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United Group

H1 2020 HIGH YIELD BONDHOLDER REPORT

August 27, 2020

H1 2020 HIGH YIELD REPORT

CONTENTS Page

H1 2020 Summary ................................................................................................. 3

Key Operating Measures ........................................................................................ 6

Results of Operations ........................................................................................... 10

Liquidity and Capital Resources ........................................................................... 16

Subsequent (Material Recent) Events .................................................................. 20

Mergers & Acquisitions ........................................................................................ 23

Group Background ............................................................................................... 24

Appendices ........................................................................................................... 28

Appendix 1 - Financial statements ................................................................................................ 28 Appendix 2 - Key Factors Affecting Our Business and Results of Operations ............................ 31 Appendix 3 - Definitions of Key Operating Measures ................................................................. 40 Appendix 4 - Description of Key Line Items ................................................................................ 42 Appendix 5 - Quantitative and Qualitative Disclosures about Market Risk ................................. 44 Appendix 6 - Critical Accounting Policies ................................................................................... 45


2

Disclaimer

THIS REPORT (THIS “REPORT”) IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR INFORMATION PURPOSES. BY READING THIS REPORT, ATTENDING A PRESENTATION OF THIS REPORT (THE “PRESENTATION”) AND/OR READING THE SLIDES USED FOR THE PRESENTATION (THE “PRESENTATION SLIDES”) YOU AGREE TO BE BOUND AS FOLLOWS:

This Report, the Presentation and/or the Presentation slides contains forward-looking statements, which include

all statements other than statements of historical facts, including, without limitation, any statements preceded by,

followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”,

“estimates”, “would”, “will”, “could”, “should” or similar expressions or the negative thereof. Such forward-looking

statements involve known and unknown risks, uncertainties and other important factors beyond our control that

could cause our actual performance or achievements to be materially different from future performance or

achievements expressed or implied by such forward-looking statements. Such forward-looking statements are

based on numerous assumptions regarding our present and future strategies and the environment in which we will

operate in the future. These forward-looking statements speak only as at the date of this Report. We expressly

disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements

contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions

or circumstances on which any of such statements are based.

This Report contains summary unaudited condensed financial information for Adria Midco B.V. and its subsidiaries

for the six months ended June 30, 2020, unless another source, such as management accounts, is specifically

mentioned. The statement of financial position for Adria Midco B.V. and its subsidiaries as at June 30, 2020 and as

at June 30, 2019, as well as the condensed consolidated interim statements of profit or loss and cash flows for

Adria Midco B.V. and its subsidiaries for the six month periods then ended have been prepared in accordance with

IFRS, but have not been reviewed by our independent auditors. As a consequence, the summary condensed

financial information presented is subject to potential change. If in connection with any review there is any material

change to such summary condensed financial information, we intend to present a supplemental report detailing

such change.

Certain financial measures and ratios related thereto in this Report including EBITDA, Adjusted EBITDA, Adjusted

EBITDA minus capital expenditure, RGUs and ARPU (collectively, the ‘‘Non-IFRS Measures’’) are not specifically

defined under IFRS or any other generally accepted accounting principles. These measures are presented here

because we believe that they and similar measures are widely used in our industry as a means of evaluating a

company’s operating performance and financing structure. Our management believes this information, along with

comparable IFRS measures, is useful to investors because it provides a basis for measuring the operating

performance in the periods presented. These measures are used in the internal management of our business,

along with the most directly comparable IFRS financial measures, in evaluating our operating performance. These

measures may not be comparable to other similarly titled measures of other companies and are not measurements

under IFRS or other generally accepted accounting principles, and you should not consider such items as

alternatives to net income (loss), operating income or any other performance measures derived in accordance with

IFRS, and they may be different from similarly titled measures used by other companies.

Adria Midco B.V. is providing this information voluntarily, and the material contained in this announcement is

presented solely for information purposes and is not to be construed as providing investment advice. As such, it

has no regard to the specific investment objectives, financial situation or particular needs of any recipient. No

representation or warranty, either express or implied, is made as to, and no reliance should be placed on, the

fairness, accuracy, completeness, correctness or reliability of the information contained herein. It should not be

regarded by recipients as a substitute for the exercise of their own judgment. None of Adria Midco B.V., or any of

its directors, officers, employees, affiliates, direct or indirect shareholders, advisors or agents, accepts any liability

for any direct, indirect, consequential or other loss or damage suffered by any person as a result of relying on all

or any part of this information, and any liability is expressly disclaimed.


3

H1 2020 Summary

August 27, 2020 – United Group, the leading cable and media player in South Eastern Europe,

today reports its financial results for H1 2020.

Operational Highlights

Homes passed grew by 3% to 1,887 thousand compared to H1 2019, primarily as a

result of organic growth and acquired companies in 2019 and 2020

Number of unique cable subscribers increased to 1,183 thousand (H1 2019: 1,166

thousand), primarily as a result of organic growth and acquired companies in 2019 and

2020

Revenue Generating Units (“RGUs”) up by 28% year-on-year to 4,924 thousand, driven

by Tele2 acquisition (937 thousand mobile RGUs) and organic growth

Blended Cable Average Revenue Per User (“ARPU”) for H1 2020 up by 3% year-on-

year to €23.3 (H1 2019: €22.6), driven by migration from lower-priced to higher-priced

service packages, subscriber growth for the Group’s multi-play offering, and price

increases

Financial Highlights

Consolidated Group revenue for H1 2020 up 14% year-on-year to €414.7 million (H1

2019: €363.9 million)

Consolidated Group adjusted EBITDA up 9% in H1 2020 to €163.3 million (H1 2019:

€150.1 million)

Net cash inflow of €884.4 million versus an outflow of €10.0 million in H1 2019

As at June 30, 2020, net leverage for United Group including Vivacom (ratio of Group

Net Debt to Annualized Last Two Quarters Adjusted Pro Forma EBITDA1) decreased to

5.00x (March 31, 2020: 5.06x)

1 Annualized Adjusted Pro Forma EBITDA is calculated as two times Q2 2020 + Q1 2020 Adjusted EBITDA plus

€6.9 million of United Media expected synergies plus €13.7m of Tele2 Standalone L2QA Adj. EBITDA Contribution

(Jan20-Feb20) plus Vivacom annualized Q2 2020 + Q1 2020 Adjusted EBITDA (€202.6 million).


4

The following summary describes the operations in each of the Group’s reportable segments

or subgroups:

SBB Serbia includes the results of cable services in Serbia and direct-to-home

(“DTH” or Satellite) operations in Serbia and North Macedonia. Absolut Solutions

results are also included in the SBB Serbia segment however, their results are not

reflected in the statutory consolidated results of the SBB Serbia Group.

Telemach Slovenia includes the results of the Group’s cable, mobile and DTH

services in Slovenia.

Telemach BH includes the results of the Group’s cable and DTH services in Bosnia

and Herzegovina.

Telemach Montenegro includes the results of the Group’s cable and DTH services

in Montenegro.

Tele2 includes the results of the Group’s mobile services in Croatia.

United Media Group includes the results of the Group’s media and content business

in the former Yugoslav region including the results of N1, Sport Klub, Grand

Production, Orlando Kids, IDJ and entities acquired during 2018 (Nova TV and

Direct Media Group).

Other Businesses includes the results of the Group’s other operating businesses

(such as NetTV) and its Holding companies.

United Group generated consolidated revenues of €414.7 million during H1 2020. The

14% increase in revenue is attributable to the Tele2 acquisition, organic growth of the

subscriber base, migration of subscribers to multi-play packages and the impact of other

acquisitions in 2019 and 2020. Adjusted EBITDA in H1 2020 was up 9% to €163.3 million.

