Annual Report 2012

Annual Report 2012

Content 5

Financial Highlights Operating Statistics

Introduction Letter to Shareholders

Corporate Profile Content Investor Information Management Board Supervisory Board Supervisory Board’s Report Corporate Governance Code Compliance Statement

Business Review 2012 Croatian Telecommunications Market Overview Regulatory Environment Group’s Strategy Organization of the Group Business Units Network and Information Technologies

Corporate Responsibility Key areas of Group’s CR strategy Responsibility to society Responsibility to employees Responsibility to customers Responsibility to suppliers Responsibility to evironment Corporate responsibility in subsidiaries

Financial Review 2012 T-HT Group Financial Results Analysis of Segments Results

Consolidated Financial statements General information Auditors’ report Consolidated income statement Consolidated balance sheet Consolidated cash flow statement Consolidated statement of recognised income and expense Notes to the consolidated financial statements 6

Financial Highlights

T-HT GROUP Financial Highlights Jan - Dec Jan - Dec % of change in HRK million 2012 2011 A12/A11 Revenue 7,456 8,067 -7,6% EBITDA before exceptional items 3,520 3,832 -8.1% Exceptional items 144 162 -11.1% EBITDA after exceptional items 3,376 3,670 -8.0% EBIT (Operating profit) 2,050 2,222 -7.7% Net profit after minority interest 1,696 1,811 -6.4% EBITDA margin before exceptional items 47.2% 47.5% -0.3 p.p. EBITDA margin after exceptional items 45.3% 45.5% -0.2 p.p. EBIT margin 27.5% 27.5% 0.0 p.p. Net profit margin 22.7% 22.5% 0.3 p.p. % of change Balance Sheet At 31 Dec At 31 Dec 2012 2011 A12/A11 Total non current assets 7,858 7,549 4. 1% Total current assets 5,254 5,675 -7.4% TOTAL ASSETS 13,113 13,224 -0.8% Total issued capital and reserves 10,899 11,019 -1.1% Total non current liabilities 279 322 -13.5% Total current liabilities 1,935 1,883 2.8% TOTAL EQUITY AND LIABILITIES 13,113 13,224 -0.8% Jan - Dec Jan - Dec % of change Cash flow 2012 2011 A12/A11 Net cash flow from operating activities 2,982 3,050 -2.2% Net cash flow from investing activities -1,717 -758 -126.7% Net cash flow from financing activities -1,825 -1,874 2.6% Cash and cash equivalents at the end of period 3,146 3,704 -15.1% CAPEX 1,180 938 25.8% CAPEX / Revenue ratio 15.8% 11.6% 4.2 p.p.

At 31 Dec At 31 Dec % of change 2012 2011 A12/A11 ROE 15.5% 16.4% -0.9 p.p. ROCE 18.3% 19.6% -1.3 p.p. Number of employees (FTEs) 5,780 6,032 -4.2% 7

Operational Highlights Operational Highlights Jan - Dec Jan - Dec % of change Key operational data 2012 2011 A12/A11 Mobile subscibers in 000 Number of subscribers 2,326 2,418 -3.8% - Residential 1,859 1,964 -5.4% - Business 467 454 2.9% Number of postpaid subscribers 1.011 1,035 -2.3% - Residential 578 581 -0.6% - Business 433 454 -4.6% Number of prepaid subscribers 1,315 1,383 -4.9% Minutes of use (MOU) per average subscriber 1) 146 128 13.7% - Residential 121 97 25.5% - Business 244 271 -9.8% Blended ARPU (monthly averaqe for the year in HRK) 91 94 -3.0% - Residential 74 74 0.0% - Business 160 184 -13.0% Blended non-voice ARPU (monthly average for the year in HRK) 2) 28 26 9.0% SAC per gross add in HRK 80 122 -34.6% Churn rate (%) 3.2 2.7 0.4 p.p. Penetration (%) 3) 116.7 119.9 -3.2 p.p. Market share of subscribers (%) 3) 46.5 47.0 -0.5 p.p. Data subscribers 862 661 30.5% Smartphone subscribers (%) 4) 22.6 15.0 7.7 p.p. Smartphones sold (%) 5) 52.0 - -

1) 2011 restated due to change in „one company view” reporting (internal minutes between former segmentsT-Com and T-Mobile are excluded) 2) 2011 restated due to change in reporting of bundle tariffs 3) Source: published VIPnet’s quarterly report for 4Q 2011 and Tele2’s quarterly report for 4Q 2011. Number of subscribers for VIPnet and Tele2 for 4Q 2012 are internally estimated 4) Number of subscriber using a smartphone handsets in total number of mobile subscribers 5) Number of smartphones sold in total number of handsets sold (postpaid only) 8

Operational Highlights Operational Highlights Jan - Dec Jan - Dec % of change Key operational data 2012 2011 A12/A11 Fixed mainlines in 000 Fixed mainlines- retail 1,208 1,260 -4. 1% - Residential 1,032 1,068 -3.3% - Business 176 193 -8.7% Fixed mainlines - wholesale (WLR) 1) 104 124 -16.1% - Residential 85 109 -21.4% - Business 19 15 23.0% Total Traffic (mill, of minutes) 2,405 2,790 -13.8% - Residential 1,851 2,083 -11.2% - Business 554 706 -21.5% ARPA voice per access (monthly average for the year in HRK) 2) 115 121 -5.1% - Residential 97 100 -3.2% - Business 216 238 -9.0% IP mainlines/customers in 000 Broadband access lines - retail 3) 633 647 -2.1% - Residential 526 539 -2.4% - Business 107 107 -0.4% Broadband access lines - wholesale 4) 25 4 485.2% - Business 25 4 485.2% TV customers 364 341 6.9% - Residential 344 321 7.0% - Business 21 19 6.1% thereof IPTV 332 323 2.8% - Residential 312 304 2.8% - Business 20 19 3.9% thereof Cable TV 6 6 0.1% - Residential 6 6 0.1% - Business 0 0 -1.3% thereof Satellite TV 26 12 121.4% - Residential 26 12 121.1% - Business 1 0 131.0% 9 Operational Highlights Jan - Dec Jan - Dec % of change Key operational data 2012 2011 A12/A11 Fixed-line customers 1 1 3.2% VPN connection points 4 4 1.4% Broadband retail ARPA (monthly averaae for the year in HRK) 5) 126 123 2.4% - Residential 124 120 3.0% - Business 134 134 0.0% Data lines in 000 Total data lines 5 5 -3.0% Wholesale customers in 000 0 0 0 CPS (Carrier Pre-Selection) 32 96 -66.7% NP (Number portability) users/number 646 514 25.7% ULL (Unbundled Local Loop) 162 148 9.1%

1) Includef OTS, FGSM, ISDN ; 201 1 and Budget restated according new definition = pay from total number of mainlines 2) 2011 and Budget restated in line with 2012 reporting ; Payphones excluded 3) Includes ADSL, FTTH and Naked DSL 4) lncludes Naked Bitstream + Bitstream 5) 2011 restated due to subsequent split of Iskon revenues from internet bundle package

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 - d.d., together with its subsidiaries. References to ‘‘HT’’ or the ‘‘Company’’ are to the Company - Hrvatski Telekom d.d. References to ‘‘Iskon’’ are to the Company’s wholly-owned subsidiary, Iskon Internet d.d. References to ‘‘Combis” are to the Company’s wholly-owned subsidiary, Combis, usluge integracije informatičkih tehnologija d.o.o. References in this publication to ‘‘Agency’’ are to the Croatian National Regulatory Authority, the Agency for Post and Electronic Communications. Presented financial figures may slightly differentiate from Consolidated Financial statements due to rounding principle (in Consolidated Financial statements all mathematic operations are performed with numbers without decimal places).

Introduction

Letter to Shareholders Corporate Profile Investor Information Management Board Supervisory Board Supervisory Board’s Report Corporate Governance Code Compliance Statement 12 Introduction Letter ToShareholders in an 8.0% drop in EBITDA, which totaled HRK 3,520 million. in an8.0%dropEBITDA,which totaledHRK3,520million. Despite successfulcost-cutting, thefallinrevenueresulted a reductioningovernmentcontracts. consequence ofthepersistentrecessioninCroatiaand revenue decreasedlargelyduetolowerICTasa both inthemobileandfixednetwork.Otherservice however, duetoincreaseduseofbroadbandservices voice services.Revenuefromnon-voiceservicesrose, million, primarilyasaresultofreducedrevenuefrom performance. Revenuedroppedby7.6%toHRK7,456 factors inevitablyimpactedT-HT’sbusinessand As weindicatedduringthecourseofyear,these sure onthetelecommunicationsmarket. framework andintensecompetitionputsignificantpres- insolvency continued.Atthesametime,regulatory the declineinGDPandincreasecorporatesector backdrop. Unemploymentcontinuedtoincrease,whilst again conductedagainstachallengingeconomic In 2012CroatianTelecom’sbusinessoperationswere Dear Shareholders, expanded our4Gnetworkcoverage, particularlyin work. Duringthecourse oftheyear,wecontinuously In March,theGrouplaunched a commercialLTEnet- service quality. communications andICTsolutionsahighlevelof to arangeofactivitiesaimedatprovidingadvanced has maintaineditsmarketleadershippositiondue In thefaceofthistoughenvironment,Group of regulatorychanges. an increaseonthewholesalelevelduetoimpact recorded adecreaseinretailcustomernumbersand customers continuestogrow,whileDSLserviceshave base inthemobilesegment.ThenumberofIPTV time, however,weincreasedourbroadbandcustomer led toafallinmobiletelephonycustomers.Atthesame and theconsequentdeclineinpersonalconsumption quality servicesinthissegment.Economicconditions customer needs,wesuccessfullyofferedattractive, tive pressures.Bymaintainingaconsistentfocuson telecommunications offersbroughtadditionalcompeti In ahighlycompetitivefixed-telephonymarket,bundled - ment to corporate responsibility very seriously. ment tocorporateresponsibility veryseriously. of reportingsupportsthefactthat wetakeourcommit- (GRI) guidelines.Thisapplicationofthehigheststandard applying forthefirsttimeGlobalReportingInitiative erate. In2012,wereportedonouractivitiesinthisareaby by aresponsibleapproachtothesocietyinwhichweop- of ourbusinessoperations.Ourischaracterized Corporate socialresponsibilityremainsakeyconstituent Telecom Inc.adividendofHRK20.51pershare. Board proposedtotheGeneralAssemblyofCroatian position, theManagementBoardandSupervisory In lightoftheGroup’sperformancein2012anditscash year, whilstthevalueofT-HT’sshareswas18.5%lower. year, theCROBEXindexremainedflattoprevious due tothedifficulteconomicconditions.Atendof StockExchange,whereturnoveralmosthalved T-HT’s shareswerebyfarthemosttradedon convergence withtheICTandmediasectors. the evolutionoftelecommunicationsindustryandits the Group’sstrategicpositioningasamarketleaderin were launchedthat,inyearstocome,willbecrucialfor a yearduringwhichnumeroustransformationprojects For T-HT,2012willcometobeseenasakeyperiod- the 811-821/852-862Mhzrange. the costofsecuringa4Gwirelessfrequencylicensein transformation oftheGroup’sinfrastructure,aswell million, primarilyduetothefurtherdevelopmentand Capital expenditureincreasedby25.8%toHRK1,180 they aretoday. Cloud, ataccessspeedsmanymultipleshigherthan telco services(voice,IPTV,Internetaccess),fromthe concept providesallservices,includingthetraditional sent thepilotnetworkoffuture-TeraStream.This In December,T-HTwasthefirstinDTGrouptopre- ers hadbeenredirectedontothenewinfrastructure. structure -bytheendof2012,almost30%custom telecommunications networkstoafullyIP-basedinfra We alsomadesignificantprogressinmigratingour populated areas. work availabletocustomersinsomeruralandsparsely large urbanareas.Attheendof2012,wemadethisnet- - Supervisory Boardfortheircooperationin2012. and tomycolleaguesfromtheManagementBoard loyees oftheGroupfortheircommitmentandloyalty they haveplacedinus;mythanksalsogototheemp- I wouldliketothankallourshareholdersforthetrust to allourcustomers. and expertise,enablingustosupplytoplevelservices we willcreate,acquireandapplythelatesttechnology ers’ lives.Inthisway,andbybeingadigitalcompany, content toimprovethequalityofourresidentialcustom focusing oncloud-basedservices,entertainmentand ers andtoprovideintegratedcommunicationservices munications andICTservicestoourbusinesscustom- We willcontinuetoprovidereliableintegratedcom- quality servicesandtoretainitsmarket-leadingposition. In theyearsahead,T-HTaimstocontinuedelivertop and thereductionofgreenhousegasemissions. environmental protection,responsibleuseofresources gration intotheinformationandknowledgesociety networking opportunitiesinprivatelifeandwork,inte- sibility arebasedaroundexcellentcommunicationand A broadrangeofactivitiesintheareasocialrespon to thewelfareofoursociety. This offersopportunitiestomakeastrongcontribution we arepartofasectorthatisdevelopingextremelyfast. This isadditionallymotivatedbyourawarenessthat Management Board President ofthe Ivica Mudrinić - - 13 Introduction 14 Introduction LTE mobiletelephonenetworks. net, IP/MPLS,ATM),operatingwithGSM,UMTSand data transmissionservices(leaseoflines,Metro-Ether- the GroupalsoprovidesInternet,IPTVandICTservices, traffic, aswellfixednetworksupplementaryservices), telephony services(fixedlineaccessand Republic ofCroatia.Inadditiontotheprovisionfixed of electroniccommunicationsnetworkswithinthe communications servicesanddesignconstruction sidiary companiescomprisetheprovisionofelectronic The coreactivitiesofHrvatskiTelekomd.d.anditssub- data services. telephony servicesaswellwholesale,Internetand tions servicesinCroatia,offeringfixedandmobile T-HT Groupistheleadingprovideroftelecommunica- At aGlance Corporate Profile with a51%stake. in HTd.d.andthusbecamethemajorityshareholder 25 October2001DTAGpurchasedafurther16%share of Croatiasolda35%stakeinHTd.d.toDTAG,andon 65/99 andNo.68/01),on5October1999,theRepublic Hrvatske telekomunikacijed.d.(OfficialGazetteNo. Pursuant tothetermsofLawonPrivatization Company commencedoperationson1January1999. (HT d.d.)andHP-Hrvatskapoštad.d.(HPd.d.).The stock companies,HT-Hrvatsketelekomunikacijed.d. p.o.) wasseparatedandtransferredintotwonewjoint former HPT-Hrvatskapoštaitelekomunikacije(HPTs mmunications, bywhichthebusinessoperationof mmunications intoCroatianPostandTeleco- the ActonSeparationofCroatianPostandTeleco- in theRepublicofCroatia,pursuanttoprovisions AG (DTAG).Itwasincorporatedon28December1998 stock company,majorityownedbyDeutscheTelekom Hrvatski Telekomd.d.(HTortheCompany)isajoint History andIncorporation of Croatiatransferred7%itssharesinHTd.d.tothe On 17February2005,theGovernmentofRepublic operations businessunit,T-Mobile. wholesale, Internetanddataservices;themobile operations businessunit,T-Com-whichalsoprovided separate businessunitsoftheGroup:fixednetwork followed bythecreationoftrademarksfortwo and Businessunits.InadditiontheCompany’sregiste- llowing whichtheGroupwasorganisedintoResidential d.d. Themergercameintoeffecton1January2010,fo- In October2009,T-MobileCroatiawasmergedintoHT and institutionalinvestors38.5%intotal. reduced itsholdingfrom9.5%to3.5%,givingprivate June 2008,theGovernmentofRepublicCroatia employees ofHrvatskiTelekomandCroatianPostin Following thesaleofsharestocurrentandformer Croatian andinternationalinstitutionalinvestors. Croatian retailinvestors,while7.5%wereacquiredby Of thetotalsharesinOffering,25%weresoldto of T-HTordinarysharesbyInitialPublicOffering(IPO). on 5October2007,theRepublicofCroatiasold32.5% of HTd.d.(OfficialGazetteNo.65/99and68/01), Pursuant totheprovisionsofLawonPrivatization ders inCroatia. Iskon Internetd.d.,oneoftheleadingalternativeprovi- In May2006,theCompanyacquired100%ofshares (Official GazetteNo.65/99and8/2001). Families, pursuanttotheLawonPrivatizationofHTd.d. Fund forCroatianHomelandWarVeteransandTheir Telekom. Thisevolutionofthecorporateidentitywas thus becomingapartoftheglobal„T“familyDeutsche On 1October2004,theCompanywasre-brandedT-HT, T-Mobile Croatiad.o.o.(T-Mobile). 2004, thecompany’snamewasofficiallychangedto commercial activitieson1January2003andinOctober telecommunications services.HTmobilecommenced ary whollyownedbyHTd.d.fortheprovisionofmobile was establishedasaseparatelegalentityandsubsidi- In 2002,HTmobilnekomunikacijed.o.o.(HTmobile) Republic ofCroatianolongerholdsshares Telekom d.d. In December2010, departments. base thatrangesfromsmallbusinessestogovernment into theprovisionofITsoftwareandservicesforaclient IT servicescompanyCombisd.o.o.,extendingitsreach On 17May2010HTd.d.completedtheacquisitionof May 2010. telekomunikacije d.d.toHrvatskiTelekomon21 red namewasofficiallychangedfromHT-Hrvatske 2,859,148 sharesofHrvatskiTele the Pensioners’Fund.Asaresultofthis 3.5% oftheentiresharecapital the Republic of Croatiatransferred kom d.d.,equalto Company, to transfer, the of Hrvatski 15 Introduction 16 Introduction crises inEurope,alongwiththecommitmentbyEu- lopments inthesecondhalfofyeararounddebt turbulent capitalmarkets.Nevertheless,positivedeve- 2012 broughtanotheryearofglobaluncertaintyand price performance Economic environmentandshare Investor Information T-HT Share and GDR as compared to CROBEX and Dow Jones Stoxx Telecommunications Index 1 January 2012 - 31 December 2012 T-HT ShareandGDRascomparedtoCROBEXDowJonesEuropeStoxxTelecommunicationsIndex1January2012-31December industrial production,risingunemployment,highpublic The Croatianeconomyisstillcharacterisedbydeclining in March2012. by theintroductionofa12%dividendtax,introduced 2011. Inaddition,theCroatiancapitalmarketwashit ous year).Thisfolloweda17.6%fallintheCROBEX the stockmarketin2012(down44.3%onprevi- by theCroatianeconomyandlowvolumestradedon flat (0.0%),onpressurefromalacklustreperformance ’s benchmarkCROBEXindex,however,was to endtheyearinpositiveterritory. with otherinitiatives,helpedmostmajorindicesglobally ropean CentralBanktosupporttheeuro,inconjunction 100 105 110 115 120 80 85 55 60 65 70 75 90 95 Jan Feb Mar

T-HT Share Apr May

T-HT GDR Jun European telecommunicationssectorandtheimpact T-HT Shareswerenotimmunetobroadertrendsinthe nies) down10.7%,asthegraphbelowillustrates. mance ofsomeEurope’slargesttelecomscompa- telecommunications industrythatmeasurestheperfor Telecommunications Index(aleadingindicatorofthe performed poorlyasaresult,withtheDJEuroStoxx reductions bysomeoperatorsandtheoverallsector pressure fromoutlookdowngradesanddividend The Europeantelecommunicationssectorcameunder membership oftheEUon1July2013. to grow0.5%in2013.Croatiaisalsoheadingtowards expected toshowafallofaround1.8%,butis stable outlook.Onaverage,CroatianGDPin2012is BB+ rating,itshighestnon-investmentgrade,witha mple, Standard&Poor’smovedCroatiatoalong-term by twoleadingratingsagencies.InDecember,forexa- saw downgradesinitscreditratingattheendof2012 ningful structuralreforms.Asaconsequence,Croatia spending, increasingindebtednessandalackofmea- Jul

CROBEX Aug Sep

Dj Euro STOXX Telecommunications Oct Nov Dec - highest turnover”category. for 2012,T-HTreceivedtheawardin“Sharewith newly establishedZagrebStockExchangeAwards In December,atthepresentationceremonyof award forbestIR) newspaper Poslovnidnevnik(2011:secondplace in Croatia2012sponsoredbythepopularbusiness T-HT acceptedthetopawardforInvestorRelations Exchange andCroatianinvestmentfundindustry, In October,ataconferenceoftheZagrebStock are tradedontheLondonStockExchange. Receipts (GDRs),eachrepresentingoneT-HTshare, of theZagrebStockExchange,GlobalDepositary As wellasT-HTshares’listingontheOfficialMarket ghting wassetat10%oftheindex. At thelastrevisionofCROBEXindex,T-HT’swei- Zagreb StockExchange). of thetotalmarketcapitalizationbyvalue(Source: 16.1 billion(EUR2.1billion),representing12.6% company onZSE,withamarketcapitalisationHRK As at31December2012,T-HTwasthesecondlargest billion, 24.1%). total tradebyvalueofsharesin2012(2011:HRK1.3 million ofturnover,accountingfor20.6%theZSE’s on theZagrebStockExchange,withnearlyHRK600 vious year,T-HTwasonceagainthemosttradedshare Whilst volumestradedweredown52.5%fromthepre- Stock Exchange). 244.50, aga-instalowofHRK190.04(Source:Zagreb 18.5% toHRK197.20.Thehighfortheyearwas of Croatia’seconomicwoes,andthesharepricefell price over2012,HRK210.75,thedividendyieldwas10.5%. final tradingdayoftheyear.Usingaverageclosingshare 11.2% onT-HT’sclosingsharepriceofHRK197.20,the At theendof2012,thisrepresentedadividendyield being paidtoshareholdersinMay2012. 2012 withtheresidualamountofHRK11.07pershare payment ofHRK11.07persharewasmadeinFebruary sent totheManagementBoard,anadvancedividend Pursuant totheabove,followingSupervisoryBoardcon a dividendpayoutratioof100%. 1,813,012,164.90 (HRK22.14pershare),representing decided onadividendpaymenttoshareholdersofHRK In April2012,theGeneralAssemblyofCompany operators and general economic climate). operators andgeneraleconomicclimate). payment practicesofotherEuropeantelecommunications other factorsincludingtaxandregulatoryconsiderations, prospects, cashrequirements,financialperformance,and time (includingbutnotlimitedtotheCompany’sbusiness Company anditsworkingcapitalneedsattherelevant shall dependontheoverallfinancialpositionof in theimmediatelyprecedingyear.Anyannualdividend to 100%oftheCompany’sdistributableprofitsearned year inwhichOfferingtakesplace,shallrangefrom50% declared andpaidinrespectofanyyearfollowingthe The futuredividendpolicyshouldbethatanydividends October 2007: prospectus thataccompanieditsInitialPublicOfferingin The dividendpolicyoftheCompanywassetoutin Dividend policy Dividend forthe2011financialyear - 17 Introduction 18 Introduction Total numberofsharesissued:81,888,535 rate of12%,wasintroducedas1March2012. As explainedearlier,thetaxationofdividends,at dend willbepaidon8July2013. for 17June2013.Accordingtotheproposal,divi- (SKDD) onthedayofGeneralAssembly,planned at theCentralDepositoryandClearingCompany The dividendwillbepaidtoshareholdersregistered to retainedearnings. of theremaindernetprofitHRK510,635.17 payment ofHRK1,679,533,852.85,andallocation financial yearnetprofit,resultingintotaldividend per sharewhichwillbepaidfromCompany’s2012 Assembly, thedistributionofadividendHRK20.51 Hrvatski Telekomd.d.proposetothisyear’sGeneral The ManagementBoardandSupervisoryof Dividend proposalforthe2012financialyear Shareholder Structureasat31December2012. Private andotherinstitutionalinvestors Pensioners’ Fund War Veterans’Fund Raiffeisen MandatoryPensionFund 51.0% 31.4% 3.5% 7.1% 7.0% Fund continuestoown7%.InNovember2010the with a51%holding,whiletheCroatianWarVeterans’ Deutsche Telekomremainsthemajorityshareholder the totalsharecapitalofCompany. investors holdingT-HTsharesrepresenting22.3%of onal hands,withmorethan211,000Croatianprivate The remaining31.4%isinprivateandotherinstituti- the endof2012,itheld7.1%T-HTshares. the CentralDepositary&ClearingCompanywebsiteat has exceededthe5%thresholdinHTd.d.Accordingto Company PlcthatRaiffeisenMandatoryPensionFund Raiffeisen MandatoryPensionFundManagement In April2011,theCompanyreceivednotificationfrom Pensioners’ Fund. Republic ofCroatiatransferredits3.5%holdingtothe The above-mentioneddatesaresubjecttochange. Financial Calendar Release offirsthalf2012results The GeneralAssemblyoftheCompany Release offirstquarter2012results Release offullyear2012results Release offirstninemonths2012results February 14,2013 October 30,2013 June17,2013 April 30,2013 July 26,2013 E-mail: Fax: Tel.: 10000 Zagreb Savska cesta32 Hrvatski Telekomd.d. Investor Relations Investor Relations United StatesofAmerica New York,10005-1401 New York 1 ChaseManhattanPlaza,Floor21 JPMorgan ChaseBank,N.A., The depositoryfortheGDRis: Each GDRrepresentsoneShareondepositwiththeCustodian. General informationonSharesandGDRs Nominal value: Type: Number ofShares: Bloomberg: Reuters: Portal Rule144AGDRlistingsymbol: LSE GDRtradingsymbol: ZSE Sharetradingsymbol: Rule 144AGDRs: Regulation SGDRs: Shares: [email protected] +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: US44330H1014 ISIN: US44330H2004 ISIN: HRHT00RA0005 19 Introduction 20 Introduction Management Board President oftheManagementBoardHrvatskiTelekom. nications on1January1999,MrMudrinićhasservedas Since theseparationofCroatianPostandTelecommu (Croatian PostandTelecommunications). General ManagerofHrvatskapoštaitelekomunikacije from 1996untilOctober1998,whenhewasappointed of Hrvatskaradiotelevizija(CroatianRadioandTelevision) He heldthepostofPresidentManagementBoard served asPresidentoftheTelecommunicationsCouncil. was appointedMinister.From1994MrMudrinićalso Affairs, TransportationandCommunications,in1992 end of1991,hebecameAssistantMinisterforMaritime communications tothePresidentofRepublic.At In 1990,hereturnedtoCroatiaandbecameadviserfor own company,MXEngineeringInc. of MotorolaCommunications,andin1985hefoundedhis His firstjobwasintheProductDevelopmentDepartment cal engineeringfromtheUniversityofTorontoin1978. Ivica Mudrinićwasbornin1955.Hegraduatedelectri- Chief ExecutiveOfficer President oftheManagementBoardand IVICA MUDRINIĆ - Chief OperatingOfficer Member oftheManagementBoardand NORBERT HENTGES role ofChiefOperatingOfficer. Board ofHrvatskiTelekom,andtookthenewlycreated In September2012,MrHentgesjoinedtheManagement ciency andcostprogramsacrossthenationalcompanies. member oftheEuropeLeadershipTeamheoversaweffi- Save-for-Service intheBusinessSegmentEurope.As From 2010toAugust2012,MrHentgeswasHeadof man BusinessCustomersinDeutscheTelekom. man oftheManagingBoardBusinessUnitforGer- business unitofDeutscheTelekom/T-Com;andChair- Unit ofDeutscheTelekomAG;HeadtheWholesale including HeadoftheTechnologyandPlatformsCentral and hasheldanumberofseniorroleswithintheGroup Mr HentgesjoinedtheDeutscheTelekomGroupin1994 company TelemationGesellschaftfürDatenübertragung. Sales andConsultingDepartmentofdatatransmission Richard HirschmannGmbH,followedbyaperiodinthe the OpticalNetworksProductMarketingDepartmentof Communications Engineering,hebeganhiscareerin Norbert Hentgeswasbornin1961.Aftergraduating Hrvatski Telekom. the ManagementBoardandChiefFinancialOfficerof From 1April2011on,DrDoganbecameaMemberof managerial positionsatAlcatel. from July2003to2009,afterspending10yearsin ary, theCroatianmobileoperatorVIPnet,apostheheld Financial OfficerandMemberoftheBoarditssubsidi- Prior tojoiningMobilkomAustriaAG,DrDoganwasChief AG in2010. for MobilkomAustriaAG’smergerwithTelekom August 2009andwasappointedChiefIntegrationOfficer and MemberoftheBoardatMobilkomAustriaAGfrom munications industry.HeservedasChiefFinancialOfficer Dr Doganbringsconsiderableexperienceofthetelecom- Stuttgart in1988. nical BusinessAdministrationfromtheUniversityof Dino Doganwasbornin1963,andgraduatedTech- Chief FinancialOfficer Member oftheManagementBoardand DINO IVANDOGAN Chief HumanResourcesOfficer Member oftheManagementBoardand IRENA JOLIĆŠIMOVIĆ man ResourcesOfficer. In September2012shewasagainappointedChiefHu- and ICTBusinessSolutions. bility forSales,Marketing,CustomerService,Wholesale became ChiefOperatingOfficerBusinesswithresponsi- Following theGroup’srestructuringinJanuary2010,she December 2009. Operating OfficerofT-ComfromOctober2008until Chief HumanResourcesOfficer.MsŠimovićwas appointed aMemberofT-HT’sManagementBoardand Business DevelopmentuntilAugust2006,whenshewas She wasExecutiveDirectorforCorporateStrategyand mmunications andtheMinistryofImmigration. Television (HRT),theMinistryofSea,TransportandCo- Telekom in1998,sheworkedatCroatianRadioand MBA fromIEDC,Bled,.PriortojoiningHrvatski from theFacultyofEconomicsinZagrebandreceivedan Irena JolićŠimovićwasbornin1969.Shegraduated 21 Introduction 22 Introduction Human ResourcesOfficeruntil 17 September2012 Member oftheManagementBoard andChief BRANKA SKARAMUČA Information OfficerfortheT-HTGroup. the ManagementBoardandChiefTechnical In March2007,MrPoldrugačwasappointedMemberof was launched. ary 2003,whenthesubsidiarycompanyT-MobileCroatia tions atHrvatskiTelekomfromOctober2001to1Janu- He wasChiefTechnicalOfficerforMobileCommunica- October 2001. Director ofMobileCommunicationsfromOctober1999to he servedasaMemberoftheManagementBoardand tions, hecontinuedhiscareeratHrvatskiTelekom,where After theseparationofCroatianPost&Telecommunica- mentation ofthefirstGSMnetworkinCroatia. pated inallthedevelopmentactivitiesrelatedtoimple- Croatian Post&Telecommunicationsin1993andpartici- from thesamefacultyin2000.Hebeganhiscareerat Zagreb Universityin1992andearnedamaster’sdegree the FacultyofElectricalEngineeringandComputing, Božidar Poldrugačwasbornin1967.Hegraduatedfrom Technical andChiefInformationOfficer Member oftheManagementBoardChief BOŽIDAR POLDRUGAČ Chief OperatingOfficerResidential Member oftheManagementBoardand NATAŠA RAPAIĆ Operating OfficerResidentaluntil 1August2012 Member oftheManagementBoard andChief JOHAN BUSÉ Board ofHTd.d.andChiefOperating OfficerResidential. was appointedtothepositionofMemberManagement of theResidentialMarketingSectorandon1February2013 In 2010shetookoverthepositionofOperatingDirector T-Com ExecutiveBoardandChiefMarketingOfficer. On 1September2005shewasappointedMemberof Director oftheSub-UnitResponsibleforCommunications. She joinedHrvatskiTelekomin2003astheExecutive ing sectorofTelefónicaMóviles. praxis Consultingandonvariousprojectsforthemarket- industry workingasaconsultantatMadrid-basedEuro- Ms Rapaićacquiredmarketingexperienceinthetelecom investment departmentofthebankGrupoCaixaGalicia. two countries,andworkedasafinancialanalystinthe market andboostingeconomiccooperationbetweenthe of Spain,wheresheworkedonresearchintotheCroatian economic analystintheEconomicOfficeatEmbassy export/import operationsinthecompanyMilnaParket, of responsibility.Shewasaco-founderanddirector professional experienceworkinginvariouspositions studies atIEinMadrid2000.MsRapaićhasgained of EconomicsinZagreb1993andcompletedMBA Born in1969Zagreb.GraduatedfromtheFaculty installments ofHRK73,882.Variable part,inaccord- amount ofHRK1,684,237,in an averagenetmonthly was in2012paidthefixedsalary inannualgross Dino IvanDogan,memberofthe ManagementBoard, amounted toHRK157,378forcompanycarusage. amounted toHRK121,414net.Theincomeinkind 263,829 net.PaymentaccordingtoHTMTIP2009 ance with2011goalsachievement,amountedtoHRK installments ofHRK66,190.Variablepart,inaccord- amount ofHRK1,446,779inanaveragenetmonthly was in2012paidthefixedsalaryannualgross Božidar Poldrugač,memberoftheManagementBoard, pany carusage. gross forinsurance,rentaloftheapartmentandcom The amountofincomeinkindwasHRK143,214 paid afixedsalaryingrossamountofHRK980,307. from September1st2012,wasinthisperiod2012 Norbert Hentges,memberoftheManagementBoard company carusage. 196,705 grossforinsurance,rentalofanapartmentand 2,188,360. TheamountofincomeinkindwasHRK paid afixedandvariablesalaryingrossamountofHRK ment BoarduntilJuly31st2012,wasinthisperiod2012 Johan HendrikMartinusBusé,memberoftheManage- 138,828 gross,forcompanycarusage. HRK 130,072net.Theincomeinkindamountedto net. PaymentaccordingtoHTMTIP2009amounted 2011 goalsachievement,amountedtoHRK213,486 of HRK66,919.Thevariablepart,inaccordancewith of HRK1,536,605inaveragenetmonthlyinstallments was in2012paidafixedsalaryannualgrossamount Irena JolićŠimović,memberoftheManagementBoard, 82,727 gross,forcompanycarusage. to HRK232,271net.Incomeinkindamounted net. PaymentaccordingtoHTMTIP2009amounted 2011 goalsachievement,amountedtoHRK516,106 nts ofHRK96,944.Variablepart,inaccordancewith of HRK2,221,829inanaveragenetmonthlyinstallme- Board, waspaidthefixedsalaryinannualgrossamount In 2012,IvicaMudrinić,PresidentoftheManagement Board membersin2012 Compensation totheManagement - payment transactions Share-based andnon 2012). Uponexpiryoftheterm oftheplan,HTSuper- covers theperiodfrom1January 2010to31December MTIPs coveraperiodofthree years(i.e.MTIP2010 composite returnindex. is relatedtothesharepricemovementcompared share pricebyacertainpercentage;thesecondtarget ration. ThefirsttargetisbasedontheincreaseofHT MTIP’stargetscannotbechangedduringtheMTIPdu- is nopayment. out, andifneitherperformancetargetisachieved,there mance targetisachieved,50%oftheamountpaid as anawardtoparticipantsispaidout,ifoneperfor- targets areachieved,thenthetotalamountearmarked - oneabsoluteandrelative.Ifbothperformance lly weighted,HTshare-basedperformanceparameters MTIP issetupasacash-basedplanlinkedtotwoequa- introduced in2008. management andshareholders.ThefirstHT’sMTIPwas ncement oftheCompany,thusaligninginterests plans promotethemediumandlong-termvalueenha- Board, seniorexecutivesandotherparticipants.The total compensationformembersoftheManagement Company level.Theirpurposeistoensurecompetitive II 2011andHTVariable2012)currentlyexistatthe 2011) andlong-termincentiveplans(LTIP:HTVariable Various mid-term(HTMTIP2010,TransitionalHT company carusage. The benefitinkindamountedtoHRK97,509grossfor ing toHTMTIP2009amountedHRK123,103net. ment, amountedtoHRK243,434net.Paymentaccord- variable part,inaccordancewith2011goalsachieve- in averagenetmonthlyinstallmentsofHRK61,195.The paid afixedsalaryingrossamountofHRK1,173,171, until September16th2012,wasinthisperiod2012 Branka Skaramuča,memberoftheManagementBoard 54,616 gross,forcompanycarusage. 232,744 net.TheincomeinkindamountedtoHRK ance with2011goalsachievement,amountedtoHRK 23 Introduction 24 Introduction the participant’s individual annual salary as contracted the participant’sindividualannualsalaryascontracted The incentivesthemselvesarebasedon20%or30%of unce theleveloftargetachievement. Board, theManagementBoardshalldetermineandanno- been achieved.BasedonthefindingsofSupervisory visory Boarddetermineswhethereachofthetargetshas the principleof“allornothing”). on agradedbasispertargetparameter(departurefrom sses andshortfallsinrelationtotargetsareaccounted parameter isassessedseparately.Bothpotentialexce- parameters areindependentofeachother,hence limited to150%oftheawardvolumeperparameter.The tunity ofexceedingtheamountearmarkedforaward, Unlike theMTIPstructure,VariableIIoffersoppor- and employeesatisfaction. (ROCE), thirdandforthtargetsarecustomersatisfaction and adjustedoperatingReturnonCapitalEmployed targets arefinancialKPIs:EarningsperShare(EPS) cannot bechangedduringtheplanduration.Two four equallyweightedperformanceparameterswhich plan, introducedforthefirsttimein2011,basedon LTIP -HTVariableII2011isafouryearscash-based at thebeginningofHTMTIP2009. participants werepaid50%ofthetotalamountawarded achieved. Inaccordancewithtargetsachievement,the December 31,2011),onetargetoutoftwohasbeen it wasdeterminedthatattheendofHTMTIP2009(on 2009 werepaidout.BydecisionoftheSupervisoryBoard In February2012therewardsforparticipantsofHTMTIP a 100%targetachievement. fixed salaryandtheamountofvariableincase annual salaryisdefinedastheamountoftotal the SupervisoryBoarddecision.Participant’sindividual management leveloftheparticipantandaccordingto on thebeginningofeachMTIP,depending ntioned personalinvestment. grant foreachshareacquiredasapartoftheaforeme- one additionalshare(matchingshare)Companywill years (lock-upperiod).Afterthelock-upperiodexpires, These sharesaretobeheldforaperiodofatleast4 each year,startingfrom2011onwards. annual grossvariablesalary(Bonus/VariableI)paidin investment, minimum10%andmaximum33,33%ofhis is obligedtoinvestinHTshares,throughapersonal According totheprovisionsofPlan,participant sustained developmentoftheCompany. long-term incentiveeffectandorientationtowardsthe HT MatchingSharePlanisestablishedtoensurethe Group BLTs. of theManagementBoard(CEO),asamemberDT For thetimebeingitisapplicableonlyforPresident cisely definedintheirindividualemploymentcontract. Business Leaders(BLTs)wasimplementedandpre- (Share MatchingPlan)andVariableII,forInternational the newCompensationmodelconsistingofVariableI Parallel withtheintroductionofLTIP-VariableIIin2011, launched. At thebeginningof2012HTVariableIIwas level andaccordingtotheSupervisoryBoarddecision. beginning oftheplan,dependingonmanagement ticipant’s individualannualsalaryascontractedonthe based, sameasinMTIPs,on30%or20%ofthepar- The amountofVariableIIawardedtoparticipantsis Compensation totheSupervisoryBoardmembersin2012is asfollows: members oftheSupervisoryBoard. remuneration forthemembershipinSupervisiondueto arespective policyofDTAG.Noloansweregrantedto salary ofemployeestheCompanypaidinprecedingmonth, ispaid.DTAGrepresentativesdonotreceiveany Compensation andNominationCommitteeoftheSupervisoryBoard,amount1.25averagemonthlynet in theprecedingmonth,ispaid.ToamemberofSupervisoryBoardwhoatsametimeMember of theSupervisoryBoard,amount1.25averagemonthlynetsalaryemployeesCompanypaid month, ispaid.ToamemberoftheSupervisoryBoardwhoatsametimeMember oftheAuditCommittee sory Board,theamountof1.5averagemonthlynetsalaryemployeesCompanypaidinpreceding To amemberoftheSupervisoryBoardwhoisatsametimeChairmanAuditCommitteeSupervi- member receivestheamountofoneaveragenetsalaryemployeesCompanypaidinprecedingmonth. of 1.25theaveragenetsalaryemployeesCompanypaidinprecedingmonth,ispaid,whileanyother average netsalaryofemployeestheCompany,paidinpreceding month.Toadeputychairman,theamount As specifiedbytheCompany,achairmanofSupervisoryBoardreceivesremunerationinamount1.5 Member Kathryn WaltHall Member Oliver Morbach Deputy President dr.sc. IvicaMišetić Member from25April2012 from 10September2012 President oftheSupervisoryBoard Mark Klein until 31August2012 President oftheSupervisoryBoard Andreas Moelich Supervisory Board

