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Crnogorski Telekom2017 AnnuAl reporT

Crnogorski Telekom 2017 AnnuAl RepoRt

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ConTenT:To our ShareholderS About Crnogorski TelekomLetter to Our Shareholders

ManageMenT reporTManagement Report for the Financial Year 2017Crnogorski Telekom’s Management Board of Directors ChiefExecutiveOfficerandManagementCommitteeVision and StrategyRegulatory EnvironmentPromotions and Offers

huMan reSourceS

corporaTe reSponSibiliTy

Financial STaTeMenTS

Independent Auditor’s ReportStatement of Financial PositionStatement of Comprehensive IncomeStatement of Cash FlowsStatements of Changes in EquityNotes to the Financial Statementsby aspiring to be the best in class.

3Dear ShareholDerS

CrnogorSki Telekom 2017 AnnuAl RepoRt

To our shAreholdersabouT crnogorSki TelekoM

Crnogorski Telekom (CT) is the largest telecommunications company in Montenegro.Itprovidesawiderangeoffixedandmobiletelecommuni-cation services (voice, messaging, internet, TV, leased-line circuits, data networks, ICT and Cloud solutions).

CrnogorskiTelekomfullydigitalizedthefixed-linenetworkin2007andbrought ADSL coverage to a complete customer base by the end of 2012.From2011CTisenhancingitsfixedbroadbandnetworkthroughroll-outoffibernetworkandthroughVDSLfrom2016.In2007,Crnogor-ski Telekom started an IPTV service. In 2011 Crnogorski Telekom started offering ICT solutions. Full migration to IMS was completed in 2015.

Crnogorski Telekom 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 expe-riencing dynamic growth. A 3G network was launched in the summer of 2007,while4Gservicewaslaunchedin2012.In2016,CrnogorskiTele-komrenewedalloftheexistingfrequencybandsandacquiredsignificantportion of the new bands that were the subject of the Spectrum auction.

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.

From 2012 all products are marketed under the T- brand.

InApril2005,MagyarTelekomobtaineda76.53%interestinCrnogorskiTelekom. In January 2017, M-Tele, company fully owned by Hrvatski Telekom, bought the complete Magyar Telekom’s stake in Crnogorski TelekomA.D.DeutscheTelekomAGholds51%oftheHrvatskiTelekomshares. Deutsche Telekom and Hrvatski Telekom have a number of sub-sidiaries worldwide, with which Crnogorski Telekom has regular transac-tions. Details of related party transactions are given in the company’s Financial Statements, Note 29.

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deAr shAreholders,

Lastyearwasextraordinarychallengingforourcompanyduetosignifi-cant system changes at the intercompany level, but also due to increas-ingly demanding and competitive market and new regulatory measures. Despite all the mentioned circumstances, we managed to maintain leadershippositionandachievetheprojectedfinancialtargetsfortheyear 2017. In 2017 Crnogorski Telekom generated operating revenues at the level expected based on the Business Plan, amounting to 85,3 million EUR, whichis6,6millionlesscomparingtothepreviousyear.Therevenuedeclinecomparingto2016shouldbeobservedfromtheperspectiveof the overall Montenegrin electronic communications market revenue decreasing trend, as a consequence of competitive dynamics and pric-ing pressure in all segments, impact of regulation of retail and wholesale pricesanddecreasedvolumeofincominginternationaltraffic.

EBITDA,excludingspecialinfluences,amountedto29,5million,whichis1,6millionlesscomparingtothepreviousyear.EBITDAbeforespecialinfluenceswasdecreasedby5%attheannuallevel,with34,5%margin(33,9%in2016).CapitalinvestmentsamountedtoEUR18,6million.

Speaking of achievements and expectations in mobile segment, already atthebeginningof2017wecovered95%ofthepopulatedterritoryofMontenegro with 4G signal. Having in mind that 4G technology enables much higher speeds of data transfer and mobile internet compared to 3G network, faster content, applications and video download and gener-ally facilitates customers’ smooth communication and life, we can right-fully say that our customers have a network providing them the most. In2017CrnogorskiTelekomobtained“Bestintest”certificatebasedonthe independent measuring of quality of mobile networks, performed by P3 Communications company according to the internationally accepted methodology. Already third year in a row we are achieving best results in totalmeasuringofmobilenetworkquality,confirmingtherebytechnol-ogy leadership position at the local market.

We remind that Crnogorski Telekom obtained superior spectrum packageatthespectrumauctionin2016,securingtherebysignificantadvantage when it comes to quality and 4G coverage. CrnogorskiTelekomremainsleaderinfixedsegment(telephonyandinternet), while holding No. 2 position at the TV market. We enabled ac-cesstofiberinfrastructuretomorethand67khouseholds,meaningthatalmost every household in urban part of Montenegro has the possibility tousefiber.Inordertoimprovecustomerexperienceinsuburbanareasaswell,in2016weintroducedVDSLtechnology,bywhichweprovidedsuperfastinternetbytheendof2017toabout63khouseholds.Thistechnolopgy represents new chapter in development of Crnogorski Telekom’sfixedinternet.Alsoin2016welaunchednewTVplatformcalled „TVzaSVE“ and we will keep monitoring our customers’ needs and preferences in order to offer them newest contents. Regarding integrated offers, Magenta 1 represents the best of Telekom world,offeringcombinationoffixedandmobileservices,TVandinternetin a single package. In addition to Magenta 1 service, higher internet ac-cess speeds and more TV channels are available to customers, including a postpaid number with minutes offnet and onnet, as well as with mobile internet. Magenta 1 is an advanced product designed for customers, to respond to market challenges and customers’ requirements. Our integratedproductisusedby28kfamiliesand14%ofhouseholds.According to researches’ results, Magenta 1 customers are the most satisfied,duetowhichwewillkeepworkingonimprovingthisserviceand strengthening Magenta 1 brand. With all new products and services we are developing, supported by favorableresultsofthespectrumauctionandsignificantresultsachie-vedon that ground, as well as with cost optimization, we expect us to be muchmoresuccessfulandachievemorefavorablefinancialtrendsin2018. We can say that the achieved results justify moderate optimism, but also indicate that in the upcoming period we need to act more ef-fectively and more agile.

5Dear ShareholDerS

CrnogorSki Telekom 2017 AnnuAl RepoRt

Crnogorskog Telekom’s strategic goal is to become a leader in all busi-ness segments of the electronic communications market. In order to achieve the targets in our Corporate Strategy we developed a compre-hensive business plan in all segments in 2018.

Regarding expansion and improvement of access network, as you know, wehavebeensignificantlyinvestinginthisarea.Wearecontinuingwithmoreintensiveinvestmentsin2018payingspecialattentiontofixednetwork of new generation and mobile 4G network. Our aim is to cover morethan60%ofhouseholdsinMontenegrowithfastandultrafastinternet, in accordance with national digital agenda. That implies expan-sionoffixedaccessnetworkinthreedirections:fibernetwork-under-groundinurbanareas,forthefirsttimeAirFTTHnetworkinsuburbanareas and regarding copper network – implementation of so called outdoor cabinets aimed at loop shortnening.

Speaking of ICT business, in 2017 we delivered 4,7 million of revenues, whichis2%betterresultcomparedto2016,whilefor2018weplanaround 1 million EUR increase. We have also continued to further posi-tion ourselves as a reliable ICT partner for important investment projects in Montenegro in governmental, banking and tourism segment. Main clientswithwhomwesignedneworextendedexistingcontractsare:VoliLDC, Erste bank and Hotel Budva. Due to market changes and need to extend traditional business which was exclusively directed to mobile and fixedservices,ourfocuswillremainonfurtherICTdevelopment,inorderto be able to offer products and solutions through integration of informa-tion and communication technologies, meaning also system solutions adjusted to business clients’ needs, as well as numerous „smart city“ solutions (smart parking, smart watering, measurement of noise and air quality etc). In the upcoming period we wilI also continue with investments in infra-structure, investing thereby also in future of the Company and society. We have been repeatedly emphasizing that Crnogorski Telekom has invested over 200 million in network and operations in previous 11 years. We will continue with investments in network quality improvements – we plansignificantlyhigherinvestmentsthenlastyear.Ourinvestorsexpect

profitabilityincrease,whichadditionallymotivatesustoinvestandutilizethe networks’ capabilities in the best possible manner. We also want to point out our success when it comes to social respon-sibility business, for which Crnogorski Telekom was given main award oftheEmployers’Associationfor2017.Onceagainweconfirmedthatcaring about community, reasponsible relation to employees and caring about environment is an important part of our business.

Finally, I would like to take the opportunity to thank all of our employees for a job well done in 2017 and maximum efforts invested in achieving the Company’s results.

Dear shareholders, let me now also thank you for contribution to the suc-cess of our Company. Our goal for 2018 is to reverse the negative trends, stabilizerevenuesandincreaseprofitability.Thoseareveryambitious,but, with good planning and full dedication, I believe still achievable goals. Nikola LjushevCEO

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mAnAgemenT reporTManageMenT reporT For The Financial year 2017

Highlights

§ In 2017, revenue, EBITDA and OFCF performance was in line with the expectations. § OperatingrevenuesamountedtoEUR85.3million,whichmeansa7%YoYdecrease.Revenuedecreasewasmainlydrivenbylowerserviceretail

revenues, due to increased competition and regulation. § EBITDA,beforespecialinfluences,decreasedby5%YoY,toEUR29.5million,withamarginof34.5%(33.9%in2016). § CapitalexpenditurewasEUR18.6million.

Revenues and Profitability

In2017,CrnogorskiTelekomfocusedonfurtherextendingits4Gmobilenetwork,fibernetworkrolloutandimprovementofcoppernetworkthroughVDSL,theimprovementofexistingservicesandlaunchofnewones.Itwasayearofstrongcompetitionpresenceonthefixedservicesmarket.CTmanagedtokeepstablefixedbroadbandcustomerbase,toslowdownchurnofIPTVcustomerbaseandtogrowinDVB-T2service.Revenuesandprofitabilitywerenegativelyimpactedbytheregulationoffixedvoiceandfixedbroadbandretailprices.Inthemobilesegment,CTwasabletoretainleadership positions in overall postpaid and in business-segment postpaid and to regain leadership in mobile internet segment. Mobile services portfolio was further enhanced and renewed.

CrnogorskiTelekom’soperatingrevenuesdecreasedYoYby7%andreachedEUR85.3million.Comparedto2016,majorrevenuedeviationsreferredto:

§ Fixed-linevoiceretailrevenues(-19%),influencedbycustomerbasedecrease,retailpriceregulationanddecreasingusage; § Fixedbroadbandrevenues(-16%),impactedbycompetitionandretailpriceregulation; § Mobileprepaidrevenues(-20%),duetocustomerbasedecreaseandlowerusage; § Dataservices(-3%),duetolowertraditionaldataservicesrevenues; § Interconnectionrevenues(-16%),drivenbydecreasedmobileterminationratesandlowerincomingtraffic..Positiverevenuedevelopmentsreferredto:

§ Postpaidrevenues(+5%),influencedbythesuccessofMagenta1andportfoliorestructure; § Visitorsrevenues(+46%).

Asinpreviousyears,CrnogorskiTelekomwasmakingeffortstoincreaseefficiencyanddecreasethecostbase.Theresultis4.6millionYoYdecreaseinoperatingexpensesbeforespecialinfluencesor-8%.YoYrevenuedecreasewaspartlycompensatedbycostefficiency,whichresultedinEUR1.7millionor-5%YoYdecreaseofEBITDAbeforespecialinfluences,totheamountofEUR29.5million.

Operatingprofit(EBIT)amountedtoEUR6.6million.NetprofitamountedtoEUR5.1million.

MainfinancialKPIs(m€) 2016 2017 Δ Δ%

Revenue 91.8 85.3 -6.6 -7

EBITDAbeforeSI(SpecialInfluence) 31.1 29.5 -1.7 -5

EBITDAmarginbeforeSI(%) 33.9 34.5 0.7

EBITDA 30.3 28.5 -1.9 -6

EBITDAmargin(%) 33.0 33.4 0,4

Operatingprofit 10.3 6.6 -3.7 -36

Netprofit 9.4 5.1 -4.3 -45

Total assets 183 191 8 4

CAPEX 49.7 18.6 -31.1 -63

Number of employees 573 552 -21 -4

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Main non-financial KPIs

In2017,thenumberoffixed-lineconnectionsdecreasedby9%,astheusualcustomerchurnwasacceleratedbystrongcompetitionactivities.Thenumberoffixedbroadbandconnectionsremainedstable,whilethedecreaseofIPTVconnectionswassloweddown(-4,000in2016).

FixedlineoperationsKPIs(inthousands) Dec31,2016 Dec 31, 2017 Δ Δ%

Fixed-voice connections, Total 135.4 122.6 -12.8 -9.5

Residential 117.2 105.0 -12.4 -10.4

Business 18.2 17.6 -0.6 -3.3

FixedvoiceMarketshare(%) 92.0 81.4 -10.6

Fix broadband connections, Total 70.2 69.8 -0.4 -0.6

Residential 61.9 61.4 -0.5 -0.8

Business 8.3 8.4 0.1 1.2

FixBBInternetMarketshare(%) 59.4 49.9 -9.5

IPTV connections, Total 59.3 56.4 -2.9 -4.8

Residential 57.0 54.1 -2.9 -5.1

Business 2.3 2.3 0 0.7

PayTVMarketshare(%) 31.2 27.5 -3.7

Attheendof2017,CrnogorskiTelekomcustomerswereusing352.000SIMcards,whichwasadecreaseof9.000or2%comparedtotheprevi-ousyear,drivenbythedevelopmentinprepaidsegment.ThetotalSIMmarketshareamountedto33.7%.ThepostpaidSIMbaseincreasedYoYby26.000or14%,drivenbythesuccessofMagenta1andredesignedportfolio.CrnogorskiTelekomremainedthemarketleaderinthepostpaidseg-ment and managed to recover leadership in mobile internet usage.

MobilelineoperationsKPIs(inthousands) Dec31,2016 Dec 31, 2017 Δ Δ%

Number of SIM cards, Total 361,1 352,1 -9,0 -2,5

Prepaid 176,0 140,7 -35,3 -20,0

Postpaid, Total 185,1 211,4 26,3 14,2

Postpaid Residential 68,0 82,9 14,9 22

Postpaid Business 117,2 128,5 11,3 9,7

Mobilecustomersmarketshare(%) 34,7 33,7 -1,0

Mobile internet customer number 143,0 157,2 14,1 9,9

MobileInternetcustomersmarketshare(%) 37,9 37,6 -0,4

Mobilnapenetracija(%) 167,9 168,5 0,6

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mAin invesTmenTs

FTTH FTTH project, one of the most important strategic projects in CT, achievedsignificantgrowthin2017.AvailabilityofFTTHservicesisprovidedforover83%flatsinurbanareasandover34%ofhouseholdson the national level. Share of active users in actual FTTH potential is greaterthan23%.Further FTTH development is ensured through partnership with CEDIS that will enable rapid expansion of Air FTTH in suburban zones. In 2017 we successfully implemented Air FTTH network in Murtovina and Zagoric.

VDSL/VectoringVDSL Roll-Out project ensured expansion of better broadband access in the whole territory of Montenegro, which resulted in VDSL availability at each of the 230 Telekom locations. Project supported our plans to retain existing customer base and attract new customers in Internet and IPTV segment. Quality of copper network is further improved by installing outdoor cabinets. In previous year we implemented 13 cabinets with potential to support future FTTH users. Mobile access network CTcontinuedwithsuccessfulresultsinmobileaccessnetwork:

§ Outdoorpopulation coverageof 95%wasachievedat the endofQ1 2017. Utilization of obtained spectrum, through the LTE rollout project, ensured high coverage in a very short time.

§ BEST IN TEST – The third time in a row best in a comparative test formobile operators inMontenegro.Certificatewas issued by P3Communication, renowned company for testing in mobile access segment.

§ Ournetworkhasprocessedahighestvolumeofmobiledatatraffic,with highest speed, compared to other providers (report from NRA, October 2017).

Modernization of DWDM transport network in southern ring/ Intercon-nectionTransport network based on DWDM technology is infrastructure basis for connecting all Crnogorski Telekom sites to a reliable, high performance network.ThisnetworkisusedtotransfertrafficforallCrnogorskiTele-komusersinallsegmentsandservices.Projectbeganin2016(“North-ern Ring”). Modernization in “South Ring” area was completed in 2017 and the entire DWDM network of Crnogorski Telekom was upgraded to the most modern transport system. ConnectionwithHTexpandedto100Gin2017,whichconfirmedhighperformance of the new DWDM network in terms of capacity. Mobile Data Geo-RedundancyIntroduction of geographical redundancy in Core Network for mobile Internet segment was realized in H2 2017. New core network was in-stalled in data center Bijelo Polje and integrated with rest of the network inawaytoacceptandroutcompletemobileInternettraffic.Securityandcontinuity of service are upgraded to the highest level. Newcentralnetworkisbasedonavirtualplatform.ForthefirsttimeinCrnogorski Telekom and DT network elements were implemented in ac-cordance with the latest virtualization standards (separation of HW and SW)thatsimplifiedresource/servicemanagementandenabledmoreefficientnetworkoperations.

Fix Data Geo-Redundancy During 2017 we implemented several projects related to geographical redundancyinfixedinternetsegment

§ Završena je integracijaMPLSCoremrežeuBijelomPolju (geo-re-dundantni data centar).

§ Završena je modernizacija interkonekcionih linkova između datacentara u Bijelom Polju i Podgorici.

§ Završena je instalacija i integracija Internet Core segmenta u Bijelom Polju.

Natajnačinjepripremljenaosnovazanastavakradovauovojoblasti.

MPLS network modernizationInstallation and integration of new elements in MPLS network were done inorderto:

§ Improve performance and increase capacity according to trafficgrowth

§ Follow other development projects in Crnogorski Telekom (LTE Roll-Out, VDLS RollOut, GPON RollOut) as well as new Telekom services in data and IPTV segment

5 new platforms were installed and integrated in MPSL core network and 14 locations modernized in the edge network. The project increased capacity and redundancy level and improved network functionality.

Core ModernizationDuring 2017, the UDC (User Data Consolidation) platform was imple-mented as a part of Core Modernization Project. The platform represents a SDM (Subscriber Data Management) solution that contains a central-ized user database independent of access technology (CUDB). Migra-tion of all user data from old monolithic systems has been successfully completedontheCUDBplatformwithouttrafficinterruption.Asapartoftheproject,newfrontendsystems(HLR/AUC/MNP-FE&HSS-FE)had been implemented for a variety of application that would completely separate application part from user data. Preparations for migration of MSS system to new nodes were done by installing new Ericsson BSP hardwareforMSC/MGWenvironments.

IMS Modernization and Geo-Redundancy IMSmodernizationandimplementationofgeo-redundantsiteforfixedvoiceservicestartedin2017.NewHWforbothfixedcoresiteswasimplemented by installing Ericsson BSP hardware for MTAS and CSCF. New A-SBCs and new Ericsson multimedia were installed on the primary and geo-redundant site. IP Works system was completely implemented in 2017. System is prepared for upgrade to new software version 17B, which is scheduled for H1 2018.

This project is a group initiative of 4 NatCos that are on Ericsson Core system. The project will raise security and continuity of voice services tosignificantlyhigherlevelaswellasfulfillregulatoryrequirementforthis area. Along with core modernization project, this project achieves harmonizationofhardwareplatformsforbothmobileandfixedvoicecore and provides a precondition for new voice services.

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SIP interconnection SIPinterconnectionrepresentsasignificantprogressinmigrationtofullIP technology. Implementation of i-SBC nodes will result in complete releaseofinterconnectionTDMlinksbetweenmobileandfixednetwork,as well as between national operators and interconnection with DT. In 2017, new hardware and SW were installed for i-SBCs.Finaltestingandmigrationoflocalmob-fixtrafficisinprogress.

