Crnogorski Telekom 2009 Annual Report

Contents:Our MissionOur VisionOur StrategyTo our ShareholdersLetter to our shareholdersCrnogorski Telekom’s Board of DirectorsThe Management Committee of Crnogorski TelekomIntroductionGeneral informationCompetitionRegulatory environmentHuman resourcesCorporate responsibilityThe lines of businessWireline servicesMobile servicesThe financial year 2009Management report for the 2009 financial yearFinancial statements:Independent Auditor’s ReportStatement of financial positionStatement of comprehensive incomeStatement of cash flowsStatements of Changes in EquityNotes to the Financial StatementsFurther information1Our Mission / Our Vision

Our MissionWe are the favorite choice for communication and infotainment. We guarantee persistent customer focus, reliability and continuousinnovation.Crnogorski Telekom remains the best place to work at in Montenegro. We create an organization that encourages innovation andrewards performance.We lead Montenegro towards an information society.We stretch boundaries, create and capture new opportunities and continuously strive for profitability and operational excellence.• We will become and remain market leader in whatever we do.• Serving customers is our culture.• We develop and deliver broadband products everywhere to everyone.• We persistently improve efficiency.• We look after company money as if it was our own.• As one team, we build a company that we love and are proud working for.• We deliver high quality and innovative services.Our VisionWe make your life better by connecting and entertaining you, wherever you are, whatever you do. Life is for sharing.3Our Mission / Our Vision

Our strategyIn 2009, we have solidified our position in the broadband market and have achieved the highest growth in the TV segment in Montenegro.Despite the difficulties in the economy, we have continuously been investing in innovation by improving the reach and coverage of ournetwork. As the first operator in the country, we have started to roll out a fiber optical network for the households and launched HDTV.We have also started to offer innovative IP-based voice services (Max Telefonija), and have continued mobilizing the internet with appealingdevices such as the iPhone exclusively available to T-Mobile customers and mobile internet-ready netbooks.We have, once again, demonstrated our commitment to Corporate Social Responsibility by reinforcing our Increasing Internet Penetrationprogram, which has been recognized by the Iskra philanthropy award as the best project in 2009.The foundation for our four strategic goals – “One Company”The strategy of Crnogorski Telekom relies on four objectives. The foundation of those four objectives is the “One Company” concept.The meaning of “One Company” stretches far beyond the legal merger of 2009 which unified the three former entities of the CrnogorskiTelekom Group. “One Company” will constitute the framework for the attitude of the employees of Crnogorski Telekom towards ourCustomers, and the way they will act as One Team – regardless which of the three former legal entities was employing them previously.5Our strategy

1. Improve efficiencyIn our industry, in order to guarantee that the resources necessary for the development of the business are available, challenging constantlythe status quo of the cost and operating structure of the business is indispensible.To ensure that Crnogorski Telekom delivers its promises to its Stakeholders in terms of profitability, innovation and business developmentin a sustainable manner, we have decided to launch a multi-year program, Save for Service.The Save for Service project has created a blueprint for a series of significant shifts of paradigm in all functional areas. Every singleunit within the Company will perform more efficiently in the coming years, with maintained or improved quality of services towards theirinternal and external Customers.2. Superior Customer experienceWe believe that one of the fundamentals for Superior Customer Experience is the way our Employees relate to Customers.We are, in 2010, launching a three-year program targeted at improving this attitude even further. The Cultural Change Program will relyon the introduction of five guiding principles, each item being co-sponsored by chief officers of our organization.Those guiding principles are:• Customer delight drives our action• Respect and integrity guide our behavior• Team together –Team apart• Best place to perform and grow• I am T –Count on meWe are convinced that our Customers will start perceiving the benefits of this program very early.We will also continue reforming our sales channels, and introduce new forms of interaction with our Clients, to improve the accessibilityof our products for their convenience and satisfaction.3. Market leadershipOur claim is simple: we strive to become market leaders in whatever we do.We have, in 2009, solidified our leadership in fixed voice and fixed broadband services. T-Mobile has in 2009 significantly improvedits overall market position compared to the two competitors in both overall revenue and SIM share terms, and we have reinforced ourpostpaid dominance.We have overtaken the second position in Television by producing the highest growth in new customers compared to all of our competitors.These achievements were strongly supported by the extremely successful launch of Pleme, our mobile tariff plan targeted at youngsters,3Play packages (which were acclaimed by the market and generated better than expected results), the Max Telefonija offer (targeted atbusinesses) and our programs targeted to grow Mobile Internet supported by our exclusive iPhone and netbook offers.6

4. Capture broadband potentialThe expansion of services which rely on broadband technology remains a core element of our business strategy.In 2009, we have grown solidly our presence on the broadband access market and have connected 43.5 thousand ADSL customers,and have registered close to 9 thousand mobile internet package users.We have achieved the highest growth in Television segment with Extra TV, exceeding very significantly the growth of each of our Competitors.Our ongoing efforts to destroy barriers in front of internet literacy in the country have been widely recognized by the Society and variousorganizations. We believe that Public-Private Partnerships (projects in cooperation with the Government) will be a significant stepforward to overcome remaining challenges in terms of providing infrastructure to areas in the country where a broadband infrastructureis not yet available.The extension of our mobile broadband network and the continuation of the rollout of fiber infrastructure remain a priority in 2010. Weexpect that the penetration of IP telephony based services will increase significantly.Shareholder valueMarketLeadershipSuperiorCustomerExperienceImproveEfficiencyCaptureBroadbandPotentialOne Company7Our strategy

Dear Shareholders,It is my pleasure to inform you about the highlights of the business operations of CrnogorskiTelekom in 2009. Despite very difficult year that was predominantly characterized bythe global economic crisis and its effects to the Montenegrin economy, our company succeededin achieving key operational and financial targets, which we see as a proof thatour strategy and its slogan 3 screens, 2 brands, 1 company was a very successful one.2009 was the year of significant internal organizational change in which we finishedseveral-year ongoing integration process – as of 1st of May we have been operatingas one company – there was a legal merger of the former three entities (CrnogorskiTelekom, T-Mobile Crna Gora and Internet Crna Gora) into one company called CrnogorskiTelekom A.D. Podgorica. This major project was successfully ended and it resulted insimplified, faster and more efficient and effective operations which will enable us to serveour customers even better.As for the 2009 business achievements, Crnogorski Telekom not only kept its overallleading position in the Montenegrin telecommunications industry, but managed to makesignificant progress in certain segments.In fixed line of business, we managed to maintain a stable customer base in voice segment,further improve our position in broadcasting market with our Extra TV service andexceed expectations with regards to the sale of ADSL. When it comes to mobile segmentof our business, we further strengthened leadership in the postpaid market, the mostvaluable part of the operations, and at the end of the year we got closer to number oneposition in the overall mobile market for the first time during nine years of existence ofT-Mobile in Montenegro.However, in line with our expectations, revenues of the company were under significantpressure due to changes in regulatory regime, fixed-to-mobile substitution and regionalalliances of the competitors. Hence, the overall revenues of the company suffered 7%drop compared to 2008. It is necessary to underscore that we were ready to react to suchdevelopments and as a consequence we managed to have drop in EBITDA without specialimpacts of only €1.86 million, i.e. 4% compared to 2008. We experienced a heavierreduction in mobile revenues than in fixed segment of operations. It is very importantto point out that we managed mainly to offset the aforementioned drop in revenues oncompany level by a significant increase in ADSL and Extra TV sales results.In the summer of 2009 we launched major cost control program (Save4Service inCrnogorski Telekom) which was already contributing to this year’s results, but majorimpact is still to come in the coming years – apart from inevitable financial effects, theprogram will improve efficiency and result in leaner internal organization which will beeven more responsive to the customers’ needs.8

As for T-Com, the overall fixed operations are very stable with significantly slower churn invoice segment than in other European countries. Thanks to the strong focus on our strategicbroadband services, the number of ADSL customers was higher than 43,500 (56%increase compared to 2008), whereas Extra TV service had almost 30,000 customers atthe end of the year (71% growth year over year). It is very important to point out that ExtraTV had by far the highest number of new customers in the market during the year, thusproving its superior quality. In addition, for the first time we launched 3play offer whichhas been a real success on the market.2009 was one more year of a very intensive competition in Montenegrin mobile market.However, T-Mobile managed to increase its overall customer base to 36.7% (comparedto 36.1% in 2008), maintaining stable leadership in the postpaid segment - 44.5% ofmarket share in postpaid segment compared to 42.9% in 2008. All in all, T-Mobile gotcloser to the overall market leading position then ever.When it comes to our dividend policy payment, 2009 will definitely be remembered as thehistoric year – a year in which we paid out the highest amount of dividend in the history ofthe country amounting to € 59.800.000.We also continued being number one company in corporate social responsibility aspectfor which we received an official award – it was the first time such award was given in thecountry and we are very proud to receive this public recognition for our activities.The aforementioned activities, inter alia, contributed to the fact that Crnogorski Telekom’sTRI*M results (customer satisfaction) are on the highest level in MT Group, but we aregoing to strive for even better achievements in this regard as well.I would also like to use this opportunity to thank our employees for their commitmentand contribution to the successes of the company. They are definitely considered as akey asset of the company and therefore we are going to carry on working on their furtherimprovement and education which is essential for the forthcoming challenges.Last but no least, I would like to thank you, our shareholders, for the shown trust. We areconfident that with our customer focus, permanent innovations, investments in both fixedand mobile networks and constant increase in efficiency, we are going to achieve operationalexcellence and sustainable profitability on a long run. However, in order to achievethe aforementioned, we need to take one step at the time. We all already see that the yearof 2010 will not be an easy year in many aspects, but similarly to what I said at the verybeginning of my letter, I am convinced that our 2010 strategy and its slogan – one company,one team, one mission – will bring even better results than those we had in 2009.Daniel SzaszChairman of the Board of DirectorsDear Shareholders9

Crnogorski Telekom’s Board of DirectorsDániel SzászGereon HammelTripko KrgovićGábor PálHans-Peter SchultzJános SzabóDénes SzluhaDániel Szász, Chairman of the Board of Directors of Crnogorski Telekom a.d.Szasz Daniel, age 38, is an economist. He started his career at General Motors Group,where he held various managerial and treasury leadership positions since 1994 at Opelcompanies in Hungary and Germany. He delivered tasks of GM Daewoo Central and EasternEurope managing director from 2002. He was appointed Chief Financial Officer ofT-Online Hungary Plc. effective of January 1, 2004. In 2007, he was appointed Chairmanof the Board of Directors and Chairman of the Management Committee of CrnogorskiTelekom.Gereon Hammel was born in May 1968 and holds a business degree.In 1989 he started his professional career at the Bayer AG Group in the Fast MovingConsumer Goods business unit. From 1992 he managed the Household Detergent businessof Bayer Italy. In 1994 he moved back to Germany and was appointed as regionalmanager for the Bayer subsidiaries in Scandinavia, Poland and Africa. In 2000 he built upa Regional Financial Controlling and participated as a member of the national managementteam in the development of an international head office based in the UK for the UK,Scandinavia, Finland, France, Poland, Russia and Africa.In 2001 he joined Michael Page Frankfurt an international recruitment consultancy andwas responsible for the Executive Search of Finance positions.In August 2002 he moved to T-Mobile International and was responsible for projects inthe South Eastern European region (SEE). Between 2006 and 2009 he holds the positionof a Vice President for T-Mobile International’s Joint Venture Management in Hungary,Montenegro and for projects in SEE. Today he works as Senior Expert within DeutscheTelekom’s SEE Marketing department.10Tripko Krgović is born in 1977, in Belgrade. He finished his basic and masterstudies on Faculty of Economics in Podgorica.His professional carrier began in 1996 in family business. From 2004 he works in SecuritiesCommission, in market supervision department. In 2005 he holds position of Investmentmanager in Moneta Investment Fund. From 2006-2008 he was the Chief ExecutiveOfficer of Moneta Broker-Diler AD Podgorica, where he is still a Board member. BesideCrnogorski Telekom, he is Board member of Otrantkomerc, AD Ulcinj. He is the memberof Minority Shareholders Council and a represent of minority shareholders in severalMontenegrin companies.

Gábor Pál - Born in Budapest, 1968. Earned his degree at the Finance and LogisticsManagement faculty of the Budapest University of Economics in 1993, followed bya second degree at the Programmer Mathematician faculty of Eötvös Lóránd Universityin 1994. He participated in the PhD program of the Budapest University of Economicsfrom 1996. He started to work for NN Hungary Insurance Company as insurance mathematicianin 1993, followed by his employment by Westel Mobile Co. Ltd. from 1994as financial analyst. In 2000 he was promoted director of finance of the company, andbecame executive director of finance as of January 1, 2004 at Westel and the renamed onMay 3, 2004 company, T–Mobile Hungary Ltd. After the merge of T-Mobile Hungary withMagyar Telekom Plc. in March 2006, he is director of finance and controlling of the MobileServices Line of Business at Magyar Telekom. Since January 2008 Strategy, Planningand Control director of Consumer Business Unit of Magyar Telekom Plc. Participated inseveral Magyar Telekom acquisition projects in the region. Former member of the BoD ofMobimak in Macedonia, currently member of the BoD at Crnogorski Telekom, MakedonskiTelekom. Member of the BoD of M Factory Zrt, Budapest.Hans-Peter Schultz was born in 1958. He graduated as Electrical engineer in1981. After joining Deutsche Telekom in 1985 he was working in different positions andprojects in DT’s international business. Until 2001 he was responsible for both internationalaffairs and projects mainly in South-East Europe. In 1996 he joined DeutscheTelekom’s Moscow Office where he managed the restructuring of DT’s satellite business,the integration of regional mobile businesses into DT’s affiliate “Mobile TeleSystems”and the introduction of Global One Russia. In 2002 Hans-Peter Schultz moved back toDeutsche Telekom in Bonn were he was responsible for DT’s business in Israel in the“Region CEE, Middle East”. In the headquarters of T-Home (until 2009) and in the newdivision “Southern and Eastern Europe” of Deutsche Telekom (since 2010) he managesT-Home’s fixed line business of the Group in Slovakia.János Szabó was born in Hódmezovásárhely (Hungary) in 1961. He qualifiedwith a degree at the Budapest University of Economics in 1986 majoring in internationalrelations. After working in foreign services for three years, he continued in various financeand consultant positions in the private business sector. He became Director Finance ofDelco Remy Hungary (subsidiary of a US based automotive supplier) in 1995. Later hewas deputy general manager of the operation, responsible for sales, purchasing andoperations. In 1998 he was moved to the position of Director Finance Europe in charge ofthe finance activities and acquisitions of the European operations. Later he has becomeCFO and managing director of a joint venture between Delco Remy and Hitachi. FromApril, 2003 he was the director finance of the Wireline Services LOB of Magyar Telekom/later T-Com. The role was extended to fixed line network and IT operations in 2006. SinceJanuary 2008 he is Director of Group Planning & Controlling of Magyar Telekom Group.He is member of the BoD of MakTel and TMMK companies, and chairman of AC ofMakTel Group.Dénes Szluha was born in Budapest in 1968. He qualified with a degree at theSzent István Universtity, Gödöllő in 1994, majoring in economics. His career started at themarketing department of Shell Gas Hungary than continued at the advisory firm Deloitte.In 1998 he joined the leading Hungarian private equity fund manager with investors suchas EBRD, Bank Vontobel, Dresdner Kleinwort Wasserstein. He was responsible as an investmentmanager for acquisitions, portfolio management and sale of major investmentsin primarily the IT and telecommunications industry.In 2002 he joined Matáv (today Magyar Telekom or MT) as senior project manager. Currentlyhe holds the position of Portfolio Management Director. In his current capacitieshis team is responsible for managing international and domestic portfolio companies, aswell as working on the acquisition strategy. He is Board member in Makedonski Telekom,T-Mobile Macedonia and Crnogorski Telekom.11Dear Shareholders

Zoltan Pinkola, Strategy and Business Development OfficerBorn in 1972. Holds a degree in economics. Started his career with an international audit and financial advisoryfirm, Mazars in Budapest where he managed statutory audits, due diligence reviews of privatized companies andlead miscellaneous financial consultancy assignments through four years.He joined HBO Europe in 1997, holding various managerial positions initially in the Finance area, successivelytransferring to Business Development, managing projects related to the territorial expansion of HBO in CentralEurope and to the launch of new pay TV channels and services in the region.He has joined Magyar Telekom in March 2006, and Crnogorski Telekom in July 2006. He has been a member ofthe Management Committee of the Group and has fulfilled various executive positions since then. He holds theposition of Strategy and Business Development Officer since October 2007.Beata Prisztacs, Chief Human Resources OfficerBeata Prisztacs was born in 1970 in Pecs, Hungary. She graduated in 1993 on the Economics Faculty of PecsUniversity. She started her career in the Tourist Office of County Baranya in Pecs, first as marketing manager andlater as director of the company.In 1998 she joined Magyar Telekom and while working in different areas of the company she gained experiencein the field of Controlling, Sales and Human Resources. In 2003 she moved to Skopje, to the Macedonian subsidiaryof Magyar Telekom as senior consultant to the CHRLO, later as director of the HR Area.Eva Ulićević, Chief Technical Officer of Crnogorski TelekomBorn in 1970. She holds a degree in Mathematical Science and Master of Mathematical Science. She started hercareer on 1993 at Mathematical Faculty of Montenegro University in Podgorica, as the Assistant to the Professor.From 1996 she worked in ProMonte GSM Podgorica as Deputy of CIO. In 2000 she was engaged as the TeamLeader of Oracle Academic Initiative Project while 2001 she worked in SEMA (LHS) Communications SystemsInc, Miami Florida USA as Senior Software Analyst Engineer for BSCS. From 2002 she is working for CrnogorskiTelekom Group at the several executive positions: CIO of T-Mobile, IT Director of Crnogorski Telekom Group(2005) and currently as CTO of Crnogorski Telekom Group (2006).14

Manfred Knapp, Chief Financial OfficerManfred Knapp holds a degree in Business Administration and Management from Fachhochschule fürWirtschaft, Berlin.Before joining Deutsche Telekom Group in 1997, Manfred Knapp covered several senior Controlling andFinance Management positions in different industries where he gained broad management experience in allareas of Finance Management.Mr. Knapp joined Deutsche Telekom in 1997. In 1998 Manfred Knapp was assigned to the mobile operatorWind in Italy as Controlling Director. From 1999 he managed the controlling area of Deutsche Telekom CarrierServices Business. In 2001 Manfred Knapp joined Slovak Telekom as Controlling Director and Deputy CFO.Since May 1, 2009 Manfred Knapp is responsible for the Finance area of Crnogorski Telekom as CFO.Tibor Vidos, Regulatory & Government Relations and Legal OfficerBorn in 1954. He holds a degree in physics and a doctorate in biology from the Eötvös University of Sciences inBudapest. In 1989 after having spent several years in academic research he became the executive secretary ofa political party during the democratic transition of Hungary. In 1991 he established the Hungarian subsidiaryof the then market leading British lobby firm GJW Government Relations which he managed until 2000. Between2000 and 2003 he assisted the democratic development of Indonesia by working there as the Directorof Political Party Programs of the National Democratic Institute (NDI). Between 2003 and 2004 he was the ChiefExternal Relations Officer of Invitel; one of the incumbent fixed line telephone operators in Hungary. He joinedCrnogorski Telekom in April 2005 as Regulatory and Government Relations Director. He holds his current positionsince January 2008.Milija Zeković, Chief Sales OfficerBorn in 1971. He holds a degree in Economics from University of Montenegro. After completing studies in 1995he started his career at „Kartonka“, Podgorica, as production and sales manager.He started to work as Sales manager in T-Mobile (formerly Monet) in 2000.. In 2006 he became the Directorof Sales for residential customers and small and medium enterprises. In July 2008 he was appointed CSO ofCrnogorski Telekom.Dear Shareholders15

IntroductionGeneral informationCrnogorski Telekom (CT) is the biggest telecommunication company in Montenegro. It provides full range of fix, mobile and internettelecommunication services.Crnogorski Telekom is the main fixed line service provider in Montenegro. Its exclusive rights expired in 2003. Crnogorski Telekom provideslocal, national and international services, in addition to a wide range of telecommunications services involving leased line circuitsand data networks.On April 1 2005, Magyar Telekom obtained 76.53 percent interest in Crnogorski Telekom and thus became the majority owner of theCompany.Deutsche Telekom AG holds 59.21% of the Magyar Telekom shares. Deutsche Telekom and Magyar Telekom have a number of subsidiariesworldwide, with whom Crnogorski Telekom has regular transactions. Related party transaction details are given in the company’sFinancial Statements, Note 34.For the past five years, Crnogorski Telekom’s major operational goals were to finalize digitalization of the fixed line network and to increasethe capacity and reliability of data network, consequently creating conditions for increase of subscribers of broadband and voiceservices. The digitalization rate reached 100 percent by the end of 2007 and ADSL coverage exceeded 94% of PSTN customer base bythe end of 2009.In December 2007 Crnogorski Telekom started IPTV services.In 2006, T-Com and T-Mobile brands were launched.T-Mobile Crna Gora is the second entrant in the mobile market in Montenegro and by YE 2009 it held 36.7% of mobile market (SIMcard) share. From the foundation in 2000, T-Mobile has always offered innovative and advanced services to the Montenegrin market andhas been experiencing dynamic growth.T-Mobile uses all advanced technologies such as UMTS, HSDPA, GPRS, EDGE. 3G network was launched in 2007.On May 1, 2009 Crnogorski Telekom a.d., T-Mobile Crna Gora d.o.o and Internet Crna Gora d.o.o were merged into one legal entity,Crnogorski Telekom a.d. The services are marketed under T-Com and T-Mobile brands.Introduction17

