United Group
Annual Report to Noteholders for Financial Year 2020
27 April 2021
FY 2020 BONDHOLDER REPORT
CONTENTS Page
2020 Summary ...... 3 Business ...... 6 Key Operating Measures ...... 62 Results of Operations ...... 65 Liquidity and Capital Resources ...... 73 Subsequent (Material Recent) Events ...... 78 Mergers & Acquisitions ...... 82 Management team ...... 83 Appendices ...... 86 Appendix 1 - Financial statements ...... 87 Appendix 2 - Key Factors Affecting Our Business and Results of Operations...... 90 Appendix 3 - Definitions of Key Operating Measures...... 99 Appendix 4 - Description of Key Line Items ...... 101 Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk ...... 103 Appendix 6 – Critical Accounting Policies...... 105 Appendix 7 – Adria Midco BV Group Consolidated Financial Statements ...... 106 Appendix 8 – Related parties transactions ...... 107 Appendix 9 – Risk factors ...... 109 Appendix 10 – Material Debt Instruments (Other than the Notes) ...... 112
FY 2020 BONDHOLDER REPORT
Disclaimer
THIS REPORT (THIS “REPORT”) IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR INFORMATION PURPOSES. BY READING THIS REPORT, ATTENDING A PRESENTATION OF THIS REPORT (THE “PRESENTATION”) AND/OR READING THE SLIDES USED FOR THE PRESENTATION (THE “PRESENTATION SLIDES”) YOU AGREE TO BE BOUND AS FOLLOWS:
This Report, the Presentation and/or the Presentation slides contain forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”, “estimates”, “would”, “will”, “could”, “should” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual performance or achievements to be materially different from future performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future strategies and the environment in which we will operate in the future. These forward-looking statements speak only as at the date of this presentation. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based.
This Report contains summary audited financial information for Adria Midco B.V. and its subsidiaries for the twelve months ended December 31, 2020, unless another source, such as management accounts, is specifically mentioned.
Certain financial measures and ratios related thereto in this presentation, including EBITDA, Adjusted EBITDA, Adjusted EBITDA minus capital expenditure, RGUs and ARPU (collectively, the ‘‘Non-IFRS Measures’’) are not specifically defined under IFRS or any other generally accepted accounting principles. These measures are presented here because we believe that they and similar measures are widely used in our industry as a means of evaluating a company’s operating performance and financing structure. Our management believes this information, along with comparable IFRS measures, is useful to investors because it provides a basis for measuring the operating performance in the periods presented. These measures are used in the internal management of our business, along with the most directly comparable IFRS financial measures, in evaluating the operating performance. These measures may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles, and you should not consider such items as alternatives to net income (loss), operating income or any other performance measures derived in accordance with IFRS, and they may be different from similarly titled measures used by other companies.
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2020 Summary
27 April 2021 – United Group, the leading cable and media player in South Eastern Europe, today reports its financial results for 2020.
Operational Highlights
Homes passed grew by 99% to 3,686 thousand compared to FY 2019, primarily as a result of Vivacom acquisition and organic growth Number of unique cable subscribers1 increased to 1,948 thousand (FY 2019: 1,176 thousand) Revenue Generating Units (“RGUs”) up by 178% year-on-year to 10,897 thousand, driven by Vivacom (4,461 thousand RGUs), Telemach CRO (937 thousand mobile RGUs) and Forthnet (1,376 thousand RGUs) acquisition as well as organic growth Blended Cable Average Revenue Per User (“ARPU”)1 for FY 2020 down by 10% year- on-year to €20.5 (FY 2019: €22.7) driven mainly by the Vivacom acquisition
Financial Highlights
Consolidated Group revenue for FY 2020 up 57% year-on-year to €1,161.3 million (FY 2019: €741.8 million) Consolidated Group adjusted EBITDA up by 47% in FY 2020 to €434.2 million (FY 2019: €295.4 million) Net cash inflow of €35.3 million versus an inflow of €206.6 million in FY 2019 As at December 31, 2020, net leverage for United Group (ratio of Group Net Debt to Annualized Last Two Quarters Adjusted Pro Forma EBITDA2) decreased to 4.70x (December 31, 2019: 4.86x)
1 Please note that due to the acquisition of Vivacom, definitions of certain key operating measures have been amended to align methodology across the Group (Homes Passed, Unique Cable Subscribers and Blended Cable ARPU). Due to this change there was also a minor restatement of blended cable ARPU and unique cable subscribers figures.
2 Annualized Adjusted Pro Forma EBITDA is calculated as two times Q4 2020 + Q3 2020 Adjusted EBITDA plus €6.9 million of United Media expected synergies plus €36.6m of Vivacom L2QA Adj. EBITDA Contribution (Jul20) plus €50.1 million Forthnet L2QA Adj. EBITDA Contribution (Jul20-Oct20) plus €55.3 Nova BG L2QA Adj. EBITDA plus €13.0 Other M&A companies (for which the Group signed agreements for acquisition and are in process of receiving regulatory approvals) L2QA Adj. EBITDA.
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The following summary describes the operations in each of the Group’s reportable segments or subgroups:
Vivacom includes the results of the Group’s cable, mobile and DTH services in Bulgaria. Forthnet includes the results of the Group’s cable and DTH services as well as media and content business in Greece. SBB Serbia includes the results of cable services in Serbia and direct-to-home (“DTH” or Satellite) operations in Serbia and North Macedonia. Absolut Solutions results are also included in the SBB Serbia segment, however their results are not reflected in the statutory consolidated results of the SBB Serbia Group.
Telemach Slovenia includes the results of the Group’s cable, mobile and DTH services in Slovenia. Telemach CRO includes the results of the Group’s mobile services in Croatia. Telemach BH includes the results of the Group’s cable and DTH services in Bosnia and Herzegovina. Telemach Montenegro includes the results of the Group’s cable and DTH services in Montenegro. United Media Group includes the results of the Group’s media and content business in the former Yugoslav region including the results of N1, Sport Klub, Grand Production, Orlando Kids, IDJ and entities acquired during 2018 (Nova TV and Direct Media Group). Other Businesses includes the results of the Group’s other operating businesses (such as NetTV) and its Holding companies. United Group generated consolidated revenues of €1,161.3 million during FY 2020. The 57% increase in revenue is attributable to the Vivacom, Forthnet and Telemach CRO acquisitions, organic growth of the subscriber base, migration of subscribers to multi-play packages and the impact of other acquisitions in 2019 and 2020. Adjusted EBITDA in FY 2020 was up 47% to €434.2 million.
Summary financials table in € m FY 2019 FY 2020 Change
Revenue 741.8 1,161.3 57% Adjusted EBITDA 295.4 434.2 47% Result from operating activities 51.6 68.5 33% Profit/(loss) before tax (52.6) (64.5) 23%
In FY 2020: Vivacom generated 20% of consolidated revenues and 20% of consolidated Adjusted EBITDA Forthnet generated 4% of consolidated revenues and 3% of consolidated Adjusted EBITDA
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SBB generated 19% of consolidated revenues and 27% of consolidated Adjusted EBITDA Telemach SLO generated 20% of consolidated revenues and 18% of consolidated Adjusted EBITDA Telemach CRO generated 14% of consolidated revenues and 11% of consolidated Adjusted EBITDA Telemach BH generated 6% of consolidated revenues and 5% of consolidated Adjusted EBITDA Telemach MNE generated 1% of consolidated revenues and 1% of consolidated Adjusted EBITDA United Media Group generated 14% of consolidated revenue and 17% of consolidated Adjusted EBITDA Other Businesses generated 2% of consolidated revenue and (2%) of consolidated Adjusted EBITDA
2020 in € m Revenue, net % of total Adj. EBITDA % of total Vivacom 227.4 20% 86.4 20% Forthnet 41.8 4% 12.3 3% SBB Serbia 223.7 19% 118.0 27% Telemach SLO 237.1 20% 79.8 18% Telemach CRO 161.7 14% 47.8 11% Telemach BH 72.5 6% 22.7 5% Telemach MNE 13.3 1% 2.5 1% United Media 158.9 14% 74.4 17% Other Businesses 24.8 2% (9.7) (2%) Total 1,161.3 100% 434.2 100%
As at December 31, 2020, United Group had 10.90 million RGUs, up 178% year-on- year (FY 2019: 3.92 million) and an increase of 1.37 million quarter-on-quarter (Q3 2020: 9.53 million). This positive trend was primarily driven by the Vivacom (4,461 thousand RGUs), Telemach CRO (937 thousand mobile RGUs) and Forthnet (1,376 thousand RGUs) acquisitions, organic growth of cable pay-TV, telephony, mobile and internet and Out-of Footprint services, as well as a growing proportion of multi-play subscribers.
Blended cable average revenue per user (“ARPU”)1 for the period was €20.5, compared to €22.7 for FY 2019, with the 10% year-on-year decrease driven by the Vivacom acquisition. Blended cable ARPU1 will decrease further in 2021 as FY 2020 results include only five months of Vivacom’s results (acquired in August 2020).
Capital expenditure (including capitalized inventory) amounted to €269.6 million in FY 2020, compared to €188.0 million in FY 2019. The majority of investments during FY 2020 related to network expansion, customer premise equipment, the purchase of new programming rights and investment in mobile infrastructure.
United Group’s twelve-month financial statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) accounting policies.
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Business Our Business at a glance
United Group is the leading cable and media player in South Eastern Europe, providing services to approximately 3.7 million homes as at December 31, 2020. United Group is the leading distributor of pay-TV in its core markets of Slovenia, Serbia, Bosnia and Herzegovina and the number two distributor in Montenegro. Following the completion of the Forthnet Acquisition, the Group is the second-largest Pay-TV operator in Greece. United Group is the clear multi play leader in its footprint, with market leading positions in Pay-TV, broadband internet and fixed line and mobile telephony in Slovenia, Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, Bulgaria and Croatia and, following the Forthnet Acquisition, Greece. The Group’s addressable market comprised 9.7 million households as of December 31, 2020. As at December 31, 2020, United Group provided services to approximately 10.9 million RGUs and analog and digital cable pay-TV services to approximately 1.9 million unique subscribers.
United Group is also the leading distributor of satellite (“DTH”) pay -TV across South Eastern Europe, with pay-TV product and service offerings in each of Slovenia, Serbia, Bosnia and Herzegovina, North Macedonia and Montenegro, where it uses its Total TV platform to serve subscribers both inside and outside of its cable footprint to deliver content across the entire region, including rural areas. Following the Vivacom Acquisition, the Group also provides Pay-TV services in Bulgaria and is the leading IPTV provider in Bulgaria. Following the Forthnet acquisition, the Group also provides cable and DTH services in Greece. In addition to its cable- based and satellite-based services, United Group offers mobile telephony services in Slovenia, Bulgaria (following the completion of the Vivacom Acquisition) and Croatia (following the completion of the Tele2 Croatia Acquisition). United Group provides 4G LTE coverage to almost the entire population in each of these countries, and has successfully tested next generatio n 5G networks across the Balkan region, which the Group believes demonstrates its technological readiness for a commercial launch when the necessary spectrum frequencies become available in its markets. On September 21, 2020, the Group announced the commercial launch of its 5G network in Bulgaria.
United Group’s core telecommunications business is also complemented by its two over-the-top (“OTT”) distribution platforms which customers can access through internet- based streaming: EON, the Group’s regional OTT platform, which enables customers connected to its competitors’ broadband internet connections outside of the Group’s cable footprint to access its attractive portfolio of Pay -TV channels, and NetTV Plus, the Group’s international OTT platform, which delivers ethnic and local language content to the ex - yugoslav diaspora around the world. In July 2020, the Group launched Shoppster, regional e -commerce online shopping platform, which will initially offer more than 20 popular product categories, including electronics, home and gardening, tools, fashion, items for children and kitchen appliances. Shoppster is available as an integrated online and TV shopping platform in Serbia and Slovenia.
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Through its in-house content business, United Group produces distinctive and attractive pay-TV channels across multiple key genres that have historically driven pay-TV subscriptions. These channels include the region’s most popular family of branded pay-TV sports channels, as well as popular movie channels, children’s channels, a 24/7 news channel, music channels and other specialized channels, which United Group continues to expand both organically and through acquisitions. Together with other own productions, United Group currently produces over 40% of the total content in its national (terrestrial) and cable operations. United Group’s programs typically receive ratings of between 30% to 60% in the markets in which they are available. Following the Forthnet acquisition, the Group also has in- house media and content production in Greece. United Group believes its leading content portfolio differentiates United Group from its competitors, has enabled strong growth in its business and provides United Group with predictable third-party carriage fees.
United Group’s media business also produces several pay-TV channels across key genres and sells them to third-party pay-TV distribution platforms in the region. United Group produces various TV formats, which are then sold to free-to-air TV channels in the region. As part of its media business, United Group also provides advertising services and digital production and distribution. Following the Nova Croatia Acquisition, and Direct Media/Pink Acquisition, United Group significantly enhanced its media business by adding leading full- format TV stations in Croatia, Bosnia and Herzegovina and Montenegro. Nova Croatia has strong local content production and profitability, with an audience share of approximately 40% on average in prime time and market share by advertising revenues of more than 50%. Nova BH and Nova M have appealing content, such as popular national team football events licensed until 2022 (including the Eurocup qualifiers, Eurocup, World Cup qualifiers and League of Nations). In March 2019, United Group launched Nova S in Serbia. Nova S is a channel offering high-quality local production series, sports, talk shows with well-known national presenters and high-quality international productions, fully exclusive to SBB, Total TV and EON. Following the acquisition of Nova BG in January 2021, United Group added Nova BG’s media platform to its own, comprising 10 television channels, including NOVA TV which broadcasts throughout Bulgaria, Bulgaria’s largest online platform, Net Info, which reaches on average 80% of the Bulgarian population each month, and four radio stations. In addition, Nova BG holds licenses to offer compelling content in Bulgaria through distributors such as CBS International, the Walt Disney Company, Columbia Pictures and Paramount Pictures. It also offers popular sports content such as English Premier League football and Formula One racing.
In addition to its own content, as a result of United Group’s pan regional presence and well established distribution network, United Group is a distribution partner of choice for premium regional and international content owners, such as Discovery/Eurosport, Viacom, AXN, CNN, HBO, Fox and Universal, and sports rights owners, such as the English Premier League, Bundesliga, 2021 UEFA European Championship, 2022 FIFA World Cup qualifiers, UEFA League of Nations, ATP, WTA, Formula 1, Euroleague, Moto GP, Greek Superleague, etc. United Group believes this allows it to consistently obtain high-quality content and attractive payment terms. The Group believes these providers partner with United Group because of its well-known brands, large network and its focus on South Eastern Europe.
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Following the Forthnet Acquisition, United Group operates most of its business across eight countries in South Eastern Europe: Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria, Greece, Croatia, North Macedonia and Montenegro. These countries have a combined population of approximately 40 million, distributed across approximately 9.7 million households, and represent the second largest Central and Eastern European (“CEE”) market after Poland. Despite economic differences, many of these countries share a joint history and form a single market in which small local differences are overshadowed by the influence of similarities in cultural preferences and language across the region and are characterized by growing pay-TV and broadband markets that are currently underpenetrated relative to some other CEE and Western European markets.
United Group is the leading multi-play provider in its existing markets, where it combines its services into packages, or bundles, which offer subscribers the convenience of being able to purchase television, broadband internet and telephony services from a single provider, and provides United Group with significant opportunities to cross sell United Group products.
United Group believes it is well positioned to maintain its market leading position in the pay-TV and cable broadband internet markets in Slovenia, Serbia, Bosnia and Herzegovina, and to further increase its market shares, as it differentiates its product offerings through access to desirable media content, a well invested network and high quality service, which has led to relatively low churn rates which the Group believes demonstrate customer loyalty. United Group believes that the Group is well positioned to continue to grow in its region, and build on its expansion into Bulgaria and Greece. United Group’s customers view the telecommunications products and services that the Group offers as part of their everyday lives, which results in recurring, high demand for its products and makes its business more resilient to macro-economic disruptions when compared to other discretionary products and services.
The table below shows key operating and financial data of the Group as at and for the year ended December 31, 2020.
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Source: Company information.
(1) Based on total subscribers - see note 2 for broadband and fixed telephony. (2) United Group is the leading high-speed cable broadband internet provider in each of Serbia, Slovenia and Bosnia and Herzegovina within its footprint, and has the second largest broadband and telephony market share in each of these countries, behind the respective incumbents with national footprints. (3) Cable RGUs in United Group markets consist of Pay TV, broadband internet and fixed line telephony RGUs; Forthnet’s broadband internet/telephony services provided through a third-party network (Out-of Footprint). (4) DTH RGUs in Slovenia include RGUs for DTH Slovenia, DTH International, DTH Prepaid, Pink International (in charge of distributing Pink channels in Western Europe) and DTH North Macedonia. (5) Based on Pro Forma FY 2020 consolidated group revenues (Pro Forma revenues calculated to reflect FY contribution of all acquired companies during 2020). United Media revenues which represent 15% of total UG revenues not shown in chart above.
Our History
United Group’s Group Executive Chairman, Dragan Šolak, founded the company as a Serbian cable-TV operator in 2000. Between 2001 and 2005, United Group grew its business by constructing an advanced cable network throughout Serbia. United Group also consolidated several sub-scale family-owned cable operators and successfully integrated them into its business. United Group launched its DTH services, Total TV, in Serbia in 2006 and in Slovenia, Bosnia and Herzegovina and Montenegro in 2007 and expanded Total TV into Croatia in 2008 (divested in 2018) and North Macedonia (formerly Macedonia) in 2009. In 2007, United Group entered into a strategic alliance with Sport Klub, and it acquired a controlling stake in the Ultra family of pay-TV channels in 2009. As a result of its strategic alliances, as well as the acquisition of local language television channels, United Group was among the first pay -TV providers in the South Eastern Europe region to provide localized regional and international content.
In 2009, United Group acquired Telemach Slovenia, a leading triple-play provider in Slovenia, adding 160 thousand subscribers to its operations. During 2010, United Group’s
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consolidation of three cable pay-TV operators in Sarajevo, including KT Global Net, BH Cabel Net and ELOB, led to the formation of Telemach BH. In addition, over recent years United Group has amassed a comprehensive portfolio of owned pay-TV channels covering sports, movies, news, music, general entertainment and children’s programming, through its United Media business, which it has grown through focused and consistent investment. United Group continues to leverage its position as the sole credible consolidator in the fragmented regional markets and has successfully acquired and integrated a number of businesses since 2010, including Maxtel in 2016, a local B2B internet provider in Slovenia, and Ikom in 2017, a cable operator in Serbia. In addition, following the acquisition of M-kabl in 2016, a cable operator in Montenegro, United Group has further expanded its subscriber base in Montenegro.
Following the liberalization of the fixed-line telephone markets in Bosnia and Herzegovina and Serbia in 2011 and 2012, respectively, United Group launched fixed-line telephony services in these two markets and, leveraging its existing cable pay-TV and broadband internet subscriber base, became the second-largest Serbian fixed-line telephone services provider in June 2013. United Group also launched its MVNO services in Slovenia in late 2012 and became an MNO upon its acquisition of Tušmobil in 2015, allowing it to provide quad-play bundles (cable pay-TV, broadband internet, and fixed-line telephony and mobile telephony services) to its subscribers in Slovenia, in addition to stand-alone mobile telephony services.
In July 2018, United Group acquired Nova TV d.d. from CME B.V.. This acquisition, which included several popular television channels in Croatia, helped it to create a strong mainstream media platform which further differentiates its distribution platform, promotes its pay-TV channel portfolio, drives continued growth and creates a strong platform for additional bolt-on, accretive acquisitions. In September 2018, United Group acquired Direct Media, a leading media buying agency in Serbia, which included Direct Media’s operations in Serbia, Montenegro, North Macedonia and Albania, as well as United Group’s terrestrial TV stations Pink BiH and Pink Montenegro, which have been rebranded to Nova BH and Nova M, respectively.
On March 3, 2020, the Group completed the acquisition of Tele2 Croatia, the third largest telecommunications operator in Croatia based on mobile revenues as of December 31, 2020. Tele2 Croatia seeks to offer the best value proposition in the Croatian mobile market, for example, through its offering of unlimited mobile services. The Group believes that the integration of Tele2 Croatia will enable it to accelerate its growth and further diversify its operations.
On July 31, 2020, the Group completed its acquisition of Vivacom, the market leading integrated telecommunications operator in Bulgaria (based on revenue for the year ended December 31, 2019) which offers both fixed and mobile telecommunications services, as well as broadcasting and satellite services, with a market share of 31% in Bulgaria by revenue as of December 31, 2019, according to the CRC. Expansion in Bulgaria increased the Group’s addressable market by approximately 35% in terms of population, and the addition of
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Vivacom’s subscriber base more than doubled its existing subscriber base. Vivacom’s size, including approximately three million mobile subscribers, 524 thousand fixed telephony subscribers, 475 thousand fixed broadband subscribers and 516 thousand fixed pay-TV subscribers, provides the Group with significant additional scale, compounding its existing leadership. United Group believes that the acquisition of Vivacom provides it with greater scale and increases business diversification, expands its reach, cements its position as the industry leader in Southeastern Europe and continues its growth, and it has continued its expansion in Bulgaria with the purchase of Nova BG, a leading broadcasting company in Bulgaria.
Forthnet
In November 2020, the Group completed its acquisition of a controlling interest in Forthnet, a prominent telecom operator and Pay -TV provider in Greece. Forthnet provides home entertainment and communications services to nearly 1.4 million RGUs. This marked the Group’s entry into the Greek market, and strengthens its position as an industry leader in Southeastern Europe. Forthnet is the second largest Pay -TV operator in Greece and has a fiber optic network of 6,127 kilometers, covering approximately 95% of its total customers. The Forthnet Acquisition enables us to accelerate our growth and further diversify our Group.
Distribution Product Offerings
United Group offers its subscribers a broad range of cable and satellite pay -TV, broadband internet and fixed-line and mobile telephony services in the following categories:
Cable pay-TV. United Group’s analog and digital cable pay-TV services provide its subscribers with access to an attractive portfolio of standard definition (“SD”) and high definition (“HD”) pay-TV channels that offer popular local and regional content. As an additional service, United Group offers its pay-TV subscribers access to its proprietary pay-TV content “on the go” through its TV everywhere applications for computer,
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tablet and mobile devices. United Group offers cable and IPTV pay-TV services to approximately 1,476 thousand subscribers across Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria and Montenegro as at December 31, 2020, including 284 thousand subscribers through Vivacom.
DTH pay-TV. United Group’s DTH pay-TV service, known as Total TV, is targeted at households outside its cable footprint and provides access to an attractive portfolio of channels to approximately 999 thousand subscribers across seven South Eastern Europe markets (Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria, Greece, Montenegro and North Macedonia) as at December 31, 2020.
Regional OTT. United Group’s regional OTT platform, which operates under the EON brand of products and services, allows it to reach customers of its broadband internet competitors and allows these customers access its full digital pay-TV channel offering. As a result, customers can access all of United Group’s digital pay -TV channels on their TVs, computers, tablets, mobile devices or other internet-enabled platforms. United Group’s regional OTT platform enables it to serve residents in Serbia and Slovenia who are currently outside of its cable footprint but have access to broadband internet connection with United Group’s pay-TV products.
International OTT. NetTV Plus is an OTT content platform that delivers a broad range of local and regional content to members of the entire former Yugoslav diaspora worldwide. NetTV Plus had 106 thousand subscribers as at December 31, 2020, indicating further future growth potential, supported by the global proliferation of high- speed internet access, which makes OTT one of the most viable platforms to access ethnic content.
Broadband internet. United Group believes it operates the largest broadband internet network in the region and delivers among the fastest broadband connections in its markets with speeds of up to 1.0 Gbps. United Group’s network has been fully upgraded to EuroDOCSIS 3.0, which supports speeds of up to 1,200 Mbps. United Group offers broadband internet to approximately 1,389 thousand subscribers across Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria and Montenegro as at December 31, 2020, including 475 thousand subscribers through Vivacom. United Group offers out-of-footprint internet services (broadband internet service provided through a third-party network) across Greece to approximately 528 thousand subscribers through Forthnet as at December 31, 2020.
Fixed-Line Telephony. United Group offers telephony services using voice-over internet protocol technology (“VoIP”), which allows its subscribers to make traditional fixed-line telephone calls using a standard telephone handset. United Group offers fixed-line telephony to approximately 1,270 thousand subscribers across Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria and Montenegro as at December 31, 2020,
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including 524 thousand subscribers through Vivacom. United Group also offers out-of- footprint telephony services (telephony services provided through a third-party network) across Greece to approximately 535 thousand subscribers through Forthnet as at December 31, 2020.
Mobile Telephony. Currently, United Group offers mobile telephony services in Slovenia (through Telemach Slovenia) and Croatia (through Tele2 Croatia), where it operates as an MNO in each country. Vivacom also offers mobile-telephony services in Bulgaria as an MNO. As an MNO, United Group is able to provide a broad array of subscription options, comprehensive data packages and enhanced coverage through its own mobile network. United Group offers mobile telephony services to approximately 2,954 thousand subscribers in Bulgaria, 589 thousand subscribers in Slovenia and 940 thousand subscribers in Croatia as at December 31, 2020.
• United Media: United Group’s media business produces several pay-TV channels across key genres and sells them to third-party pay-TV distribution platforms in the region. United Group also produces various TV formats which are then sold to free-to- air TV channels in the region. In addition, United Group’s media business provides advertising services and digital production and distribution. Since 2012, United Group has produced pay-TV channels across all genres including entertainment, sports, news, eSports, kids, TV series and movies. United Group also partners with regional and international content owners who seek to provide their content to South Eastern Europe and have long-term contractual relationships with several of them. In addition, United Group offers attractive advertising services with desirable advertising slots that it sells to both local advertisers and clients from around the world. United Group has also established a digital music production and content distribution business, and in 2018, it bolstered its media business with the Nova Croatia Acquisition. In September 2020, United Group expanded its media offering with the acquisition of Forthnet, through which United Group acquired rights to offer compelling content in Greece, such as sports events including the Greek Football Championship, Euroleague, Eurocup and Italian, French and Dutch Football Championships, Belgian football, EFL Championships, MLS, Carabao Cup, German Cup and the French Second Division. Forthnet also offers content under its own Nova-branded channels and holds content rights through multi-year contracts with major international media companies such as Sony, MGM and Warner Bros. In Bulgaria, United Group acquired Nova BG in January 2021, through which it obtained rights to compelling content in Bulgaria through distributors such as CBS International, the Walt Disney Company, Columbia Pictures and Paramount Pictures. It also offers popular sports content such as English Premier League football and Formula One racing.
• E-commerce: In July 2020, the Group leveraged its position in both the broadband and pay-TV markets to launch Shoppster, its regional e-commerce online-shopping platform, which will initially offer more than 20 popular product categories, including
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electronics, home and gardening, tools, fashion, items for children and kitchen appliances. Shoppster is available as an integrated online and TV shopping platform in Serbia and Slovenia. In Serbia, Shoppster operates as a marketplace using the dropshipping operating model, whereby it does not stock the products it sells. In Slovenia, Shoppster operates as a retailer as a result of an acquisition that the Group has completed and stores the products it sells in a leased warehouse. Products sold though Shoppster are distributed by third-party delivery couriers in both Serbia and Slovenia. Shoppster is a unique offering which combines the convenience of online- shopping with the audience engagement of television. Products will be presented and available for sale on the Shoppster TV channel, which will be devoted to home- shopping. Popular TV personalities from Southeastern Europe will present offers and products from the many companies that have joined Shoppster. The Group intends for Shoppster to deliver the simple, reliable and secure e-shopping experience that modern consumers expect.
Pay-TV
United Group provides analog and digital cable pay-TV throughout its network in Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria and Montenegro. As at December 31, 2020, United Group provided its cable pay-TV services to 212 thousand subscribers in Slovenia through Telemach Slovenia (61% of homes passed), 739 thousand subscribers in Serbia through SBB Serbia (65% of homes passed) and 210 thousand subscribers in Bosnia and Herzegovina through Telemach BH (61% of homes passed). In Bulgaria, Vivacom offers DTH and IPTV services throughout the country. As of December 31, 2020, Vivacom provided pay- TV services to approximately 516 thousand subscribers in Bulgaria. In line with United Group’s business strategy, it leverages its extensive cable network and distinctive cable pay -TV content to encourage its subscribers to purchase one of its bundles which offer the convenience of being able to receive television, broadband internet and telephony services from a single provider. As at December 31, 2020, approximately 81% of United Group’s cable pay-TV subscribers had purchased one of its bundles. For the year ended December 31, 2020, United Group’s analog and digital cable pay-TV business segment generated revenues of €185.4 million at an average ARPU of €11.6.
United Group offers high-quality analog and digital pay-TV throughout its network. All of United Group’s pay-TV customers receive its analog pay-TV service (“Basic TV”). United Group’s basic TV package has been standardized across its network and offers its customers access to over 54 analog TV channels in Serbia, over 15 in Slovenia, and over 54 in Bosnia and Herzegovina. In addition to Basic TV, United Group provides its customers with the option to subscribe to its digital cable pay-TV services (previously offered under the D3 brand and now offered as one of the EON brand of products and services), and it focuses on migrating analog subscribers to digital services and on continuing to take advantage of the cross- and up-selling opportunities provided by an influx of potential new customers switching from analog to digital cable pay-TV. United Group’s digital cable pay-TV service provides its customers with access to between 106 and 310 digital channels depending on the particular
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market, including up to approximately 88 HD channels and 162 radio stations. United Group offers channel line ups across a variety of popular genres, such as sports, c hildren’s entertainment and movies. The Group believes its high-quality and broad channel and content offering allows it to take a distinctive position in the market as compared to its competitors. In July 2020, in cooperation with Bosnian operator Trion Tel, the Group started offering EON bundle packages in Republika Srpska (the Serbian part of Bosnia and Herzegovina), where the Group previously had no cable presence, through the GPON of Trion Tel.