E-registration of prepaid customersSystem for electronic registration for mobile prepaid users was imple-mented in H1 2017. Mobile application provides registration of users in CRM system by scanning document and prepaid card in real-time. Process of registration is fully automated and improved in terms of accu-racy and data availability. User registration time is minimized. Project was done in co-operation with other operators that used the same technology solution.

Roaming platformRoaming platform was migrated from old to the new architecture during 2017.Projectwasimplementedin2phases:

§ Phase I (Q1 2017) - migration of the Roaming Steering service and Welcome SMS,

§ Phase II (Q4 2017) - migration of Intelligent Call Assistant and Home Short Code service.

New roaming platform has been implemented on new hardware environ-ment,whichsignificantlyimprovesperformanceandcapacitycomparedto old system.

IPTV HW Modernization – Phase IHardware modernization of Mediaroom IPTV platform (Phase I) was done in Q4 2017. During this phase, all system components except V-server and D-cluster server were migrated to virtual Hyper V servers. New virtual architecture,implementedonnewhardware,significantlyimprovedscalability of the system, optimized number of system components and reducedelectricityconsumption/spaceinthedatacenter.

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sinišA ĐurAnovićChairman

SinišaĐuranovićwasbornin1972inZagreb.HegraduatedfromtheLawFacultyinZagrebin1997.From2010to2013heattended the IEDC Business School in Bled - President MBA. He started his career at the Filipovic Law Firm, dealing with the privatizations of larger companies (Hrvatski Telekom, Privredna banka...) and consulting international clients, buyers and sellers in major acquisitions. He joined Hrvatski Telekom in 2000 as Assistant Director for Regulatory Affairs. He became Director of Regulatory Affairs in 2002 and Executive Director of Regulatory Affairs and Competition Affairs in 2005. He held thispositionuntil2009whenhewasappointedChiefLegalAdvisor/OperationalDirectorforLegal,RegulatoryandCom-petition Affairs, public relations and business compliance. From 2002 to 2014 he was a member of the Supervisory Board of Eronet mobile communications doo Bosnia and Herzegovina and T-Mobile Hrvatska doo, vice president of Combis doo and HT Mostar doo Bosnia and Herzegovina, and president of the Supervisory Board of Iskon Interneta doo. Currently, in Hrvats-ki Telekom, he covers positions of the Director of the wholesale sector, the chief legal adviser and the senior vice president, and, by the decision of the Chief Executive Director, he is also responsible for the coordination of human resources affairs. He is also currently chairing the Supervisory Board of Optima Telekom dd, and is a member of the management board of the American Chamber of Commerce in Croatia. As a chairman of Crnogorski Telekom Board of Directors, he was elected on Regular Shareholders Assembly held on May 31, 2017.

susAnne krogmAnn

SusanneKrogmann,bornin1964,holdsadiplomainEconomicsfromGeorg-August-UniversityGöttingen,GermanyandstudiedEuropeanIntegrationattheCollegeofEurope,Bruges,Belgium.SusanneKrogmannstartedhercareeratTreu-handanstalt, the state-owned agency responsible for the privatization of the enterprises and assets of the former Democratic RepublicofGermany.DuringherfiveyearsatTreuhandanstaltsheworkedinthecontrollingdepartmentandinthecontractmanagement department. For the last 2 years at Treuhandanstalt she held the position of key account manager for several companiesinthechemicalindustry.SusanneKrogmannjoinedDeutscheTelekomin1999.Formorethan8yearssheworkedindifferentpositionsintheRegulatoryandPublicAffairsdivision,especiallyinthefieldofregulatoryeconomicsandregulatory strategy. She then took over the position of Head of the group “Corporate Responsibility Strategy and Controlling” where she developed a new Corporate Responsibility strategy for DT group. Following the increasing awareness of data security and data protection at Deutsche Telekom she later worked in a data security project with her personal focus on customer data security. Since the end of 2009 she holds the position of Vice President Corporate Governance Europe within Board Area Europe at Deutsche Telekom. She became a member of the Board of Directors of Crnogorski Telekom in 2011. Since 2012 she is also member of the Board of Directors of Makedonski Telekom and the Board of Directors of T-Mobile Macedonia(inT-MobileMacedoniauntillegalmergerin2015).In2013SusanneKrogmannalsobecameamemberoftheSupervisory Board of T-Mobile Czech Republic.

Crnogorski Telekom’s BoArd of direCTors

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nATAšA rApAić

NatašaRapaićwasbornin1969inZagreb.ShegraduatedeconomicsattheUniversityofZagrebin1993.ShewasaSpanish government scholarship holder at MBA Instituto de Empresa in Madrid in 1999 and 2000. During her studies, she worked as a bookkeeper at Universal Zagreb, and from 1993 to 1997 at Milna Parket Zagreb where she was one of the founders.From1997to1999,sheworkedasamarketanalystattheSpanishEmbassy’seconomyofficeinZagrebwhenshe moved to one of the largest Spanish banks - Caixa Galicia Madrid where she covered the position of business analysts in the investment sector. From 2000 to 2003 she worked at Europraxis Consulting in Madrid. In 2003, she took the position of Operational Director of Corporate Communications and PR in Hrvatski Telekom, and in 2005 she was appointed as a mem-beroftheExecutiveBoardofT-ComandChiefMarketingOfficer,whichshehelduntil2009.In2010shetookthepositionofOperationalDirector-ChiefMarketingOfficerforBusinessCustomers,andsince2013sheisamemberoftheManagementBoardandChiefOperatingOfficerforResidentialCustomers.SheisamemberoftheSupervisoryBoardoftheAmericanCollege of Management and Technology in Dubrovnik and Iskon Zagreb, which she is chairing. As a member of the Board of Directors of Crnogorski Telekom, she was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017.

sAšA krAmAr

SašaKramarwasborninČakovecin1968.HegainededucationattheFacultyofElectronicEngineeringandComputingin Zagreb, along with attending Apple’s training for servicing, sales and marketing. Since 2000, he has attended a number of prestigious European business schools, among others the business school in St. Galenn, Edinburgh MBA and the IEDC Management School in Bled where he was trained in sales management, strategic management for directors, customer relationshipmanagementandhumanresourcesmanagementandcorporatefinance.Hebeganhiscareerinearly90’sattheAppleCenterNovel,wherehespenttheentire10years,firstasanAppleserviceengineerandlaterasApple’sserviceandsupportdirector,salesandmarketingdirectorandfinallyCEO.Duringthefirsthalfof2000,hebrieflycarriedouttheaffairs of sales adviser at Bello doo, whilst in June he took over the position of Iskon Internet dd Sales Director. He performed this duty until 2002 when he was appointed as a member of the Management Board and Director of Sales and Marketing. In 2007hewasappointedChairmanoftheManagementBoardandExecutiveDirector,whichheperformeduntilJune2016whenhewasappointedasamemberoftheManagementBoardandChiefOperationOfficerforBusinessCustomersofHrvatski Telekom dd, which position he currently holds. As a member of the Board of Directors of Crnogorski Telekom, he was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017.

BAlšA ČAvlović

BalšaČavlovićwasbornin1985inPodgorica.HegraduatedattheFacultyofEconomicsinPodgoricain2008atthecourseofBusiness Management, where he is currently in postgraduate studies of the same course. During his studies, he was engaged in advisory activities at Fast Worker doo Podgorica, and already in 2007 he covered the position of vice president of Montebella Company doo Podgorica, and was the executive director of Adventure doo Podgorica. From April 2008 until December 2009 hewastheinvestmentadvisorforbrokeragehouseBull&BearbrokerADPodgorica,andinDecember2009hebecameexecu-tive director of Premija Plus doo Podgorica. From February 2014 to March 2015 he was re-engaged in advisory activities at the Bull&Bearbroker,andparallelfromApril2014toApril2016,hewasappointedasChairmanoftheBoardofDirectorsofDZUTrendADPodgorica.CurrentlyhecoversthepositionsofChairmanoftheBoardofDirectorsHTPTrendKoraliADSutomoreandExecutiveDirectorofPLCMoračaADPodgorica.AsamemberoftheBoardofDirectorsofCrnogorskiTelekom,hewaselected at the Ordinary Shareholders Assembly held on May 31, 2017.Until regular Shareholder Assembly held on May 31, 2017, János Szabó, Michael Frank, Jovica Gjorgjeski and Pavle Gegaj were members of the Board of Directors. At the aforementioned Assembly, their duties were dismissed, after which their membership in the Board of Directors of Crnogorski Telekom ceased.

DoRedovneSkupštineakcionaraodržane31.maja2017.godine,JánosSzabó,MichaelFrank,JovicaGjorgjeskiiPavleGegajsubiličlanoviOdboradirektora.NapomenutojSkupštinisurazriješenidužnosti,nakončegajeprestalonjihovočlanstvouOdborudirektoraCrnogorskogTelekoma.

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Chief exeCuTive offiCer And mAnAgemenT CommiTTee

Nikola ljushevChiefExecutiveOfficer

Dušan BanovićResidential Customers Department Director

GorDana BlaGojevićDirector of the Financial Department

Miroslav janičićDirector of the Human Resources Department

Pavle ĐurovićDirector of the Corporate and Legal Affairs Department

PreDraG PerkovićDirector of the Business Department

valentina raDulovićDirector of Technology Department

oGnjen vukoslavovićDirector of the Customer Experience Department

After organization restructuring in 2017, the Executive Board of Directors was revoked and the Management Committee was established and it was under his presides.

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DušanBanovićwasbornin1978.Hegraduatedandobtainedamaster’sdegreeattheFacultyofElectri-cal Engineering, University of Montenegro. He started his career in Internet Montenegro, while he was a student in 2000 and did many different functions in Technical Department. Since the Internet Montene-gro became an integral unit of Telekom, he did many managerial functions in Departments for Technol-ogy and Corporative Strategy. In 2012, he was named as a Marketing Director for Business Customs and he was successfully doing it for 3 years. In 2015 he became B2B Department Director for business andoperatingenforceabilityandbythebeginningof2017hebecameresponsibleevenforthefieldofcorporative strategy and internal communications as a Director of Business Customs and Strategy. In 2017 he took up a position of Residential Customs Department Director and became a member of the Management Committee.

Nikola Ljushev, Electrical Engineer of Electronics and Telecommunication, started his career in 1997 in telecommunications,workinginDTgroup(TelecomofMacedonia),Cosmote/OTEandAustrianTele-com Group, where he achieved such results that became extraordinary example of huge success on the Europeanlevel.Heisawardedleaderinthefieldoftelecommunicationonthegloballevel,andacquiredfurther education at prestigious international education institutions, including the Harvard Business School. On t September 1, 2017 he took over a position of Executive Director of Crnogorski Telekom.

nikolA ljushevChiefExecutiveOfficer

dušAn BAnović Residential Customers Department Director

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gordAnA BlAgojevićDirector of the Financial Department

GordanaBlagojevićwasbornin1982.ShegraduatedattheFacultyofEconomics,UniversityofMontenegroin2005.TheExecutiveMasterdegree,withanemphasisonaccountingandfinance,she acquired at the Rotterdam Management University, Erasmus University in 2013. She has been in Crnogorski Telekom since 2009. In the period from 2009 to 2017, she performed managerial tasks in the Crnogorski Telekom Finance Department, from managers in the accounting department, through customerfinance,controlling,andtheDirectoroftheAccountingDepartment.ShewasnamedDirectorof the Finance Department in May 2017, when she became a member of the Management Committee.

miroslAv jAniČićDirector of the Human Resources Department

MiroslavJaničićwasbornin1975.HegraduatedattheFacultyofPhilosophy,UniversityofMontenegro,Department of English Language and Literature in 1999. He obtained the Executive MBA degree at the IEDC Business School in Bled in 2008. He began his career in both the private and the state education department. This was followed by an engagement in the Organization for Security and Co-operation in Europe (OSCE) in the period from 2003 to 2005. He has been in Crnogorski Telekom since 2005. He joined the Human Resources Department of Crnogorski Telekom in mid-2010 as a HR manager. He became the HR Department Director at the beginning of 2012, and since May 2015 he has been the Director of Human Resources Department. He was named Director of the Human Resources Department in May 2017, when he became a member of the Management Committee.

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pAvle ĐurovićDirector of the Corporate and Legal Affairs Department

PavleĐurovićwasbornin1976.HegraduatedattheLawFaculty,UniversityofMontenegro.Heobtained diploma in international trade law at the International Postgraduate Trade Law Center inTorino.HestartedhiscareerinthedomesticlawofficeVukotic-Durutovicandcontinuedhisinternationalofficeasalegaladviserin2000andwasnamedDirectoroftheInternationalLawOfficeHarrisons - Solicitors in Podgorica in the same year. In this period, he was responsible for the largest M&AandprivatizationoperationsinMontenegro.HehasbeeninCrnogorskiTelekomsince2003,when he was named Director of the Legal Department. Since 2010 he has been the Secretary of the Company. He is internationally recognized member of DT Group for Corporate Affairs and Legal Affairs. In 2017, he was named Director of the Corporate and Legal Affairs Department, Secretary of the Company and member of the Management Committee.

predrAg perković Director of the Business Department

PredragPerkovićwasbornin1977.HegraduatedattheFacultyofEconomics,UniversityofMontene-gro, and received his master’s degree at the Faculty of Economics, University of Belgrade. His work en-gagement in Crnogorski Telekom started in 2004 in the Marketing and Sales Department. In the period from2006to2008,hemanagedtheSalesDepartmentforlargecompanies.HewasnamedDirectorofDirect Sales in 2008, and Director of Sales Operations and Operational Excellence 2014. He was on the position of Sales Director from May 2015 to May 2017, when he was named Director of the Business Department. He is a member of the Management Committee of Crnogorski Telekom.

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vAlenTinA rAdulovićDirector of Technology Department

ValentinaRadulovićwasbornin1979.ShegraduatedattheFacultyofScience,UniversityofMontene-gro, at the Faculty of Mathematics, and obtained the title of Master of Science in Information Technol-ogyattheUniversityofSheffield.ShebeganhercareerasatraineeatCrnogorskiTelekomin2003,after which she covered numerous responsible positions within the Technical Department. With her comprehensiveapproachtobothtechnologicalandcorporatestrategicgoals,shehasmadeasignifi-cantcontributiontonumerousIT/NTprojectsandactivities.ShewasnamedDirectoroftheTechnicalDepartment on November 1, 2017, when she became a member of the Management Committee of Crnogorski Telekom.

ognjen vukoslAvovićDirector of the Customer Experience Department

OgnjenVukoslavovićwasbornin1980.HegraduatedattheFacultyofElectricalEngineering,Universityof Montenegro. He gained his entire work experience in Crnogorski Telekom, where he started his career in 2000 for the maintenance of telecommunication networks. He worked in various positions in the Tech-nique and participated in key company projects. In 2011, he became the manager of technical customer service, where he further developed his leadership and organizational skills. In May 2017, he was named Director of the Customer Experience Area, taking responsibility for the care of a comprehensive user experience. He is a member of the Management Committee of Crnogorski Telekom.

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our vision

In a fast changing world,WeareyourfirstchoicetoliveinafullydigitallifestyleWhereveryouare,whateveryoudo;By aspiring to be the best in class.

our sTrATegy

As a leading telecommunications provider in Montenegro, Crnogorski Telekom strives to maintain its leading position, to improve its business performance and leverage on available resources. In order to achieve this,CrnogorskiTelekomdefinedanewCorporatestrategyfor2017andonwards.Itisbasedonavisiontobethefirstchoiceofourcustomersineverything we do, with the desire to be the best.

The new strategy is based on three pillars, which are related to our three goals:

Be # 1 in mobileBe#1infixedBe # 1 in FMC (integrated) offers

Be # 1 in mobileAtthebeginningof2017,over95%oftheoutdoorpopulationwasalready covered with 4G signal by Crnogorski Telekom. 4G technology provides faster data transfer speeds and faster mobile internet than the 3Gnetwork,fastercontentandapplicationsdownload,fastersurfing,better sound and video quality, and improves quality of customers’ communication and lives in general. Therefore, we are proud that our customers have the best network, the network they deserve. This undis-putabletechnologyleadershiphasbeenconfirmedonmoreoccasionsin2017,whenCrnogorskiTelekomreceivedthe“BestinTest”certificateon the independent measurement of the mobile network quality, which was implemented by P3 Communications, according to the internation-ally recognized methodology. For the third year in a row, Telekom has achieved the best results in the overall measurement of the mobile net-work quality. In addition to the growth of the 4G network coverage and capacity, Telekom will continue to monitor and support the development of the services, through the improvement of the existing portfolio. Mobile services are developing faster than ever, expectations of the customers are constantly increasing and rules of the game are changing fast, there-fore,ourgoalistofulfilltheseexpectationsandimprovethequalityofour customers’ lives through the most innovative technological solutions, in short, to provide an irreplaceable, premium experience.

#1 in fixedCrnogorskiTelekomisleaderinthefixedbroadbandmarketwhileitisinthe second place on Pay TV market. Telekom has enabled access to op-ticalinfrastructureformorethan67thousandhouseholds,whichmeansthat almost every household in the urban part of Montenegro has the possibility to use the services on the optical network. Due to the growing demands of the market, when it comes to quantity of information, speed and quality of service, the optical network, which is the technology of the future, has become a reality. This is supported by the fact that with the equipment, installed today to the customers, we have achieved the tested speed of 1Gbps. In order to enhance the customer experience in suburbanareas,in2016welaunchedVDSLtechnology,which,attheendof2017offeredsuperhighinternetspeedforabout63thousandhouseholds. This technology represents a new chapter in develop-mentofthefixedbroadbandforCrnogorskiTelekom.Also,in2016welaunched a new TV platform “TVzaSVE” and once again showed that we are listening to customers’ needs.

# 1 in convergent (integrated) offersMagenta 1 represents the best of both Telekom`s world, mobile and fixedservices,televisioninonepackage.WithMagenta1,customershave faster internet access, more TV channels, and a postpaid number with on-net and off-net and mobile internet. Our ambition is to further develop and strengthen our integrated products offer.

The customer remains in the focus of our business. By further strength-eningofeSales;eCareandalternativesaleschannels,wewillstrivetomake our services even simpler and faster, and to provide impeccable experiencetoourcustomers.Ourgoalistobethefirstcustomers’choice,and combination of superior network, best IT solutions and premium brand will drive us to achieve this ambition.

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regulaTory environMenT

The regulatory environment is characterized by implementation of the Law on Electronic Communications that is based on the EU regulatory 2009 framework, as well as a number of bylaws adopted in accordance with the Law. The new regulatory framework is dedicated to ensure competitiveness in the market as well as obtaining a higher level of pro-tection of consumer rights. Amendments to the Law enacted in January 2017 partly affected Crnogorski Telekom operations.Out of all wholesale products offered to the market, based on the resolu-tions on SMP operators from 2010, 2013 and 2015, interest was shown only for duct rental. At the end of 2017 alternative operator showed inter-est for Bit stream access product.The Cost Accounting and Accounting Separation obligations were imple-mentedforbothfixedandmobileservices,asanobligationimposedonCrnogorskiTelekombeingSMP(SignificantMarketPlayer)atsomeoftherelevantmarket.Reportsfor2016arebasedonLRICmodel.In 2017 the Agency for Electronic Communications and Postal Services performedfiverelevantmarketanalysesdefinedinthe2014EURecom-mendation(bydefinitionitisaboutthesamerelevantmarketsalreadyanalyzed in 2010 and 2013).

