TELEKOM SLOVENIJE, D.D. (Incorporated in the Republic of Slovenia)

Proof 12: 17.12.09

TELEKOM SLOVENIJE, D.D. (incorporated in the Republic of Slovenia)

EUR 300,000,000 4.875% Notes due 2016

Issue Price: 99.225 % The EUR 300,000,000 4.875 % Notes due 2016 (the ‘‘Notes’’) will be issued by Telekom Slovenije, d.d. (the ‘‘Issuer’’ or the ‘‘Company’’). Interest on the Notes is payable annually in arrear on 21 December in each year. Payments on the Notes will be made without deduction for or on account of taxes of the Republic of Slovenia to the extent described under ‘‘Terms and Conditions of the Notes— Taxation’’ and ‘‘Taxation—Taxation in the Republic of Slovenia’’. The Notes mature on 21 December 2016 but may be redeemed before then at the option of the Noteholders following a Put Event (as defined in ‘‘Terms and Conditions of the Notes’’) at their principal amount together with accrued interest. The Notes are also subject to redemption in whole, at their principal amount, together with accrued interest, at the option of the Issuer in the event of certain changes affecting taxes of the Republic of Slovenia. See ‘‘Terms and Conditions of the Notes—Redemption and Purchase’’. Application has been made to the Commission de Surveillance du Secteur Financier (the ‘‘CSSF’’) for approval of this Prospectus (the ‘‘Prospectus’’). Application has been made to the Luxembourg Stock Exchange for the Notes to be listed on the official list (the ‘‘Official List’’) and be admitted to trading on the regulated market of the Luxembourg Stock Exchange (the ‘‘Market’’). The Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC. References in this Prospectus to the Notes being ‘‘listed’’ (and all related references) shall mean that the Notes have been admitted to the Official List and admitted to trading on the Market. The Notes will be offered and sold in offshore transactions outside the United States in reliance on Regulation S under the U.S. Securities Act of 1933 (the ‘‘Securities Act’’). THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAW, AND THE NOTES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. The Notes will be issued in registered form in minimum denominations of EUR 50,000 and integral multiples of EUR 1,000 in excess thereof. The Notes will be represented by a global registered note (the ‘‘Global Note’’) which will be registered in the name of a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’) on or around 21 December 2009 (the ‘‘Closing Date’’). Definitive note certificates (the ‘‘Definitive Note Certificates’’) evidencing holdings of Notes will be available only in certain limited circumstances. See ‘‘Summary of Provisions Relating to the Notes in Global Form’’. The Notes are expected to be rated Baa1 by Moody’s Investors Service Limited (‘‘Moody’s’’). The Issuer’s current long-term debt rating by Moody’s is Baa1 (outlook negative). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Investing in the Notes involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 5. LEAD MANAGERS BNP PARIBAS CREDIT SUISSE CO-MANAGERS

RZB-AUSTRIA RAIFFEISEN ZENTRALBANK SOCIE´ TE´ GE´ NE´ RALE CORPORATE & O¨ STERREICH AG INVESTMENT BANKING Dated 17 December 2009 This Prospectus constitutes a prospectus for the purposes of Directive 2003/71/EC (the ‘‘Prospectus Directive’’) and for the purpose of giving information with regard to the Issuer, and its consolidated subsidiaries (together, the ‘‘Group’’), and the Notes which, according to the particular nature of the Issuer, the Group and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, and the Group and of the rights attaching to the Notes. The Issuer, having taken all reasonable care to ensure that such is the case, accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of the Issuer, the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. Neither the Managers (as defined in ‘‘Subscription and Sale’’) nor any of their directors, affiliates, advisers or agents has made an independent verification of the information contained in this Prospectus in connection with the issue or offering of the Notes and no representation or warranty, express or implied, is made by the Managers or any of their directors, affiliates, advisers or agents with respect to the accuracy or completeness of such information. Nothing contained in this Prospectus is, is to be construed as, or shall be relied upon as, a promise, warranty or representation, whether to the past or the future, by the Managers or any of their respective directors, affiliates, advisers or agents in any respect. The contents of this Prospectus are not, are not to be construed as, and should not be relied on as, legal, business or tax advice and each prospective investor should consult its own legal and other advisers for any such advice relevant to it. To the fullest extent permitted by law, the Managers accept no responsibility whatsoever for the contents of this Prospectus or for any other statement made, or purported to be made, by any Manager or on its behalf in connection with the Issuer or the issue and offering of the Notes. Each Manager accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any such statement. No person is authorised to give any information or make any representation not contained in this Prospectus in connection with the issue and offering of the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by any of the Issuer or the Managers or any of their directors, affiliates, advisers or agents. The delivery of this Prospectus does not imply that there has been no change in the business and affairs of the Issuer since the date hereof or that the information herein is correct as of any time subsequent to its date. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the Notes. The distribution of this Prospectus and the offer or sale of the Notes in certain jurisdictions is restricted by law. This Prospectus may not be used for, or in connection with, and does not constitute, any offer to, or solicitation by, anyone in any jurisdiction or under any circumstance in which such offer or solicitation is not authorised or is unlawful. In particular, this Prospectus does not constitute an offer of securities to the public in the United Kingdom. Consequently, within the United Kingdom this document is being distributed only to, and is directed only at (a) persons who have professional experience in matters relating to investments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (b) high net worth entities falling within article 49(2)(a) to (d) of the Order, and other persons to whom it may otherwise be lawfully communicated (all such persons together being referred to as ‘‘relevant persons’’). Any person resident in the United Kingdom who is not a relevant person should not act or rely on this document or any of its contents. Persons into whose possession this Prospectus may come are required by the Issuer and the Managers to inform themselves about and to observe such restrictions. Further information with regard to restrictions on offers, sales and deliveries of the Notes and the distribution of this Prospectus and other offering material relating to the Notes is set out under ‘‘Subscription and Sale’’ and ‘‘Summary of Provisions Relating to the Notes in Global Form’’. Unless otherwise specified or the context so requires, references to ‘‘U.S. Dollars’’ and ‘‘U.S.$’’ are to United States dollars and references to ‘‘euro’’, ‘‘EUR’’ and ‘‘e’’ are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended. The language of this Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. For an explanation of various technical terms used in this Prospectus, see ‘‘Glossary’’.

2 c101806pu010 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD In connection with the issue of the Notes, Credit Suisse Securities (Europe) Limited (the ‘‘Stabilising Manager’’) (or any persons acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any persons acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.

3 c101806pu010 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD TABLE OF CONTENTS

RISK FACTORS ...... 5 TERMS AND CONDITIONS OF THE NOTES...... 16 SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ...... 29 USE OF PROCEEDS ...... 32 SELECTED FINANCIAL INFORMATION ...... 33 DESCRIPTION OF THE GROUP...... 34 Background and History...... 34 Group Business Overview...... 34 Strategy of the Group...... 38 Group Business by Country of Operation ...... 39 Capital Expenditure...... 55 Subsidiaries and Afﬁliates ...... 56 Group Structure Diagram...... 58 Shareholders of the Company...... 59 Management of the Company...... 60 RELATED PARTY TRANSACTIONS ...... 63 REGULATION...... 64 LEGAL PROCEEDINGS ...... 67 TAXATION ...... 70 SUBSCRIPTION AND SALE ...... 73 GENERAL INFORMATION...... 74 GLOSSARY ...... 76 INDEX TO FINANCIAL STATEMENTS ...... F-1

4 c101806pu010 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD RISK FACTORS

In addition to the other information contained in this Prospectus, prospective investors should carefully consider the risks described below before making any investment decision. The risks described below are not the only risks that Telekom Slovenije, d.d. (the ‘‘Company’’) and its consolidated subsidiaries (together, the ‘‘Group’’) face. Additional risks not currently known by the Group or deemed by the Group to be immaterial may also impair the Group’s business and results of operations. The Group’s business, ﬁnancial condition, results of operations and prospects could be materially adversely affected by any of these risks and investors could lose all or part of their investment.

Risks related to the Company and the Group The Group operates in a highly regulated industry. The Group is a diversified telecommunications group providing a comprehensive range of telecommunications services. Many aspects of telecommunications services (including, among other things, numbering, licensing, competition, tariffs, local loop unbundling, interconnection and leased lines) are subject to strict regulation. The Group is subject to different laws and regulations in each of the jurisdictions in which it provides services due to varying legislation and the varying degrees of regulation by the European Union and national regulatory authorities in the countries and market segments in which the Group operates. Regulatory authorities regularly intervene in the offering and pricing of products and services offered by the Group. The Post and Electronic Communications Agency of the Republic of Slovenia (‘‘APEK’’), the regulator in Slovenia, has found that the Company and Mobitel, d.d. (‘‘Mobitel’’) have significant market power (‘‘SMP’’) in all of the regulated fixed and mobile telecommunications markets in which they operate in Slovenia. Since a number of APEK’s recent regulatory policies have been designed to increase competition in the Slovenian telecommunications markets by encouraging the entry and establishment of new operators, such policies have caused the Group’s market share to reduce and are likely, in the future, to have the effect of reducing further the Group’s market share in, and revenues from, the Slovenian telecommunications markets in which the Group operates. Similarly, in Macedonia, ONE Telecommunications SC Skopje (‘‘ONE’’) (formerly Cosmofon Mobile Telecommunications Services AD Skopje (‘‘Cosmofon’’)) has been found to have SMP status in the mobile market and is therefore subject to certain price controls. This, coupled with aggressive competitive behaviour by other operators in that market has led to a reduction in market share. Regulatory policies may require the Group to commit substantial resources to comply with the regulations to which it is or may become subject. Alternatively, fines or other regulatory actions could be imposed on the Group if the relevant regulator were to determine that the Group is not operating in compliance with the applicable regulatory framework. Any such commitment of resources or fines or regulatory actions could place significant competitive and pricing pressure on the Group’s operations and could materially adversely affect its business, financial condition, results of operations and prospects. Conversely to Slovenia and Macedonia, there is only limited activity on the part of the regulator in Kosovo, where the Group currently has operations which it plans to expand (see ‘‘Description of the Group—Group Business by Country of Operation—Kosovo’’). This lack of regulation could result in the Group’s competitors in Kosovo abusing their market power and there are also currently a number of operators offering mobile services in Kosovo without a licence. Such behaviour could impact on the Group’s ability to penetrate this market and, therefore, materially adversely affect the Group’s business, financial condition, results of operations and prospects. In addition, a new EU telecommunications regulatory framework was adopted by the European Parliament on 24 November 2009. Member States will have until June 2011 to implement the changes included in the new regulatory framework. Whilst it would not appear that the new framework will have any major negative impact on the Group, the framework will not be implemented for some time, during which the Group’s services and products will develop. Accordingly, it may be that the new regulatory framework will have negative consequences that the Group has not currently anticipated. Any such negative consequences could materially adversely affect the Group’s business, results of operations, financial condition and prospects.

5 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The Group operates under certain licences and authorisations. Most of the Group’s operating companies require licences or authorisations from the regulatory authorities of the countries in which they operate. Such licences specify the types of services permitted to be offered by the company holding such a licence and detail such items as the minimum specified quality standards and service coverage conditions. The continued existence and terms of the Group’s licences are subject to review by regulatory authorities in each country in which the Group operates and to interpretation, modification or termination by such authorities. In Slovenia, the Company operates under a general authorisation in respect of fixed line services and Mobitel operates under various licences in respect of its mobile telephony services. (see ‘‘Regulation— Slovenia’’). In Macedonia, Group companies ONE and On.net, d.o.o. (‘‘On.net’’) operate under general authorisations in respect of fixed line services and under licences in respect of mobile services. In addition, Digi Plus Multimedia, d.o.o. Skopje (‘‘Digi Plus’’) operates under a licence for the provision of digital terrestrial television (see ‘‘Regulation—Macedonia’’). In Kosovo, Group company IPKO Telecommunications, d.o.o. (‘‘IPKO’’) operates under a general authorisation for the provision of internet services and under licences in respect of fixed line and several other services (see ‘‘Regulation—Kosovo’’). Failure to comply with the obligations set out in any of the licences under which Group companies operate could result in the imposition of fines, revocation or forfeiture, or imposition of material limitations or changes to the terms, of such licences, any of which could materially adversely affect the Group’s business, financial condition, results of operations and prospects.

The Company must comply with regulatory requirements with respect to unbundling of the local loop and wholesale leased lines. The Company, as a result of APEK decisions regarding its SMP status, is obliged to provide other fixed line telecommunications operators in Slovenia with full and shared access to local loop services as well as wholesale leased line services (see ‘‘Regulation—Slovenia’’). Responding to requests for the provision of such services, especially access to local loop services, is a logistical process requiring the Company to devote significant managerial, technical and financial resources in an environment in which it is exposed to increased regulatory risk. If the Company fails, or is deemed to have failed, to respond effectively to requests for provision of access to the local loop or wholesale leased lines, it may be considered by APEK to be in violation of its obligations under the applicable regulatory framework and, as a result, the Company could be exposed to regulatory action, including fines for non-compliance, or to litigation by other operators. If the Company becomes subject to regulatory action, fines or litigation, this could materially adversely affect its, and therefore the Group’s, business, financial condition, results of operations and prospects.

The Company may face increased competition arising from an increasing number of unbundled local loop sites. A signiﬁcant increase in the number of unbundled local loop sites may allow the Company’s competitors to extend the scope of their coverage, improve the quality of their products and services and, potentially, reduce their prices, any of which could increase competitive pressures on the Company’s own products and services. If the Company fails to contend with competitive pressures arising from an increased number of unbundled local loop sites, this could materially adversely affect its business, ﬁnancial condition, results of operations and prospects.

Regulatory and competitive pressures may limit the Group’s ability to set retail and wholesale tariffs. In Macedonia, the charges for allowing third-party operators to access ONE’s mobile networks have been subject to price controls since August 2008 (see ‘‘Regulation—Macedonia’’). In Slovenia, APEK requires the Company’s and Mobitel’s tariffs on regulated markets to reﬂect the cost of providing the relevant retail and wholesale services and can therefore require the Company and/or Mobitel to amend its prices. For example, in May 2009, APEK imposed call termination prices calculated using their own Long Run Incremental Cost model which were lower than those calculated by the Company. The Company has appealed against this decision and is awaiting the outcome of this appeal. However, any resulting material reduction in tariffs for call termination or

6 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD any reduction in tariffs imposed for other services could materially adversely affect the Group’s business, ﬁnancial condition, results of operations and prospects.

The Company could face increased competition in wholesale services and its wholesale customers could face financial difficulties. The Company’s customers for wholesale services are mainly alternative telecommunications operators. These operators invest, and are expected to continue to invest, in developing their own infrastructure with a view to reducing their reliance on, and use of, the Company’s network infrastructure. If such providers increase the use of their own infrastructure or other operators’ infrastructure, the Company may experience a decrease in revenue from its wholesale activities. Certain of the Company’s wholesale customers also face increased competition and regulatory pressures, including on the tariffs for the services they provide. Such pressures may cause financial difficulty for these operators. Increased competition in wholesale services and any potential financial difficulties faced by the Company’s wholesale customers could materially adversely affect the Company’s business, financial condition, results of operations and prospects.

The Company is prohibited from ceasing to provide wholesale services to operators, even in the event of non- payment. Under current APEK regulation in Slovenia, the Company is obliged to provide wholesale services to other operators, even if those operators fail to pay for such services. The Company may not terminate provision of services and must litigate in order to obtain payment from any such operators. Furthermore, it may not always recover the money owed which may lead to increases in the Company’s bad debt provisions. Failure of wholesale customers to pay for services provided and the expenses incurred in pursuing payment for such services could materially adversely affect the Company’s business, ﬁnancial condition, results of operations and prospects.

The Group does not currently have all necessary construction permits in Macedonia and Kosovo. Due to the complexity of the procedure for obtaining construction permits in Macedonia (such permits being needed for the towers supporting radio transmitters), some of ONE’s transmission towers in Macedonia have been constructed prior to the award of the appropriate permits. ONE is in the process of obtaining the necessary permits for all towers, but the current situation leaves the Group exposed to the risk of being fined and/or incurring additional costs if the towers need to be removed and/or new towers built. A similar risk applies to the Group’s operations in Kosovo, where 335 GSM sites were built during 2007, 2008 and 2009 without first obtaining construction permits. Application was made for the required permits in 2009, but this application was rejected on the basis that the sites were already built. IPKO must wait to apply to the Ministry of Environment for legalisation of the sites under the ‘‘Law on the Legalisation of Illegal Buildings’’ which is expected to be passed in 2010. There is no guarantee that such law will be passed or that such application will be granted. If the Group is fined or required to relocate these towers, such expenditure could adversely affect the Group’s business, financial condition, results of operations and prospects.

Kosovo does not currently have its own country dialling code. Kosovo does not have its own country dialling code due to its disputed status in international affairs. Currently, the Group’s operations in Kosovo use the Slovenian dialling code. This causes complications regarding roaming as third party operators do not recognise IPKO telephone numbers as originating from an operator in Kosovo, but rather from Slovenia, which makes billing more difﬁcult. IPKO has asked the Kosovan Telecommunications Regulatory Authority (‘‘TRA’’) to take a more active role in campaigning for a Kosovan country dialling code. If no such code is assigned to Kosovo and IPKO continues to operate using a Slovenian dialling code, this could limit IPKO’s ability to expand its operations internationally due to the complications involved in roaming. This could have material adverse effect on the Group’s operations in Kosovo, and, therefore, on the Group’s business, ﬁnancial condition, results of operations and prospects.

The Group operates in competitive markets. The Group faces signiﬁcant competition in most of the markets in which it operates, notably in Slovenia, Macedonia and Kosovo and is, therefore, subject to the effects of actions by its competitors

7 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD in these markets. Competitors have in the past, and may in the future offer lower prices, more attractive discount plans or better services and features; develop and deploy more rapidly new or improved technologies, services and products; launch bundled offerings of one type of service with others; in the case of the mobile industry, subsidise handset procurement; or expand and enhance their networks more rapidly. To compete effectively with its competitors, the Group must market successfully its products and services and anticipate and respond to the behaviours of its competitors as well as changes in customer preferences and in general economic, political or social conditions. The Company’s key competitors in fixed line services are T-2, Tus˘mobil, Telemach and Amis. Mobitel’s main competitors are Si.mobil, Tus˘mobil, T2, Debitel and Izimobil. One of the characteristics of the telecommunications market in Slovenia has been the merger of competitors, especially cable operators. It is possible that fixed and mobile operators will merge in the future, increasing competition faced by the Group in Slovenia. The telecommunications market in Macedonia is also highly competitive, especially in the mobile telephony and broadband sectors. Group subsidiaries ONE and On.net are in direct competition with the incumbent operator, Macedonian Telekom, and its subsidiary, T-Mobile Macedonia, who are the dominant market players. The third operator in the Macedonian mobile telephony market is VIP operator DOOEL Skopje (‘‘VIP operator’’) which has an aggressive marketing approach based on significant retail price discounts and a competitive advantage resulting from the fact that it has not been found to have SMP status (see ‘‘Regulation—Macedonia’’). This has a negative effect on the entire market as it affects the ability of other operators to maintain profitable prices. In Kosovo, The Post, Telephone and Telegraph of Kosovo (‘‘PTK’’) and its mobile network operator, Vala, are the Group’s main competitors. PTK is a state owned entity, making it difficult for IPKO to operate in a market where competition is not regulated. If the Group were unable to compete effectively or respond to customer trends and demands, it may suffer from lower revenues, under utilisation of services offered by the Group, reduced operating margins, reduced profitability and loss of market share, any of which could materially adversely affect the Group’s business, financial condition, results of operations and prospects.

New services may not generate sufficient revenues to compensate for the decrease in revenues from traditional telecommunication services. In the past, traditional voice telephony has been a key revenue driver for the Company and, therefore, the Group. Revenues generated by traditional voice telephony are decreasing as a result of a customer shift from fixed line to mobile and IP technology. Though revenues generated by new services such as VoIP and IPTV are increasing, at present this increase is not sufficient to compensate for the decrease in revenues from traditional voice telephony, where profit margins were higher. If revenues from traditional voice telephony services continue to decrease and new services do not generate sufficient revenue to compensate for this decrease, the Company’s and therefore the Group’s, business, financial condition, results of operations and prospects could be materially adversely affected.

The industry in which the Group operates is subject to rapid technological changes. The Group’s future success depends, in part, on its ability to anticipate and adapt in a timely manner to technological changes, including, for example, the transition from TDM to VoIP. It is expected that new products and technologies will emerge on a continuous basis and that existing products and technologies will further develop. These new products and technologies may reduce the prices which the Group is able to charge for existing services or may be superior to, and render obsolete, the products and services currently offered and the technologies currently used. This, in turn, may reduce the revenues generated by the Group’s products and services and/or require the upgrading of current technology or capital expenditure when investing in new technology. As a result, it may be costly for the Group to upgrade its products and technology in order to continue to compete effectively with new or existing competitors. Furthermore, as a result of the convergence of telecommunications technologies, the Group may face competition in the future from other companies that are subject to less stringent regulation because they do not have SMP status or which are not subject to regulation at all. Any such increased costs, reductions in prices or additional capital expenditure could materially adversely affect the Group’s business, ﬁnancial condition, results of operations and prospects.

8 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD System failures could result in reduced user traffic and reduced revenues and could harm the Group’s reputation. Network interruptions as a result of system failures, whether accidental or otherwise, including due to network, hardware or software failures, viruses, fraud or other forms of criminal activity, which affect the quality of service or cause an interruption in service, could result in customer dissatisfaction, reduced revenues and traffic and costly repairs and could harm the Group’s reputation. The occurrence of any of these circumstances could materially adversely affect the Group’s business, financial condition, results of operations and prospects.

A material portion of the Group’s operations and investments are located in south eastern Europe. The Group has operations, and may in the future expand further, in countries in south eastern Europe which present a different, and in some cases greater, risk profile than that of Slovenia. Relevant risks could include, but are not limited to: unexpected changes to regulation or government administrative policies; tariffs, taxes, price and inflationary pressures; economic volatility; wage and exchange controls and other trade barriers; lack of regulation; political and social instability; and failure to attract foreign direct investment. The south eastern European countries into which the Group has expanded its operations are at varying stages of a process of transition to a market economy. Consequently, they have experienced or may experience changes in their economies and their government policies that could affect the Group’s operations in these countries. Although these countries are in various stages of developing institutions and legal and regulatory systems that are characteristic of parliamentary democracies, these institutions may not yet be as firmly established as they are in western Europe. Similarly, the interpretation and procedural safeguards of new legal and regulatory regimes in these countries are in some cases still developing, existing laws and regulations may be applied inconsistently and, in some circumstances, it may not be possible to obtain the legal remedies provided under those laws and regulations in a timely manner. Any of the above or other risks related to operations and investments in emerging and transition economies materialising could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Countries in which the Group operates are subject to political instability and political and economic uncertainty. In Macedonia there is currently a dispute with Greece over the use of the name ‘‘Macedonia’’ by the Republic of Macedonia, a dispute which is preventing Macedonia from joining NATO and the EU. Ongoing political disputes between Kosovo and Serbia mean that the region is still characterised as a ‘‘volatile’’ region of the Balkans. In addition, there is a risk that political disputes might arise in Bosnia and Herzegovina and, although the Group’s operations in Bosnia and Herzegovina (which to date are restricted to the Republic of Srpska region) do not currently represent a major part of the Group’s revenues, such risk should still be taken into account. Any of the above factors could materially adversely affect the Group’s business, ﬁnancial condition, results of operations and prospects.

The Group operates in telecommunications markets which, though liberalised, continue to present barriers to entry to alternative providers. In Macedonia, the Group’s major competitors (Macedonian Telekom for fixed line services and T-mobile and VIP operator for mobile services) are owned by large multinational telecommunications companies (Deutsche Telekom for the former two companies and Telekom Austria for the latter) which possess extensive financial resources and economic and political power. There is, therefore, a risk that these entities could utilise such resources to the detriment of the Group’s operations in Macedonia. In Kosovo, the incumbent telecommunications operator is owned by the Government. There is a risk that, if this entity is privatised and a strategic investor invests capital and appoints new management, the Group’s market position could be adversely affected and the Group may not realise its strategic objectives in Kosovo. Achievement of the Group’s aim to be the first to provide converged telecommunications services across south eastern Europe is dependent on the Group being able to break successfully into new markets and gain market share in the markets in which it already operates. In south eastern Europe, regulation favours the incumbent operators. If barriers to entry in the form of restrictive regulatory regimes and aggressive competitive behaviour by incumbent providers continues, this could negatively

9 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD affect the Group’s ability to meet growth targets and materially adversely affect its business, ﬁnancial condition, results of operations and prospects.

Factors beyond its control may prevent the Group from achieving its strategic objectives. The Group aims to expand its operations outside Slovenia whilst maintaining its current market share in Slovenia (see ‘‘Description of the Group—Strategy of the Group’’). A significant proportion of the Group’s revenues and profits are contributed by the Company and Mobitel, the Group’s operations in Slovenia. The Company and Mobitel have both been found by APEK to have SMP status on the regulated telecommunications markets in Slovenia and, therefore, there are limited growth prospects in the domestic market as APEK is actively promoting competition. This has had, and could continue to have, negative impact on the Group’s market share in Slovenia. It is therefore important that the Group achieves its strategic objective of expansion into new markets, but such expansion is dependent on a number of factors related to the countries in to which it has expanded and may continue to expand its operations, some of which are outside the Group’s control. Such factors include general economic conditions, developments in the regulatory environment, competition and developments in the telecommunications sector. Any of these factors could materially adversely affect the Group’s business, results of operations, financial condition and prospects.

The Group’s strategy involves significant capital expenditure. The Group aims to be the first telecommunications operator to provide converged telecommunications services across south eastern Europe (see ‘‘Description of the Group—Strategy of the Group’’). To this end, the Group aims to build new fibre optic cables running through Croatia and Bosnia and Herzegovina to connect Slovenia with Kosovo and Macedonia; a plan which the Company anticipates will require significant capital expenditure. The Group also aims to merge its operations within each of the markets in which it operates. This strategy is being pursued with the aim of streamlining operations and reducing operating costs. However, the implementation of this strategy involves significant capital expenditure at the outset. There can be no assurance that the Group will not encounter unanticipated additional costs and difficulties in implementing its convergence strategy, that any planned convergence will be completed on schedule or that the operations of the Group after completion of such convergence will be as profitable or result in the cost savings currently anticipated. There is a risk that the Group will have insufficient cash flow or may not be able to raise funds at commercially reasonable rates to be able to make the capital expenditure needed to implement this strategy (see ‘‘— Risks related to Financial Markets’’ and ‘‘—The Group’s ability to generate cash depends on many factors beyond its control, and the Group may not be able to generate cash required to service its debt’’) and that the Group’s business, financial condition, results of operations and prospects will be materially adversely affected as a result.

The Group may face unexpected difficulties relating to the integration into the Group of recently acquired subsidiaries. In 2008 and 2009, the Group has expanded into Albania and Croatia and continued its expansion in Macedonia as it acquired businesses in these countries. Such newly acquired businesses must undergo various procedures including rebranding, restructuring, systems alteration and market repositioning. The acquisition and integration into the Group of such businesses and any businesses the Group may acquire in the future presents certain challenges to the Group, including, most significantly, the risk of acquired businesses not delivering expected or appropriate returns. Any significant problems in integrating such newly acquired subsidiaries could materially adversely affect the Group’s business, financial condition, results of operations and prospects.

The Group may realise neither the expected level of demand for its products and services, nor the expected level or timing of revenues generated by those products and services. There is a risk that the Group will fail to identify trends in customer behaviour correctly, or that the Group will not be able to bring new services to market as quickly as its competitors. For example, in Macedonia, a new brand was launched in November 2009 under which ONE and On.net together offer converged telecommunications services, often in the form of bundles. There is a risk that demand for these bundles will be lower than anticipated. Furthermore, development of new services could involve substantial capital expenditure with no certainty of market acceptance and, therefore, return on investment.

10 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD If any of the above occurs, it could materially adversely affect the Group’s business, results of operations, revenues and prospects.

The Group’s ability to provide commercially viable telecommunications services depends upon its ability to interconnect in a cost effective manner with the telecommunications networks of other operators. The Group’s ability to provide commercially viable telecommunications services to meet the needs of its subscribers is dependent upon its ability to interconnect in a cost effective manner with the telecommunications networks of other operators in order to complete calls between the Group’s customers and parties on other fixed line networks or mobile telecommunications networks. The Group has interconnection agreements with mobile network operators and fixed line operators in the countries in which it operates, but has no control over the quality and timing of investment and maintenance activities conducted by such operators, which may be necessary to provide the Group with interconnection services of acceptable quality. The failure of other operators to provide reliable and economic interconnection services to the Group, a reduction in the interconnection fees paid by other operators to the Group or an increase in the interconnection fee paid by the Group to these network operators for delivering calls originating on the Group’s networks, could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group is involved in disputes and litigation with regulators, competition authorities, competitors and other parties. The Group is party to lawsuits and other legal, regulatory and competition proceedings in the ordinary course of its business, the final outcome of which is generally uncertain. Provisions have been set aside to account for estimated losses which may be suffered as a result of a negative outcome in proceedings currently outstanding against the Group (see Note 13 to the Group’s Interim Financial Statements for the nine months ended 30 September 2009). However, litigation and regulatory proceedings are inherently unpredictable. An adverse outcome in, any unfavourable settlement or an inadequate provision in respect of, these or other proceedings (including any that may be asserted in the future) could result in significant costs to the Group. Such disputes and litigation (or settlements thereof) could materially adversely affect the Group’s business, financial condition, results of operations and prospects (see ‘‘Legal Proceedings’’).

The Republic of Slovenia is a major shareholder of the Company. The Republic of Slovenia remains the major shareholder of the Company. As at 30 September 2009, the Government had an effective shareholding of 74.15%, consisting of a direct shareholding of 52.54% and 21.61% of the Company’s shares held by state investment funds (see ‘‘Description of the Group—Subsidiaries and Afﬁliates’’). Members of the Supervisory Board are appointed by shareholders. Due to the Republic of Slovenia’s majority shareholding, its candidates are always appointed. There is a risk that the Government, whose interests may not coincide with those of the Noteholders, may cause the Company to take management decisions or to engage in business practices that do not beneﬁt and may adversely affect the interests of Noteholders. In addition, if the Government were to decide to sell all or part of its shareholding, whether by privatisation or otherwise, any new controlling shareholder may pursue a strategy which is different from that of the Company at the date of this Prospectus. See also Condition 9(c) (Redemption at the option of the Noteholders) of ‘‘Terms and Conditions of the Notes’’.

Group companies are reliant on their key senior management personnel. The performance of each of the companies within the Group and, therefore, of the Group as a whole is dependent on the continued services of key members of management. If the relevant Group company were to lose the services of key senior management personnel, it may be difficult to find and integrate replacement personnel in a timely manner. Any loss of key senior management personnel could materially adversely affect the business, financial condition, results of operations and prospects of the relevant Group company and of the Group as a whole.

Senior members of management of Group companies have access to confidential information. Senior members of management have access to confidential information relating to the strategy of Group companies and there is a risk that the business, financial condition, results of operations and prospects of Group companies could be materially adversely affected if employees who have had access to such confidential information take up employment with a competitor.

11 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The Group holds significant customer data. Any flaw with the security system could damage the Group’s reputation. Each company within the Group holds significant customer data as a result of its operations. Though the Group believes sufficient procedures are in place to protect this information, there remains a risk that there could be a flaw in the data protection systems in place at Group companies. Any such flaw leading to the loss of customer data could materially adversely affect the reputation of the relevant Group company and consequently adversely affect its, or the Group’s, business, financial condition, results of operations and prospects.

The Group is exposed to the credit risk of its customers. The Group enters into contracts with retail and wholesale customers. Though credit checks are undertaken before contracts are entered into by Group companies, there remains a risk that customers will not pay for the services provided to them. ONE and On.net are particularly exposed to the credit risk of their customers, due to high unemployment and low incomes in Macedonia. In Kosovo, most services are now provided on a ‘‘pay as you go’’ basis. However, the lack of a developed, commercial law on the execution of bad debt collection has in the past resulted in an inability to collect debts owed by customers. For example, in order to proceed with debt collection in court, the plaintiff must be able to provide the customer’s bank details. In a majority of cases the plaintiff does not hold this information (as a majority of services are prepaid) and therefore, court actions do not proceed. If non-payment by the Group’s customers were to occur on a large scale, this could materially adversely affect the business, ﬁnancial condition, results of operations and prospects of the Group.

Estimation of market information in Macedonia, Kosovo and Bosnia and Herzegovina. There is no reliable data source providing information about the size of the telecommunications markets in Macedonia, Kosovo or Bosnia and Herzegovina or the market share held by different operators. The Group, therefore, estimates this data and there is a risk that such estimates may not be accurate. Any inaccuracy in the data could materially adversely affect the Group’s business decisions and, therefore, the business, ﬁnancial condition, results of operations and prospects of the Group.

There is a lack of centralised risk management across the Group. There is no central organisational management across the Group, meaning each Group company is responsible for its own operations. As a result of this, risks are assessed by each Group company individually rather than on a Group basis. There is a risk that the monitoring of risk is not adequate across the region. If the Group fails to accurately assess the risks to which it is exposed, this could have a material adverse effect on its business, ﬁnancial condition, results of operations and prospects.

Actual or perceived health risks or other problems relating to radio frequency emissions could lead to litigation or decreased mobile communications usage. Over the last few years, the debate about the alleged potential effects of radio frequency emissions on human health has increased significantly. Whether or not research studies conclude that there is a link between radio-frequency emissions and health, popular concerns about radio-frequency emissions may discourage the use of mobile communication devices and may result in significant restrictions on both the location and the operation of transmission facilities and antennas (base stations). While the Group is not aware of any evidence confirming a link between radio-frequency emissions and health problems, and it continues to comply with good practices codes and relevant regulations, there can be no assurance of what future medical research may suggest. Any reduction in demand for telecommunications services, restrictions on transmission facilities or new adverse medical research could have a detrimental impact on the Group’s business, financial condition, results of operations and prospects.

The Group’s ability to generate cash depends on many factors beyond its control, and the Group may not be able to generate cash required to service its debt. The Group’s ability to make scheduled payments on the Notes and to meet its other debt service obligations depends on the future operating and financial performance of the Group and its ability to generate cash. This will be affected by the Group’s ability to implement successfully its business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond its control. If the Group cannot generate sufficient cash to meet its debt service obligations the Group

12 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD may, among other things, need to refinance all or a portion of its debt, including the Notes, obtain additional financing, delay capital expenditures or sell assets. The Group cannot be certain that it will be able to generate sufficient cash through any of the foregoing. If the Group is not able to refinance its debt, obtain additional financing or sell assets on commercially favourable terms or at all, the Group may not be able to satisfy its obligations with respect to its debt, including the Notes.

Risks related to Financial Markets The continued volatility and disruption of worldwide financial markets may make it more difficult for Group companies to raise capital externally. The current financial crisis affecting the international banking system and financial markets has resulted in a significant tightening of credit markets, a low level of liquidity in many financial markets and high volatility in credit, equity and currency markets. Existing or worsening conditions in the international credit markets may make it more difficult and/or more expensive to refinance the Group’s financial debt or to incur additional debt. Any such difficulties could make development or expansion of operations within the Group more difficult and thus have an adverse impact on its business, financial condition, results of operations and prospects.

Adverse economic conditions could reduce the purchase of the Group’s products and services and trigger a general drop in prices of telecommunications services. The Group’s business is impacted by general economic conditions and other similar factors in each of the countries in which it operates. The current adverse economic environment and uncertainty about global economic conditions may negatively affect the level of demand of existing and prospective customers. Other factors that could influence customer demand include access to credit, consumer confidence and other general macroeconomic factors. For example, unemployment is over 30% in Macedonia, and gross domestic product (‘‘GDP’’) per person is only U.S.$2,500 per annum, meaning that purchasing power is limited. In addition, there could be other possible effects from the financial crisis on the Group’s business, including insolvency of key suppliers or customers. A loss of customers, a reduction in demand for services by current customers or a drop in the price of services offered by the Group could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects and may negatively affect the Group’s ability to fund its proposed capital expenditure projects and to meet growth targets.

Any impact on the Company’s credit rating could limit or make it more difficult and expensive for the Group to access the capital markets to raise funds and could restrict its ability to operate its business or to refinance its debt. On 16 November, 2009, Moody’s Investors Service Limited (‘‘Moody’s’’) announced that it has downgraded the long-term issuer rating of the Company to Baa1 from A3. The outlook on the rating is negative. In its announcement, Moody’s indicated that the downgrade in the Company’s rating reflects Moody’s opinion that there is a degree of execution risk related to the Group’s geographical diversification strategy, as future growth is largely dependent on the success of the Group’s investment in Kosovo and Macedonia and other parts of south eastern Europe at a time when the Group’s domestic business remains under significant pressure. It is possible that this downgrade, and any future downgrade, could affect the costs to the Group of raising funds in the international capital markets and syndicated lending markets and could restrict its ability to refinance its debt or fund its proposed capital expenditure projects. This may in turn materially adversely affect the Group’s business, financial condition, results of operations and prospects. In addition, a further downgrade of the Company’s credit rating may negatively affect the price of any Notes trading in the market at the time of the downgrade.

The Group is exposed to exchange rate fluctuations in respect of its operations in Macedonia. Whilst the majority of the Group’s activities operate, and the Group’s financial statements are reported, in euro the Group’s operations in Macedonia are subject to exchange rate risk as the majority of these operations are based on Macedonian Denar (‘‘MKD’’). The Group does not currently hedge its currency exposure. Changes in the EUR/MKD exchange rate could have a significant impact on the financial performance of the Group in Macedonia.

13 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The Group does not hedge against all interest rate risk. Currently only approximately 60% of the Group’s borrowings are hedged against movements in interest rates. There is therefore a risk that the Group could be exposed to upward movements in interest rates which could affect its ability to meet its borrowing obligations and materially adversely affect the Group’s business, ﬁnancial condition, results of operations and prospects.

Risks relating to the Notes The Notes may not be a suitable investment for all investors. Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus; (ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio; (iii) understand thoroughly the terms of the Notes and be familiar with the behaviour of financial markets in which they participate; and (iv) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

The Issuer may be required to pay additional amounts in respect of payments of interest under the Notes. Payments of interest in respect of the Notes will be subject to Slovenian withholding tax. See ‘‘Taxation—Taxation in the Republic of Slovenia’’. Condition 10 (Taxation) of ‘‘Terms and Conditions of the Notes’’ provides that the Issuer shall, in the event that it is required by law to make any withholding or deduction for any tax imposed by the Republic of Slovenia or any political subdivision or any authority thereof or therein from any payment of principal or interest under the Notes, pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them if no such withholding or deduction had been required, subject to certain exceptions. Accordingly, the Issuer’s total expense in respect of each payment of interest may be increased by up to 25%. The Slovenian tax legislation applicable to the duties and responsibilities of the Issuer in respect of such tax are currently under review and are likely to change. The draft changes to the Tax Procedures Act that was sent into the second reading of the Slovenian parliament could result in the Issuer having to deduct a withholding tax of 20% rather than 15% on all payments of interest in so far as the Issuer as debtor of the income which is subject to tax, is not itself effecting the payment of income to the ﬁnal recipient directly and does not know, and considering the circumstances, is not in a position to know, the recipient of such income. The increased funding costs resulting from the payments of such additional amounts may have an adverse effect on the Company’s ﬁnancial condition and results of operations.

There is no active trading market for the Notes. The Notes will be new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the ﬁnancial condition of the Company. Although application has been made for the Notes to be admitted to listing on the Luxembourg Stock Exchange, there is no assurance that such application will be accepted, or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes.

The Note in global form is held by or on behalf of Euroclear and Clearstream, Luxembourg. Accordingly, investors will have to rely on their procedures for transfer, payment and communication with the Company. The Notes will on issue be represented by the Global Note. The Global Note will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the circumstances described in the Global Note, investors will not be entitled to receive a Deﬁnitive Note Certiﬁcate.

14 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD While the Notes are represented by the Global Note, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg. While the Notes are represented by the Global Note, the Company will discharge its payment obligations under the Notes by making payments to the common depositary for Euroclear and Clearstream, Luxembourg for distribution to their relevant participants and accountholders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the relevant Notes. None of the Company, the Fiscal Agent or any Paying and Transfer Agent (each as defined in ‘‘Terms and Conditions of the Notes’’) has any responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Note. See ‘‘Summary of Provisions relating to the Notes in Global Form’’.

Modification, waivers and substitution The Conditions of the Notes contain provisions for calling meetings of Noteholders to consider any matter relating to the Notes, including the modification of any provision of the Conditions or the Fiscal Agency Agreement (as defined in ‘‘Terms and Conditions of the Notes’’). These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The Conditions of the Notes also provide that the Fiscal Agent (as defined in ‘‘Terms and Conditions of the Notes’’) may agree without the consent of the Noteholders to any modification to the Conditions or the Fiscal Agency Agreement (other than in respect of a Reserved Matter (as defined in ‘‘Terms and Conditions of the Notes’’)) which is, in its opinion, of a formal, minor or technical nature or is made to correct a manifest error. Further, the Conditions of the Notes also provide that, subject to certain conditions, the Company, or any previously substituted company, may at any time, without the consent of the Noteholders, substitute for itself as principal debtor under the Notes such company as is specified in the Fiscal Agency Agreement, provided that no payment in respect of the Notes is at the relevant time overdue.

15 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD TERMS AND CONDITIONS OF THE NOTES

The following is the text of the terms and conditions of the Notes which, subject to amendment and completion and except for the text in italics, will be endorsed on each Definitive Note Certificate (if issued). The c300,000,000 4.875% Notes due 2016 (the ‘‘Notes’’, which expression includes any further notes issued pursuant to Condition 16 (Further Issues) and forming a single series therewith) of Telekom Slovenije, d.d. (the ‘‘Issuer’’) (a) have the benefit of a deed of covenant dated 21 December 2009 (as amended or supplemented from time to time, the ‘‘Deed of Covenant’’) of the Issuer, and (b) are the subject of a fiscal agency agreement dated 21 December 2009 (as amended or supplemented from time to time, the ‘‘Fiscal Agency Agreement’’) between the Issuer and BNP Paribas Securities Services, Luxembourg Branch as fiscal agent (the ‘‘Fiscal Agent’’, which expression includes any successor fiscal agent appointed from time to time in connection with the Notes) and as paying and transfer agent (the ‘‘Paying and Transfer Agent’’, together with the Fiscal Agent, the ‘‘Agents’’, which expression includes any successor or additional paying and transfer agents appointed from time to time in connection with the Notes), and BNP Paribas Securities Services, Luxembourg Branch in its capacity as Registrar (the ‘‘Registrar’’, which expression shall include any successor registrar appointed from time to time in connection with the Notes). The Fiscal Agency Agreement includes the forms of the Notes. The Noteholders are deemed to have notice of all the provisions of the Fiscal Agency Agreement applicable to them. Copies of the Fiscal Agency Agreement are available for inspection during normal business hours at the Specified Offices (as defined in the Fiscal Agency Agreement) of the Agents. References to ‘‘Conditions’’ are, unless the context otherwise requires, to the numbered paragraphs of these terms and conditions.

1. Form, Denomination and Title (a) Form and denomination The Notes are in registered form, serially numbered. The Notes will be issued in minimum denominations of c50,000 or any amount in excess thereof which is an integral multiple of c1,000 (each, an ‘‘Authorised Holding’’).

(b) Title Title to the Notes will pass by transfer and registration as described in Conditions 2 (Registration)and3(Transfer of Notes). The holder (as defined below) of any Note will (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership, trust or any other interest in it, any writing thereon by any Person (as defined below) (other than a duly executed transfer thereof in the form endorsed thereon) or any notice of any previous theft or loss thereof; and no Person will be liable for so treating the holder. In these Conditions, ‘‘Person’’ means any individual, company, corporation, firm, partnership, joint venture, association, unincorporated organisation, trust or other judicial entity, including, without limitation, any state or agency of a state or other entity, whether or not having separate legal personality, ‘‘Noteholder’’ or ‘‘holder’’ means the Person in whose name a Note is for the time being registered in the Register (as defined below) (or, in the case of joint holders, the first named thereof) and ‘‘holders’’ shall be construed accordingly. A Definitive Note Certificate (as defined below) will be issued to each Noteholder in respect of its registered holding. The Notes will be represented by a global note (the ‘‘Global Note’’), interests in which will be exchangeable for notes in definitive form (‘‘Definitive Note Certificates’’) in the circumstances specified in the Global Note. The Global Note will be deposited with, and registered in the name of a common depositary for Euroclear and Clearstream, Luxembourg.

(c) Third party rights No Person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

2. Registration The Issuer will cause a register (the ‘‘Register’’) to be kept at the Speciﬁed Ofﬁce of the Registrar in which will be entered the names and addresses of the holders of the Notes and the particulars of the Notes held by them and all transfers and redemptions of the Notes.

16 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 3. Transfer of Notes (a) Transfer Each Note may, subject to the terms of the Fiscal Agency Agreement and to Conditions 3(b) (Formalities Free of Charge), 3(c) (Closed Periods) and 3(e) (Regulations Concerning Transfer and Registration), be transferred in whole or in part in an Authorised Holding by lodging the relevant Definitive Note Certificate (with the endorsed form of application for transfer in respect thereof duly executed and duly stamped where applicable) at the Specified Office of the Registrar or any Paying and Transfer Agent. A Note may be registered only in the name of, and transferred only to, a named person or persons. No transfer of a Note will be valid unless and until entered on the Register. The Registrar will within five Business Days (as defined below) of any duly made application for the transfer of a Note, register the transfer and deliver a new Definitive Note Certificate to the transferee (and, in the case of a transfer of part only of a Note, deliver a Definitive Note Certificate for the untransferred balance to the transferor), at the Specified Office of the Registrar, or (at the risk and, if mailed at the request of the transferee or, as the case may be, the transferor otherwise than by ordinary mail, at the expense of the transferee or, as the case may be, the transferor) mail the Definitive Note Certificate by uninsured mail to such address as the transferee or, as the case may be, the transferor may request.

(b) Formalities Free of Charge Such transfer will be effected without charge subject to (i) the person making such application for transfer paying or procuring the payment of any taxes, duties and other governmental charges in connection therewith, (ii) the Registrar being satisﬁed with the documents of title and/or identity of the person making the application and (iii) such reasonable regulations as the Issuer may from time to time agree with the Registrar.

(c) Closed Periods Neither the Issuer nor the Registrar will be required to register the transfer of any Note (or part thereof) during the period of ﬁfteen days immediately prior to the due date for any payment of principal or interest in respect of the Notes.

(d) Business Day In these Conditions, ‘‘Business Day’’ means a day on which the Trans European Automated Real Time Gross Settlement Express Transfer (TARGET) System (the ‘‘TARGET System’’) or any successor system is open and, in the case of surrender of a Definitive Note Certificate only, any day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the place of the Specified Office of the Registrar or relevant Paying and Transfer Agent, to whom the relevant Definitive Note Certificate is surrendered.

(e) Regulations Concerning Transfer and Registration All transfers of Notes and entries on the Register will be made subject to the detailed regulations concerning transfer of Notes in Schedule 1 to the Fiscal Agency Agreement. The regulations may be changed by the Issuer to reﬂect changes in legal requirements or in any other manner which is not prejudicial to the interests of Noteholders with the prior approval of the Registrar (such approval not to be unreasonably withheld).

(f) Authorised Holdings No Note may be transferred unless the principal amount of Notes transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of the Notes not transferred are Authorised Holdings.

4. Status The Notes constitute direct, general, unconditional, unsubordinated and (subject to Condition 5 (Negative Pledge)) unsecured obligations of the Issuer. The Notes will at all times rank pari passu among themselves and at least pari passu in right of payment with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.

17 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 5. Negative Pledge So long as any Note remains outstanding (as defined in the Fiscal Agency Agreement), the Issuer undertakes that it will not, and will procure that none of its Subsidiaries will, create or permit to subsist any Security Interest upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure any Relevant Indebtedness, or any guarantee or indemnity (or any arrangement having a similar effect) in respect of any Relevant Indebtedness, unless at the same time or prior thereto (i) the obligations of the Issuer under the Notes are secured equally and rateably therewith or benefit from a Security Interest or guarantee or indemnity in substantially identical terms thereto, as the case may be, or (ii) have the benefit of such other security, guarantee, indemnity or other agreement as shall be approved by an Extraordinary Resolution (as defined in the Fiscal Agency Agreement) of Noteholders.

