United Group Disclosure Supplement to Noteholders July 18, 2016
TABLE OF CONTENTS
Page
Recent Developments ...... 1 Supplemental Financial Disclosure ...... 4 Annex A—Financial Statements of Adria Midco B.V, as of and for the three months ended March 31, 2016 .. F-1
RECENT DEVELOPMENTS
References in this supplemental report to the “Company” are to Adria Midco B.V. and references to the “Group”, “us”, “our” or “we” are to Adria Midco B.V. and its consolidated subsidiaries.
Additional Notes offering
Contemporaneously with the release of this supplemental report, United Group B.V, announced an offering of notes in an aggregate principal amount of €125 million (the “Additional Notes”). The Additional Notes will constitute a further issuance of United Group’s 7.875% Senior Secured Notes due 2020 issued pursuant to an indenture dated November 15, 2013, of which there is currently and in an aggregate principal amount outstanding of €625 million. If completed, the proceeds from the offering of the Additional Notes will be used to, among other things, prepay the outstanding borrowings under the revolving credit facility, prepay certain other existing indebtedness, finance certain planned acquisitions, and to pay fees and expenses in connection with the offering of the Additional Notes.
Financial performance
Based on preliminary results from our unaudited management accounts and information currently available, we estimate that our revenue will be between €111 million to €113 million for the three months ended June 30, 2016 compared to €97.2 million for the three months ended June 30, 2015. During the three months ended June 30, 2016, our revenue increased due to price increases that were implemented in Serbia and Slovenia, organic growth of our RGUs and the acquisition of the six Bosnian companies that we completed in 2015. We estimate that Adjusted EBITDA for the three months ended June 30, 2016 will be between €47.5 million to €48.5 million compared to €40.4 million for the three months ended June 30, 2015. In addition, we estimate that revenue for the twelve months ended June 30, 2016 will be between €426 million and €428 million, compared to €319.3 million for the twelve months ended June 30, 2015, and that Adjusted EBITDA for the twelve months ended June 30, 2016 will be between €181.2 million and €182.2 million, compared to €141.5 million for the twelve months ended June 30, 2015.
As of June 30, 2016, we had approximately 2,950 thousand RGUs compared to 2,580 thousand RGUs as of June 30, 2015. The RGUs added over this period were a result of organic growth in fixed-line and mobile telephony subscribers. We estimate that our blended cable ARPU for the three months ended June 30, 2016 will be between €19.1 to €19.2 compared to €18.5 for the three months ended June 30, 2015, primarily driven by the implementation of a price increase in Slovenia and continued up-selling of our products.
This financial data is based on preliminary management accounts and has not been audited, reviewed or verified by our independent auditors, and you should not place undue reliance on it. During the course of our financial statement completion and review process for the three months ended June 30, 2016, we could identify items that would require adjustments to be made and which could affect the final results of operations for the periods presented above.
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Planned acquisitions
We have agreed to acquire the entire share capital of M-kabl, a Montenegrin cable pay-TV operator with approximately 20,000 subscribers, pursuant to an acquisition agreement dated October 13, 2015 for a purchase price of approximately €12.7 million. The purchase price for this acquisition is subject to certain adjustments in advance of completion, including adjustments based on the number of subscribers and net debt adjustments. The acquisition agreement also provides for €1.0 million of the purchase price to be placed in escrow for a period of twelve months following completion, pending the issuance of certain construction permits. The completion of the acquisition is subject to customary conditions, such as approval by the requisite regulatory agency and evidencing of the necessary corporate approvals.
We have also agreed to acquire 81% shares of Maxtel, a dark fiber business-to-business operator in Slovenia, pursuant to an acquisition agreement dated March 16, 2016 for a purchase price of €4 million. The remaining 19% of Maxtel’s shares will be held as treasury shares. The purchase price for this acquisition is subject to adjustment based on the terms of the acquisition agreement, including adjustments based on its net debt and revenue at completion. The completion of the acquisition is subject to customary conditions, such as approval by the Slovenian competition authority, and contains a long-stop date eight months following the date of the agreement.
We estimate that the EBITDA of Maxtel and M-kabl for the last two quarters ended March 31, 2016 was approximately €300,000 and €737,000, respectively.
We continually monitor acquisition opportunities that we believe would be value-accretive and would offer attractive synergies with our existing operations. For example, we are in the process of negotiating the acquisition of a cable operator in Serbia, though no definitive agreement has been reached. The EBITDA of the Serbian target that we are considering is within the EBITDA range of target companies that we have acquired in the past in line with our stated strategy for bolt-on, accretive acquisitions.
Mobile spectrum auction in Slovenia
In June 2016, AKOS announced its decision to conduct an auction in August 2016 for various mobile spectrum bands in Slovenia that remain unallocated. These include frequencies in the 1800 MHz band and the 2100 MHz band. AKOS set the reserve price at €2.6 million for each block of 2x5 MHz in the 1800 MHz frequency band, two blocks of which are available for auction, and €1.3 million for the block of 2x5 MHz in the 2100 MHz band, one block of which is available for auction. We submitted our tender for these frequencies on July 4, 2016, which was the deadline set by AKOS.
AKOS later withdrew this auction because the tender rules were unclear in respect of whether an auction for mobile spectrum bands shall be conducted in the case of only one bidder being interested for a particular spectrum band and, for the 1800 MHz band, we were the only bidder in this round. AKOS has published a new tender, with the auction scheduled for September 2016. The bids for this round are due by August 8, 2016. AKOS has also introduced a new rule pursuant to which it would be able to allocate spectrum bands to sole bidders at the reserve price in the absence of interest from other mobile operators for such spectrum bands. We intend to submit our tender for these frequencies once again.
We believe that additional frequencies will help us address not only the demands of our growing mobile business but also mitigate any risk of our existing 3G license being revoked or otherwise impaired. Either of the frequency bands subject to this auction can be used to provide 3G coverage and we will make a decision regarding allocation of frequency bands between 3G and 4G coverage once the results of the auction are known.
Legal Proceedings
This following has been prepared to provide an update to the annual report delivered to noteholders for the financial year 2015, as well as to the matters detailed in footnote 27 to the consolidated interim financial statements of the Company as of and for the three months ended March 31, 2016, included as Annex A to this supplemental report, and should be read together with the legal proceedings set out therein.
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Litigation matters relating to Telemach Slovenia (as successor to Tušmobil)
As previously reported, there are certain criminal matters pending in Slovenia against Telemach Slovenia (as successor to Tušmobil), Tušmobil’s former owner Mirko Tuš, and certain other defendants, including a former head of AKOS.
Pre-trial hearings in respect of these matters commenced in December 2015. In these hearings, Telemach Slovenia argued for the exclusion of certain evidence against Tušmobil contending that such evidence was obtained illegally and unconstitutionally by law enforcement authorities. In its decision of March 2016, the district court rejected these arguments. Telemach Slovenia has appealed this decision to the high court of Ljubljana and a decision on this matter is still pending. As the pre-trial hearings have concluded, the criminal matters against Telemach Slovenia (as successor to Tušmobil) and Mirko Tuš are expected to proceed to trial. In a related development, in January 2016 the Republic of Slovenia made a claim against the defendants for indemnification in an amount of approximately €7.2 million. During the pre-trial hearings, Telemach Slovenia contested the grounds for, and challenged the amount of, this claim. While the bill of indictment filed by the public prosecutor in March 2015 had indicated that Tušmobil allegedly illegally gained property in an amount of approximately €7.2 million, representing a valuation of the potential charge for the frequency bands under challenge, which had been estimated by an expert appointed by the court for such purpose, Telemach Slovenia has and intends to continue to contest and oppose this valuation.
Dispute with minority shareholder of Ultra
In June 2012, United Media Limited, one of our subsidiaries, extended a loan in the principal amount of €2.0 million to our 50% co-investor in TV Kanal Ultra d.o.o. Beograd (“Ultra”), to facilitate our co-investor’s payment of certain debts that it owed to Ultra. The loan was secured by a pledge by our co-investor over 25% of the total outstanding shares in Ultra. Our co-investor defaulted on the loan, and consistent with the terms of the pledge agreement, in May 2013, the co-investor transferred 25% of the share capital it owned in Ultra to United Media Limited for €2.0 million pursuant to a share transfer agreement. In April 2016, our co-investor brought a claim against SBB Serbia alleging that SBB Serbia misrepresented the number of subscribers to which SBB Serbia would broadcast the channels that Ultra owns which, according to our co-investor, in turn impacted the valuation of its stake in Ultra, thereby causing the co-investor to transfer its 25% stake for a value that was significantly lower than the fair market value of the stake, and is claiming damages in the amount of approximately €7 million. This claim is in the preliminary stages of litigation, and no final, enforceable decision will be rendered until the claim has been adjudicated by both the court of first instance and (if appealed) the secondary appellate court. It is difficult to estimate the final amount of damages and when such adjudication would be completed. While any specific outcome of this claim is difficult to determine given its preliminary nature, we currently have no reason to believe that any adverse outcome of this claim would have a material adverse impact on our financial position or profitability.