Damir Grbavac Ivica Mišetić Slavko Leban Kathryn Hall Juko Cikojević Periodinwhichcompensationispaid January 1st2012 January 1st2012 January 1st2012 January 1st2012 May 1st2012 Damir Grbavac Member from25April2012 dr. OliverKnipping Member until21April2012 Slavko Leban Member until25April2012 Andreas Hesse Member until25April2012 dr. LutzSchade Member Member Juko Cikojević Member from25April2012 dr. RalphRentschler From December 31st2012 December 31st2012 December 31st2012 December 31st2012 May 31st2012 To 187,040.48 198,979.23 160,507.12 Gross HRK 51,791.16 90,744.03 25 Introduction 26 Introduction General Assemblythis d.d., MembersoftheSupervisoryBoard,submitsto Mr. JukoCikojević,representativeoftheworkersHT schler, Ms.KathrynWaltHall,Mr.DamirGrbavacand Oliver Morbach,Dr.Knipping,RalphRent- Ph.D., DeputyChairmanoftheSupervisoryBoard,Mr. Chairman oftheSupervisoryBoard,Mr.IvicaMišetić, on thedayofissuancethisreport,Mr.MarkKlein, (hereinafter referredtoas“theCompany”),consisting, Board ofHrvatskiTelekomd.d.Zagreb,Savskacesta32 Association ofHrvatskiTelekomd.d.,theSupervisory of theCompaniesActandArticle31Articles Pursuant toArticle263,paragraph3,and300.c Supervisory’s BoardReport Telekom AG(hereinafterreferred toas“DTAG”)isthe cant Companyshareholdersare asfollows.Deutsche the CentralDepository&Clearing Company,signifi- top tenshareholdersoftheCompany publishedby On 31December2012,accordingtothelistof Corporate Profile • • • • The contentofthisreportincludes: and financialreportsforthebusinessyear2012 and ontheresultsofexaminationbusiness on performedsupervisionduringthebusinessyear2012 REPORT companies thereof. tions withthegoverningcompanyandaffiliated the resultsofexaminationreportonrela- for thebusinessyear2012, Board’s reportonthestatusofbusinessoperations the resultsofexaminationManagement zation oftheprofit, auditor’s reportaswelloftheproposalforutili- statements asof31December2012togetherwith the resultsofexaminationannualfinancial Board duringthebusinessyear2012, the CompanyhasbeenmonitoredbySupervisory in whichmannerandtoextentthemanagingof Board asof25April2012. Klein wereelectedasnewMembers oftheSupervisory Mr. DamirGrbavac,Dr.Oliver KnippingandMr.Mark The termofofficetheMemberSupervisoryBoard, of theCompanychangedasfollows: During 2012,thecompositionofSupervisoryBoard Supervisory Board appointed bytheWorkers’CouncilofHTd.d. sion Fund,twoindependentmembersandonemember member nominatedbytheRaiffeisenMandatoryPen- kom AG(wherebyonepositionintheSBisvacant), Board hasfivemembersrepresentingDeutscheTele- On thedayofissuancethisReport,Supervisory since 5October2007. share, havebeenlistedontheLondonStockexchange tory Receipts(GDR),eachrepresentingone(1)HTd.d. Stock Exchangesince5October2007.GlobalDeposi- The Company’sshareshavebeenlistedontheZagreb as of12July2002. services oftheCentralDepository&ClearingCompany The sharesoftheCompanyareincludedindepository entering HT-R-Ainthebrowserbrowser). & ClearingCompanywebsite(startyoursearchby the CompanymaybefoundonCentralDepository pany. Anuptodatelistofthetoptenshareholders mirovinski fondhad7.1percentsharesoftheCom- investors. Asat31December2012Raiffeisenobvezni est shareholdingamongtheprivateandinstitutional Mandatory PensionFund)istheinvestorwithlarg- shares. Raiffeisenobveznimirovinskifond(Raiffeisen tutional investorsholdtheremaining38.5percentof Fund 3.5percentofshares.Otherprivateandinsti- Fund owns7percentofshares,andthePensioner’s total outstandingshares.TheCroatianWarVeteran’s majority owneroftheCompanywith51percent in theSupervisoryBoardwitheffectasof25April2012. and Dr.LutzSchade,haveresignedfromtheirpositions Members oftheSupervisoryBoard,Mr.AndreasHesse Mr. SlavkoLeban,M.D.,expiredon21April2012.

igned to the function of COO. igned tothefunctionofCOO. within theseOfficers’responsibilities aretemporarilyass- position ofCOOBusinessisvacant, andactivitiesfalling Board oftheCompanyhassix (6) members,wherebythe On thedayofissuancethisreport,Management Management Board Hall, Member,arethemembersofthisCommittee. man, Dr.RalphRentschler,Member,andMs.KathrynWalt On thedayofissuancethisreport:Mr.MarkKlein,Chair- Compensation andNominationCommittee Brandes asthenewChairmanofAuditCommittee. mittee, andtheSupervisoryBoardappointedMr.Axel resigned fromhispositionofChairmantheAuditCom- On thedayofissuancethisreport,Mr.KayNolden ber, werethemembersofthisCommittee. Ph.D., Member,andMr.FrancoMusoneCrispino,Mem- During 2012,Mr.KayNolden,Chairman,IvicaMišetić, Audit Committee Supervisory Board. berg andMr.EliasDrakopoulos,Ph.D.,asMembersofthe the GeneralAssemblyforelectionofMr.MarkNierwet- session heldon13February2013,madetheproposalto visory Boardmembership,theSupervisoryBoard,atits Therefore, regardingthissecondvacancyintheSuper- regular GeneralAssemblyintheyear2013. Mr. OliverMorbach,witheffectasoftheclosingfirst the resignationofmemberSupervisoryBoard, On 7February2013,theSupervisoryBoardhasreceived tember 2012. as theChairmanofSupervisoryBoard10Sep- Mr. MarkKlein,SupervisoryBoardMember,waselected the SupervisoryBoardwitheffectasof31August2012. Andreas Moelich,hasresignedfromhismembershipof Member oftheSupervisoryBoardanditsChairman,Mr. COO Business. from 1October2012untilthe appointmentofnew ing Officer(COO),Mr.Norbert Hentges,intheperiod Member oftheManagementBoardandChiefOperat- Business weretemporarilyaddedtothefunctionof of theMemberManagementBoardandCOO Activities fallingwithintheOfficer’sresponsibilities Board andCOOBusiness. her termofofficeastheMemberManagement of officeas1October2012,followingtheexpiry es Officer(CHRO),withcommencementofherterm of theManagementBoardandChiefHumanResourc- Ms. IrenaJolićŠimovićwasappointedastheMember Jolić Šimović. Operating OfficerBusiness(COOBusiness),Ms.Irena of theMemberManagementBoardandChief Officer’s responsibilitieswereaddedtothefunction 17 September2012.Activitiesfallingwithinthese Human ResourcesOfficer(CHRO),effectiveasof as aMemberoftheManagementBoardandChief Ms. BrankaSkaramučaresignedfromherposition Residential. Mr. IvicaMudrinić,untiltheappointmentofnewCOO of thePresidentManagementBoardandCEO, responsibilities aretemporarilyaddedtothefunction 31 July2012.ActivitiesfallingwithintheseOfficer’s Officer Residential(COOResidential),effectiveasof ber oftheManagementBoardandChiefOperating Mr. JohanBuséresignedfromhispositionasaMem- ment BoardandCEO,Mr.IvicaMudrinić. added tothefunctionofPresidentManage- within theseOfficer’sresponsibilitiesweretemporarily of 1September2012.Untilthatdateactivitiesfalling (COO), withcommencementofhistermofficeas the ManagementBoardandChiefOperatingOfficer Mr. NorbertHentgeswasappointedastheMemberof (COO) wasintroduced,applicableasof20July2012. In linetherewithfunctionofChiefOperatingOfficer of competencesamongManagementBoardMembers. The SupervisoryBoardhasadoptedthenewdivision ment Boardmembership: The followingsectionliststhechangesinManage- 27 Introduction 28 Introduction office asof1February2013. (COO Residential),withcommencementofherterm agement BoardandChiefOperatingOfficerResidential ed Ms.NatašaRapaićasthenewMemberofMan- On 30January2013,theSupervisoryBoardhasappoint- • • provals andrecommendations: and theSupervisoryBoardprovidedrespectivepriorap- development, theissuesbelowwerediscussedindetail, tions oftheCompanyandjointconsultationsonbusiness of theCompanyonresultsandstatusbusinessopera- Aside fromtheregularreportsofManagementBoard Work oftheSupervisoryBoardCompany. of AssociationtheCompany,andBy-Lawson tasks inaccordancewiththeCompaniesAct,Articles Company’s businessoperationsandperformedother The SupervisoryBoardsupervisedthemanagingof a sessionwasconvoked. opposed tosuchdecisionmaking,andshortlythereafter 2012 wasclosed,sinceoneSupervisoryBoardMember proposed decisionmakingout-of-sessioninJanuary Board andtwo(2)decisionmakingsout-of-session.One In 2012,thereweresix(6)sessionsoftheSupervisory the businessyear2012 Performed supervisionduring IPTV, alignmentwithEUregulatory framework,etc., istration, Wholesalelinerental, retail broadbandand pricing, provisioninguniversalservices, prepaidreg- access andregulatedproducts, unbundledlocalloop significant marketpower,cost accounting,network with regardtothedistributivefiberopticsnetwork, Regulatory framework-regulationsandrequirements tion Program2013-2015, and optimizationofkeyprocesses,T-HTTransforma- extension ofICTproductsandservices,costefficiency and customermigration,fiberopticalinfrastructure, platforms, ITmainprojects,networktransformation quality ofservice,integratedandcloudbasedservice tation andfocusoncustomer,IPbasedservices IPTV, growthopportunitiesoutsidecore,serviceorien- protection ofcorebusiness,focusonbroadbandand Strategic program-re-inventionofcoreservicesand • • • • • • • • • • • • ues, especially: ues, especially: held five(5)regularsessionsand discussedvariousiss- In 2012,theAuditCommitteeof theSupervisoryBoard

management, framework andsucessionplanning,employeecareer management system,development and activities,headcountdevelopment,performance HR accomplishmentsandchallenges,strategy,plans Google, etc., the “digitaldividend”band,strategicagreementwith for businesscustomers,applicationacquisitionof ers, furtherdevelopmentofcloudservicesportfolio on NFCtechnology,newtariffsforresidentialcustom- - MAXtvToGo,introductionofmobilepaymentbased enabeling ofusemobiletelevisiononsmartphones brand withpartners,newMAXbundlepackages, Evolution (LTE)networkandnewMuptiPlusmobile New trends-commerciallaunchof4GLongTerms 2011 year-endclosingofT-HT Group, mobile taximpacts,etctotheresultsofCompany. prolonged downturnintheCroatianeconomy, Impacts ofthestrongcompetitionandaserious the Company’ssharesonLondonStockExchange, Stock ExchangeandthelistingofGDR’srepresenting Company followingthelistingofitssharesonZagreb Capital MarkettrendsandContinuingobligationsofthe Reports of the Audit Committee of the Supervisory Board tion proposalsforMBMembers, the CompanyandManagementBoardremunera- regard tothetarget-settingandtarget-achievementof Nomination CommitteeoftheSupervisoryBoardwith Reports andproposalsoftheCompensation Company, Cash managementandsavingsinitiativesofthe for 2014-2016, Annual BusinessPlanfor2013andStrategic International activitiesoftheCompany, Decision proposalsfortheGeneralAssembly, ship oftheManagementBoardasdescribedabove, among ManagementBoardMembersandmember- Corporate Governance,divisionofcompetences , and Herzegovina. and Herzegovina. in theireffortstoprotecttheinterests ofHTd.d.inBosnia The Supervisory Board supported the Management Board as runningtheMidTermandLong TermIncentivesPlans. outlined abovewerealsocovered bytheirAgendaaswell Changes intheMembershipofManagementBoardas gan preparingthetargetevaluationprocedurefor2012. began thetarget-settingprocedurefor2013andalsobe- In2012,theCompensationandNominationCommittee rnal controlsystemdoesnotworkeffectively. external auditengagementthereisnoindicationthatinte- ment, compliancemanagementsystem,internaland • • • • • • • • • • • • • • finds thatinrelationtofinancialreporting,riskmanage- According totheavailableinformation,AuditCommittee

landscape deepdive). Trainings forACmembers(e.g.changesofIFRS,IT Internal auditingprogramfor2013, and auditreports, Supervision overtherealizationofauditmeasures Audit program2012execution, risk assessmentresults2012, Reports ofthecomplianceofficerand Quarterly financialresultsofT-HT, Quarterly FraudReportsandRiskforT-HTGroup, and MAXtvregulationetc.), increase ofVATrate,taxonmobileservices,ADSL connection Offer(RIO),newby-lawon“rightofway”, status, WholesaleLineRentalandReferenceInter- related toDTK/ducts,consumerprotectionlitigation Significant risksandexposures(legalframework Management recommendationletter2011,etc.), ounting policiesanddisclosurerequirementsin2012, Independence, Reportonauditorengagement,acc- External Auditor’sReport(quarterlyreports, T-HT transformationprogram2012, Status ofprocurementfunctionimprovement, Changes inInternalControlSystem2012, Update of status of penetration testing procedures in T-HT, financial reportingaccordingtoInternalControlSystem, Implementation andeffectivenessofinternalcontrolover affiliated companiesthereof. Report onrelationswiththegoverningcompanyand of theauditor’sexaminationManagementBoard The SupervisoryBoardhasnoobjectionstotheresults Article 497oftheCroatianCompanyLaw. rial respects,inaccordancewiththecriteriaassetout believe thattheabovereportisnotpresented,inallmate- nothing hascometotheirattentionthatcausesthem described intheirauditreport,theauditorconcludedthat cal Information”.Basedontheresultsoftheirworkas Engagements otherthanAuditsorReviewsofHistori- Standard onAssuranceEngagements3000“Assurance the abovereportinaccordancewithInternational Zagreb, reportedontheresultsofitsexamination The Company’sauditor,PricewaterhouseCoopersd.o.o. conditions andtheapplicationofregularprices. nary businessandentrepreneurialrelationships,standard undertaken legalactions,werewithinthescopeofordi- 2012 intotal,realizedbycontractualaffiliatingandother of affiliatedcompaniesinthebusiness(calendar)year In theopinionofManagementBoard,relationships ous andtruthfulreporting. Act andinaccordancewiththeprinciplesofconscienti- accordance withArticles474and497oftheCompanies thereof (ReportoftheDependentCompany),compiledin with thegoverningcompanyandaffiliatedcompanies Board theReportofManagementonrelations The ManagementBoardsubmittedtotheSupervisory without anydamagetotheCompany. received arespectivecounter-actionforeachlegalaffair, and actionsstatedinthesaidManagementBoardReport, were knownatthetimeofundertakinglegalaffairs that theCompany,accordingtocircumstances the auditor’sexamination,SupervisoryBoardstates statement oftheManagementBoardandresults After consideringtheManagementBoardReport, companies thereof with thegoverningcompanyandaffiliated Management Boardreportonrelations Results oftheexamination 29 Introduction 30 Introduction with the positive regulations of the Republic of Croatia. with thepositiveregulationsof the RepublicofCroatia. pany’s andshareholders’interests andisinaccordance the businessplanforcurrent year,protectstheCom- cordance withthebusinessresults, isinaccorda-ncewith of theManagementBoardonutilizationprofitisinac- The SupervisoryBoardholdstheopinionthatproposal best knowledgetruthfulintheirentirety. that theanswersgiventothisquestionnairearetheir be completedbytheZagrebStockExchangeandstates answers withintheattachedquestionnairerequestedto Board hasnoobjectionstothestatementsmadein applied, givenwithintheaboveReport.TheSupervisory to thestatementonCodeofCorporateGovernance Furthermore, theSupervisoryBoardhasnoobjections year 2012andhasnoobjectionstothedeliveredreport. on thestatusofbusinessoperationsfor The SupervisoryBoardhasconsideredtheAnnualReport sory BoardandaretobepresentedtheGeneralAssembly. adopted byboththeManagementBoardandSuper-vi- sta and givesitsapprovalofthedeliveredauditedfinancial financial statementsdeliveredbytheManagementBoard The SupervisoryBoardhasnoobjectionstotheaudited net profit utilization proposal of the Management Board, net profitutilization proposaloftheManagement Board, Therefore, theSupervisory Boardgaveitsconsent tothe utilization ofprofit year 2012anddraftdecisionon of businessoperationsforthe Management BoardReportonthestatus financial statementsandauditor’sreport, Results oftheexaminationannual annual financial statements for the business year 2012. annual financialstatementsforthebusinessyear2012. objections totheauditor’sreportonexaminationof status oftheCompany.TheSupervisoryBoardhasno and thattheyindicatethecorrectpropertybusiness made inlinewiththesituationCompa-ny’sledgers eral Assembly,thattheannualfinancialstatementswere law, theactsofCompanyanddecisionsGen- that theCompanyactedin2012accordancewith nancial statementsforthebusinessyear2012,established The SupervisoryBoard,afterconsideringtheauditedfi- tion oftheannualfinancialstatementsforyear2012. houseCoopers, theCompany’sauditor,forexamina- The SupervisoryBoardissuedanordertoPricewater tements. The said financial statements are considered tements. Thesaidfinancialstatementsareconsidered -

ters were not realized to the full extent due to different ters werenotrealizedtothefullextentduedifferent indicators, itwasassessedthatcertainplannedparame- the Companyandmonitoringchangesinfinancial After analyzingthereportsofManagementBoard the Company’sbusinesspolicyforyear2012. nned resultsandtheimplementationofbasicgoals The SupervisoryBoardanalyzedtherealizationofpla- the Company’sbusinessoperations. tional andotherchangesrelatedtothemanagementof status ofassetsandliabilities,revenues,organiza- med theSupervisoryBoardofCompany’sbusiness, The ManagementBoardoftheCompanyregularlyinfor- Summary of theCompany’sbusinessoperations in2012. Report ontheperformedsupervision ofthemanaging deliver totheGeneralAssembly oftheCompanythis Pursuant toalloftheabove,SupervisoryBoardwill 2014-2016. business planfortheyear2013andStrategicPlan pervisory BoardconsideredandapprovedtheCompany’s Aside fromthefinancialresultsforyear2012,Su- economic slowdown. intensified competition,fallingconsumptionandfurther in 2012,thefaceofanumberchallengesincluding all areasofoperationandachievedsolidfinancialresults sition intheCroatiantelecommunicationsmarketacross whole T-HTGroupsuccessfullymaintaineditsleadingpo- and overallmarketdecline.HowevertheCompany GDP drop,fallingdisposableincome,highunemployment prices, ULL,DTK,WLRoptout,etc.),mobiletaxeffects, extent), asfollows:regulatoryimpacts(mobiletermination impacts (majorityofwhichwereunexpectedinsuch of theCompanyfordecisionmaking. of profitfor2012istobereferredtheGeneralAssembly ment BoardandtheSupervisoryonutilization to retainedearnings.ThejointproposalbytheManage- profit intheamountofHRK510.635,17istobeallocated amount ofHRK20.51pershare,andtheremaindernet be distributedtoshareholdersasdividendpayment,inthe and thatis,theamountofHRK1,679,533,852.85will Chairman ofthe SupervisoryBoard Mark Klein • • time. Theseexceptionsareasfollows: practical fortheCompanytoimplementatrelevant Code, withtheexceptionofthosethatwerenot,orarenot The Companycomplieswiththerecommendationsof 1 January2011. Supervisory Agency(www.hanfa.hr),andineffectasof and ontheweb-siteofCroatianFinancialServices site oftheZagrebStockExchangeInc.(www.zse.hr) the CorporateGovernanceCodepublishedonweb- to tradingonaregulatedmarket,theCompanyapplies Given thefactthatCompany’ssharesareadmitted Code ComplianceStatement. as “AnnualReport”),welltheCorporateGovernance ness OperationsoftheCompany(hereinafterreferredto the ConsolidatedAnnualReportonStatusandBusi- the StatusandBusinessOperationsofCompany Business Year2012consistingoftheAnnualReporton Operations oftheCompanyandT-HTGroupfor of theManagementBoardonStatusandBusiness 146/08, 137/09and111/12),preparedtheAnnualReport Nos. 111/93,34/99,121/99,52/00,118/03,107/07, graphs 4and5oftheCompaniesAct(“OfficialGazette” Company”) has,inaccordancewithArticle250b,para- Hrvatski Telekomd.d.(hereinafterreferredtoas“the Compliance Statement Corporate GovernanceCode extent thatitispractical(Part2.6.). participation willbeimplementedinthefutureto means ofmoderncommunicationtechnologies.Such have notbeengiventheopportunitytoparticipateby At previousGeneralAssemblymeetingsshareholders with theshareholders’instructions(Part2.5.). suitable proxieswhoareobligedtovoteincompliance by themselvesshouldattheirowndiscretiondetermine are notinapositiontovotepersonattheAssembly with theshareholders’instructions.Shareholderswho those proxieswillvoteattheAssemblyincompliance reason arenotabletovoteattheAssembly,suchthat expense, proxiesforshareholderswhowhatever The Companydoesnotprovide,withoutadditional • • • • • • • Company’s businessperformance(Part4.7.). to SupervisoryBoardmembers’contributionthe net salaryofCompanyemployeesandnotaccording visory Boardisdeterminedinrelationtotheaverage Remuneration receivedbythemembersofSuper- Board membersareindependent(Part4.2.). pendent members.OnlytwooutofnineSupervisory The SupervisoryBoardisnotcomposedmostlyofinde- with theCompaniesAct(Part2.8.). on dividendpaymentwaspassedasinaccordance holding oftheGeneralAssemblyatwhichdecision the Code.Thedividenddatewassetasof to paymentofdividendnotsetasrecommendedby The dateonwhichtheshareholderbecomesentitled are disclosedwithintheAnnualReport(Part6.3.). the ManagementBoardandSupervisory was notcomposedseparately.Theremunerationof of theManagementBoardandSupervisory needs. TheStatementonthepolicyofremuneration Deutsche Telekom’sGuidelines,adaptedforlocal Board andSupervisorymembersisbasedon The remunerationstrategyadoptedforManagement of itsperformanceintheprecedingperiod(Part4.16.). The SupervisoryBoarddidnotprepareanevaluation kom (Part4.12.3.). audit expert),bothareemployeesofDeutscheTele- which isafinancialexpert,theotheraninternal Committee membersareexternalexperts(oneof member oftheSupervisoryBoard.Tworemaining out ofthreeCommitteemembersisanindependent independent membersoftheSupervisoryBoard.One The AuditCommitteeisnotcomposedmostlyof (Part 4.12.1.and4.12.2.). is anindependentmemberoftheSupervisoryBoard pervisory Board.OneoutofthreeCommitteemembers composed mostlyofindependentmemberstheSu- The CompensationandNominationCommitteeisnot 31 Introduction 32 Introduction with the Sarbanes Oxley Act and the Croatian Audit Act. with theSarbanesOxleyActandCroatianAuditAct. ber 2006,amendedin2008andadjustedaccordance Committee’s termofreferencewereadoptedinNovem- activities withintheCompany.RevisionstoAudit sions inrelationtothecontrolling,reportingandaudit and thesupervisionofimplementationsuchdeci- the decisionsofSupervisoryBoardCompany mittee’s principalresponsibilitiesarethepreparationof Company wasestablishedinApril2002.TheAuditCom- The AuditCommitteeoftheSupervisoryBoard Internal ControlandRiskmanagement improvement of operational efficiency. Audit Manual of improvement ofoperationalefficiency. AuditManualof Program contributestotheminimization ofrisksandthe improvements). Implementation oftheannualAudit comprehensive auditreports(findings andproposed of theManagementBoardandinformsmanagerswith an independentauditandcontrolfunctiononbehalf • • • • rized to: In executingitsactivities,theAuditCommitteeisautho- Supervisory Board. credibility oftheinformationandreportssubmittedto Committee isresponsibleforensuringtheobjectivityand recommendations totheSupervisoryBoard.TheAudit by theauditorsormanagementteamandmakes issues broughttotheattentionofAuditCommittee the Company(internalandexternal),discussesspecific The AuditCommitteeoverseestheauditactivitiesof The Corporate Internal Audit of the Company performs The CorporateInternalAuditoftheCompanyperforms of activitiesandresponsibilities. is neededforthefulfillmentofCommittee’sscope within itstermsofreferenceprovidedthatsuchadvice other independentprofessionaladviceonanymatter Obtain, attheCompany’sexpense,externallegalor nent basisorcasebyifneeded, Appoint advisorstotheAuditCommitteeonaperma- nsibilities oftheAuditCommittee, issues thatfallunderthescopeofactivitiesandrespo- Participate atmeetingsheldwithintheCompany on employees oftheCompanyandfromexternalworkers, documentation fromthemanagementandsenior Request thenecessaryinformationandsupporting Ph.D., disposedof63sharesand afterthisdisposition 63 sharesintotal(On28January 2013,Mr.IvicaMišetić, Ph.D., DeputyChairmanofthe Supervisory Board,owns MB Member,owns45shares in total;Mr.IvicaMišetić, 2012, owns200sharesintotal;Mrs.IrenaJolićŠimović, Mrs. BrankaSkaramuča,MBMemberuntil17September ekom d.d.,Mr.IvicaMudrinić,owns6,500sharesintotal; The PresidentoftheManagementBoardHrvatskiTel- (start yoursearchbyenteringHT-R-Ainthebrowser). on theCentralDepository&ClearingCompanywebsite the toptenshareholdersofCompanymaybefound 7.1 percentsharesoftheCompany.Anuptodatelist December 2012Raiffeisenobveznimirovinskifondhad ing amongtheprivateandinstitutionalinvestors.Asat31 Pension Fund)istheinvestorwithlargestsharehold- Raiffeisen obveznimirovinskifond(RaiffeisenMandatory and byotherdomesticforeigninstitutionalinvestors. 38.5 percentofsharesareownedbyCroatiancitizens Pensioner’s Fund3.5percentofshares.Theremaining War Veterans’Fundowns7.0percentofsharesandthe • • • • • 51 percentoftotaloutstandingshares.TheCroatian owner oftheCompanyisDeutscheTelekomAG,with cant Companyshareholdersareasfollows.Themajority by theCentralDepository&ClearingCompany,signifi- list ofthetoptenshareholdersCompanypublished On thedayofissuancethisStatement,accordingto Significant CompanyShareholders Company’s financial reporting by: Company’s financialreportingby: The FinancialReportingAuditensuresthereliabilityof updated inDecember2009. the CorporateInternalAuditofCompanywaslatest Conducting adhocauditsuponmanagementrequest. pendence, not conflictwiththeprinciplesofobjectivityandinde- Providing supportinTOPprojectsawaythatwould if necessary,escalationofproblems, Monitoring implementationoftheauditmeasuresand, Performing auditsofareasrisk, Identifying risksandfieldsofimprovement,

to the Articles of Association at the General Assembly. to theArticlesofAssociationatGeneralAssembly. Supervisory Boardfortheproposalofanyamendments The ManagementBoardneedspriorapprovalfromthe to successfullymanagethebusiness affairsoftheCom- and topassalltheresolutionsthat itconsidersnecessary It isobligatedandauthorizedto performalltheactivities sibility formanagingthebusiness affairsoftheCompany. cles ofAssociation,theManagementBoardhasrespon- Pursuant totheCompaniesActandCompany’sArti- Board Members Authorities oftheManagement Residential. ces, organizedintotwobusinessunits,Businessand services aswellwholesale,Internetanddataservi- The Companyisofferingfixedandmobiletelephony of thisStatement. Business (COOBusiness)isvacantonthedayofissuance (CHRO), wherebythepositionofChiefOperatingOfficer and MBMemberChiefHumanResourcesOfficer ber andChiefTechnicalInformationOfficer(CTIO) Operating OfficerBusiness(COOBusiness);MBMem- Residential (COOResidential);MBMemberandChief Officer (CFO);MBMemberandChiefOperating Operating Officer(COO);MBMemberandChiefFinancial of theManagementBoard(CEO);MBMemberandChief agement Boardincludessevenmembers:thePresident five andsevenmembers.CurrentcompositionoftheMan- Association, theManagementBoardconsistsofbetween of re-appointment.PursuanttotheCompany’sArticles Their termofofficeisuptofiveyears,withthepossibility are appointedandremovedbytheSupervisoryBoard. The MembersandPresidentoftheManagementBoard the ArticlesofAssociation its functionsandtheAmendmentsto Appointment oftheManagementBoard, sentative), owns263sharesintotal. Cikojević, SupervisoryBoardMember(workers’repre- does notholdanysharesintheCompany)andMr.Juko

tee andtheAuditCommittee. established theCompensationandNominationCommit- approval oftheSupervisoryBoard.TheBoard indebtedness orsignificantappointmentsrequirethe capital expenditureitems,theassumptionoflong-term Certain majororuncommontransactionssuchaslarge ing themanagementofCompany’sbusinessaffairs. of ManagementBoardmembersaswellforsupervis- Board isresponsiblefortheappointmentandremoval appointed bytheCompany’semployees.TheSupervisory members areelectedbytheGeneralAssemblyandoneis Supervisory Boardconsistsofninemembers.Eight Pursuant totheCompany’sArticlesofAssociation, of theSupervisoryBoard The compositionandfunctions Zagreb StockExchange1,931Companyshares. said Program,inMay2012theCompanyacquiredat tive plansforseniormanagement.Inaccordancewiththe gram forthepurposeofrealizationlong-termincen- Board adoptedin2012theTreasurysharebuybackpro- Assembly decisions.Inlinetherewith,theManagement with theauthoritygivenbyabovementionedGeneral ing andmanagingofCompanysharesasinaccordance al oftheSupervisoryBoardtostartprocessacquir- to acquireCompanyshares,withassociatedpriorapprov- General Assemblydecisionsfrom2009,2010and2011 The ManagementBoardwasauthorizedbyrespective presented byanytwomembersoftheManagementBoard. Under theArticlesofAssociation,Companymaybere- the SupervisoryBoardforcertainmattersanddecisions. pany, subjecttosuchapprovalsasmayberequiredfrom 33 Introduction

Business review 2012

Croatian Telecommunications Market Overview Regulatory Environment Group’s Strategy Organization of the Group Business Units Network and Information Technologies 36 Business review 2012 Notable eventsin2012includethefollowing: and furthereconomicslowdown. es includingintensifiedcompetition,fallingconsumption of operationin2012,thefaceanumberchalleng- the Croatiantelecommunicationsmarketacrossallareas T-HT Groupsuccessfullymaintaineditsleadingpositionin negative economictrends Strong performanceinfaceof Market Overview Croatian Telecommunication 1 with T-HT. mobile brandbyaleadingretail chaininco-operation launched in2012forthefirsttimemarket:prepaid At thesametime,anewconceptofco-operationwas ing competitionontheCroatianpayTVmarket. Q4 2012anewpayTVmarketplayerlaunched,intensify- TV offershavebeenkeydriversofcompetitionin2012.In iffs andanincreasingnumberofbundledvoice,data Intense competitioninthemobilemarketfromflatratetar- mmunications market. impact onthedevelopmentofCroatianteleco- increased competitionhadasignificantnegative Negative economictrends,regulatorymeasuresand Market trends • • • • • Source:CroatianCentralBureauofStatistics, December2012

ntly available which enablesspeeds50timeshigherthancurre- the worldnetworkoffuture-TeraStream, December 2012,presentedforthefirsttimein in Croatia with GoogletobemajorpartnerforAdWords September 2012,concludedstrategicagreement services cloud servicesfollowingthelaunchofIaaSandSaaS In ICTsegment,continuedtodevelopaportfolioof service onsmartphones July 2012,MAXtvToGo-aninnovativemobileTV tinued promotionsof4GmobileinternettariffsinQ3 LTE networkcommerciallaunchinMarch2012;con- upturn in the labour market is not expected in 2013. upturn inthelabourmarketisnot expectedin2013. ning ofJuly2012. end ofJanuary2012andabolishedagainatthebegin- revenues frommobileserviceswasre-introducedatthe The 6%feeimposedbytheCroatianGovernmenton tablet penetration,boostedgrowthinmobilebroadband. tian market,alongwithanincreaseinsmartphoneand of LTEbythetwodominantmobileoperatorsinCroa- tariffs basedonLTEtechnology.Thecommerciallaunch its mobilebroadbandofferwithtwonewT-MobileExtreme T-HTlauncheditsLTEnetworkinMarch2012,enhancing munication services. traffic, TV,ICTsolutionsandintegratedoffersoftelecom- However, majorgrowthareasincludebroadband,data a fallinmobileterminationratesandpricingcompetition. Voice revenuecontinuedtodeclineduelowerusage, the fourthconsecutiveyear.Asinpreviousyears, Employment inCroatiaalsocontinuedtofall2012for of investment. part tofallingpersonalconsumptionandtheabsence is expectedat-2.0%forthewhole2012dueinlarge Croatia stagnatedinthesecondhalfof2012.RealGDP 2011 andthebeginningof2012,economicactivityin Having experiencedasignificantdeclineattheendof economic reformsarevitalforgrowth Improved investmentclimateandstructural Macroeconomic trends one toT-HTGroup. roved twolicensesattheendofOctober2012,granting license onthe790MHz-862MHzband.TheAgencyapp- submission processfora12-yearwirelessfrequency On 14September2012,theAgencyannouncedapublic tive impactonpersonalconsumption in2012 the 18.0%in2011.Theunemploymentratehadanega- rate in2012isexpectedtoreach18.5%,anincreaseon As aresult,theaverageannualregisteredunemployment tor, whilepublicsectoremploymentshowedanincrease. the employmentratewasexperiencedin

private sec- 1 and an andan a fall in a fallin 2 the Croatianpopulation. Estimated fixed-linepenetrationratefor2012is37%of in 2011. first ninemonthsof2012comparedwiththesameperiod fixed-line minutesofuse(MOU)decreasedby16%inthe broadband andmobileusageincreased.Thenumberof Fixed voiceusageshowedafurtherdeclinewhilstfixed services andimprovedoffers. flecting theGroup’scontinuingdedicationtohigh-quality maintained itsleadingpositioninthefixedlinemarket,re- Competitive pressurenotwithstanding,T-HTsuccessfully pressure frombundledtelecommunicationsoffers. ket consolidationin2012furtherincreasedcompetitive with nineoperatorsactiveinthemarket.Inaddition,mar- Fixed telephonyremainshighlycompetitiveinCroatia, of toughcompetitiveenvironment Dominant marketpositionmaintainedinface Fixed-line market reach 3.5%. The averageannualinflationratefor2012isexpectedto an increaseinVAT,droughtandenergypriceincrease. Inflation wassignificantlyhigherin2012asaresultof pressure onallsectorsandexportsin2012. insolvent businessesinOctober2012putdownward at arecordhighofHRK44.5bnandtotal72,654 (0.2%). Thedeclineinindustrialoutput,unpaidbills (-2.4% onanannuallevel),afterstagnationin2011 consumption isexpectedagainforthewholeof2012 lower. Consequently,asignificantdeclineinpersonal indicate thatpersonalconsumptioninQ42012wasalso confidence andQ42012trendsinretailsalesfigures same periodin2011),theassociatedfallconsumer in realtermsforthefirstninemonthsof2012against Higher unemployment,afallinrealincome(down1.2% Source:CroatianPostandElectronicCommunications Agency,December2012 access lines. access lines. At theendof2012,T-HTGrouphad632,994broadband still thedominantbroadbandtechnology. 4% comparedwiththeendofSeptember2011.DSLis market minutes of use (MOU) increased by 11% and the market minutesofuse(MOU)increasedby11%andthe rates andintensepricingpressure.TotalCroatianmobile ued onadecliningtrendduetolowermobiletermination Despite increasedmobileusage,revenuecontin- competitors. new MVNOpartnershipbetweenT-HT’sfixedandmobile of 2012.MobilecompetitionincreasedinQ42012witha total mobilecustomersisestimatedat46.5%theend is estimatedtoreach116.7%andtheCompany’sshareof served bythreeoperatorssince2005.Mobilepenetration leading marketpositioninasaturatedmobilemarket, Through arangeofbrands,theGroupmaintained intense competitivepressure Market leadershipcontinuesdespite Mobile telecommunications reported attheendofSeptember2012. in 2012,with879,597fixedbroadbandconnections The Croatianfixedbroadbandmarketcontinuedtogrow pay TVmarkets Stable growthcontinuesinfixedbroadband, Internet including e-booksandmobileTV. bile applicationsandmobileservicesarenowavailable, tablet offers.Atthesametime,anincreasingrangeofmo- broadband offersalongsideincreasingsmartphoneand 2012, withallthreemobileoperatorspromoting The demandformobileInternetcontinuedtogrowin months of2012comparedwiththesameperiodin2011. number ofSMSssentincreasedby10.8%infirstnine 2 The market grew Themarketgrew 37 Business review 2012 38 Business review 2012 of 2012,againstthesameperiodin2011,reaching The CroatianpayTVmarketgrewby1%infirstninemonths pared toanaverageof66%inWesternEurope. households connectedtofixedbroadbandnetworkcom- opportunity forT-HTwithanestimated48.8%ofCroatian The Croatianbroadbandmarketstillrepresentsagrowth 5 4 3 government sectors. develop theirownnetworks,targetingthecorporateand The Group’smaindataservicecompetitorscontinuedto business customers. is relativelysmallitrepresentsanimportantservicefor effective, IP-basedservices.Althoughthedatamarket is migratingfromtraditionaldataservicestomorecost- T-HT maintaineditsleadingpositioninadatamarketthat Continued migrationtoIP-basedservices Data a regulatedIPTVmarket. segment, makingCroatiatheonlycountryinEuropewith In March2012,regulationwasextendedwithintheIPTV innovative mobiletelevisionserviceforsmartphones. its TVserviceswiththeintroductionofMAXtvToGo-an band customerbase.Duringtheperiod,T-HTenhanced 2012, representing57.6%ofT-HT’stotalfixedbroad- The Groupreported364,324TVcustomersattheendof with thelaunchofanewpayTVserviceinQ42012. customers4. Duringthatperiod,competitionintensified Source:„CroatiaIT Services Market2012-2016Forecastand 2011VendorShares“,IDCAdriatics, September 2012 Source:UpdatedforecastofCroatianIT marketfor2012(inUSD),IDCAdriatics,December Source:AnalysysMason 3