In addition to its bundles, United Group also offers its subscribers digital add-on TV packages, each containing premium SD and HD television channels such as HBO, as well as bundled VoD options for subscribers that have leased one of its digital receivers. United Group’s digital cable pay-TV service also includes CatchUp TV and VoD services. CatchUp TV provides subscribers with the ability to view a wide variety of television programs from a group of popular channels at any time within seven days after the programs originally aired. VoD provides subscribers with access to a library of over 26,000 movies and other programming titles, either on a transactional basis or a monthly subscription contract.
In 2012, United Group launched its “TV everywhere” applications (previously offered under the D3 Go brand name and now offered as one of the EON brand of products and services) for computer, tablet and mobile devices. Through these applications, United Group provides its existing cable pay-TV subscribers with access to digital pay-TV content “on the go.” United Group’s TV everywhere content is also available to its mobile subscribers in Slovenia over its mobile network.
Telemach Slovenia
As at December 31, 2020, United Group’s pay TV penetration in Slovenia remained stable at 61% compared to December 31, 2017. United Group’s cable pay TV subscribers in Slovenia increased from 201 thousand at December 31, 2017 to 212 thousand as at December 31, 2020. According to Fitch Solutions, in 2018, the total pay -TV market (which includes cable, IPTV and DTH subscribers) in Slovenia was estimated at 649 thousand subscribers compared to 248 thousand subscribers for Telemach Slovenia (including cable, IPTV and DTH subscribers). United Group believes this represents significant growth potential in the pay TV market in Slovenia. As at December 31, 2020, 100% of United Group’s cable pay TV customers had subscribed to digital TV.
For the year ended December 31, 2020, Telemach Slovenia’s cable pay-TV services generated revenues of €46.9 million at an average ARPU of €18.3.
SBB Serbia
United Group’s pay TV penetration in Serbia decreased from 66% at December 31, 2017 to 65% as at December 31, 2020. Furthermore, United Group’s cable pay TV subscribers in Serbia increased from 697 thousand at December 31, 2017 to 739 thousand as at December 31, 2020. According to Fitch Solutions, in 2018, the total pay -TV market (which includes cable,
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IPTV and DTH subscribers) in Serbia was estimated at 1.6 million subscribers compared to 938 thousand subscribers for SBB Serbia (including cable, IPTV and DTH subscribers), which the Group believes represents significant growth potential in the pay-TV market in Serbia.
For the year ended December 31, 2020, SBB Serbia’s cable pay-TV services generated revenues of €94.6 million at an average ARPU of €10.5.
Telemach BH
United Group’s pay TV penetration in Bosnia and Herzegovina decreased from 66% at December 31, 2017 to 61% as at December 31, 2020. United Group’s cable pay TV subscribers in Bosnia and Herzegovina decreased from 214 thousand at December 31, 2017 to 210 thousand as at December 31, 2020. According to Fitch Solutions, in 2018, the total pay -TV market (which includes cable, IPTV and DTH subscribers) in Bosnia and Herzegovina was estimated at 817 thousand subscribers compared to 352 thousand subscribers for Telemach BH (including cable, IPTV and DTH subscribers), which the Group believes represents significant growth potential in the pay-TV market in Bosnia and Herzegovina.
For the year ended December 31, 2020, Telemach BH’s cable pay-TV services generated revenues of €27.2 million at an average ARPU of €10.7.
Telemach MNE
United Group offers analog pay-TV throughout its network in Montenegro and its cable package has been standardized across its network.
For the year ended December 31, 2020, Telemach MNE’s cable pay-TV services generated revenues of €4.3 million at an average ARPU of €11.3.
Vivacom
Vivacom offers IPTV services throughout Bulgaria which includes attractive content and user friendly features. Vivacom’s IPTV pay-TV subscribers increased from 230 thousand as of December 31, 2018 to 284 thousand as of December 31, 2020, mainly as a result of increased interest in IPTV with rich content and interactive capabilities. Vivacom’s IPTV offering includes over 240 channels with more than 75 HD channels, as well as the corresponding equipment. The IPTV service includes interactive features, a “video on demand” library with more than 20,000 titles and an own movie channel called “VIVACOM Arena.” Vivacom has content distribution agreements in place with a number of major content providers and provides IPTV GO service to customers outside the area of coverage of its network in Bulgaria. Vivacom also offers mobile TV under its TV GO brand. Customers can choose between a mix of over 90 channels and sports content with DiemaXtra and MAX Sport Plus, or one or all of the VOD sections: VIVACOM’s MAXI, HBO On Demand and Disney English. Vivacom’s mobile subscribers can order any content available on TV GO directly on the recently updated application with a new UI/UX design.
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For the year ended December 31, 2020, Vivacom’s cable pay-TV services generated revenues3 of €12.5 million, representing 23% of its fixed-line revenue for the same period.
Direct to Home Pay-TV
United Group’s DTH, or satellite, pay-TV service known as Total TV, is targeted at households outside its cable footprint across the South Eastern European region (with the exception of Croatia, since January 2018, due to the divestiture of its Total TV operations in Croatia in connection with the Nova Croatia Acquisition). Following the acquisition of Forthnet, United Group also offers DTH pay-TV across Greece to approximately 314 thousand subscribers. Total TV provides subscribers with access to up to 122 channels in Serbia, 53 of which are also available in HD format, 126 channels in Slovenia, 49 of which are also available in HD format, and 129 channels in Bosnia and Herzegovina, 48 of which are also available in HD format. In Bulgaria, Vivacom offers DTH pay-TV with over 160 channels, 20 of which are in HD, as well as multi feed with over 200 additional channels. In Greece, Forthnet offers DTH pay-TV with 75 channels, 47 of which are in HD. As United Group only actively markets its DTH offering in those areas that are outside its cable footprint, there is limited to no overlap with analog and digital cable pay-TV offering. Additionally, there is a low risk of cable pay -TV cannibalization, due to the fact that, for a similar price as basic DTH pay -TV services, United Group’s basic cable pay-TV services offer a better value.
As with United Group’s analog and digital cable pay-TV offering, customers can choose from a range of DTH packages across different price points. Additionally, United Group has entered into partnership agreements with Telekom Slovenije in Slovenia and Telekom Srbija in Serbia pursuant through which it offers DTH pay-TV content and re-sells their respective ADSL internet services to customers outside of its cable footprint.
As at December 31, 2020, United Group’s provided its Total TV services to approximately 452 thousand subscribers throughout Slovenia, Serbia, Bosnia and Herzegovina, North Macedonia and Montenegro. Vivacom provided DTH Pay-TV services to approximately 232 thousand subscribers, and Forthnet provided DTH Pay -TV services to approximately 314 thousand subscribers. For the year ended December 31, 2020, United Group’s DTH pay-TV business segment generated revenues of €79.8 million at an average ARPU of €11.0.
In Bulgaria, Vivacom offers DTH pay-TV services with national coverage and include over 140 channels, including 13 HD channels, as well as additional premium add -ons such as HBO/Cinemax, MAX Sport Plus, DiemaXtra, and Theme packages. As of December 31, 2020, Vivacom provided DTH pay-TV services to 232 thousand subscribers. For the twelve months
3 Excluding results for the period prior to United Group’s acquisition. TM CRO was acquired in March 2020, Vivacom in August 2020 and Forthnet in November 2020.
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ended December 31, 2020, Vivacom’s DTH pay-TV business segment generated revenues3 of €10.5 million and an ARPU3 of € 9.1.
Forthnet offers DTH pay-TV services throughout Greece under the Nova Sports, Nova Cinema and Nova Go brands and continuously seeks to enhance and improve its content offerings, including among the most popular sports assets as well as the latest movies and series and a broad range of international channels including the Disney channel, Nickelodeon, Food Network, Fox and National Geographic. Forthnet also offers sports content including the Greek Football Championship, Euroleague, Eurocup and Italian, French and Dutch Football Championships, Belgian football, EFL Championships, MLS, Carabao Cup, German Cup and the French Second Division. Forthnet also holds content rights with major international media companies such as Sony, MGM and Warner Bros.
OTT Television
United Group’s two OTT content platforms, its regional OTT platform (previously D3i; now operating under the EON brand) and its international OTT platform (NetTV Plus), have enabled it to further expand its reach:
Regional OTT. United Group’s regional OTT platform enables customers of its broadband internet competitors within Serbia and Slovenia (but outside of its cable footprint) to access its distinctive digital content via the internet. Unlike United Group’s DTH pay-TV platform, which aims to deliver content to subscribers in rural areas without cable infrastructure, the regional OTT platform delivers pay -TV services to customers in metropolitan areas. By expanding United Group’s reach beyond the traditional cable footprint using a regional OTT platform, United Group is able to increase the number of subscribers to its pay-TV content.
International OTT. United Group’s NetTV Plus platform, which it launched in 2013, provides over 300 channels in SD, 73 channels in HD and 265 radio channels, of which more than 250 local-language TV channels showing ethnic content, including all national free-to-air channels, to the entire Yugoslav diaspora (estimated at over 4 million people) around the world through the internet. As at December 31, 2020, United Group had 106 thousand NetTV Plus subscribers. Subscribers can access its NetTV Plus content through their TVs using a set-top box connected to the internet, “Smart TVs” that have built-in internet functionality or by streaming content via internet-enabled tablets, mobile devices and personal computers. By expanding United Group’s geographic reach outside its region to customers in affluent countries in Western Europe and North America, United Group is positioned to charge prices that are higher than the prices it is able to charge for its pay-TV services in its other markets in South Eastern Europe, thereby further increasing its earnings.
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Programming Content
Through focused and consistent investment over the last few years, including investment in developing own pay-TV content and investment in strategic partnerships with regional and international third-party content owners, United Group has built a comprehensive content offering, covering sports, movies, news and children’s content.
Owned Content Business
Through United Group’s owned-content business it directly owns many of the region’s popular pay-TV channels. In 2006, United Group acquired Sport Klub, the most popular sports channels in the region, and in 2012, it added Cinemania, a popular movie channel, to its content portfolio. United Group strives to continually improve these offerings. For example, in collaboration with notable studios in the United States, United Group has improved Cinemania’s movie content helping to establish Cinemania as a leading movie channel in the region. United Group has also continued to improve the content it offers through its leading Sport Klub channel by adding popular sporting events to its content portfolio. United Group has introduced localized feeds for Sport Klub channels, in both HD and SD. Furthermore, United Group organizes and produces eSports events, which it broadcasts via Fortuna eSports. In April 2017, United Group acquired Fight Channel, a Croatian channel with premium content focused on Ultimate Fighting Championship, and IDJ Digital Holding Limited, a digital distributor of music and online video content in Malta.
In 2014, United Group launched N1, an independent 24/7 regional news channel affiliated with CNN, with studios in Belgrade, Zagreb and Sarajevo and a large network of reporters and journalists reporting on regional events, and which is now available to subscribers in all of United Group’s geographic markets. In addition, United Group has sold distribution rights for this channel to all major operators in the region. In 2020, United Group signed an exclusive partnership with NewsMax International and launched NewsMax Adria, a 24/7 cable news channel. Since the beginning of 2015, United Group has utilized its majority stake in Grand Production, a leading Serbian music and TV production house with a long history of broadcasting popular shows in Serbia, Bosnia and Herzegovina and North Macedonia (formerly Macedonia) to introduce a 24/7 local music and entertainment channel called Grand. In 2016, United Group launched the Grand 2 channel, expanding its music channels portfolio with new content offered to its subscribers. In July 2020, the Group agreed to acquire the remaining 49% of Grand Production.
United Group has also been successful in broadening the distribution reach of its other pay-TV channels. For example, during 2015, United Group sold distribution rights of N1 and certain Grand Production channels to other major cable operators in the region. United Group has extended the distribution scope for Orlando Kids and Bambino (which have been rebranded as Pikaboo and Vavoom, respectively), popular channels geared towards children that complement its Ultra family of pay-TV channels, to include Bosnia and Herzegovina, North Macedonia, Montenegro and Serbia, as well as Croatia and Slovenia, where those offerings were already present. United Group has also increased revenues from its Sport Klub channels
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by successfully extending its existing contracts with third-party pay-TV distributors while maintaining access to premium content. United Group has also extended the production of the most popular entertainment shows for national TV stations in Serbia, Bosnia and Herzegovina, Croatia, and North Macedonia, such as Your Face Sounds Familiar, Grand Stars, Never too Late and Practical Woman, which became among the most watched shows in their respective markets.
In July 2018, United Group acquired Nova Croatia that features several popular television channels in Croatia. United Group believes this acquisition will help it to create a strong mainstream media platform that will further differentiate its distribution platform, promote its pay-TV channel portfolio, drive continued growth and create a strong platform for additional bolt-on, accretive acquisitions.
In September 2018, United Group acquired Direct Media, a leading media-buying agency in Serbia, enabling us to deliver targeted solutions to advertisers, for both television (national and pay-TV) and digital, product placements and sponsorships. The transaction included Direct Media’s operations in Serbia, Montenegro, North Macedonia (formerly Macedonia) and Albania, as well as the company’s terrestrial TV stations Pink BiH and Pink Montenegro. In October 2018, United Group rebranded these channels as Nova BH and Nova M, respectively, to facilitate synergies with the existing brand equity of Nova in Croatia.
In March 2019, the Group launched Nova S in Serbia, a channel fully exclusive to its SBB Serbia, Total TV and EON platform. Nova S offers high-quality, locally produced series as well as sports and talk shows. Recently, the Group have significantly increased viewership in most of our channels, particularly Nova S, which became one of the most popular TV channels in Serbia.
Forthnet also produces its own media and content for the Greek market. In January 2021, the Group acquired Nova Broadcasting Group, Bulgaria’s largest multi-platform media company, which operates 10 television channels, including Nova TV, and Bulgaria’s largest online platform.
United Group believes that the attractiveness of its content platform across key pay - TV genres supports the sustainable leadership position of its distribution platform. While a significant part of United Group’s content business’s revenue consists of carriage fees charged to its own distribution platforms (Telemach Slovenia, SBB Serbia, Telemach BH and Total TV), United Group also generates revenues through carriage fees paid by third-party distribution platforms, such as Telekom Slovenije, Hrvatski Telekom, T2 and A1 (formerly Si.Mobil), sales of advertising and the sublicensing of some of the sports rights it acquires to regional free-to- air broadcasters or to TV operators in Kosovo, where the Group does not have any operations.
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United Group’s Sport Klub sports TV channels are by far the most in-demand channels of its content business, followed by N1 and Nova S.
The following table sets forth the main broadcasting rights United Group held through its TV channels as at December 31, 2020. United Group has historically been successful in renewing these contracts on comparable terms.
North Sport Period Slovenia Serbia BH Croatia Montenegro Macedonia Greece Bundesliga 2021–2025 Moto GP 2010–2023 — — USA PGA Tour 2011–2023 — European PGA Tour 2011–2023 — Champions League. 2012–2021 — — — — — English Premier 2016–2022 — League Spanish League 2012–2021 — Formula 1 2021–2024 — — — — Euroleague 2006–2022 Basketball ATP 2007–2027 — WTA 2007–2023 — FA Cup 2012–2024 — Europa League 2012–2021 — — — — — European Qualifiers to UEFA Euro 2020/ World 2014–2022 — Cup 2022 + Euro 2020 EuroCup 2016–2022 English Football 2012–2022 League International Basketball Federation 2017–2025 — (“FIBA”) World and European Championships Turkish Basketball 2017–2022 — Super League Turkish Super Lig 2017–2022 — NFL 2015–2023 — Coppa Italia 2018–2021 — International Volleyball 2019–2021 Federation NHL 2020–2024 — AFC (Asian Football 2021–2024 — Confederation) The Open Championships 2021-2023 Golf
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Wimbledon 2020–2024 CEV Volleyball Champions 2014–2020 — League Ultimat Fight (UFC) 2017–2024 — Davis Cup tennis 2021-2024 Greece Super League 2009-2021 — — — — — — Spanish La Liga 2021-2026 — — — — — — Italian League (Serie — — — — — — 2018-2021 A) French League 2016-2024 — — — — — —
United Group secured regional rights for certain other major football and basketball competitions, including qualifiers for the FIFA World Cup and the EuroCup, which have been postponed to 2021 due to the COVID-19 pandemic.
The variety that United Group offers in its content business allows it to tailor its approach for each individual country and market in which it operates. United Group plans to continue to review its content offering and will continue to develop its own distinctive content. United Group continues to view content differentiation as the cornerstone of its strategy and to drive the attractiveness of its content offerings relative to those of its competitors.
Third-Party Programming Content
In addition to its owned-content offerings, United Group’s pay-TV distribution platforms typically license the rights for the distribution of its own as well as third-party owned channels, typically for a period of three to five years.
As the prominent pan-regional operator, United Group has been able to negotiate contracts with third-party providers that it believes are beneficial. For example, United Group has been able to lock in flat-rate contracts for content that provide for terms spanning multiple years, which benefits its profit margins as its number of subscribers increases because it is able to retain the benefits of increases in its subscriber base, and thereby increase its margins. United Group also pays royalties based on its subscribers’ usage of its VoD content. United Group generally pays such license fees on a “per subscriber” basis. For on-demand content purchased by subscribers (transactional VoD), United Group generally pays a revenue share of the retail price. For packaged on-demand content, United Group pays on a “per-subscriber” basis (subscription VoD), often subject to fixed minimum guarantees. If necessary, United Group also licenses third-party copyrights through various collective rights associations. United Group generally seeks to negotiate fixed-fee contracts and attempts to move away from per- subscriber agreements. United Group expects that its content costs (above the minimum amounts) will generally increase in line with increased revenues from digital pay -TV and on- demand content and continued investment in high-quality content to differentiate its platform from its competitors. United Group negotiates its contracts for content and other third-party rights on a Group-wide basis, so that it is able to maximize the benefits of its scale and best practices across the Group, and United Group has historically been successful at renewing
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these contracts on comparable terms. United Group plans to acquire additional broadcasting rights in the future to further enhance its content offering.
Summary of Overall Programming Content
The following table provides an overview of United Group’s content offering:
______Source: Company data Broadband Internet
United Group offers broadband internet in Slovenia, Serbia, Bosnia and Herzegovina, Bulgaria and Montenegro. In 2009, United Group upgraded its network to EuroDOCSIS 3.0, and its current network is fully EuroDOCSIS 3.0 enabled. United Group’s EuroDocsis network offers its customers up to 1.6 Gbps download speeds. United Group believes EuroDOCSIS 3.0 is superior to DSL and on par with the FttH services offered by its competitors. United Group currently provides internet download speeds that it believes compare favorably to the national average with its average recorded speeds being faster than that of the respective local incumbent by a factor of 2.7x in Slovenia, 1.5x in Serbia and 2.9x in Bosnia and Herzegovina (as at April 16, 2021).
As United Group’s broadband internet operations provide it with very attractive margins due to little additional cost, United Group leverages its attractive pay -TV offering to sell broadband internet services to existing pay-TV customers. As a result, United Group does not sell its broadband internet services on a stand-alone basis and customers wishing to receive its broadband internet services must at a minimum subscribe to its analog Basic TV package. As at December 31, 2020, United Group provided its broadband internet service to approximately 1,389 thousand subscribers across Telemach Slovenia, SBB Serbia, Telemach BH, Vivacom Bulgaria and Telemach MNE (38% of homes passed), of which 475 thousand
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through Vivacom. For the year ended December 31, 2020, United Group’s broadband internet business generated revenues of €166.3 million (additionally, Forthnet generated €15.4 million revenues with Out-of Footprint Internet services3) at an average ARPU of €10.9. Telemach Slovenia
Within Slovenia, in a large portion of its cable footprint, United Group competes with DSL offered by competitors and not fiber, enabling it to provide the fastest broadband speed available within those areas. United Group’s EuroDOCSIS 3.0 enabled network allows it to compete effectively in the remainder of its cable footprint which is covered by its competitors’ FttH network as it can match speeds offered by FttH operators in these overbuilt areas. United Group only offers broadband in Slovenia as part of a double-, triple-, or quad-play package with its cable pay-TV subscriptions. United Group offers its subscribers several broadband internet service options, varying in price according to download capacity and speed, ranging from a minimum download speed of 150 Mbps to a maximum speed of up to 1,000 Mbps. As at December 31, 2020, United Group provided broadband internet to approximately 187 thousand subscribers.
For the year ended December 31, 2020, Telemach Slovenia’s broadband internet business generated revenues of €39.4 million at an average ARPU of €18.2.
According to Fitch Solutions, in 2018, the total broadband market (which includes cable, FttH, DSL and other subscribers) in Slovenia was estimated at 613 thousand subscribers compared to 172 thousand subscribers for Telemach Slovenia (including ADSL subscribers), which the Group believes represents significant growth potential in the broadband market in Slovenia.
In 2018, cable-based broadband accounted for 29% of the broadband services in Slovenia based on number of households, while FttH, DSL and others (which primarily includes wireless, Ethernet, LAD and fixed-wireless access) accounted for 71%. As at December 31, 2020, United Group’s total broadband market share in Slovenia was 31%. United Group’s fixed broadband penetration in Slovenia increased from 48% at December 31, 2017 to 54% as at December 31, 2020. As at December 31, 2020, 96% of United Group’s customers in Slovenia received broadband speeds greater than 70 Mbps.
SBB Serbia
United Group is the leading cable broadband internet provider in Serbia with its network passing approximately 1,128 thousand households across the country as at December 31, 2020. Within Serbia, United Group’s subscribers benefit from its extensive fully two-way enabled and EuroDOCSIS 3.0 upgraded network, with its current maximum commercial offering speed of 1,024/50 Mbps. As at December 31, 2020, the minimum broadband delivery speed United Group offers to new customers is 75 Mbps. United Group believes this compares favorably to the minimum broadband internet delivery speed offered by its competitors in Serbia.
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United Group offers broadband in Serbia to its existing TV customers and increasingly as part of a multi-play package with its cable pay-TV. United Group offers customers several options of broadband internet services varying in download capacity and speed at various price points.
As at December 31, 2020, United Group provided broadband internet to approximately 535 thousand subscribers. For the year ended December 31, 2020, SBB Serbia’s broadband internet business generated revenues of €79.1 million at an average ARPU of €11.0.
According to Fitch Solutions, in 2018, the total broadband market (which includes cable, FttH, DSL and other subscribers) in Serbia was estimated at 1.5 million subscribers compared to 509 thousand subscribers for SBB Serbia (including ADSL subscribers), which the Group believes represents significant growth potential in the broadband market in Serbia.
In 2018, cable-based broadband accounted for 44% of the broadband services in Serbia based on number of households, while FttH, DSL and others (which primarily includes wireless, Ethernet, LAD and fixed wireless access) accounted for 56%. As at December 31, 2020, United Group’s total broadband market share in Serbia was 32%. United Group’s fixed broadband penetration in Serbia increased from 43% at December 31, 2017 to 47% as at December 31, 2020. As at December 31, 2020, 86% of United Group’s customers in Serbia received broadband speeds greater than 50 Mbps.
Telemach BH
Within Bosnia and Herzegovina, United Group’s subscribers benefit from its fully two- way enabled and EuroDOCSIS 3.0 upgraded network which extends approximately 4,591 kilometers across the country and allows network broadband internet speeds of up to 400/15 Mbps.
United Group offers broadband in Bosnia and Herzegovina to its existing TV customers primarily as part of a multi play package bundled with its digital cable pay-TV. Alternatively, United Group offers customers several tiers of broadband internet services with its analog TV service. These internet services are available with various download capacities and speeds and at varying price points. Higher broadband internet speeds are available when United Group’s internet services are purchased as part of a bundle with its digital pay-TV as compared to the internet services offered as a bundle with its analog pay-TV. As at December 31, 2020, United Group provided broadband internet to approximately 169 thousand subscribers.
For the year ended December 31, 2020, Telemach BH’s broadband internet business generated revenues of €22.1 million at an average ARPU of €9.9.
According to Fitch Solutions, in 2018, the total broadband market (which includes cable, FttH, DSL and other subscribers) in Bosnia and Herzegovina was estimated at 694 thousand subscribers compared to 157 thousand subscribers for Telemach BH, which the Group believes represents significant growth potential in the broadband market in Bosnia and Herzegovina.
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In 2018, cable-based broadband accounted for 33% of the broadband services in Bosnia and Herzegovina based on number of households, while FttH, DSL and others (which primarily includes wireless, Ethernet, LAD and fixed wireless access) accounted for 67%. As at December 31, 2020, United Group’s total broadband market share in Bosnia and Herzegovina was 22%. United Group’s fixed broadband penetration in Bosnia and Herzegovina increased from 46% at December 31, 2017 to 49% as at December 31, 2020. As at December 31, 2020, 85% of United Group’s customers in Bosnia and Herzegovina received broadband speeds higher than 30 Mbps. While Bosnia and Herzegovina is generally not yet making use of high-speed broadband higher than or equal to 30 Mbps, United Group believes Bosnia and Herzegovina displays clear trends of acceleration.
Telemach MNE
Within Montenegro, United Group’s subscribers benefit from a fully two way enabled and EuroDOCSIS 3.0 upgraded network. United Group offers cable broadband internet in Montenegro to its existing TV customers primarily as part of a multi play package with its digital cable pay-TV.
For the year ended December 31, 2020, Telemach MNE’s broadband internet business generated revenues of €2.2 million at an average ARPU of €8.2.
Vivacom
Vivacom provides an array of fixed broadband services over ADSL, VDSL and FTTx connections to both residential and business customers in Bulgaria as well as other data services such as the sale of CPEs, VPN and MAN services and associated complex solutions. All of Vivacom’s offerings include a variety of tariff plans to suit each subscriber’s usage levels.
Vivacom has focused on the build out of its fiber network in targeted areas, the retention of its current ADSL subscriber base and migration to VDSL and FTTx and seeks to provide customers with comprehensive after sales services. Vivacom began its FTTx roll out in 2011 in Sofia and Varna and has since achieved significant progress, with 1,266 thousand fiber homes passed as of December 31, 2020. As at December 31, 2020, United Group’s total broadband market share in Bulgaria was 25%.
Vivacom maintains a disciplined approach to expanding its fiber network in carefully selected areas and adhering to stringent project acceptance criteria. Vivacom believes its low build out costs are attributable to its ownership of the telecom ducts and the low-cost of labor in Bulgaria, allowing for an attractive return on investments in fiber. In addition, Vivacom bundles fixed telephony and fixed broadband services, as its fixed broadband plan requires a fixed telephony subscription and includes a free Wi Fi modem.
For the year ended December 31, 2020, Vivacom’s fixed broadband services generated revenues3 of €23.2 million and an ARPU3 of €5.2. Vivacom had approximately 475 thousand fixed broadband subscribers as of December 31, 2020.
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Forthnet
United Group offers out-of-footprint internet services (broadband internet service provided through a third-party network) across Greece through Forthnet.
During 2020, Forthnet upgraded both its international link capacity to 300 Gbps and the capacity for its content delivery network in Athens and Thessaloniki to 590 Gbps. Forthnet also enabled new 2x100G interconnections between Athens and Thessaloniki, upgraded core network nodes in Athens by 4x100G and upgraded the interconnections of core nodes with the backbone network in Thessaloniki to 100G. During the same period, Forthnet also upgraded the optical network infrastructure in its Athens Lamda Helix datacenter to expand available capacity and to support the provision of more reliable high-speed services to enterprise customers, redesigned and upgraded the networking infrastructure of voice services in order to support mobile services and redesigned and upgraded IP access nodes serving enterprise customers. Forthnet also expanded NGA/VDSL coverage and other next generation access network services by enabling interconnections in 12 new local exchanges. As at December 31, 2020, United Group’s total broadband market share in Greece was 13%.
As of December 31, 2020, Forthnet provided broadband services to 528 thousand subscribers. For the year ended December 31, 2020, Forthnet’s out-of footprint internet services business generated revenues3 of €15.4 million and an ARPU3 of €11.9. Fixed-Line Telephony
United Group offers fixed-line telephony services in Serbia, Slovenia, Bosnia and Herzegovina, Bulgaria and Montenegro. United Group intends to leverage on its existing customer base and its extensive network and high-quality pay-TV content to cross-sell telephony products and bundled products to new and existing customers. Accordingly, the Group’s fixed-line telephony services are only available to its existing cable pay -TV customers. Through Forthnet, United Group also offers out-of-footprint telephony services (telephony services provided through a third-party network) across Greece to approximately 535 thousand subscribers as at December 31, 2020.
According to Fitch Solutions, the total fixed-line telephony market in 2018 was estimated at 665 thousand subscribers in Slovenia, 2,430 thousand subscribers in Serbia and 740 thousand subscribers in Bosnia and Herzegovina. Since the Group had 189 thousand subscribers for Telemach Slovenia, 436 thousand subscribers for SBB Serbia and 106 thousand subscribers for Telemach BH, each as of December 31, 2020, the Group believes there is significant growth potential in such broadband markets. In Bulgaria, the total fixed-line telephony market in 2019 was estimated at 868 thousand subscribers (524 thousand subscribers for Vivacom as of December 31, 2020). The total fixed-line telephony market in 2020 was estimated at 4,852 thousand subscribers in Greece (535 thousand Out-of Footprint subscribers for Forthnet).
United Group’s “Basic Package” in Serbia, Slovenia, Bosnia and Herzegovina and Montenegro offers free calls within the Group network and only an analog touchtone phone is required to use its service. In addition to its Basic Package, United Group offers its
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subscribers various other packages which include free calls to customers of other regional fixed-line telephony providers. Despite the relatively recent launch of its fixed-line telephony operations in Serbia, United Group believes it is the second largest provider of fixed-line telephony services in Serbia behind the incumbent Telekom Srbija.
As at December 31, 2020, United Group provided its fixed-line telephony services to 1,270 thousand subscribers (including Vivacom). For the year ended December 31, 2020, United Group’s telephony services generated revenues of €51.6 million (additionally, Forthnet generated €7.6 million revenues with Out-of Footprint Telephony services3) at an average ARPU of €4.2.