CrnogorskiTelekomwasagainidentifiedasthesignificantmarketplayer(SMP)inallfivemarkets.Additionally,in2012,theNRAappliedathree-criteriontestontworetailmarkets:broadbandandmobileservices,tofindoutifthosemarketsweresusceptibletoex-anteregulation.Theretailmarketofmobileserviceswasfoundsufficientlycompetitive,whileCrnogorskiTelekomwasdesignatedasanSMPinthefixedbroadbandmarket.Uponapprovalofthe2013RegulatoryReportsforthefixednetwork, the NRA, for the third consecutive year, performed retail price regulationofthefollowingservicesprovidedatfixedlocations:accessto the network, broadband, as well as voice services (local, national and international calls) on a cost basis. Price adjustment implied a decrease based on the approved Crnogorski Telekom Cost Model for the respec-tive year.

Universal service

Universal Service (US) was commercially launched in December 2011, butwithoutsignificantinterestfromcustomersfortheservice.However,after introducing changes to the US regulatory framework, customers’ interestsignificantlyincreased,especiallyforvoiceservicesandinternetaccess. Interest for the US Inquiry and Directory Service was not very high. Consequently, Montenegrin operators compensated a rather significantnetcosttoUSOsfortheperiod2011–2015(includingalmostthewholeJanuary2016).ThroughUniversalServicenetcostrefund-ing obligation, Crnogorski Telekom compensated the cost of Universal Serviceintheamountof664thousandEuros.Followingtheresultsofthe public tender for a selection of USOs (Universal Service Operator) for theperiod2016–2021,theNRAdesignatedCrnogorskiTelekomastheUSO for access to the network, voice and internet access service. Inter-est for the services provided by Crnogorski Telekom as USO was higher than in the previous period. In addition to the three sites taken over from the previous US operator, Crnogorski Telekom is providing service in additional four locations. One of these locations, Medun near Podgorica, required upgrade from 2G to 3G in order to provide services under the US scope Crnogorski Telekom was designated for. The same situation was with Lever Tara location where Crnogorski Telekom needed to make upgrade from 2G to 3G for serving only one customer’s request.

Additionally, Crnogorski Telekom is in the process of obtaining neces-sarypreconditionsforbuildingfivenewsites,butthecustomers’interestfor services from some more locations is expected.

Number portability

The Number Portability service was commercially launched in 2011. In 2017,interestintheservicesignificantlyincreasedcomparedto2016(44.54%).Thisserviceisstillmoreusedbymobilenetworksubscribers,however,itisbecomingmoreandmoreusedalsobythefixsegment.Almostallfixsubscribers,whousedtheservicein2017,portednumberfrom Crnogorski Telekom network to the other network, while more than one third of the total number of mobile subscribers who used this service during 2017 ported the number in Crnogorski Telekom mobile network.

Regulatory fees

Under the effective regulations, Crnogorski Telekom pays fees for market supervision and use of radio frequencies, numerations and ad-dresses.

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Radio-frequency spectrum

AttheMulti-Bandauctionfor800/2600MHzand900/1800/2100MHzorganizedinJuly2016,CrnogorskiTelekomwonsuperiorpackagethatwould ensure its position in the mobile segment for the next 15 years, as well as the basis for improvement of Crnogorski Telekom technological leadership in the market.

Sharing of infrastructure

TheReferenceInterconnectionOffer(RIO)definesthetermsandconditions of collocation, for the purpose of interconnection realized in Crnogorski Telekom’s premises. This includes rental of space in build-ings, masts and cable ducts. The RIO conditions are valid only for opera-torslookingforinterconnection/access,whileusageofinfrastructureby operators for other purposes is subject to commercial negotiations. ApartfromtheRIO,theReferenceUnbundlingOfferdefinesthetermsand conditions of collocation for the purpose of local loop unbundling, including also rental of collocation space in Crnogorski Telekom premises and ducts. Regulated prices for duct rental do not encourage investments in new duct deployment.

Termination of calls

BasedontheNRAsrelevantresolutionsondesignationofsignificantmarket player (SMP) on relevant markets, the termination rates were re-ducedinDecember2016.Fixedterminationrates(FTRs)werereducedfrom0.74to0.65cents/min(forlocal)andfrom0.94to0.8cents/min(for single transit), while the mobile termination rate (MTR) for voice traffic,afterapprovingthe2015RegulatoryReportsofallthreeopera-tors,wasreducedfrom1.18centsto1.06cents/min.Thenextwaveoftermination rates decrease is expected upon approval of Crnogorski Telekom Regulatory Reports in Q12018.

Future Regulatory Developments

In the process of implementation of the 2013 Law on Electronic Commu-nications, the Government, responsible ministries and the NRA will work on further regulatory framework developments through harmonization of existing bylaws and adoption of new ones. During 2018, the enact-ment of the special new Law is expected, in order to transpose in the MontenegrinlegalframeworktheDirective2014/61/EUoftheEuropeanParliament and the Council from 2014 on measures to reduce the cost of deploying high-speed electronic communications networks.In 2018 the national regulator plans to apply the Three Criteria test on relevant Retail Broadband Access market for residential and business customers, in order to determine whether the market is susceptible for ex ante regulation.

24ManageMent report

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promoTions And offersreSidenTial cuSToMerS

Postpaid

Crnogorski Telekom continued with upgrade of Max tariffs in 2017. These changes had big impact on the increase of customer satisfaction, making these tariffs even more attractive. Customers of Max tariffs be-came the biggest part of postpaid base (residential customers). Number of postpaid customers continued to increase in 2017 as well, thanks to attractive tariffs and promo campaigns.

During 2017 focus was on promotion of 4G network and best cover-age. Therefore campaigns were based on internet resources. In the second half of 2017 postpaid internet options for residential customers were redesigned and digital add-ons were introduced, which provided customers with different possibilities and choices.

In postpaid mobile internet for residential customers, Crnogorski Tele-komincreasedthenumberofcustomersignificantly,thankstotheverycompetitive offer of mobile internet tariffs, but also due to a superior 4G network.

Prepaid

Strong challenges and pressure on prepaid market continued in 2017 as a result of aggressive competition on the one side and introduction of obligatory prepaid e-registration on the other.Followingthemarkettrends,butwithfocusonprofitabilitypreservation,Telekom created new communication platform “Monster”, targeting younger customer groups. Two new prepaid options were launched. In-ternet Monster targets customers preferring internet, while Alo Monster puts focus on all-net minutes.

E-registrationinprepaidsignificantlyjeopardizedtheacquisitionpoten-tial of the market, which was especially visible during summer season. Partnership with Voli, the biggest retail chain in the country continued in 2017.Witheachpurchaseof€15andmore,customergets€2add-onon Volim prepaid account. By the end of 2017, there were 10 thousand customers of Volim package, which contributed Crnogorski Telekom market share to be stable.

Magenta 1

Number of customers of Magenta 1 continued to increase in 2017. At the end of year, Crnogorski Telekom had over 27,000 customers on Ma-genta1package.Magenta1customerswereamongthefirstthatcoulduse advantages of new technologies such as VDSL, the highest speeds onfiberandsignificantlyimproved4Gnetwork.Thesecondhalfoftheyear was marked by the special offer of Magenta 1, which enabled more internet, minutes and TV content to existing and new customers, without additional costs.

Fixed segment

2017 was the year of new internet technology. Crnogorski Telekom enabled customers requiring fast internet and living in suburban areas, outofareascoveredbyfiber,withexcellentalternative–turboDSL.NewturboDSLtechnologybringssignificantspeedincrease,stabilityoftheinternetserviceandthereforesignificantlybettercustomerexperience.Fromthespeedaspect,turboDSLisclosertofiberthanADSLandenables 10 times higher bandwidth. All that without additional works in the apartment, with easy installation and only with the change of device on customer’s location.

In 2017 Extra TV offer wasn’t enriched only with new TV content but novelties were introduced in service TV offers as well. TV content was extended with very popular channels both in SD and HD resolution. Extra TV service offer was enriched with new TV Duo offer providing custom-ersoffixedtelephonyandExtraTVwithadditionalbenefitsoffreepack-agesincludedintheoffer(Pink&Arenasport)aswellasfreeminutesinfixedtelephony.

TVzaSVE

In cooperation with RDC we introduced new TV content of TVzaSVE in February 2017 with additional package including 17 most popular chan-nels. TVzaSVE is recognized as the most practical and movable TV offer onthemarketwith97%ofcoverage.ByextendingTVcontentwithnewpackage,theofferisfulfilledwiththemostpopularsports,music,movieand documentary channels such as Arenasport, FOX, Pink and other. The number of customers of extended package is in constant increase fromthebeginninganditmakes33%oftotalDVB-T2customersatthemoment.

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buSineSS cuSToMerS

Postpaid

Despite strong competition, during 2017 the number of customers of the Smart Business package continued to grow. At the end of 2017, the postpaidbasewashigherby12thousandcustomers(10%comparedtothe previous year), which ensured Crnogorski Telekom leading position withamarketshareof44%.FocusontheSOHOsegmentiscontinued,salesactivitiesareintensifiedwithtargetedoffersfordifferentcustom-ers’segments,resultinginSOHOdatabasegrowthby40%.Inordertomonitor the demands of modern business, Smart Business tariff portfolio was redesigned in November. The new portfolio is enriched by a larger number of tariffs (including the Premium Package), additional minutes forcalls,roamingandcallsabroadandsignificantlylargerinternetresourcesforthefastestsurfingin4Gnetwork.

Fix segment

During 2017 Crnogorski Telekom continuously made intensive activi-tiestostabilizerevenuesfromfixedservices,whichresultedinastablenumber of connections, both in voice and broadband. Intensive sales ac-tivities in this segment were at migrating customers to the Business Duo tariffs,whichcombinedfixedvoiceandinternetservices.Themigrationcovered1500customers(15%ofthebroadbandcustomerbase).

Magenta 1 Business

During 2017 the activities on the popularization of the integrated (FMCC) offer of Magenta 1 Business continued. The existing offer is enriched with tariffs that include VDSL technology and increased internet speeds. During 2017, over 700 small and medium-sized companies (SOHO and SME) became customers of Magenta 1 packages. The total number of Magenta1companiesattheendof2017was1,224,whichmakes17%oftheSOHO/SMEcustomerbase.Positiveeffectsofcustomermigra-tion to Magenta 1 tariffs had a special effect on the postpaid mobile voice base, through the activation of over 1,200 new postpaid SIM cards and an increase in average consumption per customer for EUR 12. Popularization of Magenta 1 and the migration of business customers to this tariff package directly affect the achievement of the strategic goal of the business segment, increasing the digitalization of small and medium enterprises through the introduction of Cloud services that are part of the integrated Magenta 1 offer.

ICT

In 2017, the ICT revenue growth continued as a trend from the previ-ous period. Revenue was generated mainly from tailor made solutions and contracts for retail leaders (Voli trade, HDL) were realized as well as continuous cooperation with the leading banks in Montenegro (example Erste Bank). A special focus was on digitalization of customer business and developing software within the solution, especially in the SMB segment.During2017,thefirstTelekomsoftwaresolutionforexternalcustomers (program for booking and scheduling Erste Bank meeting rooms)wasrealized–whichwasasignificantstepinreachingouttothesoftware development industry. Smart solutions and NB IoT are recog-nized as globally prospective and fast-growing business models and in connection with this, a Smart Park pilot project has been implemented in cooperation with the capital city. In 2017, we became a Microsoft Cloud ServiceProvider(CSP)andachieveda50%marketshareintheOffice365solution.

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Human resourCes

humAn resourCes

Improved organization – customers focused

In 2017, Crnogorski Telekom implemented the biggest organizational restructuringinitsrecenthistoryinordertobemoreagile,efficientandready for market challenges. Organizational changes were made along with changes in the management bodies, with the abolition of the Execu-tive Management Board and formation of the Management Committee. Specificstepsweretakenindirectionofpersonalcostsoptimization,which was also a result of reduced management structure.

During the second half of 2017, in synergy with partners from Hrvatski Telekom,specificstepsweremadetorealizetwoprogramsforincreas-ingsalesefficiencyoforganizationalunitsindirectcommunicationwithcustomers. With the aim of creating conditions for the realization of these programs, a certain organizational alignment has been performed as well as intensive work when it comes to the employee motivation toward keeping the existing and attracting new customers.

Investing in employees

During 2017 our Company continuously worked on improving employ-ees’ knowledge and skills. All employees of Crnogorski Telekom have access to Learnlight Digital Learning Program for English language as of February 2017, and Skillsoft Digital Training Platform is available sinceApril2017,whichoffersmorethan7,000coursesinvariousfields,46,000onlinebooksand65,000videocontents.CrnogorskiTelekomisamongthefirstinMontenegrotointroducethisformofcourses,followingup-to-date learning formats and offerings, as well as motivating employ-ees to take on personal responsibility in terms of self-improvement, which represents the key to personal development and success, and well as the key to success of our Company.When it comes to F2F trainings, the focus was on Sales, Talent Manage-ment Program, Open Training Catalogue, Experts Program, as well as individualtrainings.Inthisway,morethan85%oftheorganizationtookpart in 2017 training programs, which resulted in a total of 10,208 train-ing hours. Crnogorski Telekom also won the main 2017 Social Respon-sibility Award, given by the Employers Union, on which occasion our training and development portfolio participated as one of the three award segments - the Employee Care segment.

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Human resourCes

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Human resourCes

Employee benefits

As a company which takes care of the welfare of its employees, Crnogo-rskiTelekomcontinuouslyprovidesawiderangeofemployeebenefitssuch as health and recreational programs, subsidization of summer and winter vacations with family members, resolving employee housing and others.

Employee satisfaction

During the 2017, two employee satisfaction surveys were carried out in Crnogorski Telekom.

Employee Survey, which took place between the end of April and begin-ning of May 2017, was a large biannual survey, focused on employee healthandcommitmentGroup-wide.Witharesponserateof79%,results in Crnogorski Telekom showed that key factors affecting the health and success of the organization improved since 2015. In this way the quality of leadership style, as well as the level of employee health and commitment, have shown values that are above the Europe average.The Pulse Check Survey, held in early November 2017, indicated the effectiveness of corrective and improvement measures implemented based on the results of Employee Survey, both within individual organi-zational units and on the company level. The survey, with response rate of72%,showedthatorganizationalchangestheCompanywentthrough2017 had left space for further improvement when it came to the level of understanding the strategy and changes in the Company, while the em-ployee perception of the leader communication and the harmonization of workload and quality requirements had improved since the previous survey. Furthermore, being the pioneer of digital learning modules in Montenegro, the survey results pointed out the increasing potential and wider use of digital learning platforms in the Company. The results of this researchwillprovideguidanceforfurtherdevelopmentanddefiningtheimprovement measures for the period ahead of us.

Transformation and Changes – Business Orientation

In 2017, Crnogorski Telekom successfully implemented ONE ERP Travel Management Module, i.e. DT platform (My portal) for travel orders and small expenses for all employees in the Company. Furthermore, we have also implemented the global project of Deutsche Telekom- Aramis, which represents unique HR service center for all HR issues.With regards to Future Operating Model project (FOM), throughout 2017 Crnogorski Telekom had at its disposal the Deutsche Telekom training offers aimed at different levels of employees and available in English. The main focus was on digital platforms, on whose promotion we con-tinuously worked in order to encourage employees to maximize the use of digital contents.

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Corp. soCial responsibiliTy

CorporATe responsiBiliTy

As one of the leading companies in the country, Crnogorski Telekom strivestobepresentinallfieldsimportantforMontenegrinsociety.Apart from the desire to provide our customers with the highest quality telecommunication services, we see our role in an active and constant contribution to the development of the community where we operate and which we are part of.

Internet in Service of Education In 2017, Telekom provided free broadband internet for around 250 el-ementary and high schools, as well as preschool institutions in Montene-gro,givingasignificantcontributiontothequalityandmodernizationofthe educational process. This is a continued ten-year strategic coopera-tion with the Ministry of Education, and the agreement signed provides the educational institutions with technical capabilities to use the services of optical transmission and TurboDSL, which will enable schools to increaseservicestabilityandbetterdataflow.

“Za svako dobro”

As part of our donor program named Za svako dobro, aimed at support-ing and promoting projects of particular importance to the community, implemented by the use of digital technologies, in 2017, a total of seven projectsweresupported:

§ Little Developers - programming and robotics courses for elemen-tary school pupils (NGO Montenegrin Development Initiative)

§ The First Children’s Portal in Montenegro - a portal of educational and informative character intended for parents and elementary school children (Non-Governmental Association Zinak)

§ Eco Atlas – an online platform for recording the fund of trees in towns and broader surroundings (NGO Ecologic),

§ OurForests,OurCare–acampaignonforestfireprevention(NGOGreen Home),

§ Assistive Technologies Leading to Greater Independence of Per-sons with Disabilities - educating people with visual impairment to in-dependently use smart phones in order to increase the level of their independence and social integration (NGO Equivalence),

§ Let’s Learn Together - a mobile application to support students with disabilities (NGO Association of Youth with Disabilities of

§ Montenegro) § Let’sProceedtogethertotheSpeechTherapist’sOffice-equipping

andoperationofthespeechtherapist’sofficeinZabljak(Associationof Parents, Children and Youth with Disabilities, New Hope).

ZasvakodobroisTelekom’slong-terminitiativeinthefieldofsocialresponsibility, implemented for the fourth consecutive year, which promotes the use of digital technologies for solving the challenges in society. Including this year’s winners, 23 projects of special importance forthecommunityweresupported,withatotalofaround€120,000.

Volunteer Club’s Activities

In March 2017, Telekom’s Volunteer Club was established with the aim of improving Crnogorski Telekom employees’ volunteer and charity ac-tivities. In cooperation with the Ministry of Education of Montenegro, the Club organized three tree-planting and gardening projects in Podgorica, inthefollowingschools:StamparMakarije,21.MajandVladoMilic.InMay 2017, the Club, in cooperation with the Blood Transfusion Institute, organized a voluntary blood donation campaign for the company’s employees and management.

Sport, Music and Culture

Our sponsorship platform focuses on sports, music and culture - which is perfect for emphasizing our “Life is for Sharing”. Within the company’s sponsorship strategy, sport has a special place, considering that it is an important area for the development of a healthy, modern and advanced society. The company is a golden sponsor of the Montenegrin National Football Team and a general sponsor of the Telekom First Montenegrin Football League. In addition, the company is traditionally a sponsor of the Buducnost Basketball Club.

Crnogorski Telekom sponsored numerous music events and activities in 2017, including City Groove Festival in Podgorica, Southern Soul Festival in Ulcinj and After Beach Parties taking place along the Montenegrin coast

Supporting Charity Projects

Telekom seeks to contribute to addressing essential social challenges in line with available resources. During 2017, Crnogorski Telekom enabled theimplementationofseveralprojectsofnationalimportance:

§ The first Montenegrin Telethon, which enabled the collection offunds for the treatment of children with cancer

§ Parenting line, a support service for all parents in Montenegro with the aim of reducing domestic violence

§ Shelter for the Homeless in the Capital § UNICEFyouthempoweringprogramKreaktivator

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The finanCial year 2017

Crnogorski Telekom A.d. podgoriCAInternational Financial Reporting StandardsFinancial Statements For the year ended 31 December 2017

conTenTS

PageFinancialstatement:Independent Auditor’s Report 35Statementoffinancialposition 37StatementofprofitorlossandothercomprehensiveIncome 38Statementofcashflows 39Statement of changes in equity 40

Notestothefinancialstatements 41-83

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37



sTATemenT of finAnCiAl posiTion(All amounts in EUR unless otherwise stated)

as at 31 DecemberNotes 2017 2016

asseTs Non-current assets Property, plant and equipment 5 76,690,480 78,685,483Intangible assets 6 51,361,693 52,711,701Long term loans and other receivables 7 11,614,232 11,166,351Total non-current assets 139,666,405 142,563,535

Current assets Inventories 8 2,958,506 1,300,987Trade and other receivables 9 35,626,847 31,821,262Short term investments 10 5,000,000 -Cash and cash equivalents 11 6,646,412 6,552,017Restricted cash 12 970,327 1,116,877Total current assets 51,202,092 40,791,143Total assets 190,868,497 183,354,678

eQuiTY aND liaBiliTiesequity and reserves attributable to the equity holders of the companyShare capital 14 123,857,700 123,857,700Retained earnings 14,579,431 9,448,058Total shareholders’ equity 138,437,131 133,305,758

liaBiliTiesNon-current liabilitiesDeferred income tax liability 17 2,399,015 2,476,483Longtermfinancialliability 18 2,817,463 1,320,968Provision for liabilities and charges 16 469,677 502,330Total non-current liabilities 5,686,155 4,299,781

Current liabilities Trade and other payables 15 42,696,281 35,852,593Currentfinancialliability 18 2,830,167 7,824,314Current income tax payable 833,281 1,241,367Provision for liabilities and charges 16 385,482 830,865Total current liabilities 46,745,211 45,749,139Total liabilities 52,431,366 50,048,920Total equity and liabilities 190,868,497 183,354,678

Thenotesonpages41to83areanintegralpartofthesefinancialstatements.