603,240 603,240 ICT servicesmarket Group, hasmaintaineditsleadingpositionintheCroatian mobile calltermination. the followingregulatedservices:callorigination,fixedand As of1January2012,wholesalepriceswereamendedfor to 161,768attheendof2012. (ULL) continued,andthenumberofcustomersincreased addition, significantdemandforUnbundledLocalLoop and NakedBSA)reached24,578attheendof2012.In The numberofbroadbandwholesalecustomers(BSA services in2011. of WholesaleLineRental(WLR)andnakedbitstream tors remainedhighin2012asaresultoftheintroduction for infrastructureservicesrequestedbyalternativeopera- Following liberalizationofthefixedlinemarket,demand from regulatoryinitiatives High demandfornewservicesresulting Wholesale cline by4.8%in2012 consumption. TheCroatianITmarketisestimatedtode- level ofunpaidbillsputfurtherdownwardpressureonIT spending plansbyCroatianbusinesses,whilstahigh generally downbeatbusinessoutlookresultedincautious budgets cutsamidthecurrenteconomicrecessionanda in 2012owingtoeconomicpressures.SignificantIT The CroatianITmarketdemonstratedanegativetrend IT marketimpactedbyeconomiccrisis 5 . 4 . Combis, which is part of the T-HT . Combis,whichispartoftheT-HT

6. 5. 4. 3. 2. 1. the followingmarkets: 2009, in2011and2012,theCompanyholdsSMP to themarketanalysisconductedbyAgencyinJuly existence ofsignificantmarketpower(SMP).According only afterpropermarketanalysisanddeterminationofthe mendations, theAgencycanimposeregulatoryremedies regulatory framework,andinlinewiththelatestEUrecom- communications servicesinCroatia.InlinewithCroatian the termsandconditionsforprovisionofelectronic date, theAgencyhasadoptedseveralby-lawsprescribing Agency (hereinafter:theAgency)fromseventofive.To Council ofCroatianPostandElectronicCommunications 2012. Theseweredesignedtoreducethemembersof in November2012andcameintoforceDecember munications wereadoptedbytheCroatianParliament The secondamendmentstotheLawonElectronicCom- business operationswithinthenewprovisionsofLaw. erators wereprovideda90day-periodtoconsolidatetheir EU RegulatoryFrameworkof2009.Croatiantelecomsop- align Croatia’selectroniccommunicationsmarketwiththe August 2011.Thepurposeoftheseamendmentswasto Croatian ParliamentinJuly2011andcameintoforce Law onElectronicCommunicationswereadoptedby two setsofamendments.Thefirstamendmentstothe tronic communicationsmarketandhassinceundergone 2002 EUNewRegulatoryFrameworkontoCroatia’selec- been inforcesince1July2008.Thelawtransposedthe replaced thepreviousLawonTelecommunications,has The CroatianLawonElectronicCommunications,which Regulatory Environment Wholesale terminatingsegmentsofleasedlines Call terminationinthemobilenetwork Wholesale broadbandaccess (including sharedorfullyunbundledaccess) Wholesale (physical)networkinfrastructureaccess Call terminationinthefixednetwork Call originationinthefixednetwork 10. 9. 8. 7. remedies wereimposed: the marketanalysisceasedtoapplyandfollowing In thesemarkets,remediesthatwereinplacebefore 12. 11. • • • and Iskon. and Iskon. promotional offerswereimposedupontheCompany In markets9-12:pricecontrolsandregulationof June /July2011 sale referenceoffersfornakedbitstreamandWLRin with theseobligations,theCompanypublishedwhole- “pure” networkaccess)accountingseparation;inline services -introductionofnakedDSL,provision days inadvance;prohibitiontounreasonablybundle and costaccounting(notificationofretailprices30 - WLR),non-discrimination,transparency,pricecontrol work facilities(obligationtoofferwholesalelinerental In market8:networkaccessanduseofspecialnet- the Company’sfixedbusiness) accounting, accountingseparation(appliesonlyto discrimination, transparency,pricecontrolandcost the Company’sopticalfibreaccessnetwork),non- network facilities(thisobligationisextendedto In markets1-7:networkaccessanduseofspecial customers service providedatafixedlocationforresidential Publicly availablelocaland/ornationaltelephone at afixedlocation Retail accesstothepubliccommunicationsnetwork petitive lines) Wholesale trunksegmentsofleasedlines(non-com- March 2012). remuneration -IPTVmarket(regulatedasof23 Retail marketfortransmissionofTVprogramswith March 2012) Retail broadbandInternetaccess(regulatedasof23 provided atafixedlocationfornon-residentialcustomers Publicly availablelocaland/ornationaltelephoneservice 39 Business review 2012 40 Business review 2012 • Communications in2008)onthefollowingmarket: munications thatwasreplacedbytheLawonElectronic the oldlegalframework(i.e.underLawonTelecom- Moreover, theCompanyretainsSMPstatusdefinedunder of 2013.FinaldecisionsareexpectedinInSep- of thedraftmarketanalysisisexpectedinfirstquarter fixed network,terminationinmobilenetwork).Publication access, bitstreamoriginationandterminationin of wholesalemarketanalysis(unbundledlocalloop offers). InJuly,2012,theAgencyinitiatedasecondround regulation ofpromotionaloffers,bundled orientation, notificationofpricing45daysinadvance, the Company’sretailbroadband/IPTVbusiness(cost market), thusimposingstrictregulatoryobligationsupon the transmissionofTVprogramswithremuneration(IPTV broadband Internetaccessmarketandretailfor the Agencyadoptedadecisiononregulationofretail bitstream accessoncopperandFttH.InMarch2012, and definedfinalconceptsfortheprovisionofwholesale home). Thisdecisionimposedmorethan60amendments sale bitstreamaccessoncopperandFttH(fibretothe In December2011,theAgencyadoptedadecisionon - IPlevel(retailminusmethodology)from40%to60%. pany’s pricesforwholesalebitstreamaccessoncopper increased the“x”percentageusedtocalculateCom- Under adecisionadoptedinNovember2011,theAgency in October2012fromHRK16.92to16.68. The Company’smonthlyfeeforSharedULLwasreduced local loopservice(ULL)fromHRK52.14to43.61. es (monthlyfees)chargedforthewholesaleunbundled In March2011,theAgencyreducedCompany’spric- amendments oftheCompany’sreferenceofferforwhole- to anannouncementbytheAgency 2010 andisexpectedtoconcludein2013according Retail leasedlinesmarket-analysisstartedin

MHz for the period from 29 October 2012 to 18 October MHz fortheperiodfrom29October2012to18 granted withthefrequencyblockof811-821/852-862 862MHz band(the“digitaldividend”)theCompanywas for 12-yearwirelessfrequencylicensesonthe790MHz- On 29October2012inthepublicassignmentprocess all regulatedservices. the Agencystarteddevelopingitsowncostmodelingfor the endof2008,isongoing.Inthirdquarter2011 fixed business):thecostaccountingproject,initiatedat counting separation(thisappliesonlytotheCompany’s voice, thathadbeenpayablebyallmobileoperators.Ac- generated bymobileservices,includingSMS,MMSand ernment’s proposaltoabolishthe6%feeonrevenues In July2012,theCroatianParliamentadoptedGov- set atan“affordablelevel.” a commercialbasis).Tariffsforuniversalservicesmustbe directory, whichtheCompanycancontinuetoprovideon next fiveyearsforallservices(exceptthesubscribers’ (re)designated astheuniversalserviceproviderfor market anylonger.AsofOctober2010,theCompanywas quently, theCompanydoesnotholdSMPstatusinthat network accessfornarrowbandInternetaccess.Conse- for networkaccessvalue-addedserviceprovidersand tember 2012theAgencyderegulatedwholesalemarkets of thefrequencies. HRK 150million,plusadditionalannualfeesfortheuse 2024 forafixedone-offfeethespectrumlicenseof arising fromadvancesintechnologyandbusiness. services, ICT,media,advertisingandinnovativeservices around mobileandfixedInternet,onlineconsumer GROW focusesondevelopingbusinessopportunities GROW -COMPETETRANSFORM Our strategycentresaroundthreekeypillars: T-HT GroupStrategy Region. the onlinesocietyanddigitaleconomyinCroatia T-HT istheleadingdigitalsolutionproviderthatpowers society anddigitaleconomyinCroatiatheRegion T-HT -tobetheonlinecompanyandpower T -HTGroupVision demanding fasteraccessandbetterqualityofservice. office andonourmobilephonesweareconstantly for grantedthatwecanaccesstheInternetathome,in spend ourfreetimeandthewaywedobusiness.Wetake everyday life.TheInternethasrevolutionizedthewaywe Checking e-mailandusingtheInternetarepartofour through awidevarietyofdevices. tailored topeople’sneedsandcanbeusedatanytime bers everymonth.Moreandmore,theseapplicationsare nities andsocialnetworksattractmillionsofnewmem- to theInternetandviewedeveryday,whilevirtualcommu- Increasing numberofphotosandfilmclipsareuploaded Always &Everywhere Communication, Information&Entertainment- T-HT GroupMission Group’s Strategy people tohelpusbuildourbusiness. staff. Inthisway,weareabletoattractandretainthebest new skills,talentmanagement,educationandtrainingof on newservicesandnetworks,T-HTcontinuestoinvestin In arapidlychangingindustryandwiththestrategicfocus opportunities. opportunities. The Groupcontinuestomonitorandevaluateexpansion Regional expansion operational activities. manage andintegratetheseactivitiesalongsidekey Officer wasintroducedasofJuly202012tocoordinate, across theorganisation,positionofChiefOperating To furtherstrengthenthesetransformationalactivities across allcoreoperations. tion toall-IPtechnology;andanimprovedcoststructure efficiency; networktransformationthroughthemigra- workforce management Talent managementandstrategic care, targeting customer satisfaction and organizational care, targetingcustomersatisfactionandorganizational external businessprocesses;thenextphaseofcustomer mation involvingtheshifttoonlineofbothinternaland TRANSFORM referstoaradicalprocessofe-transfor- quality networks. by enhancingourcoreoffersandleveraginghigh existing fixedandmobiletelecommunicationsbusiness COMPETE ensurestheGroup’scontinuedfocusonits

41 Business review 2012 42 Business review 2012 d.o.o. andKDS CHRO), andsubsidiariesincludingCombisd.o.o.,Iskon (CTIO), supportandsteeringfunctions(CEO,CFO Residential unitsandcentralizedtechnicalfunctions The GroupcomprisesthecustomerfacingBusinessand on strengtheninge-business New Grouporganizationfocused Organization oftheGroup ICT BusinessSolutions. Business Marketing,CorporateandSMESales Officer Business(COOBusiness)andincorporates The BusinessunitisheadedbytheChiefOperating Business unit Residential MarketingandSales. Officer Residential(COOResidential)andincorporates The ResidentialunitisheadedbytheChiefOperating Residential unit Officer (COO). strengthened withtheintroductionofaChiefOperating Since 20July2012theGroup’sorganizationhasbeen • • The organizationalstructureoftheGroupisasfollows: cal Functions. Facing Units,Wholesale,CustomerServicesandTechni- activities acrosstheResidentialandBusinessCustomer g ting Officer(COO)positionincludecoordinating,mana- The mainresponsibilitiesofthenewGroupChiefOpera- Chief OperatingOfficer • • • ing andintegratingoperationaltransformational Functions tions/ TechnicalFunctions/ChiefOperatingOfficer Customer FacingUnits/SupportandSteeringFunc- ManagementBoard Work Units Departments Sectors customer community. EXTRA total+ tariffs were introduced customer community.EXTRAtotal+ tariffswereintroduced ing activitiesthatemphasizedthe potentialoftheGroup’s In themobilesegment,2012wascharacterisedbymarket- Major achievementsin2012 • • • • • • • • • • • Overview Residential Segment by contributiontoEBITDAlevel. In itsfinancialreports,theGroup’ssegmentsarereported 2011, segmentalreportingwasintroducedalongtheselines. and Businesssegments.Startingfromthefirstquarterof were replacedbyanewstructurebasedontheResidential Mobile, servingthefixedandmobilemarketsrespectively, On 1January2010,theformerdivisionsofT-ComandT- and Business Business units:Residential MAXtv To Go continue to grow successfully MAXtv ToGocontinuetogrowsuccessfully Satellite TV,anextensionofclassicIPTVservice,and MAX 2/3bundlepackagespromotions end-2012 526,000 ADSLmainlinesand344,000TVcustomersat 4G mobilenetworkbeyondurbanareas First tolaunch4GmobileInternetandfirstexpand partnership withMultiplusCard-mobile Launch ofnewMVNObrandinCroatiaMarch, Innovations insaleschannelsprepaidsegment attractive offers New communicationplatformforSimpaandlaunchof Extra Obitelj+tariffintroducedParentalControlfeature and prepaidsegment Continuous MNPandretentioneffortsbothinpostpaid duction ofEXTRAtotal+tariffs Postpaid EXTRAtariffswereenhancedwiththeintro- (mobile, fixedlineandIP) T-HT maintaineditsleadingpositioninallthreemarkets designed toprovidevalueformoney. portability offerswitharangeofbenefitsandotheroptions fers foryoungerpeople(18to28yearold),mobilenumber handset. Thepostpaidsegmentalsoranpromotionalof- to signacontractforpostpaidtariffswithoutbuying ment wasintroduced.Undertheoffer,customersareable In addition,in2012aSIM-onlyofferthepostpaidseg- monitor theirchildren’smobilephoneactivities). ntal Control(auniquenewfeaturethatenablesparentsto set upfeesandvariousadditionalbenefitsincludingPare- calls withinT-HTmobileandfixednetworkswithoutcall EXTRA Obitelj+ tariff offers unlimited data usage, unlimited promoting EXTRAObitelj+tariffwasalsolaunched.The Alongside thenewEXTRAtotal+tariffs,acampaign smartphones, suchastheiPhoneandSamsungGalaxyS3. web shop(viacreditcard),SMSapostpaidaccount) customers nowabletotopuptheiraccountsthrougha the prepaidsegmentin2012-withSimpaandT-prepaid Innovations insaleschannelshavebeenanotherfeatureof period, theofferremainedpermanent. for averyaffordableprice.Afterthepromotionalcampaign internet includedandthousandminutesforcrossnetcalls opcija” -ofunlimitedtextmessages,with1GBmobile tional campaignincludingacompellingoffer-“Prejaka At thestartofJune2012,Simpalaunchedanewpromo- options suchastherecentlylaunched“Sveumreži”. mobile usersregardlessofthetopupamountandvarious tariff, whichoffersunlimitedcallstoallT-HTfixedand er communitywasfurthermoreemphasizedbythe“Pričaj” Within the prepaid segment, the focus on the T-HT custom- in partnershipwithAllianz. purchased aspartofaT-HToffer.Thisserviceisoffered that enablescustomerstoinsureanycellphoneortablet on themarketinCroatiaahandsetinsurancescheme In December2012,T-HTalsoofferedforthefirsttime accompanied byattractivehandsetofferswiththelatest call setupfee.ThepromotionofEXTRAtotal+tariffswas a all usersusingT-HT’smobileandfixednetworkwithout at thebeginningofJuneenablingfree,unlimitedtalkwith receive additional10%credit. and infixedlinewithnewservice calledHalobon-and

43 Business review 2012 44 Business review 2012 locations throughoutthewholecountry. on efits includingflatinternetaccessviaT-HTHotSpots “All inclusivepackages”offeringvisitorsarangeofben- The touristseasoninCroatiasawthesuccessofT-HT’s functionalities. Bonbon alsolaunchedanewwebsitewithenhanced SMS anddatatrafficatthesameprice. their particularneeds,nowincludetwiceasmanyminutes, which arefreeforbonbonuserstocombineaccording offer wasalsoenhanced-voice,textanddatapackages, new andexistingbonbonusers.Theuniquetariff various acquisitioncampaignsandpromotionaloffersfor Bonbon maintaineditssuccessfultrajectoryin2012with is expectedtoexpandfurtherin 2013. MAXtv -waslaunchedinpartnership withSuperSportand services. InOctober2012,anewservice-livebettingon satellite TVandthesuccessfulrolloutofMAXtvToGO 2012 alsosawanumberofpromotionaloffersforMAXtv service. savings withouthavingtocompromiseonthequalityof 2/3 andMAXTotalbundledpackagesofferingcustomers existing T-HTcustomers,in2012launcheditsMAX In thefixedsegment,alongsidepromotionsfornewand start expandingthe4Gnetworkbeyondmajorcities. internet. InDecember2012,HTwasalsofirstonmarketto movie usingvariousfunctionalitiesofsuperfast4Gmobile able toparticipateinthecreativeprocessofmakinga through the“Moveon”campaign,wheremoviefanswere of thefirst-everlivecommercialinCroatiaandcontinued of mobileinternettariffsbasedon4Gthroughcreation 3G network.Thelaunchwasaccompaniedbypromotions ers datatransmissionupto10timesfasterthanthecurrent LTE technologyinMarch2012.The4Gnetworkoffersus- plete thecommerciallaunchanew4Gnetworkbasedon HT wasthefirstinCroatiantelecomsmarkettocom- option, attractivehandsetoffersandspecialpromotions. make progressthroughtheintroductionofmobileinternet Card program. During 2012, Multiplus mobile continued to mobile, waslaunchedwithpartnersfromtheMultiplus In March2012,anewMVNObrandinCroatia,Multiplus Blended ARPUremainedatthesamelevelin2012com- a largeamountofminutesinpostpaidandprepaidtariffs. introduction offlatoffersandbundlesincluding 2012 increasedby25.5%comparedto2011duethe Minutes ofusageperaveragesubscriberattheend tion topostpaidcontracts. decrease inprepaidsubscribers,partlyaresultofmigra- net offers.Thedecreasewasdrivenprimarilybya7.4% customers withdoubleSIMcardsduetofavorablecross subscribers attheendof2011,largelyowingtoafallin 1,859,000 subscribersattheendof2012from1,964,000 The mobilesubscriberbasedecreasedby5.4%,to T-HT commercialwebpage. In July2012,afullyfunctionalwebshopwaslaunchedon tal withfunctionalitiesforbothfixedandmobileservices. of 2012, there were 344,000 customers, up 7.0% over 2011. of 2012,therewere344,000customers, up7.0%over2011. The TVcustomerbaseisgrowing steadilyandattheend packages. due toanincreasedshareofcustomerswithhighertraffic same timebroadbandretailARPAincreasedby3.0% totalled 526,000,down2.4%onthepreviousyear.At By theendof2012,numberbroadbandretailaccesses result oftheprevailingmarkettrendsmentionedabove. Fixed voiceARPAdecreased3.2%from2012yearasa mobile andIPtraffic. trend demonstratesthesubstitutionoffixedtrafficwith 2012, down11.2%thanthepreviousyear.Thismarket Fixed telephonyusersgenerated1,851millionminutesin community aswellserviceexcellence. that emphasizethebenefitsofT-HTfixedandmobile The Groupalsomaintaineditscompetitivenesswithoffers tion markettrendoffixedtomobileandIPsubstitution. wholesale productsandisinlinewiththetelecommunica- The declinewasduetotheregulatoryintroductionofnew of thedeclinecurtailedbysuccessfulwinbackactivities. 1,032,000 were3.3%lowerthanin2011,withtheextent By theendofyear2012,totalfixedaccessmainlines sed minutesofusage. pared to2011,asaresultofattractiveoffersandincrea- At thebeginningof2012,T-HTlaunchedMyTwebpor- removal ofacallsetupfee. As of1June,theTotaltariffgroupwasenhancedby packages ofmessagesandminutestoothernetworks. community, flat-rateInternetaccessandattractive option offerunlimitedcallstotheT-ComandT-Mobile Total tariffswiththeNeograničenapriča(unlimitedtalk) launched forexistingandnewbusinessusers.ExtraBiz The Priča,MixandTotalnewExtraBiztariffswere ous yearandblendedARPUwasdown13%. of useperaveragesubscriberfell9.8%fromtheprevi use andARPUdemonstratedanegativetrend.Minutes Due tochallengingeconomicfactors,bothminutesof were separatelyreportedoutofthewholeprepaidbase. the previousyear.In2012businessprepaidcustomers The Group’smobilecustomerbaserose2.9%over Major achievementsin2012 • • • • • • Overview Business Segment these services. with continuouslyimprovedoffersdrivinguptakeof nues togrow(in2012increased121.1%over2011), Satellite TV,anextensionofclassicIPTVservices,conti- Net phonepackageDuoFlatpackagesintroduced Medium Enterprisessegment(Max2Bizpackages) Integrated fixedvoice/internetofferingforSmall& New mobiletariffs(ExtraBiz)launched folio andlaunchofmarketplace ICT sawfurtherdevelopmentofCloudservicesport- line withmarkettrends mobile pricesperminuteandfixedvoiceusage,in Retail revenuedeclinedyear-on-yearduetolower markets (mobile,fixedlineandIP) T-HT maintaineditsleadingpositioninallthree - employment andthenumberof linefell8.7%to176,000. been hardhitbythechallenging economyandrisingun- migration. Atthesametime,thispartofbusinesshas market, duetoincreasingfixedmobilesubstitution,IP overall trendsseenintheglobaltelecommunications T-HT’s fixedretailcustomerbaseperformedinlinewith USSD Proproducts. the formofServiceOdlazniSMSProandpackage USSD (UnstructuredSupplementaryServiceData)in In Q4,theGrouplaunchedretailprofessionalSMSand introduced inMarch. T-mobile HRnetworkandallfixednetworkswere Under theVPNExclusivetariff,unlimitedcallstowards voice services. use datatrafficaspartoftheirexistingmonthlytarifffor service, whichallowsadditionaldatasubscribersto ber totheendofyearwereofferednewPodijelinet All newandexistingbusinesscustomersfromSeptem- contract or12monthsona24-monthcontract. on themonthlyfeeduringforsixmonthsa12-month net LorMobileXLtariffreceiveda50%discount sting businesscustomerswillingtosignupforMobile FromSeptemberuntiltheendofyear,allnewandexi- 12 monthsona24-monthcontract. monthly feeforsixmonthsona12-monthcontractor L orMobileInternetXLtariffsreceived50%onthe business customerssigningupfortheMobileInternet In mobileInternet,inJulyandAugustnewexisting tion toallnetworksandunlimitedSMS. HRK 50monthlyfee,enablingunlimitedcommunica- business customersonExtraBizTotal+tariffsforan At theendofOctober,OptionFlatwasofferedto 12 monthsfora24-monthcontract). monthly fee(sixmonthsfora12-monthcontractand to T-HTfromanothernetworkreceived50%offthe contract). Customerstransferringmobilenumber for a12-monthcontractor12months24-month received 50%discountonthemonthlyfee(threemonths signing upfortheExtraBizTotal+L,XLandXXLtariffs From October,newandexistingbusinesscustomers 45 Business review 2012 46 Business review 2012 one month. Snimalica 30productswereprovidedfreeservicesfor New andexistingcustomersontheSnimalica10or six months. IPTV receivedtheSportspluspackageforfree where customerssigninga24-monthcontractfor For existingIPTVcustomers,theGrouprananoffer plus packageandHBO&Cinemax. and onemonthaccesstoofthefollowing:Sports received 50%offthemonthlyfeeforfirst12months ers signing24-monthcontractsduringthepromotion new DTH(Direct-to-homesatellitedish)users.Custom- Until endofyear,theGroupranpromotionaloffersto programming. of continuousimprovementsincustomerserviceand scribers comparedwiththepreviousyear,asaresult The TVsubscriberbasegrew6.1%to21,000sub- prices forcustomerssigning12/24monthcontracts. MAX2 Bizpackageswereoffered,withattractivegadget flat callstoT-ComandInternet.Specialoffers on (Mini2, Start2andPlus2),comprising2-8phonelines, In August,theGroupintroduceditsNPP2Flatpackages tracts wereofferedgadgetswithattractiveprices. speeds andtothecustomerssigning12/24monthcon- also launchedspecialoffersonflatpackageswith4Mbps ages wereintroducedonapermanentbasis.TheGroup At thebeginningofMarch,Max2BizS,MandFlatpack- ket regulation,whilstARPAremainedflatto2011. than thepreviousyearreachingto107,000duemar- The broadbandretailsubscriberbasewas0.4%lower in fixedtelephony. Net PhoneOffice,DataOfficeserviceswereintroduced ages includingfixed,mobileandICTservices.InQ3,the In May,theGroupintroducedconvergentoffers-pack 9.0% toHRK216. on thepreviousyearandfixedvoiceARPAdecreased As aconsequence,totalfixedtrafficwas21.5%down - The VPNcustomerbaseincreasedby1.4%compared The IPFixedlinecustomerbaseincreasedby3.2%. to developitsICTportfolio.Inaddition,theGroup Registers andVPSredesigntheGroupcontinues 2012: CloudFleetManagement,HybridCloud,Fiscal The ICTbusinesslaunchedanumberofproductsin ICT showed growth. Traditional datalinesfell,buttheMetroEthernetservice The numberofdatalinesfell3%onthepreviousyear. isting traditionaldatacustomerstoIPbasedproducts. to 2011.T-HTcontinuespromotethemigrationofex- actual ChampionsLeaguesoccertournament. champions wonatriptoLondonseethefinalof play theroleofmanagerinavirtualsoccerleague.The tportal.hr, allowinguserstocreatetheirownteamsand football communitymicrositewaslaunchedatfantasy. Europe Leaguebroadcastingrights,anewfantasy Leveraging theGroup’sUEFAChampionsLeagueand page, andshouldfurtherimproveclick-throughrates. ters. Thenewlayoutoffersmorecontentonasingle of aredesignedproductoptimizedfordesktopcompu- In Q42012tportalcompletedpreparationsforthelaunch Croatian internetusers. agency. tportal’spenetrationstandsataround40%of ing toGemius,anindependentInternettrafficresearch more than800,000uniquevisitorspermonth,accord- tportal ranksamongtopfiveCroatianwebportals,with tportal enterprise segmentwithCombis. vered arangeofcustomizedICTsolutionstargetingthe channel forallSaaSapplications.TheGroupalsodeli- launched itsICTMarketplace-anewdistribution stomers andthelowerARPUvalueofnewCPScusto- In lightofthedecreasednumberWLRandCPScu- to otherservices. of 2012,owingtothemigrationthesecustomers number ofWLRlinesshrankto104,000attheend additions (ratherthantoCPSgrossadditions).The with WLRactivationsandcontributetogross 2011. NewCPSactivationswereprimarilyconnected mers fellto32,000attheendof2012from96,000in number of“pure”CarrierPre-Selection(CPS)custo- With thelaunchofWholesaleLineRental(WLR), access customerbase. resulting inthegrowthoftotalwholesalebitstream Naked BSAandmorechurnfromto months ahead,theGroupexpectsincreasedinterestin lines isstillnotsignificant(below2,000)butinthe strated growthin2012.ThenumberofNakedBSA Wholesale bitstreamaccessoncopperalsodemon- tion rooms. tors starttomaximizetheutilizationofexistingcolloca- to showfurthergrowthbutataslowerrate,asopera- 148,000 in2011.ThenumberofULLlinesisexpected reported growthinactiveULLlinesto162,000from The ULL(Unbundledlocalloop)marketin2012 Domestic wholesalemarket Wholesale Mobile iPhoneuserscancustomizethetportalinterface. social networkslikeFacebookandTwitter.Inaddition,T- SMS informationalertsandT-MobileWAPportal,on This contentisavailablethroughPDAs,mobiledevices, further improvingitsstatisticalmetrics. dating theportal’spositioninginsocialnetworksand wed continuousgrowthtomorethan275,000,consoli- The numberoftportal’sFacebookpagefollowerssho- ction, providingrecipesandhealthyeatinginformation. Other newprojectshaveincludedapopularFoodsubse- strategic policytoforcenon-commercialinternational On thecostside,biggestsuccessresultedfroma revenue decreaseinthissegment. ties inneighbouringcountries,whichpartlyoffsetthe 70%), T-HTachieved18%growthinsoldIPcapaci- a fallinIPwholesaleservicespricesofmorethan of presence)inBosniaandHerzegovina(causing Slovenia startingoperationsofitsphysicalPoP(point operators, deliveringstablerevenue.DespiteTelekom with 162%growthofcapacitiessoldtointernational data andcapacitybusinessscorednotablesuccess and upgradesofexistingcapacities,theinternational the numberofnewcontracts,interconnections the internationaldataandcapacitymarket,dueto Despite increasedcompetitionandpriceerosionin countries declinedby17%. by 6%.Atthesametimetransittraffictoneighbouring 5% andtraffictoCroatianmobilenetworksdecreased as in2011,traffictothefixednetworkincreased by incoming traffictoCroatiaremainedatthesamelevel of Croatiaandneighbouringcountries.Although nation ofinternationalvoicetrafficintotheRepublic majority ofinternationalbusinessisrelatedtotermi- part oftotalfixedwholesalerevenuein2012.The Sales tointernationaloperatorsremainedasignificant International wholesalemarket year, whileSMSstayedonthe2011level. 17%, datatrafficwas5.5timeshigherthanprevious In 2012,NationalRoamingvoicetrafficincreasedby generating morethanhalfoftheBulkSMStraffic. consolidation oftheBulkSMSmarketwithintegrators by 33%overthepreviousyear,mainlydueto In 2012,thevolumeofBulkSMSmessagesincreased remained flattothepreviousyear. number ofterminatedminutesintotheT-HTnetwork to thesameperiodlastyear.Onotherhand, mers, originatedminutesdeclinedby27%compared 47 Business review 2012 48 Business review 2012 resulted in92directvoiceanddatainterconnections points ofpresence(Frankfurt,ViennaandSarajevo), as aflexiblelow-costinterconnectionatinternational ternational operatorsinneighbouringcountriesaswell 2012. Alargenumberofbordercrossings(33)within- of presenceandbordercrossingswerecarriedoutin of capacityandtechnologiesatinternationalpoints in theinternationalbusiness.Continuousupgrades were thekeyreasonforanoverallstrongperformance Intensive activitiesrelatedtotheinternationalnetwork tiveness oftheT-HTofferinIPmarket. year. Reducedcostsfurtherenhancedthecompeti- IP upstreamroseto62%from52%intheprevious 2012, T-HT’sshareoffreechargeIPpeeringintotal cial IPupstreamtoappropriatelevels.Attheendof IP peeringwhereverpossibleandtoreducecommer- compared to2011. decrease intotalinternationalroamingcostof38% number ofinternationalagreements,ledtoasignificant steering capabilities,aswelltherenegotiationofa 15%, voiceby22%andSMS24%).Improved countries decreasedinalltrafficcategories(databy generated byT-HTcustomerswhileroaminginforeign decreased invoiceby4%.Atthesametime,traffic grew intheSMSsegmentby5%,data101%and International roamingtrafficfromvisitorsinCroatia in 2012withthosepartners. services (voice,GPRS,UMTS,Camel)werelaunched ners worldwide.Overall,81newinternationalroaming interconnected resultinginatotalof410roamingpart 2012, 19newinternationalroamingpartnerswere with globalandregionaloperatorsin2012.During - and improvecostmanagement. the complexityofservicedevelopmentandmaintenance A numberofprojectshavealsobeeninitiatedtoreduce support astrongincreaseindatatraffic. network infrastructureandcapacityexpansionto such asUMTS900.TheGroupcontinuedexpansionofthe through bothexistingandnewlydeployedtechnologies es. Theprojectaimsatimprovingdataservicescoverage utilization ofexistinginfrastructureandfrequencyresourc- technologies (e.g.HSPA,LTE),whilstensuringmaximum and rapidimplementationofinnovativecosteffective core networktransformation,toenablethedevelopment BroadBand (MBB)project.Thistargetsradioaccessand In themobilenetwork,GrouplaunchedMobile vision onthebroadbandport. existing serviceplatformtoenableVoIPtelephonypro- Furthermore, theGrouphascontinuedtoupgrade selective modernizationofcopperaccessnetwork. includes anopticalaccessplatform(GPON)alongside the constructionofanewopticalaccessnetworkthat The Group’saccessnetworkhasbeentransformedby providing allservicesviaonecommonbroadbandport. In thefixednetwork,T-HThasadoptedastrategyof switched telephonenetwork)servicesandcustomers. service platforms,alongwiththemigrationofPSTN(public capacity, andmodernizingtransport/corenetwork network infrastructure,increasingbroadbandaccess In 2012,T-HThasfocusedonfurtherdevelopingthe Network andserviceplatforms Technologies Network andInformation In the2012,Groupisachieveda2%decreasein Energy efficiency facility started. to thebuilding.ReconstructionofZagreb-Selska center facility,thusincreasingtheavailabilityofpower electricity andcoolinginfrastructureoftheUtrinadata In 2012,theGroupcompleteditsprojecttoextend Energy andcoolinginfrastructure to The Groupiscurrentlyundertakingactivitiesrelated Fiber opticalinfrastructure Network infrastructure and mobilenetworksaspartofthisproject. The GroupplanstoleveragethesynergiesofT-HT’sfixed of broadbandaccessintheruralareasthreecounties. September T-HTwaschosenforsubsidizeddevelopment services. FollowingapublictenderbytheAgency,inmid- Multiplexers) toexpanditscustomerbaseforbroadband The GroupcontinuestorolloutDSLAMs(DSLAccess DSL (DigitalSubscriberLine) Fixed access favorable tariffmodelsandgreaterscrutinyofbilling. power supply,datacenterconsolidation,ashifttomore mobile networklocations,efficientcoolingdevicesand in mobilenetwork,anincreasedworkingtemperatureon fixed network,platformconsolidation,new3Gequipment following: switchingoffanddismantlingequipmentinthe ciency measuresimplementedduringtheyearinclude electricity consumptioncomparedtothe2011.Energyeffi- installation of new nodes. installation ofnewnodes. options thatwillresultinashorterlocalloopduetothe FTTC (fiber-to-the-curb) and FTTN (fiber-to-the-node) FTTC (fiber-to-the-curb)andFTTN(fiber-to-the-node) 49 Business review 2012 50 Business review 2012 nsceiver stationswithnewtechnologystartedinmid-May. network. Theprocessofexchangingtheformerbasetra- The SingleRANprojectisaimedatmodernizingthe2G Evolution andmodernizationof2Gradioaccessnetwork Mobile access structure to other operators. structure tootheroperators. pment aproprietarynetwork aswellrentingoutinfra- revised implementationplanto enablethefuturedevelo- The rolloutofinfrastructureisprogressing inlinewiththe Rollout ofradionetworksites available to13%oftheCroatianpopulation. signal withdownloaddataspeedsofupto75Mb/swas coverage oftheLTEnetwork.Byend2012,an frequency band)bytheAgencywhichwillenablenational November granteduseofthedigitaldividend(800MHz cities ofZagreb,Split,RijekaandOsijek.T-HTwasalsoin 1800 MHzfrequencyband,withcoverageinthefourmain (Long TermEvolution,or4G)networkinCroatiaonthe In 2012theGroupdevelopedfirstcommercialLTE LTE radioaccessnetwork Banija, KordunandDalmatinskaZagora). able (IstočnaandZapadnaSlavonija,Lika,GorskiKotar, until now,mobilebroadbandserviceshadnotbeenavail- nology availableinsmallertownsandruralareaswhere, UMTS900 locationsinSlavoniabegan,making3Gtech- of thepopulation.InSeptember,intensiverollout downlink speedsofupto7.2Mb/sisnowavailable63% and uplinkspeedsof5.8Mb/s.HSDPAfunctionalitywith of populationwithaccessto21Mb/sdownlinkspeeds Brod andVaraždin).HSPA+functionalitycovering49% tions (Zagreb,Split,,,Zadar,,Slavonski downlink speedswasactivatedonthenumerous3Gloca- In November2012,dualcellfunctionalitywith42Mb/s traffic, whichdoubledoverthepreviousyear. 3G networkandtherapidlyincreasingvolumesofdata the increasingnumberofsmartphonesandtabletson the radioaccessnetworkandexpandcapacity,tosupport The Grouphascontinuedtooptimizetheparametersof 3G radioaccessnetworkenhancement throughputs for mobile Internet. throughputs formobileInternet. l migration for3GbasestationsfromATMtoIPtechno- In linewiththeGroup’s“all-IP”strategy,transmission Migration toIP Transport layer operability, robustnessandoverallnetworkperformance. bility between3Gand2Gnetworks,toachievehigherlevelsof tools fortheoptimizationof3Gmobilenetworksaswellmo- During theyear,Groupimplementedadvancedsoftware Advanced radionetworkOSStools test the concept and improve its functionalities. test theconceptandimproveits functionalities. to putintopilotusethisinnovative technologyinorderto optical accesses.HTisthefirstCompanyinDTGroup cost ofdatatransmissionandallowstheproliferation Gbit/s. Thenewtechnologysignificantlyreducestheunit times thecurrentrate,providinguserswithspeedof1 TeraStream raisesaccessnetworkspeedsbyaround50 of advancednext-generationservices. cture andenablessimpleimplementationintegration technology, datacenterandfiberinfrastru- Cloud-enabled IPv6architecture.Itcombinesnetwork novative conceptthatsimplifiesIPnetworksthrough In December,T-HTlaunchedTeraStreampilot,anin- band andwholesaleservicedevelopmentwasenabled. mance monitoringwereupgraded,whilstadvancedbroad- ers. Networkcapacitywasandnetworkqualityperfor- modernization ofsixP2Plinksthatconnectupregionalcent- network reconstructionwascompletedin2012withthe The nationalDWDM(densewavelengthdivisionmultiplex) DWDM networkreconstruction TeraStream Umag -Mestrewasfinalised. tween CroatiaandItalyontheexistingSDHsystemroute The implementationofaninternationalDWDMsystembe- ogy continued, bringing lower costs and higher access ogy continued,bringinglowercostsandhigheraccess exchange areas. for PSTNmigrationisunderwayon18chosenall-IPlocal tion of the HD Voice project, which targets HD voice quality Opinion Score).TFOfunctionality enabledthecontinua- This resultedintheGroup’svoice qualityMOS(Mean of voiceserviceswithaminimum ofspeechtranscoding. (Transcoding FreeOperation).Theseenabletransmission implemented aTFO(TandemFreeOperation)andTrFO To improvevoicequalityonthemobilenetwork,Group CNTdB (CommonNetworkTechnologyDataBase). was undertakenalongsidethecentralcustomerdata-base tegration ofHSS-FE(HomeSubscriberServer-FrontEnd) network. AlsotosupportthelaunchofLTEservice,in- migration towardsthenewePC(evolvedPacketCore) core elementswasthefirststepofcompletepacked tion. Also,installationandintegrationofpacket-switched prerequisite forlaunchingthefirstCroatianLTEconnec- Gateway). Integrationoflistednetworkelementswasa GateWay) andP-GWorPDN-GW(PacketDataNetwork include MME(MobilityManagementEntity),S-GW(Serving switched coreelementsin2012.These The Groupcompletedtheintegrationofnewpacket- Mobile coremodernization and MSANports.Theinstallationofaccessequipment the VoIP-HALOserviceoverbroadbandaccessports In total,over300,000customershavebeenmigratedto PSTN migration also completed. increase platformcapacityandserviceavailability,was was completed.TheIMSupgradeproject,designedto The firstphaseofoptimizationthePSTNtransitlayer technology towardsIPbasedwasfinished. The projecttomigrateaccessnodesfromAXEbased Fixed coremodernization improve capacity. site andtwoProviderEdgeroutersintheZagrebto The GroupreplacedtwoProviderroutersattheVaraždin IP corenetwork Core layer

