United Group

H1 2017 HIGH YIELD BONDHOLDER REPORT

H1 2017 HIGH YIELD REPORT

CONTENTS Page

Summary ...... 3 Key Operating Measures ...... 6 Results of Operations ...... 8 Liquidity and Capital Resources ...... 14 Subsequent (Material Recent) Events ...... 18 Mergers & Acquisitions ...... 19 Group Background ...... 20 Appendices ...... 24

H1 2017 HIGH YIELD REPORT

Disclaimer

THIS REPORT (THIS “REPORT”) IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR INFORMATION PURPOSES. BY READING THIS REPORT, ATTENDING A PRESENTATION OF THIS REPORT (THE “PRESENTATION”) AND/OR READING THE SLIDES USED FOR THE PRESENTATION (THE “PRESENTATION SLIDES”) YOU AGREE TO BE BOUND AS FOLLOWS:

This Report, the Presentation and/or the Presentation slides contains forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”, “estimates”, “would”, “will”, “could”, “should” or similar expressions or the negative thereof. Such forward- looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual performance or achievements to be materially different from future performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future strategies and the environment in which we will operate in the future. These forward-looking statements speak only as at the date of this Report, the Presentation and/or the Presentation slides. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based.

This Report, the Presentation and/or the Presentation slides contains summary unaudited condensed financial information for Adria B.V. and its subsidiaries for the six months ended June 30, 2017. The interim statement of financial position for Adria Midco B.V. and its subsidiaries as at 30 June 2017 and as at 30 June 2016, as well as the condensed consolidated interim statements of profit or loss and cash flows for Adria Midco B.V. and its subsidiaries for the six months period then ended have been reviewed by our independent auditors in accordance with the International Standard on Review Engagements 2410 and have been prepared in accordance with IFRS. Data for the six months ended June 30, 2016 has been restated in this Report as this data in the H1 2016 report was based on management results and not reviewed by our auditors for the H1 2016 report.

Certain financial measures and ratios related thereto in this Report, and/or the Presentation, including EBITDA, Adjusted EBITDA, Adjusted EBITDA minus capital expenditure, RGUs and ARPU (collectively, the ‘‘Non-IFRS Measures’’) are not specifically defined under IFRS or any other generally accepted accounting principles. These measures are presented here because we believe that they and similar measures are widely used in our industry as a means of evaluating a company’s operating performance and financing structure. Our management believes this information, along with comparable IFRS measures, is useful to investors because it provides a basis for measuring the operating performance in the periods presented. These measures are used in the internal management of our business, along with the most directly comparable IFRS financial measures, in evaluating the operating performance. These measures may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles, and you should not consider such items as alternatives to income (loss), operating income or any other performance measures derived in accordance with IFRS, and they may be different from similarly titled measures used by other companies.

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Summary

29 August 2017 – , the leading cable and pay-TV operator in South Eastern Europe, today reports its financial results for the first six months of 2017.

Operational Highlights  Homes passed up by 13% to 1,744 thousand compared to H1 2016, primarily as a result of network expansion and the acquisition of Ikom in and M-Kabl in Montenegro  Number of unique cable subscribers increased to 1,079 thousand  RGUs up by 16% year-on-year to 3,431 thousand, driven by organic growth and acquisitions  Blended Cable ARPU for H1 2017 up by 5% year-on-year to €20.1 (H1 2016: €19.1), driven by migration from lower-priced to higher-priced service packages, growth in subscribers for the multi-play offering, and price increases in Serbia, and

Financial Highlights  Consolidated Group revenue for H1 2017 up 13% year-on-year to €249.3 million (H1 2016: €220.3 million)  Consolidated Group Adjusted EBITDA up by 18%1 in H1 2017 to €108.8 million (H1 2016: €92.6 million)  Net cash inflow of €8.8 million against an outflow of €0.8 million in H1 2016

 Net leverage (ratio of Group Net Debt to Annualised Last Two Quarters Adjusted Pro Forma EBITDA2) as at June 30, 2017 increased to 3.98x (3.96x as at March 31, 2017)

1 Year-on-year comparison is affected by the positive acquisition effect of M-Kabl and Ikom and changes in FX rates 2 Pro Forma Adjusted EBITDA calculated as two times Q1 2017 + Q2 2017 Adjusted EBITDA plus two times 4 months 2017 Ikom adjusted EBITDA (Ikom was consolidated into United Group from May 1, 2017), plus €3.1 million of expected synergies with Ikom.

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The following summary describes the operations in each of our current business segments:  SBB Serbia includes the results of cable services in Serbia and DTH operations in Serbia, Croatia and Macedonia, including the results of EUnet (merged to SBB in February 2017) and Ikom, which was acquired in April 2017. Absolut Solutions and Totalna TV Croatia results are included in the SBB Serbia segment, however their results are not reflected in the statutory consolidated results of the SBB Serbia Group.  Slovenia includes the results of our cable and mobile services in Slovenia and DTH operations in Slovenia;  Telemach BH includes the results of our cable and DTH services in Bosnia and Herzegovina;  Telemach Montenegro includes the results of our cable and DTH services in Montenegro;  United Media Group. This segment includes the results of our media and content business in the former Yugoslav region including the results of N1, , Grand Production, Orlando Kids and Bambino; and  Other Businesses includes our other operating businesses, such as NetTV and Holding companies

United Group generated consolidated revenues of €249.3 million during H1 2017, up 13% year-on-year. Growth of our business operations resulted primarily from organic growth of our subscriber base, migration of subscribers to multi-play packages and the positive impact of companies acquired in 2016 and 2017. Adjusted EBITDA generated during H1 2017 increased by 18% year-on-year to €108.8 million.

Summary financials table in € m H1 2016 H1 2017 Change

Revenue 220.3 249.3 13%

Adjusted EBITDA 92.6 108.8 18%

Result from operating activities 28.7 29.4 3%

Profit/(loss) before tax (4.1) (36.9) .a.

In H1 2017, SBB generated 36% of our revenue and 40% of our Adjusted EBITDA, Telemach Slovenia generated 38% of our revenue and 29% of our Adjusted EBITDA, Telemach BiH generated 12% of our revenue and 10% of our Adjusted EBITDA, Telemach MNE generated 3% of our revenue and 2% of our Adjusted EBITDA, United Media generated 8% of our revenue and 17% of our Adjusted EBITDA and Other Businesses generated 3% of our revenue and 2% of our Adjusted EBITDA.

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Revenue, net % of total Adj. EBITDA % of total H1 2017 in € m

SBB Serbia Segment 89.3 36% 43.6 40% Telemach Slo Segment 94.5 38% 31.2 29% Telemach BH Segment 30.1 12% 10.9 10% Telemach MNE Segment 6.9 3% 2.1 2% United Media Segment 20.4 8% 18.5 17% Other Businesses 8.2 3% 2.6 2% Total 249.3 100% 108.8 100% As of June 30, 2017, United Group had 3.43 million RGUs, up by 16% compared to the same period last year (H1 2016: 2.95 million) and an increase of 221 thousand quarter- on-quarter (Q1 2017: 3.21 million). This positive trend was driven by organic growth and the acquisition of Ikom with more than 161 thousand of RGUs. Blended cable ARPU for the period was €20.1 compared to €19.1 for H1 2016, with the 5% increase primarily driven by the migration of existing subscribers from lower-priced to higher-priced service packages, growth in subscribers for the multi-play offering, and price increases in Serbia, Slovenia, and Bosnia and Herzegovina. The trend of subscriber migration to multi-play packages is expected to continue with further development of the cable market. Excluding M-Kabl, the acquisition of which resulted in the introduction of a cable subscriber base and therefore blended cable ARPU of €15.5 at Telemach MNE, Group ARPU growth would have been even stronger. Capital expenditure (including capitalized inventory) in H1 2017 amounted to €69.0 million, compared to €58.8 million in H1 2016. The majority of investments during the period were related to network upgrades (especially in mobile) and investment in customer premise equipment and content. In addition, capex growth was driven by one off projects in Serbia, where the digitalisation project is ongoing in Novi Sad, the country’s second biggest city, and investments in DTH end user equipment in Slovenia, resulting from the switch off of the two most popular television programs. Both projects are expected to support revenue and EBITDA growth in the future. Higher capex was also caused by investment in coax network expansion at Ikom.

