United Group

Q1 2018 HIGH YIELD BONDHOLDER REPORT

29 May 2018

Q1 2018 HIGH YIELD REPORT

CONTENTS Page

Q1 2018 Summary ...... 3 Key Operating Measures ...... 6 Results of Operations ...... 9 Liquidity and Capital Resources ...... 15 Subsequent (Material Recent) Events ...... 20 Mergers & Acquisitions ...... 21 Appendices ...... 26 Appendix 1 - Financial statements ...... 26 Appendix 2 - Key Factors Affecting Our Business and Results of Operations ...... 30 Appendix 3 - Definitions of Key Operating Measures ...... 38 Appendix 4 - Description of Key Line Items ...... 40 Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk ...... 42 Appendix 6 – Critical Accounting Policies ...... 43

Q1 2018 HIGH YIELD 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 contains 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 Report. 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 unaudited condensed financial information for Adria Midco B.V. and its subsidiaries for the three months ended March 31, 2018. The statement of financial position for Adria Midco B.V. and its subsidiaries as at 31 March 2018 and as at 31 March 2017, as well as the condensed consolidated interim statements of profit or loss and cash flows for Adria Midco B.V. and its subsidiaries for the three months periods then ended have been prepared in accordance with IFRS, however have not been reviewed by our independent auditors.

Certain financial measures and ratios related thereto in this Report, 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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Q1 2018 Summary

29 May 2018 – United Group, the leading cable and pay-TV operator in South Eastern Europe, today reports its financial results for Q1 2018.

Operational Highlights  Homes passed grew by 13% to 1,789 thousand compared to Q1 2017, primarily as a result of network expansion as well as the Ikom and Teleing acquisitions in Serbia and Slovenia, respectively  Number of unique cable subscribers increased to 1,144 thousand  RGUs1 up by 13% year-on-year to 3,620 thousand, driven by organic growth and acquisitions  Blended cable ARPU for Q1 2018 up by 7% year-on-year to €21.7 (Q1 2017: €20.3), driven by migration from lower-priced to higher-priced service packages, growth in subscribers for the multi-play offering, and price increases in Serbia and Slovenia

Financial Highlights  Consolidated Group revenue for Q1 2018 up 16% year-on-year to €140.5 million (Q1 2017: €121.4 million)  Consolidated Group adjusted EBITDA up by 17%2 in Q1 2018 to €62.2 million (Q1 2017: €53.3 million)  Net cash outflow of €0.4 million against an inflow of €52.0 million in Q1 2017

 Net leverage (ratio of Group Net Debt to Annualised Last Two Quarters Adjusted Pro Forma EBITDA3) as at March 31, 2018 down to 5.15x (5.20x as at December 31, 2017)

1 2017 restated – B2B subscribers reclassified from Other services RGU to Services RGU. This change has an effect on all subscriber, RGU, ARPU and churn data for 2017. All figures for 2017 have been restated in line with the new approach

2 Year-on-year comparison affected by positive effect of acquisitions realized during 2017, as well as changes in FX rates

3 Annualized Adjusted Pro Forma EBITDA is calculated as two times Q4 2017 + Q1 2018 Consolidated Adjusted L2Q EBITDA plus two times €0.2 million of 2 months 2017 Teleing EBITDA (Teleing consolidated in United Group from December 1, 2017) plus €1.0 million of IKOM synergies

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The following summary describes the operations in each of our reportable segments or subgroups:  SBB Serbia includes the results of cable services in Serbia and direct-to-home (“DTH”) operations in Serbia, Croatia (in 2017) and Macedonia, including the results of EUnet (merged with SBB in February 2017) and Ikom (acquired in April 2017). 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. Results for Q1 2017 include Totalna TV Croatia but during January 2018 Totalna TV Croatia was sold to V-Investment Holdings B.V.  Telemach Slovenia includes the results of our cable and mobile services in Slovenia and DTH operations in Slovenia.  Telemach BH includes the results of our cable and direct-to-home (“DTH”) services in Bosnia and Herzegovina.  Telemach Montenegro includes the results of our cable and DTH services in Montenegro.  United Media Group includes the results of our media and content business in the former Yugoslav region including the results of N1, Sport Klub, Grand Production, Orlando Kids and IDJ.  Other Businesses includes the results of our other operating businesses (such as NetTV) and our Holding companies.

United Group generated consolidated revenues of €140.5 million during Q1 2018. The 16% increase in revenue resulted primarily from organic growth of our subscriber base, migration of subscribers to multi-play packages and the impact of companies acquired in 2017. Adjusted EBITDA generated during Q1 2018 was up 17% to €62.2 million.

Summary financials table in € m Q1 2017 Q1 2018 Change

Revenue 121.4 140.5 16% Adjusted EBITDA 53.3 62.2 17% Result from operating activities 15.8 30.5 92% Profit before tax (2.5) 13.4 n/a

In Q1 2018:

 SBB generated 36% of consolidated revenues and 46% of consolidated Adjusted EBITDA  Telemach Slovenia generated 38% of consolidated revenues and 29% of consolidated Adjusted EBITDA  Telemach BiH generated 11% of consolidated revenues and 8% of consolidated Adjusted EBITDA

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 Telemach MNE generated 2% of consolidated revenues and 1% of consolidated Adjusted EBITDA  UM generated 10% of consolidated revenue and 17% of consolidated Adjusted EBITDA  Other Businesses generated 3% of consolidated revenue and (1)% of consolidated Adjusted EBITDA

Revenue, % of total Adj. EBITDA % of total Q1 2018 in € m net

SBB Serbia Segment 50.2 36% 28.6 46% Telemach Slo Segment 53.2 38% 17.7 29% Telemach BH Segment 16.0 11% 5.1 8% Telemach MNE Segment 3.3 2% 0.7 1% United Media Segment 13.5 10% 10.6 17% Other Businesses 4.3 3% -0.5 -1% Total 140.5 100% 62.2 100%

As of March 31, 2018, United Group had 3.62 million revenue generating units (“RGUs”), up 13% versus the same period last year (Q1 2017: 3.19 million) and down 6.8 thousand quarter-on-quarter (Q4 2017: 3.63 million) due to divestment of Totalna TV Croatia (33.4 thousand subscribers as of December 31, 2017). This positive trend compared to Q1 2017 was driven by organic growth and acquisitions of Teleing (Slovenia) and Kabel Group 85 (Serbia), as well as the acquisition of ASK subscribers (Bosnia). Blended cable average revenue per user (“ARPU”) for the period was €21.7 compared to €20.3 for Q1 2017, with the 7% year-on-year increase primarily driven by migration of existing subscribers from lower-priced to higher-priced service packages, growth in subscribers for the multi-play offering, and price increases in Serbia and Slovenia. Subscriber migration to multi-play packages is expected to continue as the cable market develops further. Capital expenditure (including capitalized inventory) amounted to €42.9 million in Q1 2018, compared to €35.4 million in Q1 2017. The majority of investments during this period were related to customer premise equipment, purchase of new programming rights and investment in a new building in Slovenia.

United Group’s three-month financial statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) Accounting Policies.

