Crnogorski Telekom 2011 Annual Report Telekom... · global trends in the field of...

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Crnogorski Telekom2011 Annual Report

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Contents:Our Mission

Our Vision

Our Strategy

To our ShareholdersLetter to Our Shareholders Crnogorski Telekom’s Board of Directors The Management Committee of Crnogorski Telekom

IntroductionGeneral InformationCompetitionRegulatory Environment

Human resources

Corporate responsibility

The lines of business Mobile servicesFixed-line services

Financial Year 2011Management Report for the Financial Year 2011Financial Statements: Independent Auditor’s Report Statement of Financial Position Statement of Comprehensive Income Statement of Cash Flows Statements of Changes in Equity Notes to the Financial Statements

Further information

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Our MissionWe deliver our customers a superior experience.We lead Montenegro towards an e-Society.We constantly innovate and explore new areas to enrich life for our customers.We remain the best place to perform and grow.We care about operational excellence in everything we do.

Our VisionWe make your life betterby connecting and entertaining youwherever you are, whatever you do.

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Our strategyIn 2011, CT continued to successfully execute its strategy based on its BIG 6 goals. Crnogorski Telekom’s main strategic goals in 2011 were:

1. Strengthening Market Position

CT has already regained post-paid leadership, become the No.1 choice of business customers, improved its mobile internet share by almost 10 percentage points and improved leadership in the TV market, capturing a 41% market share in 2011. Stable voice and fixed-line broadband market leadership was mainly preserved by the successful adoption of Extra Trio, additionally supported with the first fibre-optic users. CT will keep and further improve this strong position by continuously creating attractive propositions for existing and new customers, maintaining high quality and providing consistent care to ensure the best T-brand experience.

2. Improving Efficiency

Successful implementation of the 3-year Save for Service (S4S) programme ensured sustainable savings, competitive cost structures, quality of service improvement and productivity increase. The S4S programme has become a synonym for operational excellence. Cost control and excellence have become and will remain an essential part of our work ethic and a basic principle of sustainable business performance.

3. Delivering a Superior Service

Over the past period we have managed to significantly improve our service to the level of being superior in the market in many aspects. However we are committed to further promoting a superior service culture and providing a unique customer experience and high quality. We profoundly believe that developing and maintaining the company’s image as a customer-centric, socially responsible and technologically superior company is one of the key elements of our long term success.

4. Shaping e-Society in Montenegro

Crnogorski Telekom is committed to developing and shaping an e-Society in Montenegro as one of the key contemporary prerequisites for prosperity. We have launched and are developing FTTH access with its potential measured in hundreds of Mbps. We provide the fast-est mobile broadband access of up to 42 Mbps with HSPA+. We are deploying a state-of-the-art all-IP infrastructure, the most advanced devices and we are providing complete solutions for companies, helping them to be competitive. In this way we are helping to close the gap and keep pace with the most advanced countries in Europe. We will continue to develop faster and smarter networks in order to enable high-quality and super-fast Internet any place, any time and on any device to support modern lifestyles, evolving business needs and thus e-Society development.

5. Increasing Revenues from All Screens

In CT we believe that customers should not be limited or bound to any particular screen when they use the services they need. Therefore we are consistently working to provide them with a seamless experience on all screens, such as mobile phones, computers, tablets or TV screens. In the future enriched applications and functionalities, tailor-made service bundles, a seamless and high-quality service experience across all screens, which are all valued by our customers, will strengthen our competitive advantages and customer adop-tion at home, in the office and on the go.

6. Leading in Business Solutions

The success of Integris, which is the name of the IT solutions business provided by CT, has proved that we are an innovative company and reliable business partner with flexible IT solutions and verified expertise. With our network of partners we will continue with our expansion in the ICT market with ambitions to become the leader in areas of solutions and services by extending our Integris offers for SMEs and large enterprises, with advanced infrastructure, platforms, applications and cloud-based solutions.

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After taking over responsibility as the new CEO in October of last year, it is now my pleasure to inform you about the most significant achievements in 2011 when it comes to business developments. In a year full of difficult economic chal-lenges both in the wider region and in Montenegro, Crnogorski Telekom again confirmed its leadership in the Montene-grin telecommunications market and I am proud to announce that despite continu-ously increasing competition, further price decreases and overall reduced consump-tion, Crnogorski Telekom reached its operational and financial goals; in line with expectations and again showed a strong financial performance.

The business year 2011 was very success-ful and we perceive this as a direct out-come of our strategy and full adherence to the Company’s BIG 6 goals to: Strengthen Market Position; Improve Efficiency; Deliv-er a Superior Service; Shape an e-Society in Montenegro; Increase Revenue from All Screens; and Lead in Business Solutions.

As in previous years, we continued to maintain a very substantial volume of investments of EUR 14.9 million. We achieved good business results and invest-ed substantially in the most recent technol-ogy and a new modern infrastructure and we consolidated and strengthened our integrated customer-centric organization. Crnogorski Telekom further improved substantially the technological basis of the company and continued the moderniza-tion of the fixed-line and mobile network with state-of-the-art technology. I am proud that Crnogorski Telekom’s technology reflects in every regard the most up-to-date technological trends.

As the only integrated telecommunication operator in Montenegro, Crnogorski Tele-kom is in a position to provide full services in the case of natural disaster through our Disaster Recovery Site which we launched in early 2011. We can especially see this year how important it is to be prepared for certain emergency situations. We are!

Despite a high saturation level of telecom-munications services and a very high penetration rate, Crnogorski Telekom has managed to maintain a revenue level which declined only moderately compared

to the previous year (-1.5%). In this the company was outperforming most of its peers in the region and in Europe. Thanks to the trust and loyalty of our customers, we were even in a position to increase our retail revenues by 3.6%. The 2011 revenue amounted to EUR 117.2 million, which is EUR 8.0 million (7.3%) above plan and this reconfirms the company’s leading position in the market. This was mainly driven by the segments of fixed-line voice wholesale (EUR 3.9 million), data services (EUR 2.5 million), mobile Internet (EUR 0.5 million) and visitors (EUR 0.6 million). These indicators are in line with global trends in the field of telecommuni-cations.

The key driver for Crnogorski Telekom’s 2011 business success was the con-tinuous growth of fixed-line and mobile broadband services, the development of high-quality TV services, as well as data and ICT services. Crnogorski Telekom is primarily focused on bringing further broadband connec-tions to all citizens of Montenegro, mobile as well as fixed-line connections. For this we started with a fibre-optic network (FTTH) roll-out trial and we connected our first customers to this high-performance fixed-line network. This will provide more and more of our clients with superior qual-ity and a positive customer experience. Also we invested in the modernization of our mobile network (RAN) and both are a prerequisite for a futureLTE roll-out in order to deliver higher and higher broadband quality also on mobile networks.

Our constant focus on the expansion of ADSL services resulted in strong growth of our customer base to 64,700 (13%) with an associated revenue increase of 16% to EUR 11.1 million. In this segment, the Company’s ambition is to ensure growing fixed-line broadband revenue and to keep Average Revenue per User levels stable by increasing speeds and introducing more advanced fibre-based products.

In the Mobile Internet segment T-Mobile is showing positive YoY development of 9% growth, achieving thereby a strong 2nd place in the market. Mobile broadband services increased by 25% to EUR 3 million. This favourable development was

supported by the very attractive offer of smartphones and related innovative data services.

In the area of TV services, Crnogorski Tele-kom successfully maintained its market leadership and increased its market share in pay-TV by growing its customer base by 22% to 50,200 customers. Despite the removal of technical barriers in the market and stricter content regulation, IPTV remains the fastest growing TV platform, thanks to advanced interactive features. Crnogorski Telekom successfully man-aged to maintain and strengthen (to 41%) its leading position in the pay-TV segment. The success in our interactive TV offer was based on an excellent selection of chan-nels, continuous service improvements and upgrades as well as attractive market-ing offers. By offering attractive, high-qual-ity TV sets in combination with high-quality channels and video on demand we offered our customers a unique experience. The related revenues increased by 23% to EUR 5.4 million.

The Company stabilized its strong market leadership in the area of fixed-line voice services and preserved its customer base through bundled propositions and reten-tion programmes keeping the churn level among the lowest across the DT group. To deliver high-quality services in the future, we started our first customer migrations to a new future-proof switching platform (IMS). As far as the fixed-line voice rev-enues of EUR 25.9 million are concerned, 2011 was characterized by a moderate decline of 5.1%.

Looking on the mobile line of our business, in the mobile voice post-paid segment T-Mobile took over the leading position in the business segment in March 2011 and overall leadership in the post-paid segment in November 2011. The total T-Mobile customer counted 489,000 customers. We believe that this success is based on our innovative and attractive pricing and continuous improvement of services and quality. The success of the T-Mobile pre-paid product line was based on innovative devices, broadband and voice offers.

In 2011, Crnogorski Telekom further de-veloped a new technologically advanced product line, IT and communication

technology service (ICT) which integrates telecommunications and IT services as a product mainly for small and medium enterprises and on a project basis for large enterprises. Data services including ICT services increased substantially YoY by 8.6% to EUR 6.2 million. The ICT business target was overachieved by 75% and will be further strengthened in the coming years as a key business pillar.

We have been investing significant efforts in increasing customer satisfaction and employee satisfaction, seeing our em-ployees as a key factor in our success. Crnogorski Telekom’s strong commitment to continuously improve customer service is reflected in very positive development of customer loyalty indices.

So, to summarise, looking at our two brands T-Com and T-Mobile, both have been developing very well.

As for T-Com, overall fixed-line telephony operations are very stable. With a strong focus on our strategic broadband services, an increase of 13% in the number of ADSL customers allowed a significant increase in the related revenues of EUR 1.5 million, or 16%. The IPTV service also generated a revenue increase of EUR 1.0 million or 23%, mainly due to an increase of 22% in the number of subscribers. CT’s IPTV ser-vice, Extra TV, is the market leader among TV service providers with a market share of 41% at the end of 2011.

On the other hand, T-Mobile’s revenues for 2011 amounted to EUR 60.2 million, i.e. EUR 1.1 million or 1.8% less than in 2010. The decrease was primarily caused by decreased revenue generated from voice services due to intense competition. Internet revenues concurrently increased by EUR 0.6 million or 25%. Despite this, T-Mobile is the leading brand in post-paid, highly valued in pre-paid and will further develop in mobile broadband.

Looking further at the financials in 2011, Crnogorski Telekom continued to execute its efficiency programme (Save for Service) to limit expenses (OPEX) and, at the same time, improve service quality. Being more efficient and a lean organization contrib-uted to better serving our customer needs. With the savings amounting to EUR 3.6 m

(111% of the 2011 target) all functional units contributed substantially to achieving significant savings in the Company.

Crnogorski Telekom succeeded in increasing Earnings before Interest, Tax and Depreciation (EBITDA) before special impacts YoY by EUR 0.6 million (1.3%) to the level of EUR 45.2 million. The Net Profit achieved by Crnogorski Telekom in 2011 amounted to EUR 16.5 million. In 2011 the company paid out dividends of EUR 18 million and the dividend yield amounted to 10.7%.

Crnogorski Telekom is the leading company in the area of corporate social re-sponsibility in Montenegro. Key initiatives in 2011 were the enabling of free Internet access via ADSL for schools for a fifth year in a row, providing free-of-charge usage of Wi-Fi Internet in many locations, continuing our sponsorship of key sports. Many of our employees spent a great deal of private time and energy in helping others as well.

I would now like to use this opportunity to thank our employees for their dedication and contribution to the success of the company. Their diligent work, loyalty and commitment were essential in overcoming the challenges that the Company has been through in the observed period.

Finally, dear shareholders, your trust and confidence have always been a great sup-port for us.

The Management is committed to retain-ing the market position in fields where growth is limited, to focus and develop areas of growth. With interesting activities in 2012, we will again show that we are the number one telecommunications pro-vider in the Montenegrin market, a highly regarded service provider and one of the best employers in our country.

Rüdiger J. Schulz Chief Executive Director

Dear Shareholders,

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Róbert PatakiRóbert Pataki graduated as an economist from the University of Corvinus in Budapest, and then completed his studies in international finance and marketing management at the University of Erasmus in Rotterdam. He started his career as an investment analyst with Project Finance International Ltd., and then worked for Nutri-cia Netherlands BV. He joined Accenture (Andersen Consulting) working for Accenture’s Strategic Services in several managerial positions. He continued his professional career with A.T. Kearney and later he became a senior manager of A.T. Kearney’s European Telecommunications Team. He has been Chief Strategist at Magyar Telekom since September 2006. As of 1st April 2009 he was appointed Chief Operating Officer of Alternative Businesses and the Corporate Development Business Unit keeping his position as Chief Strategist of Magyar Telekom, as well. With his nomination he has become a member of the Management Committee of Magyar Tele-kom. He has been working as Chief Strategy and Corporate Development Officer since 1st September 2009.

Susanne KrogmannSusanne Krogmann, born 1964, holds a diploma in Economics from Georg-August-University at Göttingen, Germany. After graduating, she went on to study European Integration at the College of Europe, Bruges, Belgium.She started her career at the Treuhandanstalt, the state-owned agency responsible for the privatization of the enter-prises and assets of the former Democratic Republic of Germany. During her five years at the Treuhandanstalt Susanne Krogmann worked in the controlling and in the contract management department. For the last 2 years there she held the position of Key Account Manager for several companies in the chemical industry.Susanne Krogmann joined Deutsche Telekom in 1999. For more than 8 years she worked in different positions in the Regulatory and Public Affairs division, especially in the field of regulatory economics and regulatory strategy. She then took over the position as head of the group “Corporate Responsibility Strategy and Controlling”, where she developed a new Corporate Responsibility strategy for the DT group. Following increasing awareness of data security and data protection at Deutsche Telekom she then worked with a data security project with her personal focus on customer data security. Since the end of 2009 she holds the position as Vice President Corporate Governance Europe within Board Area Europe at Deutsche Telekom.

Melinda SzaboMelinda Szabo was born in Budapest, 1971. She graduated at the College of Trade & Catering in 1994, followed by a second bachelor’s degree in marketing at the College of Foreign Trade in 1997. She graduated as a Master of Business Administration at WEBSTMBA in 2007.She started to work for Westel Mobile Co. Ltd. in 1999 as a marketing manager. During the past 10 years she managed different projects in the area of consumer marketing. After several carrier steps she was promoted to deputy marketing director in 2005. From January 2008 she was deputy marketing director of Consumer Segment marketing Unit Magyar Telekom responsible for the T-Home and T-Mobile brands. She was appointed as Direc-tor of Consumer Segment Marketing Directorate effective from 1st July 2010.She has been Member of the Supervisory Board of Origo Media and Communication Services Provider Co. Ltd. (member of the Telekom Group) since August 2010.

Tripko KrgovićTripko Krgović was born in 1977 in Belgrade. He finished his undergraduate and master’s studies at the Faculty of Economics in Podgorica. His professional career began in 1996 in his family business. From 2004 he worked in the Securities Commission, in the Market Supervision Department. In 2005 he held the position of Investment Man-ager in Moneta Investment Fund. From 2006 to 2008 he was the Chief Executive Officer of Moneta Broker-Diler AD Podgorica. From 2008 to 2011 he was a member of Board of Directors of Moneta privatisation fund and of Otrantko-merc AD Ulcinj. He is a representative of the minority shareholders in some of the Montenegrin biggest companies. He was elected a member of Crnogorski Telekom’s Board of Directors, Audit Committee and Compensation Com-mittee in 2008.

Gábor Pál Born in Budapest, 1968. He earned his degree at the Faculty of Finance and Logistics Management of the Budapest University of Economics in 1993, followed by a second degree at the Programmer Mathematician faculty of Eötvös Lóránd University in 1994. He participated in the PhD programme of the Budapest University of Economics from 1996. He graduated as an MBA student of the joint International Master of Management programme of Purdue University, Indiana, USA, Central European University, Budapest, GISMA, Hannover, and Tias-Nimbas Business School, The Netherlands in 2008. Since 2005 he has been holding an Industrial Organization course at Budapest’s Corvinus Uni-versity with a special focus on market structures and marketing tactics. He started to work for NN Hungary Insurance Company as an insurance mathematician in 1993, followed by his employment by Westel Mobile Co. Ltd. from 1994 as Financial Analyst. After several career steps he was promoted to Finance Director of Westel in 2000, later renamed to T–Mobile Hungary. From January 2008 he was Strategy and Finance Director of the Consumer Business Unit of Magyar Telekom responsible for T-Home and T-Mobile brands. He was appointed as Portfolio Director of Magyar Telekom responsible for international and domestic subsidiaries, effective from 1st July 2010. He participated in several acquisi-tion projects in the SEE region. He is a member of the BoD of Makedonski Telekom and T-Mobile Macedonia, and a member of the BoD at Crnogorski Telekom.

János Szabó János Szabó was born in Hódmezovásárhely (Hungary) in 1961. He graduated at the Budapest University of Econom-ics in 1986, majoring in international relations.After working in foreign affairs for three years, he continued in various finance and consultant positions in the private busi-ness sector. He became Director of Finance at Delco Remy Hungary (a subsidiary of a US-based automotive supplier) in 1995. Later he became Deputy General Manager of the operation, responsible for sales, purchasing and operations. In 1998 he moved to the position of Director of Finance for Europe, in charge of the finance activities and acquisitions of European operations. Later he became CFO and Managing Director of a joint venture between Delco Remy and Hitachi. From April 2003 he was the Finance Director of the Wireline Services LOB of Magyar Telekom (later T-Com). The role was extended to fixed-line network and IT operations in 2006. Since January 2008 he has been Director of Group Planning & Control of Magyar Telekom Group. He is a member of the BoD of MakTel and TMMK companies.

Thomas PanhansThomas Panhans was born in Aschaffenburg, Germany in 1970. He finished his studies at the Polytechnical University (FH) in Würzburg in 1994 with a diploma in business studies, specializing in marketing and media/information man-agement. In 1997 he joined Deutsche Telekom, after working in the marketing departments of various IT companies. His international career started in 2001 in the marketing department of Slovak Telekom. In 2005 he joined Magyar Telekom as Senior Advisor of New Business Development. During this time he led the rebranding project of Crnogorski Telekom. In 2007 Thomas Panhans returned to T-Home Germany and has been working for the commercial manage-ment of IPTV. Since April 2010 he has held the position of Country Manager, Montenegro.

Crnogorski Telekom’s Board of Directors

Róbert Pataki Susanne Krogmann Melinda Szabo Tripko Krgović Gábor Pál János Szabo Thomas Panhans

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Slavoljub Popadić, Deputy Chief Executive Officer, Chief Customer Care OfficerBorn in 1965, he holds a degree in electronics and telecommunication from the University of Montenegro. He started his career in 1991 at the Republic Secretariat for Development, Podgorica, first as a main network and systems engineer and then as leader of development of network and IT systems of governmental bodies in Montenegro. In 2001 he joined the Crnogorski Telekom group as CEO of Internet Crna Gora. In April 2005, after the acquisition of Crnogorski Telekom by Magyar Telekom, he became Group Network Development Director and Management Committee member of Crnogorski Telekom. In August 2006 he was appointed CEO of Crno-gorski Telekom responsible for fixed-line business in the Company (T-Com). In 2008 he became Member of the International Marketing Board of T-Com. As of December 2008 he has been Vice-Chairman of the Management Committee and in May 2009, after the legal merger into one company, he was appointed as CEO of the merged company. In 2011 Crnogorski Telekom further amended the corporate governance and Mr. Popadic became Chief Customer Care Officer and Deputy Chief Executive Officer.

Jason King, Chief Marketing OfficerJason King, born in 1974, holds a master’s degree in International Marketing from the University of Strathclyde in Glasgow, UK. He has several years of technology marketing experience in Europe (Nordics, CEE, UK) and North America within the software, technology and telecoms sectors. His roles have spanned across both private and publicly listed companies – the latter of which included sales and marketing management at Vodafone (Oskar) and as country manager for Apple, both in the Czech Republic. Prior to being appointed CMO in April 2010, he worked with Spatial View, a leader in 3D application technology where he led worldwide sales and marketing. Since April 2010 he has been working as Chief Marketing officer of CT.

