Crnogorski Telekom2014 annual report

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contents:

to our shareholdersAbout Crnogorski TelekomSelected Financial and Operational Data of Crnogorski TelekomLetter to Our Shareholders

management report Management Report for the Financial Year 2014Crnogorski Telekom’s ManagementBoard of Directors Executive Management BoardVision and StrategyRegulatory EnvironmentPromotions and Offers

human resources

corporate responsibility

financial statements Independent Auditor’s ReportStatement of Financial PositionStatement of Comprehensive IncomeStatement of Cash FlowsStatements of Changes in EquityNotes to the Financial Statements

further information

3to our shareholders

to our shareholdersabout crnogorski telekom

Crnogorski Telekom (CT) is the largest telecommunications company in Montenegro. It provides a full range of fixed and mobile telecommunication services (voice, messaging, internet, TV, leased-line circuits, data networks and ICT solutions).

Crnogorski Telekom fully digitalisedthe fixed-line network in 2007 and brought ADSL coverage of PSTN customersclose to a 100% base by the end of 2012. In December 2007, Crnogorski Telekom started an IPTV service. At the end of 2011 CT started offering ICT solutions, promoted under the name “Integris”.

CT was the second entrant into the mobile market in Montenegro. From its founding in 2000, it has always offered innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth.Telekom usesmobile technologies such as UMTS, HSDPA, GPRS and EDGE. A 3G network was launched in the summer of 2007.A 4G service was softly launched in 2012, while wider coverage was brought to the market in 2013 and in 2014.

In 2006, the T-Com and T-Mobile brands were launched.

In May 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.

In 2012, the T-Com and T-Mobile brands were replaced by the Telekom brand, under which all products are now marketed.

On 1 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 27.

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selected financial and operational data of crnogorski telekom

Main financial KPIs (m€) 2013 2014 Δ Δ%

Revenues 110,2 104,6 -5,6 -5

EBITDA before SI1 43,3 41,1 -2,2 -5

EBITDA before SI margin (%) 39,3 39,3 0,0

EBITDA 39,8 41,0 1,3 3

EBITDA margin (%) 36,1 39,2 3,1

Operating profit 20,1 23,0 2,9 14

Net profit 18,8 21,6 2,7 14

Total Assets 198,2 187,2 -11,0 -6

CAPEX 14,5 16,2 1,8 12

Number of employees (closing FTE) 651 657 6 1

Fixed line operations KPIs (in thousands) Dec 31, 2013 Dec 31, 2014 Δ Δ%

Fixed-voice customers, Total 167,2 162,9 -4,3 -3

Fixed voice Market share (%) 98,3 98,4 0,1

ADSL customers, Total 74,4 77,8 3,4 5

BB Internet Market share (%) 81,8 81,7 -0,1

IPTV customers, Total 61,8 64,3 2,5 4

Pay TV Market share (%) 41,6 41,8 0,1

Mobile line operations KPIs (in thousands) Dec 31, 2013 Dec 31, 2014 Δ Δ%

Number of SIMs, Total 352,8 345,9 -7,0 -2

Prepaid 214,8 197,3 -17,4 -8

Postpaid 138,1 148,5 10,5 8

Mobile SIM market share (%) 34,3 34,1 -0,2

Mobile internet SIM number 96,9 114,3 17,4 18

Mobile Internet SIM market share (%) 40,6 38,3 -2,3

Mobile penetration (%) 160 163 3,1

1. Zarada prije odbijanja kamata, poreza na dobit i amortizacije2. Troškovi restrukturiranja

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dear shareholders,

As always at this time of the year, I have the pleasure to share with you an overview of Crnogorski Telekom’s most significant moments in 2014 when it comes to business developments, expectations for the coming year and our strategies on how to fulfil them. Last year can be summarised in a few words: as a clear technology leader in the Montenegro and European markets, we are proud to be a part of an industry that is truly transforming the world. We have been facing increasing customer expectations and, consequently, the rules of the game changing just as fast, tough competitors and global internet players, but we have still helped businesses to grow and the national economy to develop, improving the quality of life of our customers through our innovative technology solutions. I am happy to conclude that, in spite of the impeded economic developments and of the overall state in the telecommunications market, our business is still solid, thanks to an increase in ICT and IPTV revenues, as well as to betterequipment sales and an increase in mobile and fixed BB revenues. Speaking of financial achievements, let me inform you that our revenues, amounting to EUR 104.6 million, were in line with plans driven by wholesale revenues, equipment/handset sales and ICT revenues, while service revenues deteriorated (EUR 3.7m or -5% YoY). Furthermore, EBITDA was in line with expectations and EUR 2.2m or 5% lower YoY,

while OFCF performed 10% lower YoY, but still exceeded expectations. As the overall telecommunication market is shrinking every year, I am proud that we have been achieving our targets.The business year 2014 was, in spite of all the challenges (embodied by the continuously rising regulatory pressure, increasingly aggressive competition, new market players, changing customer behaviour and new technology areas) or maybe actually because of them, a successful year because we have come through those challenges very successfully, not only resisting temptations, but emerging out of them stronger and more united. CT’s strategic framework is based on three strategic layers: Stand for Broadband - capturing and retaining customers and outperform competition; Transform to Outperform – full focus on e-Business, e-Company, One Billing/CRM and Save2Invest initiatives and New Way to Play – growing revenue streams in ICT/Cloud and Retailer No.1 initiatives, new business development and exploring the partnering concept. Obviously, our management’s full commitment to it paid off.

Speaking of our further 2014 achievements, we were primarily focused on intensive FTTH rollout, expanding ICT business, 3G 900 roll-out, implementation of the Hybrid Access project, mitigating the negative effects of the extensive regulatory changes and completion of the One Billing & CRM project.

Regarding fibre development, it is very rewarding to hear that this project, which provides the best service quality and stability for broadband customers, is performing extraordinarily well and that we are experiencing a significant increase in customer demand for FTTH services. Over less than four years almost 37,000 households in 10 cities were given the possibility to use the FTTH service and more than 9,000 have been connected. The most important KPI, utilisation, was significantly raised over the years – starting from 8% in the first year (2011) rising to 25% in 2013 and 2014, which puts us among the operators with the highest utilisation rate in the Group.

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We should also mention that the results exceeded the plan for FTTH rollout for 2014 already during October. Our aspiration for this year is to cover more than 4,000 new households with the possibility for FTTH and achieve an additional increase in terms of utilisation – to reach 26%.Speaking about expansion, let me remind you that CT has made a big step forward in expanding the mobile network, targeted at improvement of its service quality. We can congratulate ourselves for doubling the 3G network in terms of capacity and coverage, which resulted in a 50% increase in traffic in 2014. We tripled the 4G network and made it available to customers in almost all municipalities and improved it in Podgorica and coastal towns. A traffic increase of 570% in 2014 is the evidence that our customers have recognised the benefits provided by our network and that they enjoy surfing in the T network every time and everywhere. These results confirm that we are on the right track in this process, so we are continuing with expansion of the mobile BB network already at the beginning of 2015, with special emphasis on 4G services as our strategic guidance.

When it comes to ICT, I am happy to inform you that the real success story is in this business, after three years in a row with three-digit YoY revenue growth, which continued in 2014 with revenues close to EUR 4 million. We are recognised as a reliable ICT partner for important investment projects in Montenegro. As result of good customer experience with previous projects, in November we signed the biggest ICT contract, worth EUR 2.5 million. Regarding the Hybrid Access launch, I can report that we are the first among all DT Europe members to develop a Hybrid Access technology implementation plan for the next four years. The plan foresees EUR 3 million investments enabling 6,500 customers to benefit from this new technology. We expect our first customers by the end of 2015. We continued to be the number one company as far as corporate social responsibility is concerned and I am sure that the “Iskra” and “Best Company to Work for in Montenegro” awards confirm our essential dedication to do business in a socially responsible manner and to develop in a sustainable manner. We are proud of the fact that our employees demonstrate a high level of personal commitment and a corporate culture, which is a prerequisite for the raising of the existing standards and setting up of new ones in our environment.

Speaking of the year 2015, it will definitely bring a new and unique combination of bright and less bright moments, but we have all the answers prepared and worked out through our Corporate Strategy and we know what we must keep on doing: providing our customers with the best service and most comprehensive solutions in the market, being innovative and exploring new revenue streams and ways to maximise the benefits obtained from the existing ones. We must insist on simplicity in our offers, smart investments in networks, communicating technological superiority, awarding loyalty, and customisation and personalisation of our offers. In that regard, in order to be the No. 1 telecommunications operator in Montenegro, three main pillars were defined in our new Corporate Strategy:

• Technology leadership, • Best customer experience, and• New business.

If we implement this we will retain/win customers and grow our business.

Now, looking forward into the future, according to our main strategic commitment, customers will remain the focus of our attention: we will keep on investing into our network’s quality and providing access to the most advanced technologies. As in previous years, we have continued to maintain a very substantial volume of investment of more than EUR 16 million. We will also continue to extend our service portfolio, accompanied by an even wider offer of exciting devices. In line with our long-term orientation, we will simultaneously continue developing and implementing various initiatives in the area of corporate social responsibility and investing in the Montenegrin society to which we belong and in which we operate.

Unfortunately, our key words in the upcoming period will also be cost control. It is true that we must decrease our employee-related expenses and it is true that organisational changes will follow, affecting all levels of employees. I am fully aware that this is always the most painful step, but if we want to remain a company in the market providing very good working conditions and deliver interesting products to Montenegrin citizens there is no other way. However, rest assured that the management will do everything to serve the interest of all our employees, since we always have in mind that our employees’ loyalty and dedication are key factors in business success and the good reputation of our company. On the other hand, I am also sure that the “Best Company to Work for” award that we received at the beginning of 2014 indicates that the care and commitment of Crnogorski Telekom to its employees are recognised in the business environment

As in previous years, the management intends to propose to the General Assembly to pay out a dividend. This is the best way to show to our shareholders that we are taking care of their interests and it is the best basis to motivate our shareholders for further investment in Montenegro’s infrastructure.

I would like to take the opportunity to thank all of our employees for a job well done in 2014. I am extremely proud of how they have all pulled together and the terrific results they have achieved. That will always be the solid ground on which we can build strategies to fulfil our goals during the coming years.

Finally, dear shareholders, let me also thank you, for the fourth time already, foryour contribution to the success of our company. Your trust and confidence have always been an important driving force and great support to us. Please continue to support us in our efforts to maintain and improve the profitability of our company.

Rüdiger J. SchulzChief Executive Director

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management report

management report for the financial year 2014 Highlights

In 2014 revenues maintained a declining trend with a YoY decrease of EUR 5.6 million or 5%, to a level of EUR 104.6 million. The main reasons behind it are related to lower interconnection revenues, to fixed and mobile voice revenues, messaging revenues, visitors’ revenue and data services. This development was partly compensated for by the increase of internet, TV, ICT and equipment revenues.

EBITDA excluding special influences decreased by 5% YoY to EUR 41.1 million, with a margin of 39.3%.. Net profit increased YoY by EUR 2.7 million, or 14% to EUR 21.6 million, mainly due to lower depreciation and amortisation costs and due to

severance payments in 2013. Capital expenditure was EUR 16.2 million. The main projects wereOne Billing& CRM, fibre-optic network rollout, IPTV and IMS.

A dividend of EUR 21.5 million was paid out.The share capitaldecreasedby EUR 17.1 million.

Revenues and Profitability

In 2014,Crnogorski Telekom focused on further extending its 3G and 4G mobile networks, on fibre-optic access rollout, on expansion of the ICT service, on the sale of equipment and on the improvement of voice services. In the fixed-line voice segment, CT kept a stable customer base, while the ADSL and Extra TV customer base increased. In the mobile segment CT retained both total postpaid and business-segment postpaid leadership. CT’s revenues and profitability were negatively impacted by regulation of fixed voice and fixed broadband retail prices.

Despite the positive development in the number of customers, CT experienced a YoY revenue decline of 5%. Revenues reached EUR 104.6 million. The retail revenues were kept stable, while wholesale revenues decreased by 24%. Major revenue downsides, compared to 2013, related to:

interconnection revenues (-22%), driven by decreased mobile termination rates and lower incoming traffic, both national and international, fixed-line voice retail revenues (-10%), influenced by decreasing usage and retail price regulation, mobile prepaid revenues (-12%).This development was partly balanced by higher: IPTV revenues (+10%), driven by higher customer numbers, fixed broadband revenues (+5%), driven by higher customer numbers, data service revenues (+15%), driven by the growth of ICT services, equipment revenues (+42%), boosted by sales of TVs/laptops and handsets.

As a result of continuous successful efforts to increase efficiency and improve the cost base, operating expenses excluding special impact at the same time decreased YoY by EUR 3.2 million (-5%), to a level of EUR 63.7 million.

The limited YoYrevenue decrease and cost efficiency resulted in a 5% YoY decrease of EBITDA before special influences, to the amount of EUR 41.1 million.

Operating income (EBIT) increased YoY by EUR 2.9 million to EUR 23.0 million, mainly due to lower depreciation and amortisation costs and due to severance payments in 2013. Net income increased by EUR 2.7 million to EUR 21.6 million.

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Main Non-Financial KPIs

In 2014, the fixed-line voice customer number decreased by 3%. The fixed broadband revenue increase was driven by a customer base increase of 3,400 or 5%. IPTV revenues also increased due to a customer number increase of 2,500 YoY or 4%.

Fixed line operations KPIs (in thousands) Dec 31, 2013 Dec 31, 2014 ∆ ∆%

Fixed-voice customers, Total 167,2 162,9 -4,3 -3

Residential 145,5 141,8 -3,7 -3

Business 21,7 21,1 -0,6 -3

Fixed voice Market share (%) 98,3 98,4 0,1

Fix broadband customers, Total 74,4 77,8 3,4 5

Residential 66,7 69,6 2,9 4

Business 7,7 8,2 0,6 7

BB Internet Market share (%) 81,8 81,7 -0,1

IPTV customers, Total 61,8 64,3 2,5 4

Residential 59,7 62,1 2,4 4

Business 2,0 2,2 0,2 8

Pay TV Market share (%) 41,6 41,8 0,1

At the end of 2014 Crnogorski Telekom customers were using 346,000 SIM cards, which is a drop of 7,000 or 2% compared to the previous year. The total SIM market share decreased by 1.4pp and amounted to 34.1%. The prepaid SIM base decreased by 17,000 or 8%, while the postpaid SIM base increased YoY by 10,000 or 8%.Crnogorski Telekom remained the market leader in the postpaid segment.

