ADRIA MIDCO B.V. GROUP Consolidated Financial Statements ... · 12/31/2018 · ADRIA MIDCO B.V. GROUP Consolidated Financial Statements for years ended 31 December 2018, 31 December

ADRIA MIDCO B.V. GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED 31 DECEMBER 2018, 31 DECEMBER 2017 AND 31 DECEMBER 2016

ADRIA MIDCO B.V. GROUP Consolidated Financial Statements for years ended 31 December 2018, 31 December 2017 and 31 December 2016 Contents

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ......................................................................................................................................................................... 7

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ............................................................... 8

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY .............................................................. 11

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued) ............................................ 12

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued) ............................................ 13

CONSOLIDATED STATEMENTS OF CASH FLOWS ............................................................................. 14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .......................................................... 16

1. Reporting entity ....................................................................................................................... 16

2. Basis of preparation ................................................................................................................ 19

3. Significant accounting policies ............................................................................................... 21

4. Change of accounting policy ................................................................................................... 41

5. Financial risk management .................................................................................................... 48

6. Critical accounting estimates and judgments ....................................................................... 51

7. Operating segments ................................................................................................................. 53

8. Revenue .................................................................................................................................... 61

9. Other income ............................................................................................................................ 62

10. Content cost .............................................................................................................................. 63

11. Link and interconnection costs ............................................................................................... 64

12. Material costs ........................................................................................................................... 64

13. Staff costs .................................................................................................................................. 64

14. Other operating expenses ........................................................................................................ 65

15. Finance income and finance cost ............................................................................................ 66

16. Income tax ................................................................................................................................ 66

17. Adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) .............................................................................................................................................. 68

18. Property, plant and equipment .............................................................................................. 70

19. Intangible assets ....................................................................................................................... 74

20. Goodwill ................................................................................................................................... 77

21. Business combinations............................................................................................................. 80

ADRIA MIDCO B.V. GROUP Consolidated Financial Statements for years ended 31 December 2018, 31 December 2017 and 31 December 2016

22. Financial instruments .............................................................................................................. 88

23. Inventories ................................................................................................................................ 97

24. Trade and other receivables ................................................................................................... 97

25. Prepayments ............................................................................................................................. 97

26. Contract assets and liabilities ................................................................................................. 98

27. Other financial assets ............................................................................................................ 100

28. Short term loan receivables and deposits ............................................................................ 100

29. Cash and cash equivalents .................................................................................................... 101

30. Capital and non-controling interest ..................................................................................... 102

31. Long term provisions ............................................................................................................ 106

32. Loans and borrowings and bonds ........................................................................................ 107

33. Deferred income..................................................................................................................... 112

34. Deferred tax assets and liabilities ......................................................................................... 112

35. Trade and other payables ..................................................................................................... 115

36. Related parties ....................................................................................................................... 116

37. Operating lease ...................................................................................................................... 119

38. Contingent liabilities ............................................................................................................. 119

39. Applied exchange rates ......................................................................................................... 124

40. Subsequent events .................................................................................................................. 124

41. Correction of errors, reclassifications and change in measurement ................................. 125

kpmg

KPMG d.o.o. Beograd Kraljice Natalije 11 11000 Belgrade Serbia

Tel.: +381 (0)11 20 50 500 Fax: +381 (0)11 20 50 550 www.kpmg.com/rs

KPMG d.o.o. Beograd, a Serbian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Matični broj:17148656 PIB: 100058593 Račun: 265-1100310000190-61

Independent auditor’s report on the consolidated financial statements To the Owners and Directors of Adria Midco B.V. Opinion We have audited the consolidated financial statements of Adria Midco B.V. Group (“the Group”), which comprise the consolidated statements of financial position as at 31 December 2018, 31 December 2017 and 31 December 2016, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising significant accounting policies and other explanatory information (hereinafter, “consolidated financial statements”). In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2018, 31 December 2017 and 31 December 2016, and of its consolidated financial performance and consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Serbia, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with EU IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

kpmg

5

Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the consolidated

financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

— Obtain an understanding of internal control relevant to the audit in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

— Evaluate the appropriateness of accounting policies used and the

reasonableness of accounting estimates and related disclosures made by management.

— Conclude on the appropriateness of management’s use of the going concern

basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

— Evaluate the overall presentation, structure and content of the consolidated

financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

— Obtain sufficient appropriate audit evidence regarding the financial information

of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

kpmg

6

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. KPMG d.o.o. Belgrade Republic of Serbia 27 April 2019

ADRIA MIDCO B.V. GROUP Consolidated Financial Statements for years ended 31 December 2018, 31 December 2017 and 31 December 2016 In thousands of EUR