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SUPPLEMENTAL FINANCIAL DISCLOSURE
Quarterly results as of and for the three months ended March 31, 2016
We have attached as Annex A to this supplemental report the unaudited condensed consolidated interim financial statements as of and for the three months ended March 31, 2016, which have been reviewed by KPMG d.o.o. Beograd, our independent auditors, and have been prepared in accordance with International Accounting Standards No. 34–Interim Financial Reporting (“IAS 34”).
Capital Expenditure
For the year ended December 31, 2015, certain of our significant capital expenditure included: an investment of approximately €16 million in the buildup of our LTE/4G network in Slovenia, part of which we believe represented non-recurring capital expenditure; investments of approximately €13 million stemming from the one-time switch to MPEG-4 from MPEG-2 digital data compression technology within our DTH business; and an investment of €7.9 million to acquire our headquarters in Slovenia.
We plan to continue to invest in our services and infrastructure in order to maintain and strengthen our competitive position. We estimate that capital expenditures for the Group will be between approximately €125 million and €130 million for twelve months between March 31, 2016 and March 31, 2017, which will include: an estimated €30 million of capital expenditures on customer premise equipment (€45.3 million in 2015); an estimated €25 million of capital expenditures on our network (€22.0 million in 2015); an estimated €15 million of capital expenditures on acquisition of content (€12.5 million in 2015); an estimated €10 million of capital expenditures on headend and IP equipment (€12.0 million in 2015); an estimated €20 million of capital expenditures on our mobile frequency licenses and our mobile network (€16.2 million in 2015) and an estimated €25 million on other capital expenditures (€37.0 million in 2015). Management does not currently expect capital expenditure to exceed depreciation levels on a long term basis. These estimates through March 31, 2017 are our budgeted amounts and may differ as our business requirements change and we incur expenditures.
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ANNEX A FINANCIAL STATEMENTS OF ADRIA MIDCO B.V, AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2016
See attached.
F-1
ADRIA MIDCO B.V. GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THREE MONTHS ENDED 31 MARCH 2016
F-2 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 Contents
Independent Auditors’ Report on Review of Interim Financial Information ...... F-4 CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ...... F-5 CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION ..... F-6 CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY ...... F-8 CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS ...... F-9 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS . . . F-10 1. Reporting entity ...... F-10 2. Basis of preparation ...... F-11 3. Significant accounting policies ...... F-13 4. Financial risk management ...... F-13 5. Critical accounting estimates and judgments ...... F-16 6. Operating segments ...... F-17 7. Revenue ...... F-20 8. Materials cost ...... F-20 9. Staff costs ...... F-20 10. Other operating expenses ...... F-21 11. Finance income and finance cost ...... F-21 12. Income tax expense ...... F-21 13. Property, plant and equipment ...... F-22 14. Intangible assets ...... F-22 15. Goodwill ...... F-23 16. Financial instruments ...... F-24 17. Trade and other receivables ...... F-26 18. Prepayments ...... F-26 19. Short term loan receivables and deposits ...... F-26 20. Cash and cash equivalents ...... F-26 21. Capital ...... F-26 22. Loans and borrowings and other financial liabilities ...... F-27 23. Deferred revenue ...... F-28 24. Trade and other payables ...... F-29 25. Related parties ...... F-29 26. Operating leases ...... F-30 27. Legal matters ...... F-30 28. Guaranties ...... F-33 29. Applied exchange rates ...... F-33 30. Subsequent events ...... F-33
F-3 Independent Auditors’ Report on Review of Condensed Consolidated Interim Financial Statements TO THE OWNERS ADRIA MIDCO BV
Introduction We have reviewed the accompanying condensed consolidated interim statement of financial position of Adria Midco BV and its subsidiaries (the Group) as at 31 March 2016, and as at 31 March 2015, the condensed consolidated interim statements of profit or loss and other comprehensive income, changes in equity and cash flows for the three months period then ended, and notes to the interim financial information (‘‘the condensed consolidated interim financial statements’’). Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with IAS 34, ‘Interim Financial Reporting. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.
Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410, ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 31 March 2016, and as at 31 March 2015, is not prepared, in all material respects, in accordance with IAS 34, ‘Interim Financial Reporting’.
Belgrade, 15 July 2016
18APR201506291741 KPMG d.o.o. Beograd
F-4 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Note 31-Mar-16 31-Mar-15 Revenue ...... 7 109,308 74,519 Other income ...... 557 258 Content cost ...... (15,493) (15,277) Satellite capacity cost ...... (2,055) (1,824) Link and interconnection costs ...... (8,217) (4,088) Materials cost ...... 8 (9,619) (2,054) Staff costs ...... 9 (11,664) (8,439) Depreciation ...... (17,626) (13,187) Amortization of intangible assets ...... (11,460) (7,638) Other operating expenses ...... 10 (19,207) (11,667) Operating profit ...... 14,524 10,603 Finance income ...... 383 84 Finance costs ...... (23,673) (10,158) Net finance costs ...... 11 (23,290) (10,074) (Loss)/profit before tax ...... (8,766) 529 Income tax ...... 12 (1,702) (155) (Loss)/profit for the period ...... (10,468) 374 Other comprehensive loss Items that are or may be reclassified subsequently to profit and loss Currency translation differences ...... (1,413) (1,467) Other comprehensive loss for the period ...... (1,413) (1,467) Total comprehensive income for the period ...... (11,881) (1,093) Loss/profit attributable to: Owners of the Company ...... (11,136) (17) Non-controlling interests ...... 668 391 (Loss)/profit for the period ...... (10,468) 374 Total comprehensive income attributable to: Owners of the Company ...... (12,549) (1,484) Non-controlling interests ...... 668 391 Total comprehensive income for the period ...... (11,881) (1,093)
The Notes on pages F-10 to F-33 are integral part of these condensed consolidated interim financial statements
F-5 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
Note 31-Mar-16 31-Dec-15 Assets Property, plant and equipment ...... 13 326,339 323,991 Goodwill ...... 15 649,094 649,094 Intangible assets ...... 14 248,688 253,346 Investment property ...... 472 485 Other financial assets ...... 25 2,003 2,049 Non current prepayments ...... 18 4,209 5,987 Deferred costs ...... 49 767 Deferred tax assets ...... 7,850 7,850 Non-current assets ...... 1,238,704 1,243,569 Inventories ...... 7,594 6,217 Trade and other receivables ...... 17 76,984 77,145 Short term loans receivables and deposits ...... 19 7,001 6,138 Prepayments ...... 18 17,352 19,704 Income tax receivables ...... 1,906 1,728 Cash and cash equivalents ...... 20 18,694 15,126 Current assets ...... 129,531 126,058 Total assets ...... 1,368,235 1,369,627
The Notes on pages F-10 to F-33 are integral part of these condensed consolidated interim financial statements
F-6 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (Continued)
Note 31-Mar-16 31-Dec-15 Equity Issued and fully paid share capital ...... 21 125 125 Share premium ...... 21 570,592 564,592 Translation reserves ...... (15,601) (14,188) Other capital reserve ...... 21 — 26,000 Accumulated losses ...... (116,432) (105,296) Equity attributable to owners of the Company ...... 438,684 471,233 Non-controlling interests ...... 13,963 13,295 Total equity ...... 452,647 484,528 Liabilities Loans and borrowings ...... 22 85,825 64,960 Bonds ...... 22 620,277 619,988 Long term liabilities ...... 3,557 3,520 Long term provisions ...... 1,477 876 Deferred revenue ...... 23 7,022 6,044 Finance lease liabilities ...... 13 12,536 11,194 Deferred tax liabilities ...... 31,610 32,014 Employee benefits ...... 566 534 Non-current liabilities ...... 762,870 739,130 Trade and other payables ...... 24 126,112 122,570 Current tax liabilities ...... 2,605 350 Loans and borrowings ...... 22 1,835 1,627 Deferred revenue ...... 23 8,819 8,190 Finance lease liabilities ...... 13 13,347 13,232 Current liabilities ...... 152,718 145,969 Total liabilities ...... 915,588 885,099 Total equity and liabilities ...... 1,368,235 1,369,627
These consolidated financial statements have been approved for issue by the Board of Directors on 15 July 2016 and signed on their behalf:
/s/ MARJOLEIN GORISSEN /s/ JANEZ Zˇ IVKO Director Group CFO Marjolein Gorissen Janez Zivkoˇ
The Notes on pages F-10 to F-33 are integral part of these condensed consolidated interim financial statements
F-7 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Non- Share Share Translation Accumulated controlling Total Capital premium reserves losses Total interest equity Balance at 1 January 2015 ...... 125 564,592 (8,488) (78,905) 477,324 12,513 489,837 Comprehensive income for the period (Loss)/profit for the period ...... — — — (17) (17) 391 374 Other comprehensive income ...... — — (1,467) — (1,467) (1,467) Total comprehensive income for the period ...... — — (1,467) (17) (1,484) 391 (1,093) Balance at 31 March 2015 ...... 125 564,592 (9,955) (78,922) 475,840 12,904 488,744
Non- Share Share Translation Contribution Accumulated controlling Total Capital premium reserves by the owner losses Total interest equity Balance at 1 January 2016 ...... 125 564,592 (14,188) 26,000 (105,296) 471,233 13,295 484,528 Comprehensive income for the period (Loss)/profit for the period ...... — — — — (11,136) (11,136) 668 (10,468) Other comprehensive income ..... — — (1,413) — — (1,413) — (1,413) Total comprehensive income for the period ...... — — (1,413) — (11,136) (12,549) 668 (11,881) Contributions and distributions Transfer to share premium (note 21) — 26,000 — (26,000) — — — — Distribution (note 21) ...... — (20,000) — — — (20,000) — (20,000) Total Contributions by and distributions to Owners ...... — 6,000 — (26,000) — (20,000) — (20,000) Balance at 31 March 2016 ...... 125 570,592 (15,601) — (116,432) 438,684 13,963 452,647
The Notes on pages F-10 to F-33 are integral part of these condensed consolidated interim financial statements
F-8 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
Note 31-Mar-16 31-Mar-15 Cash flows from operating activities (Loss)/profit ...... (10,468) 374 Adjustments for: Depreciation ...... 17,626 13,187 Amortization ...... 11,460 7,638 Impairment of trade and other receivables ...... 10 810 729 Impairment of property, plant and equipment ...... 10 166 86 Impairment of intangible assets ...... 244 349 Income tax ...... 12 1,702 192 Employee benefits ...... 32 112 Net finance cost ...... 23,290 11,054 Changes in: Trade and other receivables ...... (649) (5,949) Deferred revenue ...... 1,653 (1,563) Deferred cost ...... 718 — Inventories ...... (1,364) (1,166) Prepayments ...... 4,130 3,942 Trade and other payables ...... (15,442) (3,243) Cash generated from operations ...... 33,908 25,742 Interest paid ...... (707) (269) Income tax paid ...... (188) (748) Net cash from operating activities ...... 33,013 24,725 Cash flows from investing activities Acquisition of property, plant and equipment ...... 13 (22,158) (19,556) Acquisition of intangible assets ...... 14 (7,473) (2,398) Change in short term loan receivables ...... (861) (2,143) Change in other non-current financial assets ...... — (1,952) Net cash used in investing activities ...... (30,492) (26,049) Cash flows from financing activities Distribution of share premium ...... (20,000) — Proceeds from borrowings ...... 21,000 15,999 Repayment of borrowings ...... — (12,338) Proceeds from finance lease ...... 5,838 5,647 Repayment of finance lease ...... (5,791) (2,497) Net cash from financing activities ...... 1,047 6,811 Net increase in cash and cash equivalents ...... 3,568 5,487 Cash and cash equivalents at 1 January ...... 15,126 16,182 Cash and cash equivalents at 31 March ...... 18,694 21,669
The Notes on pages F-10 to F-33 are integral part of these condensed consolidated interim financial statements
F-9 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Reporting entity Adria Midco B.V. (the Company) is a company domiciled in Netherlands registered on 3 October 2013. On 15 October 2013, the Company entered into an agreement for the acquisition of Slovenia Broadband S.A` R.L. group. The Company was established as a vehicle of the ultimate acquirer to effect the acquisition of the Slovenia Broadband S.A` R.L. group. The transaction was closed on 6 March 2014, after receiving necessary regulatory approvals. The control was obtained on the same date. The parent company of the Group is Adria Topco B.V. Netherlands which is controlled by Adria Luxco S.A.R.L.` Luxembourg, private company, domiciled in Luxembourg. Adria Luxco S.A.R.L.` is an investee company owned in the majority by funds advised/managed by US private equity fund Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, ‘‘KKR’’). Management holds 26.2% of stakes in the Group. The consolidated financial statements of the Company as at and for the period ended 31 March 2016 comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’). The Group is one of the largest telecommunication operators in South East Europe providing video, data, voice and mobile telephone services to residential and business subscribers. The Group’s activities are based in Serbia, Slovenia, Montenegro, Bosnia and Herzegovina, Macedonia and Croatia.
List of subsidiaries The Company—Adria Midco B.V. has the following subsidiaries:
Subsidiary 2016 2015 United Group B.V., Netherlands ...... 100.00% 100.00% Slovenia Broadband S.a` r.l., Luxembourg ...... 100.00% 100.00% Adria Cable B.V., Netherlands ...... 100.00% 100.00% Bosnia Broadband S.a` r.l., Luxembourg ...... 100.00% 100.00% Adria Media B.V., Netherlands ...... 100.00% 100.00% Adria DTH B.V., Netherlands ...... 100.00% 100.00% Adria Serbia Holdco B.V., Netherlands ...... 100.00% 100.00% Absolut Solutions d.o.o., Serbia ...... 100.00% 100.00% Serbia Broadband—Srpske kablovske mreˇze d.o.o, Serbia ...... 100.00% 100.00% Totalna televizija d.o.o. Croatia ...... 100.00% 100.00% Total TV d.o.o. Slovenia ...... 100.00% 100.00% Total TV Montenegro d.o.o ...... 100.00% 100.00% Total TV d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% Total TV d.o.o. Macedonia ...... 75.00% 75.00% CAS Media d.o.o. Serbia ...... 100.00% 100.00% Eunet d.o.o., Serbia ...... 99.27% 99.27% Adria News S.a` r.l., Luxembourg ...... 100.00% 100.00% Adria News d.o.o., Serbia ...... 100.00% 100.00% Adria News d.o.o., Croatia ...... 100.00% 100.00% Adria News d.o.o., Bosnia ...... 100.00% 100.00% Adria News BH Production d.o.o., Bosnia ...... 100.00% 100.00% United Media Limited, Cyprus ...... 100.00% 100.00% United Media Production d.o.o., Serbia ...... 100.00% 100.00% Orlando klinci d.o.o., Croatia ...... 100.00% 100.00% Ultra Centar Galaktika d.o.o, Serbia ...... 100.00% 100.00% United Media Network A.G., Switzerland ...... 100.00% 100.00% Telemach d.o.o. Slovenia ...... 100.00% 100.00%
F-10 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
1. Reporting entity (Continued)
Subsidiary 2016 2015 Telemach Rotovˇz d.o.o. Slovenia ...... 89.16% 89.16% Telemach Tabor d.o.o. Slovenia ...... 60.26% 60.26% Telemach Tezno d.o.o. Slovenia* ...... 33.65%* 33.65%* Cas media d.o.o. Slovenia ...... 100.00% 100.00% Telemach Pobreˇzje d.o.o. Slovenia ...... 43.64%* 43.64%* Tuˇsmobil d.o.o. Slovenia ...... 100.00% 100.00% Telemach d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% M&H Company d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% HKB-net d.o.o. Bosnia and Herzegovina (64%) ...... 64.00% 64.00% Kablovska Televizija HS d.o.o. Bosnia and Herzegovina (57,47%) ...... 57.47% 57.47% Velnet d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% Vrbaska Kablovska TV—Network d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% BHB Cable TV d.o.o. Bosnia and Herzegovina ...... 100.00% 100.00% Solford Trading Ltd, Cyprus ...... 100.00% 100.00% City Media Plus, Canada ...... 100.00% 100.00% City Media Belgrade, Serbia ...... 100.00% 100.00% Telemach d.o.o., Montenegro ...... 64.29% 64.29% United Media S.A.R.L., Luxembourg ...... 100.00% 100.00% TV Kanal Ultra d.o.o Serbia ...... 75.00% 75.00% Cinemania d.o.o. Serbia ...... 100.00% 100.00% United Media Malta Ltd, Malta ...... 100.00% 100.00% Grand slam d.o.o., Serbia ...... 100.00% 100.00% Grand production d.o.o., Serbia ...... 51.00% 51.00%
* based on consideration of other factors, primarily Board appointment, control is deemed even if ownership is below 51%
2. Basis of preparation a) Statement of compliance This condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These do not include all the information required for the full annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance for the three months period ended 31 March 2016. Condensed consolidated interim financial report is to be read together with the last annual consolidated financial statements as at and for the year ended 31 December 2015. The consolidated interim financial statements were authorized for issue by the Board of Directors on 15 July 2016. b) Basis of measurement The condensed consolidated interim financial statements have been prepared under the historical cost convention except for non-derivative financial instruments at fair value.