ThesefinancialstatementswereauthorizedforissuebytheBoardofDirectorsofCrnogorskiTelekomA.D.onMarch28,2018and were signed on its behalf by

NikolaLjushev GordanaBlagojevićChiefExecutiveOfficer FinanceDirector

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sTATemenT of profiT or loss And oTher Comprehesive inCome (All amounts in EUR unless otherwise stated)

Za godinu završenu 31. decembraFor the year ended December 31, Napomena 2017 2016

Note 2017 2016Revenue

Revenuefromfixedlinesoperations 19 a 42,569,819 47,729,557Revenue from mobile operations 19 b 42,517,458 43,979,962Total revenue 85,087,277 91,709,519

other operating income 20 730,703 397,988

operating expensesEmployee related expenses 21 (13,078,565) (14,933,643)Depreciation, amortization and impairment 22 (21,884,507) (20,086,889)Payments to other network operators 23 (7,223,801) (8,251,632)Cost of equipment sold (11,174,576) (10,831,319)Other operating expenses 24 (25,856,961) (27,743,869)Total operating expenses (79,218,410) (81,847,352)

operating profit 6,599,570 10,260,155

Finance income 25 576,635 1,163,877Finance costs 25 (1,289,020) (563,079)net financial result (712,385 600,798

Profit before income tax 5,887,186 10,860,953

Income tax expense 26 (755,813) (1,454,032)

Profit for the year 5,131,373 9,406,921

Other comprehensive income for the year - -Total comprehensive income for the year 5,131,373 9,406,921

Attributableto:

Equity holders of the company 5,131,373 9,406,921

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

- basic and diluted 27 0.11 0.20

Theaccompanyingnotesonpages41-83areanintegralpartofthesefinancialstatements.

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sTATemenT of CAsh floWs(All amounts in EUR unless otherwise stated)

For the year ended December 31, Note 2017 2016

Cash flows from operating activities

Cash generated from operations 34 34,206,259 21,817,351 Interest paid 25 (240,715) (18,849)Income tax paid (1,241,370) (1,710,685)Net cash generated from operating activities 32,724,174 20,087,817

Cash flows from investing activitiesPurchase of tangible and intangible assets 5,6 (20,688,081) (47,352,805)Shorttermbankdepositsinflow - 43,500,000 Shorttermbankdepositsoutflow (11,575,133) (2,000,000)Interest received 205,322 415,609Proceeds from disposal of non-current assets 26,668 1,338,025 Long term loans and other receivables 7 (447,881) (3,600,051)Net cash generated from/(used in) investing activities (32,479,105) (3,600,051)

Cash flows from financing activitiesDividends paid to shareholders 28 (146,549) (19,156,565)net cash used in financing activities (146,549) (19,156,565)

Net increase in cash and cash equivalents 98,519 (2,668,799)

Cash and cash equivalents, beginning of period 6,552,017 9,215,671Exchange gains on cash and cash equivalents (4,124) 5,145 Cash and cash equivalents, end of period 11 6,646,412 6,552,017


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sTATemenT of ChAnges in eQuiTy(All amounts in EUR unless otherwise stated)

share Capital Retained earnings Total

Balance at january 1, 2016 123,857,700 19,241,137 143,098,837Dividends (Note 28) - (19,200,000) (19,200,000)Profitfortheyear - 9,406,921 9,406,921 Other comprehensive income for the year - - -Balance at December 31, 2016 123,857,700 9,448,058 133,305,758

Balance at january 1, 2017 123,857,700 9,448,058 133,305,758 Dividends (Note 28) - - -

Profitfortheyear - 5,131,373 5,131,373 Other comprehensive income for the year - - --Balance at December 31, 2017 123,857,700 14,579,431 138,437,131


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1.generAl informATion

CrnogorskiTelekomA.D.Podgorica(alsoreferredtoas“Telekom”orthe“Company”)isaprincipalprovideroffixedtelephonyservicesinMonte-negro, as well as of local, national and international telephony services, in addition to a wide range of other telecommunication services involving mobile network, internet, leased circuits, data networks, cable television services and other telecommunication services in Montenegro. The Agency for electronic communication and postal services of Montenegro, at a session held on 10.09.2015. appointed Crnogorski Telecom A.D. Podgorica for provision of the Universal Service.

The Company is a shareholding company listed on the Montenegro Stock Exchange (TECG). The Company was acquired in 2005 by Magyar Telekom Plc.(hereinafterreferredtoas“MagyarTelekom”)with76.53%ofownershipinterest.OnApril30,2009,theGeneralAssemblyofCrnogorskiTele-kom A.D decided to merge T Mobile d.o.o. and Internet Crna Gora d.o.o., into Crnogorski Telekom A.D..

On January 10, 2017, the Magyar Telekom signed a share purchase agreement with M-Tele Llc, company owned by Hrvatski Telekom Plc, for the dis-posalofthetotalofits76.53%stakeinCrnogorskiTelekom..HrvatskiTelekom,throughM-Tele,becomeamajorityownerofCrnogorskiTelekomPlc.

DeutscheTelekomAG(“DTAG”)istheultimatecontrollingownerofHrvatskiTelekomPlc.holding51%oftheissuedshares,andasaresulttheultimate parent of the Company as well.

CrnogorskiTelekomisdomiciledinMontenegroatthefollowingaddress:Moskovska29,Podgorica.AsatDecember31,2017theCompanyhad552employees(573asat31December2016).

Investigation into certain consultancy contracts

Aspreviouslydisclosed,inthecourseofconductingtheirauditofMagyarTelekom’s2005financialstatements,PricewaterhouseCoopersKönyv-vizsgálóésGazdaságiTanácsadóKft.(“PwC”)identifiedtwocontractsthenatureandbusinesspurposesofwhichwerenotreadilyapparenttothem.InFebruary2006,MagyarTelekom’sAuditCommitteeretainedWhite&CaseLLP(the“independentinvestigators”or“White&Case”),asitsindependentlegalcounsel,toconductaninternalinvestigationintowhetherMagyarTelekomand/oranyofitsaffiliateshadmadepaymentsunderthose, or other contracts, potentially prohibited by U.S. laws or regulations, including the Foreign Corrupt Practices Act (“FCPA”), or internal company policy. The Audit Committee also informed the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”), and the Hungarian Financial Supervisory Authority of the internal investigation.

On December 2, 2009, the Audit Committee provided Magyar Telekom’s Board of Directors with a “Report of Investigation to the Audit Committee of Magyar Telekom Nyrt.” dated November 30, 2009 (the “Final Report”). The Audit Committee indicated that it considers that, with the delivery of the FinalReportbasedoncurrentlyavailablefacts,White&Casehascompleteditsindependentinternalinvestigation.

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Investigation into certain consultancy contracts (continued)

TheFinalReportincludesthefollowingfindingsandconclusions,basedupontheevidenceavailabletotheAuditCommitteeanditscounsel:

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

§ Aspreviouslydisclosed,withrespecttoMontenegrincontracts,thereis“insufficientevidencetoestablishthattheapproximatelyEUR7millioninexpendituresmadepursuanttofourconsultancycontracts...weremadeforlegitimatebusinesspurposes”,andthereis“affirmativeevidencethatthese expenditures served improper purposes.” These contracts were not appropriately recorded in the books and records of Magyar Telekom and its relevant subsidiaries. Two of these contracts, amounting to EUR 2.88 million in total, were entered into by Crnogorski Telekom and a sub-sidiarythereof,whiletwootherswereenteredintobyotheraffiliatesintheGroup.

In 2007 the Supreme State Prosecutor of Montenegro informed the Board of Directors of Crnogorski Telekom, of its conclusion that the contracts subject to the internal investigation in Montenegro included no elements of any type of criminal act for which prosecution would be initiated in Mon-tenegro.However,since2007,theSupremeStateProsecutorofMontenegrohasbeenprovidedwithallnewdataand/ordocumentswhichbecameavailable for Crnogorski Telekom. During 2017 there were no requirement for any additional data or documentation to be delivered from Crnogorski Telekom.

Additionally,theMinistryofInterioroftheRepublicofMacedoniaandtheHungarianCentralInvestigatingChiefProsecutor’sOfficecommencedinvestigations into certain activities that were the subject of the internal investigation. These investigations are continuing, and Crnogorski Telekom will continue to cooperate with these investigations.

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

Asof31December,2017theabovementionedinvestigationshadnoimpactonfinancialstatementsoftheCompany.

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2.summAry of signifiCAnT ACCounTing poliCies

Theprincipalaccountingpoliciesappliedinthepreparationofthesefinancialstatementsaresetoutbelow.Thesepolicieshavebeenconsistentlyapplied to all the years presented, unless otherwise stated.

2.1. Basis of Preparation

ThefinancialstatementsofCrnogorskiTelekomA.D.havebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asendorsedbytheEuropeanUnionandeffectiveatthetimeofpreparingthefinancialstatements,andinaccordancewithrequirementsoftheLawonAccountingandAuditingofMontenegro.Thefinancialstatementshavebeenpreparedunderthehistoricalcostconventionasmodifiedbytherevalu-ationofavailable-for-salefinancialassets.

ThepreparationoffinancialstatementsinconformitywithIFRSrequirestheuseofcertaincriticalaccountingestimates.Italsorequiresmanagementto exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or com-plexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinnote4.

TheCompanymaintainsitsaccountingrecordsinaccordancewiththeAccountingLawofMontenegro(“OfficialGazetteofMontenegro”,No.052/16),AuditingLaw(“OfficialGazetteofMontenegro”,no.001/17)andinparticular,basedontherelevantlegaldecisiondefiningthemandatoryapplicationofIFRSinMontenegro(“OfficialGazetteoftheRepublicofMontenegro”,No.69/2002).

ThesefinancialstatementsoftheCompanyareauthorizedforissuebytheCompany’sBoardofDirectors(BoD),however,theAnnualGeneralMeeting(AGM)oftheowners,authorizedtoacceptthesefinancials,hastherighttorequireamendmentsbeforeacceptance.AsthecontrollingshareholdersarerepresentedintheBoardofDirectors(BoD)thatapprovesthesefinancialstatementsforissuance,theprobabilityofanypotentialchangerequiredby the AGM is extremely remote, and has never happened in the past.

TheofficialcurrencyinMontenegroandthefunctionalcurrencyoftheCompanyisEuro(EUR).

2.1.1. Changes in accounting policies and disclosures

Theaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialyearunlessotherwisestatedanddisclosed.

a)New and amended standards adopted by the CompanyThe Company has adopted the following new and amended standards for their annual reporting period commencing 1 January 2017 which were endorsedbytheEuropeanUnionandwhicharerelevantfortheCompany’sfinancialstatements:

§ Recognition of Deferred Tax Assets for Unrealized Losses – Amendments to IAS 12 § Disclosure Initiative – Amendments to IAS

b) New standards and interpretations not yet adopted

Certain new standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and have not been earlyadoptedbytheCompany.NoneofthesestandardsandinterpretationsareexpectedtohavesignificanteffectontheCompany’sfinancialstate-ments,exceptforthefollowingstandards:

§ IFRS 9 Financial instruments and associated amendments to various other standards (effective for annual periods beginning on or after 1 January 2018

In July 2014, the IASB issued IFRS 9 “Financial Instruments.” Application of the standard is mandatory for reporting periods beginning on or after 1 January2018.ThestandardintroducesnewclassificationandmeasurementrequirementsforfinancialinstrumentsandreplacesIAS39.

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The effects are analyzed in a completed DT Group-wide project on implementation of the new standard. On the basis of management’s current esti-mate,Companyexpectsthefirst-timeapplicationofthestandardtohavethefollowingimpactsonthefinancialstatements:

TheCompanyhasadoptedthesimplifiedexpectedcreditlossmodelfortradereceivablesandcontractassets(whichwillberecognizedforthefirsttime as of 1 January 2018 in accordance with IFRS 15), which will lead to earlier recognition of impairment losses in some cases.

Herebymentionedimpairmentlossesastobothgeneralandsimplifiedapproachwillhaveeffectoffirsttimeadoptioninamountbetween350.000EUR to 500.000EUR on retained earnings.

§ IFRS 15 Revenue from contracts with customer and associated amendments to various other standards (effective for annual periods beginning on or after 1 January 2018)

Thisstandardprovidesasingle,principles-basedfive-stepmodelforthedeterminationandrecognitionofrevenuetobeappliedtoallcontractswithcustomers. It replaces in particular the existing standards IAS 18 “Revenue” and IAS 11 “Construction Contracts” and has effect on the presentation ofCompanyresultsofoperationsandfinancialposition.TheCompanywillutilizetheoptionforsimplifiedinitialapplication,i.e.,contractsthatarenotcompletedby1January2018willbeaccountedforasifthey had been recognized in accordance with IFRS 15 from the very beginning. The cumulative effect arising from the transition will be recognized as an adjustment to the opening balance of equity in the year of initial application. The effects are being analyzed in a Company project on implementa-tion of the new standard. Based on management’s current estimate, Company expects the changeover to the new standard to result in a cumulative increaseinretainedearningsbetween1.000.000EURto1,300.000EUR.Thiseffectwillbemainlyattributabletothefirst-timerecognitionof:

a) Contract assets that, in the case of multiple-element arrangements (e.g. mobile contract plus handset) a larger portion of the total remu-neration will be attributable to the component delivered in advance (mobile handset), requiring earlier recognition of revenue from the sale of goods and merchandise, and

b) Deferred customer acquisition costs or expenses for sales commissions (customer acquisition costs) which will be capitalized and recog-nized over the estimated customer retention period.

As regards the new standard’s impact on the income statement, the Company expects the overall share of revenue from the provision of services to decrease, and the overall share of revenue from the sale of goods and merchandise to increase, by between 2,5 and 3 percentage points. Under IFRS 15 revenue will be recognized earlier and expenses will be recognized later for contracts not yet concluded by 1 January 2018. However, as the ac-countingeffectsofthechangeovertothenewstandardwillberecognizeddirectlyinequity,theonlyeffectsonprofitorlossin2018willberelatedtochanges in the point in time at which revenue and expenses are realized. On the assumption that business development remains unchanged, this will meanthefollowingforamassmarketcharacterizedbyalargenumberofcustomercontractsthatarebeingconcludedatdifferentpointsintime:

§ lower service revenues and higher selling expenses from the amortization of capitalized customer acquisition costs will be compensated for by § higher revenue from the sale of goods and lower selling expenses on new contracts from the capitalization of customer acquisition costs..

§ IFRS16Leases(effectiveforannualperiodsbeginningonorafter1January2019)

Thenewstandardsetsouttheprinciplesfortherecognition,measurement,presentationanddisclosureofleases.IFRS16eliminatestheclassifica-tionofleasesaseitheroperatingleasesoffinanceleasesasisrequiredbyIAS17and,instead,introducesasinglelesseeaccountingmodel

§ IFRS16willresultintherecognitionofalmostallleasesonthebalancesheet.Thestandardremovesthecurrentdistinctionbetweenoperatingandfinancingleasesandrequiresrecognitionofanasset(therighttousetheleaseditem)andafinancialliabilitytopayrentalsforvirtuallyallleasecontracts. An optional exemption exists for short-term and low-value leases

§ The income statement will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Ad-ditionally, operating expense will be replaced with interest and depreciation, so key metrics like EBITDA will change.

§ Operatingcashflowswillbehigherascashpaymentsfortheprincipalportionoftheleaseliabilityareclassifiedwithinfinancingactivities.Onlythepartofthepaymentsthatreflectsinterestcancontinuetobepresentedasoperatingcashflows.

TheCompanyiscurrentlyassessingtheimpactofthisnewstandardonitsfinancialstatements.TheCompanyplanstoadoptthestandardonitseffec-tive date and when endorsed by the European Union. Please refer to note 32 a) for operating lease commitment.

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2.2. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The Chief Operating Decision-Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identi-fiedastheChiefExecutiveOfficerthatmakesstrategicandbusinessdecisionswhoseyearlyvalueisnotexceeding500.000EUR(withexceptionofcustomer contracts that use telecommunication and related services etc) while strategic and business decision above 500.000 EURmakes Board of Directors. CEO formed Management Committee, advisory body, whose members are departments’ directors in Crnogorski Telekom Plc. Consequent-ly,therearenoidentifiablesegmentsinCrnogorskiTelekomsinceallrelevantdecisionsaremadeontheCompanylevel.

2.3. Foreign currency translation

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

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets andliabilitiesdenominatedinforeigncurrenciesarerecognizedasfinanceincomeorfinancecosts.

2.4. Property, Plant and Equipment

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

The historical cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, as well as costs to decommission the asset if necessary. Historical cost of telecommunications equipment comprises all expenditures including the cabling to the customers’ premises. Cost also includes internallygeneratedworkforaspecificitemofproperty,plantandequipment.

Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economicbenefitsassociatedwiththeitemwillflowtotheCompanyandthecostoftheitemcanbemeasuredreliably.Thecarryingamountofthereplacedpartisderecognized.Allothercostsofmaintenanceandrepairsareexpensedinthefinancialperiodinwhichtheyareincurred.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized net within Other operating income/OtheroperatingexpenseintheProfitorloss.

Construction in progress includes third-party and internally generated work for property, plant, and equipment not yet completed. This item discloses investmentsmade(butnotyetcompleted)inthecurrentand/orpreviousfinancialyear(s).Aftercompletionofaconstructedpropertyandequipment,the related amounts carried under advance payments or construction in progress are capitalized as items of property, plant, and equipment.

IndeterminingwhetheranassetthatincorporatesbothintangibleandtangibleelementsshouldbetreatedunderIAS16-Property,PlantandEquip-mentorunderIAS38–IntangibleAssets,managementusesjudgmenttoassesswhichelementismoresignificant,torecognizetheassetaccordingly.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to residual values over their estimatedusefullives,asfollows:

Major categories in years

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

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, once a year.

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

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2.5. Intangible Assets

a) Goodwill

Goodwill arises on business combinations and represents the excess of the consideration transferred over the Company’s interest in net fair value of thenetidentifiableassets,liabilitiesandcontingentliabilitiesoftheacquiree.TheCompanyrecognizedgoodwillontheacquisitionofitsfullyownedsubsidiary, Internet Crna Gora d.o.o., on March 7, 2005, which was subsequently merged into the Company.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expectedtobenefitfromthesynergiesofthecombination.Eachunitorgroupofunitstowhichthegoodwillisallocatedrepresentsthelowestlevelwithin the entity at which the goodwill ismonitored for internal management purposes. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in cir-cumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed

b) Licenses

Costs associated with the acquisition of long term frequency licenses are capitalized. The present value of the future annual payments for the right of useofthefrequenciesarealsocapitalizediftherecognitioncriteriafortherespectivelicensetowhichthepaymentsrelate–identification,control,probablefutureeconomicbenefits,reliabilityofacostestimate–arefulfilled.Otherwisetheyarerecognizedasoperatingexpensesintheyearthepayment obligation refers to. The useful lives of concessions and licenses are determined based on the underlying agreements and are amortized on a straight line basis over the period from availability of the frequency for commercial use until the end of the initial concession or license term. Renewal periodsareconsideredinthedeterminationofusefullifeonlyifthereisevidencetosupportrenewalbytheCompanywithoutsignificantcosts.

c) Computer software

Separatelyacquiredlicensesareshownathistoricalcost.Licenseshaveafiniteusefullifeandarecarriedatamortizedcost.Amortizationiscalcu-lated using the straight-line method to allocate the cost of licenses over their estimated useful lives.