United Group six month financial statements have been prepared in accordance with IFRS.

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Key Operating Measures

United Group uses several key operating measures, including homes passed, unique cable subscribers, RGUs and ARPU, to track the performance of the business. None of these terms are measures of financial performance under IFRS, nor have these measures been reviewed by an outside auditor, consultant or expert. These measures are derived from management information systems. As these terms are defined by our management, they may not be comparable to similar terms used by other companies. Please refer to Appendix 3 for definitions of our key operating measures.

Unique Cable Subscribers, RGUs and ARPU

The following table sets forth key operating measures for United Group as of and for the six months ended June 30, 2017 and June 30, 2016.

Group in 000 H1 2016 H1 2017 Change % Change Key Operating Measures

Homes passed 1,542 1,744 13% 202 Unique cable subscribers 928 1,079 16% 151 RGUs 2,951 3,431 16% 480 Cable pay-TV 928 1,079 16% 151 DTH pay-TV 474 501 6% 27 OTT 110 118 7% 8 Broadband internet 579 704 22% 125 Fixed -line telephony 382 482 26% 100 Mobile services 361 430 19% 69 Other services 116 116 1% 1 Penetration 60.2% 61.9% 3% 0.02 Broadband internet 37.6% 40.4% 8% 0.03 Fixed-line telephony 24.8% 27.6% 12% 0.03 Blended Cable ARPU (in €) 19.1 20.1 5% 1.0

Homes passed increased by 13% year-on-year to 1,744 thousand, driven by network expansion and acquisitions of Ikom in Serbia and M-Kabl in Montenegro.

As of June 30, 2017, we had 1,079 thousand cable pay-TV RGUs, which represents an increase of 151 thousand compared to June 30, 2016, resulting from organic growth and acquisitions (93 thousand unique cable subscribers acquired in Serbia and 23 thousand unique cable subscribers acquired in Montenegro).

The total number of DTH pay-TV RGUs amounted to 501 thousand as of June 30, 2017, which represents an increase of 6%, compared to 474 thousand as of June 30, 2016.

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As of June 30, 2017, we had 704 thousand broadband internet RGUs, representing an increase of 22% year-on-year, primarily attributable to an increase in multi-play subscriptions over this period, subscriber growth and 56 thousand RGUs acquired in Serbia and 11 thousand RGUs acquired in Montenegro.

The total number of fixed telephony RGUs rose to 482 thousand as of June 30, 2017, an increase of 26% compared June 30, 2016, primarily attributable to an increase in multi-play subscriptions over this period and 12 thousand RGUs acquired in Serbia.

Our OTT RGUs grew by 7% to 118 thousand, compared to 110 thousand as of June 30, 2016. This figure includes 15 thousand OTT RGUs in Serbia and Slovenia.

Our mobile service RGUs increased by 19% year-on-year to 430 thousand as a result of organic growth following our acquisition of Tušmobil in April 2015.

Our total RGUs increased by 16% year-on-year to 3,431 thousand. RGUs added over this period were a result of acquisitions of Ikom and M-Kabl, growth in the number of cable pay-TV, OTT, telephony and DTH subscribers, as well as the growing proportion of multi-play subscribers.

The following table provides a breakdown of our key operating measures for SBB Serbia, Telemach Slovenia Telemach BH and Telemach MNE. in 000 SBB Serbia Telemach Slovenia Telemach BH Telemach MNE Footprint H1 2016 H1 2017 QoQ H1 2016 H1 2017 QoQ H1 2016 H1 2017 QoQ H1 2016 H1 2017 QoQ

Homes passed 884 1,057 20% 305 309 1% 307 318 4% 45 60 33% Unique cable subscribers 532 656 23% 186 184 -1% 210 211 0% 1 27 3448% 60% 62% 61% 60% 68% 66% 2% 46% RGUs Cable pay-TV 532 656 23% 186 184 -1% 210 211 0% 1 27 3448% DTH pay-TV 259 267 3% 31 40 29% 121 129 6% 63 65 3% OTT 12 14 13% 0 1 221% Broadband internet 308 409 33% 138 139 1% 133 142 7% 0 15 Telephony 164 243 48% 153 160 4% 64 76 19% 0 3 Mobile services 361 430 19% Other services 76 88 16% 23 25 6% 3 2 -34% 14 2 -85% Total RGUs 1,351 1,676 24% 893 978 10% 531 560 6% 79 113 43%

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

SBB Serbia Telemach Slo Telemach BH Telemach MNE in € H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 ARPU

Cable pay-TV 8.9 9.3 17.2 17.9 7.5 8.8 10.5 Broadband internet 9.9 9.4 16.0 16.6 8.4 9.3 8.5 Telephony 4.9 4.6 3.8 3.6 9.6 8.8 5.0 Mobile services 13.2 10.9 Blended Cable ARPU 16.0 16.9 32.2 33.4 15.5 18.0 15.5 DTH pay-TV 8.6 8.7 15.7 16.0 7.3 8.0 9.8 10.7

ARPU from broadband internet includes value-added services such as online backup, internet security and anti-virus solutions. One unique cable subscriber can be a Revenue

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Generating Unit for cable pay-TV, fixed-line telephony, broadband internet or other services. DTH subscribers are DTH RGUs. SBB Serbia. Blended cable ARPU for SBB Serbia in H1 2017 was €16.9, an increase of 5.6% year-on-year. This positive trend was primarily a result of a price increase implemented in January 2017 and the continued positive impact of subscribers upgrading to multi-play packages. This growth would have been higher without the acquisition of Ikom, which had lower ARPU than SBB. DTH ARPU at SBB Serbia increased to €8.7. Telemach Slovenia. Blended cable ARPU for Telemach Slovenia in H1 2017 increased by 3.9% year-on-year to €33.4, driven by the growth in the number of multi-play subscribers. The price increase, effective as of April 2017, had a positive impact on cable service revenues. The segment’s mobile ARPU for the six months of 2017 amounted to €10.9. DTH ARPU at Telemach Slovenia increased to €16.0, from €15.7 in H1 2016, due to a price increase in April 2017. Telemach BH. Blended cable ARPU for Telemach BH in H1 2017 was €18.0, an increase of 16.4% year-on-year. This increase in blended cable ARPU per customer was driven by growth in the number of subscribers for our multi-play offering and the price increase in August 2016.

DTH ARPU at Telemach BH increased to €8.0, from €7.3 in H1 2016, due to a price increase in April 2017.

Telemach MNE. Blended cable ARPU for Telemach MNE in H1 2017 was €15.5, while DTH ARPU increased to €10.7, from €9.8 in H1 2016, as result of up-selling and add- on packages.