Summary financials table in € m H1 2019 H1 2020 Change

Revenue 363.9 414.7 14% Adjusted EBITDA 150.1 163.3 9% Result from operating activities 33.2 41.7 25% Profit/(loss) before tax (7.5) (26.6) 257%

In H1 2020:

SBB Serbia generated 27% of consolidated revenues and 36% of consolidated

Adjusted EBITDA

Telemach Slovenia generated 28% of consolidated revenues and 24% of

consolidated Adjusted EBITDA

Telemach BH generated 9% of consolidated revenues and 7% of consolidated

Adjusted EBITDA

Telemach MNE generated 2% of consolidated revenues and 1% of consolidated

Adjusted EBITDA


5

United Media generated 17% of consolidated revenue and 22% of consolidated

Adjusted EBITDA

Tele2 generated 15% of consolidated revenues and 11% of consolidated Adjusted

EBITDA

Other Businesses generated 2% of consolidated revenue and (2%) of consolidated

Adjusted EBITDA

H1 2020 in € m Revenue, net % of total Adj. EBITDA % of total

SBB Serbia 113.2 27% 59.0 36% Telemach Slo 115.4 28% 39.5 24% Telemach BH 36.8 9% 12.0 7% Telemach MNE 6.7 2% 1.3 1% United Media 71.1 17% 36.2 22% Tele2 61.9 15% 18.4 11% Other Businesses 9.6 2% (3.0) (2%)

Total 414.7 100% 163.3 100%

As at June 30, 2020, United Group had 4.92 million RGUs, up 28% year-on-year (H1

2019: 3.84 million) and an increase of 22 thousand quarter-on-quarter (Q1 2020: 4.90

million). This positive trend was driven by the Tele2 acquisition (937 thousand mobile RGUs),

organic growth of cable pay-TV, telephony, mobile, internet and other services, as well as a

growing proportion of multi-play subscribers.

Blended cable average revenue per user (“ARPU”) for the period was €23.3, compared

to €22.6 for H1 2019, with the 3% year-on-year increase primarily driven by the migration of

existing subscribers from lower-priced to higher-priced service packages, growth in

subscribers for the multi-play offering, and price increases. Subscriber migration to multi-play

packages is expected to continue as the cable market develops further.

Capital expenditure (including capitalized inventory) amounted to €103.0 million in H1

2020, compared to €93.5 million in H1 2019. The majority of investments during H1 2020

related to network expansion, customer premise equipment, the purchase of new

programming rights and investment in mobile infrastructure.

United Group’s six-month financial statements have been prepared in accordance with

International Financial Reporting Standard (“IFRS”) accounting policies.


6

Key Operating Measures

United Group uses several key operating measures, including homes passed, unique

cable subscribers, RGUs and ARPU, to track the performance of the business. None of these

terms are measures of financial performance under IFRS, nor have these measures been

reviewed by an outside auditor, consultant or expert. These measures are derived from

management information systems. As these terms are defined by management, they may not

be comparable to similar terms used by other companies. Please refer to Appendix 3 for

definitions of the Group’s key operating measures.

Unique Cable Subscribers, RGUs and ARPU

The following table sets forth key operating measures for United Group as of, and for

the six months ended, June 30, 2020 and June 30, 2019.

in 000 H1 2019 H1 2020 Change % Change

Key Operating Measures

Homes passed 1,829 1,887 3% 58

Unique cable subscribers 1,166 1,183 2% 18

RGUs 3,844 4,924 28% 1,080

Cable pay-TV 1,166 1,183 2% 18

Broadband internet 834 881 6% 47

Fixed-line telephony 671 714 6% 43

Mobile services 532 1,501 182% 969

DTH pay-TV 452 447 (1%) (6)

OTT 118 123 4% 5

Other services 71 76 7% 5

Penetration

Cable pay-TV 63.7% 62.7% (2%) (1%)

Broadband internet 45.6% 46.7% 2% 1%

Fixed-line telephony 36.7% 37.8% 3% 1%

Blended Cable ARPU (in €) 22.6 23.3 3% 0.8

Homes passed increased by 58 thousand, or 3%, from 1,829 thousand on June 30,

2019 to 1,887 thousand as at June 30, 2020, primarily due to organic network expansion and

acquired companies in 2019 and 2020.

As at June 30, 2020, the Group had 1,183 thousand cable pay-TV RGUs, an increase

of 18 thousand compared to 1,166 thousand at June 30, 2019, as a result of organic growth

and acquisitions in 2019 and 2020.

The total number of DTH pay-TV RGUs amounted to 447 thousand as at June 30,

2020, a 1% decrease year-on-year.


7

As at June 30, 2020, the Group had 881 thousand broadband internet RGUs,

representing an increase of 6%, compared to 834 thousand at June 30, 2019. This is primarily

attributable to an increase in multi-play subscriptions over this period, organic subscriber

growth and acquired companies in 2019 and 2020.

The total number of fixed telephony RGUs rose to 714 thousand as at June 30, 2020,

an increase of 6% compared to 671 thousand at June 30, 2019. The positive trend is primarily

due to an increase in multi-play subscriptions over this period, organic subscriber growth and

acquired companies in 2019 and 2020.

OTT RGUs grew by 4% to 123 thousand, compared to 118 thousand at June 30, 2019.

Mobile service RGUs increased from 532 thousand at June 30, 2019 to 1,501 thousand

as at June 30, 2020. This is an increase of 969 thousand, or 182%, driven by the acquisition

of Tele2 (937 thousand mobile RGUs) and organic growth in Slovenia.

Total RGUs increased by 28%, from 3,844 thousand at June 30, 2019 to 4,924

thousand as at June 30, 2020. RGUs added over this period were mainly a result of the

acquisition of Tele2 (937 thousand mobile RGUs), as well as organic growth of cable pay-TV

and mobile services and a growing proportion of multi-play subscribers.

The following table provides a breakdown of the Group’s key operating measures for

SBB Serbia, Telemach Slovenia, Telemach BH, Telemach MNE and Tele2.2

2 Prior year figures included for presentation purposes only. Tele2 Croatia acquired in March 2020.

in 000

Footprint H1 19 H1 20 YoY H1 19 H1 20 YoY H1 19 H1 20 YoY H1 19 H1 20 YoY H1 19 H1 20 YoY

Homes passed 1,075 1,105 3% 334 349 5% 335 339 1% 86 93 9% - -

Unique cable subscribers 725 740 2% 196 204 4% 215 208 (3%) 30 31 7% - -

Cable Pay-TV penetration 67% 67% 59% 58% 64% 61% 35% 34%

RGUs

Cable pay-TV 725 740 2% 196 204 4% 215 208 (3%) 30 31 7% - -

Broadband internet 495 523 6% 159 173 8% 159 163 2% 21 23 9% - -

Telephony 382 416 9% 169 178 5% 105 104 (1%) 14 16 12% - -

Mobile services - - 532 564 6% - - - - 948 937 (1%)

DTH pay-TV 223 223 0% 44 42 (4%) 132 136 3% 54 46 (15%) - -

OTT 11 16 52% 0 0 72% - 0 - - 0 - - -

Other services 32 34 7% 38 41 8% 1 1 (34%) - - - -

Total RGUs 1,867 1,951 4% 1,139 1,201 6% 612 612 0% 118 116 (2%) 948 937 (1%)

SBB Serbia Telemach SLO Telemach BH Telemach MNE Tele22


8

The following table sets forth the blended cable ARPU for SBB Serbia, Telemach

Slovenia, Telemach BH, Telemach MNE and Tele2 generated by the products and services the

Group offers.

SBB Serbia

Telemach SLO

Telemach BH Telemach

MNE Tele23

in € H1 19 H1 20 H1 19 H1 20 H1 19 H1 20 H1 19 H1 20 H1 19 H1 20

ARPU

Cable pay-TV 10.5 10.5 19.1 18.5 10.3 10.8 11.2 11.5

Broadband internet 10.5 11.1 18.3 18.2 9.8 10.1 8.2 8.2

Telephony 3.6 3.7 3.34 3.0 6.9 6.6 2.8 2.7

Mobile services 10.74 11.0 12.8 12.7

Blended Cable ARPU 19.4 20.3 36.6 36.4 20.8 22.0 18.1 18.7

DTH pay-TV 10.7 10.3 18.45 18.3 9.3 9.6 12.0 11.1

ARPU from broadband internet includes value-added services such as online backup,

internet security and anti-virus solutions. One unique cable subscriber can be an RGU for cable

pay-TV, fixed-line telephony, broadband internet or other services. DTH subscribers are DTH

RGUs.