6. Definitions For the purposes of these Conditions: ‘‘indebtedness’’ means any indebtedness of any Person for money borrowed, whether incurred, assumed or guaranteed, other than trade credit in the ordinary course of business; ‘‘Relevant Indebtedness’’ means any present or future indebtedness (whether being principal, premium or other amounts) which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is capable of being, listed, quoted or traded on any stock exchange or in any securities market (including, without limitation, any over-the- counter market); ‘‘Security Interest’’ means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction; and ‘‘Subsidiary’’ means, in relation to any company (the ‘‘first Person’’) at any particular time, any other company (the ‘‘second Person’’): (a) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, contract, the power to appoint or remove members of the governing body of the second Person or otherwise; or (b) whose financial statements are, in accordance with applicable law and generally accepted accounting principles, consolidated with those of the first Person.

7. Interest (a) Interest Accrual Each Note bears interest from 21 December 2009 (the ‘‘Issue Date’’) at the rate of 4.875% per annum payable annually in arrear on 21 December in each year (each, an ‘‘Interest Payment Date’’), subject as provided in Condition 8 (Payments). Each period beginning on (and including) the Issue Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date is herein called an ‘‘Interest Period’’.

(b) Cessation of Interest Each Note will cease to bear interest from the due date for ﬁnal redemption unless, upon due surrender of the relevant Note, payment of principal is improperly withheld or refused. In such case it will continue to bear interest at such rate (after as well as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notiﬁed the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment) in accordance with Condition 15 (Notices).

(c) Calculation of Interest for any other period Where interest is to be calculated in respect of a period which is shorter than an Interest Period, the day count fraction applied to calculate the amount of interest payable in respect of each Note shall be the number of days in the relevant period from (and including) the date from which interest begins to accrue to (but excluding) the date on which it falls due, divided by the number of days in the Interest Period in which the relevant period falls (including the ﬁrst such day but excluding the last).

18 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 8. Payments (a) Principal Payment of principal in respect of each Note and payment of interest due other than on an Interest Payment Date will be made to the person shown in the Register at the close of business on the Record Date (as defined below) and subject to the surrender (or, in the case of part payment only, endorsement) of the relevant Definitive Note Certificate at the Specified Office of the Registrar or of the Paying and Transfer Agent.

(b) Interest Payments of interest due on an Interest Payment Date will be made to the persons shown in the Register at close of business on the Record Date.

(d) Payments Subject to Conditions 8(a) (Principal) and 8(b) (Interest), each payment in respect of the Notes pursuant to Conditions 8(a) (Principal) and 8(b) (Interest) will be made by transfer to a Euro account maintained by the payee with a bank in the principal financial centre of any member state of the European Union. Payment instructions (for value the due date or, if the due date is not a Business Day, for value the next succeeding Business Day) will be initiated, in the case of principal, on the later of the due date for payment and the day on which the relevant Definitive Note Certificate is surrendered (or, in the case of part payment only, endorsed) and, in the case of interest and other amounts, on the due date for payment.

(e) Agents The names of the initial Agents and Registrar and their Specified Offices are set out below. The Issuer reserves the right under the Fiscal Agency Agreement at any time by giving to the Agent or Registrar concerned at least 60 days’ prior written notice, which notice shall expire at least 30 days before or after any due date for payment in respect of the Notes, to vary or terminate the appointment of any Agent or the Registrar and to appoint successor or additional Agents or another Registrar, provided that it will at all times maintain: (i) a Fiscal Agent; (ii) a Paying and Transfer Agent in at least one major European city; (iii) a Paying and Transfer Agent with a Specified Office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to European Union Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments or any law implementing or complying with, or introduced in order to conform to, such Directive; and (iv) a Paying and Transfer Agent in a jurisdiction other than the Republic of Slovenia; and (v) a Registrar with a specified office outside the United Kingdom. Notice of any such removal or appointment and of any change in the Specified Office of any Agent or Registrar will be given to Noteholders in accordance with Condition 15 (Notices)as soon as practicable.

(f) Payments subject to Fiscal Laws All payments in respect of the Notes are subject in all cases to any applicable ﬁscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 10 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of such payments.

(g) Delay in Payment Noteholders will not be entitled to any interest or other payment in respect of any delay in payment resulting from the due date for payment not being a Business Day.

19 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 9. Redemption and Purchase (a) Scheduled redemption Unless previously redeemed or purchased and cancelled as provided below, each Note will be redeemed at its principal amount on 21 December 2016, subject as provided in Condition 8 (Payments).

(b) Redemption for Taxation Reasons The Notes may be redeemed at the option of the Issuer in whole, but not in part, on giving not less than 30 nor more than 60 days’ notice to the Noteholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable) at their principal amount, together with interest accrued to (but excluding) the date ﬁxed for redemption, if, immediately before giving such notice: (i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 10 (Taxation), greater than the additional amounts that would be required if such a payment were subject to a 20% withholding tax rate, as a result of any change in, or amendment to, the laws or regulations of the Republic of Slovenia or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or ofﬁcial interpretation of such laws or regulations, which change or amendment becomes effective on or after 21 December 2009; and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due. Upon the expiry of any such notice as is referred to in this Condition 9(b) (Redemption for Taxation Reasons), the Issuer shall be bound to redeem the Notes in accordance with this Condition 9(b) (Redemption for Taxation Reasons).

(c) Redemption at the option of the Noteholders (i) If during the period from, and including, 21 December 2009 to, but excluding, 21 December 2016 a Change of Control Event occurs and within the Change of Control Period (A) (if at the time that Change of Control Event occurs there are Rated Securities) a Rating Downgrade in respect of that Change of Control Event occurs or (B) (if at such time there are no Rated Securities) a Negative Rating Event in respect of that Change of Control Event occurs (that Change of Control Event and, where applicable, Rating Downgrade or Negative Rating Event, as the case may be, occurring within the Change of Control Period, together called a ‘‘Put Event’’), the holder of each Note will have the option (unless, prior to the giving of the Put Event Notice referred to below, the Issuer gives notice under Condition 9(b) (Redemption for Taxation Reasons) to redeem the Notes) to require the Issuer to redeem or, at the Issuer’s option, purchase (or procure the purchase of) that Note on the Put Date (as defined below) at its principal amount together with (or, where purchased, together with an amount equal to) interest accrued to but excluding the Put Date. (ii) Promptly upon, and in any event within 10 days after, the Issuer becoming aware that a Put Event has occurred, the Issuer shall give notice (a ‘‘Put Event Notice’’) to the Noteholders in accordance with Condition 15 (Notices) specifying the nature of the Put Event and the procedure for exercising the put option contained in this Condition 9(c) (Redemption at the option of the Noteholders). (iii) To exercise the put option under this Condition 9(c) (Redemption at the option of the Noteholders), the holder of a Note must deliver the relevant Definitive Note Certificate on any Business Day falling within the period of 30 days after a Put Event Notice is given (the ‘‘Put Period’’), at the Specified Office of any Paying and Transfer Agent, accompanied by a duly signed and completed notice of exercise in the form (for the time being current) obtainable from the Specified Office of any Paying and Transfer Agent (a ‘‘Put Notice’’) and in which the holder may specify a bank account to which payment is to be made under this Condition 9(c) (Redemption at the option of the Noteholders).

20 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The Paying and Transfer Agent to which such Definitive Note Certificate and Put Notice are delivered will issue to the Noteholder concerned a non-transferable receipt in respect of the Note so delivered. Payment in respect of any Definitive Note Certificate so delivered will be made, subject to Condition 8 (Payments), on the date which is seven calendar days after the expiry of the Put Period (the ‘‘Put Date’’). A Put Notice, once given, shall be irrevocable. For the purposes of Condition 8 (Payments) and certain other purposes specified in the Fiscal Agency Agreement, receipts issued pursuant to this Condition 9(c) (Redemption at the option of the Noteholders) shall be treated as if they were Notes. The Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Notes on the Put Date unless previously redeemed or purchased. (iv) If 90 per cent. or more in principal amount of the Notes then outstanding have been redeemed or purchased pursuant to the foregoing provisions of this Condition 9(c) (Redemption at the option of the Noteholders), the Issuer may, at its option, on not less than 30 or more than 60 days’ notice to the Noteholders, such notice to be given within 30 days after the Put Date, redeem the remaining Notes as a whole at their principal amount plus interest accrued to but excluding the date of such redemption. (v) If the rating designations employed by any of S&P, Moody’s or Fitch Ratings are changed from those which are described in paragraph (B) of the definition of ‘‘Negative Rating Event’’ below or, if a rating is procured from another Rating Agency, the Issuer shall determine the rating designations of S&P, Moody’s, Fitch Ratings or such other Rating Agency (as appropriate) as are most nearly equivalent to the prior rating designations of S&P, Moody’s or Fitch Ratings, and this Condition 9(c) (Redemption at the option of the Noteholders) shall be construed accordingly. (vi) In this Condition 9(c) (Redemption at the option of the Noteholders): A‘‘Change of Control Event’’ shall be deemed to have occurred if at any time a person or group of persons acting in concert (other than (a) a holding company (as defined in section 1159 of the Companies Act 2006) whose shareholders are or are to be the same as (or the same save for the initial subscriber of the shares of the holding company), and who hold the shares in the same proportion (save for any holding of any such initial subscriber) as, the shareholders of the Issuer at the Issue Date, or (b) the Republic of Slovenia), gains control of more than 50 per cent. of the issued shares of the Issuer or of the voting rights attached to the issued shares of the Issuer. For the purposes of this definition, ‘‘acting in concert’’ means a group of persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate through the acquisition by any of them, either directly or indirectly, of shares in the Issuer to obtain or consolidate control of the Issuer. ‘‘Change of Control Period’’ means the period beginning on the date that is (A) the date of the first public announcement of the Change of Control Event or, if earlier, (B) the date of the earliest Potential Change of Control Event Announcement (if any) and ending 90 days after the occurrence of the Change of Control Event (if any) (or such longer period in which the Rated Securities are under consideration (announced publicly within the period ending 90 days after the occurrence of the Change of Control Event) for rating review due to or as a consequence in whole or in part of the Change of Control Event or, as the case may be, rating by a Rating Agency, such period not to exceed 60 days after the public announcement of such consideration). A‘‘Negative Rating Event’’ shall be deemed to have occurred if the Issuer (A) does not, either prior to or not later than 21 days after the relevant Change of Control Event, seek, and thereupon use all reasonable endeavours to obtain, a rating of the Notes or any other unsecured and unsubordinated debt of the Issuer (or any subsidiary of the Issuer which is guaranteed on an unsecured and unsubordinated basis by the Issuer) having an initial maturity of five years or more from a Rating Agency or (B) does so seek and use such endeavours, but it is unable, as a result of such Change of Control Event, to obtain such a rating of at least ‘‘investment grade’’ (being a rating of BBB- (in the case of Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. (‘‘S&P’’)), Baa3 (in the case of Moody’s Investors Service Limited (‘‘Moody’s’’)) or BBB- (in the case of Fitch Ratings Ltd (‘‘Fitch Ratings’’)), or their respective equivalents for the time being) from at least one Rating Agency, provided that a Negative Rating Event shall not be

21 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD deemed to have occurred in respect of a particular Change of Control Event if the Rating Agency declining to assign a rating of at least investment grade (as defined above) does not announce or publicly confirm or inform the Issuer in writing that its declining to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of, or in respect of, the applicable Change of Control Event (whether or not the Change of Control Event shall have occurred at the time such investment grade rating is declined). ‘‘Potential Change of Control Event Announcement’’ means any public announcement or statement by the Issuer, any actual or potential bidder or any corporate or financial adviser acting on behalf of any actual or potential bidder relating to any potential Change of Control Event where, within 90 days following the date of such announcement or statement, a Change of Control Event occurs. ‘‘Rated Securities’’ means the Notes so long as they shall have an effective rating from any Rating Agency and otherwise any unsecured and unsubordinated debt of the Issuer (or any subsidiary of the Issuer which is guaranteed on an unsecured and unsubordinated basis by the Issuer) having an initial maturity of five years or more which is rated by one of the Rating Agencies. ‘‘Rating Agency’’ means S&P and its successors or Moody’s and its successors or Fitch Ratings and its successors or any other rating agency of equivalent standing specified by the Issuer from time to time. A‘‘Rating Downgrade’’ shall be deemed to have occurred in respect of a Change of Control Event if the current rating provided by a Rating Agency at the invitation of the Issuer assigned to the Rated Securities by any Rating Agency (A) is withdrawn and is not within the Change of Control Period replaced by a rating of another Rating Agency at least equivalent to that which was current immediately before the occurrence of the Change of Control Event or (B) is reduced from a rating of investment grade (as defined above) or better to a non-investment grade rating of BB+ (in the case of S&P), Ba1 (in the case of Moody’s) or BB+ (in the case of Fitch Ratings) (or their respective equivalents for the time being) or worse and not subsequently upgraded to an investment grade rating during the Change of Control Period; provided that a Rating Downgrade otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control Event if the Rating Agency making the reduction in rating to which this definition would otherwise apply does not announce or publicly confirm or inform the Issuer in writing that the reduction was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of, or in respect of, the applicable Change of Control Event (whether or not the applicable Change of Control Event shall have occurred at the time of the Rating Downgrade).

(d) No other redemption The Issuer shall not be entitled to redeem the Notes otherwise than as provided in Conditions 9(a) (Scheduled redemption), 9(b) (Redemption for Taxation Reasons) and 9(c)(iv)above.

(e) Purchase The Issuer or any of its Subsidiaries may at any time purchase or procure others to purchase for its account Notes in the open market or otherwise and at any price. The Notes so purchased may be held or resold (provided that such resale is in compliance with all applicable laws) or surrendered for cancellation at the option of the Issuer or otherwise, as the case may be in compliance with Condition 9(f)(Cancellation of Notes) below. The Notes so purchased, while held by or on behalf of the Issuer or any such Subsidiary, shall not entitle the holder to vote at any meeting of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Condition 14(a) (Meetings of Noteholders). Any purchase by tender shall be made available to all Noteholders alike.

(f) Cancellation of Notes All Notes which are redeemed pursuant to Conditions 9(b) (Redemption for Taxation Reasons) to 9(c) (Redemption at the option of the Noteholders) or submitted for cancellation pursuant to Condition 9(e) (Purchase) will be cancelled and may not be reissued or resold. For so long as

22 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD the Notes are admitted to trading on the Luxembourg Stock Exchange and the rules of such exchange so require, the Issuer shall promptly inform the Luxembourg Stock Exchange of the cancellation of any Notes under this Condition 9(f) (Cancellation of Notes).

10. Taxation (a) All payments of principal and interest in respect of the Notes shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, withheld or assessed by or within the Republic of Slovenia or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them if no such withholding or deduction had been required, except that no such additional amounts shall be payable in relation to any payment with respect to any Note:

(i) Other Connection held by or on behalf of a holder who is liable to such taxes, duties, assessments or governmental charges in respect of such Note by reason of his having some connection with the Republic of Slovenia other than the mere holding of the Note;

(ii) Presentation more than 30 days after the Relevant Date (in the case of a payment of principal or interest on redemption) surrendered for payment more than 30 days after the Relevant Date (as deﬁned below) except to the extent that the holder thereof would have been entitled to such additional amounts on presenting the same for payment on the last day of such period of 30 days;

(iii) Payment to Individuals where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Union Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive;

(iv) Payment by another Paying and Transfer Agent where the Noteholder would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying and Transfer Agent in a Member State of the European Union or by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority if, after having been requested to make such a declaration or claim, such a Noteholder fails to do so; or

(v) Payment in the Republic of Slovenia (in the case of a payment of principal or interest on redemption) where the relevant Deﬁnitive Note Certiﬁcate is surrendered for payment in the Republic of Slovenia.

(b) Taxing jurisdiction If the Issuer becomes subject at any time to any taxing jurisdiction other than the Republic of Slovenia, references in this Condition 10 (Taxation) to the Republic of Slovenia shall be construed as references to the Republic of Slovenia, and/or such other jurisdiction.

‘‘Relevant Date’’ means whichever is the later of (i) the date on which such payment ﬁrst becomes due and (ii) if the full amount payable has not been received in London by the Fiscal Agent on or prior to such due date, the date on which, the full amount plus any accrued interest having been so received, notice to that effect shall have been given to the Noteholders. Any reference in these Conditions to principal and/or interest shall be deemed to include any additional amounts which may be payable under this Condition or any undertaking given in addition to or substitution for it under the Fiscal Agency Agreement.

23 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 11. Prescription Claims in respect of principal and interest will become void unless the relevant Definitive Note Certificate is surrendered for payment as required by Condition 8 (Payments) within a period of 10 years in the case of principal and five years in the case of interest from the appropriate Relevant Date.

12. Events of Default If any of the events listed in paragraphs (a) to (j) below (each, an ‘‘Event of Default’’) occurs and is continuing.

(a) Non payment The Issuer fails to pay any amount of principal in respect of the Notes on the due date for payment when the same becomes due and payable either at maturity, by declaration or otherwise; or the Issuer is in default with respect to the payment of interest or any additional amount payable in respect of any of the Notes and the default continues for a period of 7 days; or

(b) Breach of other obligations The Issuer defaults in the performance or observance of any of its other obligations under the Notes and such default (i) is incapable of remedy or (ii) being a default which is, capable of remedy, remains unremedied for 45 days after notice of such default has been given to the Issuer at the Speciﬁed Ofﬁce of the Fiscal Agent by any holder of Notes; or

(c) Cross default (i) Any other present or future indebtedness of the Issuer or any Material Subsidiary is not paid when due or (as the case may be) within any originally applicable grace period; (ii) any such indebtedness becomes (or becomes capable of being declared) due and payable prior to its stated maturity otherwise than at the option of the Issuer or (as the case may be) the relevant Material Subsidiary or (provided that no event of default, howsoever described, has occurred) any Person entitled to such indebtedness; or (iii) the Issuer or any Material Subsidiary fails to pay when due any amount payable by it under any present or future guarantee of any indebtedness (including any indemnity of such indebtedness), provided that indebtedness referred to in Conditions 12(c)(i) and/or 12(c)(ii) above and/or the amount payable under any guarantee or indemnity referred to in Condition 12(c)(iii) above individually or in the aggregate exceeds EUR 25,000,000 (or its equivalent in any other currency or currencies);

(d) Judgment default One or more judgments or orders or arbitration awards, from which no further appeal or judicial review is permissible under applicable law, is rendered or granted against the Issuer or any Material Subsidiary for the payment of any amount which is equal to or exceeds (or, if added to the value of other such judgments or orders or arbitration awards falling to be taken into account under this Condition, would equal or exceed) EUR 25,000,000 and such judgments or orders or arbitration awards continue unsatisﬁed and unstayed for a period of 30 days after the date thereof or, if later, the date therein speciﬁed for payment; or

(e) Security Enforced A secured party takes possession of, or a receiver, manager or other similar ofﬁcer is appointed, over, the whole or any part of the undertaking, assets and revenues of the Issuer or any Material Subsidiary and in any such case, the value of the undertaking, assets and revenues is equal to or exceeds (or, if added to the value of other undertaking, assets and revenues falling to be taken into account under this Condition, would equal or exceed) EUR 25,000,000; or

(f) Bankruptcy (i) (A) The Issuer or any Material Subsidiary becomes insolvent or is unable to pay its debts, (B) an administrator or liquidator or other similar ofﬁcer of the Issuer or any Material Subsidiary or the whole or any substantial part of the undertaking, assets and revenues of

24 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD the Issuer or any Material Subsidiary is appointed (or application for any such appointment is made), (C) the Issuer or any Material Subsidiary takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the beneﬁt of its creditors or declares a moratorium in respect of any of its present or future indebtedness or any guarantee of such indebtedness given by it (including any indemnity of such indebtedness or any arrangement having a similar effect) or (D) the Issuer or any Material Subsidiary ceases or threatens to cease to carry on all or any substantial part of its business; or (ii) an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Issuer or any Material Subsidiary; or

(g) Invalidity or unenforceability (i) it is or will become unlawful for the Issuer to perform or comply with any of its obligations under or in respect of the Notes; or (ii) the Deed of Covenant is not (or is claimed by the Issuer not to be) in full force and effect; or

(h) Analogous Events Any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of the foregoing paragraphs; or

(i) Substantial Change in Business The Issuer makes or threatens to make any substantial change in the principal nature of its business as conducted at the Issue Date; or

(j) Maintenance of Business The Issuer or any Material Subsidiary fails to maintain in effect its material licences or its corporate existence and such failure is not remedied within 30 days after notice thereof has been given to the Issuer, then any Noteholder may by written notice to the Issuer at the Specified Office of the Fiscal Agent, effective upon the date of receipt thereof by the Fiscal Agent, declare the Note held by such Noteholder to be forthwith due and payable whereupon the same shall become due and payable at its principal amount, together with accrued interest (if any) and any additional amounts as provided or referred to in Condition 10 (Taxation) to the date of repayment, without presentment, demand, protest or other notice of any kind (unless such Event of Default shall have been remedied prior to the receipt of such notice by the Fiscal Agent). For the purpose of this Condition 12 (Events of Default): ‘‘Group’’ means the Issuer and its consolidated Subsidiaries from time to time taken as a whole; ‘‘IFRS’’ means the International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board (‘‘IASB’’) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time); ‘‘IFRS Fiscal Period’’ means any fiscal period for which the Group has produced financial statements in accordance with IFRS which have either been audited or reviewed by independent accountants of recognised international standing; ‘‘Material Subsidiary’’ means at any relevant time a Subsidiary of the Issuer: (i) which, for the most recent IFRS Fiscal Period, accounted for more than 10% of the consolidated revenues of the Group; or which, as of the end of the most recent IFRS Fiscal Period, was the owner of more than 10% of the consolidated assets of the Group, each as set out in the most recent available consolidated financial statements of the Group for such IFRS Fiscal Period (with effect from the date of issuance of such statements); or (ii) to which is transferred all or substantially all of the assets and undertaking of a Subsidiary which immediately prior to such transfer is a Material Subsidiary.

25 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 13. Replacement of Notes If any Definitive Note Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the Specified Office of the Registrar or any Paying and Transfer Agent subject to all applicable laws and stock exchange or other relevant authority requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may require (provided that the requirement is reasonable in the light of prevailing market practice). Mutilated or defaced Definitive Note Certificates must be surrendered before replacements will be issued.

14. Meetings of Noteholders; Modification, Waiver and Substitution (a) Meetings of Noteholders The Fiscal Agency Agreement contains provisions for convening meetings of Noteholders to consider any matters relating to the Notes, including the modification of any provision of these Conditions or the Fiscal Agency Agreement. Any such modification may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Issuer or by the Issuer upon request in writing by Noteholders holding not less than one tenth of the aggregate principal amount of the outstanding Notes. The quorum at any meeting convened to vote on an Extraordinary Resolution will be two or more persons holding or representing a clear majority of the aggregate principal amount of the Notes for the time being outstanding, or, at any adjourned meeting, one or more persons being or representing Noteholders whatever the principal amount of the Notes for the time being outstanding so held or represented; provided, however, that any proposals relating to any Reserved Matter (as defined below) may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which two or more persons holding or representing not less than three quarters or, at any adjourned meeting, one quarter of the aggregate principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Noteholders, whether present at the meeting(s) or not.

(b) Reserved Matters In these Conditions, ‘‘Reserved Matter’’ means any proposal whereby: (i) any date fixed for payment of principal or interest in respect of the Notes is to be charged; or (ii) the principal amount of, or interest on, or other amounts in respect of the Notes is to be reduced or cancelled or the rate of interest on the Notes is to be reduced; or (iii) the status of the Notes under Condition 4 (Status) is to be amended; or (iv) the Events of Default set out in Condition 12 (Events of Default) are to be amended; or (v) the currency of payment of the Notes or the due date or date for any payment in respect of the Notes is to be changed; or (vi) the provisions contained in Schedule 4 (Provisions for Meetings of Noteholders)tothe Fiscal Agency Agreement concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution or the definition of ‘‘Extraordinary Resolution’’ or the definition of ‘‘outstanding’’ is to be modified; or (vii) this definition of Reserved Matter is to be amended; or (viii) the Deed of Covenant is to be modified or cancelled.

(c) Written resolution A resolution in writing will take effect as if it were an Extraordinary Resolution if it is signed (i) by or on behalf of all Noteholders who for the time being are entitled to receive notice of a meeting of Noteholders under the Fiscal Agency Agreement or (ii) if such Noteholders have been given at least 21 days’ notice of such resolution, by or on behalf of persons holding three quarters of the aggregate principal amount of the outstanding Notes. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

26 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD (d) Modification without Noteholders’ consent The Fiscal Agent may agree, without the consent of the Noteholders, to any modification of these Conditions or the Fiscal Agency Agreement (other than in respect of a Reserved Matter) which is in its opinion of a formal, minor or technical nature or to correct a manifest error. Any such modification shall be binding on the Noteholders and, if the Fiscal Agent so requires, shall be notified to the Noteholders as soon as practicable thereafter.

(e) Substitution The Issuer, or any previously substituted company, may at any time, without the consent of the Noteholders, substitute for itself as principal debtor under the Notes such company (the ‘‘Substitute’’) as is specified in the Fiscal Agency Agreement, provided that no payment in respect of the Notes is at the relevant time overdue. The substitution shall be made by a deed poll (the ‘‘Deed Poll’’), to be substantially in the form exhibited to the Fiscal Agency Agreement, and may take place only if (i) the Substitute shall, by means of the Deed Poll, agree to indemnify each Noteholder against any tax, duty, assessment or governmental charge which is imposed on it by (or by any authority in or of) the jurisdiction of the country of the Substitute’s residence for tax purposes and, if different, of its incorporation with respect to any Note and which would not have been so imposed had the substitution not been made, as well as against any tax, duty, assessment or governmental charge, and any cost or expense, relating to the substitution, (ii) the obligations of the Substitute under the Deed Poll and the Notes shall be unconditionally guaranteed by the Issuer by means of the Deed Poll, (iii) all action, conditions and things required to be taken, fulfilled and done (including the obtaining of any necessary consents) to ensure that the Deed Poll and the Notes represent valid, legally binding and enforceable obligations of the Substitute and in the case of the Deed Poll of the Issuer have been taken, fulfilled and done and are in full force and effect, (iv) the Substitute shall have become party to the Fiscal Agency Agreement, with any appropriate consequential amendments, as if it had been an original party to it, (v) legal opinions addressed to the Noteholders shall have been delivered to them (care of the Fiscal Agent) from a lawyer or firm of lawyers with a leading securities practice in each jurisdiction referred to in (i) above and in England as to the fulfilment of the preceding conditions of this paragraph (c) and the other matters specified in the Deed Poll, (vi) so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the regulated market of the Luxembourg Stock Exchange, or admitted to trading on any other listing authority, stock exchange and/or quotation system within the European Union, a supplemental prospectus is published in accordance with the requirements of Directive 2003/71/EC as implemented in Luxembourg, the Rules and Regulations of the Luxembourg Stock Exchange and/or (as the case may be) in accordance with the requirements of such other stock exchange; (vii) each listing authority, stock exchange and/ or quotation system to which the Notes may be admitted to listing, trading and/or quotation shall have confirmed that, following the proposed substitution of the Substitute, the Notes will continue to be so admitted; (viii) Moody’s shall have confirmed that following the proposed substitution of the Substitute, the credit rating of the Notes will not be adversely affected, (ix) if applicable, the Substitute has appointed a process agent as its agent to receive service of process on its behalf in relation to any legal proceedings arising out of or in connection with the Notes, (x) the Substitute shall have complied with all necessary "know your customer" or other similar checks of the Fiscal Agent, and (xi) the Issuer shall have given at least 14 days’ prior notice of such substitution to the Noteholders, stating that copies, or pending execution the agreed text, of all documents in relation to the substitution which are referred to above, or which might otherwise reasonably be regarded as material to Noteholders, will be available for inspection at the Specified Office of each of the Agents. References in Condition 12 (Events of Default)to obligations under the Notes shall be deemed to include obligations under the Deed Poll, and, where the Deed Poll contains a guarantee, the events listed in Condition 12 (Events of Default) shall be deemed to include that guarantee not being (or being claimed by the guarantor not to be) in full force and effect and the provisions of Condition 12(a) – 12(j) inclusive shall be deemed to apply in addition to the guarantor.

15. Notices Notices to Noteholders will be sent to them by ﬁrst class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed to have been given on the fourth day after the date of mailing. Notices to Noteholders will

27 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD be valid if published, for so long as the Notes are admitted to trading on the Luxembourg Stock Exchange and the rules of such exchange so require, either on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort or, if, in the opinion of the Fiscal Agent, such publication is not practicable, in a leading English language daily newspaper of general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the ﬁrst date on which publication is made. So long as any of the Notes are represented by the Global Note, notices required to be published in accordance with Condition 15 (Notices) may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg for communication by them to the relevant accountholders, provided: (i) that such notice is also delivered to the Luxembourg Stock Exchange; and (ii) so long as the Notes are admitted to trading on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, publication will also be made in a leading daily newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu).

16. Further Issues The Issuer may from time to time, without notice to or the consent of the Noteholders and in accordance with the Fiscal Agency Agreement, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the date for and amount of the ﬁrst payment of interest) so as to be consolidated and form a single series with the Notes (‘‘Further Notes’’).

17. Governing Law and Jurisdiction

(a) Governing law The Notes, including any non-contractual obligations arising out of or in connection with the Notes, are governed by, and shall be construed in accordance with, English law.

(b) Jurisdiction The Issuer agrees for the beneﬁt of the Noteholders that the courts of England shall have jurisdiction to hear and determine any suit, action or proceedings arising out of or in connection with the Notes (‘‘Proceedings’’) and, for such purposes, irrevocably submit to the jurisdiction of such courts. Nothing in this paragraph shall (or shall be construed so as to) limit the right of the Noteholders to take Proceedings in any other court of competent jurisdiction, nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings by any the Noteholders in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law.

(c) Appropriate Forum For the purposes of Condition 17(b) (Jurisdiction), the Issuer irrevocably waives any objection which it might now or hereafter have to the courts of England being nominated as the forum to hear and determine any Proceedings and agrees not to claim that any such court is not a convenient or appropriate forum.

(d) Service of Process The Issuer agrees that the process by which any Proceedings are commenced in England pursuant to Condition 17(b) (Jurisdiction) may be served on it by being delivered to Hackwood Secretaries Limited at One Silk Street, London, EC2Y 8HQ or, if different, its registered ofﬁce for the time being or at any address of the Issuer in the United Kingdom at which process may be served on it in accordance with Part 34 of the Companies Act 2006 or any successor provision thereto. If such person is not or ceases to be effectively appointed to accept service of process on behalf of the Issuer, the Issuer shall, on the written demand of a Noteholder, appoint a further person in England to accept service of process on its behalf and, failing such appointment within 15 days, any Noteholder shall be entitled to appoint such a person by written notice to the Issuer. Nothing in this paragraph shall affect the right of the Noteholders to serve process in any other manner permitted by law.

28 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD (e) Waiver of Immunity To the extent that the Issuer may in respect of any Proceedings be entitled to claim for itself or its assets immunity from jurisdiction, suit, execution, attachment (whether in aid of execution of a judgment, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), the Issuer irrevocably consents to the enforcement of any judgment, agree not to claim and irrevocably waive such immunity to the fullest extent permitted by the laws of the jurisdiction.

29 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM

1. Global Notes The Notes will be evidenced on issue by the Global Note (deposited with, and registered in the name of a common depositary for Euroclear and Clearstream, Luxembourg). So long as the Notes are in global form and deposited with Euroclear and Clearstream Luxembourg, payments to Noteholders will be made through the clearing systems (subject to and in accordance with paragraphs 4 to 9 below). Interests in the Global Note may be held only through Euroclear or Clearstream, Luxembourg at any time. See ‘‘—Book-Entry Procedures’’. Beneficial interests in the Global Note will be subject to certain restrictions on transfer set forth therein. Except in the limited circumstances described below, owners of interests in the Global Note will not be entitled to receive physical delivery of certificated Notes in definitive form (the ‘‘Definitive Note Certificates’’). The Notes are not issuable in bearer form. In the event that a Global Note is exchanged for Definitive Note Certificates, such Definitive Note Certificates shall be issued in denominations of c50,000 and integral multiples of c1,000 thereafter only. Noteholders who hold Notes in the clearing systems in the amounts that are not integral multiples of c50,000 or c1,000 thereafter may need to purchase or sell, on or before the relevant Exchange Date (as defined below), a principal amount of Notes such that their holding is an integral multiple of c50,000 or c1,000 thereafter.

2. Amendments to the Conditions The Global Note contains provisions that apply to the Notes that it represents, some of which modify the effect of the above Conditions of the Notes. The following is a summary of those provisions: Payments. Payments of principal and interest in respect of Notes evidenced by the Global Note will be made against presentation for endorsement by the Fiscal Agent and, if no further payment falls to be made in respect of the relevant Notes, surrender of the Global Note to or to the order of the Fiscal Agent or such other Paying and Transfer Agent as shall have been notified to the relevant Noteholders for such purpose. A record of each payment so made will be endorsed in the appropriate schedule to the Global Note, which endorsement will be prima facie evidence that such payment has been made in respect of the relevant Notes. Notices. So long as any Notes are represented by the Global Note and the Global Note is held on behalf of one or more clearing systems, notices to Noteholders required to be published in the Luxemburger Wort may be given by delivery of the relevant notice to such clearing systems for communication by it to entitled accountholders in substitution for delivery thereof as required by the Conditions of such Notes, provided that for so long as the Notes are listed on the official list and admitted to trading on the Market and the rules of the Luxembourg Stock Exchange so require, notices shall also be published either on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort.). Meetings. The holder of the Global Note will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and, at any such meeting, as having one vote in respect of each EUR 50,000 in principal amount of Notes for which the Global Note may be exchangeable. Prescription. Claims against the Issuer in respect of principal and interest on the Notes while the Notes are represented by the Global Note will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 10 (Taxation) of the Notes). Put Option. The Noteholders’ put option in Condition 9(c) (Redemption at the option of the Noteholders) of the Notes may be exercised by the holder of the Global Note giving notice to the Fiscal Agent of the principal amount of Notes in respect of which the option is exercised and presenting the Global Note for endorsement of exercise within the time limits specified in such Condition. Purchase and Cancellation. Cancellation of any Note required by the Conditions to be cancelled following its purchase will be effected by reduction in the principal amount of the Global Note.

30 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 3. Exchange for Definitive Note Certificates A Global Note will become exchangeable, free of charge to the holder, in whole but not in part, for Definitive Note Certificates if: (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or does in fact do so, or (b) principal in respect of any Notes is not paid when due and payable. Thereupon, the holder of the Global Note (acting on the instructions of one or more Participants or Beneficial Owners (as defined in paragraphs 4 and 8 below)) may give notice to the Registrar of its intention to exchange the Global Note for Definitive Note Certificates on or after the Exchange Date specified in the notice. On or after any Exchange Date the holder of the Global Note may surrender the Global Note to or to the order of the Registrar or any Paying and Transfer Agent. In exchange for the Global Note, the Registrar shall, against such indemnity as the Registrar may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange, deliver, or procure the delivery of, an equal aggregate principal amount of duly executed and authenticated Definitive Note Certificates substantially in the form set out in Schedule 6 to the Fiscal Agency Agreement. ‘‘Exchange Date’’ means a day falling not less than 60 days or, in the case of exchange pursuant to (b) above, 30 days, after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Registrar or relevant Paying and Transfer Agent is located and, except in the case of exchange pursuant to (a) above, in the cities in which the relevant clearing system is located. Any exchange for Definitive Note Certificates shall be effected in accordance with the provisions of the Global Note, the provisions of the Fiscal Agency Agreement and the regulations concerning the transfer and registration of Notes scheduled thereto.

4. Book-Entry Procedures Custodial and depository links are to be established between Euroclear and Clearstream, Luxembourg to facilitate the initial issue of the Notes and cross-market transfers of the Notes associated with secondary market trading. See ‘‘—Book-Entry Ownership’’ and ‘‘—Settlement and Transfer of Notes’’ below. Investors may hold their interests in a Global Note directly through Euroclear or Clearstream, Luxembourg if they are accountholders (‘‘Direct Participants’’) or indirectly (‘‘Indirect Participants’’ and together with Direct Participants, ‘‘Participants’’) through organisations which are accountholders therein.

5. Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services, including safekeeping, administration, clearance and settlement of internationally-traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide ﬁnancial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations.

6. Book-Entry Ownership A Global Note representing the Notes will have an ISIN and a Common Code and will be registered in the name of a common depositary on behalf of Euroclear and Clearstream, Luxembourg. The address of Euroclear is 1 Boulevard du Roi Albert 11, B-1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, L-1855, Luxembourg.

31 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 7. Relationship of Participants with Clearing Systems Each of the persons shown in the records of Euroclear and Clearstream, Luxembourg as the holder of a Note evidenced by a Global Note must look solely to Euroclear or Clearstream, Luxembourg (as the case may be) for his share of each payment made by the Issuer to the holder of a Global Note and in relation to all other rights arising under a Global Note, subject to and in accordance with the respective rules and procedures of Euroclear or Clearstream, Luxembourg (as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note, the common depositary by whom such Note is held, and in whose name it is registered, will immediately credit the relevant Participants’ or accountholders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective interests in the principal amount of the Global Note as shown on the records of the relevant clearing system or its nominee. The Issuer also expects that payments by Direct Participants in any clearing system to owners of interests in a Global Note held through such Direct Participants in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by a Global Note and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of a Global Note in respect of each amount so paid. None of the Issuer, the Fiscal Agent or any Paying and Transfer Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in a Global Note or for maintaining, supervising or reviewing any records relating to such ownership interests.

8. Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants, which will receive a credit for such Notes on the clearing system’s records. The ownership interest of each actual purchaser of each such Note (the ‘‘Beneficial Owner’’) will in turn be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be effected by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in a Global Note held within a clearing system are exchanged for Definitive Note Certificates. No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Global Note to such persons may be limited.

9. Trading between Euroclear and/or Clearstream, Luxembourg Participants Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional eurobonds.

32 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD USE OF PROCEEDS

The net proceeds of the issue of the Notes are expected to amount to approximately c296,540,000, being the gross proceeds of the issue, taking into account the issue price of 99.225%, less commissions and expenses totalling approximately c1,135,000, and the majority of such proceeds will be used by the Group for the reﬁnancing of existing Group indebtedness.

33 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD SELECTED FINANCIAL INFORMATION

The following table sets out certain Group ﬁnancial information for the periods indicated:

Nine Months Nine Months Year ended Year ended ended ended 31 December 31 December 30 September 30 September 2007 2008 2008 2009

In thousand EUR Operating revenue 780,077 842,356 633,783 631,148 Other 7,167 9,379 6,621 6,067 Share of proﬁts from joint ventures 3,659 4,867 3,663 2,251 Operating expenses (654,468) (728,106) (534,010) (580,012)

Proﬁt from operations 136,435 128,496 110,057 59,454 Expense revenue 7,722 7,601 5,997 4,537 Finance costs (17,375) (21,192) (15,106) (17,363)

Proﬁt before tax 126,782 114,905 100,948 46,628

EBITDA 298,210 312,246 247,784 209,586

The following table sets out certain Group ﬁnancial information as at the dates indicated:

As at As at As at 31 December 31 December 30 September 2007 2008 2009

In thousand EUR Non-current assets 1,454,287 1,527,033 1,715,140 Current assets 286,238 261,330 269,657

Total assets 1,740,525 1,788,363 1,984,797

Total equity 1,062,741 1,065,670 1,057,441 Total liabilities 677,784 722,693 927,356

Total equity and liabilities 1,740,525 1,788,363 1,984,797

34 c101806pu020 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD DESCRIPTION OF THE GROUP

Background and History Telekom Slovenije, d.d. (the ‘‘Company’’) is the parent company of the group of companies consisting of the Company and its consolidated subsidiaries (the ‘‘Group’’). The list of companies in which the Company holds at least 50% of the share capital is set out in the section ‘‘Subsidiaries and Affiliates’’ below. The Company is also the national fixed line telecommunications operator in Slovenia, managing the fixed line telecommunications network and providing fixed line telecommunications services (including broadband). The Group is a diversified telecommunications group which provides a comprehensive range of telecommunications services; primarily provides fixed line and mobile telephony services; and operates principally in Slovenia, Macedonia and Kosovo but also has operations in Albania, Bosnia and Herzegovina and Croatia. The Company was established in 1995 following the separation of PTT Slovenije into separate postal and telecommunications entities. The Company was entered into the register of the District Court of Ljubljana on 7 April 1998 as a joint-stock company under registration number 1/24624/00. The Company’s registered office and business address is Cigaletova ulica 15, 1000 Ljubljana, Slovenia and the telephone number is +386 1234 1000. Following an initial public offering in August 2006, the Company’s shares were listed on the Ljubljana Stock Exchange. As at 30 September 2009, the Republic of Slovenia owned 52.54% of the Company’s issued share capital and three state investment funds together held 21.61% of the Company’s issued share capital, creating an effective state shareholding of 74.15% (see ‘‘—Shareholders of the Company’’). The Company is the incumbent telecommunications provider in Slovenia and in 2006 expansion of the Group outside Slovenia began with the establishment of internet service providers in south eastern Europe. The Group now has internet service providers in Kosovo, Macedonia and Bosnia and Herzegovina. In 2007, the Group took the opportunity to expand the services offered in markets outside Slovenia when a second mobile licence was put out to tender in Kosovo. Group company IPKO Telecommunications, d.o.o. (‘‘IPKO’’) won the competition for this licence and in December 2007 began offering mobile services in Kosovo. In May 2009, the Company acquired a Dutch holding company from Cosmote Mobile Telecommunications S.A., Greece, which is the 100% owner of Cosmofon Telecommunications Services AD Skopje (‘‘Cosmofon’’) (since renamed ONE Telecommunications Services SC Skopje (‘‘ONE’’)), the first alternative mobile telecommunications service provider in Macedonia. The Group also holds a 50% stake of an internet service provider in Gibraltar. However, this acquisition was considered as an investment opportunity, rather than as part of the Group’s core business development.

Group Business Overview The Group is organised on a geographical basis. Each Group company has its own organisational management system and is responsible for its own business. There is no central Group organisational management. The Group is a full service telecommunications group and the Company is the leading provider of fixed telephony and internet services in Slovenia. The Company also provides wholesale telecommunications services to other operators in Slovenia including ADSL interconnection services, leased lines and data communication services, shared access and local loop unbundling. The Group has expanded across south eastern Europe and offers fixed telephony, mobile telephony and internet services in Macedonia, Kosovo, Bosnia and Herzegovina and Albania. Slovenia, Macedonia and Kosovo are the core markets in which the Group operates. The Group increased its retail customer base, measured in terms of total Group mobile telephony, fixed telephony and internet connections, by 9.5% to 2,544,179 connections at 31 December 2008 from 2,324,293 connections at 31 December 2007. At 30 September 2009, the number of connections was 18.7% higher than at 31 December 2008, reaching 3,018,713 connections.

35 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Group Operating Performance The following tables present the revenues generated by the Group in the years ended 31 December 2007 and 31 December 2008 and in the nine months ended 30 September 2008 and 30 September 2009, broken down (i) by type of service, (ii) geographical segment and (iii) ﬁxed/mobile segment:

9 months 9 months Year ended 31 Year ended 31 ended 30 ended 30 December December September September Service 2007 2008 2008 2009

In thousand EUR Voice 186,285 162,494 125,155 112,543 Voice transfer through IP network 1,894 6,918 5,845 4,195 Mobile telephone services 346,876 369,160 296,010 253,650 Internet and broadband access 63,853 76,243 55,025 69,366 Interconnection 27,283 38,566 14,818 31,494 International operator services 48,673 77,480 57,324 65,223 Leased lines 13,029 17,744 13,052 16,415 Unbundled access and co-locations 16,038 13,682 10,088 10,777 Voice services and added value 1,794 2,448 1,690 1,501 Data services 21,843 22,624 16,535 15,108 Network construction and maintenance 2,519 3,839 2,308 6,650 Sales of advertising space 1,845 11,024 7,118 5,520 Other services 9,942 10,048 6,889 13,528 Revenue from sale of merchandise 37,176 29,263 21,185 22,721 Other revenue 1,027 823 741 2,457

Total operating revenue 780,077 842,356 633,783 631,148

Revenue from sale of services on domestic market 676,697 729,038 546,709 541,166 Revenue from sale of services on foreign markets 66,212 84,055 65,889 67,261 Revenue from sale of merchandise on domestic market 37,120 29,237 21,169 22,704 Revenue from sale of merchandise on foreign markets 48 26 16 17

Total operating revenue 780,077 842,356 633,783 631,148

36 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 9 months 9 months Year ended Year ended ended 30 ended 30 31 December 31 December September September 2007 2008 2008 2009

In thousand EUR Fixed line services1 369,051 379,624 286,474 284,981 Mobile services2 400,121 441,500 334,527 322,772 Other3 10,905 21,232 12,782 23,395

Total operating revenue 780,077 842,356 633,783 631,148

1 Fixed line services includes: fixed line and internet services (provided by the Company, On.net, d.o.o., IPKO Telecommunications, d.o.o. (ﬁxed part), SIOL, d.o.o. (Croatia), Aneks, d.o.o. and PRIMO, d.o.o.). 2 Mobile telephony services includes: mobile services (provided by Mobitel, d.d, IPKO Telecommunications, d.o.o. (Mobile segment) and ONE Telecommunications Services SC Skopje). 3 Other includes: services provided by GVO, d.o.o., Aventa.si, IPKO Telecommunications, d.o.o., Planet 9, d.o.o. Soline, d.o.o. Najdi.si, d.o.o. and Germanos Telecom AD Skopje.

The Group generated total consolidated operating revenues of c842,356,000 for the year ended 31 December 2008, an 8% increase compared to operating revenues of c780,077,000 for the year ended 31 December 2007. The increase in operating revenues during this period resulted from increases in mobile telephony revenues, interconnections and international services, offset by a drop in revenues from traditional fixed line voice telephony. Total consolidated operating revenues were c631,148,000 for the nine months to 30 September 2009, a decrease of 0.4% compared to operating revenues of c633,783,000 in the nine months to 30 September 2008. Operating revenues rose during the period in respect of internet and broadband access, interconnections and international operator services, but fell in respect of traditional fixed line voice telephony and mobile telephony. The following table presents a segmental summary of the Group’s profits from operations in the years ended 31 December 2007 and 31 December 2008 and the nine months ended 30 September 2008 and 30 September 2009: 9 months 9 months Year ended Year ended ended 30 ended 30 31 December 31 December September September 2007 2008 2008 2009

In thousand EUR Fixed line services 52,547 37,748 31,207 16,425 Mobile services 78,982 83,867 70,456 41,958 Other 7,845 11,867 11,848 4,558 Eliminations (2,939) (4,986) (3,454) (3,487)

Total proﬁt from operations 136,435 128,496 110,057 59,454

The Group’s profit from operations for the year ended 31 December 2008 was c128,496,000, a 5.8% decrease from profit from operations of c136,435,000 in the year ended 31 December 2007. Total Group profit from operations was c59,454,000 for the nine months to 30 September 2009, a 46% decrease from profit from operations of c110,057,000 for the nine months to 30 September 2008. The following table shows Group income, operating expenses, profit from operations, profit before tax and earnings before interest, tax, depreciation and amortization (‘‘EBITDA’’) for the years ended 31 December 2007 and 31 December 2008 and the nine months ended 30 September 2008 and 30 September 2009:

37 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 9 months 9 months Year ended Year ended ended 30 ended 30 31 December 31 December September September 2007 2008 2008 2009

In thousand EUR Operating revenue 780,077 842,356 633,783 631,148 Other 7,167 9,379 6,621 6,067 Share of proﬁts from joint ventures1 3,659 4,867 3,663 2,251 Total operating expenses (654,468) (728,106) (534,010) (580,012)

Proﬁt from operations 136,435 128,496 110,057 59,454

Proﬁt before tax 126,782 114,905 100,948 46,628

EBITDA 298,210 312,246 247,784 209,586

1 Share of profits from joint ventures mostly represents ownership of 50% of Gibtelecom, d.o.o., acquired in 2007. Consolidated Group profit before tax was c114,905,000 for the year ended 31 December 2008, a 9.4% decrease from c126,782,000 for the year ended 31 December 2007. Profit before tax for the nine months to 30 September 2009 was c46,628,000, a 53.8% decrease from c100,948,000 for the nine months to 30 September 2008. Group EBITDA was c312,246,000 for the year ended 31 December 2008, a 4.7% increase from c298,210,000 for the year ended 31 December 2007. EBITDA for the nine months to 30 September 2009 was c209,586,000, a 15.4% decrease from c247,784,000 for the nine months to 30 September 2008. The decreases in profit before tax, profit from operations and EBITDA are attributable to several factors, including Mobitel, d.d. (‘‘Mobitel’’), the Group’s mobile operator in Slovenia, being affected by increased competition. In order to stabilise market share, Mobitel followed competitors and reduced its prices which in turn has reduced its average revenue per user (‘‘ARPU’’). This has led to a fall in the profitability of the Group’s mobile operations in Slovenia. Furthermore, the transition away from traditional TDM voice telephony towards VoIP has also had a negative impact on revenues as the revenues generated by new services, such as VoIP and IPTV, are not equivalent to those previously generated by traditional telephony services. In addition, operating expenses have increased due to a number of factors including increased cost of telecommunications services and increased maintenance costs. Group Voice Telephony Connections The number of fixed and mobile telephony connections for the Group at 31 December 2008 was 2,222,373, a 6.2% increase from the number of connections at 31 December 2007. The number of connections increased by a further 20.2%, reaching 2,671,063 connections at 30 September 2009. The main contributory factor to the increase in the number of connections was the acquisition of Cosmofon (since renamed ONE) in May 2009, providing the Group with access to the Macedonian mobile telephony market, and the expansion of services in Kosovo to include mobile telephony services. Group Voice Telephony Minutes The following table sets out, for the periods indicated, details of the voice telephony minutes recorded by the Group in Slovenia and south eastern Europe (‘‘SEE’’):

38 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Year ended Year ended 9 months 9 months 31 December 31 December ended Sept ended Sept 2007 2008 % change 2008 2009 % change

In million minutes Slovenia– mobile telephony 2,034.5 1,974.4 (3.0) 1,486.9 1,504.7 1.2 Slovenia– fixed telephony 1,901.9 1,544.6 (18.8) 1,179.6 909.9 (22.9) SEE– mobile telephony — 204.5 — 91.5 458.4 401 SEE– fixed telephony — — — 3.5 54.7 1462.9

Total Group 3,936.4 3,723.5 (5.4) 2,761.5 2,927.7 6.0

The total number of Group voice telephony minutes decreased by 5.4% in the year ended 31 December 2008 compared to the year ended 31 December 2007. The total voice telephony minutes recorded for the nine months to 30 September 2009 was 6% higher in comparison to the same period the previous year. The effects of the decrease in voice telephony minutes in Slovenia were offset by the increase in voice telephony minutes in Kosovo, where 244.8 million minutes were recorded in the mobile telephony sector of the business in the nine months to 30 September 2009, and by the acquisition of Cosmofon (since renamed ONE) in May 2009.