The Management Committee of Crnogorski Telekom Chairman of the Management Committee and Chief Executive Officer, Rüdiger Schulz Deputy Chief Executive Officer, Chief Customer Care Officer, Slavoljub Popadic Chief Marketing Officer of Crnogorski Telekom, Jason King Strategy and Business Development Officer, Vuk Gojnić Chief Human Resources Officer, Endre Horanyi Chief Technical Officer, Eva Ulićević Chief Financial Officer, Manfred Knapp Corporate Affairs Officer, Vladimir Beratović Chief Sales Officer, Milija Zeković

Rüdiger Schulz, Chief Executive Officer and Chairman of the Management CommitteeRudiger Schulz, who is an internationally experienced business leader, completed his studies in electrical engineering at the University of Hamburg and business management studies at the University of Koblenz. His professional career began with service in the German Navy as Chief Engineer on Vessels, after which he joined Deutsche Telekom Group in 1991. To begin with, he was responsible for technology platforms, and later became responsible for marketing and sales in the residential and corporate segment.In 2005 he began working for T-Systems as Senior Executive Vice President of Business Customers and Large Enterprises in the north-east region of Germany, one of six in Germany and developed his experience in the area of IT. He joined Slovak Telekom in November 2006, taking over the position of Senior Executive Vice-President for Marketing, Sales and Technology/COO and was a member of the Executive Management Board being responsible for T-Com’s product and service portfolio in the business, residential and wholesale segment. As of July 2010 with the merger of Slovak Telekom a.s. and T-Mobile a.s. into one joint company, Slovak Telekom a.s., he was appointed Chief Operating Officer Network and IT.

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Vuk Gojnić, Strategy and Business Development OfficerVuk Gojnić was born in 1978. He graduated at the Faculty of Electrical Engineering in Podgorica in 2003. He began his career in 1997 as one of the founders and editors of the Montenegrin website Cafe del Montenegro. From 1998 he worked as a systems engineer in Internet Crna Gora and in 2001 he was promoted to manager of the Department for Development and Maintenance of System Platforms. In 2003 he joined the Laboratory for Telecommunications of the Faculty of Electrical Engineering in Ljubljana. Following the acquisition of Crnogorski Telekom by Magyar Telekom, he took on the role of manager and later on director of development of fixed-line broadband networks and services in Crnogorski Telekom. In 2008 he graduated at the IEDC-Bled School of Man-agement in Slovenia, where he attained the title of MBA. From the end of 2009 until early 2010 he carried out the function of acting Chief Technical Officer in Crnogorski Telekom. In June 2010 he was appointed Strategy and Business Development Officer in Crnogorski Telekom.

Endre Horanyi, Chief Human Resources Officer Endre Horanyi was previously HR Partner of the Consumer Business Unit at Magyar Telekom. According to the MT organizational model, he was in charge of more than 4,000 people. From that position Mr. Horanyi joined Magyar Telekom in 2003. His professional development in the field of HR management mainly relates to his career path within MT. From 2003 until now, he has covered several positions related to HR functions such as: Senior HR Operational Development Manager, Head of HR Operational Development, HR Director of the Mobile Business Unit and most recently: HR Partner of the Customer Business Unit. Since June 2010 he has been work-ing as Chief Human Resources Officer of CT.

Eva Ulićević, Chief Technical Officer Born in 1970, she holds a degree in Mathematical Science and a Masters in Mathematical Science. She started her career in 1993 at the Faculty of Mathematics of the University of Montenegro in Podgorica, as assistant professor. From 1996 she worked in ProMonte GSM Podgorica as deputy CIO. In 2000 she was engaged as the Team Leader of the Oracle Academic Initiative Project, and in 2001 she worked in SEMA (LHS) Communica-tions Systems Inc, Miami, Florida, USA as Senior Software Analyst Engineer for BSCS. Since 2002 she has been working for Crnogorski Telekom Group in several executive positions: CIO of T-Mobile, IT Director of Crnogorski Telekom Group (2005) and currently as CTO of Crnogorski Telekom Group (2006).

Manfred Knapp, Chief Financial Officer Born in 1955 in Frankfurt/Main, Germany. He holds a degree in Business Administration and Management. Before joining Deutsche Telekom Group in 1997, Manfred Knapp covered several senior controlling and finance management positions in different industries where he gained a broad experience in all areas of finance management, mergers and acquisitions and turnaround management. In 1998 Manfred Knapp was assigned to the mobile operator Wind in Italy as Controlling Director. From 1999 he managed the controlling department of the Deutsche Telekom Carrier Services Business. In 2001 he joined Slovak Telekom as Controlling Director and Deputy CFO. Since May 2009 he has been responsible for the Finance Department of Crnogorski Telekom as CFO.

Vladimir Beratović, Corporate Affairs OfficerBorn in 1970 in Podgorica, he graduated in International Management, and is currently undertaking postgradu-ate studies. His almost 16-year-long career in telecommunications started in the Montenegrin mobile operator Promonte (today’s Telenor). During his last 10 years at Telenor he held various directorial positions and was a member of the top level of management. He left Telenor as Chief Corporate Affairs Officer, in charge of govern-ment relations, legal, regulatory, interconnection and wholesale and corporate communication departments. His career in Crnogorski Telekom started on September 1st 2010 as advisor to the Chairman of the Board. He was appointed Corporate Affairs Officer on November 1st 2010.

Milija Zeković, Chief Sales OfficerBorn in 1971, he holds a degree in Economics from the University of Montenegro. After completing his studies in 1995 he started his career at “Kartonka”, Podgorica, as Production and Sales Manager.He started working as Sales Manager in T-Mobile (formerly Monet) in 2000. In 2006 he became the Director of Sales for residential customers and small and medium enterprises. In July 2008 he was appointed CSO of Crnogorski Telekom.

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IntroductionGeneral information

Crnogorski Telekom (CT) is the biggest telecommunications company in Montenegro. It provides a full range of fixed-line, mobile and Internet telecommunications services.

Crnogorski Telekom is the main fixed-line service provider in Montenegro and it provides local, national and international services, including leased-line circuits and data networks.

On 1st April 2005, Magyar Telekom obtained a 76.53% interest in Crnogorski Telekom.

Deutsche Telekom AG holds 59.21% of the Magyar Telekom shares. Deutsche Telekom and Magyar Telekom have a number of subsidiaries worldwide, with which Crnogorski Telekom has regular transactions. Details of related party transactions are given in the company’s Financial Statements, Note 32.

For the past six years, Crnogorski Telekom’s major operational goals have been to finalize digitalization of the fixed-line network and to increase the capacity and reliability of the data network, consequently creating conditions for an increase in subscribers to broadband and voice services. The digitalization rate had reached 100% by the end of 2007 and ADSL coverage had reached almost 96% of the PSTN customer base by the end of 2011.

In 2006, the T-Com and T-Mobile brands were launched and in December 2007 Crnogorski Telekom started IPTV services.

T-Mobile is the second entrant into the mobile market in Montenegro and by YE 2011 it held 34.7% of the mobile market (SIM card) share. From its founding in 2000, T-Mobile has always offered innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth. T-Mobile uses all advanced technologies such as UMTS, HSDPA, GPRS and EDGE. A 3G network was launched in 2007.

On May 1, 2009 Crnogorski Telekom a.d., T-Mobile Crna Gora d.o.o and Internet Crna Gora d.o.o were merged into one legal entity, Crnogorski Telekom a.d. The services are marketed under the T-Com and T-Mobile brands.

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Competition

T-ComIn 2007, a third mobile operator entered the Montenegrin telecom-munications market, as one of the licensed operators for devel-opment and exploitation of a WiMAX-based network. In 2008 it launched fixed-line voice and broadband internet services.

By the end of 2011, only 3 of the 10 licensed VoIP operators had started operations. Agreements on interconnection/access were signed with all of them. According to these contracts, outgoing call services to CT customers through carrier selection and free-phone services are offered.

Nine Multichannel Multipoint Distribution Service (“MMDS”) and CATV licenses were awarded in 2007. The first broadband Internet services were offered in Q4 2009.

The CT underground infrastructure is currently used by competi-tors to a limited extent.

Strong competition is developing in the wholesale segment.

In 2011, CT was able to increase its pay-TV customer market share by more than 4 percentage points, to a market share of 41.0%.

In September 2009, Crnogorski Telekom started commercially with Voice over IP services for business customers, using the IP Centrex platform.

Crnogorski Telekom entered the Montenegrin Information and Communication Technology (ICT) market in October 2010, when CT unveiled its Integris solution for business customers.

T-MobileT-Mobile started its commercial operations as the second mobile telecommunications service provider in Montenegro in 2000, four years after the first mobile provider started operations. In 2007 a third mobile operator entered the Montenegrin mobile market.

In 2011, T-Mobile decreased its total SIM market share by 2.3 percentage points to 34.7%, due to a decreased pre-paid market share. However, T-Mobile remained market leader in the post-paid segment with a 40.9% market share.

Competition in mobile services is intense and driven by pricing, subscription options, subsidized handsets and coverage, as well as the quality and portfolio of services offered.

The goal of T-Mobile is to increase its market share by introducing segment-oriented price plans, continuously offering new attractive handsets, exploiting synergies of Deutsche Telekom and improv-ing existing customer relations and community involvement as a sponsor of important social, cultural, sports and educational events.

Regulatory environment

The recent regulatory environment is characterized by implementation of the Law on Electronic Communications which is dedicated to ensuring competitiveness in the market. Based on 2010 market analysis of relevant markets, Crnogorski Telekom, as a “Significant Mar-ket Player” (SMP), was obliged to offer five new wholesale products: Carrier Pre-Selection, Local Loop Unbundled, Wholesale Leased Lines, Wholesale ADSL and Wholesale Line Rental. This required all the technical preparations for provisioning the new services, as well as business orientation towards the wholesale segment. In 2011, new products had still not been put into operation due to a lack of inter-est from other parties. The only interest was shown for duct rental. The National Regulatory Agency (NRA) also adopted the Rulebook on retail price regulation of the services provided at a fixed location as well as Cost Accounting and Accounting Separation Methodology. CT is obliged to submit the first Regulatory Reports on 30 June 2012.In 2011 the NRA launched a new process of market analysis of five relevant markets. In draft documents CT was identified as an SMP in four markets: two retail markets of calls, for business and residential, provided at a fixed location, wholesale market of trunk segments of leased lines and wholesale market of access and origination of mobile calls. Standard EU remedies will be imposed on CT except in the mobile market where, besides MVO and national roaming, carrier selection will also be imposed. At the beginning of 2011 the NRA designated the Universal Service (US) operators: Telenor for calls and access to the Internet at fixed locations and MCA (operator from Slovenia) for US Directory Inquiry services. US was commercially launched in Q3 2011 but without significant interest from the customers’ side for the US service (especially for voice services and Internet access). The US public phone booth service has been deleted from the scope of US.The Number Portability service commercially launched on 1st December. The first month of implementation of the service showed that about 50% numbers are ported in the CT network (T-Mobile only, while there was limited interest for porting of numbers in the fixed-line segment).Mobile operators finalized registration of pre-paid users until 15th of January 2012 and permanently deactivated unregistered users.

Regulatory feesUnder new regulations, Crnogorski Telekom pays fees for market supervision, numeration and the usage of radio frequencies, which are higher than the ones that used to be paid under the previous law when a flat fee of 1% of gross revenue was paid.

Carrier selectionCarrier Selection was already included in the 2008 version of the Reference Interconnection offer (RIO). In accordance with the Agen-cy’s Resolution on designating CT as an SMP in the relevant market, the updated RIO also comprises Carrier Pre-selection. Only three operators have signed interconnection agreements with Crnogorski Telekom with Carrier Selection included.

Sharing of infrastructureThe RIO also defines the terms and conditions of collocation, for the purpose of interconnection realized at Crnogorski Telekom’s prem-ises. This includes renting of space in buildings, masts and ducts. The RIO’s conditions are valid only for operators looking for intercon-nection/access, while usage of infrastructure by operators for other purposes is subject to commercial negotiations. Apart from the RIO, the Reference Unbundling Offer defines the terms and conditions of collocation for the purpose of local loop unbundling, including also rental of collocation space in CT premises and ducts.

Termination of callsThe fixed termination fee (FTR) was changed in November 2010 by the NRA Resolution on designating CT as an SMP in the relevant market. The imposed price of 1.88 cents/min for single transit termination and 1.59 cents/min for local termination was applied in April 2011, while the new imposed prices of 1.07 cents/min for single transit termination and 0.93 cents/min for local termination were ap-plied in November 2011.The mobile termination fee (MTR) was changed in November 2010 by the NRA Resolution on designating CT as an SMP in the relevant market. The imposed price of 8.5 cents/min was applied in April 2011), while the new price 7.06 cents/min was applied in November 2011.

Future regulatory developments The responsible ministry announced work on a new law wherein the EU 2009 Framework will be implemented.

Montenegro and the European UnionMontenegro submitted its application for EU membership in December 2008 and on 15th December 2010 obtained candidate status. The recommendations stated in the Commission Opinion have been fulfilled and Montenegro is expecting to start negotiations with the EU in June 2012.

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Human resourcesSustainable Business Improvements

On the way towards business excellence, Crnogorski Telekom is continuously investing major efforts in optimizing its organizational structure, increasing business efficiency and its overall competitive potential in the market. All improvements implemented in 2011 re-sulted in a higher level of employee satisfaction and commitment, proved by several rounds of global employee surveys during the year.

The HR department managed to increase the overall effectiveness of company operations, introduce new incentive schemes, develop new HR business tools and successfully improve employee satisfaction and motivation.

New HR Services

In 2011, the CT Management Academy as a new HR service was successfully launched. The CT Management Academy is the first overall, comprehensive and systematic development programme for all managers. It aims for “One Leadership Style” as a standard for the Company’s management and it introduces many new and state-of-the-art initiatives in the field of management and leadership.

Also, a Stress Management Programme for prevention of “Burn out” Syndrome, which represents a completely new way to support employees with regard to work/life balance, has been successfully introduced.

e-HR

With the aim of further optimization of HR operational and business support for the company, the HR department developed several new and advanced communication and business tools such as: e-Pay slip (as the first company in the Montenegrin business environment); e-Timesheet; IT tools for PPR (Potential and Performance Review); HR web pages for managers and a Street of Benefits – web pages specially designed for employees, containing information about various benefits.

Organizational Development and Empowerment of Service Excellence

In order to improve cross-functional cooperation, HR organized many team-building events and in order to improve its service culture, HR organized a Shop/Call Centre/Installation Days, where more than 80% of CT’s managers spent a day in a shop, call centre and also “assisted” during an installation.

Survey Management and Company Culture

Crnogorski Telekom puts strong emphasis on employee satisfaction and on improvement of its attractiveness as an employer in the Montenegrin labour market. HR initiated numerous corrective measures related to employee satisfaction and improvement of the work-ing environment.

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Corporate ResponsibilityAs one of the leading companies in the country, Crnogorski Telekom aims to be involved in all areas that are important for Montenegrin society. Besides providing our customers with state-of-the-art telecommunications services, we see our role in the active and constant contribution to the development of the community in which we do business and of which we are part.

The areas on which we are focusing are the development of an information society, environmental protection and community develop-ment through support of projects and cooperation with non-profit organizations and institutions in the fields of culture, sports, education, human rights, etc.

In 2011, Crnogorski Telekom became a participant in the world’s largest corporate citizenship and sustainability initiative – United Nations Global Compact. UN Global Compact is primarily dedicated to the integration of ten universal principles in business activities around the world. These principles relate to the fields of human rights, labour relations, the environment and rooting out corruption.

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Development of an information society in Montenegro

Being the leading broadband provider in the country, Crnogorski Telekom has the responsibility of being the country’s first partner on its way to becoming an information society. In order to enable the Internet to become a part of everyday life for the majority of Montenegrin citizens, the company initiated several projects, part-nering with relevant bodies and organizations – the Montenegrin Government, educational institutions, NGOs, etc.

For the fifth year in a row, Crnogorski Telekom is enabling free internet access via ADSL to all elementary and high schools in the country. During 2011 around 150 Montenegrin schools benefitted from this. The project was implemented together with the Ministry of Education and Science.

During 2011, Crnogorski Telekom enabled Montenegrin citizens and foreign visitors to have free-of-charge usage of WiFi Internet at approximately 20 locations throughout Montenegro, including the territory of national parks as well. In cooperation with the National Parks of Montenegro, the company will continue to cover national park locations with WiFi internet, in order to provide its visitors with a more pleasurable stay while admiring natural beauty.

Sports, music and culture move people

Within the Company’s sponsorship strategy, sports have a special place, since this is an important area for developing a healthy, modern and advanced society.

T-Com is the golden sponsor of the Montenegrin national football team and general sponsor of the T-Com Montenegrin Football First League. Apart from this, in 2011 T-Com continued to support the elementary schools’ football league and the T-Com Kids’ Cup.

T-Mobile is, for the ninth year in a row, the sponsor of Budućnost Women’s Handball Club, one of the most successful sports clubs in the country.

The company is also sponsoring music, since it is considered to be the universal language for all generations, and as such, is perfect for underlining our brand promise “Life is for sharing” and gives a wide range of memorable moments to share.

In the field of culture, Crnogorski Telekom partnered with several organizations in order to support different projects, with a focus on youth and education.

In 2011, CT became the official partner of the City Theatre in Pod-gorica, thus helping this organization to mark its 60th Anniversary by offering new, exciting plays to a young audience.

The company was also the main sponsor of the Telekom Underhill Fest, an international documentary film festival which featured a series of concerts, film projections and lectures in Podgorica.

Besides that, company is cooperating with numerous NGOs that protect the interests of people with disabilities, as well as with organizations that work on the development of civil society in Montenegro.

5th Anniversary of the T-brand in Montenegro

In September 2011, Crnogorski Telekom celebrated the 5th an-niversary of the T-brands in Montenegro. Five open-air concerts were organized with five international stars as a gift to the Monte-negrin public and its customers.

The company also supported the local community and together with its employees organized a voluntary blood donation, together with the Red Cross of Montenegro and the Montenegrin Centre for Blood Transfusion

Fifty employees, together with members of the management, gave blood and helped raise awareness of the fact that the number of blood donors in Montenegro needs to be doubled to reach WHO standards.

The company also donated special medical equipment to the Cen-tre for Blood Transfusion, and thus additionally helped to address this cause.

Environment protection and energy efficiency

In 2011, Crnogorski Telekom continued introducing different measures to reduce energy consumption.

Compared to the previous year, the company decreased its energy consumption by 1,100MWh, based on different saving measures that were successfully implemented.

In March 2011, CT participated in the Earth Hour global campaign with the aim of raising awareness about climate change issues. The company is constantly promoting usage of sustainable solu-tions among its customers and employees, e.g. promoting e-mail bills, online registration, etc.

The Company also took part in the campaign “The Ecological Thread that Connects Us” organized by the Ministry for Sustain-able Development and Tourism and a group of NGOs. The goal was to raise awareness and educate the public about environmen-tal protection and promote more responsible behaviour towards nature.

Crnogorski Telekom owns two base stations that use renewable energy sources. This is state-of-the art equipment that uses the power of the sun and wind. The project is part of a broader com-pany initiative to address global-warming issues and protect the environment.

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In February 2011, CT extended its mobile offer for business customers. New tariff plans, Smart Team Plus, were introduced, with free minutes included in the subscription that can be used for calls towards all networks in Montenegro, the same price for all calls in Montenegro and free calls between employees in the company. In November 2011, CT improved its Smart Team Plus – by intro-ducing the best price for text messages – 2 cents and a roll-over of unspent minutes to the following month.At the same time, CT took over market leadership in the mobile post-paid segment for business customers and held this position throughout the year, thus making Crnogorski Telekom the first choice of business customers.

In September 2011, new Smart Plus tariffs for residential custom-ers were introduced. The company used a similar approach as in Smart Team Plus, i.e. minutes toward all Montenegrin networks included in the package, a unique price per minute towards all destinations in the country and the best price for text messages. In addition, new Smart Plus packages include up to five Friends and Family numbers with free-of-charge calls in both directions, which represents a unique offer in this market.

Thanks to its new post-paid portfolio, Crnogorski Telekom be-came the leader in the mobile post-paid segment, with 40.9% of the market share at the end of 2011.

Along with Smart Team Plus packages, new texting and Internet options were introduced:SMS Unlimited: free text messages in Montenegro and Serbia for only EUR 3 a month.Internet 5 (250MB on mobile phones) and Internet Unlimited (worry-free Internet for EUR 15 a month).