CompetitionT-ComIn 2007, the third mobile operator entered into the Montenegrintelecommunications market, as one of the licensed operators fordevelopment and exploitation of WiMAX-based network. In 2008 itlaunched fixed voice and broadband internet services.By 2009, only 2 out of 10 licensed VoIP operators started withoperations. Agreements on interconnection/access were signedwith both operators. According to these contracts outgoing callservices to CT customers through carrier selection and freephoneservice are offered.Nine Multichannel Multipoint Distribution Service (“MMDS”) andCATV licenses were awarded in 2007. First broadband internetservices were offered in Q4 2009.CT underground infrastructure is currently used by the competitorsto a limited extent.Strong competition is developing in wholesale segment.T-MobileT-Mobile started its commercial operations as the second mobiletelecommunications service provider in Montenegro in 2000, fouryears after the first mobile provider started its operations. In 2007,a third mobile operator entered the Montenegrin mobile market.In 2009, T-Mobile increased SIM market share by 0,6pp to 36,7percent and remained market leader in the postpaid segment with44,5 percent market share.Competition in mobile services is intense and driven by pricing,subscription options, subsidized handsets, coverage, as well asquality and portfolio of services offered.The goal of T-Mobile is to increase its market share by introducingsegment-oriented price plans, continuously offering new attractivehandsets, exploiting synergies of Deutsche Telekom, and maintainingexisting customer relations and community involvementas a sponsor of important social, cultural, sports and educationalevents.In 2009, CT could increase pay TV customer market share by 8pp,to a market share of 26,9%.In September 2009, Crnogorski Telekom started commerciallywith voice over IP services for business customers, using IP Centrexplatform.18

Regulatory environmentFollowing the privatization of Crnogorski Telekom, the gradual liberalization of the telecommunications markets in Montenegro hasstarted and this process has become more intense in recent years. The competition law came into force on January 2006 and the consumerprotection law was adopted in May 2007.The Law on Electronic Communications was adopted in July 2008. According to the expectations of the government the law will speedup the development of electronic communications networks and services; stimulate competition; provide open and equal access tonetworks and electronic communications services; improve efficiency and introduce new technologies and services; provide efficientcustomer protection; provide easy access to information on tariffs and services; stimulate Internet usage and encourage investment inthe telecommunications sector.The Agency for Electronic Communications has initiated a market analysis to identify operators that are significant market players (SMP)in order to prescribe SMP operators to introduce remedies as defined by the relevant EU directives. Until SMP operators are identifiedit shall be considered that Crnogorski Telekom is an operator with SMP in the markets of fixed voice telephony network and services,including the market of access to network for data transfer and leased lines, while all telephone network operators (including T-MobileCrna Gora) are operators with SMP in markets of termination of calls in their respective networks. The law on Electronic Communicationshowever does not prescribe what obligations the SMP operators have to fulfill before the first market analysis is completed.The Agency for Electronic Communication and Postal Services adopted the Rule Book on Number Portability, according to which providingof the service will start until August 2011 at the latest.Mobile operators will have to start to register prepaid users as of 1 March 2010 but have time to register the existing ones until May 2011Regulatory feesUnder the new regulatory regime Crnogorski Telekom pays fees for market supervision, numeration and the usage of radio frequencies.These fees are higher than the ones paid under the previous law when a flat 1 percent gross revenue fee was paid.Carrier selectionRIO of CT has not been updated since April 2008. Carrier Selection was already included in that version of RIO. Up to now, only oneoperator signed interconnection agreement with Crnogorski Telekom in July 2008, with Carrier Selection included.Sharing of infrastructureThe RIO also defines terms and conditions of collocation, for the purpose of interconnection realized at Crnogorski Telekom’s premises.This includes renting of space at buildings, masts and ducts as well. RIO conditions are valid only for operators looking or interconnection/accesswhile usage of infrastructure by operators for other purposes is subject to commercial negotiations.Termination of callsFixed termination fee (“FTR”) has been reduced by 10 percent in July, 2008 to level of 0.027 EUR/min. Termination of international callsin Crnogorski Telekom’s network transited by domestic operators is still subject of commercial negotiations with competitors.Mobile termination fee („MTR“) has not been changed since May 2007, when it was set on current level of 0.10 EUR/min. In May 2009,inter-operator SMS/MMS termination fees have been introduced for the first time at Montenegrin mobile market.Reduction of FTR and MTR and the intention to equalize fees regardless of traffic origin have been announced by the Agency for ElectronicCommunications together with the introduction of cost-based termination in the forthcoming period.Local governments and state owned companies have repeatedly attempted to force CT to pay extremely high fees or charges based onvarious legal pretexts. CT has successfully challenged most of these attempts.IntroductionMontenegro and the European UnionMontenegro became independent in 2006 and signed a Stabilization and Association Agreement with the European Union at the end of2007. The Interim Stabilization and Association Agreement came into force on January 1, 2008. Montenegro has submitted its applicationfor membership in the EU in December 2008.19

Human resourcesLegal integration – merging our strengthsOn the May 1, 2009 the integration process has successfully finished with the merger of T-Mobile CG and Internet CG into CrnogorskiTelekom. This resulted in the transfer of the employees. All employees of TMCG and ICG accepted the transfer and became employeesof Crnogorski Telekom. The Collective Bargaining Agreements (CBA) of the predecessor companies stay valid for the employees foradditional one year. During this period the Employer need to harmonize with the Trade Union the new, modern and integrated CBA of theintegrated company.On the way to performance based cultureIn company’s HR strategy the creation of a performance-based corporate culture plays an outstanding role. Performance is the real measureof value, both for the company and for the individual contribution to the company’s success. As part of the extended performancemanagement system, individual target settings and evaluation was introduced as a pilot project, with the participation of all functionalareas.The performance management system supports the understanding and the implementation of the strategy. It supports the motivationof the employees, gives a transparent and documented evaluation of results by the manager and an objective self evaluation of performanceby the employee. It creates also the objective basis for the implementation and further evolution of staff development programsand remuneration schemes.Innovation program – Our competitive advantageHuman resourcesLearning from the results of a survey means taking visible and consistent actions. This was in focus during the review of the results ofthe Employee Survey conducted in the last quarter of 2008. The “Innovation Management” program was established in 2009 as a directresponse to the employee feedback.With the program, the Company was seeking to gain a competitive edge by mobilizing the innovation potential, commitment and ideasof its employees, who were really encouraged to make an extra effort and to utilize their innovative potential. The program showedclearly the real innovative potential of the company and the commitment and the loyalty of the employees. This was opportunity to capitalizethe human resource potential in the company, as real sustainable competitive advantage.Many ideas were reviewed and analyzed, and the winning ideas are already in the process of implementation. By this program, innovationbecomes part of the corporate DNA.21

Corporate responsibilityThe concept of Corporate Social Responsibility is important for Crnogorski Telekom. As one of the leading companies in the country,Crnogorski Telekom is proactively involved in all areas important for Montenegrin society.Following the codes of business ethics and corporate governance, as well as by understanding the needs of the community, CrnogorskiTelekom gives its contribution to the development of the Montenegrin society.CT supports educational initiatives, sports, culture and public health by sponsorships and donations.Corporate social responsibility23

ISKRA Philanthropy AwardIn 2009 Crnogorski Telekom received the ISKRA PhilanthropyAward for the best national project, given by NGO Fund for ActiveCitizenship, in partnership with Montenegrin Chamber of Commerceand the Office for sustainable development of the Governmentof Montenegro.It was the first time this kind of award was awarded in Montenegro,with the goal to promote development of the values suchas solidarity, humanity and social responsibility, and CrnogorskiTelekom received it for already several years ongoing project onincreasing IT literacy in the country, thus contributing to the overallprogress of Montenegrin society.The ISKRA award was a recognition for Company’s dedicationto the principles of sustainable growth and its striving to make agood balance between economic and social goals, by contributingin achieving higher life standards in the community.Development of information society in MontenegroBeing the leading broadband provider in the country, CrnogorskiTelekom is responsible to be the first country’s partner on its wayto becoming an information society. In order to enable internetto become a part of everyday lives of majority of Montenegrincitizens, together with the Government of Montenegro, the Companyinitiated a project aiming to increase the level of informaticsliteracy and internet penetration in Montenegro.The goal of the project, which started in 2008 and is planned tolast until 2012, is increasing the computer literacy, increasing thelevel of knowledge and using the internet, raising the general levelof awareness on the importance of the Internet and promotinginformation culture in Montenegro.All primary and secondary schools in Montenegro got their ownwebsites.For the third year in a row, Crnogorski Telekom enables freeinternet access via ADSL to all elementary and high schools in thecountry. The project was implemented together with Ministry ofeducation and science.24

The lines of businessWireline servicesTelephonyLoyalty programIn 2008, “Ritam Klub” was introduced, the first joined fix andmobile loyalty program. In Ritam klub customers can collect andspend points for: traffic, subscriptions, handsets, ADSL Modems,video cams, mp3 players and other goods. At the end of 2009,more than 28.6 thousand of either fix or mobile customers joinedthe club.Flat and OCP packagesIn 2008, T-Com introduced flat voice packages (Komfor andKomfor+) offering unlimited calls towards the T-Com fixed networkin Montenegro and 100 extra minutes for calls within the fixednetwork in Serbia (Komfor+). These packages were launched toprevent churn.In December 2009 new semi-flat voice packages Komfor Veče(free on net calls in off peak) and Komfor Vikend (free on net callsin off peak and during the weekend) were launched with goodsuccess.3PLAYIn September 2009, first 3Play offer on the Montenegrin marketwas launched with great success. It consists of two packages, ExtraTrio Mini and Extra Trio Flat, which combine Voice, ADSL andExtra TV services. At the end of 2009, more than 6.100 customerssubscribed for the offer.IP Centrex solutionIn September 2009 Crnogorski Telekom started Max telephonyservice for business customers, based on IP Centrex solution.Fiber to the home (FTTH) projectIn 2009, CT invested in most advanced FTTH technology inselected locations.ADSLIn 2009, CT could increase number of ADSL customers by morethan 15.6 thousand (or by 56%) to 43,6 thousand customers.ADSL penetration by household reached 23% by YE 2009 and iscomparable to the ADSL penetration of neighboring countries.Extra TVExtra TV launch was very successful and IPTV penetration isthe highest in DT Group. At the end of 2009, there were almost30.000 customers connected. The customer satisfaction of ExtraTV users is very high. ExtraTV had the most significant customermarket share increase in Montenegro in 2009, with share of 29%at the end of year (increase of 8pp). Number of Extra TV customersincreased by 71% YoY.Two more channel packages have been added in 2009 (sport andentertainment). There is also a long list of Extra TV additional featuresimplemented through developed applications in 2009 (newweather forecast, classifieds, Extra TV Chat, Extra TV SMS).OtherImplementation of new Montenegrin numbering plan was successfullyfinished and parallel usage of new and old national areaand short codes finished in 2009.Implementation of new national Internet domain (.me) was successfullyimplemented during 2008. Also, parallel usage (12months) of public mail addresses and web domains finished in2009.The lines of business27

Mobile servicesTotal T-Mobile customers increased YoY by 58,9 thousand (14,2%) to 474,6 thousand. Postpaid customer number increased by 17,5thousand (14,6%) to 136,9 thousand. Prepaid customer number increased by 41,5 thousand (14,0%) to 337,6 thousand.Total SIM market share increased from 36,1% to 36,7%. Market share in postpaid increased from 42,9% to 44,5% and T-Mobile remainedmarket leader in that segment. Prepaid SIM market share was 34,2% by YE 2009 (33,4% in 2008).SIM card penetration is among the highest in Europe with 208%.In January 2009, T-Mobile introduced “Dueti”, a combined postpaid and prepaid service.In March 2009, T-Mobile launched exclusively iPhone in Montenegro.In March 2009 T-Mobile, together with T-Com, executed refreshment of Ritam Club.In April, Smart Family was introduced, an addition to the most successful postpaid package (Smart) on the market.In May, Dupli Net was launched – ADSL and Mobile Internet in one package, first joint product ofT-Mobile and T-Com.Also in May, T-Mobile started with strong campaign for youth segment based on youth oriented prepaid tariff “Pleme”. Till the end of the2009, more than 90.000 prepaid customers joined.At the beginning of summer season, T-Mobile launched Holiday prepaid package in order to offer calling and SMS benefits to tourists.In September, T-Mobile introduced the upgrade of Mobile Internet packages. This upgrade was based on more GB for a lower price.In November, T-Mobile introduced the new version of Smart (residential) and Smart Team (business) postpaid tariff models. These tariffmodels offer additional benefits: more minutes included into subscription, free SMS.In 2009 T-Mobile continued to improve coverage and to extend capacities in 2G and 3G networks. 16 new base stations were implementedin 2G network, while in 3G the existing capacity was extended for more than 40%.28

Sales channelsCrnogorski Telekom has developed different sales channels in order to provide best services to its residential and business customers.Crnogorski Telekom’s direct sales channels consist of own shop network of 14 T-Centers, Key Account Managers, SME Coordinatorsand Call Center. Crnogorski Telekom’s indirect sales channels include the partner shop’s network (consisted of 14 exclusive PartnerShops which use a similar design to the own shops), dealers, web sales and “door to door” sales. Dealers’ network consists of approximately1,400 contracted points of sale for prepaid vouchers and SIM cards.Business customers are served by Key Account Managers taking care of the top 400 clients and SME Coordinators who are in chargefor SME and SOHO companies. Top clients are segmented by industries (e.g. banks, hotels, large manufacturers, government, etc.) andsmall companies are divided by regions.The lines of business29

30This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

The financial year 2009Management report for the 2009 financial year2009 was financially and operationally a challenging year, because of the economic downturn and the difficult market conditions.Crnogorski Telekom was mainly focused on expanding the broadband services in both fixed and mobile segments and on the stabilizationof voice services. In fix voice segment we experienced moderate customer churn, while ADSL and Extra TV customer numberssignificantly increased. In mobile segment we kept postpaid leadership and increased market share.Even though the number of customers developed positively, we experienced revenue decline of 7,2%, and revenues reached 122,9million. Decrease of voice services revenues, both retail and wholesale and both in fix and mobile segment was the major driver of YoYdecline. This trend could not be completely offset by strong broadband Internet and TV revenues growth. During 2009 we successfullylaunched multiyear cost efficiency program that resulted in YoY cost reduction of EUR 7.6 million* (-9.0%). YoY EBITDA* decrease waslimited to 3,9% and EBITDA of 45,7 million was achieved.The financial year 2009Highlights• Revenues decreased by 7,2% to amount of 122,9 million, mainly driven by development of voice revenues• EBITDA* decreased by 3,9%, to 45,7 million, and an EBITDA margin of 37% was achieved• Capital expenditure was 17,6 million, out of which 11,8 million in T-Com (greater part was related to IPTV and to developmentof access and broadband infrastructure) and 5,8 million in T-Mobile (investments into core and radio networks represent themajor share)• Dividend for 2008 in amount of 9,8 million was paid out in June, while 50,0 million of advance dividend (related to retained earningsof former T-Mobile Crna Gora and Internet Crna Gora) was paid out in July* Excluding special effects31

Revenue contribution by segment (after consolidation)T-Mobile47%T-Com53%EBITDA excluding SI developmentMilions5045403530252015105047,545,72008 200932

EBITDA contribution by segment (after consolidation)T-Mobile47%T-Com53%The financial year 2009T-ComT-Com achieved revenues of 71,7 million, a decrease of 4,3 million (-5,7%). Major contributors to this development are voice revenues,both retail (-2,6 million; -8,0%) and wholesale (-3,9 million; -17,0%). Moderate decrease of customers and decrease of usage causedvoice retail revenues decrease, while decreased traffic volumes (mainly of transit traffic) are the reason for voice wholesale revenuesdecrease YoY. Fixed line customer churn was moderate with 4,1 thousand (2,4%). CT Fixed line revenues and customers developmentis better than the international trends.33

T-Com Revenue structure (before consolidation)Milions807060504030201002008 2009Retail voice Wholesale voice Internet & TV Data OtherInternet&TV revenues continued to strongly increase. ADSL revenues increased significantly YoY (2,6 million; 48.0%) driven by customerbase increase of 15,7 thousand or by 56,2%. IPTV revenues increased by 24,0%, mainly due to customer increase of 12,4 thousandYOY or by 70,7%.Based on the cost efficiency project, OPEX* decrease of 3,1 million (-6.0%) YoY could compensate a significant part of revenue decline.Therefore EBITDA* decrease was limited to 5,0% YoY and reached 23,7million.Thousands180160170,2166,11401201008060402027,843,517,529,90Fix voice customers ADSL customers Extra TV customers2008 2009* Excluding special effects34

T-MobileRevenues of T-Mobile for the year 2009 amounted to 65,1 million and decreased by 9.9% compared to 2008. This trend is primarily theresult of the continuing decrease of voice revenues as result of intensive competition and economic crisis. Another driver was significantdecrease of visitors revenues (YoY decrease 2,9 million, -36%).EBITDA* for the year 2009 decreased by 2,7% to 21,9 million.Milions807060T-Mobile Revenue structure (before consolidation)The financial year 2009504030201002008 2009Voice revenues Non-voice revenues Handset and activation OtherBy YE 2009, 474,5 thousand customers used T-Mobile services (+12,4% YoY). In this period, the customer number growth comparedto last year mainly was driven by gain in both prepaid and postpaid segments. Trend in the 2009 was the gradual reduction of prices ofcalls and services. Customers could enjoy more call minutes, messages or data, which was demonstrated in the significant traffic growthas well as higher discounts.Thousands500450400350300250200150100500474,6415,7337,6296,2119,5137,0Postpaid subscribers Prepaid customers Total customers2008 20092008 2009Mobile penetration in Montenegro (%) (**) 186 209T-Mobile Crna Gora’s market share (%) (**) 36,1 36,7* Excluding special effects** Data published by the Montenegrin Agency for Electronic communications and postal activities.35

36This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

CRNOGORSKI TELEKOM A.D. PODGORICAInternational Financial Reporting StandardsFinancial Statements andIndependent Auditor’s ReportThe financial year 2009For the year ended 31 December 2009This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.37

CONTENTSPageIndependent Auditor’s Report 39Statement of financial position 41Statement of comprehensive income 42Statement of cash flows 43Statements of Changes in Equity 44Notes to the Financial Statements 45-11638This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

39The financial year 2009

STATEMENT OF FINANCIAL POSITIONIn EURAt December 31,Notes 2009 2008ASSETSNon current assetsIntangible assets 5 14.031.941 15.301.380Goodwill 6 941.624 941.624Property and equipment 7 118.655.551 121.748.147Available for sale financial assets 8 25.374 25.374Investments in associates 9 - 225.389Deferred income tax asset 23 9.429 7.971Long term loans and other receivables 10 8.362.434 6.726.871Total non current assets 142.026.353 144.976.756The financial year 2009Current assetsCash and cash equivalents 11 3.181.592 17.147.736Short term bank deposits 12 45.200.000 62.150.000Trade and other receivables 13 19.365.120 21.669.927Advances and prepayments 14 53.553.167 3.633.145Current income tax prepayment - 928.583Inventories 15 2.923.783 3.649.258Restricted cash 16 461.903 600.449Total current assets 124.685.565 109.779.098Total assets 266.711.918 254.755.854LIABILITIESCurrent liabilitiesTrade and other payables 20 14.219.104 16.656.790Accrued liabilities and advances 21 10.220.593 12.334.872Current income tax payable 1.538.321 60.892Provision for liabilities and charges 22 1.801.966 5.194.542Total current liabilities 27.779.984 34.247.096Non current liabilitiesDeferred income tax liability 23 2.656.551 2.663.012Provision for liabilities and charges 22 766.773 1.150.788Other long term liabilities 3.293 3.142Total non current liabilities 3.426.617 3.816.942Total liabilities 31.206.601 38.064.038EQUITYCapital and reserves attributable to theequity holders of the companyShare capital 18 140.996.394 140.996.394Statutory reserves 19 5.644.103 5.058.637Retained earnings 88.864.820 70.636.785Total shareholders’ equity 235.505.317 216.691.816Total liabilities and equity 266.711.918 254.755.854The accompanying notes on pages 45 to 116 are an integral part of these financial statements.These financial statements have been approved for issue by the Board of Directorsof Crnogorski Telekom A.D. on April 15, 2010 and on their behalf are signed bySlavoljub Popadic Manfred Knapp Miloš RadovićChief Executive Officer Chief Financial Officer Accounting DirectorThis version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.41

STATEMENT OF COMPREHESIVE INCOMERevenuesIn EURFor the year ended December 31,Notes 2009 2008Fixed line and Internet revenues 24 a 64.988.950 67.486.452Mobile lines revenues 24 b 57.801.956 64.861.659Total revenues 122.790.906 132.348.111Other income 25 365.345 211.441Operating expensesEmployee related expenses 26 (21.311.304) (26.048.892)Depreciation, amortization and impairment 27 (21.882.988) (21.637.264)Payments to other network operators 28 (23.578.578) (27.393.589)Cost of telecommunications equipment sales (5.192.165) (5.167.529)Other operating expenses 29 (24.602.791) (30.841.122)Total operating expenses (96.567.826) (111.088.396)Operating profit 26.588.425 21.471.156Finance income 30 5.786.068 6.850.074Finance costs 30 (536.670) (880.810)Finance income – net 5.249.398 5.969.264Profit before income tax 31.837.823 27.440.420Income tax expenses 31 (3.224.322) (2.799.353)Total comprehensive income for the year 28.613.501 24.641.067Attributable to:Equity holders of the company 28.613.501 24.641.067Earnings per share of the Company during theperiod (expressed in EUR per share)-basic 0,6053 0,5213-diluted 0,6053 0,5213The accompanying notes on pages 45 to 116 are an integral part of these financial statements.42This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

STATEMENT OF CASH FLOW(In EUR)For the year ended December 31,Note 2009 2008Cash flows from operating activitiesCash generated from operations 39 43.819.047 38.453.063Interest paid 30 (16.937) (3.114)Income tax paid 23 (826.228) (5.797.610)Net cash generated from operating activities 42.975.882 32.652.339Cash flows from investing activitiesPurchase of tangible and intangible assets 5,7 (17.320.523) (14.990.517)Short term bank deposits 12 16.950.000 (22.050.000)Interest received 30 4.630.903 5.393.760Proceeds from disposal of associates 5,7 154.612 1.856.059Long term loans and other receivables 10 (1.635.563) 1.053.177Net cash used in investing activities 2.779.429 (28.737.521)The financial year 2009Cash flows from financing activitiesDividends paid to shareholders and minority interest (59.721.455) (21.440.415)Net cash used in financing activities (59.721.455) (21.440.415)Net decrease in cash and cash equivalents (13.966.144) (17.525.597)Cash and cash equivalents, beginning of period 17.147.736 34.673.333Cash and cash equivalents, end of period 11 3.181.592 17.147.736The accompanying notes on pages 45 to 116 are an integral part of these financial statements.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.43