enabling newcapacitiesforNPVR(networkpersonal shifting VoD(VideoOnDemand)ontoanewplatform, provide anewuserinterface.Theprojectalsoincluded T-HT successfullyupgradedtheIPTVplatformandto IPTV successfully migratedontoit. and allprepaidFavourite-postpaidcustomerswere In 2012,theGroupimplementedanewprepaidplatform Intelligent networkformobileservices and represents the first phase of the new portal platform and representsthefirstphase of thenewportalplatform services withamoretransparent andfasteruserinterface hrvatskitelekom.hr). Thisallows customerstomanageall residential self-assistanceandweb shop2.0portal(moj. In thisareaofbusiness,theGrouplaunchedanew Portal services project andotherinitiatives. new DHCPplatformwasinstalledfortheFEMTOCell,LTE a standards andPCI-DSScertificationwascompleted; e-commerce platformalignedwiththehighestsecurity an upgradeofthee-commercebackendplatform; the firstwebportalavailableoverIPv6-www.tportal.hr; of theDNSplatformforIPv6rollout;introduction hosted solutionforCrnogorskiTelekom;theupgrade to versionR2.Otherinitiativesincludedthelaunchofa (part oftheGroup’sConnectedLifestream)wasupgraded became aGooglePremierPartner.TheDLSiplatform The GrouplaunchedaGoogleAdWordsportal,andHT ISP platform Recommendation Engine. teractive servicesincludingMAXtvBettingandthe of Yesterday)service.TheGroupalsointroducedotherin- video recorder)servicesandthelaunchofTVoY(TV Service layer both the2Gand3Gmobilenetworks. first mobileoperatorsinEuropethatenablesHDvoice the installationof2GHDvoice,makingT-HTone within the 2G mobile network. The Group also completed within the2Gmobilenetwork.TheGroupalsocompleted 51 Business review 2012 52 Business review 2012 sales by technicians doubled over 2011. sales bytechniciansdoubledover 2011. result, processandsystemssupportimproved.Inaddition, cians intheEuropeanWinnersCircleProgram(EWC).Asa awards fortopsalespeopleandtheinclusionoftechni incentive schemesfortechniciansandmanagers,suchas shops, e-learningand1-to-1salestuition.Italsocontinued continued aprogramofstaffeducation,includingwork- ond quarterof2012andthroughouttheyearGroup The saleofICTservicesbytechniciansstartedinthesec- Technicians asasalesman Service andNetworkOperations multimedia files,forMontenegroTelecom. naged serviceforstoring,browsingandsharingpersonal The GroupdevelopedMediaBox,afullyhostedandma- The fleet management product, one of the Group’s Cloud The fleetmanagementproduct,oneoftheGroup’sCloud Fleet management portal wereintroduced. portal withbill-checkfunctionalityandanewBonbon implementation project.Inaddition,anewMyTBusiness Media BoxserviceforMontenegroTelecom rator tariffsavings. traffic to95%from80%,bringingsignificantinter-ope- traffic. Theintegrationhasboostedcontrolofoutbound platform, providingbettercontrolofoutboundroaming The Groupsuccessfullyintegrateditstrafficsteering Traffic steeringplatform Recovery toincreaseplatformstability. Centre) andOMG(OpenMessagingGateway)Disaster The GroupupgradedtheSMSC(ShortMessageService SMSC/OMG efficiency. nesses, providingfleetcontrolsystemsthatincrease services, isdesignedformedium-sizedandlargebusi - - Information Technology & Technologydivision. number, recognizedasbestpracticewithintheDTEurope toring ofCPE(Customer-premisesequipment)byserial and faultrepairs.TheGrouphasalsoimplementedmoni- with otherbusinessareasregardinguserrequirements improvements incostmanagementandcommunication areas forimprovement.Asaresult,theGrouphasseen ciency. AnIMSqualitytuningworkshopwasheldtodefine at thefurtherreducingindirectcostsandincreasingeffi- In 2012,theGroupintroducedanumberofprojectsaimed Quality andefficiency • The Sector’snotableachievementsin2012include: and businessintelligencecapabilities. processes anddevelopingadvancedcustomer,market focuses significanteffortonimprovingservicedelivery mentation ofinnovativeICTservices.TheSectoralso the fulfilmentofregulatoryrequirementsandimple- & billing,fixed/mobilesystemsconsolidation,marketing, The SectorisparticularlyfocusedonconvergenceinCRM the Group’sstrategy. business modelandrepresentoneofthekeypillars the implementationof‘digitalcompany’and‘on-line’ to market.TheSector’sactivitiesareaimedatsupporting enhancing productdevelopmentandacceleratingtime increase revenueandimproveinternalefficiency,whilst technology initiativesthatsupporttheGroup’sgoalsto ness SystemsSectorisresponsibleforinformation improve customerservice.TheInformationandBusi- the telecommunicationsindustryandapowerfultoolto Information Technologyisakeybusinessenablerin fixed services)delivered invoices, bundledpackages);Phase2(invoicingfor and supportfuturebusinessneeds(e.g.convergent invoicing processesforbothmobileandfixedservices Initiation ofabillformatterprojecttostandardize

• • • • • • • • scope oftheproject mization, ICTandCTOsystemswereincludedinthe needs; toachievemaximumcostandprocessopti- maintenance costsandfulfillexpandingbusiness tems, increasecontrolandqualityofprocess,reduce Consolidation ofback-upsystemstounifyallsys- out toT-Centers processes wassuccessfullyimplementedandrolled- tation, processingandarchivingimprovesales The Paperclipprojecttodigitalizecustomerdocumen- automation ofCallCenteroperationsthroughthe cantly improvedcommunicationswithcustomers; The introductionofMyTportalhasbroughtsignifi- line withtheinitialprojectplan T-Centers androll-outtootherison-goingin project (MDM-MasterDataManagement)forthree Completion ofpilotcustomers’dataconsolidation Implementation oftheMPC(multi-projectcontrol) Standardization ofRevenueAssurancesolutionsto enhancements LTE services,performanceandsystemsmonitoring undertaken toenablenewfunctionalities,supportfor An upgradeofmobileservicesmediationsystemswas requirements, whilstenablingnewfunctionalities parameters formarketingandsupportregulatory hour; nearreal-timeratingbasedproductscreate released toenabletrafficdataprocessingwithinone New RatingEngine:anewmobileratingsystemwas and automationofinternalprocesses from suppliersandsub-contractorsoptimization system formonitoring,orderingandcontrollingservices with theGroup’sobjectivetobeanonlinee-business whilst utilizingon-linecommunicationschannelsinline online saleschathasimprovedcustomers’experience routing) hasboostedCS(CustomerSupport);proactive implementation ofadvancedIVRs(intelligencevoice a roadmap,theprojectisnowunderway support revenuecontrol;followingthedevelopmentof

concluded theGroup’ssystemsconformtostandard. ternational standardISO/IEC27001:2005.Regularaudits voice andmobileservicesarecertifiedaccordingtothein- concern throughoutT-HT.Mediationsystemsforfixed ees’, shareholders’andtelecomstrafficdataisacrucial The protectionofcustomers’,salespartners’,employ- Data andITsecurity • changes atDTGrouplevel,wereapproved. ing system).Newsecurityrequirements,alignedwith Standard forPaywaysystem(creditcardpaymentprocess- Telecom achievedcompliancewithLevel2ofPCIDSS nce withT-HTandDTGroup’sstrategyfor2013,Croatian Following globaltrendsinonlinepaymentandaccorda- security. penetration testingwasinitiatedtoimproveIT/NTsystem ken toprotectcustomerdata.Aprocessofregularannual customer datainT-shopsandpartnershopswasunderta- Regular checkingofsecuritymeasuresandtheusage Team) wereestablished. sponse andaHTCERT(ComputerEmergencyResponse Security Assessment).ProceduresforIT/NTincidentre- Assessments inconcertwithDTGroup.APSA(Privacy& improvements, resultingfromCustomerDataSecurity Improvements wereundertakeninsystemssecurity e-business andprocessautomation ate CRM,billingandOSSsystemsthatemphasize new andconvergedservicesimplementappropri- velop acomprehensiveITlandscapethatwillfacilitate the e-Transformationprojecthasbeeninitiatedtode- eTransformation -alongsideorganizationalchanges, 53 Business review 2012

Corporate responsibility

Key CR strategy areas Responsibility to society Responsibility to employees Responsibility to customers Responsibility to suppliers Responsibility to evironment Corporate responsibility in subsidiaries 56 Corporate Responsibility over the long-term. over thelong-term. in businesscanprovideasignificantstrategicadvantage deep rootedunderstandingthataresponsibleapproach the communityinwhichitoperates.Thisresultsfroma profound appreciationoftheroleGroupplayswithin Equally, however,T-HT’ssuccessdependsupona to themarketthroughnewtechnologiesandservices. the successofT-HTliesinnovation,anditsintroduction tion, makingiteasierandmoreeffective.Attheheartof strives atalltimestofacilitateandimprovecommunica- T-HT, Croatia’slargesttelecommunicationsoperator Corporate Responsibility advanced technologiesareavailable on-demandtoall. the knowledgesociety.Ourambition istoensurethat nications servicesandthereby nurture thegrowthof We aimtoprovidewidespread access totelecommu- An informationandknowledge-basedsociety life throughfirst-classcommunicationsandconnectivity. nications solutionsandservicesthatwillimproveeveryday life balance.Ourgoalistodevelopinnovativetelecommu- Our businessispredicatedonenablingtheoptimalwork/ Work/life balance Key CRstrategyareas sense ofresponsibilitytowardsitsstakeholders. report, T-HTGroupaimstooutlineandarticulateitsstrong In thiscomprehensiveCorporateSocialResponsibility society inwhichitoperates. suppliers andinvestors,towardstheenvironment importance areattitudestowardsemployees,customers, particular featuresofitsproductsandservices.Ofequal dependent onfarmorethansimplythequality,priceor T-HT Groupbelievesthatacompany’sreputationis stakeholders onadailybasis. so, articulatesitscorporatevaluestoabroadrangeof knowledge baseofthewidercommunityand,indoing Group endeavourstocontributethedailyactivitiesand tes, isanintegralpartofT-HT’sbusinessculture.The responsible approachtothesocietyinwhichitopera- Sustainable businessoperations,therefore,througha the overallbusinesssuccessofCompany. phere inwhichitisapleasuretoworkandcontribute our customersandco-workers,wecreateanatmos- By promotingcommonstandardsofbehaviourtowards exceptional results. ronment thatencourages,recognizesandappreciates assumption ofresponsibilityandthecreationanenvi- as efficientlypossible,openexpressionofopinions, team work,accomplishmentofthebestresultspossible work, thatpromoteethicalbehaviour,mutualrespect, provide guidelinesthatweneedtofollowinourdaily by theGuidingPrinciplesofCompany.The The systemofvaluesthattheGrouppromotesisdefined Principles ofsociallyresponsibleconduct gas emissions. nsible useofresourcesandaloweringgreenhouse responsibility initiatives,andspecificallyinvolvesrespo- Environmental protectionisakeygoalofoursocial Creating alowcarbonsociety ICT industrythemes. is offering,alongsideexplorations ofbroadertelecomand technological issuesrelatedto the servicesCompany as aplatformfordiscussingtelecommunications and communication channel,inbetaversion.T-Blogwillserve In 2012,theGroupintroducedT-Blog,anewexternal business associates. network primarilyusedforpersonalnetworkingamongst In 2012T-HTalsojoinedLinkedIn,thespecializedsocial services. solving supportandcompilefeedbackonproducts Flickr anddoessoonadailybasis,toprovideproblem mmunications includingFacebook,Twitter,YouTubeand T-HT utilizesarangeofnetworkstoenablecustomerco- in 2012throughthemediumofsocialnetworks. The Grouphascontinuedtoengagewithkeyaudiences and transparentcommunicationwithallitsstakeholders. T-HT Groupbelievesstronglyintheimportanceofopen Dialog withstakeholders perceived breaches of principles and values. perceived breachesofprinciples andvalues. on theappropriatecourseofaction inthecaseofdoubtor conflicts ofinterest.TheCodeprovidesclearinstructions attention paidtothemanagementofinformationand with customers,partnersandsuppliers,special A significantsectionoftheCodefocusesonrelationships guide ourbehaviour.” encapsulated inthestatement“Respectandintegrity The Codeisbasedonthecompany’sGuidingPrinciples, conduct andisbasedonthehighestethicalprinciples. T-HT’s CodeofConductsetsclearstandardsbusiness Code ofConduct Group andimplementtheGroup’sAnti-CorruptionPolicy. 2008 topromoteethicalbusinessdealingsacrossthe The BusinessComplianceDepartmentwasformedin rence toallrelevantcodesandregulations. through arobustcomplianceframeworktoensureadhe- T-HT activelypromotestheprinciplesofethicalbusiness ness processes. of thebusinessandshouldinformeveryaspectbusi- principles areanecessaryprerequisiteforthesuccess of responsiblecorporatemanagement.Assuch,these internal rulesandtheCodeofConductformbasis Compliance withlocallawsandregulationsalong Business compliance and itsconsequences,e.g.TransparencyInternational. been supportinginitiativesaimedatcombatingcorruption or campaigns.Forseveralyears,however,theGrouphas T-HT doesnotprovidefinancialsupporttopoliticalparties dnevnik magazine. the bestinvestorrelationsnationalcompanybyPoslovni to afairvaluation.In2012,T-HTwasgivenanawardfor status andpotentialinwaysthatwillenablethemtocome importance inordertoarticulatetheGroup’scurrent Transparent communicationwithinvestorsisofparticular single sitetoimprovetheuserexperience. pulling togetherallinformationonservicestoa In 2012,theGrouplauncheditsredesignedwebportal, self-assessed reportinglevelBwasthen assurance onthe2011SustainabilityReportofT-HT PricewaterhouseCoopers d.o.o.providedindependent a GRIlevelthathasbeenconfirmedbytheGRI. produced thefirstsustainabilityreportinCroatiatoachieve tion oftheseprinciples. Group regularlyreportsonitsprogress intheimplementa- bility Indexfor2013.ThisratessharesinleadingCEE year, intheViennaStockExchange’sCEERIUSSustaina- In 2012,T-HTwasincluded,forthefourthconsecutive the firsttimein2012withreferenceto2011. national organizationGlobalReportingInitiative(GRI),for T-HT reportedonCSR,applyingtheguidelinesofinter- Certificates principles ofresponsiblebusiness. Startingin2009,the which supportsfundamentalsocialvalueswithinthe10 In 2007,T-HTjoinedtheUNGlobalCompactinitiative, welfare andenvironmentalprotection. promote abalancebetweencommercialsuccess,social economy whoshareknowledgeandinnovativeideasto that bringstogetherrepresentativesoftheCroatian Sustainable Development(HRPSOR),anorganization In 2011,T-HTjoinedtheCroatianBusinessCouncilfor business principles. social responsibilityandtheapplicationofsustainable the so-calledCSRIndex,outlineslevelofacompany’s category. TheoriginalnationalCSRmeasurementtool, (Indeks DOP-a)listingfor2011inthelargecompanies T-HT wasalsorecognizedbybeinggrantedaCSRIndex proud toagainreceivethisrecognitionfor2012. sustainable developmentpolicies,in2008.T-HTwas respect toitsstandardsofcorporateresponsibilityand Oekom ResearchaddedT-HTtoitsPrimecategory,with same award. sixth consecutivehonouringtheT-Combrandwith the TrustedBrandawardbyReader’sDigest.Thisis T-HT, itsbrandsT-ComandT-Mobile,oncemorereceived and economicperformance. region companieswithrespecttosocial,environmental the globalissuerofguidelines.Asa was auditedbyPricewaterhouseCoopers result, the Group result, theGroup confirmed by and the Group’s and theGroup’s The Report The Report

57 Corporate Responsibility 58 Corporate Responsibility 060 numbers-charityactionsupport educational institutions,andenvironmentalorganizations. working withthedisabled,elderlyandchildren, funds wereawardedtomedicalinstitutions,institutions Croatia andT-HTdonatedatotalofHRK572,000.The were chosenfrom125applicationsreceivedallover In 2012,theseventhyearofinitiative,20projects donates funds. and ultimatelyselecttheprojectstowhichCompany ees playakeyrole.Itistheemployeeswhopropose “Zajedno smojači”isaninitiativeinwhichT-HTemploy- “Zajedno smojači”(Togetherwearestronger) and guardiansofchildrenaged0-7. Phone), aphoneandInternethelplinefortheparents In May2012,UNICEFlaunched“Telefončić”(Little Croatian andinternationalfilms. and hearingimpairedchildrentoenjoyarichprogramof is theChildrens’RightsFestival,providingaccesstosight Another initiativeagainsupportedbytheGroupin2012 valuable UNICEFproject. system wherebycustomerscanalsocontributetothis Alongside corporatedonations,T-HThasprovideda disabilities aswellchildrenwithdevelopmentalissues. psycho-social supportforparentsofyoungchildrenwith supported thedevelopmentofanewnationalmodel across thepastsevenyears.In2011,donationsbyT-HT we havebuiltastrongrelationshipwiththeorganization T-HT GroupwasUNICEF’sfirstpartnerinCroatia,and UNICEF relationships betweenthecompanyandbeneficiaries. increases theirefficacyandleadstobetterstronger charity andecology.Mostprojectsareongoingthis the variousstrandsofmoderntechnology,education, is itsfocusonprojectsoflastingvaluethatpulltogether A commoncharacteristicofT-HT’scharitableactivities make contributions,anactivity inwhichithasengaged igns byprovidingtelephonelines toallowthepublic In 2012,T-HTcontinuedtosupport othercharitycampa- Donations andsponsorships The Groupinvitesspeakersfromacademia,thebusiness (Growing throughKnowledge)conferenceinZagreb. In October2012,T-HThelditsfifth“Znanjemrastemo” (Growing throughKnowledge)Conference “Znanjem rastemo” Knowledge society and ideasbetweenscience theeconomy. Activity, aimedatpromotingthe transferofknowledge on CooperationinScientificResearchandDevelopment originated inNovember2006withtheFrameContract of ElectricalEngineeringandComputing(FER),which T-HT hasalong-standingagreementwiththeFaculty Cooperation withtheacademiccommunity forums andconferences. port andequipmenttoanumberoflocalinternational The Groupalsoprovidedtheinfrastructure,technicalsup- the telecommunicationssectoranditscommunities. Taly Daysrelatedtom-healthandotherevents IDC Conference,theImagineCup2012project,Hospi- ference, theCombisConference,Cisco logy expertsincludingasWinDays2012,theMIPROCon- dge societythroughitssupportforgatheringsoftechno- T-HT playsakeyroleinthedevelopmentofknowle- Support toexpertconferences and authoroninnovationentrepreneurship. responsibility andSarahLacy,anaward-winningjournalist cal physicsandadvocateofscientificethicssocial prominent physicistandfuturologist,professoroftheoreti- ics. In2012,theguestspeakerswereDrMichioKaku,a community andthemediatoinitiatedebateonkeytop HRK 1,5millionforcharity. these initiativestothecausesconcerned,raisingatotalof and RTLHelpsChildren.T-HTdonatedallproceedsfrom tary clubZagrebKaptol,SOSChildren’sVillageHrvatska way in2012includedtheAnaRukavinaFoundation,Ro- since 2001.Campaignsandorganizationsassistedinthis - ship oftheCityVaraždin. and VaraždinBaroqueEvenings throughitssponsor- Group alsosupportedthe“Špancirfest” streetfestival and theGavellaCityDramaTheatres inZagreb.The national theatresinOsijek,Split,RijekaandVaraždin T-HT continueditstraditionofsponsoringCroatian Theatres telecommunications servicestothemuseum. cellence. Aswellasfinancialsupport,T-HTalsoprovides all generations,andtheonlycriterionforselectionwasex- MSU. Submissionsforselectioncamefromartistsacross the internationaljuryselected40foranexhibitionin held in2012.Fromatotalof249worksartsubmitted awards inthefieldofcontemporaryartCroatia,was [email protected] ,onethemostprestigiousannual the bestCroatiancontemporaryworkofart.Thefifth continued throughout2012withtheannualawardfor Contemporary Art(MSU)since2007.Thispartnership T-HT hasbeenthemainpartnerofMuseum [email protected] Culture the RotaryClubZagrebKaptol. the “Korakuživot”(StepintoLife)scheme,organizedby support tofundfurthereducationalopportunitiesunder scholarships tofivestudentswholackadequateparental Also in 2012 and again for the second year, T-HT awarded broad rangeofextracurricularactivities. results atuniversityanddemonstratedparticipationina and ComputinginZagrebwhohaveachievedexcellent the topstudentsatFacultyofElectricalEngineering monthly scholarships.Thecandidateswereselectedfrom In 2012,forthesecondyearsixundergraduatesreceived The GroupalsocontinuesitsT-HTScholarshipproject. Scholarships recruits thatcanhelpthebusinesstogrowandinnovate. versities, whichinturnofferarichpoolofpotentialfuture and planssimilaragreementswithotherfacultiesuni- T-HT alsoworkscloselywiththeFacultyofLawinZagreb Woodkid, Dillon,Kimiko,andItch/Pytzek. electronic musicscene,suchasHotChip,, mances bysomeofthehottestperformersoncurrent 2012, whichattractedmorethan2,000visitorsforperfor- T-HT supportedtheElectronicBeatsZagrebFestival Electronic BeatsFestival novel „Sanjaosamslonove“(“Idreamedofelephants”). The journalistandauthorIvicaĐikićwontheprizeforhis for [email protected],000. For thefifthconsecutiveyeartportal.hrranitscompetition The [email protected] Zagreb FilmFestival,ManiaandtheForumZadar. Film Festival,theVukovarZagrebdox, In 2012,T-HTsupportedanumberoffilmfestivals:thePula Film festivals Premiere Football League (prva hrvatska nogometna liga), Premiere FootballLeague(prva hrvatskanogometnaliga), The cooperationbetweenMAXtv andtheCroatian MAXtv PremierLeague top facilitiesfortrainingandcompeting. ties improvetheirskillsandtoprovidethesameaccess launched theFoundationtohelptopathleteswithdisabili- lympic Foundation.TheCroatianParalympicCommittee T-HT isoneofthefirstsupportingmembersPara- Paralympic Foundation and femaleathletescompetingin15sports. July to12August,Croatiawasrepresentedby110male At SummerOlympics,whichwereheldinLondonfrom27 competition, persistenceandthepursuitofexcellence. and theguidingprinciplesofOlympicGames:fair underscoring thecommongroundbetweenT-HT’svalues with theCroatianOlympicCommitteeasitsmainsponsor, The T-HTGroupcontinueditslong-standingcooperation The CroatianOlympicCommittee Sports 59 Corporate Responsibility 60 Corporate Responsibility Age structure Sportske igremladih(YouthSportsGames) the CroatianPremierFootballLeague. matches onnewinteractiveplatforms.T-HTalsosponsors um productionqualityanddeliveringCroatianfootball the MAXtvPrvaliga,continuedin2012bringingpremi- Gender structureinHT2012 Responsibility towardsemployees anti-alcohol andanti-violencemessage. cities. Theeventisunderpinnedbyastronganti-drugs, years oldcametogethertocompetein10sportsand16 2012, around80,000youngcompetitorsfrom7to18 Games, thelargestamateursportseventinCroatia.In T-HT isalong-standingsponsoroftheYouthSports Employees 20-24 30-34 25-29 35-39 40-45 45-49 50-54 55-59 60+ total 37 63 0% 1% 1% Managers total 60 40 5% 7% Members MB 75 25 10% 10% 12% Operating Directors 13% 50 50 15% 15% •

Directors Male 20% 45 55 •

20% • % employees 21%

FemMale Heads of WU 25% 36 64 colleagues acrosstheorganisationtoincreasemanage- knowledge andexperience.Thepracticeoflearningfrom initiatives throughouttheyear,promotingsharingof The Grouphascontinueditsmanagementdevelopment remains akeyfocus Management careerdevelopment Education structure development ofprojectmanagement capabilities. and internalcooperation,supporting innovationandthe We havefocusedouractivitieson enhancingperformance „Closer totheCustomer“(referred toabove)havecontinued. ployee lecturesdeliveredbyexpertsinparticularareas)and successful programssuchas„KnowledgeonThursday“(em- Internal channelsforknowledgetransferwereextendedand “Go Ahead“programintroducedforallemployeesin2011. staff capabilitiesandencouragingexcellence,followingthe In 2012theGroupcontinuedinitiativesaimedatdeveloping fundamental toourculture Further developmentofemployeesremains call centersandinthefieldwithtechnicians. aspects ofgoodservice,spendingtimeatsalesoutlets, the participantsstudiedboththeoreticalandpractical foster excellenceincustomerservice.Underthescheme, also continuedour“Closertothecustomer“program to shadowcolleaguesforperiodofseveraldays.Wehave management teamsweresecondedtootherbusinessunit of differentbusinessareasandtheirobjectives,sothe functional cooperationthroughadeeperunderstanding by professionalcoach.Ouraimwastoincreasecross- skills, exchangingexperiencesinsmallgroupsfacilitated tives haveprovidedtheopportunitytoenhanceleadership exercise amongst all management personnel. These initia- ment competencieshasprovedtobeahighlyvalued

Semi-skilled -1% Unskilled, PrimarySchool, Secondary School-53% Skilled, Highls College -12% University Degree-34% D.Sc., M.Sc., ideas betweenscienceandthe broadereconomy. the objectiveofpromoting transfer ofknowledgeand on scientificresearchanddevelopment activitieswith Computing (FER).Thislong-standing cooperationfocuses Law inZagrebandFacultyofElectricalEngineering with theacademiccommunity,particularlyFacultyof As theleadingtelecomprovider,T-HThascloselinks Cooperation withtheacademiccommunity dge theGroupwillrequiredforfuture. define anddevelopthecompetencies,skillsknowle- es strategicplanningmethodologywhichwillenableusto In 2012westartedimplementinganewHumanResourc- Human Resourcesstrategicplanning they havedemonstratedinthecourseoftheirwork. show our appreciation for the dedication and commitment ties forrelaxation,entertainmentandculturalpursuits,we expectations. Byprovidingouremployeeswithopportuni- excellence, andservicethatgoeswaybeyondcustomer that recognizesandrewardsadditionaleffort,employee We alsointroducedthe„TojeTo!“(ThisisIt!)program the entireGroup. alongside anewperformancemanagementsystemfor for salesstaff,techniciansandcallcenterpersonnel, business, in2012wedevelopedarewardssystem To promotehighachievementacrossallareasofthe Performance management or MBAprogram. and undertakepostgraduatestudyoraprofessional ssional educationontheT-HTscholarshipscheme were alsoofferedthechancetocontinuefurtherprofe- In total,25theGroup’stopperformingemployees international level. gement andshareknowledgeexperienceonan experiences, participateindiscussionswithtopmana- ties totakeonincreasinglycomplextasks,acquirenew development. Theseemployeesweregivenopportuni- strong performanceanddisplayedpotentialforfurther most talentedemployees-thosethathavedelivereda In 2012,weputaparticularemphasisonnurturingour Additional opportunitiesforstaremployees employees’ sportsdays. with thecontinuationofitslong-standingtradition affirmed itsdedicationtopromotingahealthylifestyle sports activitiesfundedbytheGroup.In2012T-HTre- Staff alsohaveaccesstoarangeofrecreationaland sonal influenza. a numberofpotentialhealthproblemssuchassea- ups forallemployeesalongwithvaccinationsagainst the Groupprovidesregularannualmedicalcheck The healthofourstaffiscourseakeypriorityand out intheCollectiveAgreement. rewards aspartofarangefinancialassistanceset bonus, giftforchildren,vouchersEasterandjubilee benefits includetheannualvacationbonus,Christmas ployees -bothfinancialandnon-financial.Financial The Groupprovidesnumerousbenefitstoitsem- Additional employeebenefits and dynamism. organizations withtheaimoftappingintotheirnewideas accepts invitationstocooperatefromvariousstudent Electrical EngineeringandComputing.TheGroupreadily promising first-yeargraduatestudentsoftheFaculty T-HT alsoparticipatedinaSummerPracticeProgramfor his studies. already monitoredandsupportedbyT-HTthroughout “Open hearts”wereproducedentirely byT-HTemployees. satisfaction attheheartofallwe do.Lyricsforthesong duct, respectforcolleaguesand customers,withcustomer underscoring theGroup’sobjectives ofethicalbusinesscon- song lyricscelebratingtheGuidingPrinciples,asawayof As partofthis,weorganizedancompetitionforstafftowrite and acommitmenttoprotectingtheenvironment. throughout allactivitiesandconductwithinthecompany culture. Theseprinciplescallforthehigheststandards Guiding Principlesthatformthebasisofourcorporate Every yeartheGroupdedicatesonedayspecificallyto Guiding Principles-Openhearts whose professionalandacademicachievementswere tigious „JosipLončar“awardtoayoungT-HTemployee experts wasdemonstratedwhenFERgrantedthepres- The Group’srecognitionofthevalueup-and-coming

61 Corporate Responsibility 62 Corporate Responsibility Statistical data Statistical data the labourmarket. who offercounsellingandadvicetothosegoingbackinto is offered,alongwiththeassistanceofqualifiedexperts Group hasundertakensince2006,arangeofusefultools afterwards. Withinthescopeofthisprogram,which both duringthenoticeperiodandforatleastsixmonths content andservicesfromtheSupportPlusProgram by lawseveraltimesover,andallweregivenaccessto verance paymentsthatexceededtheamountprescribed sponsibilities itsstaff.Allemployeesaffectedreceivedse- this headcountreductioninfullaccordancewithitsre employees wasreducedby369.TheGroupcarriedout as factorsspecifictotheGroup,in2012numberof As aresultofglobaltrendsinthetelecomsmarketaswell employees respondedtothesurvey. gnition andacknowledgement.Thisyear65%ofT-HT management, theworkingenvironment,andstaffreco- every twoyearstogaugelevelsofsatisfactionregarding The groupconductsanEmployeeSatisfactionSurvey Employee SatisfactionSurvey T- Customer careandsatisfaction arethekeyfocusof Customer care Responsibility towardscustomers from 2011. the Croatianaverage,andwhichhasincreasedfurther male employeesinmanagement,whichbyfarexceeds equal opportunitiesisreflectedintheproportionoffe- The Group’srespectfordiversityandthepromotionof Responsible restructuring will bedetermined. address issuesindicatedbytheemployees’responses be communicatedtoallemployeesandmeasures wellbeing ofemployeesingeneral.Surveyresultswill life balance,stressintheworkingenvironment,and One sectionofthesurveywasdedicatedtowork HT’s Call Center activities. Its operatives are equipped HT’s CallCenteractivities.Itsoperatives areequipped - Responsible approachtocustomers be required. within theGroupandidentifywhereimprovementsmay T-HT toevaluatetheefficiencyofbusinessprocesses loyalty, usingtheTRI*Mmethodology.Thisenables T-HT continuouslymonitorscustomersatisfactionand Monitoring customersatisfaction particular andindividualneeds. aware ofproductsandservicesthataretailoredtotheir relationships withcustomers.Staffalsomakescustomers Call Centreplaysakeyroleinthemaintenanceofgood by phone,e-mail,postalmail,faxandsocialnetworks.The services andcomputerapplications forbusinessuse. a onestopshopforrentingrange ofadvancedcloud ICT servicesstorethatprovidesbusinesscustomerswith also launchedin2012.Thisisabusinessapplicationand The ICTMarketplace,aninnovativecloudservice,was • the citiesofZagreb,Rijeka,Osijek,andSplit. 10 timesfasterdatatransferspeedsandisavailablein in Croatia.Thisnetworkprovidescustomerswithupto In 2012,T-HTlaunchedthefirstcommercial4Gnetwork • Advanced technologyavailabletoall prescribes advertisingrulesandprinciples. complies withtheCodeofAdvertisingStandards,which as webbilling,voicebillingande-billing.Inaddition,T-HT tection forInternetusersandvariousbillingoptionssuch War disabledveterans,parentalprotectiononMAXtv,pro- young people,discountsgrantedtoCroatianHomeland packages forcustomersonlowincomes,services discounts, storesaccessibletodisabledpeople,special ing needsofitscustomers,asevidencedbyspecial T-HT tailorsitsservicestotakeintoaccountthevary- to answer all queries and provide support on a 24/7 basis, to answerallqueriesandprovidesupportona24/7basis, ICT Marketplace 4G technology and humanrights. on theenvironment,socialaspects, workingconditions ty andfunctionality,theimpact ofproductsand/orservices whilst consideringfactorssuch asprice,quality,availabili- Group. TheGroupendeavourstoobtainoptimalvalue the purchaseofproductsandservicesacrossentire T-HT operatesaSustainableProcurementProgramfor Responsibility towardssuppliers a technologyleader. functionalities, confirmingthepositionofGroupas technology inordertotesttheconceptandimproveits Telekom Grouptoputintopilotusethisinnovative T-Hrvatski TelekomisthefirstCompanyinDeutsche services areprovidedthroughanetwork. Internet access)fromtheCloud,wherecurrentlythese services. Itprovidesallservices(includingvoice,IPTV, mentation andintegrationofadvancednext-generation The TeraStreamnetworkconceptenablessimplerimple- proliferation ofopticalaccesses. reduces theunitcostofdatatransmissionandallows with speedof1Gbit/s.Thenewtechnologysignificantly by around50timesthecurrentrate,providingusers infrastructure. TeraStreamraisesaccessnetworkspeeds network technology,datacenterandfiber network -asimplifiedIPconceptthatcombines At theendof2012,T-HTpresentedTeraStream • and laptopsanytimeanywhere. duced in2012.Thisisavailableonsmartphones,tablets MAXtv ToGo,aTV-on-the-moveproduct,wasalsointro- • of cash. via mobilephonesandcompletelyreplacingtheuse enabling fastandsecurepaymentsofsmallamounts based onNFC(NearFieldCommunication)technology, T-HT wasthefirstinCroatiainitiatemobilepayments • TeraStream MAXtv ToGo NFC mobilepayments to ensurecompliance. Labour Organizationconventions),andregularchecks standards (includingSocialCharterorInternational supplier selectionunderclearlydefinedminimum cal risksagainstthelong-termbenefitforGroup, chain managementthatweighssocialandecologi- The SustainableProcurementProgramincludessupply employees undertookanonlinecourseaboutenviron tal issuesamongstitsstaff.Tothisend,morethan2,000 T-HT encouragesastrongunderstandingofenvironmen- align thesechangeswithhigh ecological standards. ssing majortechnologicalchanges, andtheGroupaimsto technologies intelecommunications. TheGroupiswitne- Standards, T-HTfocusedonthe implementationofgreen fied undertheISO14001EnvironmentalManagement As theonlytelecommunicationscompanyinCroatiacerti- Implementation ofgreentechnologies customers in2012. also organized a handset recycling campaign for business the regularcollectionofuseddevicesinT-Centers,T-HT disposal ofmorethan111,000mobilephones.Alongside of usedmobilephonesstarted,T-HThasassistedinthe Since 2005,whenorganizedcollectionandrecycling Ecological disposalofmobiledevices 30% comparedtousagein2011. by of LPGforthefleetinfirst9months2012increased of internalinitiativesandmeasures,thecumulativeusage employees touseLPGintheirvehicles.Througharange motor fuelavailableandT-HTactivelyencouragesits cles. LPGisconsideredthemostenvironmentallyfriendly T-HT’s vehiclefleettotalsaround220LPGoperatedvehi- environmental educationaspartoftheinductionprocess. 2012. Additionally,27newemployeeswereprovidedwith ment, attendedlecturesonenvironmentalprotectionin daily workactivitiescansignificantlyimpacttheenviron- mental protectionandmorethan220employees,whose Promoting ecologicalawarenessinT-HT Responsibility towardstheenvironment - 63 Corporate Responsibility 64 Corporate Responsibility The assessmentoftheauthorizedbodythatperforms energy savings. can leadtobetterworkplaceconditionsandsignificant recommendations onimprovingenergyefficiencythat ergy efficiency.Independentenergyassessmentsprovide certifications ofitsbuildingswiththeaimimprovingen- In 2012,T-HTcommencedenergyauditsand networks in2012. production wereinstalledforbasestationsofT-HTmobile In addition,twonewwind-solarsystemsforelectricity of ITresourcesandarangeotheractivities. rding toenergyefficiencyprinciples,moreextensiveuse portfolio andrenewalofpropertyownedbyT-HTacco- munications equipment,optimizationoftherealestate power supplysystems,themodernizationoftelecom- was asaresultofmoreefficientairconditioningand Group reducedin2012comparisonwith2011.This The absoluteamountofelectricityconsumptionbythe very positiveresults. at corporatelevelwaslaunchedin2011andisshowing requirements. T-HT’sprojecttopromoteenergyefficiency ase andnetworkdevelopmentleadstogreaterenergy and energyefficiency.Everynewservice,subscriberincre- mense challengeintermsofelectricpowerconsumption The mobile,fixedandInternetnetworkspresentanim- Energy efficiency powerful messageforactiontosavetheplanet. territories switchedofftheirlightsforanhour,sendinga more than7,000citiesandtownsin152countries largest globalinitiativeagainstclimatechange,with In 2012,T-HTalsoparticipatedinthe“EarthHour”-the installed. maintenance andthequalityofmaterialsequipment year andtypeofconstruction,primarilyduetoregular far hasbeenfoundtobesatisfactorywithrespectthe Croatia. Thegeneralconditionofbuildingsinspectedso than theaverageinbuildingsthroughoutRepublicof of buildingsownedbytheGrouparesignificantlybetter energy auditsfortheGrouphasstatedthatcondition sponsibility Charter. Sustainable DevelopmentCharterandCorporateRe- a signatorytotheEnvironmentalProtectionCharter, nications NetworkOperators’Association(ETNO)and T-HT isalsoamemberoftheEuropeanTelecommu- amongst theGroup’sstaff. highlighting theimportanceofenvironmentalprotection all processesandtheactivitiesofemployees,whilst confirmed theintegrationofenvironmentalprotectionin the ISO14001EMSwassuccessfullycompletedandthis System certificatesince2010.InJune2012,anauditof T-HT hasheldtheISO14001EnvironmentalManagement Certification andmembership exchange programandstudyfor ayearinSweden. support toenableastudentparticipateintheErasmus to socialprosperity.In2012Combisalsoprovidedfinancial Combis considerseducationtobekeydevelopmentand in ordertohelpthemcreateaComputerLab. with disabilitiesbydonatingICTequipmentandservices za odgojiobrazovanjeZagreb“highschoolforchildren also providedassistancetothe“Srednjaškola-Centar “OŠ PavlekaMiškineZagreb”elementaryschooland In thesphereofeducation,Combisdonatedfundsto nice” ClinicalHospitalCenter. technological equipmenttothe“KBCSestremilosrd- for abandonedchildren.In2012Combisalsodonated tarian associationinitseffortstoprovidebetterconditions Combis providedfinancialsupporttothe“Oaza”humani- work, sportsandculture: sorships, arangeofprojectsintheareashumanitarian 2012, Combissupported,throughdonationsandspon- education, socialdevelopmentandoverallexcellence.In At Combis,thekeyfocusisonpromotionofhealth, Combis affiliated companies Corporate responsibilitywithin vides hostingandmaintenance oftheCroatianFootball tian NationalFootballTeamforelevenyears.Isalsopro- Iskon hasbeentheofficialinternetproviderofCroa- listed fortheawardoneveofFestival. available tousersofIskon.TVallfilmsthatwereshort- kratki” -forthefourthconsecutiveyear.Iskonalsomade also sponsoredtheBestShortFilmaward-“Motovunski munications servicesattheMotovunFilmFestivaland and culturalprojects.Iskonwasthesponsoroftelecom- Throughout 2012,Iskonsupportedanumberofsocial Iskon edge andexpertise. presentations, andcasestudies,sharedtheirknowl- leading technologyexpertsgavekeynotespeeches, industry. Underthemaintopic:“VisionTechnologyICT”, telecommunications sectors,publicadministrationand tia andthesurroundingregion,fromfinancial brought togethermorethan300participantsfromCroa- Combis Conference,whichtookplaceinOpatijaand In addition,in2012Combisorganizeditssixthannual ference (SrOUG). Days inZagrebandtheSerbiaOracleUserGroupCon- Microsoft WinDaysConference,theIBMForum,Oracle conferences inCroatiaandBosniaHerzegovina, ences. In2012theseincludedtheCiscoExpopartner Combis traditionallysponsorsandsupportsITconfer- Comics FestivalinZagreb. assisted intheorganizationof15thInternational ni RomaniŠou”(theComicsShow)associationand the “OmišGuitarFest.”Combisalsosupported“Crta- 2012, CombissupportedCultureCenterOmišand Culture isanotherareawhereCombisactive.In is also known as the Boris Hanžeković Athletics Meeting. letics season-theIAAFWorldChallengeZagreb,which Combis alsosupportsthetopeventofCroatianath- mpionship inZagreb. wrestling federation’sJuniorEuropeanWrestlingCha- s Combis isalsoastrongadvocateofsports.Intheprofe- sional sportsarena,CombissponsoredtheCroatian Open AirCinema. with ideasworthspreading-andtheGradecSummer conference -aglobalprogramtobringtogetherpeople nce CUC(CARNetUsersConference),TEDxMaksimir In 2012,IskonsupportedtheCARNetannualconfere- Open tennistournaments,forthefourthconsecutiveyear. cations servicesattheATPZagrebIndoorsand In 2012,Iskonwastheofficialsponsoroftelecommuni- Rijeka, LadimirevciandLekenik. equipment tohomesfororphansinZagreb,Split,Osijek tennis facilitiesatJarunlakeanddonatedtable club HASTKMladostIskon.Italsorenovatedthetable In 2012,Iskoncontinuedtosupportthetabletennis of the“Uvijekvjerni”(AlwaysFaithful)fanclub. Federation webpages,aswellhostingofthepage 65 Corporate Responsibility