F-11 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
2. Basis of preparation (Continued) c) Going concern The Group has reported a net loss for the period in the amount of EUR 10,468 thousand. The loss was mainly as a result of net finance cost in the amount of EUR 23,290 thousand. Net finance costs were driven by the Group’s outstanding debt and its exposure to the Serbian dinar which has depreciated against Euro. This has resulted in foreign exchange losses and interest expenses in the amount of EUR 19,074 thousand for the three-month period ended 31 March 2016. The initial Group acquisition in March 2014 and the expansion of the Group is based on a leveraged buyout strategy resulting in an increased finance debt and the associated net finance expenses. One of the Group’s key performance indicators is adjusted earnings before interest, tax, depreciation and amortization (EBITDA) which has reported increased historical compound annual growth rate over the last three years at 21.5%. Additionally, adjusted EBITDA for the three month period ended 31 March 2016 has increased by 36.1% comparing to the same period for the 2015. Business plans for the period 2016 - 2020 are based on further growth of the customer base, further growth of EBITDA and adjusted EBITDA and positive operating cash flow. Growth of revenue and adjusted EBITDA results from the growth of our subscriber base via internal growth, external acquisitions and increases in our subscription fees. Historically low churn rates provide us with stable recurring cash flows and stability with respect to future budgeted revenues and budgeted cash flows in order to main appropriate levels of liquidity. The Group regularly (daily and monthly) analyses liquidity projections, internal financial reports, availability of financial assets and ability to repay its liabilities through continuous review of budgeted and actual cash flows and monitoring of maturity of the Group’s receivables and liabilities. The Group’s current liabilities exceed current assets by EUR 23,187 thousand (31 December 2015: EUR 19,911 thousand). Primary sources of the Group’s liquidity and funds for capital expenditures, acquisitions and other investments have been operating positive cash flows, revolving credit facilities, ancillary lending facilities and finance leases. The Group has reported positive cash generated from operations in the amount of EUR 33,908 thousand for the three-month period ended 31 March 2016 an increase of EUR 8,166 or 31.7% from the same three-month period ended 31 March 2015 of EUR 25,742 thousand. The Group is able to repay its obligations when they fall due in the normal course of business with no noted defaults in repayment of debt, the associated financial interest expenses nor any other liabilities. As at 31 March 2016, the Group has outstanding loans and borrowings, finance lease and bond liabilities in the total amount of EUR 733,820 thousand. Out of total liabilities, EUR 706,102 do not fall for the repayment before March 2020. The Group’s policy on liquidity is to maintain sufficient liquid resources to meet its obligations as they fall due, which has been achieved through positive cash flows from operations and the ability to draw on its revolving credit facilities, if required. As at 31 March 2016 the Group has an undrawn revolving credit line in the amount of EUR 18,125 thousand (note 22). Additionally, in April 2016, the Group has obtained additional credit facilities in the amount of EUR 20,000 thousand. The Group furthermore monitors and maintains a debt to adjusted EBITDA no higher than 4.25. Based on the Group’s going concern assessment outlined above, the consolidated financial statements are, therefore, prepared on a going concern basis, as management have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. d) Functional and presentation currency These consolidated interim financial statements are presented in Euros, which is the Company’s functional currency. All financial information presented in Euros has been rounded to the nearest
F-12 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
2. Basis of preparation (Continued) thousand. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘‘the functional currency’’). e) Use of estimates and judgments The condensed consolidated interim financial statements require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
3. Significant accounting policies The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended 31 December 2015.
4. Financial risk management Overview The Group has exposure to the following risks from its use of financial instruments: • credit risk, • liquidity risk, and • market risk. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.
Risk management framework The Group’s managing board has overall responsibility for the establishment and oversight of the Group’s risk management framework, and development and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The finance function monitors compliance with the Group’s risk management policies and procedures, and provide top management with feedback regarding the performance of the framework in relation to the risk faced by the Group.
F-13 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
4. Financial risk management (Continued) a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group assesses that it has no significant concentration of credit risk due to its exposure to a broad customer base in each service line. No concentration of credit risk on a geographical basis is assessed as material. The Group has policies that limit the amount of credit exposure for each customer including services disconnection procedure. The Group’s risk procedure limit the credit risk through short credit period available (invoices are due for payment within 8 days from the date of issue) and 3 levels of dunning letters in different time intervals. The first dunning letter which brings the warning about disconnecting the service is being sent 10 days after due date. The second dunning letter is being sent after 40 days after due date. The third letter is being sent after 70 or 110 days (it depends on the area) after the due date and it generates the order for temporary disconnection of the subscriber until the debt had been settled. The credit control procedure assures that an average receivable from one subscriber is from EUR 15 - 80 and limits the credit limit to 4 months of service. The Group outsourced collection activities of all receivables which are overdue more than 6 months to collection company. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific provision that relates to individually significant exposures, and a general provision established for mass billing customers in respect of losses that have been incurred but not yet identified. The general allowance is determined based on Group’s provisioning policy for mass billing customers.
Cash and cash equivalents The Group held cash and cash equivalents of EUR 18,694 thousand as 31 March 2016 (31 December 2015: EUR 15,126 thousand) with reputable local commercial banks, which represents its maximum credit exposure on these assets. Management actively monitors credit risk exposure and given that the Group only has invested in bank deposits management does not expect any counterparty to fail to meet its obligations. b) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group’s policy on liquidity is to maintain sufficient liquid resources to meet its obligations as they fall due, which has been achieved through appropriate bank arrangements (note 22). Typically the Group ensures that it has sufficient cash on demand to meet expected current liabilities as they fall due, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
F-14 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
4. Financial risk management (Continued) Primary sources of liquidity and funds for capital expenditures, acquisitions and other investments have been operating cash flow, our Revolving Credit Facility, ancillary lending facilities and finance leases. As at 31 March 2016 the Group has access to undrawn revolving credit line in the amount of EUR 18,125 thousand (note 22). c) Market risk The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. i) Currency risk Currency risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the functional currency of the Group entity holding the asset or obligation. The Group is mainly exposed to currency risk on purchases and borrowings which are denominated in Euros and US dollars, while the major share of the Group’s revenue is denominated in Serbian dinars. The Group has exposure to currency fluctuation (depreciation) of RSD (Serbian dinar) to Euro given that it’s most significant operations are with SBB Serbia for which RSD is the functional currency and significant borrowings in Euro. The Group’s currency risk policy is implemented through regular price adjustments on the Serbian market, following the depreciation of Serbian dinar against euro. The Group holds derivative financial instruments to mitigate its foreign currency exposures resulting from capital purchases. The commitments are principally denominated in USD. Currency risk is managed with the objective of reducing the risk through use of forward foreign currency contracts. As at 31 March 2016 the Group has entered into four forward currency contracts to mitigate its capital purchases in US dollars against its functional currency. The Group is not in a position to effectively mitigate all currency risks due to absence of relevant financial products in the countries of operations (Serbia, Slovenia and Bosnia). ii) Price risk The Group is not exposed to material price risks on its financial instruments. iii) Interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows relating to financial assets are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from long-term borrowings issued at variable rates. The Group closely monitors current market rates in order to minimize negative effects of significant movements in market rates. The Group does not use these instruments for speculative purposes.
Capital management Due to the structure of long-term financing through leveraged buyout arrangement, the management policy is to maintain a stable return on investment so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group’s performance management is focused on generating budgeted adjusted operating results (EBITDA) as well as maintaining overall liquidity position to repay the financial debt. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for investors and to maintain an optimal liquidity position.
F-15 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
5. Critical accounting estimates and judgments The consolidated financial statements require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including industry practices and expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. a) Impairment of goodwill and trademark The Group tests annually whether goodwill with indefinite useful life, suffer any impairment in accordance with the Group’s accounting policy. Discounted cash flow method for annual impairment testing is based on management assumptions on projected revenue growth and liquidity position. b) Useful lives of property, plant and equipment and intangibles The management estimates useful lives and related depreciation rates for its plant and equipment and intangibles on an annual basis. These estimates are based on technological development, projected growth in customer base and further development of service lines. They are subject to change and influenced by substitutes available on the market. The management will increase the depreciation charge when useful lives are less than previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned. There are no residual values on long-term assets. c) Provision for legal matters Provision for legal matters are recognized when the Group has present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Where any of above mentioned criteria does not exist, or is not accomplished, the Group discloses the event as a contingent liability, unless the cash outflow is remote. Provisions are updated on the date of the consolidated financial statements, considering the best estimate of the Group’s management supported by opinion of its legal team. d) Management of fair values When measuring the fair value of an assets or liabilities, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly (i.e. prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). • Further information about assumptions made in measuring fair values is included in note 16 Financial instruments.
