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(Translation of the Estonian original)

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Main activities: sale of digital terrestrial television services

ANNUAL REPORT OF

AS STARMAN

Translation of the Estonian original)

Beginning of financial yearEnd of financial year

Registration number:

Akadeemia Road 2812618, Tallinn

Republic of Estonia

Phone: +372 6 779Fax: +372 6 779 907

E-mail: [email protected]:

Auditor: AS PricewaterhouseCoopers

cable television and data communications services, sale of digital terrestrial television services

ANNUAL REPORT OF

AS STARMAN


Beginning of financial yearEnd of financial year: 31.12.2014

Registration number:

Address: Akadeemia Road 28

12618, TallinnRepublic of Estonia

Phone: +372 6 779Fax: +372 6 779 907

[email protected]: www.starman.ee

r: AS PricewaterhouseCoopers


ANNUAL REPORT OF

AS STARMAN


Beginning of financial year: 01.01.2014: 31.12.2014

Registration number: 10069659

Akadeemia Road 28

12618, Tallinn Republic of Estonia

Phone: +372 6 779 977 Fax: +372 6 779 907

[email protected] www.starman.ee




: 01.01.2014



cable television and data communications services,

AS STARMAN Annual Report of the Consolidation Group 2014

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Table of Contents

MANAGEMENT REPORT ........................................................................................... 3

FINANCIAL STATEMENTS OF THE CONSOLIDATION GROUP .......................................... 9

MANAGEMENT BOARD’S CONFIRMATION OF THE FINANCIAL STATEMENT OF THE CONSOLIDATION GROUP .......................................................................................9

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................ 10

CONSOLIDATED BALANCE SHEET ........................................................................ 11

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ........................................ 12 CONSOLIDATED CASH FLOW STATEMENT………………………………………………….... 13 NOTES TO THE FINANCIAL STATEMENTS OF THE CONSOLIDATION GROUP ......... 14

Note 1 Accounting policies adopted in the preparation of the financial statements . 14 Note 2 Revenue .......................................................................................... 23 Note 3 Other income, goods, raw materials and services, other operating expenses, labour expenses and other expenses ................................................................... 23 Note 4 Finance income and costs ................................................................... 24 Note 5 Cash ............................................................................................... 24 Note 6 Receivables ...................................................................................... 24 Note 7 Prepayments .................................................................................... 24 Note 8 Inventories ...................................................................................... 25 Note 9 Property, plant and equipment ............................................................ 25 Note 10 Intangible assets ............................................................................... 26 Note 11 Borrowings ........................................................................................ 27 Note 12 Trade and other payables .................................................................... 28 Note 13 Prepayments ..................................................................................... 28 Note 14 Other long-term payables .................................................................... 28 Note 15 Equity .............................................................................................. 29 Note 16 Finance and operating leases ............................................................... 30 Note 17 Related party transactions ................................................................... 30 Note 18 Supplement to the consolidated cash flow statement ............................... 31 Note 19 Investments in shares of subsidiaries .................................................... 31 Note 20 Business combinations ........................................................................ 31 Note 21 Disputes and actions .......................................................................... 32 Note 22 Financial instruments and risk management ........................................... 32 Note 23 Going concern aspect of operations ...................................................... 37 Note 24 Contingent liabilities ........................................................................... 37 Note 25 Events after the balance sheet date ...................................................... 37 Note 26 Unconsolidated income statement of the parent ...................................... 39 Note 27 Unconsolidated balance sheet of the parent ........................................... 40 Note 28 Unconsolidated statement of changes in equity of the parent .................... 41 Note 29 Unconsolidated cash flow statement of the parent ................................... 42

INDEPENDENT AUDITOR’S REPORT ..................................................................... 43

PROFIT ALLOCATION PROPOSAL ......................................................................... 44

SIGNATURES OF THE MANAGEMENT BOARD AND THE SUPERVISORY BOARD TO THE 2014 ANNUAL REPORT ................................................................................. 45

REVENUE ACCORDING TO THE CLASSIFICATION OF ESTONIAN ECONOMIC ACTIVITIES (EMTAK) .......................................................................................... 46


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MANAGEMENT REPORT

General overview

Starman is the largest telecommunication enterprise in Estonia that provides services on the basis of cable network. The company’s operations are targeted at the home user sector.

The year 2014 was successful for Starman - supported by the strongest product portfolio in the region and good service quality, the company increased its number of customers, revenue and operating profit. The company’s revenue increased 11.5% as compared to the previous year (the growth in 2013 was 9.2% as compared to 2012) and EBITDA increased 8.5% from the year before (2013: 12.0%).

In 2014, Starman continued to operate as a technology leader, offering Estonia’s fastest household Internet access with the speed of 400 Mbps in its cable network. According to the company’s assessment, its STARbox service (includes video on demand, afterviewing and recording services) which was launched in 2012 is technologically and by convenience of use the best service in the region, as proven by the rapid growth in the number of customers of STARbox. In 2014, the company launched Estonia’s first TV-Everywhere service that is free for the customers of Starman and enables to watch TV in a smartphone, tablet PC and computer.

Starman offers services broadcast by cable in Estonia’s larger towns, mainly in densely populated areas. In 2014, the development of the cable network continued: new locations where the cable network is being expanded include Maardu and Loksa. The company’s entire cable network is bidirectional which enables to offer all three core services – cable TV, Internet and telephone service.

In addition to cable network services, Starman has been offering digital terrestrial television service since 2006. Separately positioned ZUUMtv is transmitted through the air and Starman does not use its own cable network to offer the product. Of the Estonian population, 97% lives in the coverage area of ZUUMtv. In 2014, the development of ZuumNet service that is offered in addition to Zuumtv, continued and all ZUUMnet services supports LTE (4G) technology. ZuumNet service was launched in order to offer an integrated telecommunications service to people who live outside the cable network area.

On 20 December 2014, the company signed a share purchase and sale agreement for the acquisition of 100% of shares of UAB Cgates. Cgates is Lithuania’s largest provider of cable TV and Internet service. It operates a cable network that reaches 300,000 homes in 12 different towns. The TV service of Cgates has 125 thousand customers and its Internet service has 70 thousand customers. In 2013, the company’s revenue amounted to EUR 15 million and the adjusted EBITDA margin of its core activity was 44.7%.

For technical completion of the transaction, in December 2014 Starman acquired a fully-owned subsidiary Motis Shipping Lithuania Limited UAB that had share capital of EUR 2,896; in 2014, the subsidiary paid 5% of the acquisition cost of Cgates as a prepayment. Starman financed it with a short-term loan received from shareholders and that is recognised in the consolidated balance sheet as a short-term prepayment.

The acquisition transaction of Cgates was completed on 12 February 2015 after the Lithuanian Competition Authority issued its permit and has been recognised in this annual report as an event after the balance sheet date. The total value of the transaction was EUR 56.3 million, 40% of which was financed from own means (Starman’s additional share issue and additional contributions of shareholder’s loans) and 60% was financed with a long-term bank loan.

The presentation of this report is influenced by the changes in the shareholder structure of Starman in 2013. In May 2013, current shareholders of Starman founded Estonian Cable Holding OÜ, a company registered in Estonia, for the purpose of acquiring the majority holding in Starman. The purchase transaction of Starman’s shares and change of the controlling party took place on 30 May 2013. On the same day, Starman and Estonian Cable Holding OÜ merged (the transaction was entered into the commercial register on 4 October 2013). Although legally Starman was the surviving entity, for accounting purposes Estonian Cable Holding was treated as the acquirer and Starman as the acquiree. Therefore, the International Financial Reporting Standards (hereinafter IFRS) financial statements of the merged entity are presented from the new owner’s perspective – they include the financial results of Starman as from the date of its acquisition by Estonian Cable Holding. Furthermore, the carrying amounts of assets and liabilities of Starman at the date of their acquisition by Estonian Cable Holding are based on the purchase price allocation carried out by the new controlling shareholder. As a result, comparative 2013 audited IFRS financial statements of


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the merged entity reflect only seven months as from the date of acquisition until the end of the year.

For the purpose of completeness, the management report provides some additional unaudited financial information on Starman activities in 2013, prior to its acquisition by Estonian Cable Holding. Please note that this additional financial information is based on pre-acquisition carrying amounts of assets and liabilities, and therefore certain components (eg depreciation and amortization) are not directly comparable to the financial results of the merged entity after the date of acquisition.

In 2014, consolidated revenue of Starman amounted to EUR 32,980 thousand (2013: EUR 29,588 thousand). In the post-merger period in 2013, revenue amounted to EUR 17,369 thousand.

Of revenues, the share of television services was 33.9% (2013: 36.4%), Internet services 32,3% (2013: 29.5%) and telephony services 6.0% (2013: 7.4%). Infrastructure services accounted for 24.3% (2013: 26.0%) of revenue. In the post-merger period, television services accounted for 35.3%, Internet services 30.1%, telephone services 6.9% and infrastructure services 26.9% of revenue.

In 2014, the EBITDA totalled EUR 15,891 thousand (2013: EUR 14,645 thousand), increasing by 8.5% in a year (2013: 12.0%). In the post-merger period, EBITDA amounted to EUR 8,511 thousand.

In 2014, the key cost items included outsourced services, which totalled EUR 8,268 thousand (2013: EUR 7,461 thousand), increasing by 10.8% in a year (2013: decreasing by 1.9%). In the post-merger period in 2013, outsourced services amounted to EUR 4,360 thousand. The major outsourced services included programme fees, over-the-air television transmissions, external connection fees and rent of communication channels. Staff costs totalled EUR 4,593 thousand (2013: EUR 4,431 thousand), increasing by 3.7% in a year (2013: 2.2%). In the post-merger period in 2013, personnel expenses amounted to EUR 2,558 thousand.

In 2014, depreciation and amortisation totalled EUR 8,235 thousand (2013: EUR 7,382 thousand).

COMPREHENSIVE INCOME

EUR thousand

2014 TOTAL

2013

01.01.2013 -

29.05.2013

30.05.2013 -

31.12.2013 Change

Revenue 32,980 29,588 12,219 17,369 11,5% Other income 574 604 221 383 -4,9% Goods, raw materials and services

-9,369 -8,216 -3,387 -4,829 14,0%

Other operating expenses -3,635 -2,814 -1,019 -1,795 29,2% Labour expenses -4,593 -4,431 -1,873 -2,558 3,7% Depreciation and amortisation of non-current assets

-8,235 -7,382 -2,782 -4,600 11,6%

Other expenses -68 -86 -28 -59 -21,2%

Operating profit 7,654 7,263 3,352 3,911 5,4%

Finance income 19 156 156 7 -87,8% Finance costs -4,596 -3,222 -414 -2,815 42,6%

Profit before tax 3,077 4,197 3,093 1,104 -26,7%

Net profit for the financial year

3,077 4,197 3,093 1,104 -26,7%

Change in fair value of interest-swap hedging instrument

-336 -277 0 -277 21,3%

Comprehensive income for the financial year

2,741 3,920 3,093 826 -30,1%


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Financial ratios

Financial ratios for the evaluation of the operations in 2014:

2014 2013

Revenue growth 11.5% 9.2% EBITDA margin 47.4% 48.5% Operating margin 22.8% 24.1% Net margin 9.2% 13.9% Revenue/average assets 31.3% 31.6%

Equity ratio 3.3% 0.8% Adjusted equity ratio 50.3% 46.4% Investments/EBITDA 0.5 0.4

Current ratio 0.5 0.4 Accounts receivable turnover (p.a.) 28.0 44.3

Explanations for ratios:

Revenue growth = growth as compared to the same period last year

EBITDA = operating profit before taxes, interest and depreciation

EBITDA margin = EBITDA / total revenue

Operating margin = operating profit / total revenue

Net margin = net profit attributable to shareholders / total revenue

Equity ratio = equity / total assets

Adjusted equity ratio = (equity + subordinated liabilities to shareholders) / total assets

Investments / EBITDA = purchase of property, plant and equipment, and intangible assets / EBITDA

Current ratio = current assets / current liabilities;

Accounts receivable turnover = revenue for the period / trade receivables at end of the period

Company structure

There were no changes in the company’s shareholding structure in 2014. As at 31.12.2014, Baltic Cable Holding OÜ owned 51.0%, OÜ Com Holding owned 34.4% and OÜ Polaris Invest owned 14.7% of the company’s shares.