Mobile line operations KPIs (in thousands) Dec 31, 2013 Dec 31, 2014 ∆ ∆%

Number of SIMs, Total 352,8 345,9 -7,0 -2

Prepaid 214,8 197,3 -17,4 -8

Postpaid, Total 138,1 148,5 10,5 8

Postpaid Residential 36,7 41,5 4,8 13

Postpaid Business 101,4 107,0 5,6 6

Mobile SIM market share (%) 34,3 34,1 -0,2

Mobile internet SIM number 96,9 114,3 17,4 18Mobile Internet SIM market share (%) 40,6 38,3 -2,3

Mobilna penetracija (%) 160 163 3,1

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main investments

In 2014, CT continued implementation of One Billing/CRM (Customer Relations Management). The new billing system will replace three separate billing systems. It will increase market competitiveness, by enabling fully convergent (prepaid/postpaid and fixed/mobile) and real-time rating.

All IP Transformation programcontinued in 2014. More than 90,000 customers weremigrated from PSTN to IMS technology. For IMS customers new services are available, like “Internet on Click” where service activation is immediate. Introduction of MSAN (Multi-Service Access Node) technology in CT started in 2014, where existing ADSL technology will be gradually replaced. Ten thousand ADSL ports on MSAN have been installed during 2014.In parallel,CT extended BB coverage by 5%.

In line with Mobile Access Strategy,the major focus was on Mobile Broadband coverage and capacity extension. CT invested EUR 1.4 million. The number of 4G base stations has been tripled,while the population coverage increased from 38% to 62%. With this, 21 cities in Montenegro are covered by the 4G service and CT gained the position as market leader in 4G.

3G coverage has been extended into suburban, rural areas and main roads, while new sites were set up in urban areas. The number of 3G sites doubled and population coverage increased from 72% to 94%. In addition CT successfully started testing of its 4G+ service,with download speeds of up to 300 Mbps.

In accordance with its Integrated Network Strategy,CT continued the development of its FTTH network, resulting in new 8,800 flats being covered by the fibre network and 2,200 new customers enjoying the services via this supreme technology. At the end of 2014 there were 37,000 homes covered with FTTH and over 9,000 customers using the service. We managed to maintain a high utilisation rate of 25%.

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crnogorski telekom's board of directors As proposed by the majority owner of the Company, following the resignation of Ms. Melinda Szabo to the CT’s BoD membership, at the Extraordinary Shareholders’ Assembly (held on January 21, 2015), it was decided to decrease the number of BoD members from seven to five. Based on relevant resolutions, Mr. Peter Zsom and Mr. Frank Polcz were dismissed as BoD members. Mr. JovicaGjorgjeski has been elected a member of the BoD, together with the remaining four members of the previous BoD composition.

János Szabo, Chairman Susanne Krogmann Michael FrankJovica GjorgjeskiTripko Krgović

jános szabóJánosSzabó was born in Hódmezovásárhely (Hungary) in 1961. He graduated at the Budapest University of Economics 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 business sector. He became Director of Finance at Delco Remy Hungary (a subsidiary of the 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 2003 he was the Finance Director of the Wireline Services LOB of Magyar Telekom (later T-Com). The role was extended to the fixed-line network and IT operations in 2006. Since 2008, he has been the Director of Group Planning & Controlling of the Magyar Telekom Group. From April 2013, he holds the position of the CFO of Magyar Telekom.

susanne krogmannSusanne Krogmann, born 1964, holds a diploma in Economics from Georg-August-University Göttingen, Germany and studied European Integration at the College of Europe, Bruges, Belgium. Susanne Krogmann started her career at Treuhandanstalt, the state-owned agency responsible for the privatization of the enterprises and assets of the former Democratic Republic of Germany. During her five years at Treuhandanstalt she worked in the controlling and in the contract management department. For the last 2 years at Treuhandanstalt 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 of Head of the group “Corporate Responsibility Strategy and Controlling” where she developed a new Corporate Responsibility strategy for DT group. Following the increasing awareness of data security and data protection at Deutsche Telekom she later worked in a data security project with her personal focus on customer data security. Since the end of 2009 she holds the position of Vice President Corporate Governance Europe within Board Area Europe at Deutsche Telekom. She has become member of the Board of Directors of Crnogorski Telekom in 2011. Since 2012 she is also member of the Board of Directors of Makedonski Telekom and the Board of Directors of T-Mobile Macedonia. Susanne Krogmann is also a member of the Supervisory Board of T-Mobile Czech Republic, since 2013.

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miChael frankMichael Frank was born in 1977. He graduated as an Industrial Engineering with Business Studies from the Technical University of Karlsruhe in 2003 before gaining an additional Master degree in International Relations from the Andrássy University Budapest in 2006. He started his career in 2004 with T-Mobile Hungary as a Regulatory Manager, then joining Detecon in 2007 as a Strategy Management Consultant with global project assignments. From 2010, he worked at Deutsche Telekom’s Headquarter as a Senior Manager, first in International Public & Regulatory Affairs and later in the International Business Unit. In 2013, Mr. Frank joined Magyar Telekom as Head of Portfolio Management and since January 1, 2014, he is heading Magyar Telekom’s Corporate Strategy and Portfolio Management Department. He is a member of the Board of Directors of Makedonski Telekom and of T-Mobile Makedonija.

joviCa gjorgjeskiJovicaGjorgjeski was born in Skopje, Republic of Macedonia. He studied Management at the Faculty of Economics on the University of Ss. Cyril and Methodius in Skopje. He started his career in 2004 at Makedonski Telekom where until 2007 he held several positions within the finance area. Between 2007 and 2010 he held the position of General Coordinator in the Cabinet of the Chief Executive Officer of Makedonski Telekom. In 2010, Mr. Gjorgjeski joined Magyar Telekom as Country Manager for the Macedonian operations (Makedonski Telekom, T-Mobile Macedonia, Stonebridge Communications and Telemacedonia) being responsible for the business and corporate governance issues. Since 2011, he is a permanent invitee to the Board of Directors and the Audit Committee of Makedonski Telekom and the Board of Directors of T-Mobile Macedonia. During 2014, he was representing Magyar Telekom at the Shareholders' Assembly of Crnogorski Telekom, exercising all voting rights on its behalf.

Tripko krgovićTripkoKrgović 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 at his family business. From 2004 he worked in the Securities Commission, in the Market Supervision Department. In 2005, he held the position of Investment Manager 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 the Board of Directors of the Moneta privatisation fund and of Otrantkomerc AD, Ulcinj. From 2013 to 2014 he was a member of the Board of Directors of Central Depository Agency, while during the 2014 he was a member of the Board of Directors of BudvanskaRivijera AD Budva as well. He was elected a member of Crnogorski Telekom’s Board of Directors, Audit Committee and Compensation Committee in 2008.

the executive management board of crnogorski telekom

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manfred knappChief Financial Officer

Born in 1955 in Frankfurt am 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 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 2009, he has been responsible for the Finance Department of Crnogorski Telekom as CFO.

endre horanyiChief Human Resources Officer

Endre Horanyi was previously an HR Partner of the Consumer Business Unit at Magyar Telekom. According to the MT organisational 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 2010, he has been working as Chief Human Resources Officer at Crnogorski Telekom.

dr. gabor alTmannChief Commercial Officer for Residential Area

Dr. Gabor Altman joined Crnogorski Telekom in January 2013, when he took over the position of Chief Commercial Officer for Residential Area. He came from Makedonski Telekom, from the position of Chief Sales Officer.In the last 10 years he has covered different positions within Magyar Telekom Group including Makedonski Telekom, T-Mobile Macedonia, T Systems and T-Mobile Hungary. His professional experience at previous positions mainly relate to sales and customer service activities, marketing, portfolio management and strategy.

rüdiger sChulz Chief Executive Officer and Chairman of the Executive Management Board

Rüdiger 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-eastern region of Germany, one of six in the country and developed his experience in the area of IT. He joined Slovak Telekom in November 2006, taking over the position of Senior Executive VicePresident 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. In 2010 he was appointed Chief Operating Officer for Networks and IT of Slovak Telekom. In 2011 he joined Crnogorski Telekom in his current position.

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vladimir beraTovićChief Corporate Affairs Officer

Born in 1970 in Podgorica, he graduated in international management, and is currently undertaking postgraduate studies. His 17-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 management. He left Telenor as Chief Corporate Affairs Officer, in charge of government relations, legal, regulatory, interconnection and wholesale and corporate communication departments. His career at Crnogorski Telekom started in September 2010 as advisor to the Chairman of the Board. He was appointed Corporate Affairs Officer in November 2010. He currently holds the position of Chief Corporate Affairs Officer, which includes the wholesale area.

milija zekovićChief Commercial Officer for Business Area

Born 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 2008 he was appointed as the Chief Sales Officer of Crnogorski Telekom.From 2013he holds the position of Chief Commercial Officer for Business segment.

vladan pekovićChief Technology and Information Officer

Vladan Peković took over the position of Chief Technology and Information Officer in January 2014. He came from T-Mobile Poland, where he was Technology and Platforms Director and Chairman of the Supervisory Board of Networks.Before joining DT group in 2009, he gained vast experience during long-lasting international carrier working for major telco companies on projects of development, implementation and management of telecommunications networks in the Czech Republic, Mexico and the USA.

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our vision

In a fast changing world,we are your first choice to live in a fully digital lifestyle wherever you are, whatever you do; by aspiring to be the best in class.

our strategy

Telekom continued with successful implementation of corporate strategy based on three strategic pillars: Stand for Broadband, Transform to Outperform and New Way to Play.

stand for broadbandTelekom is constantly improving its technology leadership and we are continuously investing in the modernisation of our network, as a precondition for superior quality of service and the best experience for our customers. In 2014 we continued with successful migration of our customers to the IMS platform and MSAN system migration, whereby we replaced legacy access systems with modern MSAN technology. Our fibre network footprint expanded in 2014 and at the same time we modernised our mobile access networkthrough improvements in 3G and 4G technologies.

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Thanks to these investments, we can proudly say that “we are the network that gives you the most”.Being a technology leader is a privilege but a commitment too, to continue with our activities and investments in order to meet our customers’ needs.

transform to outperform In order to leverage the opportunities of this new world, we must adapt. Emerging competition, new market players and internet applications are changing the traditional way of doing business. As a response we have established the eBusiness department that is moving away from one-way communication with our customers to two-way communication. By setting strong eSales, eCare and alternative channel capabilities we strive to make our services simpler and faster, and to ensure a seamless experience for our customers.

new way to playThe industry we are operating in is facing strong regulatory requirements, which, together with existing and emerging competition, is driving down service revenues. In such a situation, Telekom is using its leading position in the market to exploit new market opportunities and develop new business models. The partnership network is being expanded both in the core and beyond the core products. We are in the meantime the preferred choice in the ICT market, with an expanding network of our valued enterprise customers that are top brands in their respective fields. In order to continue to be successful, to keep our leading position and to realise new digital opportunities, Telekom has launched a new corporate strategy for 2015 and beyond. We see ourselves as technology leaders and pioneers. Our modern, best-in–the-class network infrastructure will offer the best customer experience and simpler, faster and innovative products. At the same time we are proactively committing to new growth opportunities for the company

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regulatory environment

The regulatory environment is characterised by implementation of the new Law on Electronic Communications based on the EU regulatory 2009 framework, as well as number of bylaws adopted in accordance with the new law. The new regulatory framework is dedicated to ensuring competitiveness in the market as well as obtaining a higher level of protection of consumer rights. The new products placed in the market, based on the resolutions on SMP operators from 2010 and 2013, havenot been put into operation yet, due to a lack of interest from other parties. The only interest was shown for duct rental.

The Cost Accounting and Accounting Separation Methodology were implemented for both fixed and mobile services. Revised reports for 2013 were approved by the National Regulatory Authority (NRA) in July 2014.

In 2013, the NRA completed its second round of market analysis of seven relevant markets already analysed in 2010. CT was identified as an SMP in all seven markets again. Additionally in 2012 the NRA applied a three-criteria test on two retail markets: broadband and mobile services, to find out if those markets are susceptible to ex-ante regulation. The retail market of mobile services was found sufficiently competitive, while CT was designated as an SMP in the fixed broadband market. Upon approval of the 2013 Regulatory reports for the fixed network the NRA entered into retail price regulation of the following services provided at fixed locations: access to the network, broadband, as well as voice services (local, national and international calls) on a cost-orientation basis. Price adjustment implieda decreasebased on theCT cost model

Universal Service

Universal service (US) was commercially launched in December 2011, but without significant interest on the customers’ side for the service. However, after introducing changes to the US regulatory framework, customer interest significantly increased, especially for voice service and internet access. Interest for the US Inquiry and Directory Service was not so remarkable. Consequently, Montenegrin operators compensated a rather significant net cost to USOs for the period 2011–2013.

Regulatory Fees

Under the regulations currently in effect, Crnogorski Telekom pays fees

for market supervision, numeration and the usage of radio frequencies.

Carrier Selection

Carrier Selection was already included in the Reference Interconnection Offer (RIO) published in 2008. In accordance with the NRA’s Resolution on Designating CT as an SMP in the relevant market, the updated RIO also includes Carrier Pre-selection. Only two operators have signed interconnection agreements with Crnogorski Telekom with Carrier Selection included.

Sharing of Infrastructure

The RIO also defines the terms and conditions of collocation, for the purpose of interconnection realised in Crnogorski Telekom’s premises. This includes rental of space in buildings, masts and ducts. The RIO’s conditions are valid only for operators looking for interconnection/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.Regulated prices for duct rental do not encourage investments in new duct deployment.

Termination of Calls

Based on the relevant SMP resolutions adopted by the NRA as of 1 November 2014, fixed termination rates (FTR) were reduced from 0.93 to 0.74 cents/min (for local) and 1.07 to 0.94 cents/min (for single transit), while the mobile termination rate (MTR) for voice traffic was reducedfrom 2.2 cents to 1.9 cents/min

Future Regulatory Developments

In the process of implementation of the 2013 Law on Electronic Communications, the NRA and the responsible ministrieswill work on further regulatory framework developments through harmonisation of existing bylaws and adoption of new ones.

23menagament report

promotions and offers residential customers

PostpaidThe beginning of the year was marked by a campaign in which all new and existing customers had the possibility to buy a new option which allowed them to talk and text within the network for a favourable price, along with three months free subscription for contract renewals. Promotions continued in September, with a campaign offering three months of free minutes and text messages within the network, along with dataincluded.PrepaidThe year kicked off with an upgrade of existing voice options, which now include text messaging within the network, with a promotional element of the first activation being free of charge for the bi-weekly option. In order to better match the needs of a special customer segment, CT launched VOLIM, a branded reseller tariff in partnership with a leading retailer in the country. VOLIM is specifically designed to satisfy the needs of the target segment and offers relevant benefits: free minutes and text messages within the group, with a strong loyalty element.

Fixed TelephonyIMS (IP Multimedia Subsystem) migration, a key technical transformation project, continued in 2014. The new system is based on IP protocols and will set the stage for the new generation of fixed services, with new functionalities for customers. At the end of 2014, over90,000 customers had been migrated to the new system. The aim of the company is to complete migration to IMS in 2015.