In November 2011, number portability was introduced to the Montenegro and according to the official reports of the Regulatory Agency, over 48% of customers who port their numbers, choose to transfer to the T-Mobile network.

Pre-paid

In March 2011, Crnogorski Telekom introduced an enhanced Internet offer with free Facebook for “Pleme” package users. In May 2011 a new pre-paid package was launched (“Ajmo svi”) – the best prices towards all networks for 5 chosen numbers, with free calls towards chosen T-Com number in addition.Special offer – The Holiday package for tourists in Montenegro was launched in May 2011. A unique tourist offer on the market included a pre-paid card with a handset at a very good price.Pre-paid time-based internet options were launched in May 2011. Customers can choose the 1-day, 7-day or 15-day offer.

Internet

By the end of September 2011 CT had enhanced Internet speed by 42Mbps which was a unique offer in the market with HSDPA+ technology.

Super menu

In July 2011 CT introduced Super menu for mobile customers. Using this service, a customer can easily choose and activate op-tions and tariff additions based on their needs.

Data Roaming

For customers who are using the Internet while roaming, Crnogo-rski Telekom has introduced a unique offer, the first of its kind in the region: data roaming in the 13 most visited countries (T-Mobile networks and VIP Srbija) for a fixed price. Customers can use a daily or weekly tickets and get 50MB or 250MB for Internet brows-ing. After using this amount of data, the Internet speed is limited to 16Kbs.

Business Calculator

Crnogorski Telekom is positioned as a full Telco and ICT provider for businesses in Montenegro. In April the company introduced a Business Calculator, for business customers. The campaign is intended for SME companies and integrates all services and equipment into a single solution. A special web tool was designed for this purpose. By using this tool, customers can combine services and choose the best offer by themselves online and get special discounts.

The lines of businessMobile Services

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Fixed-line servicesIn order to cover all “technical aspects of a customer relationship” in April 2011 CT introduced a new customer-focused organization in its Technology department. A new universal technician concept ensures a complete, correct and timely service provision and fault-clear-ing from beginning to end. The new organizational concept is strongly supported by the introduced Workflow and Workforce Manage-ment System that won first prize at the 2012 European Software Excellence Awards in Berlin at the European ISV Convention 2012. The new system is integrated with the surrounding IT/NT systems and has full auto-dispatching (tasks are automatically assigned to techni-cians based on location, number of assigned tickets, etc. In June 2011, the PSTN network was centralized by reducing the main switching network elements by approximately 50%. The central-ized and modernized PSTN network is ready for smooth and gradual migration to an IP-based fixed-line network.In order to be able to provide innovative services in the near future CT has also implemented an IP Multimedia System and started with migration of customers to the new IMS platform.

In April 2011 CT put into production its Disaster Recovery Site in Bijelo Polje in order to further increase service quality and reliability. CT is the first and only telecommunications company in Montenegro with a disaster recovery site enabling business continuity.

ADSL

The second half of 2011 was marked by strong ADSL promotional marketing campaigns for business and residential customers with free-of-charge equipment, a promotional offer that ensured that at the end of 2011 almost 65 000 customers were subscribed to the ADSL packages, which represents an increase of more than 7 000 or 13% YoY.At the end of 2011 ADSL held 84.8% of the market share in the broadband Internet market.

Extra TV

The Extra TV platform was improved at the end of March 2011 which enabled a better Extra TV signal and additional TV features. During the year the interactive features of Extra TV were further enhanced by a new portal application developed in cooperation with leading Montenegrin news providers. In addition, Extra TV customers have been able to access Facebook on their TV screens from 2011.

At the end of 2011 there were more than 50,000 customers connected, which is an increase of 9,000 or 22% compared to the previous year. The customer satisfaction of Extra TV users is very high. Extra TV had the most significant market share increase, and during 2011 the company strengthened its leading position in the TV market by reaching 41% market share.

Fibre to the home (FTTH) project

During 2011, Crnogorski Telekom continued its roll-out of fibre optics in buildings where there was already copper cabling which is sup-ported by other offers – e.g. a speed upgrade with an attractive price, two telephone lines and the opportunity for more receivers in the case of Extra TV. In Podgorica, important residential areas were covered by the FTTH service during 2011.

Integris – ICT (Information and Communication Technology) Service

Crnogorski Telekom has been selected as ICT provider by more than 20 companies in Montenegro during 2011. Banks, retailers, enterprises and SME companies decided to use the Integris service. The Integris service consists of 3 groups of solutions: Integrinet – the closest solution to our core business, solutions which allow fast and efficient communication based on a developed and connected network infrastructure; Integridesk – solutions which allow integration of software and hardware on the workstations of customers; Integribiz – custom and tailored solutions intended and adjusted to specific customer needs.

Loyalty Programmes

CT’s loyalty programme “Ritam klub” became available for pre-paid data customers in June 2011. During 2011 the portfolio of “Ritam klub” gifts has also been enhanced.Customer loyalty grows YoY which is shown by over 35,000 T-Com customers, approximately 34,000 T-Mobile post-paid customers and over 154,000 T-Mobile pre-paid customers who had joined “Ritam klub” by the end of 2011.

In October 2011, Crnogorski Telekom together with Hipotekarna Banka introduced Premium cards, loyalty co-branded bank cards. Crnogorski Telekom customers can receive discounts by using this card in more than 100 places all over Montenegro as long as they remain a CT customer. In the first three months, 6,000 customers had applied for the card.

T-Brand fifth anniversary

In September 2011 Crnogorski Telekom celebrated the fifth anniversary of the T-brands in Montenegro with special offers for customers: 5 weeks free handset Internet (250MB included) 5 weeks all channels and packages included for Extra Trio users (additional packages) 5 smart phones for 5 EUR

Sales channels Crnogorski Telekom has developed different sales channels in order to provide the best services to its residential and business custom-ers. Crnogorski Telekom’s direct sales channels consist of its own shop network of 12 T-Shops, 2 Front Desks and Web Shop. Crnogor-ski Telekom’s indirect sales channels include its network of partner shops (consisting of 12 exclusive Partner Shops which use a similar design to CT’s own shops), its dealers’ network, residential Telesales and “Door-to-Door” sales force. The dealers’ network consists of approximately 1,100 contracted points of sale for pre-paid vouchers and SIM cards.

Business customers are served by Key Account Managers, who take care of the top 400 clients, SME Coordinators, who are in charge of SME and SOHO companies, and business Telesales. Top clients are segmented by industries (e.g. banks, hotels, large manufacturers,

government, etc.) and small companies are divided up by regions.

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This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

Financial Year 2011Management report for the financial year 2011Despite 2011 being a financially and operationally a challenging year, because of the economic downturn and the difficult market condi-tions, Crnogorski Telekom focused on expanding both the fixed-line and mobile broadband services, on fibre-optic access roll-out, on expansion of the ICT service (Integris) and on improvement of voice services. In the fixed-line voice segment CT kept a stable customer base, while ADSL and Extra TV customer numbers increased significantly. In the mobile segment CT retained post-paid leadership and also become the first choice for Montenegrin businesses.

Even though the number of customers developed positively, CT experienced a moderate, limited revenue decline. By mitigating the YoY decrease to only 1.5%, CT performed better than most of its peers with revenues reaching EUR 117.2 million. Retail revenues were increased. Major revenue downsides, compared to 2010, related to: interconnection revenues (-17%), which was a consequence of decreased mobile termination rates and lower incoming traffic, fixed-line voice retail revenues (-5.1%) and mobile pre-paid revenues (-2.4%). Such development was partly compensated by higher ADSL revenues (+16%), IPTV revenues (+23%), mobile post-paid (+6.2%) and data service revenues (+8.6%), driven by CT’s Integris service.

As a result of continuous successful efforts to increase efficiency and improve the cost base, at the same time operating expenses excluding special effects decreased YoY by EUR 2.3 million (-3.1%). Limited minor YoY revenue decrease and cost efficiency resulted in a YoY increase of EBITDA excluding special influences of 1.3%, to an amount of EUR 45.2 million.

Highlights

Revenue decrease limited to 1.5%, with total revenue of EUR 117.2 million mainly driven by the development of voice revenues, and partly offset by the increase in Internet, TV and ICT revenues

EBITDA excluding special influences increased by 1.3%, to EUR 45.2 million, with an achieved margin of 38.6% Capital expenditure was EUR 14.9 million, of which EUR 10.0 million in T-Com (mostly related to IPTV, IMS, fibre-optic network roll-

out, development of infrastructure and IT systems) and EUR 4.9 million in T-Mobile (mainly investments in core and radio networks, platforms development and IT systems)

A dividend for 2010 in the sum of EUR 18 million was paid out in July

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Revenue and EBITDA w/o SI contribution by segment (after consolidation)

T-Mobile46%

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In 2011 the fixed-line voice customer number was stable. The ADSL revenue increase was driven by a customer base increase of 7,300 or 13%. IPTV revenues increased due to a customer number increase of 9,000 YoY or 22%.

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CRNOGORSKI TELEKOM A.D. PODGORICAInternational Financial Reporting StandardsFinancial Statements

For the year ended 31 December 2011

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CONTENTS

PageStatement of financial position 39Statement of comprehensive income 40Statement of cash flows 41Statements of Changes in Equity 42Notes to the Financial Statements 43-108

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At December 31, Notes 2011 2010

ASSETS Non current assets Intangible assets 5 12.816.165 13.317.857 Goodwill 6 941.624 941.624Property, plant and equipment 7 104.433.855 113.818.346 Available for sale financial assets 8 25.374 25.374Long term loans and other receivables 9 7.262.081 8.202.692 Total non current assets 125.479.099 136.305.893

Current assets Cash and cash equivalents 10 1.871.155 1.737.783 Short term bank deposits 11 45.200.000 36.200.000 Trade and other receivables 12 20.054.375 22.703.715 Advances and prepayments 13 2.506.096 2.411.387 Inventories 14 2.131.604 2.757.894 Restricted cash 15 222.252 1.465.667 Total current assets 71.985.482 67.276.446

Total assets 197.464.581 203.582.339

LIABILITIESCurrent liabilities Trade and other payables 19 9.163.056 12.692.821Accrued liabilities and advances 20 14.736.682 15.186.990 Current income tax payable 2.470.652 2.494.610 Provision for liabilities and charges 21 1.727.157 1.962.359 Total current liabilities 28.097.547 32.336.780

Non current liabilitiesDeferred income tax liability 22 2.159.941 2.583.144 Provision for liabilities and charges 21 768.464 722.030 Other long term liabilities 3.449 3.449 Total non current liabilities 2.931.854 3.308.623

Total liabilities 31.029.401 35.645.403

EQUITYCapital and reserves attributable to the equity holders of the company Share capital 17 140.996.394 140.996.394 Statutory reserves 18 8.046.359 7.074.778 Retained earnings 17.392.427 19.865.764Total shareholders’ equity 166.435.180 167.936.936

Total liabilities and equity 197.464.581 203.582.339 Total liabilities and equity 203.582.339 267.624.778

The accompanying notes on pages 43 to 108 are an integral part of these financial statements.

These financial statements have been approved for issue by the Board of Directorsof Crnogorski Telekom A.D. and on their behalf are signed by

Ruediger Schulz Manfred Knapp Chief Executive Officer Chief Financial Officer

STATEMENT OF FINANCIAL POSITION In EUR

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STATEMENT OF CASH FLOW (In EUR)

For the year ended December 31Note 2010 2009

Cash flows from operating activities

Cash generated from operations 36 39.798.799 40.057.772 Interest paid 28 (55.875) (14.164) Income tax paid 29 (2.533.205) (1.499.330)Net cash generated from operating activities 37.209.719 38.544.278

Cash flows from investing activitiesPurchase of tangible and intangible assets 5,7 (13.922.285) (15.993.280)Short term bank deposits 11 (9.000.000) 9.000.000 Interest received 28 2.303.825 3.065.503 Long term loans and other receivables 9 452.235 159.742Net cash used in investing activities (20.166.225) (3.768.035)

Cash flows from financing activitiesDividends paid to shareholders (16.910.122) (36.220.052) Net cash used in financing activities (16.910.122) (36.220.052)

Net increase in cash and cash equivalents 133.372 (1.443.809)

Cash and cash equivalents, beginning of period 1.737.783 3.181.592Cash and cash equivalents, end of period 10 1.871.155 1.737.783

The accompanying notes on pages 43-108 are an integral part of these financial statements.

In EUR

For the year ended December 31Notes 2011 2010

Revenues

Fixed line and Internet revenues 23 a 63.092.700 63.900.781 Mobile lines revenues 23 b 53.796.428 54.551.467 Total revenues 116.889.128 118.452.248

Other income 458.687 459.707

Operating expenses Employee related expenses 24 (24.791.586) (25.445.499) Depreciation, amortization and impairment 25 (24.694.691) (22.280.082) Payments to other network operators 26 (19.977.764) (22.943.869) Cost of telecommunications equipment sales (6.153.642) (4.688.161) Other operating expenses 27 (25.598.505) (25.062.636) Total operating expenses (101.216.188) (100.420.247)

Operating profit 16.131.627 18.491.708

Finance income 28 2.729.957 3.925.398 Finance costs 28 (315.890) (593.846) Finance income – net 2.414.067 3.331.552

Profit before income tax 18.545.694 21.823.260

Income tax expense 29 (2.047.450) (2.391.641)

Total comprehensive income for the year 16.498.244 19.431.619

Attributable to:Equity holders of the company 16.498.244 19.431.619

Earnings per share of the Company during the year (expressed in EUR per share)

-basic 30 0,3490 0,4110 -diluted 30 0,3490 0,4110


STATEMENT OF COMPREHESIVE INCOME

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STATEMENT OF CHANGES IN EQUITY

Share Capital Statutory reserves Retained earnings Total

Balance at January 1, 2010 140.996.394 5.644.103 88.864.820 235.505.317Dividends - - (87.000.000) (87.000.000)

Allocation of retained earnings (Note 18) -

1.430.675 (1.430.675) - Total comprehensive income for the year 2010 - - 19.431.619 19.431.619 Balance at December 31, 2010 140.996.394 7.074.778 19.865.764 167.936.936

Balance at January 1, 2011 140.996.394 7.074.778 19.865.764 167.936.936Dividends - - (18.000.000) (18.000.000)

Allocation of retained earnings (Note 18) - 971.581 (971.581) -Total comprehensive income for the year 2011 - - 16.498.244 16.498.244Balance at December 31, 2011 140.996.394 8.046.359 17.392.427 166.435.180


1. GENERAL INFORMATION

Crnogorski Telekom A.D. Podgorica (also referred to as “Telekom” or the “Company”) provides fixed line, mobile, internet and other telecommunication services in Montenegro.

The Company is the principal provider of fixed telephony services in the Republic of Montenegro, as well as of local, national and international telephony services, in addition to a wide range of other telecommunication services involving leased circuits, data networks and cable television services. In accordance with the Republic of Montenegro Law on electronic communication, the Company’s market position as an exclusive supplier of fixed-line telephony services was officially terminated on December 31, 2003.

Crnogorski Telekom A.D., Podgorica was founded and registered with the Commercial Court of Podgorica under Decision numbered Fi. 5490/98 of December 31, 1998, subsequent to the completion of the ownership transformation and separation processes of the tele-communication and postal businesses of the Public Enterprise of Post, Telegraph and Telecommunications of the Republic of Montene-gro (“JP PTT Crna Gora”).

In accordance with the Republic of Montenegro Company Law, the Company was re-registered on November 6, 2002 into the Central Register of the Commercial Court of Podgorica under registration entry numbered 4-0000618/001.

During 2000, Telekom rolled out a GSM 900 mobile network and in May 2000 launched its commercial operation as a provider of mobile telephony. On July 28, 2000 Telekom registered Monet D.O.O. (which was later renamed to T-mobile CG d.o.o.) as it’s fully owned sub-sidiary and subsequently transferred the mobile telephony business to Monet. The Montenegro mobile telephony market is liberalized and Crnogorski Telekom (T-mobile CG d.o.o., as its subsidiary before merging date in 2009) competes, mainly with two other operators “Telenor” D.O.O. and M tel D.O.O.

Crnogorski Telekom A.D. (Internet Crna Gora d.o.o., as its subsidiary before merging date) also operates in the area of provisioning of web services, line leases, reproduction of computer media, consulting services and in the development of computer software.

Following a successful privatization tender Crnogorski Telekom A.D. was acquired by Magyar Telekom Nyrt. (hereinafter referred to as Magyar Telekom). Magyar Telekom obtained control of 51,12% stake in Crnogorski Telekom on March 31, 2005 and by the end of 2005 it increased its stake to 76.53%. The size of Magyar Telekom’s stake in the Company remained unchanged ever since. Deutsche Telekom AG is the ultimate controlling owner of Magyar Telekom holding 59.21% of the issued shares.

As of April 30, 2009, the Company owned 100% of the capital of T-Mobile CG d.o.o., the Montenegrin mobile company and 100% of the share capital of Internet Crna Gora.

On April 30, 2009 the General Assembly of Crnogorski Telekom A.D decided about merging two subsidiaries of the Company, i.e. T Mobile d.o.o. and Internet d.o.o., into Crnogorski Telekom A.D.. The merger was registered on May 11, 2009 by the Court of Registar of the Republic of Montenegro under registration number 4-0000618/028.

Telekom is domiciled in Podgorica, in the Republic of Montenegro at the following address: Moskovska 29, Podgorica. As at December 31, 2011 the Company had 759 employees (843 employees as at 31 December 2010).

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1. GENERAL INFORMATION (continued)

Investigation into certain consultancy contracts

As previously disclosed, in the course of conducting their audit of Magyar Telekom’s 2005 financial statements, PricewaterhouseCoo-pers Könyvvizsgáló és Gazdasági Tanácsadó Kft. (“PWC”) identified two contracts the nature and business purposes of which were not readily apparent to them. In February 2006, Magyar Telekom’s Audit Committee retained White & Case LLP (the “independent investiga-tors” or “White & Case”), as its independent legal counsel, to conduct an internal investigation into whether the Magyar Telekom and/or any of its affiliates had made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the Foreign Corrupt Practices Act (“FCPA”), or internal company policy. The Audit Committee also informed the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”), and the Hungarian Financial Supervisory Authority of the internal investigation.

On December 2, 2009, the Audit Committee provided Magyar Telekom’s Board of Directors with a “Report of Investigation to the Audit Committee of Magyar Telekom Nyrt.” dated November 30, 2009 (the “Final Report”). The Audit Committee indicated that it considers that, with the delivery of the Final Report based on currently available facts, White & Case has completed its independent internal investi-gation.

The Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and its counsel:

The information obtained by the Audit Committee and its counsel in the course of the investigation “demonstrates intentional miscon-duct and a lack of commitment to compliance at the most senior levels of Magyar Telekom, Crnogorski Telekom, and Makedonski Telekom during the period under investigation.”

As previously disclosed, with respect to Montenegrin contracts, there is “insufficient evidence to establish that the approximately EUR 7 million in expenditures made pursuant to four consultancy contracts ... were made for legitimate business purposes”, and there is “affirmative evidence that these expenditures served improper purposes.” These contracts were not appropriately recorded in the books and records of Magyar Telekom and its relevant subsidiaries. Two of these contracts, amounting to EUR 2.88 million in total, were entered into by Crnogorski Telekom and a subsidiary thereof, while two others were entered into by other affiliates in the Group.

In 2007 the Supreme State Prosecutor of the Republic of Montenegro informed the Board of Directors of Crnogorski Telekom, of her conclusion that the contracts subject to the internal investigation in Montenegro included no elements of any type of criminal act for which prosecution would be initiated in Montenegro. However, since 2007, the Supreme State Prosecutor of the Republic of Montene-gro has been provided with all new data and/or documents which become available for Crnogorski Telekom.

Additionally, the Ministry of Interior of the Republic of Macedonia and the Hungarian Central Investigating Chief Prosecutor’s Office com-menced investigations into certain of the activities that were the subject of the internal investigation. These governmental investigations are continuing, and relevant affiliates of Crnogorski Telekom continue to cooperate with these investigations.

The DOJ and the SEC also commenced investigations into the activities that were the subject of the internal investigation. In 2011, Mag-yar Telekom entered into final settlements with the DOJ and the SEC to resolve the DOJ’s and the SEC’s investigations relating to Magyar Telekom. The settlements concluded the DOJ’s and the SEC’s investigations relating to Magyar Telekom.

