Crnogorski Telekom 2015 Annual ReportContents: To Our Shareholders

About Crnogorski Telekom

Selected Financial and Operational Data of Crnogorski Telekom for 2015

Letter to Our Shareholders

Management Report for the Financial Year 2015

Crnogorski Telekom’s Management

Board of Directors

Executive Management Board

Vision and Strategy

Regulatory Environment

Promotions and Offers

Independent Auditor’s Report

Statement of Financial Position

Statement of Comprehensive Income

Statement of Cash Flows

Statements of Changes in Equity

Notes to the Financial Statements
Further Information


To Our Shareholders
About Crnogorski Telekom
Crnogorski Telekom (CT) is the largest telecommunications company in Montenegro. It provides a full range of fixed and mobile telecommunication services (voice, messaging, internet, TV, leased-line circuits, data networks and ICT solutions).
Crnogorski Telekom fully digitalised the fixed-line network in 2007 and brought ADSL coverage of PSTN customers close to a 100% base by the end of 2012. In December 2007, Crnogorski Telekom started an IPTV service. At the end of 2011 CT started offering ICT solutions, promoted under the name “Integris”.
CT was the second entrant into the mobile market in Montenegro. From its founding in 2000, it has always offered innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth. Telekom uses mobile technologies such as UMTS, HSDPA, GPRS and EDGE. A 3G network was launched in the summer of 2007, while 4G service was launched in 2012.
In 2006, the T-Com and T-Mobile brands were launched.
In May 2009, Crnogorski Telekom a.d., T-Mobile Crna Gora d.o.o and Internet Crna Gora d.o.o were merged into one legal entity, Crnogorski Telekom a.d.
In 2012, the T-Com and T-Mobile brands were replaced by the Telekom brand, under which all products are now marketed.
On 1 April 2005, Magyar Telekom obtained a 76.53% interest in Crnogorski Telekom. Deutsche Telekom AG holds 59.21% of the Magyar Telekom shares. Deutsche Telekom and Magyar Telekom have a number of subsidiaries worldwide, with which Crnogorski Telekom has regular transactions. Details of related party transactions are given in the company’s Financial Statements, Note 28.

Selected Financial and Operational data of

Dear Shareholders,

Time flies when you're working a lot on new challenges and innovations! It seems like it was yesterday when I shared with you my impressions on 2014 and now it’s again that time of year: time to inform you about Crnogorski Telekom’s most significant moments in 2015 when it comes to business developments, plans for the coming year and our related strategic directions. This is the time to share with you some of our concerns about the tough times coming, but also to assure you that, regardless of the tests to which the market have put us over the last year, we still have enough creative energy and strength to deal with all the challenges ahead of us. But first let me provide you with an overview of the most significant points of our activities in the previous year. In 2015 we went through many developments, in sometimes less than favourable circumstances, with many complex and challenging projects (All–IP, Managed Services, One Billing & CRM, etc.) being implemented in parallel. But we’ve also achieved a lot. Once again it was confirmed that a team, if really committed, can achieve its best results during the toughest times.
Speaking of our financial achievements let me inform you that our revenues, amounting to EUR 98.6 million, were in line with expectations. We experienced a YoY decrease of EUR 6.0m or -6%, driven by lower Service revenues, which was partly compensated by higher ICT and Equipment revenues. Furthermore, EBITDA before Special Influences was in line with expectations and EUR 4.3m or 10% lower YoY, while the operating Cash Flow was 17% lower YoY, but still exceeded expectations. As the overall telecommunication market is shrinking every year, I am proud that we have been achieving our targets.
The 2015 business year was successful, with results justifying the efforts and resources that we have invested, in spite of all the challenges embodied in the continuously increasing regulatory requirements, more aggressive competition and customers who are always looking for more benefits at lower costs.
Speaking of our 2015 achievements in more details, our primary focus was intensive fiber network rollout, expanding ICT business, further network modernisation, completion of our Hybrid Access project, minimising the negative effects of the extensive regulatory changes and completion of the Managed Service and One Billing & CRM project.
Regarding the fiber network rollout, I am glad to inform you that we ended the year with 11,600 customers and coverage of more than 42,000 households. This means that every sixth home in Montenegro is now capable of connecting to our high-quality fiber network.

Recognising the importance of this service, in 2016 we will make the biggest step since the beginning of the project. We plan to cover 11,000 households and increase the number of customers by almost 3,000. Furthermore, besides the existing 10 cities, fiber will come to three new cities: Pljevlja, Rožaje and Ulcinj. This speed-up of our fiber rollout is part of our strategic initiative to cover all households in urban areas by 2018. In parallel with coverage, we are also planning to increase utilisation of the fiber network from the current 27% to 29% by the end of 2018.

We have also developed ambitious plans for 2016. Namely, we will continue with 4G coverage expansion, aimed at providing better service quality in large cities. We also plan capacity expansion in the 3G network in order to be able to fulfil customers’ demands in the best possible way.

Rüdiger J. Schulz

Chief Executive Director

Management report
Management Report for the Financial Year 2015
Highlights

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  In 2015, revenue performance was in line with expectations. Total revenues decreased YoY by EUR 6.0 million or 6%, to a level of EUR 98.6 million. This amount includes EUR 0.9 million of Other operating income, mainly related to Dark fiber long term lease. Revenue decrease was driven by lower service retail and wholesale revenues, which was partly compensated by the increase in ICT and equipment revenues.
  
• 
  EBITDA before special influences was also developing according to expectations. It decreased by 10% YoY to EUR 36.8 million, with a margin of 37.3% (39.3% in 2014).
  
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  Net profit decreased YoY by EUR 5.7 million or 26%, to EUR 15.9 million. Besides a decrease in operating profitability, CT had significant restructuring costs in 2015, mainly related to severance payments of EUR 2.5 million (as opposed to EUR 0.1m in 2014).
  
• 
  Capital expenditure was EUR 17.0 million. In 2015 CT completed implementation of One Billing & CRM and migration to IMS.
  
• 
  A dividend of EUR 21.5 million was paid out.
  

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  Interconnection revenues (-16%), driven by decreased mobile termination rate and lower incoming traffic, as well as by lower revenue from visitors;
  
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  Fixed-line voice retail revenues (-13%), influenced by retail price regulation and decreasing usage;
  
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  Fixed broadband revenues (-6%), also impacted by retail price regulation;
  
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  Mobile prepaid revenues (-17%).
  

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  IPTV revenues (+3%);
  
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  Data service revenues (+15%), driven by the growth of ICT services;
  
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  Equipment revenues (+10%), mainly driven by handset sales.
  

Continuous efforts to increase efficiency and improve the cost base resulted in a YoY decrease in operating expenses before special influences of EUR 1.6 million or -3%, to a level of EUR 62.1 million.