Mobile Telephony
Telemach Slovenia
United Group provides mobile voice, messaging and data to consumers and small businesses on a contract and prepaid basis, together with an attractive suite of fixed mobile convergence services in Slovenia, which the Group believes has contributed to lower churn rates relative to its competitors. Since 2015, the Group has been the fastest growing mobile operator in Slovenia following its acquisition of Tušmobil. As a result of consistent growth, as of December 31, 2020, the Group hold a 24% market share in the Slovenian mobile market (as compared to 14% at the end of 2015) and cross-sell mobile services to more than 50% of our fixed telephony subscriber base. United Group’s growth over the last five years was largely underpinned by continuous investments in its mobile and fixed telephony network. In August 2020, the Group received, for the second year in a row, the “Best in Test” award for both its mobile and fixed telephony network by Umlaut (formerly P3 Group), an independent research agency. According to the Ipsos Brand Tracking Report 2017, United Group’s “top of mind” recognition as a mobile provider in Slovenia was 21% in 2017, but by December 2020, it had increased to 30%. Similarly, after the integration of Tušmobil, a higher percentage of customers choose Telemach Slovenia as their first choice for mobile products in Slovenia, while United Group’s primary competitors have experienced decreases or stagnation in this metric during the same period from 2017 to 2020. The following chart shows the evolution of customers’ first choice of brand:
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United Group’s mobile network provides coverage to almost all of Slovenia’s population through its extensive 2G/3G/4G networks. Licenses for use of spectrum for 2G are valid through 2031, while spectrum for 3G is valid through 2021 (5 MHz on the 2100 band), 2023 (another 5 MHz on the 2100 band) and 2031 (5 MHz on the 900 band). In 2016, Telemach acquired additional spectrum in the 1800 MHz and 2100 MHz bands. This acquired spectrum allows United Group to expand its 3G and 4G networks. Use of frequencies in the LTE network currently includes 2x10 MHz in the 800 MHz spectrum band and 2x10 MHz in 1800 MHz spectrum band (which is the key spectrum band used for LTE services). These licenses are valid through 2029 (800 MHz) and 2031 (1800 MHz). As at the date of this report, United Group is capable of providing 4G coverage to approximately 99% of the Slovenian population. In addition, United Group have successfully tested next generation 5G networks across the Balkan region, which it believes demonstrates its technological readiness for a commercial launch when the necessary spectrum frequencies become available. In Slovenia, 5G sub 3GHz DSS in the 1800 MHz spectrum is in its proof of concept phase and expected for deployment during 2021, while deployment of the C Band in the 3,600 MHz spectrum is planned to start after the frequency auction in the first quarter of 2021.
As at December 31, 2020, United Group had 589 thousand subscribers for its postpaid and prepaid mobile services. During each month of 2020, Telemach Slovenia achieved 32% of gross additions in the mobile market, as compared to 31% during each month of 2019. United Group’s principal focus is post-paid subscribers, who generate significantly higher ARPU and generally have lower churn rates than prepaid subscribers, and as of December 31, 2020, contract subscribers accounted for 83% of our subscriber base. According to Fitch Solutions, in 2018, the total mobile-telephony market in Slovenia was estimated at 2.5 million subscribers
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compared to 512 thousand subscribers for Telemach Slovenia, which the Group believes represents significant growth potential in the mobile-telephony market in Slovenia.
In April 2017, United Group updated its mobile packages, with more data, more calls and more text messaging, and introduced its UNIFI Travel Wi-Fi roaming application, providing access to more than 70 million Wi-Fi hotspots around the world. All products include free on- net calls with unlimited off-net national calls in medium and high-end packages and, with the introduction of new EU roaming regulations which took effect on June 15, 2017, customers can now utilize their text message and voice minute allotments across the EU with no roaming charges.
For the year ended December 31, 2020, United Group’s mobile telephony services generated revenues of €82.1 million at an average ARPU of €10.9.
Telemach Croatia
United Group provide mobile-telephony services in Croatia through Telemach Croatia, the third largest telecommunications operator in Croatia based on mobile revenues as of December 31, 2020, after Croatian Telekom and A1. In the post-paid mobile segment, Telemach Croatia seeks to offer the best value proposition in the Croatian mobile market, for example through its offering of unlimited mobile services. Telemach Croatia has an extensive 2G/3G/4G mobile network covering all major cities and important roads in Croatia. In February and March 2019, Telemach Croatia acquired 2100 MHz and 2600 MHz frequencies, enhancing spectrum capacity.
For the year ended December 31, 2020, United Group’s mobile-telephony services in Croatia generated revenues3 of €120.9 million and an ARPU3 of €13.0.
Vivacom
Vivacom is among the market leaders in offering mobile services in Bulgaria. Vivacom offers mobile voice and data services and products over GSM/GPRS/EDGE and UMTS/HSPA+/LTE networks, on either a post-paid or pre-paid basis, through multiple volume based and flat rate offerings, each with multiple tariff options, and the Group believes that Vivacom’s mobile post-paid offerings are some of the most comprehensive in the Bulgarian telecommunications market. Vivacom offers other mobile services and products, including the sale of mobile handsets and accessories. Such services include unlimited mobile data, roaming voice and mobile data packages (within the European Union or within neighboring countries), SMS and MMS and international calls to both fixed and mobile lines. In all of its post-paid tariffs, Vivacom bundles mobile TV services under the TV GO brand with over 90 channels, as well as music streaming (Tidal) and cloud storage with mobile subscriptions. In addition, all of Vivacom’s customers have access to a digital wallet (Pay by VIVACOM) that is currently free of charge.
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Vivacom is also a leading provider of a full suite of telecommunications solutions for the corporate segment, with a portfolio of services suitable for all business sizes. All business mobile plans include national and international minutes, mobile data and a range of other features that support companies in running their businesses. For large business customers, the approach is to offer customized services tailored to their specific needs. For small and medium sized companies, the Group offer more standardized products, such as all-inclusiv e tariff plans that have a set amount of minutes (national and international) and data for a fixed monthly fee.
For the year ended December 31, 2020, Vivacom’s mobile operations generated revenues3 of €106.4 million, representing 47% of its total revenue in the same period. Vivacom had approximately 3.0 million mobile subscribers as of December 31, 2020, of which approximately 88% were post-paid subscribers and approximately 12% were pre-paid subscribers. For the year ended December 31, 2020, blended mobile ARPU3 was €7.1.
Forthnet
Forthnet launched a pilot program in July 2020 to test its planned Nova Mobile offering and made the program widely available to consumers in Greece. The pilot program is being completed in the first months of 2021, and during the program, Forthnet gathered customer feedback to help improve the design of forthcoming Nova Mobile programs and services. Forthnet is in the process of renegotiating the mobile wholesale contract it holds with one of the primary local MNOs in Greece ahead of any public launch of its mobile services.
Wi-Fi
Since 2011, United Group has been expanding its Wi-Fi hotspot service in Serbia, Slovenia, and Bosnia and Herzegovina, and the service is currently offered under its UNIFI brand. To increase its brand recognition, United Group currently offers the service for free, and it believes that this product is steadily gaining significant popularity. United Group intends to utilize UNIFI to complement its bundled offering and reduce customer churn as well as to incentivize the use of its products by potentially offering UNIFI free to only its subscribers. Moreover, United Group believes this service offers further monetization potential from users that are not customers of the Group.
In 2017, SBB Serbia and Telemach Slovenia launched UNIFI Travel, a Wi-Fi service which is available in 120 countries, through more than 70 million hotspots. Telemach BH launched the same Wi-Fi service in 2019. Multi-play Services
United Group’s primary focus is to provide bundled services, which is a package of two or more of the following services: pay-TV, broadband internet services, fixed-line telephony and mobile telephony. This enables United Group’s customers to subscribe to these services in a convenient “one stop shop” manner at attractive prices that are lower when bundled than the sum of the stand-alone services of similar value. United Group believes that the several bundled options it has introduced allows customers to tailor their packages according to their requirements and offers them greater value for money compared to similar services offered
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by its competitors. As at December 31, 2020, approximately 81% of United Group’s cable customers subscribed to its multi-play packages. In Bulgaria, Vivacom also offers multi play service bundles and as of December 31, 2020, approximately 48% of Vivacom’s customers in Bulgaria are subscribed to a multi-play package. United Group’s multi-play packages have allowed it to increase its total RGUs for cable-based services to approximately 4.1 million RGUs as at December 31, 2020.
United Group’s straightforward and unified triple-play offering, which includes pay-TV, broadband internet services, and fixed-line telephony, accounts for a significant percentage of its total new sales, comprising 88% of its gross additions in Slovenia, 50% of its gross additions in Serbia, and 24% of its gross additions in Bosnia and Herzegovina (for the year ended December 31, 2020). United Group’s best-selling triple-play packages (based on the number of triple play gross additions in the year ended December 31, 2020) are: EON Light in Slovenia (accounting for 53% of triple-play gross additions in Slovenia); EON Full in Serbia (accounting for 47% of triple-play gross additions in Serbia); and EON Light in Bosnia and Herzegovina (accounting for 53% of triple-play gross additions in Bosnia and Herzegovina). United Group has consistently upgraded its triple-play offering for both new and existing customers, which has allowed it to raise prices over time.
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The following chart compares United Group’s triple-play packages in Slovenia, Serbia and Bosnia and Herzegovina at the time of launch to the offerings as at December 31, 2020. The triple-play package has offered increased value to customers since launch across all areas.
Business Product Offerings
United Group utilizes its existing fixed-line network in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro to offer a range of business products including virtual private networks, Wi-Fi hot spots, managed services and network capacity leases to telecommunications operators, financial institutions, public service customers and multinational companies. United Group is the first CISCO certified partner for B2B services in the region, and it aims to continually improve the service portfolio of its business products by providing innovative and high-quality solutions along with dedicated customer care. United Group offers tailor made solutions for modern businesses across various industry segments, as well as to carrier clients.
One of United Group’s key customers in the region is Telekom Austria. United Group provides network connection services for Telekom Austria’s mobile phone towers as well as ‘last mile’ connection services for Telekom Austria’s B2B clients. Other key international partners include Romtelecom, Tele2, Telia Company, Pantel Technologies, Inteliquent, Interoute, Level 3 and PCCW.
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Subscribers
United Group sells its TV, broadband internet and fixed-line and mobile telephony services, either on an individual service subscription basis or on a bundled basis, to residential customers and business customers. United Group’s basic pay-TV subscription serves as a basis for cross-selling and up-selling and, with the exception of subscribers in Slovenia who prefer to subscribe only to its mobile telephony service, every subscriber needs at least a subscription for United Group’s basic pay-TV package to have access to its other services. Consumer subscriptions account for most of United Group’s revenues. Within the consumer market, United Group markets its services directly to subscribers in single dwelling units and multi dwelling units, such as apartment buildings. United Group provides its services pursuant to standard form fixed contracts lasting for 12 or 24 months.
United Group’s business subscribers typically purchase its broadband internet and voice and other data services. United Group generally targets small- to mid-size businesses in metropolitan regions. Business subscriber contracts usually extend over a period of 24 months and cannot be prematurely cancelled free of charge.
United Group believes it has a loyal customer base, which is the result of low churn rates due to its high-quality content, extensive network coverage and quality customer service.
Additionally, as its network covers the most affluent regions in Slovenia, Serbia, Bosnia and Herzegovina, Montenegro, Croatia (following the completion of Tele2 Croatia acquisition), Bulgaria (following the completion of the Vivacom acquisition) and Greece (following the completion of the Forthnet acquisition) United Group’s business benefits from low rates of services termination due to customers’ inability to pay.
Innovation
United.Cloud is United Group’s technology innovation and software development center that it established in 2016 with offices in Serbia and Slovenia. The centralization of United Group’s research and development team within United.Cloud provides a significant improvement in time to market for its quality and innovative products, with a high degree of customization and flexibility to ensure new product launches are in line with its corporate strategy. United Group can create unified multi service solutions to apply across all United Group’s markets, such as EON, with the ability to enter new markets quickly due to technological autonomy without a need to rely on outside developers, and its customers benefit from an improved user experience across its products. United Group regularly introduces new products with continuous development of its existing technology. Starting with D3 GO as a multiscreen option included in packages, the Group added additional features such as UNIFI, UNIFI Travel and UNIFON. United Group’s continuous focus on product innovation has led to a strong track record of in-house development, as shown in the following chart:
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United Group also continues to invest in its network infrastructure. For example, Slovenia is a GIGA country and Novi Sad, Subotica and Gornji Milanovac in Serbia are GIGA cities, while the Group’s plans for Belgrade are nearly complete with Kragujevac planned to be next and Sarajevo in Bosnia and Herzegovina is planned to be a GIGA city in 2021.
EON
EON is the Group’s next generation video delivery platform that allows customers to watch their favourite channels on a range of devices, including set top boxes, smartphones, tablets, laptops, and Smart TVs, with the ability to seamlessly “hand off” and resume watching from one device to the next. EON is the first platform in the region to allow viewers to watch TV through an application on a Smart TV. In establishing EON, which was developed out of the prior D3 platform, the Group has prioritized user customization through the introduction of user inputs such as reminders, favourites and search functions. The home screen includes editorial content within a modern and intuitive user interface. The VoD component is extensive, with a CatchUp feature allowing viewers to access content broadcasted within the previous seven days, totalling over 15 thousand hours of content available at any given time. EON gives users access to over 493 TV channels, 162 radio channels, and more than 25,000 VoD assets. United Group has also ensured that EON utilizes the latest media encryption technology in order to protect against digital piracy. The Group has an additional stream of game-changing updates to be introduced to EON over the next two years, including cloud DVR, download to go and improved connectivity with third-party devices and services. The Group’s partnership with Google will help it to release the 4K Ultra HD set-top box, which will fully integrate Google platforms such as YouTube and Google Play Store.
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Digital Platform
United Group’s digital platform provides a sustainable channel to future proof its platforms and to address evolving customer habits around access to media, digital content and advertising consumption.
Telecommunications
United Group’s digital platform is an important element of its user experience, and it has recently focused on innovations in its self-help platform, web portals and e-commerce. United Group’s self-help platform allows users to personalize their dashboards, access offers, pay bills and receive assistance.
United Group utilized its web portals as a central hub for all marketing activity and offers access to support services and the ability to order products online.
Media
United Group has grown its media content offerings on its digital platform. United Group’s most successful digital media offerings are regional news and sport portals N1 and Sport Klub, as well as DNEVNIK.hr in Croatia and Nova.rs in Serbia. N1 is a fully independent, stand-alone platform with automated content exchange. For the year ended December 31, 2020, N1 had over 536.6 million page views, an increase of 54% compared to the same period in 2019, and over 52 million unique users (an increase of 65%) who spent approximately 4.15 minutes on average on the platform. In the same period, N1 recorded more than 181.3 million screen views on its mobile application. United Group’s regional sports news platform, Sport Klub, is split across three separate web portals and a dedicated mobile application for iOS and Android. For the year ended December 31, 2020, Sport Klub had over 9.8 million users, an increase of 4% compared to the same period for 2019, more than 73.5 million page views and over 106 million screen views on mobile devices. Sport Klub users spent an average of 3.5 minutes on its website.
Launched on February 29, 2020, Nova.rs in Serbia is the latest portal in the Group’s portfolio. In a few months, it became one of the most influential portals in Serbia. For the year ended December 31, 2020, the portal had 24.5 million users, 298 million page views and 155 million screen views on the application. In Croatia, the Group’s portal DNEVNIK.hr had approximately 2,058 million real users in December 2020, according to Gemius ratings.
E-commerce
In July 2020, United Group leveraged its position in both the broadband and pay-TV markets to launch Shoppster, its regional e-commerce online-shopping platform, which will initially offer more than 20 popular product categories, including electronics, home and gardening, tools, fashion, items for children and kitchen appliances. Shoppster is available as an integrated online and TV shopping platform in Serbia and Slovenia. In Serbia, Shoppster operates as a marketplace using the dropshipping operating model, whereby it does not stock the products it sells. In Slovenia, Shoppster operates as a retailer as a result of an acquisition that the Group has completed and stores the products it sells in a leased warehouse. Products
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sold though Shoppster are distributed by third-party delivery couriers in both Serbia and Slovenia. Shoppster is a unique offering which combines the convenience of online-shopping with the audience engagement of television. Products will be presented and available for sale on the Shoppster TV channel, which will be devoted to home-shopping. Popular TV personalities from Southeastern Europe will present offers and products from the many companies that have joined Shoppster. The Group intend for Shoppster to deliver the simple, reliable and secure e-shopping experience that modern consumers expect.
Customer Services
Along with content differentiation, customer service is a key pillar of United Group’s offering, and it believes it offers subscribers high-quality customer service in line with Western European standards. United Group’s customer service operations are responsible for all customer care activities, including technical support as well as handling queries and complaints from its customers. United Group operates dedicated customer contact centers in Ljubljana, Belgrade, Sarajevo, Podgorica, Sofia and Pleven. As at December 31, 2020, United Group’s customer service team employed approximately 683 employees (719 full time equivalent). Vivacom also provides an additional service to high value business customers who require proactive technical support. Forthnet provides customer services to its customers in Greece. In addition to call center services, customers also have at their disposal a variety of self - service channels, such as an interactive voice response system, Unstructured Supplementary Service Data on Vivacom’s mobile network and the My Vivacom application, which was launched in 2018, and provides customers with 24/7 access to information about their services, customer data and current consumption, and notifications as to billing information.
All customer service agents are regularly trained in soft skills and educated on new product offerings and advertising campaigns. As is common in Western Europe, United Group constantly measures its team’s response time and offers subscribers the option to provide feedback on its service immediately following the call. Additionally, United Group has a customer service team focusing on business retention which reaches out to existing subscribers prior to the expiration of such subscribers’ service contracts to extend the service contract and advertise its products through various initiatives, including, for example, Vivacom’s provision of mobile handset and tablet subsidies in order to grow its mobile subscriber base and complimentary installations for certain business customers. United Group also has a specialized team for sales and customer care in relation to its business services.
United Group believes its customer service representatives are trained in accordance with Western European customer service standards and it receives consistently high scores in its subscriber satisfaction surveys. Marketing and Sales
United Group’s marketing, sales and customer care department is responsible for designing and promoting new products and services to customers, as well as building a high- quality customer experience throughout the entire life cycle of a customer relationship. In this regard, United Group is able to leverage its owned content channels to cross promote its other products and services to its customers because it can advertise those other products and
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services on its channels. United Group also markets and sells its products using a broad range of sales outlets, including through its leased retail stores which are located in attractive parts of town in its key regions and markets, including in Ljubljana, Belgrade, Sarajevo and Sofia, third party stores, telesales and United Group and its partners’ websites. As at December 31, 2020, United Group’s marketing, sales and customer care teams comprised 4,766 employees (4,280 full time equivalent).
To strengthen its brand recognition, United Group has entered into a number of sponsorship agreements with local, regional and national sports associations. Additionally, United Group gives donations to social institutions, such as youth organizations, across the region.
Vivacom works to provide a consistent image as a provider of best-in-class services and customer experience and high-quality subscriber experience in the key areas that subscribers value. Vivacom markets its products primarily through focused television advertising, with billboards, press, radio and the internet as additional advertising outlets. Vivacom sells services and products through direct channels, such as Vivacom owned stores and indirect channels and a smaller number of third-party retail distributors. Its distribution network is further supported by remote channels such as e-commerce platforms. To strengthen its brand image, Vivacom partners with well-known mobile handset brands, and in 2020, Vivacom launched its official partnership with Apple.
Network
United Group employs a variety of network technologies to deliver its products and services to its customers. The following chart provides an overview of its network technologies, as well as the markets in which such network technologies are currently deployed. United Group has 88% of its core network DOCSIS 3.1 ready at December 31, 2020. United Group expects 90% of its core network to be DOCSIS 3.1 ready by June 30, 2021.
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______Source: Company Information (1) Includes the United Kingdom, Germany, Benelux, Austria and Switzerland.
Cable and Satellite
United Group provides its pay-TV, broadband internet infrastructure access and fixed- line telephony services through its extensive cable network which it believes is one of the most technologically advanced networks in Europe, the Middle East and Africa.
United Group’s cable network covers approximately 3.7 million homes passed as at December 31, 2020 and generally covers the most affluent areas in its key markets. Specifically, as at December 31, 2020, United Group’s network passed approximately 348 thousand homes, or approximately 42% of all households in Slovenia; 1,128 thousand homes, or approximately 45% of all households in Serbia; 342 thousand homes, or approximately 29% of all households in Bosnia and Herzegovina; 95 thousand homes, or approximately 45% of all households in Montenegro; and 1,772 thousand homes, or approximately 59% of all households in Bulgaria.
The fiber rich characteristic of United Group’s network offers better capacity, speed and quality advantages compared to copper-based DSL networks. In particular, an HFC cable network offers a larger bandwidth than ordinary copper cable and, unlike the latter, it is not significantly affected by attenuation (a reduction in the strength of the signal) or distortion (reduction in quality of the signal) when the signal is carried over a long distance.
United Group offers significantly more bandwidth capacity than the average broadband customer uses. While broadband data consumption has increased across Slovenia (48 Gbps
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in 2015 to 311 Gbps in FY 2020), Serbia (97 Gbps in 2015 to 800 Gbps in FY 2020), and Bosnia and Herzegovina (45 Gbps in 2015 to 238 Gbps in FY 2020), installed capacity is higher than the average used capacity by a significant margin, as shown in the charts below.
United Group’s HFC network is fully bi directional in Serbia and Bosnia and Herzegovina and approximately 98% of HFC homes passed in Slovenia are bi directional as at December 31, 2020. United Group’s bi-directional network enables it to deliver broadband internet, fixed- line telephony, and other interactive services such as VoD, to its customers throughout its cable network in addition to regular digital and analog television services.
United Group’s cable network is EuroDOCSIS 3.0 enabled, covering all cable broadband internet RGUs in Slovenia, Serbia and Bosnia and Herzegovina, enabling United Group to offer theoretical maximum speed levels of up to 1,600 Mbps with 32 allocated frequency channels. In Montenegro, United Group continues to upgrade the network to Group standards following its acquisitions. United Group believes it offers one of the highest available speeds in its cable footprint, ranging between 100-1,000 Mbps. United Group has industry leading node density. A lower node density mitigates the risk of network congestion and related reductions in quality of service. As at December 31, 2020, Telemach Slovenia had a node density of 1,155, Telemach BH of 1,454 and SBB Serbia of 5,147.
As at December 21, 2020, United Group’s HFC network has homes passed per fiber optics node ratios of approximately 262:1 in Slovenia, approximately 210:1 in Serbia, approximately 232:1 in Bosnia and Herzegovina, and approximately 126:1 in Montenegro, which it believes is unrivalled in South Eastern Europe and compares favorably to Central and Eastern European cable benchmarks. This means United Group’s fiber optic nodes typically only extend a very short distance from subscribers’ homes and offices, with only the last few hundred meters connected through coaxial cables. This allows United Group to provide high broadband internet access speeds and advanced services to subscribers.
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United Group operates one of the most extensive backbone networks across the region with a national backbone consisting of approximately 17,240 kilometers (including Vivacom and Forthnet) owned and leased dense wavelength division multiplexing fiber links that extend across South Eastern Europe with international optical interconnections to Vienna, Frankfurt, Amsterdam and London. Such extensive fiber rich backbone not only supports United Group’s HFC cable network but also makes it a partner of choice for regional telecoms and other business customers. United Group rents ducts and poles from third parties as a part of its network.
FttH is the technology of choice by United Group for greenfield expansion and new buildings in adjacent areas. As at December 31, 2020, United Group passed 813 thousand homes with FttH and had more than 206 thousand active users across Serbia, Slovenia, Bulgaria, Bosnia and Herzegovina and Montenegro. In addition to FttH greenfield expansion, during the third quarter of 2018 United Group introduced Gigabit speeds in areas where digitalization of analog TV signals was completed.
United Group complements its cable network with DTH and mobile offerings. United Group contracts for satellite services with EUTELSAT, which transmits its satellite programming over their satellite networks to its customers. Data streams are sent to satellites that transmit the signal to local satellite receivers. United Group’s transponder allotment agreements with EUTELSAT are valid until December 31, 2024. Pursuant to a services agreement entered into with EUTELSAT in December 2014, SBB Serbia agreed to replace all its subscriber reception boxes in order to permit the reception of HD and MPEG 4 transmissions to United Group’s subscribers via the transponders currently allocated to SBB Serbia on the EUTELSAT 16A satellite. The replacement of such subscriber reception boxes affected approximately 340,000 households. EUTELSAT agreed to assist SBB Serbia in the replacement of such equipment in order to facilitate migration to MPEG 4 technology from MPEG 2 technology. The installation of the equipment commenced in February 2015 and has since been completed. Subject to certain milestones being met, EUTELSAT has agreed to participate in the costs incurred by SBB Serbia in connection with the replacement of the equipment. Furthermore, EUTELSAT has also agreed to provide SBB Serbia with certain discounts and also provide a certain amount of free additional satellite capacity from the MPEG 4 launch date until 2024.
Vivacom
United Group believes that Vivacom’s fixed-line network is the largest in Bulgaria, and comprises an extensive copper infrastructure and a fiber network that passes 1,266 thousand FTTx homes and 505 thousand VDSL homes as of December 31, 2020. This network provides for a fully digitalized fixed telephony services and ADSL, VDSL and fiber services that offer commercially available speeds of up to 20 Mbps, 50 Mbps and 1,000 Mbps, respectively. Vivacom also has a fully owned fiber backbone network that includes a Dense Wavelength Division Multiplexing fiber network that allows for easy capacity extension and is able to route all backbone traffic via this infrastructure.
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Vivacom began its FTTx roll out in 2011 in Sofia and Varna and has since achieved significant progress from 402 thousand fiber homes passed in 2012 to 1,266 thousand fiber homes passed with a 27% take-up rate as of December 31, 2020. Vivacom’s fiber build out was performed in carefully selected areas based on specific return on investment criteria. United Group believes that Vivacom incurs low build out costs allowing for a higher return on investment in fiber, due to ownership of the ducts and the low-cost of labor in Bulgaria. Vivacom’s FTTx build out consists of a mix of FTTB and FTTH technology. The technology that is ultimately implemented depends on economics and density of the area.
In addition, Vivacom owns and operates one of the biggest and most modern facilities for satellite communications in the region—Plana Teleport, which is able to deliver transmission and connectivity even to very remote points, including orbital positions in Europe, Africa, Middle East and Asia. Since 2014, Plana Teleport is a member of the World Teleport Association and in 2017 achieved full Tier 3 certification, making it among the most modern facilities of its kind.
Software is incorporated into virtually every element of Vivacom’s network. Apart from operations and maintenance software provided by equipment vendors, Vivacom also has a range of specialized tools for network planning. Vivacom is in the process of implementing industry standardized IT solutions rather than customized solutions for key systems.
Vivacom provides satellite services, including uplink and downlink of radio and TV channels, playout solutions, fixed and mobile VSAT data connectivity, collocation of satellite equipment and other services. In addition, Vivacom is a third-party teleport of EUTELSAT and also partners with Intelsat, SES, Gazprom, Azercosmos and Hellas Sat. Vivacom has a license for the provision of satellite services.
Vivacom’s satellite services offering includes video uplink services on various satellites, Playout Solution as a Service (PSS) (a cloud based service including playout hardware located at Vivacom technical facilities and an IP based tool for content management), VSAT data links (which use the latest DVB S2x technology ensuring higher data rates, optimized cost for the customer, better flexibility and reliability, and are mainly targeted at the maritime business, as well as fixed VSAT links for corporate networks, in rural areas and as a backup solution), and satellite collocation services. Vivacom also operates a microwave IP based network connecting main sites in Bulgaria. Vivacom uses a microwave network for delivery of DTT signal and Bulgarian national radio channels to the main TV towers. The microwave network is monitored and controlled 24/7 by the National Operations Center.
Forthnet Forthnet operates and maintains a fiber optic network extending 6,127 km across Greece which provides its sites interconnection and backbone capacities. The services provided by Forthnet are based mainly on xDSL technologies, and Forthnet also holds a regulated local loop unbundling agreement with the incumbent telecommunications provider in Greece. As at December 31, 2020, Forthnet was able to serve 82% (91% in NGA eligible fixed lines) of the Greek population through its colocations in local exchanges and interconnections with wholesale providers.
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Mobile Telemach Slovenia commenced a modernization program for Tušmobil’s mobile network immediately after its acquisition in April 2015. Within four months of the acquisition, the radio network on 560 mobile sites was modernized with a swap of complete 2G and 3G technology. Additionally, a 4G network was implemented alongside the existing network and prepared for a commercial launch in June 2015. By the end of 2015, the modernization of the microwave transport network was completed.
United Group’s mobile network in Slovenia is fully IP enabled, with SRAN (single radio access network technology) providing full services on 2G, 3G and 4G networks.
Telemach Slovenia currently provides 4G (LTE) and 4G+ (LTE A) coverage to approximately 99% and 97%, respectively, of the Slovenian population. In 2020, United Group added 54 additional mobile sites to its footprint. In 2021, Telemach Slovenia expects to launch a total of 55 new sites, which it expects will lead to 4G (LTE) and 4G+ (LTE A) coverage for approximately 99% of the Slovenian population. The technology upgrades and new sites are expected to increase Telemach Slovenia’s coverage, amplify network capacity and enhance customer experience.
Telemach Croatia, having successfully launched its 4G service, covers all major cities and important roads in Croatia. Telemach Croatia has also acquired 2100MHz and 2600MHz frequencies to support spectrum capacity.