2. Summary of significant accounting policies

2.1. Basis of Preparation

The financial statements of the Crnogorski Telekom A.D. have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and effective at the time of preparing the financial statements and with the requirements of the Law on Accounting and Auditing of Montenegro. The financial statements have been pre-pared under the historical cost convention.

The Company maintains its accounting records and prepares its financial statements in accordance with the Accounting and Auditing Law of the Republic of Montenegro (Official Gazette of the Republic of Montenegro, numbered No 69/2005) and in particular, based on the relevant legal decision defining the mandatory application of IFRS in the Republic of Montenegro (Official Gazette of the Republic of Montenegro, numbered 69/2002). In conformity with these provisions, the IFRS were applied for the first time as the primary accounting basis for the reporting year commencing January 1, 2003.

The official currency in the Republic of Montenegro and the functional currency of Crnogorski Telekom A.D. is the Euro (EUR).

These financial statements of the Company were approved for issue by the Company’s Board of Directors (the Board), however, the Annual General Meeting (AGM) of the owners, authorized to accept these financials, has the right to require amendments before ac-ceptance. As the controlling shareholders are represented in the Board of the Company that approved these financial statements for issuance, the probability of any potential change required by the AGM is extremely remote, and has never happened in the past. Standards, amendments and interpretations effective and initially adopted by the Company in 2011

In the current period, the Company has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2011. The initial application of these pronouncements did not have a material impact on the Company’s results of operations, financial position or cash flows. Listed below are those new or amended standards or interpretations:

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2. Summary of significant accounting policies (continued)

2.1. Basis of Preparation (continued)

Standards, amendments and interpretations effective and adopted by the Company in 2011

- IAS 24 (revised). In November 2009, the IASB issued a revised version of IAS 24 Related Party Disclosures. Until now, if a government controlled, or significantly influenced, an entity, the entity was required to disclose information about all transactions with other entities controlled, or significantly influenced by the same government. The revised standard still requires disclosures that are important to users of financial statements but eliminates requirements to disclose information that is costly to gather and of less value to users. It achieves this balance by requiring disclosure about these transactions only if they are individually or collectively significant. Furthermore the IASB has simplified the definition of related party and removed inconsistencies. The Company adopted the revised standard as of January 1, 2011. The revised standard did not have a significant impact on the disclosures in the Company’s financial state-ments.

Standards, amendments and interpretations effective in 2011 but not relevant for the Company

- IAS 32 (amended) - The IASB published an amendment to IAS 32 Financial Instruments: Presentation in October 2009. The amendment clarifies the classification of rights issues as equity or liabilities for rights issues that are denominated in a currency other than the functional currency of the issuer. These rights issues are recorded as derivative liabilities before the amendment. The amendment requires that such right issues offered pro rata to all of an entity’s existing shareholders are classified as equity. The classification is independent of the currency in which the exercise price is denominated. The amendment did not have any impact on the Company’s financial statements as Crnogorski Telekom has no such instruments.

- IFRS 1 The IASB amended IFRS 1 in January 2010 and in December 2010. As the Company has been reporting according to IFRS for many years, neither the original standard, nor any revision to that is relevant for the Company.

- IFRIC 14 (amended) IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. In November 2009, the IASB issued an amendment to IFRIC 14, which corrects an unintended consequence of IFRIC 14. Without the amendments, in some circumstances entities are not permitted to recognize some voluntary prepayments for minimum funding contributions as an asset. The amendment permits such an entity to treat the benefit of such an early payment as an asset. The amended interpretation is not applicable to Crnogorski Telekom as the Company has no funded defined post-retirement benefit schemes.

- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. This interpretation issued in November 2009 clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or par-tially. The interpretation did not have any impact on Crnogorski Telekom’s financial statements as the Company does not extinguish any of its financial liabilities with equity instruments.



Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Company

- IAS 1 (amended) - The IASB published amendments to IAS 1 Presentation of Financial Statements in June 2011. The amendments to IAS 1 retain the ‘one or two statement’ approach at the option of the entity and only revise the way other comprehensive income is presented: requiring separate subtotals for those elements which may be reclassi-fied to the profit or loss section of the income statement (recycled) and those elements that will not. The application of the amendment is required for annual periods beginning on or after July 1, 2012. The European Union has not yet endorsed the amendments of the standard.

- IAS 19 (amended) - The IASB published amendments to IAS 19 - Employee Benefits in June 2011. The amendments focus on the following key areas:

- Recognition (only defined benefit plans) - elimination of the “corridor approach” - Presentation (only defined benefit plans) - gains and losses that arises from remeasurements should be presented

(only) in other comprehensive income (elimination of the remaining options) - Disclosures - enhancing of disclosure requirements, e.g. - the characteristics of a company’s defined benefit plans, - amounts recognized in the financial statements, - risks arising from defined benefit plans and - participation in multi-employer plans - Improved / clarified guidance relating to several areas of the standard, e.g. - classification of benefits, - recognition of termination benefits and - interest rate relating to the expected return on the plan assetsThe application of the amendment is required for annual periods beginning on or after January 1, 2013. We do not expect that the adoption of the amended standard would result in significant changes in the financial statements of the Company. The European Union has not yet endorsed the amendments of the standard.

- IAS 32 (amended) - The IASB published amendments to IAS 32 Financial Instruments: Presentation in December 2011. The amendments to IAS 32 clarify the IASB’s requirements for offsetting financial instruments. The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32. The pronouncement clarifies:

- the meaning of “currently has a legally enforceable right of set off the recognized amounts”; and - that some gross settlement systems may be considered equivalent to net settlement.The application of the amendment is required for annual periods beginning on or after January 1, 2014. A reporting entity must apply the amended standard retrospectively. We do not expect that the adoption of the amended standard would result in significant changes in the financial statements of the Company. The European Union has not yet endorsed the amendment of the standard.

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Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Company

- IFRS 7 (amended) - The IASB published an amendment to IFRS 7 Amendments to IFRS 7 Financial Instruments: Disclosures in October 2010. The amendment requires quantitative and qualitative disclosures regarding transfers of financial assets that do not result in entire derecognition, or that result in continuing involvement. This is intended to allow users of financial statements to improve their understanding of such transactions (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of such transactions are undertaken around the end of a reporting period. The application of the amendment is required for annual periods beginning on or after July 1, 2011. An earlier application is permitted. We do not expect that the adoption of the amended standard would result in significant changes in the financial statements disclosures of the Company. The European Union has not yet endorsed the amended standard.

The IASB published amendments to IFRS 7 Amendments to IFRS 7 Financial Instruments: Disclosures in December 2011. The IASB and the Financial Accounting Standards Board (FASB) issued common disclosure requirements that are intended to help to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. The common disclo-sure requirements also improve transparency in the reporting of how companies mitigate credit risk, including disclosure of col-lateral pledged or received. The application of the amendment is required for annual periods beginning on or after January 1, 2013. A reporting entity must apply the amended standard retrospectively. We do not expect that the adoption of the amended standard would result in significant changes in the financial statements disclosures of the Company. The European Union has not yet endorsed the amended standard.

- IFRS 9 Financial Instruments. The standard forms the first part of a three-phase project to replace IAS 39 (Financial Instruments: Rec-ognition and Measurement) with a new standard, to be known as IFRS 9 Financial Instruments. IFRS 9 prescribes the classifica-tion and measurement of financial assets and liabilities. The remaining phases of this project, dealing with the impairment of financial instruments and hedge accounting, as well as a further project regarding derecognition, are in progress.



Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Company (continued)

Financial assets - At initial recognition, IFRS 9 requires financial assets to be measured at fair value. After initial recognition, financial assets continue to be measured in accordance with their classification under IFRS 9. Where a financial asset is classified and measured at amortized cost, it is required to be tested for impairment in accordance with the impairment requirements in IAS 39. IFRS 9 defines the below rules for classification.

- IFRS 9 requires that financial assets are classified as subsequently measured at either amortized cost or fair value. There are two conditions needed to be satisfied to classify financial assets at amortized cost: (1) The objective of an entity’s business model for managing financial assets has to be to hold assets in order to collect contractual cash flows; and (2) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Where either of these conditions is not satisfied, financial assets are classified at fair value.

- Fair Value Option: IFRS 9 permits an entity to designate an instrument, that would otherwise have been classified in the amor-tized cost category, to be at fair value through profit or loss if that designation eliminates or significantly reduces a measure-ment or recognition inconsistency (‘accounting mismatch’).

- Equity instruments: The default category for equity instruments is at fair value through profit or loss. However, the standard states that an entity can make an irrevocable election at initial recognition to present all fair value changes for equity invest-ments not held for trading in other comprehensive income. These fair value gains or losses are not reported as part of a reporting entity’s profit or loss, even when a gain or loss is realized. Only dividends received from these investments are reported in profit or loss.

- Embedded derivatives: The requirements in IAS 39 for embedded derivatives have been changed by no longer requiring that embedded derivatives be separated from financial asset host contracts.

- Reclassification: IFRS 9 requires reclassification between fair value and amortized cost when, and only when there is a change in the entity’s business model. The ‘tainting rules’ in IAS 39 have been eliminated.

Financial liabilities - IFRS 9 “Financial Instruments” sets the requirements on the accounting for financial liabilities and replaces the respective rules in IAS 39 “Financial Instruments: Recognition and Measurement”. The new pronouncement

- Carries forward the IAS 39 rules for the recognition and derecognition unchanged. - Carries forward most of the requirements in IAS 39 for classification and measurement. - Eliminates the exception from fair value measurement for derivative liabilities that are linked to and must be settled by delivery

of an unquoted equity instrument. - Changes the requirements related to the fair value option for financial liabilities to address own credit risk.

An entity shall apply IFRS 9 for annual periods beginning on or after January 1, 2013. Earlier adoption is permitted. A reporting entity must apply IFRS 9 retrospectively. For entities that adopt IFRS 9 for periods before January 1, 2012 the IFRS provides transition relief from restating comparative information. The adoption of the new standard will likely result in changes in the financial statements of the Company, the exact extent of which we are currently analyzing. The European Union has not yet endorsed the standard.

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- IFRS 10, IFRS 11, IFRS 12, IAS 27 (amended) and IAS28 (amended) - The IASB published IFRS 10 Consolidated Financial State-ments, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities and amendments to IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures in May 2011.

IFRS 10 replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consoli-dation — Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether an investor has

- power over the investee; - exposure, or rights, to variable returns from its involvement with the investee; and - the ability to use its power over the investee to affect the amount of the returns.

IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31Interests in Joint Ventures. The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets to now only differentiate between joint operations and joint ventures. A joint opera-tion is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement, whereby the parties that have joint control have rights to the net assets.

IFRS 12 will require enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders’ involvement in the activities of consolidated entities.

The requirements relating to separate financial statements are unchanged and are included in the amended IAS 27 Separate Financial Statements. The other portions of IAS 27 are replaced by IFRS 10.

IAS 28 Investments in Associates and Joint Ventures is amended for conforming changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12.

The IASB issued amendments to IFRS 9 in December 2011 and deferred the mandatory effective date of IFRS 9 from January 1, 2013 to January 1, 2015. The deferral will make it possible for all phases of the IFRS 9 project to have the same mandatory effective date. The amendments also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9. This relief was originally only available to companies that chose to apply IFRS 9 prior to 2012. Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments. The adoption of the new standard will likely result in changes in the financial statements of the Company, the exact extent of which we are currently analyzing. The European Union has not yet endorsed either the standard or its amendment.




- IFRS 13 The IASB published IFRS 13 Fair Value Measurement in May 2011in order to replace the guidance on fair value measurement in existing IFRS accounting literature with a single standard. The IFRS is the result of joint efforts by the IASB and FASB to develop a converged fair value framework. IFRS 13 defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. However, IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a ‘fair value hierarchy’. The hierarchy categorizes the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identi-cal assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure fair value are categorized into different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety in the level of the lowest level input that is significant to the entire measurement (based on the application of judgment). The new standard should be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We do not expect that the adoption of the new standard would result in significant changes in the financial statements of the Company, the exact extent of which we are currently analyzing. The European Union has not yet endorsed the new standard.

Standards, amendments and interpretations that are not yet effective and not relevant for the Company’s operations

- IAS 12 (amended). In December 2010, the IASB issued the pronouncement “Deferred Tax: Recovery of Underlying Assets - Amend-ments to IAS 12”. The new pronouncement “Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12” sets pre-sumptions for the recovery (e.g. use or sale) of certain assets. This is relevant in cases where the type of recovery has different tax consequences. The pronouncement sets the rebuttable presumption that the carrying amount of investment property that is measured using the fair value model in IAS 40 will be recovered through sale. Moreover, the carrying amount of a non-depre-ciable asset measured using the revaluation model in IAS 16 is always deemed to be recovered through sale. The amendment supersedes SIC 21 and shall be applied for annual periods beginning on or after 1 January 2012. Earlier application is permit-ted. As Crnogorski Telekom does not have investment properties or non-depreciable asset measured using the revaluation model in IAS 16, the amended standard will not have any impact on the Company’s financial statements. The European Union has not yet endorsed the amended standard.

- IFRIC 20 In October 2011, the IASB published IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. The interpreta-tion shall be applied for annual periods beginning on or after 1 January 2013. Earlier application is permitted As Crnogorski Telekom does not have mining activity, the interpretation will not have any impact on the Company’s financial statements. The European Union has not yet endorsed the interpretation.

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2.2. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief operating decision maker.

The Company’s Chief Operating Decision maker regularly reviews the operating results of the identified operating segments in order to make decisions about resources to be allocated to the segments and to assess their performance. The operating segments were identified based on the nature of the business activities and based on the manner provided internally to the chief operating decision maker, the Management Committee (MC) of Crnogorski Telekom A.D. The accounting policies and measurement principles of the operating segments are the same as those applied for the Company described in the Summary of significant accounting policies (Note 2). Depending on internal reporting, deci-sion making process and nature of product there are two identifiable segments in Crnogorski Telekom: Fixed Line and Mobile Line.

The operating segments’ revenues comprise revenues from external customers. Fixed line segment provides fixed line services web services, line leases, IPTV, etc to its’ customers, while Mobile line segment derivates its’ revenue mainly from mobile line services provided to external customers.

The operating segments’ depreciation, amortization and impairment expenses include these expenses related to the intangible assets and PPE operating in the segments.

Costs incurred in, or charged to, the operating segments comprise third party costs occurred.

The measure that the MC uses to monitor the segments’ operating results is primarily EBITDA (Earnings before interest, tax, depreciation and amortization), which is defined by the Company as Operating Profit before Depreciation and Amortization. As virtually all PPE and Intangible Assets are managed at the operating segment level, the related depreciation and amortization expense is also considered part of the seg-ments’ results, therefore, Operating Profit is also a measure of the segments’ results.

Assets operated in the operating segments exclude Cash and cash equivalents, financial assets and Deferred tax assets, which are monitored and managed at the Company level. All other assets are included in the group of assets monitored at segment level. Jointly used assets are not allocated to various segments, they are included in the segment that owns or manages those assets. Crnogorski Telekom operates in more than one segment. However, since it is one legal entity, there are no cross-charges implemented for shared use of an asset.

Liabilities incurred by the operating segments exclude Current and Deferred tax liabilities, which are monitored and managed at Company level.

Another important KPI monitored at segment level is capital expenditure (Capex), which is defined as additions to PPE and Intangible assets in the normal course of business, excluding additions due to business combinations and asset retirement obligations.

There are no asymmetrical allocations to operating segments. For example, if a tangible asset is included in one segment, the depreciation is also included in the expenses of the same segment, or, if the revenue from a customer is included in a segment, the receivable from that customer will also be included in the same segment.


2.3. Critical accounting estimates and judgements

The presentation of the financial statements requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the statement of financial position date, as well as income and expenses arising during the accounting period.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In some cases the Company relies on independent expert opinion. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual result. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below:

2.3.1. Use of Estimates

а) Useful lives of assets

The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated techno-logical development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that this is a critical accounting estimate since it involves assumptions about technological development in an innovative industry and is heavily dependent on the investment plans of the Company. Further, due to the significant weight of long-living assets in our total assets, the impact of any changes in these assumptions could be material to our financial position, and results of operations. As an example, if the Crnogorski Telekom was to shorten the average useful life of its assets by 10%, this would result in additional annual depreciation and amortization expense of approximately EUR 2,47 million. b) Estimated impairment of items of property, plant and equipment and intangibles

The Company assesses the impairment of identifiable property, plant, equipment and intangibles whenever there is a reason to believe that the carrying value may materially exceed the recoverable amount and where impairment of value is anticipated. The calculations of recoverable amounts are primarily determined by value in use calculations, which use a broad range of estimates and factors affecting those. Among others, the Company typically considers future revenues and expenses, technological obsolescence, discontinuance of services and other changes in circumstances that may indicate impairment. If impairment is identified using the value in use calcula-tions, we also determine the fair value less cost to sell (if determinable), to calculate the exact amount of impairment to be charged. As this exercise is highly judgmental, the amount of a potential impairment may be significantly different from that of the result of these calculations.

c) Estimated impairment of goodwill

Goodwill is tested for impairment annually or more frequently. The recoverable amounts of the cash generating units (CGU) are calculat-ed based on fair value less cost to sell determined by the discounted cash flows of the CGU over the next ten years with a terminal value. This is highly judgmental, which carries the inherent risk of arriving at materially different recoverable amounts if estimates used in the calculations would prove to be inappropriate. The Company has an implemented policy to make the impairment test based on a 10-year cash flow projection on reasonable and supportable assumptions that present the management’s best estimate on market participants’ assumptions and expectations, and also considering recent similar transactions and industry benchmarks.

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2.3.1. Use of Estimates (continued) c) Estimated impairment of goodwill (continued)

In order to determine the recoverable amounts of the CGU, the Company calculates the CGU fair values less cost to sell. In the calcula-tions, Crnogorski Telekom uses weighted average cost of capital (WACC) before tax which is determined based on CAPM (capital asset pricing model) using the average beta of the peer group, 10 year zero coupon yields and a debt ratio in line with the usual indebtedness of listed peer telecommunications companies. The perpetual growth rate (“PGR”) is in line with the long-term average growth rate for the telecommunications sector.

Key assumptions used for fair value less cost to sell calculations:

Fix line and Internet Mobile

EBITDA 35.5% 35.5%Growth rate 2.0% 2.0%Discount rate 9.33% 9.33%

An impairment analysis is not materially sensitive to changes in key assumptions. Sensitivity analysis shows that the Company would get in the impairment loss position if cash flow used would be 63% lower for Fixed Line and for Internet or 57% lower for Mobile Line, also if WACC is changed to 24% in Fixed Line and for Internet or if WACC is changed to 21% in Mobile Line, leaving the other assumptions unchanged (ceteris paribus). Any combination of these hypothetical changes would result in impairment.


2.3.1. Use of Estimates (continued)

d) Impairment of trade and other receivables

Company calculate impairment for doubtful accounts based on estimated losses resulting from the inability of our customers to make required payments. The estimate is based on the aging of the account receivables balance and past write-off experience, customer credit-worthiness and recent and expected changes in customer payment terms. Those factors are reviewed periodically and changes are made to the calculations when necessary. The estimates also involve assumptions about future customer behaviour and the result-ing future cash collections. If the financial condition of the customers were to deteriorate, actual write-offs of currently existing receiv-ables may be higher than expected and may exceed the level of the impairment losses recognized so far.

Included in long-term receivables are specific receivables from the Government of the Republic of Montenegro (Note 9) which the Com-pany estimates to be entirely recoverable and where impairment in value was not anticipated. This estimate is based on a past history of repayments.

In case of specific receivables from Municipalities, Company makes estimates of additional impairment also based on a past history experiences.

e) Provisions

Provisions in general are highly judgmental, especially in the cases of legal disputes. The Company assesses the probability of an ad-verse event as a result of a past event to happen and if the probability is evaluated to be more than fifty percent, the Company provides for the total amount of the liability. Due to the high level of uncertainty, in some cases the evaluation may not prove to be in line with the actual outcome of the case. In order to determine the probability of an advance outcome, the Company uses internal and external legal counsel.

f) Employee benefits

Employee benefits such as Retirement and Jubilee Anniversary rewards, are calculated based on actuarial assumptions of expected average remaining working lives. Due to the high level of uncertainty, in some cases the evaluation may not prove to be in line with the actual outcome of the case.

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2.4 Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. These financial statements are presented in EUR which is the functional currency of the Company. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Profit for the year (Finance income / loss).