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Results of Operations

In this report we present financial data for United Group for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Please refer to Appendix 2 for the key factors affecting our business and results of operations. For a description of the key line items, please refer to Appendix 4. in €000 H1 2016 H1 2017 %

Revenue 220,250 249,293 13% Other income 1,128 1,484 32% Content cost (30,358) (37,771) 24% Satellite capacity cost (4,012) (3,142) (22)% Interconnection link cost (18,996) (18,376) (3)% Materials cost (18,103) (16,772) (7)% Staff costs (24,624) (26,875) 9% Other operating expenses (37,644) (47,423) 26% IFRS EBITDA 87,641 100,418 15%

Depreciation (35,700) (42,267) 18% Amortisation of intangible assets (23,276) (28,752) 24% Results from operating activities 28,665 29,399 3%

Finance income 366 8,742 2,289% Finance costs (33,081) (75,075) 127% Net finance costs (32,715) (66,333) 103%

Profit/(loss) before tax (4,050) (36,934) 812%

Income tax (expenses)/benefit (4,281) (2,920) (32)% Profit/(Loss) for the period (8,331) (39,854) 378%

(Loss)/profit attributable to: Owners of the Company (8,446) (41,273) 389% Non-controlling interests 115 1,419 1,134% (Loss)/profit for the period (8,331) (39,854) 378%

Revenue. The Group recorded strong revenue growth of 13% year-on-year to €249.3 million in H1 2017. This was a result of higher organic and non-organic subscriber growth, growth in average revenue per subscriber, and the acquisitions of M-Kabl Montenegro (August 2016), Maxtel in Slovenia (November 2016) and Ikom in Serbia (end of April 2017). Revenue figures for the business segments below exclude intra-company transactions, which have been eliminated.

Revenue by Segment in € m H1 2016 H1 2017 Change

SBB Serbia 76,027 89,276 17% Telemach Slovenia 91,264 94,467 4% Telemach BiH 25,695 30,057 17%

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Telemach MNE 4,941 6,872 39% United Media 14,776 20,443 38% Other 7,547 8,178 8% Total 220,250 249,293 13%

SBB Serbia. Revenue for our SBB Serbia Group segment increased by 17% year-on- year to €89,276 thousand in H1 2017, mostly as a result of a price increase in January 2017, continuous growth of the number of subscribers and RGUs per subscriber, and the Ikom acquisition.

Telemach Slovenia. Revenue at Telemach Slovenia increased by 4% year-on-year to €94,467 thousand in H1 2017 as a result of higher revenues in cable, mobile and the B2B segment due to the acquisition of Maxtel.

Telemach BH. Revenue at Telemach BH increased by 17% year-on-year to €30,057 thousand in H1 2017, primarily due to the price increase of the analogue service in August 2016 and bundle packages in April 2017. Additionally, continuous growth of the number of subscribers and penetration of internet and telephony services contributed to revenue growth.

Telemach MNE. Revenue at Telemach MNE increased by 39% year-on-year to €6,872 thousand in H1 2017, primarily due to the acquisition of M-Kabl and the growth of cable services.

United Media Group. Revenue at United Media Group increased by 38% year-on-year to €20,443 thousand in H1 2017, primarily driven by increased sales of distribution rights to various channels and a price increase for our own channels to third parties.

Other Businesses. Revenue at our Other Businesses segment increased by 8% year- on-year to €8,178 thousand in H1 2017, driven by the increase of our Net TV subscribers.

Intragroup eliminations increased by 62% in H1 2017 compared to the same period of 2016.

Other income. Other income in H1 2017 was €1,484 thousand. This amount represents non-operating revenues.

Content cost. Content cost in H1 2017 increased to €37,771 thousand, up 24% compared to H1 2016, due to an increase in the number of subscribers, and continuous improvements to our program offering.

Satellite capacity cost. Satellite capacity cost in H1 2017 decreased by 22% to €3,142 thousand, due to regrouping of TV channels and a reduced number of transponders, resulting from the MPEG 2 to MPEG 4 switch.

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Link and interconnection cost. Total cost in H1 2017 decreased by 3% to €18,376 thousand, mainly attributable to lower mobile and roaming interconnection costs caused by regulated and reduced roaming tariffs in European Union.

Materials cost. Materials cost in H1 2017 decreased by 7% year-on-year to €16,772 thousand, primarily as a result of lower recognition of cost of sold handsets.

Staff costs. Staff costs in H1 2017 increased by 9% to €26,875 thousand, primarily attributable to an increase in headcount due to organic growth and acquisitions.

Depreciation. Depreciation in H1 2017 increased by 18% to €42,267 thousand, mainly due to higher fixed tangible assets, resulting from the acquisitions and expansion- related capex.

Amortization of intangible assets. Amortization of intangible assets in H1 2017 increased by 24% to €28,752 thousand, primarily due to recognition of certain intangible assets during purchase price adjustments and growth of our media business.

Other operating expenses. Other operating expenses in H1 2017 increased by 26% to €47,423 thousand, primarily due to higher marketing costs, management fees and production costs in the Media segment.

Net finance costs. Net finance costs in H1 2017 increased by 103% to €66,333 thousand, primarily due to the recognition of a redemption premium (in amount of €30.5 million) caused by the premature repayment of our senior secured notes issued under our 2013 indenture and related additional interest costs.

Loss before tax. Loss before tax in H1 2017 narrowed to €2,920 thousand, from €4,281 thousand in H1 2016.

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EBITDA Reconciliation

EBITDA is a supplemental measure of financial performance that is not required by, or presented in accordance with IFRS. ‘‘EBITDA’’ is defined as Profit/(Loss) for the period plus income tax (benefit)/ expense, depreciation, amortization of intangible assets and net finance costs. EBITDA is not a measurement of performance or liquidity under IFRS and should not be considered as an alternative to (a) net income as determined in accordance with IFRS as a measure of our operating performance, (b) cash for the period as a measure of our ability to meet our cash needs, or (c) any other measure of performance or liquidity under IFRS. We present EBITDA and the ratios derived therefrom, because we believe that they are measures commonly used by investors and they are measures that we use in managing our business. EBITDA, as presented in this report, however, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.

The following table provides a reconciliation of Profit/(Loss) for the period to EBITDA. in €000 H1 2016 H1 2017 Change

Profit/(Loss) for the period (8,331) (39,854) 378% Income tax (benefit)/expense 4,281 2,920 -32% Depreciation 35,700 42,267 18% Amortization of intangible assets 23,276 28,752 24% Net finance costs 32,715 66,333 103% EBITDA 87,641 100,418 15% Non-operating expenses 4,910 8,427 72% Adjusted EBITDA 92,551 108,845 18%

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

Annualized L2Q Adjusted EBITDA 217,690 Adjustment for annualized 4 months 2017 Adjusted Ikom EBITDA 2,945 Adjustment for additional expected Ikom synergies 3,100 Annualized Last Two Quarters Adjusted Pro Forma EBITDA 223,735

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Gross Leverage and Net Leverage Ratio Our gross leverage ratio (i.e. ratio of Group Gross Debt to Annualized Last Two Quarter EBITDA) as at June 30, 2017, decreased to 4.08x compared to 4.28x as at March 31, 2017 and net leverage ratio (i.e. ratio of Group Net Debt to Annualized Last Two Quarter EBITDA) increased to 3.98x compared to 3.96x.

in €000 H1 2017 a) Annualized Last Two Quarters EBITDA 223,735 b) Cash and cash equivalents 22,764 c) Finance lease 10,362 d) SSRCF 120,617 e) Senior Secured Notes due 2020 775,000 f) Other financial liabilities 7,053 g) As adjusted Group Gross debt (c+d+e+f) 913,032 h) As adjusted Group Net debt (g-b) 890,268

i) Gross leverage (g/a) 4.08x j) Net leverage (h/a) 3.98x

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Liquidity and Capital Resources

Our primary sources of liquidity and funds for capital expenditures, acquisitions and other investments are expected to be operating cash flow, our new Revolving Credit Facility, potential additional issuances of debt securities, ancillary and bilateral lending facilities and finance leases. Our ability to generate cash from our operations will depend on our future operating performance, which is in turn dependent, to some extent, on general economic, financial, competitive, market, regulatory and other factors, many of which are beyond our control. We maintain cash and cash equivalents to fund the day-to-day requirements of our business. We hold cash in euro as well as Serbian dinar, Bosnia and Herzegovinian mark and U.S. dollar. Historically, we have relied primarily upon bank borrowings under senior secured credit facilities, other debt facilities and cash flow from operations to provide funds required for investments in capital expenditure and operations.