STATEMENT OF CHANGES IN EQUITYShare Capital Statutory reserves Retained earnings TotalBalance at January 1, 2008 140.996.394 2.919.357 70.134.998 214.050.749Dividends - - (22.000.000) (22.000.000)Allocation of retained earnings (Note 19) - 2.139.280 (2.139.280) -Total comprehensive income for the year 2008 - - 24.641.067 24.641.067Balance at December 31, 2008 140.996.394 5.058.637 70.636.785 216.691.816Balance at January 1, 2009 140.996.394 5.058.637 70.636.785 216.691.816Dividends - - (9.800.000) (9.800.000)Allocation of retained earnings (Note 19) - 585.466 (585.466) -Total comprehensive income for the year 2009 - - 28.613.501 28.613.501Balance at December 31, 2009 140.996.394 5.644.103 88.864.820 235.505.317The accompanying notes on pages 45 to 116 are an integral part of these financial statements.44This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

1. GENERAL INFORMATIONCrnogorski Telekom A.D. Podgorica (“Telekom” or the “Company”) provides fixed line, mobile, internet and other telecommunicationservices in Montenegro.The Company is the principal provider of fixed telephony services in the Republic of Montenegro, as well as of local, national and internationaltelephony services, in addition to a wide range of other telecommunication services involving leased circuits, data networks,telex and telegraph services. In accordance with the Republic of Montenegro Telecommunications Law, the Company’s market positionas an exclusive supplier of fixed-line telephony services was officially terminated on December 31, 2003.Crnogorski Telekom A.D., Podgorica was founded and registered with the Commercial Court of Podgorica under Decision numberedFi. 5490/98 of December 31, 1998, subsequent to the completion of the ownership transformation and separation processes of thetelecommunication and postal businesses of the Public Enterprise of Post, Telegraph and Telecommunications of the Republic of Montenegro(“JP PTT Crna Gora”).The financial year 2009In accordance with the Republic of Montenegro Company Law, the Company was re-registered on November 6, 2002 into the CentralRegister of the Commercial Court of Podgorica under registration entry numbered 4-0000618/001.During 2000, Telekom rolled out a GSM 900 mobile network and in May 2000 launched its commercial operation as a provider of mobiletelephony. On July 28, 2000 Telekom registered Monet D.O.O. (which was later renamed to T-mobile CG d.o.o.) as it’s fully ownedsubsidiary and subsequently transferred the mobile telephony business to Monet. The Montenegro mobile telephony market is liberalizedand Crnogorski Telekom (T-mobile CG d.o.o., as its subsidiary before merging date) competes with other operators “Pro Monte”D.O.O. and M tel D.O.O.Crnogorski Telekom A.D. (Internet Crna Gora d.o.o., as its subsidiary before merging date) also operates in the area of provisioning ofweb services, line leases, reproduction of computer media, consulting services and in development of computer software.Following a successful privatization tender Crnogorski Telekom A.D. was acquired by Magyar Telekom NyRt. (hereinafter referred to asMagyar Telekom). Magyar Telekom obtained control of Crnogorski Telekom on March 31, 2005 and by the end of 2005 it had a 76.53%stake which did not change by 31 December 2009. Deutche Telekom AG is the ultimate controlling owner of Magyar Telekom holding59.21% of the issues shares.As of April 30, 2009, the Company owned 100% of the capital of T-mobile CG d.o.o., the Montenegrin mobile company and 100% ofthe share capital of Internet Crna Gora..On April 30, 2009 the General Assembly of Crnogorski Telekom A.D made decision about merging of previously existed three companies:Crnogorski telekom A.D., and it’s subsidiaries T Mobile d.o.o. and Internet d.o.o., into one unique legal entity “Crnogorski TelekomA.D.”. The merger was registered on May 11, 2009 at the Court of Registrar of the Republic of Montenegro under registration number4-0000618/028.Telekom is domiciled in Podgorica, in the Republic of Montenegro at the following street address: Moskovska 29. As at December 31,2009 the Company had 917 employees (31 December 2008: 949 employees).This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.45

1. GENERAL INFORMATION (continued)Investigation into certain consultancy contractsAs previously disclosed, in the course of conducting their audit of Magyar Telekom’s 2005 financial statements, PricewaterhouseCoopersKönyvvizsgáló és Gazdasági Tanácsadó Kft. (“PWC”) identified two contracts the nature and business purposes of which were notreadily apparent to them. In February 2006, Magyar Telekom’s Audit Committee retained White & Case (the “independent investigators”),as its independent legal counsel, to conduct an internal investigation into whether the Magyar Telekom and/or any of its affiliateshad made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the Foreign CorruptPractices Act (“FCPA”), or internal company policy. The Audit Committee also informed the U.S. Department of Justice (“DOJ”) and theU.S. Securities and Exchange Commission (“SEC”), and the Hungarian Supervisory Financial 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 AuditCommittee of Magyar Telekom Nyrt.” dated November 30, 2009 (the “Final Report”). The Audit Committee indicated that it considersthat, with the preparation of the Final Report based on currently available facts, White & Case has completed its independent internalinvestigation.The Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and itscounsel:As previously disclosed, with respect to Montenegrin contracts, there is “insufficient evidence to establish that the approximately EUR7 million in expenditures made pursuant to four consultancy contracts ... were made for legitimate business purposes”, and there is “affirmativeevidence that these expenditures served improper purposes.” These contracts were not appropriately recorded in the booksand records of Magyar Telekom and its relevant subsidiaries.In 2007 the Supreme State Prosecutor of the Republic of Montenegro informed the Board of Directors of Crnogorski Telekom, of herconclusion that the contracts subject to the internal investigation in Montenegro included no elements of any type of criminal act forwhich prosecution would be initiated in Montenegro.Hungarian authorities also commenced their own investigations into Magyar Telekom’s activities in Montenegro. The Hungarian NationalBureau of Investigation has informed Magyar Telekom that it closed its investigation as of May 20, 2008 without identifying anycriminal activity.United States authorities commenced their own investigations concerning the transactions which were the subject of the internal investigationto determine whether there have been violations of U.S. law.We cannot predict when the ongoing investigations will be concluded, what the final outcome of those investigations may be, or theimpact, if any, they may have on our financial statements or results of operations. The authorities could seek criminal or civil sanctions,including monetary penalties, against us or our affiliates, as well as additional changes to our business practices and compliance programs.46This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies2.1. Basis of PreparationThe financial statements of the Crnogorski Telekom A.D. have been prepared in accordance with the International Financial ReportingStandards (IFRS) as issued by the International Accounting Standards Board (IASB) and effective at the time of preparing the financialstatements and with the requirements of the Law on Accounting and Auditing of Montenegro. The financial statements have been preparedunder historical cost convention.The Company maintains its accounting records and prepares its financial statements in accordance with the Accounting and AuditingLaw of the Republic of Montenegro (Official Gazette of the Republic of Montenegro, numbered No 69/2005) and in particular, based onthe relevant legal decision defining the mandatory application of IFRS in the Republic of Montenegro (Official Gazette of the Republic ofMontenegro, numbered 69/2002). In conformity with these provisions, the IFRS were applied for the first time as the primary accountingbasis for the reporting year commencing January 1, 2003.The financial year 2009The official currency in the Republic of Montenegro and the functional currency of Crnogorski Telekom A.D. is the Euro (EUR).These financial statements of the Company were approved for issue by the Company’s Board of Directors (the Board), however, theAnnual 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 the Company that approved these financial statements forissuance, the probability of any potential change required by the AGM is extremely remote, and has never happened in the past.Standards, amendments and interpretations effective and initially adopted by the Company in 2009In the current period, the Company has adopted all of the new and revised Standards and Interpretations issued by the InternationalAccounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB thatare relevant to its operations and effective for annual reporting periods beginning on 1 January 2009. The initial application of thesepronouncements did not have a material impact on the Company’s results of operations, financial position or cash flows. Listed beloware those new or amended standards or interpretations:- IAS 1 (revised) - Presentation of Financial Statements. Revised IAS 1 introduces overall requirements for the presentation of financialstatements, guideline for their structure and minimum requirements for their contents. The revised standard prohibits the presentationof items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-ownerchanges in equity’ to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shownin a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensiveincome) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparativeinformation, they will be required to present a restated balance sheet as at the beginning comparative period in addition to thecurrent requirement to present balance sheets at the end of the current period and comparative periodThe amendment also clarifies that some rather than all financial assets and liabilities classified as held for trading in accordance with IAS39, ‘Financial instruments: Recognition and measurement’ are examples of current assets and liabilities respectively. The amendmentsdid not have any effect on financial statements of the Company.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.47

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)- IAS 19 (Amendment), ‘Employee benefits (effective from 1 January 2009). The amendment is part of the IASB’s annual improvementsproject published in May 2008. The amendment clarifies that a plan amendment that results in a change in the extent to which benefitpromises are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to past servicegives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit obligation. The definition ofreturn on plan assets has been amended to state that plan administration costs are deducted in the calculation of return on plan assetsonly to the extent that such costs have been excluded from measurement of the defined benefit obligation. The distinction betweenshort term and long term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employeeservice being rendered. IAS 37, ‘Provisions, contingent liabilities and contingent assets, requires contingent liabilities to be disclosed,not recognized. The application of the amendments did not have a material effect on the financial statements of the Company.- IAS 23 (revised) - Borrowing costs - Under the revised IAS 23 an entity must capitalize borrowing costs that are directly attributable tothe acquisition, construction or production of a qualifying asset as part of the cost of that asset. The definition of borrowing costs hasalso been amended so that interest expense is calculated using the effective interest method defined in IAS 39 ‘Financial instruments:Recognition and measurement’. This eliminates the inconsistency of terms between IAS 39 and IAS 23. Crnogorski Telekom A.D.applied IAS 23 as of January 1, 2009, which did not have an impact on the financial statements since the Company did not have anyborrowed funds in the reported periods.- IFRS 2 (amended) Share-based Payment. Main change and clarifications include references to vesting conditions and cancellations.The changes to IFRS 2 must be applied in periods beginning on or after January 1, 2009. The Company applied IFRS 2 as of January 1,2009, which had immaterial impact on the financial statements as the Company has no significant share based compensations.- IFRS 7 (amended) Financial Instruments: Disclosures (Improving Disclosures about Financial Instruments). The amendment requiresenhanced disclosures about fair value measurements and liquidity risk in the wake of the recent financial crisis. The entity is required todisclose an analysis of financial instruments using a three-level fair value measurement hierarchy. The amendment (a) clarifies that thematurity analysis of liabilities should include issued financial guarantee contracts at the maximum amount of the guarantee in the earliestperiod in which the guarantee could be called; and (b) requires disclosure of remaining contractual maturities of financial derivativesif the contractual maturities are essential for an understanding of the timing of the cash flows. An entity further has to disclose a maturityanalysis of financial assets it holds for managing liquidity risk, if that information is necessary to enable users of its financial statementsto evaluate the nature and extent of liquidity risk. As the Company does not have issued financial guarantees nor financial derivatives,there is no effect on the financial statements of the Company.48This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)- IFRS 8, Operating Segments. Under IFRS 8, segments are components of an entity regularly reviewed by an entity’s chief operatingdecision-maker. The new standard requires a ‘management approach’, under which segment information is presented on the samebasis as that used for internal reporting purposes. IFRS 8 also sets out requirements for related disclosures about products and services,geographical areas and major customers. The Company adopted IFRS 8 as of January 1, 2009, which resulted in the reporting of twoinstead of three operating segments. Fixed line and Internet, which were considered as a separate operating segment in previous years,have been combined into one operating segment starting form January 1, 2009, as these are considered together for management decisionmaking.- IFRIC 13 Customer Loyalty Programmes. This Interpretation addresses accounting by entities that grant loyalty award credits to customerswho buy other goods or services. Specifically, it explains how such entities should account for their obligations to provide free ordiscounted goods or services to customers who redeem award credits. The Company applied this Interpretation from January 1, 2009,but the effect was immaterial for the Company’s financial statements.The financial year 2009Standards, amendments and interpretations effective in 2009 but not relevant for the Company- IAS 20 (Amendment), ‘Accounting for government grants and disclosure of government assistance’. The benefit of a below- market rategovernment loan is measured as the difference between the carrying amount in accordance with IAS 39, ‘Financial instruments: Recognitionand measurement’, and the proceeds received with the benefit accounted for in accordance with IAS 20. The amendment doesnot have an impact on the Company’s operations as there are no loans received or other grants from the government.- IAS 32 (amended) Financial Instruments; Presentation. The IASB amended IAS 32 with respect to the Statement of financial positionclassification of puttable financial instruments and obligations arising only on liquidation. As a result of the amendments, some financialinstruments that previously meet the definition of a financial liability need to be classified as equity. The amendments have detailed criteriafor identifying such instruments. The amendments of IAS 32 are applicable for annual periods beginning on or after January 1, 2009.As the Company currently does not have such instruments that would be affected by the amendments, the amendments to the standarddid not have any impact on the Company’s financial statements.- IFRS 1 First-time Adoption of IFRS (revised). The IASB issued the revised version of IFRS1. As the Company has been reporting accordingto IFRS for many years, neither the original standard, nor any revisions to that are relevant for the Company.- IFRIC 15 Agreements for the Construction of Real Estate. IFRIC 15 refers to the issue of how to account for revenue and associatedexpenses by entities that undertake the construction of real estate and sell these items before construction is completed. The interpretationdefines criteria for the accounting in accordance with either IAS 11 or with IAS 18. IFRIC 15 shall be applied for annual periodsbeginning on or after January 1, 2009. As the Company is not involved in such constructions, IFRIC 15 is not relevant for the CrnogorskiTelekom.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.49

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)- IFRIC 16 Hedges of a Net Investment in a Foreign Operation. IFRIC 16 refers to the application of Net Investment Hedges. Mainly, theinterpretation states which risk can be defined as the hedged risk and where within the group the hedging instrument can be held.Hedge Accounting may be applied only to the foreign exchange differences arising between the functional currency of the foreignoperation and the parent entity’s functional currency. A derivative or a non-derivative instrument may be designated as a hedging instrument.The hedging instrument(s) may be held by any entity or entities within the group (except the foreign operation that itself is beinghedged), as long as the designation, documentation and effectiveness requirements of IAS 39.88 that relate to a net investment hedgeare satisfied. IFRIC 16 shall be applied for annual periods beginning on or after October 1, 2008. As the Crnogorski Telekom does notapply such hedges and does not apply hedge accounting, IFRIC 16 will have no impact on the Company’s accounts.- IFRIC 9 and IAS 39 In March 2009 the IASB published amendments to IFRIC 9 (Reassessment Embedded Derivatives) and IAS39 (Financial Instruments: Recognition and Measurement). As a result, entities are required to:assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid(combined) financial asset out of the fair value through profit or loss categorymake such an assessment on the basis of the circumstances that existed when the entity first became a party to the contract,or, if later, when there was a change in the contract that significantly modified the cash flows determine whether the fair value ofthe separated embedded derivative can be measured reliably; if not, the entire hybrid (combined) financial asset must remainin the fair value through profit or loss category.When an entity performs the assessment as required by the amendments it does not apply paragraph (c) of IAS 39, which states thatseparation of an embedded derivative from the host contract is required only if the hybrid (combined) instrument is not measured atfair value through profit or loss. The amendments are applicable for annual periods ending on or after June 30, 2009. The CrnogorskiTelekom has no hybrid financial assets, therefore, the amended standard and interpretation did not have any effect on the Company’sfinancial statements.Standards, amendments and interpretations issued that are not yet effective and have not been earlyadopted by the Company- IAS 24 (revised). In November 2009, the IASB issued a revised version of IAS 24 Related Party Disclosures. Until now, if a governmentcontrolled, or significantly influenced, an entity, the entity was required to disclose information about all transactions with other entitiescontrolled, or significantly influenced by the same government. The revised standard still requires disclosures that are important to usersof financial statements but eliminates requirements to disclose information that is costly to gather and of less value to users. It achievesthis balance by requiring disclosure about these transactions only if they are individually or collectively significant. Furthermore the IASBhas simplified the definition of related party and removed inconsistencies. The revised standard shall be applied retrospectively forannual periods beginning on or after January 1, 2011. Earlier application is permitted. Governments have no ownership in CrnogorskiTelekom A.D., therefore, the revised standard will not have a significant impact on the disclosures in the Company’s financial statements.- IAS 27, IFRS 3 (amended). In January 2008 the IASB published the amended Standards IFRS 3 - Business Combinations and IAS 27 -Consolidated and Separate Financial Statements. The major changes compared to the current version of the standards are summarizedbelow:50This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)With respect to accounting for non-controlling interest an option is added to IFRS 3 to permit an entity to recognize 100% ofthe goodwill of the acquired entity, not just the acquiring entity’s portion of the goodwill (‘full goodwill’ option) or to measurenon-controlling interest at its fair value. This option may be elected on a transaction-by-transaction basis.In a step acquisition, the fair values of the acquired entity’s assets and liabilities, including goodwill, are measured on the datewhen control is obtained. Accordingly, goodwill will be measured as the difference at the acquisition date between the fairvalue of any investment the business held before the acquisition, the consideration transferred and the net asset acquired.The financial year 2009A partial disposal of an investment in a subsidiary while control is retained is accounted for as an equity transaction with owners,and gain or loss is not recognized.A partial disposal of an investment in a subsidiary that results in loss of control triggers re-measurement of the residual interestto fair value. Any difference between fair value and carrying amount is a gain or loss on the disposal, recognized in profit orloss.Acquisition related costs will be accounted for separately from the business combination, and therefore, recognized asexpenses rather than included in goodwill. An acquirer will have to recognize at the acquisition date a liability for any contingentpurchase consideration. If the amount of contingent consideration accounted for as a liability changes as a result of apost-acquisition event (such as meeting an earnings target), it will be recognized in accordance with other applicable IFRSs, asappropriate rather than as an adjustment of goodwill.The revised standards require an entity to attribute their share of losses to the non-controlling interests even if this results in thenon-controlling interests having a deficit balance.In contrast to current IFRS 3, the amended version of this standard provides rules for rights that have been granted to theacquiree (e.g. to use its intellectual property) before the business combination and are re-acquired with the business combination.The revised IFRS 3 brings into scope business combinations involving only mutual entities and business combinationsachieved by contracts alone.The amended version of IFRS 3 has to be applied for Business Combinations with effective dates in annual periods beginning on or afterJuly 1, 2009. Early application is allowed but restricted on annual periods beginning on or after June 30, 2007. The changes to IAS 27must be applied in periods beginning on or after July 1, 2009. Early application is allowed. Early application of any of the two standardsrequires early application of the other standard, respectively. We believe that that the amended standards will not have a significantimpact on the Company’s comprehensive income, financial position or cash flows.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.51

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)- IFRS 2 (amended) Share-based Payment. The amendments related to Group Cash-settled Share-based Payment Transactions werepublished in June 2009. Currently effective IFRSs require attribution of group share-based payment transactions only if they are equitysettled.The amendments resolve diversity in practice regarding attribution of cash-settled share-based payment transactions andrequire an entity receiving goods or services in either an equity-settled or a cash-settled payment transaction to account for the transactionin its separate or individual financial statements. The Company has no significant share based compensations; therefore, we donot expect the amended standard to have a significant effect on the Company when applied. Amendments to IFRS 2 shall be appliedretrospectively for annual periods beginning on or after January 1, 2010.- IFRS 9 Financial Instruments. The standard forms the first part of a three-phase project to replace IAS 39 (Financial Instruments: Recognitionand Measurement) with a new standard, to be known as IFRS 9 Financial Instruments. IFRS 9 prescribes the classification andmeasurement of financial assets.At initial recognition, IFRS 9 requires financial assets to be measured at fair value. After initial recognition, financial assets continue tobe 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 forclassification.IFRS 9 requires that financial assets are classified as subsequently measured at either amortized cost or fair value. There are two conditionsneeded to be satisfied to classify financial assets at amortized cost: (1) The objective of an entity´s business model for managingfinancial assets has to be to hold assets in order to collect contractual cash flows; and (2) The contractual terms of the financial assetgive rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Whereeither of these conditions is not satisfied, financial assets are classified at fair value.Faire Value Option: IFRS 9 permits an entity to designate an instrument, that would otherwise have been classified in the amortized costcategory, to be at fair value through profit or loss if that designation eliminates or significantly reduces a measurement or recognitioninconsistency (‘accounting mismatch’).Embedded derivatives: The requirements in IAS 39 for embedded derivatives have been changed by no longer requiring that embeddedderivatives 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 theentity’s business model. The ‘tainting rules’ in IAS 39 have been eliminated.An entity shall apply IFRS 9 for annual periods beginning on or after January 1, 2013. Earlier adoption is permitted. For entities thatadopt IFRS 9 for periods before January 1, 2012 the IFRS provides transition relief from restating comparative information. The adoptionof the new standard will likely result in changes in the financial statements of the Company, the exact extent of which we are currentlyanalyzing.52This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.1. Basis of Preparation (continued)- IFRIC 18, Transfers of Assets from Customers. The interpretation clarifies the accounting for transfers of assets from customers, namely,the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition;the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognitionof revenue, and the accounting for transfers of cash from customers. The Company does not have such transactions, therefore, wedo not expect the amended standard to have a significant effect on the Company when applied from 2010.Standards, amendments and interpretations that are not yet effective and not relevant for the Company’soperationsThe financial year 2009- IAS 32 (amended) - The IASB published an amendment to IAS 32 Financial Instruments: Presentation in October 2009. The amendmentclarifies the classification of rights issues as equity or liabilities for rights issues that are denominated in a currency other thanthe functional currency of the issuer. These rights issues are recorded as derivative liabilities before the amendment. The amendmentrequires that such right issues offered pro rate to all of an entity’s existing shareholders are classified as equity. The classification isindependent of the currency in which the exercise price is denominated. The application of the amendment is required for annual periodsbeginning on or after February 1, 2010. An earlier application is permitted. The amendment will have no impact on the Company’sfinancial statements as Crnogorski Telekom has no such instruments.- IAS 39 (amended) - The IASB published an amendment in August 2008 to IAS 39 with respect to hedge accounting. The amendmentclarifies that it is possible for there to be movements into and out of the fair value through profit or loss category where a derivative commencesor ceases to qualify as a hedging instrument in cash flow or net investment hedge. The definition of financial asset or financialliability at fair value through profit or loss as it relates to items that are held for trading is also amended. This clarifies that a financial assetor liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-termprofit taking is included in such a portfolio on initial recognition. The amendment of IAS 39 shall be applied retrospectively for annualperiods beginning on or after July 1, 2009. The amendment does not have any impact on Crnogorski Telekom’s accounts as the Companydoes not apply hedge accounting.- IFRS 1 Additional Exemptions for First-time Adopters. The IASB issued the amendments to IFRS 1 in July 2009. As the CrnogorskiTelekom has been reporting according to IFRS for many years, neither the original standard, nor any revision to that is relevant for theCompany.- IFRIC 14 (amended) IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. In November2009, the IASB issued an amendment to IFRIC 14, which corrects an unintended consequence of IFRIC 14. Without the amendments,in some circumstances entities are not permitted to recognize some voluntary prepayments for minimum funding contributions as anasset. The amendment permits such an entity to treat the benefit of such an early payment as an asset. The amendments are effective forannual periods beginning January 1, 2011. The amendments must be applied retrospectively to the earliest comparative period presented.The amended interpretation is not applicable to Crnogorski Telekom A.D. as the Company has no funded defined post-retirementbenefit schemes.- IFRIC 17 Distributions of Non-cash Assets to Owners. This interpretation issued in November 2008 refers to the issue when to recognizeliabilities accounted for non-cash dividends payable (e.g. property, plant, and equipment) and how to measure them. In addition,the interpretation refers to the issue how to account for any difference between the carrying amount of the assets distributed and thecarrying amount of the dividend payable. The interpretation shall be applied for annual periods beginning on or after July 1, 2009. As theCompany does not distribute non-cash dividends, IFRIC 17 will have no impact on the Company’s financial statements.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.53