Group Retail Broadband Connections The following table sets out, as at the dates indicated, the number of Group retail broadband connections in Slovenia and south eastern Europe: As at As at As at 31 December 31 December 30 September Number of retail broadband connections 2007 2008 % change 2009 % change

Slovenia 173,103 206,404 19.2 210,169 1.8 SEE 58,390 115,402 97.6 137,481 19.1

Total Group 231,493 321,806 39.0 347,650 8.0

The number of retail broadband connections as at 31 December 2008 was 39% higher than at 31 December 2007 and as at 30 September 2009 was 8.0% higher than as at 31 December 2008, with the majority of this growth attributable to broadband connections in south eastern Europe, which showed a 19.1% increase for this period. This increase resulted primarily from an increase in connections in Kosovo.

Strategy of the Group The Group aims to expand its operations outside Slovenia and to be the ﬁrst telecommunications group to provide integrated telecommunications services across central and south eastern Europe. The Group aims to connect Slovenia with Macedonia and Kosovo using ﬁbre optic lines running through Bosnia and Herzegovina and Croatia and move towards infrastructure which can support convergence, resulting in one network with more access points across the full range of services.

Slovenia The Group aims to realise synergies and move towards offering converged ﬁxed line and mobile services in Slovenia (see ‘‘Group Business by Country of Operation—Slovenia—Convergent Services in Slovenia’’) with the eventual goal of merging the Company and Mobitel. The focus of this convergence would be on creating a customer-centric organisation, network integration and shared services with the aims of increasing ARPU, reducing customer churn and reducing operating costs. The Company is the incumbent operator in Slovenia and the Post and Electronic Communications Agency of the Republic of Slovenia (‘‘APEK’’), the national regulator, has found that it, together with Mobitel, has signiﬁcant market power (‘‘SMP’’) in all of the telecommunications markets which are currently regulated in Slovenia (see ‘‘Regulation—Slovenia’’). The Group does not, therefore, expect to grow its business within Slovenia but is taking steps to defend its current market position. For example, it is developing its IP network and taking steps to encourage existing customers to switch from traditional voice telephony to VoIP services (see ‘‘—Group Business by Country of Operation—Slovenia—Fixed Telephony’’) provided by the Company rather than a competitor. In

39 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD terms of infrastructure technology, it made the strategic decision in 2007 not to build more copper cables in its access network but to focus on FTTx connections. Mobitel’s strategy is to focus on quality of service, whereas its competitors tend to be more focused on pricing strategies. At 31 December 2008, six operators were present on the Slovenian mobile market (see ‘‘—Group Business by Country of Operation—Slovenia—Market Trends’’). Mobitel’s market share has decreased over the last three years. This has forced Mobitel to change its pricing strategy in order to stabilise market share in the range of 53-58%. Although it has reduced its prices, Mobitel aims to keep its prices slightly higher than those of its competitors to reﬂect the quality of service offered but tracks the price movements of its competitors to ensure that price differences with competitors are kept at a competitive level. Mobitel’s strategy is also to focus on new developments in the mobile sector, including mobile broadband, as, at present, Mobitel has the only network in Slovenia capable of delivering this service.

Macedonia In Macedonia, the Group’s objective is to maintain or slightly increase its share of the ﬁxed telephony market. The Group also aims for a moderate growth in the broadband sector and aims to become a market leader in TV distribution through Group company Digi Plus Multimedia, d.o.o. Skopje (‘‘Digi Plus’’). The Group plans, in future, to merge its ﬁxed and mobile operations in Macedonia to achieve synergies for the same reasons as in Slovenia. In November 2009, the Group established a new brand under which ONE (formerly Cosmofon) and On.net, d.o.o. (‘‘On.net’’) operate and provide converged services.

Kosovo The Group aims to increase its market share in Kosovo by introducing convergent services and bundling different products to create packages which are attractive to customers.

Bosnia and Herzegovina Bosnia and Herzegovina is split into two district political regions, the Federation of Bosnia and Herzegovina and the Republic of Srpska. At present, the Group operates in the Republic of Srpska region of Bosnia and Herzegovina only. The Group intends to increase the number of customers in Bosnia and Herzegovina, both by increasing the number of connections to its existing cable infrastructure and by expanding its infrastructure. The Group also aims to expand its operations outside of the Republic of Srpska region of Bosnia and Herzegovina, to the region of the Federation of Bosnia and Herzegovina.

Group Business by Country of Operation The following sections provide a description of the main markets in which the Group operates. Customer information on the markets in which the Group operates, including market share based on connections, are estimates based on annual reports and press releases made public by competitors or information from local regulators in the respective markets.

Slovenia In Slovenia, the Group provides ﬁxed line services, primarily ﬁxed telephony and broadband (including VoIP and IPTV) through the Company and mobile services through Mobitel.

Market Trends Fixed Line Services The total Slovenian fixed telephony market grew by an estimated 3.1% in terms of number of connections in the year ended 31 December 2008. The number of traditional fixed line telephony connections provided by the Company in Slovenia is decreasing due to a transition to mobile telephony or VoIP technology and the rising number of competitors in the fixed telephony market in Slovenia in recent years. With the development of IP technology, new market entrants are gaining market share at the expense of traditional telecommunications operators, including the Group. As at 31 December 2008 the Company’s share of the Slovenian fixed telephony market was 85.7%, down from 92.6% as at 31 December 2007. This decrease was due to competition from alternative providers. As at 30 June 2009, the Company’s market share was 81.1%. As the fixed telephony market is a regulated market in Slovenia (see ‘‘Regulation—Slovenia’’) the polices of the regulator, APEK, have a significant effect on the telecommunications market and the operators within it. As

40 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD APEK is pursuing a policy of liberalisation, this is detrimental to the Company as the incumbent former monopoly operator. The Company’s key competitors in the fixed telephony market are T-2, Tusˇmobil, Telemach and Amis. The total Slovenian broadband market grew by an estimated 23.8% in the year ended 31 December 2008, with the total number of connections at that date being an estimated 427,000. At 31 December 2008, penetration of broadband access had reached 62.3% for households in Slovenia. The market has continued to grow, reaching an estimated 449,613 connections at 30 June 2009, an increase of 5.3% from the number of connections at 31 December 2008. At 31 December 2008, the Company had a 49.1% market share of the fixed broadband access market in Slovenia, representing a decrease from 50.2% the previous year. This market share decreased to 47.4% as at 30 June 2009. The Group does not anticipate growth in its share of the Slovenian broadband market due to the fact that APEK has deemed it to have SMP status in the Slovenian broadband markets (see ‘‘Regulation—Slovenia’’). Broadband access continues to rise and, in addition to VoIP, growth is evident in the IPTV market, with the number of IPTV connections almost doubling in 2008. Multimedia content and services are becoming increasingly important in the Slovenian telecommunications market. Traditional telecommunications operators are using content and services to enter the market of television broadcasting and multimedia services, with the aim of increasing ARPU. Mobile Services Growth in the mobile telephony market is slowing and this market is becoming increasingly competitive in Slovenia, causing operators to cut prices aggressively. The Group anticipates that growth will continue most strongly in mobile data transfer and mobile broadband services. The Slovenian mobile market grew by an estimated 6.7% in the year ended 31 December 2008 in terms of mobile network users. At 31 December 2008, penetration of mobile use had reached an estimated 101% in Slovenia. The mobile market showed growth as a result of a decline in mobile handset prices and per minute call rates, and the popularity of flat rate packages. There was strong competition in number portability and pressure on pricing, including termination rate reductions. Mobitel has maintained its dominant share of the mobile market in Slovenia, despite growing competition. Mobitel held a 59% share of the mobile market in Slovenia at 31 December 2008, a decrease from 65.6% as at 31 December 2007. This market share has since decreased to 57.6% at 30 June 2009 as a result of increased competition. Mobitel is facing strong competition in the Slovenian mobile market. As at the date of this Prospectus, four operators provide infrastructure (Mobitel, Si.mobil, Tusˇmobil and T-2) and two act as service providers only (Debitel and Izimobil). The saturation of the market has led to price competition, with a number of these competitors offering lower prices than Mobitel. Mobitel restructured its prices in November 2008 in order to stabilise its market share. As the integration of markets and operators continues, demand for convergent services in the form of bundles is growing as users increasingly opt for these services to take advantage of more favourable prices and the convenience of having one single account.

41 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Operations in Slovenia The following table presents, at the dates indicated, the number of connections supplied by the Group in Slovenia: As at As at As at 31 December 31 December 30 September Number of connections 2007 2008 % change 2009 % change

Fixed telephony (retail)1 735,986 648,657 (11.9) 586,163 (9.6) Broadband (retail) 173,103 206,404 19.2 210,169 1.8 Mobile 1,263,183 1,209,434 (4.3) 1,188,554 (1.7)

Total retail connections 2,172,272 2,064,495 (5.0) 1,984,886 (3.9)

Total wholesale connections2 76,380 92,048 20.5 97,626 6.1

Total connections 2,248,652 2,156,543 (4.1) 2,082,512 (3.4)

1 Includes TDM and IP Centrex telephony (IP telephony for business users). 2 Includes WLR connections

The Group’s total connections in Slovenia decreased by 4.1% to 2,156,543 connections at 31 December 2008 from 2,248,652 connections at 31 December 2007. At 30 September 2009, the number of connections was 2,082,512. Total connections at 30 September 2009 included 1,188,554 mobile connections, 586,163 ﬁxed telephony connections and 210,169 internet and data connections. Additionally, it included 75,243 unbundled local loop connections, 21,159 wholesale xDSL connections (including ‘‘naked xDSL’’) and 1,224 wholesale line rental (‘‘WLR’’) connections.

Operating Performance in Slovenia Total operating revenues generated by the Group in Slovenia were c796,154,000 in the year ended 31 December 2008, an increase of 3.8% from revenues of c766,863,000 generated in the year ended 31 December 2007. The Group achieved operating revenues of c565,949,000 in the nine months to 30 September 2009, a decrease of 5.7% from operating revenues of c600,411,000 for the nine months to 30 September 2008. Operating revenues of the Company were c410,162,000 for the year ended 31 December 2008, an increase of 2.6% from operating revenues for the year ended 31 December 2007. For the nine months to 30 September 2009, operating revenues were c298,947,000, a decrease of 2.6% from operating revenues generated in the nine months to 30 September 2008. The decrease in operating revenues resulted from reduced demand for traditional fixed line services which is not being compensated for by new revenue streams, as well as the lowering of prices in the mobile telephony sector. The Company’s profit before tax for the year ended 31 December 2008 was c105,728,000, an increase of 5.0% from c100,713,000 for the year ended 31 December 2007. Profit before tax for the nine months to 30 September 2009 was c69,322,000, a 29.2% decrease from c97,914,000 for the nine months to 30 September 2008. The Company’s EBITDA was c129,870,000 for the year ended 31 December 2008, a 9.1% decrease from c142,839,000 for the year ended 31 December 2007. EBITDA for the nine months to 30 September 2009 was c83,102,000, a 17.6% decrease from c100,836,000 for the nine months to 30 September 2008. The reasons for the decreases in profit before tax and EBITDA were the decrease in revenues, as stated above, and an increase in operating expenses. Mobitel’s profit before tax for the year ended 31 December 2008 was c76,180,000, an increase of 7.1% from c71,122,000 for the year ended 31 December 2007. Profit before tax for the nine months to 30 September 2009 was c38,125,000, a 43.3% decrease from c67,225,000 for the nine months to 30 September 2008. Mobitel’s EBITDA was c155,637,000 for the year ended 31 December 2008, a 4.6% increase from c148,834,000 for the year ended 31 December 2007. EBITDA for the nine months to 30 September

42 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 2009 was c95,763,000, a 23.8% decrease from c125,747,000 for the nine months to 30 September 2008. The reason for the decreases in proﬁt before tax and EBITDA was increased competition in the Slovenian mobile telephony market, which caused Mobitel to reduce its prices to maintain market share.

Fixed Line Services in Slovenia The data set out below are not fully comparable to data published in the Group’s ‘‘Annual Report 2008’’. In the relevant segment, the method for reporting revenues is based on management accounting segmentation. The Group provides traditional fixed telephony, VoIP, broadband and IPTV services in Slovenia through the Company. Fixed Telephony The Company’s principal traditional fixed telecommunication services include: PSTN lines; ISDN connections; public telephone services; local, domestic and international long distance and fixed-to- mobile communications services; corporate communications services; supplementary value-added services (including call waiting, call forwarding, voice and text messaging, advanced voicemail services and conference-call facilities); videoconference telephony; business-oriented value-added services (including 090 and 080 telephone numbers and tele-voting); intelligent network services; leasing and sale of terminal equipment; and telephony information services. The Company’s fixed telephony connections decreased by 11.9% to 648,657 connections at 31 December 2008 from 735,986 connections at 31 December 2007. As at 30 September 2009, the number of fixed telephony connections had decreased to 586,163 connections, a 9.6% decrease from the number of connections at 31 December 2008. As a result of the transition to mobile and broadband connections and the rapid growth in VoIP connections, the number of traditional voice telephony connections and the outgoing volume of traffic per user have fallen, only partially offset by a rise in sales of IP Centrex (IP Telephony for business users) services. As a result of the above factors, and the rising number of wholesale line rental connections provided to third party operators, the Company’s sales of traditional telephony connections are likely to continue to decline in future. Starting from September 2008, in order to limit the switching of traditional voice telephony subscribers to other IP telephony operators, the Group has carried out sales promotions to encourage customers to buy bundled packages, especially Triple Play packages which include broadband, IPTV and IP telephony services. Retail revenues from traditional telephone connections decreased by 14.5% to c155,894,000 for the year ended 31 December 2008 from retail revenues of c182,253,000 for the year ended 31 December 2007. The largest decrease in revenues was in the residential user segment (down by 19% from the year ended 31 December 2007) while the business user segment recorded an 8% decrease in revenues from traditional fixed line telephony in the year ended 31 December 2007. Retail revenues from traditional fixed line telephony for the nine months to 30 September 2009 were c96,883,000, a 19% decrease from those generated in the nine months to 30 September 2008. The decrease in revenues was driven by a falling number of PSTN and basic ISDN connections as described above, weak sales of new connections, a decrease in traffic and, in part, by a reduction in subscription prices (from 1 February 2008) in accordance with APEK’s decision in June 2007 regarding pricing. While revenues from traditional fixed line telephony are decreasing, the Group has seen growth in revenues from end-user broadband services (including internet, VoIP, IPTV, and other services for end users). However, at present, the revenues generated by new broadband services are not comparable to revenues that were previously generated by traditional fixed line telephony. The Group has also recorded growth in operator revenues (particularly network interconnection and international carrier services) (see ‘‘—Wholesale (Inter-carrier) operations in Slovenia’’). Broadband (including VoIP and IPTV) The Company provides broadband services in Slovenia under the brand ‘‘SiOL’’. The Company’s principal internet and broadband multimedia services include narrowband switched access to the internet; internet service provider service; portal and network services; retail and wholesale broadband access through ADSL, xDSL and FTTx; residential value-added services (concerts and video clips by streaming video, parental control, firewall protection, anti-virus protection, content delivery and

43 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD personal computer sales); television services, IPTV, cable television, business value-added services; and VoIP services. The Company’s retail broadband connections increased by 19% to 206,404 connections at 31 December 2008 from 173,103 connections at 31 December 2007 and by a further 1.8% to 210,169 connections at 30 September 2009. Growth was recorded by VDSL (representing 2.5% of the Company’s broadband connections in 2008) and particularly ﬁbre to the home (‘‘FTTH’’) connections (representing 7.5% of the Company’s broadband connections in 2008), which facilitates greater bandwidth and serves as a basis for new broadband services such as IPTV and video on demand. In the year ended 31 December 2008, retail broadband services (including VoIP and IPTV services) achieved revenues of c64,733,000, an increase of 25.3% compared to revenues of c51,665,000 for the previous year. For the nine months to 30 September 2009, broadband services achieved revenues of c59,102,000, an increase of 23% compared to c48,056,000 for the nine months to 30 September 2008. The increase in revenues resulted from an increase in the number of connections during the relevant periods described, together with an increase in the services used by each customer, both of which resulted from an increased demand for internet, VoIP and IPTV services from the Company’s customers. The increasing demand for bandwidth and higher data transfer rates that facilitate new multimedia services has, in many countries, resulted in a trend in development of FTTH connections. Penetration of FTTH is in its early stages in Slovenia but the number of broadband FTTH connections is rising sharply. At 31 December 2008, FTTH connections accounted for 7.5% of the Company’s broadband connections in Slovenia, an increase from 0.9% the previous year. The Company had more than 15,000 users of FTTH connections at 31 December 2008. The share of end users accessing the internet via other technologies such as xDSL has fallen, primarily due to the transition of users to ﬁbre optic connections. By 30 September 2009, the Company had more than 21,000 FTTH connections.

(VoIP) The number of VoIP service connections provided by the Company under its ‘‘SiOL telephony’’ brand was 105,229 at 31 December 2008, representing an 80% increase from the previous year and a 46% market share in Slovenia. The number of VoIP connections has increased to 125,094 at 30 September 2009, an 18.9% increase from the number of connections at 31 December 2008. Revenues generated by VoIP services are accounted for as part of broadband services. At 30 September 2009, the proportion of broadband connections including VoIP services had reached 59.5%, being 125,094 out of 210,169 connections. In the year ended 31 December 2008, VoIP traffic achieved revenues of c3,009,000 compared to revenues of c1,096,000 the previous year. For the nine months to 30 September 2009, VoIP traffic achieved revenues of c3,806,000 compared to c2,038,000 for the nine months to 30 September 2008. The transition from traditional fixed line to IP telephony is increasingly common among both residential and business users. The specific nature of the requirements of larger business users has prompted the introduction of individual solutions in relation to a gradual migration to IP telephony. The Company offers the following solutions to achieve this: * a combination of CTX and IP CTX connections in a single fixed business network; and * a combination of IPPBX and IP CTX connections in a single fixed business network. The Group believes these hybrid solutions provide it with a competitive advantage.

(IPTV) The Company continues to increase its presence in the Slovenian IPTV market offering pay TV services under the brand ‘‘SiOL TV’’. At 31 December 2008, the number of IPTV service subscribers had increased 99% in comparison to the previous year with 84,615 subscriptions representing a 62% market share at 31 December 2008. By 30 September 2009, the number of subscribers had increased to 105,108, an increase of 24.2% compared to the number of subscribers at 31 December 2008. Revenues generated by IPTV services are accounted for as part of broadband services. The growth in the number of IPTV subscriptions is a result of the construction of new broadband (primarily FTTH) connections and the introduction of the coding of signals in MPEG-4 technology, which facilitates the connection of remote subscribers.

44 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD At 30 September 2009, the proportion of the Company’s broadband connections including IPTV services had reached 50% (105,108 out of 210,169 connections).

Mobile services in Slovenia The data set out below are not fully comparable to data published in the Group’s ‘‘Annual Report 2008’’. In the relevant segment, the method for reporting revenues is based on management accounting segmentation. The Group provides mobile services in Slovenia through the Company’s wholly-owned subsidiary, Mobitel. Mobitel offers a wide variety of mobile and related services and products to personal and business customers in Slovenia: * Mobile voice services: Mobitel’s principal service is mobile voice telephony. * Value added services: customers have access to a range of enhanced mobile calling features, including voice mail, call hold, call waiting, call forwarding and three-way calling. * Mobile data and Internet services: current data services offered include short messaging services (‘‘SMS’’) and multimedia messaging services (‘‘MMS’’) which allow customers to send messages with images, photographs and sounds. Customers may also receive selected information, such as news, sports scores and stock market quotations. Mobitel also provides mobile broadband connectivity and Internet access. * Wholesale services: Mobitel has signed network usage agreements with Tusˇmobil and T-2 for national roaming and Izimobil and Debitel for provision of services in Slovenia. * Corporate services: Mobitel provides business solutions, including mobile infrastructure in offices, private networking and portals for corporate customers that provide flexible on-line billing, corporate services and other advanced solutions for data developed for specific sectors. * Roaming: the Group has roaming agreements that allow its customers to use their mobile handsets when they are outside of the Group’s service territories. Mobitel has roaming agreements for GSM 351 in 188 countries, UMTS in 51 countries and GPRS 203 in 101 countries. * Fixed wireless: Mobitel provides fixed voice telephony services through mobile networks. * M-payment: Mobitel provides mobile payment services through its subsidiary M.Pay, d.o.o. * Convergent services: in accordance with the Group’s strategy of introducing convergent services, Mobitel was the first mobile operator in Slovenia to introduce ‘‘Quad Play’’, which includes a comprehensive range of telecommunication services. Sold under the brand name ‘‘M4’’, it includes Mobitel GSM/UMTS, broadband SiOL internet, telephony and TV (provided by the Company). * Data packages: for subscribers to Mobitel’s ‘‘internet neomejeno’’ package, Mobitel introduced data packages with unlimited data transfer capacities per month. * The younger market: for users between the ages of 15 and 30, Mobitel has developed the ‘‘Itak Dzˇabest’’ package, with a monthly subscription fee that includes a broad range of mobile services, mobile Internet, up to 1 gigabyte of transferred data and calls to other Slovenian mobile and fixed networks. * Television: Mobitel is the only Slovenian mobile operator to offer users the ability to receive live television programmes on their mobile phones via a mobile TV service. The following table presents, at the dates indicated, the number of mobile connections supplied by Mobitel: As at As at As at 31 December 31 December 30 September 2007 2008 % change 2009 % change

In thousands Total contract connections 765 776 1.4 811 4.5 Total other connections 498 433 (13.1) 378 (12.9)

Total mobile connections 1,263 1,209 4.3 1,189 (1.7)

45 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The following table presents, for the periods indicated, the number of mobile minutes used by Mobitel customers and ARPU: Year ended Year ended 9 months ended 9 months ended 31 December 31 December 30 September 30 September 2007 2008 % change 2008 2009 % change

Total minutes (in millions) 2,034.5 1,974.4 (3.0) 1,486.9 1,504.7 1.2

ARPU (in EUR) 24 27 12.5 30 26 (13.3)

Mobitel’s customer base in Slovenia measured in terms of mobile users decreased by 4.3% to 1,209,000 connections at 31 December 2008 from 1,263,000 connections at 31 December 2007 and fell by a further 1.7% to 1,189,000 connections at 30 September 2009. In terms of portability, which refers to customers transferring their number from one operator to another, Mobitel achieved 4,009 net adds in September 2009. In terms of usage, the volume of trafﬁc carried by Mobitel grew by 1.2% to 1,504.7 million minutes in the nine-month period to 30 September 2009 from 1,486.9 million minutes in the nine-month period to 30 September 2008. ARPU decreased by 13.3% to c26 for the nine months to 30 September 2009 from c30 for the nine months to 30 September 2008 as a result of price reductions by Mobitel in reaction to the pricing policies of its competitors, inter-connection price cuts and reduced prices for roaming, the latter required by new regulations in Slovenia. In the year ended 31 December 2008, mobile services achieved operating revenues of c449,325,000, a 3.8% increase compared to operating revenues of c433,084,000 the previous year. For the nine months to 30 September 2009, mobile services achieved operating revenues of c305,780,000, an 11% decrease in comparison to operating revenues of c343,364,000 for the nine months to 30 September 2008. The main reason for this decrease was the reduction in ARPU as described above. In the nine months to 30 September 2009, Mobitel sold more than 236,000 mobile handsets.

Convergent Services in Slovenia The Company has developed a range of convergent service options for Slovenian customers, incorporating broadband, VoIP and IPTV: * SiOL Triple Play was created for users who subscribe for internet services in conjunction with IP telephony and IPTV. This package offers a choice between different programme schemes, taking into account the user’s lifestyle. * SiOL Double Play and SiOL Triple Play allow subscribers to call telephone numbers in the SiOL Network and more than 890,000 telephone numbers in the Company’s network. The Group believes the quality of IP telephony voice transmission is equivalent to that of fixed and mobile telephony. In addition, Mobitel has developed ‘‘Quad Play’’ which includes a comprehensive range of telecommunications services. Sold under the brand ‘‘M4’’, it includes Mobitel GSM/UMTS and SiOL internet, telephony and TV (provided by the Company). Convergence of the Company and Mobitel The Company and Mobitel offer convergent fixed and mobile packages to subscribers. When offering a combined service, sales teams from both companies meet to form a steering committee and discuss key issues such as target audience. It is part of the Group’s longer-term strategy to merge its fixed and mobile operations in Slovenia. The anticipated effect of the integration of the Company and Mobitel would be an increase in revenues due to higher ARPU and lower ‘‘churn’’ resulting from a comprehensive joint package of services. It is also anticipated that marketing costs would decrease and long-term operating costs would also decrease as networks become more efficient.

Wholesale (Inter-carrier) operations in Slovenia The data set out below are not fully comparable to data published in the Group’s ‘‘Annual Report 2008’’. In the relevant segment, the method for reporting revenues is based on management accounting segmentation.

46 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The Company continues to sell broadband access on the wholesale inter-carrier market and provides WLR which allows third-party operators to rent telephone access lines on wholesale terms from the Company and then resell the lines to customers, providing them with one bill covering the line rental and call charges. Wholesale services for telecommunication operators principally include: domestic interconnection services; international wholesale services; leased lines for other operators’ network deployment; local loop leasing under the unbundled local loop regulation framework; bandwidth lease and WLR. Wholesale telecommunications services are heavily regulated in Slovenia (see ‘‘Regulation—Slovenia’’). Revenues of c134,656,000 were generated by the Company’s wholesale inter-carrier services in the year ended 31 December 2008, representing a 24% increase from the year ended 31 December 2007. Revenues for the nine months to 30 September 2009 were c107,546,000, representing an 8% increase from revenues of c99,614,000 for the nine months to 30 September 2008. Contributing to this growth were increased revenues from network interconnection with carriers (primarily ﬁxed operators), growth in revenues from international carrier services and an increase in revenues from bandwidth leases. Growth was also driven by revenues generated by international call termination.

Broadband Access The following table sets out, at the dates indicated, the number of broadband connections provided by the Company to third-party operators:

As at As at As at Number of wholesale broadband 31 December 31 December 30 September connections 2007 2008 % change 2009 % change

WS xDSL 19,218 18,629 (3.1) 15,135 (18.8) SRD (joint unbundled access) 21,043 22,392 6.4 20,524 (8.3) PRD (full unbundled access) 36,118 48,627 34.6 54,719 12.5 Naked xDSL — 1,133 — 6,024 —

Total 76,379 90,781 18.9 96,402 6.2

The total number of wholesale broadband connections increased by 18.9% to 90,781 connections at 31 December 2008 from 76,379 connections at 31 December 2007. The number of connections increased a further 6.2% to 96,402 connections as at 30 September 2009. Revenues from bandwidth lease were c42,195,000 for the year ended 31 December 2008, an increase of 5.7% from the year ended 31 December 2007, and c34,006,000 for the nine months to 30 September 2009, a 0.4% increase from revenues of c33,875,000 generated in the nine months to 30 September 2008. This growth in revenues was driven by higher sales of ﬁbre optics and international leased lines to domestic operators. More than half of these revenues were generated by sales of optical ﬁbres, which increased by 40% from the previous year. In the year ended 31 December 2008, wholesale broadband access including ws xDSL, LLU connections, collocation and resale of quad play achieved revenues of c14,480,000, a 0.3% decrease from revenues of c14,529,000 for the previous year. For the nine months to 30 September 2009, revenues were c11,652,000 compared to c10,721,000 for the nine months to 30 September 2008, an increase of 8.7%.

Wholesale Traffic Revenues for international carrier services on the wholesale market have risen 27.7% from c65,730,000 in the year ended 31 December 2007 to c83,954,000 in the year ended 31 December 2008 and by 8.9% from c63,538,000 in the nine months to 30 September 2008 to c69,189,000 in the nine months to 30 September 2009. Low profit margins are typical in wholesale services. Revenues from network interconnection were c9,486,000 for the year ended 31 December 2008, a 51.8% increase from revenues of c6,251,000 for the year ended 31 December 2007, and were c7,615,000 for the nine months to 30 September 2009, representing an 11.7% increase from revenues of c6,817,000 generated in the same period the previous year. These increases are attributable to call forwarding by mobile operators abroad and network interconnection with fixed operators.

47 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Following a decision by APEK in October 2008, the Company was forced to reduce its prices for access to leased lines (see ‘‘Regulation—Slovenia’’). However, this did not materially impact revenues in 2008.

Network Development Prior to 2001, the Company’s infrastructure consisted solely of PSTN and TDM fixed line voice telephony, together with ISDN, using a network of copper wires across Slovenia. In 2001, the Company introduced ADSL technology on the existing copper wire network. The adoption of ADSL 2+ subsequently achieved faster download speeds via the introduction of hardware at the Company’s offices and new modems for customers at customer premises. IP and VDSL technology were introduced in the following years, still using the existing copper wire network but adding receivers and encoders at the Company’s facilities and decoders at customer premises. In 2003, the Company became only the second provider in Europe to offer IPTV services. More recent developments have included the replacement of TDM multiplexers with VoIP and the laying of fibre optic cables for the FTTH broadband network. The increased use of fibre optic cables has the potential to increase data speeds significantly. In addition, FTTH technology is symmetric rather than asymmetric and, accordingly, can provide equally quick upload and download of data. In order to improve the range and quality of services offered to its customers, the Company carries out network development in relation to capacity, technologies and platforms. Development of capacity involves upgrades to the existing network to add new customers. This involves the installation of extra equipment at the Company’s facilities or the laying of new lines or cables to increase bandwidth. Development of technologies involves upgrades of hardware and software to support the introduction of such technologies, for example, the introduction of VDSL and, more recently, FTTH. Operational and billing systems often need to be upgraded in tandem. Development of platforms is required to support new services, for example interactive voice response services. Fixed Telephony In 2008, the Group continued building new VoIP fixed telephony networks to facilitate the transition from the TDM fixed telephony network. Use of TDM fixed telephony is decreasing, but TDM services operate with high quality and have set a standard that should be matched by VoIP fixed telephony. The VoIP fixed telephony network provides the same services as the TDM fixed telephony network plus new value-added services. The Company believes that the substitution of the TDM fixed telephony network with the VoIP fixed telephony network should significantly decrease operational and maintenance costs. Broadband In 2008, the Group continued building the FTTH network, the focus being the elimination of network bottlenecks where broadband access is limited. In total, by 30 September 2009, more than 101,000 FTTH connections had been built, including more than 19,000 new connections built in 2009. The number of FTTH connections has scope to grow without the need for further investment by the Group. The Group has continued to supplement VDSL2 capacities. The network has been upgraded in 298 locations as at 31 December 2008, three of which were set up to test FTTH functionality. There were also 301,789 xDSL connection points built into the network in 2008, with 67% of the network capacity in use. Mobile Mobitel owns and operates a network of base stations which provide 2G and 3G access, including internet access, throughout the country. Mobitel has approximately double the number of base stations of any of its competitors. In 2008, Mobitel focused on the construction and connection of base stations and cellular city structures to provide complete network coverage. By the end of 2008, 45 new UMTS base stations had been connected to the network and 75% of the population was covered by a total of 604 base stations. The software at all UMTS base stations has been upgraded to the latest software provided by Ericsson. The key mobile network development has been the upgrading of enhanced data rates for GSM (EDGE). The upgrade to third generation telecommunications protocol, which enables the UMTS network to transfer more data at a higher rate (HSDPA), was completed in 2008.

48 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD In September 2008, the Group enhanced the packet core network by increasing processor capacity on SGSN, GGSN and CGS network elements for charging content and reconﬁgured the core network so that SGSN11 and SGSN31 now operate in a ‘‘pooled’’ operation mode. By 31 December 2008, 91% of base stations in the GSM network had been upgraded to EDGE, while all the UMTS networks were upgraded with HSUPA, which will facilitate faster transfers from users to the network.

Macedonia The Group operates in Macedonia through On.net, ONE, Germanos Telecom AD Skopje (‘‘Germanos Telecom’’) and Digi Plus and provides the following services: 2G mobile, 3G mobile, fixed telephony using fixed GSM and VoIP, broadband internet using 3G, Wireless ADSL and WiMAX and via WLR and local loop unbundling (‘‘LLU’’) from Macedonian Telekom as well as DVB-T services. The Group acquired its mobile and fixed GSM operations (ONE) and the retailer Germanos Telecom in Macedonia on 12 May 2009. On 30 October 2009 Cosmofon was renamed ‘‘ONE’’ and on 11 November 2009 the Group introduced a new brand under which On.net and ONE provide converged services.

Market Trends There is no reliable data source providing information about the size of the telecommunications markets in Macedonia (see ‘‘Risk Factors—Risks related to the Company and the Group—Estimation of market information in Macedonia, Kosovo and Bosnia and Herzegovina’’). As a result, the following information is based on estimates by the Group.

Fixed line services The total Macedonian ﬁxed telephony market decreased by an estimated 5.5% in the year ended 31 December 2008 in terms of number of connections. ONE and On.net began offering ﬁxed telephony services in June 2008 and their market share has increased from 2.4% (On.net only) at 30 September 2008 to 12.8% at 30 September 2009 (On.net and ONE). This market share is mainly attributable to market presence in the residential sector as the corporate sector remains dominated by the incumbent operator, Macedonian Telekom. The total Macedonian broadband market grew by approximately 71% in the year ended 31 December 2008 compared to the previous year, reaching 175,000 users by 31 December 2008. At 31 December 2008, penetration of broadband access had reached 31% of households in Macedonia. The market has continued to grow, reaching an estimated 202,000 connections at 30 September 2009, an increase of 15.4% from the number of connections as at 31 December 2008. On.net is the second largest provider of broadband access in Macedonia and held an estimated 20% market share with 32,448 connections at 31 December 2008. This represents a market share decrease from 29% the previous year, though the number of On.net users increased by 59%. This decrease in market share was due to the rapid expansion of the broadband market in Macedonia, driven primarily by Macedonian Telekom and cable operators such as CATV who also now also offer broadband internet services. On.net’s market share decreased to an estimated 16% at 30 September 2009, as a result of an aggressive marketing approach by Macedonian Telekom promoting ADSL and cable TV operators offering low cost services.

Mobile Services The Macedonian mobile market grew by approximately 20% in the year ended 31 December 2008, representing a penetration rate of 113.2%. The Macedonian mobile market showed growth as a result of a decline in mobile handset prices and per minute call rates, and the success of pre-pay calling plans. There has been strong competition in number portability and pressure on pricing, including termination rate reductions, driven largely by the aggressive policy of a third entrant to the market, VIP operator which started operations in September 2007. As at 30 September 2009, ONE held an estimated 29.5% share of the mobile market in Macedonia and the incumbent operator, T-Mobile, held an estimated 59% share of this market. This market share estimation is based on ONE’s analysis of its own data and data published in other operators’ quarterly reports. Market share information can only be approximate due to possible differences amongst mobile operators in their method of calculating and reporting numbers of users. Separately, the Agency for Electronic Communications (the ‘‘AEC’’), the local regulator in Macedonia, calculated ONE’s market share to be approximately

49 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD 23.6% as at 30 June 2009. The Group has sought clariﬁcation from the AEC regarding this ﬁgure and the basis of its calculation.

Operations in Macedonia The following table presents, at the dates indicated, data relating to the Group’s connections in Macedonia from the dates the relevant companies were consolidated into the Group:

As at As at As at 31 December 31 December 30 September Number of connections 2007 2008 % change 2009 % change

Fixed telephony — 10,577 — 53,979 410.3 Broadband 20,447 32,448 58.7 33,146 2.2 Mobile1 — — — 441,995 —

Total 20,447 43,025 110.4 529,120 1,129.8

1 Active mobile connections deﬁned according to whether the user has been active within the previous 90-day period.

As a result of the Group’s acquisition of Cosmofon, the Group’s total connections in Macedonia increased to 529,120 connections at 30 September 2009 from 43,025 connections at 31 December 2008. Total connections at 30 September 2009 included 441,995 mobile connections, 53,979 ﬁxed telephony connections and 33,146 broadband connections.

Operating Performance in Macedonia Total operating revenues generated by the Group in Macedonia were c33,358,000 for the nine months to 30 September 2009. This ﬁgure includes On.net operating revenues for the nine months to 30 September 2009 and ONE and Germanos Telecom operating revenues from 1 June 2009 to 30 September 2009 as these were consolidated in the ﬁnancial statements of the Group from 1 June 2009 onwards.

Fixed Line Services in Macedonia Fixed Telephony The Group provides fixed telephony services in Macedonia through ONE using fixed GSM as a technology platform and through On.net using VoIP technology via wholesale xDSL, Wireless ADSL and WiMAX. The Group’s fixed telephony connections in Macedonia increased by 410.3% to 53,979 connections at 30 September 2009 from 10,577 connections at 31 December 2008, partly attributable to the acquisition of Cosmofon (since renamed ONE). Broadband The Group provides broadband services in Macedonia through On.net using 3G mobile, wireless ADSL and WiMAX and via WLR and local loop unbundling from Macedonian Telekom. On.net’s broadband connections increased by 2.2% to 33,146 connections at 30 September 2009 from 32,448 connections at 31 December 2008. TV Distribution Digi Plus launched a new DVB-T Service in Macedonia under the brand ‘‘Boom! TV’’ on 11 November 2009. This is a digital TV broadcasting service.

Mobile Services in Macedonia The Group provides 2G and 3G mobile telephony services in Macedonia through ONE. ONE’s mobile customer base in Macedonia, measured in terms of connections, increased by 0.9% to 441,995 connections at 30 September 2009 from 437,893 connections as at 30 June 2009. As at 30 September 2009, approximately 35% of the Group’s mobile connections in Macedonia were through a contract, rather than pre-paid, an increase of 1% from 1 June 2009. In terms of usage, the volume of trafﬁc carried by ONE was 213.6 million minutes in the period from 1 June to 30 September 2009.

50 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD ARPU for pre-paid mobile connections was c8 for in the period from 1 June to 30 September 2009.

Network Development Fixed Telephony In 2008 and 2009, On.net focused on constructing an IP backbone network, fibre optic links between its various locations, unbundling of local loops and completion of IP network components for operations in IP telephony. ONE has upgraded the fixed GSM network to provide additional capacity needed to accommodate fixed GSM subscribers’ needs. Broadband On.net offers broadband internet access through wireless ADSL, using Motorola’s wireless canopy technology, and also on an ADSL platform (based on a WLR contract with Macedonian Telekom) and ADSL2+ platform (using its own equipment in combination with the unbundled local loop offer from Macedonian Telekom). It also offers a WiMAX service in four regions of Macedonia from 11 base stations. In 2008 and 2009, due to increased needs for bandwidth, On.net upgraded its broadband connections to Telekom Srbija, the Company and to Macedonian Telekom as well as the connection to Frankfurt through Balkantel/Pantel. It linked the collocations of the unbundled local loop with its own fibre optic infrastructure, where the equipment had already been installed to provide broadband services. On.net also built a fibre optic connection to Kosovo. Connections to T-Mobile and ONE for call termination and local call needs were upgraded. During the same period, technical solutions and implementation for entry level development of mobile TV offering four TV channels has been completed, as well as technical implementation of a wireless application protocol (including Navigator service). Between January and September 2009, On.net invested c11,671,000 mainly in building and developing the infrastructure for provision of a DVB-T service in Macedonia (including new transmission links and a new IP backbone throughout the country). Mobile ONE’s mobile network consists of 376 2G base stations and 70 3G base stations. As a result of the acquisition process of Cosmofon (since renamed ‘‘ONE’’) that took place in 2009, there was very limited investment in access network development during 2009. ONE focused primarily on optimisation of the network, as well as planning the new IP MW Network. Additionally, acquisition or construction of new sites in the heaviest traffic regions in Macedonia has been initiated. As part of its strategy to provide converged telecommunications services in the markets in which it operates, the Group is planning to consolidate its networks and systems in Macedonia. The two main projects underway relate to transport layer consolidation and core consolidation. Transport layer consolidation involves harmonising technologies and dismantling facilities where appropriate from the existing ‘‘backbone’’ networks which have, until now, been operated separately by On.net and ONE to create one main backbone, using an IP platform, for fixed telephony, broadband, mobile and TV services. Similarly, core consolidation involves rationalising the four different technical hubs currently in operation, which support the provision of 2G mobile, 3G mobile, VoIP and LLU services respectively, to a single core for all services. By undertaking these consolidation projects, the Group intends to increase revenues by providing a package of services to its customers and cut costs by decreasing the operating expenditure and capital expenditure required to maintain multiple transport layers and cores (see ‘‘—Description of the Group—Strategy of the Group’’).

Kosovo The Group operates in Kosovo through IPKO and provides GSM mobile telephone, internet, and cable television services and has recently started offering ﬁxed telephony services, almost all of which are pre-paid. The Company currently holds 63.75% of IPKO’s shares (see ‘‘—Subsidiaries and Afﬁliates’’). On 15 December 2009, the Supervisory Board of the Company approved a transaction involving the acquisition of an additional 29.4% shareholding in IPKO from various minority shareholders for approximately c57.6 million, with an option to purchase the remaining shares in 2011.

51 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Market Trends There is no reliable data source providing information about the size of the telecommunications markets in Kosovo (see ‘‘Risk Factors—Risks related to the Company and the Group—Estimation of market information in Macedonia, Kosovo and Bosnia and Herzegovina’’). As a result, the following information is based on estimates by the Group.

Fixed Line Services The Group only started providing ﬁxed rate telephony services in Kosovo in September 2008. It is not a material part of the Group’s operations in Kosovo. The total broadband market in Kosovo grew by approximately 30% in 2008 compared to 2007, reaching an estimated 114,000 users by 31 December 2008. At 31 December 2008 penetration of broadband access had reached 20% of households in Kosovo. The market has continued to grow, reaching an estimated 144,000 users at 30 September 2009, an increase of 26% from 31 December 2008. IPKO is the leading provider of internet services in Kosovo, with a 59% market share as at 31 December 2008. This share increased to approximately 62% at 30 September 2009. The internet provider Kujtesa held approximately 21% of the market and PTK, the national telecommunications operator, has entered the broadband market using ADSL and ﬁbre optic technology and held an estimated 17% market share, each as at 30 September 2009.

Mobile Services The mobile market in Kosovo exceeded 1,000,000 connections at 31 December 2008, which represented a penetration rate of 50%, an increase of more than 15 percentage points from 31 December 2007. The market showed growth as a result of a decline in mobile handset prices and per minute call rates, and the success of pre-pay calling plans, with strong competition in number portability and pressure on pricing, including termination rate reductions, along with the entry of new competitors. IPKO entered the mobile market in Kosovo in December 2007, with the long term goal of achieving a 50% market share. At 31 December 2008 it had an estimated 35% market share and an estimated 34% market share at 30 September 2009. PTK currently holds the largest share of the mobile market in Kosovo, with an estimated share of 65% at 30 September 2009.

Operations in Kosovo The following table presents, at the dates indicated, data relating to the Group’s principal operations in Kosovo by number of connections:

As at As at As at 31 December 31 December 30 September Number of connections 2007 2008 % change 2009 % change

Fixed broadband 35,220 67,847 92.6 88,460 30.4 Mobile 93,631 349,010 272.8 395,900 13.4 Cable TV — 13,314 — 55,614 317.7

Total 128,851 430,171 233.9 539,974 25.5

The Group’s total mobile, broadband and cable TV connections in Kosovo increased by 233.9% to 430,171 connections at 31 December 2008 from 128,851 connections at 31 December 2007. At 30 September 2009, the total number of connections was 539,974.

Operating Performance in Kosovo Total operating revenues generated by the Group in Kosovo were c41,900,000 for the year ended 31 December 2008, a 545% increase from operating revenues for the previous year. Total operating revenues for the nine months to 30 September 2009 were c41,435,000 an increase of 40.9% from operating revenues of c29,408,000 for the nine months to 30 September 2008. IPKO’s EBITDA in the year ended 31 December 2008 was c14,830,000, an increase from c(2,743,000) for the year ended 31 December 2007. EBITDA for the nine months to 30 September 2009 was c15,885,000, an increase of 78% from c8,933,000 for the nine months to 30 September 2008.

52 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The increases in operating revenues and EBITDA resulted from the increased number of connections, particularly in respect of mobile telephony, following the completion by IPKO of its network infrastructure at the end of 2007 and increased broadband penetration in Kosovo, in which IPKO is the market leader.

Fixed Line Services in Kosovo Fixed Telephony IPKO started offering ﬁxed telephony services in September 2008. This service is only a minor part of IPKO’s operations, with 8,217 connections at 30 September 2009. Broadband IPKO’s broadband connections increased by 92.6% to 67,847 connections at 31 December 2008 from 35,220 connections at 31 December 2007. The number of broadband connections increased to 88,460 connections at 30 September 2009, a 30.4% increase from 31 December 2008. The Group believes that the reason for the increase in broadband connections was attributable to IPKO offering better customer service and better products than its competitors.

Mobile Services in Kosovo The Group’s mobile customer base in Kosovo, measured in terms of connections, increased by 272.8% in the year ended 31 December 2008 with 349,010 connections at 31 December 2008 compared to 93,631 connections at 31 December 2007. Total connections were 395,900 at 30 September 2009, a 13.4% increase from the number of connections as at 31 December 2008. The increase in connections was due to the increased coverage provided by the network infrastructure developments during the previous periods and to the quality of products and services and good retail sales organisation. In the context of an increasingly competitive market, with strong competition in number portability and pressure on pricing, along with the entry of new competitors, IPKO’s mobile business achieved net adds of 46,890 connections in the nine months to 30 September 2009. In terms of usage, the volume of mobile trafﬁc carried by IPKO grew by 167% to 244.8 million minutes in the nine months to 30 September 2009 from 91.5 million minutes in the same period the previous year. ARPU for mobile connections was c6 for the nine months to 30 September 2009.