Extra TVExtra TV customers had an exciting year in 2014, with new promotions throughout the year, along with new product and content offers. Extra TV was available as a bundle with free minutes in the fixed network and later with internet accessincluded,enabling customers to call their loved ones for free or use the internet. At the end of 2014, there were 64,300 customers, which is an increase of 4% compared to the previous year. The company maintained its leading position in the market with a market share of 41.8%.

Fixed BroadbandStrong marketing campaigns marked the entire year helping to increase the fixed broadband customer base to 77,800 customers, which is an increase of 5% compared to the previous year. CT introduced a new product, enabled by its progress in IP migration: Broadband on Demand allows the customer to start using broadband services within 15 minutes of ordering it. As a result of the various marketing and promotional activities, CT holds an 81.7% market share in the broadband internet market.

Fibre to the Home (FTTH) project Crnogorski Telekom continued strong development of its fibre infrastructure resulting in utilisation reaching 25%. The number of customers of fibre networks doubled, increasing fromalmost 7,000 to over 9,000 in 2014. In addition to the existing benefits available to fibre customers, such as very high internet speeds, the possibility of connecting up to five TV sets to the IPTV service and a free additional phone line, fibre customers can now also enjoy more full HD channels.

Sales of Consumer Goods

In 2014, Crnogorski Telekom continued the development and expansion of its partnership with major retail chains. A wide portfolio of electronic consumer goods is offered.

Loyalty Program

Premium program activities in 2014 were focused on expanding the number of partners and companies supporting the program, along with the number of Premium program customers. The year saw intensive promotions of the benefit of the program and special discounts from selected partners.

24

business customers

Postpaid

Together with the residential segment we introduced for the first time a flat on-net option (voice and SMS) in February 2014, in order to improve CT’s position in this segment. The on-net option was available to all new and existing postpaid customers. Beside this campaign, which was supported by strong communication, throughout the year we had promotions for the SME and SOHO segments which were in focus in 2014, in order to protect our leadership position in the market and partially compensate for the decrease in revenues in the Key and Large Accounts segment.

Roaming

In order to protect customers using services in roaming we continued with internet roaming cards for data usage throughout 2014. The number of activated daily and weekly roaming cards increased by 197% compared to 2013.

Fixed Broadband

Strong telesales activities during the entire year helpedus to increase the fixed broadband customer base to 8,200, which is an increase of 7% compared to the previous year base.

Convergent Offers

The Business Summer Offer was launched in April 2014 and targets SMEs that are oriented towards summer-season business and have no need for internet connections for the entire year. It consists of fixed/mobile data services with minimal contract duration of three months. Also, purchase of HW (TVs, laptops, mobile phones) in instalments was a part of the promotional offer.

Integris (ICT)

Integris continued its success story during 2014. Great progress in the hotel/resort segment and retail area helped us achieve YoY revenue growth of more than 70%. In November 2014, CT finished implementation of the largest ICT contract, for Porto Montenegro Marina phase I, with value of EUR 1.1 million. As a result of such good cooperation, in November 2014 a new contract was signed for works in Porto Montenegro Marina phase II, with a value of over EUR 2.5 million.

25human resources

human resources

Contribution to the Business Transformation

In 2014 HR has been fully dedicated to supporting the goals of the “DELFIN” business transformation programme. HR managed to provide efficient and sustainable organisational development, to align the organisation with new business challenges by a proportionate reduction of personnel-related costs and managed necessary changes related to workforce allocation along with continuous efforts related to transformation towards an e-company.

Strategic Leadership and Employer Positioning

According to the Pulse Check results in 2014, CT managed to maintainpositive trends and stability. Thiswasalso proven by the outcomes of the external benchmark research “The Best Company to Work for in Montenegro” (Crnogorski Telekom won three prizes for 2013/2014: Best Company to Work for; Most Attractive Employer; and the Fair Play Award). To confirm our leading position in the labour market, HR initiated the first gathering of HR professionals in Montenegro by organising the Forum of the Montenegrin HR Community. This was a strategic initiative aimed atvalidating CT’s corporate social responsibility, identifying trends and changes among the workforce in the local labour market and makingthe HR community visible and more strategically oriented.

Commitment to ONE DT EU

CT has actively taken part in cascading the ONE DT (Europe) story and used employee survey results to leverage employee satisfaction, motivation, strategy awareness and commitmentto ONE DT (Europe).

Our stability and gradual improvements are mainly enabled by strong communication campaigns before each round of the Pulse Check and full commitment fromthe top-level and senior management towards the survey process. In the two Pulse Check rounds in 2014, we recorded the best response rate in the Group,being especially strong in all questions which indicate Crnogorski Telekom’s commitment and willingness to build ONE DT across Europe.

Social Dialogue & Employee Benefits Collective Bargaining Discussions for the telecommunications branch at the country level continued in 2014. CT representatives are actively involved in trying to further improve social dialogue. Negotiations with representatives of thetrade union at the Company level on salary discussions and a new Rulebook on housing loans also started in the last quarter of 2014. In cooperation with the trade union we have continued to provide and improve the wide range of employee benefits: sport and recreational offers for all employees; medical check-ups for employees and their children including annual systematic check-ups, prevention check-ups for female and male colleagues separately; purchasing goods in instalments; material aids in case of illness; subventionsfor winter and summer vacations, etc. An advanced health insurance is under negotiation.

+

26

Optimisation of Training and Development Offer

Based on the heritage of the CT Management Academy and full utilisation of DT Group-wide training offers, we have managed to increase overall employee satisfaction with the training and development opportunities, while at the same time we have applied cost-saving measures and reduced the training budget. The main achievements in 2014 were:

Fully standardised local training offers according to the following categories: executive management, senior management, middle managers, experts and employees)

Extended HRD product portfolio with the first pool of internal trainers in the Company

Advanced training offer for 29 managers – Franklin Covey: SevenHabits of Highly Effective People

The biggest team-building event ever organised in the Company – for the One Billing team (more than 60 participants)

Improved training facilities (new HR training room), which create a precondition for knowledge transfer within the Company and to meet further cost-efficiency requirements.

Living Culture and Effective Communication

To strengthen trust and collaboration as a foundation of targeted corporate culture, HR took part in and initiated several programmes and initiatives with that aim.

All CEOs and directors from CT attended the Group-wide programme for executives: Effective Collaboration sessions.

Supporting the CEO initiative, HR started organising the so-called CEO Circle of Trust – informal meetings between the CEO and employees from non-managerial positions.

HR also extended the existing communications portfolio with some new products like the Company newsletter T-NEWS to enhance trust and closer communication within the Company.

HR redesigned and revised the cultural guidelines for day-to-day usage (Pocket Culture) which is dedicated to our existing cultural habits and the most preferable behavioural patterns. In this way, we are continuously aligning our culture with upcoming business challenges, taking care that only a living corporate culture can be the valid foundation for sustainable business growth.

HR Processes Review - We make it lean and simple!

To support the implementation of leaner organisation and efficient business operations, HR has started to reduce complexity by simplification of the HR product portfolio and standardisation of itskey processes,which was finalized by the end 2014. Following the lean principles, HR Area organised its regulations in a more business driven framework clearly applyinga more systematic approach regarding development and a more pragmatic approach regarding implementation. In this way, HR has met one of its top strategic priorities for 2014.

HR also continues to enable provision of traditional HR services on-line.

27corporate responsibility

corporate responsibility

Corporate responsibility has been part of our corporate culture for many years; it involves and is an integral component of all our business activities. As one of the leading companies in the country, Crnogorski Telekom aims to be involved in all areas that are important to Montenegrin society. Besides striving to offer the most advanced telecommunication services for our customers, we wish to actively contribute to the development of the community in which we do business and of which we are a part. CrnogorskiTelekom is a company that has always maintained a balance between economic, environmental and social goals, while being accountable to the community and positioning itself in a socially responsible manner. The areas on which we are focusing are education, health and the environment, culture and community support.

“Za svako dobro “Among Telekom’s many CR projects in 2014, the highlight of the year was the donation contest called "Zasvakodobro” (in English: "For every good"), a long-term project that finances socially responsible projects of special importance to Montenegrin society, to the sum of EUR 23,000.

From 70 NGOs that applied for grants, four projects were selected and awarded funds for implementation.

“No hate offline, no hate online”: a project to prevent cyber bullying among teenagers

“Free your creativity”: showing how new technologies can empower women who are victims of domestic violence

“Day care”: specialist support for children with autism -Android app: promoting the Dulovine botanical garden,near Kolasin

The contest was open to all non-governmental organisations from Montenegro that could apply their projects in the fields of education, arts and culture, environmental protection and the creation of equal opportunities for networking and participation in digital society.The aims of the project include making people more aware of Crnogorski Telekom’s social responsibility activities, engaging important stakeholders and gaining their trust, and increasing transparency in the company’s social engagement. In order to ensure transparency and the selection of the best projects, beside Telekom employees, representatives from the NGO "Fund for Active Citizenship", the Montenegrin TV station “TV Vijesti” and the local UNDP office participated in the selection of the winning projects

Development of 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.For the eighth year in a row, Crnogorski Telekom is enabling free internet access via ADSL to all elementary and high schools in the country. During 2014, around 150 Montenegrin schools benefitted from this. The project was implemented together with the Ministry of Education and Science. In 2014, Crnogorski Telekom, together with Deutsche Telekom organised the Telekom Innovation Contest in Montenegro, aimed at students, entrepreneurs with start-up ideas, and young IT start-ups. The areas of the competition were the Internet of Things, Big Data, Internet Security, Cloud-Based Productivity and Future Media & Communication. The Montenegrin finals included six teams, while the winning idea, for a social network “Hook” that allows users to follow where their friends are in real time, was awarded with a trip to Krakow, Poland where they participated in the international final of this competition. In the same year, Telekom supported Spark.me, one of the biggest tech/business conferences in the Balkan region.

29corporate responsibility

Sports, Music and Culture Move People

Our sponsoring platform focuses on sports, music and culture – which is perfect for underlining our brand promise “Life is for sharing” and providing a wide range of memorable moments to share.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. The company is the golden sponsor of the Montenegrin national football team and a general sponsor of the Telekom Montenegrin Football First League. Additionally, in 2014 Telekom supported and sponsored Budućnost Basketball Club.Regarding music as one of the main areas within the sponsorship strategy, as we have done every year, we sponsored numerous musical events and activities, since music is considered to be the universal language for all generations. We partnered with organisations across Montenegro and supported the Asfaltiranje Hip-Hop Festival in Podgorica, the Southern Soul Festival in Ulcinj, Sea Dance in Budva, and After Beach Parties along the Montenegrin coast. In September 2014, with the support of Deutsche Telekom, Crnogorski Telekom organised Electronic Beats, a festival of electronic music in Podgorica.In the field of culture, Crnogorski Telekom partnered with several organisations in order to support different projects, with the focus being on youth and education. The activities of these organisations were vital to the Montenegrin art scene. In 2014, the company was also the sponsor of the Telekom Underhill Fest, an international documentary film festival which featured a series of concerts, film projects and lectures in Podgorica. Telekom supported the International TV Festival in Bar, as well as FIAT, the festival of alternative theatre in Podgorica.

Environmental Protection and Energy Efficiency

In 2014, Crnogorski Telekom continued implementing a range of measures to save energy and make its operations more energy-efficient. Energy consumption was reduced through a number of different measures in the reporting period.

In March 2014, the company participated in the Earth Hour and Earth Day global campaigns with the aim of raising awareness about climate change issues. The company is constantly promoting the use of sustainable solutions among its customers and employees, e.g. promoting e-mail bills, online registration, etc.

Crnogorski Telekom owns three state-of-the art base stations that use renewable energy sources, the power of the sun and wind. The project is part of a broader company initiative to address global warming issues and protect the environment.

Community Support

Besides the contest for socially responsible ideas, 2014 was also marked by cooperation with the NGO Bicklo.me in order to promote cycling as a sustainable mode of transportation. Thanks to Telekom’s donation, 18 bike racks have been installed in Podgorica, and a mass cycling event was organised to promote cycling.

The company also participated in disaster relief activities to support victims of floods that hit several countries in the region in May 2014. Telekom gave a corporate donation of EUR 10,000 and in cooperation with Red Cross Montenegro, the company opened a donation line in order to enable its customers to give a contribution and help those in need. By the end of June, the total amount collected was EUR104,156.

Volunteering

In 2014, the company continued to organise blood donor activities. In cooperation with the Montenegrin Centre for Blood Transfusion, around 40 employees and managers donated blood and helped to raise awareness of this important social issue. In December 2014, the company was awarded with recognition of its contribution to blood donations in Montenegro, given by the Montenegrin Office for Blood Transfusions and the Montenegrin WHO Office.

30

Crnogorski Telekom a.d. podgoriCaInternational Financial Reporting StandardsFinancial Statements For the year ended 31 December 2014

32

contents

Page

31333435

Independent Auditor’s ReportStatements of financial position Statements of profit or loss and other comprehensive Income Statements of cash flowsStatement of changes in equity 36

Notes to thefinancial statements 37-83

33the financial year 2014

statements of financial position

Amount in EUR

As atNotes December 31, 2014 December 31, 2013

ASSETS Non current assets Property, plant and equipment 5 83,884,495 88,326,493Intangible assets 6 20,134,616 17,517,186Long term loans and other receivables 7 11,188,846 8,420,618Total non current assets 115,207,957 114,264,297

Current assets Inventories 8 1,527,122 2,277,817Trade and other receivables 9 27,269,668 23,940,228Short term investments 10 35,000,000 54,000,000Cash and cash equivalents 11 8,177,687 3,684,312Total current assets 71,974,477 83,902,357Total assets 187,182,434 198,166,654

EQUITY AND LIABILITIESEquity and reserves attributable to the equity holders of the companyShare capital 13 123,857,700 140,996,394Retained earnings 24,878,080 24,823,321Total shareholders’ equity 148,735,780 165,819,715

LIABILITIESNon-current liabilitiesDeferred income tax liability 16 2,091,794 2,076,700Provision for liabilities and charges 15 835,172 757,642Total non-current liabilities 2,926,966 2,834,342Total liabilities 38,446,654 32,346,939

Current liabilities Trade and other payables 14 32,312,124 26,270,623Current income tax payable 2,557,277 2,315,364Provision for liabilities and charges 15 650,287 926,610Total current liabilities 35,519,688 29,512,597

Total equity and liabilities 187,182,434 198,166,654

The notes on pages 37 to 83 are an integral part of these financial statements.