2. summary of significant accounting policies (continued)2.1 Basis of Preparation (continued)- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. This interpretation issued in November 2009 clarifies the requirementsof IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’sshares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginningon or after July 1, 2010 with earlier application permitted. The interpretation shall be applied retrospectively. The interpretation isnot applicable to Crnogorski Telekom as the Company does not extinguish any of its financial liabilities with equity instruments.- IFRS for Small and Medium-sized Entities. In July 2009 the IASB issued its IFRS for Small and Medium-sized Entities, which is notrelevant for Crnogorski Telekom.2.2. Consolidation2.2.1 SubsidiariesSubsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operatingpolicies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potentialvoting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the datethat control ceases.The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The cost of acquisition ismeasured as the fair value of the asset given, equity instruments issued and liabilities incurred or assumed at the date of exchange, pluscosts directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in businesscombination are measured initially at fair value at the acquisition date, irrespective of the extent of any minority interest. The excess orthe costs of acquisition over the fair value or the Company’s share of the identifiable net assets acquired is recorded as goodwill. If thecost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in Profit forthe year (Other income).Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised lossesare also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policiesadopted by the Company.Transactions with non-controlling interests are treated as third party transactions. Gains or losses arising on disposals to non-controllinginterests are recorded in the Profit for the year. Purchases from Non-controlling interests result in goodwill (or other income), being thedifference between any consideration transferred and the relevant share acquired of the carrying value of the net assets of the subsidiary.At the end of previous financial year, December 31, 2008, Crnogorski Telekom A.D. had two subsidiaries: T Mobile d.o.o and Internetd.o.o., which were consolidated in accordance with described accounting treatment. Due to decision about merging of Crnogorskitelekom A.D. and its subsidiaries: T Mobile d.o.o and Internet d.o.o, made by General Assembly of Crnogorski Telekom A.D., as of April30, 2009, for the financial year ended as at December 31, 2009, the Company does not have any subsidiary, which requires to be consolidated.As all of the combining entities were ultimately controlled by the same party (Crnogorski Telekom) both before and after the businesscombination, merging transaction was between entities under common control and out of scope of IFRS 3. There is no transfer ofconsideration, both subsidiaries were 100% owned by the acquire (Crnogorski Telekom AD) prior to this combination. Therefore, thecompany used predecessor values to account for merger.54This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.2. Consolidation (continued)The principles of predecessor accounting used are:The Company did not restate assets and liabilities to their fair values. Instead, the Company incorporated the assets and liabilitiesat the amounts recorded in the books of the acquired company (the predecessor carrying values) adjusted only to achieveharmonisation of accounting policies. The acquirees’ (T-mobile CG’s and Internet CG’s) book values were those in the consolidatedfinancial statements of the highest entity that has common control for which consolidated IFRS financial statements areprepared.No goodwill has arisen in the predecessor accounting. Goodwill presented on the face of the statement of financial position ofthese financial statements had arisen on the prior purchase of minority shareholding of Internet CG and T mobile in previousyears.The financial year 20092.2.2 AssociatesThese financial statements incorporate the acquired entities’ results as if the three entities had had always been combined.Consequently, the financial statements reflect three entities’ full year’s results, even though the business combination hasoccurred during 2009. In addition, the corresponding amounts for the previous year also reflect the combined results of threeentities, even though the transaction did not occur until the current year.Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding ofbetween 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and areinitially recognised at cost. The Company’s investment in associates includes goodwill arising on acquisition, and net of any accumulatedimpairment loss.The Company’s share of its associates’ post-acquisition profits or losses is recognized in the statement of comprehensive income in theProfit for the year. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When theCompany’s share of losses in an associate equals of exceeds its interest in the associate, including any other unsecured receivables, theCompany does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of theassociate.Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in theassociates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.2.3. Segment reportingThe Company adopted IFRS 8 in 2009, which did not have significant impact on the Company’s segment disclosure.The Companies Chief Operating Decision maker regularly reviews the operating results of the identified operating segments in order tomake decisions about resources to be allocated to the segments and to assess its performance. The operating segments were identifiedbased on the nature of the business activities and based on the manner provided internally to the chief operating decision maker, theManagement Committee (MC) of Crnogorski Telekom A.D. The accounting policies and measurement principles of the operating segmentsare the same as those applied for the Company described in the Summary of significant accounting policies (Note 2). Dependingon internal reporting, decision making process and nature of product there are two identifiable segments in Crnogorski Telekom: FixedLine and Internet and Mobile Line.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.55

2. summary of significant accounting policies (continued)2.3. Segment reporting (continued)The operating segments’ revenues comprise revenues from external customers. Fixed line and internet segment provides fixed lineservices as well as web services, line leases, reproduction of computer media, etc to its’ customers, while Mobile line segment derivatesits’ revenue mainly from mobile line services provided to external customers.The operating segments’ depreciation, amortization and impairment expenses include these expenses related to the intangible assetsand PPE operating in the segments.Costs incurred in, or charged to, the operating segments comprise third party costs occurred.The measure that the MC uses to monitor the segments’ operating results is primarily EBITDA (Earnings before interest, tax, depreciationand amortization), which is defined by the Group as Operating Profit before Depreciation and Amortization. As virtually all PPE andIntangible Assets are managed at the operating segment level, the related depreciation and amortization expense is also consideredpart of the segments’ results, therefore, Operating Profit is also a measure of the segments’ results. The financial results, the share ofassociates’ profits and tax expenses are not monitored on segment level, but managed at Company level.Assets operating in the operating segments exclude Cash and cash equivalents, Other current financial assets and Non current financialassets and Current and Deferred tax assets, which are monitored and managed at Company level. All other assets are included in thegroup of assets monitored at segment level. Jointly used assets are not allocated to various segments, they are included in the segmentthat owns or manages those assets. Crnogorski Telekom operates in more than one segment. However, since it is one legal entity, thereare no cross-charges implemented for shared use of an asset.Liabilities incurred by the operating segments exclude Financial liabilities and Current and Deferred tax liabilities, which are monitoredand managed at Company level. All other liabilities are included in the group of liabilities monitored at segment level. There are no materialliabilities used jointly by the segments.Another important KPI monitored at segment level is capital expenditure (Capex), which is defined as additions to PPE and Intangibleassets in the normal course of business, excluding additions due to business combinations and asset retirement obligations.There are no asymmetrical allocations to operating segments. For example, if a tangible asset is included in one segment, the depreciationis also included in the expenses of the same segment, or, if the revenue from a customer is included in a segment, the receivablefrom that customer will also be included in the same segment.2.4. Critical accounting estimates and judgementsThe presentation of the financial statements requires the Company’s management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the statement of financial position date,and income and expenses arising during the accounting period.Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectationsof future events that are believed to be reasonable under the circumstances. In some cases the Company relies on independent expertopinion.The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,rarely equal the related actual result. The estimates and assumption that have significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities are outlined below:56This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.4. Use of Estimates (continued)a) Useful lives of assetsThe determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technologicaldevelopment 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 accountingestimate since it involves assumptions about technological development in an innovative industry and heavily dependent on theinvestment plans of the Company. Further, due to the significant weight of long-lived assets in our total assets, the impact of any changesin these assumptions could be material to our financial position, and results of operations. As an example, if the Crnogorski Telekomwas to shorten the average useful life of its assets by 10%, this would result in additional annual depreciation and amortization expenseof approximately EUR 2,18 million. See Note 5 and Note 7 for the changes made to useful lives in 2009.The financial year 2009b) Estimated impairment of property and equipment and intangiblesWe assess the impairment of identifiable property, plant, equipment and intangibles whenever there is a reason to believe that the carryingvalue may materially exceed the recoverable amount and where impairment of value is anticipated. The calculations of recoverableamounts are primarily determined by value in use calculations, which use a broad range of estimates and factors affecting those. Amongothers, we typically consider future revenues and expenses, technological obsolescence, discontinuance of services and other changesin circumstances that may indicate impairment. If impairment is identified using the value in use calculations, we also determine the fairvalue less cost to sell (if determinable), to calculate the exact amount of impairment to be charged. As this exercise is highly judgmental,the amount of a potential impairment may be significantly different from that of the result of these calculations.c) Estimated impairment of goodwillGoodwill is tested for impairment annually or more frequently. The recoverable amounts of the cash generating units (CGU) are calculatedbased on fair value less cost to sell determined by the discounted cash flows of the CGU over the next ten years with a terminal value.This is highly judgmental, which carries the inherent risk of arriving at materially different recoverable amounts if estimates used in thecalculations would prove to be inappropriate. The Company has an implemented policy to make the impairment test based on a 10-yearcash flow projection on reasonable and supportable assumptions that present the management’s best estimate on market participants’assumptions and expectations, and also considering recent similar transactions and industry benchmarks.In order to determine the recoverable amounts of the CGU, the Company calculates the CGU fair values less cost to sell. In the calculations,Crnogorski Telekom uses weighted average cost of capital (WACC) before tax which is determined based on CAPM (capital assetpricing model) using the average beta of the peer group, 10 year zero coupon yields and a debt ratio in line with the usual indebtednessof listed peer telecommunications companies. The perpetual growth rate (“PGR”) is in line with the long-term average growth rate for thetelecommunications sector.Key assumptions used for fair value less cost to sell calculations:Fix line and Internet MobileEBITDA 28% 32.1%Growth rate 2% 2%Discount rate 10% 10%This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.57

2. summary of significant accounting policies (continued)2.4. Use of Estimates (continued)c) Estimated impairment of goodwill (continued)The table below includes a sensitivity analysis that shows how much impairment should be recognized as at December 31, 2009 forthe CGU if we had used 33% lower cash flows than used in the calculations, or a WACC of 14% or a PGR of -8.5% for Fixed Line andInternet or 78% lower cash flows or a WACC of 37% for Mobile Line, leaving the other assumptions unchanged (ceteris paribus). Anycombination of these hypothetical changes would result in higher amounts of impairment. The percentages disclosed in the sensitivityanalyses are the first round decimal percentages where impairment would occur (e.g. while impairment would occur using a 14%WACC, no impairment occurs yet using a 13% WACC).Sensitivity analysis of Fixed Line and Internet CGUimpairment calculations in 2009 (in EUR)Cashflows(-33%) WACC (14%)PGR(-8,5%)Fixed Line and Internet (788) (6.893) (534)Sensitivity analysis of Mobile Line CGUimpairment calculations in 2009 (in EUR)Cashflows(-78%) WACC (37%)PGR(N/A)Mobile Line (1.374) (357) N/Ad) Impairment of trade and other receivablesWe calculate impairment for doubtful accounts based on estimated losses resulting from the inability of our customers to make requiredpayments. We base our estimate on the aging of our account receivables balance and our historical write-off experience, customercredit-worthiness and recent and expected changes in our customer payment terms. These factors are reviewed periodically, andchanges are made to the calculations when necessary. The estimates also involve assumptions about future customer behaviour andthe resulting future cash collections. If the financial condition of our customers were to deteriorate, actual write-offs of currently existingreceivables may be higher than expected and may exceed the level of the impairment losses recognized so far.Included in long-term receivables are specific receivables from the Government of the Republic of Montenegro (Note 10) which theCompany estimates that are entirely recoverable and where impairment in value was not anticipated. This estimate is based on a pasthistory of repayments.e) ProvisionsProvisions in general are highly judgmental, especially in the cases of legal disputes. The Company assesses the probability of anadverse event as a result of a past event to happen and if the probability is evaluated to be more than fifty percent, the Company fullyprovides 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 linewith the eventual outcome of the case.f) Employee benefitsEmployee benefits such as Retirement and Jubilee Anniversary obligations, are calculated based on actuarial assumptions of expectedaverage remaining working lives. Due to the high level of uncertainty, in some cases the evaluation may not prove to be in line with theeventual outcome of the case.58This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.5. Foreign currency translationForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions.These financial statements are presented in EUR which is functional currency of the Company. Foreign exchange gains and lossesresulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognized in the Profit for the year (Finance income / loss).2.6. Financial instrumentsThe financial year 2009A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument ofanother entity.Financial assets of the Company include cash and cash equivalents, equity instruments of another entity (available-for-sale) and contractualrights to receive cash (loans, trade and other receivables).Financial liabilities of the Company include liabilities that originate from contractual obligations to deliver cash or another financial assetto another entity (non-derivatives).Financial liabilities, in particular, include liabilities to banks and related parties and trade payables.2.6.1. Financial assetsThe Company classifies its financial assets in the two categories:- loans and receivables- available for sale (AFS)The classification depends on the purpose for which the financial asset was acquired. Management determines the classification offinancial assets at their initial recognition.Regular way purchases and sales of financial assets are recognized on the trade-date, the date on which the Company commits topurchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fairvalue through profit or loss.The Company assesses at each financial statement date whether there is objective evidence that a financial asset is impaired. There isobjective evidence of impairment if as a result of loss events that occurred after the initial recognition of the asset have an impact on theestimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.59

2. summary of significant accounting policies (continued)2.6. Financial instruments2.6.1 Financial assets (continued)Impairment losses of financial assets are recognized in the Profit for the year against allowance accounts to reduce the carrying amountuntil the derecognition of the financial asset, at which time the net carrying amount (including any allowance for impairment) is derecognizedfrom the Statement of financial position. Any gains or losses on derecognition are calculated and recognized as the differencebetween the proceeds form disposal and the (net) carrying amount derecognized.Financial assets are derecognized when the rights to receive cashflows from the investments have expired or have been transferred andthe Company has transferred substantially all risks and rewards of ownership.2.6.1.1 Loans and receivablesLoans 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 areclassified as non-current assets.The following items are assigned to the “loans and receivables” measurement category.- cash and cash equivalents- short term bank deposits- trade receivables- employee loans- other receivablesLoans and receivables are initially recognized at fair value and subsequently carried at amortized cost using the effective interestmethod, less any impairment.The carrying amount of loans and receivables, which would otherwise be past due, whose terms have been renegotiated is not impairedif the collectability of the renegotiated cashflows are considered ensured.a) Cash and cash equivalentCash and cash equivalents include cash on hand and in banks and all highly liquid deposits and securities with original maturities ofthree months or less.b) Short term bank depositsShort term bank deposits are deposits with a maturity of more than three months up to twelve months at their amortized costs. Interestreceivables on bank deposits are presented separately within the Statement of financial position as other receivables. The associatedinterest revenues are presented in the Statement of comprehensive income within other operating income as incurred.c) Trade and other receivableTrade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,less provision for impairment.A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collectall amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that thedebtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the tradereceivable is impaired.60This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.6. Financial instruments2.6.1. Financial assets (continued)2.6.1.1 Loans and receivables (continued)c) Trade and other receivable (continued)The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account,and the amount of the loss is recognised in the Profit for the year (Other operating expenses – Bad debt expense).The financial year 2009The 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. Provision on accounts receivable balances are calculatedbased on Company’s best estimates or their deemed recoverability, by taking into consideration the historical data of customerspayment. If no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, CrnogorskiTelekom includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them forimpairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in acollective assessment of impairment.The Company’s benchmark policy for collective assessment of impairment is based on the aging of the receivables due to the largenumber 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. Subsequentrecoveries of amounts previously written off are credited against Other operating expenses – Bad debt, in the statement ofcomprehensive income.Amounts due to, and receivable from, other network operators are shown net where a right of set-off exists and the amounts are settledon a net basis (such as interconnection receivables and payables).d) Employee loansLong-term loans to employees for residential housing purposes, which bear an interest rate significantly below the prevailing marketrates of interest, or interest free loans, are initially recognised at fair value, being determined as the present value of all future cashreceipts discounted using the prevailing market rate of interest for a similar instrument (similar as to currency, term, type of interest rateand other factors) with a similar credit rating. The difference between cash transfer and fair value is treated as employee remunerationrecognized in the Statement of comprehensive income over the shorter of the term of the loan and the expected service life of theemployee.The Company is required to write-off the remaining outstanding amount of the special employee housing loan, when following twoconditions are met: 1) 25% of the principal owed has been repaid and 2) the employee has been an employee of the Company for aminimum loyalty period; The Company assesses the probability of employees compliance with the stipulated loyalty period (taking intoaccount that principally, during the loyalty period, 25% of granted loan is paid off). For those employees expected not to be in compliancewith loyalty period, the Company initially recognizes loan receivables at fair value being the present value of consideration paiddiscounted using the prevailing market interest rate (and subsequently decreased for any impairment losses resulting from expectedfuture cash receipts). The difference between lower-contracted-interest rate and market-interest rates represents the fair value of theCompany’s provision to its employee with low-interest finance. This expense is treated as employee remuneration and recognized inStatement of comprehensive income over the shorter of the term of the loan and the expected service life of the employee.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.61

2. summary of significant accounting policies (continued)2.6. Financial instruments (continued)2.6.1 Financial assets (continued)2.6.1.1 Loans and receivables (continued)d) Employee loans (continued)For employees expected to be in compliance with the loyalty period, 25% of the loan originated is recognized as described in previousparagraph. 75% of the loan originated is treated as prepayments of employee benefits and amortized on a straight-line basis over theloyalty period until the benefits become vested (as an employee renders service which increases the employee’s entitlement to futurebenefits). This is because the Company expects future economic benefit embodied in that asset to flow to the Company over the loyaltyperiod, or otherwise, breach of the contract by employees (in a sense of termination of employment contract before expiration of thestipulated loyalty period) will lead to a cash refund under the concluded contract. Amortization of prepaid employee benefits is recognizedin Statement of comprehensive income within Other personnel costs.The amount of provision for impaired loans is based on management’s appraisals of these assets at the Statement of financial positiondate after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.The market in Montenegro for many types of collateral, especially real estate, has been severely affected by the recent volatility in globalfinancial markets resulting in there being a low level of liquidity for certain types of assets. As a result, the actual realisable value onforeclosure may differ from the value ascribed in estimating allowances for impairment.2.6.1.2 Available for sale (AFS)Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the othercategories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of theStatement of financial position date.Available for sale financial assets (current and non-current) consist of the Company’s participation in the share capital of foreign entities.Purchases and sales of investments are recognized on the trade-date – the date on which the Company commits to purchase or sell theasset.Subsequent to initial recognition all available-for-sale assets are measured at fair value, except that any instrument that does not have aquoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, including transaction costs,less impairment losses.Gains and losses arising from changes in fair value are recognised directly in equity in the investments revaluation reserve with theexception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determined tobe impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for theperiod.The fair value is determined on an actively traded market (current bid prices), or otherwise in the absence of an active market, byTelekom’s best estimate of the investment’s fair value using the discounted cash flow model or by relying on independent expert opinion.There were no material changes in fair value valuation of available for sale financial assets for year ended December 31, 2009.62This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.6. Financial instruments (continued)2.6.2 Financial liabilitiesThere is one category for financial liabilities used by the Company:Financial liabilities carried at amortized cost2.6.2.1 Financial liabilities carried at amortized costThe measurement category for “financial liabilities measured at amortized cost” includes all financial liabilities not classified as “at fairvalue through profit or loss”.The financial year 2009a) Loans and other borrowingsBorrowings are recognized initially at fair value less transaction costs, and subsequently measured at amortized costs using the effectiveinterest rate method. Any difference between the proceeds and the redemption value is recognized in the income statement over theperiod of the borrowings using the effective interest rate method.b) Trade and other payablesTrade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interestmethod. The carrying values of trade and other payables approximate their fair values due to their short maturity.2.7. InventoriesInventories are stated at the lower of cost or net realizable value, and are valued on a weighted average method. Net realizable valuerepresents the amount at which inventories can be realized in the ordinary course of business, as decreased by the costs of sales.Provisions that charged to “Other operating expenses” are made where appropriate in order to reduce the carrying value of such inventoriesto their net realizable values.Mobile handsets are often sold for less than cost in connection with promotions to obtain new subscribers with minimum commitmentperiods. Such loss on the sale of equipment is only recorded when the sale occurs if the cost of the handsets exceeds the normal resaleprice.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.63