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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 our management, they may not be comparable to similar terms used by other companies. Please refer to Appendix 3 for definitions of our 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 three months ended March 31, 2018 and March 31, 2017.

in 000 Q1 2017 Q1 2018 Delta % Delta Key Operating Measures

Homes passed 1,582 1,789 13% 207 Unique cable subscribers 991 1,144 15% 152 RGUs 3,190 3,620 13% 430 Cable pay-TV 991 1,144 15% 152 DTH pay-TV 495 465 (6)% (30) OTT 119 130 9% 11 Broadband internet 662 789 19% 127 Fixed -line telephony 472 587 24% 115 Mobile services 414 471 14% 57 Other services 39 35 (8)% (3) Penetration Cable television 62.7% 63.9% 2% 1% Broadband internet 41.8% 44.1% 6% 2% Fixed-line telephony 29.8% 32.8% 10% 3% Blended Cable ARPU (in €) 20.3 21.7 7% 1.3

Homes passed increased by 13% year-on-year, from 1,582 thousand as of March 31, 2017 to 1,789 thousand as of March 31, 2018, driven by network expansion and acquisition of Ikom in Serbia and Teleing in Slovenia.

As of March 31, 2018, we had 1,144 thousand cable pay-TV RGUs, an increase of 153 thousand compared to 991 thousand as of March 31, 2017 resulting from organic growth and 112 thousand RGUs acquired in Serbia, Slovenia and Bosnia and Herzegovina.

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The total number of DTH pay-TV RGUs amounted to 465 thousand as of March 31, 2018, with the 6% decrease year-on-year attributable to the divestment of Totalna TV Croatia.

As of March 31, 2018, we had 789 thousand broadband internet RGUs, representing an increase of 19%, compared to 662 thousand at March 31, 2017. This is primarily attributable to an increase in multi-play subscriptions over this period, subscriber growth and 65 thousand RGUs acquired in Serbia and Slovenia through acquisition of Ikom and Teleing.

The total number of fixed telephony RGUs rose to 587 thousand as of March 31, 2018, an increase of 24% compared to 472 thousand at March 31, 2017. The positive trend is primarily due to an increase in multi-play subscriptions over this period and the acquisition of 25 thousand fixed telephony subscribers.

Our OTT RGUs grew by 9% to 130 thousand, compared to 119 thousand as of March 31, 2017. This figure includes 16 thousand OTT RGUs in Serbia and Slovenia. During March 2018, United Group acquired a subscriber base of 3.1 thousand OTT subs.

Our mobile service RGUs increased from 414 thousand as of March 31, 2017 to 471 thousand as of March 31, 2018. This is an increase of 57 thousand or 14%, driven by organic growth in Slovenia.

Our total RGUs increased by 13%, from 3,190 thousand as at March 31, 2017 to 3,620 thousand as of March 31, 2018. RGUs added over this period were a result of the acquisition of Ikom and Kabel Group in Serbia, Teleing in Slovenia and ASK in Bosnia and Herzegovina, organic growth of cable pay-TV, OTT, telephony and DTH service, as well as the growing proportion of multi-play subscribers.

The following table provides a breakdown of our key operating measures for SBB Serbia, Telemach Slovenia, Telemach BH and Telemach MNE. in 000 SBB Serbia Telemach Slovenia Telemach BH Telemach MNE Footprint Q1 2017* Q1 2018 QoQ Q1 2017* Q1 2018 QoQ Q1 2017* Q1 2018 QoQ Q1 2017* Q1 2018 QoQ

Homes passed 909 1,061 17% 308 330 7% 315 327 4% 50 70 40% Unique cable subscribers 571 701 23% 185 201 9% 209 214 3% 26 28 5% 63% 66% 60% 61% 66% 65% 53% 40% RGUs Cable pay-TV 571 701 23% 185 201 9% 209 214 3% 26 28 5% DTH pay-TV 265 231 -13% 37 43 16% 129 132 2% 64 59 -8% OTT 14 14 5% 1 1 32% Broadband internet 363 461 27% 145 159 9% 139 151 9% 14 18 Telephony 229 302 32% 167 180 7% 73 95 30% 2 10 Mobile services 414 471 14% Other services 21 21 3% 13 13 -1% 2 1 -30% 3 - -100% Total RGUs 1,462 1,730 18% 962 1,067 11% 552 594 8% 110 115 4%

The following table sets forth the blended cable ARPU for SBB Serbia, Telemach Slovenia, Telemach BH and Telemach MNE generated by the products and services we offer.

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SBB Serbia Telemach Slo Telemach BH Telemach MNE in € Q1 2017* Q1 2018 Q1 2017* Q1 2018 Q1 2017* Q1 2018 Q1 2017* Q1 2018 ARPU

Cable pay-TV 9.1 10.2 17.5 18.8 8.8 9.1 9.9 11.1 Broadband internet 9.8 10.0 16.6 17.5 9.2 9.2 9.8 8.2 Telephony 4.5 4.3 3.7 3.7 8.8 7.6 4.8 3.5 Mobile services 10.8 10.4 Blended Cable ARPU 17.1 18.6 33.8 35.9 17.9 18.8 15.5 17.3

DTH pay-TV 8.8 9.4 15.6 17.4 7.7 8.4 10.5 10.4

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. SBB Serbia: Blended cable ARPU for SBB Serbia in Q1 2018 amounted to €18.6. The 9% year-on-year increase was primarily a result of the continued positive impact of subscribers upgrading to multi-play packages and the price increase of the basic cable service starting from January 1, 2018. This growth would have been higher without the acquisition of Ikom, which had lower ARPU than SBB. DTH ARPU at SBB Serbia increased to €9.4 in Q1 2018, from €8.8 in Q1 2017, as a result of a price increase in July 2017. Telemach Slovenia: Blended cable ARPU for Telemach Slovenia in Q1 2018 amounted to €35.9. The 6.3% year-on-year increase in blended cable ARPU per customer was driven by growth in the number of our multi-play subscribers. The price increase, effective as of April 2017, has had a positive impact on pay-TV and Internet revenues. The segment’s mobile ARPU for Q1 2018 amounted to €10.4. DTH ARPU at Telemach Slovenia increased to €17.4 in Q1 2018, from €15.6 in Q1 2017 as result of the price increase in April 2017. Telemach BH: Blended cable ARPU for Telemach BH in Q1 2018 increased by 5.3% year-on-year to €18.8 as a result of growth in the number of subscribers for our multi-play offering. DTH ARPU at Telemach Bosnia increased to €8.4 in Q1 2018, from €7.7 in Q1 2017 as result of price increase in April 2017. Telemach MNE: Blended cable ARPU for Telemach MNE in Q1 2018 increased by 11.4% year-on-year to €17.3, mainly as a result of the acquisition of M-Kabl.

DTH ARPU decreased to €10.4 in Q1 2018, from €10.5 in Q1 2017.

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Results of Operations

In this report, we present financial data for United Group for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Please refer to Appendix 2 for the key factors affecting our business and results of operations. For a description of the key line items, please refer to Appendix 4.

in €000 Q1 2017 Q1 2018

Revenue 121,376 140,530 Other income 767 11,061 Content cost (18,645) (23,198) Satellite capacity cost (1,576) (1,662) Interconnection link cost (9,329) (9,835) Materials cost (8,136) (10,265) Staff costs (12,399) (14,231) Other operating expenses (22,203) (24,016) IFRS EBITDA 49,855 68,384

Depreciation (20,572) (22,749) Amortisation of intangible assets (13,457) (15,180) Results from operating activities 15,826 30,455

Finance income 433 902 Finance costs (18,768) (18,003) Net finance costs (18,335) (17,101)

Profit/(loss) before tax (2,509) 13,354

Income tax (expenses)/benefit (898) 2,533 Minority share Profit/(Loss) for the period (3,407) 15,887

Revenue

Revenue increased by €19.1 million, or 15.8% to €140.5 million for Q1 2018. This increase was primarily due to growth in the number of our subscribers, an increase in blended cable ARPU (due to price increases and successful cross-selling), higher revenues from our media business and the acquisitions of Ikom, Fight Channel, IDJ, Kabel Group 85 d.o.o. and Teleing in 2017.