7

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Note 2018 *Restated

2017 Restated*

2016 Revenue 8 635,627 517,627 459,011 Other income 9 15,329 7,047 3,509 Content costs 10 (103,274) (78,606) (65,567) Satellite capacity costs (4,718) (6,291) (7,118) Link and interconnection costs 11 (41,054) (39,090) (36,066) Material costs 12 (45,623) (39,121) (44,693) Staff costs 13 (99,011) (55,059) (48,337) Depreciation 18 (99,642) (89,089) (77,494) Amortization of intangible assets 19 (68,483) (58,934) (47,130) Impairment loss on goodwill 20 (9,255) (60,025) - Impairment loss on trade and other receivables, including contract assets (12,563) (6,303) (4,547) Impairment loss on other financial assets (2,563) - - -Other operating expenses 14 (144,061) (117,450) (87,748) Operating profit/(loss) 20,709 (25,294) 43,820 Finance income 7,343 17,549 8,547 Finance costs (71,005) (112,501) (67,041) Net finance costs 15 (63,662) (94,952) (58,494) Loss before tax (42,953) (120,246) (14,674) Income tax expense 16 (3,046) (6,465) 2,019 Loss for the period (45,999) (126,711) (12,655) Other comprehensive (loss)/income Items that are or may be reclassified subsequently to profit and loss Currency translation differences (1,016) 6,857 (5,753) Other comprehensive (loss)/income for the period (1,016) 6,857 (5,753) Total comprehensive loss for the period (47,015) (119,854) (18,408) Profit/(loss) attributable to: Owners of the Company (48,279) (129,146) (14,508) Non-controlling interests 2,280 2,435 1,853 Loss for the period (45,999) (126,711) (12,655) Total comprehensive income/(loss) attributable to: Owners of the Company (49,295) (122,289) (20,261) Non-controlling interests 2,280 2,435 1,853 Total comprehensive loss for the period (47,015) (119,854) (18,408)


The Notes on pages 16 to 132 are integral part of these consolidated financial statements

8

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Note 31-Dec-18 *Restated 31-

Dec-2017 *Restated

31-Dec-2016 *Restated

1-Jan-2016

Assets Property, plant and equipment 18 401,405 372,189 354,249 326,126 Goodwill 20 761,335 649,115 679,151 673,972 Intangible assets 19 304,257 250,755 222,999 225,531 Investment property 336 386 435 485 Loans to related parties 36 30,000 32,011 32,002 2,049 Other financial assets 27 7,373 3,088 545 767 Non-current prepayments 25 161 1,239 30 5,987 Contract assets 26 4,148 - - - Deferred costs 4,385 3,175 1,422 - Deferred tax assets 34 4,156 3,609 6,622 5,081 Non-current assets 1,517,556 1,315,567 1,297,455 1,239,998

Inventories 23 22,172 7,014 5,042 6,217 Trade and other receivables 24 163,722 110,674 83,981 78,703 Short term loans receivable and deposits 28 5,711 209,361 5,473 6,138 Prepayments 25 35,609 26,628 19,729 18,957 Contract assets 26 12,926 - - - Income tax receivables 7,480 5,202 2,906 1,728 Cash and cash equivalents 29 43,430 32,560 13,941 15,126

Assets held for sale 18, 19 - 4,085 - -

Current assets 291,050 395,524 131,072 126,869

Total assets 1,808,606 1,711,091 1,428,527 1,366,867

*Note 41



9

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Continued)

Note 31-Dec-18 *Restated

31-Dec-2017 *Restated 31-Dec-16

*Restated 1-Jan-2016

Equity Issued and fully paid share capital 30 125 125 125 125 Share premium 30 337,557 337,557 568,592 564,592 Capital reserves 36 32,809 - - - Translation reserves (15,042) (14,026) (20,883) (15,130) Other capital reserves - - - 26,000 Accumulated losses (296,887) (251,653) (124,434) (110,803) Equity attributable to owners of the Company 58,562 72,003 423,400 464,784 Non-controlling interests 10,584 10,509 12,522 13,295 Total equity 69,146 82,512 435,922 478,079

Liabilities Loans and borrowings 32 69,902 77,729 37,141 64,960 Other financial liabilities 32 1,333,867 1,330,844 774,969 619,988 Long term liabilities 3,568 296 94 3,520 Long term provisions 31 24,652 22,413 8,252 1,826 Deferred income 33 3,859 7,185 6,106 6,044 Contract liabilities 26 2,065 - - - Finance lease liabilities 18 1,006 1,449 6,011 11,194 Deferred tax liabilities 34 29,957 27,029 27,226 31,460 Employee benefits 631 639 599 534 Non-current liabilities 1,469,507 1,467,584 860,398 739,526


In thousands of EUR


11

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Share capital

Share premium

Translation reserves

Other capital reserve

Accumulated losses Total

Non-controlling

interest

Total equity

Balance at 1 January 2016, as previously reported 125 564,592 (14,188) 26,000 (105,296) 471,233 13,295 484,528

Impact of correction of error (note 41) - - (942) - (5,507) (6,449) - (6,449) Restated balance at 1 January 2016 125 564,592 (15,130) 26,000 (110,803) 464,784 13,295 478,079 Comprehensive income for the period (Loss)/profit for the period (*Restated) - - - - (14,508) (14,508) 1,853 (12,655) Other comprehensive loss (*Restated) - - (5,753) - - (5,753) - (5,753) Total comprehensive income for the period - - (5,753) - (14,508) (20,261) 1,853 (18,408) Contributions and distributions Transfer to share premium (note 30) - 26,000 - (26,000) - - - - Distribution (note 30) - (22,000) - - - (22,000) - (22,000) Dividends - - - - - - (845) (845) Total Contributions by and distributions to Owners - 4,000 - (26,000) - (22,000) (845) (22,845)

Changes in ownership interest Acquisition of non-controlling interest without change in control - - - - 877 877 (1,781) (904)

Total changes in ownership interests - - - - 877 877 (1,781) (904) Restated balance at 31 December 2016 125 568,592 (20,883) - (124,434) 423,400 12,522 435,922

*Note 41


In thousands of EUR


12

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

Share

capital Share

premium Translation

reserves Accumulated

losses Total Non-controlling

interest Total equity

Balance at 1 January 2017 (*Restated) 125 568,592 (20,883) (124,434) 423,400 12,522 435,922