2. summary of significant accounting policies (continued)2.8. Intangible AssetsIntangible assets acquired by the Company are stated at cost less accumulated amortization and impairment losses.As of the Statement of financial position date, intangible assets include: acquired computer software rights provided these costs do notform part of the hardware acquisition costs, telecommunication and other licenses, intangible assets in progress and goodwill.Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use. These costs are amortizedover the estimated useful life of the software. Costs associated with developing or maintaining computer software programs andannually paid license fees are generally recognized as an expense as incurred. Costs directly associated with the production of identifiableand unique software products controlled by the Company, and that will probably generate economic benefits exceeding costsbeyond one year, are recognized as intangible assets. Direct costs include the software development employee related costs. Computersoftware development costs recognized as assets are amortized over their estimated useful lives. As these assets represent an immaterialportion of all software, these are not disclosed separately.Costs associated with the acquisition of long term telecommunication and other licenses are capitalized including any related borrowingcosts. The useful lives of these licenses are determined based on the underlying agreements and are amortized on a straight linebasis over the period from availability of the frequency for commercial use until the end of the initial license term. No renewal periods areconsidered in the determination of useful life.Intangible assets in progress include third-party and internally generated services for intangible assets not yet completed. This itemdiscloses investments made (but not yet completed) in the current and/or previous financial year(s).Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets ofthe acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is classified as part of ‘intangible assets’.Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairmentlosses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to theentity sold.Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generatingunits or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.Amortization is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives.On an annual basis, Crnogorski Telekom reviews the useful lives for consistency with current development and replacement plans andadvances in technology. For further details on the groups of assets impacted by the most recent useful life revisions refer to Note 5.In determining whether an asset that incorporates both intangible and tangible elements should be treated under IAS 16 - Property,Plant and Equipment or as an intangible asset under IAS 38 – Intangible Assets, management uses judgment to assess which element ismore significant and recognizes the assets accordingly.64This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.8. Intangible Assets (continued)The most significant licences and availability period of commercial use are listed as follows:Fixed Telephony Telecommunication LicenseThe Agency for Telecommunications of the Republic of Montenegro issued to Telekom, a Fixed-Line License that is valid as of January 1,2002 for a period of twenty-five years.In accordance with the Guidelines on the Changes and Amendments to the Rules on the Determination of Registration and LicensingFees for Telecommunication Operators and Service Providers dated November 5, 2004, the Government of Montenegro, Ministry of theEconomy prescribed a special one-time fee for the provision of international traffic services, to be assessed for each year comprising theentire validity period of the telecommunications license. The aforementioned fee was paid in one instalment in the amount determinedby the Agency for Telecommunications of the Republic of Montenegro. License for provision of international traffic services is grantedfor a period of twenty-three years.The financial year 2009In October 2007, the Broadcasting agency of the Republic of Montenegro issued to Telekom a license for building and usage of distributionradio and TV program to customer (IPTV license) for a period of ten years. According to Rules about issuing and condition for usagelicense for distribution radio and TV programs Company is obliged to pay one-time fee for registration. The expenditure to acquire theIPTV license has been capitalized and amortized on a straight-line basis over its estimated useful life.The expenditure to acquire the telecommunication licenses has been capitalized and amortized on a straight-line basis over its estimateduseful life.Mobile Telephony Telecommunication LicenseThe Agency for Telecommunications of the Republic of Montenegro issued a mobile telecommunication license GSM 900 MHz forthe territory of the Republic of Montenegro valid as of January 1, 2002 for a period of fifteen years. At the expiration of this period, theCrnogorski Telekom shall have the option to extend the license for an additional period of ten years at a price equal to nominal cost.License for Web ServicesThe license for Web Services is a general license for the provision of web services covering the territory of the Republic of Montenegro,with an additional value received from the Agency for Telecommunications of the Republic of Montenegro for a period of five years,commencing on January 16, 2002. This web service license grants rights for the provision of the following types of services: electronicdata exchange, mail, conversion of protocol, access to databases or web services for data management, voice mail, videoconferencingcapabilities and other forms of telecommunication services. This licence was renewed on February 13, 2007, for a period of 10 years.The Company is obligated to pay to the Republic of Montenegro, Agency for Telecommunications, an annual fee calculated at 1% ofthe annual income earned from fixed and mobile telephony services. Such amounts paid to the Agency for Telecommunications of theRepublic of Montenegro are stated in the Company’s Statement of comprehensive income as “Other operating expenses”.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.65

2. summary of significant accounting policies (continued)2.9 Property and EquipmentProperty and equipment of the Company are stated at cost less accumulated depreciation and impairment losses.The cost of an item of PPE comprises its purchase price, including import duties and non-refundable purchase taxes, after deductingtrade discounts and rebates, any costs directly attributable to bringing the asset to the location and condition necessary for it to becapable of operating in the manner intended by management.Cost in the case of telecommunications equipment comprises of all expenditures including the cabling within customers’ premises andinterest on related loans.Subsequent costs are included in the assets carrying amount or recognized as a separate assets, as appropriate, only when it is probablethat future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliable.All other maintenance and repairs are charged to the Statement of comprehensive income during the financial period in which they areincurred.When assets are scrapped, the cost and accumulated depreciation are removed from the accounts and the loss is recognized in theProfit for the year as depreciation expense.When assets are sold, the cost and accumulated depreciation are removed from the accounts and any related gain or loss is recognizedin the Profit for the year (Other operating income).Construction in progress includes third-party and internally generated services 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 suchproperty and equipment, the related amounts carried under advance payments or construction in progress must be capitalized andreposted to the relevant other Statement of financial position items for property, plant, and equipment.Depreciation is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives.On an annual basis, Crnogorski Telekom reviews the useful lives and residual values for consistency with current development plansand advances in technology. For further details on the groups of assets impacted by the most recent useful life revisions refer to Note 7.66This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.10. Depreciation and Amortizationa) Amortization of Intangible AssetsIntangible assets are amortized over their respective economic lives.The amortization of intangible assets is computed on a straight-line basis in order to fully write off the cost of the assets over their estimateduseful lives.The assets and useful lives are reviewed, and adjusted if appropriate, at each Statement of financial position date.The financial year 2009The useful lives of intangible assets acquired during the year are determined in accordance with the usage agreement on intangible assets.When there is no agreement which established the useful life of the asset, which is in case of software, the Company estimated theuseful life for 5 years. The applicable rates are summarized below:Intangible AssetsUseful Life(Years)Telecommunication license of:- Fixed telephonya) Telecommunication license - (public fixed telephony services) 25b) Telecommunication license - (international traffic) 23c) IPTV licence 10- mobile telephony 15- internet – web services 5Purchased computer software 5Microsoft license 5b) DepreciationLand is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost less residualvalues over their useful lives.The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each Statement of financial position date. Ifexpectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate and calculation ofdepreciation costs for the current and the forthcoming period is properly adjusted.Major Categories ofProperty and EquipmentEstimated Useful Life(in years)Buildings 40Access networks 20Optical connectors 20Exchanges 7Transmission system equipment 10Computer equipment 3Mipnet network 5, 6Routers and switches 5, 7This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.67

2. summary of significant accounting policies (continued)2.11 Impairment of PPE and intangible assetNon – financial assets other than goodwill are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For thepurpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash –generating unit).Crnogorski Telekom’s management monitors goodwill on operating segment level, consequently, the impairment testing is conductedat this level. The Company performed impairment test separately for fixed and mobile segment as Cash generating units as at December31, 2009. CGU is tested for impairment annually or more frequently if circumstances indicate that impairment may have occurred.The recoverable amounts of the business units and reportable segments are calculated based on fair value less cost to sell determinedby the discounted projected cash flows of units over the next ten years with a terminal value. This is highly judgmental, which carries theinherent risk of arriving at materially different recoverable amounts if estimates used in the calculations would prove to be inappropriate.The Company has an implemented policy to make the impairment test based on a 10-year cash flow projection on reasonable and supportableassumptions that present the management’s best estimate on market participants’ assumptions and expectations consideringrecent similar transactions and industry benchmarks.In order to determine the recoverable amounts of the segments, the Company calculates the segments’ fair values less cost to sell. In thecalculations, Crnogorski Telekom uses a weighted average cost of capital (WACC) before tax and Perpetual growth rate (PGR) estimatesfor Montenegro and the sub-sector of telecommunications. The WACC is determined based on CAPM (capital asset pricing model) usingthe average beta of the peer group, 10 year zero coupon yields and a debt ratio in line with the usual indebtedness of listed peer telecommunicationscompanies, while the PGRs used are in line with the long-term average growth rate for the telecommunications sector.Change in assumptions is caused with significant increase of estimated cash flow ratio in the last two years of 10 years projections. Onthe group level this ratio is 1.7% and 1.6%, while in the last year it was negative value. Following assumptions are used in the fair valuecalculations in order to determine whether the segments have been impaired.Cash generating unit WACC (%) PGR (%)2008 2009 2008 2009Fixed line and Internet 10.74 10.00 -1.0 2.00Mobile line 11.07 10.00 0.5 2.00Impairment test explained above has shown that recoverable amounts of the Company’s CGUs are greater than their book value andhence no impairment of non-financial assets should be recorded.68This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.12. Provisions and contingent liabilitiesProvisions are recognized when the Company has a present legal or constructive obligation as a result of past events; it is more likelythan not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions arenot recognized for future operating losses.Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate thatreflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision dueto passage of time is recognized as interest expense.The Management of the Company has reviewed all significant contracts in order to determine the amount of Asset Retirement Obligation.Based on review performed and valid legislation in Montenegro, Management has concluded that there is no current obligation ofthe Company related to ARO.The financial year 2009No provision is recognized for contingent liabilities. A contingent liability is a possible obligation that arises from past events and whoseexistence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within thecontrol of the entity; or a present obligation that arises from past events but is not recognized because it is not probable that an outflowof resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measuredwith sufficient reliability.2.13. Employee benefitsa) Employee Taxes and Contributions for Social SecurityIn accordance with the regulations prevailing in the Republic of Montenegro, the Company has an obligation to pay contributions to variousState Social Security Funds. These obligations involve the payment of contributions on behalf of the employee, by the employer inan amount calculated by applying the specific, legally-prescribed rates. The Company is also legally obligated to withhold contributionsfrom gross salaries to employees, and on behalf of the employees, to transfer the withheld portions directly to government funds. Thesecontributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise, and have beenincluded under “Employee related expenses”.The Company has no further obligation in respect of these contributions towards the employees apart from the payment of the monthlypension contributions.b) Termination benefitsTermination benefits are payable when employment is terminated by the Company before the normal retirement date or whenever anemployee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrablycommitted to either terminate the employment of current employees according to a detailed formal plan without possibility ofwithdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due morethan 12 months after Statement of financial position date are discounted to present value.Employee benefits payable regardless of the reason for the employee’s departure are treated as post employment benefits.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.69

2. summary of significant accounting policies (continued)2.13. Employee benefits (continued)c) Obligations for Retirement BenefitsThe defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The presentvalue of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rate of high-qualitycorporate bonds of 6,38% (2008: 3% p.a.).Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the grater of 10%of the value of plan assets or 10% of the defined benefit obligations are charged or credited to income over the employees’ expectedaverage remaining working lives. Past service cost is recognised immediately to the extent that the benefits are already vested, andotherwise is amortised on a straight-line basis over the average period until the benefits become vested.d) Obligations for Jubilee AnniversaryPursuant to the signed collective bargaining agreements (CBAs) in the Company, Crnogorski Telekom is obligated to pay a severancepayment in an amount equal to ten minimal, monthly salaries earned in the Company companies respectively, and between three andnine minimal, monthly salaries to be paid out as a jubilee anniversary award. The number of minimal monthly salaries for jubilee anniversaryawards corresponds to the total number of years of service of the employee as presented in the table below:Total Number of Service YearsNumber of Minimal Wages10 320 530 734 (women) 939 (men) 9Obligations for jubilee anniversary are accounted for in the same manner as defined benefit plans (as disclosed in 2.13. c)), except thatany actuarial gains and losses on jubilee payments as well as past service cost are recognized directly in the Statement of comprehensiveincome in the period in which they occurred.d) Mid term incentive plan (MTIP)In 2007 Crnogorski Telekom launched a Mid Term Incentive Plan (MTIP) for its top and senior management, whereby the targets tobe achieved are based on the performance of the company’s share. The MTIP is a cash settled long term incentive instrument whichwas planned to cover five years, with a new package being launched in each year, and with each tranche lasting for three years. Atthe beginning of the plan each participant has an offered bonus. This bonus will be paid out at the end of the plan, depending on theachievement of the two fixed targets, an absolute company share specific and a relative Index target. Provision is calculated dependingon probability of achievement targets set.2.14. Accrued liabilities and advancesAccrued liabilities and advances are recognized initially at fair value and subsequently measured at amortized cost using the effectiveinterest method. The carrying values of accruals and advances approximate their fair values due to their short maturity.70This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.15. Deferred income tax and current income taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the Statement of financial position date and are expected to apply when the related deferredincome tax asset is realized or the deferred income tax liability is settled.Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which thetemporary differences can be utilized.The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted by the Statement of financialposition date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulationsis subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the taxauthorities.The financial year 2009The Company’s uncertain tax positions are reassessed by the Company’s management at every Statement of financial position date.Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxesbeing levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws thathave been enacted or substantively enacted by the Statement of financial position date and any known court or other rulings on suchissues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of theexpenditure required to settle the obligations at the Statement of financial position date.2.16.Taxes, contributions and other duties not related to operating resultsTaxes, contributions and other duties that are not related to the Company’s operating results, include property taxes, employer contributionson salaries, and various other taxes and contributions paid pursuant to state and municipal regulations. All of the aforementionedtypes of taxes and contributions are included in the Statement of comprehensive income under “Other operating expenses”.2.17. Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equityas a deduction, net of tax, from the proceeds.2.18. DividendsDividends payable to the Company’s shareholders and to Non-controlling shareholders are recorded as a liability and debited againstequity (Retained earnings) in the Company’s financial statements in the period in which the dividends are approved by the shareholders.2.19. RevenueRevenues for all services and equipment sales (Note 24) are shown net of VAT and discounts. Revenue is recognized when the amountof the revenue can be reliably measured, and when it is probable that future economic benefits will flow to the Company and all otherspecific recognition criteria of IAS18 on the sale of goods and rendering of services are met for the provision of each of the Company’sservices and sale of goods.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.71

2. summary of significant accounting policies (continued)2.19. Revenue (continued)Revenue is primarily derived from services provided to subscribers and other third parties using the fixed and mobile telecommunicationnetworks. Revenues are recognized when the amount of revenue can be reliably measured, it is probable that future economic benefitswill flow to the entity, and specific criteria are met for each of the groups activities described below.Customer subscriber arrangements typically include an activation fee, equipment sale, subscription fee and monthly charge for theactual airtime used. The Company considers the various elements of these arrangements to be separate earnings processes for IFRSpurposes and classifies the revenue for each of the deliverables into the categories as disclosed in Note 24 using residual method.2.19.1 Revenue from fixed telephony2.19.1.1 Subscription, connections and other chargesThe subscription is a fee charged for telephone line usage. Monthly subscription fees are charged to the Company’s customers andrecognized as revenue at the end of the month for the previous month irrespective of their use of the Telekom network. Connections andother charges present other services which are recognized at the moment when services are provided.2.19.1.2 Outgoing Domestic and International Traffic RevenueIncome from calls within Montenegro, and from outgoing international calls are collected from Telekom’s customers, and are recordedat its invoiced value less any effective discounts and VAT, at the moment of the provision of the contracted services.2.19.1.3 Incoming Domestic and International Traffic RevenueRevenues from incoming international calls include the income arising from international traffic.Revenues from direct international traffic include the income generated from all incoming and outgoing international calls realized incountries having direct international connection with Telekom. A portion of such income earned incurred is measured and recorded atan estimated value arrived at based on the internal settlement accounting of telephony traffic.Revenues from incoming domestic traffic relates primarily to domestic interconnection revenue, whose nature and valuation is explainedin the note bellow (Note 2.19.1.4).2.19.1.4 Other revenues from Telecommunication ServicesOther income primarily includes the lease of telephony capacities, i.e., telephone lines, dial up services to business customers, web presentationand hosting, ADSL revenue, Montenegrin IP Network (MIPNET) services revenue, IPTV services, revenues from sold internetaccess, equipment sales revenue, voice machines, call listings, voice mail, telegram, and other services. The aforementioned revenuesare shown net of VAT and discounts in the accounting period when the related services are performed. Revenue is recognized whenthe amount of the revenue can be reliably measured, and when it is probable that future economic benefits will flow to the Companyand all other specific recognition criteria of IAS18 on the sale of goods and rendering of services are met for the provision of each of theCompany’s services and sale of goods.72This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.19. Revenue (continued)2.19.2. Revenue from Mobile Telephony2.19.2.1 Postpaid servicesA) Outgoing traffic revenueOutgoing traffic represents customer and third party use of Company’s telecommunications network. Customers and third parties arecharged for outgoing traffic based on their actual use of our network multiplied by a contractually agreed rate. The revenue from usageis recognized in the period in which service is provided to our customers or third parties.The financial year 2009B) Monthly SubscriptionsThe post-paid subscription is a fee for the use of the mobile telecommunication network. Subscriptions for new post-paid subscribersare invoiced and recognized for the current month, or specifically, for the month in which the subscriptions are activated. For existingsubscribers, subscriptions are recognized in the period they relate to.2.19.2.2 Prepaid servicesRevenues from the sale of mobile phone cards are recognized when used by the customer or when the cards expired with unused units.2.19.2.3 Sales of hand setsSales of mobile phones are recorded at the moment of sale.Cost of goods sold includes the amount of sold mobile phones, and is recognized at the moment of sale.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.73

2. summary of significant accounting policies (continued)2.19. Revenue (continued)2.19.2. Revenue from Mobile Telephony2.19.2.4 Roaming Revenue and ExpensesRevenue and expenses arising from incoming and outgoing roaming with foreign mobile operators that has entered into the InternationalGSM roaming Agreement with the Company are recorded in the amounts invoiced to and from mobile network operators. Roamingrevenue is recognized at the time of the usage, and presented on a gross basisCybernet, a financial clearing house, records reconciled traffic that has been confirmed by Syniverse, a technical clearing house andon behalf of the Company, Cybernet collects and makes payments with respect to the reconciled receivables from, and payables to themobile telephony operators.2.19.2.5 Interconnection revenue and expensesInterconnection revenue includes revenue earned on incoming telephone traffic originated via the mobile networks of ProMonte GSMd.o.o., Podgorica and M-tel d.o.o. Podgorica but specifically those that have been transmitted through, or terminated on the CrnogorskiTelekom’s network.The interconnection expenses include expenses from outgoing telephone traffic that is routed from the Company to the individual mobileand fixed line companies in the country, and foreign incoming traffic that that have been transmitted through, or terminated on theother 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 revenuesand costs of these traffics are stated gross in these financial statements. Interconnection income and expenses are recorded at the momentin which the contracted services have been provided. Revenues are presented at fair values of consideration received or receivable.Revenues are shown net of VAT and discounts.2.19.2.6 Other Revenue from Telecommunication ServicesOther revenue primarily includes the lease of telephony capacities, i.e., telephone lines, call listings, voice mail, telegram and otherservices. The aforementioned revenue is recognized and recorded in the accounting period during which it arises. The bills for newcustomer connections are recorded in the period in which the user is connected.74This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

2. summary of significant accounting policies (continued)2.20. Operating leasesLeases 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 operatingleases (net of any incentives received from the lessor) are charged to the Statement of comprehensive income on a straight-line basisover the period of the lease.2.21. Interest Income/Expense and Other Borrowing CostsBorrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost ofthat asset. Borrowing costs include interest and other costs that the Company incurs in connection with the borrowing of funds. Theborrowing costs eligible for capitalization are capitalized applying the weighted average of the borrowing costs applicable to the generalborrowings of the Company that are outstanding during the period. A qualifying asset is an asset that necessarily takes a substantialperiod of time, in general over 12 months, to get ready for its intended use. Interest expenses and other borrowing costs, that are notqualified for capitalisation, are recognized in the Statement of comprehensive income in the accounting period in which they arise, usingthe effective interest method.Interest incomes are recognized in the Statement of comprehensive income in the accounting period in which they arise, using the effectiveinterest method.The financial year 20092.22. Income from Long-Term InvestmentsDividends are recognised when the Company’s right to receive payment is established.2.23. Comparative informationWhere necessary, comparative figures have been adjusted to conform to changes in presentation in the current period. The effects ofreclassifications are not material to the Company’s financial statements.Due to merging of Crnogorski Telekom A.D. with 100% owned subsidiaries T-Mobile d.o.o. and Internet d.o.o. in May 2009, comparativefigures represent consolidated financial statements of Crnogorski Telekom A.D. while current year figures represent financial statementsof one legal entity. However, in substance, figures are comparable, since all intercompany transactions were excluded from consolidatedfinancial statements for the previous financial year end.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.75