Network Development Fixed Telephony and Broadband In terms of infrastructure, IPKO mainly leases the fibre optic ‘‘backbone’’ network from PTK and has itself constructed, or obtained by means of acquiring other local cable operators, a system of coaxial cable connections to cover the ‘‘last mile’’ from the backbone network to approximately 215,000 homes throughout Kosovo. In 2008, IPKO expanded its broadband service network, both by constructing additional local coaxial cable connections and adding to the backbone network. Due to the increase in the number of broadband access users and increased need for bandwidth, IPKO also expanded its capacities with its connection to Telekom Srbija. In 2009, construction of additional length for the backbone network has continued and is planned to link all the main cities and locations where IPKO provides broadband services. This will enable IPKO to provide new and better quality services as well as standardising the network. During 2009, IPKO has also completed two major upgrades to its fixed telephony network, installing a new Class 4 switch, which will improve the performance, capacity and call quality and a new Class 5 switch as well as a new version of the Netcentrex (NCX) platform which will provide new features, mainly for residential customers, and permit integrated billing for Quad play services. Mobile Following the award of its 2G licence in February 2007, IPKO created a mobile network in less than 12 months. No 3G licences have been awarded in Kosovo. To counter the poor reliability of Kosovo’s electricity supplies, the base stations and all fundamental network components were constructed with a backup power supply from generators. The Group has recently started implementing a project concerning the collocation of mobile and fixed network locations, i.e. by shifting fixed network POP locations to GSM network locations. This will improve

53 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD the reliability of the ﬁxed network while at the same time reducing the long-term operating costs associated with the functioning and maintenance of two separate networks.

Bosnia and Herzegovina The Group operates in the Republic of Srpska region of Bosnia and Herzegovina through Aneks, d.o.o. (‘‘Aneks’’) which principally provides broadband and cable TV services but also has minor interconnection and voice telephony operations.

Market Trends There is no reliable source providing information about the size of the telecommunications markets in Bosnia and Herzegovina (see ‘‘Risk Factors—Risks related to the Company and the Group—Estimation of market information in Macedonia, Kosovo and Bosnia and Herzegovina’’). As a result, the following information is based on estimates by the Group.

Bosnia and Herzegovina is split into two distinct political regions, the Federation of Bosnia and Herzegovina (‘‘FBiH’’) and the Republic of Srpska (‘‘RS BiH’’). Bosnia and Herzegovina’s total broadband market has expanded quickly and relatively recently with xDSL connections driving growth. At 31 December 2008, there were over 100,000 xDSL connections in Bosnia and Herzegovina after year-to-year growth of 177%. The three incumbents (BH Telecom, HT Mostar and m:tel) are aggressively expanding their ADSL networks to meet the demand for high-speed internet access.

Wireless broadband is also playing an increasingly important role in the sector’s development, with 37,000 wireless broadband connections in Bosnia and Herzegovina reported at the end of 2008 after annual growth of 136%. With Bosnia’s challenging geographic terrain and large rural population, wireless broadband technologies will play a vital role in Bosnia’s broadband future.

The largest broadband service provider in RS BiH with a market share of approximately 65% is m:tel (formerly Telekom Srpske) under the majority ownership of Telekom Srbija.

Aneks held an estimated 24% share of the broadband internet access market in RS BiH at 31 December 2008 with 7,700 connections, representing an increase from 20% the previous year. This market share has since decreased to approximately 20% at 30 September 2009 with 11,392 connections. The reason for this decrease in market share was the expansion of ADSL service offered by the incumbent operator covering the area of RS BiH.

The analogue cable TV market in the area of RS BiH is divided between two main competitors: Aneks and Elta Kabel. Aneks held approximately 20% of the cable TV market share at 30 September 2009 with 13,184 connections.

Operations in Bosnia and Herzegovina The following table presents, at the dates indicated, data relating to the Group’s principal operations in RS BiH by number of connections:

As at As at As at 31 December 31 December 30 September Number of connections 2007 2008 % change 2009 % change

Broadband 2,723 7,700 182.8 11,392 47.9 Cable TV — 6,583 — 13,184 100.3

Total 2,723 14,283 424.5 24,576 72.1

The Group expanded its portfolio of services in RS BiH to include voice telephony, with the merger of Blic.net, d.o.o. and Aneks in July 2008, and is pursuing its strategy to be a complete telecommunications service provider in this region. Revenues from inter-operator services generated by international call termination account for the majority of Group revenues in Bosnia and Herzegovina and are also the main generator of total revenue growth.

In the future, the Group aims to expand its operations in Bosnia and Herzegovina into FBiH.

54 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Network Development Network development in RS BiH has been focused on modernising and expanding the network for providing broadband services and fixed telephony. Aneks has increased its capacities and improved the quality of wireless ADSL network services and expanded the hybrid fibre-coaxial network (HFC) in Banja Luka using a fibre optic cable, achieving a significant improvement in the quality of all services. In order to ensure international IP connectivity to broadband users, Aneks has focused on IP transit connections. It has set up a connection with Telekom Srpske and with the Company. The construction of fibre optic connections from the Croatian border towards Banja Luka was completed as part of the process of building the backbone fibre optic network in the territory of the former Yugoslav Republics.

Albania The Group provides ﬁxed telephony and internet services in Albania through PRIMO, d.o.o. (‘‘PRIMO’’) and Bindi Integrated Service, Sh.a (‘‘Bindi’’).

Market Trends As at 31 December 2008, only 8% of the population had a ﬁxed line telephone and the Albanian internet access market was also poorly developed with only 5% penetration of broadband access to households as at 31 December 2008. The voice telephony and internet markets have begun to develop, attracting an increasing number of service providers. PRIMO held a minor market share of the Albanian ﬁxed telephony market at 30 September 2009 with 4,316 connections and approximately a 9% market share of the broadband market with 4,483 connections. The highest market share on the internet access market in Albania is held by the national operator, AlbTelecom, which holds approximately 69% of the market.

Operations in Albania The majority of revenues from the Group’s Albanian operations are generated by international call termination, ﬁxed telephony and broadband internet access. PRIMO provides broadband access through ADSL technology, ﬁbre optic connections for larger users and via cable and wireless access. The Group also provides dial-up internet access, which is the most popular form of internet access due to the low purchasing power in Albania.

Network Development In Albania, the Group offers end-users internet access services and broadband connections through its own network which is a combination of copper pairs through which ADSL services are provided, coaxial cable used for the LAN network, a ﬁbre optic network and wireless connections. The Group intends that, in the future, network development will be focused on the expansion of the broadband internet access network, ﬁbre optic connections to certain business clients, expansion of the coaxial network and copper pairs to residential clients, as well as wireless access, particularly in areas where access is not possible through ground networks.

Gibraltar The Company acquired a 50% shareholding in Gibtelecom, d.o.o. (‘‘Gibtelecom’’) from Verizon Communications in April 2007. The remaining 50% of Gibtelecom’s shares is owned by the Government of Gibraltar. Gibtelecom is the leading telecommunications provider in Gibraltar, providing ﬁxed telephony, internet and mobile services. The Company’s shareholding in Gibtelecom was an investment opportunity and is not part of the Group’s overall expansion strategy or a material part of its operations or revenues.

55 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Capital Expenditure The following table sets out the Group’s actual capital expenditure in 2007 and 2008 as well as forecasted capital expenditure for 2009:

For the years ended 31 December 2007 2008 2009

In thousand EUR Slovenia 181,534 196,175 126,552 Telekom Slovenije, d.d. 130,575 119,027 66,920 Mobitel, d.d. 46,097 70,752 50,326 Other companies in Slovenia 4,862 6,396 9,306

Total SEE 131,338 57,081 64,942 Kosovo 126,400 43,871 19,994 Macedonia 3,072 4,054 33,026 Other Companies SEE2 1,866 9,156 11,922

Total Group 312,872 253,256 191,494

1 Includes Aneks, d.o.o. (Bosnia and Herzegovina) and PRIMO, d.o.o. (Albania). The Group’s capital expenditure was c253,256,000 for the year ended 31 December 2008, a 19.1% decrease from capital expenditure of c312,872,000 for the year ended 31 December 2007. The Group’s forecasted capital expenditure for the year ended 31 December 2009 is c191,494,000 a 24.4% decrease from capital expenditure for the year ended 31 December 2008. The main reason for capital expenditure being higher in 2007 and 2008 is that the Group was investing heavily in the construction of its networks in Kosovo during this period.

56 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Subsidiaries and Afﬁliates The following table provides information relating to the Company’s subsidiaries and equity participations as at 30 September 2009: Country of Equity Name Incorporation Participation (%) Type of Business

Mobitel, d.d. Slovenia 100 Provision of mobile telecommunications services and the construction and management of mobile telecommunications infrastructure in Slovenia M-Pay, d.o.o. Slovenia 501 Mobile payment processing Planet 9, d.o.o. Slovenia 1002 Preparation and provision of multimedia content and services for various platforms, internet services and various communication solutions Soline, d.o.o.3 Slovenia 1004 Protecting and reserving the natural and cultural heritage within Sec˘ovlje Salina Nature Park and producing salt using traditional techniques GVO, d.o.o. Slovenia 100 Performs building and maintenance works on telecommunications networks, predominantly for the Company Avtenta.si, d.o.o. Slovenia 100 Develops and designs solutions and integrates and maintains tele-information infrastructure for companies in Slovenia Teledat, d.o.o.3 Slovenia 100 Publishes the telephone directory of Slovenia in printed and electronic form Najdi.si, d.o.o. Slovenia 100 The owner of the Slovenian search engine ‘‘Najdi.si’’ and through its subsidiaries, owns ‘‘Pogodak’’ in Croatia and Serbia. Specialises in development and implementation of internet search technology Meganet, d.o.o. Slovenia 50.15 Advertising Pogodak Trazilica Croatia 1006 Search engine in Croatia Pogodak, d.o.o. Serbia 1007 Search engine in Serbia SIOL B.V. Netherlands 100 Holds 100% of shares of ONE Telecommunications services SC Skopje and Telekom Slovenije Finance B.V. On.net, d.o.o. Macedonia 83.38 Internet services Germanos Telecom AD Macedonia 100 Largest distributor/retailer of ONE’s Skopje products and services

1 50% is indirectly owned through Mobitel, d.d. 2 50% is indirectly owned through Mobitel, d.d., 50% is owned directly by Telekom Slovenije, d.d. 3 Not connected with the core business of the Group. 4 100% is indirectly owned through Mobitel, d.d. 5 50.1% is indirectly owned through Najdi.si, d.o.o. 6 100% is indirectly owned through Najdi.si, d.o.o. 7 100% is indirectly owned through Najdi.si, d.o.o.

57 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Country of Equity Name Incorporation Participation (%) Type of Business

ONE Macedonia 1008 Provides mobile telecommunications services Telecommunications Services SC Skopje Telekom Slovenije3 Netherlands 1009 Dormant company Finance B.V. Digi Plus Multimedia, Macedonia 100 Promotes and sells DVB-T services and d.o.o. Skopje acting as a content provider IPKO Kosovo 63.7510 Provides a range of internet services in Telecommunications, Kosovo d.o.o. IPKO NET, d.o.o. Albania 63.7511 Dormant company Media Works, d.o.o.3 Kosovo 10012 Issues Gazeta Express Newspaper in Kosovo DSN, d.o.o.3 Kosovo 5013 Dormant company PRIMO, d.o.o. Albania 75 Internet and fixed telephony services Bindi Integrated Albania 10014 Internet services Services Sh.a Aneks, d.o.o. Bosnia and 70 Holds a national licence for fixed telephony Herzegovina services covering the entire territory of Bosnia – Herzegovina and provides a range of telecommunications services Gibtelecom, d.o.o. Gibraltar 50 The largest telecommunications operator in Gibraltar, offering fixed and mobile telephone communications SIOL, d.o.o. Croatia Croatia 100 International point of presence

8 100% indirect holding through SIOL B.V. 9 100% is indirect holding through SIOL B.V. 10 The Company is considering acquiring an additional shareholding in IPKO Telecommunications, d.o.o. 11 63.75% is indirect holding through IPKO Telecommunications, d.o.o. 12 100% indirect holding through IPKO Telecommunications, d.o.o. 13 50% indirect holding through IPKO Telecommunications, d.o.o. 14 100% is indirect holding through PRIMO, d.o.o.

58 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Group Structure Diagram The following chart sets out the corporate structure of the Group:

Telekom Slovenije, d.d. (Slovenia)

Mobitel, GVO, d.o.o. Avtenta. Teledat, Najdi si, Planet 9, d.d. 100% si, d.o.o. d.o.o. d.o.o. d.o.o. 100% (Sl ovenia) 100% 100% 100% 50% (Sl ovenia) (Sl ovenia) (Sl ovenia) (Sl ovenia) (Sl ovenia)

Planet 9, M-Pay, Soline, Pogodak, Meganet, d.o.o. Pogodak d.o.o. d.o.o. d.o.o. trazilica d.o.o. 50% 50% 100% 50% 100% (Sl ovenia) 100% (Sl ovenia) (Sl ovenia) (Sl ovenia) (Croatia) (Serbia)

Germanos Telecom Siol B.V. Digi Plus Multimedia, d.o.o. On.net, d.o.o. AD Skopje 100% Skopje 100% 83.38% 100% (Netherlands) (Macedonia) (Macedonia) (Macedonia)

Telekom ONE Telecommunications Slovenije Finance B.V. SC Skopje 100% 100% (Netherlands) (Macedonia)

IPKO Telecommunications, d.o.o. 63.75% (Kosovo) DSN, d.o.o. IPKO NET, Media Works, (50%) d.o.o. d.o.o. (K osovo) 63.75% 100% (Albania) (K osovo) PRIMO, d.o.o. Aneks, d.o.o. 75% 70% (Albania) (BiH)

Bindi Integrated Services, Sh.a. 100% (Albania) Gibtelecom, d.o.o. SIOL, d.o.o. 50% 100% (Gibraltar) (Croatia)

On 15 December 2009, the Supervisory Board of the Company approved a transaction involving the acquisition of an additional 29.4% shareholding in IPKO from various minority shareholders for approximately c57.6 million, with an option to purchase the remaining shares in 2011.

59 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Shareholders of the Company At 30 September 2009 the Company had 6,535,478 ordinary registered shares outstanding. The following table indicates the shareholders of record who held more than 1% of the Company’s share capital at such date:

Number of Percentage Name of Beneﬁcial Owner Shares Holding

Republic of Slovenia** 3,434,021 52.54 Slov. odskodninska druzba (state investment fund)** 931,387 14.25 Individual shareholders 684,023 10.47 Kapitalska druzba** 365,175 5.59 Resident legal entities 349,320 5.34 Foreign legal entities 241,528 3.70 Investment companies 212,555 3.25 Kapitalska druzba – PPS (state investment fund)** 115,558 1.77 Banks 68,264 1.04 Others 133,647 2.05

Total 6,535,478 100.00

** The Republic of Slovenia therefore has an effective shareholding of 74.15% consisting of a direct shareholding of 52.54% in addition to the combined shareholding of three state investment funds holding 14.25%, 5.59% and 1.77% of the Company’s shares.

60 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Management of the Company The management of the Company comprises a two-tier system. The Management Board represents and acts on behalf of the Company in its day-to-day operations, while the main duty of the Supervisory Board is to oversee the Company’s strategy and operations. Shareholders exercise their rights in company matters in general meetings. The business address for members of the Management and Supervisory Boards is Telekom Slovenije, d.d., Cigaletova ulica 15, 1000 Ljubljana, Slovenia. Management Board At 30 September 2009, the Company’s Management Board members, their age, their respective positions on the Management Board and the term of their appointment to such positions were as follows:

Name Age First Appointed Current Term Ends

President of the Management Board Bojan Dremelj 49 17 May 2005 12 March 2010 Vice President of the Management Board Dusan Mitic 44 1 March 2004 29 February 2012 Members of the Management Board Dr Filip Ogris-Marticˇ 46 1 May 2006 30 April 2010 Zˇeljko Puljic´ 50 1 May 2006 30 April 2010 Darja Senica 50 8 April 2002 7 April 2010

The term of Mr. Bojan Dremelj’s appointment as President of the Management Board expires on 12 March 2010. On 4 December 2009, the Supervisory Board appointed Mr. Ivica Kranjcˇevicˇas President of the Board beginning on 13 March 2010 for a term of four years.

Supervisory Board At 30 September 2009, the Company’s Supervisory Board members, their age, their respective positions on the Supervisory Board and the term of their appointment to such positions were as follows: Name Age First Appointed Current Term Ends

President of the Supervisory Board Tomazˇ Berginc MSc 47 26 April 2009 24 April 2013 Vice President of the Supervisory Board Dr Tomazˇ Kalin 73 26 April 2009 24 April 2013 Milan Richter* 55 14 November 2009 13 November 2013 Members of the Supervisory Board Dr Jaroslav Berce 55 26 April 2009 25 April 2013 Dr Marko Hocˇevar 47 26 April 2009 25 April 2013 Ciril Kafol MSc 41 26 April 2009 25 April 2013 Dr Zvonko Kremljak 55 26 April 2009 25 April 2013 Branko Sˇparavec* 52 14 November 2009 13 November 2013 Martin Gorisˇek* 49 14 November 2009 13 November 2013

* Employee Representatives appointed by the Workers’ Council. They were reappointed in 2009 following expiry of the last mandate.

61 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The principal activities inside and outside the Group of the members of the Management and Supervisory Boards are as follows:

Management Board Name Principal Activities inside the Group Principal Activities outside the Group

President of the Management Board Bojan Dremelj Telekom Slovenije, d.d.: IEDC Bled: President of the Management Board Member of the Supervisory Board Mobitel, d.d.: EMUNI (Euro-Mediterranean President of the Board of Directors University): Gibtelecom, d.o.o.: Member of the Board Director on the Board of Directors

Vice President of the Management Board Dusˇan Miticˇ Telekom Slovenije, d.d.: Basketball Club Union Olimpija: Vice President of the Management President of the Managing Board Board On.net, d.o.o.: Member of the Supervisory Board IPKO Telecommunications, d.o.o.: President of the Board PRIMO, d.o.o.: General Administrator SIOL B.V.: Director B ONE Telecommunications Services SC Skopje: President of the Board

Members of the Management Board Dr Filip Ogris-Marticˇ Telekom Slovenije, d.d.: Ljubijana Stock Exchange: Member of the Management Board Member of the Supervisory Board Mobitel, d.d.: Non-Executive member of the Board of Directors Telekom Slovenije Finance B.V.: Director A Gibtelecom, d.o.o.: Non-Executive member of the Board SIOL B.V.: Director B ONE Telecommunications Services SC Skopje: Non-Executive member of the Board of Directors Germanos Telecom AD Skopje: Non-Executive member of the Board of Directors

Zˇeljko Puljic´ Telekom Slovenije, d.d.: Sintesio Ustanova, Not-for-proﬁt Member of the Management Board ETSI endorsed NGN test laboratory: Mobitel, d.d: Member of the Managing Board Non-Executive member of the Board of Directors Aneks, d.o.o.: President of the Board of Directors

Darja Senica Telekom Slovenije, d.d.: Member of the Management Board

62 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Supervisory Board Name Principal Activities inside the Group Principal Activities outside the Group

President of the Supervisory Board Tomazˇ Berginc MSc Telekom Slovenije, d.d.: ETI Elektroelement Izlake, d.d.: President of the Supervisory Board President of the Management Board Regional Development Council in the region of Zasavje: President Chamber of Commerce and Electrotechnical Industry: Member of the Executive Committee

Vice President of the Supervisory Board Dr Tomazˇ Kalin Telekom Slovenije, d.d.: Independent Consultant Vice President of the Supervisory Board

Milan Richter Telekom Slovenije, d.d.: Vice President of the Supervisory Board; Member of Workers’ Council; President of the Trade Union

Members of the Supervisory Board Dr Jaroslav Berce Telekom Slovenije, d.d.: Member of the Supervisory Board

Dr Marko Hocˇevar Telekom Slovenije, d.d.: Elan Group, d.o.o.: Member of the Supervisory Board Member of the Supervisory Board Lip Bled, d.o.o.: President of the Board

Ciril Kafol MSc Telekom Slovenije, d.d.: Member of the Managers’ Member of the Supervisory Board Association of Slovenia Member of the Association of Supervisory Board Members

Dr Zvonko Kremljak Telekom Slovenije, d.d.: Member of Supervisory Board

Branko Sˇparavec Telekom Slovenije, d.d.: Member of the Supervisory Board; Vice President of Workers’ Council

Martin Gorisˇek Telekom Slovenije, d.d.: Member of the Supervisory Board

63 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD RELATED PARTY TRANSACTIONS

The Republic of Slovenia has a direct shareholding of 52.54% of Telekom Slovenije, d.d. (the Company’’)’s total issued share capital and three state investment funds together hold 21.61% of the share capital, creating an effective state shareholding of 74.15% of the Company’s share capital. The remaining 25.85% of shares are held by various investors. The President and members of the Management Board and the President and members of the Supervisory Board together hold 0.0323% of the Company’s share capital. Related parties to the Company and its consolidated subsidiaries (the ‘‘Group’’), therefore, include the Republic of Slovenia as its majority shareholder, other shareholders, the Management Board, the Supervisory Board and their family members. In the year ended 31 December 2008 and the nine months ended 30 September 2009, the Group did not grant any loans to related parties. In the year ended 31 December 2008 and the nine months ended 30 September 2009, the Group entered into the following transactions with the Government of the Republic of Slovenia and entities and institutions under its control: * The Group provides telecommunications services to the Government of the Republic of Slovenia and various entities, agencies and companies in which the Slovenian State is a shareholder. All such transactions are concluded on normal arm’s-length terms and conditions and are no more favourable than those available to other customers. * Total income earned from sales to central and local governments amounted to c23,372,000 in the nine months ended 30 September 2009 in comparison to c24,668,000 in the nine months ended 30 September 2008. The Group does not monitor or collect information on sales to companies owned or partially owned by the Republic of Slovenia or entities under its control. Accordingly, information on such sales has not been disclosed.

64 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD REGULATION

Slovenia Electronic communications in Slovenia are governed by the Electronic Communications Act 2007, compliance with which is supervised by the Post and Electronic Communications Agency of the Republic of Slovenia (‘‘APEK’’). APEK is an independent regulatory body that regulates electronic communications, postal services and radio and television programmes in Slovenia. In accordance with the regulatory framework in place at an EU level, if an operator wants to offer fixed line telecommunications services in Slovenia, it must notify APEK that it intends to offer such services and obtain a ‘‘general authorisation’’ to do so. For mobile services, licences are required and are obtained by competing in the relevant tender process. The Group, therefore, operates under authorisations for its fixed telephony and broadband activities in Slovenia, but under licences for its mobile telephony activities. Mobitel d.d. (‘‘Mobitel’’) has licences to provide GSM900, DCS1800 and UMTS/IMT 2000 services. An authorisation or licence can only be removed for serious breaches of law or regulation or terms of the licence and is considered a ‘‘last resort’’ for APEK. APEK has the power to supervise how a telecommunications business operates in Slovenia and conducts market analysis. APEK encourages alternative operators and in doing so increases the competition faced by the Group in Slovenia. The telecommunications sector in Slovenia consists of seven separate ‘‘relevant’’ markets, which are: (i) fixed telephone lines; (ii) interconnections (termination); (iii) interconnections (origination); (iv) broadband local loop unbundling; (v) broadband access; (vi) leased line access; (vii) mobile telephony-termination. Most of these are wholesale rather than retail markets. APEK has concluded that Telekom Slovenije, d.d. (the ‘‘Company’’) has significant market power (‘‘SMP’’) in markets (i) - (vi) listed above and that Mobitel has SMP in market (vii). The markets which are most heavily scrutinised by APEK are (ii), (iv), (v) and (vii) listed above. As a result of decisions reached by APEK, the Company has a wide range of obligations imposed on it in these markets including requirements that it should permit access to third-party operators, publish price information and adhere to price controls. In the last of these, APEK either sets prices unilaterally or instructs the Company to provide calculations showing its costs and then sets prices accordingly. APEK takes an aggressive approach to pricing in the wholesale sector in particular and reached a decision on 19 May 2009 to set prices which the Company is permitted to charge for call termination and origination interconnection costs (markets (ii) and (iii)) at a low level. APEK has also set prices for local loop unbundling and broadband connections and for the prices for leased lines and Ethernet connections. To mitigate risks related to the regulator and the regulatory environment (see ‘‘Risk Factors—Risks related to the Company and the Group—The Group operates in a highly regulated industry’’) the Group proactively participates in market analysis processes, consultation on proposed legislative changes at the national and European levels, and in industry associations. The Group reports irregularities to the relevant institutions, including representatives of the European Commission, and uses all legal remedies at its disposal to contest decisions reached by APEK if it considers them to be unfair. The Company has applied to the Administrative Court for a number of recent APEK decisions to be judicially reviewed. However, the Company and Mobitel are required to comply with APEK decisions immediately and because of the slow progress of cases in the Slovenian legal system, it can take up to three years for such applications to be considered.

65 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Macedonia Electronic communications in Macedonia are governed by the Electronic Communications Law 2005, which transposed the EU regulatory framework into national law. Its implementation is supervised by the Agency for Electronic Communications (the ‘‘AEC’’). The AEC is an independent regulatory body that regulates electronic communications in Macedonia. As in Slovenia, an operator which intends to offer fixed line services must obtain a ‘‘general authorisation’’, and an operator which wishes to offer mobile services must apply for the relevant licence(s). In extreme circumstances licences or authorisations can be revoked. ONE Telecommunications SC Skopje (‘‘ONE’’) and On.net d.o.o. (‘‘On.net’’) operate under general authorisations in respect of fixed line services, including broadband. ONE possesses individual licences for GSM 900, UMTS (3G) and 3.4 GHz WiMAX frequency bands. Digi Plus Multimedia, d.o.o. Skopje (‘‘Digi Plus’’) has a licence for providing digital terrestrial television. The telecommunications market in Macedonia is liberalised; however, the incumbent national operator, Macedonian Telekom, has a high market share in fixed line services and the AEC is still relatively inactive regarding the development of competition. The AEC has conducted analyses of two of the relevant markets for telecommunications services in Macedonia, namely (i) mobile telephony and (ii) fixed line telephony. It found that T-mobile and ONE each had SMP status in the former market and that Macedonian Telekom had SMP status in the latter. The main impact of these findings from ONE’s perspective is that it is subject to price controls in respect of the fees it charges other operators for using its network, and accordingly these fees were reduced by 40% in 2008. This put ONE at a competitive disadvantage to VIP operator, its other major competitor, which has not been deemed to have SMP status to date and so is not subject to the same price control. Alternative providers of fixed services, such as On.net, utilise the infrastructure of Macedonian Telekom for their services. The regulatory intervention is more favourable to the Group in the fixed line sector because Macedonian Telekom is subject to similar pricing requirements as an SMP, whereas On.net is not. For example, Macedonian Telekom published amendments on 5 January 2009 to its draft offer on unbundling of the local loop, which included a 20% reduction in prices. At the beginning of September 2009, mobile number portability came into effect, which led to a reduction in market share for Macedonian Telekom. In Macedonia, the erection of base stations for mobile telecommunications services is subject to planning consent from the Ministry for Transport and Telecommunications, in conjunction with the relevant local authorities. In practice, the Group has encountered difficulties obtaining the necessary permits (see ‘‘Risk Factors—Risks related to the Company and the Group—The Group does not currently have all necessary construction permits in Macedonia and Kosovo’’). A new construction law has recently been introduced in Macedonia containing provisions regarding base stations and antennas for mobile telecommunications services. Previously, the construction of base stations was subject to a rigorous planning regime and categorised alongside major industrial installations. Base stations have now been downgraded by one level which should make it easier for telecommunications providers to obtain planning consent for new base stations. Rooftop antennas have now been deregulated altogether, so that, provided that an antenna is erected on a legal building, no further consent or approval is required. The AEC initiated a civil court procedure against Cosmofon Mobile Telecommunications Services AD Skopje (‘‘Cosmofon’’) (since renamed ‘‘ONE’’) in 2008 (see ‘‘Legal Proceedings—Macedonia’’).

Kosovo There are currently two separate bodies regulating telecommunications services in Kosovo: the Independent Media Commission (the ‘‘IMC’’) and the Telecommunications Regulatory Authority (the ‘‘TRA’’). The IMC is an independent regulatory body that oversees broadcasting in Kosovo. IPKO Telecommunications, d.o.o. (‘‘IPKO’’) operates under a licence for the distribution of cable TV services issued by the IMC. The TRA regulates the mobile, ﬁxed telephony and internet markets in which IPKO operates in Kosovo. IPKO provides internet services under a general authorisation issued by the TRA and under licences issued by the TRA in respect of its ﬁxed line services, GSM mobile services, value added services and international telecommunications services. These licences can only be revoked in the event of serious breaches of their terms.

66 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD The TRA has not yet conducted any analyses of the telecommunications markets in Kosovo and, therefore, has not yet deemed any operator to have SMP status. The TRA is in the process of commencing market analyses and the Group believes that such analyses will take place in 2010. It is anticipated that, following market analyses, Vala (IPKO’s main competitor in the mobile market) will be designated as having SMP status in the mobile market and that IPKO will be deemed to have SMP status on the broadband market. IPKO has asked the TRA to take a more active role in campaigning for Kosovo to be awarded its own country dialling code (see ‘‘Risk Factors—Risks related to the Company and the Group— Kosovo does not currently have its own country dialling code’’) and to take action against operators who are providing mobile services in Kosovo without a licence.

Bosnia and Herzegovina Electronic communications in Bosnia and Herzegovina are governed by the Law on Telecommunications last updated on 7 July 2006, compliance with which is supervised by the Communications Regulatory Agency (the ‘‘CRA’’), an independent regulatory body. The Council of Competition (the ‘‘Council’’) is an independent public body mandated to ensure the consistent implementation of the Act on Competition passed in 2001. The Council has exclusive competence to decide on the presence of prohibited competitive activities in the market of Bosnia and Herzegovina. Despite liberalisation, the regulation of telecommunications services in Bosnia is still not favourable to alternative providers, as the regulatory body is slow in resolving complaints lodged concerning the operation of the national telecommunications providers. In July 2008, the CRA published a decision on local loop unbundling for alternative operators, in which it stipulated the obligations and conditions regarding unbundled access to the access cable network and collocations. It also issued a decision enabling the portability of telephone numbers to other operator networks. The two decisions have yet to be implemented. The CRA anticipates that these decisions will be implemented during 2010. During 2008 and 2009, Aneks, d.o.o. (‘‘Aneks’’) has submitted requests to both the CRA and the Council to investigate the behaviour of other operators, but at the date of this Prospectus, the CRA and the Council had dismissed Aneks’ claims as unfounded except Aneks’ request to the Council to investigate M:tel’s compliance with its licence obligations regarding ﬁxed telephony services, in respect of which a decision by the Council is still pending. Aneks, by purchasing and subsequently merging with the cable television operator Netkom, in addition to acquiring the infrastructure and existing subscribers, has also obtained a licence to provide CATV services and copyrights for broadcasting TV programmes.

Albania In 2008, a new Law on Electronic Communications was introduced in Albania, modelled on EU legislation. The regulation of the telecommunications sector is the responsibility of the Authority of Electronic and Postal Communications (‘‘AKEP’’) the independent national regulator in Albania. Regulated markets are determined based on the Law on Electronic Communications and the Protection of Competition Act and on conditions in the national markets. The legislation is substantially similar to that of the EU. AKEP is expected to identify operators with signiﬁcant market power in the future and formulate legislation for local loop unbundling.

67 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD LEGAL PROCEEDINGS

Slovenia – the Company The following is a list of material legal proceedings and material regulatory or administrative proceedings to which Telekom Slovenije, d.d. (‘‘the Company’’) is currently subject.

Civil Proceedings Tusˇtelekom, d.o.o. (now Tusˇmobil) a competitor of the Company, has made a claim against the Company in the Ljubljana District Court for c28,176,227 for damages arising from the failure by the Company to comply with its contractual obligations to provide wholesale services of the agreed quality, on the agreed timeline and for the abuse of its dominant position. T-2, d.o.o. a competitor of the Company, has made a claim against the Company in the Ljubljana District Court for c129,556,756 for damages arising from the failure by the Company to comply with its contractual obligations to provide wholesale services of the agreed quality, on the agreed timeline and for the abuse of its dominant position. ABM, d.o.o. a competitor of the Company, has made a claim against the Company in the Ljubljana District Court for c4,211,933 for failure by the Company to include the ABM CD ROM in the ISDN 3000 package and has sought an injunction forcing the Company to include CD ROMs in ISDN packages. SINFONIKA, d.d. (in bankruptcy) a competitor of the Company, has made a claim against the Company for c34,347,627 for damages arising from abuse of its dominant position, in particular regarding the introduction of Centrex services and DDI (direct dial in) charges. All the proceedings described above are at pre-trial stage. A preliminary hearing has taken place in respect of the claims made by ABM, d.o.o. only.

Proceedings before the Competition Protection Office of Slovenia The Competition Protection Office of Slovenia (‘‘CPO’’) has the power to launch investigations, collect information and institute proceedings on an ‘‘ex post’’ basis in relation to competition law matters. Where it decides to institute proceedings, the first stage is to notify the relevant company of this fact. Once it has collected the necessary information it will then issue a ‘‘summary of relevant facts’’ and provide the defendant with an opportunity to respond to the allegations. If the CPO concludes that there has been an infringement, it will issue a decision which could involve a fine of up to 10% of the defendant’s annual turnover or certain behavioural remedies including the sale of parts of the business. The defendant has a right of appeal to the Supreme Court. The CPO has instituted proceedings against the Company for abuse of its dominant position of which the following proceedings are material: Proceedings for determining whether the Company has infringed Article 9 of the Slovenian Prevention of the Restriction of Competition Act (the ‘‘Competition Act’’) and Article 82 of the European Commission Treaty (the ‘‘EC Treaty’’) in the wholesale market for bitstream broadband access were instituted by the CPO ex officio (on the basis of the information obtained from AMIS). On 24 August 2009 the CPO delivered a ‘‘summary of relevant facts’’. The Company responded on 7 October 2009 and contested all the alleged violations and statements of the CPO and provided an opinion prepared by a foreign expert to support it. Proceedings to determine an alleged infringement of Article 9 of the Competition Act and Article 82 of the EC Treaty were initiated on 4 February 2009. On the basis of data sent by AMIS, d.o.o. (‘‘AMIS’’), and data that the CPO collected through its supervision activities, the CPO deemed that it was probable that the Company had abused its dominant position on the wholesale market for unbundled access to local loops and subloops in order to supply broadband and voice services. As at the date of this Prospectus, no ‘‘summary of relevant facts’’ has been received in relation to this matter. Proceedings to determine an alleged infringement of the Competition Act were initiated on 24 April 2009. On the basis of data provided by Tusˇtelekom, d.o.o. (now Tusˇmobil), and data that the CPO collected through its supervision activities, the CPO deemed that it was probable that the Company had abused and/or continues to abuse its dominant position on the relevant markets of interconnection-termination, call origination and fixed telephone lines, the wholesale market for bitstream broadband access and the market for unbundled access to local loops and subloops. No ‘‘summary of relevant facts’’ has been received in relation to this matter.

68 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Proceedings before APEK APEK primarily exercises ‘‘ex ante’’ powers by issuing decisions. It also has investigation powers and can take action against companies in the telecommunications sector. Defendants have a right of appeal to the Administrative Court and a further right of appeal to the Supreme Court. The Company is a party to different types of proceedings before APEK, including administration proceedings, supervision proceedings, misdemeanour proceedings, and dispute resolution proceedings. The Company has no material proceedings before APEK pending as at the date of this Prospectus.

Slovenia – Mobitel The following is a list of material legal proceedings and material regulatory or administrative proceedings to which Mobitel, d.d. (‘‘Mobitel’’) is currently subject:

Civil Proceedings Colja, Rojs in partnerji, o.p., (‘‘CRP’’), a law ﬁrm, commenced proceedings in 2008 against Mobitel in the Ljubljana District Court in which CRP brought an action regarding services previously rendered to Mobitel and default interest totalling c4,907,303. Mobitel has defended the action and brought a counter-claim in which it denies CRP’s allegations. CRP has responded to the counter- claim and is now seeking payment and default interest totalling c5,137,195. The claim has not yet reached trial. SKY NET, d.o.o. (‘‘SKYNET’’) has made a claim against Mobitel for c7,087,034 plus costs in April 2007. The claim relates to a contract for the construction of mobile telecommunication towers which was terminated by Mobitel. In May 2007, SKYNET separately claimed approximately c22,847,264 for Mobitel’s alleged breaches of the same agreement for lost income and consequently lost proﬁts. Neither claim has yet reached trial.

Proceedings before the Competition Protection Office of Slovenia Proceedings to determine an alleged infringement of the Competition Act and Article 82 of the EC Treaty were initiated against Mobitel on 22 March 2009. Alleged infringements include: setting unfair selling prices for the ‘‘Itak Dabest’’ package; an unjustified price differentiation between prices for on- net and off-net calls; and a price policy of margin squeeze (i.e. setting retail and wholesale prices which are too close together for wholesale operators to operate profitably) for prices of data transmission in the national roaming contract with Tusˇmobil. In response, Mobitel has made preliminary applications on 31 July 2009 and 14 September 2009 using an Analysys-Mason economic analysis to demonstrate that its pricing policy was based on rational market behaviour. The CPO requested further data on 28 October 2009. No ‘‘summary of relevant facts’’ has been received in relation to this matter.

Proceedings before APEK Mobitel has no material proceedings before APEK pending as at the date of this Prospectus.

Macedonia In 2008, the Agency for Electronic Communications (the ‘‘AEC’’) instituted proceedings against Cosmofon Mobile Telecommunications Services AD Skopje (‘‘Cosmofon’’) (since renamed ONE Telecommunications AD Skopje (‘‘ONE’’)) for c2,900,000 plus interest and costs at the Court of First Instance in Skopje. The claim represents the difference between the fees which were levied by the government in Macedonia, and paid by Cosmofon, in 2004/5 for use of certain radio wave frequencies pursuant to a concession contract and the increased fees which were unilaterally imposed subsequently by the AEC, then withdrawn in 2006, then reissued upon a change of government in 2008. The Group considers that the possibility of losing the case is very remote. In any event it would have a right to appeal to the Appeal Court and subsequently the Supreme Court of Macedonia.

Kosovo IPKO disputed the licence fee charged by the Independent Media Commission (the ‘‘IMC’’) in respect of the licence for the distribution of cable TV services granted in May 2005 but this appeal was rejected by the Media Appeals Board.

69 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD In addition to the proceedings described above, the Group is involved in disputes, litigation and other proceedings in the ordinary course of its business, including regulatory proceedings. The Group has set aside a provision of approximately c10.7 million to allow for any negative outcome in respect of proceedings which are underway against the Company and approximately c7 million in respect of proceedings against Mobitel. See also ‘‘Risk Factors—Risks related to the Company and the Group—The Group is involved in disputes and litigation with regulators, competition authorities, competitors and other parties.’’

70 TAXATION

Taxation in the Republic of Slovenia The following summary outlines certain Slovenian tax consequences relating to a holder of Notes (a ‘‘Noteholder’’) and to payments under the Notes. The summary is based on the laws of the Republic of Slovenia as currently in effect and is intended to provide general information only. The summary does not address the rules regarding reporting obligations for, among others, payers of interest nor the rules on the refund of withholding tax. Investors should consult their professional tax advisers regarding the Slovenian tax consequences (including the applicability and effect of tax treaties for the avoidance of double taxation) of acquiring, owning and disposing of the Notes in their particular circumstances. Prospective purchasers of Notes and any other person that may become entitled to receive (directly or indirectly) any payment in respect of the Notes, should consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws of the Republic of Slovenia of acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes. NOTWITHSTANDING THE SUMMARIES RELATING TO INTEREST INCOME BELOW, CONDITION 10 (TAXATION) OF ‘‘TERMS AND CONDITIONS OF THE NOTES’’ PROVIDES THAT THE ISSUER SHALL, IN THE EVENT THAT IT IS REQUIRED BY LAW TO MAKE ANY WITHHOLDING OR DEDUCTION FOR ANY TAX IMPOSED BY THE REPUBLIC OF SLOVENIA OR ANY POLITICAL SUBDIVISION OR ANY AUTHORITY THEREOF OR THEREIN FROM ANY PAYMENT OF PRINCIPAL OR INTEREST UNDER THE NOTES, PAY SUCH ADDITIONAL AMOUNTS AS WILL RESULT IN THE RECEIPT BY THE NOTEHOLDERS OF SUCH AMOUNTS AS WOULD HAVE BEEN RECEIVED BY THEM IF NO SUCH WITHHOLDING OR DEDUCTION HAD BEEN REQUIRED, SUBJECT TO CERTAIN EXCEPTIONS (WHICH EXCEPTIONS WILL APPLY ONLY IN THE EVENT THAT THE NOTES ARE REPRESENTED BY DEFINITIVE NOTE CERTIFICATES). Pursuant to Condition 9(b) (Redemption for Taxation Reasons), should the Issuer be required to pay any such additional amounts which are greater than the additional amounts that would be required if the maximum rate of withholding tax applicable to the Notes were 20 per cent., then the Issuer shall have the option to redeem the Notes as set out therein.

Corporate Investors

Interest income The interest income received from the Issuer by a legal person resident for taxation purposes in the Republic of Slovenia or a permanent establishment (poslovna enota) in the Republic of Slovenia of a legal person not resident for taxation purposes in the Republic of Slovenia will be subject to Slovenian Corporate Income Tax (davek od dohodkov pravnih oseb) as a part of its overall income levied at the rate of 21 per cent in 2009 and at the rate of 20 per cent in 2010 and future years. The Issuer is required to deduct and pay withholding tax at the rate of 15 per cent. (or at a lower rate under any applicable double tax treaty) from payments of interest to legal persons not resident for taxation purposes in the Republic of Slovenia and having no permanent establishment in the Republic of Slovenia. Pension funds, investment funds and pension plans managed by an insurance company and taxed as a separate entity are fully exempt from this Slovenian tax to the extent that such person or entity is resident for taxation purposes in an EU Member State (other than Slovenia) or a member state of the European Economic Zone, does not receive interest through a permanent establishment in the Republic of Slovenia and would be unable to credit the tax so paid against its tax liabilities in the country of its tax residence (whether due to the fact that it is not liable to tax in such country or otherwise).

Capital Gains Capital gains earned on the sale or disposition of the Notes by a legal person resident for taxation purposes in the Republic of Slovenia or a permanent establishment (poslovna enota) in the Republic of Slovenia of a legal person not resident for taxation purposes in the Republic of Slovenia will be subject to Slovenian Corporate Income Tax (davek od dohodkov pravnith oseb) as a part of its overall income tax levied at the rate of 21 per cent. in 2009 and at the rate of 20 per cent. in 2010 and future years.

71 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Capital gains earned by legal persons not resident for taxation purposes in the Republic of Slovenia and having no permanent establishment in the Republic of Slovenia are not subject to Slovenian taxation.

Individuals Interest Income To the extent that interest income on the Notes qualifies as business income (dohodek iz dejavnosti)of an individual resident for taxation purposes in the Republic of Slovenia, such income will be subject to Slovenian Personal Income Tax (davek od dohodkov pravnih oseb) as a part of such individual’s overall annual business income at the rate applicable in accordance with the progressive tax scale which may reach up to 41 per cent. The amounts of interest on the Notes received by any other individual, whether resident for tax purposes in Slovenia or not, will be subject to Slovenian Personal Income Tax (dohodnina) assessed on the income so derived at the rate of 20 per cent., and no other tax shall be imposed by Slovenia on interest on the Notes, provided that an individual who is resident for taxation purposes in an EU Member State (other than Slovenia) is fully exempt from this Slovenian tax in circumstances where: (i) the individual in question is the beneficial owner of such interest; and (ii) the paying agent (as defined in the Slovenian Tax Procedure Act (Zakon o davcˇnem postopku)) is required to report the payment to the tax authorities in accordance with the provisions implementing the European Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments. Slovenian Personal Income Tax on non-business interest income is primarly levied by way of withholding tax. If an individual who is liable for this tax receives an amount of interest free of such deduction, such individual must declare each amount so received in a tax return filed by the 15th day of a calendar month for the period of the previous three calendar months and shall pay the amount of tax upon receiving a decision of the tax authorities setting out the calculation of the amount of tax and directing the individual to pay the amount so calculated.

Capital Gains Under the Slovenian Personal Income Tax Act (Zakon o dohodnini), capital gains from the sale or other disposition of debt securities held as non-business assets are in general exempt from taxation, while capital gains earned as business income (dohodek iz dejavnosti) of an individual resident for taxation purposes in the Republic of Slovenia are subject to Slovenian Personal Income Tax (davek od dohodkov pravnih oseb) as a part of such individual’s overall annual business income at the rate applicable in accordance with the progressive tax scale which may reach up to 41 per cent. Capital gains earned on the sale or disposition of the Notes by an individual resident for taxation purposes in the Republic of Slovenia may, in circumstances described in the Act on the Taxation of Proﬁts from the Disposal of Derivatives (Zakon o davku od dobicˇka od odsvojitve izvedenih ﬁnancˇnih instrumentov), be subject to tax levied at the rate of up to 40 per cent.

Value Added Tax Pursuant to Article 44/4(e) of the Value Added Tax Act, transactions with securities are VAT-exempt in Slovenia. According to the law, interest on debt securities is not subject to taxation, thus VAT is neither charged nor payable.

Inheritance and gift taxations Tax payers to inheritance and gift tax are natural persons and private law entities, within the meaning of the Slovenian Inheritance and Gift Tax Act (Zakon o davku na dedisˇcˇine in darila), in case of the transfer of the Notes mortis causa or inter vivos. The value of all transfers by the same person in one year is considered when ascertaining the taxable amount. Taxable basis for inheritance and gift tax is the market value of property at the time of the occurrence of tax liability, decreased by debts, costs and charges relating to this property, subject to taxation. In case of movable property the tax base for inheritances and gifts is decreased for EUR 5,000. Tax on inheritance and gifts is not paid by heir or recipient of gift of a ﬁrst hereditary order (children and spouse).

72 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD Tax rates are progressive and differ depending on the hereditary order. Tax rates for inheritance and gift tax range: (i) from 5 per cent up to 14 percent for the second hereditary order (parents, siblings and their descendants), (ii) from 8 per cent up to 17 percent for the third hereditary order (grandparents) and (iii) from 12 per cent up to 39 percent for all subsequent hereditary orders (others).

EU Directive on the Taxation of Savings Income (Directive 2003/48/EC) The EU has adopted a Directive (2003/48/EC) regarding the taxation of savings income. From 1 July 2005 Member States are required to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual in another Member State (the ‘‘Disclosure of Information Method’’), except that Austria, Belgium and Luxembourg instead may impose a withholding system for a transitional period (unless during such period they elect otherwise) (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland) with effect from the same date. In Belgium, the transitional period will end on 1 January 2010. This means that interest paid on the Notes as from that date and falling under the scope of application of the EU Directive on the Taxation of Savings Income will be subject to the Disclosure of Information Method. If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying and Transfer Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on a payment made by a Paying and Transfer Agent, the Issuer will be required to maintain a Paying and Transfer Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive.

73 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD SUBSCRIPTION AND SALE

BNP Paribas and Credit Suisse Securities (Europe) Limited (the ‘‘Lead Managers’’) and Raiffeisen Zentralbank O¨ sterreich Aktiengesellschaft and Socie´te´Ge´ne´rale (together with the Lead Managers, the ‘‘Managers’’) have, pursuant to a Subscription Agreement dated 17 December 2009, jointly and severally agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe the Notes at 99.225% of their principal amount. In addition, the Issuer has agreed to reimburse the Lead Managers for certain of their expenses in connection with the issue of the Notes. The Subscription Agreement entitles the Managers to terminate it in certain circumstances prior to payment being made to the Issuer. The yield of the Notes is 5.009% per annum. The yield is calculated as at the Closing Date on the basis of the issue price. It is not an indication of future yield. BNP Paribas is a creditor under certain existing Group indebtedness which the Issuer intends to reﬁnance using a certain portion of the proceeds of the issue of the Notes.

Selling Restrictions United States Each Manager acknowledges that the Notes have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Lead Manager has represented that it has not offered or sold, and will not offer or sell, any Notes constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act and, accordingly, that neither it nor any of its afﬁliates (including any person acting on behalf of such Manager or any of its afﬁliates) has engaged or will engage in any ‘‘directed selling efforts’’ with respect to the Notes.

United Kingdom Each Manager has represented and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

The Republic of Slovenia Each Manager represents and agrees it has not made and will not make any offer of Notes to the public other than in compliance with the provisions of its Slovenian Financial Instruments Market Act (Zakon o trgu ﬁnancˇnih instrumentov).

General No action has been or will be taken by the Issuer or any Manager in any country or jurisdiction that would, or is intended to, permit a public offering of the Notes, or possession or distribution of this Prospectus or any other offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Persons into whose hands this Prospectus comes are required by the Issuer and the Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or have in their possession, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense. Each Manager will obtain any consent, approval or permission which is, to the best of its knowledge and belief, required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any such purchase, offer, sale or delivery and it will, to the best of its knowledge and belief, comply with all such laws and regulations.