United Group provides 4G LTE coverage to almost the entire population in each of the countries in which it provides mobile services, and has successfully tested next generation 5G networks across the Balkan region, which the Group believes demonstrates its technological readiness for a commercial launch when the necessary spectrum frequencies become available in its markets. Vivacom Vivacom offers mobile services through its integrated 2G, 3G and 4G/LTE network. In 2018, Vivacom launched a 4G voice service (Voice over LTE) and Wi Fi calling services, which enable Vivacom’s customers to benefit from high definition voice services. On September 21, 2020, it announced the commercial launch of its 5G network in Bulgaria. To scale the development of its 5G network quickly, Vivacom uses dynamic spectrum sharing on its existing 4G network, enabling it to provide 5G coverage to all 27 district cities in Bulgaria. Other than its 5G network, Vivacom’s network is based on: GSM/EDGE (2G technologies), UMTS/HSPA+ (3G technologies) and LTE/LTE-Advanced (4G/4.5G technologies).
As of December 31, 2020, Vivacom’s GSM mobile network covered 99.99% of the Bulgarian population, its UMTS mobile network covered 99.99% of the Bulgarian population, and its LTE network covered 99.94% of the Bulgarian population. Vivacom’s licenses allow it to use 2x11.2 MHz on the 900 MHz spectrum band, 2x15MHz on the 1800 MHz spectrum band and 2x15MHz on the 2100 MHz spectrum band.
As of December 31, 2020, Vivacom’s mobile network is supported by a portfolio of 3,643 tower sites across Bulgaria, of which 42% have fiber backhauling. Vivacom covers over
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673 networks by roaming agreements with other Bulgarian and international operators around the world as of December 31, 2020. Network maintenance United Group introduced a new preventative maintenance platform in 2016 to monitor its network by categorizing and ranking the nodes across its network and providing guidance about which system maintenance works are most needed, which has improved both its network quality and customer satisfaction experience. Furthermore, United Group’s internal maintenance regime is also stricter than industry standards.
Vivacom has made significant investments into its network over the last few years, and it plans to continue the build out of its fiber network in carefully selected areas based on specific return on investment criteria. United Group also intend to invest further in Vivacom’s fixed network, including MPLS and Metro networks, and the fixed access network, as well as the mobile core and access networks supported by new spectrum frequencies and microwave licenses for transmission. Licenses and Permits
United Group believes it holds all necessary authorization and licenses to provide its services. The descriptions below summarize the licensing and permit framework for each of United Group’s seven operating jurisdictions.
Telemach Slovenia: To be authorized to operate as media and telecommunications service provider in Slovenia, Telemach Slovenia notified AKOS by providing a short description of its public communication network and its services. Telemach Slovenia subsequently entered the official register as a service provider. In addition, Telemach Slovenia holds several radio and mobile frequency licenses, the newest of which will expire in 2031.
SBB Serbia: Pursuant to the law on electronic communications, an operator of media and telecommunications services is not required to obtain a license for its general services. In order to provide its services, an operator must submit a request for registration to the RATEL which SBB Serbia did in 2011.
Telemach BH: Telemach BH holds licenses for the distribution of audiovisual media services and radio media services which are valid for ten years and will expire on December 31, 2026. These licenses can be extended by submitting a request to the Bosnian regulator at least three months before expiration. United Group also holds licenses to operate a public electronic communications network and provide fixed-line telephone services which are valid for an unlimited duration. United Group also holds a license for the use of telephone numbers and pre-code numbers, the validity of which is tied to the validity of the license for the provision of fixed-line telephone services, as well as an ISP (internet service provider) license, which is valid for an unlimited duration.
Telemach MNE: Telemach MNE holds licenses for the distribution of audiovisual media services and radio media services issued by the agency for electronic media, which are valid
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for fifteen years and will expire in 2032. In addition, Telemach MNE is registered in the register of operators held by the Agency for Electronic Communications and Postal Activity (EKIP) as an operator of public fixed electronic communication networks and services (internet access, fixed telephony and internet voice transmission services (VoIP)). Furthermore, Telemach MNE holds licenses issued by EKIP for specific numerations and addresses, which are valid for ten years.
Vivacom: Vivacom holds all necessary permits to operate its business. In particular, Vivacom’s permits allow it to use 2x11.2 MHz on the 900 MHz spectrum band, 2x15MHz on the 1800 MHz spectrum band and 2x15MHz on the 2100 MHz spectrum band. These permits are valid until 2024 and 2025, respectively and may be renewed thereafter through an application to the CRC. The renewal is within the discretion of the CRC which, when reviewing the application, considers factors such as consumers’ interests, the competitive environment and the effective policy on scarce resources. Vivacom’s fixed-line services are provided pursuant to a permit obtained from the CRC, which is valid until 2024.
Forthnet: Forthnet holds permits for the operation of its business in Greece. Forthnet SA is a licensed electronic communication service provider and holds permits for, among other things, the provision of fixed, mobile (MVNO) and satellite (virtual) electronic communications networks, leased lines, broadband and internet access services, telephony services, capacity and interconnection services, VPN services, data transmission and radio communications services. Furthermore, Forthnet SA holds licenses for the use of specific spectrum frequencies (e.g., for the provision of wireless access services). Forthnet Media SA, a subsidiary of Forthnet S.A., holds a license for the provision of Pay-TV services through satellite, issued by the National Council for Radio & Television. Forthnet Media SA is also a licensed electronic communication service provider and holds permits for the operation and provision of fixed and satellite electronic communications service networks and data transmission. Furthermore, Forthnet Media SA holds licenses for the use of specific spectrum frequencies (e.g. for the provision of wireless access services). Such permits and licensing are regulated by the National Telecommunication and Post Authority in Greece.
Telemach CRO: Telemach Croatia holds all necessary permits to operate its business. In particular, it holds licenses for the use of mobile radio frequency spectrum and the provision of mobile services, which will expire in 2024.
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Information Technology
United Group operates a modern information technology (“IT”) infrastructure in order to support its business. United Group’s IT systems are generally managed in house, who also receive external support from manufacturers and suppliers.
United Group’s IT system consists of the following key segments: its operations support system (“OSS”), which supports its back office activities, including the operation of its network and provision and maintenance of its customer service; its business support system (“BSS”), which supports its customer facing activities such as billing, order management and its call center; and its mediation and provisioning system which monitors and facilitates subscribers’ network access rights and privileges to ensure the security of its resources and user privacy.
In early 2017, Telemach Slovenia implemented SAP platforms, joining SBB Serbia and Telemach BH which had already implemented SAP platforms, and thus further facilitating integration. United Group’s OSS applications in Slovenia are currently managed in house. Meanwhile, United Group is in the process of implementing a third-party platform in Serbia and Bosnia and Herzegovina. United Group’s mediation and provisioning systems are currently managed in house with Telemach Slovenia using a different system from the other group companies.
United Group will continue to focus on integrating and streamlining the different IT systems to standardize and further improve its IT solutions.
Vivacom has a well-developed and growing IT environment with a focus on automation and digital presence. Its IT systems are an integral part of the business process which provide high levels of automation for the majority of the business in both BSS and OSS and are the main pillar in the digitalization process. The BSS stack has been transformed to boost Vivacom’s omni channel strategy. Applications supporting online channels, physical shops, distant sales channels and third-party integration capabilities are integrated with single product and offer catalog and order management. All channels are powered by big data analytics and real time marketing offerings. The OSS stack architecture is built to enable an end-to-end service fulfillment process, working together with the BSS stack. It supports automated provisioning and assurance processes for mass services including B2C mobile voice and data, fixed voice and data, IPTV and satellite TV and also combined services.
Forthnet’s IT infrastructure consists of technologies for designing, developing and creating tools to support the business operations of the company, including virtualization, and modern hardware such as data storage, servers, security systems and network equipment from vendors such as HP, IBM and Dell. Forthnet also uses software that is open-source or commercial for monitoring and managing its OSS systems. Forthnet also uses applications for supporting BSS systems either developed in-house or purchased through leading software vendors such as SAP and Oracle.
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Competition
United Group faces competition from established market participants as well as new market entrants. The nature and level of the competition United Group faces varies for each of the products and services it offers and for each country in which it operates. Despite regional differences in the intensity of competition, United Group competes in each case on the basis of network quality, content advantage, product and service portfolio specifications, value for money proposition, marketing, installation speeds and customer care.
United Group’s competitors include, but are not limited to, providers of television, broadband internet, fixed telephony services using DSL or fiber connections and mobile telephony operators, including Telekom Slovenije, Telekom Austria and T2 in Slovenia, Telekom Srbija, Super Nova and Pošta Srbije in Serbia, A1 Bulgaria, Telenor Bulgaria and Bulsatcom in Bulgaria, BH Telecom, HT Eronet and Mtel in Bosnia and Herzegovina, Cosmote, Vodafone and Wind in Greece, and M Tel and Crnogorski Telekom in Montenegro. United Group also competes against DTH providers, including Digi and Polaris, and DTT providers in Slovenia. Furthermore, United Group faces competition from providers of television services using alternative and emerging digital technologies such as IPTV and OTT television. United Group’s Shoppster e-commerce offering also competes with, among others, e-commerce platforms such as E Kupi in Serbia and Mimovrste, EnaA, Big Bang, Merkur and Piazz (recently launched by Telekom Slovenije) in Slovenia, as well as traditional retail stores such as Gigatron and Tehnomanija in Serbia. United Group also competes with other sources of news, information and entertainment such as social media platforms, newspapers, movie theatres, live sporting and music events, computer games and home video products.
Property and Equipment
United Group’s principal asset is its network, which consists of numerous cables, telecommunications installations, including exchanges of various sizes and transmission equipment.
United Group leases the headquarters of SBB Serbia in Belgrade, Serbia, as well as SBB Serbia’s technical center in Belgrade and several other office spaces throughout the country. United Group also leases the headquarters of Telemach BH and other minor offices and sales facilities throughout the markets in which it operates. Additionally, United Group owns most of the equipment needed for its core operations, including the sites housing network hubs. In Slovenia, United Group purchased Tušmobil’s headquarters in 2015 and relocated most of its operations to this location.
Vivacom owns or leases property essential for its business operations. Vivacom owns, leases or has other rights to use or construct on the sites where its mobile and fixed-line telecommunications network equipment is installed. Vivacom also owns and leases administrative facilities, operational network facilities and retail facilities throughout Bulgaria.
Forthnet owns an office building in Kallithea and another in Athens and leases two other office buildings in Athens, one of which serves as the headquarters of the company. It
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also leases or has other rights to use or construct on the sites where its fixed-line telecommunications network equipment is installed.
United Group believes that its properties and equipment are in good condition and are suitable and adequate for its business operations. None of United Group’s significant properties are subject to material easements or other third-party proprietary interests that prevent or restrict the current business activities or that are believed to require major investments or costs going forward.
Employees
As at December 31, 2020, United Group employed 11,798 employees (11,038 full time equivalent) across Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Bulgaria, Greece, North Macedonia and Montenegro. The following table shows the number of full-time equivalent employees as at December 31, 2020, by category:
31 December 2020 Management 85 Support 723 Marketing 466 Engineering 773 Operations 7,602 Sales and Customer Care 3,814 Network 2,742 Administrative Support 1,025 Platforms 21 Media Production 1,254 Media Technics 136 Total 11,038
United Group believes that its relationship with its employees is satisfactory. During the last three years, the Group has not experienced any strikes or work outages, and currently 6614 of the Group’s employees are members of a labor union. Insurance
United Group’s fixed assets such as technical and office equipment in its network operating centers, network hubs, and office locations are protected by insurance policies covering damage from fire and other catastrophes. United Group also has separate insurance covering losses from machinery breakdown and insurance for interruption operating costs. While United Group has no insurance against the risk of failure by subscribers to pay, it has
4 The Forthnet Labour Union does not provide the Company with access to their lists of registered members, therefore the Group does not have specific data with regard to the memberships.
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alternative controls to mitigate this risk, including collection processes and arrangements with collections agencies. United Group provides directors’ and officers’ liability insurance for all members of its board of directors, as well as certain other persons within its Group.
United Group believes that its existing insurance coverage, including the amounts of coverage and the conditions thereto, provides reasonable protection, taking into account the costs for the insurance coverage and the potential risks to business operations. However, United Group cannot guarantee that no losses will be incurred or that claims that go beyond the type and scope of the existing insurance coverage will not be filed against it.
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Legal Proceedings
United Group is involved in a number of legal proceedings. Other than those discussed below, United Group does not expect the legal proceedings in which it is involved or with which it has been threatened to have a material adverse effect on its financial position or profitability. The outcome of legal proceedings, however, can be extremely difficult to predict with certainty, and no assurance can be offered in this regard.
Litigation Matters Relating to Telemach Slovenia (as Successor to Tušmobil)
Administrative Matters
A block of spectrum that United Group was granted and uses for part of Telemach Slovenia’s 3G mobile network may be subject to a renewed tender or other regulatory action.
The grant of this block of 2x5 MHz of spectrum in the 2100 MHz band in 2008 to Tušmobil (which in April 2015 was acquired by, and later merged into, Telemach Slovenia) was successfully challenged before the Slovenian administrative court. This block of spectrum is valid through 2023 and is used to operate part of Telemach Slovenia’s 3G mobile network. The grant of this block of spectrum was challenged by certain competitors on the grounds that Tušmobil obtained the spectrum (i) without satisfy ing certain requirements of a public tender, and (ii) as a consequence of Tušmobil participating in the tender as the only interested party, obtaining such spectrum free of charge. The case arising from this challenge has been through various levels of reviews and decisions by AKOS, the Slovenian administrative court, the Slovenian Supreme Court and the Slovenian constitutional court. Some of these decisions reaffirmed the initial grant of this block of spectrum. However, the Slovenian administrative court ordered in November 2017 that the tender process be renewed and that Telekom Slovenije (a Slovenian competitor of Telemach Slovenia) be allowed to participate in the renewed grant process. This order has now become final.
On May 31, 2019, following the Slovenian Administrative Court’s final order in November 2017, AKOS issued a new decision by which it rejected Tušmobil’s request from January 30, 2008 (as amended on April 3, 2008) for allocation of spectrum in the 2100 MHz band and reversed its 2008 decision with effect from September 30, 2019. On June 30, 2019, United Group filed a lawsuit challenging AKOS’ May 31, 2019 decision together with a motion to issue an interim injunction to stay AKOS’ decision until the Slovenian Administrative Court reaches a final decision. On July 11, 2019, the Slovenian Administrative Court issued an interim injunction staying AKOS’ decision pending a final decision on the lawsuit, and therefore Telemach Slovenia is currently still entitled to use such spectrum. The proceedings before the Slovenian Administrative Court are currently pending.
United Group cannot rule out that it may not be successful in a renewed tender or that a charge may be imposed by AKOS for the past use of the spectrum or that it may need to pay a fee or rent for use of the spectrum.
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Criminal Matters
Certain criminal matters were initiated in Slovenia against Telemach Slovenia (as successor to Tušmobil) and are still pending against Tušmobil’s former owner Mirko Tuš and Tomaž Simonič (the former head of AKOS). Pursuant to a bill of indictment that was filed in March 2015 (and amended in May 2019) by the public prosecutor in connection with these criminal matters, which were initially instigated by Tušmobil’s competitors in 2008, it is alleged that, among other things, Tušmobil and Mirko Tuš made illegal payments to a former head of AKOS to obtain the grant of a block of 2x5 MHz of spectrum in the 2100 MHz band in 2008. The bill of indictment filed by the public prosecutor also challenges AKOS’ decision in 2006 to allow Tušmobil to exchange a certain radio frequency band (1,800 MHz) for another band (900 MHz) at no charge and without obtaining the views of other interested parties. It is also alleged that Tušmobil and Mirko Tuš made illegal payments to the former head of AKOS to obtain the exchange of frequencies at no cost. Due to the expiration of the statute of limitations, Telemach Slovenia as a legal entity has been found free of criminal liability (with the effect of finality) and related exposure to penalties or fines. However, as a beneficiary of the frequencies grant, Telemach Slovenia may be jointly and severally liable with other defendants (against which proceedings are still pending) for indemnification of the allegedly illegally gained benefit in the event any of the remaining defendants are found guilty. In February 2020, the first instance court acquitted Mr. Simonič of the charges in the amended bill of indictment (misuse of the public positions or rights). In December 2020, upon the public prosecutor’s appeal, the Higher Court of Ljubljana annulled this judgment and returned the case to the first instance court for retrial. The criminal proceedings against Mirko Tuš have been from time to time separated from the other trials and may be conducted separately.
In a related development, in January 2016 the Republic of Slovenia made a claim against Mirko Tuš and Telemach Slovenia for indemnification in an amount of €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 benefit 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 contested and opposed, and intends to continue to contest and oppose this valuation.
Further more, if either of the two remaining defendants is found guilty in any of these criminal matters, AKOS could in turn review, whether upon its own initiative or if ordered to do so by a competent authority, the grant of the block of 2x5 MHz of spectrum in the 2100 MHz band to Tušmobil and potentially annul its prior allotment decision and initiate new proceedings for the allotment of the block of spectrum.
If any payment obligation is imposed against Telemach Slovenia or the criminal procedure is closed with any negative impact in these matters, United Group, in turn, could seek to recover these amounts from Tušmobil’s seller based on certain provisions set forth in the transaction documents that United Group has entered into with Tušmobil’s seller. For instance, under the share sale and purchase agreement, United Group has recourse to up to
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€168 million in indemnification from the seller for losses arising from breaches of warranties related to financial crime, which it could seek to claim against in the event of a final, non- appealable judgment requiring Tušmobil to pay monetary fines or in the case of a negative impact to the conduct of business, reputation and assets of Telemach Slovenia resulting from the criminal procedure (which indemnification is not av ailable for the separate AKOS proceeding described under “—Administrative Matters”). However, United Group may not be successful in any actions to claim indemnity or damages from Tušmobil’s seller in a timely manner or at all, and the indemnifying party may not have sufficient funds to fulfil its indemnification obligations.
The AKOS administrative action and the criminal proceedings described above relate to the block of spectrum obtained by Tušmobil in 2008 (and the exchange of certain frequency bands in 2006), and do not affect the ownership or validity of the spectrum used for 4G/LTE and legacy 2G that Tušmobil was awarded in 2014 (for the period from 2014 to 2029) or the ownership or validity of the additional 3G and 4G/LTE frequencies allotted to Telemach Slovenia in 2016 (for periods until 2021 and 2031). Nevertheless, if the AKOS action or the pending criminal proceedings are determined in a manner adverse to Telemach Slovenia, and Telemach Slovenia is unable to continue to utilize the block of spectrum obtained in 2008, or is required to lease such block of spectrum in the future, or is required to pay a material amount as part of an indemnity, and Telemach Slovenia is not able to recover such amounts from the Tušmobil seller, such developments could have a material adverse effect on United Group’s financial position and profitability.
Furthermore, in a spectrum auction that took place in April 2021 United Group successfully bid for 2x5 MHz on 700 MHz band, 20 MHz on 1500 MHz, 2x15 MHz on 2100 MHz, 30 MHz on 2300 MHz 140 MHz on 3600 MHz and 200 MHz on 26 GHz bands.
Investment arbitration with Serbia
On October 6, 2020, together with two affiliates, United Group served the Republic of Serbia with a Notice of Dispute under the agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Serbia (“BIT”). In such Notice of Dispute, it was asserted that Serbia breached several obligations under the BIT, including, among others, the obligation to accord fair and equitable treatment, national treatment and most constant protection and security. Group argues that, beginning in 2014, it has been a target of a series of arbitrary, unlawful measures taken by various Serbian authorities and entities as part of a widespread, orchestrated campaign to reduce SBB Serbia’s market presence and to promote the interests of Telekom Srbija.
The Republic of Serbia failed to respond to the Notice of Dispute within the three month deadline established by the BIT. On January 7, 2021, United Group submitted a Request for Arbitration to the International Centre for Settlement of Investment Disputes. The parties will now appoint arbitrators and proceed with written submissions.
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Investigation by Serbian Tax Authority On December 27, 2018, the Serbian Tax Authority notified United Group that it had begun a tax investigation of SBB Serbia for the year ended December 31, 2012. The Serbian Tax Authority issued a decision in March 2019 that it had recharacterized interest payments made by SBB Serbia under an intragroup loan agreement (and certain other transactions) as dividends, the payments of which would have been subject to a 5% withholding tax. The total contingent liability under this decision amounts to €21 million, including late interest. United Group has assessed these matters internally and through external consultants, and it is United Group’s view that there is no basis for the Tax Authority’s decision. United Group has appealed to the Serbian Ministry of Finance and received a prolongation of its obligation to pay any amounts until resolution of the appeal. United Group has also submitted a request for a mutual agreement procedure (“MAP”) for our Dutch entities to the Dutch Ministry of Finance on the basis that the Serbian taxation decision is not in compliance with the double taxation treaty between the Netherlands and Serbia. The Dutch Ministry of Finance has notified the Serbian Tax Authority of the MAP procedure. The Dutch Ministry of Finance has also submitted a letter to the Serbian Ministry of Finance stating that Serbia has misclassified the interest payments and is in breach of the bilateral double taxation treaty. On October 12, 2020, the Serbian Ministry of Finance annulled the Serbian Tax Authority’s decision and instructed the Serbian Tax Authority to restart the procedure, taking into account the arguments provided in SBB Serbia’s appeal.
The Serbian Tax Authority has also informed SBB Serbia that it is opening a tax review for the years 2013 through 2016. SBB Serbia intends to continue contesting the Serbian Tax Authority’s findings.
Dispute with Minority Shareholders of KATV HS d.o.o. and HKB net d.o.o.
United Group assumed a number of legal disputes in connection with its acquisition of KATV HS d.o.o. (“HS”), HKB net d.o.o. (“HKB”) and M&H Company d.o.o. (“M&H”) as part of the Bosnian Acquisitions in 2015. Specifically, United Group assumed certain claims brought by the minority shareholder of both HS and HKB, most of which claims have been brought against HS and HKB, as well as their former majority shareholders and former management. These include certain claims asserted in a civil law suits brought in the period from 2013 to 2015 seeking damages relating to alleged breaches of contractual and/or statutory duties by HS, HKB, M&H, the former majority shareholder and the former management of these companies. The aggregate amount claimed by the minority shareholder in these cases is approximately €12.2 million, plus interest and costs of the proceedings. These claims are in the preliminary stages of litigation, and no final, enforceable decision will be rendered until the claims have 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 (which will, in due course, be subject to valuation by an expert appointed by the court) and when such adjudication would be completed.
The minority shareholder has also filed a criminal complaint with the office of the public prosecutor in Bosnia and Herzegovina alleging criminal wrongdoing by the former majority
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shareholder and former management of these companies. This proceeding is still in the investigative phase, and no indictment or other criminal charge has been filed. The status of, and information relating to, criminal investigations generally in Bosnia and Herzegovina is not publicly available.
Disputes with SAZAS Relating to Infringement of Copyrights Since 2012, United Group has been involved in numerous court procedures regarding payment of copyright fees for cable retransmission of the musical copyright works on retransmitted TV and radio channels, to the Slovenian Association of Composers and Authors (“SAZAS”) the collective copyrights protection organization, in the aggregate amount of approximately €4.6 million, plus late payment interests and legal costs.
The proceedings are in different stages, as the proceedings that began in 2012 are currently considered by the Constitutional Court, while the proceedings that were initiated in 2020 are pending before either the first instance court or the Higher Court. In all these cases, United Group filed legal means against the courts' decisions. The procedures are pending.
On March 4, 2021, the Copyright Board issued its decision setting a tariff for the use of music works at €0.24 per subscriber per month for retransmission of up to 100 television and 60 radio channels, and €0.27 per subscriber per month for retransmission of more than 100 television and 60 radio channels. The Group challenged the Copyright Board decision in court.
Dispute with BS Group d.o.o., Brus in Regard to Producer’s Rights In 2016, BS GROUP DOO BRUS (“BS”) initiated legal proceedings against SBB Serbia before the Commercial Court in Belgrade, claiming damages in the amount of approximately €25 million. BS claims that SBB Serbia violated BS’s producer rights in respect of certain of its television series and films by broadcasting them outside of Serbia. SBB Serbia has responded to the claims. Subsequently, a court expert report, dated December 6, 2019, concluded that broadcasts had occurred outside of Serbia. SBB Serbia submitted comments made by its own expert challenging the court expert’s report. The next hearing in this case is scheduled for June 17, 2021.
Sport Klub Divestiture Ruling and Investigation of Alleged Abuse of Dominant Position On September 4, 2018, the Slovenian Competition Protection Agency ruled that United Group’s acquisition of United Media Distribution (then known as IKO Balkan) is incompatible with Slovenian competition rules. The Slovenian Competition Protection Agency also ordered United Group to divest the Sport Klub (SK) TV channels within six months and imposed a ban prohibiting United Group from broadcasting sports TV channels in Slovenia (with the exception of the existing Fight Channel) for the period of three years from the day United Group transfers the Sport Klub (SK) TV channels to a suitable buyer. The Slovenian Supreme Court has stayed the implementation of the Slovenian Competition Protection Authority’s divestment decision until a final decision on the merits of this case is issued. With a judgment dated May 21, 2020,
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the Administrative court annulled the decision of the Competition Protection Agency and ordered the Agency to restart the concentration assessment procedure. The Agency is now required to reexamine the transaction and adopt a new decision.
In relation to this proceeding, the Slovenian Competition Protection Authority in a separate proceeding imposed on United Media Limited a fine of €3.7 million for delayed merger control filing. United Group challenged this fine before the Administrative court. On January 11, 2021, the Administrative court ruled that the fine should be reduced to €1.56 million. Group appealed this ruling and requested a further reduction in the amount of the fine.
Moreover, independent from any final decision related to the merger approval, in addition to an obligation to comply with the decision, a fine of up to a legal maximum of 10% of annual revenue of United Group could be imposed on it in a separate misdemeanor proceeding for not obtaining merger clearance prior to operating IKO Balkan. In previous decisions when the Slovenian Competition Protection Agency has, following or in parallel with granting merger clearance, levied fines against companies for exercising control prior to obtaining merger clearance, the percentage of the fine has been materially less than 10% of overall group revenue, and in an unrelated recent case, the Slovenian Competition Protection Agency fined an undertaking for failure to provide notification of a concentration in the amount of approximately €54 million, which, according to publicly available sources, amounted to approximately 1% of the relevant group’s revenue, whereby such fine was later reduced by the County Court of Ljubljana to €1,000,000.
In February 2015, the Slovenian Competition Protection Agency initiated an investigation regarding alleged abuse of dominant position by United Media Limited, former company IKO Balkan and its former Slovenian subsidiary IKO Media PRO d.o.o. in the wholesale market for the supply of pay-TV sports channels in Slovenia beginning around August 2012. This proceeding is currently pending as no statement of objections has been issued by the Slovenian Competition Protection Agency. Possible impacts of a decision adverse to United Group include: (i) an obligation to cease the infringement (if any); (ii) imposition of measures to remedy any proven abuse of dominant position; (iii) imposition of a monetary fine of up to 10% of the annual turnover of United Media Limited and United Media Distribution in the preceding business year; (iv) the imposition of a criminal charge; and (v) damages claims from third parties.
RTS
RTS, the plaintiff, requested judicial determination of whether a breach of their rights as the broadcasting manufacturer of certain RTS channels (RTS 1, RTS 2, RTS 3 and RTS HD) had occurred due to distribution of these channels via EON. RTS claimed approximately €1.5 million in damages and a temporary injunction seeking to prohibit SBB Serbia from broadcasting the plaintiff’s programs. The Serbian Law on Electronic Media categorizes RTS programs as “must carry” channels, which all media operators in Serbia are obligated to carry, regardless of what platforms operators employ in their distribution. On February 26, 2019, the trial court determined a breach of RTS’ rights as the broadcasting manufacturer had occurred, and prohibited SBB Serbia from distributing RTS programs via EON but denied the claim for
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damages. The trial court also dismissed SBB Serbia’s counterclaim for a determination that SBB Serbia is permitted to broadcast and distribute RTS channels. On January 28, 2021, Commercial Appellate Court annulled the first instance decision and returned the case for retrial. The hearing is scheduled for June 1, 2021.
RTS filed a further claim against SBB Serbia for distribution of the channels through Total TV, Net TV Plus, Telemach Montenegro, Telemach Slovenia and Telemach Bosnia and Herzegovina without an appropriate contract and without paying contributions. RTS claimed approximately €1 million in damages. This case is pending and a preliminary hearing is scheduled for June 8, 2021.
Beogradske Elektrane Beogradske Elektrane, a public utility company responsible for Belgrade’s power plants, and the City of Belgrade (collectively, the “BE Plaintiffs”) have filed a claim against SBB Serbia for €10 million, claiming unjust enrichment based on unauthorized use of their utility ducts for the installation of fiber optics infrastructure. The BE Plaintiffs have also petitioned the court to declare SBB Serbia’s optical fiber network an asset of common interest owned by the City of Belgrade. They also seek to impose an obligation on SBB Serbia to remove the network or to pay the BE Plaintiffs a fee in the amount of €100 million, which represents an amount designated by the BE Plaintiffs and, as such, should not be directly enforceable against SBB Serbia (even in the event the court rules in favor of the BE Plaintiffs) as the payment thereof represents only an alternative option for SBB Serbia to be allowed to maintain the network in case the court rules that the network should be removed. This case is currently pending and a preparatory hearing is scheduled for May 12, 2021.
EPS (Serbian Electricity Utility Company) For the construction and maintenance of its network, SBB Serbia enterd into contracts with the Serbian Electricity Utility Company (“EPS”) on the placement of its network infrastructure on utility poles in different cities in Serbia. Generally, the relevant agreements are entered into for up to one year. The price under these agreements was initially €10-€12.2 per pole per year. However, in late 2018, EPS increased prices to €20-€25 per pole per year. EPS did not provide an adequate reasoning for such a substantial price increase. In January 2019, SBB Serbia submitted a complaint against these pricing practices to the Serbian Competition Authority. In June 2019, SBB Serbia submitted a request for joint usage of EPS infrastructure to RATEL. In October 2019, RATEL granted SBB Serbia the right to jointly use EPS infrastructure but left the question of pricing open, claiming that if the price offered by EPS is regulated differently the operators that already signed contracts under such commercial terms would end up in an unequal position. Both EPS and SBB Serbia challenged RATEL’s decision before the Administrative Court, and this case is currently pending.