2.5. Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets of the Company include cash and cash equivalents, equity instruments of another entity (available-for-sale) and contrac-tual rights to receive cash (loans, trade and other receivables).

Financial liabilities of the Company include liabilities that originate from contractual obligations to deliver cash or another financial asset to another entity (only non-derivatives).

Financial liabilities, in particular, include liabilities to related parties and trade payables.

2.5.1. Financial assets

The Company classifies its financial assets in the two categories: - loans and receivables- available for sale (AFS)

The classification depends on the purpose for which the financial asset was acquired. Management determines the classification of financial assets at their initial recognition.

Regular way purchases and sales of financial assets are recognized on the trade-date, the date on which the Company commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.

The Company assesses at each financial statement date whether there is objective evidence that a financial asset is impaired. There is objective evidence of impairment if as a result of loss events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.


2.5 Financial instruments (continued)

2.5.1 Financial assets (continued)

Impairment losses of financial assets are recognized in the Comprehensive income for the year against allowance accounts to reduce the carrying amount until the derecognition of the financial asset, at which time the net carrying amount (including any allowance for im-pairment) is derecognized from the Statement of financial position. Any gains or losses on derecognition are calculated and recognized as the difference between the proceeds from disposal and the (net) carrying amount derecognized.

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

2.5.1.1 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are included in current assets, except those with maturities over 12 months after the financial statement date. These are classified as non-current assets.

The following items are assigned to the “loans and receivables” measurement category.

- cash and cash equivalents - short term bank deposits- trade receivables- employee loans- other receivables

Loans and receivables are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method, less any impairment.

The carrying amount of loans and receivables, which would otherwise be past due, whose terms have been renegotiated is not impaired if the collectability of the renegotiated cashflows is considered ensured.

a) Cash and cash equivalent

Cash and cash equivalents include cash on hand and in banks and all highly liquid deposits and securities with original maturities of three months or less.

b) Short term bank deposits

Short term bank deposits are deposits with a maturity of more than three months up to twelve months measured at their amortized costs. Interest receivables on bank deposits are presented separately within the Statement of financial position as other receivables. The as-sociated interest revenues are presented in the Statement of comprehensive income within other operating income as incurred.

c) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to col-lect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

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2.5. Financial instruments

2.5.1. Financial assets (continued)

2.5.1.1. Loans and receivables (continued)

c) Trade and other receivable (continued)

The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Profit for the year (Other operating expenses – Bad debt expense).

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually sig-nificant, and collectively for financial assets that are not individually significant. Provision on accounts receivable balances are calcu-lated based on Company’s best estimates or their deemed recoverability, by taking into consideration the historical data of customers payment. If no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, Crnogo-rski Telekom includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in a collective assessment of impairment.

The Company’s policy for collective assessment of impairment is based on the aging of the receivables due to the large number of rela-tively similar type of customers. When a trade receivable is established to be uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against Other operating expenses – Bad debt, in the statement of comprehensive income.

Amounts due to, and receivable from, other network operators are shown net where a right of set-off exists and the amounts are settled on a net basis (such as interconnection receivables and payables).

d) Employee loans

Long-term loans to employees for residential housing purposes, which bear an interest rate significantly below the prevailing market rates of interest, or interest free loans, are initially recognised at fair value, being determined as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument (similar as to currency, term, type of interest rate and other factors) with a similar credit rating. The difference between cash transfer and fair value is treated as employee remunera-tion recognized in the Statement of comprehensive income over the shorter of the term of the loan and the expected service life of the employee.

The Company is required to write-off the remaining outstanding amount of the special employee housing loan, when following two conditions are met: 1) 25% of the principal owed has been repaid and 2) the employee has been an employee of the Company for a minimum loyalty period. The Company assesses the probability of employees compliance with the stipulated loyalty period (taking into account that principally, during the loyalty period, 25% of granted loan is paid off). For those employees expected not to be in compli-ance with loyalty period, the Company initially recognizes loan receivables at fair value being the present value of consideration paid discounted using the prevailing market interest rate (and subsequently decreased for any impairment losses resulting from expected future cash receipts). The difference between lower-contracted-interest rate and market-interest rates represents the fair value of the Company’s provision to its employee with low-interest finance. This expense is treated as employee remuneration and recognized in Statement of comprehensive income over the shorter of the term of the loan and the expected service life of the employee.


2.5. Financial instruments (continued)

2.5.1 Financial assets (continued)

2.5.1.1 Loans and receivables (continued)

d) Employee loans (continued)

For employees expected to be in compliance with the loyalty period, 25% of the loan originated is recognized as described in previous paragraph. 75% of the loan originated is treated as prepayments of employee benefits and amortized on a straight-line basis over the loyalty period until the benefits become vested (as an employee renders service which increases the employee’s entitlement to future benefits). This is because the Company expects future economic benefit embodied in that asset to flow to the Company over the loyalty period, or otherwise, breach of the contract by employees (in a sense of termination of employment contract before expiration of the stipulated loyalty period) will lead to a cash refund under the concluded contract. Amortization of prepaid employee benefits is recog-nized in Statement of comprehensive income within Other personnel costs.

The amount of provision for impaired loans is based on management’s appraisals of these assets at the Statement of financial position date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. The market in Montenegro for many types of collateral, especially real estate, has been severely affected by the recent volatility in global financial markets resulting in a low level of liquidity for certain types of assets. As a result, the actual realisable value on foreclosure may differ from the value ascribed in estimating allowances for impairment.

2.5.1.2 Available for sale (AFS)

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the Statement of financial position date.

Available for sale financial assets consist of the Company’s participation in the share capital of foreign entities.

Purchases and sales of investments are recognized on the trade-date – the date on which the Company commits to purchase or sell the asset.

Subsequent to initial recognition all available-for-sale assets are measured at fair value, with the exception that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, including transac-tion costs, less impairment losses.

Gains and losses arising from changes in fair value are recognised directly in equity in the investments revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period.

The fair value is determined on an actively traded market (current bid prices), or otherwise in the absence of an active market, by Tele-kom’s best estimate of the investment’s fair value using the discounted cash flow model or by relying on independent expert opinion. There were no material changes in fair value valuation of available for sale financial assets for year ended December 31, 2011.

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2.5. Financial instruments (continued)

2.5.2. Financial liabilities

All Financial liabilities carried at amortized cost

The measurement category for “financial liabilities measured at amortized cost” includes all financial liabilities not classified as “at fair value through profit or loss”.

a) Loans and other borrowings

Borrowings are recognized initially at fair value less transaction costs, and subsequently measured at amortized costs using the effective interest rate method. Any difference between the proceeds and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest rate method.

b) Trade and other payables

Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. The carrying values of trade and other payables approximate their fair values due to their short maturity.

2.6. Inventories

Inventories are stated at the lower of cost or net realizable value, using the historical cost method of accounting and are valued on a weight-ed average basis. The cost of inventories comprises all cost of purchase, and other costs incurred in bringing the inventories to their present location and condition. Net realizable value represents the amount at which inventories can be realized in the ordinary course of business less estimated costs necessary to make the sale.

Provisions charged to “Other operating expenses” are made where appropriate in order to reduce the carrying value of such inventories to their net realizable value.

Mobile handsets are often sold for less than cost in connection with promotions to obtain new subscribers with minimum commitment periods. Such loss on the sale of equipment is only recorded when the sale occurs if the cost of the handsets exceeds the revenue allocated to the handsets.


2.7. Intangible Assets

Intangible assets acquired by the Company are stated at cost less accumulated amortization and impairment losses.

As of the Statement of financial position date, intangible assets include: acquired computer software rights provided these costs do not form part of the hardware acquisition costs, telecommunication and other licenses, intangible assets in progress and goodwill.

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring them to use. These costs are amortized over the estimated useful life of the software. Costs associated with developing or maintaining computer software programs and annually paid license fees are generally recognized as an expense as incurred. Costs directly associated with the production of identifiable and unique software products controlled by the Company, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the software development employee related costs. Computer software development costs recognized as assets are amortized over their estimated useful lives. As these assets represent an immaterial portion of all software, these are not disclosed separately.

Costs associated with the acquisition of long term telecommunication and other licenses are capitalized including any related borrowing costs. The useful lives of these licenses are determined based on the underlying agreements and are amortized on a straight line basis over the period from availability of the licence for commercial use until the end of the initial license term. No renewal periods are considered in the determination of useful life.

Intangible assets in progress include third-party and internally generated work for intangible assets not yet completed. This item discloses investments made (but not yet completed) in the current and/or previous financial year(s).

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Impairment testing is carried out on an annual basis, in the last quarter of the year. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Amortization of intangibles other than Goodwill is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives. On an annual basis, Crnogorski Telekom reviews the useful lives for consistency with current development and replacement plans and advances in technology. For further details on the groups of assets impacted by the most recent useful life revisions refer to Note 5.

In determining whether an asset that incorporates both intangible and tangible elements should be treated under IAS 16 - Property, Plant and Equipment or under IAS 38 – Intangible Assets, management uses judgment to assess which element is more significant, to recognize the asset accordingly.

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2.7. Intangible Assets (continued)

The most significant licences and availability period of commercial use are listed as follows:

Fixed Telephony Telecommunication License

The Agency for Telecommunications of the Republic of Montenegro issued to Telekom, a Fixed-Line License that is valid form January 1, 2002 for a period of twenty-five years.

In accordance with the Guidelines on the Changes and Amendments to the Rules on the Determination of Registration and Licensing Fees for Telecommunication Operators and Service Providers dated November 5, 2004, the Government of Montenegro, Ministry of the Economy prescribed a special one-time fee for the provision of international traffic services. The aforementioned fee was paid in one instalment in the amount determined by the Agency for Telecommunications of the Republic of Montenegro. The license for provision of international traffic services is granted for a period of twenty-three years.

The expenditure to acquire the telecommunication licenses has been capitalized and amortized on a straight-line basis over its esti-mated useful life.

In October 2007, the Broadcasting agency of the Republic of Montenegro issued to Telekom a license for building and distributing / broadcasting radio and TV program to customer (IPTV license) for a period of ten years. According to Rules about issuing and condi-tion for usage license for distribution / broadcasting radio and TV programs Company is obliged to pay one-time fee for registration. The expenditure to acquire the IPTV license has been capitalized and amortized on a straight-line basis over the period of the licence.

Mobile Telephony Telecommunication License

The Agency for Telecommunications of the Republic of Montenegro issued a mobile telecommunication license GSM 900 MHz for the territory of the Republic of Montenegro valid from January 1, 2002 for a period of fifteen years. At the expiration of this period, the Crno-gorski Telekom shall have the option to extend the license for an additional period of ten years at a price equal to nominal cost.

On March 28, 2007, the Agency awarded a 3G license to the Company valid for a period of fifteen years.

The expenditures to acquire the telecommunication licenses have been capitalized and amortized on a straight-line basis over their estimated useful life.


2.7. Intangible Assets (continued)

License for Web Services

The license for Web Services is a general license for the provision of web services covering the territory of the Republic of Montenegro, with an additional value received from the Agency for Telecommunications of the Republic of Montenegro for a period of five years, commencing on January 16, 2002. This web service license grants rights for the provision of the following types of services: electronic data exchange, mail, conversion of protocol, access to databases or web services for data management, voice mail, videoconferencing capabilities and other forms of telecommunication services. This licence was renewed on February 13, 2007, for a period of 10 years.

The Company is obligated to pay to the Republic of Montenegro, Agency for Telecommunications, an annual fee calculated as 1% of the annual income earned from fixed and mobile telephony services. Such amounts paid to the Agency for Telecommunications of the Republic of Montenegro are stated in the Company’s Statement of comprehensive income within “Other operating expenses”.

2.8. Items of Property, Plant and Equipment

Items of Property, plant and equipment of the Company are stated at cost less accumulated depreciation and impairment losses.

The cost of an item of PPE comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, as well as costs to decommission the asset if necessary.

Cost in the case of telecommunications equipment comprises of all expenditures including the cabling to the customers’ premises.

Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is prob-able that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other maintenance and repairs are charged to the Statement of comprehensive income during the financial period in which they are incurred.

When assets are scrapped, the remaining net book value of the asset should be removed from the accounts by charging the difference of cost and accumulated depreciation of the asset as other operating expense. When assets are sold, the cost and accumulated depreciation are removed from the accounts and any related gain or loss is recognized in the Profit for the year (Other operating income).

Construction in progress includes third-party and internally generated work for property, plant, and equipment not yet completed. This item discloses investments made (but not yet completed) in the current and/or previous financial year(s). After completion of such prop-erty and equipment, the related amounts carried under advance payments or construction in progress must be capitalized and reposted to the relevant other Statement of financial position items for property, plant, and equipment.

Depreciation is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives. On an annual basis, Crnogorski Telekom reviews the useful lives and residual values for consistency with current development plans and advances in technology. For further details on the groups of assets impacted by the most recent useful life revisions refer to Note 7.

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2.10. Impairment of PPE and intangible asset

Non-financial assets other than goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the car-rying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which separately identifiable cash flows exist (cash generating unit).

Crnogorski Telekom’s management monitors goodwill on operating segment level, consequently, the impairment testing is conducted at this level. The Company performed impairment test separately for fixed and mobile segment as Cash generating units. Every CGU is tested for impairment annually or more frequently if circumstances indicate that impairment may have occurred.

The recoverable amounts of the CGU are calculated based on fair value less cost to sell determined by the discounted projected cash flows of units over the next ten years with a terminal value. This is highly judgmental, which carries the inherent risk of arriving at materi-ally different recoverable amounts if estimates used in the calculations would prove to be inappropriate. The Company has an imple-mented policy to make the impairment test based on a 10-year cash flow projection on reasonable and supportable assumptions that present the management’s best estimate on market participants’ assumptions and expectations considering recent similar transactions and industry benchmarks.

In the calculations, Crnogorski Telekom uses weighted average cost of capital (WACC) before tax and Perpetual growth rate (PGR) esti-mates for Montenegro and the telecommunications sub-sector. The WACC is determined based on CAPM (capital asset pricing model) using the average beta of the peer group, 10 year zero coupon yields and a debt ratio in line with the usual indebtedness of listed peer telecommunications companies, while the PGRs used are in line with the long-term average growth rate for the telecommunications sector.

Following assumptions are used in the fair value calculations in order to determine whether the segments have been impaired.

Cash generating unitWACC (%) PGR (%)

2010 2011 2010 2011

Fixed line and Internet 9.33 9.33 1.50 2.00Mobile line 12.18 9.33 0.50 2.00

The impairment test explained above has shown that recoverable amounts of the Company’s CGUs are greater than their book values and hence no impairment of non-financial assets should be recorded.


2.9. Depreciation and Amortization

a) Amortization of Intangible Assets

Intangible assets are amortized over their estimated useful lives.

The amortization of intangible assets is computed on a straight-line basis in order to fully write off the cost of the assets over their esti-mated useful lives.

The assets and useful lives are reviewed, and adjusted if appropriate, at each Statement of financial position date.

The useful lives of intangible assets acquired during the year are determined in accordance with the usage agreement on intangible assets. When there is no agreement that establishes the useful life of the asset, which is in case of software, the Company estimates the useful life to be 5 years. The applicable rates are summarized below:

Intangible AssetsUseful Life (Years)

Telecommunication license of:- Fixed telephonya) Telecommunication license - (public fixed telephony services) 25b) Telecommunication license - (international traffic) 23 c) IPTV licence 10- mobile telephony 15- 3G licence 15- internet – web services 10Purchased computer software 5Microsoft license 5

b) Depreciation

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost less residual values over their useful lives.

The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at each Statement of financial position date. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate and calculation of depreciation costs for the current and the forthcoming period is properly adjusted.

Major Categories of items of Property, plant and Equipment

Estimated Useful Life (in years)

Buildings 40Access networks 20Optical connectors 20Exchanges 7Transmission system equipment 10Computer equipment 3Mipnet network 5, 6Routers and switches 5, 7

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2.12. Employee benefits (continued)

c) Obligations for Retirement Benefits

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using an interest rate of high-quality corporate bonds of 7.25% (2010: 7.18% p.a.).

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligations are charged or credited to income over the employees’ expected average remaining working lives. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

d) Obligations for Jubilee Anniversary Pursuant to the signed collective bargaining agreements (CBAs) in the Company, Crnogorski Telekom is obligated to pay a severance payment in an amount equal to ten minimal, monthly salaries earned in the Company respectively, and between three and nine minimal, monthly salaries to be paid out as a jubilee anniversary award. The number of minimal monthly salaries for jubilee anniversary awards corresponds to the total number of years of service of the employee as presented in the table below:

Total Number of Service YearsNumber of Minimal Wages

10 320 530 739 9

Obligations for jubilee anniversary are accounted for in the same manner as defined benefit plans (as disclosed in 2.12. c)), except that any actuarial gains and losses on jubilee payments as well as past service cost are recognized directly in the Statement of comprehen-sive income in the period in which they occurre.

e) Mid term incentive plan (MTIP)

In 2007 Crnogorski Telekom launched a Mid Term Incentive Plan (MTIP) for its top and senior management. The provision is calculated based on the probability of the achievement of the targets.

2.13. Accrued liabilities and advances

Accrued liabilities and advances are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. The carrying values of accruals and advances approximate their fair values due to their short maturity.


2.11. Provisions and contingent liabilities

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognized for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. Expenses for provisions are recognized in the income statement line where the actual expense is expected to be incurred. When a provision is released unused, it is released to the same income statement line where it was originally provided for. Provisions made for liabilities expected to be incurred in foreign currency are recognized in the functional currency at the spot FX rate, and any change in the provision in the functional currency as a result of a subsequent change in the FX rate is recognized in Other finance expense – net.

The Management of the Company has reviewed all significant contracts in order to determine the amount of any Asset Retirement Ob-ligation (“ARO”). Based on review performed and valid legislation in Montenegro, Management has concluded that there is no current obligation of the Company related to ARO.

No provision is recognized for contingent liabilities. A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the con-trol of the entity; or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or an obligation which the amount cannot be measured with sufficient reliability.

2.12. Employee benefits

a) Employee Taxes and Contributions for Social Security

In accordance with the regulations prevailing in the Republic of Montenegro, the Company has an obligation to pay contributions to vari-ous State Social Security Funds. These obligations involve the payment of contributions on behalf of the employee, by the employer in an amount calculated by applying the specific, legally-prescribed rates. The Company is also legally obligated to withhold contributions from gross salaries to employees, and on behalf of the employees, to transfer the withheld portions directly to government funds. These contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise, and have been included under “Employee related expenses”.

The Company has no further obligation in respect of these contributions towards the employees, apart from the payment of the monthly pension contributions.

b) Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is de-monstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the Statement of financial position date are discounted to present value.

Employee benefits payable regardless of the reason for the employee’s departure are treated as post employment benefits.

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2.14. Deferred income tax and current income tax

Deferred income tax is recognised applying the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted by the Statement of financial position date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regula-tions are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The Company’s uncertain tax positions are reassessed by Company’s management at every Statement of financial position date. Liabili-ties are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the Statement of financial position date and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expendi-ture required to settle the obligations at the Statement of financial position date.

2.15. Taxes, contributions and other duties not related to operating results

Taxes, contributions and other duties that are not related to the Company’s operating results, include property taxes, employer contribu-tions on salaries, and various other taxes and contributions paid pursuant to state and municipal regulations. All of the aforementioned types of taxes and contributions are included in the Statement of comprehensive income under “Other operating expenses”.

2.16. Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.17. Dividends

Dividends payable to the Company’s shareholders and to Non-controlling shareholders are recorded as a liability and debited against equity (Retained earnings) in the Company’s financial statements in the period in which the dividends are approved by the shareholders.

2.18. Revenue

Revenues for all services and equipment sales (Note 23) are shown net of VAT and discounts. Revenue is recognized when the amount of the revenue can be reliably measured, and when it is probable that future economic benefits will flow to the Company and all other specific recognition criteria of IAS18 on the sale of goods and rendering of services are met for the provision of each of the Company’s services and sale of goods.


2.18. Revenue (continued)

Revenue is primarily derived from services provided to subscribers and other third parties using the fixed and mobile telecommunication networks.