74 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD GENERAL INFORMATION

1. Clearing Systems The Notes have been accepted for clearance through the Clearstream, Luxembourg and Euroclear systems with a Common Code of 047392837. The International Securities Identiﬁcation Number for the Notes is XS0473928371.

2. Approval, Listing and Admission to Trading Application has been made to the Commission de Surveillance de Secteur Financier (the ‘‘CSSF’’) for approval of this prospectus. Application has been made to the Luxembourg Stock Exchange for the Notes to be listed on the ofﬁcial list and be admitted to trading on the regulated market of the Luxembourg Stock Exchange. The Luxembourg regulated market is a regulated market for the purpose of the Markets in Financial Instruments Directive 2004/39/EC. So long as the Notes remain in global form, the listing agent will act as intermediary between the Luxembourg Stock Exchange and the Issuer and the Noteholders. It is expected that admission of the Notes to trading will be granted on or before 21 December 2009.

3. Authorisations The Issuer has obtained all necessary consents, approvals and authorisations in the Republic of Slovenia in connection with the issue and performance of the Notes, including the approval of the Ministry of Economy on 11 November 2009 and the Ministry of Finance on 3 December 2009. The issue of the Notes was authorised by resolution of the Management Board of the Issuer passed on 1 December 2009 and by resolution of the Supervisory Board on 2 December 2009.

4. Material Adverse Change Other than as described herein, there has been no significant change in the financial or trading position of the Issuer since 30 September 2009 and no material adverse change in the financial position or prospects of the Issuer since 31 December 2008.

5. Litigation Other than as described herein, neither the Issuer nor any of its subsidiaries is involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) which may have, or have had during the 12 months preceding the date of this Prospectus, a significant effect on the financial position or profitability of the Issuer or of the Group.

6. Documents on Display For so long as any of the Notes is outstanding, copies of the following documents may be inspected at the specified offices of each of the Fiscal Agent and Paying and Transfer Agents during normal business hours: (a) the constitutional documents of the Issuer; (b) the annual reports and consolidated accounts of the Issuer for the financial year ended 31 December 2007 and 31 December 2008, the audit report relating to such accounts and unaudited interim financial statements for the nine months ended 30 September 2009; (c) the latest annual report and consolidated accounts of the Group and the latest interim consolidated financial information of the Group (the Group publishes such information on a quarterly basis); (d) the Fiscal Agency Agreement; (e) the Deed of Covenant; and (f) this Prospectus and any supplements thereto. In addition, copies of this Prospectus are available on the Luxembourg Stock Exchange’s website at www.bourse.lu.

7. Auditors The consolidated accounts of the Issuer for the ﬁnancial years ended 31 December 2007 and 31 December 2008 contained in this Prospectus have been audited by Ernst & Young, d.o.o (Chartered Accountants) which is a member of the Slovenian Institute of Auditors in accordance with

75 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD International Financial Reporting Standards (without qualification) and Ernst & Young d.o.o. rendered an unqualified audit report on such accounts of the Company for each of these years. The Issuer’s interim consolidated financial statements for the nine months ended 30 September 2009 included in this Prospectus have been reviewed by Ernst & Young d.o.o..

8. Conﬂicts of Interest There are no potential conﬂicts of interest between any duties of the members of the administrative, management or supervisory bodies of the Issuer towards the Issuer and their private interests and/or other duties.

76 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD GLOSSARY

Below are definitions of certain technical terms used in this Prospectus: ‘‘090, 08, 09 Numbers’’ Commercial 090 numbers are intended for the marketing of services offered over the telephone. Free-phone number 080 enables clients of companies to call them free of charge. ‘‘3G’’ The ‘‘Third Generation’’ of Mobile Communications technology. It is the better known name for IMT-2000 and is a family of standards for mobile telecommunications defined by the International Telecommunications Union, which includes, for example, GSM, EDGE, UMTS and WiMAX. Services include wide area wireless voice telephone, video calls and wireless data in a mobile environment. ‘‘2G’’ stands for ‘‘Second Generation cellular’’ network. ‘‘ADSL’’ stands for ‘‘Asymmetric Digital Subscriber Line’’. ADSL technology is used to transport large amounts of data traffic over existing copper telephone lines. ‘‘ARPU’’ stands for the average revenue per user per month. ‘‘Connection’’ refers to a connection to any of the telecommunications services offered by the Group. A single customer may contract for multiple services, and the Group believes it is more accurate to count the number of connections, or services a customer has contracted for, as opposed to only counting the number of customers. For example, a customer that has fixed line telephony service and broadband service represents two connections rather than a single customer. ‘‘CTX’’ means ‘‘Centrex’’. ‘‘DCS’’ stands for ‘‘Digital Cellular System’’. ‘‘DSL’’ or ‘‘xDSL’’ means ‘‘Digital Subscriber Line’’ and is a family of technologies that provides digital data transmission over the wires of a local telephone network. ‘‘EDGE’’ stands for ‘‘Enhanced Data Rates for GSM Evolution’’. ‘‘FTTH’’ stands for ‘‘Fibre to the Home’’ – fibre reaches the boundary of the living space, such as a box on the outside wall of a home. ‘‘FTTx’’ is a generic term for any broadband network architecture that uses fibre optics to replace all or part of the usual metal local loop. This generic term originates as the generalization of several configurations of fibre deployment (FTTN, FTTC, FTTB, FTTH etc), all starting with FTT but differentiated by the last letter, which is substituted by an x in the generalization. ‘‘GSM’’ stands for ‘‘Global System for Mobile Communication’’. ‘‘GGSN’’ stands for ‘‘Gateway GPRS Support Node’’. ‘‘HSDPA’’ stands for ‘‘High-Speed Downlink Packet Access’’. ‘‘HSUPA’’ stands for ‘‘High-Speed Uplink Packet Access’’. ‘‘HPLMN’’ stands for ‘‘Home Public Land Mobile Network’’. ‘‘IMT’’ stands for ‘‘International Mobile Telecommunications’’ and IMT-2000 is simply a term used by the International Telecommunications Union to refer to many third generation (3G) wireless technology, that provide higher data speed between mobile phones and base antennas.

77 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD ‘‘Inter Carrier Market’’ means the wholesale market where operators provide services to other operators.

‘‘Internet and data connections’’ includes broadband connections ADSL, satellite, ﬁbre optic and circuits over 2 Mbps), narrowband connections (Internet service through the PSTN lines) and other connections, including the remaining non-broadband retail circuits.

‘‘IPTV’’ stands for Internet Protocol Television, a system through which digital television service is delivered using the architecture and networking methods of the Internet Protocol Suite over a packet- switched network infrastructure, e.g., the Internet and broadband Internet access networks, instead of being delivered through traditional radio frequency broadcast, satellite signal, and cable television (CATV) formats.

‘‘ISDN’’ stands for ‘‘Integrated Services Digital Network’’ a circuit switched telephone network system, designed to allow digital transmission of voice and data over ordinary telephone copper wires, resulting in better quality and higher speeds than with analogue systems.

‘‘LLU’’ stands for ‘‘Local Loop Unbundling’’ (see also ‘‘Unbundled local loop’’).

‘‘Local loop’’ means the physical circuit connecting the network termination point at the subscriber’s premises to the main distribution frame or equivalent facility in the ﬁxed public telephone network.

‘‘Mobile connections’’ includes contract and pre-pay mobile telephony.

‘‘MPEG-4 technology’’ is a series of materials for comprehension of audio and visual data.

‘‘Naked xDSL’’ is a stand alone DSL without a PSTN service.

‘‘Net adds’’ means the difference between the number of connections at the end of the period and the beginning of a period.

‘‘POP’’ stands for ‘‘Point of Presence’’.

‘‘PSTN’’ stands for Public Switched Telephone Network.

‘‘Retail connections’’ means connections provided to residential and corporate clients.

‘‘SGSN’’ stands for ‘‘Serving GPRS Support Node’’. A Serving GPRS Support Node is responsible for the delivery of data packets from and to the mobile stations within its geographical service area.

‘‘TDM’’ stands for ‘‘Time Division Multiplexing’’ (used in traditional voice telephony).

‘‘Unbundled local loop’’ includes connections to both ends of the copper local loop leased to other operators to provide voice and DSL services (fully unbundled loop) or only DSL service (shared unbundled loop).

‘‘UMTS’’ stands for ‘‘Universal Mobile Telecommunications System’’.

‘‘VoIP’’ stands for ‘‘Voice over Internet Protocol’’. VoIP products are internet telephony products that use the internet as a tranmission medium for telephone calls.

78 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD ‘‘VDSL/VDSL 2’’ stands for ‘‘Very High Bit Rate Digital Subscriber Line’’ and is a DSL technology that provides faster data transmission capable of supporting high bandwidth applications such as HDTV and VoIP as well as general internet access over a single connection. VDSL 2 is the second generation of VDSL. ‘‘Wholesale connections’’ means connections we provide to third-party operators, who then sell connections to their residential and corporate clients. ‘‘WLR’’ stands for ‘‘Wholesale Line Rental’’. ‘‘WiMAX’’ stands for ‘‘Worldwide Interoperability for Microwave Access’’ and is a standard describing technology for the delivery of last mile wireless broadband access to mobile phones and laptops as an alternative to cable or ADSL. ‘‘WS XDSL’’ means Wholesale xDSL.

79 c101806pu030 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD INDEX TO FINANCIAL STATEMENTS

1. Review report and Interim Financial Statements for the nine months ended 30 September 2009 ...... F-2 2. Audit report and Financial Statements for the year ended 31 December 2008 ...... F-27 3. Audit report and Financial Statements for the year ended 31 December 2007 ...... F-78

F-1 c101806pu040 Proof 12: 17.12.09 B/L Revision: 0 Operator NewD

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OF TELEKOM SLOVENIA GROUP

FOR THE NINE MONTHS

ENDED 30 SEPTEMBER 2009

Ljubljana, november 2009

F-2 Telekom Slovenia Group

F-3 Telekom Slovenia Group

Interim consolidated income statement for the nine months ended 30 September 2009

In thousand EUR Notes For the nine months ended 30 September 2009 2008 Unaudited Unaudited Revenue 3 631,148 633,783 Other income 6,067 6,621 Share of profit of the joint venture 2,251 3,663

Cost of goods sold - 40,426 - 47,236

Cost of raw materials and consumables - 10,908 - 6,696 Cost of services 4 - 248,296 - 218,573 Staff costs - 115,271 - 106,828 Depreciation and amortisation - 150,132 - 137,727 Other operating expenses - 14,979 - 16,950

Total operating expenses - 580,012 - 534,010

Profit from operations 59,454 110,057

Finance revenue 5 4,537 5,997 Finance cost 6 - 17,363 - 15,106

Profit before tax 46,628 100,948

Income tax expense 7 - 12,487 - 25,543

Net profit for the period 34,141 75,405

Attributable to : Equity holders of the parent 34,141 75,260 Minority interest 0 145

Earnings per share - basic and diluted (in EUR) 5.25 11.57

The accompanying notes are an integral part of these consolidated financial statements.

F-4 Telekom Slovenia Group

Interim consolidated statement of comprehensive income for the nine months ended 30 September 2009

In thousand EUR For the nine months ended 30 September 2009 2008 Unaudited Unaudited Net profit for the period 34,141 75,405

Revaluation of available for sale financial instruments - 96 - 72 Income tax 19 7 Revaluation of available for sale financial instruments, net of tax - 77 - 65

Net gain/(loss) on cash flow hedges - 3,704 578 Less reclassification adjustment for losses included in income statement 438 - 20 Income tax 653 -121 Change in fair value of financial instruments, net of tax - 2,613 437

Other 0 2

Exchange differences on translation of foreign operation - 497 12

Other comprehensive income for the period - 3,187 386

Total comprehensive income for the period 30,954 75,791

Attributable to : Equity holders of the parent 30,954 75,646 Minority interest 0 145

The accompanying notes are an integral part of these consolidated financial statements.

F-5 Telekom Slovenia Group

Interim consolidated balance sheet at 30 September 2009 In thousand EUR Notes 30 September 2009 31 December 2008 Unaudited Audited

ASSETS

Intangible assets 8 344,691 255,144 Property, plant and equipment 9 1,267,764 1,175,639 Investment in joint venture 38,557 38,619 Other investments 21,224 18,525 Other non-current assets 30,415 29,578 Investment property 5,132 5,253 Deferred tax assets 7,357 4,275 Total non-current assets 1,715,140 1,527,033

Assets held for sale 539 627 Inventories 30,158 28,421 Current trade and other receivables 215,196 187,917 Income tax receivable 7,514 4,399 Current financial assets 605 21,121 Cash and cash equivalents 11 15,645 18,845 Total current assets 269,657 261,330

Total assets 1,984,797 1,788,363

The accompanying notes are an integral part of these consolidated financial statements.

F-6 Telekom Slovenia Group Interim consolidated balance sheet at 30 September 2009 In thousand EUR Notes 30 September 2009 31 December 2008 Unaudited Audited

EQUITY AND LIABILITIES

Issued capital 272,721 272,721 Treasury shares - 3,671 - 3,671 Reserves 555,006 550,683 Retained earnings 139,618 143,040 Fixed assets revaluation reserves 95,341 101,031 Revaluation reserves for financial instruments - 1,064 1,626 F/X differences arising from foreign subsidiaries - 510 5 Minority interest 0 235 Total equity 1,057,441 1,065,670

Non-current deferred income 9,976 9,169 Provisions 13 30,960 30,580 Interest bearing borrowings 14 478,008 241,145

Other non - current financial liabilities 15 11,380 63,909 Total non-current liabilities 530,324 344,803

Trade and other payables 144,628 159,240 Income tax payables 293 1,954 Interest bearing borrowings 119,835 177,431 Other current financial liabilities 15 75,459 1,411

Deferred income 22,818 18,437 Accruals 33,999 19,417 Total current liabilities 397,032 377,890

Total liabilities 927,356 722,693 Total equity and liabilities 1,984,797 1,788,363

The accompanying notes are an integral part of these consolidated financial statements.

F-7 0 0 30 213 , Total 34,141 30,954 - 3,187 - 39 1,057,441 In thousand EUR 0 0 -55 235 1,065,670 -180 interest Minority Minority 0 85 033 , 34,141 30,954 - 3,187 -39 Telekom Slovenia Group Telekom 1,057,441 the parent Total attrib. to

5 1,065,435 -18 - 497 - 497 - 510 of foreign operations Translation

- 2,613 - 2,613 - 3,313 financial Change in fair value of fair instruments in net amount - 77 - 77 in net 2,249 for sale amount financial of available instruments instruments Revaluation

0 0 95,341 FA rev. 101,031 2,326 - 700 reserves 103 033 , 34,141 34,141 139,618 -39 earnings Retained

0 541 - 541 3,782 1,908 - 5,690 555,006 0 of these consolidated financial statements. financial of these consolidated shares Reserves - 3,671 Treasury

0 capital Issued 272,721 - 3,671 550,683 143,040 272,721 aid p The accompanying notes are an integral part an integral are notes The accompanying Interim consolidated statement of changes in equity for the nine months ended 30 September 2009 Interim consolidated statement of changes in equity Dividends

1.1.2009 Audited Profit for the period Other comprehensive income Total comprehensive income 30.9.2009 Unaudited Depreciation transfer for revalued fixed assets Transfer to reserves Other

F-8 0 0 -53 386 Total 75,405 75,791 - 83,347 1,055,132 In thousand EUR 29 145 214 145 117 1,062,741 - 77 interest Minority Minority 0 0 -82 386 75,260 75,646 - 83,270 Telekom Slovenia Group Telekom 1,054,918 the parent Total attrib. to 5 1,062,624 12 12 17 of foreign operations Translation

437 437 583 1.020 financial Change in fair value of instruments in net amount 5 6 272 337 - 65 in net for sale amount financial of available instruments instruments Revaluation 2- 2 . FA rev. 103,145 108,690 reserves 82 - 75,260 75,260 266,462 - 83,270 earnings Retained

0 3,782 1,765 - 5,547 414,952 116,791 - 116,791 Reserves 0 shares - 3,671 of these consolidated financial statements financial of these consolidated Treasury

0 capital Issued 272,721 3,671 - 294,379 389,580 272,721

Interim consolidated statement of changes in equity for the for the nine months ended 30 September 2008 Interim consolidated statement of changes in equity Other

1.1.2008 Audited Profit for the period Other comprehensive income Total comprehensive income 30.9.2008 Unaudited Depreciation transfer for revalued fixed assets Dividends paid Transfer to other reserves The accompanying notes are an integral part an integral are notes The accompanying

F-9 Telekom Slovenia Group Interim consolidated statement of cash flows for the nine month ended 30 September 2009

In thousand EUR For the nine months ended 30 September Notes 2009 2008 Unaudited Unaudited Operating activities Profit before tax 46,628 100,948 - Adjustments for: Depreciation and amortisation 150,132 137,727 Depreciation of investment property 32 73 Impairment & write-down’s of property plant & equipment and intangible assets 814 1,400 Profit from disposal of property, plant & equipment - 839 -3,132

Financial expenses 17,363 15,106 Financial income - 4,537 - 5,997

Change in assets held for sale 88 - 21 Change in receivables - 27,279 - 25,521 Change in other long term assets - 5,294 2,292 Change in inventories - 1,737 - 6,726

Change in provisions 380 1,413 Change in deferred revenues 5,188 1,804 Change in accruals 14,582 - 724 Change in operating liabilities - 9,234 8,156

Tax paid - 19,759 -31,888

Net cash flows from operating activities 166,528 194,910

The accompanying notes are an integral part of these consolidated financial statements.

F-10 Telekom Slovenia Group

In thousand EUR For the nine months ended 30 September Notes 2009 2008 Unaudited Unaudited Investing activities Receipts from investing activities 29,879 12,278 Receipts from assets disposal 5,600 4,234 Dividends received 2,705 3,202 Interest received 1,072 2,242 Receipts from investment property disposal 0 0 Receipts from long-term financial assets disposal 0 2,400 Receipts from short-term financial assets disposal 20,502 200

Disbursements for investing activities - 326,908 - 173,291 Payments for acquisition of tangible fixed assets - 113,390 - 136,730 Payments for acquisition of intangible assets - 19,529 - 19,291 Payment for acquisition of investment property 0 - 241 Payments for acquisition of long-term financial assets 0 - 244 Payment for acquisitions of subsidiaries and borrowings assumed, net of cash acquired 10 - 193,369 - 12,103 Loans given - 620 - 4,682 Net cash flows used in investing activities - 297,029 - 161,013 Financing activities Receipts from financing activities 367,030 110,456 Receipts from other financial liabilities 3,633 9,171 Receipts from treasury share sale 0 0 Receipts from increased long-term financial liabilities 326,727 87,862 Receipts from increased short-term financial liabilities 36,670 13,423 Disbursements for financing activities - 239,729 - 177,798 Treasury shares purchase 0 0 Repayment of short-term financing liabilities - 71,338 - 37,747 Repayment long-term financing liabilities - 114,309 - 40,980 Interest paid - 15,532 -15,926 Dividends paid - 38,550 -83,145 Net cash flows from / (used in) financing activities 127,301 -67,342

Net increase in cash and cash equivalents -3,200 -33,445 Cash and cash equivalents at beginning of period 11 18,845 60,607 Cash and cash equivalents at end of period 11 15,645 27,162

The accompanying notes are an integral part of these consolidated financial statements.

F-11 Telekom Slovenia Group Notes to the interim condensed consolidated financial statements

1. General information and summary of significant accounting policies

Financial statements The financial statements are the interim condensed consolidated (hereinafter the “Group”) financial statements of Telekom Slovenia Group for the nine month period to 30 September 2009.

The financial statements were authorised for issue by the Board on 9 November 2009.

The Telekom Slovenije Group consists of the parent company, Telekom Slovenije, d.d., and the following subsidiaries, including legal ownership: • Mobitel, d.d., (100%), • GVO, d.o.o., (100%), • Teledat, d.o.o. (100%), • Avtenta.Si, d.o.o., (100%), • Soline, d.o.o., (100%), • Planet 9, d.o.o., (100%) • Najdi.si, d.o.o, (100%), • Ipko, d.o.o., Kosovo, (63.75%), • On.net, d.o.o., Macedonia, (83.38%), • Digi Plus Multimedia, d.o.o., Macedonia, (100%), • Aneks, d.o.o., Bosnia and Herzegovina (70%), • Primo, d.o.o., Albania (75%), • Siol, d.o.o., Croatia (100%), • Siol, B.V., Netherlands (100%), and • Germanos, AD, Macedonia (100%).

The Group Najdi.si, d.o.o. merged with Interseek, d.o.o. in 2009 as part of legal restructuring and has the following 100% owned subsidiaries, Pogodak tražilica, d.o.o. in Croatia and Pogodak, d.o.o. in Serbia and a 50,1% subsidiary Meganet, d.o.o. in Slovenia.

Group AOLSP changed its name to Primo, d.o.o. in 2009 and as part of legal restructuring merged its subsidiaries AFB, d.o.o and H-Communications, d.o.o., Bindi Integrated Services remains a fully owned subsidiary of Primo, d.o.o..

Siol, B.V., has a fully owned subsidiary Cosmofon, AD, Macedonia. The company was acquired in June 2009. Germanos, d.o.o. was also acquired in June 2009.

In September 2009, Telekom Slovenije, d.d. has established a new subsidiary Digi Plus Multimedia, d.o.o..

Telekom Slovenije, d.d. holds 100% economic ownership in all subsidiaries, through holding call options and granting put options to minority holders.

Investments in joint ventures are Gibtelecom, d.o.o. (50%) and M-pay, d.o.o. (50%), which is accounted for using equity method of accounting.

General information Telekom Slovenije, d.d., with its registered address in Cigaletova 15, Ljubljana, Slovenia, is a public company, incorporated and domiciled in the Republic of Slovenia, whose shares are publicly traded. As of 30 September 2009, the Republic of Slovenia holds 3,434,021 shares or a 52.54% share.

F-12 Telekom Slovenia Group Basis for preparation and accounting policies

Basis for preparation The interim condensed consolidated financial statements for the nine months ended 30 September 2009 have been prepared in accordance with IAS 34 Interim financial reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2008.

The consolidated financial statements are presented in Euro, rounded to the nearest thousand Euros.

Significant accounting policies The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the consolidated financial statements for the year ended 31 December 2008, except for the adoption of new standards and interpretations, noted below. Adoption of these standards and interpretations did not have any significant effect on the financial position or performance of the Group. IFRS 2 - Share-based Payment - Vesting Conditions and Cancellations The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this amendment did not have any impact on the financial position or performance of the Group.

IFRS 7 - Financial Instruments: Disclosures The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instrument. In addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as well significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures. The fair value measurement disclosures and the liquidity risk disclosures are impacted by the amendments.

IFRS 8 - Operating Segments This standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this Standard did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the business and geographical segments previously identified under IAS 14 - Segment Reporting. Additional disclosures about each of these segments are shown in Note 2, including revised comparative information.

IAS 1 - Revised Presentation of Financial Statements The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

IAS 23 - Borrowing Costs (Revised) The standard has been revised to require capitalisation of borrowing costs on qualifying assets and the Group has amended its accounting policy accordingly. In accordance with the transitional requirements of the Standard this has been adopted as a prospective change. Therefore, borrowing costs have been capitalised on qualifying assets with a commencement

F-13 Telekom Slovenia Group date on or after 1 January 2009. No changes have been made for borrowing costs incurred prior to this date that have been expensed.

IAS 32 - Financial Instruments: Presentation and IAS 1 - Puttable Financial Instruments and Obligations Arising on Liquidation The standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as equity if they fulfil a number of specified criteria. The adoption of these amendments did not have any impact on the financial position or performance of the Group.

IFRIC 13 - Customer Loyalty Programmes This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognised as revenue over the period that the award credits are redeemed. The Group started loyalty programs in 2009. The points can then be redeemed for free products or services, subject to a minimum number of points being obtained. Under the new policy, consideration received is allocated between the products or services sold and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined by applying statistical analysis. The fair value of the points issued is deferred and recognised as revenue when the points are redeemed.

IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 - Financial Instruments: Recognition and Measurement These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss. The adoption of these amendments did not have any impact on the financial position or performance of the Group.

IFRIC 16 - Hedges of a Net Investment in a Foreign Operation The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. The adoption of these amendments did not have any impact on the financial position or performance of the Group.

Improvements to IFRSs In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group.

IAS 1- Presentation of Financial Statements: Assets and liabilities classified as held for trading in accordance with IAS 39 - Financial Instruments: Recognition and Measurement are not automatically classified as current in the statement of financial position. The Group amended its accounting policy accordingly and analysed whether Management’s expectation of the period of realisation of financial assets and liabilities differed from the classification of the F-14 Telekom Slovenia Group instrument. This did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.

IAS 16 - Property, Plant and Equipment: Replace the term “net selling price” with “fair value less costs to sell”. The Group amended its accounting policy accordingly, which did not result in any change in the financial position.

IAS 23 - Borrowing Costs: The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing costs’ into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. The Group has amended its accounting policy accordingly which did not result in any change in its financial position.

IAS 38 - Intangible Assets: Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. This amendment has no impact on the Group.

The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed. The Group reassessed the useful lives of its intangible assets and concluded that the straight-line method was still appropriate.

The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group:

IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 - Financial Instruments: Disclosures, IAS 8 - Accounting Policies, Change in Accounting Estimates and Error, IAS 10 - Events after the Reporting Period, IAS 16 - Property, Plant and Equipment, IAS 18 – Revenue, IAS 19 - Employee Benefits, IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance, IAS 27 - Consolidated and Separate Financial Statements, IAS 28 - Investment in Associates, IAS 31 - Interest in Joint ventures, IAS 34 - Interim Financial Reporting, IAS 36 - Impairment of Assets, IAS 39 - Financial Instruments: Recognition and Measurement.

The Group has not early adopted any new standards or interpretations.

Seasonality of operations The business of the Group is not seasonal. Accordingly no additional disclosures have been made.

F-15 Telekom Slovenia Group 2. Segment information

The Group has two main operating segments: fixed line telephony, and mobile telephony.

Nine months to 30 September 2009 (Unaudited) In thousand EUR Fixed-line Mobile telephone telephone services services Other Eliminations Consolidated External sales 284,981 322,772 23,395 631,148 Inter segment revenue 47,729 36,357 58,378 - 142,464 0 Segment revenue 332,710 359,129 81,773 - 142,464 631,148 Other income 3,448 1,182 1,528 -91 6,067 Operating expenses 319,733 318,353 80,994 -139,068 580,012 Share of the results of operations of the joint venture 2,251 2,251 Profit from operations 16,425 41,958 4,558 - 3,487 59,454 Net finance cost - 12,826 Profit before tax 46,628 Income taxes - 12,487 Net profit for the period 34,141

Segment assets At 30 September 2009 1,680,380 853,872 75,483 - 639,801 1,969,926 At 31 December 2008 1,455,981 828,616 62,116 -567,024 1,779,689

Nine months to 30 September 2008 (Unaudited) In thousand EUR Fixed-line Mobile telephone telephone services services Other Eliminations Consolidated External sales 286,474 334,527 12,782 633,783 Inter segment sales 46,825 32,414 63,592 -142,831 0 Segment revenue 333,299 366,941 76,374 -142,831 633,783 Other income 4,817 838 272 694 6,621 Operating expenses 306,909 297,323 68,461 -138,683 534,010 Share of the results of operations of the joint venture 3,663 3,663 Profit from operations 31,207 70,456 11,848 -3,454 110,057 Net finance cost -9,109 Profit before tax 100,948 Income taxes - 25,543 Net profit for the period 75,405

Segment assets At 30 September 2008 1,406,737 763,268 71,649 - 486,581 1,755,073 At 31 December 2007 1,350,215 771,371 63,204 -446,434 1,738,356 F-16 Telekom Slovenia Group

Nine months to 30 September 2009 (Unaudited) In thousand EUR Domestic Foreign market market Eliminations Consolidated External sales 565,949 65,199 631,148 Inter segment revenue 118,006 24,458 -142,464 0 Segment revenue 683,955 89,657 -142,464 631,148 Other income 4,209 1,949 -91 6,067 Operating expenses 629,190 89,890 -139,068 580,012 Share of the results of operations of the joint venture 2,251 2,251 Profit from operations 58,974 3,967 - 3,487 59,454 Net finance cost - 12,826 Profit before tax 46,628 Income taxes - 12,487 Net profit for the period 34,141

Segment assets At 30 September 2009 2,211,125 398,602 - 639,801 1,969,926 At 31 December 2008 2,061,973 284,740 -567,024 1,779,689

Nine months to 30 September 2008 (Unaudited) In thousand EUR

Domestic market Foreign market Eliminations Consolidated External sales 600,411 33,372 633,783 Inter segment revenue 126,307 16,524 -142,831 0 Segment revenue 726,718 49,896 -142,831 633,783 Other income 5,565 362 694 6,621 Operating expenses 620,514 52,179 -138,683 534,010 Share of the results of operations of the joint venture 3,663 3,663 Profit from operations 111,769 1,742 -3,454 110,057 Net finance cost - 9,109 Profit before tax 100,948 Income taxes - 25,543 Net profit for the period 75,405

Segment assets At 30 September 2008 2,033,176 208,478 - 486,581 1,755,073 At 31 December 2007 2,013,320 171,470 - 446,434 1,738,356

Segment assets do not include income tax and deferred tax assets.

F-17 Telekom Slovenia Group

3. Revenue In thousand EUR For the nine months ended 30 September

2009 2008

Unaudited Unaudited Revenue from sale of services in domestic market 541,166 546,709 Revenue from sale of services in foreign markets 67,261 65,889 Revenue from sale of merchandise and materials in domestic market 22,704 21,169 Revenue from sale of merchandise and materials in foreign market 17 16 Total 631,148 633,783

4. Cost of services

In thousand EUR For the nine months ended 30 September

2009 2008

Unaudited Unaudited

Cost of communication and transportation services and rent 10,044 9,195 Cost of maintenance 23,557 16,077 Cost of telecommunication services 114,915 104,549 Cost of leased lines 3,674 2,483 Cost of sale incentives 14,304 11,402 Cost of professional services 12,872 10,619 Cost of insurance, marketing and entertainment 24,342 27,065 Cost of sale commission 6,440 4,680 Cost of banking services 2,874 2,213 Cost of other services 35,274 30,290

Total cost of services 248,296 218,573

5. Finance revenue

In thousand EUR For the nine months ended 30 September

2009 2008

Unaudited Unaudited Interest income on loans 3,324 4,517 Other financial income - dividends 463 641 Foreign exchange gain 746 161 Gain/Loss on derivatives 0 212 Other financial income 4 466 Financial revenue 4,537 5,997

F-18 Telekom Slovenia Group

6. Finance cost In thousand EUR For the nine months ended 30 September

2009 2008

Unaudited Unaudited Interest expenses 14,764 14,813

Gain/Loss on derivatives 2,077 0 Other financial cost 522 293 Finance cost 17,363 15,106

7. Income tax expense

The major components of the income tax expense in the interim financial statements:

In thousand EUR For the nine months ended 30 September 2009 2008 Unaudited Unaudited Current tax expense 14,819 27,483 Deferred tax benefit/ expense - 2,332 -1,940 Income tax expense in the income statement 12,487 25,543

8. Intangible assets

Goodwill

The increase in goodwill mainly relates to the acquisition of Siol, B.V. and Germanos, AD, which is further disclosed in note 10. The decrease in goodwill relates to the final purchase price allocation of provisional goodwill on Aneks, d.o.o. and Primo, d.o.o. which is further disclosed in note 10. Impairment of goodwill Goodwill is tested for impairment annually (as at 31 December) and when circumstances indicate the carrying value may be impaired. The Group’s impairment test for goodwill and intangible assets with indefinite lives is based on value in use calculations that use a discounted cash flow model. The key assumptions used to determine the recoverable amount for the different cash generating units were discussed in the annual financial statements for the year ended 31 December 2008. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 30 September 2009, the market capitalisation of the Group was marginally below the book value of its equity, indicating a potential impairment of goodwill. As a result, management performed an impairment calculation as at 30 September 2009. The recoverable amount of goodwill arising from the acquisition of Ipko, d.o.o has been determined based on the value in use calculation using cash flow projections based on the

F-19 Telekom Slovenia Group company’s financial projections approved by the Management Board covering a seven year period. The pre tax discount rate applied to cash flow projections is 15.4% and cash flow projections beyond seven year period are extrapolated at 4% growth rate. As a result of the updated analysis, management did not identify any impairment for this cash-generating unit to which goodwill of 46,146 thousand EUR is allocated. The recoverable amount of goodwill arising from the acquisition of Cosmofon, a.d., Germanos, d.o.o. and On.net, d.o.o., which represent one cash generating unit, has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a seven year period. The pre tax discount rate applied to cash flow projections is 14.2 % and cash flow projections beyond seven year period are extrapolated at 4.0% growth rate. As a result of the updated analysis, management did not identify any impairment for this cash-generating unit to which goodwill of 63,904 thousand EUR is allocated.

9. Property, plant and equipment

Acquisitions and disposals

During the nine months period ended 30 September 2009, the Group acquired assets with the cost of 111,948 thousand EUR (2008: 214,542 thousand EUR). Assets with a book value of 1,320 thousand EUR were disposed by the Group during the nine months period ended 30 September 2009 resulting in a gain of 839 thousand EUR.

Write off of property plant and equipment

During the nine months period ended 30 September 2009, the Group wrote off property plant and equipment with a book value of EUR 814 thousand EUR to zero due to obsolescence. The write off is included in the other operating expense line item.

F-20 Telekom Slovenia Group

10. Business combinations

Acquisition of Siol, B.V. and Germanos, AD

In June 2009 the Group acquired Siol, B.V., the sole owner of Cosmofon, AD, a mobile operator in Macedonia and Germanos, AD, a distributor of mobile phones in Macedonia.

Siol, B.V.

Fair value of identifiable assets and liabilities on acquisition date: In thousand EUR Unaudited

Fair value of assets Intangible assets 37,398 Property, plant and equipment and intangibles 96,837 Trade receivables 22,589 Cash and cash equivalents 2,640 Inventory 2,663 Total assets 162,127

Trade and other payables 19,772 Other liabilities 12,728 Total liabilities 32,500

Fair value of net assets 129,627 Consideration paid and liabilities assumed 184,235 Goodwill 54,608

Consideration paid in cash and borrowings assumed - 184,235 Net cash acquired 2,640 Cash flow on acquisition - 181,595

F-21 Telekom Slovenia Group

Germanos, AD

Fair value of identifiable assets and liabilities on acquisition date: In thousand EUR Unaudited

Fair value of assets Intangible assets 26 Property, plant and equipment and intangibles 955 Trade receivables 1,458 Cash and cash equivalents 211 Inventory 636 Total assets 3,286

Trade and other payables 2,172 Other liabilities 14 Total liabilities 2,186

Fair value of net assets 1,100 Consideration paid and borrowings assumed 5,435 Goodwill 4,335

Consideration paid in cash and borrowings assumed - 5,435 Net cash acquired 211 Cash flow on acquisition - 5,224

From the date of the acquisition Siol, B.V. Group and Germanos, AD has contributed - 3,663 thousand EUR losses to the net profit of the Group.

As of the date of these interim financial statements, the company has accounted for the difference between the consideration paid and the fair value of assets acquired provisionally as goodwill, as the purchase price allocation exercise has not been completed. Final purchase price allocation will be accounted for in the year end Group financial statements.

Acquisition of Aneks, d.o.o., Bosnia nad Hercegovina

In January 2008 Telekom Slovenia, d.d. acquired 70% share in Aneks, d.o.o. Banja Luka, Bosnia and Herzegovina and sold 30% share in the company Blic.net, d.o.o., the remaining part of Blic.net, d.o.o. was merged to the company Aneks, d.o.o. Banja Luka. Aneks, d.o.o. is internet provider in Bosnia and Herzegovina market.

The accounting recognised in the 31 December 2008 financial statements was based on a provisional assessment of fair value as the Group had not completed the purchase price allocation and provisionally allocated the whole difference between the acquisition cost and the fair value of net assets acquired to goodwill.

F-22 Telekom Slovenia Group The final purchase price allocation resulted in increase of other intangible assets of 4,867 thousand EUR and corresponding reduction of goodwill. The 2008 comparative information has been restated to reflect this adjustment.

The increased amortisation charge as a result of the allocation from the acquisition date to 31 December 2008 was not material.

Acquisition of Primo, d.o.o., Albania

In February 2008, Telekom Slovenije, d.d. acquired 75% stake in the company AOLSP, d.o.o. Tirana, which is an internet provider on Albanian market. The company changes its name to Primo, d.o.o. in 2008.

The purchase price allocation resulted in increase of other intangible assets of 1,582 thousand EUR and corresponding reduction of goodwill. The 2008 comparative information has been restated to reflect this adjustment.

The increased amortisation charge as a result of the allocation from the acquisition date to 31 December 2008 was not material.

11. Cash and cash equivalents In thousand EUR 30 September 2009 31 December 2008 Unaudited Audited Cash in hand and bank balances 11,446 8,743 Deposits with banks with original maturity of less then 90 days 4,199 10,102 Total 15,645 18,845

12. Dividends proposed and paid

In thousand EUR

2009 2008

Unaudited Audited

Dividends on ordinary shares approved and paid during the nine months period: 39,033 83,270

Dividend for 2008: 6,00 EUR per share (2007: 12,80 per share)

F-23 Telekom Slovenia Group 13. Provisions In thousand EUR 30 September 2009 31 December 2008 Unaudited Audited Provisions for probable payments resulting from legal actions 17,839 17,774 Provisions for terminal bonuses on retirement 8,763 8,791 Cost of base station removals 3,703 3,590 Other 655 425 Total 30,960 30,580

14. Interest bearing borrowings

The increase in long term interest bearing borrowings is due to the Group drawing

two long term loans from ten bank CLUB, consists of eight foreign and two local banks, and Raiffeisen Zentralbank Österreich AG acting as agent with the following terms: • Interest bearing borrowing in the amount of 190,000 thousand EUR, with contractual rate of interest 3 month EURIBOR + 3.75 % due in 2014 and • Interest bearing borrowing in the amount of 105,000 thousand EUR, with contractual rate of interest 3 month EURIBOR + 3.00%, due in 2012,

- one long term loan in the amount 25,000 thousand EUR, with contractual rate of interest 1 month EURIBOR + 2.100%, due in 2014

- one long term loan in the amount 6,000 thousand EUR, with contractual rate of interest 3 month EURIBOR + 2.900%, due in 2014.

Short term borrowings have decreased due to repayments and increased due to transfer of current portion of long term borrowings.

15. Other financial liabilities Other current financial liabilities have significantly increased as at 30 September 2009 due to the transfer of the current part of other non current financial liabilities relating to contingent considerations payable arising out of the acquisition of certain subsidiaries and related put options granted to minority holders in these subsidiaries.

16. Contingent liabilities

In thousand EUR 30 September 2009 31 December 2008

Unaudited Audited Contingent liabilities from legal actions 299,374 299,382

At the balance sheet date, there were 73 pending legal actions brought against the Group companies in the total amount of 299,374 thousand EUR (2008: 299,382 thousand EUR).

F-24 Telekom Slovenia Group The Group is also a party to several administrative proceedings including those relating to its pricing policies. Based on the opinion on legal advisors the managing board expects the liability from the said legal actions to amount to 17,839 thousand EUR for the Group (see note 13). There have not been any significant developments or any new significant legal cases in the period to 30 September 2009.

Commitments

At 30 September 2009 the Group had capital commitments totalling EUR 26,794 thousand to acquire property plant and equipment respectively.

17. Transactions with related parties

Related parties of the Group include the Republic of Slovenia as its majority shareholder, other shareholders, the managing board, the supervisory board and their family members. The related party disclosure provides the total amount of transactions which have been entered into with related parties during the nine months ended 30 September 2009 and 2008.

Transactions with related individuals Natural persons (president and members of the managing board, president and members of the supervisory board) hold 2,109 shares of Telekom Slovenije, d.d. or a 0.0323 % shareholding.

In 2009, no loans were granted to related individuals.

Transactions with the Government of Republic of Slovenia and entities and institutions under its control

The Group provides telecommunications services to the Government of Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder. All such transactions are concluded on normal commercial terms and conditions such as are not more favourable than those available to other customers.

Total income earned from sales to the central and local governments amounts to 23,372 thousand EUR in 2009 (2008: 24,668 thousand EUR).

The Group does not monitor nor collect information on sales to companies owned or partially owned by the republic of Slovenia or entities under its control. Accordingly information on such sales has not been disclosed.

18. Financial instruments

In the period the company entered into one interest rate swap agreement to hedge the borrowings for the principal amount of 190,000 thousand EUR. This is accounted for as a cash flow hedge. The company also entered into one interest rate swap with bought cap and sold put for the principal amount of 61,000 thousand EUR. No hedge accounting is applied in relation to this financial instrument.

Set out below are cash flow hedges with significant changes in value during the nine months ended 30 September 2009.

F-25 Telekom Slovenia Group

Date of Notional Fair value at Fair value at contract Maturity amount 30.9.2009 31.12.2008 In EUR In thousand EUR In thousand EUR

Interest rate swap 23.08.2007 15.12.2010 33,684,211 -1,454 -1,072

Interest rate swap 23.06.2009 05.03.2014 190,000,000 -2,688 0

During the period an interest rate collar for the notional amount of 50,000 thousand EUR became ineffective; hence cash flow hedge accounting was discontinued. This resulted in a charge to income statement in amount of 1,390 thousand EUR. The fair value of the collar at 30 September 2009 amounted to 1,600 thousand EUR. Interest rate cap for the notional amount of 80,000 thousand EUR expired in the period.

The fair value of financial instruments, used for cash flow hedges, net of tax recognised directly in equity amounted to 2,613 thousand EUR.

F-26 1 FINANCIAL REPORT

1.1 Introductory notes

In addition to the introductory notes, the financial statements for the period January – December 2008 herein consist of two major chapters, namely:

- Financial statements of Telekom Slovenia Group, and - Financial statements of Telekom Slovenije, d. d.

The financial statements of Telekom Slovenia Group and Telekom Slovenije, d.d. were prepared in accordance with the International Financial Reporting Standards as adopted by EU (hereinafter: IFRS).

The auditing firm ERNST & YOUNG, Revizija, poslovno svetovanje, d. o. o. have audited both sets of financial statements and have issued separate auditors' reports, which are enclosed with each set of the financial statements.

F-27

1.2 Financial report of the Telekom Slovenia Group

1.2.1 Financial statements of the Telekom Slovenia Group

Consolidated income statement for the year ended 31 December 2008

In TEUR

Notes 2008 2007

Revenue 3 842,356 780,077

Other income 4 9,379 7,167

Share of profit of a joint venture 4,867 3,659

Cost of goods and materials sold -60,460 -59,620

Cost of raw materials -9,537 -8,078

Cost of services 5 -305,963 -264,252

Staff costs 6 -144,551 -126,694

Depreciation and amortisation 12, 13 -183,750 -161,775

Other operating expenses 7 -23,845 -34,049

Total operating expenses -728,106 -654,468

Profit from operations 128,496 136,435

Finance revenue 8 7,601 7,722

Finance cost 9 -21,192 -17,375

Profit before tax 114,905 126,782

Income tax expense 10 -28,920 -38,412

Net profit for the year 85,985 88,370

Attributable to:

Equity holders of the parent 85,818 88,340

Minority interest 167 30

Earnings per share - basic and diluted in EUR 11 13.19 13.58

The accompanying notes are an integral part of these consolidated financial statements.

F-28

Consolidated balance sheet at 31 December 2008

In TEUR

Notes 31 December 2008 31 December 2007

ASSETS

Intangible assets 12 255,144 239,081

Property, plant and equipment 13 1,175,639 1,135,411

Investment in joint venture 14 38,619 37,675

Other investments 15 18,525 13,215

Other non-current assets 16 29,578 22,688

Investment property 17 5,253 5,715

Deferred tax assets 18 4,275 502

Total non-current assets 1,527,033 1,454,287

Assets held for sale 627 637

Inventories 19 28,421 25,224

Current trade and other receivables 20 187,917 169,702

Income tax receivable 4,399 1,667

Current financial assets 21 21,121 28,401

Cash and cash equivalents 22 18,845 60,607

Total current assets 261,330 286,238

Total assets 1,788,363 1,740,525

The accompanying notes are an integral part of these consolidated financial statements.

F-29

Consolidated balance sheet at 31 December 2008 (continued)

In TEUR

Notes 31 December 2008 31 December 2007

EQUITY AND LIABILITIES

Issued capital 23 272,721 272,721

Reserves 550,683 294,379

Fixed assets revaluation reserves 101,031 108,690

Other revaluation reserve 1,626 920

Treasury shares -3,671 -3,671

Retained earnings 143,040 389,580

F/X differences arising from foreign subsidiaries 55

Minority interest 235 117

Total capital and reserves 23 1,065,670 1,062,741

Non-current deferred income 24 9,169 7,255

Provisions 25 30,580 28,533

Interest bearing borrowings 26 241,145 273,729

Other non - current financial liabilities 27 63,909 48,648

Total non-current liabilities 344,803 358,165

Trade and other payables 28 159,240 153,917

Income tax payables 1,954 6,980

Interest bearing borrowings 26 177,431 125,609

Other current liabilities 1,411 239

Deferred income 29 18,437 17,260

Accruals 19,417 15,614

Total current liabilities 377,890 319,619

Total liabilities 722,693 677,784

Total equity and liabilities 1,788,363 1,740,525

The accompanying notes are an integral part of these consolidated financial statements.

F-30

Consolidated statement of changes in equity for the year ended 31 December 2008 In TEUR

Foreign Total attrib. Issued FA rev, Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total

01.01.2008 272,721 294,379 108,690 920 -3,671 389,580 5 1,062,624 117 1,062,741

Revaluation of investments (note15) 1,989 1,989 1,989

Change in fair value of derivative financial instruments -1,283 -1,283 -1,283

Deferred tax liabilities 2 1 3 3 Total income and expense recognised in equity 0 0 2 706 0 1 0 709 0 709 Net profit for 2008 85,818 85,818 167 85,985 Total income and expense for the year 0 0 0 0 0 85,818 0 85,818 167 85,985 Transfer to retained earnings and reserves (Note 23) 5,043 -7,661 2,618 0 0 Transfer to reserves 219,171 -219,171 0 0

Dividend payment -83,270 -83,270 -83,270

Other 3 -449 -446 -49 -495 Transfer to other reserves – resolution of the Management 32,087 -32,087 0 0

31.12.2008 272,721 550,683 101,031 1,626 -3,671 143,040 5 1,065,435 235 1,065,670

The accompanying notes are an integral part of these consolidated financial statements.

F-31

Consolidated statement of changes in equity for the year ended 31 December 2007 In TEUR

Foreign Total attrib. Issued FA rev, Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total

1.1.2007 272,721 289,336 91,883 295 -3,671 338,693 15 989,272 0 989,272

Revaluation of land and buildings at 01.01.2007 (see note 13) 44,108 44,108 44,108 Financial asset revaluation 183 183 183

Deferred tax liabilities -8,521 -8,521 -8,521

Change in deferred tax liability due to change in tax rates (Note 10) -3,742 -3,742 -3,742 Change in fair value of derivative financial instruments 442 442 442 Foreign currency difference 0-10 -10 -10 Total income and expense recognised in equity 0 0 31,845 625 0 0 -10 32,460 0 32,460 Net profit for the year 88,340 88,340 30 88,370 Total income and expense for the year 0 0 0 0 0 88,340 0 88,340 30 88,370 Transfer to retained earnings and reserves (Note 23) 5,043 -7,482 2,439 0 0 Payment of dividends -39,879 -39,879 -39,879

Minority interest 87 87

Other -7,556 -13 -7,569 -7,569

31.12.2007 272,721 294,379 108,690 920 -3,671 389,580 5 1,062,624 117 1,062,741

The accompanying notes are an integral part of these consolidated financial statements.