F-16 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
6. Operating segments Operating segments are components that engage in business activities that may earn revenues or incur expenses as a result of the services provided. Segment information is provided partially on the basis of geographic areas and partially based on an organizational structure, being the basis on which the Group manages its interests. Operating results of segments are regularly reviewed by the chief operating decision maker (CODM) and discrete financial information is available on that level. Revenue is attributed to a country based on the location of the Group’s company reporting the revenue. The functions of CODM are performed by the Managing directors of the Group. The Group has four reportable segments, three in cable and internet and one in media business line, which are the Group’s strategic divisions. Cable strategic divisions for each of key markets, offer similar services and are managed jointly since they have unified service development and marketing strategy. For each of the strategic divisions, the CODM reviews internal management reports on at least monthly basis. The following summary describes the operations in each of the Group’s reportable segments. • Serbia Group includes cable operations in Serbia and DTH (satellite TV) operations in region (Croatia, Serbia and Macedonia). Satellite operations in Croatia and Macedonia account for minor part of the overall operations of Serbia Group segment. • Slovenia Group includes cable and DTH operations and mobile telephony services in Slovenia, • Bosnia Group includes cable and DTH operations in Bosnia and Herzegovina and • Media Group includes content operations in the region. This segment includes the results of our media and content business in the former Yugoslav region including the results of N1 Info, Grand Production, Orlando Kids and Bambino. Other includes our other operating business, such as Solford, Telemach Montenegro, DTH operations in Montenegro and non-operating holding companies (United Group B.V., Adria Cable B.V., Adria Serbia Holdco B.V., Slovenia Broadband S.A` R.L.). Revenue reported in other is generated by Solford, Telemach Montenegro and Total TV Montenegro. Information regarding the results of each reportable segment is included below. Performance is measured based on segment earnings before interest, tax, depreciation and amortization (EBITDA) and adjusted EBITDA, as included in the internal management reports that are reviewed by the Group’s management. Adjusted EBITDA represents EBITDA as per management unaudited report. EBITDA is a supplemental measure of financial performance that is not required by, or presented in accordance with IFRS. We define ‘‘EBITDA’’ as Profit/ (Loss) for the period plus income tax (benefit)/expense, depreciation, amortization of intangible assets and net finance costs. Adjusted EBITDA represents EBITDA, adjusted for certain exceptional items that management of the Group views as non-operating and not recurring to the operations of the Group. Segment EBITDA and adjusted EBITDA, prepared based on local GAAP in each country adjusted to meet the requirements of internal reporting, is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
(a) Description of products and services from which each reportable segment derives its revenue The Group’s main activities are providing of Video, Data and Voice services to subscribers in the countries of South-East Europe. The Group operates in Serbia providing Video, Data and Voice services, as well as in five other countries: Slovenia, Bosnia and Herzegovina, Croatia, Montenegro and Macedonia providing Video and Data services.
F-17 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
6. Operating segments (Continued) Video service include provision of TV channel mix and IP Video streaming services, which is marketed into basic, extended and premium packages. TV mix range from 60 to over 100 TV channels. Data service comprise internet packages for residential and business customers, as well as various supplementary services for business customers (connectivity and managed services, data center and cloud services). Voice service relates to fixed line services to residential and business customers. Media Group includes content operations in the entire former Yugoslav region. Content operations represent carriage fee revenue that relates to sales of pay-TV channel to other cable operators. The Group is the owner of pay-TV channels including brands like ‘‘Sport Klub’’, movie channel ‘‘Cinemania’’, children channels ‘‘Ultra’’ and ‘‘Orlando’’ and music channel ‘‘Grand’’. Revenue is recognized on either on straight line basis over the sales contract period or underlined number of subscribers multiplied by agreed price per user, depending on contracts.
(b) Factors that management used to identify the reportable segments Three of the Group’s business segments are mainly based on the Group’s geographic regions, Serbia, Slovenia and Bosnia and Herzegovina, and the other business segment is broadly based on product distribution. They are managed separately because each business unit requires different marketing strategies and service level.
(c) Measurement of operating segment profit or loss. The CODM reviews financial information prepared based on local GAAP adjusted to meet the requirements of internal reporting. Such financial information differs in certain aspects from IFRS: i. Management consolidation adjustments can differ from the ones required by IFRS ii. non-IFRS profit measures (such as earnings before income tax, depreciation and amortization— EBITDA, adjusted EBITDA and capital expenditure (CAPEX)) are also included in the segment report. EBITDA is adjusted by ‘‘exceptional items’’ that are viewed as non-operating and not recurring. Capital expenditures represents purchases of tangible and intangible assets, consisting primarily of set top box purchases and other customer capital expenditure, installations (including capitalized labor costs), cable and mobile network build out, upgrades, maintenance and other investments, computer hardware and software and content rights. CODM evaluates performance of each segment based on revenue, EBITDA and other key performance indicators (e.g. average revenue per user, CAPEX) and does not regularly review assets and liabilities of the segments.
(d) Information about reportable segment statement of comprehensive income Segment information before elimination of inter-company transactions for the reportable segments for the period ended 31 March 2016 and 31 March 2015 are set out below (Segment information below has
F-18 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
6. Operating segments (Continued) been derived from unaudited local GAAP management accounts prepared for CODM evaluation purposes):
Reportable segments Serbia Slovenia Bosnia Media 31-Mar-16 Group Group Group Group Other TOTAL External revenue ...... 37,306 46,078 12,555 7,198 6,171 109,308 Inter-segment revenue ...... 8,156 302 154 8,348 246 17,206 Segment revenue ...... 45,462 46,380 12,709 15,546 6,417 126,514 Depreciation ...... 7,817 6,089 2,858 492 370 17,626 Amortization ...... 2,345 3,718 725 4,521 151 11,460 Segment results from operations ...... 8,271 4,799 210 1,101 143 14,524 Segment profit/(loss) before tax ...... (3,168) 1,979 (637) 140 (7,080) (8,766) EBITDA ...... 18,433 14,606 3,793 6,114 664 43,610 Adjusted EBITDA ...... 18,435 15,644 4,265 6,132 2,025 46,501 CAPEX ...... 9,786 7,897 4,597 3,977 1,185 27,442 Significant losses before tax in other segment is driven by net finance cost. Other includes holding companies, including United Group B.V., Netherlands, which has issued bonds and bears associated finance expenses.
Reportable segments Serbia Slovenia Bosnia Group Group Group Media Other 31-Mar-15 *restated *restated *restated Group *restated TOTAL External revenue ...... 32,005 22,753 8,398 6,835 4,528 74,519 Inter-segment revenue ...... 7,952 303 28 4,219 185 12,687 Segment revenue ...... 39,957 23,056 8,426 11,054 4,713 87,206 Depreciation ...... 6,237 4,120 2,024 444 362 13,187 Amortization ...... 2,117 2,133 521 2,734 133 7,638 Segment results from operations ...... 5,164 4,267 723 (443) 892 10,603 Segment profit/(loss) before tax ...... (74) 1,873 13 (2,954) 1,671 529 EBITDA ...... 13,518 10,520 3,268 2,735 1,387 31,428 Adjusted EBITDA ...... 13,947 11,160 3,384 2,943 1,923 33,356 CAPEX ...... 10,732 4,221 2,150 383 358 17,844 As a result of strategic decision to concentrate its business geographically, the Group has in the current period changed its internal organization and the composition of its reportable segments. Accordingly, the Group has restated the operating segment information for the three months ended 31 March 2015.
(e) Major customers The Group provides its services to individual and corporate customers; each customer does not exceed 10% of the total revenues. Revenue includes operating revenue.
(f) Geographical segments Segment information above is already provided on the basis of geographic areas, being the key basis on which the Group manages its interests.
F-19 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
6. Operating segments (Continued) (g) Reconciliation of information on reporting segments to IFRS measures:
31-Mar-16 31-Mar-15 Revenues Total revenue for reportable segments ...... 120,097 82,493 Revenue for other segments ...... 6,417 4,713 Elimination of inter-segment revenue ...... (17,206) (12,687) Consolidated revenue ...... 109,308 74,519
7. Revenue
31-Mar-16 31-Mar-15 Subscription fee ...... 90,883 64,786 Carriage fee ...... 5,622 5,250 Adverting revenue ...... 2,189 1,882 Sale of end user equipment ...... 7,723 442 Other revenue ...... 2,891 2,159 Total ...... 109,308 74,519
Other operating revenue mainly comprises of revenue from VPN services provided to business users, revenue from sublicensing, royalties and other revenues.
8. Materials cost
31-Mar-16 31-Mar-15 Installation materials ...... 300 437 Office supplies ...... 321 335 Energy and fuel costs ...... 1,314 615 Cost of end-user equipment ...... 7,684 667 Total ...... 9,619 2,054
9. Staff costs
31-Mar-16 31-Mar-15 Salaries and social security ...... 9,960 7,241 minus capilitalized salaries ...... (761) (490) Part-time employment costs ...... 371 345 Employee benefit cost ...... 837 446 Other staff costs ...... 1,257 897 Total ...... 11,664 8,439
During three month period ended 31 March 2016 the Group capitalized staff costs in the carrying value of its property, plant and equipment in the amount of EUR 761 thousand (31 March 2015: EUR 490 thousand) which mainly relates to installation services for fixed assets at end user premises. The total average number of full time equivalent (FTE) employees in the period ended 31 March 2016 is 2,772 (31 March 2015: 2,161).