Revenue figures for the business segments below exclude intra-company transactions, which have been eliminated.

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in € m Q1 2017 Q1 2018 Change

SBB Serbia 43,021 50,155 17% Telemach Slovenia 45,756 53,247 16% Telemach BiH 14,766 16,031 9% Telemach MNE Segment 3,390 3,318 (2)% United Media 10,320 13,507 31% Other 4,123 4,272 4% Total 121,376 140,530 16%

SBB Serbia: Revenue for our SBB Serbia segment increased by 16.6% year-on-year to €50,155 thousand in Q1 2018 from 43,021 thousand in Q1 2017, primarily due to growth in the number of subscribers (particularly through successful cross-selling) and RGUs. Additionally, we implemented a price increase in Serbia as of January 1, 2018, and successfully closed the acquisitions of Ikom in April 2017 and Kabel Group 85 in October 2017.

Telemach Slovenia: Revenue for our Telemach Slovenia segment increased by 16.4% year-on-year to €53,247 thousand in Q1 2018 from €45,756 thousand in Q1 2017, primarily due to an increased number of subscribers in mobile telephony, a higher number of cable and DTH subscribers and price increases. Revenue growth at Telemach Slovenia was further supported by the 2017 acquisition of Teleing.

Telemach BH: Revenue for our Telemach BH segment increased by 8.6% to €16,031 thousand in Q1 2018 from €14,766 thousand for Q1 2017, primarily due to organic growth, as well as an increase in the number of subscribers for the multi-play offering (digital TV, broadband internet and fixed-line telephony).

Telemach MNE: Revenue for our Telemach MNE segment decreased by 2.1% year-on- year to €3,318 thousand in Q1 2018 from €3,390 thousand in Q1 2017 due to our decision to discontinue the legacy MMDS service in Montenegro.

United Media Group: External revenue at United Media Group increased by 30.9% year-on-year to €13,507 thousand in Q1 2018, primarily driven by increased sales of distribution rights to various channels and a price increase for our own channels to third parties. Total revenues of the Media Segment (including IC) grew by 21.0%.

Other Businesses: Revenue for our Other Businesses segment increased by €149 thousand, or 3.6%, to €4,272 thousand in Q1 2018, from €4,123 thousand generated in Q1 2017, primarily due to additional subscribers to our OTT business.

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Other income

Other income increased to €11,061 thousand in Q1 2018 from €767 thousand in Q1 2017, primarily due to the divestment of Totalna TV Croatia (€10.5 million).

Content cost

Content cost increased by 24.4% year-on-year to €23,198 thousand in Q1 2018 from €18,645 thousand in Q1 2017, primarily due to the higher costs of existing channels resulting from content acquisitions and price increases, and the acquisition of additional channels for our subscribers, such as Arena Sport channels in Bosnia and Herzegovina.

Satellite capacity cost

Satellite capacity cost increased by 5.5% year-on-year to €1,662 thousand in Q1 2018 compared with to €1,576 thousand in Q1 2017, primarily due to rent of additional capacity on Eutelsat transponders.

Internet and other link cost

Link and interconnection cost increased by 5.4% year-on-year to €9,835 thousand in Q1 2018 from €9,329 thousand in Q1 2017, primarily due to higher mobile telephony costs as a result of the growth of our mobile business in Slovenia and additional internet link capacity costs in Serbia.

Materials cost

Materials cost increased by 26.2% year-on-year to €10,265 thousand in Q1 2018 from €8,136 thousand in Q1 2017, primarily due to the higher cost of sales of mobile handsets in Telemach Slovenia.

Staff costs

Staff costs increased by 14.8% year-on-year to €14,231 thousand in Q1 2018, primarily due to continued expansion in 2017.

Depreciation

Depreciation increased by 10.6% year-on-year to €22,749 thousand in Q1 2018, primarily due to the expansion of our cable and mobile networks and new assets resulting from acquisitions.

Amortization of intangible assets

Amortization of intangible assets increased by 12.8% year-on-year to €15,180 in Q1 2018, due to price increases for our capitalized sports rights and the intangible assets of acquired companies.

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Other operating expenses

Other operating expenses increased by 8.2% year-on-year to €24,016 thousand in Q1 2018, from €22,203 thousand in Q1 2017. This increase was primarily due to higher costs of trade receivable impairment allowances and higher infrastructure rental costs.

Net finance costs

Net finance costs decreased by 6.7% year-on-year to €17,101 thousand in Q1 2018, primarily attributable to positive foreign exchange rate movements in Serbia.

Profit/(loss) before tax

Profit before tax increased to €13,354 thousand in Q1 2018, from a loss of €2,509 thousand in Q1 2017, primarily due to increased operating and other income.

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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. We define “EBITDA” as Profit/ (Loss) for the period plus income tax (benefit)/expense, depreciation, amortisation 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 our operating performance, (b) cash flow for the period as a measure of our ability to meet our cash needs, or (c) any other measure of performance or liquidity under IFRS. We present EBITDA and the ratios derived therefrom, because we believe that they are measures commonly used by investors and they are measures that we use in managing our 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 Q1 2017 Q1 2018 Change

Profit/(Loss) for the period (3,407) 15,887 n/a Income tax (benefit)/expense 898 (2,533) n/a Depreciation 20,572 22,749 11% Amortization of intangible assets 13,457 15,180 13% Net finance costs 18,335 17,101 (7)% EBITDA 49,855 68,384 37% Non-operating expenses 3,481 (6,217) n/a Adjusted EBITDA 53,336 62,167 17%

The following table provides a build-up of Annualized Last Two Quarters Adjusted Pro Forma EBITDA in €000 L2QA

Annualised L2Q Adjusted EBITDA 235,104

Teleing 469 Adjustment for additional expected IKOM synergies 1,000 Annualised Last Two Quarters Adjusted Pro Forma EBITDA 236,573

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Gross Leverage and Net Leverage Ratio Our gross leverage ratio (i.e. ratio of Group Gross Debt to Annualized Last Two Quarter EBITDA) and net leverage ratio (i.e. ratio of Group Net Debt to Annualized Last Two Quarter EBITDA) as at March 31, 2018, decreased to 5.29x and 5.15x, respectively, compared to 5.34x and 5.20x as at December 31, 2017. Gross indebtedness was reduced by €200.0 million for the gross leverage calculation, which is the amount deposited on a special account for the acquisition of CME assets in Slovenia and Croatia. The adjustment was made due to the fact that CME EBITDA is not included in Group EBITDA, which is used in the leverage calculation.