Acquiredcomputersoftwarelicensesarecapitalizedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Thesecostsare amortized over their estimated useful lives.

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly at-tributabletothedesignandtestingofidentifiableanduniquesoftwareproductscontrolledbytheCompanyarerecognizedasintangibleassetswhenthefollowingcriteriaaremet:

§ itistechnicallyfeasibletocompletethesoftwareproductsothatitwillbeavailableforuse; § managementintendstocompletethesoftwareproductanduseorsellit; § thereisanabilitytouseorsellthesoftwareproduct; § itcanbedemonstratedhowthesoftwareproductwillgenerateprobablefutureeconomicbenefits; § adequatetechnical,financialandotherresourcestocompletethedevelopmentandtouseorsellthesoftwareproductareavailable;and § the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalized as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.Amortization of intangibles other than goodwill is calculated on a straight-line basis from the time the assets are deployed and charged over their economicusefullivesasfollows:

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intangible assets in years

Telecommunicationlicense-(publicfixedtelephonyservices) 25

Telecommunicationlicense-(internationaltraffic) 23

IPTV license 10

Mobile telephony license 15

3G/4Glicense 15

Internet – web services license 10

Purchased software 5-10

Microsoft license 5

2.6. Impairment of non-financial assets

Assetsthathaveanindefiniteusefullife–forexample,goodwillorintangibleassetsnotreadytouse–arenotsubjecttoamortizationandaretestedannually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashflows(cash-generatingunits).Non-financialassetsother than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Management performs yearly assessment whether there are indicators of impairment. No indicators of impairment of property, plant and equipment andintangibleassetsareidentifiedasatandfortheyearendedDecember31,2017.

2.7. Financial assets

TheCompanyclassifiesitsfinancialassetsinthefollowingcategories:loansandreceivablesandavailable-for-saleassets.Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.Managementdeterminestheclassificationofitsfinancialassetsatinitialrecognition.

2.7.1. Classification

a) Loans and receivables

Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Receivablesareincludedincurrentassets,exceptthosewithmaturitiesover12monthsafterthefinancialstatementdate.Theseareclassifiedasnon-currentfinancialassets.

Loansandreceivablesincludethefollowing:tradereceivables,housingloansandotherreceivables,shorttermbankdepositsandcashandcashequivalents.

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expectedinoneyearorless(orinthenormaloperatingcycleofthebusinessiflonger),theyareclassifiedascurrentassets.Ifnot,theyarepresentedas non- current assets. Trade receivables are measured at the carrying amount at which the item has been recognized initially less the impairment allowance. Provided that trade receivables are due after one year or more they are measured at amortized cost using the effective interest method.

Long-termloansforemployees’housingpurposes,whichbearaninterestratesignificantlybelowtheprevailingmarketratesofinterest,orinterestfree loans, are initially recognized at fair value, being determined as the present value of all future cash receipts discounted using the prevailing mar-ket rate of interest for a similar instrument (similar as to currency, term, type of interest rate and other factors) with a similar credit rating. The difference betweencashtransferandfairvalueistreatedasemployeeremunerationrecognizedinProfitorlossovertheshorterofthetermoftheloanandtheexpected service life of the employee.

Short term bank deposits are deposits with a maturity of more than three months up to twelve months measured at their amortized cost. Interest re-ceivableonbankdepositsispresentedwithinshorttermdeposits.TheassociatedinterestincomeispresentedintheProfitorlossasfinanceincome.

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

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

Available-for-salefinancialassetsarenon-derivativefinancialassetsthatareeitherdesignatedinthiscategoryornotclassifiedinanyoftheothercategories. They are included in non-current assets unless management intends to dispose of the investment within 12 months after the end of the reporting period date. AvailableforsalefinancialassetsconsistoftheCompany’sparticipationinthesharecapitalofforeignentitieswhicharenotquotedonactivemarkets.

2.7.2 Recognition

Regularpurchasesandsalesoffinancialassetsarerecognizedonthetrade-date–thedateonwhichtheCompanycommitstopurchaseorselltheasset. Investments are initially recognized at fair value plus transaction costs.

Available-for-salefinancialassetsaresubsequentlycarriedatfairvalueandloansandreceivablesaresubsequentlycarriedatamortizedcostusingthe effective interest method.

Changesinthefairvalueofmonetaryandnon-monetarysecuritiesclassifiedasavailableforsalearerecognizedinothercomprehensiveincome.

Whensecuritiesclassifiedasavailableforsalearesoldorimpaired,theaccumulatedfairvalueadjustmentsrecognizedinequityareincludedintheProfitorlossas‘gainsandlossesfrominvestmentsecurities’.Interestonavailable-for-salesecuritiescalculatedusingtheeffectiveinterestmethodisrecognizedintheProfitorlossaspartoffinanceincome.Dividendsonavailable-for-saleequityinstrumentsarerecognizedintheProfitorlossaspartof other income when the Company’s right to receive payments is established.

FinancialassetsarederecognizedwhentherightstoreceivecashflowsfromtheinvestmentshaveexpiredorhavebeentransferredandtheCompanyhas transferred substantially all risks and rewards of ownership.

2.7.3 Offsetting financial instruments

Financialassetsandliabilitiessuchasinterconnectionrevenueandreceivablesareoffsetandthenetamountreportedinthestatementoffinancialposition when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

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2.7.4 Impairment of financial assets

a) Assets carried at amortized cost

TheCompanyassessesattheendofeachreportingperiodwhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.

A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts dueaccordingtotheoriginaltermsofthereceivables.Significantfinancialdifficultiesofthedebtor,probabilitythatthedebtorwillenterbankruptcyorfinancialreorganization,anddefaultordelinquencyinpaymentsareconsideredindicatorsthatthetradereceivableisimpaired.

Theamountoftheprovisionisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthe 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 recognizedintheProfitfortheyear(Otheroperatingexpenses–Baddebtexpense).

TheCompanyfirstassesseswhetherobjectiveevidenceofimpairmentexistsindividuallyforfinancialassetsthatareindividuallysignificant,andcollectivelyforfinancialassetsthatarenotindividuallysignificant.ProvisionsonaccountsreceivablebalancesarecalculatedbasedonCompany’sbest estimates or their deemed recoverability, by taking into consideration the historical data of customers’ payments. If no objective evidence of impairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,CrnogorskiTelekomincludestheassetinagroupoffinancialassets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in a collective assessment of impairment.

The Company’s policy for collective assessment of impairment is based on the aging of the receivables due to the large number of relatively similar type of customers. When a trade receivable is established to be uncollectible, it is written off against the allowance account for trade receivables. SubsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainstOtheroperatingexpenses–Baddebt,inprofitorloss.

For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present valueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedandtheamountofthelossisrecognizedintheprofitorloss.Ifaloanhasavariableinterestrate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

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

b) Assets classified as available for sale

Themanagementassessesattheendofeachreportingperiodwhetherthereisobjectiveevidencethatafinancialassetoragroupoffinancialassetsisimpaired.Evidencethatanassetisimpaired,besidesthecriteriareferredtoina)aboveisalsoasignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscost.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognizedinprofitorloss–isremovedfromequityandrecognizedinprofitorloss.ImpairmentlossesrecognizedintheOthercomprehensiveincomearenotreversed.

Asat31December2017,theseassetsarefullyimpairedbecausenocashflowsareexpectedinthefuture

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2.8. Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of inventories comprises the cost of purchase and other incurred costs necessary to bring the inventories to their present location and condition. Net realizable value represents the amount at which inventories can be realized in the ordinary course of business less estimated costs necessary to make the sale.

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

2.9. Share capital

Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofnewsharesoroptionsareshowninequityasadeduc-tion, net of tax, from the proceeds.

2.10. Dividends

DividendspayabletotheCompany’sshareholdersarerecordedasaliabilityanddebitedagainstequity(Retainedearnings)intheCompany’sfinan-cial statements in the period in which the dividends are approved by the shareholders.

2.11. Income taxes

Thetaxexpensefortheperiodcomprisescurrentanddeferredtax.Taxisrecognizedintheprofitorloss,excepttotheextentthatitrelatestoitemsrecognized in other comprehensive income.

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

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carryingamountsinthefinancialstatements.Deferredincometaxisdeterminedusingtaxrates(andlaws)thathavebeenenactedorsubstantivelyenacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority

2.12. Employee benefits

a) Short term employee benefits

Shorttermemployeebenefitsarerecognizedasacurrentexpenseintheperiodwhenemployeesrendertheirservices.Theseincludewages,socialsecuritycontributions,bonuses,paidholidaysandotherfringebenefitsandthetaxchargesthereon.Paymentstodefinedcontributionpensionandother welfare plans are recognized as an expense in the period in which they are earned by the employees.

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b) Employee Taxes and Contributions for Social Security

In accordance with the regulations prevailing in Montenegro, the Company has an obligation to pay contributions to various State Social Security Funds. These obligations involve the payment of contributions on behalf of the employee, by the employer in an amount calculated by applying the specific,legally-prescribedrates.TheCompanyisalsolegallyobligatedtowithholdcontributionsfromgrosssalariestoemployees,andonbehalfofthe employees, to transfer the withheld portions directly to government funds. These contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise, and have been included under “Employee related expenses”.

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

c) Obligations for Retirement Benefits

TheCompanyhasadefinedcontributionplan,underwhichtheCompanypaysfixedcontributionsonamandatorybasisintoapubliclyadministeredinsuranceplan.TheCompanyhasnolegalorconstructiveobligationstopayfurthercontributionsiftheplandoesnotholdsufficientassetstopayallemployeesthebenefitsrelatedtotheirserviceinthecurrentandpriorperiods.

Contributionstothepubliclyadministeredinsuranceplanarerecognizedasemployeebenefitexpensewhentheyaredue.

AsdefinedinCollectiveBargainingAgreement(CBA),TheCompanyisobligedtomakeaseverancepaymentintheamountequaltotenminimalprice of work in the Company. The payment is due on the day of the retirement, but not later than 30 days following the termination of employment. CriteriaforretirementaredefinedinTheLawonPensionandDisabilityInsurancewhilstLaborLawdefinesemploymentterminationasmandatoryincasethatemployeeis67yearsoldandhasatleast15yearsofservice,unlessagreedotherwisebetweenemployeeandCompany.meetingthecriteria for retirement.

Thedefinedbenefitobligationiscalculatedannuallybyindependentactuariesusingtheprojectedunitcreditmethod,seenote4.f).Actuarialgainsand losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive incomeintheperiodinwhichtheyarise.Pastservicecostisrecognizedasanexpenseattheearlierofthefollowingdates:

i. when the plan amendment or curtailment occurs, and ii. whentheCompanyrecognizesrelatedrestructuringcostsorterminationbenefits

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

Total number of service years number of minimal monthly wages

10 320 530 739 9

Obligationsforjubileeawardsareaccountedforinthesamemannerasdefinedbenefitplans,exceptthatanyactuarialgainsandlossesonjubileepaymentsaswellaspastservicecostarerecognizeddirectlyinProfitorlossintheperiodinwhichtheyareincurred.

e)Housing loans

Long-termloanstoemployeesforresidentialhousingpurposes,whichbearaninterestratesignificantlybelowtheprevailingmarketratesofinter-est, or interest free loans, are initially recognized at fair value, being determined as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument (similar as to currency, term, type of interest rate and other factors) with a similar credit rating. ThedifferencebetweencashtransferandfairvalueistreatedasemployeeremunerationrecognizedinProfitorlossovertheshorterofthetermoftheloan and the expected service life of the employee.

f) Termination benefits

TerminationbenefitsarepayablewhenemploymentisterminatedbytheCompanybeforethenormalretirementdateorwheneveranemployeeacceptsvoluntaryredundancyinexchangeforthesebenefits.TheCompanyrecognizesterminationbenefitswhenitisdemonstrablycommittedtoeither terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefitsasaresultofanoffermadetoencouragevoluntaryredundancy.Benefitsfallingduemorethan12monthsaftertheendofthereportingperiodarediscountedtopresentvalue.Terminationbenefitsarecalculatedbasedonspecificconditionscontainedindetailedformalplancommuni-cated to the employees.

g) Variable bonuses programme (VAR II)

Also in 2011 the Company launched the Var II program for top senior management for a 4 year period. The provision is calculated based on an ac-crual basis, also considering probability of the achievement of the targets. Payments will be made at the end of the plan, depending on the achieve-mentofthefixedtargets.Thisprogramiscontinuedin2012,2013.and2014.withsameconditionsforaperiodon4years.

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2.13 Trade and other payables

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

2.14. Provisions and contingent liabilities

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, when it is more likely than not thatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.Provisionsarenotrecognizedforfutureoperating losses.

Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationusingapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.Theincreaseintheprovisionduetopassageoftimeisrecognized as interest expense.

ExpensesforprovisionsarerecognizedinthelinesofProfitorlosswheretheactualexpenseisexpectedtobeincurred.Whenaprovisionisreleasedunused, it is released to the same income statement line where it was originally provided for. Provisions made for liabilities expected to be incurred in foreign currency are recognized in the functional currency at the spot foreign exchange rate, and any change in the provision in the functional cur-rency as a result of a subsequent change in the foreign exchange rate is recognized in Finance costs.

Acontingentliabilityisapossibleobligationthatarisesfrompasteventsandwhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrenceofoneormoreuncertainfutureeventsnotwhollywithinthecontroloftheentity;orapresentobligationthatarisesfrompasteventsbutisnotrecognizedbecauseitisnotprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation;oranobligationwhoseamountcannotbemeasuredwithsufficientreliability.Noprovisionisrecognizedforacontingentliability.

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

Taxes, contributions and other duties that are not related to the Company’s operating results, include property taxes, and various other taxes and contributionspaidpursuanttostateandmunicipalregulations.AlloftheaforementionedtypesoftaxesandcontributionsareincludedinProfitorlossunder “Other operating expenses”.

2.16. Revenue

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services provided and merchandise supplied, stated net of discounts, returns and value added taxes. The Company recognizes revenue when the amount of revenue can be reliablymeasured;whenitisprobablethatfutureeconomicbenefitswillflowtotheentity;andwhenspecificcriteriaofIAS18onthesaleofgoodsandrendering of services are met for provision of each of the Company’s services and sale of goods, as described below. The Company bases its estimate ofreturnonhistoricalresults,takingintoconsiderationthetypeofcustomer,thetypeoftransactionandthespecificsofeacharrangement.

Revenueisprimarilyderivedfromservicesprovidedtosubscribersandotherthirdpartiesusingthefixedandmobiletelecommunicationnetworks.

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

Customer subscriber arrangements typically include an activation fee, equipment sale, subscription fee and monthly charge for the actual airtime used.TheCompanyconsidersthevariouselementsofthesearrangementstobeseparateearningsprocessesforfinancialreportingpurposes.Theseunitsareidentifiedandseparated,sincetheyhavevalueonastandalonebasisandaresoldnotonlyinabundlebutseparatelyaswell.

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

Revenuesfromincominginternationalcallsincludetheincomearisingfrominternationaltraffic..

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2.16.1. Revenue from fixed telephony

Revenuesfromdirectinternationaltrafficincludetheincomegeneratedfromallincominginternationalcallsrealizedincountrieshavingdirectinternational connection with the Company. A portion of such income earned is measured and recorded at an estimated value arrived at based on the internalsettlementaccountingoftelephonytraffic.

Revenuesfromincomingdomestictrafficrelateprimarilytodomesticinterconnectionrevenue.Interconnectionrevenueincludesrevenuefromincom-ingtelephonetrafficoriginatedbythemobilenetworksofTelenord.o.o.,PodgoricaandM-teld.o.o.Podgoricabuttransmittedthrough,orterminatedin the Company’s network.

Customersandthirdpartiesgeneratetrafficbasedontheiractualuseofournetwork,afterconsumingthefreeminutesincludedundereachtypeofsubscription multiplied by a contractually agreed rate per minute.

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

2.16.2. Revenue from mobile telephony

OutgoingtrafficrepresentscustomerandthirdpartyuseoftheCompany’stelecommunicationsnetwork.Therevenuefromusageisrecognizedintheperiod in which service is provided to our customers or third parties.

The post-paid subscription is a fee for the use of the mobile telecommunication network. Subscriptions are invoiced and recognized for the current month,orspecifically,forthemonthinwhichthesubscriptionsareactivated.

1. RevenuesfromthesaleofmobilephonecardsarerecognizedasdeferredrevenueinthestatementoffinancialpositionwhensoldandasrevenuesinProfitorlosswhenusedbythecustomerorwhenthecardsexpirewithunusedunits.

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

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

OnbehalfoftheCompany,anindependentfinancialclearinghouseSyniverserecordsandreconcilestraffic,collectsandmakespaymentswithrespect to the reconciled receivables from, and payables to the mobile telephony operators.

InterconnectionrevenueincludesrevenuefromincomingtelephonetrafficoriginatedbythedomesticmobilenetworksofTelenord.o.o.,Podgoricaand M-tel d.o.o. Podgorica but transmitted through, or terminated in the Company’s network. Interconnection revenue also include revenue from incomingtelephonetrafficoriginatedbytheinternationalnetworks,buttransmittedthrough,orterminatedinCompany’snetwork.

TheinterconnectionexpensesincludeexpensesfromoutgoingtelephonetrafficthatisroutedfromtheCompanytotheindividualmobileandfixedlinecompaniesinthecountry,andforeignincomingtrafficthathavebeentransmittedthrough,orterminatedontheothermobilecompanies’net-works in the country.

SincetheCompanyisonlyterminatingandinitiatingtrafficinandfromitsnetwork,itisactingasaprincipal,andthereforetherevenuesandcostofthistrafficarestatedgrossinthesefinancialstatements.Interconnectionincomeandexpensesarerecordedwhenthecontractedservicesarepro-vided. Revenues are presented at the fair value of consideration received or receivable. Revenues are shown net of VAT and discounts.

2.17. Leases

2.17.1. Operating leases

CompanyasLessee-Leasesinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperat-ing leases. Operating leases relate to the rental of internet, lines, premises, warehouses and other rental expenses. Payments made under operating leases(netofanyincentivesreceivedfromthelessor)arechargedtoProfitorlossonastraight-linebasisovertheperiodofthelease..

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2.17.2. Finance lease

CompanyasLessee-Leasesofproperty,plantandequipmentwhereCompanyassumessubstantiallyallthebenefitsandrisksofownershipareclassifiedasfinanceleases.Financeleasesarecapitalizedatthefairvalueoftheleasedassetoriflower,attheestimatedpresentvalueofthefutureminimumleasepaymentsagainstafinanceleasepayable.Eachleasepaymentisallocatedbetweenthefinanceliabilityandinterestexpensesoastoachieveaconstantrateofinterestontheoutstandingfinancebalancepayable.Thefinanceleaseobligations,netoffinancecharges,areincludedintheStatementoffinancialposition(Otherfinancialliabilities).TheinterestelementoftheleasepaymentsischargedtotheProfitfortheyear(Interestexpense)overtheleaseperiod.Property,plantandequipmentacquiredunderfinanceleasecontractsaredepreciatedovertheshorteroftheleaseterm or the useful life of the asset.