As at June 30, 2017, we had €22.8 million in cash and cash equivalents. The decreased cash level is a result of a payment related to the acquisition of Ikom on April 20th 2017. In addition, a €775.0 million Bond, partially drawn Revolving Senior Secured Credit Facility of €135.0 million, plus €20.0 million unsecured bilateral RCF in Serbia, finance leasing in the amount of €10.4 million and other financial liabilities of €7.1 million were in place as at June 30, 2017. Cash Flow The table below summarises the consolidated cash flow for the Group for the six months ended June 30, 2017. in €000 H1 2016 H1 2017 Change Operating net cash flow 30,562 49,308 18,746 Investing net cash flow (58,221) (116,174) (57,953) Financing net cash flow 26,871 75,671 48,800 Net cash flow (788) 8,805 9,593

Net cash from / (used in) operating activities. Net cash flows from operating activities increased by €18,746 thousand from a net cash inflow of €30,562 thousand in H1 2016 to a net cash inflow of €49,308 thousand in H1 2017, mainly due to better operating results and net working capital management. This increase was dampened by higher tax payments (€2,301 thousand), resulting from improved results.

Net cash from / (used in) investing activities. Net cash outflows used in investing activities increased by €57,953 thousand, from a cash outflow of €58,221 thousand in H1 2016 to a cash outflow of €116,174 thousand in H1 2017, due to the digitalization process in Novi Sad and investment in DTH end user equipment in Slovenia. In addition, acquisition-related payments totaling €41,577 thousand contributed to this trend.

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Net cash from / (used in) financing activities. Net cash flows from financing activities increased by €48,800 thousand, from a cash inflow of €26,871 thousand in H1 2016 to a cash inflow of €75,671 thousand in H1 2017, mostly as a result of the debt draw down related to the Ikom acquisition.

Capital Expenditure

Our capital expenditure relates primarily to the purchase of property and equipment, including expansion of our network in terms of capacity and new homes connected, purchase of modems and set-top boxes to be installed in customer premises, growth in RGUs and maintenance of our cable and mobile networks and infrastructure, purchase of intangible assets such as content, software, investments in our core infrastructure and systems to facilitate the addition of new services and acquisitions. Therefore, capital expenditure is primarily driven by extending, upgrading and maintaining our cable and mobile networks, the installation and in-home wiring for new subscribers, the cost of cable modems, including high-speed modems for subscribers to our high-speed broadband internet, and the acquisition of content. Our capital expenditure has also historically included certain investments of a non-recurring nature, as well as costs to integrate acquired businesses.

Capital expenditure also includes increases in intangible assets (except our customer list and brand names) and does not include financial assets. As part of our strategy to focus on capital expenditure improving returns, we have implemented measures to ensure a more efficient usage of capital investment. We intend to manage capital expenditure to maintain our well-invested asset base. The members of our board review all material capital expenditure programs.

Our capital expenditure for H1 2017 amounted to €69.0 million, compared to €58.8 million in H1 2016.

Over the next several years, we expect that our capital expenditure will be largely success and capacity based. Success and capacity based capital expenditure includes capital expenditure related to the expansion of our network footprint to additional homes and existing subscribers, the replacement of set-top boxes, expanding network capacity, new product and service development and expenditure incurred when connecting business subscribers to our network. Success based capital expenditure does not include capital expenditure for maintenance, upgrade and replacement of our systems and infrastructure.

Management currently does not expect capital expenditure to exceed depreciation levels on a long-term basis.

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CAPEX by Segment in €000 H1 2016 H1 2017 Change

SBB Serbia 23,242 30,992 33% Telemach Slovenia 19,280 19,971 4% Telemach BiH 9,949 6,971 -30% Telemach MNE 1,557 1,886 21% United Media 4,307 8,881 106% Other 415 251 -39% Total 58,750 68,953 17%

SBB Serbia. Capital expenditure for SBB Serbia increased by 33% to €30,992 thousand in H1 2017, due to an additional purchase of digital decoders for the digitalization project in Novi Sad and investment in the Ikom network upgrade. Telemach Slovenia. Capital expenditure for Telemach Slovenia increased by 4% to €19,971 thousand in H1 2017, driven by investment in the mobile network and DTH end user equipment.

Telemach BH. Capital expenditure at Telemach BH in H1 2017 decreased by 30% to €6,971 thousand compared to the same period last year, as investment in the network and CPE equipment of companies acquired in 2015, to align them with UG standards, was completed by the end of 2016.

Telemach MNE. Capital expenditure for the Montenegro segment increased by 21% to €1,886 thousand in H1 2017 due to increased network investments at M-Kabl.

United Media. Capital expenditure for United Media increased by €4,574 thousand to €8,881 thousand in H1 2017 due to the timing of the broadcasting rights acquisition and investment in the proprietary software development (Cloud project).

Other. Capital expenditures for this segment decreased by 39% year-on-year to €251 thousand in H1 2017.

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

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Adjusted EBITDA-CAPEX was higher in H1 2017 compared to H1 2016 due to faster growth of EBITDA compared to CAPEX growth. in €000 H1 2016 H1 2017 Change

Adjusted EBITDA 92,551 108,845 18%

CAPEX 58,750 68,953 17%

Adjusted EBITDA - CAPEX 33,801 39,892 18%

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Subsequent (Material Recent) Events

As at July 27, 2017, the Group issued bonds in the nominal amount of €1,350,000 thousand. The Bond was issued in three tranches. The first tranche in the nominal amount of €575,000 thousand bears an interest rate of 4.375% p.a. and matures on July 1, 2022. The second tranche in the nominal amount of €325,000 thousand bears an interest rate of 4.875% p.a. and matures on July 1, 2024. The third tranche in the amount of €450,000 thousand bears a floating rate and matures on July 1, 2023. On July 27, 2017, the Group used €945,843 thousand of these proceeds to repay existing bonds, revolving credit facilities and related costs. In July 2017, the Group signed an agreement for a revolving facility with a bank consortium led by UniCredit Bank in the total available amount of €100,000 thousand. Additionally, Serbia Broadband d.o.o. signed an agreement for a revolving facility with Komercijalna banka a.d. Beograd for the amount of €60,000 thousand. Together with the Raiffesen Bank a.d. Beograd facility of €20,000 thousand, the total available amount of unsecured local RCF is €80,000 thousand.

On July 25, 2017, Solford, a member of United Group, closed an agent agreement with Fides Ltd (Marshal Islands) to take over of 2,431 subscribers for a total consideration of €425.4 thousand. Željko Batistić, former CEO of Telemach Bosnia, was promoted to Group Vice President – Technology. The Company’s COO, Admir Drinić, became the new Chief Executive Officer of Telemach Bosnia. The Group finalized the merger of its three entities in Montenegro on 1 August 2017.

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Mergers & Acquisitions

On August 29, 2016, we signed an SPA for the acquisition of Ikom, a cable operator in Serbia with 93 thousand unique cable subscribers, for a total consideration of €45 million. This transaction closed on 20 April 2017.

In June 2016, we signed an SPA for the acquisition of Maxtel, a Dark fiber B2B operator in Slovenia, for a total consideration of €4 million. This transaction closed in November 2016.

On July 27, 2016, the Group closed the acquisition of M-Kabl, a cable operator in Montenegro with close to 23 thousand unique cable subscribers and 34 thousand RGUs, for €12.7 million.