In €000 Q1 2018 a) Annualized Last Two Quarters EBITDA 236,573 b) Cash and cash equivalents 32,176 c) Finance lease 5,004 d) SSRCF 89,000 e) Senior Secured Notes due 2020 1,350,000 f) Other financial liabilities 6,615 g) As adjusted Group Gross debt (c+d+e+f) 1,450,619 h) Adjustment for CME financing (already drawn) (200,000) i) Adjusted gross debt used in the calculation (g+h) 1,250,619 j) As adjusted Group Net debt (i-b) 1,218,443

k) Gross leverage (i/a) 5.29x l) Net leverage (j/a) 5.15x

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Liquidity and Capital Resources

Our primary sources of liquidity and funds for capital expenditure, acquisitions and other investments are expected to be operating cash flow, our new Revolving Credit Facility, potential additional issuances of debt securities, ancillary and bilateral lending facilities and finance leases. Our ability to generate cash from our operations will depend on our 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 our control. We maintain cash and cash equivalents to fund the day-to-day requirements of our business. We hold cash in a range of currencies including the euro, the Serbian dinar, the Bosnia and Herzegovinian mark and the U.S. dollar. Historically, we have relied primarily upon bank borrowings under senior secured credit facilities, other debt facilities and cash flow from operations to provide funds required for investments in capital expenditure and operations.

As at March 31, 2018, we had €32.2 million in cash and cash equivalents. In addition, as at March 31, 2018, a €1,350.0 million Bond was in place, along with a partially drawn Revolving Senior Secured Credit Facility of €100.0 million, an €80.0 million unsecured bilateral RCF in Serbia, finance leasing in the amount of €5.0 million and other financial liabilities of €6.6 million. Cash Flow The table below summarises the consolidated cash flow for the Group for the three months ended March 31, 2018, compared to the three months ended March 31, 2017.

In €000 Q1 2017 Q1 2018 Change Operating net cash flow 47,421 25,814 (21,607) Investing net cash flow (38,305) (39,302) (997) Financing net cash flow 42,871 13,103 (29,768) Net cash flow 51,987 (385) (52,372)

Net cash from / (used in) operating activities

Net cash flows from operating activities decreased by €21,607 thousand, from a net cash inflow of €47,421 thousand in Q1 2017 to a net cash inflow of €25,814 thousand in Q1 2018, mainly due to a €25.0 million interest payment in January 2018.

Net cash from / (used in) investing activities

Net cash outflows used in investing activities increased by €997 thousand, from a net cash outflow of €38,305 thousand in Q1 2017 to a net cash outflow of €39,302 thousand in Q1 2018. This is due to investment in end-user equipment and the new building in Ljubljana.

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Net cash from / (used in) financing activities

Net cash flows from financing activities decreased by €29,768 thousand, from a net cash inflow of €42,871 thousand in Q1 2017 to a net cash inflow of €13,103 thousand in Q1 2018, due to lower RCF proceedings.

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Capital Expenditure

United Group’s capital expenditure relates primarily to the purchase of property and equipment, including expansion of our 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 our cable and mobile networks and infrastructure, purchase of intangible assets such as content, software, investments in our core infrastructure and systems to facilitate the addition of new services and acquisitions. Therefore, capital expenditure is primarily driven by extending, upgrading and maintaining our 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 our high-speed broadband internet, and the acquisition of content. Our 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 our customer list and brand names) and does not include financial assets. As part of our strategy to focus on capital expenditure improving returns, we have implemented measures to ensure a more efficient usage of capital investment. We intend to manage capital expenditure to maintain our well-invested asset base. The members of our board review all material capital expenditure programs.

Over the next several years, we expect that our capital expenditure will be largely success and capacity based. Success and capacity-based capital expenditure includes capital expenditure related to the expansion of our 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 connecting business subscribers to our network. Success based capital expenditure does not include capital expenditure for maintenance, upgrade and replacement of our systems and infrastructure.

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Our capital expenditure for Q1 2018 amounted to €42.9 million4, compared to €35.4 million in Q1 2017.

CAPEX by Segment * (management view) in €000 Q1 2017 Q1 2018 Change

SBB Serbia 16,272 11,285 (31)% Telemach Slovenia 10,224 18,091 77% Telemach BiH 3,675 4,168 13% Telemach MNE Segment 533 1,234 131% United Media 3,391 7,142 111% Other 183 1,176 541% Total 34,279 43,095 26%

SBB Serbia: Capital expenditure for SBB Serbia decreased by 31% year-on-year to €11,285 thousand in Q1 2018, due to a lower level of capitalized inventories related to the digitalization project compared to Q1 2017. Telemach Slovenia: Capital expenditure for Telemach Slovenia increased by 77% year- on-year to €18,091 thousand in Q1 2018, due to higher acquisition costs and the purchase of a new building in Ljubljana (€3.8 million).

Telemach BH: Capital expenditure at Telemach BH in Q1 2018 increased by 13% year- on-year to €4,168 thousand, due to higher network investments and acquisition costs.

Telemach MNE: Capital expenditure for the Montenegro segment increased by 131% to €1,234 thousand in Q1 2018 due to continuing investments in the fixed network.

United Media: Capital expenditure for United Media increased by €3,751 thousand to €7,142 thousand in Q1 2018 due to the timing of the broadcasting rights acquisition, purchase of FIBA, UFC, Hours Deal and PGA rights and investment in proprietary software development (Cloud project).

Other: Capital expenditure for this segment increased to €1,176 thousand in Q1 2018 due to the purchase of the BHOTT subscriber base, which is now part of our OTT platform.

Please refer to Appendix 5 for specific quantitative and qualitative disclosures about market risk and Appendix 6 for our critical accounting policies.

4IFRS view of capex. This figure includes capitalised inventory. Management CAPEX for Q1 2018 amounted to €43.1 million compared to €34.3 million in Q1 2017 (shown in table below).

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Adjusted EBITDA-CAPEX increased from €17,891 thousand in Q1 2017 to €19,274 thousand in Q1 2018.

In €000 Q1 2017 Q1 2018 Change

Adjusted EBITDA 53,336 62,167 17%

CAPEX * (IFRS view) 35,445 42,893 21%

Adjusted EBITDA – CAPEX 17,891 19,274 8%

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Subsequent (Material Recent) Events

 On April 12, 2018, we announced that Slovenia Broadband has agreed to extend the long stop date for the CME Acquisition to June 30, 2018.

 On April 17 2018, SBB paid an additional earn out amount of €211 thousand to the former owners of Kabel Group 85, Čačak.

 On May 7 2018 we have received regulatory approval for the acquisition of CME assets from the relevant Croatian regulatory bodies We continue to assess all strategic options available to us to fully exploit our business growth potential.

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Mergers & Acquisitions

 On January 3, 2018, Ikom merged with SBB d.o.o., Serbia.

 On March 1, 2018, Kabel Group merged with SBB d.o.o., Serbia. Both mergers are part of routine corporate structure optimization.

 On January 12, 2018, Totalna TV Croatia was sold to V-Investment Holdings for the amount of €3.0 million equity value.

 In March 2018, Solford acquired BH OTT, Sarajevo (3,135 active IPTV subscribers) for a total consideration of €1.0 million (€320 per active subscriber).

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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Group Background

We are the leading distributor of cable and satellite pay-TV in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro, where we also provide broadband internet and fixed-line telephony services via our cable infrastructure. Additionally, we offer mobile telephony services in Slovenia and distribute satellite pay-TV across the six countries of former Yugoslavia, Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Macedonia and Montenegro.