The company increased its share capital on the basis of the resolution of the extraordinary meeting of shareholders held on 30 January 2015; Baltic Cable Holding OÜ made additional contributions (incl. nominal value and share premium) in the amount of EUR 6,394 thousand, increasing its shareholding to 62.7%; OÜ Com Holding owns 26.1% and OÜ Polaris Invest owns 11.2% of the company’s shares. The additional share issue was used to finance the acquisition of shares of UAB Cgates in February 2015.

The parent company of AS Starman is East Capital Explorer Investments AB, a Swedish investment company, through Baltic Cable Holding OÜ, a private limited company registered in Estonia.

As at 31.12.2014, AS Starman owned one share in the share capital of Eesti Digitaalringhäälingu OÜ, which made up 0.04% of the total share capital of Eesti Digitaalringhäälingu OÜ. However, AS Starman had retained control over the frequency permit of the company in the frequency range 470-790 MHz through its ownership of one share, the articles of association and the contract entered into between the shareholders. In 2014, this shareholder did not change.

In December 2014, AS Starman acquired a wholly-owned subsidiary Motis Shipping Lithuania Limited UAB with a share capital of EUR 3 thousand in connection with the purchase and sale


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transaction of shares of Cgates. On 12 February 2015 Motis Shipping Lithuania Limited UAB concluded the acquisition of UAB Cgates to acquire 100% of its shares.

Revenue and expenses

Traditionally, television services contribute the majority of Starman’s total revenue, accounting for 33.9% (2013: 36.4%). The share of Internet services was 32.3% (2013: 29.5%), telephony service was 6.0% (2013: 7.4%). Infrastructure services accounted for 24.3% of revenue (2013: 26.0%), sale of goods and services accounted for 2.0% (2013: 0.7%). In the post-merger period in 2013, television services amounted to 35.3%, Internet services amounted to 30.1%, telephony services 6.9%, infrastructure services 26.9% and sales of goods and services 0.8% of revenue.

In 2014, operating expenses totalled EUR 17,597 thousand (2013: EUR 15,547 thousand), increasing by 13.2% in a year (2013: 4.3%). In the post-merger period in 2013, operating expenses amounted to EUR 9,182 thousand.

Among operating expenses, the most significant part was expenses of outsourced services that in 2014 totalled EUR 8,268 thousand (2013: EUR 7,461 thousand), increasing 10.8% in a year (2013: 1.9%). Personnel expenses amounted to EUR 4,593 thousand (2013: 4,431 thousand), increasing 3.7% in a year (2013: 2.2%). As regards personnel expenses, it should be noted that this indicator includes 68.9% of the total wage fund (2013: 78.7%) of the group since the remainder is capitalised and recognised as an investment. In the post-merger period in 2013, expenses to outsourced services amounted to EUR 4,360 thousand and personnel expenses amounted to EUR 2,558 thousand.

In 2014, the salary accounted for members of the Management Board including bonuses totalled EUR 602 thousand (2013: EUR 565 thousand), and for members of the Supervisory Board EUR 29 thousand (2013: EUR 21 thousand). In the post-merger period in 2013, salaries of members of the Management Board totalled EUR 240 thousand and salary expenses of the members of the Supervisory Board amounted to EUR 18 thousand.

In 2014, the provision for bad debts amounted to EUR 63 thousand (2013: EUR 53 thousand); in the post-merger period in 2013, the provision of bad debts amounted to EUR 31 thousand. Provision expense accounts for 0.2% of revenue (2013: 0.2%; in the post-merger period in 2013: 0.2%). The company assesses bad debts prudently – the rate of provision depends on the due date of the debt and all debts that are more than two years overdue are recognised outside the balance.

EBITDA for the year 2014 amounted to EUR 15,891 thousand (2013: EUR 14,645 thousand), increasing by 8.5% in a year (2013: 12.0%). The EBITDA margin for the year was 47.4% (2013: 48.5%). In the post-merger period in 2013, EBITDA totalled EUR 8,511 thousand and the EBITDA margin amounted to 49.0%.

In 2014, depreciation costs totalled EUR 8,235 thousand (2013: EUR 7,382 thousand), increasing by 11.6% in a year (2013: 14.0%). In the post-merger period, depreciation costs amounted to EUR 4,600 thousand. In 2013, depreciation costs were significantly influenced by the due diligence conducted in connection with the acquisition of the Company, in the course of which the value of the Company’s assets was adjusted, resulting in the increase of depreciation costs.

In 2014, financial expenses totalled EUR 4,596 thousand (2013: EUR 3,222 thousand), including the interest expense of loans to shareholders in the amount of EUR 2,731 thousand (2013: EUR 1,798 thousand). Financial expenses in the post-merger period in 2013 amounted to EUR 2,807 thousand, including financial expenses related to servicing shareholder loans in the amount of EUR 1,567 thousand.

In 2014, the net profit totalled EUR 3,079 thousand (2013: EUR 4,197 thousand), decreasing by 26.6% in a year (2013: 19.6%) due to the increase in depreciation and financial expenses. In the post-merger period in 2013, the net profit amounted to EUR 1,104 thousand.

Balance sheet, investments and financing

In 2014, Starman’s investments in property, plant and equipment and intangible assets amounted to EUR 8,465 thousand (2013: EUR 5,730 thousand). Major investments include investments in cable network construction and renovation EUR 3,045 thousand (2013: EUR 1,941 thousand), client equipment EUR 2,406 thousand (2013: EUR 1,744 thousand). In the post-merger period in 2013, investments in property, plant and equipment and intangible assets amounted to EUR 3,756 thousand.


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As at the end of 2014, the total volume of bank loans was EUR 49,800 thousand (2013: EUR 53,187 thousand). As at 31.12.2014, weighed average term of bank loans is 2.4 years (as at 31.12.2013: 3.1 years). As at the year-end, weighted average interest rate was 2.98%, whereas a year earlier it was 3.55%.


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Management’s declaration of the management report

The Group’s Management Board confirms that the management report presents a true and fair view of the development and results of the business of the Company and the Group as a whole, and includes a description of the key risks and uncertainties.

/ signed / / signed / / signed /

__________________ __________________ __________________

Toomas Tiivel Indrek Ild Hanno Hussar

Chairman of the Member of the Member of the

Management Board Management Board Management Board

/ signed / / signed /

__________________ __________________

Piret Aava Hanno Liiva

Member of the Member of the

Management Board Management Board

27 February 2015


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FINANCIAL STATEMENTS OF THE CONSOLIDATION GROUP

MANAGEMENT BOARD’S CONFIRMATION OF THE FINANCIAL STATEMENT OF THE CONSOLIDATION GROUP

The Management Board confirms that the consolidated financial statements presented on pages 10 to 42 gives a true and fair view of the development, operating results and financial position of the group companies and it includes a description of key risks and uncertainties.


__________________ __________________ __________________


Chairman of the Member of the Member of the

Management Board Management Board Management Board


__________________ __________________




27 February 2015


10

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR thousand

2014

30.05.2013 -

31.12.2013

Notes

Revenue 32,980 17,369 2

Other income 574 383 3

Goods, raw material and services -9,369 -4,829 3

Other operating expenses -3,635 -1,795 3

Labour expenses -4,593 -2,558 3

Depreciation and amortisation of non-current assets -8,235 -4,600 9,10

Other expenses -68 -59 3

Operating profit 7,654 3,911

Finance income 19 7 4

Finance costs -4,596 -2,815 4

Profit before tax 3,077 1,104

Net profit for the financial year 3,077 1,104

Other comprehensive income

Items that may be subsequently reclassified to income

statement:


-336 -277 14,22

Comprehensive income for the financial year 2,741 826

Net profit for the financial year and comprehensive income for the financial year are attributable to the owners’ of the parent company.

The notes set out on pages 14-42 form an integral part of the financial statements.


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CONSOLIDATED BALANCE SHEET

EUR thousand

31.12.2014 31.12.2013 Notes

ASSETS

Current assets

Cash 328 1,208 5

Receivables 1,214 967 6

Prepayments 286 202 7

Inventories 3,012 2,423 8

Total current assets 4,840 4,800

Non-current assets

Long-term receivables and prepayments 2,442 52 17,21

Property, plant and equipment 28,569 27,710 9

Intangible assets 15,558 16,228 10

Goodwill 56,986 56,986 10

Total non-current assets 103,555 100,976

TOTAL ASSETS 108,395 105,776

LIABILITIES AND EQUITY

Liabilities

Current liabilities

Borrowings 11,301 8,203 11

Trade and other payables 3,209 3,029 12

Prepayments 204 186 13

Total current liabilities 14,714 11,418

Non-current liabilities

Borrowings 38,499 44,983 11

Derivative 614 277 14,22

Loans from shareholders 50,996 48,266 14

Total non-current liabilities 90,109 93,527

TOTAL LIABILITIES 104,823 104,945

Equity

Share capital 8,343 8,343

Statutory reserve capital 834 834

Hedge reserve -614 -277

Accumulated deficit -4,991 -8,068

Total equity 3,573 831 15

TOTAL LIABILITIES AND EQUITY 108,395 105,776



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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

EUR thousand

Share capital

Statutory reserve

Hedge reserve

Accumulated deficit

Total equity

capital

Contributions to share capital 5 0 0 0 5 Merger effect (note 20) 8,338 810 0 -9,148 0 Comprehensive income for the financial year 0 0 -277 1,104 826 Transfers to statutory reserve capital 0 24 0 -24 0

31.12.2013 8,343 834 -277 -8,068 831

Comprehensive income for the financial year 0 0 -336 3,077 2,741

31.12.2014 8,343 834 -614 -4,991 3,573

More detailed information on equity is provided in Note 15.