SBB Serbia: Blended cable ARPU for SBB Serbia in H1 2020 amounted to €20.3. The

4.7% year-on-year increase was primarily a result of the continued positive impact of

subscribers upgrading to multi-play packages and a positive accounting impact due to IFRS

15.

DTH ARPU for SBB Serbia decreased to €10.3 in H1 2020, from €10.7 in H1 2019,

mainly as a result of negative IFRS 15 effect in H1 2020.

Telemach Slovenia: Blended cable ARPU for Telemach Slovenia in H1 2020 amounted

to €36.4, broadly flat versus the previous year (H1 2019: €36.6), as growth in the number of

multi-play subscribers and price increases implemented in February 2019 and March 2020

were offset by sales/retention promotions. The segment’s mobile ARPU increased to €11.0 in

H1 2020, from €10.7 in H1 2019. The 2.4% year-on-year increase was mainly a result of price

increases in March 2020.

DTH ARPU for Telemach Slovenia remained stable at €18.3 in H1 2020.

3 Prior year figures included for presentation purposes only. Tele2 Croatia acquired in March 2020. H1 2020 ARPU

is for the period after the closing.

4 In August 2019 Mobile interconnection revenues (€40 thousand) were reclassified to Telephony interconnection

revenues.

5 In September 2019 DTH pay-TV Subscription Revenues (€21 thousand) were reclassified to Other revenues,

which had a negative effect on H1 19 DTH pay-TV ARPU.


9

Telemach BH: Blended cable ARPU for Telemach BH in H1 2020 increased by 5.9%

year-on-year to €22.0, as a result of growth in the number of subscribers for the multi play

offering and the full-year effect of price increases implemented in April 2019.

DTH ARPU for Telemach Bosnia increased to €9.6 in H1 2020, from €9.3 in H1 2019,

mainly as a result of price increases in March 2020.

Telemach MNE: Blended cable ARPU for Telemach MNE in H1 2020 increased by 3.4%

year-on-year to €18.7, mainly as a result of growth in the number of subscribers for the

multi-play offering.

DTH ARPU for Telemach MNE decreased to €11.1 in H1 2020, from €12.0 in H1 2019,

mainly due to a negative IFRS 15 effect stemming from more subscribers having expired

discounts in the contract period.

Tele2 6: Mobile ARPU for H1 2020 amounted to €12.7, representing a 0.7% year-on-

year decrease.

6 Prior year figures included for presentation purposes only. Tele2 Croatia acquired in March 2020. H1 2020 ARPU

is for the period after the closing.


10

Results of Operations

In this report, the Group presents financial data for United Group for the six months

ended June 30, 2020 compared to the six months ended June 30, 2019. Please refer to

Appendix 2 for the key factors affecting the Group’s business and results of operations. For a

description of the key line items, please refer to Appendix 4.

in €000 H1 2019 H1 2020

Revenue 363,946 414,748

Other income 5,092 3,640

Content cost (60,762) (55,576)

Link and interconnection cost (19,673) (27,359)

Cost of end-user equipment and other material cost (22,217) (41,816)

Staff costs (52,491) (48,003)

Media buying (19,097) (14,284)

Other operating expenses (56,380) (67,834)

Impairment loss on trade and other receivables, including contract assets

(4,458) (5,813)

Impairment loss on other financial assets (17) -

IFRS EBITDA

133,943

157,703

Depreciation (51,083) (56,228)

Depreciation (right-of-use assets) (9,163) (14,707)

Amortization of intangible assets (40,449) (45,046)

Operating profit 33,248 41,722

Finance income 2,192 919

Finance costs (42,895) (69,271)

Net finance costs (40,703) (68,352)

Profit/(loss) before tax (7,455) (26,630)

Income tax (expenses)/benefit (3,578) (2,977)

Profit/(loss) for the period (11,033) (29,607)

Revenue

Revenue increased by €50.8 million, or 14%, year-on-year to €414.7 million for H1

2020. This increase was primarily due to the acquisition of Tele2, continued successful cross-

selling and price increases.


11

Revenue figures for the business segments below exclude inter-company transactions,

which have been eliminated.

in €000 H1 2019 H1 2020 Change

SBB Serbia 109,005 113,240 4% Telemach Slovenia 111,969 115,440 3% Telemach BiH 35,879 36,758 2% Telemach MNE 7,198 6,686 (7%) United Media 91,567 71,137 (22%) Tele2 - 61,913 n/a Other 8,328 9,574 15%

Total 363,946 414,748 14%

SBB Serbia: Revenue for SBB Serbia increased by 4% year-on-year to €113,240

thousand in H1 2020, primarily due to growth in the number of subscribers and RGUs

(particularly through successful cross-selling).

Telemach Slovenia: Revenue for Telemach Slovenia increased by 3% year-on-year to

€115,440 thousand in H1 2020, primarily due to an increase in the number of mobile telephony

subscribers, higher mobile handsets sales and price increases implemented in February 2019

and March 2020.

Telemach BH: Revenue for Telemach BH increased by 2% to €36,758 thousand in H1

2020, primarily due to organic growth and price increases implemented in April 2019 and

March 2020.

Telemach MNE: Revenue for Telemach MNE decreased by 7% year-on-year to €6,686

thousand in H1 2020, from €7,198 thousand in H1 2019, mainly due to a lower number of

DTH subscribers in H1 2020 (a declining trend).

United Media Group: External revenue at United Media Group decreased by 22% year-

on-year to €71,137 thousand in H1 2020, mainly as a result of the COVID-19 pandemic. Total

revenues of the Media Segment (including intercompany revenues) shrank by 12% year-on-

year to €120,920 thousand in H1 2020.

Other Businesses: Revenue for the Other Businesses segment increased year-on-year,

by €1,246 thousand or 15%, to €9,574 thousand in H1 2020.

Tele2: Revenue for Tele2 amounted to €61,913 thousand.

Other income

Other income decreased 29% year-on-year from €5,092 thousand in H1 2019 to

€3,640 thousand in H1 2020.


12

Content cost

Content costs decreased by 9% year-on-year to €55,576 thousand in H1 2020, mainly

due to cost savings and the fact that we have managed to maintain top audience ratings at

lower cost levels during the COVID-19 pandemic.

Link and interconnection cost

Link and interconnection costs increased by 39% year-on-year to €27,359 thousand in

H1 2020, mainly as a result of higher mobile link and interconnection costs due to the Tele2

acquisition.

Cost of end-user equipment and other material costs

Cost of end-user equipment and other material costs increased by 88% year-on-year

to €41,816 thousand in H1 2020. This increase was a result of higher cost of sales for mobile

handsets mainly due to the Tele2 acquisition.

Staff costs

Staff costs decreased by 9% year-on-year to €48,003 thousand in H1 2020, mainly

due to the non-cash impact of the application of IFRS 2 in relation to a Long-Term Incentive

Scheme (the “LTIS”), which amounted €14,504 thousand in H1 2019 (H1 2020: nil).

Media buying

Media buying decreased 25% year-on-year to €14,284 thousand in H1 2020 (H1 2019:

€19,097 thousand). This decrease is in line with lower media buying revenues as a result of

lower advertising expenditure due to the COVID-19 pandemic.

Depreciation

Depreciation increased by 10% year-on-year to €56,228 thousand in H1 2020, largely

due to the addition of new assets as a result of the Tele2 acquisition.

Depreciation (right-of-use assets)

Depreciation increased to €14,707 thousand in H1 2020, from €9,163 thousand in H1

2019.

Amortization of intangible assets

Amortization of intangible assets increased by 11% year-on-year to €45,046 thousand

in H1 2020, mainly due to higher investments in programming rights and software licenses,

as well as the addition of intangible assets due to the Tele2 acquisition.


13

Other operating expenses

Other operating expenses increased by 20% year-on-year to €67,834 thousand in H1

2020, primarily due to higher costs related to the COVID-19 pandemic and the acquisition of

Tele2.

