CONSOLIDATED ANNUAL REPORT OF MAGYAR TELEKOM TELECOMMUNICATIONS PUBLIC LIMITED COMPANY FOR THE YEAR ENDED DECEMBER 31, 2016 1 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 INDEX TO THE CONSOLIDATED ANNUAL REPORT Page Consolidated Financial Statements ............................................................................................................................................. 3 Independent Auditor’s Report .................................................................................................................................................... 4 Consolidated Statements of financial position ........................................................................................................................ 9 Consolidated Statements of profit or loss and other comprehensive income .................................................................... 10 Consolidated Statements of cash flows ..................................................................................................................................... 11 Consolidated Statements of changes in equity ........................................................................................................................ 12 Notes to the Consolidated Statements of changes in equity .................................................................................................. 13 Notes to the Consolidated financial statements ...................................................................................................................... 15 Consolidated management report (Consolidated business report) ........................................................................................ 103 2 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 Consolidated Financial Statements OF MAGYAR TELEKOM TELECOMMUNICATIONS PUBLIC LIMITED COMPANY FOR THE YEAR ENDED DECEMBER 31, 2016 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ENDORSED BY THE EUROPEAN UNION (EU IFRS) 3 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 4 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 5 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 6 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 7 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 8 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 9 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended December 31, Note 2015 2016 (in HUF millions, except per share amounts) Revenues .......................................................................................... 22 656,342 602,651 Direct costs ....................................................................................................... 23 (249,377) (196,869) Employee related expenses ........................................................................... 24 (95,160) (83,327) Depreciation and amortization ...................................................................... 12, 13 (113,784) (117,476) Other operating expenses .............................................................................. 25 (131,375) (136,406) Operating expenses .......................................................................... (589,696) (534,078) Other operating income ..................................................................................... 26 6,871 10,990 Operating profit ................................................................................. 73,517 79,563 Interest income ................................................................................................. 27 946 760 Interest expense ............................................................................................... 28 (21,784) (18,570) Other finance expense - net ........................................................................... 29 (7,338) (9,005) Net financial result ............................................................................. (28,176) (26,815) Share of associates' and joint ventures’ profit (loss) ...................................... 14 - 78 Profit before income tax .................................................................... 45,341 52,826 Income tax ............................................................................................................. 9.2 (13,794) 4,397 Profit for the year ............................................................................... 31,547 57,223 Other comprehensive income (all of which may be reclassified subsequently to profit or loss): Exchange differences on translating foreign operations ............................. (845) (562) Revaluation of available-for-sale financial assets .......................................... 44 64 Other comprehensive income for the year, net of tax ......................... (801) (498) Total comprehensive income for the year .......................................... 30,746 56,725 Profit attributable to: Owners of the parent .......................................................................................... 27,715 54,279 Non-controlling interests ................................................................................... 3,832 2,944 31,547 57,223 Total comprehensive income attributable to: Owners of the parent ......................................................................................... 27,355 53,945 Non-controlling interests ................................................................................... 3,391 2,780 30,746 56,725 Earnings per share (EPS) information: Profit attributable to the owners of the Company .......................................... 27,715 54,279 Weighted average number of common stock outstanding (thousands) used for basic EPS ................................................................... 1,042,352 1,041,799 Average number of dilutive share options ....................................................... 118 767 Weighted (thousands average ................................ number of common................................ stock outstanding................................ ......... (thousands) used for diluted EPS ................................................................. 1,042,470 1,042,566 Basic earnings per share (HUF) ....................................................................... 26.59 52.10 Diluted earnings per share (HUF) .................................................................... 26.59 52.06 The accompanying notes form an integral part of these consolidated financial statements. 10 WorldReginfo - 8fd8f886-6fc0-43b8-b5c3-ab7bdc15ebb9 CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, Note 2015 2016 (in HUF millions) Cashflows from operating activities Profit for the year .................................................................................................. 31,547 57,223 Depreciation and amortization .......................................................................... 113,784 117,476 Income tax expense ............................................................................................. 13,794 (4,397) Net financial result ............................................................................................... 28,176 26,815 Share of associates’ and joint ventures’ result ................................................. - (78) Change in assets carried as working capital ................................................... (15,541) 3,421 Change in provisions ........................................................................................... 2,442 (3,218) Change in liabilities carried as working capital .............................................. 24,204 (614) Income tax paid .................................................................................................... (12,787) (12,254) Dividend received ................................................................................................ - 14 Interest and other financial charges paid ........................................................ (28,743) (24,332) Interest received ................................................................................................... 967 744 Other non-cash items .......................................................................................... (1,545) (5,975) Net cash generated from operating activities ........................................ 156,298 154,825 Cashflows from investing activities Purchase of property plant and equipment (PPE) and intangible assets ... 30 (96,855) (109,908) Purchase of subsidiaries and business units .................................................. 31 (16,737) (128) Cash acquired through business combinations ............................................. 1,815 - Proceeds from other financial assets ................................................................ 18,832 7,545 Payments for other financial assets ................................................................... (5,695) (605) Proceeds from disposal of PPE and intangible assets .................................. 2,127 10,413 Proceeds from disposal of subsidiaries and business units.......................... - 3,484 Payments for interests in associates and joint ventures ................................. (1,000) - Net cash used in investing activities ..................................................... (97,513) (89,199) Cashflows from financing activities Dividends paid to Owners of the parent and