These financial statements were authorised for issue by the Board of Directors of Crnogorski Telekom A.D. on April 27, 2015 and were signed on its behalf by:

Rudiger Schulz Chief Executive Officer

Manfred Knapp Chief Financial Officer

34

statements of profit or loss and other comprehesive incomeAmount in EUR

For the year ended 31 December Note 2014 2013

Revenue

Revenue from fixed lines services 17 a 60,143,487 61,721,861

Revenue from mobile services 17 b 43,994,559 47,227,529Total revenue 104,138,046 108,949,390

Other operating income 18 713,761 1,241,336

Operating expensesEmployee related expenses 19 (18,021,503) (22,671,829)Depreciation, amortization and impairment 20 (17,971,072) (19,491,584)Payments to other network operators 21 (11,562,630) (14,972,947)

Cost of equipment sold (8,692,341) (6,779,225)

Other operating expenses 22 (25,559,773) (26,136,462)Total operating expenses (81,807,319) (90,052,047)

Operating profit 23,044,488 20,138,679

Finance income 23 1,368,406 1,290,640Finance costs 23 (285,764) (298,536)Finance income – net 1,082,642 992,104

Profit before income tax 24,127,130 21,130,783

Income tax expense 24 (2,572,371) (2,286,252)

Profit for the year 21,554,759 18,844,531

Other comprehensive income for the year - -

Total comprehensive income for the year 21,554,759 18,844,531

Equity holders of the company 21,554,759 18,844,531

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

- basic and diluted 25 0.46 0.40

The accompanying notes on pages 37-83 are an integral part of these financial statements.

Attributable to:

35the financial year 2014

statements of cash flows(Amount in EUR)

For the year ended 31 December Note 2014 2013

Cash flows from operating activities

Cash generated from operations 32 45,328,040 35,919,610Interest paid 23 (43,758) (11,252)Income tax paid (2,315,364) (2,615,564)Net cash generated from operating activities 42,968,918 33,292,794

Cash flows from investing activities5,6 (17,176,584) (10,753,989)Purchase of tangible and intangible assets

Short term bank deposits inflow 30,000,000 19,000,000Short term bank deposits outflow (11,000,000) (41,000,000)Interest received 870,452 1,147,798

Proceeds from disposal of non current assets 79,738 174,544

Long term loans and other receivables 7 (2,768,228) (1,733,625)Net cash generated from/(used in) investing activities 5,378 (33,165,272)

Cash flows from financing activitiesRepayment of share capital (16,986,543) -

Dividends paid to shareholders 26 (21,494,893) (22,882,076)Net cash used in financing activities (38,481,436) (22,882,076)

Net increase/(decrease) in cash and cash equivalents 4,492,860 (22,754,554)

Cash and cash equivalents, beginning of period 3,684,312 26,438,865Exchange gains on cash and cash equivalents 515 1Cash and cash equivalents, end of period 11 8,177,687 3,684,312

The accompanying notes on pages 37 to 83 are an integral part of these financial statements.

36

statements of changes in equity

Share Capital Retained earnings Total

Balance at January 1, 2013 140,996,394 28,878,790 169,875,184 Dividends - (22,900,000) (22,900,000)Profit for the year - 18,844,531 18,844,531 Other comprehensive income for the year - - -Balance at December 31, 2013 140,996,394 24,823,321 165,819,715

Dividends (Note 26) - (21,500,000) (21,500,000)Decrease of share capital (Note 13) (17,138,694) - (17,138,694)Profit for the year 21,554,759 21,554,759Other comprehensive income for the year - - -Balance at December 31, 2014 123,857,700 24,878,080 148,735,780

The accompanying notes on pages 37 to 83 are an integral part of these financial statements.

37the financial year 2014

1. general information

Crnogorski Telekom A.D. Podgorica (also referred to as “Telekom” or the “Company”)is a principal provider of fixed telephony services in Montenegro, as well as of local, national and international telephony services, in addition to a wide range of other telecommunication services involving mobile network, internet, leased circuits, data networks, cable television services and other telecommunication services in Montenegro.

The Company is a shareholding company listed on the Montenegro Stock Exchange (TECG). The Company was acquired in 2005 by Magyar Telekom Plc. (hereinafter referred to as “Magyar Telekom”) with 76.53% of ownership interest. On April 30, 2009, the General Assembly of Crnogorski Telekom A.D decided to merge T Mobile d.o.o. and Internet Crna Gora d.o.o., into Crnogorski Telekom A.D.

Deutsche Telekom AG (“DTAG”) is the ultimate controlling owner of Magyar Telekom Plc. holding 59.21% of the issued shares.

Telekom is domiciled in Montenegro at the following address: Moskovska 29, Podgorica. As at December 31, 2014the Company had 698 employees (687 as at 31 December 2013).

Investigation into certain consultancy contracts

As previously disclosed, in the course of conducting their audit of Magyar Telekom’s 2005 financial statements, PricewaterhouseCoopers KönyvvizsgálóésGazdaságiTanácsadóKft. (“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 investigators” or “White & Case”), as its independent legal counsel, to conduct an internal investigation into whether 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 investigation.

38

Investigation into certain consultancy contracts (continued)

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 misconduct 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.

Additionally, the Ministry of Interior of the Republic of Macedonia and the Hungarian Central Investigating Chief Prosecutor’s Office commenced 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.

Takođe, Ministarstvo unutrašnjih poslova Makedonije i Kancelarija glavnog tužioca Mađarske počeli su istražne ativnosti koje su prethodno bile pred-met interne istrage. Ove istražne radnje se nastavljaju i svi relevantni partneri Crnogorskog Telekoma će nastaviti da sarađuju na ovim istragama.

The DOJ and the SEC also commenced investigations into the activities that were the subject of the internal investigation. In 2011, Magyar 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. On January 24, 2014 SEC instructed their defence counsel not to pursue further the allegations regarding corruption in Montenegro.

As of 31 December, 2014 the above mentioned investigations had no impact on financial statements of the Company.

39the financial year 2014

2. summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1. Basic of Preparation

The financial statements of Crnogorski Telekom A.D. have been prepared in accordance with International Financial Reporting Standards (IFRS) and effective at the time of preparing the financial statements, and in accordance with requirements of the Law on Accounting and Auditing of Montenegro. The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets.

The preparation of financial statements in conformity with IFRS requires the use ofcertain critical accounting estimates. It also requires management to exercise itsjudgement in the process of applying the Company’s accounting policies. The areasinvolving a higher degree of judgement or complexity, or areas where assumptionsand estimates are significant to the financial statements are disclosedin note 4.

The Company maintains its accounting records in accordance with the Accounting and Auditing Law of Montenegro (“Official Gazette of the Republic of Montenegro”, No. 69/2005 and “Official Gazette of Montenegro”, no. 80/08 and 32/11) 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”, No. 69/2002).

These financial statements of the Company are authorisedfor issue by the Company’s Board of Directors (BoD), however, the Annual General Meeting (AGM) of the owners, authorized to accept these financials, has the right to require amendments before acceptance. As the controlling shareholders are represented in the Board of Directors (BoD) that approves 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.

The official currency in Montenegro and the functional currency of the Company is Euro (EUR).

2.1.1. Comparative information

Comparative information represents audited financial statements of the Company for the year ending 31 December 2013.

2.1.2. Changes in accounting policies and disclosures

a) Standards, amendments and interpretations effective and adopted by the Company in 2014

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

IFRS 10, IFRS 11, IFRS 12, IAS 27 (amended) and IAS28 (amended) – The IASB published IFRS 10 – Consolidated Financial Statements, 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. The Company has no subsidiaries, joint ventures or associates, therefore, the new standards had no impact on the Company’s financial statements.

The Company adopted the amended standard as of January 1, 2014. The amended standard did not have material impact on the disclosures in the Company’s financial statements.

40

IAS 36 (amended) – The IASB published Recoverable Amount Disclosures for Non-Financial Assets, amendments to IAS 36 – Impairment of Assets in May 2013. The amendments address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. When developing IFRS 13 Fair Value Measurement, the IASB decided to amend IAS 36 to require disclosures about the recoverable amount of impaired assets. The amendments clarify the IASB’s original intention: that the scope of those disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. The Company adopted the amended standard as of January 1, 2014. The amended standard did not have any impact on the Company’s financial statements.

IAS 39 (amended) – The IASB published "Novation of Derivatives and Continuation of Hedge Accounting", amendments to IAS 39 – Financial Instruments: Recognition and Measurement in June 2013. The amendments allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original counterparty with a new one). This relief has been introduced in response to legislative changes across many jurisdictions that would lead to the widespread novation of over-the-counter derivatives. These legislative changes were prompted by a G20 commitment to improve transparency and regulatory oversight of over-the-counter derivatives in an internationally consistent and non-discriminatory way. Similar relief will be included in IFRS 9 Financial Instruments. The Company adopted the amended standard as of January 1, 2014. The amended standard did not have any impact on the Company’s financial statements.

IFRIC 21 – The IASB issued IFRIC Interpretation 21: Levies, an Interpretation on the accounting for levies imposed by governments in May 2013. IFRIC 21 is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The new interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The Company adopted the interpretation as of January 1, 2014. The interpretation did not have any impact on the Company’s financial statements.

IFRS 10, IFRS 12, MRS 27 (dopunjen) – IASB je objavio “Investiciona Društva” (Dopunu IFRS 10, IFRS 12 i MRS 27) u oktobru 2012. Amandmani se odnose na posebne vrste poslovanja koje se mogu klasifi ovati u investiciona Društva. Kako je Crnogorski Telekom jedno društvo i nema u svom sastavu investicionih društava iz zajedničkih sporazuma, dopunjeni standard nema uticaja na finans jske izvještaje Društva.

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

IFRS 9 Financial Instruments - The standard forms the first part of a three-phase project to replace IAS 39 (Financial Instruments: Recognition and Measurement) with a new standard, to be known as IFRS 9 – Financial Instruments. IFRS 9 prescribes the classification 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.

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 amortized cost category, to be at fair value through profit or loss if that designation eliminates or significantly reduces a measurement 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 investments 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.

41the financial year 2014

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.

The IASB issued amendments to IFRS 9 in December 2011 and in November 2013 and deferred the mandatory effective date of IFRS 9. 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 IASB completed the final element of IFRS 9 Financial Instruments in July 2014. The package of improvements introduced by IFRS 9 includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.

Classification and Measurement: Classification determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. IFRS 9 introduces an approach for the classification of financial assets, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements that are generally considered to be overly complex and difficult to apply. The new model also results in a single impairment model being applied to all financial instruments.

Impairment: During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was identified as a weakness in existing accounting standards. As part of IFRS 9, the IASB has introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis.

Hedge accounting: IFRS 9 introduces a substantially-reformed model for hedge accounting, with enhanced disclosures about risk management activity. The new model represents a significant overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements.

Own credit: IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss.

The application of the new standard and its amendments is required for annual periods beginning on or after January 1, 2018. Earlier application is permitted. The adoption of the new standard and its amendments will likely result in changes in the financial statements of the Company, the exact extent of which we are currently analyzing.

IFRS 11 (amended) – The IASB published amendments to IFRS 11 Joint Arrangements in May 2014. IFRS 11 addresses the accounting for interests in joint ventures and joint operations. The amendment explicitly requires the acquirer of an interest in a joint operation in which the activity constitutes a business to apply all of the principles on business combinations accounting in IFRS 3. The application of the amendment is required for annual periods beginning on or after January 1, 2016. We do not expect that the adoption of the amendment would result in significant changes in the financial statements of the Company.

IAS 16 and IAS 38 (amended) – The IASB published amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets in May 2014. IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortization as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The application of the amendments is required for annual periods beginning on or after January 1, 2016. The adoption of the amendments will not result in any changes in the financial statements of the Company as we apply linear depreciation and amortization.

IFRS 15 – In May 2014 the IASB and the US FASB jointly issued a converged Standard on the recognition of revenue from contracts with customers. The core principle of the new Standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new Standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and new guidance for multiple-element arrangements. The application of the new standard is required for annual periods beginning on or after January 1, 2017.

42Earlier application is permitted. The adoption of the new standard will likely result in significant changes in the financial statements of the Company,

the exact extent of which we are currently analyzing.

IFRS 10 and IAS 28 – The IASB issued narrow-scope amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures. The amendments address the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The application of the amendments is required for annual periods beginning on or after January 1, 2016. We do not expect that the adoption of the amendments would result in significant changes in the financial statements of the Company.

IAS 19 (amended) – The IASB published amendments to IAS 19 – Employee Benefits in November 2013. The amendments apply to contributions from employees or third parties to defined benefit plans which are not relevant for the Company. Therefore the amended standard will not have any impact on the Company’s financial statements.

IFRS 14 – The IASB issued an interim Standard, IFRS 14 Regulatory Deferral Accounts in January 2014. The new interim standard is applicable for first-time adopters which is not relevant for the Company. Therefore the new interim standard will not have any impact on the Company’s financial statements.

IAS 16 and IAS 41 – The IASB published amendments that change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms in June 2014. Since the Company is not engaged in agricultural activity, the amendments will not have any impact on the Company’s financial statements.

43the financial year 2014

IAS 27 – The IASB published Equity Method in Separate Financial Statements (Amendments to IAS 27) in August 2014. The amendment is applicable for separate financial statements which is not relevant for the Company. Therefore the amendment will not have any impact on the Company’s financial statements.

2.2. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM).The Chief Operating Decision-Maker,who is responsible for allocating resources and assessing performance of theoperating segments, has been identified as the Executive Management Board that makesstrategic decisions. Until the end of 2012 the Company was reporting on fixed and mobile segments, as the internal reporting to the CODM was based on the network splitduring 2013, however, the Company went through an internal reorganisation, which also led to a change in the internal reporting provided to the CODM. The Executive Management Board reviews and analyses the operating results at the Company level, instead of based on network split as in the past. Consequently to these changes, there are no identifiable segments in Crnogorski Telekom since all relevant decisions are made on the Company level.

2.3. Foreign currency translation

The functional and presentation currency of the Company is Euro (EUR).

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. 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 as finance income or finance costs.

2.4. Property, Plant and Equipment

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

The historical cost of property, plant and equipment 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. Historical cost of telecommunications equipment comprises all expenditures including the cabling to the customers' premises. Cost also includes internally generated work for a specific item of property, plant and equipment.

Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs of maintenance andrepairsarechargedto the financial period in which they are incurred.

Gains and losses on disposals are determined by comparing the proceeds with thecarrying amount and are recognised within Other operating income/Other operating expense in the Profit or loss.

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 a constructedproperty and equipment, the related amounts carried under advance payments or construction in progress are capitalized as items ofproperty, plant, and equipment.

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.

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

44

Major categories in years

Buildings 40Access networks 20Optical connectors 20Exchanges 7Transmission system equipment 10Computer equipment 3Mipnettelecommunication equipment 5, 6Routers and switches 5-8

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, once per year.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

2.5. Intangible Assets

a) Goodwill

Goodwill arises on business combinations and represents the excess of the consideration transferred over the Company’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. The Company recognized goodwill on the acquisition of its fully owned subsidiary, Internet Crna Gora d.o.o., on March 7, 2005, which was subsequently merged into the Company.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill ismonitored for internal management purposes.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

b) Licences

Costs associated with the acquisition of long term frequency licenses are capitalized including any related borrowing costs. The present value of the future annual payments for the use of the frequencies are also capitalized if these payments can be estimated reliably, or otherwise recognized as operating expenses in the year the payment obligation refers to. The useful lives of concessions and licenses are determined based on the underlying agreements and are amortised on a straight line basis over the period from availability of the frequency for commercial use until the end of the initial concession or license term. Renewal periods are considered in the determination of useful life only if we are sure that it will be realized without further consideration transferred.

c) Computer software

Separately acquired licences are shown at historical cost. Licences acquired in a business combination are recognised at fair value at the acquisition date. Licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives.

