors, of the Group’s operating performance and may be with respect to the completeness or accuracy of any calculated differently by other companies operating information and opinions contained herein. in the sector. However such measures are not replacement for measures defined and required This document contains certain forward looking under IFRS. Therefore the non-IFRS measures and statements with respect to financial conditions, results key performance indicators used in this document of operations and business of the Group. These may not be directly comparable to those forward-looking statements represent the Company’s of the Group’s competitors. Index 124

ADSL III, 9, 32, 33, 42, 43, 50, 64, 65, 88

ASSET II, 24, 38, 39, 62, 63, 65, 66, 68, 70, 72, 73, 75, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 95, 96, 97, 98, 99, 101, 102, 108, 109, 117, 118

ATM 11, 51, 88

BALANCE SHEET II, 63

BROADBAND IV, 9, 10, 20, 21, 27, 32, 33, 35, 37, 43, 44, 50, 63, 64, 65, 111

CAPITAL II, 9, 10, 13, 14, 21, 28, 38, 39, 63, 65, 66, 74, 76, 85, 90, 91, 98, 103, 108, 109, 113, 117

COMPANY IV, 8, 11, 13, 14, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 34, 35, 39, 51, 52, 56, 58, 59, 69, 72, 77, 84, 95, 98, 99, 101, 108, 110, 111, 112, 114, 119, 121, 122, 123

CONCESSION 34, 71, 85, 96, 112, 118, 119, 120

CONSOLIDATED 5, 22, 25, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122

DATA III, IV, 11, 22, 32, 33, 34, 35, 43, 44, 48, 49, 50, 51, 64, 83, 85, 88, 89, 90, 91, 95, 97, 98, 107, 110

DEPRECIATION 62, 63, 64, 65, 66, 72, 75, 85, 90, 91, 92, 94, 97

DEUTSCHE TELEKOM 11, 14, 20, 26, 27, 59, 77, 99, 113, 114, 120

DIAL-UP III, 43, 44, 64

DIVIDEND 9, 13, 14, 25, 63, 75, 76, 84, 88, 94, 101, 108, 117, 120

EARNINGS 14, 24, 63, 72, 74, 76, 80, 95, 108, 117

EMPLOYEES II, 10, 11, 19, 26, 28, 38, 39, 52, 53, 56, 57, 62, 77, 93, 106, 109, 114, 121

FGSM III, 42

FINANCING 63, 75, 85, 119

FRAME RELAY 11, 50, 88

GROUP II, IV, 5, 8, 9, 10, 11, 17, 22, 25, 27, 31, 32, 33, 34, 36, 37, 38, 39, 42, 43, 51, 52, 53, 56, 57, 58, 59, 61, 62, 63, 64, 68, 69, 70, 71, 72, 74, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 95, 97, 98, 99, 100, 101, 106, 107, 108, 109, 110, 111, 113, 114, 115, 116, 117, 118, 120, 121, 123

GSM 11, 17, 36, 97, 119, 120 125

HT MOSTAR 113, 114

HUMAN RESOURCES 5, 17, 26, 27, 31, 52

INCOME 5, 14, 24, 32, 56, 62, 63, 65, 67, 69, 72, 73, 74, 75, 76, 78, 80, 84, 86, 87, 88, 89, 90, 91, 93, 94, 95, 101, 106, 107, 117

INTERNET III, IV, 9, 11, 32, 33, 37, 38, 42, 43, 44, 48, 49, 50, 58, 62, 64, 77, 88, 89, 90, 91, 111, 118

INVESTMENT 8, 10, 12, 21, 38, 39, 50, 57, 63, 65, 72, 73, 75, 77, 80, 82, 83, 84, 85, 86, 88, 90, 91, 97, 100, 101, 102, 103, 115, 116, 117, 118, 123

IPO 11

ISDN III, 42

ISKON IV, 11, 32, 34, 35, 43, 64, 77, 111

LICENCES 85, 96, 97, 119, 120

MANAGEMENT 5, 7, 8, 9, 10, 14, 16, 17, 18, 20, 21, 22, 23, 24, 25, 26, 27, 28, 32, 37, 38, 39, 50, 51, 52, 53, 58, 59, 68, 69, 70, 71, 77, 78, 83, 84, 85, 88, 89, 97, 99, 103, 108, 110, 111, 112, 114, 115, 117, 120, 121

MAXadsl 33, 58

MAXtv 9, 10, 32, 33, 37, 38, 43, 50, 58, 64, 110, 111

NETWORKS III, 9, 10, 11, 33, 34, 35, 36, 38, 44, 118, 119

ONLINE 88, 107

OPERATOR III, 13, 32, 33, 34, 35, 39, 43, 44, 50, 58, 59, 64, 87, 110, 111, 112

ORGANIZATION 5, 8, 10, 21, 22, 31, 32, 38, 39, 49, 52, 53, 56

POST PAID IV, 87

POTS III, 42

PRE PAID IV, 87

REDUNDANCY 62, 63, 72, 74, 89, 93

RESTRUCTURING 83

REVENUE II, III, IV, 5, 9, 22, 24, 32, 33, 36, 42, 43, 44, 51, 61, 62, 63, 64, 65, 66, 72, 79, 80, 81, 83, 84, 85, 87, 88, 89, 90, 91, 92, 94, 95, 101, 102, 113, 114, 119, 120

ROAMING 87 126

SERVICES III, IV, 9, 10, 11, 12, 20, 21, 25, 26, 32, 33, 34, 35, 36, 37, 38, 39, 42, 43, 44, 48, 49, 50, 51, 56, 57, 59, 62, 64, 65, 66, 71, 72, 80, 81, 85, 87, 88, 89, 90, 91, 92, 93, 95, 100, 101, 107, 111, 113, 114, 118, 119, 120, 121, 122

SHARES IV, 8, 11, 12, 13, 14, 15, 20, 21, 25, 27, 57, 82, 95, 99, 108, 110, 117, 120

SIMPA 48, 49

SMS III, 9, 33, 35, 36, 44

STRATEGY 5, 10, 17, 21, 26, 31, 37, 38, 50, 52, 56, 64

SUPERVISORY BOARD 5, 7, 8, 10, 14, 17, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 77, 114, 120, 121

TARIFF 21, 35, 38, 42, 48, 49, 87, 111, 112

TAX 9, 10, 12, 13, 18, 32, 39, 65, 72, 73, 74, 75, 84, 85, 86, 87, 90, 91, 93, 94, 95, 103, 106, 116, 117

T-COM III, IV, 5, 8, 9, 11, 17, 20, 21, 27, 31, 32, 38, 39, 41, 42, 43, 44, 49, 51, 53, 58, 61, 62, 63, 64, 65, 88, 89, 90, 91, 103, 114

T-HRVATSKI TELEKOM 11, 17

T-HT GROUP II, IV, 5, 11, 22, 25, 32, 33, 37, 51, 56, 61, 62, 63, 120

T-MOBILE IV, 5, 8, 9, 10, 11, 14, 16, 17, 21, 22, 24, 27, 31, 32, 33, 34, 35, 36, 38, 39, 44, 47, 48, 49, 50, 51, 53, 57, 58, 59, 61, 62, 63, 65, 66, 70, 87, 89, 90, 91, 110, 111, 113, 114, 119, 120, 122

tportal 9, 37, 43, 44, 58

UMTS 11, 50, 85, 97, 120

VPN III, 44, 64, 88 127 HT-Hrvatske telekomunikacije d.d. Savska cesta 32 10000 Zagreb, Croatia www.t.ht.hr