F-20 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
10. Other operating expenses
31-Mar-16 31-Mar-15 Rent of premises, poles and ducts ...... 5,024 3,009 Marketing and promotion expenses ...... 2,810 1,412 Maintenance costs ...... 2,028 1,237 Management fee ...... 1,104 606 Trade receivable impairment allowance ...... 810 729 Phone and postal expenses ...... 807 472 Taxes ...... 687 428 Legal and advisory fees ...... 659 408 Customer service costs ...... 645 735 License fees ...... 395 383 Security services ...... 341 347 Bank charges ...... 315 225 Media buying ...... 304 177 Membership fee ...... 251 118 Impairment of intangible assets ...... 244 349 Insurance cost ...... 234 117 Impairment of property, plant and equipment ...... 166 86 Telephony costs ...... 42 64 Other expenses ...... 2,341 765 19,207 11,667
Other expenses mainly comprise of production, entertainment, travel, subcontractor and other costs.
11. Finance income and finance cost
31-Mar-16 31-Mar-15 Interest expense ...... 14,104 9,969 Net foreign exchange losses ...... 4,970 142 Interest income ...... (195) (75) Other finance cost ...... 4,599 47 Other financial gain ...... (188) (9) Total ...... 23,290 10,074
Other finance cost mainly relates to negative effects of change in fair value of derivative financial instruments (currency forward agreements) as at 31 March 2016 (note 24).
12. Income tax expense
31-Mar-16 31-Mar-15 Current tax ...... (2,072) (155) Deferred tax ...... 370 — Total ...... (1,702) (155)
Tax expense is recognized based on management’s best estimate of the annual income tax rate expected for the full financial year multiplied by the pre-tax income of the interim reporting period.
F-21 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
13. Property, plant and equipment The majority of property, plant and equipment relates to cable network (backbone, primary and secondary network, coaxial, fiber and optical equipment) and DTH end user equipment.
Acquisitions and disposals During the three months ended 31 March 2016, the Group acquired assets with a cost of EUR 21,692 thousand (31 march 2015: EUR 19,412 thousand). Assets with carrying value of EUR 133 thousand were disposed during three month period ended 31 March 2016 (31 march 2015: EUR 92 thousand).
Leased assets The Group leases internet protocol equipment, office premises, and transport and passenger vehicles under a number of cancellable finance lease agreements. Majority leases of vehicles provide the Group with the option to purchase the equipment at a beneficial price. Present value of minimum lease payments is as follows:
31-Mar-16 31-Dec-15 Less than one year ...... 13,347 13,232 Between one and five years ...... 12,536 11,194 25,883 24,426
Contractual amounts are as follows:
31-Mar-16 31-Dec-15 Less than one year ...... 14,055 14,012 Between one and five years ...... 12,877 11,449 26,932 25,461 Future finance charges on finance leases ...... (1,049) (1,035) Present value of finance lease liability ...... 25,883 24,426
Assets provided as security for loans All property, plant and equipment are pledged as security for the Group’s loan and borrowings and other financial liabilities.
Capital commitments During the period ended 31 March 2016, the Group entered into agreement to buy property, plant and equipment for EUR 7,430 thousand. Delivery is expected during 2016 and first three months of 2017.
14. Intangible assets Additions to software and licenses relate to SAP ERP information system, Video-On-Demand (VOD) information system and Voice-Over-Internet-protocol (VOIP) information systems software.
F-22 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
14. Intangible assets (Continued) Acquisitions and disposals During the three months ended 31 March 2016, the Group acquired intangible assets with a cost of EUR 7,473 thousand (31 march 2015: EUR 2,398 thousand).
Assets provided as security for loans As at 31 March 2016 revolving facility is guaranteed by pledge on trademarks (‘‘SBB’’ and ‘‘Total TV’’). Carrying value of intangible assets under pledge as at 31 March 2016 amounts to EUR 23,227 thousand.
15. Goodwill The following schedule summarizes the movements in the balance of goodwill:
31-Mar-16 31-Dec-15 Cost Balance at beginning of period ...... 649,094 623,279 Acquisition through business combination ...... — 25,815 Balance at end of period ...... 649,094 649,094 Carrying amounts Balance at beginning of period ...... 649,094 623,279 Balance at end of period ...... 649,094 649,094
Impairment testing for goodwill The Group has performed impairment testing for the 2015 year end purposes and it was assessed that no impairment of Goodwill is required. As at 31 March 2016, the Group considered indicators of impairment, both external and internal. The Group is of the view that there were no significant changes in the assumptions underlying year end 2015 goodwill impairment analysis which would require reassessment. The Group has assessed current period performance against to the three month period ended 31 March 2015 and forecasts. Net losses for the three month period in the amount of EUR 10,468 thousand were mainly driven by the increase in net finance cost in the amount of EUR 23,290 thousand. Net finance costs were driven by the Group’s outstanding debt and its exposure to the Serbian dinar which has depreciated against Euro. However, the Group’s operating performance has increased comparing to the three month period ended 31 March 2015 and forecasts. The Group has reported strong increase in revenue followed by increased in operating results from EUR 10,603 thousand for the three-month period ended 31 March 2016 comparing to EUR 14,524 thousand for the three-month period ended 31 March 2015. Acquisition of Tuˇsmobile (mobile operator in Slovenia) in April 2015 has positively contributed overall revenue and operations results which is in line with the Group’s growth strategy. Additionally, the Group has reported positive cash generated from operations in the amount of EUR 33,908 thousand for the three-month period ended 31 March 2016 an increase of EUR 8,166 or 31.7% from the same three-month period ended 31 March 2015 of EUR 25,742 thousand. One of the Group’s key performance indicators, adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) has increased by 36.1% for the three-month period ended 31 March 2016 comparing to the three-month period ended 31 March 2015. Based on the above, no impairment indicators were identified and the Group did not test goodwill impairment as at 31 March 2016.
F-23 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
16. Financial instruments The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in fair values hierarchy. It does not include information for financial assets and financial liabilities not measured at fair value if the carrying amount if reasonable approximation of fair value.
Carrying amount Fair value— Other hedging Loans and financial Fair value 31-Mar-16 Note instruments receivables liabilities Total Level 1 Level 2 Level 3 Total Financial assets not measured at fair value* Other financial assets ..... — 2,003 — 2,003 — — — — Trade and other receivables 17 — 76,984 — 76,984 — — — — Short term loans receivables and deposits ...... 19 — 7,001 — 7,001 — — — — Cash and cash equivalents . 20 — 18,694 — 18,694 — — — — — 104,682 — 104,682 — — — — Financial liabilities measured at fair value Forward exchange contracts used for hedging ...... 24 7,024 — — 7,024 — 7,024 — 7,024 7,024 — — 7,024 — 7,024 — 7,024 Financial liabilities not measured at fair value Loans and borrowings .... 22 — — 87,660 87,660 — 87,660 — 87,660 Bonds ...... 22 — — 620,277 620,277 — 653,615 — 653,615 Finance lease liabilities .... 13 — — 25,883 25,883 — 25,883 — 25,883 Trade payables* ...... 24 — — 119,088 119,088 — — — — — — 852,908 852,908 — 767,158 — 767,158
F-24 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
16. Financial instruments (Continued)
Carrying amount Fair value— Other hedging Loans and financial Fair value 31-Dec-15 Note instruments receivables liabilities Total Level 1 Level 2 Level 3 Total Financial assets not measured at fair value* .. — Other financial assets ..... — 2,049 — 2,049 — — — — Trade and other receivables 17 — 77,145 — 77,145 — — — — Short term loans receivables and deposits ...... 19 — 6,138 — 6,138 — — — — Cash and cash equivalents . 20 — 15,126 — 15,126 — — — — — 100,458 — 100,458 — — — — Financial liabilities measured at fair value Forward exchange contracts used for hedging ...... 24 2,614 — — 2,614 — 2,614 — 2,614 2,614 — — 2,614 — 2,614 — 2,614 Financial liabilities not measured at fair value Loans and borrowings .... 22 — — 66,587 66,587 — 66,587 — 66,587 Bonds ...... 22 — — 619,988 619,988 664,470 — 664,470 Finance lease liabilities .... 13 — — 24,426 24,426 — 24,426 — 24,426 Trade payables* ...... 24 — — 119,956 119,956 — — — — — — 830,957 830,957 — 755,483 — 755,483
* The Group has not disclosed the fair values for financial instruments such as financial assets and payables, because their carrying amounts are a reasonable approximation of their fair value.