45the financial year 2014

Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognised as intangible assets when the following criteria are met:• it is technically feasible to complete the software product so that it will be available for use;• management intends to complete the software product and use or sell it;• there is an ability to use or sell the software product;• it can be demonstrated how the software product will generate probable future economic benefits;• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and• the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

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 as follows:

Intangible Assets in years

Telecommunication license - (public fixed telephony services) 25

Telecommunication license - (international traffic) 23

IPTV licence 10

Mobile telephony license 15

3G license 15

Internet – web services license 10

Purchased computer software 5

Microsoft licence 5

2.6. Impairment of non-financial assets

Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised 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 purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Management performs quarterly assessment whether there are indicators of impairment and reports the results of analysis to the ultimate parent. No indicators of impairment of property, plant and equipment and intangible assets are identified as at and for the year ended December 31, 2014.

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2.7. Financial assets

The Company classifies its financial assets in the following categories: loans and receivables and available-for-sale assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

2.7.1. Classification

a) 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 financial assets.

Loans and receivables include the following: trade receivables, housing loans and other receivables, short term bank deposits and cash and cash equivalents.

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non- current assets. Trade receivables are measured at the carrying amount at which the item has been recognizedinitially less the impairment allowance. Provided that trade receivables are due after one year or more they are measured at amortised cost using the effective interest method.

Long-term loansforemployees’ 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 remuneration recognized in Profit or loss over the shorter of the term of the loan and the expected service life of the employee.

Short term bank deposits are deposits with a maturity of more than three months up to twelve months measured at their amortized cost. Interest receivable on bank deposits is presented separately within the Statement of financial position as other receivable. The associated interest income is presented in the Profit or loss as finance income.

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

b) Available-for-sale (AFS) financial assets

Available-for-sale financial assets are non-derivative financial assets 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 end of the reporting period date.

Available for sale financial assets consist of the Company’s participation in the share capital of foreign entities which are not quoted on active markets.

47the financial year 2014

2.7.2 Recognition

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs.

Available-for-sale financial assets are subsequently carried at fair value and loans and receivables are subsequently carried at amortised cost using the effective interest method.

Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in other comprehensive income.

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the Profit or loss as ‘gains and losses from investment securities’. Interest on available-for-sale securities calculated using the effective interest method is recognized in the Profit or loss as part of finance income. Dividends on available-for-sale equity instruments are recognized in the Profit or loss as part of other income when the Company’s right to receive payments is established.

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.

2.7.3 Offsetting financial instruments

Financial assets and liabilities such as interconnection revenue and receivables are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

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2.7.4 Impairment of financial assets

a) Assets carried at amortised cost

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired.

A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect 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.

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 significant, and collectively for financial assets that are not individually significant. Provisions on accounts receivable balances are calculated based on Company’s best estimates or their deemed recoverability, by taking into consideration the historical data of customers payments. If no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, Crnogorski 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 relatively 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 Profit or loss.

For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amountof the asset is reduced and the amount of the loss is recognized in the Profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the Profit or loss.

b) Assets classified as available for sale

The management assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Evidence that an asset is impaired, besides the criteria referred to in a) above is also a significant or prolonged decline in the fair value of the security below its cost. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in profit or loss. Impairment losses recognized in the Other comprehensive income are not reversed.

As at 31 December 2014, these assets are fully impaired because no cash flows are expected in the future.

49the financial year 2014

2.8. Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of inventories comprises the cost of purchase and other incurred costs necessary to bring 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.

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 normal resale value.

2.9. 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.

2.10. Dividends

Dividends payable to the Company’s 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.

2.11. Income taxes

The tax expense for the period comprises current and deferred tax. Tax is recognizedin theprofit or loss, except to the extent that it relates to items recognized in other comprehensive income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted before the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using 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 substantively enacted by the end of the reporting period 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 and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority.

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2.12.Employee benefits

a) Short term employee benefits

Short term employee benefits are recognized as a current expense in the period when employees render their services. These include wages, social security contributions, bonuses, paid holidays, discounted telephone bills, meal and holiday contributions and other fringe benefits and the tax charges thereon. In accordance with the signed Collective Bargaining Agreement (CBA), the Company is also obliged to pay to all employees a winter supply allowance in the amount of four minimum monthly salaries in the Company. Payments to defined contribution pension and other welfare plans are recognized as an expense in the period in which they are earned by the employees.

b) 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 various StateSocial Security Funds. These obligations involve the payment of contributions on behalf of the employee, by the employer in an amount calculated byapplying the specific, legally-prescribed rates. The Company is also legally obligated to withhold contributions from gross salaries to employees, andon 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.

c) Obligations for Retirement Benefits

The Company has a defined contribution plan, under which the Company pays fixed contributions on a mandatory basis into a publicly administered insurance plan. The Company has no legal or constructive obligations to pay further contributions if the plan does not hold sufficient assets to pay all employees the benefits related to their service in the current and prior periods.

Contributions to the publicly administered insurance plan are recognized as employee benefit expense when they are due.

As defined by the Montenegrin Labour Law, employees are eligible for retirement after 67 years of age and at least 15 years of labour. Pursuant to the signed CBA, the Company is obliged to make a severance payment in the amount equal to ten minimal monthly salaries in the country to the employees meeting the criteria for retirement. The payment is due on the day of the retirement, but not later than 30 days following the termination of employment.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method, see note 4.f). Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service cost is recognizedas an expense at the earlier of the following dates:when the plan amendment or curtailment occurs, and when the Company recognizes related restructuring costs or termination benefits.

51the financial year 2014

d) Obligations for jubilee awards

Pursuant to the signed Collective Bargaining Agreement (CBA), the Company is obligated to pay between three and nine minimal monthly salaries as a jubilee award. The number of minimal monthly salaries for jubilee awards corresponds to the total number of years of service of the employee as presented in the table below:

Total number of service years Number of minimal monthly wages

10 320 530 739 9

Obligations for jubilee awards are accounted for in the same manner as defined benefit plans, except that any actuarial gains and losses on jubilee payments as well as past service cost are recognized directly in Profit or loss in the period in which they are incurred.

e) Housing loans

Long-term loans to employeesforresidentialhousing 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 remuneration recognized in Profit or loss over the shorter of the term of the loan and the expected service life of the employee.

This is because the Company expects future economic benefits 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 recognized in Profit or loss within Other personnel costs.

f)Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date or whenever an employeeaccepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrably committed toeither terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing terminationbenefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the Statement of financialposition date are discounted to present value.Termination benefits are calculated based on specific conditions contained in detailed formal plan communicated to the employees.

52

g) Mid-term incentive plan (MTIP)

In 2007 the Company launched a Mid-Term Incentive Plan (MTIP) for its top and senior management. The provision is calculated on an accrual basis, also considering the probability of the achievement of the targets. At the beginning of the plan each participant has an offered bonus. This bonus will be paid out at the end of the plan, depending on the achievement of the fixed targets.

e) Variable bonuses programme (VAR II)

Also in 2011 the Company launched the Var II program for top senior management for a 4 year period. The provision is calculated based on an accrual basis, also considering probability of the achievement of the targets. Payments will be made at the end of the plan, depending on the achievement of the fixed targets.

2.13 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.

2.14. Provisions and contingent liabilities

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, when it is more likely than notthat an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognized for futureoperating 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 reflectscurrent 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 isrecognized 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 isreleased unused, it is released to the same income statement line where it was originally provided for. Provisions made for liabilities expected to beincurred in foreign currency are recognized in the functional currency at the spot foreign exchange rate, and any change in the provision in the functionalcurrency as a result of a subsequent change in the foreign exchange rate is recognized in Other finance expense – net.A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrenceof one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events butis not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or anobligation whose amount cannot be measured with sufficient reliability. No provision is recognized for a contingent liability.

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, 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”.

53the financial year 2014

2.16. Revenue

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services provided and merchandise supplied, stated net of discounts, returns and value added taxes. The Company recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria of IAS18 on the sale of goods and rendering of services aremet for provision of each of the Company’s services and sale of goods, as described below. The Company bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

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

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.

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 financial reporting purposes. 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 revenue allocable to a delivered item is limited to the amount that is not contingent upon the delivery of additional items (the non-contingent amount). The revenue to be recognized is therefore restricted by the amount received that is not contingent upon undelivered elements of the arrangement..

The Company operates a loyalty program where customers accumulate points for purchases made which entitle them to discounts on future purchases. The reward points are recognized as a separately identifiable component of the initial sale transaction, by allocating the fair value of the consideration received between the award points and the other components of the sale such that the reward points are initially recognized as deferred income at their fair value. Revenue from the reward points is recognized when the points are redeemed. Breakage is recognized as reward points are redeemed based upon expected redemption rates. Reward points expire 24 months after the initial sale. This program is closed in April 2014 and customers can just use points which are already collected before April 2014. Points should be used until April 2016.

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

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

2.16.1. Revenue from fixed telephony

Revenues from direct international traffic include the income generated from all incoming international calls realized in countries having direct international connection with the Company. 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. Interconnection revenue includes revenue from incoming telephone traffic originated by the mobile networks of Telenor d.o.o., Podgorica and M-tel d.o.o. Podgorica but transmitted through, or terminated in the Company’s network.

Customers and third parties generate 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.

Other income primarily includes the lease of telephony capacities, i.e., telephone lines, dial up services to business customers, web presentation and hosting, Asymmetric Digital Subscriber Line (ADSL) revenue, Montenegrin IP Network (MIPNET) services revenue, Information Communication Technology (ICT), IPTV services, revenues from sold internet access, equipment sales revenue, voice machines, call listings, voice mail, telegram, and other services. Recognition rules for revenue from these services is described above.

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2.16.2. Revenue from mobile telephony

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

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

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

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.

Revenue arising from incoming roaming and expenses with outgoing roaming with foreign mobile operators that have entered into the InternationalGSM 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.

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

Interconnection revenue includes revenue from incoming telephone traffic originated by the mobile networks of Telenor d.o.o., Podgorica and M-tel d.o.o. Podgorica but transmitted through, or terminated in the Company’s network.

The interconnection expenses include expenses from outgoing telephone traffic that is routed from the Company to the individual mobile and fixedline 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 ofthis 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.

55the financial year 2014

2.17. Leases

2.17.1. Operating leases

Company as Lessee - 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 Profit or loss on a straight-line basis over the period of the lease.

2.17.2. Troškovi finansijskog lizinga

Company as Lessee - 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 finance 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.

Company as Lessor - A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time. When assets are leased out under a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return. When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the nature of the asset. Lease income is recognized over the term of the lease on a straight-line basis.

2.17.3. Indefeasible Right of Use (IRU) of Dark Fibre

Agreements over rights to use specific dark fibres are akin to leases as they convey a right to use specified network assets, to the exclusion of other operators, including Crnogorski Telekom.

Payment for the use of the dark fibre is made in advance and does not vary with the buyer’s actual usage. It is recognized net of the associated cost as income from a dark fibre long term lease.

The carrying amount of the dark fibre is derecognized from the Company’s property, plant and equipment at the same point as the income is recognized.

2.18. Interest Income/Expense

Interest income and expense is recognized in Profit or loss in the accounting period in which it arises, using the effective interest method.

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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: credit risk, liquidity risk and foreign exchange risk. The Company does not use derivative financial instruments or any other form of hedges against these risks.

3.2 Credit risk

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

Credit risk management principles of the Company are in line with the risk policy of its parent. In order to minimize credit risk concentration, short term bank deposits are placed in different banks. Banks are chosen based on the following risk aspects: total assets, market share, credit ratings by Moody’s and S&P, and safety of funds. All deposits are guaranteed by banks’ in the EU countries with minimum bank rating BBB+.Credit risk is monitored on a monthly basis. Management of the Company believes that it has adequately assessed the recoverability of Company’s bank deposits.

In respect of credit risk exposure to customers, the Company has no significant concentration of credit risk due to its diverse customer base.

The Company further limits the risk through short credit period (invoices are due for payment within 15 days) and segmented approach to crediting in different time intervals. Credit risk arising from a single subscriber is limited to 4 months. Enforced collection is initiated for receivables which are overdue more than 240 (residential) and 180 days (business customers).

Management monitors credit risk exposure on a monthly basis. Trade receivables outstanding between 6 and 12 months are provided for at 69% of the outstanding balance. Trade receivables older than 12 months are fully provided. Credit risk arising from transactions with related parties from Magyar Telekom and Deutsche Telekom is considered minimal and no provisions are recognized for those transactions. Similarly, thecredit risk related to foreign trade receivables arising from interconnection and roaming transactions is considered as minimal because amounts due to, and receivable from, interconnection and roaming are shown net where a right of set-off exists and the amounts are settled on a net basis.

For those housing loans where the Company does not hold real estate mortgages as collateral, overdue receivables are fully provided for. A specific impairment provision is set for receivables from local municipalities based on past experience and expectations of future cash flows. Collection of receivables from the Government of Montenegro is also monitored on a monthly basis. As at 31 December 2014, maximum exposure to credit risk arising from trade and other receivables is in the amount of EUR 24,579 thousand (2013: EUR 21,370 thousand).

There is no formal risk management framework implemented in the Company. The Executive Management Board focuses mainly on credit risk and liquidity risk and acts on a case by case basis to mitigate risks and minimize losses.

57the financial year 2014

3.3 Liquidity risk

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

Treasury monitors on a weekly basis the net liquidity position of the Company and reports it to theCFO each month. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and bank deposits. Maturity of all liabilities is less than one year.

3.4 Foreign exchange risk

The Company is exposed to limited 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.

In the table below is summarisedthe currency split as of December 31, 2014:

USD SDR EUR TotalCash and cash equivalents 11,557 - 8,166,130 8,177,687Short term investments - - 35,000,000 35,000,000

Trade and other receivables186 1,050,293 23,528,990 24,579,469

Trade and other payables (241,605) (2,377,339) (25,897,138) (28,516,082)(229,862) (1,327,046) 40,797,982 39,241,074

In table below is summarized currency split as of December 31, 2013:

3.1 SDR EUR TotalCash and cash equivalents 14 - 3,684,298 3,684,312Short term bank deposits - - 54,000,000 54,000,000

Trade and other receivables- 895,071 20,475,331 21,370,402

Trade and other payables (75,438) (576,108) (22,097,898) (22,749,444)(75,424) 318,963 56,061,731 56,305,270

At December 31, 2014, if the EUR had strengthened / weakened by 5% against the SDR with all other variables held constant, post-tax profit for the year would have been EUR 281,336 higher/lower (December 31, 2013: EUR 49,690), mainly as a result of foreign exchange gains /losses on translation of SDR denominated trade receivables and trade payables. At December 31, 2013, if the EUR had strengthened / weakened by 5% against the USD with all other variables held constant, post-tax profit for the year would have been EUR 36,861 higher/lower (December 31, 2013: EUR 24,761), 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) and short term bank deposits.