Comprehensive (loss)/income for the period (Loss)/profit for the period (*Restated) - - - (129,146) (129,146) 2,435 (126,711) Other comprehensive income - - 6,857 - 6,857 - 6,857 Total comprehensive (loss)/income for the period (*Restated) - - 6,857 (129,146) (122,289) 2,435 (119,854) Contributions and distributions Distribution (note 30) - (231,035) - - (231,035) - (231,035) Dividends - - - - - (752) (752) Total Contributions by and distributions to Owners - (231,035) - - (231,035) (752) (231,787) Changes in ownership interest

Acquisition of non-controlling interest without change in control - - - 1,926 1,926 (3,696) (1,770) Total changes in ownership interests - - - 1,926 1,926 (3,696) (1,770) Balance at 31 December 2017 (*Restated) 125 337,557 (14,026) (251,653) 72,003 10,509 82,512

*Note 41


In thousands of EUR


13

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

Share

capital Share

premium Capital

reserves Translation

reserves Accumulated

losses Total Non-controlling

interest Total equity

Restated balance at 31 December 2018 125 337,557 - (14,026) (251,653) 72,003 10,509 82,512 Opening balance adjustments relating to IFRS 15 (note 4) - - - - 6,244 6,244 47 6,291 Opening balance adjustments relating to IFRS 15 - subscriber acquisition cost - - - - 1,187 1,187 - 1,187 Opening balance adjustments relating to IFRS 9 (note 4) - - - - (1,334) (1,334) (36) (1,370) Adjusted balance at 1 January 2018 125 337,557 - (14,026) (245,556) 78,100 10,520 88,620 Comprehensive (loss)/income for the period (Loss)/Profit for the period - - - - (48,279) (48,279) 2,280 (45,999) Other comprehensive loss - - - (1,016) - (1,016) - (1,016) Total comprehensive (loss)/income for the period - - - (1,016) (48,279) (49,295) 2,280 (47,015)

Contributions and distributions Dividends (note 30) - - - - - - (1,470) (1,470) Capital increase from share-based payment (note 36) - 32,809 - - 32,809 - 32,809 Total Contributions by and distributions to Owners - - 32,809 - - 32,809 (1,470) 31,339

Changes in ownership interest Acquisition of non-controlling interest without change in control - - - - (3,053) (3,053) (746) (3,799) Total changes in ownership interests - - - - (3,053) (3,053) (746) (3,799)

Balance at 31 December 2018 125 337,557 32,809 (15,042) (296,887) 58,562 10,584 69,146 Note 41


In thousands of EUR


14

CONSOLIDATED STATEMENTS OF CASH FLOWS

Note 2018 *Restated

2017 *Restated

2016 Cash flows from operating activities Loss for the period (45,999) (126,711) (12,655) Adjustments for: Depreciation 18 99,642 89,089 77,494 Amortization 19 68,483 58,934 47,130 Impairment of trade and other receivables 22 12,007 6,303 4,547 Impairment of contract assets 26 556 - - Impairment of other financial assets 2,563 - - Impairment of inventories 1,023 690 965 Impairment loss on goodwill 9,255 60,025 - Impairment loss of acquisition cost 19 1,321 367 708 Income tax benefit/(expense) 16 3,046 6,465 (2,019) Gain on sale of subsidiary 9 (7,654) - - Long term provisions 31 764 10,113 83 Share based payment 36 32,809 - - Net finance cost 15 63,662 94,952 58,494

Changes in:

Trade and other receivables (21,960) (33,619) (6,478) Deferred income (5,954) 5,041 485 Deferred cost (2,487) (1,753) (655) Contract assets (5,120) - - Contract liabilities 3,665 - - Employee benefits (8) 40 65 Inventories 273 (1,972) 1,175 Prepayments (6,084) (10,893) 4,620 Trade and other payables 30,589 78 (18,784)

Cash generated from operating activities 234,392 157,149 155,175

Interest paid (62,164) (80,322) (58,155) Income tax paid (6,791) (4,355) (6,394) Net cash from operating activities 165,437 72,472 90,626

Cash flows from investing activities Acquisition of property, plant and equipment (130,081) (91,852) (103,919) Acquisition of intangible assets (65,247) (44,650) (38,501) Acquisition of subsidiaries, net of cash acquired 21 (137,499)

(53,909) (16,210)

Short term loans receivable and deposits inflows

205,000 112 665

Short term loans receivable and deposits outflows (1,118) (204,000) -

Other (outflows)/inflows (390) 197 (30,432) Net cash used in investing activities (129,335) (394,102) (188,397)


In thousands of EUR


15

Note 2018 *Restated 2017

*Restated 2016

Cash flows from financing activities Distribution of share premium - (231,035) (22,000) Proceeds from bond issue - 1,350,000 157,875 Repayment of bond - (775,000) - Proceeds from borrowings 32 204,400 199,617 140,325 Repayment of borrowings 32 (217,243) (163,992) (164,061) Transaction costs related to loans and borrowings

- (23,165) (4,355)

Acquisition of non-controlling interest (3,799) (1,770) (903) Repayment of derivate 15, 35 (1,546) (2,871) - Proceeds from finance lease - - 5,928 Repayment of finance lease (5,583) (10,838) (15,365) Dividends paid to non-controlling interest

(1,470) (752) (845)

Net cash (used in)/from financing activities

(25,241) 340,194 96,599

Net increase/(decrease) in cash and cash equivalents 10,861

18,564 (1,172)

Cash and cash equivalents at 1 January

32,560 13,941 15,126

Effect of movements in exchange rate on cash in hands

9 55 (13)

Cash and cash equivalents at 31 December 43,430

32,560 13,941


In thousands of EUR


16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting entity

Adria Midco B.V. (the Company) is a company domiciled in Netherlands, registered on 3 October 2013.