Customer subscriber arrangements typically include an activation fee, equipment sale, subscription fee and monthly charge for the actual airtime used. The Company considers the various elements of these arrangements to be separate earnings processes for IFRS purposes and classifies the revenue for each of the deliverables into the categories as disclosed in Note 23 using the residual method. These units are identified and separated, since they have value on a standalone basis and are sold not only in a bundle but separately as well. Therefore, the company recognises revenue for all these elements using the residual method. That is, the amount of consideration allocated to the delivered elements of the arrangements equals the total consideration less the fair value of the undelivered element.

2.18.1 Revenue from fixed telephony

2.18.1.1 Subscription, connections and other charges

The subscription is a fee charged for telephone line usage. Monthly subscription fees are charged to the Company’s customers and recognized as revenue at the end of the month for the previous month irrespective of their use of the Telekom network. Connections and other charges present other services which are recognized at the moment when services are provided.

2.18.1.2 Outgoing Domestic and International Traffic Revenue

Income from outgoing calls within Montenegro, and from outgoing international calls are collected from Telekom’s customers, and are recorded at its invoiced value less any effective discounts and VAT, at the moment of the provision of the contracted services.

2.18.1.3 Incoming Domestic and International Traffic Revenue

Revenues from incoming international calls include the income arising from international traffic.

Revenues from direct international traffic include the income generated from all incoming international calls realized in countries having direct international connection with Telekom. A portion of such income earned is measured and recorded at an estimated value arrived at based on the internal settlement accounting of telephony traffic.

Revenues from incoming domestic traffic relate primarily to domestic interconnection revenue, whose nature and valuation is explained in the note below (Note 2.18.1.4).

Customers and third parties are making traffic based on their actual use of our network, after consuming the free minutes included under each type of subscription multiplied by a contractually agreed rate for minute.

2.18.1.4 Other revenues from Telecommunication Services

Other income primarily includes the lease of telephony capacities, i.e., telephone lines, dial up services to business customers, web pre-sentation and hosting, Asymmetric Digital Subscriber Line (ADSL) revenue, Montenegrin IP Network (MIPNET) services revenue, IPTV services, revenues from sold internet access, equipment sales revenue, voice machines, call listings, voice mail, telegram, and other services.

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2.18. Revenue (continued)

2.18.2. Revenue from Mobile Telephony

2.18.2.1 Postpaid services

A) Outgoing traffic revenue

Outgoing traffic represents customer and third party use of Company’s telecommunications network. The revenue from usage is recog-nized in the period in which service is provided to our customers or third parties.

B) Monthly Subscriptions

The post-paid subscription is a fee for the use of the mobile telecommunication network. Subscriptions for new post-paid subscribers are invoiced and recognized for the current month, or specifically, for the month in which the subscriptions are activated. For existing subscribers, subscriptions are recognized in the period they relate to.

2.18.2.2 Prepaid services

Revenues from the sale of mobile phone cards are recognized as deferred revenue in the balance sheet when sold and as revenues in income statement when used by the customer or when the cards expired with unused units.

2.18.2.3 Sales of handsets

Sales of mobile phones are recorded at the time of sale.

Cost of goods sold includes the amount of sold mobile phones, and is recognized at the time of sale.

2.18.2.4 Roaming Revenue and Expenses

Revenue arising from incoming roaming and expenses with outgoing roaming with foreign mobile operators that have entered into the International GSM roaming Agreement with the Company are recorded in the amounts invoiced to and from mobile network operators. Roaming revenue is recognized at the time of the usage, and presented on a gross basis

Mach (ex Cybernet), a financial clearing house, records reconciled traffic that has been confirmed by Syniverse, a technical clearing house and on behalf of the Company, Mach (ex Cybernet) collects and makes payments with respect to the reconciled receivables from, and payables to the mobile telephony operators.

2.18.2.5 Interconnection revenue and expenses

Interconnection revenue includes revenue earned on incoming telephone traffic originated via the mobile networks of Telenor d.o.o., Podgorica and M-tel d.o.o. Podgorica but specifically those that have been transmitted through, or terminated on the Crnogorski Tele-kom’s network.

The interconnection expenses include expenses from outgoing telephone traffic that is routed from the Company to the individual mo-bile and fixed line companies in the country, and foreign incoming traffic that have been transmitted through, or terminated on the other mobile companies networks in the country.

Since the Company is only terminating and initiating traffic in and from its network, it is acting as a principal, and therefore the revenues and cost of this traffic are stated gross in these financial statements. Interconnection income and expenses are recorded when the contracted services are provided. Revenues are presented at the fair value of consideration received or receivable. Revenues are shown net of VAT and discounts.


2.19. Leases

2.19.1. Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating leases relate to the rental of internet, lines, premises, warehouses and other rental expenses. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of comprehensive income on a straight-line basis over the period of the lease.

2.19.2. Finance lease Leases of property, plant and equipment where Company assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalized at the fair value of the asset or if lower, at the estimated present value of the future minimum lease payments against a finance lease payable. Each lease payment is allocated between the finance liability and interest expense so as to achieve a constant rate of interest on the outstanding finance balance payable. The finance lease obligations, net of fi-nance charges, are included in the Statement of financial position (Other financial liabilities). The interest element of the lease payments is charged to the Profit for the year (Interest expense) over the lease period. Property, plant and equipment acquired under finance lease contracts are depreciated over the shorter of the lease term or the useful life of the asset.


2.20. Interest Income/Expense and Other Borrowing Costs

Interest income is recognized in the Statement of comprehensive income in the accounting period in which it arises, using the effective interest method.

2.21. Comparative information

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period. The effects of reclassifications are not material to the Company’s financial statements.

2.22. Fair Value

The Company’s management assesses its overall risk exposure. In instances in which it estimates that the value of assets stated in its books may have not been realized, it recognizes a provision. In the opinion of management, the reported carrying amounts are the most valid and useful reporting values under the present market conditions.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values, based on historical data on charging rate of mentioned receivables in previous period. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows with the current market interest rate that is available to the Company for similar financial instruments.

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3. Financial risk management

3.1. Financial risk factors

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, foreign currency exchange risk and interest rate risk. The Company does not use derivative financial instruments or any other form of hedges against these risks. There is no formal risk management framework implemented in the Company. The Board of Directors focuses mainly on credit risk and liquidity risk and acts on a case by case basis to mitigate risks and minimize losses.

Operating environment of the Company

The ongoing global financial and economic crisis that emerged out of the severe reduction in global liquidity which commenced in the middle of 2008 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sec-tor, the wider economy, and at times, higher interbank lending rates and very high volatility in stock and currency markets. The uncer-tainties in the global financial markets have also led to failures of banks and other financial sector participants and to bank rescues in the United States of America, Western Europe, Montenegro and elsewhere. Indeed, the full extent of the impact of the ongoing financial crisis is proving to be impossible to anticipate or completely guard against.

The global economic crisis is significantly affecting the Montenegrin market due to its rather small size and its two main pillars of the economy –tourism and the aluminum factory. Montenegro attained EU candidate status in November 2010. This brings optimism for ac-celerated restructuring of the legal system and access to EU funds. Also in February 2011 the Montenegrin Government has adopted an action plan for monitoring the implementation and recommendations from the Opinion of the European Commission. Summer season was stronger than 2010 by 9,2%, both by number of tourists and days spent.

Management is not in a position to reliably estimate the effects of any further deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets on the Company’s financial position. Management believes it is taking all the necessary measures to support the sustainability and growth of the Company’s business in the current circumstances.

3. Financial risk management

3.2. Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks, as well as credit exposures to customers. It is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The Board of directors of the Company decided which commercial bank will be a partner of the Company, taking into consideration the following risk aspects: evaluation factors, total assets, market share, and safety of funds. Credit risk management principles are reconciled with the risk policy of the Company’s parent company. In order to avoid credit risk concentration, cash and cash equivalents and short term bank deposits are placed in six different banks. According to risk policy of the parent company, deposits in banks are additionally guaranteed by bank guarantees given by foreign banks in order to provide appropriate safety of funds. Management of the Company believes that it has adequately assessed the recoverability of Company’s bank deposits. Management of credit risk includes detailed monthly treasury reporting to senior management with all necessary information about cash and short term bank deposits.

If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account past experience in collection and other factors. The Company has no significant concentra-tions of credit risk due to its diverse customer base save for cumulative exposure the Company uses a system of reminders leading to discontinuance of its service as the main tool to collect overdue receivables. Also, according to balance and number of outstanding bills, the Company uses instruments of litigation of customers. However, debtors of the Company may be affected by the lower liquidity situation due to the recent volatility in the global and Montenegrin financial markets, which could in turn impact their ability to repay the amounts owed. Deteriorating operating conditions for customers may also have an impact on management’s cash flow forecasts and as-sessment of the impairment of financial and non-financial assets. To the extent that information is available, management have properly reflected revised estimates of expected future cash flows in their impairment assessments.

In order to manage credit risk related to collection, senior management twice a month considers reporting prepared by Customer finance, and according to reporting results decide to take action for the future. Maximum exposure to credit risk related to customers amounts 72.721 thousand EUR.

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3.3 Liquidity risk

Liquidity risk is the risk that an entity may encounter difficulty in meeting obligations associated with financial liabilities

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close our market position. The volume of wholesale financing has significantly reduced recently. Such circumstances may affect the ability of the Company to obtain new borrowings if the need would arise for that. Capital expenditure projects are often undertaken with the assistance of supplier credits to manage liquidity. Company has no external loans and borrowings. Further more, all liabilities which require cash flow are matured maximum up to one year (trade payables).The Company has limited exposure to liquidity risk because it possesses significant amount of cash and cash equivalents. Ad-ditionally, according to contracts for short term bank deposits, short tem bank deposits can be withdrawn at any time and used for pay-ments of liabilities. On monthly basis, senior management considers liquidity reporting prepared by Accounting , comparing to planned and realized cash flow activities and takes decisions for future actions.

3. Financial risk management (continued)

3.4. Foreign exchange risk

The Company operates internationally and is exposed to some foreign exchange risk arising from various currencies, primarily with respect to Special Drawing Rights (SDR) and US dollars (USD) used to settle its international traffic revenue and expenses.

At December 31, 2011, if the EUR had strengthened / weakened by 20% against the SDR with all other variables held constant, post-tax profit for the year would have been EUR 15.869 higher/lower (December 31, 2010: EUR 209.534), mainly as a result of foreign ex-change gains /losses on translation of SDR denominated trade receivables and trade payables. At December 31, 2011, if the EUR had strengthened / weakened by 20% against the USD with all other variables held constant, post-tax profit for the year would have been EUR 83.321 higher/lower (December 31, 2010: EUR 438), mainly as a result of foreign exchange gains /losses on translation of USD other assets and payables.

3.5. Interest rate risk The Company has limited interest bearing lending. Its interest bearing assets include loans provided to employees on a fixed interest rate basis (for more details about terms and conditions, please see Note 2.5.1.1).

As an example, if the Company applied an increased discount interest rate of 7,5 % on long term employee loans this would result in additional annual expense of approximately EUR 0,342 million (2010: EUR 0,353 million).

Related to short term bank deposits, credit risk is minimized due to fixed interest rates, which can not be changed during the contracted period. Additionally, if Company would like to withdraw funds before maturity, interest rates would stay the same for the whole period of time. There is no penalty interest or decreasing initial interest rate. Management of interest rate risk includes detailed treasury reporting to senior management with all necessary information.

3.6. Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Company’s management proposes to the owners (through the Board) of the Company to approve dividend payments or adopt other changes in the Company’s equity capital in order to optimize the capital structure of the Company. This can be effectuated primarily by adjusting the amount of dividends paid to shareholders, or alternatively, by returning capital to shareholders by capital reductions, selling or buying its own shares. Also, the Company monitors that its capital is kept above minimum legal requirements. Because the Company has been profitable, there is no risk that its capital may fall below minimum legal requirements.

The Company does not have borrowings and therefore does not monitor a gearing ratio.

The equity capital, which the Company manages, amounted to EUR 166.435.180 as at 31 December 2011 (EUR 167.936.936 as at 31 December 2010).

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4. Segment information

Primary reporting format – business segments

The management considers two operating segments:(1) Fixed line services and(2) Mobile services;

The segment information provided to the Management Committee for the reportable segments for the year ended 31 December 2011 is as follows:

Year ended 31 December 2011 Year ended 31 December 2010)

Fixed line Mobile line Total Fixed line Mobile line TotalRevenue from external customers 63.092.700 53.796.428 116.889.128 63.900.781 54.551.467 118.452.248

Adjusted EBITDA 23.471.572 21.537.708 45.009.280 22.248.536 22.012.622 44.261.158Severance payments (3.609.203) (573.759) (4.182.962) (2.845.204) (644.164) (3.489.368)

EBITDA 19.862.369 20.963.949 40.826.318 19.403.332 21.368.458 40.771.790

Depreciation and amortisation (13.076.861) (11.617.830) (24.694.691) (13.053.458) (9.226.624) (22.280.082)

Total operating profit 6.785.508 9.346.119 16.131.627 6.349.874 12.141.834 18.491.708

Segment assets 111.122.864 38.081.312 149.204.176 114.931.577 48.280.314 163.211.891

The capital expenditure of reportable segments as at December 31, 2011 and December 31, 2010 is as follows:

(In EUR) December 31, 2011 December 31, 2010 Fixed Line 9.948.912 10.123.985 Mobile Line 4.903.849 6.639.361 Total capital expenditure of the Company 14.852.761 16.763.346

Total capital expenditure of the Company correspond to the “Addition” lines disclosed in Notes 5 and 7.

5. Intangible assets

In EUR

Licenses SoftwareIntangible Assets

in progress TotalAcquisition Cost Balance January 1, 2010 16.974.416 8.928.023 44.559 25.946.998 Additions 190.754 160.129 2.747.624 3.098.507 Transfers - 765.109 (765.109) -Transfers to PPE - - (1.343.322) (1.343.322)Balance December 31, 2010 17.165.170 9.853.261 683.752 27.702.183

Accumulated amortizationBalance January 1, 2010 5.677.825 6.237.233 - 11.915.058 Charge for the year (Note 25) 1.078.433 1.390.835 2.469.268 Balance December 31, 2010 6.756.258 7.628.068 - 14.384.326

Net Book ValueDecember 31, 2010 10.408.912 2.225.193 683.752 13.317.857 December 31, 2009 11.296.591 2.690.790 44.559 14.031.940

In EUR

Licenses SoftwareIntangible Assets

in progress TotalAcquisition Cost Balance January 1, 2011 17.165.170 9.853.261 683.752 27.702.183Additions - - 1.985.744 1.985.744Transfers 261.151 2.165.587 (2.426.738) -Transfers to PPE (20.661) (20.661)Disposals (58.613) (71.939) - (130.553)Balance December 31, 2011 17.367.708 11.946.909 222.097 29.536.713

Accumulated amortizationBalance January 1, 2011 6.756.258 7.628.068 - 14.384.326Charge for the year (Note 25) 1.072.378 1.394.398 - 2.466.776Disposals (58.614) (71.939) - (130.553)Balance December 31, 2011 7.770.022 8.950.527 - 16.720.549

Net Book ValueDecember 31, 2011 9.597.686 2.996.382 222.097 12.816.165December 31, 2010 10.408.912 2.225.193 683.752 13.317.857

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6. Goodwill (continued)

As at December 31, 2011 and December 31, 2010 goodwill was allocated to the Company’s cash-generating units (CGU) identified ac-cording to business segment. The recoverable amount of a CGU was determined based on fair value less cost to sell calculations. These calculations use cash flow projections based on financial budgets approved by management covering a ten-year period. Cash flows beyond the ten-year period are extrapolated using the estimated growth rates. The growth rate does not exceed the long-term average growth rate for the telecommunication business in which the CGU operates.

Management determined budgeted gross margin based on past performance and its expectations for the market development. The weighted average growth rates used were consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant segments.

7. Items of property, plant and equipment

In EUR

Land BuildingsEquipment and

Other AssetsConstruction in

progress TotalAcquisition Cost

Balance January 1, 2010 2.959.682 80.917.226 139.168.351 7.850.762 230.896.021Additions - 14.536 3.860.259 9.790.044 13.664.839Transfers - 1.109.436 7.244.857 (8.354.293) -Transfers from intan-gible assets - - - 1.343.322 1.343.322Disposals /write –offs - - (1.860.787) - (1.860.787)Balance December 31, 2010 2.959.682 82.041.198 148.412.680 10.629.835 244.043.395 Accumulated DepreciationBalance January 1, 2010 - 23.353.388 88.887.082 - 112.240.470Charge for the year Note 25 - 4.549.334 15.261.479 - 19.810.813Impairment - - - - -Disposals /write –offs - - (1.826.234) - (1.826.234)Balance December 31, 2010 - 27.902.722 102.322.327 - 130.225.049

Net Book ValueDecember 31, 2010 2.959.682 54.138.476 46.090.353 10.629.835 113.818.346December 31, 2009 2.959.682 57.563.838 50.281.269 7.850.762 118.655.551

5. Intangible assets (continued)

Included in the Company’s license balance is a license for public fixed telephony services, granted for a period of twenty five years, with a net book value as of December 31, 2011 of EUR 3.775.680 (December 31, 2010 of EUR 4.011.660) issued by the Agency for Telecommunications of the Republic of Montenegro (“the Agency”). The net book value of the International traffic service license issued by the Agency included in the Company’s license balance, granted for a period of twenty-three years, amounts to EUR 1.800.000 at December 31, 2011 (EUR 1.920.000 as at December 31, 2010).

Included in the Company’s license balance is a special license for the installation, maintenance and operation of the public telecom-munication network (mobile telephony) with a net book value as at December 31, 2011 of EUR 1.472.672 (as at December 31, 2010 of EUR 1.762.404) issued by the Agency as at January 1, 2002. This license grants rights to the Company to provide services via the public mobile telecommunication network, in accordance with the Telecommunications Law. This license is valid on the territory of the Repub-lic of Montenegro for a period of fifteen years.

Regarding these licenses, the Company has an existing obligation to pay annual fees to the Agency which are calculated as percent of the Company’s total income in the previous reporting year. The expenses with respect to this obligation to the Agency are stated in the statement of comprehensive income under “Other operating expenses”.

In October 2007, the Broadcasting agency of the Republic of Montenegro issued to the Company a license for developing and distribut-ing / broadcasting radio and TV programs to customers (IPTV license) for a period of ten years. The Company paid a one-time fee for registration in the amount of EUR 75.000.

On March 28, 2007, the Agency awarded a 3G license to the Company valid for a period of fifteen years. Net book value of this licence at December 31, 2011 amounted to EUR 1.653.362 (December 31, 2010 EUR 1.813.365).

Review of intangible assets was performed during 2011 and according to this review there were no significant impact on Income state-ment of the Company.

6. Goodwill

In accordance with the Company’s Board of Directors’ Resolution of March 7, 2005 (February 19, 2004) Telekom, utilizing its pre-emp-tive share purchase rights, entered into a Purchase Agreement for the Acquisition of a Portion of the Equity Capital of Internet CG in the amount of EUR 435.700 (EUR 1.750.000 for year 2004), and became the owner of 100 percent of the capital in the Internet CG.

As of April 30, 2009, the date of the merger the Company owned 100% of the capital of T-mobile CG d.o.o., the Montenegrin mobile company and 100% of the share capital of Internet Crna Gora.

An operating segment-level summary of the goodwill allocation is presented below:

(In EUR) December 31, 2011 December 31, 2010

Fixed Line and Internet 564.974 564.974 Mobile Line 376.650 376.650

941.624 941.624

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Land BuildingsEquipment and

Other AssetsConstruction in

progress TotalAcquisition Cost Balance January 1, 2011 2.959.682 82.041.198 148.412.680 10.629.835 244.043.395Additions - - 2.119.868 10.747.149 12.867.017Transfers - 3.497.531 8.591.642 (12.089.173) -Transfers from intan-gible assets - - - 20.661 20.661Disposals /write –offs - - (3.623.565) - (3.623.565)Balance December 31, 2011 2.959.682 85.538.729 155.500.625 9.308.472 253.307.508 Accumulated DepreciationBalance January 1, 2011 - 27.902.722 102.322.327 - 130.225.049Charge for the year Note 25 - 3.077.354 19.150.561 - 22.227.915Impairment - - - - -Disposals /write –offs - - (3.579.311) - (3.579.311)Balance December 31, 2011 - 30.980.076 117.893.577 - 148.873.653

Net Book ValueDecember 31, 2011 2.959.682 54.558.653 37.607.048 9.308.472 104.433.855December 31, 2010 2.959.682 54.138.476 46.090.353 10.629.835 113.818.346

7. Property and equipment (continued) Included in the net book value of land and buildings are land of EUR 33.152 and buildings of EUR 328.154 for which the Company does not possess complete documentation in connection with their titles. The Company is in the process of obtaining titles for the land and building, but effectively has control over these items.