2. summary of significant accounting policies (continued)2.24. Fair ValueThe Company’s management assesses its overall risk exposure, and in instances in which it estimates that the value of assets stated inits books may have not been realized, it recognizes a provision. In the opinion of management, the reported carrying amounts are themost valid and useful reporting values under the present market conditions.The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The nominalvalue less impairment provision of trade receivables and payables are assumed to approximate their fair values, based on historical dataon charging rate of mentioned receivables in previous period. The fair value of financial liabilities for disclosure purposes is estimatedby discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financialinstruments.3. Financial risk management3.1 Financial risk factorsThe Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, foreign currency exchange risk andinterest rate risk. The Company does not use derivative financial instruments or any other form of hedges against these risks.There is no formal risk management framework implemented in the Company. The Board of Directors focuses mainly on credit risk andliquidity risk and acts on a case by case basis to mitigate risks and minimize losses.Operating environment of the CompanyThe ongoing global financial and economic crisis that emerged out of the severe reduction in global liquidity which commenced in themiddle of 2008 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector,the wider economy, and at times, higher interbank lending rates and very high volatility in stock and currency markets. The uncertaintiesin the global financial markets have also led to failures of banks and other financial sector participants and to bank rescues inthe United States of America, Western Europe, Montenegro and elsewhere. Indeed, the full extent of the impact of the ongoing financialcrisis is proving to be impossible to anticipate or completely guard against.The global economic crisis is significantly affecting the Montenegrin market due to its rather small size and it having only two pillarsof the economy –tourism and the aluminum factory. The Central Bank imposed restrictive monetary measures which will downsizedomestic investment potential. In December 2008, the Government approved EUR 44 million loan to Prva Banka bank for overcomingliquidity problems. However, public confidence in the banking sector remains fragile. The industrial production in Montenegro experienceda 32.9% decrease in January –November 2009 in comparison with the same period last year. Price decreases of raw materialson the world markets and a drop in demand may endanger production plans of big exporting companies (aluminum plant in Podgorica,steel smelter in Niksic, and bauxite miners). The aluminum production is already halved and a cutback of 1700 workers was announced.Supporting and depending industries may suffer in production decline and headcount reduction as well. The tourism industry reportedthat the number of guests in January – November 2009 was 4% lower than in the same period last year.Management is unable to reliably estimate the effects of any further deterioration in the liquidity of the financial markets and the increasedvolatility in the currency and equity markets on the Company’s financial position. Management believes it is taking all the necessarymeasures to support the sustainability and growth of the Company’s business in the current circumstances.76This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

3. Financial risk management3.2 Credit riskCredit risk arises from cash and cash equivalents and deposits with banks, as well as credit exposures to customers. It is the risk thatone party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.The Board of directors of the Company decided which commercial bank will be a partner of the Company, taking into considerationthe following risk aspects: evaluation factors, total assets, market share, and safety of funds. Credit risk management principles arereconciled with the risk policy of the Company’s parent company. In order to avoid credit risk concentration, cash and cash equivalentsand short term bank deposits are placed in six different banks. According to risk policy of the parent company, deposits in banks areadditionally guaranteed by bank guarantees given by foreign banks in order to provide appropriate safety of funds. Management of theCompany believes that it has adequately assessed the recoverability of Company’s bank deposits. Management of credit risk includesdetailed monthly treasury reporting to senior management with all necessary information about cash and short term bank deposits.The financial year 2009If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the creditquality of the customer, taking into account past experience in collection and other factors. The Company has no significant concentrationsof credit risk due to its diverse customer base save for cumulative exposure the Company uses a system of reminders leading todiscontinuance of its service as the main tool to collect overdue receivables. Also, according to balance and number of outstandingbills, the Company uses instruments of litigation of customers. However, debtors of the Company may be affected by the lower liquiditysituation due to the recent volatility in the global and Montenegrin financial markets, which could in turn impact their ability to repay theamounts owed. Deteriorating operating conditions for customers may also have an impact on management’s cash flow forecasts and assessmentof the impairment of financial and non-financial assets. To the extent that information is available, management have properlyreflected revised estimates of expected future cash flows in their impairment assessments.In order to manage credit risk related to collection, senior management on twice monthly basis consider reporting prepared by Treasury,and according to reporting results decide to take action for the future. Maximum exposure to credit risk related to customers amounts74.279 thousand EUR.3.3 Liquidity riskLiquidity risk is the risk that an entity may encounter difficulty in meeting obligations associated with financial liabilitiesPrudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding throughan adequate amount of committed credit facilities and the ability to close our market position. The volume of wholesale financing hassignificantly reduced recently. Such circumstances may affect the ability of the Company to obtain new borrowings if the need wouldarise for that. Capital expenditure projects are often undertaken with the assistance of supplier credits to manage liquidity. Company hasno external loans and borrowings. Further more, all liabilities which require cash flow are matured maximum up to one year (trade payables).TheCompany has limited exposure to liquidity risk because it posses significant amount of cash and cash equivalents. Additionally,according to contracts for short term bank deposits, any time, short tem bank deposits can be withdrawn and used for payments ofliabilities. On monthly basis, senior management considers liquidity reporting prepared by Treasury, comparing to planned and realizedcash flow activities and takes decisions for future actions.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.77

3. Financial risk management3.4 Foreign exchange riskThe Company operates internationally and is exposed to some foreign exchange risk arising from various currency exposures primarilywith respect to Special Drawing Rights and US dollars used to settle its international traffic revenue and expenses.At December 31, 2009, if EUR had strengthened / weakened by 20% against the SDR with all other variables held constant, post-taxprofit for the year would have been EUR 41.087 higher/lower (December 31, 2008: EUR 42.246), mainly as a result of foreign exchangegains /losses on translation of SDR denominated trade receivables and trade payables. At December 31, 2009, if EUR had strengthened/ weakened by 20% against the USD with all other variables held constant, post-tax profit for the year would have been EUR 19.052higher/lower (December 31, 2008: EUR 12.965), mainly as a result of foreign exchange gains /losses on translation of USD other assetsand payables.3.5 Interest rate riskThe Company has limited interest bearing landings. Its interest bearing assets includes loans provided to employees on a fixed interestrate basis (for more details about terms and conditions, please see Note 2.6.1.1).As an example, if the Company applied an increased discount interest rate amount of 9 % on long term employee loans this wouldresult in additional annual expense of approximately EUR 0.335 million (2008: EUR 0.315 million).Related to short term bank deposits, credit risk is minimized with fixed interest rate, which can not be changed during the contractedperiod. Additionally, if Company would like to withdraw funds before maturity, interest rate would stay the same for the whole period oftime; there is no any penalty interest or decreasing initial interest rate. Management of interest rate risk includes detailed monthly treasuryreporting to senior management with all necessary information.3.6 Capital risk managementThe Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order toprovide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost ofcapital.The Company’s management proposes to the owners (through the Board) of the Company to approve dividend payments or adopt otherchanges in the Company’s equity capital in order to optimize the capital structure of the Company. This can be effectuated primarily byadjusting the amount of dividends paid to shareholders, or alternatively, by returning capital to shareholders by capital reductions, sellingor buying own shares. Also, the Company monitors that its capital is kept above minimum legal requirement. Because the Companyhas been profitable, there is no risk that its capital may fall below minimum legal requirement.The Company does not have borrowings and therefore does not monitor gearing ratio.The equity capital, which the Company manages, amounted to EUR 235.504.936 as at 31 December 2009 (EUR 216.691.816 as at 31December 2008).78This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

4. Segment informationPrimary reporting format – business segmentsThe management considers two operating segments:1 Fixed line services and Internet; and2 Mobile services;The segment information provided to the Management Committee for the reportable segments for the year ended 31 December 2009 isas follows:(In EUR)Fixed line and Internet Mobile line TotalThe financial year 2009Segment revenue 72.988.010 64.970.005 137.958.015Inter-segment revenue (7.999.061) (7.168.048) (15.167.109)Revenue from external customers 64.988.949 57.801.957 122.790.906EBITDA 24.519.891 20.987.522 45.507.413Special influences:Release of legal case provision 3.500.000 - 3.500.000Severance payments and other one time expenses(legal merge expenses etc)(536.000) - (536.000)Adjusted EBITDA 27.483.891 20.987.522 48.471.413Depreciation and amortisation (12.074.451) (9.808.537) (21.882.988)Income tax expense (1.919.197) (1.305.125) (3.224.322)Segment asset 158.337.551 60.752.855 219.090.405Inter segment assets (1.226.720) (971.690) (2.198.409)Total segment assets 157.110.831 59.781.165 216.891.996Segment liabilities 18.875.608 10.334.531 29.210.139Inter segment liability (1.403.792) (794.618) (2.198.410)Total segment liability 17.471.816 9.539.913 27.011.729This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.79

4. SEGMENT INFORMATION (continued)The segment information provided to the Management Committee for the reportable segments for the year ended 31 December 2008 isas follows:(In EUR)Fixed line and Internet Mobile line TotalSegment revenue 79.295.845 72.212.495 151.508.340Inter-segment revenue (11.809.393) (7.350.836) (19.160.229)Revenue from external customers 67.486.452 64.861.659 132.348.111EBITDA 24.743.467 22.440.953 47.184.420Special influences:Severance payments (3.898.533) (177.467) (4.076.000)Adjusted EBITDA 20.844.934 22.263.486 43.108.420Depreciation and amortisation 11.404.565 10.232.698 21.637.263Income tax expense (1.387.962) (1.411.391) (2.799.353)Segment asset 125.237.868 53.444.629 178.682.497Inter segment assets (4.071.922) (1.881.847) (5.953.769)Total segment assets 121.165.946 51.562.782 172.728.728Segment liabilities 27.357.530 13.936.371 41.293.901Inter segment liability (2.802.700) (3.151.067) (5.953.768)Total segment liability 24.554.830 10.785.304 35.340.134A reconciliation of adjusted EBITDA to profit before income tax is provided as follows:(In EUR)December 31, 2009 December 31, 2008Total adjusted EBITDA for reportable segments 48.471.413 43.108.420Depreciation (19.525.728) (19.257.137)Amortisation (2.357.260) (2.380.126)Finance income net 5.249.398 5.969.264Total profit before income tax 31.837.823 27.440.42180This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

4. SEGMENT INFORMATION (continued)Reportable segment’s assets are reconciled to total assets as follows:(In EUR)December 31, 2009 December 31, 2008Segment assets for reportable segments 216.891.996 172.728.728UnallocatedGoodwill 941.624 941.624Available for sale financial assets 25.374 25.374Investment in associate - 225.389Deferred income tax assets 9.429 7.971Cash and cash equivalents 3.181.592 17.147.736Short term financial assets 45.200.000 62.150.000Income tax receivable - 928.583Other assets (restricted cash) 461.903 600.449The financial year 2009Total assets per statement of financial position 266.711.918 254.755.854Reportable segment’s liabilities are reconciled to total liabilities as follows:(In EUR)December 31, 2009 December 31, 2008Segment liabilities for reportable segments 27.011.729 35.340.134Unallocated:Income tax payable 1.538.321 60.892Deferred income tax liabilities 2.656.551 2.663.012Total liabilities per statement of financial position 31.206.601 38.064.038This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.81

4. SEGMENT INFORMATION (continued)Balance of receivables impairment of reportable segments as at December 31, 2009 and December 31, 2008 is as follows:(In EUR)December 31, 2009 December 31, 2008Fixed line and Internet 8.714.213 11.779.326Mobile Line 6.604.488 7.819.488Total impairment allowance of the Company 15.318.701 19.598.814Balance of bad debt expense of reportable segments as at December 31, 2009 and December 31, 2008 is as follows:(In EUR)December 31, 2009 December 31, 2008Fixed line and Internet 443.673 586.619Mobile Line 1.123.573 2.026.243Total bad debt expense of the Company 1.567.246 2.612.862The capital expenditure of reportable segments as at December 31, 2009 and December 31, 2008 are as follows:(In EUR)December 31, 2009 December 31, 2008Fixed line and Internet 11.759.560 9.483.828Mobile Line 5.846.548 5.637.761Total capital expenditure of the Company 17.606.108 15.121.58982This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

5. INTANGIBLE ASSETSIn EURLicensesSoftwareIntangible Assets inprogressTotalCostBalance January 1, 2008 15.962.198 9.592.574 137.950 25.692.722Additions 201.039 250.123 752.708 1.203.870Transfers 479.295 211.907 (262.867) 428.335Disposals / write off (30.852) (2.281.438) - (2.312.290)Balance December 31, 2008 16.611.680 7.773.166 627.791 25.012.637Accumulated amortizationBalance January 1, 2008 3.763.855 5.876.061 - 9.639.916Charge for the year (Note 27) 962.549 1.417.576 - 2.380.125Disposal / write off (27.346) (2.281.438) - (2.308.784)Balance December 31, 2008 4.699.058 5.012.199 - 9.711.257The financial year 2009Net Book ValueDecember 31, 2008 11.912.622 2.760.967 627.791 15.301.380December 31, 2007 12.206.275 3.717.582 128.949 16.052.806In EURLicensesSoftwareIntangible Assets inprogressTotalCostBalance January 1, 2009 16.611.680 7.773.166 627.791 25.012.637Additions 338.704 490.733 132.904 962.341Transfers 196.532 725.584 (716.136) 205.980Disposals / write off (172.500) (61.460) - (233.960)Balance December 31, 2009 16.974.416 8.928.023 44.559 25.946.998Accumulated amortizationBalance January 1, 2008 4.699.058 5.012.199 - 9.711.257Charge for the year (Note 27) 1.070.767 1.286.493 - 2.357.260Disposal / write off (92.000) (61.460) - (153.460)Balance December 31, 2009 5.677.825 6.237.232 - 11.915.057Net Book ValueDecember 31, 2009 11.296.591 2.690.791 44.559 14.031.941December 31, 2008 11.912.622 2.760.967 627.791 15.301.380This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.83

5. INTANGIBLE ASSETS (continued)Included in the Company’s license balance is a Fixed-Line license, granted for a period of twenty five years, with net book value as ofDecember 31, 2009 of EUR 4.247.640 (December 31, 2008 of EUR 4.483.620) issued by the Agency for Telecommunications of theRepublic of Montenegro (“the Agency”). Net book value of International traffic service license included in the Company’s license balance,granted for a period of twenty-three years, amounts to EUR 2.040.000 at December 31, 2009 (EUR 2.190.000 as at December 31,2008) issued by the Agency.Included in the Company’s license balance is a special license for the installation, maintenance and operation of the public telecommunicationnetwork with net book value as at December 31, 2009 EUR 2.052.136 (as at December 31, 2008 of EUR 2,414,301) issuedby the Agency as at January 1, 2002. This license grants rights to the Company to provide services via the public mobile telecommunicationnetwork, in accordance with the Telecommunications Law. This license is valid on the territory of the Republic of Montenegro for aperiod of fifteen years.Regarding these licenses, the Company has an existing obligation to pay annual fees to the Agency which are calculated based on theamount of one percent of the Company’s total income in the previous reporting year. The expenses with respect to this obligation to theAgency are stated in the statement of comprehensive income under “Other operating expenses”.In October 2007, the Broadcasting agency of the Republic of Montenegro issued to the Company a license for the developing and useof distribution radio and TV programs to customers (IPTV license) for a period of ten years. According to the Rules about issuing andconditions for use of the license for distribution radio and TV programs the Company is obliged to paid one-time fee for registration inamount of EUR 75.000.On March 28, 2007, the Agency awarded a 3G license to the Company valid for a period of fifteen years. In April 2007, the Companymade a payment of EUR 2.400.042 for the 3G license acquisition. Net book value of this licence at December 31, 2009 amounted toEUR 1.973.368 (December 31, 2008 EUR 2.133.371).On March 12, 2007, the Agency awarded fixed wireless license to the Company for a period of five years. The Company settled its liabilitiesfor fixed wireless license in the amount of EUR 172.500 in April 2007. In December 2009, the Company sold fixed wireless licensefor the amount of EUR 140.000. At the moment of sale, net book value of this licence was EUR 80.500 and the Company achievedcapital gain of EUR 59.500.In accordance with the IFRS and Company’s Accounting Manual, review of intangible assets was performed during the year 2009. Revisionresulted in extension of MSTV restricted and unrestricted IPTV licences useful life from five to seven years, which is in accordancewith terms and conditions under which licences are obtained. Impact of change in useful life on financial statement is as follows:In EUR 2009 2010 2011 2012 After 2012Increase / (decrease)in amortisation (11.187) (11.187) (11.187) (11.187) 44.74684This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

6. GOODWILLIn accordance with the Company’s Board of Directors’ Resolution of March 7, 2005 (February 19, 2004) Telekom, utilizing its pre-emptiveshare purchase rights, entered into a Purchase Agreement for the Acquisition of a Portion of the Equity Capital of Internet CG in theamount of EUR 435.700 (EUR 1.750.000 for year 2004), and became the owner of 100 percent (buying the remained 15 percent) of thecapital in the Internet CG.An operating segment-level summary of the goodwill allocation is presented below:(In EUR)December 31, 2009 December 31, 2008Fixed Line and Internet 564.974 564.974Mobile Line 376.650 376.650941.624 941.624The financial year 2009As at December 31, 2008 and December 31, 2009 goodwill was allocated to the Company’s cash-generating units (CGU) identified accordingto business segment. The recoverable amount of a CGU was determined based on fair value less cost to sell calculations. Thesecalculations use cash flow projections based on financial budgets approved by management covering a ten-year period. Cash flowsbeyond the ten-year period are extrapolated using the estimated growth rates. The growth rate does not exceed the long-term averagegrowth rate for the telecommunication business in which the CGU operates.Management determined budgeted gross margin based on past performance and its expectations for the market development. Theweighted average growth rates used were consistent with the forecasts included in industry reports. The discount rates used are pre-taxand reflect specific risks relating to the relevant segments.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.85

7. PROPERTY AND EQUIPMENTEquipment and otherAssetsConstruction inprogress In EURLandBuildingsTotalCostBalance January 1, 2008 2.959.682 78.001.684 108.574.358 13.872.763 203.408.487Additions - 316.130 6.829.571 6.772.018 13.917.719Transfers - 734.576 12.103.288 (13.266.200) (428.336)Disposals /write -offs - - (1.010.896) - (1.010.896)Balance December 31, 2008 2.959.682 79.052.390 126.496.321 7.378.581 215.886.974Accumulated DepreciationBalance January 1, 2008 - 16.481.089 59.245.090 37.837 75.764.016Charge for the year - 3.415.684 15.841.453 - 19.257.137Disposals /write -offs - - (882.326) - (882.326)Balance December 31, 2008 - 19.896.773 74.204.217 37.837 94.138.827Net Book ValueDecember 31, 2008 2.959.682 59.155.617 52.292.104 7.340.744 121.748.147December 31, 2007 2.959.682 61.520.595 49.329.268 13.834.926 127.644.471Equipment and OtherAssetsConstruction inprogressLandBuildingsTotalCostBalance January 1, 2009 2.959.682 79.052.390 126.496.321 7.378.581 215.886.974Additions - 407.148 8.143.196 8.093.423 16.643.767Transfers - 1.543.325 5.777.066 (7.526.371) (205.980)Disposals /write –offs - (85.637) (1.248.232) (72.872) (1.406.741)Balance December 31, 2009 2.959.682 80.917.226 139.168.351 7.872.761 230.918.020Accumulated DepreciationBalance January 1, 2009 - 19.896.773 74.204.217 37.837 94.138.827Charge for the year - 3.542.294 15.926.400 - 19.468.694Impairment - - - 57.034 57.034Disposals /write –offs - (85.679) (1.243.535) (72.872) (1.402.086)Balance December 31, 2009 - 23.353.388 88.887.082 21.999 112.262.469Net Book ValueDecember 31, 2009 2.959.682 57.563.838 50.281.269 7.850.762 118.655.551December 31, 2008 2.959.682 59.155.617 52.292.104 7.340.744 121.748.14786This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

7. PROPERTY AND EQUIPMENT (continued)Included in the net book value of land and buildings are land of EUR 150.200 and buildings of EUR 185.708 for which the Companydoes not possess complete documentation in connection with their titles. The Company is in the process of obtaining titles for the landand building, but effectively has control over these items.Impairment, which resulted in reduction of construction in progress, relates to spare and unused parts of previously activated investments.Based on stock count committee proposal mentioned assets are written of, as of December 31, 2009.In accordance with the IFRS and Company’s Accounting Manual, review of tangible assets is performed during the year 2009. As aresult of regular yearly revision useful life of base station, Montenegrin IP Network (MIPNET) equipment and aggregates is extended.Extension is done mainly due to the fact that mentioned equipment is used for period longer than its useful life in history, expectationregarding technical development, budgets and plans for the upcoming years etc. Impact of change in useful life on financial statement isas follows:The financial year 2009In EUR 2009 2010 2011 2012 After 2012Increase / (decrease)in depreciation (529.858) (524.250) (374.124) 151.238 1.276.9958. AVAILABLE FOR SALE FINANCIAL ASSETSInvestments Available for Sale(In EUR)December 31, 2009 December 31, 2008Investments in Foreign Satellite Associations %- Intelsat Ltd. 0.0061 24.799 24.799- New Skies Satellites N.V. 0.0061 575 57525.374 25.374This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.87

9. INVESTMENTS IN ASSOCIATES(In EUR)participation in % December 31, 2009 December 31, 2008PTT Standard d.o.o. Podgorica 20.00 345.924 345.924Service centre for electronic operationsE - Mon d.o.o., Podgorica 35.00 - 225.389345.924 571.313Less: Allowance (345.924) (345.924)- 225.389In accordance with its Board of Directors’ Resolution with respect to the Establishment of a Service Center for Electronic Banking datedOctober 14, 2004, Telekom, in partnership with the entity, Pexim d.o.o, Belgrade, has founded a Service Center for Electronic Banking,E-Mon d.o.o., Podgorica. Telekom’s participation has been contributed in the form of infrastructure and telecommunication capacities.In accordance with Management Committee Decision, dated 14th January 2009, the Company has sold its’ stake in a Service Center forElectronic Banking, E-Mon d.o.o., Podgorica. In accordance with the contract made as of October 15, 2009, Telekom’s stake in E-Mond.o.o., Podgorica was sold to Pexim d.o.o, Belgrade, which is majority owner of the E-Mon d.o.o. Since, the Company’s stake in associatewas sold for the amount higher than its’ net book value of investment, Crnogorski Telekom obtained capital gain in amount of EUR154.611 (see Note 25).Taking into consideration of losses and bankruptcy of the company, investment in PTT Standard is fully impaired. PTT Standard is notdeleted from the court registration, which is the reason why it is included in financial statements.88This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