Net finance costs

Net finance costs increased by 68% year-on-year to €68,352 thousand in H1 2020,

mainly attributable to higher interest expenses from a bond issuance and an increase in other

finance costs (bridge loan commitment fees).

Profit/(loss) before tax

Loss before tax increased to €26,630 thousand in H1 2020, from a loss of €7,455

thousand in H1 2019, primarily due to an increase in net finance costs, as operating profit

increased by €8,474 thousand.


14

EBITDA reconciliation

EBITDA is a supplemental measure of financial performance that is not required by, or

presented in accordance with, IFRS. United Group defines “EBITDA” as profit/(loss) for the

period plus income tax (benefit)/expense, depreciation, amortization of intangible assets and

net finance costs.

EBITDA is not a measurement of performance or liquidity under IFRS and you should

not consider EBITDA as alternatives to (a) net income as determined in accordance with IFRS

as a measure of the Group’s operating performance, (b) cash flow for the period as a measure

of the Group’s ability to meet its cash needs, or (c) any other measure of performance or

liquidity under IFRS. United Group presents EBITDA and the ratios derived therefrom, because

it believes that they are measures commonly used by investors and they are measures that

are used in managing the business. EBITDA, as presented in this report, however, may not

be comparable to similarly titled measures reported by other companies due to differences in

the way these measures are calculated.

The following table provides a reconciliation of profit/(loss) for the period to EBITDA.

in €000 H1 2019 H1 2020 Change Profit/(Loss) for the period (11,033) (29,607) 168% Income tax (benefit)/expense 3,578 2,977 (17%) Depreciation 51,083 56,228 10% Depreciation (right-of-use assets) 9,163 14,707 61% Amortization of intangible assets 40,449 45,046 11% Net finance costs 40,703 68,352 68%

EBITDA 133,943 157,703 18%

Non-operating expenses 16,185 5,606 (65%)

Adjusted EBITDA 150,128 163,309 9%

The following table provides a build-up of Annualized Last Two Quarters Adjusted Pro

Forma EBITDA including Vivacom.

in €000 L2QA

Annualized L2Q Adjusted EBITDA 326,618

Tele2 Standalone L2QA Adj. EBITDA Contribution (Jan20-Feb20) 13,681

Vivacom L2QA Adj. EBITDA as of Jun 2020 (as per Vivacom man. accounts) 202,567

United Media estimated additional carriage fees 6,930

Annualized Last Two Quarters Adjusted Pro Forma EBITDA 549,796


15

Gross Leverage and Net Leverage Ratio including Vivacom

As at June 30, 2020, United Group’s gross leverage ratio (i.e. the ratio of Group gross

debt to Annualized Last Two Quarters Pro Forma EBITDA) decreased to 5.17x, compared to

5.20x as at March 31, 2020. As at June 30, 2020, United Group’s net leverage ratio (i.e. the

ratio of Group net debt to Annualized Last Two Quarters Pro Forma EBITDA) decreased to

5.00x, compared to 5.06x as at March 31, 2020.

In €000 H1 2020

a) Annualized Last Two Quarters Pro Forma EBITDA 549,796

b) Cash and cash equivalents7 94,860

c) Lease liabilities 266,311 d) SSRCF 84,000 e) Senior Secured Notes8 2,750,000 f) Other financial liabilities 7,731 g) IFRS 16 lease liabilities adjustment (264,035) h) As adjusted Group Gross debt (c+d+e+f+g) 2,844,007 i) As adjusted Group Net debt (h-b) 2,749,147

j) Gross leverage (h/a) 5.17x

k) Net leverage (i/a) 5.00x

7 Cash and cash equivalents figure includes cash and cash equivalents of United Group and Vivacom and excludes

the amount of unpaid transaction costs on Vivacom acquisition.

8 Senior Secured Notes figure represents face value, hence excludes capitalized transaction costs as shown in the

Statement of Financial Position as for IFRS.


16

Liquidity and Capital Resources

The Group’s primary sources of liquidity and funds for capital expenditure, acquisitions

and other investments are expected to be operating cash flow, the existing revolving credit

facility (“RCF”), potential additional issuances of debt securities, ancillary and bilateral lending

facilities and finance leases. United Group’s ability to generate cash from its operations will

depend on future operating performance, which is in turn dependent, to some extent, on

general economic, financial, competitive, market, regulatory and other factors, many of which

are beyond the Group’s control.

United Group maintains cash and cash equivalents to fund the day-to-day

requirements of the business. The Group holds cash primarily in euros, but also in Serbian

dinar, Bosnian mark and other currencies.

Historically, the Group has relied primarily on its Senior Secured Revolving Credit

Facility and bilateral bank facilities, other debt facilities and cash flow from operations to

provide funds required for investments in capital expenditure and operations.

As at June 30, 2020, the Group had €86.5 million in cash and cash equivalents. In

addition, as at June 30, 2020, United Group had €2,750.0 million in fixed and floating rate

Senior Secured Notes9, along with a partially drawn Senior Secured Revolving Credit Facility

of €44.0 million, a €40.0 million unsecured bilateral RCF in Serbia, lease liabilities in the

amount of €153.6 million and other financial liabilities of €7.7 million.

Cash Flow

The table below summarises the Group’s consolidated cash flow for the six months

ended June 30, 2020, compared to the six months ended June 30, 2019.

In €000 H1 2019 H1 2020 Change

Operating net cash flow 81,080 137,796 56,716

Investing net cash flow (113,320) (235,830) (122,510)

Financing net cash flow 22,283 982,433 960,150

Net cash flow (9,957) 884,399 894,356

Net cash from / (used in) operating activities

Net cash flows from operating activities increased by €56,716 thousand, from a net

cash inflow of €81,080 thousand in H1 2019 to a net cash inflow of €137,796 thousand in H1

2020. This is primarily due to an increase in cash generated from operations, which was partly

offset by higher interest payments.

9 Senior Secured Notes figure represents face value, hence excludes capitalized transaction costs as shown in the

Statement of Financial Position as for IFRS.


17

Net cash from / (used in) investing activities

Net cash flows used in investing activities increased by €122,510 thousand, from a net

cash outflow of €113,320 thousand in H1 2019 to a net cash outflow of €235,830 thousand

in H1 2020. This increase is primarily due to the payment of the consideration relating to the

acquisition of Tele2.

Net cash from / (used in) financing activities

Net cash flows from financing activities increased by €960,150 thousand, from a net

cash inflow of €22,283 thousand in H1 2019 to a net cash inflow of €982,433 thousand in H1

2020, primarily due to the issuance of bonds in February 2020.


18

Capital Expenditure

United Group’s capital expenditure relates primarily to the purchase of property and

equipment, including expansion of the Group’s network in terms of capacity and new homes

connected, purchase of modems and set-top boxes to be installed in customer premises,

growth in RGUs and maintenance of the Group’s cable and mobile networks and infrastructure,

purchase of intangible assets such as content, software, investments in core infrastructure

and systems to facilitate the addition of new services and acquisitions. Therefore, capital

expenditure is primarily driven by extending, upgrading and maintaining cable and mobile

networks, the installation and in-home wiring for new subscribers, the cost of cable modems,

including high-speed modems for subscribers to the Group’s high-speed broadband internet,

as well as the acquisition and production of content. The Group’s capital expenditure has also

historically included certain investments of a non-recurring nature, as well as costs to integrate

acquired businesses.

Capital expenditure also includes increases in intangible assets (except the Group’s

customer list and brand names) and does not include financial assets. As part of the Group’s

strategy to focus on capital expenditure improving returns, it has implemented measures to

ensure a more efficient usage of capital investment. United Group intends to manage capital

expenditure to maintain its well-invested asset base. The members of the Group’s board of

directors review all material capital expenditure programmes.

Over the next several years, United Group expects that its capital expenditure will be

largely success- and capacity-based. Success and capacity-based capital expenditure includes

capital expenditure related to the expansion of the Group’s network footprint to additional

homes and existing subscribers, the replacement of set-top boxes, expanding network

capacity, new product and service development and expenditure incurred when connecting

business subscribers to the Group’s network. Success-based capital expenditure does not

include capital expenditure for maintenance, upgrade and replacement of systems and

infrastructure.