Credit risk related to short term bank deposits is minimized due to fixed interest rates, which cannot be changed during the contracted period. Additionally, if the Company withdraws funds before maturity, interest rates stay the same for the whole period of time. There is no penalty interest or decreasing initial interest rate.

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3.6 Fair Value

The management uses fair value valuation techniques in determining recoverability of available-for-sale financial assets and housing loans. The available-for-sale financial assets are not traded in an active market, there are no observable market data and the management does not expect any future cash flows from these instruments. Therefore, these financial assets are fully impaired as at 31 December 2014. In respect of housing loans issued by the Company where it holds mortgages over the underlying real estate properties taken as collaterals, these properties vary in size and type and are located in different areas of Montenegro. Fair value of these properties cannot be reliably measured at the end of each reporting date due to lack of sufficient observable market data. In determining recoverability of housing loans and fair value of collaterals, the management uses estimates described in note 4.

3.7. 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 BoD proposes to the shareholders of the Company to approve dividend payments or adopt other changes in the Company’s equity capital inorder to optimize the capital structure of the Company. This can be effectuated primarily by adjusting the amount of dividends paid to shareholders, oralternatively, by returning capital to shareholders by capital reductions, selling or buying its own shares. Also, the Company monitors that its capital iskept above minimum legal requirements. Because the Company has been profitable, risk that its capital may fall below minimum legal requirements is minimized.

The equity managed by the Company is in the amount of EUR 148,735,780 as at 31 December 2014(EUR 165,819,715 as at 31 December 2013).

4. critical accounting estimates and judgementsThe 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 end of the reporting period, 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 management relies on independent expert opinions. Management 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:

a) 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 technological 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 developments in an innovativebranch of telecommunications. Further, due to the significant weight of long-lived 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 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 1,797 thousand (2013. EUR 1,949 thousand).

b)Estimated impairment of goodwill

Goodwill is tested for impairment at the end of each reporting period.The recoverable amounts of the cash generating units (CGU)are calculated based onvalue in usedetermined 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 management’s uses their best estimate on market participants’ assumptions and expectations, and also considers recent similar transactions and industry benchmarks.

As at December 31, 2014and December 31, 2013goodwill was allocated to the Company’s cash-generating units (CGU). The recoverable amount of goodwill is based on the weighted average cost of capital (WACC) after tax which is determined based on a CAPM (capital asset pricing model) using the average beta of the peer group, a risk free rate applying the Svensson method and increased by the country specific risk premium, a debt ratio in line with the usual indebtedness of listed peer telecommunications companies and a debt risk premium in line with the average premium of the peer group. The perpetual growth rate (“PGR”) is in line with the long-term average growth rate for the telecommunications sector.

59the financial year 2014

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

2014 2013

EBITDA 44.0% 40.6%Beta 0.89 0.89Growth rate 2.0% 2.0%Discount rate (WACC) 9.37% 9.56%

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.

Should the WACC increase/decrease by 0.5 percentage points with all other assumptions held constant, estimated equity value would decrease/increase by EUR 1,674 thousand or EUR 1,471 thousand, respectively.

Should the growth rate increase/decrease by 0.5 percentage points with all other assumptions held constant, estimated equity value would increase by EUR 1,043 thousand or EUR 1,195 thousand, respectively.

c) Impairment of trade and other receivables

Impairment of trade and other receivables is 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 resulting future cash collections. If the financial condition of the customers were to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may exceed the level of the impairment losses recognized so far. Management estimates past due trade receivables which are not impaired as fully recoverable based on the history of collection in prior periods.

In case of specific receivables from local municipalities,the management makes estimates of impairment also based on history of collection and expected future cash flows.

In assessing recoverability of receivables from housing loans collateralized by property mortgages, the management uses fair value of collaterals determined at the inception of housing loans by a third party valuation agency. For those receivables whose carrying amount as at December 31, 2014is above initial fair value, the management applies a haircut of from 35-50% to the fair value of collateral to determine the amount of impairment. Where the carrying amount of receivables from housing loans as at December 31, 2014is below initial fair value of collateral, no impairment charge is made. For housing loans which are not backed by property collaterals, overdue receivables are fully impaired.

d) Fair value of housing loans

Housing loans were issued at interest rates varying from zero to 2%. In estimating their fair value, management uses average effective market interest rate of 6.5% (2013: 6.5%). Should the market interest rate increase/decrease by 1%, its effect on financial income/expense would be in the amount of EUR 400thousand for the year ended December 31,2014(2013: EUR 240 thousand).

e) Provisions

Provisions in general are highly judgmental, especially in the cases of legal disputes. The Company assesses the probability of an adverse 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) Retirement benefits and jubilee awards

Employee benefits such as retirement benefits and jubilee awards are calculated based on actuarial assumptions of expected average remaining working lives. Due to uncertainty, in some cases the evaluation may not prove to be in line with actual outcome.

The following assumptions were used by an actuary in the calculation of retirement benefit obligations and jubilee awards (note 15):

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2014 2013Discount rate 5.37% p.a. 5.5% p.a.Inflation rate 2% 3%Retirement age 67 67

Mortality rateCommon mortality tables in period

from 2001 – in SerbiaCommon mortality tables for 2005

in Croatia

Present value of future benefits is calculated assuming increase of the benefit base in accordance with the inflation growth rate which is 2%.If the discount rate increase/decrease by 1%, its effect on financial income/expense would be in the amount of EUR 56 thousand for the year ended December 31,2014(2013: EUR 57 thousand).

5. items of property, plant and equipment

Land BuildingsEquipment and other asse

Construction in progress Total

Cost Balance January 1, 2014 2,994,682 90,423,575 118,957,918 2,387,358 214,763,533 Additions - 2,532,442 5,102,424 7,634,866Transfers - 1,291,441 4,382,869 (5,674,310) -Transfers from intangible assets - 2,873,052 2,873,052Disposals /write –offs - (122,987) (6,147,381) - (6,270,368)Balance December 31, 2014 2,994,682 91,592,029 119,725,848 4,688,524 219,001,083

Accumulated DepreciationBalance January 1, 2014 - 38,622,616 87,621,628 192,796 126,437,040Charge for the year (Note 20) - 3,908,837 10,929,934 - 14,838,771Impairment - - 31,407 31,407Disposals /write –offs - (47,935) (6,142,695) (6,190,630)Balance December 31, 2014 - 42,483,518 92,408,867 224,203 135,116,588

Net Book ValueDecember 31, 2014 2,994,682 49,108,511 27,316,981 4,464,321 83,884,495 December 31, 2013 2,994,682 51,800,959 31,336,290 2,194,562 88,326,493

61the financial year 2014

Land BuildingsEquipment and other assets

Construction in progress Total

Cost Balance January 1, 2013 2,994,682 88,571,158 136,609,084 2,625,373 230,800,297Additions - - 2,221,996 7,468,948 9,690,944 Transfers - 2,109,041 4,833,543 (6,942,584) -Transfers to intangible assets - - - (764,379) (764,379)Disposals /write –offs - (256,624) (24,706,705) - (24,963,329)Balance December 31, 2013 2,994,682 90,423,575 118,957,918 2,387,358 214,763,533

Accumulated DepreciationBalance January 1, 2013 - 34,741,215 99,705,669 192,129 134,639,013Charge for the year (Note 20) - 3,881,401 12,704,744 - 16,586,145Impairment - - - 667 667Disposals /write –offs - - (24,788,785) - (24,788,785)Balance December 31, 2013 - 38,622,616 87,621,628 192,796 126,437,040

Net Book ValueDecember 31, 2013 2,994,682 51,800,959 31,336,290 2,194,562 88,326,493

Included in the net book value of land and buildings are land of EUR 61,085 and buildings of EUR 363,247 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 buildings, but effectively has control over these items.

Total disposals for 2014 in amount of EUR 6,270,368 out of which EUR 6,124,097 is related to write-off of equipment which had zero net book value atthe end of 2014, and for which management estimated that they are not usable. The amount of EUR 146,271 is related to assets which were sold during 2014.

A review of assets’ useful lives in 2014 was performed and the impact of the changes was not material.

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6. intangible assets

Goodwill Licenses Software

Internally generated Software

Intangible Assets in progress Total

Cost At January 1, 2014 941,624 18,439,999 16,633,439 592,358 2,910,888 39,518,308Additions - - - 8,591,376 8,591,376Transfers - 25,546 1,460,788 50,424 (1,536,758) -Transfers from PPE - (2,873,052) (2,873,052)Disposals - - (10,217) (10,217)

At December 31, 2014 941,624 18,465,545 18,084,010 642,782 7,092,454 45,226,415

Accumulated amortizationAt January 1, 2014 - 10,104,822 11,658,306 237,994 - 22,001,122

Charge for the year (Note 20) - 1,135,590 1,840,192 125,112 - 3,100,894

Disposals - - (10,217) - - (10,217)

At December 31, 2014 - 11,240,412 13,488,281 363,106 - 25,091,799

Net Book ValueDecember 31, 2014 941,624 7,225,133 4,595,729 279,676 7,092,454 20,134,616December 31, 2013 941,624 8,335,177 4,975,133 354,364 2,910,888 17,517,186

Goodwill Licenses Software

Internally generated Software

Intangible Assets in progress Total

Cost At January 1, 2013 941,624 18,202,882 14,411,293 410,092 188,085 34,153,976Additions - - - - 4,763,396 4,763,396Transfers - 237,117 2,385,589 182,266 (2,804,972) -Transfers from PPE - - - - 764,379 764,379Disposals - - (163,443) - - (163,443)

At December 31, 2013 941,624 18,439,999 16,633,439 592,358 2,910,888 39,518,308

Accumulated amortizationAt January 1, 2013 - 8,953,559 10,168,243 137,991 - 19,259,793

Charge for the year (Note 20) - 1,151,263 1,653,506 100,003 - 2,904,772

Disposals - - (163,443) - - (163,443)

At December 31, 2013 - 10,104,822 11,658,306 237,994 - 22,001,122

Net Book Value

December 31, 2013 941,624 8,335,177 4,975,133 354,364 2,910,888 17,517,186

63the financial year 2014

Intangible assets in progressin the amount of EUR 7,092,454as of December 31, 2014 comprise software implementation of which is expected to be completed during 2015.

The most significant licences are listed below:

Fixed Telephony Telecommunication License

The Agency for Electronic Communications and Postal Services of Montenegro (“the Agency”) issued to the Company a Fixed-Line License that is valid from January 1, 2002 for a period of twenty-five years. Net book value of this license is in the amount of EUR3,067,740as at December 31, 2013 (2013: EUR 3,303,720).

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 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. The license for provision of international traffic services is granted for a period of twenty-three years and its net book value is in the amount of EUR 1,440,000 as at December 31, 2014(2013: EUR 1,560,000).

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

In October 2007, the Broadcasting agency of Montenegro issued to Telekom a license for building and distributing / broadcasting radio and TV program 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. 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 issued a mobile telecommunication license GSM 900 MHz for the territory of Montenegro valid from January 1, 2002 for a period of fifteen years. At the expiration of this period, the Company shall have the option to extend the license for an additional period of ten years at a price equal to nominal cost. Carrying amount of this license is in the amount of EUR 603,476 (2013: EUR 893,208).

Based on decision of Agency for Electronic Communications and Post nr. 0505-545/1 dated on 31.01.2012. Crnogorski Telekom was awarded a license which grants exclusive right of use of additional radio spectrum for mobile communications in bands 900MHz, 1800MHz and 2100MHz. The license was awarded for a period of 5 years upon payment of 549,833EUR by Crnogorski Telekom based on the outcome and procedure of spectrum tender nr. 505-5043/1 published on 01.11.2011. by the Agency for Electronic Communications and Post. Carrying amount of this license is in the amount of EUR 229,097 (2013: EUR 339,064).

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 is EUR 1,173,354 at December 31, 2014(2013: EUR 1,333,357).

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

License for Web Services

The license for Web Services is a general license for the provision of web services covering the territory of Montenegro, with an additional value received from the Agency 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 Agency an annual fee calculated as 1% of the annual income earned from fixed and mobile telephony services. This fee is included within “Other operating expenses”.

64

Goodwill

In accordance with the Company’s Board of Directors’ Resolutions of February 19, 2004 and March 7, 2005 Telekom, utilizing its pre-emptive share purchase rights, entered into a Purchase Agreement for the Acquisition of a Portion of the Equity Capital of Internet CG in the amounts of EUR 1,750,000 in 2004 and EUR 435,700 in 2005, and became the owner of 100percent of the capital of Internet Crna Gora d.o.o.Carrying amount of goodwill is EUR 941,624 as at December 31, 2014 (2013: EUR 941,624). The Company performed an impairment test, which resulted in recoverable amount exceeding carrying value and no impairment charge (Note 4).

7. long term loans and other receivables

December 31, 2014 December 31, 2013

Housing loans given to employees 4,199,088 3,612,615Housing loans given to former employees 2,708,436 2,314,818Long term receivables from customers 2,273,939 1,085,112Total financial receivables 9,181,463 7,012,545Prepaid employee benefits 1,510,537 939,451Prepaid rent for the GSM locations 496,846 468,622Total other receivables 2,007,383 1,408,073Total 11,188,846 8,420,618

Employee loans

During 2007, in accordance with the Company’s Statute and the Rules on the Fulfilment of Employee Residential Housing Requirements, The Company’s Operative committee decided to grant housing loans to employees in a total amount of EUR 1,282,000. Theseloans were approved for repayment periods of 5, 7, 10 and 20 years, and were issued at annual interest rates ranging from 0% to 2% (Note 2.7.1a). The total amount of the approved loans per employee ranges from EUR 5.000 to EUR 50.000. A condition for the realization of these loans is that the employee has to stay employed in the Company for a loyalty period of minimum three years. If an employee leaves the Company before the 3-year term, the loan principal and interest become immediately due.

During 2014 Crnogorski Telekom continued paying out housing loans to the employees from the Housing Loans Program approved as at end of 2012. Overall allocated amount was 6.000.000 EUR, while the repayment periods are 7, 15 and 20 years. Annual interest rate is 2%. The total amount of the approved loans per employee ranges from EUR 5.000 to EUR 75.000.

The Company obtained mortgages on the residential housing units occupied by the loan beneficiaries and other real estate property, in order to secure timely loan repayments.