In February 2020, EPS brought a claim against SBB Serbia before the Belgrade Commercial Court for €1.18 million allegedly due by SBB Serbia for the usage of EPS’s infrastructure. EPS also asked the Court to order SBB Serbia to remove its equipment from EPS infrastructure. A preliminary hearing was held on October 14, 2020. At the hearing, SBB
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Serbia challenged the Court’s jurisdiction and the Court announced that it would issue a separate ruling on this issue. On November 4, 2020, SBB Serbia received the Court’s ruling rejecting SBB Serbia’s objections to the Court’s jurisdiction; SBB Serbia appealed this ruling. The Court has not yet scheduled a hearing on the merits.
Slobodna Televizija In January 2020, Slobodna Televizija, the plaintiff, requested a judicial determination of a breach of competition rules, including the alleged abuse of dominant position by SBB Serbia, and the alleged collusion of SBB Serbia and Adria News DOO based on the alleged unlawful prevention of the TV channel, Slobodna Televizija, from being made available in the SBB Serbia media distribution system. Slobodna Televizija claimed approximately €2.8 million in damages and asked the court to order SBB Serbia to enter into a distribution agreement with Slobodna Televizija, specifying the terms and conditions of the distribution of the Slobodna Televizija TV channel. On February 14, 2020, SBB Serbia and Adria News DOO submitted their response to the lawsuit, arguing that the court is not authorized to determine the breach of competition rules due to the fact that the case falls under the exclusive authority of the Serbian Competition Protection Commission. Furthermore, SBB and Adria News DOO claimed that the lawsuit does not fulfill the basic procedural requirements, and it is unsubstantiated. This case is currently pending.
Litigation relating to Grand Production In October 2020, Saša Mirković, a producer of the Serbian singer, Aleksandar Vuksanović, sued Grand Production (a subsidiary of United Media) for €9 million. The plaintiff claims that he entered into an exclusivity agreement with Mr. Vuksanović and that Grand Production violated that agreement by making Mr. Vuksanović appear on one of its shows. On October 29, 2020, Grand Production filed its response to the lawsuit. A preparatory hearing in this matter is scheduled for April 13, 2021. On January 4, 2021, the plaintiff filed a request for a preliminary measure asking the Court to freeze Grand Production’s assets. On January 8, 2021, Grand Production filed its response. United Group considers both the claim and the request for preliminary measure to be without merit and has requested their dismissal. Court hearing was held on April 13, 2021. The Court will issue its ruling in due course.
Unfair competition claim by Telekom Srbija In 2020, Telekom Srbija started proceedings before the Belgrade Commercial Court and Zurich Commercial Court against several entities belonging to United Group in relation to the alleged acts of unfair competition against the plaintiff. In both proceedings Telekom Srbija argues that it suffered harm as a result of defamatory statements allegedly made by the defendants in relation to Telekom Srbija’s business operations. In its proceedings before the Belgrade Commercial Court Telekom Srbija is suing SBB Serbia, United Media Digital d.o.o., Adria News S.à.r.l. and United Group B.V. and is claiming damages of approximately €80 million. In its proceedings before the Zurich Commercial Court the plaintiff is suing United Media Network AG; United Group B.V., United Media S.à.r.l., and Adria News S.à.r.l. and is
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claiming damages of approximately CHF 1.35 million. The Group considers that both courts do not have jurisdiction to review these claims and that, in any event, these claims are without merits and are not supported by any evidence. The proceedings before both courts are ongoing.
Elins Panic In February 2018, Elins Panic KEP d.o.o., submitted a claim against Telemach BH, as successor of BHB Cable TV d.o.o. Lukavac (“BHB”), which was acquired by Telemach BH in 2014. The plaintiff has asked the court to determine the validity of the acquisition agreement between Telemach and BHB and to determine whether an asset purchase agreement between the plaintiff as seller and BHB as buyer of the entire cable infrastructure of a district, which was a major part of the cable infrastructure shown as the property of BHB. The proceeding is pending.
Litigation Matters Relating to Tele2 Croatia (now trading as Telemach Croatia)
In the ordinary course of its business, Tele2 Croatia has entered into factoring agreements with Raiffeisen factoring d.o.o., Zagreb, whereby Tele2 Croatia assigned some of its accounts receivables relating to one of its main distributors. The assignment was made on a recourse basis, with Tele2 Croatia bearing the risk towards the distributor that was part of the corporate group facing solvency problems. In April 2017, Raiffeisen factoring d.o.o., Zagreb, initiated a lawsuit against Tele2 Croatia for approximately €5.6 million based on such recourse agreements. Tele2 Croatia has disputed the claims and has filed a counterclaim against the plaintiff in the amount of approximately €5.6 million. The plaintiff was merged with Raiffeisenbank Austria d.d., Zagreb, and therefore Raiffeisenbank Austria d.d., Zagreb is its legal successor/successor in title and the counterparty in court case. This case is pending before the Commercial Court of Zagreb.
Viva Telecom Bulgaria EOOD’s previous Shareholder Litigation
On July 31, 2020, United Group Bulgaria EOOD (“United Group Bulgaria”) acquired the entire share capital of Viva Telecom Bulgaria EOOD (“Viva Telecom”) from InterV Investment S.à r.l (“InterV” or the “Viva Telecom Former Shareholder”) pursuant to the terms and conditions of the sale and purchase agreement between United Group Bulgaria and InterV, dated November 7, 2019, as amended from time to time (the “Vivacom Acquisition Agreement”, and the acquisition pursuant to the Vivacom Acquisition Agreement, hereafter referred to as the “Vivacom Acquisition”).
InterV was purchased by its former shareholders by way of private sale closed in August 2016 from its creditors following a sale process run by Ernst & Young after an enforcement of security over its shares by such creditors. Certain previous direct and indirect shareholders of the Viva Telecom Former Shareholder have initiated legal proceedings in the United Kingdom and Luxembourg which relate to the ownership of shares in the Viva Telecom Former Shareholder. Certain other legal proceedings in relation to Vivacom and its previous
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share ownership and obligations in Bulgaria have been resolved. The following is a description of ongoing legal proceedings in relation to these matters.
United Kingdom Litigation
Certain previous direct and indirect shareholders of the Viva Telecom Former Shareholder initiated legal proceedings in the United Kingdom in 2016, alleging that the auction pursuant to which the Viva Telecom Former Shareholder’s current shareholders acquired the Viva Telecom Former Shareholder was a sham and part of a fraudulent conspiracy, and seeking an order that the 2016 sale be unwound and/or that damages be awarded. In February 2018, the courts in the United Kingdom dismissed all claims aimed at unwinding the sale and dismissed a claim for damages in respect of the alleged loss of the indirect interest in the Viva Telecom Former Shareholder by its previous indirect shareholders. New claims were brought on behalf of the previous direct shareholder of the Viva Telecom Former Shareholder, which were struck out by the UK courts in July 2019 for lack of authority and on jurisdictional grounds.
Currently, the only outstanding claim in the United Kingdom is a damages claim between certain indirect former shareholders of the Viva Telecom Former Shareholder against (among others) former shareholders and former creditors of the Viva Telecom Former Shareholder for the alleged loss of opportunity to participate in the 2016 auction and acquire control over the Vivacom Group. The outstanding English proceedings were stayed in January 2020 (and remain so) pending the outcome of the Main Luxembourg Proceedings (as defined below). Such damages claim relates to matters as between certain indirect former shareholders of the Viva Telecom Former Shareholder and former shareholders and creditors of the Viva Telecom Former Shareholder and therefore does not relate to Vivacom or the Group as the claim has no relation to the Vivacom Acquisition. Luxembourg Litigation
Main Luxembourg Proceedings
After dismissal in February 2018 and July 2019 of the claims in relation to the unwinding of the 2016 sale in the United Kingdom, the complainants (previous direct and indirect shareholders of the Viva Telecom Former Shareholder acting through managers of its indirect shareholder) re-instated their claims in Luxembourg in July 2019 (the “Main Luxembourg Proceedings”). Similarly to the proceedings in the United Kingdom, the complainants are seeking to unwind the 2016 sale of the Viva Telecom Former Shareholder and/or to receive damages.
While the outcome of the Main Luxembourg Proceedings cannot be determined, United Group believes that, on the basis of the information and documents it possess, it is likely a Luxembourg judge will rule in a similar manner as the UK courts. Even if a Luxembourg judge did agree with the complainants, the Group believes is that the most likely remedy would be the payment of damages by the former direct and/or indirect owners of the Viva Telecom
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Former Shareholder (or other persons/entities involved in the 2016 sale) to previous owners of the Viva Telecom Former Shareholder, rather than any remedy involving Vivacom or United Group.
Further, an outcome favorable to the Viva Telecom Former Shareholder’s previous direct and indirect shareholders is unlikely to have an adverse impact on United Group or the Vivacom Group. Other than in respect of the Vivacom Acquisition Agreement, neither United Group nor United Group Bulgaria have a direct or indirect relationship with the former direct or indirect shareholders of the Viva Telecom Former Shareholder. Moreover, United Group Bulgaria acquired Viva Telecom’s shares (and not the Viva Telecom Former Shareholder shares) in an arm’s length transaction for fair market value pursuant to a public auction process organized by a reputable financial advisor.
The Main Luxembourg Proceedings are ongoing and are expected to continue for at least the next two to three years. Although United Group has been summoned to join the Main Luxembourg Proceedings (as described below), the Main Luxembourg Proceedings and the Intervention Proceedings (as defined below) are currently managed separately by the Luxembourg Court, so Group is currently not requested to actively participate in the Main Luxembourg Proceedings. Intervention Proceedings
Following signing of the Vivacom Acquisition Agreement, United Group has been summoned to be joined to the Main Luxembourg Proceedings (the “Intervention Proceedings”) for purposes of putting it on notice of the Main Luxembourg Proceedings. No claims have been made against the Group in the Intervention Proceedings and the Interv ention Proceedings are still on-going. The complainants in the Main Luxembourg Proceedings have in the meantime withdrawn their intervention claim. However, as United Group has raised doubts as to the formal procedural validity of this withdrawal, the parties are currently in the process of filing briefs on the withdrawal (among other issues). Second Luxembourg Proceedings
In March and April 2020, previous direct and indirect shareholders of the Viva Telecom Former Shareholder initiated new proceedings in Luxembourg (the “Second Luxembourg Proceedings”). Similarly to the Main Luxembourg Proceedings, the claimants argue that the 2016 sale of the Viva Telecom Former Shareholder should be unwound, and as a consequence, any subsequent event resulting from that sale, including the Vivacom Acquisition should also be unwound.
The parties are currently exchanging written submissions, and given the large number of defendants, the proceedings in Luxembourg are expected to continue for at least the next two to three years.
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Claim by Administrators of Corporate Commercial Bank AD On 21 October 2020, NURTS Bulgaria EAD was served with a claim for €10 million filed by the administrators of Corporate Commercial Bank AD (“CCB”). The claim was introduced before the Sofia City Court. CCB is currently in insolvency proceedings. Its administrators claim that CCB extended a loan to a third-party and this loan was later used for share capital increase of NURTS Bulgaria EAD. NURTS Bulgaria EAD has previously settled all CCB claims and, in any event, United Group considers that the limitation period for filing such claims has expired. Consequently, it believes that the claim has low chances of success.
Bulgarian tax audits Both Viva Telecom and Vivacom are subject to several tax audits. These tax audits and related proceedings are being carried out in a variety of venues and are being challenged as appropriate. The companies have already paid the amounts ascertained by the tax audits and in case respective challenges are successful, an amount of up to BGN 12.5 million and associated interest could be recovered.
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Key Operating Measures
United Group uses several key operating measures, including homes passed, unique cable subscribers, RGUs and ARPU, to track the performance of the business. None of these terms are measures of financial performance under IFRS, nor have these measures been reviewed by an outside auditor, consultant or expert. These measures are derived from management information systems. As these terms are defined by management, they may not be comparable to similar terms used by other companies. Please refer to Appendix 3 for definitions of the Group’s key operating measures.
Unique Cable Subscribers, RGUs and ARPU
The following table sets forth key operating measures for United Group as of and for the twelve months ended December 31, 2020 and December 31, 2019. in 000 FY 2019 FY 2020 Delta % Delta Key Operating Measures
Homes passed 1,852 3,686 99% 1,834 Unique cable subscribers1 1,176 1,948 66% 771 RGUs 3,917 10,897 178% 6,980 Cable pay-TV 1,168 1,476 26% 308 Broadband internet 856 1,389 62% 533 Fixed -line telephony 695 1,270 83% 575 Mobile services 550 4,483 715% 3,933 DTH pay-TV 446 999 124% 553 OTT 124 129 4% 5 Out-of Footprint5 77 1,151 1390% 1,073 Penetration Cable television 63.1% 40.0% -37% -23% Broadband internet 46.2% 37.7% -18% -9% Fixed-line telephony 37.5% 34.5% -8% -3% Blended Cable ARPU (in €)1 22.7 20.5 -10% -2.2
Homes passed increased by 1,834 thousand, or 99%, from 1,852 thousand on December 31, 2019 to 3,686 thousand as at December 31, 2020, primarily due to Vivacom acquisition (1,750 thousand) and organic network expansion.
As at December 31, 2020, the Group had 1,476 thousand cable pay-TV RGUs, an increase of 308 thousand compared to 1,168 thousand at December 31, 2019, as a result of Vivacom and organic growth.
5 “Other services” has been renamed “Out-of Footprint services” following Forthnet acquisition.
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The total number of DTH pay-TV RGUs amounted to 999 thousand as at December 31, 2020, a 124% increase year-on-year.
As at December 31, 2020, the Group had 1,389 thousand broadband internet RGUs, representing an increase of 62%, compared to 856 thousand at December 31, 2019. This is primarily attributable to the Vivacom acquisition, an increase in multi-play subscriptions over this period and organic subscriber growth.
The total number of fixed telephony RGUs rose to 1,270 thousand as at December 31, 2020, an increase of 83% compared to 695 thousand at December 31, 2019. The positive trend is primarily due to the Vivacom acquisition, an increase in multi-play subscriptions over this period and organic subscriber growth.
OTT RGUs grew by 4% to 129 thousand, compared to 124 thousand at December 31, 2019.
Mobile service RGUs increased from 550 thousand at December 31, 2019 to 4,483 thousand as at December 31, 2020. This is an increase of 3,933 thousand, or 715%, driven by the acquisition of Vivacom and Telemach CRO (2,938 thousand and 937 thousand mobile RGUs, respectively) and organic growth in Slovenia.
Total RGUs increased by 178%, from 3,917 thousand at December 31, 2019 to 10,897 thousand as at December 31, 2020. RGUs added over this period were mainly a result of the acquisition of Vivacom (4,461 thousand RGUs), Telemach CRO (937 thousand mobile RGUs) and Forthnet (1,375 thousand RGUs) as well as organic growth of cable pay-TV and mobile services and a growing proportion of multi-play subscribers.
The following table provides a breakdown of the Group’s key operating measures for Vivacom, Forthnet, SBB Serbia, Telemach Slovenia, Telemach CRO, Telemach BH and Telemach MNE. 6
Telemach Telemach Telemach in 000 Vivacom6 Forthnet6 SBB Serbia SLO CRO6 Telemach BH MNE Footprint FY 19 FY 20 YoY FY 19 FY 20 YoY FY 19 FY 20 YoY FY 19 FY 20 YoY FY 19 FY 20 YoY FY 19 FY 20 YoY FY 19 FY 20 YoY
Homes passed 1,709 1,772 4% 0 0 1,087 1,128 4% 339 348 3% 337 342 2% 89 95 7% Unique cable subscribers1 776 747 -4% 0 0 734 740 1% 204 219 8% 209 210 1% 30 32 6% Cable Pay-TV penetration 15% 16% 67% 65% 58% 61% 62% 61% 33% 33% RGUs Cable pay-TV 257 284 10% 0 0 733 739 1% 197 212 7% 208 210 1% 30 32 6% Broadband internet 459 475 3% 0 0 513 535 4% 163 187 14% 159 169 6% 21 24 13% Telephony 593 524 -12% 0 0 403 436 8% 172 189 10% 105 106 1% 15 16 6% Mobile services 2,985 2,954 -1% - - - - 550 589 7% 945 940 (1%) - - - - DTH pay-TV 233 232 0% 339 314 -7% 221 228 3% 43 41 (4%) 133 141 6% 49 43 (13%) OTT - - - - - 13 22 72% 0 0 551% - 0 - - 0 - Out-of Footprint - - 1,060 1,064 33 34 5% 44 52 19% 1 1 (21%) - - Total RGUs 4,527 4,469 -1% 1,399 1,378 -1% 1,915 1,993 4% 1,170 1,270 9% 945 940 (1%) 606 627 3% 115 114 (1%)
6 Prior year figures included for presentation purposes only. Telemach CRO Croatia acquired in March 2020, Vivacom acquired in August 2020, while Forthnet acquired in November 2020.
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The following table sets forth the blended cable ARPU for Vivacom, Forthnet, SBB Serbia, Telemach SLO, Telemach CRO, Telemach BH and Telemach MNE generated by the products and services the Group offers.7
Telemach Telemach Telemach Telemach Vivacom7 Forthnet 7 SBB Serbia SLO CRO7 BH MNE in € FY 19 FY 20 FY 19 FY 20 FY 19 FY 20 FY 19 FY 20 FY 19 FY 20 FY 19 FY 20 FY 19 FY 20 ARPU
Cable pay-TV 8.8 9.0 10.5 10.5 19.0 18.3 10.6 10.7 11.4 11.3 Broadband internet 5.3 5.2 10.7 11.0 18.3 18.2 9.9 9.9 8.2 8.2 Telephony 5.2 5.3 3.6 3.6 3.2 2.9 6.8 6.5 2.8 2.7 Mobile services 6.5 7.1 10.8 10.9 12.7 13.0 Blended Cable ARPU1 9.9 10.3 19.7 20.3 35.7 35.4 21.2 21.7 18.3 18.5
DTH pay-TV 8.4 9.1 20.3 17.3 10.6 10.0 18.4 18.4 9.5 9.2 11.8 10.9 ARPU from broadband internet includes value-added services such as online backup, internet security and anti-virus solutions. One unique cable subscriber can be an RGU for cable pay-TV, fixed-line telephony, broadband internet or other services. DTH subscribers are DTH RGUs.
Vivacom: Blended cable ARPU1 for Vivacom in FY 2020 increased by 4.0% year-on- year to €10.33. The segment’s mobile ARPU3 increased to €7.1 in FY 2020, from €6.5 in FY 2019.
DTH ARPU3 for Vivacom increased to €9.1 in FY 2020, from €8.4 in FY 2019.
Forthnet: DTH ARPU3 for Forthnet decreased to €17.3 in FY 2020, from €20.3 in FY 2019.
SBB Serbia: Blended cable ARPU1 for SBB Serbia in FY 2020 amounted to €20.3. The 3.1% year-on-year increase was primarily a result of the continued positive impact of subscribers upgrading to multi-play packages.
DTH ARPU for SBB Serbia decreased to €10.0 in FY 2020, from €10.6 in FY 2019, mainly as a result of negative IFRS 15 effect in FY 2020.
Telemach SLO: Blended cable ARPU1 for Telemach Slovenia in FY 2020 amounted to €35.4. The 0.9% decrease was driven by promotion and retention activities as a response to the aggressive and competitive market. The segment’s mobile ARPU increased to €10.9 in FY 2020, from €10.8 in FY 2019. The 1.5% year-on-year increase was mainly a result of price increases in March and October 2020.
DTH ARPU for Telemach Slovenia remained stable at €18.4 in FY 2020 (€18.4 in FY 2019).
7 Prior year figures included for presentation purposes only. Telemach CRO Croatia acquired in March 2020, Vivacom acquired in August 2020, while Forthnet acquired in November 2020. FY 2020 ARPU is for the period after the closing.
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Telemach BH: Blended cable ARPU1 for Telemach BH in FY 2020 increased by 2.5% year-on-year to €21.7, as a result of growth in the number of subscribers for the multi play offering and the full-year effect of price increases implemented in April 2019.
DTH ARPU for Telemach Bosnia decreased by 3.4% to €9.2 in FY 2020 (FY 2019: €9.5), mainly due to lower IFRS 15 effect.
Telemach MNE: Blended cable ARPU1 for Telemach MNE in FY 2020 increased by 1.1% year-on-year to €18.5, mainly as a result of growth in the number of subscribers for the multi-play offering.
DTH ARPU for Telemach MNE decreased to €10.9 in FY 2020, from €11.8 in FY 2019, mainly due to the negative IFRS 15 effect stemming from more subscribers having expired discounts in the contract period.
Telemach CRO7: Mobile ARPU for FY 2020 amounted to €13.0, representing a 2.0% year-on-year increase.
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Results of Operations
In this report, the Group presents audited financial data for United Group for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. Please refer to Appendix 2 for the key factors affecting the Group’s business and results of operations. For a description of the key line items, please refer to Appendix 4. in €000 FY 2019 FY 2020
Revenue 741,812 1,161,270 Other income 8,914 7,406 Content cost (124,212) (130,533) Link and interconnection cost (38,151) (91,557) Cost of end-user equipment and other material cost (50,269) (145,781) Staff costs (102,108) (134,820) Media buying (39,681) (38,168) Net impairment on trade and other receivables, including (11,140) (12,171) contract assets Net impairment on other financial assets (7,036) (166) Other operating expenses (119,402) (199,221)
IFRS EBITDA 258,727 416,259
Depreciation (106,828) (161,719) Depreciation (right-of-use assets) (17,972) (42,793) Amortization of intangible assets (82,280) (143,278) Results from operating activities 51,647 68,469
Finance income 4,221 2,909 Finance costs (108,490) (135,914) Net finance costs (104,269) (133,005)
Profit/(loss) before tax (52,622) (64,536)
Income tax (expenses)/benefit (7,414) (7,890) Profit/(Loss) for the period (60,036) (72,426)
Revenue
Revenue increased by €419.5 million, or 56.5%, year-on-year to €1,161.3 million for the year ended 31 December 2020. This increase was primarily due to the acquisition of Vivacom, Forthnet and Telemach CRO, continued successful cross-selling and price increases.
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Revenue figures for the business segments below exclude intra-company transactions, which have been eliminated. in € m FY 2019 FY 2020 Change
Vivacom - 227,426 n/a Forthnet - 41,849 n/a SBB Serbia 219,999 223,697 1.7% Telemach SLO 229,562 237,129 3.3% Telemach CRO - 161,680 n/a Telemach BH 72,652 72,537 (0.2%) Telemach MNE 14,299 13,307 (6.9%) United Media 185,092 158,886 (14.2%) Other 20,208 24,759 22.5% Total 741,812 1,161,270 56.5%
Vivacom3: Revenue for Vivacom amounted to €227,426 thousand for the period.
Forthnet3: Revenue for Forthnet amounted to €41,849 thousand for the period.
SBB Serbia: Revenue for the SBB Serbia segment increased by 1.7% year-on-year to €223,697 thousand in FY 2020, primarily due to growth in the number of subscribers and multi-play packages (particularly through successful cross-selling).
Telemach Slovenia: Revenue for Telemach Slovenia increased by 3.3% year-on-year to €237,129 thousand in FY 2020, primarily due to an increase in internet revenues (successful upselling and migration from legacy to EON packages with higher internet ARPU), higher mobile revenues as a result of an increased number of subscribers and price increases in March and October 2020, and higher mobile handsets revenues and other revenues (IFRS effect and Covid-19 government subsidies).
Telemach CRO3: Revenue for Telemach CRO amounted to €161,680 thousand for the period.
Telemach BH: Revenue for the Telemach BH segment decreased by 0.2% to €72,537 thousand in FY 2020, primarily due to lower IFRS 15 effect (mainly from video and internet services).
Telemach MNE: Revenue for the Telemach MNE segment decreased by 6.9% year-on- year to €13,307 thousand in FY 2020, from €14,299 thousand in FY 2019, mainly due to a lower number of DTH subscribers in FY 2020 (a declining trend).
United Media Group: External revenue at United Media Group decreased by 14.2% year-on-year to €158,886 thousand in FY 2020, mainly as a result of the COVID-19 pandemic. Total revenues of the Media Segment (including intercompany revenues) decreased by 5.3% year-on-year to €267,187 thousand in FY 2020.
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Other Businesses: Revenue for the Other Businesses segment increased year-on-year, by €4,551 thousand or 22.5%, to €24,759 thousand in FY 2020.
Other income
Other income decreased by 17% year-on-year, from €8,914 thousand in FY 2019 to €7,406 thousand in FY 2020.
Content costs
Content costs increased by 5% year-on-year to €130,533 thousand in FY 2020, mainly as a result of acquisitions (cost of other acquired channels).
Link and interconnection costs
Link and interconnection costs increased by 140% year-on-year to €91,557 thousand in FY 2020, mainly as a result of higher mobile link and interconnection costs due to acquisitions in the period.
Cost of end-user equipment and other material costs
Cost of end-user equipment and other material costs increased by 190% year-on-year to €145,781 thousand in FY 2020. This increase was primarily due to the higher cost of sales for mobile handsets (mainly due to the acquisitions of Vivacom and Telemach CRO), higher cost of goods sold (mainly relates to goods sold by Shoppster which started operations in 2020) and higher energy and fuel costs mainly as a result of acquisitions.
Staff costs
Staff costs increased by 32% year-on-year to €134,820 thousand in FY 2020. This increase was mainly the result of acquisitions, oartly offset by a decrease in staff costs resulting from the application of IFRS 2 in FY 2019 in relation to a Long Term Incentive Scheme (the “LTIS”).
Media buying
Media buying decreased by 4% year-on-year to €38,168 thousand in FY 2020 (FY 2019: €39,681 thousand). This decrease was primarily due to generally lower advertising expenditures as a result of COVID-19 pandemic.
Depreciation
Depreciation increased by 51% year-on-year to €161,719 thousand in FY 2020. This increase was primarily due to the attainment of new assets as a result of the acquisitions of Vivacom, Forthnet and Telemach CRO.
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Depreciation (right-of-use assets)
Depreciation increased to €42,793 thousand in FY 2020, from €17,972 thousand in FY 2019. This increase was mainly due to the acquisitions of Vivacom, Forthnet and Telemach CRO.
Amortization of intangible assets
Amortization of intangible assets increased by 74% year-on-year to €143,278 thousand in FY 2020, mainly due to the addition of intangible assets of acquired companies.
Other operating expenses
Other operating expenses increased by 67% year-on-year to €199,221 thousand in FY 2020, primarily due to higher legal and advisory costs (including M&A), higher maintenance and license fee costs, all mainly as a result of the acquisition of Vivacom, Forthnet and Telemach CRO.
Net finance costs
Net finance costs increased by 28% year-on-year to €133,005 thousand in FY 2020, mainly due to higher interest expenses from the issuance of bonds.
Profit/(loss) before tax
Loss before tax increased to €64,536 thousand in FY 2020, from a loss of €52,622 thousand in FY 2019, primarily due to an increase in net finance costs, as operating profit increased by €16,822 thousand.
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EBITDA reconciliation
EBITDA is a supplemental measure of financial performance that is not required by, or presented in accordance with, IFRS. United Group defines “EBITDA” as profit/(loss) for the period plus income tax (benefit)/expense, depreciation, amortization of intangible assets and net finance costs.
EBITDA is not a measurement of performance or liquidity under IFRS and you should not consider EBITDA as alternatives to (a) net income as determined in accordance with IFRS as a measure of the Group’s operating performance, (b) cash flow for the period as a measure of the Group’s ability to meet its cash needs, or (c) any other measure of performance or liquidity under IFRS. United Group presents EBITDA and the ratios derived therefrom, because it believes that they are measures commonly used by investors and they are measures that are used in managing the business. EBITDA, as presented in this report, however, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.
The following table provides a reconciliation of profit/(loss) for the period to EBITDA. in €000 FY 2019 FY 2020 Change
Profit/(Loss) for the period (60,036) (72,426) 21% Income tax (benefit)/expense 7,414 7,890 6% Depreciation 106,828 161,719 51% Depreciation (right-of-use assets) 17,972 42,793 138% Amortization of intangible assets 82,280 143,278 74% Net finance costs 104,269 133,005 28% EBITDA 258,727 416,259 61% Non-operating expenses 36,667 17,921 (51%) Adjusted EBITDA 295,394 434,180 47%
31-Dec-20 In €000 (Loss) for the period (72,426) Income tax 7,890 (Loss) before tax (64,536)
Adjustments for: Net finance cost 133,005 Depreciation 161,719 Depreciation (right-of-use assets) 42,793 Amortisation 143,278 EBITDA 416,259
Management fee - Shareholder related cost 12,496 Other management related expenses 250 Legal and advisory fee - M&A related 28,785 Staff costs 2,095 Penalties 705 Trade receivable impairment allowance - exceptional 2,164 Impairment loss on goodwill 890
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Provisions for legal cases 967 Impairment loss of subscription costs 1,701 Intragroup adjustments 295 Write-off of obsolete equipment and other assets 2,153 Donations 3,707 Application of new accounting standard IFRS 16 (47,158) Project related expenses 695 Other expenses 8,176 Adjusted EBITDA 434,180
The following table provides a build-up of Annualized Last Two Quarters Adjusted Pro Forma EBITDA. in €000 L2QA
Annualized L2Q Adjusted EBITDA 541,742
Vivacom L2QA Adj. EBITDA Contribution (Jul20) 36,632 Forthnet L2QA Adj. EBITDA Contribution (Jul20-Oct20) 50,100 Nova BG L2QA Adjusted EBITDA 55,343 Other M&A companies L2QA Adj. EBITDA8 12,966 United Media estimated additional carriage fees 6,930 Annualized Last Two Quarters Adjusted Pro Forma EBITDA 703,713
8 Represent L2QA Adj. EBITDA for companies Dan Graf, Vesnik Telegraf, Net1, N3 and D express.
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Gross Leverage and Net Leverage Ratio on a Standalone Basis
As at December 31, 2020, United Group’s gross leverage ratio (i.e. the ratio of Group gross debt to Annualized Last Two Quarters Pro Forma EBITDA) increased to 5.31x, compared to 4.97x as at December 31, 2019. As at December 31, 2020, United Group’s net leverage ratio (i.e. the ratio of Group net debt to Annualized Last Two Quarters Pro Forma EBITDA) decreased to 4.70x, compared to 4.86x as at December 31, 2019.