CAPEX by Segment

in €000 H1 2019 H1 2020 Change

SBB Serbia 31,704 28,869 (9%)

Telemach Slovenia 28,911 29,833 3%

Telemach BH 6,816 9,086 33%

Telemach MNE 1,807 1,870 3%

United Media 23,813 24,286 2%

Tele2 - 7,754 n/a

Other 452 1,343 197%

Total 93,503 103,041 10%


19

SBB Serbia: Capital expenditure for SBB Serbia decreased by 9% year-on-year to

€28,869 thousand in H1 2020, mostly due to lower investments in customer-premises

equipment and internet protocol equipment compared to H1 2019.

Telemach Slovenia: Capital expenditure for Telemach Slovenia increased by 3% year-

on-year to €29,833 thousand in H1 2020, mainly due to higher customer-premises equipment

and cable network investments.

Telemach BH: Capital expenditure at Telemach BH in H1 2020 increased by 33% year-

on-year to €9,086 thousand, mostly due to higher investments in customer-premises

equipment and higher cable network investments compared to H1 2019.

Telemach MNE: Capital expenditure for the Montenegro segment increased by 3% to

€1,870 thousand in H1 2020, mainly due to higher customer-premises equipment.

Tele2: Capex for Tele2 amounted to €7,754 thousand in H1 2020.

United Media: Capital expenditure for United Media increased by 2% to €24,286

thousand in H1 2020, due to higher investment in TV equipment and higher R&D investments

(United Cloud).

Please refer to Appendix 5 for specific quantitative and qualitative disclosures about

market risk and Appendix 6 for the Group’s critical accounting policies.

Adjusted EBITDA-CAPEX increased from €56,625 thousand in H1 2019 to €60,268

thousand in H1 2020, mostly due to robust Adjusted EBITDA growth.

in €000 H1 2019 H1 2020 Change Adjusted EBITDA 150,128 163,309 9% CAPEX 93,503 103,041 10% Adjusted EBITDA – CAPEX 56,625 60,268 6%


20

Subsequent (Material Recent) Events

Acquisition of Vivacom and bond issue

On November 7, 2019, the Group concluded an agreement to acquire Vivacom

Bulgaria, the leading telecom operator, for a consideration of EUR 938,726 thousand. The

Group financed the transaction through the issuance of bonds in February 2020, the proceeds

of which were deposited into certain escrow accounts. The transaction closed on July 31,

2020. The Group expects this acquisition to accelerate its growth, expand its geographic reach

and cement its position as the industry leader in South Eastern Europe (see Note 32 and 39

to the Adria MidCo B.V. Group Consolidated Financial Statements as of and for the period

ended June 30, 2020). Following the completion of the acquisition of Vivacom, the

commitments in respect of the Group’s Revolving Credit Facility increased to €250 million.

Other acquisitions

On May 29, 2020, the Group concluded an agreement to acquire the Seller’s stake (as

defined below) in Forthnet S.A. Greece, a leading Greek telecom operator, including all of the

company’s loan obligations, its convertible debt and an initial 36% of the company’s shares

following the successful conclusion of negotiations between National Bank of Greece, Alpha

Bank, Piraeus Bank and Attica Bank (the “Sellers”) and the Group (the “Purchaser”). The

transaction is subject to customary regulatory approvals by the local competition authorities

and is expected to be completed in Q4 2020. The Group will use available funds to finance

the acquisition. The Group’s entry into the Greek market is another milestone in its European

growth strategy, and it further cements its position as an industry leader, operating in eight

countries across the region.

The Group concluded an agreement to acquire the remaining 49% of Grand Production

d.o.o. for a total consideration of EUR 22,152 thousand. The transaction is subject to

customary regulatory approvals by the local competition authorities and is expected to be

completed in 2020.

The Group concluded agreements, or signed binding offers, to acquire stakes in several

companies in Serbia and Slovenia for a total preliminary consideration of EUR 6,049 thousand

subject to certain adjustments at closing dates. The transactions are subject to customary

regulatory approvals by the local competition authorities and are expected to be completed in

2020.

COVID-19

The existence of novel coronavirus (“COVID-19”) was confirmed in early 2020 and has

spread rapidly across the globe, causing disruption to businesses and economic activity. Many

governments across the world have imposed travel restrictions, lock downs and social

distancing with a view to reducing the spread of the virus and minimizing the number of

fatalities. The Group considers this outbreak to be a non-adjusting post balance sheet event.

The Group’s main priority has been the health and safety of all employees and

stakeholders, and the continuous provision of services to its customers. The Group has

adhered to instructions issued by the relevant state authorities, including those relating to


21

travel restrictions and enforced working from home. Management believes that the impact on

business is currently limited with no immediate material adverse operational impact.

Management intends to continue following the various national and/or state authorities’

policies and, in parallel, intends to do the utmost to continue operations as the situation

evolves.

COVID-19 impact on Revenues and Adjusted EBITDA

Based on the analysis performed for the remainder of 2020, minimal impact to organic

consolidated revenues is estimated (1-2% compared to 2019). Revenue streams most likely

affected are advertising, media selling, mobile handsets sales and mobile international

roaming. Management expects to be able to mitigate any shortfall in revenues through cost

optimisation initiatives to record a stable organic Adjusted EBITDA compared to last year. In

addition to cost optimisation, the Group has amended its plans for Capex spend during 2020,

where possible, without hindering the Group’s ability for future growth and quality of services

provided.

The Group’s telco segments have continued to meet customers’ expectations on

service level and its network operating centre has maintained normal service levels. Based on

this, no significant change in the customer base is expected. As customers are unlikely or

unable to easily migrate during the crisis, somewhat lower gross adds and churn rates are

expected for the year. Organic revenues and Adjusted EBITDA in the telco segment are

expected to remain stable compared to last year.

During the COVID-19 pandemic in March-May 2020, the Group has experienced a

significant increase in voice and data traffic, mainly due to the increase in the number of

people working from home and distance learning. The Group’s fixed data traffic has increased

by 50%-70%, while fixed voice traffic has increased by 50%-85% (depending on the country).

The Group’s mobile data and voice traffic has increased by 30%-40%. The Group increased

capacity on network elements and interconnections to accommodate increased customer

demand.

In the Media segment, Management expects a decline in revenue of approximately 4-

5% compared to the previous year. This decline is due in part to the postponement of certain

sporting events which is expected to decrease revenue in the Media segment. The decline in

media selling revenue will be offset by a decline in relevant costs. Overall, supported by cost

optimization efforts, Management expects Adjusted EBITDA in the Media segment to be

broadly stable year-on-year.

The acquisitions of Tele2 (completed in March 2020) and Vivacom (completed in July

2020) will represent inorganic growth of the reported operational and financial performance

of the Group in 2020. The impact of COVID-19 on the acquired companies is currently

estimated to be similar to that of the Group’s existing telco operations. The expected pro

forma contribution of the acquired companies has not materially changed given the crisis


22

The Group’s management confirms that they are not aware of any other significant

post balance sheet events that could affect the consolidated financial statements for 30 June

2020 or require separate disclosure.


23

Mergers & Acquisitions

On January 9, 2020, the Group acquired a 53% stake in I.R.V. Investicije, Razvoj in Vodenje d.o.o.

On February 25, 2020 the Group agreed to acquire Elcatel d.o.o.

On March 3, 2020, the Group acquired a 100% stake in Tele2 d.o.o.

On April 3, 2020, the Group agreed to acquire Ansat d.o.o.

On May 4, 2020, the Group acquired a 100% stake in PANEL CATV d.o.o.

On May 6, 2020, the Group acquired a 100% stake in Tako Lako Shop d.o.o.

On May 6, 2020, the Group acquired a 90% stake in EVJ Elektroprom trgovina, proizvodnja, instalacije d.o.o.

On May 29, 2020, the Group agreed to acquire a minority stake in Forthnet S.A. Greece and its convertible and non-convertible financial debt.

On June 1, 2020, the Group acquired a 100% stake in IDEO PLUS spletna trgovina d.o.o.