Company as Lessor - A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use anassetforanagreedperiodoftime.Whenassetsareleasedoutunderafinancelease,thepresentvalueoftheleasepaymentsisrecognizedasareceivable.Thedifferencebetweenthegrossreceivableandthepresentvalueofthereceivableisrecognizedasunearnedfinanceincome.Leaseincomeisrecognizedoverthetermoftheleaseusingthenetinvestmentmethod,whichreflectsaconstantperiodicrateofreturn.Whenassetsareleasedoutunderanoperatinglease,theassetisincludedinthestatementoffinancialpositionbasedonthenatureoftheasset.Leaseincomeisrecognized over the term of the lease on a straight-line basis.

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

Agreementsoverrightstousespecificdarkfibersareakintofinanceleasesastheyconveyarighttousespecifiednetworkassets,totheexclusionofother operators, including Crnogorski Telekom.

Paymentfortheuseofthedarkfiberismadeinadvanceanddoesnotvarywiththebuyer’sactualusage.Itisrecognizednetoftheassociatedcostasincomefromadarkfiberlongtermlease.

ThecarryingamountofthedarkfiberisderecognizedfromtheCompany’sproperty,plantandequipmentatthesamepointastheincomeisrecognized.

2.18. Interest Income/Expense

InterestincomeandexpenseisrecognizedinProfitorlossintheaccountingperiodinwhichitarises,usingtheeffectiveinterestmethod.

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3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

TheCompany’sactivitiesexposeittoavarietyoffinancialrisks:creditrisk,liquidityriskandforeignexchangerisk.TheCompanydoesnotusederiva-tivefinancialinstrumentsoranyotherformofhedgesagainsttheserisks.

Crnogorski Telecom and its organizational units are obliged to create risk assessments in accordance with the Company’s Risk Management Directive.Responsibleinthecompanyareobligedtoreportonnewrisksinaccordancewiththedynamicsoftheircreation,aswellasonsignificantchangesinexisting,identifiedrisk.

3.2 Credit risk

Creditriskistheriskthatonepartytoafinancialinstrumentwillcauseafinanciallosstotheotherpartybyfailingtodischargeanobligation.Itarisesfrom cash, and cash equivalents and deposits with banks, as well as credit exposures to customers.

Credit risk management principles of the Company are in line with the risk policy of its parent. In order to minimize credit risk concentration, short termbankdepositsareplacedindifferentbanks.Banksarechosenbasedonthefollowingriskaspects:totalassets,marketshare,creditratingsbyMoody’sandS&P,andsafetyoffunds.AlldepositsareplacedinbankswithminimumbankratingBBB+.Creditriskismonitoredonamonthlybasis.Management of the Company believes that it has adequately assessed the recoverability of Company’s bank deposits.

Inrespectofcreditriskexposuretocustomers,theCompanyhasnosignificantconcentrationofcreditriskduetoitsdiversecustomerbase.

The Company further limits the risk through short credit period (invoices are due for payment within 15 days) and segmented approach to crediting in different time intervals. Credit risk arising from a single subscriber is limited to 4 months. Enforced collection is initiated for receivables which are overdue more than 215 (residential) and 180 days (business customers).

Management monitors credit risk exposure on a monthly basis. Trade receivables outstanding are provided depending on maturity structure. Trade re-ceivables older than 24 months are fully provided. Credit risk arising from transactions with related parties from Hrvatski Telekom, Deutsche Telekom and other group members is considered minimal and no provisions are recognized for those transactions. Similarly, the credit risk related to foreign trade receivables arising from interconnection and roaming transactions is considered as minimal because amounts due to, and receivable from, interconnection and roaming are shown net where a right of set-off exists and the amounts are settled on a net basis.

ForthosehousingloanswheretheCompanydoesnotholdrealestatemortgagesascollateral,overduereceivablesarefullyprovidedfor.Aspecificimpairmentprovisionissetforreceivablesfromlocalmunicipalitiesbasedonpastexperienceandexpectationsoffuturecashflows.Collectionofreceivables from the Government of Montenegro is also monitored on a monthly basis

3.3 Liquidity risk

Liquidityriskistheriskthatanentitymayencounterdifficultyinmeetingobligationsassociatedwithfinancialliabilities.

Treasury monitors on a weekly basis the net liquidity position of the Company and reports it to the Finance Director each month. Prudent liquidity risk managementimpliesmaintainingsufficientcashandcashequivalentsandbankdeposits.Maturityofallliabilitiesislessthanoneyear,exceptforTVcontentliabilities,inamountof2,817,463EUR,thatarewithmaturityof24-36months,dependingoncontractduration.

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3.4 Foreign exchange risk

The Company is exposed to limited foreign exchange risk arising from various currencies, primarily with respect to Special Drawing Rights (SDR) and USdollars(USD)usedtosettleitsinternationaltrafficrevenueandexpenses.

InthetablebelowissummarizedthecurrencysplitasofDecember31,2017:

usD sDR other euR TotalCash and cash equivalents 34,256 - 1,749 6,610,407 6,646,412Short term investments - - 5,000,000 5,000,000 Trade and other receiv-ables 893 5,971,069 28,341,096 34,313,058Trade and other payables (408,203) (866,012) (435) (39,687,267) (40,961,917)

(373,055) 5,105,057 1,314 264,236 4,997,552

IntablebelowissummarizedcurrencysplitasofDecember31,2016:

usD sDR euR TotalCash and cash equivalents 84,866 - 6,467,151 6,552,017Short term investments - - - -Trade and other receivables - 817,123 29,241,688 30,058,811Trade and other payables (285,249) (413,100) (33,740,971) (34,439,755)

(200,383) 404,023 1,967,868 2,171,073

AtDecember31,2017,iftheEURhadstrengthened/weakenedby5%againsttheSDRwithallothervariablesheldconstant,post-taxprofitfortheyearwouldhavebeenEUR1,357,411higher(December31,2016:EUR107,428),mainlyasaresultofforeignexchangelossesontranslationofSDRdenominatedtradereceivablesandtradepayables.AtDecember31,2017,iftheEURhadstrengthened/weakenedby5%againsttheUSDwithallothervariablesheldconstant,post-taxprofitfortheyearwouldhavebeenEUR583higher/lower(December31,2016:EUR314),mainlyasaresultofforeignexchangegains/lossesontranslationofUSDotherassetsandpayables.

3.5 Interest rate risk

TheCompanyhaslimitedinterestbearinglending.Itsinterestbearingassetsincludeloansprovidedtoemployeesonafixedinterestratebasis(formore details about terms and conditions, please see Note 2.7.1.) and short term bank deposits. Interestriskrelatedtoshorttermbankdepositsisminimizedduetofixedinterestrates,whichcannotbechangedduringthecontractedperiod.Additionally, if the Company withdraws funds before maturity, interest rates stay the same for the whole period of time. There is no penalty interest or decreasing initial interest rate.

3.6 Fair Value

Themanagementusesfairvaluevaluationtechniquesindeterminingrecoverabilityofavailable-for-salefinancialassetsandhousingloans.Theavailable-for-salefinancialassetsarenottradedinanactivemarket,therearenoobservablemarketdataandthemanagementdoesnotexpectanyfuturecashflowsfromtheseinstruments.Therefore,thesefinancialassetsarefullyimpairedasat31December2017.Inrespectofhousingloansissued by the Company where it holds mortgages over the underlying real estate properties taken as collaterals, these properties vary in size and type and are located in different areas of Montenegro. Fair value of these properties cannot be reliably measured at the end of each reporting date due to lackofsufficientobservablemarketdata.Indeterminingrecoverabilityofhousingloansandfairvalueofcollaterals,themanagementusesestimatesdescribed in note 4

3.7. Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns forshareholdersandbenefitsforotherstakeholdersandtomaintainanoptimalcapitalstructuretoreducethecostofcapital.The BoD proposes to the shareholders of the Company to approve dividend payments or adopt other changes in the Company’s equity capital in order to optimize the capital structure of the Company. This can be effectuated primarily by adjusting the amount of dividends paid to shareholders, or alternatively, by returning capital to shareholders by capital reductions, selling or buying its own shares. Also, the Company monitors that its share capitaliskeptaboveminimumlegalrequirementsofEUR25,000.BecausetheCompanyhasbeenprofitable,riskthatitscapitalmayfallbelowminimum legal requirements is minimized.

Theshareholders’equityintheamountofEUR138,437,131asat31December2017(EUR133,305,758asat31December2016)isconsideredasthe Company’s capital that is managed.

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4.CriTiCAl ACCounTing esTimATes And judgemenTs

ThepresentationofthefinancialstatementsrequirestheCompany’smanagementtomakeestimatesandassumptionsthataffectthereportedamounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the end of the reporting period, as well as income and ex-penses arising during the accounting period.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In some cases management relies on independent expert opinions. Management makes estimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,rarelyequaltherelatedactualresult.Theesti-matesandassumptionsthathavesignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitiesareoutlinedbelow:

a) Useful lives of assets

The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological develop-ment and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is anindicationofsignificantchangesintheunderlyingassumptions.Webelievethatthisisacriticalaccountingestimatesinceitinvolvesassumptionsabouttechnologicaldevelopmentsinaninnovativebranchoftelecommunications.Further,duetothesignificantweightoflong-livedassetsinourtotalassets,theimpactofanychangesintheseassumptionscouldbematerialtoourfinancialposition,andresultsofoperations.Asanexample,ifCrnogorskiTelekomwastoshortentheaverageusefullifeofitsassetsby10%,thiswouldresultinadditionalannualdepreciationandamortizationexpenseofapproximatelyEUR2,188thousand(2016:EUR2,008thousand).

b) Estimated impairment of goodwill

Goodwill is tested for impairment at the end of each reporting period. The recoverable amounts of the cash generating units (CGU) are calculated basedonthefairvaluelesscosttoselldeterminedbythediscountedcashflowsoftheCGUoverthenexttenyearswithaterminalvalue.Thisishighlyjudgmental, which carries the inherent risk of arriving at materially different recoverable amounts if estimates used in the calculations would prove to be inappropriate. The management’s uses their best estimate on market participants’ assumptions and expectations, and also considers recent similar transactions and industry benchmarks.

AsatDecember31,2017andDecember31,2016goodwillwasallocatedtotheCompany’scash-generatingunits(CGU).Therecoverableamountofgoodwill is based on the weighted average cost of capital (WACC) pre-tax which is determined based on a CAPM (capital asset pricing model) using theaveragebetaofthepeergroup,ariskfreerateapplyingtheSvenssonmethodandincreasedbythecountryspecificriskpremium,adebtratioinline with the usual indebtedness of listed peer telecommunications companies and a debt risk premium in line with the average premium of the peer group. The perpetual growth rate (“PGR”) is in line with the long-term average growth rate for the telecommunications sector.

Keyassumptionsusedforfairvaluelesscosttosellcalculations:

2017 2016EBITDA 48.9% 45.1%

Beta 0.93 0.89

Growth rate 2.0% 2.0%

Discount rate (WACC) 8.42% 7.99% Management determined budgeted gross margin based on past performance and its expectations for the market development. The weighted aver-agegrowthratesusedwereconsistentwiththeforecastsincludedinindustryreports.Thediscountratesusedarepre-taxandreflectspecificrisksrelating to the relevant segments.

ShouldtheWACCincrease/decreaseby0.5percentagepointswithallotherassumptionsheldconstant,estimatedfairvaluelesscosttosellwoulddecrease/increasebyEUR1,297thousandorEUR1,468thousand,respectively,noimpairmentlosswouldberecognized.

Shouldthegrowthrateincrease/decreaseby0.5percentagepointswithallotherassumptionsheldconstant,estimatedvalueinusewouldincrease/decrease by EUR 111 thousand or EUR 101 thousand, respectively. Change in the assumption will not result in impairment loss.

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c) Impairment of trade and other receivables

Impairment of trade and other receivables is based on estimated losses resulting from the inability of our customers to make required payments. The estimate is based on the aging of the account receivables balance and past write-off experience, customer credit-worthiness and recent and expected changes in customer payment terms. Those factors are reviewed periodically and changes are made to the calculations when necessary. The esti-matesalsoinvolveassumptionsaboutfuturecustomerbehaviorandtheresultingfuturecashcollections.Ifthefinancialconditionofthecustomerswere to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may exceed the level of the impairment losses recognized so far. Management estimates past due trade receivables which are not impaired as fully recoverable based on the history of collection in prior periods.

Incaseofspecificreceivablesfromlocalmunicipalities,themanagementmakesestimatesofimpairmentalsobasedonhistoryofcollectionandexpectedfuturecashflows.

In assessing recoverability of receivables from housing loans collateralized by property mortgages, the management uses fair value of collaterals determined at the inception of housing loans by a third party valuation agency. For the housing loans disbursed during years of property market boom inthecountrymanagementapplieshaircutof35%to50%ofthefairvalueofthecollateral.Impairmentisrecognizedforloanswithoverdueinstal-ments for 4 months, impairment is recognized for the full exposure which represents difference between carrying amount of the loan and fair value of the collateral reduced by the haircut Where the carrying amount of receivables from housing loans is below initial the fair value of the collateral, no impairment charge is made.

d) Retirement benefits and jubilee awards

Employeebenefitssuchasretirementbenefitsandjubileeawardsarecalculatedbasedonactuarialassumptionsofexpectedaverageremainingworking lives. Due to uncertainty, in some cases the evaluation may not prove to be in line with actual outcome.

Thefollowingassumptionswereusedbyanactuaryinthecalculationofretirementbenefitobligationsandjubileeawards(note16):

2017 2016Discount rate 4%p.a. 4%p.a.Inflationrate 2% 2%Retirement age 67 67

Mortality rateCommon mortality tables in period from

2001 – in SerbiaCommon mortality tables in period

from 2001 – in Serbia

Presentvalueoffuturebenefitsiscalculatedassumingincreaseofthebenefitbaseinaccordancewiththeinflationgrowthratewhichis1%.Ifthediscountrateincrease/decreaseby1%,itseffectonfinancialincome/expensewouldbeintheamountofEUR26thousandfortheyearendedDecember31,2017(2016:EUR30thousand).

60



5.iTems of properTy, plAnT And eQuipmenT

land Buildingsequipment and

other assetsConstruction in

progress TotalCost Balance January 1, 2017 2,134,751 93,385,537 105,360,099 6,403,817 207,284,204

Additions - 115,680 3,371, 842 6,656,964 10,144,486Transfers - 482,711 1,331,124 (1,878,388) (64,553)Disposals/writeoff - (1,475,203) (7,787,563) (279,492) (9,542,258)Balance December 31, 2017 2,134,751 92,508,725 102,275,502 10,902,901 207,821,878 accumulated DepreciationBalance January 1, 2017 - 49,644,166 78,675,063 279,492 128,598,721Charge for the year (Note 22) - 4,019,621 7,908,084 - 11,927,705 Disposals/writeoff - (1,475,203) (7,640,333) (279,492) (9,395,028)Balance December 31, 2017 - 52,188,584 78,942,814 - 131,131,398

Net Book valueDecember 31, 2017 2,134,751 40,320,141 23,332,688 10,902,901 76,690,480 December 31, 2016 2,134,751 43,741,371 26,685,036 6,124,325 78,685,483

land Buildingsequipment and

other assetsConstruction in

progress TotalCost BalanceJanuary1,2016 2,994,682 92,630,661 109,467,756 2,549,622 207,642,721Additions - - - 8,514,482 8,514,482Transfers - 2,666,124 1,994,163 (4,660,287) -Disposals/writeoff (859,931) (1,911,248) (6,101,820) - (8,872,999)Balance December 31, 2016 2,134,751 93,385,537 105,360,099 6,403,817 207,284,204 accumulated DepreciationBalanceJanuary1,2016 - 46,318,589 81,723,310 228,184 128,270,083Charge for the year (Note 22) - 3,983,615 3,574,345 - 7,557,960Impairment - 254,344 - 51,308 305,652Disposals/writeoff - (912,382) (6,622,592) - (7,534,974)Balance December 31, 2016 - 49,644,166 78,675,063 279,492 128,598,721

Net Book valueDecember 31, 2016 2,134,751 43,741,371 26,685,036 6,124,325 78,685,483December 31, 2015 2,994,682 46,312,072 27,744,446 2,321,438 79,372,638

IncludedinthenetbookvalueoflandandbuildingsarelandofEUR66,965andbuildingsofEUR322,832forwhichtheCompanydoesnotpossesscomplete documentation in connection with their titles. The Company is in the process of obtaining titles for the land and buildings, but effectively has control over these properties.

Pursuant to Article 92 of the Law on Electronic Communications and Article 5 of the Rulebook on the methodology for calculating the net cost of providing the Universal Service, Crnogorski Telekom, as the Universal Service Operator, has the right to reimburse the net cost of providing the Uni-versalServiceserviceifitrepresentsanunjustifiedfinancialburden.In2017investmentsinUniversalServicewereamountedto173.491EUR(2016:43.251EUR).

A review of assets’ useful lives in 2017 was performed and the impact of the changes was not material.

61



6.inTAngiBle AsseTs

Goodwill licenses software

internally generated

software

intangible assets in progress Total

Cost At January 1, 2017 941,624 41,851,220 33,920,775 655,373 10,283,697 87,652,689Additions - 5,799,931 1,548,518 35,922 1,124,108 8,508,479

Transfers - 8,301,072 323,197 - (8,559,713) 64,557Disposals/writeoff - (4,899,672) (551,867) - - (5,451,539)

at December 31, 2017 941,624 51,052,552 35,240,623 691,295 2,848,093 90,774,186

accumulated amortizationAt January 1, 2017 - 14,986,592 19,330,564 623,832 - 34,940,988

Charge for the year (Note 22) - 5,995,888 3,863,191 53,460 - 9,912,538Disposals/writeoff - (4,899,672) (541,364) - - (5,441,033)at December 31, 2017 - 16,082,808 22,652,392 677,293 - 39,412,492

Net Book valueDecember 31, 2017 941,624 34,969,744 12,588,231 14,002 2,848,094 51,361,693

December 31, 2016 941,624 26,864,628 14,590,211 31,541 10,283,697 52,711,701

Goodwill Goodwill licenses software

internally generated

softwareintangible assets in

progress TotalCost AtJanuary1,2016 941,624 18,465,331 29,485,252 648,231 2,775,652 52,316,090Additions - - - - 41,231,996 41,231,996

Transfers - 23,387,445 10,336,506 7,142 (33,723,951) 7,142Disposals/writeoff - (1,556) (5,900,983) - - (5,902,539)AtDecember31,2016 941,624 41,851,220 33,920,775 655,373 10,283,697 87,652,689

Accumulated amortization

AtJanuary1,2016 - 12,372,739 15,754,756 492,755 - 28,620,250

Charge for the year (Note 22) - 2,615,409 9,476,791 131,077 - 12,223,277Disposals/writeoff - (1,556) (5,900,983) - - (5,902,539)AtDecember31,2016 - 14,986,592 19,330,564 623,832 - 34,940,988

Net Book Value

December31,2016 941,624 26,864,628 14,590,211 31,541 10,283,697 52,711,701December 31, 2015 941,624 6,092,592 13,730,496 155,476 2,775,652 23,695,840

62



Mainadditionsonintangibleassetsin2016inamountofEUR29,271,230arerelatedtoSpectrumauctionforfrequenciesinmobilenetwork.Areviewofassets’usefullivesin2017wasperformed.OnebillingandCRMusefullifeisextendedfrom7to10yearsinordertobetterreflectplannedlifetimeofanasset.Changesdonothavematerialeffectonfinancialstatements.

Themostsignificantlicensesarelistedbelow: Fixed Telephony Telecommunication License

The Agency for Electronic Communications and Postal Services of Montenegro (“the Agency”) issued to the Company a Fixed-Line License that is validfromJanuary1,2002foraperiodoftwenty-fiveyears.NetbookvalueofthislicenseisintheamountofEUR2,359,800asatDecember31,2017(2016:EUR2,595,780).