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

Amount in EUR December 31, 2014 December31,2013

- 2-5 years 2,564,351 2,164,199- over 5 years 8,165,133 6,708,009Undiscounted housing loans 10,729,484 8,872,208Discount (2,311,423) (2,005,324)Fair value of housing loans 8,418,061 6,866,884

65the financial year 2014

As of December 31, 2013 the Company changed thediscount rate for housing loans, to reflect the changes in market conditions related to financial instruments comparable to employee housing loans. The discount rate used as at December 31, 2013 is 6.5% (2013: 6.5%). Effect of this change is presented in table below:

2013 2014 2015 2016 After 2016Increase / (decrease) discount related to employees who left the Company (154,847) 17,707 15,018 14,425 107,696Increase / (decrease) discount related to current employees (199,022) 17,289 16,530 16,243 148,960Increase / (decrease) employee benefits 168,448 (13,046) (13,647) (13,402) (128,353)Total (185,421) 21,950 17,901 17,266 128,303

Long term receivables from customers in amount of EUR 2,273,939(2013: EUR 1,085,112) relate to receivables from sales of equipment to individual customers over the period of 24 months, due between 12-24 months.

8. inventories

Amount in EUR

December 31, 2014 December 31, 2013

Cables, wires and other materials 831,389 1,044,196 Inventory for resale 1,748,919 2,165,885

2,580,308 3,210,081

Less allowances for obsolete inventory (1,053,186) (932,264)

1,527,122 2,277,817

Movements in the provision for inventories for year ended December 31, 2014and December 31, 2013are summarized in the table below:

2014 2013

Balance, January 1 932,264 956,198 Charged during the period (Note 22) 120,922 (23,934)

1,053,186 932,264Balance, December 31

66

9. trade and other receivables

December 31, 2014 December 31, 2013

Domestic trade receivables 34,581,980 33,895,574 Foreign trade receivables 3,317,781 1,234,176Allowance for receivables from third parties (20,760,900) (19,733,879) Trade receivables from third parties , net 17,138,861 15,395,871 Receivables from Magyar Telekom Group companies 125,847 96,516 Receivables from Deutsche Telekom Group companies 2,240,315 2,053,750 Total trade receivables, net 19,505,023 17,546,137

Current portion of housing loans to employees 194,885 164,049

Current portion of housing loans to former employees 189,567 152,865Past due employee loans receivable – impaired 479,727 466,049Past due housing loans – not impaired 35,338 54,661

Allowance for housing loans (479,727) (466,049)Current portion of long term receivables from Government - 712,357Current portion of long term receivables from customers 4,654,656 2,740,333Total current portion of long term receivables 5,074,446 3,824,265Total financial assets 24,579,469 21,370,402

Advances paid for current assets 262,084 210,142Prepayments for lease of mobile technical sites 245,774 232,491Other Prepayments 398,048 356,258Other receivables 3,118,691 2,900,265Allowance for other receivables (1,334,398) (1,129,330)Total other receivables, net 2,690,199 2,569,826Total trade and other receivables, net 27,269,668 23,940,228

The structure of other receivables as of December 31 2014and 2013is as follows:

In EURDecember 31, 2014 December 31, 2013

Receivables from local municipalities 1,642,389 1,642,389Receivables for dividend paid 994,183 847,699Prepaid taxes and contributions 341,954 277,133Accrued interest income on term deposits 62,140 45,531Other receivables 78,025 87,513

3,118,691 2,900,265Allowance for receivables from municipalities (1,334,398) (1,129,330)

1,784,293 1,770,935

67the financial year 2014

Age profile of current portion of long term receivables and other receivables

The following tables show the age profile of the Company’s current portion of long term receivables and other receivables by days outstanding (past due). The carrying amounts of past due receivables are showngross:

In u EUR

Carrying amount as of December 31, 2014

of which not past due

of which past due by

less than 30 days 30 – 60 days

61 – 90 days

91 – 180 days

181 – 360 days

over 360 days

Other receivables 1,784,293 1,494,702 - - - - - 289,591employee loans - current employees 194,885 194,885 - - - - - -employee loans - ex employees 224,905 189,567 - - - - - 35,338receivables from Government - - - - - - - -

receivables from Customers 4,654,656 4,654,656 - - - - - -

Total 6,858,739 6,533,810 - - - - - 324,929

In EUR

Carrying amount as of December 31, 2013

of which not past due

of which past due byless than 30

days 30 – 60 days61 – 90

days91 – 180

days181 – 360

daysover 360

days

Other receivables 1,770,935 1,267,563 9,687 9,687 19,374 29,061 48,435 387,128employee loans - current employees 164,049 164,049 - - - - - -employee loans - ex employees 207,526 152,865 - - - - - 54,661

receivables from Government 712,357 712,357 - - - - - -

receivables from Customers 2,798,974 2,798,974 - - - - - -

Total 5,653,841 5,095,808 9,687 9,687 19,374 29,061 48,435 441,789

Receivables for dividend paid (individual shareholders) relate to dividend payments placed with Crnogorska Komercijalna Banka a.d. which are not yet collected by individual shareholders.

Provision for receivables from municipalities in the amount of EUR 1,334,398 (2013: EUR 1,129,300)is created based on management’s estimate that a portion of receivables may not be collected. Montenegrin Municipalities made withdrawal from the Company’s bank accounts for usage of the Municipalities land used for network structure. The Company disagreed with the amount of fee and started court cases in 2009. Since the Company still did not manage to collect the receivables the management estimated and created an additional provision in 2014.

9. trade and other receivables (continued)

68

Trade and other receivables are denominated in the following currencies:

December 31, 2014 December 31, 2013

EUR 26,219,189 23,045,157SDR (Special Drawing Rights) 1,050,293 895,071USD 186 -

27,269,668 23,940,228

Fair values of trade and other receivables are as follows:

December 31, 2014 December 31, 2013

Trade receivables 17,138,861 15,395,871Trade receivables from related parties 2,366,162 2,150,266Housing loans receivable 419,790 371,575Receivables from Government - 712,357Receivables from customers 4,654,656 2,740,333Total financial assets 24,579,469 21,370,402

Age profile of Trade receivables

The following tables show the age profile of the Company’s trade receivables by domestic and foreign split by days outstanding (past due). The carrying amounts of past due receivables are shown net of impairment losses charged as of the end of the reporting period.

In EURCarrying amount as of December 31, 2014

of which not past due

of which past due by

less than 30 days

30 – 60 days

61 – 90 days

91 – 180 days

181 – 360 days

over 360 days

Domestic 14,435,098 10,053,853 2,226,712 1,119,164 483,678 381,776 229,474 (59,559)Foreign 5,069,925 4,516,157 20,035 78,893 59,951 340,498 (55,426) 109,817Total 19,505,023 14,570,010 2,246,747 1,198,057 543,629 722,274 174,048 50,258

In EURCarrying amount as of December 31, 2013

of which not past due

of which past due byless than

30 days30 – 60

days61 – 90

days91 – 180

days181 – 360

daysover 360

daysDomestic 14,775,713 10,790,816 1,860,058 1,000,917 493,404 394,583 145,479 90,456Foreign 2,770,424 2,398,932 128,058 123,095 34,618 29,001 51,676 5,044Total 17,546,137 13,189,748 1,988,116 1,124,012 528,022 423,584 197,155 95,500

69the financial year 2014

Movements in allowance for impairment losses are summarized below:

Domestic Foreign

2014 2013 2014 2013

Balance, January 1 20,249,191 19,348,378 614,018 518,465Charged during the year 1,402,824 1,332,067 - 95,553Charged during the year – provision for Municipalities 205,068 442,565 - -Release of provision related to receivables collected during the year (352,583) (250,629) - -

Effects of exchange rate - - -

Penalties charged to customers (113,803) (5,427) - -

Factoring receivable 90,583 (617,763) - -

Balance, December 31 21,481,280 20,249,191 614,018 614,018

10. short term investments

December 31, 2014 December 31, 2013

Short term bank deposits

Credit rating A2 (Moody’s) 20,000,000 21,000,000 Credit rating Baa1 (Moody’s) 4,000,000 33,000,000 Short term loan Short term Loan to Magyar Telekom (Note 27) 11,000,000 -

35,000,000 54,000,000

Short term bank deposits represent deposits with maturity from three months up to one year and average interest rate of 1.71 % in 2014(2013: 1.23 %). All short term bank deposits are denominated in EUR. In the period ended December 31, 2014, total amount of deposits are additionally guaranteed by a credit institution with credit ratings A2, Baa1 (2013: credit institution with credit ratings A2, Baa1).

As of March19, 2014 Company approved short term loan in amount of EUR 11,000,000 on period of 1 year to Magyar Telekom. Interest rate of the loan is 2.2 % + 3 month EURIBOR.

11. cash and cash equivalents

December 31, 2014 December 31, 2013

Cash on hand - 511 Cash in banks 8,177,687 3,683,801

8,177,687 3,684,312

70

12. financial instruments

a) Financial instruments by categories

Loans and receivables December 31, 2014 December 31, 2013

Long term loans and receivables 9,181,463 6,953,904Short term bank deposits 35,000,000 54,000,000Trade and other receivables 24,579,469 21,429,043Cash and cash equivalents 8,177,687 3,684,312

Total 76,938,619 86,067,259

Liabilites at amortizated cost December 31, 2014 December 31, 2013

Financial liabilities 28,516,082 22,749,444 Total 28,516,082 22,749,444

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, 2014 December 31, 2013

Counterparty without credit rating 9,181,463 6,953,904 9,181,463 6,953,904

Counterpartieswithout credit rating include long term receivables from customers and receivables for housing loans.

Receivables for housing loans are secured by mortgage which is a pre-requisite for a loan to be approved. Long term receivables from customers

relate to sale of equipment on instalments. The Company performs credit checks of all customers before the sales occur.

Cash and cash equivalents December 31, 2014 December 31, 2013

Cash and cash equivalents without credit rating 7,804,454 3,484,265Counterparty with Credit rating A1 (Moody’s) - 200,047Counterparty with Credit rating A2 (Moody’s) 373,233 -

8,177,687 3,684,312

71the financial year 2014

Cash and cash equivalents without credit rating are kept in Montenegrin domestic banks.

Short term bank deposits December 31, 2014. December 31, 2013

Guaranteed short term deposit by credit institution

Credit rating A2 (Moody’s) 20,000,000 21,000,000 Credit rating Baa1 (Moody’s) 4,000,000 33,000,000

24,000,000 54,000,000

Trade and other receivables - neither past due nor impaired December 31, 2014 December 31, 2013

Counterparty without external credit ratingDomestic (Note 9) 10,053,853 10,790,816Foreign (Note 9) 4,516,157 2,398,932

14,570,010 13,189,748

13. share capital

As at December 31 , 2014 As at December 31, 2013

Number of Shares % Value Number of Shares % ValueSubscribed and paid in capital - Magyar Telekom 36,177,950 76.53 94,786,591 36,177,950 76.53 107,902,165Legal entities and custody 5,640,386 11.93 14,777,868 5,851,965 12.38 17,454,071Individuals 5,455,604 11.54 14,293,241 5,244,025 11.09 15,640,158

47,273,940 100.00 123,857,700 47,273,940 100.00 140,996,394

As at December 31, 2014the par value of an individual share was EUR 2.62001 (2013: 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, 2014was EUR 4.1000 (December 31, 2013: EUR 4.1865).

Based on minority shareholders’ request, the Company initiated a procedure for capital decrease. On its extraordinary meeting on March 5, 2014 the General Assembly approved a Resolution on share capital reduction by changing the par value from EUR 2.98255 to EUR 2.62001. Total number of shares remains 47.273.940. This resulted in a share capital decrease in amount of 17,138,694 EUR.

72

14. trade and other payables

December 31, 2014 December 31, 2013

Trade payables to third parties 17,176,168 13,432,881

Payables to Magyar Telekom Group 607,443 461,169 Payables to Deutsche Telekom Group 2,664,896 2,452,671Total trade payables 20,448,507 16,346,721Accrued expenses 4,905,303 3,907,462Liabilities for dividends 1,101,249 940,590

Accrued bonuses 2,037,625 1,266,844 Other payables 23,398 287,827Total other financial liabilities 8,067,575 6,402,723Total financial liabilities 28,516,082 22,749,444

Advances received for mobile phone cards 796,884 806,938

Amounts received in advance and prepayments 597,546 129,335

Other taxes and social security 251,458 217,851

VAT payables 757,782 868,652

Customer Loyalty Programs 190,914 665,631

Deferred revenues 1,201,458 832,772Total other payables 3,796,042 3,521,179Total trade and other payables 32,312,124 26,270,623

Accrued expenses include the following:

December 31, 2014 December 31, 2013Accrued marketing expenses 267,032 443,648 Accrued expenses for postal services 79,427 85,012 Accrued expenses for maintenance 691,165 988,042 Accrued liabilities for IPTV services 240,236 258,320 Other accrued liabilities 3,627,443 2,132,440

4,905,303 3,907,462

Trade and other payables are denominated in the following currencies:

December 31, 2014 December 31, 2013

EUR 25,897,138 22,097,898

SDR 2,377,339 576,108USD 241,605 75,438

28,516,082 22,749,444

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 / 60 / 90 days.

73the financial year 2014

15. provisions for liabilities and charges

Movements in provisions for liabilities and charges for the year ended December 31, 2014and December 31, 2013 are summarized in the table below:

2014 2013

Balance, January 1 1,684,252 3,237,756Additions during the year 126,618 3,296,296Amounts utilized / retired during the year (325,411) (4,849,800)Balance, December 31 1,485,459 1,684,252Less: non current portion 835,172 757,642

650,287 926,610

Legal casesSeverance payments

Retirement and jubilee award benefits

Mid term incentive plan (MTIP)

Variable bonuses II programme

(VAR II) TotalJanuary 1, 2013 649,194 1,366,323 438,368 566,041 217,830 3,237,756Charged during the year 301,029 2,748,499 36,311 113,704 96,753 3,296,296

Used during the year (367,124) (4,114,822) - (367,854) - (4,849,800)December 31, 2013 583,099 - 474,679 311,891 314,583 1,684,252

January 1, 2014 583,099 - 474,679 311,891 314,583 1,684,252

Charged during the year 35,800 - 538 - 90,280 126,618Used during the year - - (13,520) (311,891) - (325,411)December 31, 2014 618,899 - 461,697 - 404,863 1,485,459

Less: non current portion - - (430,309) - (404,863) (835,172)Current provision 618,899 - 31,388 - - 650,287

Most legal cases are related to disputes of property ownership rights in Cetinje in anamount of EUR 251,752 and a dispute over lease of satellite systems in an amount of EUR 200,000.

74

a) Retirement and jubilee award benefits

Jubilee award obligations Retirement obligations Total

January 1, 2013 312,606 125,762 438,368Additions 31,355 4,956 36,311Amounts utilized / retired - - -

December 31, 2013 343,961 130,718 474,679

January 1, 2014 343,961 130,718 474,679Additions 538 - 538Amounts utilized / retired - (13,520) (13,520)

December 31, 2014 344,499 117,198 461,697

Less: non current portion (344,499) (85,810) (430,309)

Current provision - 31,388 31,388

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 (note 2.15).