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CONSOLIDATED CASH FLOW STATEMENT

EUR thousand

2014

30.05.2013-31.12.2013

Notes

Cash flows from operating activities

Net profit 3,077 1,104 Adjustments of net profit 12,730 7,354 18 Change in current assets related to operating activities:

Short-term receivables and prepayments, other than loans and interest -359 -216 6,7 Change in inventories -589 239 8 Change in liabilities and prepayments related to operating activities:

Accounts payable 197 163 Prepayments 18 -8 13 Interest paid -1,851 -1,156 4,14

Total cash flows from operating activities 13,223 7,479

Cash flows from investing activities

Purchase of property, plant and equipment, and intangible assets -8,328 -3,712 18 Proceeds from disposal of property, plant and equipment, and intangible assets 158 92 Acquisition of subsidiary 3 -34,436 Interest received 19 2 17

Total cash flows from investing activities -8,148 -38,054

Cash flows from financing activities

Loans received 2,500 8,944 11,20 Repayments of loans received -8,372 -3,451 11 Loans received from shareholders 0 26,493 17,20 Finance lease principal payments -82 -208 11 Contributions to share capital 0 5 Total cash flows from financing activities -5,955 31,783

TOTAL CASH FLOWS -880 1,208

Cash and cash equivalents at beginning of the year 1,208 0 Net increase/decrease in cash and cash equivalents -880 1,208 Cash and cash equivalents at end of the year 328 1,208



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NOTES TO THE FINANCIAL STATEMENTS OF THE CONSOLIDATION GROUP

Note 1 Accounting policies adopted in the preparation of the financial statements

General information

The consolidated financial statements of AS Starman for the financial year ended 31 December 2014 were approved according to the resolution of the Management Board on 27 February 2015. In accordance with the commercial code of the Republic of Estonia, the general meeting of shareholders approves the annual report prepared by the Management Board and approved by the Supervisory Board, including the consolidated annual accounts. The shareholders have the right not to approve the annual report that has been prepared and approved by the Management Board and request preparation of a new report.

In 2013, several changes took place among the shareholders of Starman that significantly influences the presentation of this report. In May 2013, current shareholders of Starman founded Estonian Cable Holding OÜ, a company registered in Estonia, for the purpose of acquiring the majority holding in Starman. The purchase transaction of Starman’s shares and change of the controlling party took place on 30 May 2013. On the same day, Starman and Estonian Cable Holding OÜ merged (the transaction was entered into the commercial register on 4 October 2013), with Starman being the acquiring entity. In accordance with International Financial Reporting Standards, the financial statements of Starman for the previous financial year are presented for the post-merger period (7 months). For purpose of clarity, the management report also presents comparable information from earlier periods.

AS Starman is an undertaking founded and operating in Estonia that had in average a staff of 282 including subsidiaries in 2014. The company’s registered address is Akadeemia tee 28, Tallinn.

In December 2014, AS Starman acquired a wholly-owned subsidiary Motis Shipping Lithuania Limited UAB with a share capital of EUR 3 thousand in connection with the purchase and sale transaction of shares of Cgates.

As at 31.12.2014, Baltic Cable Holding OÜ owned 51.0%, OÜ Com Holding owned 34.3%, OÜ Polaris Invest owned 14.7% of AS Starman. In accordance with the resolution of the extraordinary meeting of shareholders held on 30 January 2015, the company increased its share capital; Baltic Cable Holding OÜ made additional contributions (incl. nominal value and share premium) in the amount of EUR 6,394 thousand, increasing its shareholding to 62.7%; OÜ Com Holding owns 26.1% and OÜ Polaris Invest owns 11.2% of the company’s shares. The additional share issue was used to finance the acquisition of shares of UAB Cgates in February 2015.

The Group’s main activities include provision of cable television and data communications services and sale of the digital terrestrial television service. The consolidated financial statements of AS Starman have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and under the historical cost convention, except for the cases which are described in the following accounting principles. The financial statements have been prepared in thousands of Euros. The consolidated financial statements are prepared using the principles of consistency and comparability, i.e. the Group always uses the same accounting policies and presentation. The accounting policies and presentation are changed only if new or revised International Financial Reporting Standards (IFRS) and their interpretations require it or if a new accounting policy and/or presentation gives a more objective overview of the Group’s financial position, financial results and cash flows. New accounting pronouncements Certain new or revised standards and interpretations have been issued that are mandatory for the Group’s annual periods beginning on or after 1 January 2015, and which the Group has not early adopted. IFRS 15 „ Revenue from Contracts with Customers “(effective for annual periods beginning on or after 1 January 2017; not yet adopted by the EU).


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The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the standard on its financial statements.

There are no other new or revised standards or interpretations that are not yet effective and that would be expected to have a material impact on the Group.

A. Consolidation

In the consolidated financial statements, the financial information of AS Starman and its subsidiaries have been combined line by line. Subsidiaries are consolidated from the date at which control was transferred to the Group and their consolidation is ceased from the date at which the Group no longer controls them.

A subsidiary is an entity controlled by the parent. Control is presumed to exist when the parent directly or indirectly owns more than 50% of the voting power of its subsidiary or otherwise has power to govern the financial and operating policies of the subsidiary.

For the preparation of the financial statements, subsidiaries use the same accounting policies as the parent. All intragroup transactions, receivables and liabilities as well as unrealised gains and losses have been eliminated in full in the financial statements. Unrealised losses are not eliminated if they essentially constitute impairment.

Business combinations

The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. From the date of acquisition, the revenue and expenses of the acquired entity are reported in the income statement of the group and goodwill is reported in the statement of financial position of the group.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. More detailed information for the recognition of goodwill is presented in accounting principle I.

B. Supplementary information about the parent

In accordance with the Accounting Act of Estonia, the notes shall disclose information about the unconsolidated primary statements of the consolidating entity, although this financial information is not required to be presented in the financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The primary statements of the parent have been prepared using the same accounting methods and measurement bases as those used in the preparation of the consolidated financial statements, except for investments in subsidiaries which are carried at cost.

Additional information about the investments carried at cost is disclosed in the accounting policy F.

C. Foreign currency transactions

The functional currency of the parent and the subsidiaries located in Estonia is euro, which is also the presentation currency of the Group for the purpose of the consolidated financial statements; all other currencies are considered as foreign currencies.

Foreign currency transactions are recorded based on the foreign currency exchange rates of the European Central Bank prevailing at the dates of the transactions. Monetary financial assets and liabilities denominated in foreign currencies are translated into euros based on the foreign currency exchange rates of the European Central Bank prevailing at the balance sheet date.


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Foreign exchange gains and losses resulting from translation are recorded in the income statement of the reporting period.

Non-monetary assets and liabilities denominated in foreign currency which are not measured at fair value (e.g. prepayments, inventory and tangible and intangible assets measured at cost) are recorded with European Central Bank exchange rate prevailing at the transaction date and are not translated at balance sheet date.

D. Revenue recognition

Revenue is recognised at the fair value of the consideration received or receivable. When payment occurs during a longer than normal period of time, revenue is recognised at the present value of the consideration receivable.

Revenue from the sale of goods (i.e. instalment sale) is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer, when the amount of revenue and the costs incurred in respect of the transaction can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the entity. Revenue from the provision of services is recorded upon the provision of the service.

Interest income is recognised under the accrual basis, using the effective interest rate. When the receipt of interest income is not probable, revenue is recognised on a cash basis. Dividend income is recognised when the right to receive payment is established.

The Company offers various products and services as bundled packages to its customers. Such packages may include the transfer of several products or provision of several services. In some cases, the offer also includes installation, launching and activation of the product, for which fixed fees or fixed fees with periodic payments are charged. Telecommunication products are treated separately from the service to be provided in case a separate market exists for the equipment to be transferred to the customer, i.e. they can be sold separately from the service. The costs related to such products are recognised simultaneously with recognition of revenue. Combined contracts are divided into parts if individual parts meet the criteria for allocation. Contract terms are allocated to individual parts according to the percentage of their fair value. Revenue is allocated to the equipment and services proportionately to the fair value of single elements. Similarly to the breakdown of revenue between products and services, packages made up of several different services are recognised as components. For a package made up of several different services, the management evaluates and distinguishes components of the services to be received within a package from the point of view of the consumer of the service. More detailed information about the respective management’s estimate is disclosed in clause P.

Recognition of revenue from connection fees

Connection fees are recognised as revenue, considering the useful life of the investment attributable to the connection on the one hand and management estimates about the loyalty of new customers on the other hand. Connection fees are recognised in revenue over the average length of the customer relationship. Connection fees are recognised upon connection if these fees do not include future income from services but only compensation for the costs related to the connection.

E. Cash and cash equivalents

In the cash flow statement, cash and cash equivalents comprise short-term (with maturities of three months of less) highly liquid funds which can be converted into known amounts of cash and which do not carry significant risk in variation in market value, including cash on hand and in bank, cash in transit and term deposits with maturities of three months or less. Cash and cash equivalents are measured at amortised cost.

F. Financial assets

Classification of Group financial assets depends on the purpose of the acquisition of financial assets. The management decides on the classification of financial assessments upon their initial recognition.

All financial assets are initially recognised at cost, which is the fair value of the consideration paid for the financial asset. Initial cost includes all expenditures directly attributable to the acquisition of financial assets, including fees to brokers and advisors, non-refundable taxes attributable to the transaction and other related expenditures, other than the costs attributable to the acquisition of financial assets carried at fair value through profit or loss.


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All purchases and sales of financial assets done in ordinary course of business are recognised at the trade date of these transactions, i.e. at the date when the group commits (e.g. concludes a contract) to purchase or sell a certain financial asset. Purchases and sales done in the ordinary course of business are such purchases and sales which transfer a financial asset to be purchased or sold from the seller to the buyer during a period of time established in the market or required by respective market regulations.

Loans and receivables

Loans and receivables are subsequently carried at amortised cost, using the effective interest rate. The amortised costs is determined for the total term of the financial asset, whereby any discounts or premiums at acquisition and the expenditure directly attributable to the transaction are taken into account.

Financial assets carried at amortised cost are written down when it is probable that their carrying amount is not recoverable. The recoverable amount of financial assets carried at amortised cost is the present value of future cash flows attributable to the financial asset, discounted at the fixed effective interest rate on initial recognition. The write-down of financial assets is reported in the income statement as expense.

If it is possible, impairment of individually material financial assets is determined separately for each item. If individual assessment of receivables is not possible due to a large number of receivables, then only material receivables are assessed individually. The rest of the receivables are collectively assessed for impairment, using previous years’ experience on impairment. If the collection of receivables is neither possible nor economically feasible, they are deemed as irrecoverable and taken off the balance sheet. The value of receivables is also estimated also in case of such events indicating that the recoverable amount is lower than the carrying amount of the receivable.

When the receivables previously written down are collected or in case of other events which indicate that a write-down is no longer justified, the reversal of the write-down is recognised as a reduction of the expense item where the write-down was initially recognised.

G. Inventories

Inventories are recorded in the balance sheet at cost, which consists of the purchase costs, customs duties, other non-refundable taxes and direct transportation costs, fewer discounts. The weighted average cost method is used for determining the cost of inventories.

Inventories are measured in the balance sheet at the lower of acquisition/production cost or net realisable value. The net realisable value is the sales price less estimated costs to sell. Inventory write-downs to their net realisable value are charged to expenses in the reporting period and they are carried in the income statement line Goods, raw materials and services.

H. Property, plant and equipment

Assets with useful lives of over one year are considered to be items of property, plant and equipment when it is probable that future economic benefits attributable to them will flow to the Group.