Measurement of fair values The following table shows the valuation techniques used in measuring Level 2 fair values:
Interrelating between significant unobservable Significant inputs and fair unobservable value Type Valuation technique inputs measurement Forward exchange Market comparison techique: Fair values Not applicable Not applicable contracts used for are based on broker quotes. Similar hedging contracts are traded in a active market and the quotes reflect the actual transactios in similar instruments. Other financial Discounted cash flows: valuation model / / liabilities considers present value of expected payment, discounted using a risk adjusted discount rate.
F-25 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
17. Trade and other receivables
31-Mar-16 31-Dec-15 Trade receivables ...... 79,928 77,938 Other receivables ...... 1,660 3,430 Allowance for impairment ...... (4,604) (4,223) Total ...... 76,984 77,145
Trade receivables primarily relate to receivables from cable and DTH operations. The Group’s trade receivables were pledged as collateral for loans and bonds.
18. Prepayments
31-Mar-16 31-Dec-15 Non current prepayments ...... 4,209 5,987 Total ...... 4,209 5,987 Advance payments and prepaid expenses ...... 15,466 18,315 Accrued income ...... 1,886 1,389 Total ...... 17,352 19,704 Total ...... 21,561 25,691
Prepayments primarily relate to advance payments to content providers.
19. Short term loan receivables and deposits Out of total amount of short term loan receivables and deposits, amount of EUR 4,816 thousand (31 December 2015: EUR 5,740 thousands) relates to deposited additional consideration on escrow account for acquisitions in Bosnia.
20. Cash and cash equivalents
31-Mar-16 31-Dec-15 EUR accounts and cash on hand ...... 8,673 9,284 Other currency accounts ...... 10,021 5,842 Total ...... 18,694 15,126
Bank borrowings are secured on the total amount of cash on bank accounts. Out of total cash and cash equivalents, EUR 1,430 thousand (31 December 2015: EUR 1,679 thousand) is restricted as a security for payments to suppliers.
21. Capital The issued share capital and share premium of Adria Midco B.V. as at 31 December 2015 amounts to EUR 570,592 thousand. As at 11 March 2016 the Company completed legal requirements in order to register share premium in the amount of EUR 26,000 thousand. As at 30 March 2016, the Group distributed the share premium reserve in the amount of EUR 20,000 thousand.
F-26 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
22. Loans and borrowings and other financial liabilities Long-term borrowings Long-term borrowings per loan facility are as follows:
31-Mar-16 31-Dec-15 Bond ...... 625,000 625,000 Revolving facility (RCF) ...... 80,675 59,675 Bank secured loan ...... 7,870 7,870 Total ...... 713,545 692,545 Current portion for bank secured loan ...... (578) (361) Adjustment for amortized cost (bond) ...... (4,780) (5,012) Adjustment for amortized cost (RCF) ...... (2,085) (2,224) Total ...... 706,102 684,948
Adjustment to the nominal amount of bond and RCF is necessary because they are recorded at amortized cost. Based on this, upon origination of the bond and RCF, transaction costs were included in the financial liabilities recognized. Interest expense recorded includes amortization of these transaction costs deferred at initial recognition to maturity amount using the effective interest method. Amortized premium (including fees deferred at origination), is not presented separately and is included in the carrying values of the borrowings (as a reducing item).
Bonds As at 15 November 2013 the Group issued bonds in the nominal amount of EUR 475,000 thousand. As at 1 April 2015 the Group issued another tranche of bonds in the nominal amount of EUR 150,000 thousand which were incorporated with previous bonds. The notes will mature on 15 November 2020. Interest is payable semi-annually on each 15 May and 15 November commencing 15 May 2014. Interest rate is defined at 7.875% p.a.
Revolving credit facility (RCF) The Group has on 5 November 2013 signed agreement for revolving facility with bank consortium led by Unicredit bank in the total available amount of EUR 100,000 thousand (out of which EUR 81,875 thousand was used through both bank loans and letter of credit as at 31 March 2016). Maturity date of this RCF is 20 March 2020. The bank loan facilities have been secured by a pledge on 100% of the shares of Adria Midco B.V. and direct subsidiary entities.
Year of Nominal Carrying Currency Nominal interest rate maturity value amount Bond ...... EUR 7.88% 2020 625,000 620,220 Unicredit Bank (revolving facility) .... EUR 4.25% + 6M Euribor 2020 72,000 69,915 Raiffeisen bank A.D., Serbia (revolving facility) ...... EUR 5.35% + 6M Euribor 2020 8,675 8,675 Nova Ljubljanska Banka A.D., Slovenia EUR 3.4% + 1M Euribor 2020 7,870 7,292 Total ...... 706,102
F-27 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
22. Loans and borrowings and other financial liabilities (Continued) Loan covenants Based on the agreement for RCF, the Group is required to comply with a leverage ratio to consolidated adjusted EBITDA for the period most recent four consecutive financial quarters ending prior to the date of determination of the ratio. Leverage ratio is calculated as aggregate outstanding indebtedness of the Group and should not exceed ratio 8.10:1. Indebtedness is calculated as total financial liabilities decreased by level of cash and cash equivalents as at reporting date. Satisfaction of the covenant is tested quarterly. As at 31 March 2016 the Group is in compliance with this this requirement. The other covenant that the Group is required to comply is that the Group’s indebtedness (net debt) should not exceed 4.25 times the Group’s annualized last two quarters adjusted EBITDA. As at 31 March 2016 the Group is in compliance with this requirement.
Short term loans and borrowing Short-term borrowings per loan facility are as follows:
Nominal Year of Nominal Carrying Currency interest rate maturity value amount Bluenet L.L.C., USA ...... USD 3% 2016 59 57 Unicredit Bank A.D., Slovenia (RCF) ...... EUR 4.07%–4.27% 2016 1,200 1,200 Current portion of long term loan (Nova Ljubljanska banka A.D., Slovenia) ...... 578 Total ...... 1,835
Finance lease The Group has finance lease arrangements which bears an interest rate in the range of 3% to 5%. The lease is repayable in fixed monthly instalments within period of 3-5 years, with the last repayment in November 2019.
23. Deferred revenue
31-Mar-16 31-Dec-15 Up to 1 year ...... 8,819 8,190 Between 1 and 2 years ...... 2,589 1,785 Between 2 and 5 years ...... 1,927 1,843 Over 5 years ...... 2,506 2,416 Total over 1 year ...... 7,022 6,044 Total ...... 15,841 14,234
Deferred revenue refers to subscriber connection fees and network operating lease arrangements with mobile operators.
F-28 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
24. Trade and other payables
31-Mar-16 31-Dec-15 Trade payables ...... 79,433 90,810 Accrued liabilities ...... 4,783 9,761 Interest payable ...... 19,672 7,026 Received advances ...... 3,717 3,482 Taxes payable ...... 4,341 3,002 Forward exchange contracts ...... 7,024 2,614 Other liabilities ...... 7,142 5,875 Total ...... 126,112 122,570
Out of total amount of other liabilities, amount of EUR 4,816 thousand relates to liabilities for purpose of acquisition of entities in Bosnia (note 19).
25. Related parties Generally parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is focused on the substance of the relationship, not merely the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. The nature of the related parties’ relationships for those parties with whom the Group entered into significant transactions or had significant balances outstanding for the three months period ended as at 31 March 2016 detailed below. Transactions with related parties were entered into during the ordinary course of business on normal commercial terms. Balances and transactions with related parties of the Group consist of the following: i) Balances with related parties
Relationship 31-Mar-16 31-Dec-15 Other financial assets Adria Topco B.V...... Parent 2,003 2,049 Total ...... 2,002 2,049 Trade and other receivables Adria Topco B.V...... Parent 67 27 Total ...... 67 27
F-29 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
25. Related parties (Continued) ii) Transactions with related parties
Relationship 31-Mar-16 31-Mar-15 Other operating expense Kohlberg Kravis Roberts & Co. L.P...... Ultimate parent 292 287 Consulting Estrela ...... Related party 265 — Total ...... 557 287 Interest income Adria Topco B.V...... Parent 41 — Total ...... 41 — iii) Transactions with key management personnel During the period ended 31 March 2016, total compensation paid to directors for their services is made up of a contractual salary and a performance bonus depending on operating results. Total directors’ compensation amounted to EUR 447 thousand (31 March 2015: EUR 319 thousand). There are no post-employment and termination benefits for the members of the management.
26. Operating leases The Group leases office space and satellite transponders under operating lease for periods of 10 years and more. These contracts are non-cancellable. As at 31 March 2016, the future minimum lease payments under non-cancellable leases were as follows:
31-Mar-16 31-Mar-15 Less than 1 year ...... 11,304 11,064 Between 1 and 5 years ...... 45,216 44,256 More than 5 years ...... 38,048 37,088 Total ...... 94,568 92,408
The Group recognized total amount of EUR 2,370 thousand in profit and loss in three month period ended 31 March 2016 (31 March 2015: EUR 2,139 thousand).