16. deferred income tax liability

As at December 31, 2014 and December 31, 2013, the Company did not have any deferred tax assets arising from temporary differences or tax losses available for future years.

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 statements. Taxable temporary difference arises from accelerated tax depreciation and recognition of assets with the unit value below EUR 300.

Movement in deferred income tax liability during the year is as follows:

Deferred tax liability TotalAt January 1, 2013 2,105,814Charged/(credited) to profit or loss (29,114)At December 31, 2013 2,076,700Charged/(credited) to profit or loss 15,094At December 31, 2014 2,091,794

75the financial year 2014

17. revenues

a) Fixed line and Internet services

December 31, 2014 December 31, 2013

Subscriptions connections and other charges 12,840,689 12,726,936

Outgoing domestic traffic revenues 4,569,846 6,395,303 Outgoing international traffic revenues 1,084,839 1,280,772 Total outgoing traffic revenues 5,654,685 7,676,075

Incoming domestic traffic revenues 537,541 987,400 Incoming international traffic revenues 10,147,498 12,096,275 Total incoming traffic revenues 10,685,039 13,083,675

Leased lines and data transmission 2,133,403 2,716,298 Web presentation and hosting 49,903 52,104

ADSL revenues 12,568,404 12,014,413 MIPNET revenues 1,700,468 1,913,663 IPTV revenues 7,234,071 6,564,562Revenues from internet access 352,946 453,567 Equipment sales 2,425,426 1,799,066

ICT revenues 3,806,480 2,191,938Other revenues 691,973 529,564Total other revenue 30,963,074 28,235,175

Total fixed line and internet services revenues 60,143,487 61,721,861

b) Mobile services

December 31, 2014 December 31, 2013 Post-paid revenues - outgoing domestic and international calls 7,721,856 8,790,007 - monthly subscriptions 10,374,500 9,876,111

18,096,356 18,666,118

Prepaid services 11,141,050 12,979,430 Sale of handsets 4,284,159 2,909,008

15,425,209 15,888,438

Revenue from interconnection fees 4,801,168 6,250,107 Revenue from roaming 4,398,240 5,451,144 Other revenue 1,273,586 971,722

Total mobile service revenues 43,994,559 47,227,529

76

18. other operating income

December 31, 2014 December 31, 2013

Income from Dark fiber long term lease 64,204 896,210Capital gains on fixed assetssold 284,424 27,437Other operating income 365,133 317,689

713,761 1,241,336

Amount of EUR 896,210 as of December 31, 2013 is related to income from leasing Dark fibre. Agreements over rights to use specific dark fibres are akin to leases because they convey a right to use specified network assets, to the exclusion of other operators, including Crnogorski Telekom. Payment for the use of the dark fibre is made in advance and does not vary with the buyer’s actual usage. The lease period is 15 years.

19. employee related expenses

December 31, 2014 December 31, 2013

Net salaries and benefits 9,202,256 9,262,549Taxes on salaries 2,512,620 3,182,908State pension contributions 3,123,269 3,323,864Social security and other contributions 2,209,089 2,385,433Severance payments (Note 15) 58,361 2,748,499

Provisions for retirement and jubilee benefits (Note 15) 18,819 121,086Other personnel costs 897,089 1,647,490

18,021,503 22,671,829

20. depreciation, amortization and impairment

December 31, 2014 December 31, 2013

Depreciation (Note 5) 14,838,770 16,586,145 Impairment (Note 5) 31,407 667 Amortization (Note 6) 3,100,895 2,904,772

17,971,072 19,491,584

21. payments to other network operators

December 31, 2014 December 31, 2013

Payments to domestic fixed and mobile network operators 6,437,579 9,052,332 Payments to foreign fixed and mobile network operators 5,125,051 5,920,615

11,562,630 14,972,947

77the financial year 2014

22. other operating expenses

December 31, 2014 December 31, 2013

Materials maintenance and service fees 7,273,971 7,435,283Marketing 2,176,052 2,743,954Provision for impairment of trade receivables 1,255,309 1,619,556Rental fees 2,544,203 2,717,208Telecommunication licence fee 1,662,365 1,658,485Sponsorships 442,187 435,600Municipality fees and charges 1,388,229 1,582,750Agent commissions 1,680,362 1,471,071Fees and levies 125,172 126,024Audit of financial statements 89,100 89,100Magyar Telekom consulting services - 27,265Deutsche Telekom consulting services 235,260 273,481Other consulting services 60,861 9,881Energy expenses 1,502,098 1,617,810Postal expenses 582,014 659,676Other service fee 660,004 659,609

Impairment of inventories 120,922 (23,934)

Provisions (note 15) 35,800 301,029Other expenses 3,725,864 2,732,614

25,559,773 26,136,462

Rental fees are mostly related to rental of telecom lines in amount of EUR 734,099(2013: EUR 1,059,549) and rental of space for base stations from Radio Difuzni Centar in amount of EUR 691,319 (2013: EUR 629,858).

Expenses for sponsorships relate to sponsoring the FSCG and “Budućnost” men’s basketball team in the amount ofEUR 253,000 (2013: EUR 365,600) and other culture, sports and education purposes.

78

23. net financial result

December 31, 2014 December 31, 2013Finance income

Interest income from: - short term deposits 699,872 1,052,764 - employee loans 170,580 95,034

Interest income from unwinding of discount for long –term receivables 424,060 83,384 Foreign exchange gains 73,894 59,458

1,368,406 1,290,640 Finance incomeInterest expenses (43,758) (11,252) Foreign exchange losses (39,174) (130,468) Other finance cost (202,832) (156,816)

(285,764) (298,536)

Neto financial result 1,082,642 992,104

24. other finance cost

December 31, 2014 December 31, 2013Current income tax 2,557,277 2,315,364 Deferred income tax 15,094 (29,112)Total 2,572,371 2,286,252

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:

December 31, 2014 December 31, 2013Profit before tax 24,127,130 21,130,783

Income tax at a rate of 9% 2,171,442 1,901,770 Non-deductible costs 135,050 179,106 Other adjustments 265,879 205,376

2,572,371 2,286,252Actual income tax expense

79the financial year 2014

25. earnings per share

(In EUR) December 31, 2014 December 31, 2013

Profit attributable to equity holders of the Company 21,554,789 18,884,531 Weighted-average number of issued ordinary shares 47,273,940 47,273,940Basic earnings per share 0,46 0,40

The Company does not have any amounts of diluting shares.

26. dividend payments

During 2014, profit related dividend for 2013, totalling EUR 21,500,000 (2013: EUR 22,900,000) was declared. The dividend per share amounted to EUR 0.45480 (2013: EUR 0.46326).

Net dividend Tax Total dividendTotal declared dividend as distribution of 2013 profit 20,219,206 1,275,687 21,494,893 Less - Liabilities for dividend as distribution of 2013 profit - (15,026) (15,026)

Total paid dividend as distribution of 2013 profit 20,219,206 1,260,661 21,479,867 Dividend paid in current for previous years 4,366 15,767 20,133 Total dividend payment during 2014 20,223,572 1,276,428 21,500,000

27. related party transactions

Magyar Telekom obtained control of Crnogorski Telekom on March 31, 2005 and by the end of 2005 it held a 76.53% stake, which has remained unchanged since then. Deutsche Telekom AG is the ultimate controlling owner of Magyar Telekom holding 59.21% of the issued shares of Magyar Telekom. 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%), KfWBankengruppe (17%), Federal Republic of Germany (15%), and Retail investors (11%). 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.

27.1 Deutsche Telekom Group (including Magyar Telekom Group)

Transactions with related parties primarily include the provision and supply of telecommunication services and leased lines resulting also in year end balances. In addition, the Company occasionally deposits some of its free cash as a short term loan to Magyar Telekom Plc. The tables below include the transactions and the year end balances with the Deutsche Telekom Group members for the reported years.

Short term investments December 31, 2014 December 31, 2013

Short term loan to Magyar Telekom Plc. 11,000,000 -

Trade and other receivables December 31, 2014 December 31, 2013

Magyar Telekom Plc. 21,028 32,614 Makedonski Telekom Group 104,819 63,902 Telekom Deutschland 2,060,080 1,705,351 Ote Telekom 129,663 134,773 T – Hrvatski telekom 50,572 213,626 Total 2,366,162 2,150,266

80

Trade and other payables December 31, 2014 December 31, 2013

Magyar Telekom Plc. 411,952 236,848 Makedonski Telekom Group 195,491 224,321 Telekom Deutschland 2,498,062 2,126,735 Ote Telekom 77,440 63,734 T - Hrvatski telekom 89,394 262,202 Total 3,272,339 2,913,840

Revenues December 31, 2014 December 31, 2013

Magyar Telekom Plc. 340,821 73,046 Makedonski Telekom Group 10,409 19,473 Telekom Deutschland 8,680,502 9,696,561 Ote Telekom 51,120 80,365 T – Hrvatski telekom 205,103 69,330 Total 9,287,955 9,938,775

Expenses December 31, 2014 December 31, 2013Magyar Telekom Consulting services - 27,265Mobile line services 26,068 8,051 Leased lines 340,541 481,534 Other expenses 106,146 108,056

472,755 624,906 Makedonski Telekom Mobile line services 13,092 7,069 Total - Magyar Telekom Group 485,847 631,975 Deutsche Telekom Interconnections 3,528,258 4,132,590 Consulting services 235,260 273,481T brand 245,737 276,288 Maintenance of telecom equipment 254,340 330,331Mobile line services 216,830 19,694

4,480,425 5,032,384T - Hrvatski telekom Interconnections Mobile line services 202,894 30,285 Leased lines 185,211 184,005

388,105 214,290 Total - Deutsche Telekom Group 4,868,530 5,246,674 Total 5,354,377 5,878,649

81the financial year 2014

27.2 The Federal Republic of Germany

The Federal Republic of Germany is both a direct and an indirect shareholder of DTAG and holds approximately 31.9% of the share capital of DTAG. The Federal Republic usually represents a solid majority at the shareholders’ meeting due to its high attendance rate, giving the Federal Republic of Germany control over Deutsche Telekom. Therefore, the Federal Republic and the companies controlled by the Federal Republic or companies over which the Federal Republic can exercise a significant influence are classified as related parties of DTAG and Magyar Telekom, and consequently of Crnogorski Telekom as well.DTAG or any Magyar Telekom Group member, including the Company, did not execute as part of its normal business activities any transactions that were individually material in the 2014 or 2013 financial year with companies controlled by the Federal Republic or companies over which the Federal Republic can exercise a significant influence.

27.3 Agreements with the Company’s Senior Management

In 2014the Company rewarded short term employee benefits to management, which amounted to EUR 916,770 (2013: EUR 927,286) for net salaries and bonuses to key management, who are members or permanent invitees of the Executive Management Board of Crnogorski Telekom, and EUR 510,947 (2013: EUR 583,469) for related taxes and contributions.

Also, during 2014Company made payments to key management of MTIP “Mid term incentive plan” in the gross amount of EUR 311,891(note 15)(2013: EUR 367,854).

28. contingent liabilities

Potential onerous contracts

In accordance with the Share Sale–Purchase Agreement dated March 15, 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 counterparties shall not pay any compensation for the use of these capacities. The Company’s 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, 2014and 2013for any anticipated costs, including legal and consulting fees, site studies, the design and implementation of remediation plans, related to environmental matters. Management does not consider the costs associated with environmental issues to be significant.

29. tax risks

Tax laws of Montenegro are subject to different interpretations and frequent amendments. Tax authorities’ interpretation of Tax laws may differ fromthose made by the Company’s management. As a result, some transactions may be disputed by tax authorities and the Company may have to pay additional taxes, penalties and interests in any of the five years after the submission of a particular tax return. This means that tax authorities have the right to determine unpaid tax liabilities within five years since the transaction date. Management has assessed that the Company has paid all tax liabilities incurred until December 31, 2014.

82

30. commitments

a) Operating lease commitments – Company as a lessee

The Company leases various retail and business offices and warehouses, internet access and lines under operating lease agreements. The lease terms are between one year up to unlimited term, and the majority of the lease agreements are renewable at the end of the lease period at market rate.Amounts of minimum lease payments at the end of the reporting period under non-cancellable operating leases for periods:

not later than one year 1,536,376 later than one year and not later than five years 3,699,313 later than five years 705,152

Total 5,940,841

The lease contract with the Radio DifuzniCentar (RDC) is signed forindefinite time for rent of space on their towers for our base stations. Space on the same towers is rented by RDC also to other operators and domestic TV stations. The amount of the lease cost fluctuates depending on the space used for these towers. The lease expenditure charged to Profit or loss during the year is disclosed in Note 22 (“Rental fees”).

b) Other commitments

Expenditures committed up to the end of the reporting period, which has not been recognized in the financial statements are as follows:

December 31, 2014 December 31, 2013Contracted liabilities on: - the purchase of property, plant and equipment 1,936,375 2,392,414 - the purchase of intangible assets 1,645,285 749,551 - maintenance and support services 588,683 942,557- marketing and sponsorships 170,000 176,300Other operating expenditure commitments 786,083 1,549,388

Total 5,126,426 5,810,210

c) Use permits

Based on the Share Sale–Purchase agreement dated March 15, 2005 concluded between the Government of the Republic of Montenegro and the Employment Bureau of Montenegro, as Sellers, and Magyar Telekom Plc., 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.

83the financial year 2014

31. exchange ratesThe 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, 2014and December 31, 2013respectively are as follows:

December 31, 2014 December 31, 2013

SDR 1.1933 1.1183USD 0.8262 0.7255

32. cash generated from operations

Note December 31, 2014 December 31, 2013

Profit for the period 21,554,759 18,844,531 adjustment for:Income tax expense 2,572,371 2,286,252 Depreciation amortization and impairment 20 17,971,072 19,491,584Net financial income 23 (1,082,642) (992,104)

Increase/(decrease) of allowances for inventories 22 120,922 (23,934)

Increase/(decrease) of allowances for bad debt 9 1,255,309 1,176,991

Profit on sale of non-current assets 18 (284,424) (27,437) Change in payables 6,041,501 (3,401,834)

Change in inventory 629,773 361,320 Change in receivables (3,329,440) (2,033,649)Decrease in provision for legal cases (35,800) 66,095 Provision for Employee benefits (356,799) (36,311)Other non-cash items 271,438 208,106

Cash generated from operations 45,328,040 35,919,610

further information

Contacts

Crnogorski TelekomMoskovska 2981000 PodgoricaMontenegroTel: + 382 20 433 433Fax: + 382 20 225 752e-mail: office@telekom.mewww.telekom.me

stock trading information:

Crnogorski Telekom stock code: TECG

Montenegroberza a.d.PodgoricaMoskovska 7781000 PodgoricaMontenegroTel/Fax: +382 20 228 502E-mail: mberza@t-com.mewww.montenegroberza.com

Published by:Crnogorski Telekom © 2015

www.telekom.me