We are the only pan-regional distribution platform in a region of approximately 20 million people and we are the leading multi-play provider in our primary markets, where we combine our 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. This model provides us with significant opportunities to cross-sell our products.

We believe that we have been able to establish our business as one of the leading distribution platforms in our region due to our attractive content portfolio. This has been established through our ownership of specific key pay-TV channels, long-term contracts with third parties, our well-invested network that provides, among other things, one of the highest internet download speeds in our markets, and our high-quality customer service which has led to low churn rates that we believe evidencing a satisfied customer base.

Management Team

Many of our key management members have been with our business since its inception, including our Executive Chairman and Founder, Dragan Šolak, our Group Vice President - Sales and Marketing, Victoriya Boklag and our Group Vice President - Operations, Violeta Vasilijević. Our 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 our senior management team, including our founder, have held different positions within our 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 the management team 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 – Director - Group Vice President - Sales & Marketing: Ms. Boklag has been with the management team since the Group’s inception, and prior to assuming her current role, she held various functions including Director of Finance. Ms. Boklag holds a BA degree from the ICU Kiev.

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Violeta Vasilijević - Group Vice President – Operations: Ms. Vasiljević has been with the management team since the Group’s inception. She is currently responsible for technical and operating support to all the Group’s administrative functions and products. Ms. Vasiljević holds a degree in Mechanical Engineering from the University of Kragujevac. 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 to 2011 and Deutsche Bank before joining the Group. He holds a degree in Economics from Rutgers University in New Jersey, USA. Janez Živko – Director - Group Vice President - Finance: Mr. Živko joined the management team in September 2015. Prior to joining us, Mr. Živko served as 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 financial controller for European operations at ACT Teleconferencing in Denver, Colorado. He holds a Masters in Business Administration (in Finance) from the University of Denver, 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), 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. Željko Batistić - Group Vice President - Technology: Mr. Batistić first joined the management team in May 2012. Prior to this, Mr. Batistić was an experienced CATV manager and served at a Croatian cable operator 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. Aleksandar Seratlić – Chief Executive Officer – SBB: Before his appointment as CEO of SBB in October 2017, Mr. Seratlic was CEO of Merkator S and IDEA, where he headed large teams, set marketing strategies and managed the positioning of these leading companies in Serbia. His areas of expertise include strategic planning, change management, customer and employee engagement, leadership development and community relations. He holds a Master’s degree in Economics and Finance from the University of Zagreb. Aleksandra Subotić – Chief Executive Officer – United Media: Ms. Subotić joined the management team in 2014. In addition to her Chief Executive Officer role at United Media, Ms. Subotić is also the Media Content Director at SBB Serbia. Previously, Ms. Subotić held positions as General Manager at NetTV Plus and at Total TV Info. Prior to joining us, Ms. Subotić worked as General Manager at Daniel SatTV, a satellite and cable network development company in Serbia. She holds an MBA degree in Economics from Educons University.

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Adrian Ježina - Chief Executive Officer - Telemach Slovenia: Prior to joining Telemach Slovenia, Adrian Ježina was the CEO of Siemens Convergence Creators Adria Region. He gained his experience in telecommunications, mobile communications and strategic management in Telekom Austria, Mobitel Bulgaria, Vipnet and B.net Croatia. He has a Master's degree in Economics and has expanded his skills and knowledge at numerous renowned institutions across Europe and the USA. 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. Previous positions include membership 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. Srđan Radić - Director of B2B Operations: Mr. Radić joined the Group in 2010. He was responsible for the Group’s direct to home (DTH) satellite offering under the Total TV brand and now for the Group’s business to business operations. Prior to joining the Group, he was the Chief Commercial Officer of MTEL Montenegro (a leading mobile telephony operator), and before that, Head of Corporate Sales at Telekom Srbija. He holds an MA in Technical Sciences from the Faculty of Organizational Sciences, Belgrade University. Tanja Milošević – CEO Telemach Montenegro: Before being appointed CEO of Telemach Montenegro in 2014, Mrs Milošević was responsible for operations in Broadband Montenegro for five years. Her previous experience is related to managing investments and business development projects in tourism, hospitality and marketing. She holds a BA degree in International Affairs and Business Administration from John Cabot University, Rome and an Executive MBA degree from ESCP Europe, Paris.

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Shareholder Structure

Investment funds advised by affiliates of KKR, as well as certain co-investors (including the European Bank for Reconstruction and Development (the ‘‘EBRD’’)), indirectly hold approximately 70.3% of United Group, while approximately 26.2% is held by management and 3.5% is indirectly held by Middlesbor Associates Limited. KKR was founded in 1976 and is currently led by Henry Kravis and George Roberts. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platforms. KKR has in-depth experience in telecommunications and media sector, through its current and former investments including TDC, Versatel, Nielsen, and ProSiebenSat 1. The EBRD, owned by 66 countries and two intergovernmental institutions, supports the development of market economies and democracies in central Europe, central Asia and the southern and eastern Mediterranean. In Serbia alone, the EBRD has invested €4.8 billion in 220 projects to date. The Bank’s investments cover industry, commerce, agribusiness, energy as well as the financial and infrastructure sectors.

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Appendices

Appendix 1 - Financial statements Income Statement (Adria Midco)

in €000 Q1 2017 Q1 2018

Revenue 121,376 140,530 Other income 767 11,061 Content cost (18,645) (23,198) Satellite capacity cost (1,576) (1,662) Interconnection link cost (9,329) (9,835) Materials cost (8,136) (10,265) Staff costs (12,399) (14,231) Other operating expenses (22,203) (24,016) IFRS EBITDA 49,855 68,384

Depreciation (20,572) (22,749) Amortisation of intangible assets (13,457) (15,180) Results from operating activities 15,826 30,455

Finance income 433 902 Finance costs (18,768) (18,003) Net finance costs (18,335) (17,101)

Profit/(loss) before tax (2,509) 13,354

Income tax (expenses)/benefit (898) 2,533 Minority share Profit/(Loss) for the period (3,407) 15,887

Other comprehensive loss Currency translation differences (1,378) 87 Other comprehensive loss (income) for the period (1,378) 87

Total comprehensive loss (income) for the period (4,785) 15,974

(Loss)/profit attributable to: Owners of the Company (4,280) 15,337 Non-controlling interests 873 550 (Loss)/profit for the period (3,407) 15,887

Total comprehensive (loss)/income attributable to: Owners of the Company (5,658) 15,424 Non-controlling interests 873 550 Total comprehensive (loss)/income for the period (4,785) 15,974

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Statement of Financial Position

in €000 Q1 2017 Q1 2018 Assets Property, plant and equipment 357,747 379,132 Goodwill 653,009 649,324 Intangible assets 241,448 252,103 Investment property 422 374 Loans to related parties 32,007 32,011 Other financial assets 5,541 15,194 Non current prepayments 30 39 Contract assets 7,714 Deferred costs 1,329 2,033 Deferred tax assets 10,168 9,217 Non-current assets 1,301,701 1,347,141

Programming rights held for sale Inventories 5,396 7,360 Trade and other receivables 87,889 116,092 Short term loan receivables and deposits 5,542 204,902 Prepayments 20,652 32,654 Contract assets ST 5,338 Income tax receivable 3,626 1,420 Cash and cash equivalents 65,925 32,176 Current assets 189,030 399,942 Total assets 1,490,731 1,747,083