An item of property, plant and equipment is initially measured at cost, comprising of its purchase price and any directly attributable expenditures. Also personnel expenses related to investments in fixed assets are recognised as property, plant and equipment. During the reporting period, personnel expenses capitalised as property, plant and equipment accounted for 25.0% of total personnel expenses.

An item of property, plant and equipment is subsequently carried at its cost less any accumulated depreciation and any accumulated impairment losses. Items of property, plant and equipment are written down to their recoverable amount (higher of fair value less costs to sell and value in use), if it is lower than the asset’s carrying amount. An impairment test is performed to determine if the recoverable amount is lower than the carrying amount is performed whenever there is any indication that an impairment loss has incurred.

At each balance sheet date an assessment is made whether the impairment loss is no longer justified. Whenever such indication exists, the recoverable amount is determined and if necessary, the previous impairment loss recognised is reversed. The reversals of impairment losses are recognised in the period in which the reversal occurred, as a reduction in cost.

Subsequent expenditures for items of property, plant and equipment which have been recognised (e.g. replacement of certain parts of assets) are added to the carrying amount of assets when the


18

following criteria are met: (a) it is probable that future economic benefits attributable to the asset will flow to the Group (b) their cost can be measured reliably. The replaced parts are taken off the balance sheet. All other expenditures are recognised as expenses in the period in which the respective expenditures were incurred.

If an item of property, plant and equipment consists of identifiable components with different useful lives, these components are recorded as separate property, plant and equipment items and separate depreciation rates are assigned for them, depending on their useful lives.

The straight-line method is used for depreciation of items of property, plant and equipment. The depreciation rates are set separately for each item of property, plant and equipment depending on their useful lives.

The annual depreciation rates for the groups of property, plant and equipment are as follows:

Land and buildings

• buildings and facilities 2.5%-12.50%

• cable networks 8%–11.96%

• main stations 12.5-25%

Machinery and equipment

• modems 20-25%

• digital boxes 20%

• machinery and equipment 10-33.33%

• equipment related to provision of services 10-25%

Other items of property, plant and equipment

• other fixtures, tools and fittings 14.29-33.33%

Land is not depreciated.

Depreciation of the asset is ceased when the residual value which is the amount the Group would receive upon the disposal of the asset today if the asset were as old and in the same condition as at the end of its expected useful life, exceeds its carrying amount.

The depreciation methods, rates and residual values of items of property, plant and equipment are reviewed at least once at the end of each financial year and if new estimates differ from previous ones, the changes are recognised as changes in accounting estimates, i.e. prospectively.

Items of property, plant and equipment are derecognised when no future benefits from the use or sale of this asset are expected to flow to the Group. Gains and losses from derecognition of the items of property, plant and equipment are recognised in the income statement line Other income or Other expenses in the period in which derecognition occurred.

Items of property, plant and equipment that are expected to be sold within the next 12 months are reclassified as held for sale which is shown in a separate balance sheet line. Depreciation of items of property, plant and equipment held for sale is ceased and the item is carried at the lower of the carrying amount and fair value (less costs to sell).

Borrowing costs which are related to a specific non-current asset that takes longer than initially intended to be put to use, are included in the cost of non-current assets. As the management of the Group estimates that the process of preparing non-current assets for their intended use takes little time, the Group has not capitalised the borrowing costs in the cost of non-current assets in 2014.

Employee wages and salaries related to the construction of property, plant and equipment (cable networks) that the Group constructs itself are capitalised in their cost.ˇ

I. Intangible assets

Intangible assets acquired separately from business combinations are recognised only when the following conditions are met:

a) the asset can be controlled by the Group;

b) it is possible that future economic benefits attributable to the asset will flow to the Group;


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c) the cost of the asset can be determined reliably.

Intangible assets acquired through business combinations are accounted for separately from goodwill when these assets can be separated or they have arisen as a result of contractual or other legal rights and their fair value can be determined reliably at the date of acquisition.

An intangible asset is initially recognised at cost, comprising its purchase price and any directly attributable expenditure. Also personnel expenses by which the value of intangible fixed assets increases is recognised as intangible fixed assets. During the financial periods, personnel expenses capitalised as intangible fixed assets account for 6.1% of total personnel expenses.

An intangible asset is subsequently carried at its cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets are divided into assets with finite useful lives and assets with indefinite useful lives. The straight-line method is used for amortising intangible assets with finite useful lives. The annual amortisation rates for the groups of intangible assets are as follows:

• customer contracts and related customer relationships 14.29%

• purchased licenses, software 5-33.33%

• trademark 3.33%

Starting from the beginning of 2014, the company’s management has estimated the useful life of the trademark at 30 years. In 2013, the trademark was recognised as an asset with a indefinite life.

The depreciation charge of intangible assets with finite useful lives is carried in the income statement line Depreciation, amortisation and impairment. The amortisation period and method of intangible assets with finite useful lives are reviewed once at the end of each financial year. Changes in the expected useful lives or in the time structure of future economic benefits are recognised prospectively as changes in the depreciation period and method or as changes in accounting estimates.

Whenever there is any indication that the recoverable amount of intangible assets with finite useful lives is lower than their carrying amount, an impairment test is performed and if necessary, the asset is written down to its recoverable amount (see accounting policy H).

With regard to intangible assets with indefinite useful lives, an impairment test is performed annually either for each asset or the cash-generating unit. Such intangible assets are not subject to amortisation. The useful lives of intangible assets (except goodwill) with indefinite useful lives are reviewed each year to determine whether their useful lives are still indefinite. If the indefinite nature of the useful life has changed, the changes in the useful life are recognised prospectively.

Borrowing costs which are related to a specific non-current asset that takes a longer time to be put to use than initially intended, are included in the cost of non-current assets. As the management of the Group estimates that the process of preparing non-current assets for their intended use takes little time, the Group has not capitalised the borrowing costs in the cost of non-current assets in 2014.

The wages and salaries of employees engaged in the additional development of the customer management programme (disclosed in Note 10 Purchased licenses and software, with a useful life of 6 years) of the Group are capitalised in the cost of the programme.

As at the balance sheet date, AS Starman owns 0.04% of the share capital of Eesti Digitaalringhäälingu OÜ. Through its shareholding, articles of association and shareholders’ agreement, Starman has control over the frequency permit issued to the company (for more details see Note 10).

Trademark

Separately acquired trademarks are initially recognised at historical cost.

Trademarks acquired in business combination are recognised at fair value at the acquisition date.

Assets that are subject to amortisation are reviewed for impairment whenever there is an indication that the carrying amount may not be recoverable and, if necessary, an impairment loss is recognised.


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Goodwill

Goodwill is initially recognised at its cost which is the positive difference of the consideration paid during theacquisition, the fair value of the non-controlling interest in the acquiree and the equity interest previously held by the acquirer in the acquiree (as at the date of acquisition) between the identifiable assets acquired and liabilities assumed of the Group’s interest. Goodwill is subsequently carried at cost less any impairment losses. Impairment tests are performed once a year or more frequently when certain events or changes in circumstances indicate that the recoverable amount may have decreased. Goodwill is not subject to amortisation.

For the purpose of impairment testing, goodwill arising in a business combination is divided to the cash-generating units of the Group from which future expected benefits will flow to the cash generating unit or groups of such units. Upon allocation of goodwill to cash-generating units, the Group’s internal reporting is used as the basis – goodwill is allocated to the lowest level where it is monitored by the Group’s management for internal reporting purposes.

Impairment is determined by assessing the recoverable amount of a cash-generating unit related to goodwill. When the recoverable amount of the cash-generating unit is lower than its carrying amount, an allowance for impairment losses is recognised. The allowance for impairment losses is recognised as an expense of the reporting period in the income statement. When the recoverable amount of goodwill increases above the carrying amount, the impairment losses are not reversed.

J. Financial liabilities

All financial liabilities are classified in the category of Other financial liabilities at amortised cost, except for derivatives recorded in fair value (see accounting principle L).

Financial liabilities are initially recognised at cost, which is the fair value of the consideration received for the financial liability, including transaction costs. Financial liabilities are subsequently carried at amortised cost, using the effective interest rate.

Interest expenses related to financial liabilities are recognised on an accrual basis as an expense for the period in the income statement line Finance costs.

Financial liabilities are derecognised when they have been paid off, cancelled or expired.

The amortised cost of short-term liabilities normally equals their nominal value, therefore the short-term liabilities are stated in the balance sheet in their redemption value. For calculating the amortised cost of non-current financial liabilities, they are initially recognised at fair value of the proceeds received (net of transaction costs incurred) and an interest cost is calculated on the liability in subsequent periods using the effective interest rate method.

Financial liabilities are classified as current when they are due to be settled within twelve months after the balance sheet date; or the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowings that are due within 12 months after the balance sheet date, but that are refinanced after the balance sheet date but before the financial statements are authorised for issue as non-current, are recognised as short-term. Also, borrowings that the lender could recall at the balance sheet date due to the breach of conditions set forth in the agreement are classified as short-term.

K. Provisions and contingent liabilities

Provisions are recognised in the income statement when the Group has a legal or contractual obligation as a result of the events occurred before the balance sheet date, when its realisation is probable and the amount of the liability can be measured reliably. Provisions are evaluated based on management’s estimates and experience, and if needed, estimates of independent experts and they are recognised in the balance sheet in the amount which is necessary for meeting the obligations relating to provisions or transfer to a third party. The cost related to provisions is carried in the income statement for the period.

Other commitments that in certain circumstances may become obligations, but the parent does not consider an outflow of resources required to settle the obligation to be likely or the size of accompanying costs of which cannot be determined with sufficient reliability, are disclosed in the notes to the financial statements as contingent liabilities.

L. Derivative instruments and hedging

Derivative instruments are recognised at their initial recognition at fair value at the date of entering into a derivative contract. After initial recognition, derivatives are revalued at each balance sheet date to their current fair value. The method for recognising gains or losses on a change in the value


21

depends on whether the derivative is designated as a hedging instrument and, if so, on the nature of the hedged item. The Group has cash flow hedging instruments, the objective of which is to fix interest expenses in the case of loans with floating interest rate.

Upon inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, hedging objectives and a strategy for making different hedging transactions. Besides, upon inception of a transaction as well as on an ongoing basis, it is documented as to whether the derivatives used in hedging transactions are effective for setting off cash flows of hedged items.

Fair values of derivative instruments used for hedging purposes and movements in the hedging reserve included in equity are disclosed in the Notes. The full fair value of hedging derivatives could be classified as current if the hedge relationships are for less than 12 months and as non-current if those relationships are for more than 12 months.

Cash flow hedge

The effective portion in the fair value change of derivative instruments which are designated and qualify as a cash flow hedge is recognised in equity. A gain or loss related to the ineffective portion is immediately recognised in profit or loss as other operating income or other operating expenses.

The amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place).

When a hedging instrument expires or is sold or when a hedge no longer meets the hedge accounting criteria, any cumulative gain or loss included in equity will remain in equity and will be recognised in profit or loss when the forecast transaction is ultimately recognised in profit or loss. When the occurrence of a forecast transaction is no longer expected, the cumulative gain or loss included in equity will be immediately transferred to profit or loss as other operating income or other operating expenses.

Derivatives used for hedge purposes have been recorded in fair value and as long-term when the derivative contract maturity is more than 1 year.