27. Legal matters As at 31 March 2016, the Group is involved in a number of legal cases in the total amount of EUR 38,362 thousand. The Group management recognized provision for legal cases in the amount of EUR 3,181 thousand. Out of total amount of provision, amount of EUR 3,000 thousand relates to provision for legal case raised by SOKOJ.
Legal cases in Serbia Out of total amount of legal cases, amount of EUR 24,774 thousand relates to legal case which was raised by SOKOJ (Serbian music authors’ organization for collective protection of music copyright and related rights). The Group signed contract with SOKOJ only for cable service it provides, and not for the DTH service. SOKOJ claims that although there is no contract signed for DTH services, it has legal right to receive adequate remuneration from users of DTH service based on decision of regulatory body starting from 2012.
F-30 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
27. Legal matters (Continued) Legal cases in Slovenia The grant of a third-generation, or 3G, license in 2008 to Telemach Slovenia (issued to Tusmobil, company which was acquired in April 2015 and subsequently merged with Telemach Slovenia) is currently subject to review by the civil courts in Slovenia. This 3G license that was granted by the Agency for Communication Networks and Services of the Republic of Slovenia (‘‘AKOS’’) is valid through 2023 and is used to operate Telemach Slovenia’s mobile telephone network. Since its inception, the case arising from this challenge has been through several rounds of review and decision by AKOS, as well as by the relevant administrative court and the Supreme Court in Slovenia. Having previously affirmed its decision regarding the validity of the grant of the 3G license to Tuˇsmobil on three occasions in 2008, 2010 and 2014, respectively, AKOS reopened the procedure for the allotment of the 3G license to Tuˇsmobil in July 2015 following a direction to do so from the administrative court in Slovenia. Following AKOS’ decision in 2014 reaffirming the validity of the 3G license it granted to Tuˇsmobil in 2008, one of Tuˇsmobil’s leading competitors in Slovenia appealed this decision of AKOS to the relevant administrative court in Slovenia. The administrative court held in February 2015 that AKOS had not adequately considered whether the invitation regarding the application for the 3G license had been properly published when AKOS made its first call for such invitations in 2008. The administrative court noted that although AKOS published the call for invitations in the official gazette, as normally required by law, it failed to publish the call on AKOS’ website, as was stipulated in its bylaws. The administrative court therefore revoked AKOS’ decision of March 2014 relating to the confirmation of its 2008 decision regarding the award of the 3G license to Tuˇsmobil, and ordered that AKOS repeat the procedure for the award of this license. Following this direction by the administrative court, AKOS reopened the administrative procedure for the allotment of, and announced a public tender for, our 3G license in July 2015 without impeding Telemach Slovenia’s current use of this license. Telemach Slovenia appealed this decision of AKOS to the administrative court in Slovenia asking for the revocation of AKOS’ decision to reopen the tender of Telemach Slovenia’s 3G license and also requested the administrative court for an interim injunction to stay AKOS from reopening this procedure until such time as the administrative court reached a final decision on its appeal. This interim injunction was granted (by the Supreme Court in Slovenia after being turned down by the administrative court). The validity of the 3G license is still subject to the decision of the administrative court in the appeal brought by Telemach Slovenia. Telemach Slovenia may continue to use the 3G licences while waiting for the decision of the Administrative Court. In case the Administrative Court would decide to uphold the Agency’s decision, the frequencies would remain with Telemach Slovenia until a new Decision on awarding of radio frequencies would be issued, following a public tender (where also Telemach Slovenia could participate). Operationally, the loss of 5 MHz on 2100 would adversely impact Telemach Slovenia’s capacity to offer quality 3G services in border areas and in cities, but only if (i) Telemach Slovenia does not acquire 2100 frequencies on the September 2016 auction (ii) nor on the tender for the same frequencies which would follow Administrative Court’s decision, (iii) nor would Telemach Slovenia succeed with a Supreme Court challenge of the unfavourable decision by the Administrative Court. The management of the Group believe that the 3G license was granted in accordance with the applicable legislation. The Group has not made any provision based on the current best estimate of the outcome of the dispute.
F-31 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
27. Legal matters (Continued) Legal cases in Bosnia Minority shareholders of HS d.o.o. and HKB d.o.o. As a result of acquisition of subsidiaries in Bosnia, the Group assumed significant number of ongoing court disputes. The disputes are initiated by the minority owners of companies HS d.o.o. and HKB d.o.o. which claimed compensation for damages and cancellation of a share purchase transaction. The earliest case was initiated several years ago and hence forth new cases were initiated almost on annual basis. Cases initiated by minority shareholders for the most part related to allegations of contract being singed by HS d.o.o. and HKB d.o.o. that were to the detriment of these two companies, various violations of minority shareholders’ rights by the majority shareholder such as the right of first refusal, right of access to business records of the company In parallel to initiating court disputes seeking indemnity and termination of certain agreements the minority shareholders have also filed criminal complaint to Office of the Public Prosecutor alleging criminal wrongdoing by majority shareholders and former management. The minority owners have also filed criminal charges against the former owners on the basis of unlawful enrichment. The provisional quantum of indemnity sought by the minority shareholders is up to EUR 10,513 thousand. Legal advisors of the Group stated that aforementioned amount of indemnity was determined by the claimants and that the final amount of indemnity would be assessed by court appointed experts. The legal advisor of the Group provided legal opinion as to likelihood of winning or losing individual cases. Management of the Group concurred with views of the legal advisor and has set aside funds in escrow account in the amount of EUR 1,100 thousand it deems sufficient to pay the claims that would be ruled in favor of the claimants (notes 19, 24).
Cases relating to BHB Cable TV d.o.o. As a result of acquisition of subsidiary BHB Cable TV d.o.o., the Group assumed number of ongoing court cases relating to BHB. Historically there existed a number of agreements between the claimant and the defendant regulating their business relationship, ownership, management and maintenance of the cable infrastructure, future projects and other matters. The initial court case was initiated in 2009. Total value of claims is EUR 434 thousand. In one of the cases the first instance court has reached a decision in favor of plaintiff and counter claims were rejected. A subsequent ruling by a second instance court reversed this decision and the ruling was reached under which BHB nor plaintiff were entitled to damages. Plaintiff initiated extraordinary legal remedy to have the second instance verdict revised / abolished before the Supreme Court of FbiH and the final decision of the Supreme Court has confirmed the earlier second instance decision. In all subsequent court cases the first instance court ruled in line with the ruling of the second instance court in previous case. The legal advisor of the Group provided legal opinion as to likelihood of winning or losing individual cases. Management of the Group concurred with views of the legal advisor and has set aside funds in escrow it deems sufficient to pay the claims that would, based on legal estimate, be ruled in favor of the claimants. Management believes, supported by legal teams, that, for the disputes which have not been provided for, there is low probability of negative outcome. However, based on the latest decision of the
F-32 ADRIA MIDCO B.V. GROUP Condensed Consolidated Interim Financial Statements for three months ended 31 March 2016 In thousands of EUR NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
27. Legal matters (Continued) Communication Regulatory Agency of Bosnia and Herzegovina, the BHB’s title over the relevant infrastructure is in question and the parties are now negotiating to extend the escrow period.
28. Guaranties The Group has guaranteed a loan of the Gerrard Aircraft GMBH in the amount of EUR 5,779 thousand. The guaranty expires on 13 April 2020. Gerrard Aircraft GMBH is an affiliate company of one of the minority owners.
29. Applied exchange rates Exchange rates applied during the compilation of the condensed consolidated interim financial statements are as follows:
3 months 3 months As at As at As ending ending 31 March 31 December 31 March 31 March 31 March Currency 2015 2015 2016 2015 2016 RSD...... 120.2153 121.6261 122.9245 121.4980 122.8697 USD...... 1.0789 1.0933 1.1319 1.1245 1.1034 BAM...... 1.9558 1.9558 1.9558 1.9558 1.9558 HRK...... 7.6460 7.6381 7.5267 7.6793 7.6197 MKD...... 61.6065 61.5947 61.6942 61.5562 61.6794
30. Subsequent events Effective from June 28, 2016, managing board member, Mr. Goran Vasic resigned from his function. On 13 October 2015, the Group concluded an agreement to acquire the entire stake in the company M kabl d.o.o., Montenegro. The transaction is subject to customary regulatory approvals by the local competition authorities in Montenegro, which is the sole condition to closing, and is expected to be completed in August 2016. Total consideration for the acquisition amounts to EUR 12,700 thousand. On 16 March 2016, the Group concluded an agreement to acquire the entire stake in the company Maxtel d.o.o., Slovenia. The transaction is subject to customary regulatory approvals by the local competition authorities in Slovenia, which is the sole condition to closing, and is expected to be completed in June 2016. Total consideration for the acquisition amounts to EUR 4,000 thousand. In April 2016, the Group has obtained additional credit facilities in the amount of EUR 20,000 thousand. The Group’s management holds that they are not aware of any other significant post balance sheet events that could affect the condensed consolidated interim financial statements for 31 March 2016 or require separate disclosure.
F-33