Equity Issued and fully paid share capital 125 125 Share premium 568,592 337,557 Translation and other reserves (24,882) (13,939) Accumulated losses (122,699) (214,398) Equity attributable to owners of the Company 421,136 109,345 Non-controlling interests 10,516 11,099 Total equity 431,652 120,444

Liabilities Loans and borrowings 84,058 92,581 Other financial liabilities 775,067 1,328,632 Long term liabilities 94 281 Long term provisions 8,292 10,810 Deferred revenue 6,191 6,601 Finance lease liabilities 4,404 861 Deferred tax liabilities 27,144 28,825 Employee benefits 592 637 Non-current liabilities 905,842 1,469,228

Trade and other payables 106,031 120,866 Interest payable 23,575 14,444

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Current tax liabilities 739 3,644 Loans and borrowings 5,369 1,038 Deferred revenue 8,807 13,276 Finance lease liabilities 8,716 4,143 Current liabilities 153,237 157,411 Total liabilities 1,059,079 1,626,639 Total equity and liabilities 1,490,731 1,747,083

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Statement of Cash Flows *

in €000 Q1 2017 Q1 2018 Cash flows from operating activities Profit/(Loss) for the period (3,407) 15,887 Adjustments for: Depreciation 20,572 22,749 Amortisation 13,457 15,180 Impairment of trade and other receivables 1,040 2,152 Impairment of PPE and Intangibles 185 101 Tax (income)/expense 898 (2,533) Net finance cost 18,335 17,101 Operating cash flows before WC changes 51,080 70,637

Changes in working capital: Trade and other receivables (6,770) (9,231) Deferred revenue 279 (1,905) Deferred cost 93 1,142 Contract assets - (13,052) Provision in employees benefits (7) (2) Inventories (354) (498) Prepayments 396 (541) Trade and other payables 4,673 5,014 Cash generated from operations 49,390 51,564

Interest paid (493) (25,002) Income tax paid (1,476) (748) Net cash from operating activities 47,421 25,814

Cash flows from investing activities Purchase of property, plant and equipment (24,856) (32,878) Purchase of intangible assets (8,380) (12,097) Change in short term loan receivables (69) 4,446 Change in other non-current financial asset (5,000) 1,227 Net cash used in investing activities (38,305) (39,302)

Cash flows from financing activities Proceeds from borrowings 62,500 34,000 Repayment of borrowings (15,717) (19,240) Aquisition of NCI (389) (13) Repayment of finance lease (3,523) (1,644) Net cash used in financing activities 42,871 13,103

Net increase in cash and cash equivalents 51,987 (385) Cash and cash equivalents at 1 January 13,941 32,560 Effects of movements in exchange rates on cash held (3) 1 Cash and cash equivalents at end of period 65,925 32,176

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Appendix 2 - Key Factors Affecting Our Business and Results of Operations The performance of our businesses, our 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

Our results are impacted by our product mix as well as our ability to introduce new products and upgrades and successfully sell those products and upgrades to increase our RGUs and ARPUs. We continually evaluate the suite of products and services we provide to our subscribers to ensure that we remain competitive with other providers in our markets and have an opportunity to increase our subscriber base and the number of products we sell to our subscribers. We accomplish this through product innovation, investments in technology and acquisitions of complementary businesses. For example, we have expanded our 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.

We believe 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 of March 31, 2018, 76% of our customer base in Slovenia, 66% of our customer base in Serbia and 72% of our customer base in Bosnia and Herzegovina subscribed for one of our multi-play packages.

We seek to be the leader in our markets in pay-television content and have entered into long-term strategic partnerships with key international and regional content owners. We have 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 our fishing and hunting channels) and Cinemania. Our ability to maintain the quality of our content impacts our ability to sell our pay television offerings, as well as bundled packages.

Our product mix can also impact our margins. For example, our mobile telephony business and our content business generally have lower margins compared to our cable-based business. Our success in growing these businesses will therefore regularly affect our Adjusted EBITDA margins.

Pricing of our Products and Services

We regularly review the prices of our products and services and in the past have adjusted our 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 our products and services will impact the revenues and margins that we generate from these

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products and services and impact our ability to attract new customers. For example, our multi-play bundles offer subscribers higher value in terms of channels, speeds functionality and add-on features. The pricing of all our services, including our multi-play bundles, is dependent on market conditions, pricing by competitors with similar offerings and the perceived quality of our products versus other products. In relation to our Basic TV package, we were also subject to price regulation in Serbia until January 2017. From January 2017, the price of our Basic TV package in Serbia is no longer subject to price regulation, however, such price regulation might be reinstated in the future.

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 our prices or our competitors’ prices, our 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 reduced revenues and increased costs as we incur additional marketing and advertising costs when subscribers cancel our services to find new subscribers.

 Increasing demand for attractive content and higher broadband speeds allows us to increase the prices at which we provide these services while maintaining relatively low churn rates. We believe our relatively low churn rates provide us with recurring cash flows and visibility with respect to future revenues. We have historically experienced low churn rates in our television, broadband internet and fixed-line telephony businesses, and the churn we have experienced in these businesses has primarily been driven by customers moving outside of our 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. We believe that launching telephony in our markets, further driving digitization

 Providing our subscribers with multi-play packages (including quad-play in Slovenia, as described in more detail below)

 Expanding our cable footprint to broaden our geographic reach and benefiting from increasing disposable incomes in the region (reducing the likelihood of customers’ bad debt), will allow us to maintain low churn rates for cable pay-TV.

The churn rates for our mobile postpaid subscribers are higher than the churn rates for our fixed-line telephony services, as it is easier for mobile subscribers to switch to our competitors as there are no infrastructure limitations. We believe that our control of a mobile network in Slovenia, following our acquisition of Tušmobil, has allowed us to develop an attractive suite of fixed-mobile convergence services in Slovenia which, among other things, has had the effect of reducing the churn of our mobile postpaid subscribers in Slovenia. Since our acquisition of Tušmobil, our number of quad-play subscribers in Slovenia has increased to 32% of our subscribers in Slovenia as of March 31, 2018, from 1% of our subscribers prior to

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the acquisition. In addition, we have successfully reduced the blended annual churn rate (“blended annual churn” is defined as net lost subscribers divided by the number of all unique cable subscribers at the beginning of period, which result is then annualized) of our mobile postpaid subscribers to 13.2% in March 2018 primarily due to our attractive products and services and an increase in the number of our new mobile postpaid subscribers (each with new contractual obligations). The churn rate of mobile prepaid subscribers is relatively higher because of the non-contractual nature of the relationship with such subscribers.