10. LONG TERM LOANS AND OTHER RECEIVABLES(In EUR)December 31, 2009 December 31, 2008Employee loans 3.860.695 2.339.529Long term receivables 2.385.917 2.882.115Prepaid employee benefits 1.668.592 1.006.740Prepaid rent for the GSM locations 444.028 495.199Other prepayments 3.202 3.2888.362.434 6.726.871The fair values of employee loans and long term receivables approximate their carrying amounts.The financial year 2009Employee loansContracted maturities of undiscounted long-term employee loans are presented below:(In EUR)December 31, 2009 December 31, 2008-from two to five years 1.490.113 1.047.336-over five years 4.435.292 3.098.8435.925.405 4.146.179Long-term loans and receivables in the amount of EUR 5.925.405 represent undiscounted amount of the loans granted to the Company’semployees. Such loans were approved for repayment periods of 5, 7, 10 and 20 years, and were issued at an annual interest ratesranging from 1.5% to 2% The total amount of the approved loans per employee ranges from EUR 5.000 to EUR 50.000. For certainemployees, the loan liability has been reduced by 0.5% for each year of employment service up to December 31, 1993. The percentageof this reduction ranges from 3.5 to 14.5 percent of the total amount of the loan. These employees obtained such liability reduction rightsbased on allocations of their contributions towards residential housing construction up to financial year 1993.The effective interest rate on these employee loans was 7.5 % in 2009 and 2008, corresponding to the rate used by an independentvaluation expert.During 2007, in accordance with the Company’s Statute, and the Rules on the Fulfilment of Employee Residential Housing Requirements,Company’s Operative committee decided to grant housing loans to employees in total amount of EUR 1.282.000 free of interest.These loans were issued for a period of 20 years in order to keep key employees in the Company. The total amount of the loan extendedper employee ranges from EUR 28.000 up to EUR 42.000. Condition for realization of these loans is that the employees have to stay employedin the Company for a loyalty period of minimum three years. If employee left the Company before mentioned term, it is obliged torepay one-time total outstanding amount. If employee would not repaid his liability, the Company has right to activate pledge and collectits receivables.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.89

10. LONG TERM LOANS AND OTHER RECEIVABLES (continued)Employee loans (continued)The Company obtained mortgages on the residential housing units occupied by the loan beneficiaries, in order to secure timely loanrepayments. In accordance with the terms of the relevant residential loan agreements, upon the completion of the purchase and/or constructionof the housing unit, the employee is obligated to register ownership rights in the Company’s name, and to establish a pledgingright, namely a mortgage naming the Company the first to collect on the real estate that has been purchased and/or constructed in theamount of the loan liability. The employee is obligated to deliver within the first five-month period from the date of the first loan payment,the documentation detailing the registration of pledging rights. On almost all these loans, Crnogorski Telekom has obtained securityin the form of mortgages of which they are the named beneficiary in the event of default. The total value of obtained mortgages forapproved housing loans is amounted to EUR 8.063.198. The total amount of loans, for which the companies did not receive mortgagesand which are therefore not registered in the applicable court register is EUR 147.086, thus the total exposure of Company to credit riskarisen from loan not covered by pledge amounted to EUR 147.086 (2008: EUR 181.734). However, the market in Montenegro for manytypes of collateral, especially real estate, has been severely affected by the recent volatility in global financial markets resulting in therebeing a low level of liquidity for certain types of assets. As a result, the actual realisable value on foreclosure may differ from the valueascribed in estimating allowances for impairment.Long –term receivablesMaturities of undiscounted long-term receivables are presented below:(In EUR)December 31, 2009 December 31, 2008from 2 to 5 years 2.962.625 2.962.625over 5 years - 740.6562.962.625 3.703.281Receivables from the Government of the Republic of Montenegro in the EUR 2.962.625 (EUR 3.703.281 as of December 31, 2008)represent undiscounted amount of expected future cash flows which the Company would realize in accordance with the Share TransferAgreement delineating the transfer of foundation rights in the Radio difuzni centar d.o.o., Podgorica (RDC) entered into on December10, 2004 between Telekom Crne Gore and the Government of the Republic of Montenegro. According to this agreement, the RDCbecame the property of the state. Pursuant to a relevant decision of the Company’s management, the bases for computing the currentvalue of expected future cash flows equals the application of an annual interest rate of 7.5%, corresponding to the rate used by the independentvaluation expert. The effect of income recognized using the effective interest method for the period from January 1 to December31, 2009 amounted 244.458 (December 31, 2008: EUR 273.702).In accordance with the terms of the aforementioned agreement, the Government of the Republic of Montenegro is obligated to pay theCompany a selling price as defined under the Share Transfer Agreement, in the amount of EUR 5.943.937 within a period of ten yearsfrom the date of execution of the Agreement, setting forth a grace period of 18 months during which interest is not to be calculated.As further defined in this Agreement, at the expiration of the grace period, by the termination of the second year from the execution dateof the Agreement, the Government of the Republic of Montenegro is obligated to pay the Company the amount of EUR 300.000 in equalmonthly instalments on the first day of the month for the coming month. During the third and the fourth year of the payment schedule,the Government of the Republic of Montenegro is obligated to remit to the Company a total annual amount of EUR 600.000 in equalmonthly instalments on the first day of the month for the coming month.90This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

10. LONG TERM LOANS AND OTHER RECEIVABLES (continued)Long –term receivables (continued)The remaining portion of the selling price, the Government of the Republic of Montenegro shall pay to the Company in the ensuing sixyears in 72, equal monthly instalments to be paid on the first day of the month for the coming month.Prepaid employee benefitsPrepaid employee benefits of EUR 1.668.592 (2008: EUR 1.006.740) relate to discount on employees loans calculated using the effectiveinterest rate and to 75% loans write-offs that have been extended to a certain number of employees in accordance with Article39 of the Company’s Statutes, and Article 41 of the Rules on the Fulfilment of Employee Residential Housing Requirements. Discount istreated as employee remuneration recognized in Statement of Comprehensive Income over the shorter of the term of the loan and theexpected service life of the employee, while 75% of loan write-offs are treated prepayments of employee benefits amortized over theloyalty period (Note 2.15. (ii)).The financial year 200911. CASH AND CASH EQUIVALENTS(In EUR)December 31, 2009 December 31, 2008Cash on hand 7.577 6.655Cash in banks 3.174.015 4.591.081Short term deposits with maturity up to 3 months - 12.550.0003.181.592 17.147.736Significant decrease of short term deposits as at December 31, 2009, which represent deposits placed with domestic banks for a periodup to three months, is caused with payment of advance dividend during the year 2009 (for details please see Note 14). Cash and cashequivalents are denominated in EUR. The Company has active gyro accounts in Crnogorska Komercijalna Banka, NLB MontenegroBanka, Prva Banka, Atlasmont banka, Podgoricka banka and Hypo Alpe Adria banka.12. SHORT TERM BANK DEPOSITS(In EUR)December 31, 2009 December 31, 2008Guaranteed short term deposit by credit institutionCredit rating A1 10.200.000 -Credit rating A3 - 46.750.000Credit rating Aa3 - 8.200.000Credit rating Aa2 - 7.200.000Credit rating Baa1 31.000.000 -Credit rating Baa2 4.000.000 -45.200.000 62.150.000Short term bank deposits represent deposits with maturity from three months up to one year and average interest rate of 8.00 % (2008:7.27 %). All short term bank deposits were denominated in EUR. In the period ended December 31, 2009, total amount of deposits areadditionally guaranteed by a credit institution with credit ratings A1, Baa1, Baa2 (2008: credit institution with credit ratings A3, Aa3,Aa2). Short term bank deposits are placed in Crnogorska komercijalna banka, NLB Montenegro banka and Hypo Alpe Adria banka.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.91

13. TRADE AND OTHER RECEIVABLES(In EUR)December 31, 2009 December 31, 2008Domestic trade receivables 28.762.587 33.428.848Foreign trade receivables 1.633.705 5.333.788Receivables from Magyar Telekom Group companies (Note 34) 27.067 27.356Receivables from Deutsche Telekom Group companies (Note 34) 1.271.956 607.479Current portion of employee loans receivable (Note 10) 390.173 225.794Current portion of long term receivables (Note 10) 712.357 712.357Other receivables 1.885.976 933.11934.683.821 41.268.741Allowance for impairment loss (15.318.701) (19.598.814)Trade and other receivables are denominated in the following currencies:19.365.120 21.669.927(In EUR)December 31, 2009 December 31, 2008EUR 18.255.630 20.625.697SDR 1.109.490 1.044.23019.365.120 21.669.927The structure of other receivable as of December 31 2009 and 2008 is as follows:(In EUR)December 31, 2009 December 31, 2008Receivables for local municipality fees 574.911 -Receivables for dividend paid (private individuals) 494.656 463. 607Receivables for overpaid taxes and contributions 444.735 215.337Receivables for interest income on term deposits 310.254 173.415Other receivables 61.420 80.7601.885.976 933.11992This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

13. TRADE AND OTHER RECEIVABLES (continued)(In EUR)December 31, 2009 December 31, 2008Domestic trade receivables 13.879.387 14.330.516Foreign trade receivables 1.198.204 4.833.306Receivables from Magyar Telekom Group companies (Note 34) 27.067 27.356Receivables from Deutsche Telekom Group companies (Note 34) 1.271.956 607.479Current portion of employee loans receivable (Note 10) 390.173 225.794Current portion of long term receivables (note 10) 712.357 712.357Other receivables 1.885.976 933.11919.365.120 21.669.927The financial year 2009Ageing analysis of receivables that are past due as at the reporting date but not impaired is presented below:December 31, 2009 December 31, 20081-30 days 2.367.506 3.341.42631-90 days 1.353.170 1.507.723over 90 days 1.804.492 1.505.2785.525.168 6.354.427DomesticForeignDecember 31, 2009 December 31, 2008 December 31, 2009 December 31, 20081-30 days 1.689.196 2.955.886 678.310 385.54031-90 days 1.249.760 1.277.396 103.411 230.327over 90 days 1.638.861 1.007.395 165.631 497.8824.577.817 5.240.677 947.352 1.113.749Movements in allowance for impairment loss of receivables during the year ended December 31, 2009 and 2008 are summarizedbelow:(In EUR)2009 2008Balance, January 1 19.598.815 17.488.572Charged during the year (Note 29) 2.430.349 2.612.862Provision related to receivables collected during the year (Note 29) (863.103) (508.977)Effects of changes in exchange rates (3.539) 6.357Penalties charged to customers 630.517 -Receivable write off (6.474.338) -Balance, December 31 15.318.701 19.598.814This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.93

13. TRADE AND OTHER RECEIVABLES (continued)Movements in allowance for impairment loss of individual receivables are summarized below:DomesticForeign2009 2008 2009 2008Balance, January 1 19.084.173 16.810.448 514.641 678.124Charged during the year 2.256.349 2.796.861 174.000 -Provision related to receivables collected during the year (613.503) (508.977) (249.600) (183.999)Effects of exchange rate - - (3.539) 6.357Penalties charged to customers 630.517 - - -Receivable write offs (6.474.337)Balance, December 31 14.883.199 19.098.332 435.502 500.482Provision for domestic receivables is based on the aging structure of the receivables as at the due date. Provisions for domestic receivablesare made on the basis of collectability, according to the previous history of the collection of receivables updated yearly. The mostrecent collectability rates, which are not significantly affected by the financial crisis, are comparable to the historical collectability. Provisionsfor foreign receivables are made individually on the basis of the management’s estimate of collectability, according to the previoushistory of the collection from foreign partners. Allowance for receivable impairment does not include any allowance for receivable fromMagyar or Deutche Telekom Group, as intercompany receivables are considered to be fully recoverable. The most significant part of theprovision relates to Community of Yugoslav PTT of EUR 188.660 (2008: 188.660) and Ellite 214.076 (2008: 214.076).In accordance with Management Committee decision number 02-29858, dated November 11, 2009 receivables in amount of EUR6,474 thousand have been written off. Receivables are written off in accordance with management expectation of their recoverability.The whole amount of written off receivables were fully provisioned previously, in accordance to which mentioned write off did not haveimpact on statement of comprehensive income balances.Receivables past due but not impaired reconciliation:December 31, 2009 December 31, 2008domestic foreign domestic foreignReceivables net of impairment 13.879.387 1.198.204 14.330.516 4.833.306Receivables past due but not impaired (4.577.817) (947.352) (5.240.677) (1.113.749)Receivables neither past due nor impaired (Note 17) 9.301.570 250.852 9.089.839 3.719.55794This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

ADVANCES AND PREPAYMENTS(In EUR)December 31, 2009 December 31, 2008Estimated receivables for international incoming calls 42.247 953.212Estimated receivables from Magyar Telekom Group (Note 34) 36.480 25.055Estimated receivables from Deutsche Telekom Group (Note 34) 1.024.430 525.008Advance dividend payment 49.921.460 -Advances paid for current assets 251.662 83.501Advance paid for fixed assets - 4.000Prepayments for lease of GSM locations 363.674 350.417Accrued revenues from interconnection 981.204 992.873Other prepayments 932.010 699.07953.553.167 3.633.145The financial year 2009On June 17, 2009 Extraordinary Shareholder’s Assembly made Resolution on Approval of distribution of 2009 retained earnings ofCrnogorski Telekom A.D. via advance dividend payment, in amount of EUR 50.000.000. The amount of EUR 49.921.460 (as of December31, 2009) represents advance payment to shareholders which will be recovered either through receiving it back from the shareholdersor through compensating the amount against future dividend payment.Other prepayments include prepayments towards Health Fund in amount of EUR 214 thousand, prepayments towards the Agency inamount of EUR 175 thousand, accrued revenues for MIPNET services towards Ministry of Information in amount of EUR 117 thousand,prepayments for insurance services amounted to EUR 106 thousands etc.The fair value of advances and prepayments equals their carrying amounts.All advances and prepayments are denominated in EUR.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.95

15. INVENTORIES(In EUR)December 31, 2009 December 31, 2008Cables wires and other materials 1.840.714 2.399.766Inventory for resale 1.667.181 2.088.3123.507.895 4.488.078Less allowances for obsolete inventory (584.112) (838.820)2.923.783 3.649.258Movements in the provision for inventories for year ended December 31, 2009 and 2008 are summarized in the table below:(In EUR)2009 2008Balance, January 1 838.819 1.557.430Charged during the period (Note 29) 257.393 1.691.562Reversal for the period (512.100) (2.410.172)Balance, December 31 584.112 838.820The amount of cost of inventories recognized as expense is EUR 257.393 (2008: 1.691.562 EUR), while the amount of EUR 512.100(2008: 2.410.172 EUR) represents reversal during the year. This resulted in reversal of expense in the amount of EUR 254.707, as ofDecember 31, 2009 (2008: 718.610) mainly as a result of completion of certain construction in progress for which purpose inventorieshad been acquired in previous years.96This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

16. RESTRICTED CASH(In EUR)December 31, 2009 December 31, 2008Restricted cash in Community of Yugoslav PTT 307.026 312.265Restricted cash in clearing house Cybernet 154.877 288.184Total 461.903 600.449Restricted cash is denominated in following currencies:In EURDecember 31, 2009 December 31, 2008The financial year 2009EUR 154.877 288.184USD 307.026 312.265Total 461.903 600.449Restricted cash deposited with the Community of the JPTT (comprised of entities that provide telecommunication services from theRepublics of the former Yugoslavia) in amount of EUR 307.026 (440.244 USD) for period ended as at December 31, 2009 and EUR312.265 (440.244 USD) for 2008, respectively, are anticipated for special purposes and are used for the settlement of liabilities for internationaltelecommunication traffic realized prior to July 1, 2002 via the Community of the JPTT.Restricted cash deposited with the Clearing house “Cybernet” in amount of EUR 154.877 and EUR 288.185 for December 31, 2009 andDecember 31, 2008, respectively, are provided and kept for special purposes and are used for the settlement of liabilities for roaming.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.97

17. FINANCIAL INSTRUMENTSa) Financial instruments by categoriesThe accounting policies for financial instruments have been applied to the line items below:Loans and receivablesAssets as per Statement of financial position December 31, 2009 December 31, 2008Available for sale financial assets 25.374 25.374Long term loans and receivables 6.246.612 5.221.644Short term bank deposits 45.200.000 62.150.000Trade and other receivables 19.163.103 21.577.719Restricted cash 461.903 600.449Cash and cash equivalents 3.181.592 17.147.736Total 74.278.584 106.722.922Liabilities valued at amortised costLiabilities as per Statement of financial position December 31, 2009 December 31, 2008Trade and other payables 13.636.376 15.817.985Total 13.636.376 15.817.985b) Credit quality of financial assetsThe credit quality of financial assets that are neither past due nor impaired is presented below:Long –term loans and receivables December 31, 2009 December 31, 2008Counterparty with external credit rating Ba3 2.385.917 2.882.115Counterparty without credit rating 3.860.695 2.339.5296.246.612 5.221.64498This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

17. FINANCIAL INSTRUMENTS (continued)(In EUR)Cash and cash equivalents December 31, 2009 December 31, 2008Guaranteed short term deposit by credit institutionCredit rating A1 10.200.000 -Credit rating A3 - 46.750.000Credit rating Aa3 - 8.200.000Credit rating Aa2 - 7.200.000Credit rating Baa1 31.000.000 -Credit rating Baa2 4.000.000 -Cash and cash equivalents without credit rating 3.181.592 17.147.73648.381.592 79.297.736The financial year 2009Trade receivables(In EUR)December 31, 2009 December 31, 2008Counterparty without external credit ratingDomestic (Note 13) 9.301.570 9.089.839Foreign (Note 13) 250.852 3.719.5579.552.422 12.809.396Restricted cash(In EUR)December 31, 2009 December 31, 2008Counterparty without external credit rating 461.903 600.449461.903 600.449This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.99

18. SHARE CAPITALAt December 31, 2009 At December 31, 2008Number of Shares % Value Number of Shares % ValueSubscribed and paid in capital- Magyar Telekom 36.177.950 76,53 107.902.165 36.177.950 76,53 107.902.165Privatization Funds 378.249 0,80 1.128.143 248.921 0,53 742.417Other companies 5.186.052 10,97 15.467.605 6.878.023 14,55 20.513.975Retail (citizens) 5.531.689 11,70 16.498.481 3.969.046 8,40 11.837.83747.273.940 100 140.996.394 47.273.940 100 140.996.394As at December 31, 2009 and 2008 the par value of an individual share was EUR 2,98254. Telekom’s shares are publicly listed on theNEX Montenegro Stock Exchange. The market price of an individual share as at December 31, 2009 was EUR 2,7000 (December 31,2008: EUR 2,4727).19. Statutory reservesUnder local statutory legislation, the Company is required to set aside 5 percent of its gross statutory profit for the year in a statutoryreserve until the level of the reserve reaches 1/10 of the share capital. These reserves are used to cover losses and are not distributableto share holders except in the case of bankruptcy of the Company.20. TRADE AND OTHER PAYABLES(In EUR)December 31, 2009 December 31, 2008Domestic trade payables 5.173.882 5.973.577Foreign trade payables 5.926.876 7.302.711Salaries and wages 60.934 124.849Other taxes and social security 582.728 1.398.390Payables to Magyar Telekom Group (Note 34) 248.917 407.371Payables to Deutsche Telekom Group (Note 34) 1.753.251 1.107.576Other payables 472.516 342.316Trade payables are denominated in the following currencies:14.219.104 16.656.790(In EUR)December 31, 2009 December 31, 2008EUR 13.519.453 15.523.328SDR 680.786 833.001USD 17.918 299.752HUF 947GBP - 70914.219.104 16.656.790The fair value of trade and other payables is equal to their carrying amounts. Contracted maturity of trade and other payables is up to 45days.100This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

21. ACCRUED LIABILITIES AND ADVANCES(In EUR)December 31, 2009 December 31, 2008Accrued liabilities for international outgoing calls 525 412.394Accrued expenses to Magyar Telekom Group (Note 34) 82.834 590.192Accrued expenses to Deutsche Telekom Group (Note 34) 186.039 64.423Accrued liability for dividends (private individuals) 548.368 517.319Accrued liability for dividends (legal entities) 18.341 42.266Advances received for mobile phone cards 405.009 628.922Prepayment from internet hours 273.154 263.004Amounts received in advance and prepayment 296.492 375.298Other accrued liabilities 8.409.831 9.441.05410.220.593 12.334.872The financial year 2009The structure of other accrued liabilities and expenses is as follows:(In EUR)December 31, 2009 December 31, 2008Accrued expenses for local municipality fees 1.101.450 1.266.540Accrued marketing expenses 535.307 687.574Accrued expenses for interconnection 1.417.444 1.916.429Accrued expenses for post services 244.510 182.674Accrued expenses for electricity 237.770 241.362Accrued expenses for bonuses 1.319.059 1.573.703Accrued expenses for maintenance 657.006 463.803Accrued liabilities for non geographical codes 605.138 405.923Accrued liabilities for fixed assets and maintenance 1.001.696 1.523.235Accrued liabilities for IPTV services 400.062 230.166Accrued costs for estimated traffic with roaming partner - 103.856Accrued revenues 562.177 618.093Other accrued liabilities 328.212 227.6968.409.831 9.441.054Accrued liabilities and advances are denominated in the following currencies:December 31, 2009 December 31, 2008EUR 9.803.479 12.283.395USD 193.847 51.477SDR 223.267 -10.220.593 12.334.872The fair values of accrued liabilities and advances equal their carrying amounts.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.101

22. PROVISIONS FOR LIABILITIES AND CHARGESMovements in provisions for liabilities and charges for the year ended December 31, 2009 and 2008 are summarized in the table below:(In EUR)2009 2008Balance, January 1 6.345.330 6.033.356Additions during the year (Note 29) 238.508 4.442.899Amounts utilized / retired during the year (Note 29) (4.015.099) (4.130.925)Balance, December 31 2.568.739 6.345.330Less: non current portion 766.773 1.150.7881.801.966 5.194.542Movements in provisions for liabilities and charges per type of provision are summarized in the table below:Legal cases Severance payments Employee benefitsMid term incentive plan(MTIP)TotalJanuary 1, 2008 4.991.607 383.158 658.591 - 6.033.356Charged during the year 277.975 3.671.662 429.651 63.611 4.442.899Used during the year (356.268) (3.722.890) (51.766) - (4.130.925)December 31, 2008 4.913.314 331.930 1.036.476 63.611 6.345.330January 1, 2009 4.913.314 331.930 1.036.476 63.611 6.345.330Charged during the year 30.310 - - 208.198 238.508Used during the year (3.669.558) - (336.386) (9.155) (4.015.099)December 31, 2009 1.274.066 331.930 700.090 262.653 2.568.739Less: non current portion - (148.092) (618.681) - (766.773)Current provision 1.274.066 183.838 81.409 262.653 1.801.966102This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