Financial Review 2012

T-HT Group Financial Results Analysis of Segments Results 68 Financial Review 2012 Revenue crued expensesanddeferredincome(HRK-2million). -63 million),Non-currentliabilities(HRK+2million)andAc- benefits expenses(HRK-13million),Other (HRK -21million),Employee expenses Energy and rial operating income(HRK-97million),Merchandisemate- December 2011werealsoreclassifiedasfollows:Other positions inthefinancialstatementsforyearended31 period datawithpresentedin2012,thefollowing In ordertoreconcilethepresentationofcomparable negative economictrends,regulatory measuresandincre- Throughout 2012,Grouprevenue wasagainimpactedby employed the previous year. This amendment impacts the employed thepreviousyear.Thisamendmentimpacts fixed segmenthasbeenamendedfromthemethodology As of2012,disclosurekeyoperationaldataforthe Disclosure Group FinancialPerformance Financial Review2012 assets (HRK+88million),Non-currentliabilities+17 million), Capitalexpenditure(HRK+61Intangible tion (HRK+33million),Financialexpenses+17 expenses (HRK-50million),Depreciationandamortiza- statement fortheyearended31December2011:Material reconciliation ofthefollowingpositionsinfinancial the accountingpolicyofcontentprovidercostsmaking practice. Asaconsequence,theGrouphaschanged provider costtoalignthetreatmentofitwithbestindustry The Grouphaschangedtherecognitionofcontent for allrespectiveperiods,inlinewiththenewdefinition. lines retailandARPAvoiceperaccesshasbeenrestated retail mainlines.Asaconsequence,thenumberoffixed to excludepublictelephonesfromthetotalnumberof The definitionforfixedmainlinesretailhasbeenamended reported underfixedmainlines-wholesale. quence, thenumberofWholesaleLineRentalsisnow been dividedbetweenretailandwholesale.Asaconse- access lines(previouslyreportedasADSLmainlines)have way thetotalnumberoffixedmainlinesandbroadband million) andCurrentliabilities(HRK+71million).

The impactofthe6%mobilefeeonnetrevenuefrom non voiceservices. and theconsequentrevenuerecognitioninvoice result ofhighernumbersubscribersinbundletariffs due tolowerrevenuefrombasicsubscriptionsasa declined, duetoafallinICTsegmentrevenuesand and miscellaneousrevenues.Otherservicerevenues enues, whichslightlyoffsetbyanincreaseinnonvoice in otherservicerevenuesandterminalequipmentrev environment. Thefallwasaccompaniedbyadecline downward pressureonpricingandtheharsheconomic voice revenueduetoahighlycompetitivemarket, This revenuedeclinewasprimarilydrivenbylower maintenance costs. maintenance costs. due toloweradvertisingexpenses, postalchargesand Other costsfellby1.4%toHRK 1,213million,primarily alongside theintroductionofcostsavingsinitiatives. improvements (FTEin2012:5,780vs.6,0322011) to rationalizebusinessprocessesanddriveefficiency employees resultingfromtheGroup’songoingprogram costs fellby5.2%,mainlyduetoareducednumberof in 2011).Excludingredundancycosts,totalemployee booked in2012(HRK144millionvsHRK162 1,208 millionincludinglowerredundancyprovisions Total employeebenefitsdecreasedby5.9%toHRK lower telecommunicationservices. costs by4.5%toHRK1,042million,mostlyasaresultof 13.9% toHRK872million,andareductioninServices million, onastrongdeclineinMerchandisecosts,down Material expensesdecreasedby9.0%toHRK1,914 telecommunication services. a resultoftightcostcontrolsandlowercostsrelatedto on, toHRK4,339million(2011:4,602million),as Overall operatingexpensesfell5.7%,orHRK263milli- Operating expenses HRK 56million(2011:145million). telecoms servicesuntilitsabolitionon9July2012totalled fell 7.6% to HRK 7,456 million (2011: HRK 8,067 million). fell 7.6%toHRK7,456million(2011:8,067million). driven byWholesaleandMobiledatarevenues,totalrevenue ased competition.Despitegrowthinnonvoicerevenues - lower net profit in 2012. lower netprofitin2012. HRK 10,899million(2011: 11,019million),dueto Total issuedcapitalandreserves decreasedby1.1%to 31 December2011. at HRK3,146million,comparedwith3,704million At 31December2012,cashandequivalentsstood equivalents investedintonon-currentforeignbonds. 31 December2011,mainlyduetohighercashand million at31December2012fromHRK5,675 Total currentassetsdecreasedby7.4%toHRK5,254 financial assetsduetoinvestmentsintoforeignbonds. 31 December2011,mainlyduetoincreasednoncurrent million at31December2012fromHRK7,549 Total non-currentassetsincreasedby4.1%toHRK7,858 13,113 million,down0.8%(2011:HRK13,224million). T-HT’s balancesheetremainsstrongwithtotalassetsofHRK Balance sheet net financialincomeanda10.7%fallintaxation. lion), duelargelytoEBITbeingboostedbya25.9%risein was HRK1,696million,down6.4%(2011:1,811mil- 144 millionvs.HRK162in2011).Netprofitfor2012 ciation andamortizationlowerredundancycosts(HRK fore exceptionalitems,partiallyoffsetbydecreaseddepre- (2011: HRK2,222million),asaresultoflowerEBITDAbe- Operating profit(EBIT)fell7.7%toHRK2,050million operating expenses,excludingexceptionalitems,by5.5%. increase inotheroperatingincomeby26.7%,andlower primarily asaresultofrevenuetrends,partiallyoffsetbyan HRK 3,520millionin2012from3,8322011, EBITDA beforeexceptionalitemsdecreasedby8.1%to T-HT Groupprofitability useful lifeperiodforterminalequipment. 8.4% toHRK1,326millionmainlydueachangeinthe segment. Depreciationandamortizationdecreasedby inventories andwrite-downofreceivablesinthebusiness million, mainlydrivenbyanincreaseinthewrite-downof The write-downofassetsincreasedby33.4%toHRK89 capital expenditures. mainly asaresultofhigherinvestmentintosecuritiesand Cash flowfrominvestingactivitiesdecreasedby126.7%, influenced byimprovedworkingcapitalmanagement. 3,050 million),mostlyasaresultofGroupperformance ties decreasedby2.2%toHRK2,982million(2011: and dividenddistributions.Cashflowfromoperatingactivi- of funds,enablingtheGrouptofinancecapitalinvestments Cash flow from operating activities is T-HT’s principal source Cash flow investment requiredfortheTeraStream project. acquisition ofabuildingfromCroatian PostinSplitandthe dividend -spectrumlicenserecognized inOctober,the higher thanthepreviousyear, mainlyduetothedigital segment managementandsupportfunctions,was40.6% segment attheendof2012,whichrepresentscross- Capital expenditureintheNetworkandSupportFunctions ment innetworkplatforms. rose from2011by55.7%,mainlyduetoincreasedinvest- Business segmentcapitalexpenditureattheend2012 broadband. mostly duetohighercapitalizationinresidentialMobile expenditure whencomparedtothesameperiodin2011, The Residentialsegmentreported1.2%highercapital TeraStream project. investment inbuildingandrequiredforthe investment inthedigitaldividend-spectrumlicenses, 32 millionandin2011:HRK61million),largelydueto capitalization ofrightstobroadcastcontentin2012:HRK 1,180 millionfromHRK938in2011(including Capital expenditureincreasedby25.8%in2012toHRK Capital expenditure million vs.2011:HRK1,863million). mostly duetolowerdividendpayments(2012:HRK1,813 Cash flowfromfinancingactivitiesimprovedby2.6% pared withHRK2,205millionat31December2011. Total liabilitiesremainsstableatHRK2,214million,com- 69 Financial Review 2012 70 Financial Review 2012 e.g. theredesignofmobileloyaltyprograms. competition. Revenuewassupportedbyone-offbenefits recovery inCroatia,regulatorytighteningandintensifying This revenuetrendhasbeendrivenbythesloweconomic equipment revenue. mobile andfixedpartiallyasaresultoflowerterminal million, mostlyasaresultoflowervoicerevenuebothin Total residentialrevenuein2012fell7.5%toHRK4,099 Revenue Residential SegmentFinancialreview Analysis ofsegmentresults Mobile business is seeing a shift from non voice revenue Mobile businessisseeingashift fromnonvoicerevenue revenue down1.5%. mainly boostedbythepostpaid segmentwithprepaid services. Mobileservicesrose4.7%toHRK540million, result ofhigherrevenuefromfixedandmobilepostpaid Non voicerevenuerose2.7%toHRK1,597millionasa Non voicerevenue revenue peraccess(ARPA)declinedby3.2%. utes spentanddownwardpricingpressure,voiceaverage 11.2% declineinminutesofuse.Asaresultlowermin- the totalnumberofmainlines(retailandwholesale)a tution andstrongercompetition,leadingtoa5.0%fallin tion offixedtomobilesubstitution,internetsubsti- Fixed telephonyrevenuefell17.2%duetothecontinua- pressure. amid atougheconomicenvironmentandcompetitive decline resultingfromoflowerpriceperminuteuse rose 25.5%mainlyduetoflattariffs,withtherevenue Mobile minutesofuse(MOU)peraveragesubscriber mobile serviceprovidersinCroatia. due toattractivecrossnet/offnettariffsofferedbyallthree voice mobileterminationrevenuewashigherby14.9% on pricingandharsheconomicenvironment.Inaddition, result ofahighlycompetitivemarket,downwardpressure HRK 2,353million.Retailmobilevoicerevenuefellasa Voice revenueattheendof2012wasdownby11.5%to Voice revenue Terminal equipment by HRK53millioncomparedtosameperiodlastyear. non voiceservicesbasedonusage,otherrevenueislower and revenuerepostingfrombasicsubscriptiontovoice As aresultofhighersharesubscribersonbundletariffs Other servicerevenue TV subscribersto344,000. to higherbroadbandretailARPA(3.0%)and7.0%risein Fixed nonvoice(IP)revenueincreased1.7%mostlydue fewer traditionalnonvoiceservicessuchasSMS. ingly advancedservicessuchasdatatransmissionand package), withtheaveragemobileuserisusingincreas- sing numbersoftariffsincludingdatatrafficinthebasic 32.4% in2011.Thisislinewithglobaltrends(increa- voice revenuehasincreasedto35.9%in2012from changes inlegislation,especially inthemobilesegment. benefit ofbettercollection unpaid billsfacilitatedby accounts receivableweresignificantly reduced,asadirect were 14.6%higherthanlastyear. Inaddition,losseson tions throughindirectsaleschannels).Copyrightcosts in themobilesegmentasaresultoflowersalestransac- sales commissions(derivingfromlowercommissioncost fall inmerchandisecostsanda4.8%declinecostof lower nonusagerelateddirectcostsasaresultof14.5% Lower operatingexpenseswerelargelytheoutcomeof in 2012). decrease inoperatingexpenses(downHRK57million (HRK 334millionlowerrevenuein2012)offsetbya4.4% Lower EBITDAwasdrivenbya7.5%decreaseinrevenue amounted toHRK2,838million,down8.9%on2011. In 2012,theResidentialsegmentcontributiontoEBITDA Contribution toEBITDA acquisition andretention. absence thisyearofanycampaignstopromotemobile and retainedmobilepostpaidcustomers,the fall inmobileasaresultoflowernumberacquired ment revenuewascausedprimarilybyaHRK20million A declineof12.3%toHRK134millioninterminalequip- to datarevenue.Theshareofrevenueintotalnon per subscriber(-9.8%).A2.9% increaseinsubscriberspar- by lowervoiceARPU(-13.0%)and loweraverageminutes HRK 72millionmobilevoicerevenue fallwasmainlydriven million fallandwholesaleforaHRK 30milliondecline.The at HRK744million,withretailaccountingfora41 Mobile voicerevenueswere8.8%,orHRK72million,lower bing servicesrevenueswereupHRK2million. fell byHRK5millionduetotrafficdecrease.Nationalhub- in usage,andlowerinternationalhubbingrevenue,which price reductionsfollowinganNRAdecisionandadecline revenue, whichwasHRK10millionlowercomingfrom or HRK13million,mainlyduetolowernationalvoice In wholesalevoicerevenues,fixedrevenuesfell4.4%, from migrationtomobilevoice. 8.7% decreaseintotaltraditionalvoicemainlinesand minutes intraditionalvoice.Thisresultedpartfroman voice revenue(HRK155million),ona21.5%fallintotal fall waslargelydrivenbya25.1%declineinfixedretail Voice revenuefell13.0%,toHRK1,561million.The Voice revenue tion ofpointsrelatedtoamobileloyaltyprogram. was supportedbyone-offbenefitsincludingthetermina- nue inmobileandthefixednetwork.Revenue2012 million. Thisfallwaslargelytheresultoflowervoicereve- In 2012,totalbusinessrevenuefell7.6%toHRK3,358 Revenue Business Segmentfinancialreview age pointsto69.2%from70.3%. EBITDA contributionmargindecreasedby1.0percent- ng 1.6%.Withlowerrevenueoffsetbycostsavings,the Indirect costswerebroadlyflattothepreviousyear,falli- to highernumberofcrossnetandofftariffs. cation servicescostasaresultofhigheroffnetusagedue impact wasmitigatedwithhigherdomestictelecommuni- million duetolowerunitarycostofroamingservices.This international telecommunicationservicescostbyHRK15 2.0%. Slightlylowerusagerelatedcostisaresultof Usage relateddirectcostisslightlylowerthanlastyearby data, whichwaspartiallyoffsetbyhigherdatausage. lower prices-a30%fallinSMSand55% 19.1%, orHRK18million,to77millionasaresultof driven bymobiledata,whilevisitorrevenuedeclined million. RetailaccountedforHRK242millionofthetotal, mobile revenuerose1.4%,orHRK5million,to336 ULL andBSA,withanincreaseinaccesslines.Nonvoice to higherrevenuefrominfrastructureresultingWLR, an increaseof22.3%,orHRK65million,wasduelargely Within thenon-voicefixedwholesalerevenuesegment, to themigrationIPdata,whilerevenuesfell3.5%. revenue fromtraditionaldata,whichdeclined8.8%owing retail of4.8%.Fixedrevenuedecreased,onlower revenue, whichwaspartiallyreducedbyadecreasein million, asaresultof22.3%increaseinwholesale Fixed nonvoicerevenuewas5.2%higheratHRK828 Non voicerevenuegrew4.0%toHRK1,164million. Non voicerevenue HRK 138millionwasdrivenbya30%fallinprices. in visitorvoicerevenueby18.7%,orHRK32million,to mobile terminationrateintroducedbytheNRA.Areduction due tousageincrease,whichcompensatedforthelower revenue grewby1.5%,orHRK1million,to88million tially offsettherevenuedecline.Voicemobiletermination HRK 49 million, with fixed falling 43.6%, or HRK 1 million, HRK 49million,withfixedfalling 43.6%,orHRK1million, Revenue fromterminalequipment wasdown18.7%to Terminal equipment Croatia andtoareductioningovernmentcontracts. million. Thiswaslargelyduetothepersistentrecessionin ICT revenuefell11.3%,orHRK51million,to396 previous year. dropped 47.3%,orHRK46million,comparedtothe subscription fees),postpaidbasicrevenues to voiceandnonservicesbasedonusage(notas tariffs andrevenuerebookingfrombasicsubscription As aresultofhighernumbersubscribersinbundle in 2012. Other servicesrevenuesweredown17.6%to455million Other servicerevenue 71 Financial Review 2012 72 Financial Review 2012 17.6% (HRK 19 million) increase in business wholesale 17.6% (HRK19million)increaseinbusinesswholesale million, in2012.Theincreasewasprimarilydrivenbya Miscellaneous revenueincreasedby18.1%orHRK20 Miscellaneous revenue million, toHRK47million. to HRK2million,andmobiledown17.4%,or10 business customers. illiquidity andalargenumberofinsolvenciesamongst million, atHRK59duetothedeeprecession, Losses onaccountreceivablesgrew41.1%,orHRK17 were down8.9%,orHRK45million,at458million. contribution ofHT.Usagerelateddirectcostsin2012 or HRK61million,at349duelargelytothe mobile campaignin2012.Indirectcostswereup21.1%, the CombisICTbusinessandnonhavingstrongpush HRK 402million,mainlyduetomerchandisecostsfrom 56 million.Merchandisecostsweredown17.7%tototal million revenuedecline.OperatingexpensesfellHRK 9.7%, toHRK2,068million,drivenlargelybya277 The BusinessSegmentcontributiontoEBITDAfell Contribution toEBITDA (usage growth). national roaming(usageimpact)andSMSbulkrevenue mobile miscellaneousrevenue,resultingfromhigher lion) andlowerotherrevenues(HRK-8million). lower revenuesfromcommitmentwriteoffs(HRK-7mil- offset bylowerrevenuesfrompenalties(HRK-9million), charging ofdunningletters(HRK16million)whichwere registration (HRK13million)andhigherrevenuesfrom real estate(HRK50million),higherrevenuesfromland lion primarilydrivenbyhigherrevenuesfromthesaleof Other operatingincomeroseby26.7%toHRK259mil- of HRK132million. income ofHRK55millionandafallinoperatingexpenses million. Thisresultedfromanincreaseinotheroperating The contributiontoEBITDArose11.8%HRK-1,386 Contribution toEBITDA Financial review Network andSupportFunctions decrease inpersonnelcost. in operatingexpensesisadditionallycontributedby bill introductionandrenegotiationofcontracts.Decrease decrease isaresultofcostsavingmeasures,aswelle- charges, maintenancecostsandservicescosts.Thiscost from HRK1,777millionmainlyasaresultoflowerpostal Operating expensesfellby7.4%toHRK1,645million

73 Financial Review 2012

Consolidated financial statements 31 December 2012

Responsibility for the consolidated financial statements 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 76 Consolidated financial statements ensuring that: the responsibilitiesofManagementBoardinclude In preparingthoseconsolidatedfinancialstatements, financial statements. the goingconcernbasisinpreparingconsolidated this reason,theManagementBoardcontinuestoadopt operational existencefortheforeseeablefuture.For that theGrouphasadequateresourcestocontinuein The ManagementBoardhasareasonableexpectation subsidiaries) forthatperiod. and resultsoftheGroup(HrvatskiTelekomd.d.its which giveatrueandfairviewofthefinancialposition the InternationalAccountingStandardsBoard(IASB) Financial ReportingStandards(IFRS)asissuedby each financialyearinaccordancewithInternational consolidated financialstatementsarepreparedfor Management Boardisresponsibleforensuringthat Pursuant totheCroatianAccountingActinforce, Responsibility fortheconsolidatedfinancialstatements 5 February2013 Republic ofCroatia 10000 Zagreb Savska cesta32 Hrvatski Telekomd.d. • • • •

to presumethattheGroupwillcontinueinbusiness. on thegoingconcernbasisunlessitisinappropriate the consolidatedfinancialstatementsareprepared applicable accountingstandardsarefollowed;and judgments andestimatesarereasonableprudent; applied consistently; suitable accountingpoliciesareselectedandthen on 5February2013. were approvedforissuancebytheManagementBoard The accompanyingconsolidatedfinancialstatements of fraudandotherirregularities. taking reasonablestepsforthepreventionanddetection for safeguardingtheassetsofGroupandhence Act inforce.TheManagementBoardisalsoresponsible financial statementscomplywiththeCroatianAccounting of theGroupandmustalsoensurethatconsolidated accuracy atanytimetheconsolidatedfinancialposition per accountingrecords,whichdisclosewithreasonable The ManagementBoardisresponsibleforkeepingpro- President oftheManagementBoard(CEO) On behalfoftheGroup, Mr. IvicaMudrinić Procurator John MathiasGašparac PricewaterhouseCoopers d.o.o., Zagreb,5.February2013. considers internalcontrolrelevanttotheentity’sprepa or error.Inmakingthoseriskassessments,theauditor consolidated financialstatements,whetherduetofraud assessment oftherisksmaterialmisstatement depend ontheauditor’sjudgement,including lidated financialstatements.Theproceduresselected evidence abouttheamountsanddisclosuresinconso- An auditinvolvesperformingprocedurestoobtain from materialmisstatement. whether theconsolidatedfinancialstatementsarefree and performtheaudittoobtainreasonableassurance that wecomplywithethicalrequirementsandplan onal StandardsonAuditing.Thosestandardsrequire We conductedourauditinaccordancewithInternati- consolidated financialstatementsbasedonouraudit. Our responsibilityistoexpressanopiniononthese Auditor’s responsibility material misstatement,whetherduetofraudorerror. of consolidatedfinancialstatementsthatarefreefrom ment determinesnecessarytoenablethepreparation Standards, andforsuchinternalcontrolasmanage in accordancewithInternationalFinancialReporting presentation oftheseconsolidatedfinancialstatements Management isresponsibleforthepreparationandfair consolidated financialstatements Management’s responsibilityforthe policies andotherexplanatorynotes. then ended,andasummaryofsignificantaccounting income, changesinequityandcashflowsfortheyear and theconsolidatedstatementsofcomprehensive statement offinancialpositionasat31December2012 diaries (the‘Group’)whichcomprisetheconsolidated ncial statementsofHrvatskiTelekomd.d.anditssubsi- We haveauditedtheaccompanyingconsolidatedfina- of HrvatskiTelekomd.d. To theshareholdersandBoardofdirectors Independent auditor’sreport - - Reporting Standards. then endedinaccordancewithInternationalFinancial financial performanceanditscashflowsfortheyear position oftheGroupasat31December2012,andits present fairly,inallmaterialrespects,thefinancial In ouropinion,theconsolidatedfinancialstatements Opinion the financialstatements. the uncertaintyastotheiroutcomeandimpacton assets andliabilitiesinrespectofthesemattersdueto The Grouphasnotrecognisedanyadjustmentstoits respect oftheGroup’susetheseassetsinprioryears. demand forpaymentofHRK390millionplusinterestin ownership ofDTIinthecityZagrebtogetherwitha these assets.TheGroupisdefendingalawsuitclaiming necessary tofullyevidencetheGroup’sownershipof to obtaincertainlegaldocumentsandregistrations 855 million.EffortsarebeingundertakenbytheGroup as assetsbytheGroupat31December2012isHRK structure (DTI)ofwhichthenetbookvaluerecognised ownership ofdistributivetelecommunicationsinfra tements, whichdescribetheuncertaintyrelatedto Notes 11and28b)totheconsolidatedfinancialsta- Without qualifyingouropinion,wedrawattentionto Emphasis ofmatter audit opinion. is sufficientandappropriatetoprovideabasisforour We believethattheauditevidencewehaveobtained presentation oftheconsolidatedfinancialstatements. made bymanagement,aswellevaluatingtheoverall used andthereasonablenessofaccountingestimates evaluating theappropriatenessofaccountingpolicies of theentity’sinternalcontrol.Anauditalsoincludes purpose ofexpressinganopinionontheeffectiveness are appropriateinthecircumstances,butnotfor statements inordertodesignauditproceduresthat ration andfairpresentationoftheconsolidatedfinancial TamaraMaćašović Certified Author - 77 Consolidated financial statements 78 Consolidated financial statements For theyearended31December2012 Consolidated statementofcomprehensiveincome The accompanyingaccountingpoliciesandnotesareanintegralpartof thesefinancialstatements. Actuarial (losses)/gainsandother(expense)/income Profit fortheyear Income taxexpense Profit beforeincometax Net shareininvestmentsassociateandjointventure Net financeincome Change invalueofavailableforsalefinancialassets Other comprehensiveincomefortheyear Other expenses Operating profit Total operatingcosts Depreciation, amortizationandimpairmentofnon-currentassets Work performedbytheGroupandcapitalised Service expenses Revenue Sale ofgoods Rendering ofservices Employee benefitsexpenses Merchandise, materialandenergyexpenses Other operatingincome Other comprehensive(loss)/incomefortheyear,netoftax equityholdersoftheCompany - basicanddiluted,forprofittheyearattributabletoordinary Earnings pershare Total comprehensiveincomefortheyear,netoftax Finance costs Finance income Notes 12,13 8 3 4 3 7 5 6 9 HRK millions HRK 20.71 (1,302) (1,326) (1,042) (1,208) (5,665) 1,696 2,092 1,693 7,456 7,152 2,050 (396) (872) 2012 (63) 304 259 (5) (3) 15 27 78 85 2 HRK millions HRK 22.12 Restated (1,447) (1,283) (1,013) (1,091) (1,296) (6,049) 1,811 1,828 2,255 8,067 2,222 7,765 (444) 2011 (65) 302 204 (2) 18 15 83 19 81 17 The accompanyingaccountingpoliciesandnotesareanintegralpartof these financialstatements. As at31December2012 Consolidated statementoffinancialposition TOTAL ASSETS Total currentassets Cash andcashequivalents Time deposits Loans tobanks Available-for-sale financialassets Income taxprepayments Prepayments andaccruedincome Trade andotherreceivables Inventories Current assets Total non-currentassets Deferred incometaxassets Other non-currentreceivables Available-for-sale financialassets Investments inassociateandjointventure Property, plantandequipment Intangible assets Non-current assets ASSETS Notes 12,13 18 b) 18 a) 14 14 11 15 17 16 10 8 31 December HRK millions 13,113 3,146 1,142 1,215 7,858 5,733 5,255 2012 149 398 261 239 155 499 21 86 65 4 31 December HRK millions Restated 13,224 3,704 1,307 1,087 7,549 5,953 5,675 2011 323 126 175 395 40 23 39 52 - - HRK millions 1 January Restated 13,589 1,423 3,282 8,068 6,336 5,521 1,222 2011 110 380 463 216 64 24 42 25 2 - 79 Consolidated financial statements 80 Consolidated financial statements As at31December2012 Consolidated statementoffinancialposition President oftheManagement Board(CEO) Mr. IvicaMudrinić Signed onbehalfoftheGroup5February2013: The accompanyingaccountingpoliciesandnotesareanintegralpartof these financialstatements. TOTAL EQUITYANDLIABILITIES Total liabilities Total currentliabilities Short-term borrowings Deferred income Income taxpayable Other accruals Provisions forredundancy Fair valuereserves Legal reserves Issued sharecapital Issued capitalandreserves EQUITY ANDLIABILITIES Retained earnings Current liabilities Total non-currentliabilities Other non-currentliabilities Deferred income Employee benefitobligations Provisions forlegalclaimsandotherprovisions Non-current liabilities Total issuedcapitalandreserves Trade andotherpayables Notes 21 19 24 23 21 26 25 20 22 6 31 December HRK millions Member oftheManagementBoard and 13,113 10,899 8,189 2,214 1,935 1,577 2,302 2012 146 140 122 409 279 (1) 84 87 50 6 2 - 31 December Chief Financial Officer(CFO) HRK millions Mr. DinoIvanDogan,Ph.D. Restated 13,224 11,019 1,883 1,418 8,189 2,424 2,205 2011 113 151 116 158 169 409 322 (3) 49 20 (continued) 9 2 HRK millions 1 January Restated 13,589 11,054 8,189 2,124 1,532 2,535 2,457 2011 133 411 101 196 409 192 250 (1) 13 44 74 - The accompanying accountingpoliciesandnotesare an integralpartofthesefinancialstatements. For theperiodended31December2012 Consolidated statementofcashflows Net (decrease)/increaseincashand cashequivalents Net cashflowsusedinfinancingactivities Dividends paid Repayment ofleaseliabilityandborrowings Financing activities Net cashflowsusedininvestingactivities Dividend received Interest received Proceeds fromreverseREPOarrangements Purchase ofreverseREPOarrangements Proceeds fromsaleofavailable-for-salefinancialassets Purchase ofavailable-for-salefinancialassets Proceeds fromsaleofnon-currentassets Purchase ofnon-currentassets Investing activities Net cashflowsfromoperatingactivities Income taxpaid Interest paid Cash generatedfromoperations Other non-cashitems (Decrease)/Increase inprovisions Decrease inemployeebenefitobligations Increase/(Decrease) inpayablesandaccruals Decrease inreceivablesandprepayments Decrease ininventories Share ofprofitinjointventure (Gain)/Loss ondisposalofassets Interest income Depreciation, amortizationandimpairmentofnon-currentassets Profit beforeincometax Operating activities Cash andcashequivalentsat1January Exchange gainsoncashand equivalents Cash andcashequivalentsat31 December Notes 10,11 18 a) 13 13 15 15 25 20 5 HRK millions (1,813) (1,481) (1,718) (1,180) (1,825) 3,415 3,146 1,045 1,326 3,704 2,982 2,092 (433) (634) (561) 2012 (18) (12) (58) (54) (50) (27) 104 395 (0) (9) 48 64 89 20 25 3 HRK millions Restated (1,874) (1,863) 3,439 1,447 3,049 3,282 3,704 1,065 2,255 (388) (347) (938) (944) (757) 2011 (11) (34) (34) (15) 418 (2) 41 48 57 65 3 4 6 7 - - - 81 Consolidated financial statements 82 Consolidated financial statements The accompanyingaccountingpoliciesandnotesareanintegralpartofthesefinancialstatements. For theyearended31December2012 Consolidated statementofchangesinequity Balance asat1January2011 Profit fortheyear Other comprehensiveincomefortheyear Total comprehensiveincomefortheyear the Company Dividends paidtoequityholdersof Balance asat31December2011 Profit fortheyear Other comprehensiveincomefortheyear Total comprehensiveincomefortheyear the Company Dividends paidtoequityholdersof Balance asat31December2012 HRK millions share capital (Note 23) Issued 8,189 8,189 8,189 ------HRK millions (Note 24) reserves Legal 409 409 409 ------HRK millions Fair value reserves (1) (2) (2) (3) (1) 2 2 - - - - HRK millions (Note 25) Retained earnings (1,863) (1,813) 1,811 2,457 1,830 2,424 1,696 1,691 2,302 (5) 19 HRK millions (1,863) (1,813) 11,054 11,019 10,899 1,811 1,828 1,696 1,693 Total (3) 17

visory BoardasrequiredbytheCroatianCompanyAct. ted financialstatementsaresubjecttoapprovaloftheSuper- Management Boardon5February2013.Theseconsolida- authorized forissueinaccordancewitharesolutionofthe d.d. forthefinancialyearended31December2012were The consolidatedfinancialstatementsofHrvatskiTelekom The principalactivitiesoftheGrouparedescribedinNote3. December 2012was5,999(312011:6,239). The totalnumberofemployeestheGroupasat31 cesta 32,Zagreb,Croatia. The registeredofficeaddressoftheCompanyisSavska ultimate controllingparent. Deutsche TelekomAG(“DTAG”)(51%).DTAGisalso is ajointstockcompanywhosemajorityshareholder Hrvatski Telekomd.d.(“HTd.d.”,“HT”orthe“Company”) 1 Corporateinformation For theyearended31December2012 Notes totheconsolidatedfinancialstatements Entity Combis d.o.o. Iskon Internetd.d. KDS d.o.o. Country ofBusiness Republic ofCroatia Republic ofCroatia Republic ofCroatia

following subsidiariescomprisetogetherHTGroup: financial statementsofHrvatskiTelekomd.d.andthe The consolidatedfinancialstatementsincludethe millions ofHRKifnototherwisestated. the consolidatedfinancialstatementsarepresentedin sented inCroatianKuna(HRK).Allamountsdisclosed The Group’sconsolidatedfinancialstatementsarepre- 14), asdisclosedintheaccountingpolicieshereafter. the revaluationofavailable-for-salefinancialassets(Note red underthehistoricalcostconvention,asmodifiedby The consolidatedfinancialstatementshavebeenprepa- Standards (IFRS). red inaccordancewithInternationalFinancialReporting The consolidatedfinancialstatementshavebeenprepa- 2.1 Basisofpreparation OwnershipInterest 31 December 100% 100% 100% 2012 31 December 100% 100% 100% 2011 83 Consolidated financial statements 84 Consolidated financial statements time adopter. position orperformancebecausetheGroupisnotfirst ments donothaveanyimpactontheGroup’sfinancial rency wassubjecttoseverehyperinflation.Theamend- unable tocomplywithIFRSsbecauseitsfunctionalcur- accordance withIFRSsafteraperiodwhentheentitywas entity shouldresumepresentingfinancialstatementsin The secondamendmentprovidesguidanceonhowan tions thatoccurredbeforethedateoftransitiontoIFRSs. IFRSs forthefirsttimetorestatederecognitiontransac- to IFRSs’,thuseliminatingtheneedforentitiesadopting fixed dateof1January2004with‘thetransition a time adoptionofIFRS.Thefirstreplacesreferencesto These amendmentsincludetwochangestoIFRS1First- beginning onorafter1July2011) Dates andHyperinflation(effectiveforannualperiods Amendments toIFRS1FirstTimeAdoption:Fixed the Group’sfinancialpositionorperformance. ment thataffectsdisclosureonlyanddidnotimpacton tion offinancialassets.TheGroupadoptedthisamend- financial position,particularlythoseinvolvingsecuritisa- financial assetsandtheeffectofthoserisksonanentity’s standing oftheriskexposuresrelatingtotransfers rting oftransfertransactionsandimproveusers’under- This amendmentwillpromotetransparencyintherepo- beginning onorafter1July2011) sures onDerecognition(effectiveforannualperiods Amendments toIFRS7FinancialInstruments:Disclo- mance oftheGroup,itsimpactisdescribedbelow. to haveanimpactonthefinancialstatementsorperfor- the adoptionofstandardorinterpretationisdeemed IFRS andIFRICinterpretationsduringtheyear.When The Grouphasadoptedthefollowingnewandamended at theendofthisNote. those ofthepreviousfinancialyearexceptasisdisclosed The accountingpoliciesadoptedareconsistentwith 2.2 and disclosures Changes inaccountingpolicies cial positionorperformance. is notexpectedtohaveanimpactontheGroup’sfinan- The amendmentaffectspresentationonlyandtherefore ments donotaddresswhichitemsarepresentedinOCI. subsequently (reclassificationadjustments).Theamend- whether theyarepotentiallyreclassifiabletoprofitorloss in ‘othercomprehensiveincome’(OCI)onthebasisof is arequirementforentitiestogroupitemspresented The mainchangeresultingfromtheseamendments annual periodsbeginningonorafter1July2012) Regarding OtherComprehensiveIncome(effectivefor Amendment toIAS1FinancialStatementPresentation yet effective: Standards andinterpretationsissuedbutnot revaluation model. or non-depreciableassetwhichismeasuredusingthe Group currentlydoesnothaveanyinvestmentproperty impact onthefinancialstatementsofGroupas which iswithdrawn.AmendedIAS12doesnothavean the remainingguidancepreviouslycontainedinSIC21, value. TheamendmentsalsoincorporateintoIAS12 no longerapplytoinvestmentpropertiescarriedatfair taxes -recoveryofrevaluednon-depreciableassets,will value. Asaresultoftheamendments,SIC21Income liabilities arisingoninvestmentpropertymeasuredatfair principle forthemeasurementofdeferredtaxassetsor ment thereforeintroducesanexceptiontotheexisting value modelinIAS40Investmentproperty.Thisamend- or throughsalewhentheassetismeasuredusingfair subjective toassesswhetherrecoverywillbethroughuse of theassetthroughuseorsale.Itcanbedifficultand whether the entity expects to recover the carrying amount ure thedeferredtaxrelatingtoanassetdependingon IAS 12Incometaxes,currentlyrequiresanentitytomeas- nual periodsbeginningonorafter1January2012) IAS 12IncomeTaxes-Deferred(effectiveforan -