In accordance with the Guidelines on the Changes and Amendments to the Rules on the Determination of Registration and Licensing Fees for Telecommunication Operators and Service Providers dated November 5, 2004, the Ministry of the Economy prescribed a special one-time fee for the provisionofinternationaltrafficservices.TheaforementionedfeewaspaidinoneinstalmentintheamountdeterminedbytheAgency.Thelicenseforprovisionofinternationaltrafficservicesisgrantedforaperiodoftwenty-threeyearsanditsnetbookvalueisintheamountofEUR1,080,000asatDecember31,2017(2016:EUR1,200,000).

The cost to acquire the telecommunication licenses has been capitalized and is amortized on a straight-line basis over the contract terms.

InOctober2007,theBroadcastingagencyofMontenegroissuedtoTelekomalicenseforbuildinganddistributing/broadcastingradioandTVprogram to customers (IPTV license) for a period of ten years. The Company paid a one-time fee for registration in the amount of EUR 75,000. The ex-penditure to acquire the IPTV license has been capitalized and is amortized on a straight-line basis over the period of the license. In December 2017 Agency for Electronic Media issued to Company approval for distributing audiovisual media services and the right to distribute that services through cable and public mobile electronic communication network. Approval is issued on period of 10 years. The Company is obliged to pay annual fee for distributingAVMservicetoAgency.Feeintheamountof214.565EUR(2016:216.032EUR)isincludedwithin“Otheroperatingexpenses”.

Mobile Telephony Telecommunication License

The Agency issued a mobile telecommunication license GSM 900 MHz for the territory of Montenegro valid from January 1, 2002 for a period of fifteenyears.GrossbookvalueoflicensewasEUR4,345,981.AsofDecember31st2017licenseusefullifehasexpiredandlicenseiswrittenofac-cordingly.

BasedondecisionofAgencyforElectronicCommunicationsandPostnr.0505-545/1datedonJanuary31,2012.CrnogorskiTelekomwasawardeda license which grants exclusive right of use of additional radio spectrum for mobile communications in bands 900MHz, 1800MHz and 2100MHz. The license was awarded for a period of 5 years upon payment of EUR 549,833 by Crnogorski Telekom based on the outcome and procedure of spectrum tendernr.505-5043/1publishedon01.November11,2011bytheAgencyforElectronicCommunicationsandPost.AsofDecember31st2017license useful life has expired and license is written of accordingly.

OnMarch28,2007,theAgencyawardeda3GlicensetotheCompanyvalidforaperiodoffifteenyears.NetbookvalueofthislicenseisEUR693,344atDecember31,2017(2016:EUR853,347).

AsofAugust9,2016theAgencyissuedamobiletelecommunicationlicenserelatedtofrequencies800MHz,900MHz,1800MHz,2GHzand2.6GHzfortheterritoryofMontenegrovalidfromSeptember2016foraperiodoffifteenyearsintotalamountofEUR27,331,000.Netbookvalueofthislicense is EUR 25,193,103 at December 31, 2017.

The expenditures to acquire the telecommunication licenses have been capitalized and amortized on a straight-line basis over the contract terms.

TheCompanyisobligatedtopaytotheAgencyanannualfeecalculatedas1%oftheannualincomeearnedfromfixedandmobiletelephonyser-vices.Feeintheamountof1.563.540EUR(2016:1.663.465EUR)isincludedwithin“Otheroperatingexpenses”.Goodwill

In accordance with the Company’s Board of Directors’ Resolutions of February 19, 2004 and March 7, 2005 Crnogorski Telekom, utilizing its pre-emp-tive share purchase rights, entered into a Purchase Agreement for the Acquisition of a Portion of the Equity Capital of Internet CG in the amounts of EUR 1,750,000 in 2004 and EUR 435,700 in 2005, and became the owner of 100 percent of the capital of Internet Crna Gora d.o.o. Carrying amount ofgoodwillisEUR941,624asatDecember31,2017(2016:EUR941,624).TheCompanyperformedanimpairmenttest,whichresultedinrecover-able amount exceeding carrying value and thus no impairment charge (Note 4)

63



7.long Term loAns And oTher reCeivABles

December 31, 2017 December 31, 2016

Housing loans given to employees 4,057,299 3,987,045Housing loans given to former employees 4,139,552 4,057,874Long term receivables from customers 1,428,289 1,383,979total financial receivables 9,625,140 9,428,898Prepaidemployeebenefits 1,046,794 1,066,983Prepaid rent for the GSM locations 942,298 670,470

Total other receivables 1,989,092 1,737,453

Total 11,614,232 11,166,351

employee loans

During2007,inaccordancewiththeCompany’sStatuteandtheRulesontheFulfilmentofEmployeeResidentialHousingRequirements,TheCompany’s Operative committee decided to grant housing loans to employees in a total amount of EUR 1,282,000. These loans were approved for repaymentperiodsof5,7,10and20years,andwereissuedatannualinterestratesrangingfrom0%to2%(Note2.7.1a).Thetotalamountoftheapproved loans per employee ranges from EUR 5,000 to EUR 50,000. A condition for the realization of these loans is that the employee has to stay employed in the Company for a loyalty period of minimum three years. If an employee leaves the Company before the 3-year term, the loan principal and interest become immediately due.

Based on the Housing Loans Program approved as at end of 2012, Company continued paying out housing loans to the employees during 2013. OverallallocatedamountwasEUR6,000,000,whiletherepaymentperiodsare7,15and20years.Annualinterestrateis2%.

In 2015 Crnogorski Telekom continued granting housing loans to employees and concluded Housing Loans Program during the year. Overall allo-catedamountwasEUR3,700,000whiletherepaymentperiodsare7,15and20years.Annualinterestrateis2%.TheCompanyobtainedmortgagesontheresidentialhousingunitsoccupiedbytheloanbeneficiariesandotherrealestateproperty,inordertosecure timely loan repayments

Contractedmaturitiesoflong-termhousingloansarepresentedbelow:

December 31, 2017 December 31, 20162-5 years 3,235,332 3,317,827over 5 years 7,620,161 7,449,644Undiscounted housing loans 10,855,493 10,767,471Discount (2,658,642) (2,722,551)Carrying value of housing loans (note 2.7.1) 8,196,851 8,044,920

64



LongtermreceivablesfromcustomersinamountofEUR1,428,289(2016:EUR1,383,979)relatetoreceivablesfromsalesofequipmenttoindividualcustomers over the period of 24 months, due between 12-24 months.

Contractedmaturitiesofreceivablesfromcustomersarepresentedbelow:

December 31, 2017 December 31, 201612-24 months 1,898,755 2,019,048undiscounted receivables from customers 1,898,755 2,019,048Discount (470,466) (635,069)Carrying value of receivables from customers 1,428,289 1,383,979

8.invenTories


Cables, wires and other materials 413,736 409,364 Inventory for resale 3,519,429 2,242,425

3,933,165 2,651,789 Less allowances for obsolete inventory (974,659) (1,350,802)

2,958,506 1,300,987

MovementsintheprovisionforinventoriesforyearendedDecember31,2017andDecember31,2016aresummarizedinthetablebelow:

2017 2016

Balance, January 1 1,350,802 1,328,483 Charged during the period (Note 24) (376,143) 22,319 Balance, December 31 974,659 1,350,802

65



9.TrAde And oTher reCeivABles

December 31, 2017 December31,2016

Trade receivables 44,577,663 41,168,942

Allowance for receivables from third parties (24,021,952) (22,965,368)

Trade receivables from third parties, net 20,555,711 18,203,574 Receivables from Hrvatski Telekom Group companies 14,469 15,951

Receivables from Deutsche Telekom Group companies 3,385,881 2,834,995

Total trade receivables, net 23,956,061 21,054,520

Current portion of housing loans to employees 235,699 215,109

Current portion of housing loans to former employees 322,752 354,020

Past due employee loans receivable 775,588 661,859

Allowance for housing loans (595,706) (646,114)

Current portion of long term receivables from customers 9,618,663 8,419,417

Total current portion of long term receivables 10,356,996 9,004,291total financial assets 34,313,057 30,058,811

Advances paid for current assets 150,000 891,407

Prepayments for lease of mobile technical sites 339,550 421,165

Other Prepayments 212,495 211,062

Other receivables 1,543,142 1,170,215

Allowance for other receivables (931,398) (931,398)

Total other receivables, net 1,313,789 1,762,451Total trade and other receivables, net 35,626,846 31,821,262

For the calculation of Allowance for housing loans, please refer to note 4.c).

ThestructureofotherreceivablesasofDecember312017and2016isasfollows:

December 31, 2017 December 31, 2016Receivables from local municipalities 1,125,979 1,125,979

Prepaid taxes and contributions 18,722 18,722

Other 398,441 25,514

1,543,142 1,170,215Allowance for receivables from municipalities (931,398) (931,398)

611,744 238,817

ProvisionforreceivablesfrommunicipalitiesintheamountofEUR931,398(2016:EUR931,398)iscreatedbasedonmanagement’sestimatethataportion of receivables may not be collected. Montenegrin Municipalities made withdrawal from the Company’s bank accounts for usage of the Munici-palities land used for network structure. The Company disagreed with the amount of fee and started court cases in 2009.

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9.TrAde And oTher reCeivABles (ConTinued)

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

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

In EUR

Carrying amount as of December

31, 2017of which not

past due

of which past due by

less than 30 days 30–60days 61–90days

91 – 180 days

181–360days

over360days

Other receivables 1,543,142 461,163

-

-

-

- 1,081,979

employee loans - cur-rent employees 235,699

235,699

-

-

-

- -

employee loans - ex employees

1,098,340

322,752

26,498

23,366

20,487

55,856

93,400 555,981

receivables from Customers

9,618,663

7,820,423

159,504

68,631

42,075

100,139

191,139 1,236,753

Total 12,495,844 8,840,037 186,002 91,997 62,562 155,995 284,539 2,874,713

In EUR

Carrying amount as of December

31,2016of which not

past due


less than 30 days 30–60days 61–90days

91 – 180 days

181–360days

over360days

Other receivables 1,170,215 151,236 - - - - - 1,018,979employee loans - cur-rent employees 215,109 215,109 - - - - - -employee loans - ex employees 1,015,879 354,020

25,685

22,452

20,191

55,730

78,356 459,445

receivables from Customers 8,419,417 6,901,398 142,226 83,088 63,630 156,486 337,281 735,308

Total 10,820,620 7,621,763 167,911 105,540 83,821 212,216 415,637 2,276,732

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Tradeandotherreceivablesaredenominatedinthefollowingcurrencies:

December 31. 2017 December 31. 2016EUR 29,654,884 31,004,139SDR (Special Drawing Rights) 5,971,069 817,123USD 893 -

35,626,846 31,821,262

Fair values of trade and other receivables corresponds to their carrying amount.

Age profile of Trade receivables

ThefollowingtablesshowtheageprofileoftheCompany’stradereceivablesbydaysoutstanding(pastdue).Thecarryingamountsofpastduereceiv-ables are shown net of impairment losses charged as of the end of the reporting period.

In EUR

Carrying amount as of

December 31, 2017of which not past

due


less than 30 days 30–60days 61–90days 91 – 180 days

181–360days

over360days

Total 23,956,061 13,112,213

2,563,142

1,387,485

915,807

4,325,981

937,507 713,926

In EUR

Carrying amount as of

December31,2016of which not past

due

of which past due byless than 30

days 30–60days 61–90days 91 – 180 days181–360

daysover360

days

Total 21,054,520 12,883,537 3,684,420 1,192,426 922,522 1,010,190 920,629 440,796

SignificantincreaseintradereceivablescomparedtopreviousyearismainlyconnectedtoRoamingtraffic.

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Movementsinallowanceforimpairmentlosses:

2017 2016

Balance, January 1 23,896,766 22,428,123Charged during the year 1,438,220 1,434,066Release of provision related to receivables col-lected during the year (241,205) (134,456)Penalties charged to customers (140,431) 169,033Write-off - -Balance, December 31 24,953,350 23,896,766

10.shorT Term invesTmenTs


Short term bank deposits

CreditratingA-(S&P) 5,000,000 -5,000,000 -

Shorttermbankdepositsrepresentdepositswithmaturityfromthreemonthsuptooneyearandaverageinterestrateof0.4%in2017(2016:0.50%).AllshorttermbankdepositsaredenominatedinEUR.

11.CAsh And CAsh eQuivAlenTsDecember 31, 2017 December31,2016

Cash on hand 443 1,821 Cash in banks 6,645,969 6,550,196

6,646,412 6,552,017

12.resTriCTed CAsh December 31, 2017 December 31, 2016

RestrictedcashatCKBbank-dividend(privateindividuals) 970,327 1,116,877970,327 1,116,877

RestrictedcashdepositedwiththeCKBbankinamountofEUR970.327andEUR1,116.877asofDecember31,2017andDecember31,2016,respectively, are provided and kept for special purposes and are used for dividend payment to minority shareholders.

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13.finAnCiAl insTrumenTs

a) Financial instruments by categories

loans and receivables December 31, 2017 December 31, 2016

Long term loans and receivables 9,625,140 9,428,898Short term bank deposits 5,000,000 -Trade and other receivables 34,313,057 30,058,811Restricted cash 970,327 1,116,877Cash and cash equivalents 6,646,412 6,552,017

Total 56,554,936 47,156,603

Liabilities at amortized cost December 31, 2017 December 31, 2016

Trade and other payables 40,961,917 34,439,755TV Content liabilities short term 2,830,167 1,249,181TV Content liabilities long term 2,817,463 1,320,968Total 46,609,547 37,009,904

b) Credit quality of financial assets Thecreditqualityoffinancialassetsthatareneitherpastduenorimpairedispresentedbelow:

long –term loans and receivables December 31, 2017 December 31, 2016

Counterparty without credit rating 9,625,140 9,428,8989,625,140 9,428,898

Counterparties without credit rating include long term receivables from customers and receivables for housing loans.

Receivables for housing loans are secured by mortgage which is a pre-requisite for a loan to be approved. Long term receivables from customers relate to sale of equipment on instalments. The Company performs credit checks of all customers before the sales occur.

Cash and cash equivalents December 31, 2017 December 31, 2016

Cash and cash equivalents without credit rating 999,562 1,379,021CounterpartywithCreditratingA(S&P) 498,650 625,489CounterpartywithCreditratingA-(S&P) 421,873 336,845CounterpartywithCreditratingBB(S&P) 441,118 59,643CounterpartywithCreditratingBBB-(S&P) 4,285,209 4,151,019

6,646,412 6,552,017

Credit rating of foreign bank which are operating in Montenegro are calculated based on credit rating of their mother companies.

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Short term bank deposits December 31, 2017 December 31, 2016

Guaranteed short term deposit by credit institution Credit rating A- (S&P) 5,000,000 -

5,000,000 -

Trade and other receivables - neither past due nor impaired December 31, 2017 December 31, 2016

Counterparty without external credit rating 13,112,213 12,883,53713,112,213 12,883,537

14.shAre CApiTAl

as at December 31, 2017. as at December 31 , 2016.Number of

shares % valueNumber of

shares % valueSubscribed and paid in capital -M-Tele/MagyarTelekom 36,177,950 76.53 94,786,591 36,177,950 76.53 94,786,591Legal entities and custody 5,340,292 11.30 13,991,618 5,569,508 11.78 14,592,167Individuals 5,755,698 12.17 15,079,491 5,526,482 11.69 14,478,942

47,273,940 100.00 123,857,700 47,273,940 100.00 123,857,700

AsatDecember31,2017theparvalueofanindividualsharewasEUR2.62001.Telekom’ssharesarepubliclylistedontheMontenegroStockExchange.ThemarketpriceofanindividualshareasatDecember31,2017wasEUR1.5676(December31,2016:EUR2.8200).

In 2014 based on minority shareholders’ request, the Company initiated a procedure for capital decrease. On its extraordinary meeting on March 5, 2014theGeneralAssemblyapprovedaResolutiononsharecapitalreductionbychangingtheparvaluefromEUR2.98255toEUR2.62001.Totalnumberofsharesremains47.273.940.Thisresultedinasharecapitaldecreaseinamountof17,138,694EUR.

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15.TrAde And oTher pAyABles

December 31, 2017

December 31, 2016

Trade payables to third parties 25,908,788 22,595,847

Payables to Hrvatski Telekom Group 158,579 178,551 Payables to Deutsche Telekom Group 7,790,476 4,966,292Total trade payables 33,857,843 27,740,690 Accrued expenses 5,514,136 5,014,152 Liabilities for dividends 1,080,804 1,227,354

Accrued bonuses 385,321 399,747 Other payables 123,813 57,812total other financial liabilities 7,104,074 6,699,065total financial liabilities 40,961,917 34,439,755

Advances received for mobile phone cards 680,660 412,610

Amounts received in advance and prepayments - 359,995

Other taxes and social security 24,041 24,041

VAT payables 767,774 331,927

Deferred revenues 261,889 284,265Total other payables 1,734,364 1,412,838Total trade and other payables 42,696,281 35,852,593

SignificantincreaseintradepayablesandotherpayablestothirdpartiescomparedtopreviousyearismainlyconnectedtoRoamingtraffic.Razgraničenitroškoviuključujusledeće:

December 31, 2017 December 31, 2016Accrued marketing expenses 310,986 183,578Accrued expenses for postal services 91,285 141,013Accrued expenses for maintenance 831,687 1,503,482Accrued liabilities for IPTV services 77,513 381,252Deferred revenues from internet service 742,773 710,625Accrued expenses for Cinematography fee 480,000 240,000

Accrued expenses for External Audit 92,541 51,699

Other accrued liabilities 2,887,341 1,802,5035,514,136 5,014,152

Tradeandotherpayablesaredenominatedinthefollowingcurrencies:


EUR 39,687,266 33,740,971

SDR 866,012 413,100USD 408,203 285,684GBP 435 -

40,961,916 34,439,755

Thefairvalueoftradeandotherpayablesisequaltotheircarryingamounts.Contractedmaturityoftradeandotherpayablesisupto45/60/90days.

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16.provisions for liABiliTies And ChArges MovementsinprovisionsforliabilitiesandchargesfortheyearendedDecember31,2016andDecember31,2015aresummarizedinthetablebelow:

2017 2016

Balance, January 1 1,333,195 1,946,933Additions during the year 1,159,123 864,836Released during the year (45,253) (283,210)Used during the year (1,591,906) (1,195,364)Balance, December 31 855,159 1,333,195 Less:non-currentportion (469,677) (502,330) 385,482 830,865

legal casesseverance pay-

ments

Retirement and jubilee award

benefits

variable bonuses ii programme

(vaR ii) TotalJanuary1,2016 336,399 927,507 360,626 322,401 1,946,933Charged during the year 25,099 777,053 - 62,684 864,836Released during the year (251,752) - (2,135) (29,323) (283,210)

Used during the year - (1,062,275) (22,866) (110,223) (1,195,364)

December31,2016 109,746 642,285 335,625 245,539 1,333,195

January 1, 2017 109,746 642,285 335,625 245,539 1,333,195

Charged during the year 237,922 868,831 31,660 20,710 1,159,123

Released during the year (44,043) - (1,210) - (45,253)Used during the year (9,804) (1,511,116) (19,183) (51,804) (1,591,906)December 31, 2017 293,821 - 346,892 214,445 855,159

Less:non-currentportion - - (315,232) (154,445) (469,677)Current provision 293,821 - 31,660 60,000 385,482

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Retirementandjubileeawardbenefits

jubilee award obligations Retirement obligations

Total

january 1, 2016 277,807 82,819 360,626 AdditionsAmountsutilized/retired (10,616) (14,385) (25,001) December 31, 2016 267,191 68,434 335,625

january 1, 2017 267,191 68,434 335,625Additions 31,660 - 31,660Amountsutilized/retired (19,183) (1,210) (20,393) December 31, 2017 279,668 67,224 346,892 Less:non-currentportion (248,008) (67,224) (315,232)

Current provision 31,660 31,660

ProvisionsforemployeebenefitsarestatedatthepresentvalueofexpectedfuturepaymentstoemployeeswithrespecttoemploymentanniversaryawardsandretirementbenefitswhicharedescribedintheCollectiveBargainingAgreementoftheCompany(note2.15).