22. PROVISIONS FOR LIABILITIES AND CHARGES (continued)Employee BenefitsJubilee award obligations Retirement obligationsTotalJanuary 1, 2008 395.904 262.687 658.591Additions 276.815 152.836 429.651Amounts utilized / retired (51.766) - (51.766)December 31, 2009 620.953 415.523 1.036.476January 1, 2009 620.953 415.523 1.036.476Additions - - -Amounts utilized / retired (142.821) (193.565) (336.386)December 31, 2009 478.132 221.958 700.090The financial year 2009Less: non current portion (417.542) (201.139) (618.681)Current provision 60.590 20.819 81.409Provisions for employee benefits are stated at the present value of expected future payments to employees with respect to employmentanniversary awards and retirement benefits which are described in the Collective Bargaining Agreement of the Company.According to the Collective Bargaining Agreement:The employer is obliged to pay the equivalent of ten times the minimum base salary established at the Company upon the retirementto pension of the employee. The payment is due on the day of the retirement, but not later than 30 days after the last working day of theemployee.The employer shall pay an employment anniversary (jubilee) award to employees according to the following:For 10 years of service life with the Company the amount equivalent to 3 times the minimum base salary established at the Company;For 20 years of service life with the Company the amount equivalent to 5 times the minimum base salary established at the Company;For 30 years of service life with the Company the amount equivalent to 7 times the minimum base salary established at the Company;For 39 years of service life with the Company the amount equivalent to 9 times the minimum base salary established at the Company.Payments to defined contribution pension and other welfare plans of the State of Montenegro are recognized as an expense in theperiod in which they are earned by the employees.Management other employee benefits are payable regardless of the reason for the employee’s departure (Note 34).This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.103

22. PROVISIONS FOR LIABILITIES AND CHARGES (continued)b) Provision for legal casesProvision for legal cases is created depending of expected outcome (as described in Note 2.12.), which is discussed with externallawyers previously.There has been release of the highest provision for legal case in the amount of 3.500.000, during the year ended December 31, 2009.Former Voluntary Leave Programme (VLP) applicants claim that they were intentionally brought into „mismatch/confusion“ by statementof the company management that the better offer will not occur in the future in regard to the amount of compensation to be paid themfor termination of the employment contract. A year and a half later higher amounts have been offered by the Company to the employeesto voluntary terminate they employment contract. Based on the above reasoning former VLP applicants claimed the difference. The HighCourt of Montenegro dismissed the complaint and brought Decision in a favour of sued party - Crnogorski Telekom A.D. Since, accordingto Court Decision, the Company has no further obligation related to this legal proceeding, provision in amount of EUR 3.500.000 isreleased.23. DEFERRED INCOME TAX ASSETS AND LIABILITIESDeferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against currenttax liabilities.a) Deferred tax assetsBalance,December 31, 2007Statement of ComprehensiveIncome effectBalance,December 31, 2008Statement of ComprehensiveIncome effectBalance,December 31, 2009Intangible assets (538) (641) (1.179) 210 (969)Property and equipment 7.460 1.690 9.150 1.248 10.398Total 6.922 1.049 7.971 1.458 9.429Deferred tax assets relate to temporary differences between the property and equipment and intangible assets base recognized in thetax statement, and the carrying amount of property and equipment and intangible assets as recorded in the Company’s financial statements.A taxable temporary difference arises and result in a deferred tax asset if tax depreciation is less rapid than accounting depreciation.As at December 31, 2009, the Company did not have any tax losses available for future years.b) Deferred Tax LiabilitiesBalance,December 31, 2007Statement of ComprehensiveIncome effectBalance,December 31, 2008Statement of ComprehensiveIncome effectBalance,December 31, 2009Intangible assets 914.532 - 914.532 322.350 592.182Property andequipment1.736.951 11.529 1.748.480 (315.889) 2.064.369Total 2.651.483 11.529 2.663.012 6.461 2.656.551Deferred tax liabilities relate to temporary differences between the property and equipment and intangible assets base recognized in thetax statement, and the carrying amount of property and equipment and intangible assets as recorded in the Company’s financial statements.A taxable temporary difference arises, and results in a deferred tax liability, when tax depreciation is accelerated.104This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

24. REVENUESa) Fixed line and Internet services (In EUR)December 31, 2009 December 31, 2008Subscriptions connections and other charges 10.934.665 11.354.269Outgoing domestic traffic revenues 11.585.668 14.889.307Outgoing international traffic revenues 2.581.463 2.988.798Total outgoing traffic revenues 14.167.131 17.878.105Incoming domestic traffic revenues 1.781.907 1.343.388Incoming international traffic revenues 18.495.478 20.941.320Total incoming traffic revenues 20.277.385 22.284.708The financial year 2009Leased lines and data transmission 4.273.485 3.483.201Dial up services to business customers 137.297 316.206Web presentation and hosting 84.315 119.348ADSL revenues 7.321.227 5.468.473MIPNET revenues 2.346.208 1.904.921IPTV revenues 2.974.933 2.398.298Revenues from sold internet access 725.742 641.495Equipment sales 852.784 917.107Other revenues 893.778 720.321Total other revenue 19.609.769 15.969.370Total fixed line and internet services revenues 64.988.950 67.486.452b) Mobile line services In EURDecember 31, 2009 December 31, 2008Post-paid revenues- outgoing domestic and international calls 14.207.475 16.004.241- monthly subscriptions 6.576.158 5.284.68320.783.633 21.288.924Prepaid services 18.271.343 21.264.057Sale of handsets 1.595.173 1.500.003Revenue from roaming 5.138.951 8.038.21025.005.467 30.802.270Revenue from interconnection fees 12.005.405 12.338.690Other revenue 7.451 431.775Total mobile line service revenues 57.801.956 64.861.659This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.105

25. Other operating income(In EUR)December 31, 2009 December 31, 2008Gain from sale of E-Mon share 154.612 -Revenues from penalties collected 15.074 12.355Capital gains of sold intangible assets 52.708 -Recoveries of damages 1.527 26.449Other income 141.424 172.637365.345 211.44126. EMPLOYEE RELATED EXPENSES(In EUR)December 31, 2009 December 31, 2008Net salaries and benefits 12.146.083 11.288.263Taxes on salaries 2.474.445 2.906.039State pension contributions 3.393.393 3.290.527Social security and other contributions 2.092.956 2.219.267Severance pay jubilee awards and planned earlyretirement of management (Note 22)118.757 3.805.400Provisions for retirement and jubilee benefits (Note 22) (137.344) 441.496Other personal costs 1.223.014 2.097.90021.311.304 26.048.892Other personal costs include travelling cost amounted to EUR 276 thousands, employees use of mobile phone amounted to EUR 171thousand, part time contracts expenses amounted to EUR 250 thousand, etc.27. DEPRECIATION, AMORTIZATION AND IMPAIRMENT(In EUR)December 31, 2009 December 31, 2008Depreciation (Note 7) 19.468.694 19.257.138Impairment charged (Note 7) 57.034 -Amortization (Note 5) 2.357.260 2.380.12621.882.988 21.637.264106This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

28. PAYMENTS TO OTHER NETWORK OPERATORS(In EUR)December 31, 2009 December 31, 2008Payments to domestic fixed and mobile network operators 16.991.238 18.420.138Payments to foreign fixed and mobile network operators 6.587.340 8.973.45123.578.578 27.393.58929. OTHER OPERATING EXPENSESThe financial year 2009(In EUR)December 31, 2009 December 31, 2008Materials maintenance and service fees 9.032.418 9.298.396Marketing 3.502.982 5.249.873Increase in provision for impairment of trade receivable recognised in profit or loss (Note 13)1.567.246 2.103.885Rental fees 2.678.145 2.753.622Licence fee for the Agency 1.933.192 1.695.864Sponsorships 891.479 1.006.308Municipality fees and charges 1.153.849 1.348.322Fees and levies 1.117.620 866.293Consulting services 1.291.477 1.965.731Decrease in allowances for inventories recognised in profit or loss (Note 15) (254.707) (718.610)Decrease in provisions for liabilities and charges during the period (Note 22) (3.639.247) 129.521Other expenses 5.328.337 5.141.91724.602.791 30.841.122Expenses for sponsorships amounted to 891.479 EUR (2008: 1.006.308 EUR) and relate mostly to sponsoring the basketball andwomen’s handball team “Budućnost”. The rest of sponsorship expenses in the respective periods were given for culture, sports andeducation purposes.The expenses of local municipality fees and charges refer to fees for buildings, telecommunication networks, pits and poles that areplaced on the municipalities’ land. During the year 2007 the Government adopted “The law of local government finance” which allowsevery municipality to define these mentioned fees at their own will.Consulting expenses relates to audit and other consultancy services.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.107

30. FINANCE INCOME AND COSTS -NET(In EUR)December 31, 2009 December 31, 2008Finance incomeInterest income fromcash and cash equivalents 619.568 1.982.949short term bank deposits 3.849.794 3.352.530employee loans 88.221 55.324Interest income from unwinding of discount for long –term receivables 641.735 423.973Foreign exchange gains 513.429 1.035.298Other financial income 73.321 -5.786.068 6.850.074Finance costInterest expenses 16.883 3.114Foreign exchange losses 519.733 873.147Other finance cost 54 4.549536.670 880.810Finance income net 5.249.398 5.969.26431. income tax expense(In EUR)December 31, 2009 December 31, 2008Current income tax 3.232.241 2.788.873Deferred income tax, (release)/ expense (7.919) 10.480Total 3.224.322 2.799.353Reconciliation of the Theoretical Income Taxes and Actual Income TaxesThe reconciliation of the Company’s theoretical income tax and actual income tax is provided in the table below:(In EUR)December 31, 2009 December 31, 2008Profit before tax 31.837.823 27.440.420Income tax at a rate of 9% 2.865.404 2.469.644Non-deductible costs 132.414 139.825Other adjustments 226.466 189.8843.224.322 2.799.353108This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

32. EARNINGS PER SHARE(In EUR)December 31, 2009 December 31, 2008Profit attributable to equity holders of the Company 28.613.501 24.641.067Weighted-average number of issued ordinary shares 47.273.940 47.273.940Number of ordinary shares 47.273.940 47.273.940Basic earning per share- from ordinary business operations 0,6053 0,5212Basic earnings per share, net 0,6053 0,5212The financial year 2009The Company does not potentially have any amounts of diluted shares.33. DIVIDEND PER SHAREDuring 2009, profit related dividend for 2008, totalling EUR 9.800.000 (2008: EUR 22.000.000) were declared. The dividend pershare amounted to EUR 0,2073 (2008: EUR 0,46537). Also, during the year, profit related advanced dividend for 2009, totalling EUR50.000.000 was declared. The dividend per shared amounted to EUR 1,0577.34. RELATED PARTY TRANSACTIONSCrnogorski Telekom A.D, Podgorica was acquired by Magyar Telekom NyRt. (MT). MT obtained control of Crnogorski Telekom onMarch 31, 2005 and by the end of 2006 and 2005 it held a 76.53% stake. Deutsche Telekom AG is the ultimate controlling owner ofMagyar Telekom holding 59.21% of the issued shares. Deutsche Telekom (DT) Group and Magyar Telekom Group have a number offixed 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 areInstitutional investors (57%), KfW Bankengruppe (17%), Federal Republic of Germany (15%), and Retail investors (11%).Other related parties with which the Company had transactions in the period January 1 to December 31, 2009 and 2008 include:Makedonski telekomunikacii (subsidiary of Magyar Telekom), OTE (associate to Deutsche Telekom), and Hrvatski Telekom (subsidiaryof Deutsche Telekom).All transactions with related parties arise in the normal course of business and their value is not materially different from the terms andconditions that would prevail in arms-length transactions.Transaction with related parties includes provision and supply of telecommunication services and leased lines.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.109

34. RELATED PARTY TRANSACTIONS (CONTINUED)I Liabilities(In EUR)December 31, 2009 December 31, 2008Magyar TelekomInterconnections with fixed line of service 58.649 -Mobile phone service 150.895 127.414Consulting services 122.207 750.000Other - 94.257331.751 971.671Makedonski telekomunikaciiInterconnections with fixed line of service - 25.892Total - Magyar Telekom Group 331.751 997.563Deutsche TelekomInterconnections with fixed line of service 1.070.142 365.258Mobile telephony services 736.822 630.466Leased lines 45.0001.851.964 995.724Ote TelekomInterconnections 15.313 75.890Leased lines 28.996 -T - Hrvatski telekomInterconnections with fixed line of service 39.217 100.385Leased lines 3.800 -Total - Deutsche Telekom Group 1.939.290 1.171.999Total 2.271.041 2.169.562110This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

34. RELATED PARTY TRANSACTIONS (continued)II Receivables(In EUR)December 31, 2009 December 31, 2008Magyar TelekomMobile phone service 25.697 8.940Leased lines 36.480Other 1.370 1.36963.547 10.309Makedonski telekomunikaciiInterconnections with fixed line of service - 42.102Total - Magyar Telekom Group 63.547 52.411The financial year 2009Deutsche TelekomInterconnections with fixed line of service 2.051.618 328.722Mobile telephony services 210.028 118.0762.261.646 446.798Ote TelekomInterconnections - 58.907Leased lines 27.240 -T – Hrvatski telekomInterconnections with fixed line of service - 626.782Leased lines 7.500Total – Deutsche Telekom Group 2.296.386 1.132.487Total 2.359.933 1.184.898This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.111

34. RELATED PARTY TRANSACTIONS (continued)(In EUR)III Revenues December 31, 2009 December 31, 2008Magyar TelekomInterconnections 36.480 30.137Mobile line services 145.177 226.206181.657 256.343Makedonski telekomunikaciiInterconnections 128 223.293Total - Magyar Telekom Group 181.785 479.636Deutsche TelekomInterconnections 12.392.322 1.893.472Mobile line services 259.552 777.02012.651.874 2.670.492Ote TelekomInterconnections - 594.693Leased lines 27.071 -Hrvatski telekomInterconnections 756.174 8.700Leased lines 15.645 3.710.279Total - Deutsche Telekom Group 13.450.764 6.984.164Total 13.632.549 7.463.800112This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

34. RELATED PARTY TRANSACTIONS (continued)(In EUR)IV Expenses December 31, 2009 December 31, 2008Magyar TelekomInterconnections - 3.109Consulting services 258.836 802.474Mobile line services 31.476290.312 805.583Makedonski telekomunikaciiInterconnections 1.644 156.556Total - Magyar Telekom Group 291.956 962.139The financial year 2009Deutsche TelekomInterconnections 3.432.065 142.109Leased lines 45.000 -Mobile line services 200.494 243.8403.677.559 385.949Ote TelekomInterconnections 3.833 129.223Leased lines 6.045 13.2999.878 142.522T - Hrvatski telekomInterconnections 38.481 299.405Leased lines 61.273 145.04199.754 444.446Total - Deutsche Telekom Group 3.787.191 972.917Total 4.079.147 1.935.056In 2009 the Company rewarded short term employee benefits to management, which amounted to EUR 977.501 (2008: 543.319 EUR)for net salaries and bonuses to key management, who are members or permanent invitees of the Management Committee of CrnogorskiTelekom, and EUR 569.661 (2008: 302.214 EUR) for related taxes and contributions. In addition, the Company rewarded severancepayments to management, which amounted to EUR 58.800 (2008: 60.024) for net amount and EUR 38.616 (2008: 45.185 EUR) fortaxes and contributions. These amounts were directly charged to operating expenses, and were not provisioned previously as conditionsand other necessary information were not known as of the previous year end. There was no employee loan granted to these employees.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.113

34. RELATED PARTY TRANSACTIONS (continued)Agreements with the Company’s Senior ManagementIn October of 2004, Annexes to some Senior Management Employment Contracts were concluded.According to the rules set out in these Annexes upon termination of the employment (even in the case the termination is the decision ofthe employee) or cessation of the employee’s management position, the employee has the following options:- Receive a compensation for the termination of the employment with the amount equivalent to twelve monthly salaries (the monthly salarycorresponding to the net amount paid out in the preceding month before the termination or the established net salary); or- Enter into an Employment Agreement in another position, corresponding to the employee’s educational level, for an undefinedperiod.In accordance with the above-described, the Company’s maximum obligation arising on the cessation or termination of the aforementionedAnnexes and Contracts, should the Company’s senior management elect to receive the compensation, would amount to approximatelyEUR 630.807 and EUR 449.242 as at December 31, 2009 and December 31, 2008 retrospectively. As the possibility that all keymanagement leave the Company during the year is bellow 50%, only partial amount is reflected to financial statements as provision.In 2008 and 2007, in the case of some senior executives the Company has set up a loyalty bonus scheme, according to which, key managementis entitled to certain bonuses if stays with the Company for two years from the date of contract signature. Taking into considerationconditions prevailing as at December 31, 2009, the Company would have incurred approximately EUR 144.212 costs in respect tothis commitment, if key management had left the Company.35. CONTINGENT LIABILITIESPotential onerous contractIn accordance with the Share Sale – Purchase Agreement dated 15 March 2005 concluded between the Government of the Republic ofMontenegro and the Employment Bureau of Montenegro, as Sellers, and Magyar Telekom, as the Purchaser, the Purchasers undertaketo cause the Company to enter into contracts with the Radio Diffusion Centre to lease of optical fibber capacities for transmission of TVand radio signals and the University of Montenegro to provide of connection capacities. In both cases it is envisaged that the counterpartiesshall not pay any compensation for the use of these capacities. As at December 31, 2009, either no contracts had been signed or itwas not possible to determine the value of the proposed services. Based on the information available, the Management was unable toassess the amount and impact of the agreement with the Radio Diffusion Centre and the University of Montenegro.Environmental mattersEnvironmental regulations are developing in the Republic of Montenegro and the Company has not recorded any liability at December31, 2009 and December 31 2008 for any anticipated costs, including legal and consulting fees, site studies, the design and implementationof remediation plans, related to environmental matters. Management does not consider the costs associated with environmentalissues to be significant.114This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

36. CONTINGENT assetsThe total amount of potential damages arising from legal actions filed by the Company equals EUR 8.383.906 (2008: EUR 8.709.977).Such lawsuits have been filed by the Company against its subscribers, citizens and businesses in attempts to collect past due receivables.37. COMMITMENTSa) Operating lease commitments – Company as lesseeThe Company leases various retail and business offices and warehouses, internet access, lines, under operating lease agreements.The lease terms are between one year up to unlimited term, and the majority of lease agreements are renewable at the end of the leaseperiod at market rate.The financial year 2009The lease expenditure charged to the Statement of comprehensive income during the year is disclosed in Note 29.b) Other commitmentsExpenditures committed up to the Statement of financial position date, which has not been recognized in the financial statements are asfollows:(In EUR)December 31, 2009 December 31, 2008Contracted liabilities on:The purchase of property and equipment 885.607 1.750.987The purchase of intangible assets 4.651.000 5.514.584Maintenance and support services 153.449 156.415Marketing and Sponsorships 376.149 214.280The long term lease of office space 21.000 197.160Handsets 100.000 -Other operating expenditure commitments 407.356 1.151.987Total 6.594.561 8.985.413c) Use permitsAccording to the management information, future expenses will occur in connection with the acquiring of already required permits foruse of networks, optics, transmission and other equipment. In addition, 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, andMatav Hungarian Telecommunication Group, as the Purchaser, the Sellers undertake to cause the Company to submit, thorough andcomplete applications to the relevant Public Authority to obtain all outstanding permits for the continued i) conduct of their respectivebusiness and/or ii) ownership and/or operation of their respective assets existing on the date of the signing of this Agreement. It has notbeen possible to quantify the potential expenditure required in connection with this matter.This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.115

38. EXCHANGE RATESThe official exchange rates for major currencies used in the translation of Statement of financial position items denominated in foreigncurrencies, into Euros as at December 31, 2009 and December 31, 2008 respectively are as follows:December 31, 2009 December 31, 2008SDR 1.0882 1.1068USD 0.6974 0.709339. CASH GENERATED FROM OPERATIONSNotes December 31, 2009 December 31, 2008(in EUR)Profit for the period 28.613.501 24.641.067Adjustments for:Income tax expense 3.224.322 2.799.353Net financial income 23.660 (204.091)Depreciation amortization and impairment 27 21.882.988 21.637.264Interest income 30 (5.249.398) (5.969.264)Increase/(decrease) of allowances for inventories recognized in profit or loss 30 (254.707) (718.610)Increase/(decrease) of allowances for bad debt recognized in profit or loss 29 1.567.246 2.612.862Change in working capital:Change in payables (4.551.963) (714.119)Change in inventory 980.183 419.890Change in receivables 2.306.245 (7.080.468)Decrease in provision for legal cases (3.639.247) (78.293)Provision for Employee benefits (336.386) 376.029Change in restricted cash 138.546 357.248Other non-cash items (885.941) 374.195Cash generated from operations 43.819.047 38.453.06340. POST BALANCE SHEET EVEntNo post balance sheet events identified as of the date of creation of these financial statements.116This version of our report/ the accompanying documents is a translation from the original, which was prepared in Montenegrin. All possible care has been taken to ensure that the translation is anaccurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

The financial year 2009

Further informationFurther informationContactsCrnogorski TelekomMoskovska 2981000 PodgoricaMontenegroTel: + 382 20 433 433Fax: + 382 20 225 752e-mail: office@telekom.mewww.telekom.meCrnogorski Telekom stock symbol:NEX Montenegro: TECGStock trading information:Nova berza hartija od vrijednosti Crne Gorea.d. - NEX MontenegroMiljana Vukova bb81000 PodgoricaMontenegroTel.: + 382 20 23 06 90Fax:+ 382 20 23 06 40E-mail: nex@nexmontenegro.comwww.nex.co.mePublished by:©Crnogorski Telekom, 2010

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