On June 5, 2020, the Group acquired KRS Štepanjsko naselje.

On July 20, 2020, the Group agreed to acquire remaining part of Grand Production d.o.o.

On August, 7, 2020, the Group acquired a 100% stake in Vivacom Bulgaria.

United Group continually monitors M&A opportunities and is currently in the early

stages of evaluating multiple potential opportunities. In line with its stated strategy, the Group

is looking for acquisitions that are value accretive and offer substantial synergies with the

Group’s existing operations.


24

Group Background

United Group is the leading distributor of cable and satellite pay-TV in Slovenia, Serbia,

Bosnia and Herzegovina and Montenegro, where it also provides broadband internet and fixed-

line telephony services. Additionally, the Group offers mobile telephony services in Slovenia

and Croatia (after Tele2 acquisition) and distribute satellite pay-TV across the five countries

of former Yugoslavia, Slovenia, Serbia, Bosnia and Herzegovina, North Macedonia and

Montenegro. In July 2020, the Group completed the acquisition of Vivacom, which offers both

fixed and mobile services in Bulgaria, a market of 7 million people.

United Group is the only pan regional distribution platform in a region of approximately

20 million people and is the leading multi-play provider in its primary markets, where the

Group combines its services into packages, or bundles, which offer subscribers the

convenience of being able to purchase television, broadband internet and telephony services

from a single provider. This model provides significant opportunities to cross-sell the Group’s

products.

United Group believes that it has been able to establish its business as one of the

leading distribution platforms in its region due to the Group’s attractive content portfolio. This

has been established through United Group’s ownership of specific key pay-TV channels, long

term contracts with third parties, its well invested network that provides, among other things,

one of the highest internet download speeds in the Group’s markets, and its high quality

customer service which has led to low churn rates that the Group believes evidences a satisfied

customer base.

Management Team

Many of the Group’s key management members have been with the business since its

inception, including the Executive Chairman and Founder, Dragan Šolak, the Chief Executive

Officer of the Group and Group Vice President – Marketing and Media, Victoriya Boklag and

the Group Vice President - Operations, Violeta Vasilijević. The Group’s senior management

team has substantial experience in the telecommunications, media and technology industries,

as well as in banking, private equity and corporate finance. Many members of the senior

management team have held a number of different positions within the business and have

shaped the direction of its development and its organic growth within the region.

Dragan Šolak—Founder and Executive Chairman of the Group. Mr. Šolak founded SBB in

2000 and has been a member of management since the Group’s inception. In 2009, Mr. Šolak

assumed the role of Group Executive Chairman. In his current role, he continues to be involved

in all aspects of the business and is responsible for the overall strategic leadership of the

Group.

Victoriya Boklag—Chief Executive Officer of the Group and Group Vice President—

Marketing and Media. Ms. Boklag has been with the management team since the Group’s

inception in 2000. Before taking over the role of United Group’s chief executive officer and

vice president of marketing and media, Ms. Boklag held several positions in finance and


25

commercial operations and acted as the chief executive officer of SBB. Ms. Boklag is also a

member of the Board of SBB Foundation. She holds a BA degree from the ICU Kiev.

Violeta Vasilijević—Group Vice President—Operations. Ms. Vasiljević has been with the

management team since the Group’s inception in 2000. She is currently responsible for the

technical and operating support for all of the Group’s administrative functions and products.

Ms. Vasiljević holds a degree in Mechanical Engineering from the University of Kragujevac.

Janez Živko—Vice President Finance. Mr. Živko joined the management team of United

Group in March 2015. Prior to joining, Mr. Živko served as the CFO of the Petrol Group, one

of the largest companies in Slovenia. He has also served in numerous roles at Gorenje Group

over a period of seven years, including Director of Finance and Deputy CFO. Mr. Živko began

his career in 1998 as a financial analyst and subsequently became financial controller for

European operations at ACT Teleconferencing in Denver, Colorado. He holds an MBA (in

Finance) from the University of Denver in Colorado, USA.

Željko Batistić—Group Vice President—Technology. Mr. Batistić first joined the

management team in May 2012. Prior to joining, Mr. Batistić was an experienced CATV

manager and served at a Croatian cable operator at B.net Croatia from 2007 to 2012. Mr.

Batistić holds a Master’s degree in Electrical Engineering from the Faculty of Electrical

Engineering and Computing, University of Zagreb and an Executive MBA degree from Cotrugli

Business School, Zagreb.

Vladislav Ratajac—Group Vice President—Corporate Development. Mr. Ratajac joined the

management team in 2011. Mr. Ratajac held positions at Mid Europa Partners from 2008 to

2011 and Deutsche Bank before joining the Group. Mr. Ratajac holds a degree in Economics

from Rutgers University in New Jersey, USA.

Dragica Pilipović Chaffey—Group Vice President—Corporate Affairs. Ms. Pilipović Chaffey

joined the management team in 2009. Prior to her current role, Ms. Pilipović Chaffey held a

number of senior posts within the European Bank for Reconstruction and Development (EBRD)

from 2007 to 2009, and the IMF in Washington, D.C. Ms. Pilipović Chaffey holds an MBA from

George Washington University, Washington, D.C., and a BA in Economics from the University

of Belgrade.

Ianis Girgenson—Group General Counsel. Mr. Girgenson joined United Group in 2020 as

Group General Counsel. He oversees all legal matters, as well as interactions with national

and EU regulatory agencies. Before joining the Group Mr. Girgenson practiced law in London,

Brussels and Paris for over 15 years and served for 4 years as an Associate General Counsel

at VEON in Amsterdam. Mr. Girgenson graduated from the University of Paris (Sorbonne) and

obtained a Master of Laws from Harvard Law School. He is a member of Paris and New York

bars.

Aleksandra Subotić—Chief Executive Officer—United Media. Ms. Subotić joined the

management team in 2014. Previously, Ms. Subotić was a General Manager at Net TV Plus.

Prior to joining us, Ms. Subotić worked as General Manager at Daniel SatTV, a satellite and


26

cable network development company in Serbia, and at Total TV Info, a distribution company

in Austria. She holds an MBA degree in Economics from Educons University.

Milija Zeković—Chief Executive Officer—SBB Serbia and Telemach Montenegro. Mr.

Zeković joined the management team in October of 2018. Previously, he was Chief Executive

Officer of Crnogorski Telekom from 2016 to 2017. He was also a member of the Executive

Management Board of Crnogorski Telekom from 2008 to 2016. He holds a degree in Economics

from the University of Montenegro.

Adrian Ježina—Chief Executive Officer—Telemach Slovenia. Mr. Ježina joined the

management team in 2017. Prior to joining, Mr. Ježina was the CEO of Siemens Convergence

Creators Adria Region. He graduated in 2009 at the Faculty of Electrical Engineering,

Mechanical Engineering and Naval Architecture in Split. He also holds an Executive MBA degree

from the Cotrugli Business School.

Viktor Pavlinić—Chief Executive Officer—Tele2. Mr. Pavlinić joined the management team

in March of 2020. He has more than 20 years of experience in the telecommunications

industry, in a range of positions in finance, sales and logistics. Mr. Pavlinić joined Tele2 in

2008 as Head of Controlling and was appointed CFO and Member of the Management Board

in 2011. He has been CEO of Tele2 Croatia since 2016. He holds a degree in economics from

the University of Zagreb.

Admir Drinić—Chief Executive Officer—Telemach BH. Mr. Drinić serves as Chief Executive

Officer of Telemach Bosnia and Herzegovina, having joined the Company in 2013 as Chief

Operating Officer. His previous positions include member of the Securitas BiH Board of

Directors, Chief Executive Officer of the B.I.G.A. Sarajevo security agency, and Chief

Technology Officer of Gama Sigurnost Sarajevo. He holds a bachelor’s degree in economics

from the University for Business Studies, Faculty of Economics, in Banja Luka, in 2009.

Nikola Francetić—Chief Executive Officer—Net TV Plus. Mr. Francetić joined the

management team in October of 2018. Previously, he was head of content, broadcasting and

media for A1 Telekom Austria Group from 2014 to 2018 and an executive director for content

at T-HT Croatian Telekom from 2011 to 2014. He holds an MBA from the Bled School of

Business in Slovenia and a degree in Experimental Physics from the University of Zagreb.