Cost of Services Provided

Our most significant costs include:

(i) carriage fees which we pay to international and regional broadcasters such as Fox, Discovery and Pink, in order to carry their programmers on our distribution network, (ii) licensing fees payable to sports rights owners such as the English Premier League, National Basketball Association, the Spanish Premier League, ATP and Formula 1 in order to develop content for our own channels, (iii) satellite capacity costs, (iv) payroll costs, (v) internet and interconnection fees, (vi) costs of materials used to connect subscribers to our network and (vii) costs for marketing and sales. Most of our costs, such as a portion of our network operations, customer care, billing and administration costs, are relatively fixed, while a portion of our marketing and customer services costs is variable. Our content acquisition costs are mostly fixed and a decreasing portion of these costs are subscriber-based. Where possible, we aim to negotiate fixed-rate content costs. This allows us to anticipate the input price of our content and price our products accordingly. The costs associated with the growth of our 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 our costs is content costs, accounting for 27.9% of our operating expenses (not including depreciation and amortization of intangible assets) in Q1 2018. While we own a portion of our content, we are dependent on broadcasters and other content owners for most of our programming. We pay license fees to several regional and international broadcasters in order to broadcast their programmers. For on-demand content purchased by our subscribers, we generally pay a revenue share of the retail price, subject, for certain on-demand content, to fixed minimum guarantees. For packaged on-demand content (subscription VoD) we pay on a per-subscriber basis, sometimes with minimum guarantees. We generally expect that our content costs (above the minimum amounts) will increase in line with increased revenues from digital pay-TV and on-demand content. In the past we have successfully obtained rebates and discounts for our content, but these may not continue in the future.

We pay fees to satellite operators to uplink and transmit our content to our DTH subscribers, and we also use other network operators to have telephone calls of our customers connected to customers of their respective networks (interconnection). Generally, the amount we pay in interconnection fees in any period will depend on the level of usage of our services.

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Our staff cost is impacted by the number of personnel we employ, 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 our network and acquisition of subscribers, are capitalized as tangible and intangible assets.

RGU acquisition costs include campaign costs and sales costs. We target to recover RGU acquisition costs over the duration of the service contract. Factors that contribute to successful recovery of RGU acquisition costs include our operational efficiency, the density of our subscriber base and our direct relationships with our subscribers, which enables us not to rely on intermediaries to interact with our customers.

Network and Technological Advances

Our 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 our ability to upgrade and maintain our network. We incur capital expenditure charges in periods over which these upgrades are made, with the aim of recouping these investments through increased revenues and profitability.

Our ability to compete effectively and maintain or increase our customer base depends on our 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 the changing market. We invest in new or enhanced technologies, products or services in periods over which industry standards change, or to upgrade our technologies. Additionally, we incur capital expenditure costs relating to the replacement of existing equipment.

Foreign Currency Exchange Rates

We operate across the Balkan region generating revenues in many local currencies, which fluctuate from time to time in relation to the Euro. Our revenues in Slovenia and Montenegro are generated in Euro. SBB Serbia and Telemach BH record their financial results in their respective functional currencies (the Serbian dinar and the Bosnian and Herzegovinian mark, respectively), which are then translated into Euros in preparing our consolidated financial statements. In the Q1 2018, 63.4% of our revenue was generated in Euros or currencies pegged to the Euro. We generated 36.6% of our revenue in Q1 2018, in Serbian dinar. While the Bosnian and Herzegovinian mark is pegged against the Euro at a fixed exchange rate of BAM 1.9558 per €1.00, the Serbian dinar freely fluctuates against the Euro. For March 31, 2018, the value of the Serbian dinar increased approximately 4.5% relative to the Euro compared to March 31, 2017. However, due to the historic indexation of the Serbian dinar against the German mark, which was replaced by the Euro in 2002, we believe the Serbian consumer price index closely tracks the depreciation of the Serbian dinar against the Euro which has historically allowed us to “pass-through” a portion of the impact of the depreciation of the dinar to our customers. We believe that our pricing strategy reflects this “pass-through” principle.

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We present our consolidated financial statements in Euro. As a result, we must translate the assets, liabilities, revenue and expenses of all of our operations with a functional currency other than the Euro into Euro at then-applicable exchange rates. Consequently, increases or decreases in the value of these currencies against the Euro may affect the value of our assets, liabilities, revenue and expenses with respect to our non-Euro businesses in our consolidated financial statements, even if their value has not changed in their original currency. These translations could significantly affect the comparability of our results between financial periods and result in significant changes to the carrying value of our assets, liabilities and stockholders’ equity.

Additionally, certain of our expenses, primarily content and satellite costs, are in Euro and US dollar. Where we are unable to match sales received in foreign currencies with costs paid in the same currency, our results of operations are impacted by currency exchange rate fluctuations. A substantial portion of our indebtedness is denominated in Euro. In March 2015, we entered into a EUR/USD currency hedge agreement, pursuant to which we hedge a part of our exposure to the US dollar. We entered into an additional EUR/USD currency hedge agreement in May 2016 pursuant to which we hedged the remaining portion of our exposure to the US dollar for the year 2016. An additional EUR/USD hedge was implemented in February 2017.

Growth in our Markets

Three of our key 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 and both Serbia and Bosnia and Herzegovina have lower pay television household penetration rates compared to elsewhere in Western Europe and the CEE. As a result, growth in our markets has been higher than in certain CEE and Western Europe jurisdictions. We believe this is primarily due to the increasing importance of high-quality broadband internet and an increasing convergence of our regions with the EU. Slovenia is a more mature market, with subscriber rates similar to the CEE, and as a result, growth in that market will depend more on our ability to effectively compete with other market participants and to continue to offer high-quality customer propositions. A number of factors will impact the rate of growth of pay television, broadband internet and telephony industries in our markets, including economic conditions, political stability, increases in infrastructure and an increased distribution of wealth. These industries may not grow at the same rate as they have in the past.

Regulation

Our operations are subject to various regulations in Europe and in our regional markets. We are generally free from price regulation other than, prior to January 2017, with respect to our Basic TV package in Serbia, due to SBB Serbia’s prior SMP in the Serbian pay-TV market. Since the beginning of 2017, we are no longer considered a significant market participant in the pay-TV market in Serbia, thus our Basic TV package is no longer subject to

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price regulation, though this may change in the future. Prior to this change in January 2017, the pricing of our Basic TV package in Serbia, which accounted for 13.4% of our revenue for Q1 2018, and which we use as a platform to up- and cross-sell our products, was regulated and we were not permitted to increase the price for such packages without regulatory approval. In 2015, our first application for a price increase for this package was not accepted by the Serbian regulator; however, our second application, in November 2015, was accepted by the Serbian regulator, and we implemented price increases for our Basic TV package in Serbia on January 1, 2016. We also successfully implemented price increases in January 2017 and January 2018. In addition, we may be subject to conditions imposed in connection with competition authority clearances as we continue to expand our business through bolt-on, value accretive acquisitions and we may be subject to market power analysis from the relevant regulators, which could force us to adjust our prices or sell various parts of our businesses.

Tax Treatment in Local Jurisdictions

The results of our operations depend on our 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 our significant capital expenditure in Serbia in 2016, we believe we have satisfied the requirements to be granted a ten-year tax beneficial status, expiring in 2025, and we recorded beneficial tax treatment for the SBB Serbia segment in Q1 2018. Additionally, in Serbia, the interest amount related to intercompany loans can be deducted up to four times in the event of capitalization of intercompany loans. In 2016, SBB Serbia capitalized €82.7 million of intercompany loans, so we received a tax allowance of four times the interest expense relating to such capitalized intercompany loans.

Further, in Slovenia, Telemach Slovenia can 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 2016, Telemach Slovenia used the tax allowance for investments in the amount of €1.5 million. In 2017, Telemach Slovenia used the tax allowance for investments in the amount of €7.8 million.