F-32

Consolidated cash flow statement for the year ended 31 December 2008 In TEUR 2008 2007 Operating activities Profit before tax 114,905 126,782 Adjustments for: Depreciation and amortisation 183,750 161,775 Depreciation and amortisation of investment property 73 47

Loss on disposal and write-downs of intangible assets and PPE 1,572 3,106 Gains on disposal of FA -3,335 -1,177

Finance income -7,601 -10,348 Finance cost 21,192 16,500

Change in assets held for sale 10 839 Change in trade and other receivables -18,215 -38,390 Change in other non-current assets -6,428 732 Change in inventories -3,197 -3,084

Change in provisions 2,047 4,428 Change in deferred income 3,091 1,543 Change in accruals 3,803 4,295 Change in trade and other payables 20,648 21,354

Tax paid -41,027 -37,070 Cash flow from operating activities 271,288 251,332

Investing activities Receipts from investing activities 15,002 37,118 Proceeds from sale of PPE 5,433 1,856 Dividends received 4,491 3,784 Interest received 2,478 6,564 Proceeds from sale of non-current financial assets 2,400 3,938 Proceeds from sale of current financial assets 200 20,976 Disbursements from investing activities -251,830 -350,950 Purchase of property, plant and equipment -204,210 -203,257 Purchase of intangible assets -30,295 -96,720 Purchase of investmet property -92 0 Purchase of financial assets -324 -1,965 Investments in subsidiaries and joint ventures net of cash acquired -12,103 -48,433 Interest bearing loans -4,806 -575 Cash flow from investing activities -236,828 -313,832 Financing activities Receipts from financing activities 113,071 290,928 Paid in capital 9,169 0 Non-current borrowings 87,891 100,299 Short-term borrowings 16,011 190,629 Disbursements from financing activities -189,293 -235,893 Repayment of short-term borrowings -39,845 -138,561 Repayment of non-current borrowings -45,982 -40,953 Interest paid -20,286 -16,500 Dividends paid -83,180 -39,879 Cash flow from financing activities -76,222 55,035

Net increase in cash and cash equivalents -41,762 -7,465

Closing balance of cash 18,845 60,607 Opening balance of cash 60,607 68,072

The accompanying notes are an integral part of these consolidated financial statements.

F-33

1.2.2 Notes to the consolidated financial statements and summary of significant accounting policies of the Telekom Slovenia Group

1. General information and summary of significant accounting policies

Financial statements The financial statements are the consolidated financial statements of Telekom Slovenia Group (hereinafter the “Group”) for the year ended 31 December 2008. In accordance with the article 54 of the Company Act the Group is required to prepare and publish consolidated financial statements in accordance with International Financial Reporting Standards as adopted by EU (IFRS) as the parent company’s shares are listed on the Ljubljana Stock Exchange. The financial statements were authorised for issue by the Board on 25 February 2009. The Telekom Slovenia Group consists of the parent company, Telekom Slovenije, d.d., and the following subsidiaries: - Mobitel, d.d., (100%), - GVO, d.o.o., (100%), - Teledat, d.o.o., (100%), - Avtenta.si, d.o.o., (100%), - Soline, d.o.o., (100%), - Planet 9, d.o.o., (100%), - Interseek, d.o.o. (75%), - Ipko, d.o.o., Kosovo, (63,75%), - On.net, d.o.o., Macedonia, (83,38%), - Aneks, d.o.o., Bosnia and Herzegovina, (70%), acquired in 2008, - AOLSP, d.o.o., Albania, (75%), acquired in 2008, - SIOL, d.o.o., Croatia, (100%), established in 2008.

The Group Interseek with the parent company Interseek, d.o.o. also has the following 100% owned subsidiaries Najdi.si, d.o.o. in Slovenia, Pogodak tražilica, d.o.o. in Croatia and Pogodak, d.o.o. in Serbia and a 50.1% owned subsidiary Meganet, d.o.o. in Slovenia. The investment in Blic.net, d.o.o. has been decreased to 70% during the year, and subsequently merged into Aneks d.o.o., Bosnia and Herzegovina. The group AOL SP consists of the parent company AOL SP, d.o.o. and 100% subsidiaries: AFB, d.o.o., Albania and H-Communication, d.o.o., Albania. Telekom Slovenije, d.d. holds 100% economic ownership in all subsidiaries through holding call options and grating put options to minority holders. M-Pay, d.o.o. is a 50% subsidiary of Mobitel, d.d.; in consolidated financial statements, the company is recognised under equity method as an associate.

Investments in joint venture represent mostly ownership of 50% of Gibtelecom, d.o.o. acquired in 2007. The company is not a listed company.

General information concerning parent company Telekom Slovenije, d.d., with its registered address in Cigaletova 15, Ljubljana, Slovenia, is a public company, incorporated and domiciled in the Republic of Slovenia, whose shares are listed on Ljubljana stock exchange. As of 31 December 2008, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares or a 52.54% interest in Telekom Slovenije, d.d..

Principal activities Telekom Slovenija, d.d. is the owner of almost all telecommunications capacities in the territory of Slovenia. It provides local and international fixed-line telephone services, internet services in Slovenia, other telecommunications services, and sells various mostly telecommunications merchandise. Principal activities of Mobitel, d.d. include construction and management of the mobile telephony infrastructure, provision of telecommunication services in the field of public mobile telecommunications, and sale of merchandise - mobile phone handsets and accessories.

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Mobitel, d.d. has two subsidiaries: - Since 2002, Mobitel, d.d. holds a 100% share in Soline, d.o.o.. The principal activity of the subsidiary is the traditional salt production, while the subsidiary is also engaged in the preservation and management of the landscape park. - Planet 9, d.o.o. was together established in June 2003 jointly with SiOL, d.o.o. (later merged with Telekom Slovenije, d.d.). The activity of the subsidiary is the preparation and provision of multimedia content and services to users of the mobile broadcast and internet network; - M-Pay, d.o.o., (50% interest). The principal activity of the company is mobile payments processing. AOL SP, d.o.o. and its subsidiary AFB, d.o.o. provides internet services, its subsidiary H- COMMUNICATIONS, d.o.o. is fixed line operator; all in the Albania territory.

The Group also provides Internet services through Aneks, d.o.o. in Bosnia and Herzegovina; On.net, d.o.o. in Macedonia as well as through Interseek, d.o.o. in Slovenia, Croatia and Serbia. The subsidiary Ipko, d.o.o. performs a telecommunications services in Kosovo. GVO, d.o.o. performs building and maintenance works on telecommunication networks, predominantly for Telekom Slovenije, d.d.. Avtenta.si, d.o.o is a system integrator of business solutions.. Teledat, d.o.o., is the publisher of telephone register and maintenances other business databases.

Gibtelecom, d.o.o is provider of telecommunications services in Gibraltar.

Summary of significant accounting policies The significant accounting policies used in the preparation of the consolidated financial statements of Telekom Slovenije, d.d. are set out below. a. Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (»IFRS«) promulgated by the International Accounting Standards Board (»IASB«), as adopted by the EU, and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (»IFRIC«), Effective from the listing date the Group is required to prepare its consolidated financial statements in accordance with IFRS adopted by the EU (Regulation EC No 1606/2002). At this particular time, due to the endorsement process of the EU and the activities of the Group, there is no difference in the policies applied by the Group between IFRS and IFRS adopted by the EU. b. Basis for preparation The financial statements have been prepared on a historical cost basis except for the measurement at fair value of financial assets available for sale and derivative financial instruments, and certain classes of property, plant and equipment which are revalued to fair value under the alternative treatment available in IAS 16 (refer below to accounting policy (j) property, plant and equipment, assets owned by the Company). The accounting policies used are consistent with those applied in the previous year, except for the adoption of new standards and interpretations, noted below and adoption of accounting policy for joint venture investments.

The adoption of these standards and interpretations did not have any effect on the ﬁnancial position or performance of the Group:

IAS 39 and IFRS 7 - Credit Crisis Reclassification. Changes in IAS 39 and IFRS 7 allow reclassification of financial instruments from held for trading category into other categories provided certain conditions are met. In 2008, the Group did not make any reclassifications.

IFRIC 11 - IFRS 2 - Group and Treasury Shares Transactions. This interpretation addresses accounting treatment of share-based payments.

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IFRIC 14 - IFRS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 – Employee benefits. The consolidated financial statements are presented in Euro, rounded to the nearest thousand Euros.

c. Basis of consolidation The consolidated financial statements comprise of the financial statements of Telekom Slovenije, d.d. and its subsidiaries as at 31 December 2008. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In case of inconsistencies of the accounting policies, the consolidated financial statements include relevant modifications.

All inter-company transactions, balances and including unrealized gains on transactions between group companies are eliminated.

All subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control over the subsidiary ceases. In case the Group’s control over a subsidiary ceases during the year, the consolidated financial statements include the results of the subsidiary until the date that such control over the subsidiary still existed.

Minority interest represents the portion of profit or loss and net assets not held by the Group, and is presented separately in the income statement and within equity in the consolidated balance sheet, separately from the parent shareholders equity. Acquisition of minority interest is accounted for using the entity concept method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized as equity transaction.

When in a business combination the Group acquires less then 100% interest in the acquiree and the Group grants put option to the remaining shareholders of the acquiree exercisable at the later date, the put option on minority interest is recognized as a financial liability under other non-current liabilities (note 27) and corresponding minority interest is derecognised. The difference between the value of the put option and the cost of business combination is recognized as goodwill. Any subsequent changes in the value of the put option are recognised as an adjustment to goodwill. This is further described in the note 14. d. Functional currency and foreign currency transactions The consolidated financial statements are presented in Euro (EUR) which is the functional and presentation currency of the parent company and its subsidiaries in Slovenia. Foreign currency transactions are translated into the functional currency at the exchange rate ruling at the date of the transactions.

Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional currency prevailing at the balance sheet date. All differences resulting from foreign currency translation are recognized in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates prevailing at the dates of the initial transactions. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The following functional currencies are used by foreign subsidiaries: • Macedonia: On.net, d.o.o.: Macedonian Denar • Kosovo: Ipko, d.o.o.: EURO • Bosnia and Herzegovina: Aneks, d.o.o.: Bosnian mark • Albania AOL SP, d.o.o.: LEK • Croatia: SIOL, d.o.o.: KUNA

As at the reporting date, the financial statements of subsidiaries listed above are translated into the presentation currency of the consolidated financial statements. The rate of exchange ruling at the reporting date is used for the balance sheet, while the weighted average exchange rates for the reporting year are used in the income statement.

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The exchange differences arising on translation of the functional currency into the presentation currency are recognized directly in equity, until a foreign subsidiary is sold, when the foreign exchange differences are recognized in the income statement. e. Profit from operations Profit from operations is defined as result before income taxes and finance items. Profit from operations includes a share of profits of joint ventures. Finance items comprise interest revenue on cash balances in the bank, deposits, interest bearing available for sale investments, interest expense on borrowings, gains and losses on derivatives and on sale of available for sale financial instruments and foreign exchange gains and losses on all monetary assets and liabilities denominated in foreign currency. f. Significant accounting estimates The preparation of the financial statements required management to make certain estimates and assumptions which impact the carrying values of the Group’s assets and liabilities and the disclosure of contingent items at the balance sheet date and reported revenues and expenses for the period then ended. Estimates are used for, but not limited to: - depreciable lives and residual values of property, plant and equipment and intangible assets, - allowances for inventories and doubtful debts and, - legal claims.

Future events and their effects cannot be perceived with certainty. Accordingly, the accounting estimates made require the exercise of judgement and those used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Group’s operating environment changes. Actual results may differ from those estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Provisions and contingent liabilities As set out in notes 25 and 31, the Group is a participant in several lawsuits and administrative proceedings including those related to its pricing policies. The Group’s treatment of obligations with uncertain timing and amount depends on the management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognised when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.

Interconnect The Group provides and enters into the contracts for interconnect services and the revenue is recognised on the basis of the reasonable estimation of expected amount. Such estimation is regularly reviewed, however for some operators the final agreement and invoicing is determined on a yearly basis.

Impairment of UMTS licence in Slovenia and GSM licence in Kosovo The Group determined that no indication of impairment of UMTS and GMS licences existed during the year 2008. Accordingly no impairment test has been performed. The carrying value of UMTS licence at 31 December 2008 was 52,725 TEUR (31 December 2007: 56,866 TEUR). The carrying value of GSM licence at 31 December 2008 was 65,833 TEUR (31.12.2007: 70,833 TEUR. Further details are given in note 12.

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The Group has concluded that there are no indicators of impairment of property, plant and equipment and intangible assets at year end and that there are no indicators that fair values of plant and equipment carried at revalued cost differ materially from carrying values. h. Early application of IFRS and IFRS's and IFRIC interpretations not yet effective The Group has not early adopted any IFRS and IFRIC interpretation issued and not yet effective.

The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards:

IFRIC 13 - Customer Loyalty Programmes - effective for periods beginning on 1 July 2008. This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted.

The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards and as adopted by EU:

IFRIC 12 - Service Concession Agreement. This interpretation outlines the approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather recognize a financial asset and/or intangible asset.

IFRIC 15 - Agreement for the Construction of Real Estate. IFRIC 15 was issued in July 2008 and becomes effective for financial years beginning on or after 1 January 2009. The interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18.

IFRIC 16 - Hedges of a Net Investment in a Foreign Operation. IFRIC 16 was issued in July 2008 and becomes effective for financial years beginning on or after 1 October 2008. The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment.

The following new standard will be adopted in future periods as required by International Financial Reporting Standards and EU:

IFRS 8 - Operating segments - effective from 1 January 2009. This standard replaces - IAS 14 Segment reporting - and adopts a management approach to segment reporting and in case the numbers used by management for internal performance measurement of operating segments are different to the numbers reported in the financial statements requires a reconciliation of numbers used by management to the financial statements.

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IAS 23 - Borrowing costs - effective for periods beginning 1 January 2009. The revised IAS 23 requires capitalisation of borrowing costs that relate to the qualifying asset. The transitional requirements of the standard require it to be adopted as a prospective change from the effective date.

IAS 1 - Revised Presentation of Financial Statements. The revised IAS 1 Presentation of Financial Statements was issued in September 2007 and becomes effective for financial years beginning on or after 1 January 2009. The Standard separates owner and non- owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Group is still evaluating whether it will have one or two statements.

IFRS 2 - Share-Based Payment (Amendments). The IASB issued an amendment to IFRS 2 in January 2008 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is cancelled. This amendment will be effective for financial years beginning on or after 1 January 2009.

The following new and amended standards will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by EU:

IFRS 3R - Business Combinations and IAS 27R - Consolidated and Separate Financial Statements. The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS 27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.

Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments. Amendments to IAS 32 and IAS 1 were issued in February 2008 and become effective for annual periods beginning on or after 1 January 2009. The amendment to IAS 32 requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met. The amendment to IAS 1 requires disclosure of certain information relating to puttable instruments classified as equity. The Group does not expect these amendments to impact the financial statements of the Group

IAS 39 - Financial Instruments: Recognition and Measurement - Eligible Hedged Items. These amendments to IAS 39 were issued in August 2008 and become effective for financial years beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item.

Improvements to IFRSs, not yet endorsed by EU:

In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The Group has not early adopted any of the amendments.

IAS 1 - Presentation of Financial Statements. Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the balance sheet.

IAS 16 - Property, Plant and Equipment. Replace the term “net selling price” with “fair value less costs to sell”. Items of property, plant and equipment

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held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale.

IAS 23 - Borrowing costs. The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing costs’ into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39.

IAS 28 - Investment in Associates. If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

IAS 31 - Interest in Joint ventures. If a joint venture is accounted for at fair value, in accordance with IAS 39, only the requirements of IAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.

IAS 36 - Impairment of Assets. When discounted cash flows are used to estimate ‘fair value less cost to sell’ additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate ‘value in use’.

IAS 38 - Intangible Assets. Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed.

IFRS 7 - Financial Instruments: Disclosure. Removal of the reference to ‘total interest income’ as a component of finance costs.

IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors. Clarification that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting policies.

IAS 10 - Events after the Reporting Period. Clarification that dividends declared after the end of the reporting period are not obligations.

IAS 18 - Revenue. Replacement of the term ‘direct costs’ with ‘transaction costs’ as defined in IAS 39.

IAS 19 - Employee Benefits. Revised the definition of ‘past service costs’, ‘return on plan assets’ and ‘short term’ and ‘other long-term’ employee benefits. Amendments to plans that result in a reduction in benefits related to future services are accounted for as curtailment. Deleted the reference to the recognition of contingent liabilities to ensure consistency with IAS 37.

IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance. Loans granted in the future with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount is accounted for as government grant. Also, revised various terms used to be consistent with other IFRS.

IAS 27 - Consolidated and Separate Financial Statements. When a parent entity accounts for a subsidiary at fair value in accordance with IAS 39 in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held for sale.

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IAS 29 - Financial Reporting in Hyperinflationary Economies. Revised the reference to the exception to measure assets and liabilities at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that it is a definitive list. Also, revised various terms used to be consistent with other IFRS.

IAS 34 - Interim Financial Reporting. Earnings per share is disclosed in interim financial reports if an entity is within the scope of IAS 33.

IAS 39 - Financial Instruments: Recognition and Measurement. Changes in circumstances relating to derivatives are not reclassifications and therefore may be either removed from, or included in, the ‘fair value through profit or loss’ classification after initial recognition. Removed the reference in IAS 39 to a ‘segment’ when determining whether an instrument qualifies as a hedge. Require the use of the revised effective interest rate when re-measuring a debt instrument on the cessation of fair value hedge accounting.

IAS 40 - Investment Property. Revision of the scope such that property under construction or development for future use as an investment property is classified as investment property. If fair value cannot be reliably determined, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. Also, revised of the conditions for a voluntary change in accounting policy to be consistent with IAS 8 and clarified that the carrying amount of investment property held under lease is the valuation obtained increased by any recognised liability.

The companies in the Group are reviewing the not yet effective standards and interpretations and at this stage cannot reasonably assess the impact of the new requirements. The Group will comply with the new standards and interpretations as and when effective. . i. Intangible assets Intangible assets are stated at cost less accumulated amortisation less impairment losses.

Intangible assets include: - software that was acquired separately from hardware and used for more than one year, - licences for computer software, - licenses for the use of the radio frequency spectrum for GSM and UMTS services in the territory of the Republic of Slovenia and Kosovo.

Expenditure on computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful lives. The estimated useful lives which ranges from 2–5 years. The cost of licenses is capitalised and amortised on a straight-line basis over the contract period of the relevant license, which is 9-20 years.

Intangible assets are subject to amortisation once the assets are available for use.

Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. j. Property, plant and equipment Owned assets Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Internal expenses capitalised in fixed assets are netted off against the relevant expenses in the income statement. When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment. Subsequent to initial recognition certain classes of property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent depreciation and subsequent accumulated impairment losses. Those classes comprise land and buildings, cable and lines, exchange switches and other equipment in fixed lines operations. When an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity within revaluation

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reserves. The revaluation to fair value of these assets is based on a report of an independent appraiser. According to the policy adopted by the Group, the revaluation to fair value is carried out when fair values differs materially from carrying value.

Leased assets - finance lease Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

Leased assets - operating lease All leases other than finance leases are regarded as operating leases. Lease payments under an operating lease are recognised as an expense in the income statement on a straight-line basis over the lease term. If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment required by the lessor as a penalty for the breach of contract is recorded as expense in the period, in which the contract is terminated.

Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-evaluated. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life.

Cost of borrowing Cost of borrowing is recognised as expense when incurred.

Estimated cost of restoring the leased base station locations to their original condition The base stations are set up on leased land. When concluding lease contracts, the Group undertook the obligation to restore the property to its original condition upon expiration of the contract and the withdrawal from the location. The cost of restoration of the location to its original condition is recognised as a component of the cost of purchase of the asset and is depreciated over its useful life. The provisions required for the restoration, discounted to the present value, are recognised under provisions ((aa) and Note 25).

Government grants related to assets Government grants related to assets are presented in the balance sheet as deferred income in the amount of the grant. They are intended to compensate the costs of depreciation of these assets. The grant is recognised to income on a straight-line basis over the life of the depreciable asset.

Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment.

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The estimated useful lives are as follows:

Property, plant and equipment Useful lives in years

- buildings 7 to 50 - cable lines 20 to 50 - cable network 7 to 25 - other network 2 to 12.6 - exchange switches 4 to 7 - other equipment 2 to 20 - low value assets 3 to 10

Land and assets under construction are not depreciated. An item of property, plant and equipment under construction is recognized at cost and depreciated when brought to working condition for its intended use. k. Investment property Investment properties are measured initially at costs, including transactions costs.

Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation.

Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Land is not depreciated.

The estimated useful lives of investment property is as follows:

Investment property Useful lives in years

- buildings 20

l. Financial instruments Primary financial instruments (cash and cash equivalents, trade and other receivables, trade payables and borrowings, investments) are recognised in the financial statements. The accounting policies applied to recognition and measurement of these items are disclosed in the respective accounting policies to the financial statements. m. Investments Investments in joint ventures Investments in joint ventures are accounted for in the consolidated financial statements using the equity method. A joint venture is an investment into a jointly controlled entity based on a contractual foundation arrangement. Financial statements of joint ventures represent the basis for accounting under the equity method. The reporting date of joint ventures is equal to the reporting date of the Group. Joint ventures use consistent accounting policies, as used by the Group.

Investments in joint ventures are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of equity of the joint venture and less impairment loss. The income statement reflects the share of the results of operations of the joint venture. Where there has been a change recognized directly in the equity of the joint venture, the Group recognizes its share of any changes and discloses this in the statement of changes in equity.

Investments in debt and equity securities Investments are classified as available-for-sale and are stated at fair value. Any associated unrealised gains or losses are recognised directly in equity. When the investment is disposed of, the cumulative gain or loss previously recorded in equity is recognised in the income statement.

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Interest on debt securities is recognised in the income statement using effective interest rate.

The fair value of investments in debt and equity securities listed on the stock exchange is their quoted price. If the financial instruments are not listed on the stock exchange and their fair value cannot be reliably determined, they are stated at cost.

Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell.

Loans Loans are stated at amortised cost less impairment losses.

Impairment of financial assets The Group assesses at each balance sheet date whether financial assets or groups of financial assets are impaired.

Assets carried at amortized costs - impairment If there is objective evidence that an impairment loss on loans and receivables or held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the income statement.

The Group and the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial assets, whether significant or not, it is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement and only to the extent that the carrying amount of the financial asset does not exceed its amortised cost at the reversal date.

Available-for-sale financial assets - impairment If an item of available-for-sale assets is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement.

Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.

De-recognition of financial assets A financial asset is de-recognised when: - the rights to receive cash flow from the asset have expired, - the group retains the right to receive cash flow from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement, or - the group has transferred its rights to receive cash flows from the assets and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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n. Derivative financial statements Derivative financial instruments are used to hedge the Group’s exposure to risks arising from financing and investing activities.

Derivative financial instruments are recognized initially at cost. After initial recognition, derivative financial instruments are measured at fair value. The method of recognition of gains or losses arising from the change in fair value depends upon the fact whether hedge accounting has been applied or not. When hedge accounting has been applied, the recognition of gains or losses arising from the change in fair value depends on the type of hedging (refer to Note ‘o’). The fair value of foreign currency forward contracts is determined as the present value of the given price in the forward contract. The fair value of a call option is determined by the seller of the option. The model of valuation is based on the calculation of the present value of expected cash flows, taking into account the market conditions at the date of calculation.

When hedge accounting has not been applied, derivative financial instruments are accounted for at fair value with changes in fair value recognised in the income statement. o. Hedging When a derivative instrument is designated as a hedge of the exposure to variability in cash flow that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity.

When the forecasted transaction results in the recognition of an asset or a liability, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and entered into the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, amounts that have been recognised directly in equity are included in net profit or loss in the same period during which the hedged forecasted transaction affects net profit or loss. The ineffective portion of the cash flow hedge is immediately recognized in the income statement

The change in the instrument’s time value is excluded from the assessment of hedge effectiveness and is immediately reported in the income statement.

If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge was effective remains separately in equity until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that initially has been reported directly in equity is reported in the income statement. p. Other non-current assets Prepaid rentals are deferred over the contract period and are progressively transferred to rental expenses. Rentals are prepaid for a period ranging from 3 to 29 years.

Sale incentives given to subscribers in the form of subsidized mobile phone handsets or subsidised internet and television modems, cameras (subsidies) are recognised and deferred in the amount by which the handset’s cost exceeds its selling price under the condition, that subsidies shall be covered by the average monthly subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the purchase cost of GSM or UMTS handsets or internet and television modems sold is reported within deferred costs. Subscription period applicable to UMTS handsets and internet and television modems is 24 months, and 12 months for GSM handsets.

Over the period of the subscription agreement, deferred costs of subsidies are amortised proportionally to the income statement, starting at the inception of the contractual period.

If a subscription agreement is terminated or a subscriber is disconnected from the network due to non- payment of bills, subsidies are impaired accordingly. r. Trade receivables Trade receivables are stated on initial recognition at cost and subsequently measured at amortised cost less impairment losses. s. Inventories Inventories are stated at the lower of cost and net realisable value.

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Cost includes the purchase price, import duties and other costs directly attributable to the acquisition.

Slow-moving items of inventories are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. t. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of up to three months with insignificant risk of change in fair value. u. Impairment of assets The carrying amounts of the Group’s assets, other than inventories (refer to note s) and deferred tax assets (refer to note 18) are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement except in case when the asset was already revalued and the surplus recognized in revaluation reserves.

The recoverable amount is the greater of an asset’s (or cash generating unit’s) net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. v. Dividends Dividends are recognised as a liability in the period in which they are approved. z. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value.

Provisions for termination benefits and anniversary bonuses Health, pension and social insurance contributions from gross wages and salaries are being paid by the Group during the year at the statutory rates. Contributions are recognised as an expense in the income statement in the period in which they are incurred.

In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay to its employees an anniversary bonus and termination pay upon retirement, for which provisions are formed. The Group has no other pension liabilities

Provisions are formed in the amount of the estimated future payments of anniversary bonuses and termination payments, discounted as at the balance sheet date. A calculation is made per employee on the basis of the cost of termination pay upon retirement and the cost of all expected anniversary bonuses to the time of retirement, using the projected unit credit method.

Provisions for costs of restoring the lease base station locations to their original condition The provisions are made for costs of removal of base stations and restoration of leased property to its original condition. Provisions are formed in the amount of estimated future cost of removal of base stations from the leased locations, discounted to the present value. ab. Trade and other payables Trade and other payables are stated at fair value on initial recognition and subsequently measured at amortised cost.

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ac. Revenue Revenue comprises the selling value of goods sold and services rendered during the period. Revenue from services is recognised when services are rendered and when there are no significant uncertainties regarding recovery of the consideration due.

Sales revenue includes the sales value of goods sold in the accounting period.

Revenue consists principally of revenue from monthly subscription fees, revenue from connection fees, revenue from call charges and charges for other services, revenue from provision of network services to other telecommunications companies (interconnection), revenue from the rental of network, and revenue from sale of merchandise.

Revenue from subscription fees is recognised in the period to which it relates.

Revenue from connection fees is recognised at the time of conclusion of the agreement with the customer.

Revenue from call charges and charges for other services is recorded at the time when the call is made.

Revenue from prepaid call cards is deferred and recognized in the period in which the call is made.

Revenue from interconnection services and from rental of network is recognized in the period in which a service is provided.

Revenue from sale of merchandise is recognised when the sale is carried out.

Revenue from sale of voice services with added value is recognised in the financial statements in net amount when the service is rendered. ad. Customer acquisition costs Group pays commission to dealers for acquisition of new subscribers of mobile telephony. The amount of commission depends on the type of subscription package. Commission which do not relate to the customer acquisition are reported in income statement when incurred. Customer acquisition cost, including sales incentives are expensed pro rata over the contracted subscription period ((p) - Other non- current assets). ae. Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method that is the rate exactly discounts estimated future cash receipts over the expected life of the financial instrument) to the net carrying amount of the financial assets.

Dividend income of other companies is recognised in the income statement on the date that the right to receive dividend payment is established. af. Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. A deferred tax asset or liability is recognised irrespective of the time period in which temporary differences are settled.

Deferred tax relating to items recognised directly in equity is recognised in equity.

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ag. Segment reporting The Group has two main business segments: fixed line telephony, and mobile telephony.

Revenues of these segments are the same as are reported in stand-alone financial statements of Telekom Slovenije, d.d. for fixed line services and Mobitel, d.d. for mobile services, whiles revenues of other subsidiaries are allocated to Group segments based on the type of revenue earned.

The Group does not analyse results on a geographical basis as majority of the Group’s operations are conducted in Slovenia.

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2. Segment reporting

Year 2008 In TEUR Fixed line telephone Mobile telephone services services Other Eliminations Consolidated

External sales 379,624 441,500 21,232 0 842,356

Inter segment revenue 66,894 41,713 87,804 -196,411 0

Segment revenue 446,518 483,213 109,036 -196,411 842,356

Other revenue 6,449 1,160 1,222 548 9,379 Share of income from joint ventures 4,867

Cost of goods and materials sold -19,281 -39,374 -13,031 11,226 -60,460

Cost of raw materials and consumables -9,405 -8,728 -11,441 20,037 -9,537

Cost of services -200,565 -214,119 -45,416 154,137 -305,963

Staff costs -77,390 -45,067 -29,572 7,478 -144,551

Amortisation/depreciation expense -95,776 -85,586 -2,875 487 -183,750

Other operating expenses -12,802 -7,632 -923 -2,488 -23,845

Operating expenses -415,219 -400,506 -103,258 190,877 -728,106

Profit from operations 37,748 83,867 7,000 -4,986 128,496

Net finance cost -13,591

Profit before tax 114,905

Income taxes -28,920

Net profit for the period 85,985

Segment assets and liabilities Property, plant, equipment, and intangible assets 805,807 613,529 11,447 0 1,430,783 Investments and other non-current assets 479,599 32,518 -56 -425,339 86,722

Investment properties 0 5,111 142 0 5,253

Current assets 174,685 177,458 50,872 -141,685 261,330 Provisions and non-current deferred income 26,048 12,170 4,844 -3,313 39,749

Current liabilities and deferrals 275,036 215,264 42,520 -154,930 377,890

Other segment information

Capital expenditure in intangible assets 12,240 14,703 7,934 -6,858 28,019

Capital expenditure in PPE 119,898 100,789 3,874 -10,019 214,542

Amortisation 5,984 18,489 728 0 25,201

Depreciation 89,792 67,096 2,148 -487 158,549

Impairment losses 8,329 2,199 506 -19 11,015

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Year 2007 In TEUR Fixed line telephone Mobile telephone services services Other Eliminations Consolidated

External sales 369,051 400,121 10,905 0 780,077

Inter segment revenue 47,049 32,963 71,443 -151,455 0

Segment revenue 416,100 433,084 82,348 -151,455 780,077

Other revenue 4,780 1,386 1,339 -338 7,167

Share of income from joint ventures 3,659

Cost of goods and materials sold -20,588 -38,687 -12,810 12,465 -59,620

Cost of raw materials and consumables -9,224 -8,060 -11,951 21,157 -8,078

Cost of services -161,863 -183,486 -25,830 106,927 -264,252

Staff costs -74,489 -39,765 -22,715 10,275 -126,694

Amortisation/depreciation expense -89,563 -69,852 -2,230 -130 -161,775

Other operating expenses -12,606 -15,638 -3,965 -1,840 -34,049

Operating expenses -368,333 -355,488 -79,501 148,854 -654,468

Profit from operations 52,547 78,982 4,186 -2,939 136,435

Net finance cost -9,653

Profit before tax 126,782

Income taxes -38,412

Net profit for the period 88,370

Segment assets and liabilities Plant and equipment, and intangible assets 737,629 560,422 21,594 54,847 1,374,492 Investments and other non-current assets 427,687 26,272 630 -381,011 73,578

Investment properties 14,942 5,154 80 -14,461 5,715

Current assets 171,593 179,523 40,931 -105,809 286,238 Provisions and non-current deferred income 23,512 10,691 3,936 -2,351 35,788

Current liabilities and deferrals 283,928 105,652 30,582 -100,543 319,619

Other segment information

Capital expenditure in intangible assets 28,474 97,772 14,169 -4,733 135,682

Capital expenditure in PPE 150,998 50,718 5,046 -3,849 212,913

Amortisation 6,875 13,170 311 0 20,356

Depreciation 82,688 56,682 1,919 130 141,419

Impairment losses 2,288 5,730 504 0 8,522

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3. Revenue In TEUR 2008 2007

Voice 162,494 186,285 6,918 1,894 Voice transfer through IP network 346,876 Mobile telephone services 369,160 76,243 63,853 Internet and broadband access 38,566 27,283 Interconnection 48,673 International operator services 77,480 17,744 13,029 Leased lines 16,038 Unbundled access and co-locations 13,682 1,794 Voice services with added value 2,448 21,843 Data services 22,624 2,519 Network construction and maintenance 3,839 1,845 Sale of advertising space 11,024 9,942 Other services 10,048 37,176 Revenue from sale of merchandise 29,263 1,027 Other revenue 823

Total revenue 842,356 780,077

In TEUR 2008 2007 729,038 676,697 Revenue from sale of services on domestic market 84,055 66,212 Revenue from sale of services on foreign market

Revenue from sale of merchandise on domestic market 29,237 37,120 48 Revenue from sale of merchandise on foreign market 26

Total revenue 842,356 780,077

4. Other income In TEUR 2008 2007 175 Government grants 90 Net gains on disposal of property, plant and equipment 3,288 1,861 Other income 6,001 5,131

Total other income 9,379 7,167

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5. Cost of services In TEUR

2008 2007

Cost of communication and transportation services and rent 12,666 13,451 Cost of maintenance 22,157 14,355 Cost of telecommunication services 146,145 125,827 Cost of leased lines 3,286 6,961 Cost of sale incentives 15,423 14,894 Cost of professional services 16,694 15,206 Cost of insurance, marketing and entertainment 39,562 35,295 Cost of sale commission 8,048 5,766 Cost of banking services 2,922 3,025 Cost of other services 39,060 29,472

Total cost of services 305,963 264,252

6. Staff costs In TEUR 2008 2007 Wages and salaries 102,722 88,088 Social security contributions 19,789 18,829 Other staff costs 22,040 19,777 Total staff costs 144,551 126,694

The average number of employees in the Group in the year 2008 was 4,435 (in 2007: 4,132).

7. Other operating expense In TEUR 2008 2007 Provision for legal cases (note 25) 2,633 6,233 Impairment of current assets 11,015 13,031 Other costs 10,197 14,785 Total other operating expense 23,845 34,049

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8. Finance revenue

In TEUR

2008 2007 Dividends 716 963 Interest income on loans 5,080 6,504 Foreign exchange gain 708 167 Change in fair value of derivative financial instruments 24 0 Other financial income 1,073 88 Total finance revenue 7,601 7,722

9. Finance expense In TEUR 2008 2007 Interest expenses 19,810 16,555 Change in fair value of derivative financial instruments 1,063 380 Other financial expenses 319 440 Total finance expense 21,192 17,375

10. Income tax

Income tax expense recognised in the income statement In TEUR 2008 2007 Current tax -32,952 -37,224 Deferred tax benefits/liabilities 4,032 -1,188 Income tax expense in the income statement -28,920 -38,412

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Reconciliation of actual tax expense and computed tax expense (at the effective tax rate)

In TEUR

2008 2007

Profit before tax 114,905 126,782

Income tax using the domestic corporation tax rate of 22% (23% in2007) -25,279 -29,160 Deferred tax write off 0 -2,731

Current year tax loss not recognised as deferred tax asset -2,274 -3,366 Tax-free dividends 53 0 Non-deductible expenses -2,459 -3,615 Change in tax rate -7 -398 Tax incentives used in the current period 1,763 793 Reversal of tax incentives used in previous periods -132 0 Effect on different tax rate 166 60 Other -751 5 Total income tax expense -28,920 -38,412

Effective tax rate in the year 2008 was 25,17% (2007: 30,3%).

In accordance with Slovenian income tax regulations, the Group is entitled to an annual tax incentive in the amount equal to 20% of investments in research and development, and in the amount of 30% of investments in equipment, to a maximum of EUR 30,000.

Deferred tax credit/expense recognised in the income statement is attributable to the following items In TEUR 2008 2007 Intangible assets 232 -133 Property, plant and equipment 2,729 -1,026 Investments 0 -48 Provisions -45 22 Receivables and inventories 1,239 14 Accrued costs -29 -17 Other -94 0 Deferred tax credit/expense 4,032 -1,188

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Deferred tax credit/expense recognised in equity

In TEUR 2008 2007 Change in fair value of available-for-sale investments -543 0

Change in fair value of financial instruments designated as hedges 216 7 Property, plant and equipment 4 -6,475

Deferred tax assets/liabilities -323 -6,468

11. Earnings per share

Earnings per share is calculated by dividing the profit attributable to equity holders of the company and the Group by the weighted average number of ordinary shares in issue during the year.

The weighted average of ordinary shares in issue during the year is calculated on the basis of data of shares in issue during the period, considering any potential redemptions and sales in that period and the period, during which these shares were generating the profit. Adjusted net earnings per share also includes all potential ordinary shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would occur, if in the accounting period, they would be swapped for ordinary shares. In TEUR 2008 2007 Net profit attributable to holders of ordinary shares of the parent company 85,818 88,340 Adjusted net profit attributable to holders of ordinary shares of the parent company 85,818 88,340

Weighted average number of ordinary shares for net earnings per share 6,505,478 6,505,478 Adjusted average number of ordinary shares for net earnings per share 6,505,478 6,505,478

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12. Intangible assets

The movement in intangible assets was as follows In TEUR Other intangible Intangibles in 2008 Goodwill Licenses Software assets construction Total COST

1.1.2008 42,960 198,382 85,958 14,507 10,101 351,908 Additions 0 3,7307,206 19 18,744 29,699 Acquisition of subsidiary 15,195 67 22 185 0 15,469 Transfer to use 0 4,047 10,148 37 -14,232 0 Disposal, write-offs -503 -181 -665 -3,331 -824 -5,504 Transfer 0 02,900 -2,900 0 0

31.12.2008 57,652 206,045 105,569 8,517 13,789 391,572 ACCUMULATED AMORTISATION

1.1.2008 124 48,581 61,106 3,016 0 112,827 Additions 0 1,6800 0 0 1,680 Acquisition of subsidiary 0 6 19 150 0 175 Disposal, write-offs -124 -6 -665 -2,660 0 -3,455 Amortisation 0 11,971 13,129 101 0 25,201

31.12.2008 0 62,232 73,589 607 0 136,428 CARRYING AMOUNT

1.1.2008 42,836 149,801 24,852 11,491 10,101 239,081 31.12.2008 57,652 143,813 31,980 7,910 13,789 255,144

Intangible assets, except of the goodwill, have definitive life period and are amortised on a straight line basis over the estimated useful life.

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The movement in intangible assets was as follows In TEUR

Other intangible Intangibles in 2007 Goodwill Licenses Software assets construction Total COST

1.1.2007 19,456 107,037 66,902 5,764 2,515 201,674 Additions 22,630 87,048 7,569 839 21,369 139,455 Acquisition of subsidiary 11,788 0 1,712 0 0 13,500 Transfer to use 0 4,303 9,355 65 -13,723 0 Disposal, write-offs 0 -6 -183 -2,472 -60 -2,721 Transfer 0 0 603 -603 0 0 Goodwill allocation -10,914 0 0 10,914 0 0

31.12.2007 42,960 198,382 85,958 14,507 10,101 351,908 ACCUMULATED AMORTISATION

1.1.2007 124 38,192 47,052 2,950 0 88,318 Additions 0 03,773 0 03,773 Acquisition of subsidiary 0 0 435 0 0 435 Disposal, write-offs 0 0 -55 0 0 -55 Amortisation 0 10,389 9,901 66 020,356

31.12.2007 124 48,581 61,106 3,016 0 112,827 CARRYING AMOUNT

1.1.2007 19,332 68,845 19,850 2,814 2,515 113,356 31.12.2007 42,836 149,801 24,852 11,491 10,101 239,081

Goodwill The increase in the goodwill relates to the acquisition of Aneks, d.o.o. and AOLSP, d.o.o., which is further described in note 14.

The recoverable amount of goodwill arising from the acquisition of Ipko, d.o.o has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 23.2% and cash flow projections beyond five year period are extrapolated at 0% growth rate.

The recoverable amount of goodwill arising from the acquisition of On.net, d.o.o. has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a four year period. The pre tax discount rate applied to cash flow projections is 15% and cash flow projections beyond four year period are extrapolated at 3% growth rate.

The carrying amount of the UMTS licence obtained amounts to 52,725 TEUR (2007: 56,866 TEUR), while the carrying amount of GSM licence in Kosovo amounts to 65,833 TEUR (2007: 70,833 TEUR).

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13. Property, plant and equipment

Movement in property, plant and equipment

In TEUR

Network Assets equipment under Land and Cables Switching of mobile Other constructi 2008 buildings and lines exchanges operations equipment on Advances Total

COST

1.1.2008 245,982 969,111289,604 502,488 415,540 64,796 1,241 2,488,762 Additions 4,788 10,631 131 23,146 9,052 164,034 2,963 214,745

Acquisition of subsidiary 24 2,030 4,052 473 675 65 0 7,319

Transfer from assets under construction 30,955 51,706 9,728 51,431 39,559 -183,379 0 0

Disposal, write-offs -2,478 -683 -1,366 -3,717 -45,789 -575 -3,028 -57,636

Transfer 0 0 -19,155 16,017 3,138 0 0 0

31.12.2008 279,271 1,032,795282,994 589,838 422,175 44,941 1,176 2,653,190 ACCUMULATED DEPRECIATION

1.1.2008 35,857 571,594 228,044 238,240 279,616 0 0 1,353,351 Additions 0 960 5 102 0 0 203

Acquisition of subsidiary 8 510 2,410 227 327 0 0 3,482

Disposal, write-offs -1,704 -576 -1,564 -2,816 -31,374 0 0 -38,034 Depreciation 8,323 39,567 13,605 51,984 45,070 0 0 158,549

31.12.2008 42,484 611,191 242,495 287,640 293,741 0 0 1,477,551

CARRYING AMOUNT

1.1.2008 210,125 397,51761,560 264,248 135,924 64,796 1,241 1,135,411

31.12.2008 236,787 421,60440,499 302,198 128,434 44,941 1,176 1,175,639

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Movement in property, plant and equipment

In TEUR

Network Assets equipment under Land and Cables Switching of mobile Other constructi 2007 buildings and lines exchanges operations equipment on Advances Total

COST

1.1.2007 225,590 926,328249,131 486,591 359,078 39,044 476 2,286,238 Revaluation effect 10,957 0 0000 0 10,957

Additions 3,430 1,918 13,330 1,056 17,350 172,783 3,045 212,912

Acquisition of subsidiary 0 0 0 0 12,749 0 0 12,749

Transfer from assets under construction 6,867 48,813 27,268 21,920 44,443 -147,031 -2,280 0

Disposal, write-offs -862 -7,948 -125 -7,079 -18,080 0 0 -34,094

31.12.2007 245,982 969,111289,604 502,488 415,540 64,796 1,241 2,488,762 ACCUMULATED DEPRECIATION

1.1.2007 61,517 533,577214,089 202,323 243,831 0 0 1,255,337 Revaluation effect -33,151 0 0000 0 -33,151

Acquisition of subsidiary 0 0 0 0 12,203 0 0 12,203

Disposal, write-offs -594 -359 0 -5,595 -15,909 0 0 -22,457

Depreciation 8,085 38,376 13,955 41,512 39,491 0 0 141,419

31.12.2007 35,857 571,594228,044 238,240 279,616 0 0 1,353,351

CARRYING AMOUNT

1.1.2007 164,073 392,75135,042 284,268 115,247 39,044 476 1,030,901

31.12.2007 210,125 397,51761,560 264,248 135,924 64,796 1,241 1,135,411

Land and buildings, cables and lines, switching exchanges and other equipment are stated at fair value. Network equipment of mobile operations and other items of property, plant and equipment are stated at cost. Cables and lines, switching exchanges and other equipment were valued by a licensed valuer as at 1 January 2004 using the DRC method. Land and buildings were valued by a licensed valuer to fair value as at 1 January 2007 using comparable market prices.

Property, plant and equipment are free of encumbrances.

14. Business combinations

Acquisition of Aneks, d.o.o. Bosnia and Herzegovina In January 2008, Telekom Slovenije, d.d. acquired 70% share in Aneks, d.o.o. Banja Luka, Bosnia and Herzegovina and sold 30% share in the company Blic.net, d.o.o., Banja Luka. During the year, both these companies have merged into Aneks, d.o.o.. Aneks, d.o.o. is internet provider in Bosnia and Herzegovina market. The Group has a call option and the minority shareholders have a put option on the remaining shares in Aneks, d.o.o. exercisable in the period 2009 and not later then May end of 2014 at the estimated market value of the company on an exercise date.

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Fair value of identifiable assets and liabilities of Aneks, d.o.o. on acquisition date: In TEUR

Fair value of assets Intangibles 62 Property, plant and equipment 212 Long term investment 3 Inventory 95 Receivables and accruals 1,221 Cash and cash equivalents 932 Total assets 2,525

Liabilities 1,057 Total liabilities 1,057

Fair value of net assets 1,468 Consideration paid 8,900 Goodwill 7,432

Consideration paid in cash -6,230 Net cash acquired 932 Cash flow on acquisition -5,298

Consideration paid in cash and liabilities 8,900 Consideration paid in cash -6,230 Put option liability 2,670

From the date of the acquisition, Aneks, d.o.o. has contributed 383 TEUR to the net profit of the Group.

During the year 2008, Aneks, d.o.o. acquired a 100% interest in Netkom, d.o.o. As a result of this acquisition, the acquired amount is disclosed in the table of movements in intangible assets which includes, in addition to the acquired assets, also goodwill in the amount of 1,455 TEUR (note 12), and property, plant and equipment (note 13). As the acquisition of Netkom, d.o.o. does not have a significant impact on the financial statements, no additional disclosures were made.

As of the date of these financial statements, the Group has accounted for the difference between the consideration paid and the fair value of assets acquired provisionally as goodwill, as purchase price allocation exercise has not been completed.

Acquisition of AOLSP, d.o.o., Albania In February 2008, Telekom Slovenije, d.d. acquired 75% stake in the company AOLSP, d.o.o., Tirana, which is an Internet provider on Albanian market.

The Group has a call option and the minority shareholders have a put option on the remaining shares in AOLSP, d.o.o. exercisable in the first half of 2011 and not later then the first six month of 2014 at the value determined on the basis of the market value of the company on an exercise date.

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Fair value of identifiable assets and liabilities of AOLSP, d.o.o. on acquisition date: In TEUR

Fair value of assets

Intangibles 306 Property, plant and equipment 1,953 Long term investments 85 Trade receivables 322 Inventory 110 Cash and cash equivalents 184 Total assets 2,960

Trade payables 528 Provisions 21 Borrowings 257 Other payables 515 Total liabilities 1,321

Fair value of net assets 1,639 Consideration paid and liabilities assumed 5,300 Goodwill 3,661

Consideration paid in cash -3,975 Net cash acquired 184 Cash flow on acquisition -3,791

Consideration paid and liabilities assumed 5,300 Consideration paid in cash -3,975 Put option liability 1,325

From the date of the acquisition, AOLSP, d.o.o. has contributed 327 TEUR to the net profit of the Group.

In 2008, AOLSP, d.o.o. acquired additional share in its subsidiary AFB, d.o.o. as well as a 100% interest in H-COMMUNICATIONS, d.o.o.. As a result of these acquisitions, the amounts relating to the two acquisitions are disclosed in the movement of intangible assets where in addition to assets, goodwill in the amount of 894 TEUR (note 12), and in property, plant and equipment are also included (note 13). As these acquisitions do not have a significant impact on the financial statements, no additional disclosures were made.

Acquisition of Interseek, d.o.o, Slovenia In August 2007, Telekom Slovenije, d.d. acquired 75% stake in Interseek, d.o.o., Ljubljana, Slovenia.

Interseek, d.o.o. is provider of Internet search services mostly in Slovenian market.

The Company has a call option and the minority shareholders have a put option on the remaining shares in Interseek exercisable in the period 2010 to 2014 at fair value at the exercise date plus a premium if the

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fair value exceeds predetermined value on an exercise date.

Fair value of identifiable assets and liabilities of Interseek, d.o.o. on acquisition date:

In TEUR

Fair value of assets Intangible assets 1,243 Property, plant and equipment 546 Investment property 81 Financial assets 58 Deferred tax assets 10 Trade receivables 1,840 Cash and cash equivalents 170 Other assets 24 Total assets 3,972

Trade and other payables 2,451 Borrowings 964 Provisions 71 Total liabilities 3,486

Fair value of net assets 486 Consideration paid and liabilities assumed 11,400 Goodwill 10,914

Consideration paid in cash -8,550 Net cash acquired 170 Cash flow on acquisition -8,380

Consideration paid and liabilities assumed: 11,400 Consideration paid in cash -8,550 Liability for put option granted 2,850

The accounting recognised in the 31 December 2007 financial statements was based on a provisional assessment of fair value as the Group had not completed the purchase price allocation and provisionally allocated the whole difference between the acquisition cost and the fair value of net assets acquired to goodwill.