On December 28, 2016, the Group concluded an agreement to acquire 51% of IDJ Digital Holding Limited, Malta, for EUR 551 thousand. This transaction closed on 21 April 2017. On January 1, 2017, Total TV d.o.o. merged into Telemach d.o.o., Slovenia. On February 1, 2017, Eunet d.o.o. merged into SBB d.o.o., Serbia. Both mergers are a part of routine corporate structure optimization.

On February 9, 2017, the Group concluded an agreement to acquire 100% of Fight Channel d.o.o., Croatia, for €2.5 million. The transaction completed on 5 April 2017.

In June 2017, we signed an SPA for the acquisition of a cable operator in one of our core markets with approximately 14,000 subscribers for a purchase price of €10 million, and which is expected to close in September. On July 9, 2017, the Group entered into a framework agreement with CME BV for the acquisition of all issued and outstanding share capital and capital stock of TV d.d. (‘‘Nova Croatia’’) and Produkcija Plus storitveno podjetje d.o.o. (‘‘POP Slovenia’’, which includes POP TV d.o.o. and Kanal A d.o.o.) for a total consideration of €230 million, subject to customary completion accounts adjustments. The transaction is subject to customary regulatory approvals by the local competition authorities and is expected to be completed by the end of 2017. Regulatory approvals for the acquisition of City Čačak were received. The Group remains in negotiations with the current owner. United Group continually monitors M&A opportunities and is currently in the early stages of evaluating multiple potential opportunities. In line with its stated strategy, the Group is looking for acquisitions that are value accretive and offer substantial synergies with the Group’s existing operations.

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Group Background

We are the leading distributor of cable and satellite pay-TV in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro, where we also provide broadband internet and fixed-line telephony services via our cable infrastructure. Additionally, we offer mobile telephony services in Slovenia, and we also distribute satellite pay-TV across the six countries of former Yugoslavia, Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Macedonia and Montenegro. We are the only pan-regional distribution platform in a region of approximately 20 million people. We are the leading multi-play provider in our primary markets, where we combine our services into packages, or bundles, which offer subscribers the convenience of being able to purchase television, broadband internet and telephony services from a single provider, and provide us with significant opportunities to cross-sell our products. We believe that we have been able to establish our business as one of the leading distribution platforms in our region due to our attractive content portfolio, which we have established through ownership of certain key pay-TV channels as well as long-term contracts with third parties, our well-invested network that provides, among other things, one of the highest internet download speeds in our markets, and our high-quality customer service, which has led to low churn rates that we believe evidence a satisfied customer base.

The following summary describes the operations in each of our reportable segments or subgroups:

 SBB Serbia. This segment includes the results of cable services in Serbia and DTH operations in Serbia, Croatia and Macedonia, including the results of EUnet (acquired in May 2015, merged in February 2017) and Ikom (acquired in April 2017). Absolut Solutions and Totalna TV Croatia results are included in the SBB Serbia segment, however their results are not reflected in the consolidated results of SBB Serbia Group;

 Telemach Slovenia. This segment includes the results of cable and mobile services in Slovenia and DTH operations in Slovenia;

 Telemach BH. This segment includes the results of cable and DTH services in Bosnia and Herzegovina;

 Telemach MNE. This segment includes the results of cable and DTH services in Montenegro;

 United Media Group. This segment includes the results of our media and content business in the former Yugoslav region including the results of N1, Sport Klub, Grand Production, Orlando Kids and Bambino; and

 Other Businesses include our other operating businesses, such as NetTV and Holding companies

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Management team Many of our key management members have been with our business since its inception, including our Executive Chairman and Founder, Dragan Šolak, our Group Vice President - Sales and Marketing, Victoriya Boklag and our Group Vice President - Operations, Violeta Vasilijević. Our senior management team has substantial experience in the , media and technology industries, as well as in banking, private equity and corporate finance. Many members of our senior management team, including our founder, have held different positions within our business and have shaped the direction of the its development and its organic growth within the region. Dragan Šolak - Founder and Executive Chairman of the Group. Mr. Šolak founded SBB in 2000 and has been a member of the management since the Group’s inception. In 2009, Mr. Šolak assumed the role of Group Executive Chairman. In his current role, he continues to be involved in all aspects of the business and is responsible for the overall strategic leadership of the Group.

Victoriya Boklag – Director - Group Vice President - Sales & Marketing and SBB CEO. Ms. Boklag has been with the management team since the Group’s inception, and prior to assuming her current role she held various functions including Director of Finance. Since June 2016, Ms. Boklag has also acted as CEO of SBB Serbia. Ms. Boklag holds a BA degree from the ICU Kiev.

Violeta Vasilijević - Group Vice President - Operations. Ms. Vasiljević has been with the management team since the Group’s inception. She is currently responsible for the technical and operating support for all the Group’s administrative functions and products. Ms. Vasiljević holds a degree in Mechanical Engineering from the University of Kragujevac.

Vladislav Ratajac - Group Vice President - Corporate Development. Mr. Ratajac joined the management team in 2011. Mr. Ratajac held positions at Mid Europa Partners from 2008 to 2011 and Deutsche Bank before joining the Group. He holds a degree in Economics from Rutgers University in New Jersey, USA.

Janez Živko – Director - Group Vice President - Finance. Mr. Živko joined the management team in June 2015. Prior to joining us, Mr. Živko served as CFO of the Petrol Group, one of the largest companies in Slovenia. He has also served in numerous roles at Gorenje Group over a period of seven years, including Director of Finance and Deputy CFO. Mr. Živko began his career in 1998 as a financial analyst and subsequently financial controller for European operations at ACT Teleconferencing in Denver, Colorado. He holds a Masters in Business Administration (in Finance) from the University of Denver, USA.

Dragica Pilipović Chaffey – Group Vice President – Corporate Affairs. Ms. Pilipović Chaffey joined the management team in 2009. Prior to her current role, Ms. Pilipović Chaffey held a number of senior posts within the European Bank for Reconstruction and Development (EBRD), and the IMF in Washington, D.C. Ms. Pilipović Chaffey holds an MBA from George

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Washington University, Washington, D.C. and a BA in Economics, from the University of .

Željko Batistić - Group Vice President - Technology. Mr. Batistić first joined the management team in May 2012. Prior to joining, Mr. Batistić was an experienced CATV manager and served at a Croatian cable operator at B.net Croatia from 2007 to 2012. Mr. Batistić holds a Master’s degree in Electrical Engineering from the Faculty of Electrical Engineering and Computing, University of Zagreb and an Executive MBA degree from Cotrugli Business School, Zagreb.

Aleksandra Subotic – Chief Executive Officer – United Media. Ms. Subotić joined the management team in 2014. In addition to her Chief Executive Officer role at United Media, Ms. Subotić is also the Media Content Director at SBB Serbia. Previously, Ms. Subotić held positions as General Manager at NetTV Plus and at Total TV Info. Prior to joining us, Ms. Subotić worked as General Manager at Daniel SatTV, a satellite and cable network development company in Serbia. She holds an MBA degree in Economics from Educons University.

Marko Šter - Chief Executive Officer - Telemach Slovenia. Mr. Šter has been with the management team since Telemach Slovenia’s inception in 2005. Prior to his current role, he was the Group’s Chief Technology Officer, responsible for the Group’s technical operations and IT. Mr. Šter has a mechanical engineering background and an MBA from IEDC Bled.

Admir Drinić - Chief Executive Officer - Telemach BH. Mr. Drinić serves as Chief Executive Officer of Telemach Bosnia and Herzegovina, having joined the company in 2013 as Chief Operating Officer. His previous positions include member of the Securitas BiH Board of Directors, Chief Executive Officer of the B.I.G.A. Sarajevo security agency, and Chief Technology Officer of Gama Sigurnost Sarajevo. He holds a bachelor’s degree in economics from the University for Business Studies, Faculty of Economics, in Banja Luka, in 2009.