Ljiljana Ahmetović—Chief Executive Officer—Shoppster. Ljiljana Ahmetović joined United

Group in 2018, as a CEO of Shoppster. Prior to work in United Group, Ljiljana was the CEO

SuperKartica, a leading multi-partner loyalty program in Serbia. Before that she spent 6 years

leading renowned retailers Idea and Mercator in Serbia, where she held a range of leadership

positions, primarily in trading and category management. She holds a master‘s degree from

the University of Belgrade Faculty of Economics.


27

Shareholder Structure

Following the EBRD’s purchase of a minority stake in the Group in July 2019, BC

Partners now owns approximately 52.3% of the Group’s shares, senior management

approximately 38.5%, KKR approximately 6.8% and EBRD approximately 2.4%.

BC Partners is a leading global investment firm. Founded in 1986 as one of the first

pan-European buy-out investors, BC Partners has grown and evolved into a leading alternative

investment firm, investing principally in larger businesses in Europe and North America. Since

inception, BC Partners has completed 116 acquisitions with a total enterprise value of over

€145 billion and is currently advising funds totaling over €20 billion.


28

Appendices

Appendix 1 - Financial statements

Income Statement

in €000 H1 2019 H1 2020

Revenue 363,946 414,748 Other income 5,092 3,640 Content costs (60,762) (55,576) Link and interconnection costs (19,673) (27,359) Cost of end-user equipment and other material cost (22,217) (41,816) Staff costs (52,491) (48,003) Media buying (19,097) (14,284) Impairment loss on trade and other receivables, inc. contract assets (4,458) (5,813) Impairment loss on other financial assets (17) - Other operating expenses (56,380) (67,834) IFRS EBITDA 133,943 157,703

Depreciation (51,083) (56,228) Depreciation (right-of-use assets) (9,163) (14,707) Amortization of intangible assets (40,449) (45,046)

Operating profit 33,248 41,722

Finance income 2,192 919 Finance costs (42,895) (69,271)

Net finance costs (40,703) (68,352)

Profit/(loss) before tax (7,455) (26,630) Income tax (expenses)/benefit (3,578) (2,977)


Other comprehensive income/(loss)

Items that are or may be reclassified subsequently to profit and loss Currency translation differences 788 (1,638)

Other comprehensive income/(loss) for the period 788 (1,638)

Total comprehensive income/(loss) for the period (10,245) (31,245)

Profit/(loss) attributable to: Owners of the Company (12,721) (30,965) Non-controlling interests 1,688 1,358


Total comprehensive income/(loss) attributable to: Owners of the Company (11,933) (32,603) Non-controlling interests 1,688 1,358

Total comprehensive income/(loss) for the period (10,245) (31,245)


29

Statement of Financial Position

in €000 H1 2019 H1 2020

Assets

Property, plant and equipment 411,520 511,177

Goodwill 764,105 835,338

Intangible assets 295,317 288,835

Investment property 310 316

Right-of-use assets 112,285 154,895

Loans to related parties - 6,866

Other financial assets 7,562 11,345

Non-current prepayments 132 532

Contract assets 5,518 8,145

Deferred costs 5,374 162

Deferred tax assets 3,579 9,017

Non-current assets 1,605,702 1,826,628

Inventories 22,538 29,308

Trade and other receivables 156,734 187,252

Short-term loans receivables and deposits 7,512 8,095

Prepayments 37,349 42,627

Contract assets 20,872 36,664

Income tax receivable 7,810 11,358

Restricted cash for acquisition purposes - 1,047,999

Cash and cash equivalents 33,473 86,463

Current assets 286,288 1,449,766

Total assets 1,891,990 3,276,394

Equity

Issued and fully paid share capital 125 125

Share premium 352,557 352,557

Capital reserves 47,313 54,468

Translation reserves (14,253) (14,113)

Accumulated losses (359,691) (441,423)

Equity attributable to owners of the Company 26,051 (48,386)

Non-controlling interests 9,499 11,303

Total equity 35,550 (37,083)

Liabilities

Loans and borrowings 35,475 74,775

Other financial liabilities-bonds 1,432,421 2,720,664

Long-term liabilities 3,522 5,353

Long-term provisions 21,524 40,894

Deferred operating lease income 3,670 5,761

Contract liabilities 1,941 1,641

Lease liabilities 94,183 121,789

Deferred tax liabilities 28,285 25,599

Employee benefits 623 843

Non-current liabilities 1,621,644 2,997,319

Trade and other payables 175,014 228,897

Current tax liabilities 9,165 17,592

Loans and borrowings 14,008 15,667

Deferred operating lease income 4,927 4,179

Contract liabilities 11,357 17,999

Lease liabilities 20,325 31,824

Current liabilities 234,796 316,158

Total liabilities 1,856,440 3,313,477

Total equity and liabilities 1,891,990 3,276,394


30

Statement of Cash Flows in €000 H1 2019 H1 2020 Cash flows from operating activities (Loss)/profit for the period (11,033) (29,607) Adjustments for: Depreciation 60,246 70,935 Amortization 40,449 45,046 Impairment of trade and other receivables 4,096 5,508 Impairment of contract assets 362 305 Impairment of other financial assets 17 - Impairment loss of goodwill - 354 Impairment of property, plant and equipment - 273 Impairment of inventories 642 346 Income tax expense/(benefit) 3,578 2,977 Long-term provisions (1,171) (162) Share based payment 14,504 - Net finance cost 40,703 68,352

Operating cash flows before WC changes 152,393 164,327

Changes in: Trade and other receivables 3,159 10,246 Deferred revenue (2,545) (848) Deferred cost (989) 19 Contract assets (9,678) (6,637) Contract liabilities 3,791 7,945 Employee benefits (8) 49 Inventories (977) (1,360) Prepayments (1,711) 3,585 Trade and other payables (23,003) 12,578

Cash generated from operations 120,432 189,904

Interest paid (33,531) (48,227) Income tax paid (5,821) (3,881)

Net cash from operating activities 81,080 137,796

Cash flows from investing activities Acquisition of property, plant and equipment (57,993) (71,152) Acquisition of intangible assets (31,303) (29,840) Acquisition of subsidiaries, net of cash acquired (52,769) (133,957) Short-term loans receivable and deposit inflow - 572 Short-term loans receivable and deposit outflow (1,537) (659) Cash inflow other non-current financial assets 30,000 1,378 Cash outflow other non-current financial assets - (1,412) Other (outflows)/inflows 282 (760)

Net cash (used in)/provided by investing activities (113,320) (235,830)

Cash flows from financing activities Proceeds from share premium 15,000 - Proceeds from bond issue 550,000 1,675,000 Repayment of bond (450,000) (587,578) Proceeds from borrowings 157,800 49,000 Repayment of borrowings (181,331) (121,932) Transaction costs related to loans and borrowings (5,500) (14,533) Acqusition of non-controlling interest (1,096) (7) Repayment from lease liabilities (10,829) (17,439) Dividends paid (51,761) (78)

Net cash (used in)/provided by financing activities 22,283 982,433

Net (decrease)/increase in cash and cash equivalents (9,957) 884,399 Cash and cash equivalents at 1 January 43,430 250,058 Cash restricted for the acquisition of Vivacom - (1,047,999) Effects of movements in exchange rates on cash in hands - 5

Cash and cash equivalents at 30 June 33,473 86,463


31

Appendix 2 - Key Factors Affecting Our Business and Results of Operations

The performance of the Group’s businesses, its results of operations and the key

operating measures discussed below have been, and will continue to be, affected by a variety

of factors. Certain of these factors are discussed below.