M. Taxation

In accordance with applicable laws of the Republic of Estonia, the Estonian entities do not pay income tax on profits. Instead of the income tax payable on profits, the Estonian entities pay corporate income tax on dividends, fringe benefits, gifts, donations, costs of entertaining guests, non-business related disbursements and adjustments of the transfer price. From 1 January 2015, the tax rate is 20/80 (21/79 until 31.12.2014) on net dividends paid. The corporate income tax arising from the payment of dividends is recognised as a liability and an income tax expense in the period in which dividends are declared, regardless of the period for which the dividends are paid or the actual payment date. An income tax liability is due on the 10th day of the month following the payment of dividends.

As income tax is paid on dividends and not on profit, no temporary differences arise between the tax bases of assets and liabilities and the carrying amounts of assets and liabilities which may give rise to deferred income tax assets and liabilities. A deferred income tax liability in respect of the Group’s available equity which would accompany the payment of available equity as dividends is not reported in the balance sheet. The maximum amount of income tax payable, which would arise paying out the retained earnings as dividends, is disclosed in the Notes to the financial statements.

N. Statutory reserve capital

Pursuant to the Commercial Code of the Republic of Estonia and the articles of association of the parent, the Company transfers at least 5% of its annual net profit into statutory reserve capital until reserve capital makes up at least 10% of share capital. Reserve capital may not be used to pay out as dividends, but it can be used to cover losses when losses cannot be covered from available equity. Statutory reserve capital can also be used to increase share capital.

O. Accounting for leases

Leases of property, plant and equipment which transfer substantially all the risks and rewards of ownership to the lessee are classified as finance leases. Other leases are classified as operating leases.

Assets leased under finance lease terms are recognised at the lower of the fair value of the asset and minimum lease payments in the balance sheet of the lessee. The depreciation period of assets acquired under finance lease terms is the useful life of the asset and the rental period. Assets


22

leased out under the finance lease terms are recognised in the balance sheet as a receivable at the net investment amount. Lease payments are divided into finance cost / -income and payment of the lease liability / -receivable so that the interest remains constant at any time.

In case of an operating lease, the lessor recognises the leased asset in its balance sheet. Operating lease payments are recognised on a straight-line basis as income by the lessor and as expense by the lessee.

P. Use of estimates in the financial statements

The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates and judgements which have an effect on the amounts recognised in the financial statements. Segments that have required more important management decisions and assessments that have an impact on amounts recognised in financial statements include the assessment of useful life of non-current assets, accounting of impairment of assets, net realisable value of inventories, assessment of doubtful receivables and separation of services sold as package as components:

(a) Determination of useful lives of property, plant and equipment and intangible assets

The useful lives of items of property, plant and equipment and intangible assets are determined on the basis of management estimates in respect of the period during which the asset is actually used. Previous experience has demonstrated that the actual time of use has sometimes been longer than the estimated useful lives of assets. As at 31 December 2014, the carrying amount of the Group’s items of property, plant and equipment was EUR 28,569 thousand (2013: 27,710), the depreciation charge of the reporting period was EUR 6,025 thousand (2013: 4,600). If depreciation rates were changed by 20% the annual depreciation charge would change by EUR 1,205 thousand.

Amortisation of customer contracts and relationships is based on the estimated useful contractual life of the customer of 7 years, supported by historical evidence on operations.

(b) Estimation of the recoverable amount of goodwill and other items of property, plant and equipment

The Group estimates the recoverable amount of goodwill at least once a year; impairment tests of other items of property, plant and equipment are performed whenever there is any indication of impairment of assets. Several management estimates are used for testing impairment of assets in order to estimate the cash flows from the use of assets. Estimates are based on the forecasts of the economic environment in Estonia, the Company’s market position, technological developments and competitive situation. Information about impairment tests performed is disclosed in Note 10.

(c) Estimation of the net realisable value of inventories

The Group regularly estimates whether the net realisable value of inventories has fallen below their carrying amount. If an impairment loss is identified, inventories are recognised at the net realisable value and the carrying amount of inventories is adjusted. The respective impairment loss is recognised in the statement of comprehensive income. When making estimates, the Group uses forecasts for the market and the Company’s operations, which foresee continued market growth and preservation or improvement of the Company’s market position.

Information about impairment losses of inventories in 2014 is disclosed in Note 8.

(d) Distinction of components sold as bundled services

For recognition of certain bundled services, the management has estimated various components of the service (e.g. main service and infrastructure services) from the point of view of the consumer. Division of bundled services into components and their pricing based on internal accounting stems from the cost basis of different components and their share of the total fee of the bundled service. The pricing of the component of infrastructure services is based on the management’s estimate of the cost basis of this component.

R. Events after the balance sheet date

Material matters that have an effect on the evaluation of assets and liabilities and that became evident between the balance sheet date and the date of adopting the financial statements but that are related to transactions occurred in the reporting period or in earlier periods, are recorded in the financial statements.

Events after the balance sheet date that have not been taken into consideration while evaluating assets and liabilities but that have a significant effect on the results of the next financial year, have been disclosed in the financial statements.


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Note 2 Revenue

EUR thousand

Area of operation 2014 30.05.2013

-31.12.2013

Cable television services 11,179 6,126 Internet services 10,652 5,221 Telephony service 1,969 1,207 Sale of goods and materials 650 124 Electricity 522 16 Infrastructure services 8,009 4,675

Total 32,980 17,369

Note 3 Other income, goods, raw materials and services, other operating expenses, labour expenses and other expenses

EUR thousand

2014 30.05.2013-31.12.2013

Other income Profit from disposal and write-off of non-current assets 119 85

Income from fines 374 226

Income from revaluation of liabilities 22 16

Other income 60 55

Total other income 574 383

Goods, raw materials and services

Outsourced services -8,268 -4,360

Materials -110 -112

Goods purchased for sale -548 -157

Maintenance costs -207 -105

Other expenses -236 -95

Total goods, raw materials and services -9,369 -4,829

Other operating expenses

Consulting and advisory services -155 -146

Marketing expenses -1,686 -686

Customer servicing costs -364 -179

Office expenses -529 -270

Allowance for doubtful receivables (see Notes 6,18) -63 -31

Transportation expenses -364 -208


Total other operating expenses -3,635 -1,795

Labour expenses

Wages and salaries -3,400 -1,893

Social security and unemployment insurance taxes -1,193 -665

Total labour expenses -4,593 -2,558

Other expenses

Loss from disposal and write-off of non-current assets -1 -3


Total other expenses -68 -59


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Note 4 Finance income and costs

EUR thousand

2014 30.05.2013-31.12.2013

Interest income 19 2

Interest expenses on shareholder loans (Note 17) -2,731 -1,567

Share of interest swap reclassified from equity -108 -33

Other interest expense -1,731 -1,208

Foreign exchange gains/(losses) -13 5

Other finance income and expenses -13 -7

Total finance income and costs -4,577 -2,808

Note 5 Cash

EUR thousand

31.12.2014 31.12.2013

Cash on hand and in bank 326 1,207 Money in transfer 1 1

Total cash and cash equivalents 328 1,208

Note 6 Receivables

EUR thousand

31.12.2014 31.12.2013

Trade receivables 1,180 669 Allowance for doubtful receivables1 0 -1 Receivables from shareholders (see Note 17) 0 42 Other short-term receivables 35 256 Total receivables 1,214 967 1 The following changes occurred in the allowance for doubtful receivables (per annum):

31.12.2014 31.12.2013

Balance at beginning of the year -1 0 Additional allowance recognised (see Note 3 and 18) -63 -31 Receivables written off from the balance sheet 64 30 Balance at end of the year 0 -1

Note 7 Prepayments

As at 31.12.2014, prepaid expenses of future periods are recognised as prepayments in the amount of EUR 286 thousand (2013: 202).


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Note 8 Inventories

EUR thousand

31.12.2014 31.12.2013

Goods purchased for sale and customer equipment 2,158 1,709

Materials 511 457

Prepayments for inventories 344 257

Total inventories 3,012 2,423

During the financial period, inventories were written down and written off in the amount of EUR 86 thousand (2013: 50).

Note 9 Property, plant and equipment

EUR thousand

Land and buildings

Construc-

tion in progress

Machinery and

equipment

Other property, plant and

equipment

Total property, plant and

equipment

Merger effect (note 20) 20,360 94 7,038 170 27,661

Acquisitions and improvements 1,397 556 1,514 22 3,489 Reclassification of construction in progress to property, plant and equipment 94 -121 27 0 1 Reclassification1 0 0 -19 0 -19 Disposals and write-offs 0 0 -7 -2 -9 Depreciation for the financial year -1,854 0 -1,507 -51 -3,412 Cost 21,851 529 8,553 190 31,123 Accumulated depreciation -1,854 0 -1,507 -51 -3,412 Carrying amount 31.12.2013 19,997 529 7,045 139 27,710

Acquisitions and improvements 3,153 596 3,140 113 7,002 Reclassification of construction in progress to property, plant and equipment 69 -1,125 971 85 0 Reclassification1 0 0 -34 0 -34 Disposals and write-offs 0 0 -85 0 -85 Depreciation for the financial year -3,217 0 -2,723 -84 -6,025 Cost 25,073 1 12,544 388 38,006 Accumulated depreciation -5,071 0 -4,230 -136 -9,437 Carrying amount 31.12.2014 20,002 1 8,314 252 28,569

1Upon reclassification, machinery and equipment and other items of property, plant and equipment were taken to the subcategory of inventories Goods purchased for sale and customer equipment. Information about items of property, plant and equipment pledged as collateral for borrowings is disclosed in Note 11.


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Note 10 Intangible assets

EUR thousand

Customer contracts and

related customer

relationships

Licenses and

software

Trade-mark

Goodwill Total intangible

assets

Merger effect (note 20) 12,961 1,315 2,871 56,986 74,134

Acquisitions and improvements 0 266 0 0 266 Amortisation for the financial year -1,080 -107 0 0 -1,188 Cost 12,961 1,581 2,871 56,986 74,400 Accumulated amortisation and impairment -1,080 -107 0 0 -1,188 Carrying amount 31.12.2013 11,881 1,474 2,871 56,986 73,212

Merger effect (note 20) 204 1,338 0 0 1,542 Acquisitions and improvements -1,862 -253 -96 0 -2,210 Amortisation for the financial year 13,165 2,919 2,871 56,986 75,942 Cost

-2,943 -360 -96 0 -3,398 Accumulated amortisation and impairment 10,223 2,559 2,776 56,986 72,544

Investments in customer contracts, trademark and goodwill are recorded to the assessment of fair value of assets upon acquisition of shares of AS Starman by Estonian Cable Holding OÜ. In 2014, in conducting the goodwill test, the following assumptions were used:

• The goodwill test is based on financial projections that were prepared for five years that include assumptions with regard to client figures, fees payable by clients, EBITDA margin and level of

investments. Cash flows of existing customer relations determined by purchase price allocation

has been deducted from planned cash flows.

• The forecast of revenue growth during the said period is in average 7.5% which is higher than the average market level but in the same level to the Company’s historic growth and is supported by the Company’s strong market position and product offering, as well as new services that were recently introduced on the market.

• According to the forecast, the company’s EBITDA margin will remain on the current level,

increasing by planned efficiency growth and decreasing by the expected growth of services with lower return in total revenue.