Srđan Radić - Director of B2B Operations. Mr. Radić joined the Group in 2010. He was responsible for the Group’s direct to home (DTH) satellite offering under the Total TV brand and now for the Group’s business to business operations. Before joining the Group, he was the Chief Commercial Officer of MTEL Montenegro (a leading mobile telephony operator), and prior to that, head of corporate sales at . He holds an MA in Technical Sciences from the Faculty of Organizational Sciences, Belgrade University.

Tanja Milošević – CEO Telemach Montenegro. Before being appointed CEO of Telemach Montenegro in 2014, Mrs Milošević was responsible for operations in Broadband Montenegro for five years. Her previous experience is related to managing investments and business development projects in tourism, hospitality and marketing. She holds a BA degree in International Affairs and Business Administration from John Cabot University, Rome and an Executive MBA degree from ESCP Europe, Paris.

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Shareholder Structure

Investment funds advised by affiliates of KKR as well as certain co-investors (including the European Bank for Reconstruction and Development (the ‘‘EBRD’’)) indirectly hold approximately 70.3% of the shareholding of United Group, while approximately 26.2% is indirectly held by management through Gerrard Enterprises LLC, Dragan Šolak and Cable Management Company Ltd and the remaining 3.5% is held by Middlesbor Associates Limited (an entity wholly-owned by the former shareholder of Tušmobil and his spouse). KKR is a leading global investment firm with a long history of investing in Europe. Founded in 1976 and led by Henry Kravis and George Roberts, KKR had $148.5 billion in assets under management as of June 30, 2017. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platforms. KKR has in-depth experience in the telecommunications and media sector through its current and former investments including TDC, Versatel, Nielsen, ProSiebenSat 1, GfK and UFC. The EBRD is owned by 65 countries across five continents and two intergovernmental institutions. It supports the development of market economics and democracies in central Europe, central Asia, the western Balkans and the southern and eastern Mediterranean. In Serbia alone, the EBRD has invested €4.3 billion to date. The EBRD’s investments cover agribusiness, power and energy, industry, commerce, information and communication, as well as the financial and infrastructure sectors.

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Appendices

Appendix 1 - Financial statements

Income Statement (Adria Midco) in €000 H1 2016 H1 2017

Revenue 220,250 249,293 Other income 1,128 1,484 Content cost (30,358) (37,771) Satellite capacity cost (4,012) (3,142) Interconnection link cost (18,996) (18,376) Materials cost (18,103) (16,772) Staff costs (24,624) (26,875) Other operating expenses (37,644) (47,423) IFRS EBITDA 87,641 100,418

Depreciation (35,700) (42,267) Amortization of intangible assets (23,276) (28,752) Results from operating activities 28,665 29,399

Finance income 366 8,742 Finance costs (33,081) (75,075) Net finance costs (32,715) (66,333)

Profit/(loss) before tax (4,050) (36,934)

Income tax (expenses)/benefit (4,281) (2,920) Minority share Profit/(Loss) for the period (8,331) (39,854)

Other comprehensive loss Items that are or may be reclassified subsequently to profit and loss - Currency translation differences (2,519) 2,481 Other comprehensive loss (income) for the period (2,519) 2,481

Total comprehensive loss (income) for the period (10,850) (37,373)

(Loss)/profit attributable to: Owners of the Company (8,446) (41,273) Non-controlling interests 115 1,419 (Loss)/profit for the period (8,331) (39,854)

Total comprehensive (loss)/income attributable to: Owners of the Company (10,965) (38,792) Non-controlling interests 115 1,419 Total comprehensive (loss)/income for the period (10,850) (37,373)

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Statement of Financial Position in €000 H1 2016 H1 2017 Assets Property, plant and equipment 335,248 369,853 Goodwill 649,215 673,318 Intangible assets 241,934 272,531 Investment property 459 410 Loans to related parties 32,007 Other financial assets 2,002 944 Non-current prepayments 14 29 Deferred costs 945 1,228 Deferred tax assets 7,850 10,254 Non-current assets 1,237,667 1,360,574

Inventories 5,228 5,311 Trade and other receivables 77,063 91,462 Short term loan receivables 7,777 11,361 Prepayments 23,579 28,781 Income tax receivable 1,999 4,969 Cash and cash equivalents 14,216 22,764 Current assets 129,862 164,648 Total assets 1,367,529 1,525,222

Equity Issued and fully paid share capital 125 125 Share premium 570,592 568,592

Translation and other reserves (16,707) (21,023)

Accumulated losses (112,813) (159,770) Equity attributable to owners of the Company 441,197 387,924 Non-controlling interests 12,661 10,762 Total equity 453,858 398,686

Liabilities Loans and borrowings 112,430 6,194 Bond (including adjustment for capitalized costs) 620,567

Long term liabilities 1,675 94

Long term provisions 4,221 8,262

Deferred revenue 6,530 6,187

Finance lease liabilities 9,811 3,104 Deferred tax liabilities 31,610 33,243 Employee benefits 507 676

Non-current liabilities 787,351 57,760

Trade and other payables 91,045 117,869 Interest payable 6,095 8,209 Current tax liabilities 2,197 3,274

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Bonds (including adjustment for capitalizes costs and redemption premium) 805,417 Loans and borrowings 5,794 119,275 Deferred revenue 8,767 7,474 Finance lease liabilities 12,422 7,258

Current liabilities 126,320 1,068,776

Total liabilities 913,671 1,126,536 Total equity and liabilities 1,367,529 1,525,222

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Statement of Cash Flows in €000 H1 2016 H1 2017 Cash flows from operating activities Profit/(Loss) for the year (8,331) (39,854) Adjustments for: Depreciation 35,700 42,267 Amortization 23,276 28,752 Impairment of trade and other receivables 1,820 2,968 Impairment of PPE and Intangibles 953 190 Tax (income)/expense 4,281 2,920 Long term provision 3,345 Employee benefits (27) Net finance cost 32,715 66,333 Operating cash flows before WC changes 93,732 103,576

Changes in working capital: Trade and other receivables (1,738) (10,309) Deferred revenue 1,110 (3,080) Deferred cost (178) 194 Inventories 989 (269) Prepayments 2,098 (7,539) Trade and other payables (37,051) 1,301 Cash generated from operations 58,962 83,874

Interest paid (26,309) (32,265) Income tax paid (2,091) (2,301) Net cash from operating activities 30,562 49,308

Cash flows from investing activities Purchase of property, plant and equipment (46,713) (51,093) Purchase of intangible assets (9,869) (17,217) Acquisition of subsidiaries, net of cash acquired (41,577) Change in short term loan receivables (1,639) (5,888) Change in other non-current financial asset (399) Net cash used in investing activities (58,221) (116,174)

Cash flows from financing activities Proceeds from bond issue Proceeds from borrowings 66,625 101,500 Repayment of borrowings (15,200) (18,933) Acquisition of NCI (180) (768) Proceeds from finance lease 6,021 Repayment of finance lease (10,395) (6,128) Distribution of share premium (20,000) Net cash used in financing activities 26,871 75,671

Net increase in cash and cash equivalents (788) 8,805 Cash and cash equivalents at 1 January 15,126 13,941 Effects of movements in exchange rates on cash held (122) 18 Cash and cash equivalents at end of period 14,216 22,764

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Appendix 2 - Key Factors Affecting Our Business and Results of Operations The performance of our businesses, our results of operations and the key operating measures discussed below have been and will continue to be affected by a variety of factors. Certain of these factors are discussed below.