The GroupexpectsIFRS11couldhaveanimpacton onal consolidationofjointventuresisnolongerallowed. ment andhenceequityaccountsforitsinterest.Proporti- joint operatorhasrightstothenetassetsofarrange- revenue andexpenses.Jointventuresarisewherethe and henceaccountsforitsinterestinassets,liabilities, the assetsandobligationsrelatingtoarrangement Joint operationsarisewhereajointoperatorhasrightsto IFRS 11isamorerealisticreflectionofjointarrangements periods beginningonorafter1January2013) IFRS 11JointArrangements(effectiveforannual on itseffectivedate. statements. TheGroupplanstoadoptthisnewstandard assessing theimpactthatIFRS10willhaveonfinancial consolidated financialstatements.TheGroupiscurrently out theaccountingrequirementsforpreparationof stee andthereforemustconsolidatetheinvestee.Sets of controltoidentifywhetheraninvestorcontrolsinve- basis forconsolidation.Setouthowtoapplytheprinciple the principleofcontrol,andestablishescontrolsas to presentconsolidatedfinancialstatements.Defines entity (anthatcontrolsoneormoreotherentities) statements whenanentitycontrolsoneormoreother presentation andpreparationofconsolidatedfinancial The objectiveofIFRS10istoestablishprinciplesforthe after 1January2013) (effective forannualperiodsbeginningonor IFRS 10ConsolidatedFinancialStatements ncial positionorperformance. amendment couldhaveanimpactontheGroup’sfina- and calculatefinancecostsonanetfundingbasis.The These amendmentseliminatethecorridorapproach on orafter1January2013) (effective forannualperiodsbeginning Amendment toIAS19EmployeeBenefits joint arrangement:operationsandventures. ment ratherthanitslegalform.Therearetwotypesof by focusingontherightsandobligationsofarrange-

standard onitseffectivedate. financial statements.TheGroupplanstoadoptthisnew The GroupiscurrentlyassessingtheimpactofIAS27on ons ofIAS27havebeenincludedinthenewIFRS10. financial statementsthatareleftafterthecontrolprovisi- IFRS 12includesthedisclosurerequirementsforallforms after 1January2013) (effective forannualperiodsbeginningonor IFRS 12DisclosuresofInterestsinOtherEntities its effectivedate. impact. TheGroupplanstoadoptthisnewstandardon the financialstatementsandiscurrentlyassessing I after 1January2013) (effective forannualperiodsbeginningonor IAS 27(revised2011)SeparateFinancialStatements plans toadoptthisnewstandardonitseffectivedate. impact ofIFRS13onfinancialstatements.TheGroup IFRSs orUSGAAP.TheGroupiscurrentlyassessingthe already requiredorpermittedbyotherstandardswithin guidance onhowitshouldbeappliedwhereitsuseis not extendtheuseoffairvalueaccountingbutprovide requirements foruseacrossIFRSs.Thedo a singlesourceoffairvaluemeasurementanddisclosure plexity byprovidingaprecisedefinitionoffairvalueand IFRS 13aimstoimproveconsistencyandreducecom 1 January2013) for annualperiodsbeginningonorafter IFRS 13FairValueMeasurement(effective plans toadoptthisnewstandardonitseffectivedate. impact ofIFRS12onfinancialstatements.TheGroup nce sheetvehicles.TheGroupiscurrentlyassessingthe associates, specialpurposevehiclesandotheroffbala- of interestsinotherentities,includingjointarrangements, AS 27(revised2011)includestheprovisionsonseparate -

85 Consolidated financial statements 86 Consolidated financial statements IAS 28(revised2011)includestherequirementsforjoint January 2013) (effective forannualperiodsbeginningonorafter1 IAS 28(revised2011)AssociatesandJointVentures yet effective(continued): Standards andinterpretationsissuedbutnot provides the same relief to first-time adopters granted to provides thesamerelieftofirst-time adoptersgrantedto exception totheretrospectiveapplication ofIFRS,which rate ofinterestwhentransitioning toIFRS.Italsoaddsan would accountforagovernment loanwithabelow-market This amendmentaddresseshow afirst-timeadopter beginning onorafter1January2013). government loans(effectiveforannualperiods Amendment toIFRS1Firsttimeadoptionon impact ontheGroup. considering theimplicationsofamendmentand and recognitionoffinancialinstruments.TheGroupis on disclosuresbutwillhavenoeffectmeasurement ing rightsofset-off.Theamendmentwillhaveanimpact effect orpotentialofnettingarrangements,includ- users ofanentity’sfinancialstatementstoevaluatethe The amendmentrequiresdisclosuresthatwillenable beginning onorafter1January2013). in December 2011 andeffectiveforannualperiods Liabilities -Amendments toIFRS7(issued Financial Disclosures—Offsetting FinancialAssetsand This amendmentisnotrelevanttotheGroup’soperations. non-current assets,subjecttocertaincriteriabeingmet. recognise thesecostsasa‘strippingactivityasset’within fits representimprovedaccesstoore,theentityshould the formofinventoryproduced.Toextentbene- of IAS2,Inventories,totheextentthattheyarerealisedin activity are accounted for in accordance with the principles The interpretationclarifiesthatbenefitsfromthestripping annual periodsbeginningonorafter1January2013) Surface Mine,(issuedinOctober2011andeffectivefor IFRIC 20,StrippingCostsintheProductionPhaseofa Group planstoadoptthisnewstandardonitseffectivedate. ssing theimpactofIAS28onfinancialstatements.The following theissueofIFRS11.TheGroupiscurrentlyasse- ventures, aswellassociates,tobeequityaccounted plans toadoptthisnewstandard onitseffectivedate. to haveanimpactonthefinancial statements.TheGroup ing continuestoapply.TheGroup doesnotexpectIFRS9 39 onimpairmentoffinancial assets andhedgeaccount- characteristics ofthefinancialasset.TheguidanceinIAS the entity’sbusinessmodelandcontractualcashflow cost andfairvalue.Thebasisofclassificationdependson measurement categoriesforfinancialassets:amortised mixed measurementmodelandestablishestwoprimary tion andMeasurement.IFRS9retainsbutsimplifiesthe project toreplaceIAS39FinancialInstruments:Recogni- IFRS 9isthefirststandardissuedaspartofawider periods beginningonorafter1January2015) IFRS 9FinancialInstruments(effectiveforannual impact ontheGroup. considering theimplicationsofamendmentand considered equivalenttonetsettlement.TheGroupis set-off’ andthatsomegrosssettlementsystemsmaybe meaning of‘currentlyhasalegallyenforceableright of theoffsettingcriteria.Thisincludesclarifying to addressinconsistenciesidentifiedinapplyingsome The amendmentaddedapplicationguidancetoIAS32 after 1January2014) and effectiveforannualperiodsbeginningonor Amendments toIAS32(issuedinDecember2011 Offsetting FinancialAssetsandLiabilities- impact ontheGroup. considering theimplicationsofamendmentsand periods beforeIFRS12isfirstapplied.TheGroup the requirementtopresentcomparativeinformationfor dated structuredentities,theamendmentswillremove comparative period.Fordisclosuresrelatedtounconsoli- adjusted comparativeinformationtoonlythepreceding IFRSs 10,11and12,limitingtherequirementtoprovide These amendmentsprovideadditionaltransitionreliefto on orafter1January2013). guidance (effectiveforannualperiodsbeginning Amendment toIFRSs10,11and12ontransition amendment isnotrelevanttotheGroup’soperations. requirement wasincorporatedintoIAS20in2008.This existing preparersofIFRSfinancialstatementswhenthe Statement ofcomprehensiveincome IAS 34, IAS 32, IAS 16, IAS 1, IFRS 1, 2009-2011 reportingcycle.Itincludeschangesto: These annualimprovements,addresssixissuesinthe periods beginningonorafter1January2013) Annual improvements2011(effectiveforannual financial statements. currently assessingtheimpactofamendmentsonits nded oralreadyprovidedtothesubsidiary.TheGroupis support toanunconsolidatedsubsidiary,whetherinte- investment entityandinformationaboutfinancialorother judgements madeindeterminingwhetheranentityis to introducenewdisclosures,includinganysignificant the entity’sinvestmentactivities.IFRS12wasamended those subsidiariesthatprovideservicesarerelatedto fair valuethroughprofitorloss,andtoconsolidateonly entity willberequiredtoaccountforitssubsidiariesat its investmentsonafairvaluebasis.Aninvestment or investmentincomeand(iii)measuresevaluates purpose istoinvestfundssolelyforcapitalappreciation ment services,(ii)commitstoitsinvestorsthatbusiness the purposeofprovidingthemwithinvestmentmanage- entity asanthat(i)obtainsfundsfrominvestors The amendmentintroducedadefinitionofaninvestment for annualperiodsbeginning1January2014) ment entities(issuedon31October2012andeffective Amendments toIFRS10,12andIAS27-Invest Financial costs of non-currentassets Depreciation, amortizationandimpairment Service expenses Position ‘Interim financialreporting’ ‘Financial instruments;Presentation’ ‘Property plantandequipment’ ‘Financial statementpresentation’ ‘First timeadoption’ for for conditions havetobemetforcapitalizationofcontent Deutsche TelekomAG. industry bestpracticesandthepoliciesfollowedby policy ismoreappropriateasitalignedbetterwith industry, buttheGroupbelievescurrentaccounting costs varieswithinthemediaandtelecommunication rmation. Theaccountingtreatmentofcontentprovider of thefinancialpositionandprovidesmorerelevantinfo- costs asintangibleassetsresultsinbetterpresentation Group believesthatrecognizingthecontentprovider contracts willbeamortizedoverthecontractperiod.The contract areunavoidable.Assetsrecognizedunderthese tracted rightsmustbecontinuousandcostsunderthe one year,costmustbedeterminedordeterminable,con- provider contracts:contractdurationmustbelongerthan related contract.TheGroupdeterminedthatthefollowing for 2011and2010areasfollows: of theaccountingpolicychangeonfinancialinformation accounting policyhadalwaysbeenapplied.Theeffects amounts foreachpriorperiodpresentedasifthenew retrospectively, andtheGrouprestatedcomparative The changeinaccountingpolicyhasbeenaccountedfor zes these costs as an intangible asset at the inception of zes thesecostsasanintangibleassetattheinceptionof period inwhichtheyoccurred.TheGroupnowrecogni- ously, theGroupexpensedcontentprovidercostsin policy forthetreatmentofcontentprovidercost.Previ- In 2012,theGroupvoluntarychangeditsaccounting Voluntary accountingpolicychange ments andtheimpactonGroup. The Groupisconsideringtheimplicationsofimprove- HRK millions As reported (1,414) (1,141) 2011 (48) HRK millions Impact on change (33) (17) 50 HRK millions Restated (1,447) (1,091) 2011 (65)

87 Consolidated financial statements 88 Consolidated financial statements Statement offinancialposition Voluntary accountingpolicychange(continued) There wasnoanyeffectonearningspersharerelatedtothe restatement in2011. Statement ofcashflows Purchase ofnon-currentassets Trade andotherpayables Trade andotherpayables Decrease inpayablesandaccruals Other non-currentliabilities Other non-currentliabilities non-current assets Depreciation, amortizationandimpairmentof Intangible assets Intangible assets Position Position Position 31 December HRK millions HRK millions HRK millions As reported As reported As reported 1 January 1,473 1,347 1,414 1,162 (375) 2011 2011 2011 877 999 43 32 HRK millions HRK millions HRK millions Impact on Impact on Impact on change change change 61 71 28 33 59 17 88 60 1 31 December HRK millions HRK millions HRK millions 1 January Restated Restated Restated 1,418 1,532 1,447 1,087 1,222 (347) 2011 2011 2011 938 44 49 ture availabilityoffinancing,technologicalobsolescence, the industry,increasedcostofcapital,changesinfu- current competitiveconditions,expectationsofgrowthin is basedonalargenumberoffactors,suchaschangesin cause, timingandamountoftheimpairment.Impairment which incorporatesreasonable marketparticipantassu- determined usingthediscounted cashflowmethod The recoverableamountandthe fairvaluesaretypically es incircumstancesthatindicate animpairmentexists. prices paidincomparabletransactionsandotherchang- discontinuance ofservices,currentreplacementcosts, use ofestimatesthatinclude,butarenotlimitedto,the The determinationofimpairmentassetsinvolvesthe Impairment ofnon-financialassets cant impactonthesegmentsofGroup. and 28.Changesinthesejudgmentscouldhaveasignifi- in thefinancialstatementsasmoreexplainedNotes22 judgments ifandwhatamountneedstobeprovidedfor experts toassesstheoutcomeofeachcaseandmakes related assets.TheGroupusesinternalandexternallegal cant outflowofeconomicresourcesorderecognition telecommunication infrastructurethatmayresultinsignifi- latory proceedingsandownershipdisputeoverdistributive The Groupisexposedtoanumberoflegalcasesandregu- Provisions andcontingencies within thenextfinancialyeararediscussedbelow: adjustment tothecarryingamountsofassetsandliabilities tion date,thathaveasignificantriskofcausingmaterial of estimationuncertaintyatthestatementfinancialposi- assumptions concerningthefutureandotherkeysources of theassetorliabilityaffectedinfutureperiods.Thekey that requireamaterialadjustmenttothecarryingamount these assumptionsandestimatescouldresultinoutcomes reporting daterespectively.However,uncertaintyabout contingent liabilities,duringthereportingperiodorat expenses, assetsandliabilities,thedisclosureof assumptions thataffectthereportedamountsofrevenues, ires managementtomakejudgments,estimatesand The preparationoftheGroup’sfinancialstatementsrequ- 2.3 estimates andassumptions Significant accountingjudgments,

well astheestimationoffuturecashflowsanddete- mptions. Theidentificationofimpairmentindicators,as which couldadverselyaffectfutureoperatingresults. rment towritedowntheseinvestmentstheirfairvalues, result inlessrevenue,cashflowandpotentialimpai- and servicesdoesnotmaterializeasexpected,thiswould demand isavailable.Iftheforthoseproducts for whichonlylimitedhistoricalinformationoncustomer through theofferingofnewdataproductsandservices, infrastructure requiredtogeneratefuturerevenuegrowth business considersthecontinuedinvestmentinnetwork estimation ofcashflowsunderlyingthefairvalues rates, usefullivesandresidualvalues.Specifically,the indicators, expectedcashflows,applicablediscount ncerning theidentificationandvalidationofimpairment require managementtomakesignificantjudgmentsco- rmination offairvaluesforassets(orgroupsassets) try andisheavilydependenton theinvestmentplansof about technologicaldevelopment inaninnovativeindus- critical accountingestimatesince itinvolvesassumptions in theunderlyingassumptions. Webelievethatthisisa or wheneverthereisanindicationofsignificantchanges ness oftheestimatedusefullivesisreviewedannually, in broadeconomicorindustryfactors.Theappropriate- any anticipatedtechnologicaldevelopmentandchanges on historicalexperiencewithsimilarassetsaswell The determinationoftheusefullivesassetsisbased Useful livesofassets 10 and11. and effectsontheresultofperiodaregiveninNotes lation purposes.Furtherdetailsincludingcarryingvalues future cashinflowsandthegrowthrateusedforextrapo- the discountedcashflowmodelaswellexpected amount ismostsensitivetothediscountrateusedfor ropriate growthratesgiveninNote10.Therecoverable beyond theplanningperiodareextrapolatedusingapp- financial plancoveringamid-termperiod.Thecashflows cash flowmodel.Theflowsarederivedfromthe The valueinusecalculationisbasedonadiscounted prices lessincrementalcostsfordisposingoftheasset. length transactionofsimilarassetsorobservablemarket available datafrombindingsalestransactionsinanarm’s The fairvaluelesscoststosellcalculationisbasedon 89 Consolidated financial statements 90 Consolidated financial statements premises equipment (CPE) which was increased from 3 premises equipment(CPE)whichwasincreasedfrom3 In 2012,theGroupreassessedusefullifeofcustomer financial position,andresultsofoperations. changes intheseassumptionscouldbematerialtoour ciable assetsinourtotalassets,theimpactofsignificant the Group.Further,duetosignificantweightofdepre- one halfofthevotingrights.The existenceandeffect generally accompanyingashareholding ofmorethan the powertogovernfinancial andoperatingpolicies Subsidiaries areallentitiesover whichtheGrouphas b) BusinessCombinationsandGoodwill denominated inforeigncurrency. gains andlossesonallmonetaryassetsliabilities available forsalefinancialassetsandforeignexchange expense onborrowings,gainsandlossesthesaleof dividend incomefromassociateandjointventure,interest bills, interestbearingavailableforsalefinancialassets, revenue oncashbalancesinthebank,deposits,treasury taxes andfinanceitems.Financeitemscompriseinterest Operating profitisdefinedastheresultbeforeincome a) Operatingprofit 2.4 on theGroup’sprofitposttax: and depreciation,withallothervariablesheldconstant, reasonably possiblechangeinusefullifeonamortization The followingtabledemonstratesthesensitivitytoa new purchasesofhigherqualityequipment. passed sincetheinitialusefullifewasestimatedanddueto lower replacedmalfunctioneddevicesduringthetimethat cost byHRK59million.Thechangewasmadebasedon and 5to7years.Theeffectisreducedannualdepreciation December 2012 Year ended31 Summary ofaccountingpolicies Increase / decrease in % +10 -10 HRK millions Effect on post tax profit (34) 148 related costsareexpensedasincurred. amounts ofacquiree’sidentifiablenetassets.Acquisition- trolling interest’sproportionateshareoftherecognized by-acquisition basis,eitheratfairvalueorthenon-con- non-controlling interestintheacquireeonanacquisition- values attheacquisitiondate.TheGrouprecognizesany business combinationaremeasuredinitiallyattheirfair and liabilitiescontingentassumedina consideration arrangement.Identifiableassetsacquired value ofanyassetorliabilityresultingfromacontingent the Group.Theconsiderationtransferredincludesfair owners oftheacquireeandequityinterestsissuedby assets transferred,theliabilitiesincurredtoformer for theacquisitionofasubsidiaryisfairvalues business combinations.Theconsiderationtransferred The Groupappliestheacquisitionmethodtoaccountfor Group controlsanotherentity. convertible areconsideredwhenassessingwhetherthe expenses ontransactionsbetween groupcompanies Inter-company transactions,balances, incomeand at costlessanyaccumulatedimpairment losses. income. Followinginitialrecognition,goodwillismeasured difference isrecognizedinthestatementofcomprehensive the fairvalueofnetassetssubsidiaryacquired, and liabilitiesassumed.Ifthisconsiderationislowerthan controlling interestoverthenetidentifiableassetsacquired of theconsiderationtransferredandfairvaluenon- Goodwill isinitiallymeasuredastheexcessofaggregate quent settlementisaccountedforwithinequity. is classifiedasequitynotremeasured,anditssubse- comprehensive income.Contingentconsiderationthat ment ofcomprehensiveincomeorasachangetoother recognized inaccordancewithIAS39eitherstate consideration thatisdeemedtobeanassetorliability Subsequent changestothefairvalueofcontingent Group isrecognizedatfairvaluetheacquisitiondate. Any contingentconsiderationtobetransferredbythe comprehensive income. value asattheacquisitiondatethroughstatementof held equityinterestintheacquireeisremeasuredtofair acquisition datefairvalueoftheacquirer’spreviously If thebusinesscombinationisachievedinstages, of potentialvotingrightsarecurrentlyexercisableor - controlled entity.Lossesontransactions arerecognized losses ontransactionsbetween theGroupanditsjointly eliminate theGroup’sshareof unrealisedgainsand ments aremadeintheGroup’s financialstatementsto unting policiesintolinewiththoseoftheGroup.Adjust- Adjustments aremadewherenecessarytobringtheacco- as theparentcompany. joint venturearepreparedforthesamereportingperiod method ofaccounting.Thefinancialstatementsthe recognizes itsinterestinthejointventureusingequity over theeconomicactivitiesofentity.TheGroup contractual arrangementthatestablishesjointcontrol jointly controlledentity,wherebytheventurershavea The Grouphasaninterestinajointventurewhichis d) Investmentinjointventure interest inthecompany. its associateareeliminatedtotheextentofGroup’s Unrealized gainsontransactionsbetweentheGroupand of theassociate. or constructiveobligationsmadepaymentsonbehalf not recognizefurtherlosses,unlessithasincurredlegal or exceedsitsinterestinthecompany,Groupdoes When theGroup’sshareoflossesinanassociateequals recognized inpreviousyearsnolongerexist. the assethasbeenimpairedorthatimpairmentlosses in associateisperformedwhenthereanindicationthat after thedateofacquisition.Anassessmentinvestment ze theinvestor’sshareofprofitorlossinvestee the carryingamountisincreasedordecreasedtorecogni- method, theinvestmentisinitiallyrecognizedatcost,and method lessanyimpairmentinvalue.Undertheequity exercised bytheGroupareaccountedforusingequity and 50%ofvotingrights)wheresignificantinfluenceis ated company(generallyashareholdingofbetween20% In theGroup’sfinancialstatements,investmentinassoci- c) Investmentinassociate with thepoliciesadoptedbyGroup. been changedwherenecessarytoensureconsistency also eliminated.Accountingpoliciesofsubsidiarieshave company transactionsthatarerecognizedinassets are eliminated.Profitsandlossesresultingfrominter- over thejointventure. the dateonwhichGroupceasestohavejointcontrol ment loss.Interestinthejointventureisderecognizedat in thenetrealisablevalueofcurrentassetsoranimpair- immediately ifthelossprovidesevidenceofareduction e) Intangibleassets of theGroup’sinterestincompany. Group anditsjointventureareeliminatedtotheextent Unrealized gains/lossesontransactionsbetweenthe behalf ofthejointventure. legal orconstructiveobligationsmadepaymentson does notrecognizefurtherlosses,unlessithasincurred equals orexceedsitsinterestinthecompany,Group When theGroup’sshareoflossesinajointventure Assets underconstructionare not amortised. Useful livesofintangibleassetsareasfollows: use, theamortizationperiodistermoflicence. operations fortheUMTSnetworkstarteditscommercial Amortization oftheUMTSlicencehasstartedwhen financial year-end. The amortizationmethodisreviewedannuallyateach assets thatareassessedtohaveanindefiniteusefullife. best estimateoftheirusefullife.Therearenointangible assets areamortisedonastraight-linebasisoverthe tion andanyaccumulatedimpairmentlosses.Intangible assets aremeasuredatcostlessaccumulatedamortiza- measured reliably.Afterinitialrecognition,intangible flow totheGroup,andthatcostofassetcanbe economic benefitsthatareattributabletotheassetswill ble assetsarerecognizedintheeventthatfuture Intangible assetsaremeasuredinitiallyatcost.Intangi- Software, contentandotherassets Telecommunication InfrastructureDTI) Right ofservitudeforDistributive GSM licence LTE licence(digitaldividend) UMTS licence Licences andrights 2 -5years 30 years 15 years 12 years 20 years 91 Consolidated financial statements 92 Consolidated financial statements allocated represents the lowest level within the Group at allocated representsthelowestlevelwithinGroupat tion. Eachunitorgroupofunitstowhichthegoodwillis are expectedtobenefitfromthesynergiesofcombina- generating units,orgroupsofcashthat ness combinationisallocatedtoeachoftheGroup’scash purpose ofimpairmenttesting,goodwillacquiredinabusi- Goodwill arisesontheacquisitionofsubsidiaries.For of theitemisdepreciatedseparately. with acostthatissignificantin relationtothetotalcost Each partofanitemproperty, plantandequipment depreciation andanyaccumulatedimpairmentlosses. and equipmentismeasuredatcostlessaccumulated After recognitionasanasset,itemofproperty,plant nses relatingtoproductionortheprovisionofservices. material andlabourcosts,aswelladministrativeexpe- rnally constructedassetsincludeproportionateindirect In additiontodirectlyattributablecosts,thecostsofinte- working conditionandlocationforitsintendeduse. and anydirectlyattributablecostsofbringingtheassettoits purchase taxes,afterdeductingtradediscountsandrebates, purchase price,includingimportdutiesandnon-refundable of anitemproperty,plantandequipmentcomprisesits recognition asanassetismeasuredatitscost.Thecost An itemofproperty,plantandequipmentthatqualifiesfor f) Property,plantandequipment Please seeNote10formoredetails. its annualimpairmenttestofgoodwillasat31December. cannot bereversedinfutureperiods.TheGroupperforms loss isrecognized.Impairmentlossesrelatingtogoodwill to whichgoodwillhasbeenallocated,animpairment the cash-generatingunit(groupofunits) cash-generating units)islessthanthecarryingamountof able amountofthecash-generatingunit(orgroup units), towhichthegoodwillrelates.Whererecover- of thecash-generatingunit(orgroup recoverable amount,basedonvalueinuseestimations, Impairment isdeterminedforgoodwillbyassessingthe indicate thatthecarryingvaluemaybeimpaired. or morefrequentlyifeventschangesincircumstances purposes. Goodwillisreviewedforimpairment,annually which thegoodwillismonitoredforinternalmanagement which theasset’scarryingamountexceedsitsrecovera- rable. Animpairmentlossisrecognisedfortheamountby ces indicatethatthecarryingamountmaynotberecove- The usefullife,depreciationmethodandresidualvalues Land andassetsunderconstructionarenotdepreciated. Useful livesofnewlyacquiredassetsareasfollows: Depreciation iscomputedonastraight-linebasis. each reportingdate. are reviewedforpossiblereversaloftheimpairmentat assets otherthangoodwillthatsufferedanimpairment able cashflows(cash-generatingunits).Non-financial at thelowestlevelsforwhichthereareseparatelyidentifi- the purposeofassessingimpairment,assetsaregrouped asset’s fairvaluelesscoststosellandinuse.For ble amount.Therecoverableamountisthehigherofan impairment whenevereventsorchangesincircumstan Assets thataresubjecttoamortisationreviewedfor to amortisationandaretestedannuallyforimpairment. Assets thathaveanindefiniteusefullifearenotsubject Impairment ofnon-financialassets g) Impairmentofassets Depreciation ofanassetbeginswhenitisavailableforuse. under constructionandisstatedatcost. Construction-in-progress representsplantandproperties accounted forasachangeinanaccountingestimate. tions differfrompreviousestimates,thechange(s)are are reviewedateachfinancialyear-end,andifexpecta Telecom plantandmachinery Buildings Customer premisesequipment(CPE) Tools, vehicles,IT,officeandotherequipment Other Cable ductsandtubes Cables 10 -50years 8 -18years 4 -15years 2 -15years 30 years 7 years - - impairment immediately. than costs,thedifferenceisrecognized asaninventory cost ofthephoneset.Ifnormal resalevalueislower sale occursifthenormalresale valueishigherthanthe loss onthesaleofequipmentisonlyrecordedwhen subscribers withminimumcommitmentperiods.Such tion withpromotionstoobtainnewand/orretainexisting Phone setsareoftensoldforlessthancostinconnec is determinedonthebasisofweightedaveragecost. business, lessthecostsnecessarytomakesale.Cost sable valueisthesellingpriceinordinarycourseof sable value,afterprovisionforobsoleteitems.Netreali- Inventories arevaluedatthelowerofcostandnetreali- h) Inventories statement ofcomprehensiveincome. occurring aftertheimpairmentlosswasrecognizedin of theinstrumentcanbeobjectivelyrelatedtoanevent of comprehensiveincomeiftheincreaseinfairvalue on debtinstrumentsarereversedthroughthestatement comprehensive income.Reversalsofimpairmentlosses available-for-sale arenotrecognizedinthestatementof Reversals inrespectofequityinstrumentsclassifiedas from equitytothestatementofcomprehensiveincome. the statementofcomprehensiveincome,istransferred value, lessanyimpairmentlosspreviouslyrecognizedin principal paymentandamortization)itscurrentfair comprising thedifferencebetweenitscost(netofany If anavailable-for-saleassetisimpaired,amount Impairment ofavailable-for-salefinancialassets established tobeuncollectible,itiswrittenoff. overdue receivables.Whenatradeoranotherreceivableis proceedings andforthetotalreceivablesofcustomerswith is carriedoutforcustomersunderlitigation;bankruptcy tors thatthetradereceivableisimpaired.Individualvaluation ments aswellhistoricalcollectionsareconsideredindica- or financialreorganization,anddefaultdelinquencyinpay- the debtor,probabilitythatdebtorwillenterbankruptcy of underlying arrangement.Significantfinancialdifficulties will notbeabletocollectallamountsdueaccordingthe established whenthereisobjectiveevidencethattheGroup A provisionforimpairmentoftradeandotherreceivablesis Impairment oftradereceivables - for impairment. prevailing atthestatementoffinancialpositiondate.Any the middleexchangeratesofCroatianNationalBank in foreigncurrenciesaretranslatedintolocalcurrencyat transaction. Monetaryassetsandliabilitiesdenominated of theCroatianNationalBankprevailingatdate nslated intolocalcurrencyatthemiddleexchangerates Transactions denominatedinforeigncurrenciesaretra- j) Foreigncurrencies given andarecarriedatamortisedcost,afterprovision ivables arestatedatthefairvalueofconsideration receivables arepresentedasnon-currentassets.Rece- or less,theyareclassifiedascurrentassets.Ifnot,the course ofbusiness.Ifcollectionisexpectedinoneyear merchandise soldorservicesperformedintheordinary Trade receivablesareamountsduefromcustomersfor i) Receivables leases (netofanyincentivesreceived fromthelessor)are fied asoperatingleases.Payments madeunderoperating rewards of ownership are retained by the lessor are classi- (b) incomeandexpensesforeachstatementofcompre (a) assetsandliabilitiesforeachstatementoffinancial tation currencyasfollows: the presentationcurrencyaretranslatedintopresen- economy) thathaveafunctionalcurrencydifferentfrom (none ofwhichhasthecurrencyahyper-inflationary The resultsandfinancialpositionofalltheGroupentities income orfinancialexpense,respectively. the statementofcomprehensiveincomewithinfinancial subsequent tothedateoftransactionisincludedin gain orlossarisingfromachangeinexchangerates Leases inwhichasignificant portion oftherisksand k) Leases (c) allresultingexchangedifferencesarerecognizedin ling atthestatementoffinancialpositiondate; change ratesoftheCroatianNationalBankprevai- position presentedaretranslatedatthemiddleex- statement ofothercomprehensiveincome. rates oftheCroatianNationalBank;and hensive incomearetranslatedataverageexchange