In €000 FY 2020 a) Annualized Last Two Quarters Pro Forma EBITDA 703,713 b) Cash and cash equivalents9 433,910 c) Lease liabilities 292,629 d) SSRCF 2,000 e) Pro Forma net debt for M&A purposes10 432,693 f) Senior Secured Notes11 3,300,000 g) Other financial liabilities (other loans and borrowings) 3,495 h) IFRS 16 lease liabilities adjustment (290,599) i) As adjusted Group Gross debt (c+d+e+f+g) 3,740,218 j) As adjusted Group Net debt (h-b) 3,306,308
k) Gross leverage (i/a) 5.31x l) Net leverage (j/a) 4.70x
9 Cash and cash eqivalents include net proceeds from bonds issued in January 2021.
10 Pro Forma net debt for M&A purposes includes the effect of additional debt for the acquisition of Nova BG and other companies for which the Group signed agreements for acquisition and are in the process of receiving regulatory approvals, as well as estimated consideration for the acquisition of a minority interest in Grand production d.o.o. and in Forthnet Group.
11 Senior Secured Notes includes additional notes issued in January 2021 and represents the aggregate principal amount of notes issued and therefore excludes capitalized transaction costs as shown in the Statement of Financial Position in accordance with IFRS.
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Liquidity and Capital Resources
The Group’s primary sources of liquidity and funds for capital expenditure, acquisitions and other investments are expected to be operating cash flow, the existing revolving credit facility (“RCF”), potential additional issuances of debt securities, ancillary and bilateral lending facilities and finance leases. United Group’s ability to generate cash from its operations will depend on future operating performance, which is in turn dependent, to some extent, on general economic, financial, competitive, market, regulatory and other factors, many of which are beyond the Group’s control.
United Group maintains cash and cash equivalents to fund the day-to-day requirements of the business. The Group holds cash primarily in euros as well as Serbian dinar, Bosnian mark, Bulgarian levs and Croatian kuna.
Historically, the Group has relied primarily on its Existing Revolving Credit Facility and bilateral bank facilities, other debt facilities and cash flow from operations to provide funds required for investments in capital expenditure and operations.
As at December 31, 2020, the Group had €285.4 million in cash and cash equivalents. In addition, United Group had €3,150.0 million in fixed and floating rate Senior Secured Notes12, along with a partially drawn Senior Secured Revolving Credit Facility of €2.0 million, lease liabilities in the amount of €292.6 million and other financial liabilities of €3.5 million. Cash Flow
The table below summarises the consolidated cash flow for the Group for the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019. in €000 FY 2019 FY 2020 Change Operating net cash flow 162,621 293,149 130,528 Investing net cash flow (216,597) (1,375,473) (1,158,876) Financing net cash flow 260,603 1,117,668 857,065 Net cash flow 206,627 35,344 (171,283)
Net cash from / (used in) operating activities
Net cash flows from operating activities increased by €130,528 thousand, from a net cash inflow of €162,621 thousand in FY 2019 to a net cash inflow of €293,149 thousand in FY 2020. This is primarily due to increased cash generated from operations, mainly due to the acquisitions during the period, which was partly offset by increased interest payments.
12 Senior Secured Notes figure represents the aggregate principal amount of notes issued and therefore excludes capitalized transaction costs as shown in the Statement of Financial Position in accordance with IFRS.
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Net cash from / (used in) investing activities
Net cash flows used in investing activities increased by €1,158,876 thousand, from a net cash outflow of €216,597 thousand in FY 2019 to a net cash outflow of €1,375,473 thousand in FY 2020. This increase was primarily due to the payment of the consideration relating to the acquisitions of Vivacom, Forthnet and Telemach CRO and increased capital expenditures.
Net cash from / (used in) financing activities
Net cash flows from financing activities increased by €857,065 thousand, from a net cash inflow of €260,603 thousand in FY 2019 to a net cash inflow of €1,117,668 thousand in FY 2020, primarily due to the issuance of bonds and proceeds from share premium.
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Capital Expenditure
United Group’s capital expenditure relates primarily to the purchase of property and equipment, including expansion of the Group’s network in terms of capacity and new homes connected, purchase of modems and set-top boxes to be installed in customer premises, growth in RGUs and maintenance of the Group’s cable and mobile networks and infrastructure, purchase of intangible assets such as content, software, investments in core infrastructure and systems to facilitate the addition of new services and acquisitions. Therefore, capital expenditure is primarily driven by extending, upgrading and maintaining cable and mobile networks, the installation and in-home wiring for new subscribers, the cost of cable modems, including high-speed modems for subscribers to the Group’s high-speed broadband internet, as well as the acquisition and production of content. The Group’s capital expenditure has also historically included certain investments of a non-recurring nature, as well as costs to integrate acquired businesses.
Capital expenditure also includes increases in intangible assets (except the Group’s customer list and brand names) and does not include financial assets. As part of the Group’s strategy to focus on capital expenditure improving returns, it has implemented measures to ensure a more efficient usage of capital investment. United Group intends to manage capital expenditure to maintain its well-invested asset base. The members of the Group’s board review all material capital expenditure programmes.
Over the next several years, United Group expects that its capital expenditure will be largely success and capacity based. Success and capacity -based capital expenditure includes capital expenditure related to the expansion of the Group’s network footprint to additional homes and existing subscribers, the replacement of set-top boxes, expanding network capacity, new product and service development and expenditure incurred when connec ting business subscribers to the Group’s network. Success based capital expenditure does not include capital expenditure for maintenance, upgrade and replacement of systems and infrastructure.
United Group plans to continue investing in services and infrastructure in order to maintain and strengthen its competitive position. For the year ending December 31, 2021, the Group estimates that its capital expenditure will be between approximately €578 million and €579 million, which is expected to include the following estimates: • €52.3 million on customer premise equipment (€40.4 million in 2020); • €80.5 million on the fixed network (€49.4 million in 2020); • €66.1 million on the mobile network (€34.8 million in 2020); • €93.8 million on mobile frequencies (€45 thousand in 2020); • €16.2 million on IT (€10.7 million in 2020); • €21.3 million on IP equipment (€15.9 million in 2020); • €7.2 million on Video HE equipment (€6.4 million in 2020); • €1.1 million on Telephony equipment (€0.1 million in 2020);
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• €6.7 million on development costs, including with respect to United.Cloud (€7.7 million in 2020); • €150.8 million on development of media, including acquisition of content and investment in TV equipment (€61.7 million in 2020); • €83.0 million on other capital expenditures of which acquisition costs represent €34.3 million (€42.5 million in 2020 of which acquisition costs represent €21.1 million). These estimates are budgeted amounts and may differ from the actual capital expenditure as the business requirements change.
CAPEX by Segment in €000 FY 2019 FY 2020 Change
Vivacom - 41,029 n/a Forthnet - 14,728 n/a SBB Serbia 65,655 54,068 (18%) Telemach SLO 53,070 51,635 (3%) Telemach CRO - 25,916 n/a Telemach BH 14,176 15,702 11% Telemach MNE 3,992 3,107 (22%) United Media 49,413 60,398 22% Other 1,662 3,027 82% Total 187,968 269,609 43%
Vivacom3: Capital expenditure for Vivacom amounted to €41,029 thousand in FY 2020.
Forthnet3: Capital expenditure for Forthnet amounted to €14,728 thousand in FY 2020. SBB Serbia: Capital expenditure for SBB Serbia decreased by 18% year-on-year to €54,068 thousand in FY 2020, mostly due to lower investments in customer-premises equipment, video head-end and IP equipment as well as fixed network installation and material investments compared to FY 2019.
Telemach SLO: Capital expenditure for Telemach Slovenia decreased by 3% year-on- year to €51,635 thousand in FY 2020, mainly due to lower mobile network investments compared to FY 2019.
Telemach CRO3: Capex for Telemach CRO amounted to €25,916 thousand in FY 2020. Telemach BH: Capital expenditure at Telemach BH in FY 2020 increased by 11% year- on-year to €15,702 thousand, mostly due to higher investments in customer-premises equipment and higher capitalized inventories compared to FY 2019.
Telemach MNE: Capital expenditure for the Montenegro segment decreased by 22% to €3,107 thousand in FY 2020, mainly due to lower fixed network investments and customer- premises equipment, which offset the higher level of capitalized inventories and an increase
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in the number of installations resulting from a larger number of new subscribers added compared to FY 2019.
United Media: Capital expenditure for United Media increased by 22% to €60,398 thousand in FY 2020, due to investments in new production capacities and higher R&D investments, particularly for United Cloud.
Please refer to Appendix 5 for specific quantitative and qualitative disclosures about market risk and Appendix 6 for the Group’s critical accounting policies.
Adjusted EBITDA-CAPEX increased from €107,426 thousand in FY 2019 to €164,571 thousand in FY 2020, mostly due to robust Adjusted EBITDA growth. in €000 FY 2019 FY 2020 Change Adjusted EBITDA 295,394 434,180 47% CAPEX 187,968 269,609 43% Adjusted EBITDA - CAPEX 107,426 164,571 53%
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Subsequent (Material Recent) Events
Bond issuance
On 26 January 2021, the Group issued an additional €150 million of 4% Senior Secured Notes due 2027. The notes have the same terms and same conditions as the notes issued in November 2020. Interest is payable semi-annually on each 15 May and 15 November. The proceeds from the notes were used to repay a portion of the amounts drawn under the Revolving Credit Facility that were used to fund the purchase price for the Nova Broadcasting Group Acquisition and to pay transaction costs associated with the bond offering. Acquisition of Nova Broadcasting Group
On 24 December 2020, the Group signed an agreement to acquire Bulgaria’s largest multi-platform media company Nova Broadcasting Group from Advance Media Group for consideration of EUR 290,620 thousand. Nova Broadcasting Group’s operations comprise 10 TV channels, including national NOVA TV, and the country’s largest online platform, NetInfo, which reach on average 80% of the Bulgarian population every month. It also operates four radio stations. The strong fit between Nova Broadcasting Group and the Group’s other media operations gives the Group the opportunity to capture synergies and create scale that will enable Group to further invest in compelling local content. The transaction closed on 22 January 2021.
The identification and valuation of identifiable intangible assets and property, plant and equipment involved management judgment and will be performed with the assistance of valuation experts. The following schedule summarizes the provisional determination of fair value of assets acquired and liabilities assumed at the acquisition date:
Assets Property, plant and equipment 942 Intangible assets 10,492 Right-of-use assets 1,191 Deferred tax assets 1,222 Non-current assets 13,847
Inventories 25,341 Trade and other receivables 21,647 Other financial assets 3,481 Prepayments 3,398 Cash and cash equivalents 17,165 Current assets 71,032
Total assets 84,879
Liabilities Lease liabilities 149 Employee benefits 292 Non-current liabilities 441
Trade and other payables 25,222
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Current tax liabilities 4,731 Contract liabilities 3,843 Lease liabilities 1,090 Current liabilities 34,886
Total liabilities 35,327
Net Assets 49,552
Goodwill and all assets and liabilities have been measured provisionally, pending completion of an independent valuation. As the result of the recognition of those intangible assets, the provisional amount of goodwill will be significantly reduced. Goodwill on the acquisition date will be allocated to the Media segment which represents the lowest level at which it will be managed and monitored.
A significant part of goodwill will be allocated to brand name, frequencies and customer relationship. Provisional goodwill on the acquisition date amounted to EUR 241,068 thousand.
The acquisition related costs amounted to EUR 5.2 million recognized in profit or loss in the line item Other operating expense in 2020.
Acquisition of Dan Graf d.o.o.
On 5 March 2021, the Group signed an agreement to acquire Dan Graf d.o.o. Serbian newspaper (brand name Danas) for cash consideration of EUR 1.5 million to increase the Group’s footprint in print media and digital media in the Serbian market.
The transaction was subject to customary regulatory approvals by the local competition authorities and was closed on 10 March 2021.
The identification and valuation of identifiable intangible assets and property, plant and equipment involved management judgment and will be performed with the assistance of valuation experts. The following schedule summarizes the provisional determination of fair value of assets acquired and liabilities assumed at the acquisition date:
Assets Property, plant and equipment 281 Intangible assets 1 Non-current assets 282
Inventories 14 Trade and other receivables 166 Short term loans receivables and deposits 11 Income tax receivables 12 Cash and cash equivalents 139 Current assets 342 Total assets 624
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Trade and other payables 350 Current liabilities 350 Total liabilities 350 Net asset 274 Goodwill and all assets and liabilities have been measured provisionally, pending completion of an independent valuation. As the result of the recognition of those intangible assets, the provisional amount of goodwill will be significantly reduced. Goodwill on the acquisition date will be allocated to the Media segment which represents the lowest level at which it will be managed and monitored.
A significant part of goodwill will be allocated to brand name and property. Provisional goodwill on the acquisition date amounted to EUR 1,226 thousand.
The acquisition related costs amounted to EUR 97 thousand recognized in profit or loss in the line item Other operating expense.
Acquisition of minority interest in Forthnet Group
On 27 January 2021 Hellenic Capital Market Commission (HCMC) approved the Mandatory Tender Offer (MTO). After expiration of the defined term, the Group exercised its squeeze-out right to acquire the remaining shares at the MTO price. HCMC approved the squeeze-out application of the Group. As of the date of issuance of this report, the Group has 99.4% of ownership in Forthnet. Other acquisitions
On 17 February 2021 the Group concluded an agreement to acquire the remaining 49% of Grand Production d.o.o. for cash consideration of EUR 21,452 thousand. The transactions completed on 2 March 2021.
On 27 January 2021 the Group concluded an agreement to acquire 100% of share capital of Bulgaria’s Vestnik Telegraf EOOD newspaper business for cash consideration of EUR 6.8 million. The transaction closed on 23 March 2021.
In February 2021 BTC concluded an agreement to acquire 100% of share capital of local internet and TV operators Net 1 EOOD, ComNet Sofia EAD and Digital Cable Television OOD (N3). The transactions are subject to relevant regulatory approvals, duly initiated and received on 15 April 2021. The deals are pending finalization in the second quarter of 2021.
On 29 March 2021 the Group concluded an agreement to acquire 100% of the share capital of the Serbian transportation company D Express. This transaction, which is subject to all necessary approvals from the relevant regulatory authorities, will provide infrastructure for further development of E-commerce business as well as synergies through logistics. It is expected to close in the second quarter of 2021.
Considering the finalisation of the acquisition the disclosures required by IFRS 3 are not presented due to the fact that the acquisition has not yet reached the stage when management can reliably disclose the details.
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COVID-19
The existence of novel coronavirus (“COVID-19”) was confirmed in early 2020 and has spread rapidly across the globe, causing disruption to businesses and economic activity. Many governments across the world have imposed travel restrictions, lock downs and social distancing with a view to reducing the spread of the virus and minimizing the number of fatalities.
The Group’s main priority has been the health and safety of all employees and stakeholders, and the continuous provision of services to its customers. The Group has adhered to instructions issued by the relevant state authorities, including those relating to travel restrictions and enforced working from home. Management believes that the impact on business is currently limited with no immediate material adverse operational impact. Management intends to continue following the various national and/or state authorities’ policies and, in parallel, intends to do the utmost to continue operations as the situation evolves. COVID-19 impact on Revenues and Adjusted EBITDA
Based on the analysis of FY 2020 results, minimal impact to organic consolidated revenues was identified (organic revenues -1.2% compared to 2019). Revenue streams most likely affected were advertising, media selling and mobile handsets sales. The Group has been able to mitigate such shortfall in revenues primarily through cost optimisation initiatives to record a stable organic Adjusted EBITDA compared to last year (organic Adj. EBITDA +0.1% compared to 2019). In addition to cost optimisation, the Group has amended its plans for Capex spend during 2020, where possible, without hindering the Group’s ability for future growth and quality of services provided.
The management expects that the Group should be able to mitigate any further impacts of COVID-19 pandemic during 2021 as it did during 2020. As a results, given that the severity and longevity of the pandemic will not materially deviate from that of 2020, the management expects no material and immediate adverse impact to the Group's operations and financial performance.
The Group’s management holds that they are not aware of any other significant post balance sheet events that could affect the consolidated financial statements for 31 December 2020 or require separate disclosure.
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Mergers & Acquisitions On January 9, 2020, the Group acquired a 53% stake in I.R.V. Investicije, Razvoj in Vodenje d.o.o.
On March 3, 2020, the Group acquired a 100% stake in Telemach CRO d.o.o.
On April 3, 2020, the Group agreed to acquire Ansat d.o.o.
On May 4, 2020, the Group acquired a 100% stake in PANEL CATV d.o.o.
On May 6, 2020, the Group acquired a 100% stake in Tako Lako Shop d.o.o.
On May 6, 2020, the Group acquired a 90% stake in EVJ Elektroprom trgovina, proizvodnja, instalacije d.o.o.
On June 1, 2020, the Group acquired a 100% stake in IDEO PLUS spletna trgovina d.o.o.
On June 5, 2020, the Group acquired KRS Štepanjsko naselje.
On August 7, 2020, the Group acquired a 100% stake in Vivacom Bulgaria.
On September 7, 2020 the Group acquired a 100% stake in Elcatel d.o.o.
On December 1, 2020 the Group acquired a 100% stake in Ansat d.o.o.
On December 23, 2020, the Group increased its stake in Forthnet S.A. Greece to 84.6%. On 27 January 2021 Hellenic Capital Market Commission (HCMC) approved the Mandatory Tender Offer (MTO). After expiration of the defined term, the Group exercised its squeeze-out right to acquire the remaining shares at MTO price. HCMC approved the squeeze-out application of the Group. As of the date of issuance of this report, the Group has a 99.4% stake in Forthnet.
On January 28, 2021 the Group acquired a 100% stake in Nova Broadcasting Group.
In February 2021 the Group agreed to acquire Net 1 EOOD, ComNet Sofia EAD and Digital Cable Television OOD (N3).
On February 22, 2021 the Group acquired the remaining part of Grand Production d.o.o.
On March 10, 2021 the Group acquired a 100% stake in Dan Graf d.o.o.
On March 22, 2021 the Group acquired a 100% stake in Vestnik Telegraf EOOD, as well as its subsidiary IK Borba AD (50% stake).
On March 29, 2021 the Group agreed to acquire D express. United Group continually monitors M&A opportunities and is currently in the early stages of evaluating multiple potential opportunities. In line with its stated strategy, the Group is looking for acquisitions that are value accretive and offer substantial synergies with the Group’s existing operations.
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Management team
Many of the Group’s key management members have been with the business since its inception, including the Executive Chairman and Founder, Dragan Šolak, the Chief Executive Officer of the Group and Group Vice President – Marketing and Media, Victoriya Boklag and the Group Vice President - Operations, Violeta Vasilijević. The Group’s senior management team has substantial experience in the telecommunications, media and technology industries, as well as in banking, private equity and corporate finance. Many members of the senior management team have held a number of different positions within the business and have shaped the direction of its development and its organic growth within the region.
Dragan Šolak—Founder and Executive Chairman of the Group. Mr. Šolak founded SBB in 2000 and has been a member of management since the Group’s inception. In 2009, Mr. Šolak assumed the role of Group Executive Chairman. In his current role, he continues to be involved in all aspects of the business and is responsible for the overall strategic leadership of the Group.
Victoriya Boklag—Chief Executive Officer of the Group and Group Vice President— Marketing and Media. Ms. Boklag has been with the management team since the Group’s inception in 2000. Before taking over the role of United Group’s chief executive officer and vice president of marketing and media, Ms. Boklag held several positions in finance and commercial operations and acted as the chief executive officer of SBB. Ms. Boklag is also a member of the Board of SBB Foundation. She holds a BA degree from the ICU Kiev.
Violeta Vasilijević—Group Vice President—Operations. Ms. Vasiljević has been with the management team since the Group’s inception in 2000. She is currently responsible for the technical and operating support for all of the Group’s administrative functions and products. Ms. Vasiljević holds a degree in Mechanical Engineering from the University of Kragujevac.
Janez Živko—Vice President Finance. Mr. Živko joined the management team of United Group in March 2015. Prior to joining, Mr. Živko served as the CFO of the Petrol Group, one of the largest companies in Slovenia. He has also served in numerous roles at Gorenje Group over a period of seven years, including Director of Finance and Deputy CFO. Mr. Živko began his career in 1998 as a financial analyst and subsequently became financial controller for European operations at ACT Teleconferencing in Denver, Colorado. He holds an MBA (in Finance) from the University of Denver in Colorado, USA.
Željko Batistić—Group Vice President—Technology. Mr. Batistić first joined the management team in May 2012. Prior to joining, Mr. Batistić was an experienced CATV manager and served at a Croatian cable operator at B.net Croatia from 2007 to 2012. Mr. Batistić holds a Master’s degree in Electrical Engineering from the Faculty of Electrical Engineering and Computing, University of Zagreb and an Executive MBA degree from Cotrugli Business School, Zagreb.
Vladislav Ratajac—Group Vice President—Corporate Development. Mr. Ratajac joined the management team in 2011. Mr. Ratajac held positions at Mid Europa Partners from 2008
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to 2011 and Deutsche Bank before joining the Group. Mr. Ratajac holds a degree in Economics from Rutgers University in New Jersey, USA.
Dragica Pilipović Chaffey—Group Vice President—Corporate Affairs. Ms. Pilipović Chaffey joined the management team in 2009. Prior to her current role, Ms. Pilipović Chaffey held a number of senior posts within the European Bank for Reconstruction and Development (EBRD) from 2007 to 2009, and the IMF in Washington, D.C. Ms. Pilipović Chaffey holds an MBA from George Washington University, Washington, D.C., and a BA in Economics from the University of Belgrade.
Ianis Girgenson—Group General Counsel. Mr. Girgenson joined United Group in 2020 as Group General Counsel. He oversees all legal matters, as well as interactions with national and EU regulatory agencies. Before joining the Group Mr. Girgenson practiced law in London, Brussels and Paris for over 15 years and served for 4 years as an Associate General Counsel at VEON in Amsterdam. Mr. Girgenson graduated from the University of Paris (Sorbonne) and obtained a Master of Laws from Harvard Law School. He is a member of Paris and New York bars.
Aleksandra Subotić—Chief Executive Officer—United Media. Ms. Subotić joined the management team in 2014. Previously, Ms. Subotić was a General Manager at Net TV Plus. Prior to joining us, Ms. Subotić worked as General Manager at Daniel SatTV, a satellite and cable network development company in Serbia, and at Total TV Info, a distribution company in Austria. She holds an MBA degree in Economics from Educons University.
Srđan Đurđević—Chief Executive Officer—United Cloud. Mr. Đurđević has been a part of the Group since the end of 2002, which is almost from its inception. During his career in the company, he held several positions in the technology department, where he actively participated in the digital transformation of the company. He holds an MSc degree in Informatics.
Milija Zeković—Chief Executive Officer—SBB Serbia and Telemach Montenegro. Mr. Zeković joined the management team in October of 2018. Previously, he was Chief Executive Officer of Crnogorski Telekom from 2016 to 2017. He was also a member of the Executive Management Board of Crnogorski Telekom from 2008 to 2016. He holds a degree in Economics from the University of Montenegro.
Adrian Ježina—Chief Executive Officer—Telemach Slovenia. Mr. Ježina joined the management team in 2017. Prior to joining, Mr. Ježina was the CEO of Siemens Convergence Creators Adria Region. He graduated in 2009 at the Faculty of Electrical Engineering, Mechanical Engineering and Naval Architecture in Split. He also holds an Executive MBA degree from the Cotrugli Business School.
Atanas Dobrev—Chief Executive Officer—Vivacom. Mr. Dobrev joined the Company as Chief Financial Officer in 2008, taking charge of business planning, financial controlling, fraud prevention, revenue assurance, and customer quality control services. Prior to that, Atanas was the Finance and Administration Manager at Oriflame Bulgaria and Chief Financial Officer at Globul. He holds an MBA in Finance and Accounting from Rollins College, Crummer Graduate
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School of Business, USA and a Masters in International Economic Relations from the University of National and World Economy in Sofia, Bulgaria.
Viktor Pavlinić—Chief Executive Officer—Telemach CRO. Mr. Pavlinić joined the management team in March of 2020. He has more than 20 years of experience in the telecommunications industry, in a range of positions in finance, sales and logistics. Mr. Pavlinić joined Telemach CRO in 2008 as Head of Controlling and was appointed CFO and Member of the Management Board in 2011. He has been CEO of Telemach CRO Croatia since 2016. He holds a degree in economics from the University of Zagreb.
Admir Drinić—Chief Executive Officer—Telemach BH. Mr. Drinić serves as Chief Executive Officer of Telemach Bosnia and Herzegovina, having joined the Company in 2013 as Chief Operating Officer. His previous positions include member of the Securitas BiH Board of Directors, Chief Executive Officer of the B.I.G.A. Sarajevo security agency, and Chief Technology Officer of Gama Sigurnost Sarajevo. He holds a bachelor’s degree in economics from the University for Business Studies, Faculty of Economics, in Banja Luka, in 2009.
Nikola Francetić—Chief Executive Officer—Net TV Plus. Mr. Francetić joined the management team in October of 2018. Previously, he was head of content, broadcasting and media for A1 Telekom Austria Group from 2014 to 2018 and an executive director for content at T-HT Croatian Telekom from 2011 to 2014. He holds an MBA from the Bled School of Business in Slovenia and a degree in Experimental Physics from the University of Zagreb.
Ljiljana Ahmetović—Chief Executive Officer—Shoppster. Ljiljana Ahmetović joined United Group in 2018, as a CEO of Shoppster. Prior to work in United Group, Ljiljana was the CEO SuperKartica, a leading multi-partner loyalty program in Serbia. Before that she spent 6 years leading renowned retailers Idea and Mercator in Serbia, where she held a range of leadership positions, primarily in trading and category management. She holds a master‘s degree from the University of Belgrade Faculty of Economics.
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Shareholder Structure
Following the EBRD’s purchase of a minority stake in the Group in July 2019, BC Partners owned approximately 52.3% of the Group’s shares, senior management approximately 38.5%, KKR approximately 6.8% and EBRD approximately 2.4%, as of 31 December, 2020.
Following KKR’s exist from UG shareholding on January 5, 2020, BC Partners now owns approximately 56.0% of the Group’s shares, senior management approximately 41.6% and EBRD approximately 2.4%, as per the date of this report.
BC Partners is a leading global investment firm. Founded in 1986 as one of the first pan-European buy-out investors, BC Partners has grown and evolved into a leading alternative investment firm, investing principally in larger businesses in Europe and North America. Since inception, BC Partners has completed 121 acquisitions with a total enterprise value of over €157 billion and is currently advising funds totaling over €34 billion.