A) Products

Our results are impacted by our product mix as well as our ability to introduce new products and upgrades and successfully sell those products and upgrades to increase our RGUs and ARPUs. We continually evaluate the suite of products and services we provide to our subscribers to ensure that we remain competitive with other providers in our markets and have an opportunity to increase our subscriber base and the number of products we sell to our subscribers. We accomplish this through product innovation, investments in technology and acquisitions of complementary businesses. For example, we have expanded our product offering by introducing fixed-line services to offer multi-play packages in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro, including pay television, broadband internet access, fixed-line telephony, as well as mobile telephony services in Slovenia. We believe that media and communications services customers will increasingly choose bundled products because of the convenience and enhanced value resulting from obtaining TV, broadband internet and telephony services from a single provider for one price.

We seek to be the leader in our markets in pay-television content and have entered into long-term strategic partnerships with key international and regional content owners. We have also acquired leading regional content owners in key television sub segments (sports, lifestyle, children and movies) such as providers of the Sport Klub family of channels (which includes Sport Klub, Golf Klub and our fishing and hunting channels), Cinemania and the Ultra family of pay-TV channels (Ultra and Mini Ultra). Our ability to maintain the quality of our content impacts our ability to sell our pay television offerings, as well as bundled packages.

Increasing demand for attractive content and higher broadband speeds allows us to increase the prices at which we provide these services while maintaining relatively low churn rates. We believe our relatively low churn rates provide us with recurring cash flows and visibility with respect to future revenues. We have historically experienced low churn rates in our television, broadband internet and fixed-line telephony businesses, and the churn we have experienced in these businesses has primarily been driven by customers moving outside of our current geographic area of services as well as termination of services due to their inability to pay, with only a limited amount of churn driven by competition. We believe that launching telephony in our markets, further driving digitization, providing our subscribers with multi-play packages (including quad-play in Slovenia, as described in more detail below), expanding our cable footprint to broaden our geographic reach and benefiting

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from increasing disposable incomes in the region (reducing the likelihood of customers’ bad debt), will allow us to maintain low churn rates for cable pay-TV.

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

B) Pricing

We regularly review the prices of our products and services and in the past have adjusted our subscription fees as necessary in line with inflation, changes in foreign exchange rates or in response to market conditions and content costs. Changes in the pricing of our products and services will impact the revenues and margins that we generate from these products and services and impact our ability to attract new customers. For example, our multi-play bundles offer subscribers higher value in terms of channels, speeds functionality and add-on features. The pricing of all our services, including our multi-play bundles, is dependent on market conditions, pricing by competitors with similar offerings and the perceived quality of our products versus other products. In relation to our Basic TV package, we were also subject to price regulation in Serbia until January 2017. From January 2017, the price of our Basic TV package in Serbia is no longer subject to price regulation, however, such price regulation might be reinstated in the future.

C) Cost

Our most significant costs include (i) carriage fees which we pay to international and regional broadcasters such as Fox, Discovery and Pink, in order to carry their programs on our distribution network, (ii) licensing fees payable to sports rights owners such as the English Premier League, National Basketball Association, the Spanish Premier League, ATP and Formula 1 in order to develop content for our own channels, (iii) satellite capacity costs, (iv) payroll costs, (v) internet and interconnection fees, (vi) costs of materials used to connect subscribers to our network and (vii) costs for marketing and sales. Most of our costs, such as a portion of our network operations, customer care, billing and administration costs, are relatively fixed, while a portion of our marketing and customer services cost is variable. Our content acquisition costs are mostly fixed and a decreasing portion of these costs are subscriber-based. Where possible, we aim to negotiate fixed-rate content costs. This allows us to anticipate the input price of our content and price our products accordingly. The costs associated with the growth of our business, such as RGU acquisition costs, which are primarily comprised of campaign costs and sales costs for attracting new subscribers, are variable costs.

A large portion of our costs are content costs. While we own a portion of our content, we are dependent on broadcasters and other content owners for most of our programming. We pay license fees to several regional and international broadcasters in

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order to broadcast their programs. For on-demand content purchased by our subscribers, we generally pay a revenue share of the retail price, subject, for certain on-demand content, to fixed minimum guarantees. For packaged on-demand content (subscription video on demand) we pay on a per-subscriber basis, sometimes with minimum guarantees. We generally expect that our content costs (above the minimum amounts) will increase in line with increased revenues from digital pay-TV and on-demand content. In the past we have successfully obtained rebates and discounts for our content, but these may not continue in the future.

We pay fees to satellite operators to uplink and transmit our content to our DTH subscribers, and we also use other network operators to have telephone calls of our customers connected to customers of their respective networks (interconnection). Generally, the amount we pay in interconnection fees in any period will depend on the level of usage of our services. Our staff cost is impacted by the number of personnel we employ, the experience levels at which such persons are employed and increases in salaries and bonuses due to performance factors. Labor costs of technicians, spent on the construction and upgrade of our network and acquisition of subscribers, are capitalized as tangible and intangible assets. RGU acquisition costs include campaign costs and sales costs. We target to recover RGU acquisition costs over the duration of the service contract. Factors that contribute to successful recovery of RGU acquisition costs include our operational efficiency, the density of our subscriber base and our direct relationships with our subscribers, which enables us not to rely on intermediaries to interact with our customers.

D) Network and Technological Advances

Our ability to provide new high definition and on-demand digital TV services, broadband internet access at higher speeds and telephony services to subscribers depends, in part, on our ability to upgrade and maintain our network. We incur capital expenditures in periods over which these upgrades are made, with the aim of recouping these investments through increased revenues and profitability. Our ability to compete effectively and maintain or increase our customer base depends on our ability to anticipate and react quickly to technological developments and evolving industry standards and develop successful new and enhanced products and services to adapt to the changing market. We invest in new or enhanced technologies, products or services in periods over which industry standards change, or to upgrade our technologies. Additionally, we incur capital expenditures relating to the replacement of existing equipment.

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External Factors

A) Foreign Currency Exchange Rates

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

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

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

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B) Growth in our Markets

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

C) Regulation

Our operations are subject to various regulations in Europe and in our regional markets. We are generally from price regulation other than, prior to January 2017, with respect to our Basic TV package in Serbia, due to SBB Serbia’s prior significant market power (SMP) in the Serbian pay-TV market. Since the beginning of 2017, we are no longer considered a significant market participant in the pay-TV market in Serbia, thus our Basic TV package is no longer subject to price regulation, though this may change in the future. Prior to this change in January 2017, the pricing of our Basic TV package in Serbia, which accounted for 11.2% of our revenue for the year ended December 31, 2016, and which we use as a platform to up- and cross-sell our products, was regulated and we were not permitted to increase the price for such packages without regulatory approval. For 2014, we were successful in applying for a price increase. In 2015, our first application for a price increase for this package was not accepted by the Serbian regulator; however, our second application, in November 2015, was accepted by the Serbian regulator, and we implemented price increases for our Basic TV package in Serbia on January 1, 2016. We also successfully implemented a price increase in January 2017. In addition, we may be subject to conditions imposed in connection with competition authority clearances as we continue to expand our business through bolt-on, value accretive acquisitions and we may be subject to market power analysis from the relevant regulators, which could force us to adjust our prices or sell various parts of our businesses.

D) Tax Treatment in Local Jurisdictions

The results of our operations depend on our tax treatment under the tax laws and regulations of local jurisdictions. For instance, in Serbia, taxable income can be reduced in

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the same proportion as capital expenditure for the year in Serbia divided by the carrying amount of assets in Serbia. Due to our significant capital expenditure in Serbia in 2016, we were granted a ten-year tax beneficial status, expiring in 2025, and we expect to record beneficial tax treatment for the SBB Serbia segment for the year ending December 31, 2017. Additionally, in Serbia, the interest amount related to intercompany loans can be deducted up to four times in the event of capitalization of intercompany loans. In 2016, SBB Serbia capitalized €82.7 million of intercompany loans, so we have received a tax allowance of four times the interest expense relating to such capitalized intercompany loans.