In Bosnia and Herzegovina, a taxpayer who invests more than BAM 20.0 million (approximately €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 with the first year in which it has invested at least BAM 4 million (approximately €2.0 million). Telemach BH received relief of BAM 6.3 million (approximately €3.2 million) in 2016 pursuant to this provision. In 2017, Telemach BH received a tax allowance for investments in the amount of BAM 4.5 million (approximately €2.3 million). In Bosnia and Herzegovina, a taxpayer receives a tax allowance when it employs certain types of employees, and in 2017, Telemach BH received a tax allowance for certain new employees in the amount of BAM 790 thousand (approximately €400 thousand).

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Implementation of New Accounting Policies

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. While IFRS 15 became effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted, we commenced recognition of revenue broadly in line with IFRS 15 for periods starting January 1, 2016. There were two primary changes that we implemented in accordance with IFRS 15.

First, with respect to handset sales that are subsidised by ongoing service fees, we used to recognise revenue only in the amount of cash received for such mobile phones. However, under the new standard, we allocate a contract’s transaction price based on the relative stand-alone selling price of the mobile phone. More revenue is recognised upfront as a result. As a result of implementing this policy in 2016, we do not expect to see a material impact on our reported financial results for periods after January 1, 2018 when IFRS 15 is fully implemented. However, we cannot rule out that there will be some changes to our reported financial statements based on full implementation of this policy under IFRS 15.

Second, contracts where a customer pays for equipment, such as handsets, in instalments over a period of more than one year – along with ongoing services – may be deemed to have a significant financing component, particularly in the case of discounts during the first few months of a contract. The majority of new or renewed contracts receive discounts during the first few months of a contract. Under the new IFRS 15 regime, such a discount during the first few months is ignored, and the total price of the contract is spread out over the entire contract period. Furthermore, revenue is adjusted to reflect the time value of money.

IFRS 16 Leases

IFRS 16 principally requires lessees to recognize assets and liabilities for all leases and to present all rights and obligations associated with these in the statement of financial position. Lessees will therefore no longer be required to make a distinction between finance and operating leases that were required in the past in accordance with IAS 17. A lessee recognizes right-of-use assets representing its right to use the underlying assets and lease liability representing its obligation to make lease payments for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. Lessors accounting will continue to remain similar to the current standard IAS 17.

IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after January 1, 2019.

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The Group is assessing the potential impact on its consolidated financial statements resulting from the application of these standards and amendments. The main areas of focus in the assessment are related to office space rentals and rentals of poles and ducts. The primary impacts on our consolidated financial statements will be on the results of operations, net cash from operating activities and total assets.

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Appendix 3 - Definitions of Key Operating Measures Homes passed: represents all homes connected to our network directly and through third party networks. We provide our services to subscribers directly over our network and over certain cable networks owned by third parties with whom we have entered into exclusive or non-exclusive agreements to provide our services over their networks.

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 our cable markets, cable pay- TV is the basic service that a cable unique subscriber is typically required to subscribe to in order to receive our other services such as broadband internet access and telephony. 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 our analogue and digital cable pay-TV RGUs in Slovenia and in Serbia and Bosnia and Herzegovina our total analogue cable pay-TV RGUs (without separately counting analogue cable RGUs that have purchased digital top ups). OTT RGUs consists of our NetTV and EON subscribers. Broadband internet RGUs represents residential broadband internet provided via coaxial cable. Fixed-line telephony RGUs represents residential fixed line telephony provided via coaxial cable. Mobile RGUs represents mobile telephony services provided to customers in Slovenia, where we have operated as an MNO since our acquisition of Tušmobil in April 2015. Prior to April 2015, we provided mobile services to our customers as an MVNO. Other services includes multichannel multipoint distribution service based services, MVNO services in Slovenia in 2013, ADSL internet services and B2B. Penetration represents the number of RGUs at the end of the relevant period as a percentage of the number of homes passed by our 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 cable pay-TV RGUs 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. We 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 our network and excluding wholesale 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 outside of our cable footprint across the six former Yugoslav markets (Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Montenegro and Macedonia) who have subscribed to our DTH pay-TV services. We believe

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that most of these subscribers are outside of our cable footprint. Typically, DTH subscribers are only able to subscribe to DTH based pay-TV services and represent a single RGU. However, we are re-selling ADSL services purchased from our competitors in the respective markets to DTH subscribers.

Average monthly revenue per user, (“ARPU”): A measure we use to evaluate how effectively we are 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 our 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. We recognise revenues for connection fees upon delivery of installation and we defer and amortise connection fees over the average remaining useful life of the customer relationship. Other income: Arises mainly from the sale of programming rights, advertising and lease of cable network. Content cost: Include author rights and royalties paid to procure our content, and include fees paid to channel providers, primarily related to foreign television channels. Our content fees are predominantly determined on a flat monthly amount and to a lesser extent on a per-subscriber basis. Satellite capacity cost: Relate to the lease of satellite capacity from third-party providers, which currently is EUTELSAT. These costs are impacted by the type and value of commercial discounts obtained from satellite providers. 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. Materials 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. Amortisation of intangible assets: Relates to the amortization and impairment of our intangible assets over their useful lives. Our intangible assets include our customer base and direct subscriber acquisition costs, which, for our cable and DTH customers, are capitalized and amortized over the estimated useful life of the customer relationship. For our 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 our 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.

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Other operating expenses: Includes rent of premises, poles and ducts, marketing and promotion expenses, legal and administrative fees and maintenance costs. 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 foreign currency losses. Income tax (expense)/benefit: Comprises current and deferred income tax and is recognized in our statement of comprehensive income, except to the extent that such expense or benefit relates to an item that is recognized as equity in our balance sheet, or in our 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, amortisation, depreciation and impairments).

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Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our income and cash flow from operations are affected by changes in market interest rates. Some items on our balance sheet, such as cash and bank balances, interest bearing investments and borrowings, are exposed to interest rate risk.

Borrowings under our Revolving Credit Facility and our Floating Rate Notes bear interest at varying rates, and as a result we are exposed to interest rate risk with respect to this debt. We currently do not expect to enter into any interest rate hedging arrangements with respect to the debt under our Revolving Credit Facility and our Floating Rate Notes. Indebtedness under the 2022 Fixed Rate Notes and the 2024 Fixed Rate Notes bears interest at a fixed rate. 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

As a result of our operations in various countries, we generate a significant portion of our sales and incur a significant portion of our expenses in currencies other than the Euro. Our primary exposure is to the Serbian dinar. For Q1 2018, 36.6% of our revenue was denominated in Serbian dinars and 63.4% was denominated in Euros or other currency. The Bosnian mark is pegged to the Euro, while Croatian kuna and Macedonian dinar are relatively stable. In March 2015, we entered into a EUR/USD currency hedge agreement, pursuant to which we hedge our exposure to the US dollar. We entered into an additional EUR/USD currency hedge agreement in May 2016 pursuant to which we hedged the remaining portion of our exposure to the US dollar for the year 2016. In February 2017, we entered into an additional EUR/USD currency hedge.

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 November 2013, almost all our indebtedness has been denominated in Euro.

Transaction Risk

Transaction risk is the risk of exchange losses made by us from 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 our critical accounting policies, see note 5 of our audited consolidated financial statements as of, and for, FY 2017. Our significant accounting policies are described in note 3 of these financial statements.

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