The consolidated financial statements of the Company as at and for the years ended 31 December 2018, 31 December 2017 and 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group”).

The Group is one of the largest telecommunication operators in South East Europe providing video, data, voice and mobile telephone services to residential and business subscribers. The Group has media activities which fall into following categories: channel production, distribution, advertising and digital. The Group’s activities are mainly based in Serbia, Slovenia, Montenegro, Bosnia and Herzegovina, Macedonia and Croatia.

As at 31 December 2018, the parent company of the Group was Adria Topco B.V. Netherlands controlled by Adria Luxco S.À.R.L. Luxembourg, private company, domiciled in Luxembourg. Adria Luxco S.À.R.L. is an investee company owned in the majority by funds advised/managed by US private equity fund Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”).

On 4 March 2019 Summer Bidco B.V., an entity controlled by Funds advised by BC Partners completed the acquisition of majority ownership of the Group following the receipt of all necessary regulatory approvals.

List of subsidiaries

The Group has the following subsidiaries:

Subsidiary 31-Dec-2018 31-Dec-2017 31-Dec-2016 United Group B.V., Netherlands 100.00% 100.00% 100.00% Slovenia Broadband S.à r.l., Luxembourg 100.00% 100.00% 100.00% Adria Cable B.V., Netherlands 100.00% 100.00% 100.00% Bosnia Broadband S.à r.l., Luxembourg 100.00% 100.00% 100.00% Adria Media B.V., Netherlands 100.00% 100.00% 100.00% Adria DTH B.V., Netherlands 100.00% 100.00% 100.00% Adria Serbia Holdco B.V., Netherlands 100.00% 100.00% 100.00% Absolut Solutions d.o.o., Serbia 100.00% 100.00% 100.00% Serbia Broadband – Srpske kablovske mreže d.o.o., Serbia 100.00% 100.00% 100.00%

Totalna televizija d.o.o., Croatia - 100.00% 100.00% Total TV d.o.o., Macedonia 75.00% 75.00% 75.00%

Total TV Montenegro d.o.o., Montenegro - Merged into

Telemach d.o.o., Montenegro

100.00%

Total TV d.o.o., Bosnia and Herzegovina -

Merged into Telemach d.o.o.,

Bosnia and Herzegovina

100.00%

Eunet d.o.o., Serbia -

Merged into Serbia Broadband – Srpske

kablovske mreže d.o.o., Serbia

100.00%

CAS Media d.o.o., Serbia 100.00% 100.00% 100.00% Adria News S.à r.l., Luxembourg 100.00% 100.00% 100.00%


In thousands of EUR


17

Adria News d.o.o., Serbia 100.00% 100.00% 100.00% Adria News d.o.o., Croatia 100.00% 100.00% 100.00% Adria News d.o.o., Bosnia 100.00% 100.00% 100.00% Adria News BH Production d.o.o., Bosnia 100.00% 100.00% 100.00% United Media Limited, Cyprus 100.00% 100.00% 100.00% United Media Production d.o.o., Serbia 100.00% 100.00% 100.00% Orlando klinci d.o.o., Croatia 100.00% 100.00% 100.00% Ultra Centar Galaktika d.o.o., Serbia 100.00% 100.00% 100.00% United Media Network A.G., Switzerland 100.00% 100.00% 100.00% Cas Media d.o.o., Bosnia 100.00% 100.00% 100.00% Telemach d.o.o., Slovenia 100.00% 100.00% 100.00% Telemach UG d.o.o. Slovenia (former Telemach Rotovž d.o.o., Slovenia) 100.00% 100.00% 89.52%

Telemach Tabor d.o.o., Slovenia 82.50% 79.83% 61.30% Telemach Tezno d.o.o., Slovenia 74.97% 68.79% 34.24%* Cas media d.o.o., Slovenia 100.00% 100.00% 100.00% Telemach Pobrežje d.o.o., Slovenia 75.66% 72.26% 44.39%* Telemach d.o.o., Bosnia and Herzegovina 100.00% 100.00% 100.00%

Total TV d.o.o., Slovenia - Merged into

Telemach d.o.o., Slovenia

100.00%

Maxtel d.o.o., Slovenia - Merged into


100.00%

Unitel d.o.o., Slovenia - Merged into


100.00%

M&H Company d.o.o., Bosnia and Herzegovina 100.00% 100.00% 100.00%

HKB-net d.o.o., Bosnia and Herzegovina 64.00% 64.00% 64.00% Kablovska Televizija HS d.o.o., Bosnia and Herzegovina 57.47% 57.47% 57.47%

Global internet d.o.o., Bosnia and Herzegovina -



100.00%

BHB Cable TV d.o.o., Bosnia and Herzegovina -



100.00%

Solford Trading Ltd, Cyprus 100.00% 100.00% 100.00% City Media d.o.o., Serbia 100.00% 100.00% 100.00% City Media Plus, Canada - Liquidated 100.00% Telemach d.o.o., Montenegro 100.00% 93.00% 64.29%

M kabl d.o.o., Montenegro - Merged into

Telemach d.o.o., Montenegro

100.00%

United Media S.A.R.L., Luxembourg 100.00% 100.00% 100.00% TV Kanal Ultra d.o.o., Serbia 75.00% 75.00% 75.00% Cinemania d.o.o., Serbia 100.00% 100.00% 100.00% United Media Malta Ltd, Malta 100.00% 100.00% 100.00% Grand slam d.o.o., Serbia 100.00% 100.00% 100.00% Grand production d.o.o., Serbia 51.00% 51.00% 51.00%

Fortuna E-sports d.o.o., Serbia 100.00% 100.00% Did not exist in 2016 United Group SI d.o.o., Slovenia 100.00% 100.00% 100.00% United Group MC B.V., Netherlands 100.00% 100.00% 100.00% United Group RS d.o.o., Serbia 100.00% 100.00% 100.00%


In thousands of EUR


18

Ikom d.o.o., Serbia Merged into

Serbia Broadband d.o.o.