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

Unique cable subscribers represent the number of individual end-users who have subscribed to one or more of our cable-based services. In all of our cable markets, cable pay-TV is the basic service that a unique cable subscriber is typically required to subscribe to in order to receive our other services such as broadband internet access and telephony. A unique cable subscriber may subscribe to several different services, thereby accounting for only one unique cable subscriber, but several RGUs. Cable pay-TV RGUs Cable pay TV RGUs includes (i) the sum of our analogue and digital cable pay TV RGUs in Slovenia and (ii) our total analogue cable pay TV RGUs (without separately counting analogue cable RGUs that have purchased digital top ups) in Serbia, Bosnia and Herzegovina and Montenegro. OTT RGUs consists of our NetTV and D3i subscribers. Broadband internet RGUs represents residential broadband internet provided via coaxial cable. Fixed-line telephony RGUs represents residential fixed line telephony provided via coaxial cable. Mobile RGUs represents mobile telephony services provided to customers in Slovenia, where we have operated as an MNO since our acquisition of Tušmobil in April 2015. Prior to April 2015, we provided mobile services to our customers as an MVNO. Other services include multichannel multipoint distribution service-based services, ADSL internet services and B2B. Penetration represents the number of RGUs at the end of the relevant period as a percentage of the number of homes passed by our network. Blended cable ARPU is calculated by adding together, for each month in a given period, the total cable pay-TV, broadband internet and fixed-line telephony revenues (including fixed-line telephony usage revenues and excluding minor installation fees) for that particular month divided by the average number of cable pay-TV RGUs for that month and then dividing that sum by the total number of months in the period. Blended Cable ARPU does not include mobile ARPU. We calculate mobile ARPU by adding together, for each month in a given period, the total mobile telephony revenues (excluding revenues generated by customers of other networks roaming on our network and excluding wholesale revenues) for that particular month divided by the average number of mobile RGUs for that month and then dividing that sum by the total number of months in the period. DTH subscribers represent the number of individuals across the six former Yugoslav markets (Slovenia, Serbia, Bosnia and Herzegovina, Croatia, Montenegro and Macedonia)

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

Average monthly revenue per user, or ARPU, is a measure we use to evaluate how effectively we are realizing potential revenues from subscribers. ARPU is calculated by adding together, for each month in a given period, the total subscription-related revenues for that particular month divided by the average number of subscribers for that month and then dividing that sum by the total number of months in the period

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Appendix 4 - Description of Key Line Items

Revenue. Revenues are generated from the following services: cable television, broadband internet, DTH-TV, value-added services (such as OTT), telephony subscriptions and telephony usage, content and other sources (primarily related to the sale of end-user equipment). Revenues generated from our bundle subscriptions are allocated to the individual products of standard cable, broadband internet and telephony subscriptions based on the individual product prices for each product as a percentage of the sum of the individual product prices. Revenue for these services is charged and recognized in the period in which these services are provided. We recognize revenues for connection fees upon delivery of installation and we defer and amortize connection fees over the average remaining useful life of the customer relationship. Other income. Other income arises mainly from the sale of programming rights, advertising and lease of cable network. Content cost. Content costs include author rights and royalties we pay to procure our content, and include fees paid to channel providers, primarily related to foreign television channels. Our content fees are predominantly determined on a flat monthly amount and to a lesser extent on a per-subscriber basis. Satellite capacity cost. Satellite capacity costs relate to the lease of satellite capacity from third-party providers, which currently is EUTELSAT. These costs are impacted by the type and amount of commercial discounts obtained from satellite providers. Link and interconnection cost. These costs relate to fees payable in order to transfer data over third party networks. Internet connection links are leased from various parties. Materials cost. Materials cost includes costs to procure set-top boxes, other products, such as telephones and routers, and materials used to connect subscribers to our network. Staff costs. Staff cost includes wages and salaries, social security costs, pension costs and other post-employment benefits and the cost of temporary and external personnel, adjusted for own work capitalized based on direct labour hours spent on projects which are capitalized. Depreciation cost. Depreciation cost relates to the depreciation and impairment of our property, plant and equipment over their useful lives. Amortisation of intangible assets. Amortization of intangible assets relates to the amortization and impairment of our intangible assets over their useful lives. Our intangible assets include our customer base and direct subscriber acquisition costs, which, for our cable and DTH customers, are capitalized and amortized over the estimated useful life of the customer relationship. For our mobile customers, subscriber acquisition costs are capitalized and amortized over a twenty-four month period (the estimated life of the post-paid

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customer contract), while our mobile customer base is capitalized and amortized over its estimated useful life. Intangible assets also include goodwill, computer software, licenses and content such as sport rights. Other operating expenses. Other operating expenses include rent of premises, poles and ducts, marketing and promotion expenses, legal and administrative fees and maintenance costs. Finance income. Finance income includes interest income on funds invested (including short-term bank deposits) and foreign currency gains. Finance costs. Finance costs include interest expense on borrowings and foreign currency losses. Income tax (expense)/benefit. Income tax credit/(expense) comprises current and deferred income tax and is recognized in our statement of comprehensive income, except to the extent that such expense or benefit relates to an item that is recognized as equity in our balance sheet or in our statement of other comprehensive income. Operating income. Operating income represents the amount of profit from business operations, and includes total revenues less total operating expenses (which contains cost of goods sold, personnel expenses, contracted work, materials and logistics, marketing and sales, office expenses, other operating expenses, amortization, depreciation and impairments).

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Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our income and cash flow from operations are affected by changes in market interest rates. Some items on our balance sheet, such as cash and bank balances, interest bearing investments and borrowings, are exposed to interest rate risk. Borrowings under our Revolving Credit Facility and our Floating Rate Notes will bear interest at varying rates, and as a result we will have interest risk with respect to this debt. We currently do not expect to enter into any interest rate hedging arrangements with respect to the debt under our Revolving Credit Facility and our Floating Rate Notes. Indebtedness under the Fixed Rate Notes will bear interest at a fixed rate. For fixed rate debt, interest rate changes affect the fair market value of such debt, but do not impact earnings or cash flow.

Currency Risk

As a result of our operations in various countries, we generate a significant portion of our sales and incur a significant portion of our expenses in currencies other than the euro. Our primary exposure is to the Serbian dinar. The Bosnia and Herzegovinian mark is pegged to the euro, while Croatian kuna and Macedonian dinar are relatively stable. In March 2015, we entered into a EUR/USD currency hedge agreement, pursuant to which we hedge our exposure to the U.S. dollar. We entered into an additional EUR/USD currency hedge agreement in May 2016 pursuant to which we hedged the remaining portion of our exposure to the U.S. dollar for the year 2016, and in March 2017, we entered into an additional EUR/USD currency hedge to cover most of our 2017 U.S. dollar exposure.

Translation Risk

Translation risk is the risk that the value in euro of the consolidated profit and loss statement and balance sheet will fluctuate due to changes in foreign exchange rates connected with the translation of our subsidiaries that do not have the euro as their functional currency. Since November 2013, almost all our indebtedness has been denominated in euro.

Transaction Risk

Transaction risk is the risk of exchange losses made by us from purchases and sales in currencies other than the local currency of the subsidiaries concerned.

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Appendix 6 – Critical Accounting Policies

For a description of our critical accounting estimates and judgments, see note 5 of our audited consolidated financial statements as of and for the year ended December 31, 2016. Our significant accounting policies are described in note 3 of these financial statements.

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