• The level of permanent investments is expected to grow by inflation, in addition certain one-off investments have been planned.

• 5% of long-term growth rate is being used, which is lower than the budgeted five-year period, but reflects lower credibility of long-term projections.

• As a discount rate, pre-tax weighed average cost of capital of 10.0%.

As at 31.12.2014, the carrying amount of the trademark was EUR 2,776 thousand (2013: EUR 2,871 thousand) and the remaining life was 29 years. As at 31.12.2013, AS Starman owned 0.04% of share capital of Eesti Digitaalringhäälingu OÜ. Through its shareholding, articles of association and shareholders’ agreement, Starman has retained control over the nationwide digital TV frequency permit in the 470-790 MHz frequency band issued to the company. No changes took place with regard to this shareholding in 2014.


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Note 11 Borrowings

EUR thousand

31.12.2013. a. Current portion Non-current portion Total liabilities

Long-term bank loans 8,136 44,962 53,099 Finance lease liability (Note 16) 67 21 88

Total borrowings 8,203 44,983 53,187

31.12.2014. a. Current portion Non-current portion Total liabilities

Loan from parent company (Note 17) 2,425 0 2,425 Long-term bank loans 8,819 38,414 47,233 Finance lease liability (Note 16) 58 84 142

Total borrowings 11,301 38,499 49,800

Borrowings as at 31.12.2014

Lender

Outstanding loan balance WAL1 WAC2

Swedbank 18,893 28,39 3.01%

SEB 28,482 28,33 3.00%

KOKKU 47,375 28,36 3.00%

1 – Weighted average duration, in months.

2 – Weighted average interest rate, contracts with floating interest rate use the interest rate valid at the end of the year.

All loans from third parties are denominated in euros.

Under the loan contracts entered into, the undertaking is obliged to secure the compliance of certain ratios in the provisions in the loan contracts, including the ratio of bank loans and EBITDA and the ratio of amount used for servicing bank loans and EBITDA. In addition, the maximum rate for carrying out investments not approved by the bank is also determined. As at 31.12.2014, the Company was meeting all its obligations. Loan collaterals and pledged assets Syndicate loans taken by undertakings that belong to the Group have the following collaterals: • A first ranking commercial pledge has been set to the movable property of AS Starman in the

amount of EUR 50,000 thousand for the benefit of AS SEB Pank.

• AS Starman has set a mortgage for the registered immovable located at Akadeemia tee 28 for the benefit of AS SEB Pank in the mortgaged amount of EUR 1,000 thousand. As at 31.12.2014, the balance sheet value of the security asset is EUR 525 thousand.

• AS Starman has set a first ranking joint registered pledge over three trademarks in its ownership for the benefit of AS SEB Pank in the amount of EUR 500 thousand. In addition, the

same three trademarks have a second ranking registered pledge for the amount of EUR 3,000 thousand each in the total amount of EUR 9,000 thousand. AS Starman has set a first ranking registered pledge to the fourth trademark that it owns in the amount of EUR 3,500 thousand

for the benefit of AS SEB Pank.

• In addition, shareholders of Starman have signed pledge agreements for the shares of AS Starman in their ownership for securing loan liabilities assumed by AS Starman.


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Note 12 Trade and other payables

EUR thousand

31.12.2014 31.12.2013

Trade payables1 1,441 1,256 Other payables 376 441 Tax liabilities2 862 828 Payables to employees 530 504

Total payables 3,209 3,029

1 Trade payables have due dates of up to 30 days. 2 Tax liabilities are divided by types of taxes as follows: 31.12.2014 31.12.2013

Value added tax 331 329 Social security tax 299 277 Income tax withheld 191 163 Other taxes 42 58

Total tax liabilities 862 828

Note 13 Prepayments

EUR thousand

31.12.2014 31.12.2013

Prepayments received1 159 137

Deferred income 45 48

Total prepayments 204 186

1 Prepayments received include customer prepayments for goods and services during the daily transactions.

Note 14 Other long-term payables

EUR thousand

31.12.2014 31.12.2013

Loan payable to shareholders (note 17) 46,699 46,699

Interest payable to shareholders (note 17) 4,297 1,567

Other long-term payables 50,996 48,266

Derivatives is fair value (note 22) 614 277

Loans received from shareholders are denominated in euros.

Loans granted from shareholders are linked to an interest rate that is based on the interest rates of five- to ten-year loans as shown by the statistics of the Bank of Estonia, plus risk rate of 2.5%. This is a floating interest rate since the interest rate is reviewed twice a year. Loan interest is not due to current payment as they are capitalised to loan amount principle. The loan liability is subordinated to bank loans taken by the Group and repayments cannot be made before bank liabilities are paid.


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Note 15 Equity

As at 31.12.2014 the number of the Company’s shares is 13,053,570 and according to the articles of association, the minimum allowed size of share capital is EUR 8,000,000 and the maximum allowed size of share capital is EUR 32,000,000.

Company’s structure of shareholders is as follows:

Shareholder 31.12.2014 31.12.2013

OÜ Com Holding 34,30% 34,30%

OÜ Polaris Invest 14,70% 14,70%

OÜ Baltic Cable Holding 51,00% 51,00%

Total 100,00% 100,00%

Note 16 Finance and operating leases

The Group uses finance leases to fund its investments in machinery and equipment (see also Note 11). The Group has the following liabilities related to these transactions (EUR thousand): Pursuant to the terms and conditions of the finance lease agreements in the amount of EUR 142 thousand (2013: 88), AS Starman is required to keep the ratio of interest-bearing borrowings to EBIDTA (EBITDA – operating profit before taxes, interest and depreciation/amortisation) at the established level. In addition, AS Starman is required to keep cash payments for debt and EBITDA ratio (DSCR ratio) at a certain level and a maximum level of investments has been specified. As at 31.12.2014 the financial covenants were in compliance with regulation laid down for financial ratios (see also note 11 and 22).

The Group has acquired assets under financial lease terms as follows, EUR thousand:

Carrying amount 31.12.2014 31.12.2013

Machinery and equipment 155 88

Finance lease liabilities – minimum lease payments

31.12.2014 31.12.2013

Short-term lease liability – due date not later than 1 year 59 68 Long-term lease liability – due date later than 1 year and not later than 5 years 85 21 Total 144 89

Future finance charges on finance leases -2 -1 Present value of finance lease liabilities 142 88

Operating lease – Group as a lessor

The Group leases out machinery and equipment under operating lease terms, the cost and carrying amount are as follows, EUR thousand:

2014 2013

Cost of assets leased out under operating lease as at period end date 7,957 5,516

Carrying amount of assets leased out under operating lease as at period end date

5,316 4,671

Depreciation of assets leased out under operating lease in the period 1,722 946

Operating lease income for the period 447 294

Lease agreements are cancellable on short notice.

Operating lease – Group as a lessee

Passenger cars have been leased under the operating lease, EUR thousand:


30

2014

30.05.2013-

31.12.2013

Operating lease payments during the period 80 42 Future operating lease payments under non-cancellable lease agreements: 234 232 Incl. up to 1 year 67 71 Between 1-5 years 166 160

Note 17 Related party transactions

In compiling the annual report, the following entities have been considered as related parties: a) shareholders with significant influence (Note 1) and the entities under their control or that have significant influence; b) management and supervisory boards, their close relatives and the entities under their control or that have significant influence.

The shareholders OÜ Baltic Cable Holding, OÜ Com Holding and OÜ Polaris Invest have granted loans to AS Starman (see Note 14). Additional information of the loan terms are disclosed in Note 22.

Information regarding the movements of loans:

2014 30.05.2013

-31.12.2013

Loans received 2,425 46,699

Including non-monetary loans (see note 20) 0 20,206

Accrued interest 2,731 1,567 As at 31.12.2014, the long-term borrowings were broken down among the parent company OÜ Baltic Cable Holding and other shareholders according to the proportions of their ownership interests (see note 1), in addition to long-term loans Baltic Cable Holding OÜ granted a short-term loan in December in amount EUR 2,425 thousand, which was related with the prepayment for shares of Cgates acquisition. As at 31.12.2014, the Group had a receivable from shareholders in the amount of EUR 0 thousand (31.12.2013: 42) (see note 6). Services have been sold to the members of the Management and Supervisory Boards and their close relatives during the normal course of business. In 2014 the total volume of these services did not exceed EUR 3 thousand and during the period 30.05.2013-31.12.2013 EUR 2 thousand. Management remuneration In 2014, the remuneration of the members of the Management Board including bonuses totalled EUR 602 thousand (30.05.2013-31.12.2013: 240) and that of the members of the Supervisory Board totalled EUR 29 thousand (30.05.2013-31.12.2013: 18). As at 31.12.2014, the maximum amount of termination benefits payable to the members of the Management Board totalled EUR 122 thousand (31.12.2013: 152) (gross amount).


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Note 18 Supplement to the consolidated cash flow statement

EUR thousand, per financial period

Adjustments of the net profit consist of the following non-monetary gains and losses related to operating activities, and the following income and expenses related to investing and financing activities:

2014 30.05.2013

- 31.12.2013

Depreciation, amortisation and impairment of non-current assets (Notes 9,10) 8,235 4,600

Proceeds from disposal of property, plant and equipment (Note 3) -119 -85 Loss from write-off of property, plant and equipment (Note 3) 1 3 Allowance for doubtful receivables (Notes 3,6) 63 31 Interest income (Note 4) -19 -2 Interest expense (Note 4) 4,570 2,808

Total adjustments of net profit 12,730 7,354

Acquisition of tangible and intangible assets consists of the following components:

2014

30.05.2013

-31.12.2013

Purchases and improvements of property, plant and equipment (Note 9) -6,957 -3,489 Purchases and improvements of intangible assets (Note 10) -1,542 -267 Property, plant and equipment acquired under finance lease terms (Note 16) 137 25

Machinery and equipment and other property, plant and equipment reclassification to inventory line Goods purchased for sale and customer equipment (Note 9) -34 19

Total purchases of tangible and intangible assets

Purchases and improvements of property, plant and equipment (Note 9) -8,396 -3,712

Note 19 Investments in shares of subsidiaries

In December 2014, AS Starman acquired a wholly-owned subsidiary Motis Shipping Lithuania Limited UAB with a share capital of EUR 3 thousand in connection with the sale and purchase agreement of shares of Cgates. The acquisition of 100% of shares of UAB Cgates was closed on 12.02.2015 when the Group acquired control over UAB Cgates, see also Note 25.

AS Starman owned 100% holding in Eesti Digitaaltelevisiooni AS that in cooperation with Starman offered the services of digital terrestrial television under the trademark of Zuumtv. As at 30.09.2013, AS Starman and Eesti Digitaaltelevisiooni AS merged; the entry entered into force in the commercial register at 15.11.2013. AS Starman continues to provide customers services under the Zuumtv trademark. This merger has no significant impact on the Company’s consolidated financial results.