The purchase price allocation resulted in increase of other intangible assets of 10,914 TEUR. The 2007 comparative information has been restated to reflect this adjustment. The increased amortisation charged as a result of the allocation from the acquisition date to 31 December 2007 was not material.

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15. Other investments In TEUR 2008 2007 Investments in equity securities of banks 5,221 1,724 Investments in other equity securities 5,222 5,928 Loans to other entities 4,581 0 Loans to employees 2,727 2,781 Receivables from the sale of apartments 71 101 Loans to TK subscribers 150 717 Other non-current financial assets 553 1,964 Total other investments 18,525 13,215

All investments in equity securities are classified as available for sale. Of total 10,443 TEUR of available- for-sale equity securities in the Group financial statements, equity securities in the amount of 5,123 TEUR (2007: 1,149 TEUR) are recorded at fair value and are listed; the remainder are not listed and are carried at cost as their fair value is not reliably determinable.

Other non-current financial assets in the Group accounts include the fair value of a hedging instrument used to hedge against interest rate risk (refer to note “o” of the accounting policies and Note 33). The change in the fair value represents the change in the time value of the instrument, which is recognised in the income statement and the change in intrinsic value which is recognised in equity.

16. Other non-current assets

In TEUR 2008 2007 Long-term prepaid rentals 10,939 10,275 Long-term deferred sale incentives 17,213 10,649 Other non-current assets 1,426 1,764 Total other non-current assets 29,578 22,688

Movement in the above-mentioned deferred items (excluding sundry other non-current assets)

In TEUR Rentals Sales incentives 1.1. 2007 10,125 13,738 Increase 2,000 8,342 Transfer to expenses -1,850 -11,431 31.12. 2007 10,275 10,649 Increase 2,233 20,868 Transfer to expenses -1,569 -14,304 31.12.2008 10,939 17,213

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17. Investment property

Investment properties are stated at cost.

Movement in investment property In TEUR

2008 2007 1 January 5,715 5,197 Increase 92 565 Decrease -481 0 Depreciation of buildings -73 -47 31 December 5,253 5,715

The fair value of investment property approximates to its book value. In 2008, the revenue from property lease reached 77 TEUR (2007: 74 TEUR).

18. Deferred tax assets and liabilities

Deferred tax assets and liabilities are provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, using tax rates enacted in the future years. In 2008, applicable tax rate was 22% (2007: 23%).

In TEUR

2008 2007 Intangible assets 1,631 1,398 Property, plant and equipment -4,193 -6,927 Investments in financial assets -451 -125 Trade receivables 2,524 1,295 Inventories 0 54 Other non-current assets 149 179 Provisions 4,615 4,628 Deferred tax assets 4,275 502

19. Inventories In TEUR 2008 2007 Material 6,745 7,688 Finished products 362 484 Merchandise 21,309 17,011 Advances 5 41 Total inventories 28,421 25,224

As at 31 December 2008, impairment loss in the amount of 696 TEUR was recognised (2007: 2,934 TEUR).

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20. Trade and other receivables In TEUR 2008 2007 Trade receivables 117,385 114,328 Receivables from foreign operators 19,123 13,459 Receivables due from domestic operators 22,584 13,504 Advances 2,573 1,777 VAT and other tax receivables 18,951 18,749 Deferred costs and accrued income 10,555 7,794 Current amounts of sale incentives 9,779 7,754 Other receivables 2,995 3,089 Provision for impairment -16,028 -10,752 Total receivables 187,917 169,702

Trade receivables are non interest bearing.

Movement of impairment allowance

In TEUR 2008 2007 1.1. -10,752 -10,661 Additions -10,825 -2,953 Reversal 2,978 1,663 Utilisation 2,571 1,199 31.12. -16,028 -10,752

At 31 December 2008, the analysis of trade receivables that were past due but not impaired is as follows:

In TEUR Neither past Past due due nor and Total impaired impaired Past due but not impaired

Up to 30 More than days 31-60 days 60-90 days 91-120 days 120 days 2008 187,917 138,140 5,198 20,515 4,973 3,250 3,916 11,925 2007 169,702 135,222 8,868 14,537 3,489 1,776 2,156 3,654

As at 31 December 2008, receivables past due more than 120 days but not impaired comprise 7,192 TEUR of receivables of Ipko, d.o.o., mainly in respect of VAT as a result of large investment in the past period. In 2009, this amounts is expected to be offset against current liabilities.

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21. Current financial assets In TEUR 2008 2007 Other loans 621 834 Other short-term financial assets 0 15 Fair value of derivatives 0 52 Term deposits 20,500 27,500 Total current financial assets 21,121 28,401

Surplus cash is deposited with various local banks. Most pay interest at fixed rates ranging from 5.80 to 6.25% (2007: 4.6% to 4.93%).

22. Cash and cash equivalents In TEUR 2008 2007 Cash in hand and bank balances 8,743 20,237

Deposits with banks 10,102 40,370 Total cash and cash equivalents 18,845 60,607

Cash at banks earns interest at floating rates based on daily bank deposit rates, while night deposits earn interest at contractually agreed rates.

Short term deposits are made for varying periods of between one to three months, depending on the immediate cash requirements of the Group and earn interest at the respective short term deposit rates.

23. Capital and reserves

Shares issued Authorised, issued and fully paid up capital amounts to 272,721 TEUR. It is divided into 6,535,478 ordinary shares.

Ownership structure as of 31 December 2008

Shareholder Number of shares Share in % Republic of Slovenia 3,434,021 52.54 Slovenska odškodninska družba, d.d. 931,387 14.25 Kapitalska družba, d.d. 365,175 5.59 PID - DZU 215,579 3.30 Legal entities 607,586 9.30 Individual shareholders 686,707 10.51 Other shareholders 295,023 4.51 Total 6,535,478 100.00

The balances and changes in equity are shown in the Statement of Changes in Equity. The number of issued shares did not change in 2008.

Reserves Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of

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Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of the managing board. Consistent with the Companies Act, the managing board is entitled to appropriate one half of the profit for the period to reserves.

Structure of reserves In TEUR 2008 2007 Capital surplus 145,596 131,178 Reserves for treasury shares 3,671 3,671 Legal reserves 51,348 0 Statutory reserves 105,005 54,544 Other reserves 245,063 104,986 Total reserves 550,683 294,379

Capital and statutory reserves can be used for purposes specified in the company’s act and statutes. Statutory reserves may not exceed 20% of share capital.

Surplus paid-up capital arising from ownership transformation and transfer of tax-free portion of fixed assets revaluation reserves are included in capital surplus.

Reserves for own shares are formed in the amount paid for these shares. These reserves are not distributable. The Group has not acquired any additional own shares during the 2008 financial year.

The Group can transfer up to 50% of current year profits to other reserves. Other reserves are distributable in accordance with the law, Statute, business policy and resolution of the Annual General Meeting.

Retained earnings Retained earnings include retained net profit from previous periods and net profit for the current period. In the preparation of the consolidated financial statements, the fact that individual companies in the Group had formed various reserves in accordance with the Companies Act and individual statutes, was not taken into account. Therefore, at the year-end, the reserves in the amount of 102,242 TEUR were transferred from retained earnings to reserves.

According to the resolution of the Shareholders' meeting held on 30 June 2008, total retained earnings of 200,195 TEUR was appropriated as follows: 83,270 TEUR to dividend payout (2007: 39,879 TEUR), which represents 12.8 EUR per share (2007: 6.13 EUR), 135 TEUR was appropriated to incentive payment for the Supervisory Board, and 116,790 TEUR was appropriated to other reserves.

Dividend proposed Proposed for approval at AGM 39,032,868.00 EUR Dividend per ordinary shares 6.00 EUR

Treasury shares In 2003, the Group acquired 30,000 of its own shares at par value of 1,252 TEUR representing 0.46% of the Group's share capital.

Fixed asset revaluation reserve The transfer of 2,618 TEUR from revaluation reserves relating to property, plant and equipment to retained earnings and the transfer of 5,043 TEUR from revaluation reserve to capital reserve relates to additional depreciation resulting from the revaluation of property, plant and equipment. The revaluation reserve is not distributable.

Other revaluation reserves Other revaluation reserves relate to the revaluation of available for sale securities and the fair value of derivatives designated as hedging instruments for cash flow hedges.

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24. Non-current deferred income In TEUR 2008 2007 Co-location billed in advance 7,165 5,342 Government grants 1,528 1,415 Other 476 498 Total non-current deferred income 9,169 7,255

Co-location relates to payments received in advance for renting certain premises and equipment to other operators.

25. Provisions In TEUR

31.12.2007 Decrease Increase 31.12.2008 Provisions for probable payments resulting from legal actions 14,617 -816 3,973 17,774 Provisions for terminal bonuses on retirement 8,688 -343 446 8,791

Cost of base station removals 3,240 -16 366 3,590 Other 1,988 -1,856 293 425 Total provisions 28,533 -3,031 5,078 30,580

Provisions for probable payments resulting form legal actions Provisions for probable payments resulting from legal actions are formed on the basis of the estimation of the actions' outcome in consultation with the parent company's legal advisors. The date of payment cannot be determined.

Total damages claimed by pending legal actions brought against the Group companies amount to 299,382 TEUR, of which the largest claim of 129,557 TEUR was brought by T-2, d.o.o., AMIS, d.o.o. 56,825 TEUR, Sinfonika, d.d. 36,030 TEUR, Skynet, d.o.o. 29,934 TEUR, and Tuš Telekom, d.d. 28,176 TEUR.

In 2005, a law firm Colja Rojs & partnerji, o.p.,d.n.o., was engaged to represent the Company in the legal proceedings started by Western Wireless International, d.o.o.. Western Wireless International, d.o.o, claimed damages of 203,868 TEUR, plus penalty interest and litigation costs. According to the contract, the law firm was entitled to a maximum 1.5% of the damages claimed depending on the outcome of the dispute. The legal action by Western Wireless International, d.o.o. was withdrawn in 2006. In 2008 the law firm started a legal action against the company in the amount of 5,137 TEUR.

Based on the management board’s assessment of the possible liabilities, a provision of additional 3,973 TEUR was made in 2008.

Provisions for termination and jubilee benefits Formation of provisions for terminal bonuses on retirement is based on the actuarial calculation. Liabilities reported by the Group are equal to the present value of estimated future payments.

The Group has no other pension liabilities.

Provisions for estimated cost of removal of base stations It is expected that the removal of base stations will commence after the year 2021 when the UMTS licence expires (not considering the option of extension). Provisions were formed in the amount of estimated cost of removal discounted to present value by using the discount rate of 5% (2007: 5%).

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26. Interest bearing borrowings

This note provides information about the contractual terms of the Group's interest-bearing borrowings. For more information relating to interest rate and foreign currency risk management refer to note 32 - Financial risk management.

In TEUR 2008 2007

Non-current borrowings Borrowings from foreign banks 295,385 319,200 - current portion of non-current borrowings -100,142 -45,516 - non-current portion of borrowings from banks 195,243 273,684

Borrowings from domestic banks 66,747 0 - current portion of non-current borrowings -20,952 0 - non-current portion of borrowings from banks 45,795 0

Other borrowings 825 0 - current portion of other borrowings -824 0 - non-current portion of other borrowings 1 0

Other 106 45 Total non-current borrowings 241,145 273,729

Current borrowings Borrowings from domestic banks 55,000 80,093 Current portion of non-current borrowings from foreign banks 100,142 45,516 Current portion of non-current borrowings from domestic banks 20,952 0 Current portion of other borrowings 824 0 Interest from loans 488 0 Other 25 0 Total current borrowings 177,431 125,609

Contractual terms agreed on borrowings

In TEUR Non- current Current Maturity in Last portion portion excess of 5 payment 31.12.2008 31.12.2008 years Interest rate agreed due Collateral 3 m EURIBOR + 0.020% 2010 - 2011 6 m EURIBOR – 0.025% 2017 3 m EURIBOR + 0.083% 2017 Non-current 3 m EURIBOR – 0.018% 2017 borrowings from 241.038 121.094 82.943 No collateral 3 m EURIBOR + 0.105% 2017 banks 6 m EURIBOR + 0.7% 2011 6 m EURIBOR + 0.55% 19.08.2009 3.35% 15.09.2009 Current borrowings from banks - 55.000 - 1 m EURIBOR + 0.650% 10.03.2009 No collateral

Borrowings are denominated in the EUR. A part of these borrowings bears a variable interest rate, and with the rest, the variable interest rate was changed into a fixed interest rate, by means of the financial derivatives obtained to this purpose.

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At the balance sheet date, borrowings from EIB Luxembourg in the total amount 230,385 TEUR, mature by 2017 (2007: 188.468 TEUR). Borrowings from a syndicate of commercial banks (50% participation of domestic banks) in the amount of 130,000 thousand EUR (2007: 130.000 thousand EUR), are repayable by 2011.

The banks that have approved long term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in early maturity of borrowings. The Group is in compliance with these covenants.

27. Other non-current liabilities In TEUR 2008 2007 Put options 63,190 48,150 - Interseek, d.o.o. 2,850 2,850 - Ipko, d.o.o. 50,875 43,480 - On.net, d.o.o. 1,800 1,800 - Aneks, d.o.o. 5,070 0 - AOL SP, d.o.o. 2,575 0 Other non-current liabilities 719 498 Total other non-currant liabilities 63,909 48,648

28. Trade and other liabilities In TEUR 2008 2007 Trade payables 117,035 106,433 Payables to domestic operators 9,393 6,395 Payables to foreign operators 8,886 13,438 VAT and other taxes payable 6,806 11,149 Payables to employees 10,750 8,973 Advances 192 74 Other payables 6,178 7,455 Total trade and other liabilities 159,240 153,917

Trade payables are non interest bearing and are normally settled on 30 to 90 days term. Payables to operators are non interest bearing and are normally settled on 15 to 30 days term.

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29. Short-term deferred income In TEUR 2008 2007 Mobile telephony prepaid cards 2,447 2,467 Subscriptions billed in advance and short-term collocations 13,729 12,236 Current amounts of government grants 111 0 Current portion of government grants for PPE 2,150 2,557 Other deferred income 18,437 17,260

30. Commitments

The Group as leases Non cancellable liabilities for operating leases payments for the lease of property plant and equipment are as follows: In TEUR Payable in 2008 2007 - 1 year 7,416 8,598 - 1 year to 2 years 6,948 9,322 - 3 years to 5 years 11,916 14,840 - 5 years and over 26,816 30,249 Total 53,096 63,009

Total cost of operating leases for the 2008 financial year amounted to 13,578 TEUR (2007: 10,677 TEUR).

The Group as lessor Receivables from operating leases refer to lease of property, plant and equipment and are as follows:

In TEUR Receivable in 2008 2007 - 1 year 736 1,810 - 1 year to 2 years 419 3,600 - 3 years to 5 years 419 3,600 - 5 years and over 1,048 9,000 Total 2,622 18,010

In 2008, income from operating leases recognized in the income statement amounted to 5,298 TEUR (2007: 3,398 TEUR).

Capital commitments At 31 December 2008, the Group has commitments of 3,402 TEUR, principally relating to the completion of mobile network (2007: 7,122 TEUR).

31. Contingent liabilities In TEUR 2008 2007 Contingent liabilities from legal actions 299,382 217,476

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At the balance sheet date, there were 58 pending legal actions brought against the Group companies in the total amount of 299,382 TEUR (2007: 217,476 TEUR). Based on the opinion of legal advisors the managing board expects the liability from the said legal actions to amount to 17,774 TEUR (Note 25).

32. Transactions with related parties

Related parties of the Group include the Republic of Slovenia as the majority shareholder of Telekom Slovenije, d.d., other shareholders, the managing board, the supervisory board and their family members.

Transactions with related individuals Natural persons (president and members of the managing board, president and members of the supervisory board) hold 1,897 shares of Telekom Slovenije, d.d. or a 0.03 % shareholding. In 2008, no loans were granted to related individuals.

Salaries and fees to the managing board and the supervisory board

In TEUR 2008 2007 Managing board 1,223 1,121 Supervisory board 267 282 Total salaries and fees 1,490 1,403

Information on groups of persons In TEUR Loans Share of profit paid according Outstanding Total to resolution of amount Repaid in Trade receipts the AGM 31.12.2008 2008 receivables Total members of the managing board 1,223 - - - - - Dremelj Bojan 272 - - - - - Mitič Dušan 237 - - - - - Ogris-Martič Filip 243 - - - - - Puljić Željko 247 - - - - - Senica Darja 224 - - - -

Members of the supervisory board 132 135 - - -

Other members of management employed under a contract for which tariff under the collective agreement does not apply 3,288 - 180 27 4

Loans to other managers are at interest rates between 3.35% to 4.53% with term of 4 to 20 years. The Group has not granted any advances or guarantees.

Total income earned in the interim period from sales to the central and local governments and other public

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entities amounts to 38,137 TEUR in 2008 (2007: 48,262 TEUR). The Group does not monitor nor collect information on sales to companies owned or partially owned by the republic of Slovenia or entities under its control. Accordingly information on such sales has not been disclosed.

33. Financial risk management

The Group’s principal financial instruments, other than derivatives, comprise cash and cash equivalents, trade and other receivables, trade and other payables, investments and borrowings. The main purpose of borrowings is to raise finance for the Group’s operations.

The Group also enters into interest rate derivatives. The purpose is to manage the interest rate risks arising from its sources of finance.

It is and has been throughout 2008 and 2007 the Group’s policy that no trading in derivatives shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Management Board reviews and agrees policies for managing each of these risks which are summarised below.

Foreign currency risk The Group provides its services predominantly in Slovenia. The currency risk in ordinary activities arises in connection with international operators and foreign suppliers of services, merchandise and property, plant and equipment.. The majority of deliveries and borrowings from foreign entities are denominated in Euro, which is also the functional currency of the Group. Therefore, the exposure to foreign currency risk is minimal.

Since the currency risk is assessed as minimal, the Group does not use any special instruments to hedge its exposure to such risks.

Interest rate risk Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of the Group's operations. The interest structure of the balance sheet assets and liabilities is not matched, since the amount of borrowings is much higher than the amount of interest-earning investments. The negative movement (increase) of the variable Euribor interest rate represents an exposure to interest rate risk in respect of borrowings. All non-current borrowings bear interest at a variable interest rate based on 3 m and 6 m Euribor.

The adopted financial risk management allows the Group to hedge against interest rate risk by using interest rate swaps and put options. The Group uses derivative financial instruments exclusively for the purpose of risk hedging and at year-end, 53 percent of non-current loans were hedged against interest rate risk:

The table below sets the Group's derivative instruments used for hedging interest rate risk:

Date of Notional Fair value at Fair value at contract Maturity amount 31.12.2008 31.12.2007

In EUR In TEUR In TEUR Interest rate cap 04.11.2004 19.08.2009 80,000,000 465 824 Interest rate collar 19.01.2005 19.08.2011 50,000,000 -389 431 Participating interest rate swap 20.08.2004 15.09.2009 12,018,000 -34 53 Participating interest rate swap 05.11.2004 15.03.2010 10,887,500 -19 59 Participating interest rate swap 23.08.2007 15.12.2010 35,789,474 -1,072 -59

Total 188,694,974

On re-measurement of hedging instruments, the Company recognized a loss in the amount of 1,063 TEUR. For financial instruments, -1,497 TEUR relates to effective hedging, which is recognized in equity in the net amount of -1,283 TEUR (after deferred tax deduction).

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Interest rate risk table The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowing, net of interest rates hedges). There is no impact on the Group’s equity.

Increase/decrease in basis points Effect on profit before tax in TEUR 2008 EURO +10 -172 EURO -10 +172 2007 EURO +10 -114 EURO -10 +114

Non interest bearing financial instruments are not included in the tables above as they are not subject to interest rate risk.

With respect to credit risk arising to from the other financial assets of the Group, which comprise cash and cash equivalents, deposits with banks, available for sale financial assets, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Liquidity risk Liquidity is subject to effective cash management and investment dynamics. The Group manages the liquidity risk by careful monitoring of the liquidity of assets and liabilities and cash flows from operations. Short-term deficits are bridged by current borrowings from the local banks. Short-term surpluses are placed in bank deposits and securities. Also a large portion of payments made by the customers is reasonable predictable and stable.

The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2008 and 31 December 2007 based on the contractual undiscounted payments:

In TEUR

2008 Past Less than 3 More than due On demand months 3 to 12 months 1 to 5 years 5 years Total Borrowings 0 666 69,546 107,219 158,202 82,943 418,576 Other liabilities 0 0 109 1,302 63,909 0 65,320 Trade and other payables 0 15,021 137,060 7,159 0 0 159,240

2007

Borrowings 0 0 26,921 114,234 256,140 56,889 454,184 Other liabilities 0 0 0 0 48,596 52 48,648

Trade and other payables 8,434 0 137,918 6,955 610 0 153,917

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Capital management The primary objective of the Group's capital management is to ensure that it maintains strong credit rating and capital ratios in order to support its business and maximise shareholder value.

The Group monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. The Group includes within net debt, interest bearing loans and borrowings, less current financial assets and cash and cash equivalents.

In TEUR 31.12.2008 31.12.2007 Interest bearing loans and borrowings 419,987 399,577 Less current financial assets, cash and cash equivalents -39,966 -89,008 Net debt 380,021 310,569

Capital 1,065,670 1,062,741 Capital and net debt 1,445,691 1,373,310 Gearing ratio 26% 23%

Fair value The Group estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.

34. General authorisation and the rights of use for radio frequencies and numbers

Fixed line operations The provision of electronic communications networks or the provision of electronic communications services is only subject to a general authorisation. Prior to the commencement of the provision of public communications networks or services, notification must be given in writing to the Agency for Post and Electronic Communications (Agency). The undertaking is not required to obtain an explicit decision or any other administrative act by the national regulatory authority before exercising the rights stemming from the authorisation.

Telekom Slovenije, d.d. has in the past notified the provision of the following electronic communications services: - Public Voice Services over a Fixed Public Telecommunications Network, - International Telecommunications Services, - Data Transmission Services, - Domestic and International Leased Line Services.

Pursuant to the notification the annual fee must be paid in the amount of 472 TEUR (2007: 488 TEUR). The amount of the fee to be paid is defined with a tariff, which is a general act of the Agency.

Telekom Slovenije, d.d. also has to pay annual fees for the rights of use for radio frequencies and for numbers. The fee for the rights of use for radio frequencies amounts to 264 TEUR (2007: 315 TEUR), and the fee for the rights of use for numbers amounts to 258 TEUR (2007: 345 TEUR). The amount of the fees to be paid is defined with in the tariff, which is a general act of the Agency.

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Mobile line operations

Period Service concession agreements Starting date (years) Concession fee Concession Agreements for Telecommunications Services with the usage of radio frequency spectrum in GSM mobile telephone services in radio frequency Initial fee of bands from 890- 915 and from 935- 960 MHz by GSM 9,863 TEUR standards 02.04.1998 15

Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 4,173 TEUR GSM mobile telephony in DCS1800 network 03.01.2001 15

15, extended Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in to 91,804 TEUR mobile network system: UMTS/ITM-2000 27.11.2001 21.09.2021

Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 75,000 TEUR GSM mobile telephone services network in Kosovo 06.03.2007 15

The Group, based on legal requirements, pay annual fees as follows: - fees based on revenues from public telecommunication network, - fees for use of radio frequencies - fees for allocated block of numbers

In 2008, the Group paid 1,608 TEUR (2007: 1,756 TEUR) of these fees.

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1.2.3 Independent Auditor's Report

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FFFINANCIAL STATEMENTS OF TELEKOM SLOVENIA GROUP

Introductory notes

In addition to the introductory notes and Statement of the Management's responsibility, the financial statements herein consist of two major chapters, namely:

- Financial statements of Telekom Slovenia Group, and - Financial statements of Telekom Slovenije, d.d.

The financial statements of Telekom Slovenije, d.d. were prepared exclusively under the International Financial Reporting Standards adopted by EU (hereinafter: IFRS).

The auditing firm ERNST & YOUNG, Revizija, davčno in poslovno svetovanje d. o. o. have audited both sets of financial statements and have issued separate auditors' reports, which are enclosed with each set of the financial statements.

Statement of responsibility of the Management Board

The Management Board is responsible for the preparation of the Annual report of Telekom Slovenia Group and Telekom Slovenije, d. d. that includes the financial statements which give a true and fair presentation of the financial position and the results of operations of both, the Group and the Company.

The Management Board confirms that the financial statements of the Group and the Company were compiled under the assumption of a going concern, that the chosen accounting policy have been consistently applied and that any changes have been disclosed, and that the financial statements and notes thereto of Telekom Slovenia Group and Telekom Slovenije, d. d. have been compiled under the current legislation and IFRS.

The Management Board is responsible for the adoption of measures to ensure the preservation of the assets of Telekom Slovenia Group and Telekom Slovenije, d.d. and to prevent and detect fraud and error.

Management Board Telekom Slovenije, d. d.

Ljubljana, March 2008

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Financial statements of Telekom Slovenia Group

Consolidated income statement for the year ended 31 December 2007

In thousand EUR

Notes 2007 2006

Revenue 3 780,077 745,069

Other income 4 5,857 3,555

Share of income from joint ventures 3,659 0

Cost of goods sold -59,620 -59,474

Cost of raw materials and consumables -8,078 -7,253

Cost of services 5 -264,252 -253,229

Staff costs 6 -126,694 -122,664

Depreciation and amortisation 12, 13 -161,775 -150,630

Other operating expenses 7 -32,739 -13,381

Total operating expenses -653,158 -606,631

Profit from operations 136,435 141,993

Finance revenue 8 7,722 7,364

Finance cost 9 -17,375 -9,941

Profit before tax 126,782 139,416

Income tax expense 10 -38,412 -36,009

Net profit for the year 88,370 103,407

Attributable to:

Equity holders of the parent 88,340 103,407

Minority interest 30 0

Earnings per share - basic and diluted in EUR 11 13.58 15.90

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated balance sheet at 31 December 2007

In thousand EUR

Notes 31 December 2007 31 December 2006

ASSETS

Intangible assets 12 239,081 113,356

Property, plant and equipment 13 1,135,411 1,030,901

Investment in joint venture 14 37,675 67

Other investments 15 13,215 8,062

Other non-current assets 16 26,953 23,938

Investment property 17 5,715 5,197

Deferred tax assets 18 502 13,957

Total non-current assets 1,458,552 1,195,478

Assets held for sale 637 1,476

Inventories 19 25,224 22,141

Income tax receivable 1,667 0

Current trade and other receivables 20 165,437 132,980

Current financial assets 21 28,401 51,428

Cash and cash equivalents 22 60,607 68,072

Total current assets 281,973 276,097

Total assets 1,740,525 1,471,575

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Consolidated balance sheet at 31 December 2007

In thousand EUR

Notes 31 December 2007 31 December 2006

EQUITY AND LIABILITIES

Issued capital 23 272,721 272,721

Reserves 294,379 289,336

Fixed assets revaluation reserves 108,690 91,883

Other revaluation reserve 920 295

Treasury shares -3,671 -3,671

Retained earnings 389,580 338,693

F/X differences arising from foreign subsidiaries 515

Minority interest 117 0

Total capital and reserves 23 1,062,741 989,272

Non-current deferred income 24 7,255 6,476

Provisions 25 28,533 24,105

Interest bearing borrowings 26 273,729 219,405

Other non - current financial liabilities 48,648 8,927

Total non-current liabilities 358,165 258,913

Trade and other payables 27 153,917 116,250

Income tax payables 6,980 9,148

Interest bearing borrowings 26 125,609 70,029

Other current liabilities 239 147

Deferred income and accrued expenses 28 17,260 16,496

Accruals 15,614 11,320

Total current liabilities 319,619 223,390

Total liabilities 677,784 482,303

Total equity and liabilities 1,740,525 1,471,575

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated statements of changes in equity for the year ended 31 December 2007 In thousand EUR

Foreign Total attrib. Issued FA rev, Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total

1.1.2007 272,721 289,336 91,883 295 -3,671 338,693 15 989,272 0 989,272 Revaluation of land and buildings at 01.01.2007 (see note 13) 44,108 44,108 44,108 Financial asset revaluation 183 183 183 Deferred tax liabilities -8,521 -8,521 -8,521

Change in deferred tax liability due to change in tax rates (Note 10) -3,742 -3,742 -3,742 Transfer to retained earnings and reserves (Note 23) 5,043 -7,482 2,439 0 0 Change in fair value of derivative financial instruments 442 442 442 Foreign currency difference 0-10 -10 -10

Total income and expense recognised in equity 0 5,043 24,363 625 0 2,439 -10 32,460 0 32,460 Net profit for the year 2007 88,340 88,340 30 88,370 Total income and expense for the year 0 5,043 24,363 625 0 90,779 -10 120,800 30 120,830 Payment of dividends -39,879 -39,879 -39,879

Minority interest 87 87

Other -7,556 -13 -7,569 -7,569

31.12.2007 272,721 294,379 108,690 920 -3,671 389,580 5 1,062,624 117 1,062,741

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Consolidated statement of changes in equity for the year ended 31 December 2006 In thousand EUR

Foreign Total attrib. Issued FA rev. Other rev. Treasury Retained currency to the Minority capital Reserves reserves reserve shares earnings difference parent interest Total

1.1.2006 272,721 247,606 116,940 184 -3,671 280,077 0 913,857 405 914,262 Foreign currency differences 15 15 15 Net gains on cash flow hedges 111 111 111

Deferred tax liability 6,126 6,126 6,126 Total income and expense recognised in equity 0 0 6,126 111 0 0 15 6,252 0 6,252 Net profit for the year 2006 103,407 103,407 103,407 Total income and expense for the year 0 0 6,126 111 0 103,407 15 109,659 0 109,659 Payment of dividends -34,270 -34,270 -34,270 Acquisition of remaining shares in Avtenta.si, d.o.o. -405 -405 Transfer to retained earnings -31,183 31,183 0 0

Transfer to reserves 41,730 -41,730 0 0

Other 26 26 26

31.12.2006 272,721 289,336 91,883 295 -3,671 338,693 15 989,272 0 989,272

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated cash flow statement for the year ended 31 December 2007 In thousand EUR 2007 2006 Operating activities Profit before tax 126,782 139,416 Adjustments for: Depreciation and amortisation 161,775 150,630 Depreciation and amortisation of investment property 47 43

Loss on disposal and write-downs of intangible assets and PPE 3,106 4,496 Gains on disposal of FA -1,177 -490

Finance income -10,348 -6,626 Finance cost 16,500 9,981

Change in assets held for sale 839 0 Change in trade and other receivables -34,125 -7,769 Change in other non-current assets -3,533 6,496 Change in inventories -3,084 -6,515

Change in provisions 4,428 -3,892 Change in deferred income 1,543 3,536 Change in accruals 4,295 6,497 Change in trade and other payables 21,354 20,449

Tax paid -37,070 -41,305 Cash flow from operating activities 251,332 274,947 Investing activities Receipts from investing activities 37,118 19,859 Proceeds from sale of PPE 1,856 2,003 Dividends received 3,784 464 Interest received 6,564 6,162 Proceeds from sale of non-current financial assets 3,938 241 Proceeds from sale of current financial assets 20,976 10,989 Disbursements from investing activities -350,950 -171,697 Purchase of property, plant and equipment -203,257 -138,016 Purchase of intangible assets -96,720 -19,875 Purchase of financial assets -1,965 -67 Investments in subsidiaries and joint ventures net of cash acquired -48,433 -13,426 Interest bearing loans -575 -313 Cash flow from investing activities -313,832 -151,838 Financing activities Receipts from financing activities 290,928 24,381 Paid in capital 0 0 Non-current borrowings 100,299 0 Short-term borrowings 190,629 24,381 Disbursements from financing activities -235,893 -98,973 Repayment of short-term borrowings -138,561 -1,250 Repayment of non-current borrowings -40,953 -54,131 Interest paid -16,500 -9,334 Dividends paid -39,879 -34,258 Cash flow from financing activities 55,035 -74,592

Net increase in cash and cash equivalents -7,465 48,517

Closing balance of cash 60,607 68,072 Opening balance of cash 68,072 19,555

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to the consolidated financial statements and summary of significant accounting policies of Telekom Slovenia Group

1. General information

Financial statements The financial statements are the consolidated (hereinafter the “Group”) financial statements of Telekom Slovenije d.d for the year ended 31 December 2007. In accordance with the article 54 of the Company Act the Group is required to prepare and publish consolidated financial statements in accordance with International Financial Reporting Standards as adopted by EU (IFRS) as the parent company’s shares are listed on the Ljubljana Stock Exchange.

The financial statements were authorised for issue by the Board on 20. March 2008. The Telekom Slovenia Group consists of the parent company, Telekom Slovenije d.d., and the following subsidiaries: - Mobitel, d.d., (100%) - GVO, d.o.o., (100%) - Avtenta.si, d.o.o., (100%) - Soline d.o.o., (100%) - Planet 9 d.o.o., (100%) - Ipko, d.o.o., Kosovo, (63.75%), - On.net d.o.o., Macedonia, (83.38%), - Teledat d.o.o. (100%), - Blic.net d.o.o. (100%) acquired in 2007 and - Interseek d.o.o. (75%) acquired in 2007.

The Group Interseek also has the following 100% owned subsidiaries Najdi.si, d.o.o. in Slovenia, Pogodak tražilica, d.o.o. in Croatia and Pogodak, d.o.o. in Serbia and a 50.1% owned subsidiary Meganet, d.o.o. in Slovenia.

Telekom holds 100% economic ownership in all subsidiaries, except Meganet, through holding call options and grating put options to minority holders.

Investments in joint venture represent mostly ownership of 50% of Gibtelecom, which was acquired in 2007.

General information Telekom Slovenije d.d., with its registered address in Cigaletova 15, Ljubljana, Slovenia, is a public company, incorporated and domiciled in the Republic of Slovenia, whose shares are listed on Ljubljana stock exchange.

As of 31 December 2007, the Republic of Slovenia as the majority shareholder holds 3,432,870 shares or a 52.53% interest in the Group.

Principal activities Telekom Slovenije d.d. is the owner of almost all telecommunications capacities in the territory of Slovenia. It provides local and international fixed-line telephone services, internet services in Slovenia, other telecommunications services, and sells various mostly telecommunications merchandise. Principal activities of Mobitel, d.d. include construction and management of the mobile telephony infrastructure, provision of telecommunication services in the field of public mobile telecommunications, sale of merchandise - mobile phone handsets and accessories.

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The Group also provides Internet services through Ipko, d.o.o. in Kosovo, Blic.net, d.o.o. in Bosnia and Herzegovina, On.net d.o.o. in Macedonia as well as through Interseek, d.o.o. in Slovenia, Croatia and Serbia.

GVO d.o.o. performs building and maintenance works on telecommunication networks, predominantly for Telekom Slovenije, d.d..

Avtenta.si, d.o.o is a system integrator of business solutions.

Teledat d.o.o is a publisher of subscriber's registers.

Summary of significant accounting policies The significant accounting policies used in the preparation of the separate and consolidated financial statements of Telekom Slovenije, d.d. are set out below. a) Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB), as adopted by the EU, and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC), Effective from the listing date the Group is required to prepare its consolidated financial statements in accordance with IFRS adopted by the EU (Regulation (EC) No 1606/2002). At this particular time, due to the endorsement process of the EU and the activities of the Group, there is no difference in the policies applied by the Group between IFRS and IFRS adopted by the EU. b) Basis for preparation The financial statements have been prepared on a historical cost basis except for the measurement at fair value of financial assets available for sale and derivative financial instruments, and certain classes of property, plant and equipment which are revalued to fair value under the alternative treatment available in IAS 16 (refer below to accounting policy (j). The accounting policies used are consistent with those applied in the previous year, except for the adoption of new standards and interpretations, noted below and the adoption of an accounting policy for joint venture investments and changes in accounting policies for valuation of land and buildings. The adoption of these standards and interpretations did not have any effect on the financial position or performance of the Group:

IFRS 7 - Financial instruments: Disclosures

This standard requires disclosures that enable users to evaluate the significance of a company’s financial instruments and the nature and extent of risk arising from those financial instruments. Additional disclosures have been included in the 2007 financial statements.

IAS 1 – Amendment – Presentation of financial statements

This amendment requires new disclosures to enable users of financial statements to evaluate a company’s objectives, policies and processes for managing capital. Additional disclosures have been included in the 2007 financial statements.

IFRIC 7 – Applying restatement approach under IAS 29

This interpretation addresses the application of IAS 29 – Financial reporting in hyperinflationary economies - when an economy first becomes hyperinflationary and in particular the accounting for deferred tax.

IFRIC 8 – Scope of IFRS 2

This interpretation addresses the accounting for share based payment transactions in which some or all of goods or services received cannot be specifically identified.

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IFRIC 9 – Reassessment of embedded derivatives

This interpretation requires that reassessment of whether an embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract that significantly modify the cash flows.

IFRIC 10 – Interim financial reporting and impairment

This interpretation prohibits the reversal of impairment losses recognised in previous interim periods in respect of goodwill, and investments in equity instruments or financial assets carried at cost.

The consolidated financial statements are presented in Euro, rounded to the nearest thousand Euro.

Euro was introduced as a legal currency in the Republic of Slovenia as of 1 January 2007 and replaced Slovene tolar as of that date. The comparative balance sheet information at 1 January and 31 December 2006 were restated to Euro at the exchange rates prevailing on these dates, while income statement information and cash flow information was restated at the weighted average exchange rate for the period. c) Basis of consolidation The consolidated financial statements comprise of the financial statements of Telekom Slovenije, d.d. and its subsidiaries as at 31 December each year. Financial statements of subsidiaries are prepared for the same reporting year as the financial statements of the parent company using consistent accounting policies. In case of inconsistencies of the accounting policies, the consolidated financial statements include relevant modifications.

All inter-company transactions, balances and including unrealised gains on transactions between group companies are eliminated.

Minority interest represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from the parent shareholders equity. Acquisition of minority interest is accounted for using the entity concept method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized as equity transaction.

When in a business combination the Group acquires less then 100% interest in the acquiree and the Group grants put option to the remaining shareholders of the acquiree exercisable at the later date, the put option on minority interest is recognized as a financial liability and corresponding minority interest is derecognised. The difference between the value of the put option and the cost of business combination is recognized as goodwill. Any subsequent changes in the value of the put option are recognised as an adjustment to goodwill. This is further described in the note 14. d) Functional currency and foreign currency transactions The consolidated financial statements are presented in Euro (EUR) which is the functional and presentation currency of the parent company and its subsidiaries in Slovenia. Foreign currency transactions are translated into the functional currency at the exchange rate ruling at the date of the transactions.

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The following functional currencies are used by foreign subsidiaries: • On.net, d.o.o. Macedonia: Macedonian Denar • IPKO, d.o.o. Kosovo: EURO • Blic.net, d.o.o. Bosnia and Herzegovina: Bosnian mark

The exchange differences arising on translation of the functional currency into the presentation currency are recognised directly in equity, until a foreign subsidiary is sold, when the foreign exchange differences are recognized in the income statement. e) Profit from operations Profit from operations is defined as result before income taxes and finance items. Profit from operations includes a share of profits of joint ventures. Finance items comprise interest revenue on cash balances in the bank, deposits, interest bearing available for sale investments, interest expense on borrowings, gains and losses on derivatives and on sale of available for sale financial instruments and foreign exchange gains and losses on all monetary assets and liabilities denominated in foreign currency. f) Significant accounting estimates The preparation of the financial statements required management to make certain estimates and assumptions which impact the carrying values of the Group’s assets and liabilities and the disclosure of contingent items at the balance sheet date and reported revenues and expenses for the period then ended. Estimates are used for, but not limited to: - depreciable lives and residual values of property, plant and equipment and intangible assets, - allowances for inventories and doubtful debts, and - legal claims.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Provisions and contingent liabilities As set out in notes 25 and 30 the group is a participant in several lawsuits and administrative proceedings including those related to its pricing policies. The Group’s treatment of obligations with uncertain timing and amount depends on the management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognised when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.

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Impairment of UMTS licence The Group determined that no indication of impairment of UMTS licence existed during 2007. Accordingly no impairment test has been performed. The carrying value of the licence at 31 December 2007 was 56,866 thousand EUR (31 December 2006:61,008 thousand EUR). Further details are given in note 12.

Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of a value in use of the cash generating unit to which the goodwill is allocated. Estimating a value amount requires management to make an estimate of the expected future cash flows from the cash generating unit and also to choose suitable discount rate in order to calculate the present value of those cash flows. The carrying value of goodwill at 31 December 2007 was 52,121 thousand EUR (31 December 2006: 19,332 thousand EUR). Further details are given in note 12. g) Significant management judgments In the process of applying the accounting policies, management had made the following judgment, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statement. The Group has concluded that there are no indicators of impairment of property, plant and equipment and intangible assets at year end and that there are no indicators that fair values of plant and equipment carried at revalued cost differ materially from carrying values. h) Early adoption of IFRS and IFRSs and IFRIC Interpretation not yet effective The Group has not early adopted any IFRS and IFRIC interpretation issued and not yet effective.

The following new and amended IFRIC will be adopted in future periods as required by International Financial Reporting Standards as adopted by EU:

- IFRIC 11 – IFRS 2 - Group and Treasury Share Transactions – effective for periods beginning on 1 March 2007. This interpretation addresses accounting treatment of share-based payments.

- IFRIC 12 – Service Concession Agreements – effective for periods beginning on 1 January 2008. This interpretation outlines the approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for infrastructure as property, plant and equipment, but rather recognise a financial asset and/or intangible asset (not yet endorsed by EU).

- IFRIC 13 – Customer Loyalty Programmes – effective for periods beginning on 1 July 2008. This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. (not yet endorsed by EU)

- IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction - effective for periods beginning on 1 January 2008. Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 – Employee benefits. (not yet endorsed by EU)

The following new standard will be adopted in future periods as required by International Financial Reporting Standards and EU.

- IFRS 8 - Operating segments – effective from 1 January 2009 This standard replaces - IAS 14 Segment reporting - and adopts a management approach to segment reporting and in case the numbers used by management for internal performance measurement of

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operating segments are different to the numbers reported in the financial statements requires a reconciliation of numbers used by management to the financial statements.

The following new and amended standards will be adopted in future periods as required by International Financial Reporting Standards, if endorsed by EU.

- IAS 23 – Borrowing costs - effective for periods beginning 1 January 2009 The revised IAS 23 requires capitalisation of borrowing costs that relate to the qualifying asset. The transitional requirements of the standard require it to be adopted as a prospective change from the effective date. This standard has not been endorsed by EU as at 31 December 2007.

- IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements

The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by IFRS 3R and IAS 27R must be applied prospectively and will affect future acquisitions and transactions with minority interests.

- IAS 1 Revised Presentation of Financial Statements

The revised IAS 1 Presentation of Financial Statements was issued in September 2007 and becomes effective for financial years beginning on or after 1 January 2009. The Standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Group is still evaluating whether it will have one or two statements.

- Amendments to IAS 32 and IAS 1 Puttable Financial Instruments

Amendments to IAS 32 and IAS 1 were issued in February 2008 and become effective for annual periods beginning on or after 1 January 2009. The amendment to IAS 32 requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met. The amendment to IAS 1 requires disclosure of certain information relating to puttable instruments classified as equity.

The Group is reviewing the not yet effective standards and interpretations and at this stage cannot reasonable assess the impact of the new requirements. The Group will comply with new standards and interpretations as and when effective.

i) Intangible assets Intangible assets are stated at cost less accumulated amortisation less impairment losses.

Expenditure on computer software is capitalised at cost and amortised on a straight-line basis over its estimated useful lives. The estimated useful lives which ranges from 2 –5 years. The cost of licenses is capitalised and amortised on a straight-line basis over the contract period of the relevant license, which is 9-20 years. Intangible assets are subject to amortisation once the assets are available for use.

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Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. j) Property, plant and equipment Owned assets Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Internal expenses capitalised in fixed assets are netted off against the relevant expenses in the income statement. When an item of property, plant and equipment comprises major components having different useful lives, these components are accounted for as separate items of property, plant and equipment. The Group changed its accounting policy for land and business premises from the cost model to the revaluation model in 2007. The effect of the change is described in note 13.

Subsequent to initial recognition certain classes of property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent depreciation and subsequent accumulated impairment losses. Those classes comprise land and buildings, cable and lines, exchange switches and other equipment in fixed lines operations. When an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity within revaluation reserves. The revaluation to fair value of these assets is based on a report of an independent appraiser. According to the policy adopted by the Group, the revaluation to fair value is carried out when fair values differs materially from carrying value, but not less than every five years.

Leased assets - finance lease Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise the property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

Operating lease All leases other than finance leases are regarded as operating leases. Lease payments under an operating lease are recognised as an expense in the income statement on a straight-line basis over the lease term. If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment required by the lessor as a penalty for the breach of contract is recorded as expense in the period, in which the contract is terminated.

Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re- evaluated. If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with new useful life.

Cost of borrowing Cost of borrowing is recognised as expense when incurred.

F-91 . withdrawal from the location. The cost of restoration of the location to its original condition is recognised as a component of the cost of purchase of the asset and is depreciated over its useful life. The provisions required for the restoration, discounted to the present value, are recognised under provisions ((w) and Note 25).

Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: - Buildings 7 to 50 years - cable lines 20 to 50 years - cable network 7 to 25 years - other structure 2 to 12.6 years - exchange switches 4 to 7 years - other devices 2 to 20 years - low value assets 3 to 10 years Land and assets under construction are not depreciated. An item of property, plant and equipment under construction is recognized at cost and depreciated when brought to working condition for its intended use. k) Investment property Investments properties are measured initially at costs, including transactions costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation. Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Land is not depreciated. The estimated useful of investment property is as follows: Buildings 20 to 50 years l) Financial instruments Primary financial instruments (cash and cash equivalents, trade and other receivables, trade payables and borrowings, investments) are recognised in the financial statements. The accounting policies applied to recognition and measurement of these items are disclosed in the respective accounting policies to the financial statements. m) Investments

Investments in joint ventures Investments in joint ventures are accounted for in the consolidated financial statements using the equity method. A joint venture is an investment into a jointly controlled entity based on a contractual foundation arrangement. Financial statements of joint ventures represent the basis for accounting under the equity method. The reporting date of joint ventures is equal to the reporting date of the Group. Joint ventures use consistent accounting policies, as used by the Group.

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Investments in debt and equity securities . Investments are classified as available-for-sale and are stated at fair value. Any associated unrealised gains or losses are recognised directly in equity. When the investment is disposed of the cumulative gain or loss previously recorded in equity is recognised in the income statement. Interest on debt securities are recognised in the income statement using effective interest rate.

Available-for-sale investments are recognised (or derecognised) on the date of commitment to purchase or sell.

Loans Loans are stated at amortised cost less impairment losses.

Impairment of financial assets The Group assesses at each balance sheet date whether financial assets or groups of financial assets are impaired.

Available-for-sale financial assets - impairment If available for sale asset is impaired, an amount comprising the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.

De-recognition of financial assets A financial asset is de-recognised when:

- the rights to receive cash flow from the asset have expired, - the group retains the right to receive cash flow from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement, or

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- the group has transferred its rights to receive cash flows from the assets and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. n) Derivative financial instruments Derivative financial instruments are used to hedge the Group’s exposure to risks arising from financing and investing activities. Derivative financial instruments are recognized initially at cost. After initial recognition, derivative financial instruments are measured at fair value. The method of recognition of gains or losses arising from the change in fair value depends upon the fact whether hedge accounting has been applied or not. When hedge accounting has been applied the recognition of gains or losses arising from the change in fair value depends on the type of hedging (refer to Note ‘o’). The fair value of foreign currency forward contracts is determined as the present value of the given price in the forward contract. The fair value of a call option is determined by the seller of the option. The model of valuation is based on the calculation of the present value of expected cash flows, taking into account the market conditions at the date of calculation. When hedge accounting has not been applied, derivative financial instruments are accounted for at fair value with changes in fair value recognised in the income statement. o) Hedging When a derivative instrument is designated as a hedge of the exposure to variability in cash flow that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the forecasted transaction results in the recognition of an asset or a liability, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and entered into the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, amounts that have been recognised directly in equity are included in net profit or loss in the same period during which the hedged forecasted transaction affects net profit or loss. The ineffective portion of the cash flow hedge is immediately recognized in the income statement The change in the instrument’s time value is excluded from the assessment of hedge effectiveness and is immediately reported in the income statement. If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge was effective remains separately in equity until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that initially has been reported directly in equity is reported in the income statement. p) Other non-current assets Prepaid rentals are deferred over the contract period and are progressively transferred to rental expenses. Rentals are prepaid for a period ranging from 3 to 29 years. Sale incentives given to subscribers in the form of subsidized mobile phone handsets or subsidised internet and television modems (subsidies) are recognised and deferred in the amount by which the handset’s cost exceeds its selling price under the condition, that subsidies shall be covered by the average monthly subscription fee earned over the expected life of the subscriber contract. Therefore, the difference between the selling price and the purchase cost of GSM or UMTS handsets or internet and television modems sold is reported within deferred costs. Subscription period applicable to UMTS handsets and internet and television modems is 24 months, and 12 months for GSM handsets. Over the period of the subscription agreement, deferred costs of subsidies are amortised proportionally to the income statement, starting at the inception of the contractual period.