- 93 Consolidated financial statements 94 Consolidated financial statements the fairvalueofleasedpropertyandpresent capitalised atthelease’scommencementlowerof ership areclassifiedasfinancelease.Financeleases Group hassubstantiallyalltherisksandrewardsofown- Leases ofproperty,plantandequipmentwherethe straight-line basisovertheperiodoflease. charged tothestatementofcomprehensiveincomeona are classifiedasnon-currentassets andliabilitiesinthe Deferred taxassetsandliabilities arenotdiscountedand rary differencescanbeutilized. tax liabilities)willbeavailableagainstwhichthetempo- probable thatfuturetaxableprofit(orreversingdeferred Deferred taxassetsarerecognizedtotheextentthatitis its assetsandliabilities. reporting date,torecoverorsettlethecarryingamountof from themannerinwhichenterpriseexpects,at tax assetsreflectstheconsequencesthatwouldarise The measurementofdeferredtaxliabilitiesand liability issettled. related deferredtaxassetisrealizedorthe cial statementdateandareexpectedtoapplywhenthe have beenenactedorsubstantiallybythefinan- Deferred taxisdeterminedusingincomeratesthat used forincometaxpurposesatthereportingdate. liabilities forfinancialreportingpurposesandtheamounts rary differencesbetweenthecarryingamountsofassetsand Deferred incometaxesreflectthenettaxeffectsoftempo- using theliabilitymethod. includes deferredtaxes.Deferredtaxesarecalculated The incometaxchargeisbasedonprofitfortheyearand l) Taxation shorter oftheusefullifeassetsandleaseterm. acquired underfinanceleaseisdepreciatedoverthe ability foreachperiod.Theproperty,plantandequipment periodic rateofinterestontheremainingbalanceli- income overtheleaseperiodsoastoproduceconstant nance costischargedtothestatementofcomprehensive are includedinborrowings.Theinterestelementofthefi- corresponding rentalobligations,netoffinancecharges, allocated betweentheliabilityandfinancecharge.The of theminimumleasepayments.Eachpaymentis Past servicecostsarerecognizedinothercomprehensive ures eachunitseparatelytobuildupthefinalobligation. rise toanadditionalunitofbenefitentitlementandmeas- credit methodconsiderseachperiodofserviceasgiving using aprojectedunitcreditmethod.The jubilee (lengthofservice)payments,andaredetermined (see Note20).Thesebenefitsincluderetirementand The Groupprovidesotherlong-termemployeebenefits m) Employeebenefitobligations all ofitsrevenuearrangements withtheexceptionof The Grouphasconcludedthat itisactingasaprincipalin in ordertodetermineifitisacting asprincipaloragent. sesses itsrevenuearrangements againstspecificcriteria discounts, rebates,andsalestaxesorduty.TheGroupas- at thefairvalueofconsiderationreceived,excluding revenue canbereliablymeasured.Revenueismeasured that theeconomicbenefitswillflowtoGroupand Revenue isrecognizedtotheextentthatitprobable n) Revenuerecognition which itincurred. which arerecognizedasanexpenseoftheperiodin The Groupprovidesdeathinserviceshorttermbenefits comprehensive incomeintheperiodwhichtheyoccur. changes inactuarialassumptionsarerecognizedother the benefitobligation.Gainsandlossesresultingfrom are consistentwiththecurrencyandestimatedtermsof where thecurrencyandtermsofgovernmentbonds that issimilartotheinterestrateongovernmentbonds value ofestimatedfuturecashflowsusingadiscountrate occurs. Thebenefitobligationismeasuredatthepresent plans arerecognizedwhenthecurtailmentorsettlement Gains orlossesonthecurtailmentsettlementofbenefit income immediatelyintheperiodwhichtheyoccur. period inothercomprehensiveincome. that arecreditedorcharged,inthesameadifferent other comprehensiveincomeifthetaxrelatestoitems Current taxanddeferredarechargedorcreditedin assets canbeutilised. profits willbeavailableagainstwhichthedeferredtax recognized whenitisprobablethatsufficienttaxable statement offinancialposition.Deferredtaxassetsare value oftheundeliveredelements. between thetotalarrangement considerationandthefair the fairvalueofdeliveredelements asthedifference tion providedbythecustomer is allocatedbydetermining be determinedreliably,thetotalarrangementconsidera- reliably butthefairvalueofundeliveredelementscan fair valueofthedeliveredelementscannotbedetermined not dependonthedeliveryofadditionalelements.If be providedbythecustomer,paymentofwhichdoes the proportionoftotalarrangementconsiderationto relative fairvalueofanindividualelementislimitedby fair valueofthebundleddeliverablesisgenerated).The a ratioofthefairvalueeachelementtoaggregated different elementsbasedontheirrelativefairvalues(i.e., relating tothebundledcontractisallocatedamong determined separately.Totalarrangementconsideration of theunitsaccounting(elements)identifiedmustbe element arrangements,revenuerecognitionforeach (bundled productoffers)arrangements.Formultiple- The Groupofferscertainmultiple-elementarrangements realisation, theyarerecordedasdeferredrevenues. chers isrecognizedwhentheyarerealised.Beforetheir Revenue fromunusedtariffpackagesandprepaidvou- media messagesanddatatrafficrevenues. related tomobilenetwork,revenuesforshortandmulti of mobilehandsets,domesticinterconnectionrevenues tors whenroamingontheGroup’smobilenetwork,sale call chargesforcustomersofinternationalmobileopera- customers, callchargesfor“pre-paid”mobile monthly feeandcallchargesfor“post-paid”mobile Revenue frommobiletelephonyincludesrevenue tion servicesfordomesticandinternationalcarriers. Revenue fromwholesaleservicesincludesinterconnec Estimated lifeis3yearsin2012. ing onanaverageusefullifeofasinglecustomerline. on astraight-linebasisthroughoutfutureperiodsdepend- Revenue fromactivation(connectionfees)isrecognized and revenuefromadditionalservicesinfixedtelephony. vation, monthlyfees,callsplacedbyfixedlinesubscribers Revenue fromfixedtelephonyincludesrevenueacti- these cases,theGroupisactingasanagent. parties thatoffervalueaddedservicestoitscustomer.In provision ofitstelecommunicationsinfrastructuretothird - - logy infrastructureandsystemmaintenancearerecogni- Revenues fromapplicationmanagementservices,- systems toaclient’sspecifications(designandbuild). nance andthedesigndevelopmentofcomplexIT services, technologyinfrastructureandsystemmainte business processesservices,applicationmanagement Revenue fromICTincludesrevenuerestructuring tual termsandconditions. the servicesareprovidedinaccordancewithcontrac traffic) andIPTV.Servicerevenuesarerecognizedwhen call number,Multimediaservices,IPphone(accessand ss, WEBhosting,VPNonline,internettraffictoT-Com services, ADSLsubscriptionandtraffic,fixedlineacce- revenue fromleasedlines,framerelay,ATM,Ethernet Revenue fromInternetanddataservicesincludes network includeroamingcustomers ofotherservice Third partiesusingtheGroup’s telecommunications commission received. net basis.Revenuesareexclusivelytheamountof provider ofvalueaddedservicesarereportedona Revenues fromtheprovisionofitsnetworkto the periodsuchitemsaredelivered. upgrades andtechnicalsupportarerecognisedover use thelicence.Revenuesformaintenance,unspecified ption basisovertheperiodthatclientisentitledto monthly licencechargesarerecognisedonasubscri- recognition criteriahavebeenmet.Revenuesfrom recognized attheinceptionoflicencetermallrevenue Revenues fromone-time-chargelicensedsoftwareare give risetotherevisionbecomeknownmanagement. nsive incomeintheyearwhichcircumstancesthat expenses andareincludedinstatementofcomprehe- in decreaseoranincreaseofestimatedrevenuesand (POC) method.Estimatesarerevisedandcanresult reliably arerecognisedunderpercentage-ofcompletion build contractswheretheoutcomecanbeestimated Revenues andexpensesfromfixed-pricedesign on astraight-linebasisoverthedeliveryperiod. enue fromproductmaintenancecontractsarerecognized based oncontractedpricesanddirectcostincurred.Rev- Revenues fromtimeandmaterialcontractsarerecognised sed onastraightlinebasisoverthetermofcontract. - - 95 Consolidated financial statements 96 Consolidated financial statements The revenuesandcostsofthesetransitcallsarestated connect) fortheuseoftheirnetworks,whereapplicable. revenue receivedisoftenpaidtootheroperators(inter- nized intheperiodofrelatedusage.Aproportion and Non-voice(DataInternet)revenuesarerecog- wholesale (incoming)trafficrevenuesincludedinVoice terminate ortransitcallsontheGroup’snetwork.These providers andothertelecommunicationswhich incurred inconnectionwiththe borrowingoffunds, Borrowing costs,whichinclude interestandothercosts p) Borrowings are subjecttoaninsignificantriskofchangeinvalue. with originalmaturitiesofthreemonthsorlessandwhich that arereadilyconvertibletoknownamountsofcash mand depositsandshort-term,highlyliquidinvestments Cash andcashequivalentscompriseonhand,de- o) Cashandcashequivalents credits areredeemed. recognized asrevenueovertheperiodthataward allocated totheawardcreditsanddeferred.Thisisthen portion ofthefairvalueconsiderationreceivedis of thesalestransactioninwhichtheyaregranted.A credits areaccountedforasaseparatecomponent T-Club. InaccordancewithIFRIC13,customerloyalty The Groupmaintainsaloyaltypoint’sprogramme, to thenetcarryingamountoffinancialasset). receipts throughtheexpectedlifeoffinancialinstrument effective interestratethatistheexactlydiscounts Interest revenueisrecognizedasinterestaccrues(usingthe right toreceivethepaymentisestablished. Revenue fromdividendsisrecognizedwhentheGroup’s customer’s finalacceptanceofthearrangement. that therearenounfulfilledobligationsaffectthe recognized whentheproductsaredelivered,provided telecommunications equipmentandaccessoriesare Revenues andexpensesassociatedwiththesaleof in theperiodofrelatedusage. freely definingthepricingofservices,andrecognized principal supplieroftheseservicesusingitsownnetwork gross inthefinancialstatementsasGroupis liability isdischargedorcancelled orexpires. liability isderecognizedwhen theobligationunder to receivecashfromtheassets haveexpired.Afinancial is derecognizedwhenthecash iscollectedortherights initial recognitionandderecognition.Afinancialasset place concerned),thesettlementdateisrelevantfor generally byregulationorconventioninthemarket- delivery oftheassetwithintimeframeestablished financial assetunderacontractwhosetermsrequire of regularwaypurchaseorsale(purchasea tions ofthefinancialinstrument.However,incase as theGroupbecomesapartytocontractualregula- Financial instrumentsaregenerallyrecognizedassoon included inthenetprofitorlossforperiod. previously recognizedinothercomprehensiveincomeis be impaired,atwhichtimethecumulativegainorloss sold orotherwisedisposedof,untilitisdeterminedto other comprehensiveincome,untiltheinvestmentis of available-for-salefinancialassetsarerecognizedin date. Gainsorlossesonmeasurementtothefairvalue quoted marketpriceatthestatementoffinancialposition deduction fortransactioncostsbyreferencetotheir assets aresubsequentlycarriedatfairvaluewithoutany Available-for-sale financialassetsandtrading ding transactioncosts. the fairvalueofconsiderationgivenforthem,inclu- Financial assetsareinitiallymeasuredatcost,whichis recognized onthesettlementdate. tion date.Allpurchasesandsalesofinvestmentsare within 12monthsafterthestatementoffinancialposi- current assetsifmanagementintendstorealisethem Available-for-sale financialassetsareclassifiedas nated bytheGroup,areclassifiedasavailable-for-sale. All investments,otherthanloansandreceivablesorigi q) Financialassets received netoftransactioncosts. are initiallyrecognizedintheamountofproceeds tion ofqualifyingassetsandarecapitalised.Borrowings attributable totheacquisition,constructionorproduc which theyareincurred,exceptthosedirectly currency borrowings,areexpensedintheperiod including exchangedifferencesarisingfromforeign - - benefits isprobable. statements butisdisclosedwhenaninflowofeconomic A contingentassetisnotrecognizedinthefinancial is remote. an outflowofresourcesembodyingeconomicbenefits statements. Theyaredisclosedunlessthepossibilityof Contingent liabilitiesarenotrecognizedinthefinancial s) Contingencies expected tobepaidinredundancyprograms. tion benefitsarecomputedbasedonamountspaidor realistic possibilityofwithdrawal.Provisionsfortermina detailed formalplanfortheterminationwhichiswithout of employmentcontracts,thatiswhentheGrouphasa the Groupisdemonstrablycommittedtoatermination Provisions forterminationbenefitsarerecognizedwhen as interestexpense. provision reflectingthepassageoftimeisrecognized obligation. Whendiscountingisused,theincreasein the expendituresexpectedtoberequiredsettle rial, theamountofaprovisionispresentvalue Where theeffectoftimevaluemoneyismate- date andadjustedtoreflectthecurrentbestestimate. are reviewedateachstatementoffinancialposition can bemadeoftheamountobligation.Provisions required tosettletheobligation,andareliableestimate of resourcesembodyingeconomicbenefitswillbe a resultofpasteventanditisprobablethatanoutflow Group hasapresentobligation(legalorconstructive)as A provisionisrecognizedwhen,andonlythe r) Provisions interest method. rued overthelifeofagreementsusingeffective sale andrepurchasepriceistreatedasinterestacc- equivalents, asappropriate.Thedifferencebetween verse REPOs’)arerecordedasloanstobanksandcash Securities purchasedunderagreementstoresell(‘re- - financial statements.Post-year-endeventsthatarenot position date(adjustingevents)arereflectedinthe about theGroup’spositionatstatementoffinancial Post-year-end eventsthatprovideadditionalinformation u) Eventsafterreportingperiod zed inthestatementofcomprehensiveincome. the settlementdatewithchangesinfairvaluerecogni- statement offinancialpositiondateuptoandincluding liability. Theliabilityisremeasuredtofairvalueateach the vestingdatewithrecognitionofacorresponding Note 33.Thisfairvalueisexpensedovertheperioduntil a binomialmodel,furtherdetailsofwhicharegivenin is measuredinitiallyatfairvaluethegrantdateusing The costofcash-settledandequity-settledtransactions t) Share-basedpayments the Groupandheldastreasuryshares. during theyearexcludingordinarysharespurchasedby weighted averagenumberofordinarysharesinissue profit attributabletoequityholdersoftheGroupby Earnings persharearecalculatedbydividingthe x) Earningspershare the Group’sshareholders. in theperiodwhichdividendsareapprovedby ognized asaliabilityintheGroup’sfinancialstatements Dividend distributiontotheGroup’sshareholdersisrec- w) Dividenddistribution non-current liabilities. within oneyearorless.Ifnot,theyarepresentedas are classifiedascurrentliabilitiesifpaymentisdue urse ofbusinessfromsuppliers.Accountspayable services thathavebeenacquiredintheordinaryco- Trade payablesareobligationstopayforgoodsor v) Tradepayables adjusting eventsaredisclosedinthenoteswhenmaterial. 97 Consolidated financial statements 98 Consolidated financial statements in bothfixedandmobileservices. Segment isalsoresponsibleforthewholesalebusiness sized businessesandthepublicsector.TheBusiness services tocorporatecustomers,small-andmedium- fixed linetelecommunicationsandsystemsintegration customer services,focusedonprovidingmobileand The BusinessSegmentincludesmarketing,salesand residential customers. line telecommunicationsandTVdistributionservicesto customer services,focusedonprovidingmobile,fixed The ResidentialSegmentincludesmarketing,salesand Statement ofcomprehensiveincome the financialstatementsforyearended31December2011were reclassified: In ordertoreconcilethepresentationofcomparableperioddatawith presentedin2012,following positionsin y) Reclassifications ness unitthatoffersdifferentproductsandservices. rendered, witheachsegmentrepresentingastrategicbusi- the natureofcustomersandmarketsthatservices ments areorganisedandmanagedseparatelyaccordingto nantly bydifferencesinthemarketandcustomers.Theseg- the Group’srisksandratesofreturnareaffectedpredomi- Business and Network and Support Function segments as Business reportingformatisdeterminedtobeResidential, 3 Other operatingincome Merchandise, materialandenergyexpenses Employee benefitsexpenses Other expenses Position Segment information the criteriaforanoperatingsegment. information asavoluntarydisclosuresinceitdoesmeet Network andSupportFunctionsisincludedinsegment ing, Treasury,Legalandothercentralfunctions.The includes theTechnology,Procurement,Account- segment managementandsupportfunctions, The NetworkandSupportFunctionsperformscross- are consolidatedwithintherespectiveoperatingsegments. Fully ownedsubsidiariesIskonInternet,CombisandKDS has notbeendisclosed. liabilities bysegmentsandthereforethisinformation Management oftheGroupdoesnotmonitorassetsand geographical locationofitscustomers. The Group’sgeographicaldisclosuresarebasedonthe or segmentresults(ascalculatedinthetablebelow). performance isevaluatedbasedoncontributionmarginII source allocationandperformanceassessment.Segment separately forthepurposeofmakingdecisionsaboutre- maker, monitorstheoperatingresultsofbusinessunits The ManagementBoard,asthechiefoperatingdecision HRK millions 2011 (13) (21) (63) (97) The followingtablespresentrevenueanddirectcostinformationregarding theGroup’ssegments: Residential andBusinesssegments Capital expenditures Operating profit,restated of non-currentassets,restated Depreciation, amortizationandimpairment Other operatingexpenses Other income Segment result,restated Non-usage relateddirectcosts,restated Contribution marginI Income andlossesonaccountsreceivable Usage relateddirectcosts Usage relateddirectcosts Segment revenue Capital expenditures Operating profit of non-currentassets Depreciation, amortizationandimpairment Other operatingexpenses Other income Segment result Non-usage relateddirectcosts Contribution marginI Income andlossesonaccountsreceivable Segment revenue Year ended31December2012 Year ended31December2011 Other Terminal equipment Other Service revenues Terminal equipment Service revenues HRK millions Residential 3,113 4,091 3,522 4,263 4,432 3,947 2,839 3,240 3,773 4,099 (324) (318) (409) (569) (401) (533) (17) 386 153 134 391 (8) 16 18 - - - - HRK millions Business 2,291 3,092 2,579 3,466 3,180 3,635 2,416 2,840 3,357 2,067 (288) (513) (458) (502) (349) (424) (41) (59) 109 128 141 91 60 49 - - - - HRK millions Network & Network & functions Support Support (3,182) (1,447) (1,939) (1,326) (1,789) (2,856) 461 204 648 259 ------HRK millions (1,447) (1,082) (2,636) (1,326) (2,539) 7,183 6,101 2,222 1,180 6,613 7,729 8,067 7,127 7,456 2,050 5,656 (826) (776) (957) Total (58) (67) 938 125 213 204 183 146 259 99 Consolidated financial statements 100 Consolidated financial statements 5 4 None oftheGroup’sexternalcustomersrepresentasignificantsource ofrevenue. The majorityofGroup’sassetsarelocatedinCroatia(2012:99.99%; 2011:99.99%). Revenue -bygeographicalarea 3 Notes 10and11disclosefurtherdetailsonamortization depreciation expenseandimpairmentloss. International interconnection Republic ofCroatia Depreciation Other services Domestic interconnection Rest oftheWorld Amortization Impairment loss Depreciation, amortizationandimpairmentofnon-currentassets Service expenses Segment information(continued) HRK millions HRK millions HRK millions 1,042 1,326 1,268 7,456 6,829 2012 2012 2012 334 442 912 356 266 627 58 HRK millions HRK millions HRK millions 7,411 1,447 1,398 1,091 8,067 1,029 2011 2011 2011 445 382 264 369 656 49 employees whoseemploymentcontractswillbeinvoluntaryterminatedafter31December2012duetobusinessreasons. Redundancy expensesandprovisionsincludetheamountofgross severancepaymentsandotherrelatedcostsfor 6 Long-term employeebenefits(Note20) Redundancy expenses Total provisionforredundancy31December Utilisation Additions chargedtothestatementofcomprehensiveincome Provision at1January-current Taxes, contributionandotherpayrollexpenses Gross salaries The movementsofredundancyprovisionareasfollows: Of that-current Employee benefitsexpenses HRK millions HRK millions 1,208 (167) 2012 2012 (16) 144 144 146 146 231 849 169 HRK millions HRK millions 1,283 (126) 2011 2011 (12) 881 133 162 169 169 162 252 101 Consolidated financial statements 102 Consolidated financial statements 7 Daily allowancesandothercostsofbusinesstrips Contract workers Non-income taxesandcontribution Other operatingcharges Loss ondisposaloffixedassets Insurance Education andconsulting Write downofinventories Call centreandcustomercaresupport Provision oftradereceivables Selling commission Licence cost Postal expenses Advertising Rent (Note27) Maintenance services Other expenses HRK millions 1,302 2012 104 121 185 120 165 265 14 18 21 35 45 21 68 50 69 1 HRK millions 1,296 2011 163 178 128 163 271 13 18 46 23 51 56 22 95 59 8 2 8 Effective taxrate Taxation Other Tax effectsoftaxlosscarryforward Entertainment expensesandcarusage Tax forpreviousyears Dividends receivedandincentives Income taxat20%(domesticrate) Profit beforetaxes Taxation Deferred tax(income)/expense Current taxexpense b) Reconciliationofthetaxationchargetoincometaxrate a) Taxonprofit Income taxexpense HRK millions HRK millions 18.93% 2,092 2012 2012 (11) (13) (16) 418 396 396 409 (1) 4 2 HRK millions HRK millions 19.69% 2,255 2011 2011 (14) 444 444 451 435 (1) 2 6 9 - 103 Consolidated financial statements 104 Consolidated financial statements Components andmovementsofdeferredtaxassetsliabilities areasfollows: 8 tax declarations, i.e. 2014 for the 2012 tax liability. The tax declarations,i.e.2014for the 2012taxliability.The starts withtheyearthatfollows theyearofsubmission riod ofthreeyears.Thelimitation periodofthreeyears by therelevanttaxauthoritiesduringlimitationpe However, suchtaxsettlementsmaybesubjecttoreview bmission ofthedeclarationforcorporatetaxandVAT. Croatia toagreethefinalleveloftaxchargeuponsu- There arenoformalproceduresintheRepublicof million willbetaxdeductibleinfutureperiods. period from2002to2012,andtheremainingHRK36 amount, HRK359millionbecametaxdeductibleinthe in 2001wasnottaxdeductiblethatyear.Ofthis fact thatHRK395millionoftheimpairmentreported erty, plantandequipmentimpairmentasaresultofthe The deferredtaxassetoftheGrouparisesonprop Deferred taxassetshavenotbeendiscounted. the deductibletemporarydifferencescanbeutilised. bable thattaxableprofitwillbeavailableagainstwhich ctible temporarydifferencestotheextentthatitispro- A deferredtaxassethasbeenrecognisedforalldedu- Non-tax deductiblevalueadjustments statement ofcomprehensiveincome Deferred taxassetrecognizedin Property, plantandequipmentwritedown Accrued interestonlegalcases Deferred revenuefromconnectionfees Other Actuarial gainsandlosses ment ofothercomprehensiveincome Deferred taxassetrecognizedinstate- Total deferredtaxassets Income taxexpense(continued) 31 December HRK millions 2012 23 16 15 65 7 4 - - - HRK millions can becarriedforwardagainstfuturetaxableincome. in respectoflossesamountingtoHRK141millionthat recognise deferredincometaxassetsofHRK28million able intheamountofHRK1million.TheGroupdidnot related taxbenefitthroughfuturetaxableprofitsisprob carry-forwards totheextentthatrealisationof Deferred incometaxassetsarerecognisedforloss years expires. est orfinesuntiltheabsolutestatuteoflimitation6 tax authoritieswiththepurposetocollecttax,inter- counting ofthreeyearsstartsagainwithanyaction (credited) 2016 2015 2014 2013 Losses expiresin: Charged / in 2012 13 1 1 7 4 0 - 31 December HRK millions 2011 22 11 52 9 6 4 - HRK millions Charged / (credited) in 2011 (11) (12) (3) (3) 3 0 2 31 December HRK millions HRK million 2010 148 19 12 11 64 38 38 45 27 6 9 7 - The followingreflectstheincomeandsharedatausedinbasic dilutedearningspersharecomputations: ordinary sharesorshareoptions. Diluted earningspershareamountsareequaltobasic sharesincetherearenodilutive potential holders oftheGroupbyweightedaveragenumberordinaryshares outstandingduringtheyear. Basic earningspershareamountsarecalculatedbydividingnetprofit fortheyearattributabletoordinary equity 9 earnings pershare Weighted averagenumberofordinarysharesforbasic the CompanyinHRKmillions Profit fortheyearattributabletoordinaryequityholdersof Earnings pershare 81,887,256 1,696 2012 81,888,535 Restated 1,811 2011 105 Consolidated financial statements 106 Consolidated financial statements 10 Cost At 1January2011 Accumulated amortization Net bookvalue Opening netbookvalue Year ended31December2011 Additions Transfers Transfers fromPPE Amortization charge Impairment loss Net bookvalue Cost At 31December2011 Accumulated amortization Net bookvalue Opening netbookvalue Year ended31December2012 Additions Transfers Amortization charge Impairment loss Net bookvalue Cost At 31December2012 Accumulated amortization Net bookvalue Intangible assets HRK millions Licences (143) (151) (164) (10) (12) 281 138 138 130 281 130 130 150 432 268 268 2 - - - - - HRK millions Software (1,830) (2,067) (2,219) 2,509 2,660 2,767 (295) (264) 154 679 679 593 593 186 593 548 548 (2) (6) 55 39 2 HRK millions Goodwill 162 162 162 162 162 162 162 162 162 162 ------Assets under HRK millions construction and other assets (165) (202) (97) (57) (64) (39) (80) 340 243 243 367 202 202 202 164 366 164 (8) 88 81 - - HRK millions (2,070) (2,383) (2,585) 3,292 1,222 1,222 1,087 3,470 1,087 1,087 1,142 1,142 3,727 (369) (356) Total (10) 242 417 (6) 2 - - in whichtheCGUoperates.The weightedaveragegrowth exceed thelong-termaveragegrowth ratefortheindustry expenditures, growthrate.The growthratedoesnot share, customeracquisitionand retentioncost,capital velopment, inparticular:development ofrevenue,market reflect pastexperienceandexpectationsofmarketde- which thedeterminationofCGUsvalueinuseisbased on valueinusecalculations.Thekeyassumptions The recoverableamountofaCGUisdeterminedbased The keyassumptionsusedforvalue-in-usecalculationsareasfollows: MHz band(digitaldividend)intheamountofHRK150 licence foruseoftheradiofrequencyspectrumin800 user licencesintheamountofHRK179millionand cative, systemandnetworktechnologysoftware Major additionsinthereportingperiodrelatetoappli- Additions ofintangibleassets and thevariouslicencesforuseofsoftware. Assets underconstructionprimarilyrelatetosoftware ssion contract. years (startingfromJune2005)accordingtoConce- The UMTSlicenceisamortisedoveraperiodof20 of HRK81million(31December2011:88million). 2012 includetheUMTSlicencewithcarryingvalue The intangibleassetsoftheGroupas31December Business Residential Discount rate Growth rate 31 December 9.6% 2.0% 2012 Residential

With regardtotheassessment of value-in-use,manage- cash flowprojections. eted periodandpost-taxdiscountrateisappliedtothe rate isusedtoextrapolatecashflowsbeyondthebudg- allocation ispresentedbelow: An operatingsegment-levelsummaryofthegoodwill units (CGUs)identifiedaccordingtooperatingsegment. Goodwill isallocatedtotheGroup’scash-generating Impairment testingofgoodwill HRK 10million). loss ofintangibleassetsHRK6million(2011: During 2012,theGrouprecognizedimpairment Impairment loss licence granted. 12 years(startingfromNovember2012)accordingto million. TheLTElicenceisamortizedoveraperiodof recoverable amount. value ofthecash-generatingunits tomateriallyexceedits of theabovekeyassumptionswould causethecarrying ment believesthatnoreasonably possiblechangeinany 31 December 9.6% 2.0% 2011 31 December 31 December HRK millions 9.6% 2.0% 2012 2012 162 107 Business 55 31 December 31 December HRK millions 9.6% 2.0% 2011 2011 162 107 55 107 Consolidated financial statements 108 Consolidated financial statements 11 Cost At 1January2011 Accumulated amortization Net bookvalue Opening netbookvalue Year ended31December2011 Additions Transfers Transfers tointangibleassets Disposals Amortization charge Impairment loss Net bookvalue Cost At 31December2011 Accumulated amortization Net bookvalue Opening netbookvalue Year ended31December2012 Additions Transfers Disposals Amortization charge Impairment loss Net bookvalue Cost At 31December2012 Accumulated amortization Net bookvalue Property, plantandequipment HRK millions Land and buildings (1,030) (1,122) 1,174 2,098 1,174 1,122 2,152 1,122 1,122 1,038 1,038 2,160 (924) (105) (104) (16) (6) (5) 39 25 29 7 - - HRK millions machinery plant and Telecom (6,892) (7,108) 11,330 (7,469) 11,428 11,420 4,438 4,438 4,320 4,320 4,320 3,951 3,951 (796) (709) (12) (49) 436 257 291 (1) (2) 98 - HRK millions vehicles, IT equipment and office Tools, 1,176 1,122 1,139 (847) (128) (836) (901) (99) 329 329 286 286 286 238 238 (1) (2) 58 28 14 39 - - - HRK millions construction Assets under (310) (119) (16) (22) (23) 411 395 395 163 248 225 225 404 225 506 509 506 (1) (1) (3) (3) - - - HRK millions (8,679) (1,029) (8,997) 15,015 (9,495) 14,950 15,228 6,336 6,336 5,953 5,953 5,953 5,733 5,733 (912) Total (39) (19) (52) 696 763 (2) (9) - - known asDistributiveTelecommunication Infrastruc that maybeconsideredasareal estatewhichisalso atian legislation,partoftheCompany’s infrastructure Company on1January1999, according tootherCro- (“RoC”) tothesharecapitalatfoundationof munication” andcontributedbytheRepublicofCroatia the “LawonSeparationofCroatianPostandTelecom ssor oftheCompany,HPTPublicCompanybyvirtue infrastructure) weretransferredfromthelegalpredece- Although theassets(includingductsasapartof Ownership overducts amount ofHRK420million. old tools,IT,officeequipmentandvehiclesinthegross primarily relatestothedisposaloftelecommachinery, The disposaloftheproperty,plantandequipment Disposal ofproperty,plantandequipment rties, afterdeductingthecostsofdisposal. length transactionbetweenknowledgeable,willingpa- position date,fromthedisposalofassetinanarm’s the Groupcouldobtain,atstatementoffinancial the bestinformationavailabletoreflectamountthat estimated fairvaluelesscoststosell,whichisbasedon gy. Therecoverableamountofthatequipmentisits HRK 39million)duetotransferthenewertechnolo- property, plantandequipmentofHRK52million(2011: In 2012,theGrouprecognizedanimpairmentlossof Impairment loss material idleproperty,plantandequipment. and equipmentheldfordisposal,nordoesithaveany The Groupdoesnothaveanymaterialproperty,plant this legaltitle. The Groupisstillintheprocessofformallyregistering HPT s.p.o.undertheSeparationActof10July1998. ence oflegaltitletolandandbuildingstransferredfrom procedures whichhaveprovidedsupportfortheexist Beginning in2001,theGrouphasperformedadditional llion (31December2011:HRK1million). 2011: HRK27million),netofaprovision1mi- are majorsparepartsofHRK19million(31December Included withinassetsunderconstructionoftheGroup - - - (Official Gazette No. 31/09 effective as of 19 March 2009), (Official GazetteNo.31/09effective asof19March2009), Ordinance onCertificateand FeesfortheRightofWay Gazette No.154/08effectiveas at6January2009)and cations InfrastructureandRelated Equipment(Official tions forAccessandJointUseofElectronicCommuni In accordancewithOrdinanceonMannerandCondi practicably possible. regulations undertheCroatianlegalsystemassoon ble effortstoprovidefortheappropriatelegislationand tted, withinthelimitsofitsauthority,tousereasona The GovernmentoftheRepublicCroatiahascommi- and sharedusageissueswillbebased. underlying principlesunderwhichrightofwaycharges structure shouldberesolved.Interaliathisprovidesthe relating totheInitialPublicOffering,includingDTIinfra- ndum ofUnderstandingonhowthevariousissues Deutsche TelekomAGhaveenteredintoaMemora- in 2007,theGovernmentofRoC,Companyand held bytheGovernmentofRepublicCroatia(RoC) In connectionwiththeofferforsaleofordinaryshares County Roads. palities and“rightofuse”contractswithCroatian sion of“rightservitude”contractswithlocalmunici actions ofHThavebeenconcentratedontheconclu on localandstateauthorities.Sincetheyear2006 since theregistrationdependsnotonlyonHTbutalso authorities. Theoverallprocessisslowandcomplex mentation isavailabletoallrelevantdepartmentsand properly legalised,documentedandthatthisdocu- to assurethatallnetworktechnologyrelatedassetsare tual RelationManagementWorkUnitthatisresponsible The GroupformedtheTechnicalInfrastructureContrac- its ownershiprightsforsomeducts. statements inthecasethatHTwillnotbeabletoprove problems), mayhaveamaterialeffectonthefinancial City ofZagrebandSplitpresentthemajority ownership overtheseassetsbythelocalauthorities(the ducts byothercompetitorsandsomerequirementsof the ownershiptowardsthirdparties.IntrusionsinHT’s registry, whichmayberelevanttotheissueofproving portion oftheseassetsarenotregisteredintheland documents (building,usepermitsetc.)andthemajor ture (DTI,TIorducts)-doesnothaveallthenecessary - - - - - 109 Consolidated financial statements 110 Consolidated financial statements respect tocertainoftheissuesinvolved;however,due risks thereon,includingobtaininglegalopinionswith The Groupassessedanddeclaredtheexistenceof HT “rightofway”ifothersolutionswerenotagreed. construction oftelecommunicationinfrastructuretogive municipality andotherownersofthelandusedfor Law onElectronicCommunicationswhichobligeslocal The legalizationprocessistobespeededupdue ing ZagrebačkiDigitalniGrad(ZHZDG)(Note28b). might helpHTinthelawsuitfiledbyZagrebačkiHold- believes thattheissuedcertificatesforrightsofway for certainroutesinthecityofZagrebtoHT.TheGroup Agency startedissuingcertificatesfortherightsofway the CroatianPostandElectronicCommunications 2011: HRK885million). December 2012isHRK855million(31 The netbookvalueofalltheGroup’sductsasat31 financial statementsinrespectofthismatter. effect. Therefore,noadjustmentsweremadetothese that maybeimposed,whichcouldhavearetrospective title orasaresultoftheadditionalrightwaycharges the DTIassetsconcernedduetoanyinabilityprove outcome andwhetheritwillresultinanyimpairmentof Group hasnotyetbeenabletodeterminethepossible to thefactthattheseissuesareverycomplex,sofar Summarisation oftheGroup’sshareinaggregatedfinancialinformation ofassociateisasfollows: year ended31December2011wasasfollows: The movementininvestmentsassociatesoftheGroupduring yearended31December2012andduringthe of BosniaandHerzegovina.Theprincipalactivitytheassociate isprovisionofpostalservices. HT d.d.hasanownershipinterestof30.29%initsassociateHPd.o.o. Mostarwhichisincorporatedin theRepublic The netbookvalueofinvestmentsinassociatecomprises: 12 At 31December Impairment ofinvestments Share ofprofits At 1January Current liabilities Non-current assets Current assets HP d.o.o.Mostar Net assets Non-current liabilities Net bookvalue Share oftheassociaterevenue andloss Share oftheassociatesstatementsfinancialposition: Loss Revenue Investment inassociate 31 December 31 December HRK millions HRK millions HRK millions Unaudited Unaudited 2012 2012 2012 2012 (3) (0) (2) 14 17 28 28 2 0 2 2 2 0 31 December 31 December HRK millions HRK millions HRK millions Audited Audited 2011 2011 2011 2011 (3) (0) 17 15 29 29 2 0 2 2 2 0 0 111 Consolidated financial statements 112 Consolidated financial statements The netbookvalueofinvestmentsinjointventurecomprises: 13 entity. Therestofthecompanyismainlyownedby fore, theinvestmentisclassifiedasajointlycontrolled approved bybothofthemajorityshareholders.There decisions madebytheSupervisoryBoardhavetobe All decisionsmadebytheManagementBoardandall cation services. activity ofthiscompanyisprovisiontelecommuni- Republic ofBosniaandHerzegovina.Theprincipal venture HTd.d.Mostarwhichisincorporatedinthe HT d.dhasanownershipinterestof39.1%initsjoint Non-current assets HT d.d.Mostar Non-current liabilities Current liabilities Current assets Net assets Share ofthejointlycontrolledentityassetsandliabilities: Share ofthejointlycontrolledentityrevenueandprofit: Profit Revenue Investment injointventure - from HTd.d.Mostar(2011:nil). In 2012,HTreceivedadividendofHRK25millions by theauditreport). ended 31December2011whichwaslaterconfirmed ognized basedonunauditedresultsofprofitfortheyear HRK 27million(2011:15ofprofitwasrec- statement ofcomprehensiveincomeintheamount the yearended31December2012,isrecognizedin The Group’sshareinHTd.d.Mostarunauditedprofitfor Federation ofBosniaandHerzegovina(50.10%). 31 December 31 December HRK millions HRK millions Unaudited Unaudited (129) 2012 2012 2012 (42) 124 393 563 396 396 516 27 31 December 31 December HRK millions HRK millions Audited Audited (139) 2011 2011 2011 (60) 135 393 393 554 490 370 15 reference totheir marketvalueofferedonthesecondary and bondsat31December2012 isdeterminedby The estimatedfairvalueofinvestments intreasurybills foreign treasurybillswereupto 1.00%. Interest rateonforeignbondis 3.75%. Interestrateson Current available-for-salefinancialassetsincludethefollowing: Interest rateondomesticbondis4.75%.ratesforeignbonds areupto0.75%. Non-current available-for-salefinancialassetsincludethefollowing bonds: 14 Other equitysecurities Government ofNetherland Government ofGermany Government ofGermany Government ofFrance Foreign bonds: Government ofCroatia Domestic bond: Issuer Unit holdingsinmoneymarketfunds: Government ofFrance Government ofFrance Government ofGermany Government ofFrance Foreign treasurybills: Government ofFrance Foreign bond: Available-for-sale financialassets Currency HRK HRK EUR EUR EUR EUR EUR EUR EUR EUR EUR