The review of tangible assets useful lives in 2010. resulted in reduction of useful lives of equipment and aggregates. The reduction was done mainly due to changed expectations, technical development, budgets and plans for the upcoming years. The impact of the change in useful lives in the financial statements is as follows:

In EUR 2010 2011 2012 2013 After 2013

Increase / (decrease) in depreciation 79.779 132.325 121.856 113.965 (447.925)

The review of tangible assets useful lives in 2011. resulted in reduction of useful lives of Radio access network equipment. The reduc-tion was done mainly due to changed expectations, technical development, budgets and plans for the upcoming years. The impact of the change in the useful lives on the financial statements is as follows:

In EUR 2011 2012 2013 2014 After 2014

Increase / (decrease) in depreciation 2.789.370 (142.757) (1.258.881) (1.044.331) (343.400)

8. Available for sale financial assets


Investments Available for Sale

Investments in Foreign Satellite Associations % - Intelsat Ltd. 0.0061 24.799 24.799 - New Skies Satellites N.V. 0.0061 575 575

25.374 25.374

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9. Long term loans and other receivables (continued)

Employee loans (continued)

The Company obtained mortgages on the residential housing units occupied by the loan beneficiaries, in order to secure timely loan repayments. In accordance with the terms of the relevant residential loan agreements, upon the completion of the purchase and/or con-struction of the housing unit, the employee is obligated to register ownership rights in the Company’s name, and to establish a pledging right, namely a mortgage naming the Company the first to collect on the real estate that has been purchased and/or constructed in the amount of the loan liability.

The employee is obligated to deliver within the first five-month period from the date of the first loan payment, the documentation detailing the registration of pledging rights. On almost all these loans, Crnogorski Telekom has obtained security in the form of mortgages of which they are the named beneficiary in the event of default. The total value of obtained mortgages for approved housing loans amount-ed to EUR 9.810.344 as of December 31, 2011. The total amount of loans, for which the companies did not receive mortgages and which are therefore not registered in the applicable court register is EUR 140.797, thus the total exposure of Company to credit risk arisen from loans not covered by pledges amounted to EUR 140.797 (2010: EUR 140.797). However, the market in Montenegro for many types of collateral, especially real estate, has been severely affected by the recent volatility in global financial markets resulting in there being a low level of liquidity for certain types of assets. As a result, the actual realisable value on foreclosure may differ from the value ascribed in estimating allowances for impairment.

Long –term receivables

Maturities of undiscounted long-term receivables are presented below:


from 2 to 5 years 1.509.611 2.250.2681.509.611 2.250.268

Receivables from the Government of the Republic of Montenegro in the EUR 1.509.611 (EUR 2.250.268 as of December 31, 2010) represent thr undiscounted amount of expected future cash flows which the Company would realize in accordance with the Share Transfer Agreement delineating the transfer of foundation rights in the Radio difuzni centar d.o.o., Podgorica (RDC) entered into on December 10, 2004 between Telekom Crne Gore and the Government of the Republic of Montenegro. According to this agreement, the RDC became the property of the state. Pursuant to a relevant decision of the Company’s management, the bases for computing the current value of expected future cash flows equals the application of an annual interest rate of 7.5%, corresponding to the rate used by the independent valuation expert. The effect of income recognized using the effective interest rate method for the period from January 1 to December 31, 2011 amounted to 167.236 (Decem-ber 31, 2010: EUR 207.242).

In accordance with the terms of the aforementioned agreement, the Government of the Republic of Montenegro is obligated to pay the Company a selling price as defined under the Share Transfer Agreement, in the amount of EUR 5.943.937 within a period of ten years from the date of execution of the Agreement, setting forth a grace period of 18 months during which interest was not calculated.

As further defined in this Agreement, at the expiration of the grace period, by the termination of the second year from the execution date of the Agreement, the Government of the Republic of Montenegro was obligated to pay the Company the amount of EUR 300.000 in equal monthly instalments on the first day of the month for the coming month. During the third and the fourth year of the payment sched-ule, the Government of the Republic of Montenegro is obligated to remit to the Company a total annual amount of EUR 600.000 in equal monthly instalments on the first day of the month for the coming month.

9. Long term loans and other receivables


Employee loans 3.730.930 4.135.934 Long term receivables 1.457.839 1.852.503 Prepaid employee benefits 1.596.798 1.727.049 Prepaid rent for the GSM locations 475.714 485.206 Other prepayments 800 2.000

7.262.081 8.202.692

The fair values of employee loans and long term receivables approximate their carrying amounts.

Employee loans

Contracted maturities of long-term employee loans are presented below:


-from two to five years 1.754.677 1.772.979-over five years 4.075.722 4.414.141Undiscounted employee loans 5.830.399 6.187.120Discount (2.099.469) (2.051.186)Fair value of employee loans 3.730.930 4.135.934

Long-term loans and receivables in the amount of EUR 5.830.399 represent undiscounted amount of the loans granted to the Com-pany’s employees. Such loans were approved for repayment periods of 5, 7, 10 and 20 years, and were issued at annual interest rates ranging from 1,5% to 2% The total amount of the approved loans per employee ranges from EUR 5.000 to EUR 50.000. For certain employees, the loan liability has been reduced by 0,5% for each year of employment service up to December 31, 1993. The percentage of this reduction ranges from 3,5 to 14,5 percent of the total amount of the loan. These employees obtained such liability reduction rights based on allocations of their contributions towards residential housing construction up to financial year 1993.

The effective interest rate on these employee loans was 7;5 % in 2011 and 2010, corresponding to the rate used by an independent valuation expert.

During 2007, in accordance with the Company’s Statute, and the Rules on the Fulfilment of Employee Residential Housing Require-ments, The Company’s Operative committee decided to grant housing loans to employees in total amount of EUR 1.282.000 free of interest. These loans were issued for a period of 20 years in order to keep key employees in the Company. The total amount of the loan extended per employee ranges from EUR 28.000 up to EUR 42.000. A condition for the realization of these loans is that the employ-ees have to stay employed in the Company for a loyalty period of minimum three years. If employee leaves the Company before this term, he is obliged to repay a one-time total outstanding amount. If employee does not repay his liability, the Company has the right to activate its pledge and collect its receivables.

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9. Long term loans and other receivables (continued)

Long –term receivables (continued)

The remaining portion of the selling price, the Government of the Republic of Montenegro shall pay to the Company in the ensuing six years in 72, equal monthly instalments to be paid on the first day of the month for the coming month.

Prepaid employee benefits

Prepaid employee benefits of EUR 1.596.798 (2010: EUR 1.727.049) relate to discount on employees loans calculated using the effec-tive interest rate and to 75% loans write-offs that have been extended to a certain number of employees in accordance with Article 39 of the Company’s Statutes, and Article 41 of the Rules on the Fulfilment of Employee Residential Housing Requirements. Discount is treated as employee remuneration recognized in the Statement of Comprehensive Income over the shorter of the term of the loan and the expected service life of the employee, while 75% of loan write-offs are treated as prepayments of employee benefits amortized over the loyalty period (2.5.1.1. (d)).

10. Cash and cash equivalents


Cash on hand 1.148 2.120 Cash in banks 1.870.007 1.735.663

1.871.155 1.737.783

11. Short term BANK DEPOWSITS


Guaranteed short term deposit by credit institutionCredit rating A1 7.000.000 - Credit rating Aa3 - 10.200.000 Credit rating Baa3 - 26.000.000 Credit rating Ba1 38.200.000 -

45.200.000 36.200.000

11. Short term BANK DEPOSITS (continued)

Short term bank deposits represent deposits with maturity from three months up to one year and average interest rate of 5.47 % in 2011 (2010: 6.50 %). All short term bank deposits are denominated in EUR. In the period ended December 31, 2011, total amount of depos-its are additionally guaranteed by a credit institution with credit ratings A1, Ba1 (2010: credit institution with credit ratings Aa3, Baa3). Short term bank deposits are placed in Crnogorska komercijalna banka, Podgoricka banka - Societe Generale and NLB Montenegtro banka.

12. Trade and other receivables


Domestic trade receivables 32.251.517 31.948.562 Foreign trade receivables 1.392.963 4.640.849 Receivables from Magyar Telekom Group companies - 84.860 Receivables from Deutsche Telekom Group companies 452.531 1.468.993Current portion of employee loans receivable 406.695 463.989Current portion of long term receivables 712.357 712.357 Other receivables 2.358.768 1.653.014

37.574.831 40.972.624 Allowance for impairment losses (17.520.456) (18.268.909)

20.054.375 22.703.715

Trade and other receivables are denominated in the following currencies:

(In EUR)December 31, 2011 December 31, 2010

EUR 19.299.396 21.351.147SDR 754.979 1.352.568

20.054.375 22.703.715

The structure of other receivable as of December 31 2011 and 2010 is as follows:


Receivables for local municipality fees 1.250.171 1.014.967Receivables for dividend paid (private individuals) 732.971 448.669Receivables for overpaid taxes and contributions 111.214 115.051Receivables for interest income on term deposits 202.115 10.319Other receivables 62.297 64.008

2.358.768 1.653.014

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12. Trade and other receivables (continued)

Fair values of trade and other receivables are as follows:


Domestic trade receivables 15.227.488 14.128.961Foreign trade receivables 896.536 4.191.541Receivables from Magyar Telekom Group companies - 84.860Receivables from Deutsche Telekom Group companies 452.531 1.468.993Current portion of employee loans receivable 406.695 463.989Current portion of long term receivables 712.357 712.357Other receivables 2.358.768 1.653.014

20.054.375 22.703.715

Ageing analysis of receivables that are past due as at the reporting date but not impaired is presented below:

December 31, 2011 December 31, 20101-30 days 979.285 1.540.598 31-90 days 310.776 649.717 over 90 days 475.641 540.340

1.765.702 2.730.656

Management estimates that the amount of EUR 1.765.702 of receivables is collectible.

Ageing analysis of receivables that are past due as at the reporting date but impaired is presented below:

December 31, 2011 December 31, 20101-30 days 1.873.774 1.879.052 31-90 days 1.479.664 1.395.381 over 90 days 18.474.314 18.804.028

21.827.752 22.078.460

Movements in allowance for impairment losses on receivables during the year ended December 31, 2011 and 2010 are summarized below:

(In EUR) 2011 2010

Balance, January 1 18.268.909 15.318.703Charged during the year (Note 27) 1.241.246 2.995.074Charged during the year – provision for Municipalities (Note 27) 317.116 -Provision related to receivables collected during the year (Note 27) (191.164) (1.234.105)Effects of changes in exchange rates 47.119 13.805Penalties charged to customers 699.891 1.175.432Receivable write off (2.862.661) -Balance, December 31 17.520.456 18.268.909

12. Trade and other receivables (continued)

Movements in allowance for impairment losses on individual receivables are summarized below:

Domestic Foreign2011 2010 2011 2010

Balance, January 1 17.819.601 14.883.200 449.308 435.503Charged during the year 1.241.246 2.995.074 - -Charged during the year – provision for Municipalities 317.116 - - -Provision related to receivables collected during the year (191.164) (1.234.105) - -Effects of exchange rate - 47.119 13.805Penalties charged to customers 699.891 1.175.432 - -Receivable write offs (2.862.661) - -Balance, December 31 17.024.029 17.819.601 496.427 449.308

Provision for domestic receivables is based on the aging structure of the receivables as at the due date. Provisions for domestic receiv-ables are made on the basis of collectability, according to the previous history of the collection of receivables updated yearly. The most recent collectability rates, which are not significantly affected by the financial crisis, are comparable to the historical collectability.

Provisions for foreign receivables are made individually on the basis of the management’s estimate of collectability, according to the pre-vious history of the collection from foreign partners. Allowance for receivable impairment does not include any allowance for receivable from Magyar or Deutsche Telekom Group, as intercompany receivables are considered to be fully recoverable. The most significant part of the provision relates to Community of Yugoslav PTT of EUR 188.660 (2010: 188.660) and Ellite EUR 214.076 (2010: EUR 214.076).

Provision for Municipalities in the amount of EUR 317.116 is created based on management estimate that portion of receivables may not be collected. Montenegrin Municipalities made withdrawal from Company’s bank account for usage of the Municipalities land used for network placing. The Company disagreed with the amount of fee and started court cases in 2009. Few court cases were decided in favour of the Company, but as the Company still did not manage to collect the receivables management estimated and created provi-sion.

In accordance with Management Committee decision number 02-40627, dated December 15, 2011 receivables in amount of EUR 2.862 thousand have been written off. Receivables are written off in accordance with management expectation of their recoverability. The whole amount of written off receivables was fully provisioned previously, so that write off did not have impact on the statement of comprehensive income.

Reconciliation for receivables neither past due nor impaired:

December 31, 2011 December 31, 2010 Receivables net of impairment 16.124.024 18.320.502 Receivables past due but not impaired (1.765.702) (2.730.656) Receivables past due impaired (4.307.296) (3.809.551) Receivables neither past due nor impaired (Note 16) 10.051.026 11.780.295

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13. Advances and prepayments


Un invoiced international incoming calls 35.557 - Un invoiced services to Magyar Telekom Group (Note 32) 28.688 14.986 Un invoiced services to Deutsche Telekom Group (Note 32) 1.041.754 881.467 Advances paid for current assets 185.139 309.902 Accrued revenues from interconnection 643.106 889.994 Other prepayments 571.852 315.038

2.506.096 2.411.387

14. Inventories


Cables wires and other materials 1.215.538 1.958.493 Inventory for resale 1.804.026 1.486.413

3.019.564 3.444.906

Less allowances for obsolete inventory (887.960) (687.012)

2.131.604 2.757.894

Movements in the provision for inventories for year ended December 31, 2011 and December 31, 2010 are summarized in the table below:

(In EUR) 2011 2010

Balance, January 1 687.012 584.112 Charged / reversal during the period (Note 27) 200.948 102.900

Balance, December 31 887.960 687.012

15. Restricted cash


Restricted cash in clearing house Mach (ex Cybernet) 222.252 1.465.667 Total 222.252 1.465.667

Restricted cash is denominated in following currencies:

In EUR

December 31, 2011 December 31, 2010

EUR 221.783 1.414.623 USD 469 51.044 Total 222.252 1.465.667

Restricted cash deposited with the Clearing house “Mach (ex Cybernet)” in amount of EUR 222.252 and EUR 1.465.667 as of De-cember 31, 2011 and December 31, 2010, respectively, are provided and kept for special purposes and are used for the settlement of liabilities for roaming.

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16. Financial instruments

a) Financial instruments by categories

The accounting policies for financial instruments have been applied to the line items below: Loans and receivables

Assets as per Statement of financial position December 31, 2011 December 31, 2010

Available for sale financial assets 25.374 25.374 Long term loans and receivables 5.188.769 5.988.437 Short term bank deposits 45.200.000 36.200.000 Trade and other receivables 20.054.375 22.703.715 Restricted cash 222.252 1.465.667 Cash and cash equivalents 1.871.155 1.737.783 Total 72.561.925 68.120.976

Liabilities valued at amortised cost

Liabilities as per Statement of financial position December 31, 2011 December 31, 2010

Trade and other payables 8.365.724 12.138.965Total 8.365.724 12.138.965

b) Credit quality of financial assets The credit quality of financial assets that are neither past due nor impaired is presented below:

Long –term loans and receivables December 31, 2011 December 31, 2010

Counterparty with external credit rating Baa3 1.457.839 1.852.503 Counterparty without credit rating 3.730.930 4.135.934

5.188.769 5.988.437

16. Financial instruments (continued)

(In EUR) Cash and cash equivalents December 31, 2011 December 31, 2010

Cash and cash equivalents without credit rating 1.871.155 1.737.783 1.871.155 1.737.783

(In EUR) Short term bank deposits December 31, 2011 December 31, 2010

Guaranteed short term deposit by credit institutionCredit rating A1 7.000.000 -Credit rating Aa3 - 10.200.000 Credit rating Baa3 - 26.000.000 Credit rating Ba1 38.200.000 -

45.200.000 36.200.000

Trade receivables - neither past due nor impaired (In EUR)


Counterparty without external credit ratingDomestic (Note 12) 10.045.769 8.944.959 Foreign (Note 12) 5.257 2.835.336

10.051.026 11.780.295

Restricted cash


Counterparty with Credit rating A1 222.252 1.465.667 222.252 1.465.667

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17. Share capital

At December 31, 2011 At December 31, 2010Number of Shares % Value Number of Shares % Value

Subscribed and paid in capital

- Magyar Telekom 36.177.950 76,53 107.902.165 36.177.950 76,53 107.902.165Privatization Funds 332.684 0.70 992.263 327.319 0,69 976.262Other companies 5.289.105 11,19 15.775.285 5.375.995 11,37 16.034.443Retail (citizens) 5.474.201 11.58 16.326.681 5.392.676 11,41 16.083.524

47.273.940 100,00 140.996.394 47.273.940 100,00 140.996.394

As at December 31, 2011 and 2010 the par value of an individual share was EUR 2,98254. Telekom’s shares are publicly listed on the Montenegro Stock Exchange. The market price of an individual share as at December 31, 2011 was EUR 2,7000 (December 31, 2010: EUR 3,5599).

18. Statutory reserves

According to Company’s Article of Association, the Company is required to set aside 5 percent of its statutory profit for the year in a statutory reserve until the level of the reserve reaches 1/10 of the share capital. These reserves are used to cover losses and are not distributable to share holders except in the case of bankruptcy of the Company.

19. Trade and other payables


Domestic trade payables 5.157.656 4.645.531 Foreign trade payables 2.539.627 4.801.944 Other taxes and social security 228.424 287.905VAT payables 568.908 265.951 Payables to Magyar Telekom Group 8.551 411.398 Payables to Deutsche Telekom Group 594.471 2.279.880 Other payables 65.419 212

9.163.056 12.692.821

Trade payables are denominated in the following currencies:


EUR 8.313.372 12.566.112 SDR 433.079 124.521USD 416.605 2.188

9.163.056 12.692.821

The fair value of trade and other payables is equal to their carrying amounts. Contracted maturity of trade and other payables is up to 45 days.

20. Accrued liabilities and advances


Accrued expenses to Magyar Telekom Group (Note 32) 204.358 236.036 Accrued expenses to Deutsche Telekom Group (Note 32) 1.564.641 733.952 Accrued liability for dividends (private individuals) 784.303 500.001 Accrued liability for dividends (legal entities) 38.225 34.242 Advances received for mobile phone cards 1.481.174 1.100.800 Accrued liabilities for roaming operators 2.992.873 2.822.630 Accrued expenses for local municipality fees 472.560 1.099.896Accrued expenses for interconnection 970.977 1.918.973Accrued expenses for bonuses 941.416 1.131.943Accrued liabilities for fixed assets and maintenance 388.905 1.039.379Deferred prepaid internet hours 277.928 277.928 Amounts received in advance and prepayment 421.458 377.157 Other accrued liabilities 4.197.864 3.914.053

14.736.682 15.186.990

The structure of other accrued liabilities and expenses is as follows:


Accrued marketing expenses 225.360 616.627Accrued expenses for post services 125.508 90.778Accrued expenses for electricity 243.369 231.542Accrued expenses for maintenance 604.999 747.928Accrued liabilities for non geographical codes 92.834 305.647Accrued liabilities for IPTV services 304.900 437.469Accrued costs for estimated traffic with roaming partner - 203.078Customer Loyalty Programs 592.941 257.541Deferred revenues 443.967 453.763Other accrued liabilities 1.563.986 569.680

4.197.864 3.914.053

Accrued liabilities and advances are denominated in the following currencies:


EUR 14.494.129 15.006.638 SDR 242.553 180.352

14.736.682 15.186.990

The fair values of accrued liabilities and advances equal their carrying amounts.