17.deferred inCome TAx liABiliTy

AsatDecember31,2016andDecember31,2015,theCompanydidnothaveanydeferredtaxassetsarisingfromtemporarydifferencesortaxlosses available for future years.

Deferred tax liabilities relate to temporary differences between the property, plant and equipment and intangible assets base recognized in the tax statement,andthecarryingamountofproperty,plantandequipmentandintangibleassetsasrecordedintheCompany’sfinancialstatements.Tax-able temporary difference arises from accelerated tax depreciation and recognition of assets with the unit value below EUR 300. Movementindeferredincometaxliabilityduringtheyearisasfollows:

Deferred tax liability accelerated tax depreciationAtJanuary1,2016 2,263,822Charged/(credited)toprofitorloss 212,661at December 31, 2016 2,476,483 Charged/(credited)toprofitorloss (77,468)at December 31, 2017 2,399,015

18.finAnCiAl liABiliTies

MovementsinfinancialliabilitiesfortheyearendedDecember31,2017andDecember31,2016aresummarizedinthetablebelow:

2017 2016Short term borrowing from Magyar Telekom - 6,575,133TV content rights 5,647,630 2,570,149 Balance, December 31 5,647,630 9,145,282 Less:non-currentportion (2,817,463) (1,320,968)Currentfinancialliabilities 2,830,167 7,824,314

InAugust2016CrnogorskiTelekomsignedloanagreementwithMagyarTelekominamountofEUR8,500,000withannualinterestrateof4.3%.During2016theamountofEUR2,000,000wasrepaid.TheloanwasvaliduntilMarch30,2017.CrnogorskiTelekomrepaidoutstandingloantoMagyar Telekom on March 27th 2017.InMarch2017CrnogorskiTelekomsignedloanagreementwithHrvatskiTelekominamountofEUR6,500,000withannualinterestrateof3%.Theloan is concluded until November 30, 2017. Crnogorski Telekom fully repaid outstanding loan to Hrvatski Telekom on October 18th 2017.

TVcontentrightsarerelatedtoaliabilityforTVcontentwhichiscontractedonafixedperiodwithnon-cancelationterm.

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19.revenues

a) Fixed line and Internet operations


Subscriptions connections and other charges 8,670,919 9,990,926Totaloutgoingtrafficrevenues 2,856,893 4,276,964Totalincomingtrafficrevenues 2,842,354 3,331,636Web presentation and hosting 44,499 45,407ADSL revenues 8,940,806 10,691,112MIPNET, leased lines and data transmission revenues 2,582,972 2,923,353IPTV revenues 6,962,641 7,398,811ICT revenues 4,628,454 4,594,716Revenues from Universal services 3,458 2,078Revenues from DVB-T2 219,629 22,131

Total service revenues 37,752,625 43,277,134 Total equipment sales revenues 3,712,257 3,937,758Total other revenue 1,104,937 514,655total fixed line and internet services revenues 42,569,819 47,729,557

Fixedlineandinternetservicerevenuepresentationadjustedtoindustrydevelopmentandinternalmanagementreport.Therefore,someof2016figuresarechangedinordertohavecomparativerevenuefiguresYoY.

Crnogorski Telekom has formed a partnership with the National Broadcast Centre (RDC) in 2015, based on a call for offers from RDC, related to de-velopment of a new DVB-T2 pay TV service. RDC is the managing the digital TV spectrum, while CT is providing its expertise in regards of promotion, sales, customer support and TV content.

RDCistheownerofthelicenceandregisteredasapayTVprovider,withCTbeinganexclusiveagentforthesalesoftheservice.DVB-T2has99%population coverage and has enabled CT to expand the footprint in which it is offering its TV services.

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b) Mobile operationsDecember 31, 2017 December 31, 2016

Post-paid revenues 22,096,638 20,685,457Prepaid services 6,797,736 8,522,813Revenue from interconnection fees 4,723,074 5,646,680Revenue from roaming 3,456,628 2,930,923service revenues mobile 37,074,076 37,785,873Sale of handsets 4,876,126 5,655,741Other revenue 567,256 538,348Total mobile service revenues 42,517,458 43,979,962

20.oTher operATing inCome


IncomefromDarkfiberlongtermlease 206,676 130,207Capitalgainsonfixedassetssold 26,668 253,607Other 497,359 14,174

730,703 397,988

TheamountofEUR206,676in2017isrelatedtoincomefromDarkfiberleasing.Agreementsoverrightstousespecificdarkfibersareakintoleasesbecausetheyconveyarighttousespecifiednetworkassets,totheexclusionofotheroperators,includingCrnogorskiTelekom.Paymentfortheuseofthedarkfiberismadeinadvanceanddoesnotvarywiththebuyer’sactualusage.Thefinanceleaseperiodis15years.

21.employee relATed expenses


Netsalariesandbenefits 6,346,418 7,525,479Taxes on salaries 1,406,431 1,541,691State pension contributions 2,784,899 3,010,944Social security and other contributions 910,662 1,012,417Severancepayments(Note16) 868,831 777,053Provisionsforretirementandjubileebenefits(Note16) 30,450 (2,135)Other personnel costs 730,874 1,068,194

13,078,565 14,933,643

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22.depreCiATion, AmorTiZATion And impAirmenT


Depreciation (Note 5) 11,927,705 7,557,960Impairment 44,264 305,651Amortization(Note6) 9,912,538 12,223,278

21,884,507 20,086,889

23.pAymenTs To oTher neTWork operATors


Paymentstodomesticfixedandmobilenetworkoperators 2,937,698 3,679,000Paymentstoforeignfixedandmobilenetworkoperators 4,286,103 4,572,632

7,223,801 8,251,632

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24.oTher operATing expenses


Materials maintenance and service fees 8,436,375 10,124,482Marketing 1,296,620 1,626,745Provision for impairment of trade receivables 1,197,015 1,299,610Rental fees 2,718,115 2,554,728Telecommunication license fee 1,670,731 1,725,119Sponsorships 272,794 290,268Municipality fees and charges and other taxes 1,840,687 2,036,857Agent commissions 1,405,412 1,219,848Fees and levies 256,169 174,855Auditoffinancialstatements 93,397 90,397Deutsche Telekom consulting services 793,438 665,476Other consulting services 137,074 280,467Energy expenses 1,413,793 1,356,192Postal expenses 512,451 572,718Other service fee 412,733 432,567Impairment of inventories 22,319

Cost of ICT services 2,313,455 1,823,100

Provisions(note16) 194,343 (226,653)Other expenses 887,155 1,670,440Operational expenses from Universal Service 5,204 4,334

25,480,818 27,743,869

RentalfeesaremostlyrelatedtorentaloftelecommunicationlinesinamountofEUR782,753(2016:EUR840,645)andrentalofspaceforbasesta-tionsfromRadioDifuzniCentarinamountofEUR702,317(2016:EUR709,417).

ExpensesforsponsorshipsrelatetosponsoringtheFSCGand“Budućnost”men’sbasketballteamintheamountofEUR191,928(2016:EUR200,000) and other culture- and sports events as well as for education purposes.

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25.neT finAnCiAl resulT

December 31, 2017 December 31, 2016Interestincomefrom:- short term bank deposits 15,018 46,001- employee loans 190,303 175,757 Prihododukidanjadiskontanadugoročnapotraživanja 184,893 761,756Pozitivne kursne razlike 186,421 148,628Ostalifinansijskiprihodi - 31,735

576,635 1,163,877 Finansijski rashodiRashodi kamata (240,715) (18,849) Negativne kursne razlike (319,597) (202,485) Ostalifinansijskirashodi (728,708) (341,745)

(1,289,020) (563,079) Netofinansijskirashodi (712,385) 600,798

Maindifferencesinnetfinancialresultaredrivenbyalowerinterestincomefromhousingloansduetochangeofdiscountratein2016andhigherinterestexpensesasaresultofhigherTVcontentrightscapitalizationin2017andhigherotherfinancecost.

26.inCome TAx expense

December 31, 2017 December 31, 2016Current income tax 833,281 1,241,370 Deferred income tax (77,468) 212,662 Total 755,813 1,454,032

Reconciliation of the Theoretical Income Taxes and Actual Income Taxes

ThereconciliationoftheCompany’stheoreticalincometaxandactualincometaxisprovidedinthetablebelow:

December 31, 2017 December 31, 2016Profitbeforetax 5,887,186 10,860,953Incometaxatarateof9% 529,847 977,486

Non-deductible costs 99,254 161,359Non-deductible costs 126,712 315,187

755,813 1,454,032

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27.eArnings per shAre

(Iznosi u EUR)


ProfitattributabletoequityholdersoftheCompany 5,131,373 9,406,921

Weighted-average number of issued ordinary shares 47,273,940 47,273,940

Basic earnings per share 0.11 0.20

The Company does not have any amounts of dilutive shares.

28.dividend pAymenTs

During2017,Companydidnotdeclareprofitrelateddividendfor2016(2016:EUR19,200,000).Therefore,dividendpersharewaszero(2015:EUR0.0.40610).Dividendpaymentsin2017,inamountof146,548EURrelatetopaymentsofdividendsfrompreviousyears.

29.relATed pArTy TrAnsACTions

MagyarTelekomobtainedcontrolofCrnogorskiTelekomonMarch31,2005andbytheendof2005ithelda76.53%stake.InJanuary2017MagyarTelekomsolditsstaketoHrvatskitelekomholding.DeutscheTelekomAGistheultimatecontrollingownerofHrvatskiTelekomholding51%oftheis-suedsharesofHrvatskiTelekom.DeutscheTelekom(DT)GroupandHrvatskiTelekomGrouphaveanumberoffixedlineandmobiletelecomserviceprovider subsidiaries, with whom the Company has transactions.

The ultimate parent of the Company is Deutsche Telekom AG (incorporated in Germany). Shareholders of Deutsche Telekom AG are Institutional investors(53.7%),KfWBankengruppe(17.4%),FederalRepublicofGermany(14.5%),andRetailinvestors(14.4%).

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

29.1 Deutsche Telekom Group (including Hrvatski Telekom Group)

Transactions with related parties primarily include the provision and supply of telecommunication services and leased lines resulting also in year end balances.ThetablesbelowincludethetransactionsandtheyearendbalanceswiththeDeutscheTelekomGroupmembersforthereportedyears:

short term borrowings December 31, 2017 December 31, 2016

Short term borrowing from Magyar Telekom - 6,575,133

Trade and other receivables December 31, 2017 December 31, 2016

Magyar Telekom Plc. 68,166 107,887Makedonski Telekom Group 87,117 40,569Telekom Deutschland 3,216,842 2,669,070OTE Telekom 14,800 17,469Hrvatski Telekom 14,469 15,951Total 3,401,394 2,850,946

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Trade and other payables December 31, 2017 December 31, 2016

Magyar Telekom Plc. 228,066 320,891Makedonski Telekom Group 1,099,388 402,385Telekom Deutschland 6,417,278 4,073,713OTE Telekom 43,299 209,593Hrvatski Telekom 158,579 138,261Total 7,946,610 5,144,843

Revenues December 31, 2017 December 31, 2016

Magyar Telekom Plc. 114,320 160,912Makedonski Telekom Group 5,671 10,749Telekom Deutschland 5,100,065 5,809,323OTE Telekom 11,500 8,065Hrvatski Telekom 48,840 20,866 Total 5,280,396 6,009,915

expenses December 31, 2017 December 31, 2016Magyar Telekom Consulting services 27,452 14,000Mobile line services 12,130 4,532Leased lines 56,950 237,885Other expenses 165,491 92,530

262,023 348,947Makedonski Telekom Mobile line services 4,665 3,419 Other expenses 39,489 20,798Total - Magyar Telekom Group 306,177 373,164Deutsche Telekom Interconnections 2,227,763 3,449,415Consulting services 765,986 669,147“T” brand 201,984 231,632Maintenance of telecom equipment 24,272 17,671Mobile line services 87,175 71,497Leased lines 115,429 109,053Other expenses 10,475 30,603 Total 3,433,084 4,579,018

T - hrvatski telekom

Mobile line services 26,947 30,685Leased lines 362,968 225,178Other expenses 6,214 6,680

396,129 262,543Total 4,135,390 5,214,726

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29.2 The Federal Republic of Germany

The Federal Republic of Germany is both a direct and an indirect shareholder and holds approximately 32 percent of the share capital of DTAG. Due to the average attendance at the shareholders’ meetings, the Federal Republic of Germany represents a solid majority at the shareholders’ meet-ings of DTAG, although it only has a minority shareholding, making DTAG a dependant company of the Federal Republic of Germany. Therefore, the Federal Republic of Germany and the companies controlled by the Federal Republic of Germany or companies over which the Federal Republic of GermanycanexerciseasignificantinfluenceareclassifiedasrelatedpartiesofDTAG,andconsequentlyoftheCompanyaswell.

DTAG or any Hrvatski Telekom Group member, including the Company, did not execute as part of its normal business activities any transactions that wereindividuallymaterialinthe2017or2016financialyearwithcompaniescontrolledbytheFederalRepublicorcompaniesoverwhichtheFederalRepubliccanexerciseasignificantinfluence.

29.3 Agreements with the Company’s Senior Management

In2017theCompanyrewardedshorttermemployeebenefitstomanagement,whichamountedtoEUR402,613(2016:EUR576,343)fornetsalaries and bonuses to key management, who are members or permanent invitees of the Management Committee of Crnogorski Telekom, and EUR 289,600(2016:EUR310,399)forrelatedtaxesandcontributions.

During2017CompanymadepaymentstokeymanagementforVARIIprogramingrossamountofEUR59,148(2016:110,550;note15).

30.ConTingenT liABiliTies

Potential onerous contracts

In accordance with the Share Sale–Purchase Agreement dated March 15, 2005 concluded between the Government of Montenegro and the Em-ployment Bureau of Montenegro, as Sellers, and Magyar Telekom, as the Purchaser, the Purchaser undertakes to cause the Company to enter into contractswiththeRadioDiffusionCentretoleaseopticalfibercapacitiesfortransmissionofTVandradiosignalsandtheUniversityofMontenegrotoprovide for connection capacities. Contract duration is 20 years. In both cases it is envisaged that the counterparties shall not pay any compensation for the use of these capacities. The Company’s management estimates that there will be no material expenditure related to this case in the future.

Environmental matters

Environmental regulations are developing in the Republic of Montenegro and the Company has not recorded any liability as of December 31, 2017 and2016foranyanticipatedcosts,includinglegalandconsultingfees,sitestudies,thedesignandimplementationofremediationplans,relatedtoenvironmentalmatters.Managementdoesnotconsiderthecostsassociatedwithenvironmentalissuestobesignificant.

31.TAx risks

Tax laws of Montenegro are subject to different interpretations and frequent amendments. Tax authorities’ interpretation of Tax laws may differ from those made by the Company’s management. As a result, some transactions may be disputed by tax authorities and the Company may have to pay additionaltaxes,penaltiesandinterestsinanyofthefiveyearsafterthesubmissionofaparticulartaxreturn.Thismeansthattaxauthoritieshavetherighttodetermineunpaidtaxliabilitieswithinfiveyearssincethetransactiondate.ManagementhasassessedthattheCompanyhaspaidalltaxliabilities incurred until December 31,2017.

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32.CommiTmenTs

a)Operating lease commitments – Company as a lessee

TheCompanyleasesvariousretailandbusinessofficesandwarehouses,internetaccessesandlinesunderoperatingleaseagreements.Theleaseterms are between one year up to unlimited term, and the majority of the lease agreements are renewable at the end of the lease period at the market rate.

Amountsofminimumleasepaymentsattheendofthereportingperiodundernon-cancellableoperatingleasesforperiods:

not later than one year 1,383,546laterthanoneyearandnotlaterthanfiveyears 2,500,820 laterthanfiveyears 2,500 Total 3,886,866

TheleasecontractwiththeRadioDifuzniCentar(RDC)issignedforindefinitetimeforrentofspaceontheirtowersforourbasestations.SpaceonthesametowersisrentedbyRDCalsotootheroperatorsanddomesticTVstations.Theamountoftheleasecostfluctuatesdependingonthespaceusedforthesetowers.TheleaseexpenditurechargedtoProfitorlossduringtheyearisdisclosedinNote24(“Rentalfees”).

b)Other commitments

Expenditurescommitteduptotheendofthereportingperiod,whichhasnotbeenrecognizedinthefinancialstatementsareasfollows:

December 31, 2017 December 31, 2016Contractedliabilitieson: The purchase of property, plant and equipment 995,508 2,186,115 The purchase of intangible assets 1,608,843 2,576,863 Maintenance and support services 949,551 621,965 Marketing and sponsorships 157,763 142,196Other operating expenditure commitments 467,190 1,137,968 Total 4,178,855 6,665,107

c)Use permits Based on the Share Sale–Purchase agreement dated March 15, 2005 concluded between the Government of the Republic of Montenegro and the Employment Bureau of Montenegro, as Sellers, and Magyar Telekom Plc., as the Purchaser, the Sellers undertake to cause the Company to submit thorough and complete applications to the relevant Public Authority to obtain all outstanding permits for the continued i) conduct of their respective businessand/orii)ownershipand/oroperationoftheirrespectiveassetsexistingonthedateofthesigningofthisAgreement.TheCompanymanage-ment estimates that there will be no material expenditure related to this case in future.

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33.exChAnge rATesTheofficialexchangeratesformajorcurrenciesusedinthetranslationofStatementoffinancialpositionitemsdenominatedinforeigncurrencies,intoEurosasatDecember31,2017andDecember31,2016respectivelyareasfollows:


SDR 1.1874 1.2753USD 1.1999 0.9538

34.CAsh generATed from operATions

Note December 31, 2017 December 31, 2016Profitfortheperiod 5,131,373 9,406,921adjustmentfor:Income tax expense 755,813 1,454,032Depreciation amortization and impairment 22 21,884,507 20,086,889Netfinancialincome 25 712,384 (600,798)ProvisionforEmployeebenefitschargedduringtheyear 16 889,541 839,737ProvisionforEmployeebenefitsusedduringtheyear 16 (1,210) (2,135)Other non-cash items (587,873) (1,175,048)Increase/(decrease)ofallowancesforinventories 24 (376,143) 22,319

Increase/(decrease)ofallowancesforbaddebt 9 1,197,015 1,299,610

Profitonsaleofnon-currentassets 20 (233,344) (383,814)Change in working capitalChange in payables 6,843,688 (5,509,584)Change in inventory (1,281,376) 1,364,046Change in receivables incl. deposits 1,194,415 (3,968,382)Decrease in provision for legal cases 16 (184,076) 226,653ProvisionforEmployeebenefits 16 (1,591,906) (1,195,364)Change on Restricted Cash (146,549) (47,731)

Cash generated from operations 34,206,259 21,817,351

35.signifiCAnT evenTs AfTer The reporTing dATe

Nosignificanteventsidentifiedafterthereportingdate.

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furTher informATion

Contacts

Crnogorski TelekomMoskovska 2981000 PodgoricaMontenegroTel:+38220433433Fax:+38220225752e-mail:[email protected]

STock Trading inForMaTion:

CrnogorskiTelekomstockcode:TECG

Montenegroberza a.d.PodgoricaMoskovska 7781000 PodgoricaMontenegroTel/Fax:+38220228502E-mail:[email protected]

Publishedby:Crnogorski Telekom © 2018

www.telekom.me

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