12 September2014 25 September2014 15 February2012 categories in2012. no changesamongfinancial instrumentshierarchy financial instrumentshierarchy category.Therewere ment offinancialpositiondate andbelongtothefirst capital market,whichisanactive market,atthestate 12 January2013 8 February2017 9 February2012 23 August2012 22 March2012 15 April2015 13 July2014 Maturity 31 December 31 December HRK millions HRK millions 2012 2012 151 153 499 11 35 86 77 75 75 8 - - - - 31 December 31 December HRK millions HRK millions 2011 2011 323 - 31 39 75 75 76 75 22 8 - - - - - 113 Consolidated financial statements 114 Consolidated financial statements 16 Interest ratesonreverseREPOagreementsareupto1.00%. 15 Merchandise Inventories andspareparts Privredna bankaZagrebd.d. Erste SteiermärkischeBankd.d. Erste SteiermärkischeBankd.d. (Note 30g): Reverse REPOagreements Issuer Inventories Loans tobanks Currency HRK HRK HRK 27 February2013 23 January2013 29 March2013 Maturity 31 December 31 December HRK millions HRK millions 2012 2012 155 239 78 74 86 77 79 31 December 31 December HRK millions HRK millions 2011 2011 175 84 91 - - - - Movements intheprovisionforimpairmentofreceivableswere asfollows: done accordingtothecollectionestimate. extraordinary collectionmethodvalueadjustmentis the internationalsettlementandkeycustomersunder domestic telecommunicationoperators,receivablesfor Value adjustmentforreceivablesfromsubsidiaries, foreign receivablesthatareduemorethan150days. receivables olderthan120days,andforoutstanding Value adjustmentisdoneforoutstandingdomestic The aginganalysisoftradereceivablesisasfollows: 17 At 31December Receivables written-off Unused amountsreversed Charge fortheyear At 1January Other receivables Trade receivables 31 December2012 31 December2011 Trade andotherreceivables millions 1,146 1,233 Total HRK HRK millions Neither past impaired duenor 823 896 < 30days fully providedfor. 2011: HRK1,047million)weredeemedimpairedand nominal valueofHRK1,085million(31December As at31December2012,tradereceivableswitha in thecaseoflapsereceivables. when thelegalcaseislostbyfinalcourtdecisionor the debtorisliquidatedorceaseditsbusinessactivities; Short-term receivablesarewritten-offinthecasewhen millions HRK 176 192 millions 31-60 days Past duebutnotimpaired HRK 73 71 31 December HRK millions HRK millions millions 61-90 days HRK 48 30 1,146 1,085 1,047 1.215 2012 2012 (83) (30) 151 69 millions 91-120 days HRK 19 29 31 December HRK millions HRK millions millions > 120 1,233 1,047 1,028 1.307 days 2011 2011 HRK (33) (91) 143 15 74 7 115 Consolidated financial statements 116 Consolidated financial statements Cash andcashequivalentscomprisethefollowingamounts: a) Cashandcashequivalents 18 c) Currencybreakdownofcashandequivalentstimedeposits b) Timedepositswithmaturitiesmorethan3months Reverse REPOagreementsaffairswithmaturitylessthan3months Time depositswithmaturitylessthan3months Cash onhandandbalanceswithbanks Domestic banks HRK Foreign bank EUR USD Cash andcashequivalentstimedeposits 31 December 31 December 31 December HRK millions HRK millions HRK millions 3,146 1,857 3,407 2,659 2012 2012 2012 548 741 261 723 259 25 2 31 December 31 December 31 December HRK millions HRK millions HRK millions 3,744 3,704 1,937 2,828 1,767 2011 2011 2011 874 40 40 42 - - as follows: The principalactuarialassumptionsusedtodetermineretirement benefitobligationsasat31Decemberwere The movementintheliabilityrecognizedstatementoffinancial positionwasasfollows: paid toemployeesintheprecedingmonth.Jubilee rmined intheamountofsixaveragemonthlysalaries required conditionstoenterretirementandaredete- benefits aredependentonemployeesfulfillingthe jubilee (lengthofservice)payments.Oneoffretirement Long-term employeebenefitsincluderetirementand 20 19 Other creditors VAT andothertaxespayable Payroll andpayrolltaxes At 31December Actuarial losses/(gains) Curtailments (Note6) Benefit paid Amortization losses/(gains)(Note6) Interest costs Service costs(Note6) LTIP -VariableII(Notes6and33) At 1January Trade payables Wage andsallary increases(annually) Discount rate(annually) Trade andotherpayables Employee benefitobligations in whichtheyoccur. as othercomprehensiveincome/expenseintheperiod from changesinactuarialassumptionsarerecognized projected unitcreditmethod.Gainsandlossesresulting Long-term employeebenefitsaredeterminedusingthe number ofyearsserviceintheGroup. benefits arepaidinthefixedamountdependingon 31 December HRK millions 1,577 1,428 2012 30 38 81 31 December HRK millions HRK millions Restated 1,418 1,244 2011 2012 2012 (13) (27) 140 158 2.0 6.5 30 62 82 (1) 11 % 3 8 1 HRK millions HRK millions 1 January Restated 1,532 1,373 2011 2011 2011 (23) (12) (20) 158 192 2.0 6.5 44 40 75 (3) 13 10 % 1 117 Consolidated financial statements 118 Consolidated financial statements 21 22 gement hasassessedasprobabletoberesultinoutflowof resources oftheGroup. As at31December2012,theGrouphasprovidedestimated amountsforseverallegalactionsandclaimsthatmana- Utilisation Interest cost At 31December Reversals Additions At 1January Deferred income-current Customer loyaltyprogramme Other Connection fee Prepaid vouchers Deferred income-noncurrent Connection fee Deferred income Provisions forlegalclaimsandotherprovisions 31 December HRK millions HRK millions 2012 2012 (24) (29) 113 124 122 34 87 25 20 66 2 2 2 2 31 December HRK millions HRK millions 2011 2011 113 101 151 153 (3) 10 49 26 72 4 5 2 2 - 26 issued capitaloftheGroup. the issuedcapitaltheycanalsobeusedtoincrease or prioryearlosses.Ifthelegalreservesexceed5%of above amountcanonlybeusedtocovercurrentyear issued capital.Legalreservesthatdonotexceedthe for theyear,untilthesereservesamountto5%of Company Actintheamountof5%netprofit Legal reservesrepresentprescribedbythe 24 In 2012,theGroupacquired1,931ofitsownsharesandareheldas‘treasuryshares’(2011:nil). The numberofsharesinissueremainedunchangedbetween1January1999and31December2012. 23 Unused vacation Variable salarytoemployees 81,888,535 ordinarysharesofHRK100each Authorised, issued,fullypaidandregisteredsharecapital Other accruals Legal reserves Issued sharecapital per share(2011:HRK22.75). on (2011:HRK1,863million),respectively22.14 In 2012,theGrouppaidadividendofHRK1,813milli- 25 Retained earnings 31 December 31 December HRK millions HRK millions 8,189 2012 2012 84 15 69 31 December 31 December HRK millions HRK millions 8,189 2011 2011 116 86 30 119 Consolidated financial statements 120 Consolidated financial statements The Groupwascommittedundercontractualagreementstocapital expenditureasfollows: b) Capitalcommitments The contractsrelateprimarilytopropertyleasesandcarleases. Future minimumleasepaymentsundernon-cancellableoperating leaseswereasfollows: Operating leasecharges: The Grouphasoperatingleasecommitmentsinrespectofbuildings, land,equipmentandcars. a) Operatingleasecommitments 27 Current yearexpense(Note7) Between 1and5years Greater than5years Within oneyear Property, plantandequipment Intangible assets Commitments 31 December 31 December HRK millions HRK millions HRK millions 1,175 2012 2012 2012 185 428 174 573 932 869 63 31 December 31 December HRK millions HRK millions HRK millions 1,217 2011 2011 2011 178 864 466 524 924 227 60 year inwhichtheinfringementwascommitted. Company turnoverofthefinancialyearproceeding Competition couldamountupto10%oftheannual penalty forviolationsoftheLawonProtectionMarket tion AgencyfiledappealinMarch2012.Thepotential HT. AgainstthisdecisioninHT’sfavour,theCompeti- sion inwhichithassuspendedtheproceedingsagainst In January2012MisdemeanourCourtrenderedadeci- sion oftheFrameAgreements. d.o.o. haveabusedtheirdominantpositionbyconclu assessing whethertheCompanyandT-MobileCroatia The Agencyhasinitiatedadministrativeproceedingsfor clients thatallegedlycontainanticompetitiveclauses. Croatia d.o.o.signedwithourkeyandlargebusiness regarding FrameAgreementsthatHTandT-Mobile VIPnet d.o.o.complainedtotheCompetitionAgency Competition Agency VIPnet complaintinfrontoftheCroatian than themaximumpenaltiesoutlinedbelow. ment believesthatanysettlementwillbesignificantlyless the possibleoutcomeofthesecases,howevermanage- are stillinprogress,theGroupisnotabletodetermine relevant practiceandduetothefactthatproceedings or imposedbyMisdemeanourCourts.Duetothelackof settlements inCroatiaundereithertheCompetitionLaw tion/regulatory situations.Thereisnohistoryofsignificant The Groupvigorouslydefendsallofthebelowcompeti- a) Competition/Regulatorymatters was established(seeNote22). Group, exceptforcertainclaimswhichaprovision material adverseeffectonthefinancialpositionof ment, thesettlementofthesecaseswillnothavea ing againsttheGroup.Inopinionofmanage- cial statements,thereareanumberofclaimsoutstand At thetimeofpreparationtheseconsolidatedfinan 28 Contingencies - - - nication networks and services in the year preceding the nication networksandservicesintheyearpreceding yearly turnovergainedbyprovidingelectroniccommu- Thereby proposingthepenaltyinamountof1% dated of17July2009. market analysisconductedbyHAKOMwithinitsdecision channels, asdefinedinthewholesalebitstreamaccess and publicationoftheofferVoIPIPTVspecialvirtual regulatory obligationsregardingthepricecalculation proceeded initsBitstreamStandardOffercontrarytothe against HTandaresponsibleperson,claimingthat to theMisdemeanourCourtIndictmentProposal in October2009andJanuary2010,HAKOMsubmitted the expertsupervisionsthatHAKOMhadundertaken tional MisdemeanourIndictmentProposalasaresultof In addition,on24October2012HTreceivedanaddi- turnover wouldamounttoHRK55million. mitted. Onthebasisofresultsfor2008,1% year precedingtheinwhichoffencewascom- electronic communicationnetworksandservicesinthe amount of1%yearlyturnovergainedbyproviding proposed thatHTshouldbefinedwithpenaltyinthe HT receivedMisdemeanourIndictmentinwhichHAKOM for allusershasbeendeterminedintheamountof40%. to HAKOM’sdecisions,inwhichpercentageofdiscount Standard Offer,claimingthatsuchdistinctioniscontrary tween “existing”and“new”end-usersinHT’sBitstream HAKOM initiatedasupervisionrelatingtodistinctionbe- within thetransparencyobligation. ing theobligationtopublishaBitstreamStandardOffer certain regulatoryobligationshavebeendefined,includ- market powerontherelevantmarket,throughwhich which HTisdesignatedasanoperatorhavingsignificant the analysisofwholesalebitstreamaccessserviceby On 17July2009,HAKOMpasseddecisionregarding (HAKOM’s) supervisiononBitstreamStandardoffer Croatian PostandElectronicCommunicationsAgency’s HRK 28.6million. the resultsfor2008,1%ofturnoverwouldamountto year inwhichtheoffencewascommitted.Onbasisof 121 Consolidated financial statements 122 Consolidated financial statements range upto390millionplusinterest. of theCityZagrebanddemandingapaymentin the ownershipofCityZagreboverDTIonarea ter: ZHZDG)againsttheCompany.ZHZDGisclaiming Digital CityLtd.branchofZagrebHolding(hereinaf- 2008, the Company received a lawsuit filed by the Zagreb erty, plantandequipment(Note11),on16September With respecttotheductsissuementionedunderProp- Infrastructure (DTI)bytheCityofZagreb b) OwnershipclaimofDistributiveTelecommunication munications. on conformityassessmentoftheLawelectroniccom- the ConstitutionalCourtofRoCdecidesonHT’sRequest defence andproposedsuspensionoftheprocedureuntil would amounttoHRK48million.HTsubmittedwritten the basisofresultsfor2008,1%grossrevenue business annualgrossrevenuefromtheyear2008.On decision from2010proposing1%fineontheT-Com ceived aMisdemeanourIndictmentbasedonHAKOM’s instead. Pursuanttothisdecision,HTinJune2012,re- annex, butshouldhaveprovidedtheservicedirectly the changednumberingofVASserviceswithcontract that HTshouldn’thaveconditionednetworkaccesswith initiated supervisionandinApril2010issuedadecision Pursuant toMetronetnotificationfrom2010,HAKOM Access to064/069numberscase in thefinancialstatementsforthiscase. concluded thatnoprovisionisrequiredtoberecognised only afterlegalvalidityofthejudgement,management defines thattheamountofclaimshallbediscussed his claim,andsincetheinterlocutorypartialjudgement Since theplaintiffwasrejectedwithmainpartof submitted theappealagainstthisjudgment. later judgment.On21December2012,theCompany is rejected.Decisiononthelitigationcostsleftfor pose ofcommunication-informationsystemsandservices installations ontheareaofCityZagrebforpur- communal infrastructureforlayingtelecommunication of theownershipCityZagreboverDTIandother more, theclaiminpartconcerningestablishment be stoppedregardingtheamountofclaim.Further validity ofthispartialinterlocutoryjudgment,litigationwill fee forusageoftheDTIsystem,andthatuntillegal it isdeterminedthatHTobligedtopayZHZDGthe interlocutory judgementandpartialbywhich On 10December2012,theCompanyreceivedpartial challenged bytheCompanyandsuitwasfilled. munal infrastructureownedbytheCityofZagrebthatare 2006 and2007bywhichDTIhasbeendeclaredacom- nistration andAssemblyoftheCityZagrebinyears The suitisbasedonthelegalactsadoptedbyAdmi- - The statementoffinancialpositionincludesthefollowingbalances resulting fromtransactionswithrelatedparties: The maintransactionswithrelatedpartiesduring2012and2011 were asfollows: Telekom AG(DTAG).TheGroupentersintotransac- transactions withthecompaniesownedbyDeutsche The transactionsdisclosedbelowprimarilyrelateto 29 Total Others Total Others Joint venture Immediate parent Joint venture Immediate parent Subsidiaries ofimmediateparent Subsidiaries ofimmediateparent Related party: Related party: T-Systems International, T-Systems International,Germany T-Mobile Czech,CzechRepublic T-Mobile ,Austria T-Mobile Austria,Austria Deutsche TelekomAG,Germany Deutsche TelekomAG,Germany related parties Balances andtransactionswith Telekom Deutschland,Germany Telekom Deutschland,Germany HT Mostar,BosniaandHerzegovina HT Mostar,BosniaandHerzegovina 31 December HRK millions HRK millions 2012 2012 Receivables 111 30 22 32 19 Sales 3 3 7 4 5 - - - - - (2011: HRK10million). technical assistancetotheGroupofHRK13million panies during2012and2011.Further,DTAGprovided and receivingofinternationaltrafficto/fromthesecom length basis.Thesetransactionsincludedthesending tions inthenormalcourseofbusinessonanarm’s 31 December HRK millions HRK millions 2011 2011 141 49 34 10 21 27 5 2 3 ------31 December HRK millions HRK millions 2012 2012 Purchases 235 137 Payables 68 18 16 48 53 59 80 8 2 3 6 3 8 31 December HRK millions HRK millions 2011 2011 165 136 13 48 17 60 44 16 53 26 - 6 5 6 7 - 123 Consolidated financial statements 124 Consolidated financial statements Compensation paidtokeymanagementpersonnelincludes: the averagemonthlynetsalaryofemployees tee oftheSupervisoryBoardinamount1.25 who isinthesametimeaMemberofAuditCommit- preceding month.ToamemberoftheSupervisoryBoard net salaryoftheemployeesCompanypaidin visory Board,intheamountof1.5averagemonthly time theChairmanofAuditCommitteeSuper- a memberoftheSupervisoryBoard,whoisinsame ployees oftheCompanypaidinprecedingmonth.To receives theamountofoneaveragenetsalaryem- the precedingmonthispaid,whileanyothermember ge netsalaryoftheemployeesCompanypaidin To thedeputychairman,amountof1.25avera- employees oftheCompanypaidinprecedingmonth. ration intheamountof1.5averagenetsalary The chairmanoftheSupervisoryBoardreceivesremune- Compensation oftheSupervisoryBoard 29 Share-based payments Short-term benefits parties (continued) Balances andtransactionswithrelated the Company,whoareemployedbyGroup. pany anditssubsidiariestheoperatingdirectorsof include members of theManagementBoards Com- (2011: HRK46million).Keymanagementpersonnel personnel oftheGroupamountedtoHRK45million In 2012thetotalcompensationpaidtokeymanagement Compensation tokeymanagementpersonnel Supervisory Board. Board. Noloansweregrantedtothemembersof (2011: HRK0.7million)tothemembersofitsSupervisory In 2012,theGrouppaidatotalamountofHRK0.7million Supervisory BoardduetoarespectivepolicyofDTAG. not receiveanyremunerationforthemembershipin paid intheprecedingmonth.DTAGrepresentativesdo monthly netsalaryoftheemployeesCompany Supervisory Boardintheamountof1.25average of theCompensationandNominationCommittee the SupervisoryBoardwhoisinsametimeaMember Company paidintheprecedingmonth.Toamemberof 31 December HRK millions 2012 42 45 3 31 December HRK millions 2011 44 46 2 about counterpartydefaultrates: The creditqualityoffinancialassetsthatareneitherpastduenorimpairedcanbeassessedbyhistoricalinformation not exceedanacceptablecreditexposurelimit. to customerswithanappropriatecredithistoryanddo force toensureonapermanentbasisthatsalesaremade with similarcharacteristics.TheGroupproceduresarein with anysinglecounterpartyorgroupofcounterparties The Grouphasnosignificantconcentrationofcreditrisk a) Creditrisk or forspeculativepurposes. does notusederivativeinstrumentseithertomanagerisk manage theserisks,aredescribedbelow.TheGroup The significantrisks,togetherwiththemethodsusedto terms toitscustomersandisexposedariskofdefault. in foreignexchangerates.TheGroupalsoextendscredit kets. Asaresult,theGroupcanbeaffectedbychanges The Groupisexposedtointernationalservice-basedmar- 30 Other tradereceivables Trade receivablesforrenderedtelecomservicestoforeigncustomers Trade receivablesforrenderedtelecomservicestodomesticcustomers and policies Financial riskmanagementobjectives markets andoncontactswiththebanksadailybasis. eign anddomesticownershipattheforeign focused ondealingwiththemostreputablebanksinfor- government securities.Themanagementofthisriskis minimum ratingofBBB+orguaranteesinformlow-risk antees fordepositsgivenfromparentbankswhichhavea banks withforeignownership,theGroupreceivedguar- in sixbanksalmostexclusively.Forthosedomestic (2011: thirteenbanks).TheGroupheldcashanddeposits Group hadbusinesstransactionswithfourteenbanks deposits inthebanks.Asat31December2012, Additionally, theGroupisexposedtoriskthroughcash of financialpositiondate. provisions forimpairmentrecognizedatthestatement reflected bytheamountofdebtors(seeNote17)net The Groupconsidersthatitsmaximumexposureis The Groupdoesnotguaranteeobligationsofotherparties. 31 December HRK millions 2012 823 726 34 63 31 December HRK millions 2011 896 775 91 30 125 Consolidated financial statements 126 Consolidated financial statements ables heldconstant,oftheGroup’sprofitposttax(throughimpactonfloatingrateinvestments). The followingtabledemonstratesthesensitivitytoareasonablypossiblechangeininterestrates,withallothervari- financial assets,cash,cashequivalentsandtimedeposits. The Group’sexposuretotheriskofchangesinmarketinterestratesrelatesprimarilyavailable-for-sale c) Interestraterisk Any excesscashisinvestedmostlyinavailable-for-salefinancialassets. amount ofcommittedcreditfacilitiestomeetitscommitmentsfortheforeseeablefuture. The Grouppolicyistomaintainsufficientcashandequivalentsorhaveavailablefundingthroughanadequate b) Liquidityrisk 30 Euro Croatian Kuna Year ended31December2011 Euro Croatian Kuna Year ended31December2012 all amountsinHRKmillions Year ended31December2012 Year ended31December2011 Year ended31December2010 Financial riskmanagementobjectivesandpolicies(continued) 3months Less than 1,331 1,526 1,457 Trade andotherpayables months 3 to12 51 87 75 1,418 1,577 1,532 Total 1 to3 years 32 19 25 Increase /decrease Other non-currentliabilities in basispoints 3 to5 years post tax 6 5 6 +100 +100 +100 +100 -100 -100 -100 -100 years > 5 12 19 19 Effect onprofit HRK millions Total (13) (10) 49 44 50 (6) (9) 13 10 6 9 cash flows. of comprehensiveincomebutdonotaffectshort-term differences arechargedorcreditedtothestatement each statementoffinancialpositiondate.Theresulting middle exchangerateoftheCroatianNationalBankat in foreigncurrencieswhicharetranslatedatthevalid (HRK). Certainassetsandliabilitiesaredenominated The Group’sfunctionalcurrencyistheCroatianKuna d) Foreigncurrencyrisk their fairvalues. all subjecttonormaltradecreditterms,approximate ivables andpayables,includingprovisions,whichare payables. Thehistoricalcostcarryingamountsofrece- receivables, non-currenttradeandother not carriedatfairvaluearetradereceivables,other tion date.TheGroup’sprincipalfinancialinstruments quoted marketpriceatthestatementoffinancialposi- sale financialassetsisestimatedbyreferencetotheir The fairvalueofsecuritiesincludedinavailable-for- e) Fairvalueestimation Year ended31December2011 Year ended31December2012 in foreign currency, primarily in Euro. The purpose of in foreigncurrency,primarilyEuro.Thepurposeof for salefinancialassetsandcashequivalentsaremade A significantamountofdepositsinthebanks,available and 31December2011(seeNotes2325). processes duringtheyearsended31December2012 No changesweremadeintheobjectives,policiesor ers, returncapitaltoshareholdersorissuenewshares. Group mayadjustthedividendpaymenttosharehold- ditions. Tomaintainoradjustthecapitalstructure, adjustments toit,inlightofchangeseconomiccon- The Groupmanagesitscapitalstructureandmakes 2012 (31December2011:HRK11,019million). ings andtotalsHRK10,899millionasat31December comprising issuedcapital,reservesandretainedearn Group consistsofequityattributabletoshareholders, maximise shareholdervalue.Thecapitalstructureofthe ment istoensurethatitsupportsitsbusinessand The primaryobjectiveoftheGroup’scapitalmanage f) Capitalmanagement the fairvalueofmonetaryassetsandliabilities. constant, oftheGroup’sprofitposttaxduetochangesin in theEuroexchangerate,withallothervariablesheld onstrates thesensitivitytoareasonablypossiblechange changes intheexchangerate.Thefollowingtabledem- liabilities andindexedtoforeigncurrenciesfrom these depositsistohedgeforeigncurrencydenominated Increase/decrease in Eurorate +3% +3% -3% -3% profit posttax HRK millions Effect on (29) (27) - 29 27 - 127 Consolidated financial statements 128 Consolidated financial statements Set outbelowisacomparisonbycategoryofcarryingamountsandfairvaluesalltheGroup’sfinancialinstruments 31 no specifictermsandconditionsrelatedtotheuseofcollaterals. All abovestatedvaluesarefairmarketvalues.Neitherofacceptedcollateralsiscurrentlysoldnorrepledged.There Accepted collateralsforreverseREPOaffairsinclude: g) Acceptedcollaterals 30 loans hasbeencalculatedbydiscounting theexpectedfuturecashflowsatprevailinginterest rates. Market valueshavebeenused todeterminethefairvalueoflistedavailable-for-salefinancial assets.Thefairvalueof Government ofGermany Foreign treasurybills: Government ofFrance Government ofAustria Foreign bonds: Interest-bearing loans Financial liabilities Loans tobanks Available-for-sale assets,current Available-for-sale assets,non-current Time deposits Cash andcashequivalents Financial assets Financial instruments Financial riskmanagementobjectivesandpolicies(continued) 31 December HRK millions Carrying amount 3,146 2012 239 499 261 17 86 31 December HRK millions 3,704 2011 323 39 40 22 - 31 December 31 December HRK millions HRK millions 3,146 2012 2012 581 806 150 499 261 239 Fair value 86 17 75 31 December 31 December HRK millions HRK millions 3,704 2011 2011 323 39 40 22 : - - - - - • • • • • • • • • • • • sation whichwaslastupdatedon15November2010: communication servicesbasedonthegeneralauthori Company isentitledtoprovidethefollowingelectronic Article 32oftheLawonElectronicCommunications 10 August2011andon3December2012.Pursuantto on ElectronicCommunicationsenteredintoforce networks. Inthemeantime,twoAmendmentstoLaw zation forallelectroniccommunicationsservicesand tions enteredintoforceandintroducedgeneralauthori On 1July2008,anewLawonElectronicCommunica- and mobilenetwork electronic communicationsservicesinafixed a) Serviceauthorizationfortheperformanceof rvices, noneofwhicharewithinthescopeIFRIC12: The GroupispartytothefollowingAuthorizationforSe- 32

lease ofelectroniccommunicationnetworkand/orlines, other services. services intheRepublicofCroatia, tory ofallsubscriberspublicly availabletelephone issuing ofcomprehensivepubliclyavailabledirec- in theRepublicofCroatia, subscribers ofpubliclyavailabletelephonyservices providing ofinformationaboutthenumbersall satellite services, munications infrastructureandassociatedfacilities, granting accessandshareduseofelectroniccom- voice overinternetprotocolservices, internet accessservices, value addedservices, cludes servicesofradiodiffusion), electronic communicationnetworks(whichex- transmission ofimage,voiceandsoundthrough electronic communicationsnetwork, publicly availabletelephoneserviceinthemobile electronic communicationsnetwork, publicly availabletelephoneserviceinthefixed Applicable Fees Authorization forServicesand - - • • • • • November 2010: lic ofCroatiaforthenext5-yearperiodstartingfrom29 following universalservicesintheterritoryofRepub thereby designatingtheCompanyasoperatorof on 27October2010,HAKOMadoptedanewdecision November 2010.Duetoexpirationofthe5-yearperiod, services providerforaperiodoffiveyearsi.e.till29 2005, theCompanywasdesignatedasUniversal In accordancewithHAKOM’sdecisionof28November erased fromthelistofoperators. ceased toexistasaseparatecompanyandthuswas Company asof1January2010,T-MobileCroatiad.o.o. Upon themergerofT-MobileCroatiad.o.o.to

cal feasibility, used bythemajorityofsubscribersandtechnologi- access, takingintoaccountprevailingtechnologies rates thataresufficienttopermitfunctionalInternet communications anddatacommunications,at national andinternationaltelephonecalls,facsimile allowing end-userstomakeandreceivelocal, available telephoneservicesatafixedlocation, access tothepublictelephonenetworkandpublicly socially disadvantagedgroupsofend-users. special pricingsystemsadjustedtotheneedsof enjoyed byotherend-users, enquiry servicesanddirectories,equivalenttothat access toemergencyservices,telephonedirectory special measuresfordisabledpersons,including ity ofsuchtelephonesfordisabledpersons, number ofpublicpaytelephonesandtheaccessibil- geographical coverage,thequalityofservices, the reasonableneedsofend-usersinterms places accessibleatanytime,inaccordancewith setting upofpublicpaytelephoneson telephones, toatelephonedirectoryenquiryservice, access forend-users,includingusersofpublicpay - 129 Consolidated financial statements 130 Consolidated financial statements and mobilenetwork electronic communicationsservicesinafixed a) Serviceauthorizationfortheperformanceof 32 • • • following licensestotheCompany: In 2010,upontheCompany’srequestHAKOMissued December 2009weretransferredtotheCompany. that weregrantedtoT-MobileCroatiad.o.o.until31 radiofrequency spectrum(GSMandUMTSothers) for useofaddressesandnumbersthe Company asof1January2010,allrightsandlicences Upon themergerofT-MobileCroatiad.o.o.to b) Authorizationforusageofradiofrequencyspectrum the serviceoncommercialbasis. telephone services,however,shallcontinuetoprovide hensive directoryofallsubscriberspubliclyavailable for serviceaccessend-userstoatleastonecompre is nolongerdesignatedasuniversalserviceoperator Following thelaterdecisionofHAKOM,Company HAKOM issuedthefollowinglicences: these requestsafterconductedassignmentprocedure, spectrum in1800MHzfrequencyband.Basedon KOM fortheassignmentofadditionalradiofrequency In 2011,theCompanysubmittedtworequeststoHA- replaced thelicencereceived on20January2010 in 900MHzand1800frequency bands,which neutral licencesforuseofradiofrequency spectrum on 20April2011,HAKOMissuednewtechnology services (DTHservices); for theuseofradiofrequencyspectrumsatellite on 13September2010HAKOMissuedlicences been issuedwiththevalidityuntil18October2024. frequency band(UMTSlicense);Bothlicenceshave the useofradiofrequencyspectrumin2100MHz 1800 MHzfrequencybands(GSMlicence)andfor use ofradiofrequencyspectrumin900MHzand technology neutrallicencesissuedbyHAKOMfor on 20January2010,theCompanyreceivednew Applicable Fees(continued) Authorization forServicesand (continued) - • • • In 2012,theCompanypaidfollowingfees: (in caseoffeesforusageradiofrequencyspectrum). fees arepaidforthecurrentyearoroneinadvance prescribe thecalculationandamountoffees.These affairs, transportandinfrastructureThesaidregulations the ordinancesofHAKOMandMinistrymaritime the performanceofothertasksHAKOMpursuantto resses andnumbers,radiofrequencyspectrumfor Company isobligedtopaythefeesforuseofadd- Pursuant totheLawonElectronicCommunications, communications services c) Feesforprovidingelectronic was issuedtotheCompanyinNovember2012. frequency spectrumin800MHzband(digitaldividend) tory ofRepublicCroatia,alicenceforusetheradio mobile electroniccommunicationsnetworksintheterri- cences foruseoftheradiofrequencyspectrumpublic After theconductedpubliccallprocedureforgrantingli- implementation of the National Programme. implementation oftheNational Programme. audiovisual activitiesondemand forthepurposeof annual grossincomegenerated fromtheperformingof is obligedtopaythefeeinamountof2%total which enteredintotheforceinJuly2011,Company Pursuant amendmentoftheLawonaudiovisualactivities, d) Audiovisualandelectronicmediaservices

which replacedthelicenceissuedon20April2011. trum in900MHzand1800frequencybands, ogy neutrallicenceforuseofradiofrequencyspec- on 16November2011,HAKOMissuednewtechnol- Gazette, 133/11). by HAKOM(infavourofHAKOM’sbudget,Official tasks ofHAKOM.Pursuanttotheordinancepassed quency spectrumandfortheperformanceofother the feesforuseofaddresses,numbersandradiofre- Official Gazette154/08,28/09,97/10,92/12)and port andinfrastructure(infavourofStatebudget, passed bytheMinistryofmaritimeaffairs,trans- radiofrequency spectrumpursuanttotheordinance the feesforuseofaddresses,numbersand interests ofmanagementand shareholders. term valueenhancementofthe Group,thusaligningthe beneficiaries. Theplanspromote themediumandlong- the ManagementBoard,senior executivesandother ensure competitivetotalcompensationformembersof II 2011andHTVariable2012)existatGrouplevelto 2011) andlong-termincentiveplans(LTIP-HTVariable Various mid-term(MTIP2010andTransitionMTIP 33 ated facilities. electronic communicationsinfrastructureandassoci according totheareaoflandusedforinstallation effective asof4January2012.Thefeeiscalculated HAKOM inDecember2011.ThenewOrdinanceis of Way(OfficialGazette152/11)thatwasadoptedby the newOrdinanceonCertificateandFeesforRight passed byHAKOM.ThisOrdinancewasreplaced way certificateandfee(OfficialGazette,31/09,89/10) the rightofwayaredefinedbyOrdinanceon the LawonElectronicCommunications.Thefeesfor gated topayfeesfortherightofwayinaccordancewith The Company,astheinfrastructureoperator,isobli- and associatedfacilities e) Electroniccommunicationsinfrastructure tion services. audiovisual mediaservicesandtheelectronicpublica annual grossrevenuesrealizedfromtheprovisionof obliged topayupontherequestfeeof0,5% into forceon29December2009,theCompanyis Pursuant totheLawonElectronicMedia,whichentered implementation oftheNationalProgramme. internet andcabledistributionforthepurposeof parts throughpubliccommunicationnetwork,including or retransmissionofaudiovisualprogrammesandtheir previous calendaryearbyperformingtransmissionand/ of 0,8%thetotalannualgrossincomegeneratedin nication network)isobligedtopayafeeintheamount Also, theCompany(asoperatorofpubliccommu- payment transactions Share-based andnon-sharebased - - satisfaction. third andforthtargetsarecustomer andemployee justed operatingReturnOnCapital Employed(ROCE), are financialKPIs,Earnings Per Share(EPS)andad- cannot bechangedduringplanduration.Twotargets four equallyweightedperformanceparametersand LTIP -VariableII2011isnewcash-basedplanwith amount wasmade. with targetsachievements,paymentof50%thetotal target outoftwohasbeenachieved.Inaccordance visory BoarditwasestablishedthatoneMTIP2009 out inFebruary2012.BasedondecisionoftheSuper- The rewardsforparticipantsofMTIP2009werepaid a 100%targetachievement. fixed salaryandtheamountofvariableincase annual salaryisdefinedastheamountoftotal the SupervisoryBoarddecision.Participants’individual management leveloftheparticipantandaccordingto on thebeginningofeachMTIPdepending the participants’individualannualsalaryascontracted The incentivesthemselvesconsistof20%or30% and announcetheleveloftargetachievement. visory Board,theManagementBoardshalldetermine has beenachieved.BasedonthefindingsofSuper- sory Boardshalldeterminewhethereachofthetargets 2012). Uponexpiryofthetermplan,Supervi- covers theperiodfrom1January2010to31December All MTIPscoverperiodofthreeyears(i.e.MTIP2010 complex returnindex. is relatedtothesharepricemovementcompared share pricebyacertainpercentage;thesecondtarget duration. Thefirsttargetisbasedontheincreaseof MTIP targetscannotbechangedduringthe performance targetisachieved,nopaymentmade. achieved, 50%oftheamountispaidout,andifneither employers ispaidout;ifoneperformancetarget as anawardtothebeneficiariesbyrespective targets areachieved,thenthetotalamountearmarked - oneabsoluteandrelative.Ifbothperformance mance parameters,relatedtothevalueofHTshare ment oftwoequallyweighted,share-basedperfor- MTIP issetupasacash-basedplanlinkedtoachieve- 131 Consolidated financial statements 132 Consolidated financial statements Along withintroductionofLTIP-VariableII2011,a eter (departurefromtheprincipleof“allornothing”). are accountedforonagradedbasispertargetparam potential excessesandshortfallsinrelationtotargets hence eachparameterisassessedseparately.Both meter. Theparametersareindependentofeachother, award, limitedto150%oftheawardvolumeperpara- fers theoptionofexceedingamountsearmarkedfor In contrasttotheformerMTIPstructure,VariableIIof achievement. the amountofvariablesalaryincasea100%target defined astheannualamountoftotalfixedsalaryand Board decision.Participants’individualannualsalaryis level oftheparticipantandaccordingtoSupervisory beginning oftheplandependingonmanagement cipants’ individualannualsalaryascontractedonthe tract andforotherparticipantis30%or20%oftheparti- fixed sumspecifiedintheindividualemploymentcon- awarded forInternationalBusinessLeaders(BLT’s)is According toLTIP-VariableII2011,theamounts tory purposesandauditofSAP transformationproject. ments, auditoffinancialstatements preparedforregula relate totheauditsandreviews ofthefinancialstate- Profitability Calculationtool. Services renderedin2011 audit ofsustainabilityreportandupgradeCost financial statementspreparedforregulatorypurposes, audits andreviewsofthefinancialstatements,audit 6 million).Servicesrenderedin2012mainlyrelateto rendered servicesofHRK5millionin2012(2011: The auditorsoftheGroup’sfinancialstatementshave 34 for employeeservicesreceivedduringtheyearareshowninfollowingtable: All gainsandexpensesresultingfromchangesoftherelatedprovisionsforallMTIPLTIPplansrecognized and non-sharebasedpaymenttransactions Gains arisingfromcancellationofprovisionforcash-settledshare-based payment transactions Expenses forprovidingcash-settledshare-basedandnon Auditor’s fees - - - HT VariableIIwasintroducedinbeginningof2012. date byusingobservablemarketprice. of theequityinstrumentsgrantedismeasuredatgrant value oftheequityinstrumentsgranted.Thefair of employeeservices,indirectly,byreferencetothefair over thevestingperiod.TheGroupismeasuringvalue services arerecognizedasexpensesonaproratabasis from thedateofpurchase(vestingperiod).Employee them continuouslyforaperiodofatleastfouryears share foreachshare,underconditionthathe/sheheld HT shares.Theparticipantisgrantedoneadditional 33.33% ofthepaidoutgrossannualvariablesalary-to is obligedtoinvestanamountfrom10%amaximum shares onexpiryofafour-yearperiod.Theparticipant is programunderwhichtheparticipantcanreceiveHT I (ShareMatchingPlan-SMP)andVariableII.TheSMP Leaders (BLT’s)wasintroduced.ItconsistsofVariable new compensationmodelforInternationalBusiness disclosure inthefinancialstatements. significance inrelationtotheGroup’saffairsrequire date orfortheperiodthenended,thatareofsuch a materialeffectonthefinancialstatementsatthat 31 December2012orarependingthatwouldhave No othereventsortransactionshaveoccurredsince 35 Events afterreportingperiod HRK millions 2012 3 1 HRK millions 2011 3 - 133 Consolidated financial statements 134 Disclaimer

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of the Company nor should they or any part of them or the fact of their distribution form the basis, or be relied on in connection with, any contract or investment decision in relation thereto. The third party information contained herein has been obtained from sources believed by Disclaimer the Company to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated herein are complete and accurate and that the opinions and expectations con- tained herein are fair and reasonable, no representation or warranty, expressed or implied, is made by the Company or its advisors, with respect to the completeness or accuracy of any information and opinions contained herein. This document contains certain forward looking statements with respect to financial condi- tions, results of operations and business of the Group. These forward-looking statements represent the Company’s current views, expectations or beliefs concerning future events. Such statements are subject to risk and uncertainties, most of which are difficult to predict and are generally beyond Company’s control. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these Statements prove incorrect, Com- pany’s /Group’s actual results may be materially different from those expressed or implied by such statements. Company can offer no assurance that its expectations or targets will be achieved. In addition, some key performance indicators utilized by the Company (non-IFRS meas- ures, such as EBITDA) serve as additional indicators of the Group’s operating performance and may be calculated differently by other companies operating in the sector. However such measures are not replacement for measures defined and required under IFRS. There- fore the non-IFRS measures and key performance indicators used in this document may not be directly comparable to those of the Group’s competitors. GROUP FRAME RELAY FINANCING FGSM EMPLOYEES DIVIDEND DEUTSCHE TELEKOM DEPRECIATION DATA CONSOLIDATED CONCESSION COMPANY CAPITAL BROADBAND BALANCE SHEET ATM ASSET ADSL 4G Index 125, 126,127,128,129,130 106, 107,109,111,112,113, 114,119,120,121,122,123, 88, 89,91,92,93,94,95,96, 97,98,99,100,101,102, 62, 63,64,65,66,67,69,70,71,78,79,80,82,85,86,87, 43, 44,45,46,47,48,49,51,52,53,54,55,58,59,60,61, 5, 6,9,12,13,14,20,21,22,24,29,32,33,37,38,39,40, 97 6, 71,83,91 9 66, 70,85,103,119,121,126 5, 6,13,14,25,33,34,35,55,57,58,60,62,63,64,65, 105, 109,114,121,129 13, 16,17,18,28,32,33,42,52,71,83,84,92,93,98,99, 14, 18,20,26,29,30,33,34,65,85,89,111,125 70, 71,80,83,89,90,92,94,101,102 55, 64,65,70,72,73,91,97,98,100,107,131 7, 8,9,14,20,35,38,40,45,46,47,48,49,50,51,52,53, 128, 129,130,131,132,133,134,135 116, 117,118,119,120,121,122,123,124,125,126,127, 104, 105,106,107,108,109,110,111,112,113,114,115, 90, 91,92,93,94,95,96,97,98,99,100,101,102,103, 5, 9,33,77,78,79,80,81,82,83,84,85,86,87,88,89, 109 124, 126,131,132,133,136 79, 80,81,82,83,84,85,92,93,107,111,114,121,123, 32, 33,34,35,39,41,42,43,52,54,58,59,60,63,65,78, 13, 14,15,17,18,20,22,23,24,25,26,27,28,29,30,31, 96, 98,101,109,111,115,121,122,129,133 6, 13,15,16,17,18,24,28,35,70,71,80,82,84,89,91, 8, 9,12,28,38,39,40,41,42,46,48,51,52,53,70,71,72 5, 6,71,87 14, 52,58,70,89,97 109, 110,111,112,113,114,115,122,127,128,129,130 92, 93,94,95,96,98,99,100,101,102,104,106,108, 6, 32,70,71,78,79,80,81,83,85,86,87,88,89,90,91, 9, 29,45,70,97 12, 13,28,38,45,46,52,64 135 Index 136

GSM 9, 14, 22, 93 HT MOSTAR 125 HUMAN RESOURCES 21, 22, 27, 35, 63 INCOME 5, 23, 32, 39, 64, 70, 71, 74, 77, 79, 80, 81, 82, 83, 84, 86, Index 89, 92, 95, 96, 97, 98, 99, 100, 101, 103, 104, 105, 106, 107, 114, 119, 120, 129 INTERNET 9, 13, 14, 35, 38, 39, 41, 42, 43, 45, 46, 47, 48, 52, 60, 64, 65, 66, 67, 72, 85, 97, 98, 100 INVESTMENT 16, 17, 22, 24, 38, 71, 80, 81, 86, 89, 91, 93, 98, 113, 114, 115, 128 IPO 14 ISKON 9, 14, 41, 44, 67, 85, 100 LICENCES 93, 108, 109, 132 LTE 28, 38, 46, 51, 52, 53, 55, 93, 109 MANAGEMENT 13, 17, 18, 20, 21, 22, 23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 43, 44, 48, 51, 53, 54, 55, 59, 62, 63, 64, 65, 66, 71, 78, 79, 82, 85, 89, 91, 94, 97, 98, 100, 109, 111, 114, 120, 123, 124, 126, 127, 128, 129, 130, 133, 134 MAXtv 28, 29, 38, 40, 45, 46, 53, 61, 62, 64, 65 NETWORKS 66, 98, 123, 131, 132 ONLINE 43, 55, 65, 97 OPERATOR 16, 17, 21, 38, 39, 40, 41, 42, 49, 50, 52, 53, 54, 58, 66, 87, 97, 98, 117, 123, 131, 132 ORGANIZATION 5, 32, 37, 43, 44, 55, 59, 60, 63, 65, 67, 95 POST PAID 97 PRE-PAID 97 REDUNDANCY 71, 82, 99, 103 RESTRUCTURING 21, 64, 97 REVENUE 6, 9, 12, 32, 38, 39, 42, 47, 49, 54, 55, 70, 71, 72, 73, 74, 80, 87, 91, 92, 96, 97, 98, 101, 102, 106, 109,113, 114, 124, 133 VPN UMTS T-MOBILE T-HT GROUP T-COM TERASTREAM TAX TARIFFS SUPERVISORY BOARD STRATEGY SIMPA SHARES SERVICES ROAMING 9, 47,48,97 14, 50,51,52,93,109,132 7, 14,22,38,47,49,59 5, 6,9,14,22,29,32,33,38,39,40,43,58,60,61,69,71 7, 14,20,21,22,45,47,48,59,97,124 13, 38,52,65,71 103, 104,105,106,109,119,128,129 16, 17,18,28,29,32,71,80,81,82,83,86,92,94,96, 7, 28,38,42,45,46,47,51,54,70,72,73,97 85, 114,126,133,134 5, 11,13,17,18,24,25,26,27,28,29,31,32,33,34,35, 5, 21,28,33,37,43,45,52,54,55,57,58 45 107, 111,121,129,134 13, 14,15,16,17,18,19,24,26,28,33,34,35,40,59,99, 104, 113,114,123,124,127,131,132 66, 67,70,72,73,74,80,89,91,94,95,97,98,100,102, 44, 46,47,48,49,50,51,52,53,54,55,58,59,61,64,65, 12, 13,14,15,26,28,29,30,33,35,38,39,40,41,42,43, 49, 50,54,73,74,97 137 Index

Hrvatski Telekom d.d. Savska cesta 32 10000 Zagreb Hrvatska www.t.ht.hr