Note 20 Business combinations

In May 2013, Estonian Cable Holding OÜ was founded by cash contribution in the amount of EUR 5 thousand. On 30.05.2013, Estonian Cable Holding OÜ acquired 100% of shares of AS Starman. Estonian Cable Holding OÜ recognised the acquisition of Starman in accordance with requirements of IFRS 3 by carrying out purchase price allocation. In the course of the purchase price allocation, the value of assets of the Starman consolidation group was assessed and the assets were recognised in fair value. Fair value of assets was assessed as at 30.05.2013 and in its course, the


32

value of assets was increased by a total of EUR 18,599 thousand and the difference between the acquisition cost and fair value of acquired net assets was recognised as goodwill in the amount of EUR 56,986 thousand. Fair values determined in the course of the purchase price allocation are disclosed in the table below (EUR thousand):

Identifiable assets acquired

and liabilities assumed

Fair value adjustments made

during the purchase price allocation

Fair values

recorded on acquisition

Cash and cash equivalents 209 209

Receivables 772 772

Prepayments 225 225

Inventories 3,471 -809 2,662

Other financial assets 38 38

Property, plant and equipment 22,835 4,827 27,661

Intangible assets 2,567 14,581 17,148

Borrowings -47,877 -47,877

Payables and prepayments -2,975 -2,975

Total identifiable net assets -20,734 18,599 -2,135

Total cash paid for acquisition 54,851

Goodwill 56,986

Estonian Cable Holding OÜ was founded for the acquisition of shares of Starman, involving external financing in the amount of EUR 9,000 thousand (including EUR 56.5 thousand in contract fee) and loans from shareholders in the amount of EUR 46,699 thousand (partly non-monetary, see note 17). Upon merger of undertakings on 30.05.2013, these loans were transferred to AS Starman. Although legally Starman was the surviving entity, for accounting purposes Estonian Cable Holding was treated as the acquirer and Starman as the acquiree. Therefore, the International Financial Reporting Standards (hereinafter IFRS) financial statements of the merged entity are presented from the new owner’s perspective – they include the financial results of Starman as from the date of its acquisition by Estonian Cable Holding.

As a result of the merger, Estonian Cable Holding OÜ ceased its activities and on 30.05.2013 the consolidated assets of Estonian Cable Holding OÜ were recognised as the merger balance sheet, and the entries of the owners’ equity of AS Starman, the merging entity. Therefore, EUR 9,148 thousand have been recognised as the impact of merger under accumulated deficit and fair values of the purchase price allocation as at 30.05.2013 are the opening balances of these financial statements.

Note 21 Disputes and actions

Below is the information on more important disputes and actions, the financial or operational effect of which is important for the Group. Law office Varul Vilgerts Smaliukas AS represents AS Startman in civil matter no. 2-09-14176 that is being heard by Harju County Court: the action of AS Starman against Elion Ettevõtted AS on the basis of the Competition Act and Law of Obligations Act concerning the claim for repayment of the unlawfully acquired funds in the amount of EUR 382 thousand, and the claim for a late interest and interest, alternatively the claim for compensation for damage and a late interest. The balance sheet item Long-term receivables include the amount of the claim related to the action in the amount of EUR 17 thousand against Elion Ettevõtted AS. Law Firm Varul is representing AS Starman in the administrative case no. 3-12-340 that has been heard in the first instance in the Tallinn Administrative Court: Starman is disputing the resolution of the Technical Regulatory Authority to refuse to initiate a supervisory procedure with regard to an apartment association in the town of Tapa that is providing telecommunications services without the registration required in the Electronic Communications Act. On 20.11.2014, the Tallinn Circuit Court ruled not to satisfy the appeal against court ruling and not to amend the ruling of the


33

Administrative Court made on 15.08.2014. On 5.12.2014, AS Starman filed an appeal against court ruling made on 20.11.2014 to the Tallinn Circuit Court.

Note 22 Financial instruments and risk management

The management of financial risks related to the business activities of the Group is an important and integral part of the management of business processes. The ability of the Group to identify, measure and control various risks has a substantial effect on its profitability. The risk has been defined by management of the Group as a potential deviation from the expected financial result.

Several financial risks may accompany the operations of the Group, of which credit risk, foreign exchange risk, interest rate risk and liquidity risk have more important effect. Risk management is within the competence of management and it includes identification, measurement and control of risks. Supervision over the measures taken by the Management Board to hedge risks is exercised by the Supervisory Board of the Group.

Credit risk

Credit risk is a potential loss that the Group would incur if its customers and business partners failed to perform their obligations. As at 31.12.2014, receivables amounted to EUR 1,214 thousand (2013: 711) and cash in bank to EUR 328 thousand (2013: 1,208), making up maximum credit risk in the amount of EUR 1,542 thousand (2013: 1,919).

Starman estimates its credit risk as low. The receivables of the Group from customers are extremely dispersed (small receivables from many customers). To manage and minimise general credit risk, the Group has established the procedures for assessing solvency and handling debtors. Pursuant to the procedure for assessing receivables, allowances for receivables from customers are created based on the maturity and amount of receivables as follows:

- past due 1-6 months – allowance varies between 2 to 30% depending on the age of the receivable;

- past due 7-9 months - allowance 40%;




- past due more than 24 months – are derecognised;

- less than EUR 3.2 and past due for more than 3 months – are derecognised.

Receivables are handled together with the collecting partners and, independently from derecognition, the collection of receivables continues.

Net accounts receivables 31.12.2014 31.12.2013

(EUR thousands) (EUR thousands)

Not due 558.7 145.9

Overdue 1 to 3 months 474.1 421.3






Total accounts receivables 1,179.3 710.9

The receivables which are not due represent dispersed client receivables, the due date of which is mostly at the end of the next month and, given the general payment quality, the Group does not consider it necessary to set up a provision for such receivables.


34

For groups with a term in excess of 1 month, impairments have been made during the reporting period in the amount of EUR 63 thousand.

The available funds of the Group are placed in deposits with the main Estonian commercial banks whose long-term credit ratings awarded by Moody’s Investors Service as at preparation of these financial statements were as follows:

Account receivables in banks 31.12.2014 EUR thousand Rating (parent company)

Cash 9.4 Danske 13.7 A3

Swedbank 119.8 A1

SEB 183.5 A1

Nordea 1.3 Aa3

Total 327.7

Account receivables in banks 31.12.2013 EUR thousand Rating (parent company)

Cash 7.5 Danske 56.2 Baa1

Swedbank 107.0 A1

SEB 1,035.5 A1

Nordea 0.6 Aa3

Total 1,206.9 Foreign exchange risk

The Group is exposed to changes in the US dollar exchange rate which influence the profitability of the Group and cash flows as some programme contracts are based on the dollar. Investments in digital boxes, internet equipment and phone modems are also based on the US dollar. The Group's assets are primarily denominated in euros. As at 31.12.2014, the Group had liabilities denominated in US dollars in the amount of EUR 303 thousand (2013: 107) and assets in the amount of EUR 344 thousand (2013: 92). Hence, the Group has no major foreign currency exposure.

Interest rate risk

The majority of bank financing raised by the Group is linked to one-month Euribor and therefore the Group has exposure to interest risk. For hedging the change in Euribor, Starman has entered into interest rate hedging transactions that fix the interest rate for approximately 50% of bank loans in accordance with the amortised schedule of loans. As at 31.12.2014, the balance of loan liabilities linked to Euribor was EUR 47,375 thousand (2013: 53,187), including EUR 22,618 thousand (2013: 26,746) for which the interest risk is hedged. The influence of interest rate with regard to various loan obligations is provided in the table below (EUR thousand):

Borrowings from third parties 31.12.2014 carrying amount

With floating interest rate 27,182

Fixed interest rate 22,618

Total 49,800

Loans payable to shareholders with floating interest rate 46,699

Borrowings from third parties 31.12.2013 carrying amount

With floating interest rate 26,441

Fixed interest rate 26,746

Total 53,187

Loans payable to shareholders with floating interest rate 46,699

The interest rate of loan obligations with fixed interest rate is fixed until the end of the loan contract.


35

1% change in Euribor would affect annual interest expenses by EUR 271 thousand.

Loans taken from shareholders are linked to an interest rate that is based on the interest rates of five- to ten-year loans as shown by the statistics of the Bank of Estonia, plus risk rate of 2.5%. This is a floating interest rate since the interest rate is reviewed twice a year. Loan interest is not due to current payment as they are capitalised to loan amount principle. The loan liability is subordinated to bank loans taken by the Group and repayments cannot be made before bank liabilities are paid. As at 31.12.2014, loans received from shareholders totalled EUR 46,699 thousand (2013: 46,699). The change of the interest rate that is the basis for interest rate calculation by 1% would affect annual interest expenses by EUR 467 thousand.

Liquidity risk

According to the financial policy of the Group, moderate liquidity risks are taken. As the activities of Starman are characterised by large-scale investments and the effective use of capital is considered to be very important, the Group does not hold any large liquidity reserves. The activities of the Group are based on the cash flow plan approved by the Supervisory Board. The liquidity risk is maintained within the required limits by continuously monitoring the actual situation and adjusting the plans if necessary - mainly by making changes in the volumes of investments and loan capital. To cope with any short-term unexpected situations, Starman continuously maintains a certain liquidity reserve in cash and uses overdraft service.

The below table shows the Group’s breakdown of financial liabilities by due dates, EUR thousand:

31.12.2014 Analysis of undiscounted financial liabilities (principal and

future interest payments) by payment term

Carrying value

< 6 months

7-12 months

1-2 years

2-3 years 3-4 years 4-5

years

Repayments of bank loans

47,375 4,437 4,439 8,891 8,887 20,722 0

Interest 737 676 1,127 835 212 0

Derivative payments

614 63 59 166 180 30 0

Trade and other payables

1,436 1,436

Total 49,425 6,673 5,174 10,184 9,902 20,964 0

31.12.2013 Analysis of undiscounted financial liabilities (principal and

future interest payments) by payment term

Carrying value

< 6 months

7-12 months

1-2 years

2-3 years

3-4 years

4-5 years

Repayments of bank loans

53,187 4,126 4,078 8,167 8,180 8,191 20,445

Interest 0 904 846 1,463 1,179 888 231

Derivative payments

277 22 62 122 155 182 52

Trade and other payables

1,256 1,256 0 0 0 0 0

Total 54,720 6,307 4,986 9,752 9,514 9,262 20,728

In addition to the above, as at 31.12.2014, loans have been raised from shareholders in the amount of EUR 46,699 thousand and the accrued interest is accounted for in the amount of EUR 4,297 thousand. Loans taken from shareholders are linked to an interest rate that is based on the interest rates of five- to ten-year loans as shown by the statistics of the Bank of Estonia, plus risk rate of 2.5%. This is a floating interest rate since the interest rate is reviewed twice a year. Loan interest is not due to current payment as they are capitalised to loan amount principle. The loan


36

liability is subordinated to bank loans taken by the Group and repayments cannot be made before bank liabilities are paid, therefore the due repayment date of the principal loan amount and interest is expected not to be realised before the full repayment of bank loans.

As at the end of the financial year, the Group had free cash in the amount of EUR 328 thousand. Free means were placed in overnight deposits.

Additional information about Group’s current liabilities is provided in Notes 11, 12 ja 16.

Capital management

The capital management is based on the maximisation of return on equity on the one hand and on the prevention of risks that would pose threat to preservation of the Group’s equity on the other hand.

The general investment plan of the Group, including the expected financing sources, is approved by the Supervisory Board. All investments in property, plant and equipment are approved by the Investment Committee appointed by the Management Board. The Investment Committee bases its decisions on the cost-effectiveness and risks of each individual project as well as the general guidelines approved by the Supervisory Board.