100.00% -

Fight Channel d.o.o., Croatia 100.00% 100.00% - IDJ Digital Holding LTD, Malta 51.00% 51.00% -

Kabel Group 85 d.o.o., Serbia Merged into

Serbia Broadband d.o.o.

100.00% -

Teleing d.o.o., Slovenia Merged into


100.00% -

Iliria IPTV S.A.R.L., Luxembourg 100.00% 100.00% -

Total TV B.V., Netherlands - 100.00% Did not exist in 2016 Direct Media d.o.o., Serbia 100.00% - - Direct Media Komunikacije d.o.o., Serbia 100.00% - - Big Print d.o.o., Serbia 100.00% - - Fusion Communications d.o.o., Serbia 100.00% - - Direct Media d.o.o., Montenegro 100.00% - - Nova M d.o.o., Montenegro 100.00% - - Direct Media dooel, Macedonia 100.00% - - Direct Media sh.p.k., Albania 100.00% - - Direct Media Komunikacije d.o.o., Bosna and Herzegovina 100.00% -

-

Nova BH d.o.o., Bosna and Herzegovina 100.00% - - Media Point d.o.o., Serbia 100.00% - - Media Point d.o.o., Montenegro 100.00% - - Promedia sh.p.k., (Kosovo) Serbia 100.00% - - City Media Plus AG, Switzerland 100.00% - - Nova TV d.o.o., Croatia 100.00% - -

The entities that were merged during 2016, 2017 and 2018 had been consolidated as a part of the Group previously; as those were transactions under common control, they have no impact on consolidated financial stataments


In thousands of EUR


19

2. Basis of preparation

a) Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union (EU). The Group applied the same accounting policies in the preparation of the financial data for the year ended 31 December 2018 and the consolidated financial statements for the years 2017 and 2016, except for the EU-endorsed standards and interpretations which are effective for the reporting periods beginning on or after 1 January 2018.

The consolidated financial statements were authorized for issue by the Board of Directors on 26 April 2019.

b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention except for derivative financial instruments, certain trade receivables and contingent consideration at fair value.

c) Going concern

The Group has reported a net loss for the period ended 31 December 2018 in the amount of EUR 45,999 thousand which was influenced by the introduction of new a share-based payment arrangement in 2018 resulting in additional staff expense in the amount of EUR 32,824 thousand (discussed in note 36(iv)), impairment of goodwill (note20) and a number of other items discussed in note 17.

The initial Group acquisition in March 2014 and the expansion of the Group is based on a leveraged buyout strategy resulting in an increased finance debt and the associated net finance expenses. The Group’s key performance indicators are adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) and EBITDA (note 17). Adjusted EBITDA for the twelve-month period ended 31 December 2018 has increased by 16.7% comparing to the same period for the 2017 (note 17).

The Group regularly (daily and monthly) analyses liquidity projections, internal financial reports, availability of financial assets and ability to repay its liabilities through daily and/or monthly review of budgeted and actual cash flows and monitoring of maturity of the Group’s receivables and liabilities.

Primary sources of the Group’s liquidity and funds for capital expenditures, acquisitions and other investments have been operating positive cash flows, revolving credit facilities, ancillary lending facilities and finance leases. The Group has reported net cash from operating activities in the amount of EUR 165,437 thousand for the year ended 31 December 2018. The Group was able to repay its obligations when they fell due in the normal course of business with no defaults in repayment of debt, the associated financial interest expenses nor any other liabilities. As at 31 December 2018, the Group has outstanding loans and borrowings, finance lease and bond liabilities in the total amount of EUR 1,408,927 thousand.

The Group’s policy on liquidity is to maintain seek to maintain liquid resources to meet its obligations as they fall due, which has been achieved through positive cash flows from operations and the ability to draw on its revolving credit facilities, if required. As at 31 December 2018 the Group has an undrawn revolving credit line in the amount of EUR 127,322 thousand (note 32). In July 2017 the Group issued new bonds that were used for repayment of current bond liabilities and revolving facility. Maturity of liabilities were extended without influence on cash flow since interest rate related to the new bond is


In thousands of EUR


20

lower compared to the previous one while the newly acquired subsidiaries will increase the Group’s future earning potential (note 32).

Based on the Group’s going concern assessment outlined above, the consolidated financial statements are, therefore, prepared on a going concern basis, as management have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

d) Functional and presentation currency

These consolidated financial statements are presented in Euros, which is the Company’s functional currency. All financial information presented in Euros has been rounded to the nearest thousand. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”).

e) Use of estimates and judgments

The consolidated financial statements require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.


In thousands of EUR


21

3. Significant accounting policies

a) Basis of consolidation

Business combinations

Business combinations are accounted for using the acquisition method. The cost of the business combination is measured as the fair value of the aggregate consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquired entity. For each business combination, any non-controlling interest in the acquired entity is measured either at their proportionate share of the acquired entity’s identifiable net assets at the acquisition date or fair value. Consideration transferred includes any contingent consideration measured at its acquisition date fair value. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in the statement of comprehensive income.

Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that qualifies for classification as equity is not re-measured until it is finally settled. Acquisition costs incurred are expensed.

Any excess of the cost of the acquisition over the identifiable net assets acquired is recognized as goodwill in the consolidated statement of financial position. If the cost is lower than the identifiable net assets acquired, the difference is recognized in profit or loss.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

Loss of control

Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.


In thousands of EUR


22

b) New standards, amendments and interpretations to existing standards mandatory for the first time for the financial year beginning on 1 January 2018

During the year ended 31 December 2018 the following became effective:

• new standard IFRS 15 Revenue from Contracts with Customers • new standard IFRS 9 Financial Instruments • clarifications to IFRS 15 Revenue from Contracts with Customers • amendments to IFRS 2 Share-based Payment – Classification and Measurement of Share-

based Payment Transactions • amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance

Contracts • IFRIC 22 Foreign Currency Transactions and Advance Consideration • Amendments to IAS 40 Investment properties • Annual improvements to IFRS Standards 2014-2016 Cycle

a. Amendments to IFRS 1 First-time Adoption of IFRS – removal of short-term exemptions

b. Amendments to IAS 28 Investments in Associates and Joint Ventures – investments in associates and joint ventures measured at fair value

The impact of new standard IFRS 15 and IFRS 9 is described in note 4, other amendments did not have a significant impact on these consolidated financial statements when they will be initially adopted.

c) Standards issued but not yet adopted

A number of new standards, amendments to standards and interpretations have been issued but are not effective for annual periods beginning after 1 January 2019 and have not been applied in preparing the accompanying consolidated financial statements.

Standards published but not yet effective:

(i) New standard IFRS 16 Leases (ii) Amendments to IFRS 9 Financial Instruments – Prepayment Features with Negative

Compensation (iii) IFRIC 23 Uncertainty over Income Tax Treatments (iv) Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) (v) Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) (vi) Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards (vii) Amendments to References to Conceptual Framework in IFRS Standards (viii) IFRS 17 Insurance Contracts

The Group has not early adopted the new or amended standards in preparing these consolidated financial statements.


In thousands of EUR


23

Except for standards and interpretations listed below, other amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements when they will be initially adopted.

The following standard is expected to have a material impact on the Group’s consolidated financial statements in the period of initial application.

IFRS 16 Leases

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 was issued in January 2016 and the Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements, as described below. The actual impacts of adopting the standard on 1 January 2019 may change because:

• the Group has not finalised the testing and assessment of controls over its new IT systems; and • the new accounting policies are subject to change until the Group presents its first financial

statements that include the date of initial application.

The Group will recognise new assets and liabilities for its operating leases of satellite, office facilities, part of infrastructure, as well base stations. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities.

Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.

No significant impact is expected for the Group’s finance leases in which the Group is a lessor.

Based on the information currently available, the Group estimates that it will recognise additional lease liabilities in range from EUR 106 to 122 million as at 1 January 2019. The Group does not expect the adoption of IFRS 16 to impact its ability to comply with the revised maximum leverage threshold loan covenant described in note 32.

The Group applies the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).

The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.


In thousands of EUR


24

IFRIC 23

In June 2017, the IFRS IC issued IFRIC 23, an interpretation applicable to any aspect of income tax accounting where there is uncertainty, notably taxable profit or loss as well as the tax basis of assets and liabilities, tax losses and credits, and tax rates.

IFRIC 23 clarifies that a company must assume that the taxing authorities have full knowledge of all the relevant information in assessing the proposed tax treatment. Thus, the probability of the tax uncertainty being detected is ignored.

IFRIC 23 is applicable for annual reporting periods beginning on or after 1 January 2019 with early adoption permitted. While the full impact of the Interpretation is still being assessed by the Group, we have identified an uncertain tax position of up to approximately EUR 38 million that is more likely than not to result in payment to a tax authority of this amount. Management has plans to reduce this risk, including enhancing the documentation of our position and proactive engagement with the relevant tax authority. In adopting the interpretation, the Group plans to apply a modified retrospective approach. The cumulative effect of initially applying the Interpretation, if any, will be recognised in opening equity at the date of initial application.

d) Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are recognized in consolidated statement of profit and loss and other comprehensive income. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss and presented within finance costs.

Foreign operations

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities are translated at the closing rate at the reporting date,

• income and expenses for each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of transactions) and,

• the translation adjustment resulting from the use of these different rates is included in other comprehensive income


In thousands of EUR


25

e) Financial instruments

Non-derivative financial instruments (effective for periods after 1 January 2018)

The Group initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Business model assessment:

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;

• how the performance of the portfolio is evaluated and reported to the Group’s management; • the risks that affect the performance of the business model (and the financial assets held within

that business model) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair

value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such

sales and expectations about future sales activity.

Assessment whether contractual cash flows are solely payments of principal and interest:

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:


In thousands of EUR


26

• contingent events that would change the amount or timing of cash flows; • terms that may adjust the contractual coupon rate, including variable‑rate features; • prepayment and extension feature; and • terms that limit the Group’s claim to cash flows from specified assets (e.g. non‑recourse features).

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Loans and receivables

Loans and receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment losses.

Trade and other receivables

Trade and other receivables with no stated interest rate are measured at the original invoice amount. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The amount of the allowance is recognized in the statement of profit or loss within Impairment loss on trade and other receivables, including contract assets.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.