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Appendices
Appendix 1 - Financial statements Income Statement in €000 FY 2019 FY 2020 Revenue 741,812 1,161,270 Other income 8,914 7,406 Content costs (124,212) (130,533) Link and interconnection costs (38,151) (91,557) Cost of end-user equipment and other material cost (50,269) (145,781) Staff costs (102,108) (134,820) Media buying (39,681) (38,168) Impairment loss on trade and other receivables, including contract assets (11,140) (12,171) Impairment loss on other financial assets (7,036) (166) Other operating expenses (119,402) (199,221) IFRS EBITDA 258,727 416,259
Depreciation (106,828) (161,719) Depreciation (right-of-use assets) (17,972) (42,793) Amortization of intangible assets (82,280) (143,278) Results from operating activities 51,647 68,469
Finance income 4,221 2,909 Finance costs (108,490) (135,914) Net finance costs (104,269) (133,005)
Profit/(loss) before tax (52,622) (64,536)
Income tax (expenses)/benefit (7,414) (7,890) Profit/(Loss) for the period (60,036) (72,426)
Currency translation differences 339 (1,193) Other comprehensive income (loss) for the period 339 (1,193)
Total comprehensive income (loss) for the period (59,697) (73,619)
(Loss)/profit attributable to: Owners of the Company (64,163) (74,139) Non-controlling interests 4,127 1,713 (Loss)/profit for the period (60,036) (72,426)
Total comprehensive (loss)/income attributable to: Owners of the Company (63,824) (75,332) Non-controlling interests 4,127 1,713 Total comprehensive (loss)/income for the period (59,697) (73,619)
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Statement of Financial Position in €000 FY 2019 FY 2020 Assets Property, plant and equipment 419,175 1,068,258 Goodwill 766,348 963,999 Intangible assets 288,342 909,752 Investment property 285 70,358 Right-of-use assets 109,474 284,425 Loans to related parties 5,980 6,866 Other financial assets 1,013 54,705 Non-current prepayments 327 5,105 Non-current trade receivables - 17,765 Contract assets 5,513 11,455 Deferred costs 181 178 Deferred tax assets 4,251 19,101 Non-current assets 1,600,889 3,411,967
Inventories 19,138 62,092 Trade and other receivables 154,794 293,250 Short term loans receivables and deposits 8,115 9,328 Prepayments 34,570 50,153 Contract assets 22,614 64,081 Income tax receivable 9,014 10,415 Assets classified as held for sale - 793 Cash and cash equivalents 250,058 285,405 Current assets 498,303 775,517 Total assets 2,099,192 4,187,484
Equity Issued and fully paid share capital 125 125 Share premium 352,557 527,046 Capital reserves 54,468 54,468 Translation reserves (12,475) (13,668) Accumulated losses (411,577) (538,100) Equity attributable to owners of the Company (16,902) 29,871 Non-controlling interests 10,138 13,143 Total equity (6,764) 43,014
Liabilities Loans and borrowings 68,206 217 Other financial liabilities - bonds 1,654,900 3,118,441 Long term liabilities 2,873 10,392 Long term provisions 24,054 95,788 Deferred operating lease income 4,383 5,685 Contract liabilities 1,859 6,575 Lease liabilities 87,260 231,611 Deferred tax liabilities 27,125 102,472 Employee benefits 794 11,304 Non-current liabilities 1,871,454 3,582,485
Trade and other payables 139,623 399,536 Current tax liabilities 9,762 12,574 Loans and borrowings 24,095 1,941 Interest payables bond 26,323 33,294 Deferred operating lease income 5,055 3,687 Contract liabilities 9,836 49,935 Lease liabilities 19,808 61,018 Current liabilities 234,502 561,985 Total liabilities 2,105,956 4,144,470 Total equity and liabilities 2,099,192 4,187,484
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Statement of Cash Flows in €000 FY 2019 FY 2020 Cash flows from operating activities (Loss)/profit for the period (60,036) (72,426) Adjustments for: Depreciation 124,800 204,512 Amortization 82,280 143,278 Net impairment of trade and other receivables 10,411 11,335 Net impairment of contract assets 729 836 Net impairment of other financial assets 7,036 166 Impairment loss of subscriber acquisition costs 325 2,102 Impairment loss on goodwill - 890 Impairment of property, plant and equipment 1,209 4,007 Impairment of inventories 1,161 1,293 Income tax expense/(benefit) 7,414 7,890 Net change on long-term provisions (2,129) 967 Share based payment 21,659 - Net finance cost 104,269 133,005 Operating cash flows before WC changes 299,128 437,855
Changes in: Trade and other receivables (2,176) (6,715) Deferred revenue (1,704) 4,389 Deferred cost (123) 4 Contract assets (11,782) (2,108) Contract liabilities 2,188 1,060 Employee benefits 163 - Inventories 1,904 (7,726) Prepayments (2,342) 7,079 Trade and other payables (44,148) (8,011) Cash generated from operations 241,108 425,827 Interest paid (67,093) (115,431) Income tax paid (11,394) (17,247) Net cash from operating activities 162,621 293,149
Cash flows from investing activities Acquisition of property, plant and equipment (119,803) (166,639) Acquisition of intangible assets (65,834) (108,787) Acquisition of subsidiaries, net of cash acquired (53,825) (1,080,008) Receivables assignment - (18,270) Proceeds from sale of property, plant and equipment and assets held for sale - 821 Prepayments for right-of-use - (803) Short term loans receivable and deposits inflow - 2,840 Short term loans receivable and deposits outflow (2,404) (654) Cash (outflows)/inflow from related party 30,000 (760) Cash outflow other non-current financial assets (4,800) (3,487) Cash inflow other non-current financial assets 69 274 Net cash (used in)/provided by investing activities (216,597) (1,375,473)
Cash flows from financing activities Proceeds from share premium 15,000 174,489 Proceeds from bond issue 757,000 2,075,000 Repayment of bond (450,000) (587,578) Proceeds from borrowings 226,920 193,000 Repayment of borrowings (207,833) (602,808) Transaction costs related to loans and borrowings (7,573) (32,582) Acqusition of non-controlling interest (1,108) (8) Repayment of derivate 771 - Repayment from lease liabilities (20,810) (48,267) Dividends paid (51,764) (53,578) Net cash from financing activities 260,603 1,117,668 Net (decrease)/increase in cash and cash equivalents 206,627 35,344 Cash and cash equivalents at 1 January 43,430 250,058 Effects of movements in exchange rates on cash in hands 1 3 Cash and cash equivalents at end of period 250,058 285,405
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Appendix 2 - Key Factors Affecting Our Business and Results of Operations
The performance of the Group’s businesses, its results of operations and the key operating measures discussed below have been, and will continue to be, affected by a variety of factors. Certain of these factors are discussed below.
Products, Services and Content
United Group’s results are impacted by the product mix as well as the Group’s ability to introduce new products and upgrades and successfully sell those products and upgrades to increase RGUs and ARPUs. United Group continually evaluates the suite of products and services provided to subscribers to ensure that it remains competitive with other providers in its markets and has an opportunity to increase the Group’s subscriber base and the number of products sold to subscribers. United Group accomplishes this through product innovation, investments in technology and acquisitions of complementary businesses. For example, the Group has expanded its product offering by introducing fixed-line services to offer multi play packages in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro, including pay television, broadband internet access, fixed-line telephony, as well as mobile telephony services in Slovenia and following the completion of the acquisition of Tele2 Croatia in March 2020, in Croatia. Following completion of the Vivacom Acquisition in July 2020, United Group also offers pay television, broadband internet access, fixed line telephony, and mobile telephony services in Bulgaria. Following completion of the acquisition by the Group of Forthnet, United Group also offers home entertainment and communications services in Greece.
United Group believes that media and communications services customers will increasingly choose bundled products because of the convenience and enhanced value resulting from obtaining TV, broadband internet and telephony services from a single provider for one price. As at December 31, 2020, 84% of the Group’s customer base13 was in Slovenia, 79% of its customer base13 in Serbia, 87% of its customer base13 in Bosnia and Herzegovina and 53% of its customer base13 in Bulgaria.
United Group seeks to be the leader in its markets in pay television content and has entered into long term strategic partnerships with key international and regional content owners. The Group has also acquired leading regional content owners in key television sub segments (sports, lifestyle, children and films), such as providers of the Sport Klub family of channels (which includes Sport Klub, Golf Klub and fishing and hunting channels), N1, Fight Channel, Pikaboo and Cinemania. United Group’s ability to maintain the quality of its content impacts the Group’s ability to sell pay television offerings, as well as bundled packages.
The Group’s product mix can also impact margins. For example, the mobile telephony business and the content business generally have lower margins compared to the cable-based
13 Under new methodology: unique cable subscribers by bundle.
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business. The Group’s success in growing these businesses may impact the product mix and therefore may affect its Adjusted EBITDA margins.
Pricing of our Products and Services
Increasing demand for attractive content and higher broadband speeds allows the Group to increase the prices at which services are provided while maintaining relatively low churn rates. United Group regularly reviews the prices of its products and services, however, and in the past has adjusted subscription fees as necessary in line with inflation, changes in foreign exchange rates or in response to market conditions and content costs. Changes in the pricing of the Group’s products and services will impact the revenues and margins that are generated from these products and services and impact its ability to attract new customers. For example, the Group’s multi play bundles offer subscribers higher value in terms of channels, speeds functionality and add on features. The pricing of all services, including multi play bundles, is dependent on market conditions, pricing by competitors with similar offerings and the perceived quality of the Group’s products versus other products. In relation to the Basic TV package, the Group was also subject to price regulation in Serbia until January 2017. From January 2017, the price of the Basic TV package in Serbia is no longer subject to price regulation. However, such price regulation might be reinstated in the future, therefore Group regularly monitors the media market in Serbia to stay aware of market conditions which may lead to price regulation.
Subscriber Churn
The television, broadband internet and telephony industries exhibit churn as a result of high levels of competition. In addition to competitive alternatives, churn levels may be affected by changes in prices or competitors’ prices, the Group’s level of subscriber satisfaction, subscriber mortality and the relocation of subscribers, as well as from the termination of agreements. An increase in churn may lead to increased costs and reduced revenues when subscribers cancel services as the Group incurs additional marketing and advertising costs to find new subscribers.
Increasing demand for attractive content and higher broadband speeds allows the Group to increase the prices at which it provides these services while maintaining relatively low churn rates. United Group believes its relatively low churn rates provides recurring cash flows and visibility with respect to future revenues. The Group has historically experienced low churn rates in its television, broadband internet and fixed-line telephony businesses, and the churn experienced in these businesses has primarily been driven by customers moving outside of the Group’s current geographic area of services as well as termination of services due to their inability to pay, with only a limited amount of churn driven by competition. United Group believes that launching telephony in its markets, further driving digitization, providing subscribers with multi play packages (including quad play in Slovenia, as described in more detail below), expanding the Group’s cable footprint to broaden geographic reach and benefiting from increasing disposable incomes in the region (reducing the likelihood of
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customers’ bad debt), will enable the Group to maintain low churn rates for cable pay -TV. In addition, United Group believes that as a result of the COVID -19 pandemic, churn rates will likely decrease as customers are unlikely or unable to easily migrate to another provider during the pandemic.
The churn rates for mobile post paid subscribers are higher than the churn rates for fixed-line telephony services, as it is easier for mobile subscribers to switch to competitors as there are no infrastructure limitations. Similarly, the churn rate of mobile prepaid subscribers is relatively higher because of the non contractual nature of the relationship with such subscribers.
United Group believes that it developed an attractive suite of fixed mobile convergence services in Slovenia, which among other things, has had the effect of reducing the churn of mobile postpaid subscribers in Slovenia. Following the consummation of the acquisition of Tele2 Croatia in March 2020, United Group has leveraged its experience and the lessons learned from integrating Tušmobil to guide our integration of Tele2 Croatia. Since the acquisition of Tušmobil, the number of quad play subscribers in Slovenia has increased to 37% of subscribers in Slovenia as of December 31, 2020, from 1% of subscribers prior to the acquisition. In addition, the Group has successfully reduced the blended annual churn rate of mobile postpaid subscribers in Slovenia to 9.8% as of December 31, 2020, from 11.2% at January 31, 2017. This is primarily due to the Group’s attractive products and services and an increase in the number of new mobile postpaid subscribers (each with new contractual obligations). The Group defines blended annual churn as net lost subscribers (the number of customers that either on a voluntary or involuntary basis no longer subscribe for a certain service) divided by the number of all unique cable subscribers at the beginning of period, the result of which is then annualized. United Group intends to use these principles learned through our acquisition of Tušmobil and its experience providing mobile services in Slovenia to inform the operation of Groups mobile telephony business in Bulgaria following the completion of the Vivacom Acquisition in July 2020.
Cost of Services Provided
United Group’s most significant costs include:
(i) carriage fees paid to international and regional broadcasters such as Fox, Discovery and Pink, in order to carry their programs on the Group’s distribution network,
(ii) licensing fees payable to sports rights owners such as UEFA, the English Premier League, Spanish Primera League, ATP and Formula 1, in order to develop content for the Group’s own channels
(iii) satellite capacity costs,
(iv) payroll costs,
(v) internet and interconnection fees,
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(vi) costs of materials used to connect subscribers to our network and
(vii) costs for marketing and sales.
Most of the Group’s costs, such as a portion of the network operations, customer care, billing and administration costs, are relatively fixed, while a portion of the Group’s marketing and customer services cost is variable. The Group’s content acquisition costs are mostly fixed, and a decreasing portion of these costs are subscriber based. Where possible, the Group aims to negotiate fixed rate content costs. This approach allows input prices of its content to be anticipated and products priced accordingly. The costs associated with the growth of the business, such as RGU acquisition costs, which are primarily comprised of campaign costs and sales costs for attracting new subscribers, are variable costs.
A large portion of the Group’s costs is content costs, accounting for 17% of operating expenses (excluding depreciation and amortization of intangible assets) for the twelve months ended December 31, 2020. While United Group owns a portion of its content, the Group is dependent on broadcasters and other content owners for most of its programming. The Group pays license fees to several regional and international broadcasters in order to broadcast their programs. For on demand content purchased by subscribers, the Group generally pays a revenue share of the retail price, subject, for certain on demand content, to fixed minimum guarantees. For packaged on demand content (subscription video on demand), the Group pays on a per subscriber basis, sometimes with minimum guarantees. United Group generally expects that its content costs (above the minimum amounts) will increase in line with increased revenues from digital pay-TV and on demand content. In the past, the Group has successfully obtained rebates and discounts for its content, but these may not continue in the future.
United Group pays fees to satellite operators to uplink and transmit its content to DTH subscribers, and also uses other network operators to connect telephone calls of customers to customers of their respective networks (interconnection). Generally, the amount paid in interconnection fees in any period will depend on the level of usage of the Group’s services.
Staff costs are impacted by the number of personnel employed, the experience levels at which such persons are employed and increases in salaries and bonuses due to performance factors. Labor costs of technicians, spent on the construction and upgrade of the network and acquisition of subscribers, are capitalized as tangible and intangible assets.
RGU acquisition costs include campaign costs and sales costs. The Group aims to recover RGU acquisition costs over the duration of the service contract. Factors that contribute to the successful recovery of RGU acquisition costs include operational efficiency, the density of the subscriber base and direct relationships with subscribers, which enables the Group’s not to rely on intermediaries to interact with its customers.
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Network and Technological Advances
The Group’s ability to provide new high definition and on demand digital TV services, broadband internet access at higher speeds and telephony services to subscribers depends, in part, on the ability to upgrade and maintain the Group’s network. The Group incurs capital expenditure charges in periods over which these upgrades are made, with the aim of recouping these investments through increased revenues and profitability.
In particular, United Group expects certain communications technologies that are currently under development, 5G technology in particular, to become increasingly important in relevant markets. United Group successfully tested next generation 5G networks across the Balkan region, and it believes that this demonstrated technological readiness for a commercial launch when the necessary spectrum frequencies become available. In Slovenia, 5G sub 3GHz DSS in the 1800 MHz spectrum is in its proof of concept phase with deployment expected during 2021, while deployment of the C Band in the 3,600 MHz spectrum is planned to start after the frequency auction in the first quarter of 2021. In Bulgaria, 5G has been launched commercially using 4G 1800 MHz spectrum in October 2020 as a first on the market. C-Band spectrum award is expected in Q1 2021 and deployment to folllow. In Croatia, first deployment of 5G C-Band is expected during Q1 2021. Significant investments in 5G technology will be critical to remain competitive in the mobile market and meet customers’ needs.
The Group’s ability to compete effectively and maintain or increase the customer base depends on its ability to anticipate and react quickly to technological developments and evolving industry standards and develop successful new and enhanced products and services to adapt to changes in the market. United Group invests in new or enhanced technologies, products or services in periods over which industry standards change, or to upgrade technologies proactively. Additionally, capital expenditure costs in the future are incured relating to new 4G and 5G frequencies and the installation of new equipment.
Foreign Currency Exchange Rates
United Group operates across the Southeastern Europe, generating revenues in many local currencies, which fluctuate from time to time in relation to the euro. Revenues in Slovenia, Montenegro and Greece are generated in euro. SBB Serbia and Telemach BH record their financial results in the Serbian dinar and the Bosnian and Herzegovinian mark, respectively, which are then translated into euros in preparing Groups consolidated financial statements. In the year ended December 31, 2020, 58% of revenue was generated in euros or currencies pegged to the euro, with 23% of our revenue generated in Serbian dinars and 18% of revenue generated in Croatian kuna. While the Bosnian and Herzegovinian mark is pegged against the euro at a fixed exchange rate of BAM 1.9558 per €1.00 and the Bulgarian lev is pegged against the euro at a fixed exchange rate of BGN 1.9558 per €1.00, the Serbian dinar freely fluctuates against the euro. For the year ended on December 31, 2020, the value of the Serbian dinar remained stable relative to the euro. However, due to the historic
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indexation of the Serbian dinar against the German mark, which was replaced by the euro in 2002, United Group believes the Serbian consumer price index closely tracks the depreciation of the Serbian dinar against the euro which has historically allowed to “pass through” a portion of the impact of the depreciation of the dinar to its customers. Group believes its pricing strategy reflects this “pass through” principle. In the year ended on December 31, 2020, the value of the Croatian kuna decreased approximately 1% relative to the euro compared to the year ended on December 31, 2019.
United Groups presents consolidated financial statements in euro. As a result, assets, liabilities, revenue and expenses of all operations must be translated with a functional currency other than the euro into euros at then applicable exchange rates. Consequently, increases or decreases in the value of these currencies against the euro may affect the value of Groups assets, liabilities, revenue and expenses with respect to its non euro businesses in consolidated financial statements, even if their value has not changed in their original currency. These translations could significantly affect the comparability of results between financial periods and result in significant changes to the carrying value of Groups assets, liabilities and stockholders’ equity.
Additionally, certain expenses, primarily content and satellite costs, are in euros and U.S. dollars. Where United Group is unable to match sales received in foreign currencies with costs paid in the same currency, results of operations are impacted by currency exchange rate fluctuations. A substantial portion of Groups indebtedness is denominated in euros. In March 2015, United Group entered into a EUR/USD currency hedge agreement, pursuant to which a part of Group exposure was hedged to the U.S. dollar. Additionaly United Group entered in EUR/USD currency hedge agreement in May 2016 pursuant to which it hedged the remaining portion of exposure to the U.S. dollar for 2016. In February 2017, Group then entered into an additional EUR/USD hedge, which hedged most its 2017 U.S. dollar exposure. Given the lack of any material change in exposure to the U.S. dollar in the year ended December 31, 2020, United Group did not enter into any additional currency hedge agreements during the year ended December 31, 2020.
Growth in our Markets
Three of the Group’s markets, Serbia, Bosnia and Herzegovina and Montenegro, are generally characterized by lower internet broadband household penetration rates compared to elsewhere in Western Europe and the CEE region and both Serbia and Bosnia and Herzegovina have lower pay television household penetration rates compared to elsewhere in Western Europe and the CEE region. As a result, growth in the Group’s markets have been higher than in certain CEE region and Western Europe jurisdictions. The Group believes this is primarily due to the increasing importance of high-quality broadband internet and an increasing convergence of the Group’s regions with the EU. Slovenia is a more mature market, with subscriber rates similar to the CEE region, and as a result, growth in that market will depend more on the Group’s ability to effectively compete with other market participants and to continue to offer high quality customer propositions. Following the completion of the Tele2
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Croatia Acquisition in March 2020, United Group expanded operations to include Croatia. As a member of the EU with relatively high GDP per capita and growth rates, Croatia is an attractive market for Groups continued expansion. The Croatian mobile market is characterized by high market stability, as it has a low level of fragmentation and disruption, with only three MNOs in the market (including Tele2 Croatia), and the country’s telecommunications infrastructure is highly dependent on mobile access, with one of the highest mobile ARPU among CEE countries. United Group believes that growth in this market will depend on several factors, such as the ability to expand territorial coverage as well as improve the quality of network and customer support services, including through investments to increase its capacity and quality levels and through the continued development of digital and sales channels. In addition, following the completion of the Vivacom Acquisition in July 2020, United Group also havs operations in Bulgaria. Bulgaria experienced relatively strong GDP growth at an average rate of 3.3% per year between 2017 and 2019 (according to the BNSI), but faces economic and political challenges in sustaining this growth.
Following the Forthnet Acquisition, United Group has operations in Greece. The Greek telecommunications market is characterized by intense competition. The market is concentrated among four main operators with a focus on fixed-mobile convergent offerings. The total fixed-line market, comprised of approximately 4.8 million subscribers, has been stable with limited fixed-to-mobile substitution, while the broadband market, comprised of approximately 4.2 million subscribers, continues to grow at the expense of voice-only lines. NGA subcribers (those with broadband speeds of greater than 30 Mbps) comprise approximately one-thid of total broadband subscribers, but this level remains low compared with the EU average of over 60%. Pay-TV penetration is also low compared to EU averages with 26% of Greek households subscribing to Pay-TV. In Greece, the majority of Pay-TV subsribers are served through DTH technology while the remainder is served through IPTV.
In each of the aforementioned markets, a number of factors will impact the rate of growth of pay television, broadband internet and telephony industries, including economic conditions, political stability, increases in infrastructure and an increased distribution of wealth. Furthermore, these industries may not grow at the same rate as they have in the past.
Regulation
The Group’s operations are subject to various regulations in Europe and in its regional markets. The Group is generally free from price regulation other than, prior to January 2017, with respect to the Basic TV package in Serbia, due to SBB Serbia’s prior SMP in the Serbian pay-TV market. Since the beginning of 2017, the Group is no longer considered a significant market participant in the pay-TV market in Serbia, thus the Basic TV package is no longer subject to price regulation, though this may change in the future, and the Group regularly monitors the market to stay aware of market conditions which may lead to price regulation. In Croatia, United Group is currently subject to price regulation only with respect to fixed and mobile termination rates charged by operators to each other for interconnection services, which are regulated in the whole European Union. In addition, in Serbia United Group is
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subject to price regulation only to the extent it is required to provide access to our wholesale network. SBB Serbia is, however, currently deemed to have SMP on the wholesale market for call termination in public telephone networks and the wholesale market of central access at a fixed location for mass market products, which imposes certain regulatory obligations. The Group also implemented price increases in January 2018, which the Serbian Commission for Protection of Competition investigated, but ultimately accepted. In addition, the Group may be subject to conditions imposed in connection with competition authority clearances as it continues to expand its business through bolt on, value accretive acquisitions and may be subject to market power analysis from the relevant regulators, which could force the Group to adjust its prices or sell various parts of the businesses.
Tax Treatment in Local Jurisdictions
The results of the Group’s operations depend on tax treatment under the tax laws and regulations of local jurisdictions. For instance, in Serbia, taxable income can be reduced in the same proportion as capital expenditure for the year in Serbia divided by the carrying amount of assets in Serbia. Due to significant capital expenditure in Serbia in 2016, the Group believes it has satisfied the requirements to be granted a ten-year tax beneficial status, expiring in 2025, and recorded beneficial tax treatment for the SBB Serbia segment for the years ending December 31, 2018, 2019 and 2020. Additionally, under thin capitalization rules in Serbia, interest and related costs under intercompany loans are recognized as deductible expenses to the extent the intercompany loans do not exceed four times the borrower’s equity. In 2017 and 2018 SBB Serbia did not capitalize any intercompany loans. On December 27, 2018, the Serbian Tax Authority notified the Group that it had begun a tax investigation of SBB Serbia for the year ended December 31, 2012 (See “Legal Proceedings - Investigation by the Serbian Tax Authority”).
Furthermore, in Slovenia, Telemach Slovenia may use a tax allowance for investment in equipment and intangible assets (available for investments made after January 1, 2008), whereby the tax allowance is limited to 40% of the value of the assets, up to the amount of the tax base. In 2018, 2019 and 2020 Telemach Slovenia used the tax allowance for investments in the amount of €11.5 million, €10.5 million and €9.3 million, respectively.
In Bosnia and Herzegovina, a taxpayer who invests more than BAM 20.0 million (€10.2 million) in production assets (property, plant and equipment) within the territory of Bosnia and Herzegovina for five consecutive years is relieved from 50% of taxation on such investments for a period of five years, starting from the first year in which it has invested at least BAM 4 million (€2.0 million). Pursuant to this provision, in 2018, 2019 and 2020, Telemach BH received a tax allowance for investments in the amount of BAM 6.1 million (€3.1 million), BAM 6.8 million (€3.5 million) and BAM 2.7 million (€1.4 million), respectively. In Bosnia and Herzegovina, a taxpayer receives a tax allowance when it employs certain types of employees, and in 2018, 2019 and 2020, Telemach BH received a tax allowance for certain new employees in the amount of BAM 1.3 million (€0.7 million), BAM 2.0 million (€1.0 million) and BAM 2.9 million (€1.5 million), respectively.
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In Greece, the corporate income tax rate was set at 24% in 2019. Beginning on January 1, 2020, there was a reduction in dividend withholding tax from 10% to 5% and on July 1, 2020, Greece implemented a participation exemption for capital gains from the sale of Greek and European Union (EU) subsidiaries. For internet services, customers are charged a 5% tax on top of internet subscriptions (in addition to VAT of 24%). Additionally, a 10% tax on top of Pay-TV subscriptions to Greek operators (in addition to VAT of 24%) has been imposed. The Pay-TV tax has been suspended for a term of one year beginning in September 2020.
Implementation of New Accounting Policies
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2020: Definition of Materiality – amendments to IAS 1 and IAS 8 Definition of a Business – amendments to IFRS 3 Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7 Revised Conceptual Framework for Financial Reporting Annual Improvements to IFRS Standards 2018-2020 Cycle. The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
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Appendix 3 - Definitions of Key Operating Measures
Homes passed: represents all homes (households) ready to be connected directly to the United Group’s fixline network.
Unique cable subscribers represent the number of individual end users who have subscribed to one or more of our cable based services. In all of the United Group’ cable markets, cable pay-TV is the basic service that a cable unique subscriber is typically required to subscribe to in order to receive the Group’s other services such as broadband internet access and telephony, with the exception of Bulgaria. A unique cable subscriber may subscribe to several different services, thereby accounting for only one unique cable subscriber, but several RGUs.
Cable pay-TV RGUs includes the sum of the Group’s analog and digital cable pay-TV RGUs in Slovenia and its total analog cable pay-TV RGUs (without separately counting analog cable RGUs that have purchased digital top ups) in Serbia, Bosnia and Herzegovina and Montenegro provided within our network footprint.
OTT RGUs consists of the Group’s NetTV Plus and out of footprint Eon subscribers.
Broadband internet RGUs represents residential broadband internet provided within our network footprint.
Fixed-line telephony RGUs represents residential fixed-line telephony provided within our network footprint.
Mobile RGUs represents mobile telephony services provided to customers in Slovenia where the Group has operated as an MNO since its acquisition of Tušmobil in April 2015. Prior to April 2015, the Group provided mobile services to its customers as an MVNO. After Telemach CRO acquisition in March 2020 the Group provides mobile telephony services as well in Croatia.
Out-of Footprint (“Other services” has been renamed “Out-of Footprint” services following Forthnet acquisition) includes multichannel multipoint distribution service-based services, ADSL internet services and cable services provided outside of the Group’s network footprint.
Penetration represents the number of RGUs at the end of the relevant period as a percentage of the number of homes passed by the Group’s network.
Blended cable ARPU is calculated by adding together, for each month in a given period, the total cable pay-TV, broadband internet and fixed-line telephony revenues (including fixed-line telephony usage revenues and excluding minor installation fees) for that particular month divided by the average number of unique cable subscribers for that month and then dividing that sum by the total number of months in the period. Blended cable ARPU does not include mobile ARPU. The Group calculate mobile ARPU by adding together, for each month in a given period, the total mobile telephony revenues (excluding revenues generated by customers of other networks roaming on the Group’s network and excluding wholesale
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revenues) for that particular month divided by the average number of mobile RGUs for that month and then dividing that sum by the total number of months in the period.
DTH subscribers represent the number of individuals across the seven South Eastern European markets (Slovenia, Serbia, Bulgaria, Bosnia and Herzegovina, Greece, Montenegro and North Macedonia) who have subscribed to the Group’s DTH pay-TV services. The Group believes that most of these subscribers are outside of its cable footprint. Typically, DTH subscribers are only able to subscribe to DTH based pay -TV services and represent a single RGU. However, the Group is re selling ADSL services purchased from its competitors in the respective markets to DTH subscribers.
Average monthly revenue per user, (“ARPU”) is a measure used to evaluate how effectively the Group is realizing potential revenues from subscribers. ARPU is calculated by adding together, for each month in a given period, the total subscription-related revenues for that particular month divided by the average number of subscribers for that month and then dividing that sum by the total number of months in the period.
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Appendix 4 - Description of Key Line Items
Revenue: Generated from the following services: cable television, broadband internet, DTH-TV, value-added services (such as OTT), telephony subscriptions and telephony usage, content and other sources (primarily related to the sale of end-user equipment). Revenues generated from the Group’s bundle subscriptions are allocated to the individual products of standard cable, broadband internet and telephony subscriptions based on the individual product prices for each product as a percentage of the sum of the individual product prices. Revenue for these services is charged and recognised in the period in which these services are provided. The Group recognises revenues for connection fees upon delivery of installation and defers and amortizes connection fees over the average remaining useful life of the customer relationship.
Other income: Arises mainly from subventions, reversal of provision for legal cases, charged legal cases and other activities nor related to main business.
Content cost: Include author rights and royalties paid to procure the Group’s content, and include fees paid to channel providers, primarily related to foreign television channels. The Group content fees are predominantly determined on a flat monthly amount and to a lesser extent on a per-subscriber basis.
Link and interconnection cost: These costs relate to fees payable in order to transfer data over third-party networks. Internet connection links are leased from various parties.
Cost of end-user equipment and other material cost: Include costs to procure set-top boxes, other products, such as telephones and routers, and materials used to connect subscribers to our network.
Staff costs: Include wages and salaries, social security costs, pension costs and other post-employment benefits and the cost of temporary and external personnel, adjusted for own work capitalized based on direct labour hours spent on projects which are capitalized.
Depreciation cost: Depreciation cost relates to the depreciation and impairment of our property, plant and equipment over their useful lives.
Amortization of intangible assets: Relates to the amortization and impairment of the Group’s intangible assets over their useful lives. The Group’s intangible assets include its customer base and direct subscriber acquisition costs, which, for its cable and DTH customers, are capitalized and amortized over the estimated useful life of the customer relationship. For the Group’s mobile customers, subscriber acquisition costs are capitalized and amortized over a period of twenty-four months (the estimated life of the post-paid customer contract), while its mobile customer base is capitalized and amortized over its estimated useful life. Intangible assets also include goodwill, computer software, licenses and content such as sport rights.
Other operating expenses: Includes rent of premises, poles and ducts, marketing and promotion expenses, legal and administrative fees and maintenance costs.
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Finance income: Includes interest income on funds invested (including short-term bank deposits) and foreign currency gains. Finance costs: Include interest expense on borrowings and other finance cost.
Income tax (expense)/benefit: Comprises current and deferred income tax and is recognized in the Group’s statement of comprehensive income, except to the extent that such expense or benefit relates to an item that is recognized as equity in its balance sheet, or in its statement of other comprehensive income.
Operating income: Represents the amount of profit generated from business operations, and includes total revenues less total operating expenses (including cost of goods sold, personnel expenses, contracted work, materials and logistics, marketing and sales, office expenses, other operating expenses, amortization, depreciation and impairments).