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21. Provisions for liabilities and charges (continued)

a) Employee Benefits

Jubilee award obligations

Retirement obligations Total

January 1, 2010 478.132 221.958 700.090Additions 15.571 - 15.571Amounts utilized / retired (75.062) (3.613) (78.675) December 31, 2010 418.641 218.345 636.986

January 1, 2011 418.641 218.345 636.986Additions - - -Amounts utilized / retired (81.811) (107.870) (189.681) December 31, 2011 336.830 110.475 447.305

Less: non current portion (302.601) (110.475) (413.076)

Current provision 34.229 - 34.229

Provisions for employee benefits are stated at the present value of expected future payments to employees with respect to employment anniversary awards and retirement benefits which are described in the Collective Bargaining Agreement of the Company. According to the Collective Bargaining Agreement:

The employer is obliged to pay the equivalent of ten times the minimum base salary established at the Company upon the retirement to pension of the employee. The payment is due on the day of the retirement, but not later than 30 days after the last working day of the employee.The employer shall pay an employment anniversary (jubilee) award to employees according to the following:

For 10 years of service life with the Company the amount equivalent to 3 times the minimum base salary established at the Company;For 20 years of service life with the Company the amount equivalent to 5 times the minimum base salary established at the Company;For 30 years of service life with the Company the amount equivalent to 7 times the minimum base salary established at the Company;For 39 years of service life with the Company the amount equivalent to 9 times the minimum base salary established at the Company.

Payments to defined contribution pension and other welfare plans of the State of Montenegro are recognized as an expense in the period in which they are earned by the employees.

Management other employee benefits are payable regardless of the reason for the employee’s departure (Note 32).

21. Provisions for liabilities and charges Movements in provisions for liabilities and charges for the year ended December 31, 2011 and 2010 are summarized in the table below:

(In EUR)2011 2010

Balance, January 1 2.684.389 2.568.739Additions during the year 4.085.985 3.973.208Amounts utilized / retired during the year (4.274.753) (3.857.558)Balance, December 31 2.495.621 2.684.389

Less: non current portion 768.464 722.030

1.727.157 1.962.359

Movements in provisions for liabilities and charges per type of provision are summarized in the table below:

Legal cases Severance payments Employee benefitsMid term incentive

plan (MTIP) Total January 1, 2010 1.274.066 331.930 700.090 262.653 2.568.739Charged during the year 344.273 3.512.826 15.571 116.109 3.973.208Used during the year (305.086) (3.489.368) (78.675) - (3.857.558)December 31, 2010 1.313.253 355.388 636.986 378.762 2.684.389

January 1, 2011 1.313.253 355.388 636.986 378.762 2.684.389 Charged during the year (413.571) 4.182.962 - 316.594 4.085.985Used during the year 97.890 (4.182.962) (189.681) - (4.274.753)December 31, 2011 997.572 355.388 447.305 695.356 2.495.621

Less: non current portion - (355.388) (413.076) - (768.464)Current provision 997.572 - 34.229 695.356 1.727.157

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21. Provisions for liabilities and charges (continued)

b) Provision for legal cases

Provision for legal cases is created depending on expected outcome (as described in Note 2.11.), which is discussed with external lawyers previously.

22. Deferred income tax assets and liabilities

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities.

a) Deferred tax assets

Balance, December 31, 2009

Statement of Compre-hensive Income effect




Intangible assets (969) 969 - - -Property, plant and equipment

10.398 (10.398) - - -

Total 9.429 (9.429) - - -

Deferred tax assets relate to temporary differences between the property and equipment and intangible assets base recognized in the tax statement, and the carrying amount of property, plant and equipment and intangible assets as recorded in the Company’s financial statements. A taxable temporary difference arises and results in a deferred tax asset if tax depreciation is less rapid than accounting depreciation. As at December 31, 2011, the Company did not have any tax losses available for future years.

b) Deferred Tax Liabilities






Intangible assets 592.182 (562.884) 29.298 (41.849) (12.551)Property and equipment 2.064.369 489.477 2.553.846 (381.353) 2.172.493

Total 2.656.551 (73.407) 2.583.144 (423.202) 2.159.942

Deferred tax liabilities relate to temporary differences between the property, plant and equipment and intangible assets base recognized in the tax statement, and the carrying amount of property, plant and equipment and intangible assets as recorded in the Company’s financial state-ments. A taxable temporary difference arises and results in a deferred tax liability, when tax depreciation is accelerated.

23. Revenues

a) Fixed line and Internet services (In EUR)December 31, 2011 December 31, 2010

Subscriptions connections and other charges 12.291.966 11.620.610

Outgoing domestic traffic revenues 8.504.635 10.298.496 Outgoing international traffic revenues 1.902.956 2.302.476 Total outgoing traffic revenues 10.407.591 12.600.972

Incoming domestic traffic revenues 856.979 793.089 Incoming international traffic revenues 14.070.758 16.758.138 Total incoming traffic revenues 14.927.737 17.551.227

Leased lines and data transmission 3.691.047 3.646.813 Dial up services to business customers 15.831 39.993 Web presentation and hosting 58.673 62.295 ADSL revenues 11.239.790 9.644.020 MIPNET revenues 2.087.106 2.211.083 IPTV revenues 5.363.242 4.355.485Revenues from sold internet access 1.145.652 662.524 Equipment sales 779.478 830.006 Other revenues 1.084.587 675.753Total other revenue 25.465.406 22.127.972

Total fixed line and internet services revenues 63.092.700 63.900.781

b) Mobile line services In EURDecember 31, 2011 December 31, 2010

Post-paid revenues - outgoing domestic and international calls 14.101.170 14.142.462 - monthly subscriptions 8.358.485 7.131.864

22.459.655 21.274.326

Prepaid services 15.709.063 15.748.462 Sale of handsets 1.614.782 1.453.695

17.323.845 17.202.157

Revenue from interconnection fees 9.612.903 11.324.628 Revenue from roaming 4.360.320 4.741.322 Other revenue 39.705 9.034Total mobile line service revenues 53.796.428 54.551.467

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24. Employee related expenses


Net salaries and benefits 10.837.485 11.996.312Taxes on salaries 1.818.806 1.953.157State pension contributions 3.573.930 4.030.356Social security and other contributions 2.514.167 2.506.853Severance pay jubilee awards and planned early retirement (Note 21) 4.182.962 3.489.368Provisions for retirement and jubilee benefits (Note 21) 126.913 53.005Other personnel costs 1.737.323 1.416.448

24.791.586 25.445.499

In 2011 the Company rewarded short term employee benefits to management, which amounted to EUR 843.756 (2010: EUR 912.803) for net salaries and bonuses to key management, who are members or permanent invitees of the Management Committee of Crnogorski Telekom, and EUR 564.434 (2010: 564.498 EUR) for related taxes and contributions.

25. Depreciation, amortization and impairment


Depreciation (Note 7) 22.227.915 19.810.813 Amortization (Note 5) 2.466.776 2.469.269

24.694.691 22.280.082

26. Payments to other network operators


Payments to domestic fixed and mobile network operators 13.289.984 16.436.578 Payments to foreign fixed and mobile network operators 6.687.780 6.507.291

19.977.764 22.943.869

27. Other operating expenses


Materials maintenance and service fees 8.122.560 6.896.076Marketing 2.897.970 2.631.018Increase in provision for impairment of trade receivables recognised in profit or loss 1.367.198 1.760.969Rental fees 3.249.408 2.867.218Licence fee for the Agency 1.609.742 1.797.378Sponsorships 266.283 619.999Municipality fees and charges 1.570.767 1.191.014Agent commissions 1.442.599 1.255.707 Fees and levies 225.304 694.773Audit of financial statements 78.164 112.219Magyar Telekom consulting services 48.311 481.562Deutsche Telekom consulting services 224.094 -Other consulting services 231.989 242.811Increase in allowances for inventories recognised in profit or loss 200.948 102.900Increase / (Decrease) in provisions for liabilities and charges during the period (315.681) 39.187Other expenses 4.378.849 4.369.805

25.598.505 25.062.636

Expenses for sponsorships amounted to EUR 266.283 (2010: EUR 619.999) and relate mostly to sponsoring the FSCG and women’s handball team “Budućnost”. The rest of sponsorship expenses in the respective periods were given for culture, sports and education purposes.

Rental fees are mostly related to rental of telecom lines in amount of EUR 1483.932 (2010: EUR 1.261.254) and rental of place for base sta-tions form Radio Difuzni Centar in amount of EUR 686.048 (2010: EUR 665.842).

Base on Law on the roads restricted Municipalities self-determination of fee amount for the use of municipal roads and land, on the way that Municipalities need approval form Montenegrin government on methodology and calculation of the fee amount. However, some mu-nicipalities are collecting the fee even though they don’t have approval form government. According to tax administration law they have possibility to make withdrawal from Companies bank account.

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28. Finance income and costs -net


Finance income Interest income from short term bank deposits 2.200.510 2.979.612 employee loans 103.315 85.891Interest income from unwinding of discount for long –term receivables 248.543 455.901Foreign exchange gains 177.589 403.994

2.729.957 3.925.398Finance expense Interest expenses (55.875) (14.164)Foreign exchange losses (170.782) (489.150)Other finance cost (89.233) (90.532)

(315.890) (593.846)

Finance income net 2.414.067 3.331.552

29. Income tax expense


Current income tax 2.470.652 2.455.619 Deferred income tax release (423.202) (63.978) Total 2.047.450 2.391.641

Reconciliation of the Theoretical Income Taxes and Actual Income Taxes

The reconciliation of the Company’s theoretical income tax and actual income tax is provided in the table below:

(In EUR) December 31,2011 December 31,2010

Profit before tax 18.545.694 21.823.260 Income tax at a rate of 9% 1.669.112 1.964.093 Non-deductible costs 150.135 170.703 Other adjustments 228.203 256.845

2.047.450 2.391.641

30. Earnings per share


Profit attributable to equity holders of the Company 16.498.244 19.431.619

Weighted-average number of issued ordinary shares 47.273.940 47.273.940Number of ordinary shares 47.273.940 47.273.940 Basic earning per share - from ordinary business operations 0,3490 0,4110

Basic earnings per share, net 0,3490 0,4110

The Company does not potentially have any amounts of diluted shares.

31. Dividend per share

During 2011, profit related dividend for 2010, totalling EUR 18.000.000 (2009: EUR 87.000.000) were declared. The dividend per share amounted to EUR 0,38076 (2009: EUR 1,8403).

32. Related party transactions

Crnogorski Telekom A.D, Podgorica was acquired by Magyar Telekom NyRt. (MT). MT obtained control of Crnogorski Telekom on March 31, 2005 and by the end of 2005 it held a 76.53% stake, which remained unchanged since then. Deutsche Telekom AG is the ul-timate controlling owner of Magyar Telekom holding 59.21% of the issued shares. Deutsche Telekom (DT) Group and Magyar Telekom Group have a number of fixed line and mobile telecom service provider subsidiaries worldwide, with whom the Company has regular transactions.

The ultimate parent of the Company is Deutsche Telekom AG (incorporated in Germany). Shareholders of Deutsche Telekom AG are Institutional investors (57%), KfW Bankengruppe (17%), Federal Republic of Germany (15%), and Retail investors (11%).

Other related parties with which the Company had transactions in the period January 1 to December 31, 2011 and 2010 include: Make-donski Telekom (subsidiary of Magyar Telekom), OTE (associate to Deutsche Telekom), and Hrvatski Telekom (subsidiary of Deutsche Telekom).

All transactions with related parties arise in the normal course of business and their value is not materially different from the terms and conditions that would prevail in arms-length transactions.

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32. Related party transactions (continued)

(In EUR)

III Revenues December 31, 2011 December 31, 2010

Magyar Telekom Interconnections 71.703 54.586Mobile line services 35.562 46.859

107.265 101.445Makedonski Telekom Mobile line services 43.438 74.758Total - Magyar Telekom Group 150.703 176.203Deutsche Telekom Interconnections 10.340.981 12.786.752Mobile line services 138.602 232.297

10.479.583 13.019.049Ote TelekomLeased lines 39.250 33.800Hrvatski telekom Interconnections 72.843 30.160Leased lines 30.000 -Total - Deutsche Telekom Group 10.621.676 13.083.009 Total 10.772.379 13.259.212

IV Expenses December 31, 2011 December 31, 2010Magyar Telekom Consulting services 48.311 481.562Mobile line services 9.400 9.600

57.711 491.162Makedonski Telekom Mobile line services 9.323 14.256Total - Magyar Telekom Group 67.034 505.418Deutsche Telekom Interconnections 4.597.534 4.549.399Consulting services 224.094 -Leased lines 88.013 73.200Maintenance of telecom equipment 333.330 471.397Mobile line services 136.443 320.983Other expenses 69.336 61.628

5.448.750 5.476.607Ote TelekomInterconnections - 56 Maintenance of telecom equipment - 70.868 Leased lines - (273)

- 70.651T - Hrvatski telekom Interconnections - 2.592 Maintenance of telecom equipment - 1.601 Leased lines 629.670 593.745

629.670 597.938Total - Deutsche Telekom Group 6.078.420 6.145.196 Total 6.145.454 6.709.115


Transaction with related parties includes provision and supply of telecommunication services and leased lines.

I Liabilities (In EUR)

December 31, 2011 December 31, 2010Magyar Telekom Interconnections with fixed line of service 80.297 216.919Mobile phone service 45.970 182.585Consulting services 51.080 82.260

177.347 481.764Makedonski Telekom Mobile phone service 35.562 165.670Total - Magyar Telekom Group 212.909 647.434Deutsche Telekom Interconnections with fixed line of service 1.627.296 1.607.419Mobile telephony services 327.987 1.135.408Leased lines - 73.200

1.955.283 2.816.027Ote TelekomInterconnections 85.377 53.872T - Hrvatski telekom Interconnections with fixed line of service 118.452 114.050Leased lines - 29.883Total - Deutsche Telekom Group 2.159.112 3.013.832Total 2.372.021 3.661.266

II Receivables December 31, 2011 December 31, 2010

Magyar Telekom Mobile phone service - 46.859Leased lines 5.905 18.310

5.905 65.169Makedonski Telekom Mobile phone service 22.783 34.677Total - Magyar Telekom Group 28.688 99.846Deutsche Telekom Interconnections with fixed line of service 1.348.680 1.672.687Mobile telephony services 21.113 523.014

1.369.793 2.195.701Ote TelekomLeased lines 121.992 152.099T – Hrvatski telekom Leased lines 2.500 2.660Total – Deutsche Telekom Group 1.494.285 2.350.460Total 1.522.973 2.450.306

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Agreements with the Company’s Senior Management

In October of 2004, Annexes to some Senior Management Employment Contracts were concluded.

According to the rules set out in these Annexes upon termination of the employment (even in the case the termination is the decision of the employee) or cessation of the employee’s management position, the employee has the following options:

- Receive a compensation for the termination of the employment with the amount equivalent to twelve monthly salaries (the monthly sal-ary corresponding to the net amount paid out in the preceding month before the termination or the established net salary); or

- Enter into an Employment Agreement in another position, corresponding to the employee’s educational level, for an undefined period.

In accordance with the above-described, the Company’s maximum obligation arising on the cessation or termination of the aforemen-tioned Annexes and Contracts, should the Company’s senior management elect to receive the compensation, would amount to ap-proximately EUR 690.000 and EUR 690.000 as at December 31, 2011 and December 31, 2010 retrospectively. As the possibility that all key management leave the Company during the year is below 50%, only a partial amount is reflected in the financial statements as provision.

In 2008 and 2007, in the case of some senior executives, the Company has set up a loyalty bonus scheme, according to which key management is entitled to certain bonuses if they stay with the Company for two years from the date of contract signature. Taking into consideration conditions prevailing as at December 31, 2011, the Company would have incurred approximately EUR 144.212 costs in respect of this commitment, if key management had left the Company.

33. Contingent liabilities

Potential onerous contracts

In accordance with the Share Sale – Purchase Agreement dated 15 March 2005 concluded between the Government of the Republic of Montenegro and the Employment Bureau of Montenegro, as Sellers, and Magyar Telekom, as the Purchaser, the Purchaser undertakes to cause the Company to enter into contracts with the Radio Diffusion Centre to lease optical fiber capacities for transmission of TV and radio signals and the University of Montenegro to provide for connection capacities. In both cases it is envisaged that the counterpar-ties shall not pay any compensation for the use of these capacities. The Company management estimates that there will be no material expenditure related to this case in the future.

Environmental matters

Environmental regulations are developing in the Republic of Montenegro and the Company has not recorded any liability at December 31, 2011 and December 31 2010 for any anticipated costs, including legal and consulting fees, site studies, the design and implementa-tion of remediation plans, related to environmental matters. Management does not consider the costs associated with environmental issues to be significant.

Potential obligations from a legal case with a Trade Union

At the Basic Court in Podgorica on July 6, 2010, the legal proceedings were started in the legal matter by the Trade Union of Crnogorski Telekom against Crnogorski Telekom . The Trade Union of Crnogorski Telekom is requesting an increase of salaries by 15.42% for the period from September 2009 till September 2010 and 6.6% for the period September 2010-September 2011. The official finance court expert gave the opinion that salaries should be increased by 14.21% for the period from September 2009 till September 2010 and by 4.88% for the period September 2010 till September 2011. However the deciding Judge rejected the experts opinion as unsatisfactory and incomplete. The Company management estimates that there will be no expenditure related to this case.

34. Commitments

a) Operating lease commitments – Company as a lessee

The Company leases various retail and business offices and warehouses, internet access, lines, under operating lease agreements. The lease terms are between one year up to unlimited term, and the majority of lease agreements are renewable at the end of the lease period at market rate.

Amounts of minimum lease payments at balance sheet date under non-cancellable operating leases for periods:

not later than one year 1.226.076later than one year and not later than five years 4.248.025later than five years 1.032.696 Total 6.506.798

The lease contract with the Radio Difuzni Centar is signed on indefinite time for rent of space on their towers for our base stations. The amount of the lease cost fluctuates depending on the space used for these towers.

The lease expenditure charged to the Statement of comprehensive income during the year is disclosed in Note 27.

b) Other commitments

Expenditures committed up to the Statement of financial position date, which has not been recognized in the financial statements are as follows:

December 30, 2011 December 30, 2010 Contracted liabilities on: The purchase of property, plant and equipment 1.693.646 1.779.073 The purchase of intangible assets 5.390.161 6.751.715 Maintenance and support services 527.822 860.898 Marketing and sponsorships 140.600 154.197Other operating expenditure commitments 70.892 24.673 Total 7.823.121 9.570.556

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34. Commitments (continued)

c) Use permits Based on the Share Sale – Purchase agreement dated March 15, 2005 concluded between the Government of the Republic of Mon-tenegro and the Employment Bureau of Montenegro, as Sellers, and Magyar Telekom Nyrt., as the Purchaser, the Sellers undertake to cause the Company to submit, thorough and complete applications to the relevant Public Authority to obtain all outstanding permits for the continued i) conduct of their respective business and/or ii) ownership and/or operation of their respective assets existing on the date of the signing of this Agreement. The Company management estimates that there will be no material expenditure related to this case in future.

35. Exchange rates

The official exchange rates for major currencies used in the translation of Statement of financial position items denominated in foreign currencies, into Euros as at December 31, 2011 and December 31, 2010 respectively are as follows:


SDR 1.1865 1.0596USD 0.7729 0.0753

36. Cash generated from operations

Notes December 31, 2011 December 31, 2010(in EUR)

Profit for the period 16.498.244 19.431.619Adjustments for:Income tax expense 2.047.450 2.391.641 Depreciation amortization and impairment 25 24.694.691 22.280.082Net financial income 28 (2.414.067) (3.331.552)Increase/(decrease) of allowances for inventories recognized in profit or loss 27 200.948 102.900Increase/(decrease) of allowances for bad debt recognized in profit or loss 27 1.050.082 1.760.969Change in working capital:Change in payables (3.980.073) (2.527.263)Change in inventory (425.342) 61.382 Change in receivables 3.397.793 1.203.808 Decrease in provision for legal cases (315.681) 39.187 Provision for Employee benefits (189.681) (63.104)Change in restricted cash 1.243.415 (1.003.764)Other non-cash items (2.008.980) (288.133)

Cash generated from operations 39.798.799 40.057.772

Further informationContacts

Crnogorski TelekomMoskovska 2981000 PodgoricaMontenegroTel: + 382 20 433 433Fax: + 382 20 225 752e-mail: [email protected]

Crnogorski Telekom stock code

Montenegroberza: TECG

Stock trading information:

Montenegroberza a.d. PodgoricaMoskovska 7781000 PodgoricaMontenegroTel/Fax: +382 20 228 502E-mail: [email protected]

Published by:Crnogorski Telekom © 2012

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