Non-derivative financial liabilities

The Group initially recognizes financial liabilities on the date that they are originated. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

Financial liabilities comprise loans and borrowings, other long-term financial liabilities, bank overdrafts, finance lease liabilities, trade and other payables.


In thousands of EUR


27

Borrowings

Borrowings are recognized initially at fair value (which is determined using the prevailing market rate of interest for a similar instrument). In subsequent periods, borrowings are carried at amortized cost using the effective interest method; any difference between fair value of the proceeds and the redemption amount is recognized as interest expense over the period of the borrowings. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.

Trade and other payables

Short-term payables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial.

Non-derivative financial instruments (effective for periods before 1 January 2018)

The Group initially recognizes loans and receivables and deposits on the date that they are originated.

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Loans and receivables

Loans and receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provisions for impairment losses.

Trade and other receivables

Short-term trade and other receivables with no stated interest rate are measured at the original invoice amount. An allowance for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivables should be impaired.

The approach to bad debt allowance recognition and measurement may vary depending on the segment of receivables, including type of customers, geographic and operating segment and other factors.

The customers of the Group can be separated between legal entities and subscribers.

Allowance for doubtful accounts is recognized based on incurred losses, considering the aging structure of trade accounts receivable excluding, however, accounts receivable for which a specific allowance has already been recorded. The amount of the allowance is recognized in the statement of profit or loss within ‘other operating expenses.


In thousands of EUR


28

When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against expenses in the statement of comprehensive income.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.

Non-derivative financial liabilities

The Group initially recognizes financial liabilities on the date that they are originated. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

Financial liabilities comprise loans and borrowings, other long-term financial liabilities, bank overdrafts, finance lease liabilities, trade and other payables.

Derivative financial instruments and hedge accounting

The Group holds derivative financial instruments to mitigate its foreign currency exposures resulting from capital purchases. These commitments are principally denominated in USD. Currency risk is managed with the objective of reducing the risk through the use of forward foreign currency contracts.

Derivatives are initially measured at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss. The Group does not apply hedge accounting.


In thousands of EUR


29

f) Property, plant and equipment

Recognition and measurement

Property, plant and equipment comprise mainly cable network (coaxial and optical primary and secondary network and backbone) and customer premise equipment (CPE - receivers and modems). Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in profit or loss.

Subsequent costs

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group, if it increases the economic values and the cost of the item can be measured reliably. Major renovations are depreciated over shorter of remaining useful life of an asset or period until new renovation. All other repairs and maintenance are recognized in profit or loss during the financial period in which they are incurred.

Depreciation

Depreciation is based on the depreciable amount of an asset. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives for the current and comparative periods are as follows: Number of years Buildings 30 – 40 Cable network 10 – 20 Vehicles 4 – 5 CPE (Head-end and optical equipment) 3 – 5 Computer equipment 3


In thousands of EUR


30

g) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Goodwill is measured at cost less accumulated impairment losses.

h) Intangible assets

Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.

Trademarks

Trademarks are acquired in a business combination, recognized at fair value at the acquisition date. Trademarks are amortized over their useful lives.

Trademarks include following trade names: “SBB”, “Total TV”, “Telemach”, “Sport Klub”, “Nova TV” and “Direct Media”.

Contractual customer relationships

Contractual customer relationships acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortization and accumulated impairment losses.

Computer software

Costs associated with maintaining computer software are recognized as an expense as incurred. Software is recognized at cost less accumulated amortization and accumulated impairment. Cost includes expenditure to acquire software and directly attributable costs to prepare it for its intended use.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the relevant criteria are satisfied.

Directly attributable costs, capitalized as part of the software product, includes software development employee cost and 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. Computer software development costs recognized as assets are amortized over their estimated useful lives.

Programming rights

When entering into contracts for the acquisition of film, series, shows or sports events, the rights acquired are classified as contractual commitments. The Group assesses each license agreement which span over period longer than one year whether it meets definition of an intangible asset and recognition criteria. They are recorded in the statement of financial position and classified as programming rights as follows:

• Programming rights for films and television series are recognized at cost when the program is available for screening and are expensed over their broadcasting period.


In thousands of EUR


31

• Sports rights are recognized at cost at the opening of the broadcasting period of the related sports

season start or contract date if season start is not defined in the contract itself. If the licence agreement spans over more than one year, the Group will recognize programming rights only to the level of assets available for broadcasting (e.g. one season).

• Own-produced programming rights are capitalized on the balance sheet at cost which are directly related to the project being developed such as direct external development costs, allocated costs of employees and development overhead pool and will be amortized based on program viewership forecast method

The amortization charge for each period should be recognized in profit or loss statement as amortization of programming rights.

Advance payments for acquired programming assets, prior to licence begin date, are recognized as prepayments for programming assets.

Signed and binding contracts for purchase of programming, which do not meet recognition criteria for programming assets are not recognized in the balance sheet and are instead disclosed as contractual commitments in the amount of the outstanding contract liability at the reporting date.

Other intangible assets

Other intangible assets mainly comprise investments in property rights with definite economic life and subscriber acquisition costs. Property rights relates to rights to radio frequencies in Slovenia. The company uses the cost model and thus manages intangible assets at their purchase values less depreciation adjustments following the straight-line amortization method. Any intangible assets that meet the conditions for recognition are valued at cost upon initial recognition. Property rights are amortized in a period of 10 years.

Subscriber acquisition include costs associated with entering into sales contracts with new customers, for example commissions paid to internal or external sales personnel. Intangible assets are recognized only for costs that are incremental to obtaining the contract. Amortization is calculated using the straight-line method over the expected life of the customer relationship.

Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. These costs are amortized over the estimated useful life of customer relationship.


In thousands of EUR


32

Amortization

Amortization is based on the depreciable amount of an asset and is calculated using straight-line method to allocate their cost over their estimated useful lives as follows:

Number of years Trademark 15 Customer relationship – Cable 5-12 Customer relationship – DTH 10 Programming rights Over the licence period Subscriber acquisition costs 2-12 Radio frequencies 10 Software & licenses 3-5

The useful lives of customer relations for cable and DTH are estimated through valuation exercise using the income approach based upon current market conditions.

Amortization methods and useful lives are reviewed at each reporting date and adjusted if appropriate.

i) Leased assets

Finance lease

Leases of property, plant and equipment, where the Group as the lessee has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the finance balance outstanding. The interest element of the finance costs is charged to the consolidated statement of profit or loss and other comprehensive income over the lease period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit or loss on a straight-line basis over the period of the lease. The Group leases mainly premises under operating lease contracts.

j) Inventories

Inventories comprise of materials for construction, mobile handsets, CPEs for sale and television programming rights (represents produced content for short-term use).

Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes the cost of purchase, transport and expenses incurred in bringing the inventory to its present condition and location. The cost is based on the weighted-average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.


In thousands of EUR


33

The Group writes down for slow-moving or obsolete inventories based on inventory turnover ratios and management’s best judgments regarding future usage plans of inventories.

k) Impairment of non-financial assets

Non-financial assets, except for deferred tax assets, income tax receivable and inventories 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. This impairment test is performed to compare the recoverable amount of each Cash Generating Unit (CGU) or, if necessary in cases of goodwill, CGU to the carrying value of the corresponding assets (including goodwill). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The value in use of each asset or group of assets is determined as the discounted value of future cash flows (Discounted Cash Flow method (DCF)) by using cash flow projections consistent with the budget of the following year, the most recent forecasts prepared by the operating segments and long-term projections.

Applied discount rates are determined by reference to available external sources of information, usually based on financial institutions’ benchmarks, and reflect the current assessment by the Group of the time value of money and risks specific to each asset or group of assets. Perpetual growth rates used for the evaluation of CGUs are those used to prepare budgets for each CGU or group of CGUs, and beyond the period covered, are consistent with growth rates estimated by the business by extrapolating growth rates used in the budgets, without exceeding the long-term average growth rate for the markets in which the group operates. The fair value (less costs to sell) is the price that would be received from the sale of an asset or group of assets in an orderly transaction between market participants at the measurement date, less costs to sell. These values are generally determined on the basis of market data (stock market prices or comparison with similar listed companies, with the value attributed to similar assets or companies in recent transactions) or, in the absence of such data, on the basis of discontinued cash flows. If the recoverable amount is lower than the carrying value of an asset or group of assets, an impairment loss equal to the difference is recognized in statement of profit and loss. In the case of a group of assets, this impairment loss is first recorded against goodwill. The impairment losses recognized in respect of property, plant and equipment, and intangible assets (other than goodwill) may be reversed in a later period if the recoverable amount becomes greater than the carrying value, within the limit of impairment losses previously recognized. Impairment losses recognized in respect of goodwill cannot be reversed at a later date. Impairment losses are recognized in the statement of comprehensive income. Non-financial assets, excluding goodwill, that suffered impairment, are reviewed for possible reversal of the impairment at each reporting date.

CGUs are independently defined at each business level, corresponding to the group operating segments. An impairment test of goodwill is performed by the Group for each CGU or group of CGUs, depending on the level at which management measures return on operations.

l) Impairment of financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events had a negative effect on the estimated future cash flows of that asset.


In thousands of EUR


34

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between it carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis at each reporting date. The remaining financial assets are assessed for impairment collectively in groups that share similar credit risk characteristics.

Receivables are reduced by an allowance based on the likelihood of future debt collection. The allowance is charged to the cost of debt collection services and bad debt allowance and receivables written off. An allowance for receivables is estimated based on the historical pattern for overdue receivables collection.

All impairment losses are recognized in profit or loss statement in the line impairment loss on trade and other receivables, including contract assets.

Impairment losses are reversed if a subsequent increase in the recoverable amount of a financial asset can be objectively attributed to an event occurring after the impairment losses were recognized.

m) Employee benefits

In accordance with the regulations prevailing in the countries where the Group operates, the Group 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 prescribed rates. Entities within the Group are also legally obligated to withhold contributions from gross salaries to employees, and on their behalf to transfer the withheld portions directly to the appropriate government funds. These contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise.

The Group does not operate any private pension scheme or post retirement defined contribution plan except the state mandatory pension scheme in each country of operation.

The calculation of retirement benefits provided by the state mandatory pension schemes is performed annually by a qualified actuary using the projected unit credit method.

Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, if it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.

Accumulating compensated absences may be carried forward and used in future periods if the current period’s entitlement has not been fully used. The expected cost of accumulated compensated absences is recognized in the amount that is expected to be paid as a result of the unused entitlement that has accumulated as of the consolidated statement of financial position date.

In the instance of non-accumulating compensated absences, no liability or expense is recognized until the time of the absence.

n) Provisions

Provisions are recognized when the Group has a present legal or con

Documents

ADRIA MIDCO B.V. GROUP Consolidated Financial Statements ... · 12/31/2018 · ADRIA MIDCO B.V. GROUP Consolidated Financial Statements for years ended 31 December 2018, 31 December