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Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Group’s income and cash flow from operations are affected by changes in market interest rates. Some items on the Group’s balance sheet, such as cash and bank balances, interest bearing investments and borrowings, are exposed to interest rate risk.
Borrowings under the Existing Revolving Credit Facility and the Existing Floating Rate Notes bear, and the Notes will bear, interest at varying rates, and as a result the Group will have interest risk with respect to this debt. Interest rate hedging arrangements are not in place as of the Issue Date with respect to the debt under the Group’s Existing Revolving Credit Facility, the Existing Floating Rate Notes and the Notes. For fixed rate debt, interest rate changes affect the fair market value of such debt, but do not impact earnings or cash flow.
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. As a result of United Group operations in various countries, it generates a significant portion of sales and incurs a significant portion of expenses in currencies other than the euro. Groups primary exposure is to the Serbian dinar. For the year ended December 31, 2020, 23% of revenue was denominated in Serbian dinar and 77% was denominated in euros or other currency. The Bosnia and Herzegovinian mark is pegged to the euro, while Croatian kuna and North Macedonian dinar are relatively stable. In March 2015, United Group entered into a EUR/USD currency hedge agreement, pursuant to which it hedged its exposure to the U.S. dollar. Group entered into an additional EUR/USD currency hedge agreement in May 2016 pursuant to which it hedged the remaining portion of its exposure to the U.S. dollar for the year 2016, and in February 2017, Groups entered into an additional EUR/USD currency hedge to cover most of its 2017 U.S. dollar exposure. Given the lack of any material change in exposure to the U.S. dollar in the year ended December 31, 2020, United Group did not enter into any additional currency hedge agreements during the year ended December 31, 2020.
As the Bulgarian lev is pegged to the euro, United Group does not expect to hedge against exposure to the Bulgarian lev. The currency applicable to Forthnet's business in Greece is the euro.
Translation Risk
Translation risk is the risk that the value in euro of the consolidated profit and loss statement and balance sheet will fluctuate due to changes in foreign exchange rates connected with the translation of our subsidiaries that do not have the euro as their functional currency. Since January 1, 2016, almost all our indebtedness has been denominated in euro.
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Transaction Risk
Transaction risk is the risk of exchange losses incurred by the Group through purchases and sales in currencies other than the local currency of the subsidiaries concerned.
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Appendix 6 – Critical Accounting Policies
For a description of the Group’s critical accounting estimates and judgments, see Note 6 to the Adria MidCo B.V. Group Consolidated Financial Statements as of and for the year ended December 31, 2020. The Group’s significant accounting policies and changes of accounting policies are described in Note 3 to the Audited Financial Statements.
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Appendix 7 – Adria Midco BV Group Consolidated Financial Statements
For a description of other items, according to the Group’s reporting requirements, please refer to the notes to our Adria Midco BV Group Consolidated Financial Statements for year ended December 31, 2020, which inter alia include a description of financial, credit and liquidity risk factors (Note 4), business combinations (Note 23), debt instruments (Note 33) and legal matters (Note 38).
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Appendix 8 – Related parties transactions
Related parties’ transactions are disclosed in the Adria Midco B.V. Group Consolidated Financial Statements for Year ended December 31, 2020, Notes 37.
Balances and transactions with related parties of the Group
Balances with related parties (in €000) Relationship 31-Dec-20 31-Dec-19
Loans to related parties Adria Topco B.V. Parent 6,866 5,980 Total 6,866 5,980
Trade and other receivables Adria Topco B.V. Parent 359 - Total 359 -
Trade and other payables TechHill Plaza d.o.o. Other related party 498 219 Danslav Plaza d.o.o. Other related party 138 18 Summer Bidco BV Other related party 179 - Total 815 237
Accrued liabilities Gerrard Enterprises LLC Other significant shareholder 5,713 4,986 Summer Investment S.à r.l. Other related party 1,723 - Gerrard MIP Limited Other related party 148 - Cable Management Company ltd Other related party 88 - Total 7,672 4,986 The Group made a loan in an aggregate principal amount of EUR 30,000 thousand to Mr. Šolak, pursuant to a loan agreement dated 15 September 2016 based on arm’s length terms, to enable Mr. Šolak to acquire shares of equivalent value in parent company, Adria Luxco S.à r.l, which he owned indirectly through a company he controlled. These shares in Adria Luxco S.à r.l. acquired by Mr. Šolak have been pledged in favour of the Group to secure the obligations of Mr. Šolak under the loan agreement. Maturity of the loan was defined as earliest of the i) 6 March 2020, ii) Exit or iii) 6 months from the date of written notice to repay the loan. Total amount of the loan and interests was repaid on 4 March 2019.
Transactions with related parties (in €000) Relationship 2020 2019 Other operating expense Gerrard Enterprises LLC Other significant shareholder 8,979 5,834 Summer Investment S.à r.l. Other related party 2,848 - Summer Bidco B.V. Other related party 421 - Kohlberg Kravis Roberts & Co. L.P. Other related party - 347 Gerrard MIP Limited Other related party 414 - Cable Management Company ltd Other related party 248 33 Total Management fee - Shareholder related cost 12,911 6,214
Interest income Mr. Šolak Other significant shareholder - 227 Adria Topco B.V. Parent 355 126 Total Interest income 355 227
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Guarantee
The Group had guaranteed a loan of the other related party Gerrard Aircraft GMBH (31 December 2019: EUR 2,814 thousand) which expired on 13 April 2020.
Other Related Party Transactions
For additional information on related party transactions see note 37 to the consolidated financial statements of Adria Midco B.V. as of and for the financial year ended 31 December 2020.
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Appendix 9 – Risk factors
In addition to financial, credit and liquidity risk factors, which are discussed in the Adria Midco BV Group Consolidated Financial Statements for year ended December 31, 2020, Notes 4, our business and industry also entail certain other risks, which are listed below.
The cable television, broadband internet, DTH, telephony and e-commerce markets in the regions in which United Group operates are highly competitive.
Difficult economic conditions, including as a result of COVID-19, may reduce subscriber spending for United Group pay television, broadband internet, and fixed-line and mobile telephony services and reduce rate of growth of subscriber additions.
Operating results of United Group will be adversely affected if it cannot generate strong advertising sales.
United Group has made and may make acquisitions or enter into transactions that may present unforeseen risks, and may not realize the financial and strategic goals that were contemplated at the time of any transaction and, additionally, there are risks associated with the integration of any acquisitions.
Any acquisition United Group undertakes or has undertaken may be subject to regulatory approval or review by competition authorities which could delay, limit or prevent its completion or could prevent United Group from realizing the benefits from any such acquisition following its completion.
Acceptance of United Group content, particularly our television programming, by the public is difficult to predict, which could lead to fluctuations in revenues.
United Group does not have guaranteed access to all of its television content and is dependent on agreements, relationships and cooperation with content owners, including broadcasters and collective rights associations.
Any failure to keep pace with technological changes and evolving industry standards could harm United Group competitive position and, in turn, have a material adverse effect on its business.
United Group is subject to significant government regulation and supervision, as a result of which it may be affected by unforeseen changes in regulation and government policy which may increase costs and otherwise adversely affect its business.
United Group is exposed to currency exchange fluctuation and currency instability risks in Europe that could have an adverse impact on its liquidity, financial condition and cash flows.
Any outbreak of severe communicable diseases, including COVID -19, may materially affect United Group business and results of operations.
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Legal, political and economic uncertainty in the Eurozone, including the exit of the United Kingdom from the European Union and the European sovereign debt crisis, may adversely impact current trading arrangements, be a source of instability in international markets and create significant currency fluctuations, which could have a material adverse effect on United Group business, results of operations and financial condition.
United Group operations in some markets are constrained by political factors and business might be affected by factors or changes in the political, judicial, economic or security environment in the countries in which it operates.
United Group does not hold valid use permits for parts of our cable network and is dependent on leases for certain parts of its network in various countries in which it operates.
United Group may not realize any or all of the adjustments to Last Two Quarter Pro Forma Adjusted EBITDA included in this Bondholder report.
If United Group fails to implement and maintain an effective system of internal controls, it may be unable to accurately or timely report results of operations, and the trading price and liquidity of its debt could be negatively impacted thereby.
United Group may face difficulties in increasing subscriber base or subscription fees or up selling new products to current subscribers.
Customer churn may adversely affect United Group financial performance.
United Group marketing and advertising expenses may increase in the future.
Failure in United Group technology or telecommunications systems as a result of technical errors, cyber security breaches or other factors could significantly disrupt its operations.
United Group operates in a capital-intensive business that may result in depreciation or impairment costs, or prevent it from generating positive returns.
United Group depends on third-party providers of hardware, software, satellite services, network access and customer support.
United Group’s reputation as a supplier and service provider of high quality pay -TV, broadband internet and fixed-line and mobile telephony offerings or the v alue associated with its brands may be adversely affected.
United Group’s business may be adversely affected by the alleged health risks of antenna sites and the use of mobile telephones.
United Group may not be able to attract or retain personnel who are key to its business.
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The operation of United Group’s business depends in part on agreements with its competitors.
United Group may not be successful in maintaining the necessary regulatory authorization or licenses needed to operate its business and such authorizations and licenses may be invalid or may be subject to termination, revocation or material alterations in the event of a breach or to promote public interest.
United Group may be unable to secure spectrum in the future, which would prevent or impair our plans or limit the need for our services and products.
EU regulation of the levels of roaming charges may in the future have a material adverse effect on United Group’s business.
There can be no assurance that United Group’s countries of operations will continue to successfully implement their respective political and economic reforms and agendas.
United Group may become subject to more extensive regulation due to its scale.
Changes in labor laws may make it more costly to operate United Group’s business in the future.
Sensitive customer data is an important part of United Group’s daily business and leakage of such data may violate laws and regulations which could result in fines reputational damage and customer churn, and adversely affect its business.
United Group is involved in a number of civil, administrative and criminal legal proceedings which, if adversely determined, could have a material adverse effect on its financial position and profitability, or could lead to reputational damage that could have a material impact on its business.
If third parties claim that United Group breached their intellectual property rights, it may be forced to make significant expenditures to either defend ourselves against such claims, license rights to the third-party’s technology or to identify ways to conduct its operations without breaching such rights.
United Group is subject to increases in operating costs and inflation risks which may adversely affect its earnings.
United Group may be adversely affected by changes to tax legislation or its interpretation or increases in effective tax rates in the jurisdictions in which Group operates.
A substantial portion of United Group assets are represented by goodwill, and it may never realise the full value thereof or it may be required to write down the value of its goodwill.
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Appendix 10 – Material Debt Instruments (Other than the Notes)
Revolving Credit Facility Agreement
Overview and Structure
On July 13, 2017, the Parent and certain of its subsidiaries entered into a super senior revolving credit facility agreement (the ‘‘Existing Revolving Credit Facility Agreement’’) with, among others, UniCredit Bank AG, London Branch as facility agent, UniCredit Bank AG, London Branch as English security agent, UniCredit Bank Serbia JSC Belgrade as Serbian security agent, UniCredit Bank Serbia JSC Belgrade as payment agent and the financial institutions named therein as arrangers and lenders. In connection with the 2019 Refinancing, pursuant to an additional facility notice dated May 3, 2019, the Company received additional commitments from certain Existing Revolving Credit Facility Lenders in an aggregate amount equal to €100 million in relation to the Existing Revolving Credit Facility, increasing the commitments under the Existing Revolving Credit Facility from €100 million to €200 million with effect from May 14, 2019. Pursuant to an amendment and restatement agreement to the Existing Revolving Credit Facility Agreement dated 31 July 2020 (with an effective date of 5 August 2020), among other things, (a) the maturity of the Existing Revolving Credit Facility was extended to July 15, 2025 (with such maturity automatically being reduced to (i) February 1, 2024, if the Existing 2024 SSNs are not fully refinanced by such date or (ii) February 15, 2025, if the Existing Floating Rate Notes are not fully refinanced by such date) and (b) the commitments under the Existing Revolving Credit Facility Agreement were increased to €250 (the “Existing Revolving Credit Facility”).
The Existing Revolving Credit Facility may be utilized by any current or future borrower thereunder in euros, U.S. dollars and (other than in respect of loans by a Serbian Lender (as defined below)), Sterling or any other currency which is readily available and freely convertible into euro, by the drawing of cash advances, the issuance of letters of credit, bank guarantees and/or the establishment of ancillary facilities. The Existing Revolving Credit Facility may be used for (directly or indirectly) financing or refinancing the general corporate purposes and/or working capital requirements of the Group (including, for the avoidance of doubt, capital expenditure and/or acquisitions).
In addition to the Existing Revolving Credit Facility, the Existing Revolving Credit Facility Agreement includes the ability to incur additional facilities either as new facilities or additional tranches of the Existing Revolving Credit Facility subject to certain conditions being met.
Due to Serbian foreign exchange regulations and the National Bank of Serbia registration requirements, the Existing Revolving Credit Facility Agreement provides for (i) loans to borrowers incorporated in Serbia (or its affiliates) (“Serbian Borrowers”) to be made only by a bank duly incorporated under the Serbian banking and company laws and lending out of an office in Serbia (“Serbian Lender”) and (ii) loans to borrowers which are not Serbian Borrowers to be made only by banks or entities which are not Serbian Lenders. Payments
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between such Serbian Lenders and Serbian Borrowers shall be made through a payment agent.
The final maturity date of the Existing Revolving Credit Facility following the Existing Revolving Credit Facility Extension and 2020 Increase is July 15, 2025 (with such maturity automatically being reduced to (i) February 1, 2024, if the Existing 2024 Notes are not fully refinanced by such date or (ii) February 15, 2025, if the Existing Floating Rate Notes are not fully refinanced by such date) (the ‘‘Maturity Date’’), and the Existing Revolving Credit Facility may be utilized until the date falling one month prior to the Maturity Date.
Interest and Fees
Loans under the Existing Revolving Credit Facility Agreement will initially bear interest at rates per annum equal to LIBOR or, for loans denominated in euro, EURIBOR, plus a margin of 3.50% per annum (which is subject to reduction in accordance with a ratchet linked to the leverage ratio). Loans made by a Serbian Lender to a Serbian Borrower will bear an additional margin of 1.10% per annum.
A commitment fee is payable on the aggregate undrawn and uncancelled amount of the Existing Revolving Credit Facility until the end of the availability period for the Existing Revolving Credit Facility at a rate of 35% of the margin applicable to the Existing Revolving Credit Facility from time to time. Default interest is calculated as an additional 1% on the overdue amount.
Guarantees and Security
The Existing Revolving Credit Facility is required to be guaranteed by each Material Subsidiary (defined to include any member of the Group with more than 5% of the consolidated EBITDA calculated on a last twelve-months basis or gross assets of the Group) and additional members of the Group required to ensure that guarantors represent at least 80% of the consolidated EBITDA of the Group calculated on a last twelve-months basis and 80% of the gross assets of the Group subject to and in accordance with the agreed security principles set out in the Existing Revolving Credit Facility Agreement.
The Existing Revolving Credit Facility is secured by certain material assets of such guarantors subject to and in accordance with the agreed security principles set out in the Existing Revolving Credit Facility Agreement.
The agreed security principles in the Existing Revolving Credit Facility Agreement provide that certain assets will not be pledged (or the liens not perfected):
if providing such security would be prohibited by general statutory limitations, financial assistance, capital maintenance, corporate benefit, fraudulent preference, ‘‘earnings stripping,’’ ‘‘controlled foreign corporation’’ or ‘‘thin capitalization’’ rules, tax restrictions, retention of title claims and similar matters or providing security would be
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outside the applicable pledgor’s capacity or conflict with fiduciary duties of directors or cause material risk of personal or criminal liability after the use of reasonable endeavors to overcome such obstacle;
if the cost of providing security is not proportionate to the benefit accruing to the lenders;
if there is material incremental cost involved in creating security over all assets of the entity in question (the ‘‘Relevant Entity’’) in a particular category of assets, only the material assets in that category will be subject to security;
if certain security may be provided by the Relevant Entity granting a promise to pledge coupled with an irrevocable power of attorney as opposed to a definitive legal mortgage or pledge over the relevant asset;
if it is expressly acknowledged that it may be either impossible or impractical to create security over certain categories of assets, security will not be taken over such assets;
if providing such security requires consent before such assets may be secured or where providing such security would give a third-party the right to terminate or otherwise amend any rights, benefits and/or obligations of the borrower, guarantors or any of its subsidiaries in respect of those assets or require any of them to take any action materially adverse to their interests and where (subject to certain conditions being met) such consent cannot be obtained after the use of reasonable endeavors;
if providing such security would have a material adverse effect (as reasonably determined in good faith by such subsidiary) on the ability of such subsidiary to conduct its operations and business in the ordinary course as otherwise permitted by the indenture and any requirement under the agreed security principles to seek consent of any person or take or not take any other action shall be subject to this principle;
if the aggregate of notarial costs and all registration and like taxes relating to the provision of security exceeds an agreed amount;
if the assets are, or the relevant member of the Group is, located outside the security jurisdictions, which are Slovenia, Bosnia and Herzegovina, the Netherlands and Luxembourg;
in the case of security from or over, or over assets of, any joint venture or similar arrangement, any minority interest or any entity that is not wholly -owned; and
in the case of assets subject to security in favor of a third-party. Representations and Warranties
The Existing Revolving Credit Facility Agreement contains certain customary representations and warranties (subject to customary qualifications and with certain representations and warranties being repeated).
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Covenants
The Existing Revolving Credit Facility Agreement contains certain of the incurrence covenants and related definitions (with certain adjustments) that are set forth in the indenture governing the Existing Notes. In addition, the Existing Revolving Facility Agreement requires the Group to comply with a springing financial covenant consisting of a maximum net Leverage Ratio.
Events of Default
The Existing Revolving Credit Facility contains events of default which are, with certain adjustments, the same as those applicable to the 2027 Notes and set forth in the section entitled ‘‘Description of the Additional Notes—Events of Default.’’ These events of default (which are subject to certain materiality exceptions and cure periods) entitle the Majority Lenders (as defined therein) to accelerate all or part of the utilization and terminate their commitments and to enforce the guarantees and security under or in relation to the Existing Revolving Credit Facility.
Bilateral Facilities
From time to time, the Group enter into bilateral facilities with certain of our local lenders. Following the United Group Acquisition, the following bilateral facilities have remained in place.
Bulgarian revolving facilities
DSK Bank AD - €50,000,000
Bulgarian Telecommunications Company EAD (“BTC”) entered into a €50 million Bulgarian law governed revolving credit facility agreement dated December 23, 2020. This facility may be used for working capital financing and refinancing of existing debt.
The facility is available for a tenor of 36 months, whereas the final maturity date for repayment of all amounts due under the credit is December 23, 2023. The availability period may be extended with annexes, whereas the total tenor shall not exceed 10 (ten) years as of the signing date of facility. The request for extension of the tenor shall be made not less than 60 days prior the expiration of the facility agreement.
The interest rate of this facility is equal to the one-month Euribor rate plus 1.49% per annum paid monthly, whereas the annual interest rate shall not be lower than 1.49%. Upon signing the agreement, BTC paid management fees in the amount of 0.25% on the total amount of the line. Commitment fees shall be paid on a quarterly basis in the amount of 0.20% on the unutilized amount of the facility, only in the case that on average, calculated each calendar quarter, the utilized amount of the facility does not reach € 35 million.
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The facility is secured with first ranking special pledge on (i) movable assets (electronic communications networks, facilities, equipment, as well as related infrastructure) with value of minimum of 120% of loan amount; and (ii) receivables from all current and future bank accounts of the debtor with the bank.
Serbian revolving facilities
Raiffeisen facility-€20,000,000
SBB Serbia entered into a €20 million Serbian law governed revolving credit facility agreement (the ‘‘€20 million Serbian Revolving Credit Facility Agreement’’) dated May 9, 2016 and as amended on March 7, 2017 (and as amended and/or amended and restated from time to time) with Raiffeisen banka a.d. Beograd (‘‘Raiffeisen’’). As support for this loan, SBB Serbia delivered to Raiffeisen five blank bills of exchange accompanied by authorizations for collecting under these bills of exchange. Pursuant to the loan agreement, the Company also issued a corporate guarantee in the amount of €20 million which covers SBB Serbia’s liabilities towards Raiffeisen which will remain valid until the full settlement of all of SBB Serbia’s obligations under the loan agreement. The loan provides for additional support to be delivered upon request.
The revolving facility made available pursuant to the €20 million Serbian Revolving Credit Facility Agreement (the ‘‘€20 million Serbian Revolving Credit Facility’’) may be utilized either in foreign currency or in euro (or in the Serbian dinar equivalent of euro). The €20 million Serbian Revolving Credit Facility may be used for the financing of general corporate and working capital purposes. The €20 million Serbian Revolving Credit Facility’s maturity date is September 29, 2023, upon which date SBB Serbia is required to repay the loan in full by way of a bullet payment.
Loans under the €20 million Serbian Revolving Credit Agreement bear interest at a rate per annum equal to one month EURIBOR plus a margin of 2.45%, or at a rate per annum equal to one month BELIBOR plus a margin of 1.2%. The election between fixed and variable interest rate is to be specified by the SBB Serbia in each drawdown notice. Interest is payable monthly.
The €20 million Serbian Revolving Credit Facility Agreement allows for voluntary repayments of outstanding borrowings subject to the delivery of a prepayment notice three business days prior to the date of such repayment. A prepayment fee of 1% of the prepayment amount applies if the requisite prepayment notice is not provided.
The €20 million Serbian Revolving Credit Facility Agreement contains certain customary representations (subject to certain exceptions and qualifications and with certain representations being repeated), including, but not limited to, status and incorporation, capacity and authority, authorizations, consents and third-party claims and provides for certain customary events of default including cross defaults.
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The €20 million Serbian Revolving Credit Facility Agreement requires SBB Serbia to maintain certain bank accounts in specified currencies. SBB Serbia is also required, among other things, to provide annual reports; allow access to its business books following a request from Raiffeisen; allow representatives of Raiffeisen to perform specified control procedures with respect to any utilization of the €20 million Serbian Revolving Credit Facility in order to determine whether it has been used for intended purposes; and to comply with certain intercompany subordination obligations.
Without the prior consent of Raiffeisen, SBB Serbia is restricted from, among other things, entering into any other loan facility, creating any encumbrance on its present or future assets in Serbia, changing (directly or indirectly) its existing ownership structure and acquiring stakes or shares in other companies.
UniCredit Facility—€10,000,000
SBB Serbia entered into a €10 million facility with UniCredit Bank Serbia JSC Belgrade on January 24, 2019 (the ‘‘UniCredit Revolving Credit Facility’’). This facility is available as a revolving line and is approved in euros, however payment and repayment may be made in Euros (in cases permitted under applicable FX regulations) or in Serbian dinars in which case applying the middle exchange rate of the National Bank of Serbia on the date of payment or repayment, as applicable. Credit under the facility will be available until January 23, 2022. The availability period may be extended based on written application made 15 days prior the expiration of the facility agreement. If the extension is approved, SBB Serbia is obligated to pay a fee of 0.10% of the entire amount under the facility agreement.
This facility may be used for general corporate purposes including working capital financing and mergers and acquisitions. As security under this facility agreement, SBB Serbia provided five signed blank bills of exchange and a corporate guarantee issued in favor of UniCredit Bank Serbia JSC Belgrade by Adria Midco. The interest rate of this facility is equal to the six-month Euribor rate plus 2.50% per annum paid monthly. SBB Serbia also paid a one-time fee equal to 0.10% of the entire amount of the line. The final repayment date of the facility is January 24, 2022.
Within the availability period, SBB Serbia is, inter alia, obligated not to initiate any dissolution proceedings without delivering prior notice and receiving approval. This facility contains a change of control provision that imposes an obligation on SBB Serbia not to change the ownership structure without prior consent of the lender under this facility, such that Adria Serbia Holdco B.V. directly or indirectly ceases to own 100% of the shares in SBB Serbia and Adria Midco ceases to directly or indirectly own at least 51% of the voting shares.
Other loan facilities
The Group has certain other loan facilities with local banks and certain other guarantees to fund acquisitions and for general business purposes, including but not limited to, the following:
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A €30 million facility with Eurobank a.d. Beograd (the “Eurobank Revolving Credit Facility”). This facility consists of two credit line agreements in an aggregate amount not to exceed the dinar equivalent (applying the middle exchange rate of the National Bank of Serbia on the day of disbursement) of €30 million which SBB Serbia entered into on June 21, 2018 and as amended on August 1, 2019 and April 13, 2020, with the repayment period for any loan made under these agreements not to exceed 30 months from the date of the last amendment and extension (i.e., April 13, 2020). Interest for loans made under these agreements is calculated at a rate equal to the sum of the applicable three month Euribor rate and 2.55% for the line of credit denominated in the dinar equivalent of €30 million and at a rate equal to the sum of the applicable three month Belibor rate and 1.45% for the line of credit denominated in dinars. As security, SBB Serbia delivered twenty blank bills of exchange accompanied by authorizations for collecting under these bills of exchange. Pursuant to the credit line agreements, the Company also issued a corporate guarantee in the amount of €30 million which covers SBB Serbia’s liabilities towards the lender which will remain valid until the full settlement of all of SBB Serbia’s obligations under the credit line agreements. The facility also contains a change of control provision that imposes an obligation on SBB Serbia to notify the lender of any change of 50% ownership or more, unless the acquirer is the Company or its affiliate, within 30 days of such change. If the lender determines that the new shareholder does not have the required creditworthiness, it can accelerate loans drawn under the credit line.
A €5 million facility with Eurobank a.d. Beograd (the “Additional Eurobank Revolving Credit Facility”). This facility consists of a credit line agreement in an aggregate amount not to exceed the dinar equivalent (applying the middle exchange rate of the National Bank of Serbia on the day of disbursement) of €5 million which SBB Serbia entered into on April 13, 2020, with the repayment period for any loan made under this agreement not to exceed 30 months from the date of the agreement. Interest for loans made under this agreement is calculated at a rate equal to the sum of the applicable three month BELIBOR rate and 1.45%.
A €4,570,557.99 facility with Erste Bank a.d. Novi Sad. On June 18, 2018, Direct Media, as borrower, entered into a long term loan agreement in the principal of €4,570,557.99 with Erste Bank a.d. Novi Sad, as lender. The proceeds of this loan were used to settle obligations towards previous owner. Direct Media is required to pay 48 monthly installments based on an annuity plan in the amount of €95,219.96. The loan agreement was amended on June 21, 2018 extending maturity until March 21, 2023. Interest is calculated at a rate equal to the sum of the applicable one month Euribor rate and 3.95%. As security, Direct Media delivered ten blank bills of exchange accompanied by authorizations for collecting under these bills of exchange, a pledge over all existing and future receivables of Direct Media under a business cooperation agreement with another entity and a pledge over all existing and future receivables of Direct Media under a business cooperation agreement with Media Point d.o.o. Beograd.
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Intercreditor Agreement
To establish the relative rights of certain of our creditors under our financing arrangements, the Parent, Adria Serbia Holdco B.V., SBB Serbia, Adria Cable B.V., Adria Media B.V., Bosnia Broadband S.à r.l., Slovenia Broadband S.à r.l., Telemach BH, Telemach Slovenia, Telemach Rotovž d.d. (now Telemach UG d.o.o.), Telemach Tabor d.d. (now merged with Telemach d.o.o.) and the Issuer (together with any other entity which accedes or otherwise becomes a party to the Intercreditor Agreement as a debtor, the “Debtors”) entered into an Intercreditor Agreement dated July 13, 2017 (as amended from time to time), with, among others, UniCredit Bank AG, London Branch as English security agent, UniCredit Bank Serbia JSC Belgrade as Serbian security agent and UniCredit Bank Serbia JSC Belgrade as Payment Agent. The Trustee in respect of the SSN Notes shall accede to the intercreditor agreement as a Senior Notes Trustee on the Issue Date.
The Intercreditor Agreement is governed by English law and sets out, among other things, the relative ranking of certain indebtedness of the Debtors, the relative ranking of certain security granted by the collateral providers, when payments can be made in respect of certain debt of the Debtors, when enforcement action can be taken in respect of that indebtedness, the terms pursuant to which certain of that indebtedness will be subordinated upon the occurrence of certain insolvency events and turnover provisions.
Due to, among other things, restrictions under Serbian law, the Intercreditor Agreement provides for the appointment of a security agent in relation to the Security Documents governed by the laws of Serbia and a security agent in relation to the Security Documents not governed by the laws of Serbia.
The Intercreditor Agreement additionally provides for Hedge Counterparties and Operating Facility Lenders to receive guarantees and indemnities from the Debtors on substantially the same terms (including the relevant limitations) as such guarantees and indemnities are provided by the obligors to the finance parties under the Senior Facilities Agreement.
The Intercreditor Agreement is governed by English law and sets out, among other things, the relative ranking of certain indebtedness of the Debtors, the relative ranking of certain security granted by the collateral providers, when payments can be made in respect of certain debt of the Debtors, when enforcement action can be taken in respect of that indebtedness, the terms pursuant to which certain of that indebtedness will be subordinated upon the occurrence of certain insolvency events and turnover provisions.
Due to, among other things, restrictions under Serbian law, the Intercreditor Agreement provides for the appointment of (x) a security agent in relation to the Security Documents governed by the laws of Serbia (the “Serbian Security Agent”) and (y) a security agent in relation to the Security Documents not governed by the laws of Serbia (the “English Security Agent”).
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The Intercreditor Agreement additionally provides for Hedge Counterparties and Operating Facility Lenders (each as defined below) to receive guarantees and indemnities from the Debtors on substantially the same terms (including the relevant limitations) as such guarantees and indemnities are provided by the obligors to the finance parties under the Senior Facilities Agreement.
Capitalized terms set forth and used in this section entitled “-Intercreditor Agreement” have the same meanings as set forth in the Intercreditor Agreement, which may have different meanings from the meanings given to such terms and used elsewhere in this report.
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