Capital management policy covers mainly decisions of the ratio of taken loans and EBITDA and the ratio of EBITDA and payments related to servicing loan obligations. As at 31.12.2014, all corresponding ratios complied with the set requirements.

As at 31.12.2014, owner’s equity (including subordinated loans from shareholders) accounted for 50.3% of the total assets. As a result of the merger in 2013 and related financial impact, the Company’s equity totals EUR 3,573 thousand as at 31.12.2014, which is below the requirement set by the Commercial Code – less than half of share capital. As at 31.12.2014, the share capital amounts to EUR 8,343 thousand.

In accordance with the resolution of the extraordinary meeting of shareholders held on 30 January 2015, the Group increased its equity; in the course of the share issue, contributions were made into the share capital and share premium in the total amount of EUR 6,394 thousand, bringing the equity in line with the requirements of the Commercial Code as at the date of signing these financial statements.

Fair value of assets and liabilities

In the opinion of the management, the fair value of the Group’s financial assets and liabilities complies with their balance sheet value as at 31.12.2014, since the impact of discounting is immaterial. Since the Group’s liabilities bear floating interest rate which changes according to the fluctuations in the market’s interest rates, the fair value of debt is calculated by the discount rate used in the cash flow model that is based on the loan’s interest rate. The risk margin of loan agreements depends on the ratio of total debt and EBITDA and the performance of the company’s operations is reflected also in the risk margin. Therefore, the management finds that the fair value of loan liabilities does not significantly differ from balance sheet amounts.

Derivatives are recognised in their fair value based on the Company’s external fair value assessments.

Financial liabilities 31.12.2013 carrying amount

Derivative used as hedging instrument Level 2

Contracts of interest rate 614

Financial liabilities 31.12.2013 carrying amount

Derivative used as hedging instrument Level 2

Contracts of interest rate 277

The fair value of level 2 financial instruments that are not traded in an active market is determined by using valuation techniques. Level 2 financial instruments valuation techniques use the observable market data for their fair value assessment, therefore entity specific estimates are used as little as possible.


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As at 31.12.2014, the fair value of the interest rate swaps recognised as risk hedging instrument, is calculated as the present value of the estimated future cash flows based on observable yield curves.

The Group regularly values assets and liabilities, setting up provisions for bad debts, and impairments for equipment and materials on the basis of fair value assessments. Also the goodwill recognised in the balance sheet has been tested.

Note 23 Going concern aspect of operations

The Group’s current liabilities (as at 31.12.2014, in the amount of EUR 14,714 thousand) exceed the volume of current assets, which as at the year-end totalled EUR 7,265 thousand. The financial statements of the Group have been prepared under the going concern assumption, because in the judgment of the management, the negative working capital as at 31 December 2014 does not cause any financial difficulties for the Group during the 12 months from signing these financial statements as the Group’s cash flows from operating activities generate sufficient positive funds for meeting short-term obligations (receivables recognised under current assets include approximately one month’s fee receivable from clients and borrowings recognised under non-current liabilities include 12 months’ loan payments).

Note 24 Contingent liabilities

Contingent liabilities related to bank loans As at 31.12.2014, in loan agreements in the amount of EUR 49,800 thousand in accordance with the terms of the loan contracts, the debtor is obliged to keep the ratio of interest-bearing debt obligations to EBTIDA and the ratio of EBITDA to the cash flow of servicing bank loans (EBITDA less the operating profit before taxes, interest and depreciation). As at 31.12.2014, no controversies were detected in levels set for financial ratios (see also note 11 and 16).

Contingent liabilities related to the Tax Board

Tax authorities have the right to verify the Group’s tax records within 5 years from the time of submitting the tax declaration and upon finding errors, impose additional taxes, interest and fines. No tax audits were performed in 2014. The Group’s management estimates that there are not any circumstances which may lead the tax authorities to impose additional significant taxes on the Group.

Note 25 Events after the balance sheet date

On 20 December 2014, the company signed a share purchase and sale agreement for the acquisition of 100% of shares of UAB Cgates. Cgates is Lithuania’s largest provider of cable TV and Internet service. It operates a cable network that reaches 300,000 homes in 12 different towns. The TV service of Cgates has 125 thousand customers and its Internet service has 70 thousand customers. In 2013, the company’s revenue amounted to EUR 15 million and the EBITDA margin of its core activity was 44.7%.

For technical completion of the transaction, in December 2014 Starman acquired a wholly-owned subsidiary Motis Shipping Lithuania Limited UAB that had share capital of EUR 3 thousand; in 2014, the subsidiary was used to pay 5% of the acquisition cost of Cgates as prepayment (EUR 2,425 thousand) that Starman financed with a short-term loan received from shareholders and that is recognised in the consolidated balance sheet as long-term prepayment.

The acquisition transaction of Cgates was closed and control was transferred on 12 February 2015 after the Lithuanian Competition Authority issued its permit. The total value of the transaction was EUR 56.3 million, 40% of which was financed from own means (Starman’s additional share issue and additional contributions of shareholder’s loans) and 60% was financed with a long-term bank loan.


38

Because of short time between the approval of the report and acquisition of control over UAB Cgates, the company has not managed to conduct purchase price allocation with regard to UAB Cgates.

There were no other material post balance sheet events, which have a bearing on the understanding of the financial statements.


39

Note 26 Unconsolidated income statement of the parent

EUR thousand

In accordance with the Estonian Accounting Act, the financial information of the parent company (Notes 26-29) includes separate main statements of the parent company although publication of such financial information is not required in financial statements prepared in accordance with international accounting standards.

2014 30.05.2013

-31.12.2013

Revenue 32,980 17,369

Other income 574 383

Goods, raw materials and services -9,369 -4,829

Other operating expenses -3,635 -1,795

Labour expenses -4,593 -2,558

Depreciation and amortisation of non-current assets -8,235 -4,600


Operating profit 7,654 3,911

Finance income 19 7

Finance costs -4,596 -2,815

Profit before tax 3,077 1,104

Net profit for the financial year 3,077 1,104

Statement of comprehensive income Items that may be subsequently reclassified to income statement: -336 -277


Comprehensive income for the financial year 2,741 826


40

Note 27 Unconsolidated balance sheet of the parent

EUR thousand

31.12.2014 31.12.2013

ASSETS Current assets Cash 325 1,208

Receivables 1,215 967

Prepayments 286 202

Inventories 3,012 2,423

Total current assets 4,838 4,800

Non-current assets Long-term receivables and prepayments 2,447 52

Property, plant and equipment 28,569 27,710

Intangible assets 15,558 16,228

Goodwill 56,986 56,986

Total non-current assets 103,560 100,976

TOTAL ASSETS 108,398 105,776

LIABILITIES AND EQUITY Liabilities Current liabilities Borrowings 11,301 8,203

Trade and other payables 3,211 3,029

Prepayments 204 186

Total current liabilities 14,716 11,418

Non-current liabilities Borrowings 38,499 44,983

Derivative 614 277

Loans from Shareholders 50,996 48,266

Total non-current liabilities 90,109 93,527

TOTAL LIABILITIES 104,824 104,945

Equity Share capital 8,343 8,343

Statutory reserve capital 834 834

Hedge reserve -614 -277

Accumulated deficit -4,990 -8,068

Total equity 3,573 831

TOTAL LIABILITIES AND EQUITY 108,398 105,776


41

Note 28 Unconsolidated statement of changes in equity of the parent

Share capital

Statutory reserve

Hedge reserve

Retained earnings

Total equity

capital

Contributions to share capital 5 0 0 0 5

Merger effect (note 20) 8,338 810 0 -9,148 0


0 0 -277 1,104 826

Transfers to statutory reserve capital 0 24 0 -24 0

31.12.2013 8,343 834 -277 -8,068 831


0 0 -336 3,077 2,741

31.12.2014 8,343 834 -614 -4,991 3,573

Adjusted unconsolidated equity equals to Group’s consolidated equity, as there were no material subsidiaries as 31.12.2013 and 31.12.2014.


42

Note 29 Unconsolidated cash flow statement of the parent

2014

30.05.2013-31.12.2013

Cash flows from operating activities Net profit 3,077 1,104 Adjustments of net profit 12,730 7,354 Change in current assets related to operating activities:

Short-term receivables and prepayments, other than loans and interest -359 -216 Change in inventories -589 239 Change in liabilities and prepayments related to operating activities:

Accounts payable 197 163 Prepayments 18 -8 Interest paid -1,851 -1,156 Total cash flows from operating activities 13,223 7,479

Cash flows from investing activities

Purchase of property, plant and equipment, and intangible assets -8,328 -3,712 Proceeds from disposal of property, plant and equipment, and intangible assets 158 92 Acquisition of subsidiary 0 -34,436 Interest received 19 2 Total cash flows from investing activities -8,151 -38,054

Cash flows from financing activities

Loans received 2,500 8,944 Repayments of loans received -8,372 -3,451 Loans received from shareholders 0 26,493 Finance lease principal payments -82 -208 Contributions to share capital 0 5 Total cash flows from financing activities -5,955 31,783

TOTAL CASH FLOWS -883 1,208

Cash and cash equivalents at beginning of the year 1,208 0 Net increase/decrease in cash and cash equivalents -883 1,208 Cash and cash equivalents at end of the year 325 1,208


43

INDEPENDENT AUDITOR’S REPORT


44

PROFIT ALLOCATION PROPOSAL

The Management Board proposes to the General Meeting of AS Starman to allocate the comprehensive income for year 2014 as follows:

Accumulated deficit as at 31.12.2014 EUR -4,991 thousand

Transfer to statutory reserve capital EUR 0 thousand

Accumulated deficit after authorisation of the annual report EUR -4,991 thousand


__________________ __________________ __________________


Chairman of the Member of the Member of the Management Board Management Board Management Board


__________________ __________________


Member of the Member of the Management Board Management Board


45

SIGNATURES OF THE MANAGEMENT BOARD AND THE SUPERVISORY

BOARD TO THE 2014 ANNUAL REPORT

Herewith we confirm the correctness of information disclosed in the annual report of Starman AS consolidation group for the year 2014:


__________________ __________________ __________________


Chairman of the Member of the Member of the Management Board Management Board Management Board


__________________ __________________




We hereby confirm that we have reviewed the consolidated Annual Report 201: / signed / / signed / / signed /

__________________ __________________ __________________ Gert Tiivas Johnny Svedberg Johan Röhss

Chairman of the Member of the Member of the Supervisory Board Supervisory Board Supervisory Board


__________________ __________________ Henri Treude Indrek Kuivallik Member of the Member of the Supervisory Board Supervisory Board


46

REVENUE ACCORDING TO THE CLASSIFICATION OF ESTONIAN

ECONOMIC ACTIVITIES (EMTAK)

In the financial year, the unconsolidated revenue of AS Starman is divided according to EMTAK codes as follows, EUR thousand:

EMTAK 2014 2014

Television services 11,179

Wired Internet services 10,652

Wired telephone services 1,969 Sale of goods and materials 650

Electricity 522 Infrastructure services 8,009

Total 32,980

annual report of as starman - eastnine.com · annual report of as starman end of financial year...

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