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If a subscription agreement is terminated or a subscriber is disconnected from the network due to non- payment of bills, subsidies are impaired accordingly. q) Trade receivables Trade receivables are stated on initial recognition at fair value and subsequently measured at amortised cost less impairment losses. r) Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes the purchase price, import duties and other costs directly attributable to the acquisition. Slow -moving items of inventories are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. s) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of up to three months with insignificant risk of change in fair value. t) Impairment of assets The carrying amounts of the Group’s assets, other than inventories (refer to Note r) and deferred tax assets (refer to Note 18) are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount is the greater of an asset’s (or cash generating unit’s) net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. u) Dividends Dividends are recognised as a liability in the period in which they are approved. v) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value.

Subject to initial recognition interest bearing borrowings are stated at amortised cost with any differences between cost and the redemption value being recognised in the income statement over the terms of the loans on an effective interest basis. w) Provisions A provision is recognised in the financial statements when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If material, the provisions are determined by discounting the expected future cash-flows. Provisions for termination payments and anniversary bonuses Health, pension and social insurance contributions from gross wages and salaries are being paid by the Group during the year at the statutory rates. Contributions are recognised as an expense in the income statement in the period in which they are incurred. In accordance with the statutory requirements, the collective agreement, and the internal rules and regulations, the Group is obliged to pay to its employees an anniversary bonus and termination pay upon retirement, for which provisions are formed. The Group has no other pension liabilities Provisions are formed in the amount of the estimated future payments of anniversary bonuses and termination payments, discounted as at the balance sheet date. A calculation is made per employee on the basis of the cost of termination pay upon retirement and the cost of all expected anniversary

F-95 . bonuses to the time of retirement, using the projected unit credit method.

Provisions for costs of restoring the leased base station locations to their original condition The provisions are made for costs of removal of base stations and restoration of leased property to its original condition. Provisions are formed in the amount of estimated future cost of removal of base stations from the leased locations, discounted to the present value.

x) Trade and other payables Trade and other payables are stated at fair value on initial recognition and subsequently measured at amortised cost.

y) Revenue Revenue from services rendered is recognised when services are rendered and when there are no significant uncertainties regarding recovery of the consideration due. Revenue consists principally of revenue from monthly subscription fees, revenue from connection fees, revenue from call charges and charges for other services, revenue from provision of network services to other telecommunications companies (interconnection), revenue from the rental of network, and revenue from sale of merchandise. Revenue from subscription fees is recognised in the period to which it relates.

Revenue from connection fees is recognised at the time of conclusion of the agreement with the customer.

Revenue from call charges and charges for other services is recorded at the time when the call is made.

Revenue from prepaid call cards is deferred and recognized in the period in which the call is made.

Revenue from interconnection services and from rental of network is recognized in the period in which a service is provided. Revenue from sale of merchandise is recognised when the sale is carried out.

Sales revenue includes the sales value of goods sold in the accounting period.

z) Customer acquisition costs Group pays commission to dealers for acquisition of new subscribers of mobile telephony. The amount of commission depends on the type of subscription package. Commission which do not relate to the customer acquisition are reported in income statement when incurred. Customer acquisition cost, including sales incentives are expensed pro rata over the contracted subscription period ((p) - Other non-current assets).

aa) Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method that is the rate exactly discounts estimated future cash receipts over the expected life of the financial instrument) of to the net carrying amount of the financial assets. Dividend income of other companies is recognised in the income statement on the date that the right to receive dividend payment is established.

bb) Income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

F-96 .

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax is relating to items recognised directly in equity is recognised in equity and not in the income statement.

cc) Segment reporting The Group has two main business segments: fixed line telephony, and mobile telephony. The comparative data for 2006 have been amended to reflect the way the Management Board view the business segments. The fixed line and internet business segment were merged into fixed line business segment in both 2006 and 2007 information. Revenues of these segments are the same as are reported in stand-alone financial statements of Telekom d.d. for fixed line services and Mobitel d.d. for mobile services, whiles revenues of other subsidiaries are allocated to Group segments based on the type of revenue earned. IntraGroup transactions are contracted on an arm's length basis. The Group does not analyse results on a geographical basis as more than 90% of the Group’s operations are conducted in Slovenia.

F-97 .

2. Segment reporting

Year 2007 In thousand EUR

Fixed line telephone Mobile telephone services services Other Eliminations Consolidated

External sales 369,051 400,121 10,905 0 780,077

Inter segment revenue 47,049 32,963 71,443 -151,455 0

Segment revenue 416,100 433,084 82,348 -151,455 780,077

Other revenue 3,470 1,386 1,339 -338 5,857 Share of income from joint ventures 3,659

Cost of goods sold -20,588 -38,687 -12,810 12,465 -59,620 Cost of raw materials and consumables -9,224 -8,060 -11,951 21,157 -8,078

Cost of services -161,863 -183,486 -25,830 106,927 -264,252

Staff costs -74,489 -39,765 -22,715 10,275 -126,694

Amortisation/depreciation expense -89,563 -69,852 -2,230 -130 -161,775

Other operating expenses -11,296 -15,638 -3,965 -1,840 -32,739

Operating expenses -367,023 -355,488 -79,501 148,854 -653,158

Profit from operations 52,547 78,982 4,186 -2,939 136,435

Net finance cost -9,653

Profit before tax 126,782

Income taxes -38,412

Net profit for the period 88,370

Segment assets and liabilities Plant and equipment, and intangible assets 737,629 560,422 21,594 54,847 1,374,492 Investments and other non-current assets 431,952 26,272 630 -381,011 77,843

Investment properties 14,942 5,154 80 -14,461 5,715

Current assets 167,328 179,523 40,931 -105,809 281,973 Provisions and non-current deferred income 23,512 10,691 3,936 -2,351 35,788

Current liabilities and deferrals 283,928 105,652 30,582 -100,543 319,619

Other segment information

Capital expenditure in intangible assets 28,474 97,772 14,169 -4,733 135,682

Capital expenditure in PPE 150,998 60,718 5,046 -3,849 212,913

Amortisation 6,875 13,170 311 0 20,356

Depreciation 82,688 56,682 1,919 130 141,419

Impairment losses 2,288 5,730 504 0 8,522

F-98 .

Year 2006 In thousand EUR

Fixed line telephone Mobile telephone services services Other Eliminations Consolidated

External sales 352,821 382,293 9,955 0 745,069

Inter segment revenue 41,252 36,456 48,573 -126,281 0

Segment revenue 394,073 418,749 58,528 -126,281 745,069

Other revenue 2,442 572 547 -6 3,555

Cost of goods sold -18,326 -40,904 -7,711 7,467 -59,474

Cost of raw materials and consumables -6,745 -6,916 -8,847 15,255 -7,253 - Cost of services -142,563 -188,109 17,137 94,580 -253,229 - Staff costs -72,219 -39,325 18,833 7,713 -122,664

Amortisation/depreciation expense -81,425 -68,950 -1,474 1,219 -150,630

Other operating expenses -1,985 -8,336 -1,347 -1,713 -13,381 - Operating expenses -323,263 -352,540 55,349 124,521 -606,631 Profit from operations 73,252 66,781 3,726 -1,766 141,993

Net finance cost -2,577

Profit before tax 139,416

Income taxes -36,009

Net profit for the period 103,407

Segment assets and liabilities Profit, plant and equipment, and intangible assets 639,429 478,071 8,038 18,719 1,144,257 Investments and other non-current assets 251,719 20,791 401 -240,844 32,067

Investment properties 14,687 5,197 0 -14,687 5,197

Current assets 147,703 148,538 29,276 -49,420 276,097 Provisions and non-current deferred income 31,595 5,156 3,832 -10,002 30,581

Current liabilities and deferrals 157,514 92,168 23,173 -49,465 223,390

Other segment information

Capital expenditure in intangible assets 10,170 8,685 304 0 19,159

Capital expenditure in PPE 82,659 57,835 1,482 -4,610 137,366

Amortisation 2,409 14,515 487 -1,166 16,245

Depreciation 77,838 54,435 2,165 -53 134,385

Impairment losses 0 586 0 0 586

F-99 .

3. Revenue In thousand EUR 2007 2006

Voice 186,285 201,797 Voice transfer through IP network 1,894 743 Mobile telephone services 346,876 337,353 Internet and broadband access 63,853 56,102 Interconnection 27,283 20,660 International operator services 48,673 35,221 Leased lines 13,029 9,764 Unbundled access and co-locations 16,038 10,181 Voice services with added value 1,794 1,777 Data services 21,843 24,229 Network construction and maintenance 41 1,382 Sale of advertising space 1,845 1,683 Other services 12,420 6,898 Revenue from sale of merchandise 37,176 36,331 Other revenue 1,027 948

Total 780,077 745,069

In thousand EUR 2007 2006

Revenue from sale of services on domestic market 676,697 657,053 Revenue from sale of services on foreign market 66,212 45,102

Revenue from sale of merchandise on domestic market 37,120 42,841 Revenue from sale of merchandise on foreign market 48 73

Total 780,077 745,069

4. Other income In thousand EUR 2007 2006

Government grants 174 635 Other income 5,683 2,920

Total 5,857 3,555

F-100 .

5. Cost of services In thousand EUR 2007 2006

Cost of communication and transportation services and rent 13,451 12,784 Cost of maintenance 14,355 13,757 Cost of telecommunication services 132,058 126,797 Cost of leased lines 730 700 Cost of sale incentives 14,894 14,275 Cost of professional services 15,206 14,574 Cost of insurance, marketing and entertainment 35,295 33,796 Cost of sale commission 5,766 5,526 Cost of banking services 3,025 2,892 Cost of other services 29,472 28,128

Total 264,252 253,229

6. Staff costs In thousand EUR 2007 2006 Wages and salaries 88,088 84,701 Social security contributions 18,829 18,064 Other staff costs 19,777 19,899 Total 126,694 122,664

The average number of employees in the Group in 2007 was 4,132 (in 2006: 3,984).

7. Other operating expense In thousand EUR 2007 2006 Provision for legal cases (note 25) 6,233 -2,518 Impairment charge of current assets 8,522 1,743 Other costs 17,984 14,156 Total 32,739 13,381

8. Finance revenue

In thousand EUR

2007 2006 Dividends 963 950 Interest income on loans 6,504 5,791 Foreign exchange gain 167 623 Other financial income 88 0 Total 7,722 7,364

F-101 .

9. Finance cost In thousand EUR 2007 2006 Interest expenses 16,555 10,637 Change in fair value of derivative financial instruments 380 -696 Other financial expenses 440 0 Total 17,375 9,941

10. Income tax expense Income tax expense recognised in the income statement In thousand EUR 2007 2006 Current tax expense -37,224 -33,213 Deferred tax benefit/expense -1,188 -2,796 Income tax expense in the income statement -38,412 -36,009

Reconciliation of actual tax expense and computed tax expense (at the effective tax rate) In thousand EUR 2007 2006

Profit before tax 126,782 139,416

Income tax using the domestic corporation tax rate of 23% (25% in 2006) -29,160 -34,854 Deferred tax write off -2,731 0 Current year tax loss not recognised as deferred tax asset -3,366 0 Non-deductible expenses -3,615 -3,740 Change in tax rate -398 -2,962 Tax incentives used in the current period 793 5,547 Effect on different tax rate 60 0 Other 5 0 Total income tax expense -38,412 -36,009

Effective tax rate 2007: 30.3% (2006: 25.83%)

In accordance with Slovenian income tax regulations, the Group is entitled to an annual tax incentive in the amount equal to 20% of investments in research and development.

F-102 .

Deferred tax credit/expense recognised in the income statement is attributable to the following items In thousand EUR 2007 2006 Intangible assets -133 828 Property, plant and equipment -1,026 -2,815 Long- term investments -48 -96 Provisions 22 -1,263 Receivable and inventories 14 161 Accrued costs -17 389 Total -1,188 -2,796

Deferred tax expense recognised in the equity is attributable to the following item The Group recognised an increase in its deferred tax liability of 8,521 thousand EUR directly in equity. This increase relates to the revaluation of land and buildings. In addition, the Group further increased its deferred tax liability by 3,742 thousand EUR. This increase relates to the change in timing of the reversal of temporary differences relating to deferred tax liabilities arising from the revaluation of plant and equipment, which reversed in 2007 at a 23% tax rate rather then as previously expected over a longer period of time at a tax rate of 20%. This is the result of a new interpretation of the transitional adjustments required for tax reporting following the change in statutory reporting from Slovenian accounting standards to IFRS as adopted by EU.

11. Earnings per share

Earnings per share is calculated by dividing the profit attributable to equity holders of the company and the Group by the weighted average number of ordinary shares in issue during the year. The weighted average of ordinary shares in issue during the year is calculated on the basis of data of shares in issue during the period, considering any potential redemptions and sales in that period and the period, during which these shares were generating the profit. Adjusted net earnings per share also includes all potential ordinary shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would occur, if in the accounting period, they would be swapped for ordinary shares.

In thousand EUR 2007 2006 Net profit attributable to holders of ordinary shares of the parent company 88,340 103,407 Adjusted net profit attributable to holders of ordinary shares of the parent company 88,340 103,407

Weighted average number of ordinary shares for net earnings per share 6,505,478 6,505,478 Adjusted average number of ordinary shares for net earnings per share 6,505,478 6,505,478

F-103 .

12. Intangible assets

The movement in intangible assets was as follows

In thousand EUR Other intangible Intangibles in 2007 Goodwill Licenses Software assets construction Total

COST/ VALUATION

1.1.2007 19,456 107,037 66,902 5,764 2,515 201,674 Additions 21,001 88,672 7,569 844 21,369 139,455 Acquisition of subsidiary 11,788 0 1,712 0 0 13,500 Transfer to use 0 4,303 9,355 65 -13,723 0 Disposal, write-offs 0 -6 -183 -2,472 -60 -2,721 Transfer 0 603 -603 0 0

31.12.2007 52,245 200,006 85,958 3,598 10,101 351,908 ACCUMULATED AMORTISATION

1.1.2007 124 38,192 47,052 2,950 0 88,318 Additions 0 3,773 0 3,773 Acquisition of subsidiary 435 435 Disposal, write-offs 0 -55 0 -55 Amortisation 0 10,389 9,901 66 0 20,356

31.12.2007 124 48,581 61,106 3,016 0 112,827

CARRYING AMOUNT

1.1.2007 19,332 68,845 19,850 2,814 2,515 113,356 31.12.2007 52,121 151,425 24,852 582 10,101 239,081

F-104 .

The movement in intangible assets was as follows

In thousand EUR Other intangible Intangibles in 2006 Goodwill Licenses Software assets construction Advances Total

COST/VALUATION

1.1.2006 660 107,202 49,472 3,650 1,688 65 162,737 Additions 0 1429,313 964 8,723 1719,159 Acquisition of subsidiary 18,796 0 1,253 960 0 0 21,009 Transfer 0 807,626 190 -7,896 00 Disposal, write-offs 0 -387 -762 0 0 -82 -1,231

31.12.2006 19,456 107,037 66,902 5,764 2,515 0 201,674 ACCUMULATED AMORTISATION

1.1.2006 124 31,400 37,436 2,123 0 0 71,083 Acquisition of subsidiary 0 0 544 793 0 0 1,337 Disposal, write-offs 0 -90 -369 0 0 0 -459 Amortisation 0 6,8829,329 34 0 016,245 Cost of rent 0 0 112 0 0 0 112

31.12.2006 124 38,192 47,052 2,950 0 0 88,318

CARRYING AMOUNT

1.1.2006 536 75,802 12,036 1,527 1,688 65 91,654 31.12.2006 19,332 68,845 19,850 2,814 2,515 0 113,356

Goodwill The increase in the goodwill relates to the acquisition of Blic.net,d.o.o., Interseek,d.o.o. increase in the value of put option of minorities in Ipkonet, which is further described in note 14 and payment of contingent consideration of 2,900 thousand EUR in relation with the acquisition of Ipko,d.o.o. in 2006.

The recoverable amount of goodwill arising from the acquisition of Ipko,d.o.o has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 23.2% and cash flow projections beyond five year period are extrapolated at 0% growth rate.

The recoverable amount of goodwill arising from the acquisition of On.net, d.o.o. has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 21.1% and cash flow projections beyond five year period are extrapolated at 0.5% growth rate.

The recoverable amount of goodwill arising from the acquisition of Blic.net, d.o.o has been determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 22.37% and cash flow projections beyond five year period are extrapolated at 2% growth rate.

The recoverable amount of goodwill arising from the acquisition of Interseek, d.o.o has been

F-105 . determined based on the value in use calculation using cash flow projections based on the company’s financial projections approved by the Management Board covering a five year period. The pre tax discount rate applied to cash flow projections is 17% and cash flow projections beyond five year period are extrapolated at 2% growth rate.

Licences Licences represent licences for the use of radio frequency spectrum used by GSM 900 and 1800, and UMTS mobile telephony on the territory of the Republic of Slovenia and newly acquired GSM licence in Kosovo. In February 2007 the Group acquired GSM licence in Kosovo. The acquisition cost of the licence was 86,000 thousand EUR, of which 75,000 thousand EUR was payment of the licence fee. The licence expiries in 2022.

The carrying amount of the UMTS licence obtained amounts to 56,866 thousand EUR (2006: 61,008 thousand EUR).

13. Property, plant and equipment

Movement in property, plant and equipment In thousand EUR

Network equipment Assets Land and Cables Switching of mobile Other under 2007 buildings and lines exchanges operations equipment construction Advances Total

COST/VALUATION

1.1.2007 225,590 926,328 249,131 486,591 359,078 39,044 476 2,286,238 Revaluation effect 10,957 0 0 0 0 0 0 10,957

Additions 3,430 1,918 13,330 1,056 17,350 172,783 3,045 212,912 Acquisition of subsidiary 0 0 0 0 12,749 0 0 12,749 Transfer from assets under construction 6,867 48,813 27,268 21,920 44,443 -147,031 -2,280 0

Disposal, write-offs -862 -7,948 -125 -7,079 -18,080 0 0 -34,094

31.12.2007 245,982 969,111 289,604 502,488 415,540 64,796 1,241 2,488,762

ACCUMULATED DEPRECIATION

1.1.2007 61,517 533,577 214,089 202,323 243,831 0 0 1,255,337 Revaluation effect -33,151 0 0 0 0 0 0 -33,151 Acquisition of subsidiary 0 0 0 0 12,203 0 0 12,203

Depreciation 8,085 38,376 13,955 41,512 39,491 0 0 141,419

Disposal, write-offs -594 -359 0 -5,595 -15,909 0 0 -22,457

31.12.2007 35,857 571,594 228,044 238,240 279,616 0 0 1,353,351

CARRYING AMOUNT

1.1.2007 164,073 392,751 35,042 284,268 115,247 39,044 476 1,030,901

31.12.2007 210,125 397,517 61,560 264,248 135,924 64,796 1,241 1,135,411

F-106 .

The movement in property, plant and equipment was as follows In thousand EUR

Network equipment Assets Land and Cables Switching of mobile Other under 2006 buildings and lines exchanges operations equipment construction Advances Total

COST/VALUATION

1. 1.2006 214,671 892,012 242,043 475,401 323,022 47,864 800 2,195,813 Additions 569 1,466 0 464 4,181 126,414 4,272 137,366 Acquisition of new subsidiary 0 2,345 0 0 4,293 406 388 7,432 Transfer from assets under construction 13,679 37,397 11,091 38,845 39,612 -135,640 -4,984 0

Disposal, write-offs -3,329 -6,892 -4,003 -28,119 -12,030 0 0 -54,373

31.12.2006 225,590 926,328 249,131 486,591 359,078 39,044 476 2,286,238

ACCUMULATED DEPRECIATION

1.1.2006 55,428 501,290 204,191 189,626 216,316 5 0 1,166,856 Depreciation 7,341 38,283 13,770 38,495 36,485 11 0 134,385 Acquisition of new subsidiary 0 476 0 0 2,552 21 0 3,049

Disposal, write-offs -1,252 -6,472 -3,872 -25,798 -11,522 -37 0 -48,953

31.12.2006 61,517 533,577 214,089 202,323 243,831 0 0 1,255,337

CARRYING AMOUNT

1.1.2006 159,243 390,722 37,852 285,775 106,706 47,859 800 1,028,957

31.12.2006 164,073 392,751 35,042 284,268 115,247 39,044 476 1,030,901

Property, plant and equipment are free of encumbrances.

14. Business combinations

Acquisition of Blic.Net, d.o.o., Bosnia and Herzegovina In January 2007 Telekom Slovenije d.d. acquired 100% stake in Blic.Net, d.o.o., Banja Luka, Bosnia and Herzegovina.

Blic.Net, d.o.o., is provider of internet services in Bosnia and Herzegovina market.

F-107 .

Fair value of identifiable assets and liabilities on acquisition date: In thousand EUR unaudited Fair value of assets Property, plant and equipment and intangibles 175 Trade receivables 33 Cash and cash equivalents 12 Inventory 16 Total assets 236

Trade and other payables 30 Borrowings 670 Other liabilities 7 Total liabilities 707

Fair value of net assets -471 Consideration paid -390 Goodwill 861

Consideration paid in cash -390 Net cash acquired 12 Cash flow on acquisition -378

From the date of the acquisition Blic.net has contributed 26 thousand EUR losses to the net profit of the Group.

Acquisition of Interseek, d.o.o, Slovenia In August 2007 Telekom Slovenije,d.d. acquired a 75% stake in Interseek, d.o.o., Ljubljana, Slovenia.

Interseek, d.o.o., is provider of internet search services mostly in Slovenian market.

The Group has a call option and the minority shareholders have a put option on the remaining shares in Interseek,d.o.o exercisable in the period 2010 to 2014 at fair value at the exercise date plus a premium if the fair value exceeds predetermined value on an exercise date.

F-108 .

Fair value of identifiable assets and liabilities on acquisition date: In thousand EUR unaudited Fair value of assets Intangible assets 1,243 Property, plant and equipment 546 Investment property 82 Financial assets 58 Deferred tax assets 10 Trade receivables 1,840 Cash and cash equivalents 170 Other assets 24 Total assets 3,973

Trade and other payables 2,451 Borrowings 963 Provisions 71 Total liabilities 3,485

Fair value of net assets 488 Consideration paid and liabilities assumed -11,400 Goodwill 10,912

Consideration paid in cash -8,550 Net cash acquired 170 Cash flow on acquisition -8,380

Consideration paid and liabilities assumed: -11,400 Consideration paid in cash -8,550 Liability for put option granted -2,850 Total -11,400

From the date of the acquisition Interseek,d.o.o has contributed 305 thousand EUR to the net profit of the Group. If the combination had taken place at the beginning of the year the profit of the Group would have been increased by 550 thousand EUR and revenue of the Group would have been increased by 6,330 thousand EUR.

Disposal of Ipko,d.o.o shares to Factor Banka In June 2007, in connection with the acquisition of the GSM licence in Kosovo, Telekom Slovenije d.d. sold an 11.25% percent stake in Ipko,d.o.o. to Factor Banka. The terms of the arrangement are that Telekom Slovenije, d.d. has a call option to re-acquire the stake and Factor Banka has a put option to sell the stake to Telekom Slovenije, d.d. The exercise price for call and put option is the higher of the fair value at the time of the exercise of the option and 10,300 thousand EUR. The option is exercisable at any time three years after the date of the transaction.

F-109 .

Factor Banka also acquired additional 3.75% stake in Ipko, d.o.o from other minority holders of Ipko, d.o.o and in total owns 15% of Ipko,d.o.o. Factor Banka has a put option on the whole stake in Ipko, d.o.o, which can be exercised against Telekom Slovenije to the extent the shares were bought from the Group and the remaining stake against the other minority holders of Ipko, d.o.o. The Group guaranteed for the payment of minority holders to Factor Banka when the option is exercised. The fair value of the put option of Factor Banka was recognised in the Group financial statements as acquisition cost of the licence in the amount of 11,600 thousand EUR.

Additionally, as already disclosed in 2006 financial statements, the other minority holders of Ipko, d.o.o have a put option to the Group and the Group has a call option to the minority holders exercisable at fair value. Accordingly the change in the fair value of put option of minorities was recognised in the Group financial statements as adjustment to goodwill in the amount of 18,000 thousand EUR.

Acquisition of Gibtelecom In April, 2007, Telekom Slovenije, d.d. acquired a 50% interest in Gibtelecom, a telecommunication company in Gibraltar for 36,775 thousand EUR. Gibtelecom is a private entity that is not listed on any public exchange.

The share of the assets, liabilities, income and net profit of the jointly controlled entity at 31 December 2007 and for the period from the date of the acquisition to year end, which is included in the consolidated financial statements using equity method of accounting, are as follows: GIbtelecom, d.o.o 50%

In thousand EUR 2007

Current assets 15,974 Non-current assets 16,918 Total assets 32,892

Current liabilities 15,423 Non-current liabilities 4,076 Total liabilities 19,499 Net assets 13,393

Revenue and other income 7,131 Net profit 3,659

15. Other investments In thousand EUR 2007 2006 Investments in equity securities of banks 1,724 1,715 Investments in other equity securities 5,928 2,286 Loans to other entities 0 0 Loans to employees 2,781 2,816 Receivables from the sale of apartments and other 101 136 Loans to TK subscribers 717 318

. Other non-current financial assets 1,964 791 Total 13,215 8,062

F-110 All investments in equity securities are classified as available for sale. The investments into equity securities of banks cannot be reliably estimated, they are carried at cost. There were no significant movements in the year. All monetary assets at year end are denominated in Euro.

Other non-current financial assets in the Group accounts include the fair value of a hedging instrument used to hedge against interest rate risk (refer to note n of the accounting policies and note 32). The change in the fair value represents the change in the time value of the instrument, which is recognised in the income statement and the change in intrinsic value which is recognised in equity.

Of total 7,652 thousand EUR of available-for-sale equity securities in the Group financial statements, equity securities in the amount of 1,149 thousand EUR (2006: 1,164 thousand EUR) are recorded at fair value and are listed; the remainder are not listed and are carried at cost as their fair value is not reliably determinable.

16. Other non-current assets In thousand EUR 2007 2006 Long-term prepaid rentals 10,368 10,125 Long-term deferred sale incentives 13,672 13,738 Other non-current assets 2,913 75 Total 26,953 23,938

Movement in the deferred items (excluding sundry other non-current assets)

In thousand EUR Rentals Sale incentives 1.1. 2006 9,941 20,229 Increase 1,627 4,876 Transfer to expenses -1,443 -11,367 31.12. 2006 10,125 13,738 Increase 2,093 11,365 Transfer to expenses -1,850 -11,431 31.12.2007 10,368 13,672

17. Investment property

Movement in investment property In thousand EUR 2007 2006 Carrying value at 1 January 5,197 5,240 Increase 565 0 Depreciation of buildings -47 -43 Carrying value at 31 December 5,715 5,197

Investment properties are stated at cost.

The fair value of investment property approximates to its book value. In 2007 the revenue from property

F-111 . lease reached 70 thousand EUR (2006: 58 thousand EUR).

18. Deferred tax assets and liabilities

In thousand EUR 2007 2006 Intangible assets 1,398 1,264 Property, plant and equipment -6,927 6,624 Investments in financial assets -125 178 Trade receivables 1,295 900 Inventories 54 307 Other non-current assets 179 84 Provisions 4,628 4,600 Deferred tax assets 502 13,957

In accordance with Slovenian accounting standards (SAS), property, plant and equipment was indexed on a yearly basis by the use of the consumer price index until the year-end 2001. Through higher depreciation, the effect of indexation reduced the tax base in the financial statements prepared under SAS. In the financial statements prepared under IFRS, however, the revaluation was not recorded. Accordingly, deferred tax assets were recognised for the difference in the value of property, plant and equipment. As at 1 January 2004, the majority of property, plant and equipment items were restated and the difference between the values under SAS and the values under IFRS was significantly reduced. This resulted in a significant reduction in deferred tax assets while, on the other hand, deferred tax liabilities were recognised for the amount of the revaluation.

As at 1 January 2007, the Group revalued land and buildings that had not previously been revalued, resulting in a lower deferred tax asset overall.

19. Inventories In thousand EUR 2007 2006 Material 7,688 5,836 Products 484 212 Merchandise 17,011 16,086 Advance for inventories 41 7

Total 25,224 22,141

As at 31 December 2007, the inventories were restated to their realisable value. The impairment loss in the amount of 2,934 thousand EUR was recognised (2006: 1,132 thousand EUR).

F-112 .

20. Current trade and other receivables In thousand EUR 2007 2006 Trade receivables 114,328 110,703 Receivables from foreign operators 13,459 9,861 Receivables due from domestic operators 13,504 305 Advances 1,777 616 VAT and other tax receivables 18,749 7,682 Prepayments 11,283 10,555 Other receivables 3,089 3,919 Provision for impairment -10,752 -10,661 Total receivables 165,437 132,980

Movement of impairment allowance

In thousand EUR 2007 2006 Allowance as of 1 January -10,661 -12,177 Additions -2,953 -3,028 Reversal 1,663 2,329 Utilisation 1,199 2,215 Allowance as of 31 December -10,752 -10,661

At 31 December, the analysis of trade receivables that were past due but not impaired is as follows

In thousand EUR

Neither past Past due due nor and Total impaired impaired Past due but not impaired

Up to 30 More than days 31-60 days 60-90 days 91-120 days 120 days 2007 165,437 130,957 8,868 14,537 3,489 1,776 2,156 3,654

2006 132,980 105,541 7,057 11,568 2,777 1,413 1,716 2,908

Trade receivables are Non- interest bearing.

21. Current financial assets In thousand EUR 2007 2006 Other loans 834 5,504 Other short-term financial assets 15 617 Fair value of derivatives 52 491 Term deposits 27,500 44,816 Total 28,401 51,428

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Surplus cash is deposited with various local banks. Most pay interest at fixed rates ranging from 4.6% to 4,93%.

22. Cash and cash equivalents In thousand EUR 2007 2006 Cash in hand and bank balances 20,237 6,069

Deposits with banks 40,370 62,003 Total 60,607 68,072

Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one to three months, depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates.

23. Capital and reserves

Shares issued Authorised, issued and fully paid up capital amounts to 272,721 thousand EUR. It is divided into 6,535,478 ordinary shares.

Ownership structure as of 31 December 2007 Shareholder Number of shares Share in % Republic of Slovenia 3,432,870 52.53 Slovenska odškodninska družba, d.d. 931,387 14.25 Kapitalska družba, d.d. 365,175 5.59 PID – DZU 221,409 3.39 legal entities 600,249 9.18 Individual shareholders 679,895 10.40 Other shareholders 304,493 4.66 Total 6,535,478 100.00

The balances and changes in equity are shown in the Statement of Changes in Equity. The number of issued shares did not change in 2007.

Reserves Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of the Management Board. Consistent with the Companies Act, the Management Board is entitled to appropriate one half of the profit for the period to reserves.

Structure of reserves In thousand EUR 2007 2006 Capital surplus 131,178 126,135 Reserves for treasury shares 3,671 3,671 Statutory reserves 54,544 54,544 Other reserves 104,986 104,986 Total 294,379 289,336 Capital and statutory reserves can be used for purposes specified in the company’s act and statutes.

F-114 .

Statutory reserves may not exceed 20% of share capital. These reserves are not distributable. As these reserves exceed the legally prescribed percentage for legal reserves, no legal reserve was formed.

Reserves for own shares are formed in the amount paid for these shares. These reserves are not distributable. The Group has not acquired any additional own shares during the year.

The Group can transfer up to 50% of current year profits to other reserves. Other reserves are distributable.

Retained earnings Retained earnings include retained net profit from previous periods and net profit for the current period.

According to the resolution of the Shareholders' meeting held on 26 June 2007, the net profit of 39,879 thousand EUR was appropriated to dividend payout (2006: 34,270 thousand EUR), which represents a 6.13 EUR dividend per share (2006: 5.27 EUR).

Dividends proposed Proposed for approval at AGM 83,270,118.40 EUR

Dividend per ordinary shares 12.80 EUR

Treasury shares In 2003, the Group acquired 30,000 of its own shares at par value of 1,252 thousand EUR representing 0.46% of the Group's share capital.

Fixed asset revaluation reserve

The transfer of 2,439 thousand EUR from revaluation reserves relating to property, plant and equipment to retained earnings and the transfer of 5,043 thousand EUR from revaluation reserve to capital reserve relates to additional depreciation resulting from the revaluation of property, plant and equipment for the year ended 31 December 2007. The decrease in the revaluation reserve of 3,742 thousand EUR relates to the increase in the deferred tax liability (see note 10). The revaluation reserves were increased as a result of the revaluation of property, plant and equipment in the amount of 44,108 thousand EUR as at 1 January 2007 and decreased for the deferred tax liability in the amount of 8,521 thousand EUR due to the revaluation. The revaluation reserve is not distributable.

24. Non-current deferred income In thousand EUR 2007 2006 Co-location billed in advance 5,342 5,138 Government grants for property, plant and equipment 1,415 1,338 Other 498 0 Total 7,255 6,476

Co-location relates to payments received in advance for renting certain premises and equipment to other operators.

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25. Provisions In thousand EUR

31.12.2006 Decrease Increase 31.12.2007 Provisions for probable payments resulting from legal actions 12,023 -3,529 6,123 14,617 Provisions for terminal bonuses on retirement 8,481 -315 522 8,688

Cost of base station removals 2,874 -41 407 3,240 Other 727 -19 1,280 1,988 Total 24,105 -3,904 8,332 28,533

Total damages claimed by pending legal actions brought against the Group companies amount to 217,476 thousand EUR, of which the largest claim of 129,557 thousand EUR was brought by T-2 d.o.o., Tus telekom (21,467 thousand EUR) and Sinfonica (36,030 thousand EUR). The Management is of the opinion that the three largest claims have no legal basis.

In 2005, a law firm Colja Rojs & partnerji o.p., d.n.o. was engaged to represent the Group in the legal proceedings started by Western Wirelles International d.o.o. Western Wirelles International d.o.o. claimed damages of 203,868 thousand EUR, plus penalty interest and litigation costs. According to the contract, the law firm was entitled to between 0 and 1.5% of the damages claimed depending on the outcome of the dispute. The legal action was withdrawn in 2006. So far the law firm has not issued an invoice for its services and the negotiations relating to the final cost of services are in progress. Based on the Management Board’s assessment of the possible liabilities, provisions of 626 thousand EUR were made in 2006 and additional provisions of 1,225 thousand EUR in 2007.

26. Interest bearing borrowings

F-116 .

In thousand EUR 2007 2006 Non-current borrowings Borrowings from foreign banks 319,200 259,740 - current portion of non-current borrowings -45,516 -41,128 - non-current portion of borrowings from banks 273,684 218,612 Borrowings from suppliers 0 1,764 - current portion of non-current trade credits 0 -989 - non-current portion of trade credits 0 775 Other 45 18 Total non-current borrowings 273,729 219,405

Current borrowings Borrowings from domestic banks 80,093 27, 844 Current portion of non-current borrowings from foreign banks 45,516 41,128 Current portion of non-current trade credits 0 989 Other 0 68 Total current borrowings 125,609 70,029

Contractual terms agreed on borrowings

In thousand EUR Maturity in excess of 5 Non-current Current years (incl. Last portion portion in non-curr. payment 31.12.2007 31.12.2007 portion) Interest rate agreed due Collateral 3 m EURIBOR – 0.020% 2010 - 2011 6 m EURIBOR – 0.025% 2017 Non-current 3 m EURIBOR + 0.083% 2017 borrowings from 273,684 45,516 50,712 no collateral 6 m EURIBOR + 0.7% 2009 banks 6 m EURIBOR – 0.55% 2011 4.928% 2008 - 2009 Current portion of 1 m EURIBOR + 0.450%

borrowings from 1 m EURIBOR + 0.480% 29.09.2008 no collateral - 80,093 - banks 4.300%

Major items in non-current borrowing are borrowings from EIB Luxembourg, from a syndicate of local commercial banks. Borrowings from EIB Luxembourg in the amount of 38,000 thousand EUR (2006: 62,983 thousand EUR) are payable by 2009. Borrowings from a syndicate of commercial banks in the amount of 129,984 thousand EUR (2006: 129,984 thousand EUR), are repayable by 2011. In the syndicate of commercial banks, local banks participate with 50% of funds. At the balance sheet date, borrowings from EIB in the total amount of 158,468 thousand EUR mature by 2017 (2006: 66,425 thousand EUR). The banks that have approved long-term loans require that certain debt covenants specified in the loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth, EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in early maturity of borrowings. The Group is in compliance with these covenants.

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27. Trade and other payables In thousand EUR 2007 2006 Trade payables 106,433 81,675 Payables to domestic operators 6,395 2,371 Payables to foreign operators 13,438 12,059 VAT and other taxes payable 11,149 7,472 Payables to employees 8,973 8,241 Advances 74 0 Other payables 7,455 4,432 Total 153,917 116,250

Trade payables are non-interest bearing and are normally settled on 30 to 90 days term. Payables to operators are Non- interest bearing and are normally settled on 15 to 30 days term.

28. Short-term deferred income In thousand EUR 2007 2006 Mobile telephony prepaid cards 2,467 2,122 Subscriptions billed in advance and short-term collocations 12,236 13,541 Lease of lines billed in advance 0 609 Current portion of government grants for PPE 0 175 Other deferred income 2,557 49 Total 17,260 16,496

29. Commitments

The Group as leases Non-cancellable liabilities for operating leases payments for the lease of property plant and equipment are as follows: In thousand EUR Payable in 2007 2006 - 1 year 8,598 11,085 - 1 year to 2 years 9,322 12,288 - 3 years to 5 years 14,840 26,309 - 5 years and over 30,249 48,354 Total 63,009 98,036

Total cost of operating leases for the year 2007 amounted to 10,677 thousand EUR (2006: 11,085 thousand EUR).

The Group as lessor Receivables from operating leases are refer to lease of lines and lease of property, plant and equipment and are as follows:

F-118 .

In thousand EUR Receivable in 2007 2006 - 1 year 1,810 1,436 - 1 year to 2 years 3,600 2,882 - 3 years to 5 years 3,600 4,258 - 5 years and over 9,000 9,849 Total 18,010 18,425

In 2007, income from operating leases recognized in the income statement amounted to 3,398 thousand EUR (2006: 3,181 thousand EUR).

Capital commitments At 31 December 2007 the Group has commitments of 7,122 thousand EUR, principally relating to the completion of mobile network.

30. Contingent liabilities In thousand EUR 2007 2006 Contingent liabilities from legal actions 217,476 144,298

At the balance sheet date, there were 26 pending legal actions brought against the Group companies in the total amount of 217,476 thousand EUR (2006: 144,298 thousand EUR). Based on the opinion of legal advisors the Management Board expects the liability from the said legal actions to amount to 14,617 thousand EUR (Note 25).

Contingent liability arising from the dispute with law firm Colja, Rojs & partnerji, o.p.,d.n.o is described in note 25.

31. Transactions with related parties

Related parties of the Group include the Republic of Slovenia as the majority shareholder of Telekom Slovenije, d.d., other shareholders, the Management Board, the supervisory board and their family members.

Transactions with related individuals Natural persons (president and members of the Management Board, president and members of the supervisory board) hold 1,602 shares of Telekom Slovenije, d.d. or a 0.02 % shareholding.

In 2007, no loans were granted to related individuals.

Fees paid to the Management Board and the Supervisory Board

In thousand EUR 2007 2006 The Management Board 1,121 1,522 Supervisory Board 282 40 Total 1,403 1,562

F-119 .

Information on groups of persons In thousand EUR Loans Share of profit paid according Outstanding Total to resolution of amount Repaid in Trade receipts the AGM 31.12.2007 2007 receivables Total members of the Management Board 1,121 - - - - - Dremelj Bojan,MSc 248 - - - - - Mitič Dušan 222 - - - - - Dr. Ogris-Martič Filip 222 - - - - - Puljič Željko,MSc 222 - - - - - Senica Darja 207 - - - - Members of the Supervisory Board 282 130 - - - Other members of management employed under a contract for which tariff under the collective agreement does not apply 2,678 - 182 23 3

Loans to other managers are at interest rates between 3.35% to 4.53% with term of 4 to 20 years. The Group has not granted any advances or guarantees.

Transactions with the Government of Republic of Slovenia and entities and institutions under its control The Group provides telecommunications services to the Government of Republic of Slovenia and various entities, agencies and companies in which the Slovenian state is either the majority or minority shareholder. All such transactions are concluded on normal commercial terms and conditions such as are not more favourable than those available to other customers. On aggregate, the state-owned entities, agencies and companies comprise one of the Group’s largest customers. In providing services to these entities, agencies and companies, the Group conducts business with them as separate customers. Services provided to any governmental entity, agency or state-owned company individually do not represent a significant component of the Group’s revenue. Total income earned from sales to the central and local governments and other public entities amounts to 48,262 thousand EUR in 2007 (2006: 47,625 thousand EUR). The Group does not monitor nor collect information on sales to companies owned or partially owned by the republic of Slovenia or entities under its control. Accordingly information on such sales has not been disclosed.

32. Financial risk management

The Group also enters into interest rate derivatives. The purpose is to manage the interest rate risks arising from its sources of finance.

It is and has been throughout 2007 and 2006 the Group’s policy that no trading in derivatives shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Management Board reviews and agrees policies for managing each of these risks which are summarised below.

Foreign currency risk

The Group provides its services predominantly in Slovenia. The currency risk in ordinary activities arises in connection with international operators and foreign suppliers of services, merchandise and property and plant and equipment.. The majority of deliveries and borrowings from foreign entities are denominated in Euro, which is also the functional currency of the Group. Therefore, the exposure to

F-120 . foreign currency risk is minimal.

Since the currency risk is assessed as minimal, the Group does not use any special instruments to hedge its exposure to such risks.

Interest rate risk

Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of the Group's operations. The interest structure of the balance sheet assets and liabilities is not matched, since the amount of borrowings is much higher than the amount of interest-earning investments. The negative movement (increase) of the variable Euribor interest rate represents an exposure to interest rate risk in respect of borrowings. All non-current borrowings bear interest at a variable interest rate based on 3 m and 6 m Euribor.

The adopted financial risk management allows the Group to hedge against interest rate risk by using interest rate swaps. The Group uses derivative financial instruments exclusively for the purpose of risk hedging and at year-end, 67.4 percent of non-current loans were hedged against interest rate risk.

The table below sets the Group's derivative instruments used for hedging interest rate risk

Date of Notional Fair value at Fair value at contract Maturity amount 31.12.2007 31.12.2006

in EUR in thousand EUR in thousand EUR Interest rate cap 04.11.2004 19.08.2009 80,000,000 824 481 Interest rate collar 19.01.2005 19.08.2011 50,000,000 431 244 Participating interest rate swap 20.08.2004 15.09.2009 20,010,000 53 209 Participating interest rate swap 05.11.2004 15.03.2010 25,317,500 59 283 Participating interest rate swap 23.08.2007 15.12.2010 40,000,000 -59 -

215,327,500

The interest rate swap of 40,000 thousand EUR, interest rate cap and interest rate collar are designated for hedge accounting and 442 thousand EUR relates to effective hedging recognized in equity. Other derivatives are not designated for hedge accounting.

Interest rate risk table The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowing (net of interest rates hedges). There is no impact on the Group’s equity.

Increase/decrease in basis points Effect on profit before tax 2007 EURO +10 +114 EURO -10 -114

2006 EURO +10 +214 EURO -10 -214

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Non interest bearing financial instruments are not included in the tables above as they are not subject to interest rate risk.

Credit risk The Group has a large number of customers, both individuals and legal persons. Since receivables are widely spread, the Group assesses the credit risk as low. The Group has developed well-established procedures of managing receivables and formation of allowances for receivables. Receivable balances are monitored on an ongoing basis with the result that Group's exposure to bad debts is not significant. The Group's maximum exposure to receivables equal to the carrying amount of these receivables. With respect to credit risk arising to from the other financial assets of the Group, which comprise cash and cash equivalents, deposits with banks, available for sale financial assets, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

The table below summarises the maturity profile of the Group's financial liabilities as at 31 December 2006 and 2007 based on the contractual undiscounted payments

In thousand EUR Less than 3 3 to 12 More than 2007 Past due On demand months months 1 to 5 years 5 years Total Borrowings 0 0 26,921 114,234 256,140 56,889 454,184

Other liabilities 0 0 0 0 48,596 52 48,648 Trade and other payables 8,434 0 137,918 6,955 610 0 153,917 Less than 3 3 to 12 More than 2006 Past due On demand months months 1 to 5 years 5 years Total Borrowings 0 0 44,177 30,021 237,824 0 312,022

Other liabilities 0 0 110 109 483 64 766

Trade payables 5,768 0 102,503 7,946 33 0 116,250

Capital management The primary objective of the Group's capital management is to ensure that it maintain strong credit rating and capital ratios in order to support its business and maximise shareholder value. The group and the company monitors capital using a gearing ratio, which is net debt divided by total net debt plus total equity. The Group includes within net debt, interest bearing loans and borrowings, less current financial assets and cash and cash equivalents.

F-122 .

In thousand EUR 2007 2006

Interest bearing loans and borrowings 399,577 289,581

Less current financial assets, cash and cash equivalents -89,008 -119,500 Net debt 310,569 170,081

Capital 1,062,741 989,272 Capital and net debt 1,373,310 1,159,353 Gearing ratio 23% 15%

Fair value

The Group estimates that fair values of financial assets and liabilities are not significantly different to their carrying value.

33. General authorisation and the rights of use for radio frequencies and numbers

Telekom Slovenije,d.d has in the past notified the provision of the following electronic communications services:

- Public Voice Services over a Fixed Public Telecommunications Network, - International Telecommunications Services, - Data Transmission Services, - Domestic and International Leased Line Services.

Pursuant to the notification the annual fee must be paid in the amount of 488 thousand EUR (2006: 517 thousand EUR). The amount of the fee to be paid is defined with a tariff, which is a general act of the Agency.

Telekom Slovenije,d.d also has to pay annual fees for the rights of use for radio frequencies and for numbers. The fee for the rights of use for radio frequencies amounts to 315 thousand EUR (2006: 283 thousand EUR), and the fee for the rights of use for numbers amounts to 345 thousand EUR (2006: 374 thousand EUR). The amount of the fees to be paid is defined with in the tariff, which is a general act of the Agency.

F-123 .

Mobile line operations Period Service concession agreements Starting date (years) Concession fee

Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 4,173 thousand GSM global network 03.01.2001 15 EUR

Concession Agreements for Telecommunications 15, extended Initial fee of Services with the usage of radio frequency spectrum in to 91,804 thousand third generation mobile network system: UMTS 27.11.2001 21.09.2021 EUR

Concession Agreements for Telecommunications Initial fee of Services with the usage of radio frequency spectrum in 75,000 thousand GSM global network 06.03.2007 15 let EUR

In 2007, the Group paid 1,756 thousand EUR (2006: 1,283 thousand EUR) of these fees.

F-124 .

F-125 REGISTERED OFFICE OF THE ISSUER Telekom Slovenije, d.d. Cigaletova ulica 15 1000 Ljubljana Slovenia

AUDITORS OF THE ISSUER Ernst & Young d.o.o. Dunajska Ljubljana Slovenia

FISCAL AGENT, REGISTRAR AND PAYING AND TRANSFER AGENT BNP Paribas Securities Services, Luxembourg Branch 33, rue de Gasperich Howald-Hesperange L-2085 Luxembourg

LISTING AGENT BNP Paribas Securities Services, Luxembourg Branch 33, rue de Gasperich Howald-Hesperange L-2085 Luxembourg

LEGAL ADVISERS To the Issuer as to English law as to laws of the Republic of Slovenia Linklaters LLP Dolzˇan, Vidmar in Zemljaricˇ One Silk Street Slovenska cesta 29 London EC2Y 8HQ Ljubljana 1000 United Kingdom Slovenia

To the Managers as to English law as to laws of the Republic of Slovenia White & Case LLP Wolf Theiss 5 Old Broad Street Tivolska cesta 30 London EC2N 1DW Ljubljana United Kingdom Slovenia imprima — C101806