Products, Services and Content

United Group’s results are impacted by the product mix as well as the Group’s ability

to introduce new products and upgrades and successfully sell those products and upgrades

to increase RGUs and ARPUs. United Group continually evaluates the suite of products and

services provided to subscribers to ensure that it remains competitive with other providers in

its markets and has an opportunity to increase the Group’s subscriber base and the number

of products sold to subscribers. United Group accomplishes this through product innovation,

investments in technology and acquisitions of complementary businesses. For example, the

Group has expanded its product offering by introducing fixed-line services to offer multi play

packages in Slovenia, Serbia, Bosnia and Herzegovina and Montenegro, including pay

television, broadband internet access, fixed-line telephony, as well as mobile telephony

services in Slovenia and Croatia.

United Group believes that media and communications services customers will

increasingly choose bundled products because of the convenience and enhanced value

resulting from obtaining TV, broadband internet and telephony services from a single provider

for one price. As at June 30, 2020, 83% of the Group’s customer base10 in Slovenia, 78% of

its customer base10 in Serbia and 85% of its customer base10 in Bosnia and Herzegovina

subscribed for one of the Group’s multi-play packages.

United Group seeks to be the leader in its markets in pay television content and has

entered into long term strategic partnerships with key international and regional content

owners. The Group has also acquired leading regional content owners in key television sub

segments (sports, lifestyle, children and films), such as providers of the Sport Klub family of

channels (which includes Sport Klub, Golf Klub and fishing and hunting channels) and

Cinemania. United Group’s ability to maintain the quality of its content impacts the Group’s

ability to sell pay television offerings, as well as bundled packages.

The Group’s product mix can also impact margins. For example, the mobile telephony

business and the content business generally have lower margins compared to the cable-based

business. The Group’s success in growing these businesses may impact the product mix and

therefore may affect UG Adjusted EBITDA margins.

10 Under new methodology: unique cable subscribers by bundle.


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Pricing of our Products and Services

Increasing demand for attractive content and higher broadband speeds allows the

Group to increase the prices at which services are provided while maintaining relatively low

churn rates. United Group regularly reviews the prices of its products and services, however,

and in the past has adjusted subscription fees as necessary in line with inflation, changes in

foreign exchange rates or in response to market conditions and content costs. Changes in the

pricing of the Group’s products and services will impact the revenues and margins that are

generated from these products and services and impact its ability to attract new customers.

For example, the Group’s multi play bundles offer subscribers higher value in terms of

channels, speeds functionality and add on features. The pricing of all services, including multi

play bundles, is dependent on market conditions, pricing by competitors with similar offerings

and the perceived quality of the Group’s products versus other products. In relation to the

Basic TV package, the Group was also subject to price regulation in Serbia until January 2017.

From January 2017, the price of the Basic TV package in Serbia is no longer subject to price

regulation. However, such price regulation might be reinstated in the future.

Subscriber Churn

The television, broadband internet and telephony industries exhibit churn as a result

of high levels of competition. In addition to competitive alternatives, churn levels may be

affected by changes in prices or competitors’ prices, the Group’s level of subscriber

satisfaction, subscriber mortality and the relocation of subscribers, as well as from the

termination of agreements. An increase in churn may lead to increased costs and reduced

revenues when subscribers cancel services as the Group incurs additional marketing and

advertising costs to find new subscribers.

Increasing demand for attractive content and higher broadband speeds allows the

Group to increase the prices at which it provides these services while maintaining relatively

low churn rates. United Group believes its relatively low churn rates provides recurring cash

flows and visibility with respect to future revenues. The Group has historically experienced

low churn rates in its television, broadband internet and fixed-line telephony businesses, and

the churn experienced in these businesses has primarily been driven by customers moving

outside of the Group’s current geographic area of services as well as termination of services

due to their inability to pay, with only a limited amount of churn driven by competition. United

Group believes that launching telephony in its markets, further driving digitization, providing

subscribers with multi play packages (including quad play in Slovenia, as described in more

detail below), expanding the Group’s cable footprint to broaden geographic reach and

benefiting from increasing disposable incomes in the region (reducing the likelihood of

customers’ bad debt), will enable the Group to maintain low churn rates for cable pay-TV.

The churn rates for mobile post paid subscribers are higher than the churn rates for

fixed-line telephony services, as it is easier for mobile subscribers to switch to competitors as

there are no infrastructure limitations.


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United Group believes that the control of a mobile network in Slovenia, following its

acquisition of Tušmobil, has allowed it to develop an attractive suite of fixed mobile

convergence services in Slovenia which, among other things, has had the effect of reducing

the churn of mobile postpaid subscribers in Slovenia. Since the acquisition of Tušmobil, the

number of quad play subscribers in Slovenia has increased to 35% of subscribers in Slovenia,

from 1% of subscribers prior to the acquisition. In addition, the Group has successfully

reduced the blended annual churn rate of mobile postpaid subscribers to 10% at June 30,

2020 from 18% at January 31, 2016. This is primarily due to the Group’s attractive products

and services and an increase in the number of new mobile postpaid subscribers (each with

new contractual obligations). The Group defines blended annual churn as net lost subscribers

(the number of customers that either on a voluntary or involuntary basis no longer subscribe

for a certain service) divided by the number of all unique cable subscribers at the beginning

of period, which result is then annualized. The churn rate of mobile prepaid subscribers is

relatively higher due to the non-contractual nature of the relationship with such subscribers.

Cost of Services Provided

United Group’s most significant costs include:

(i) carriage fees paid to international and regional broadcasters such as Fox, Discovery and Pink, in order to carry their programs on the Group’s distribution network,

(ii) licensing fees payable to sports rights owners such as UEFA, the English Premier League, Spanish Primera League, ATP and Formula 1, in order to develop content for the Group’s own channels

(iii) satellite capacity costs,

(iv) payroll costs,

(v) internet and interconnection fees,

(vi) costs of materials used to connect subscribers to our network and

(vii) costs for marketing and sales.

Most of the Group’s costs, such as a portion of the network operations, customer care,

billing and administration costs, are relatively fixed, while a portion of the Group’s marketing

and customer services cost is variable. The Group’s content acquisition costs are mostly fixed,

and a decreasing portion of these costs are subscriber based. Where possible, the Group aims

to negotiate fixed rate content costs. This approach allows input prices of its content to be

anticipated and products priced accordingly. The costs associated with the growth of the

business, such as RGU acquisition costs, which are primarily comprised of campaign costs and

sales costs for attracting new subscribers, are variable costs.

A large portion of the Group’s costs is content costs, accounting for 21% of operating

expenses (excluding depreciation and amortization of intangible assets) in H1 2020. While


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United Group owns a portion of its content, the Group is dependent on broadcasters and other

content owners for most of its programming. The Group pays license fees to several regional

and international broadcasters in order to broadcast their programs. For on demand content

purchased by subscribers, the Group generally pays a revenue share of the retail price,

subject, for certain on demand content, to fixed minimum guarantees. For packaged on

demand content (subscription video on demand), the Group pays on a per subscriber basis,

sometimes with minimum guarantees. United Group generally expects that its content costs

(above the minimum amounts) will increase in line with increased revenues from digital pay-

TV and on demand content. In the past, the Group has successfully obtained rebates and

discounts for its content, but these may not continue in the future.

United Group pays fees to satellite operators to uplink and transmit its content to DTH

subscribers, and also uses other network operators to connect telephone calls of customers

to customers of their respective networks (interconnection). Generally, the amount paid in

interconnection fees in any period will depend on the level of usage of the Group’s services.

Staff costs are impacted by the number of personnel employed, the experience levels

at which such persons are employed and increases in salaries and bonuses due to performance

factors. Labor costs of technicians, spent on the construction and upgrade of the network and

acquisition of subscribers, are capitalized as tangible and intangible assets.

RGU acquisition costs include campaign costs and sales costs. The Group aims to

recover RGU acquisition costs over the duration of the service contract. Factors that contribute

to the successful recovery of RGU acquisition costs include operational efficiency, the density

of the subscriber base and direct relationships with subscribers, which enables the Group’s

not to rely on intermediaries to interact with its customers.

Network and Technological Advances

The Group’s ability to provide new high definition and on demand digital TV services,

broadband internet access at higher speeds and telephony services to subscribers depends,

in part, on the ability to upgrade and maintain the Group’s network. The Group incurs capital

expenditure charges in periods over which these upgrades are made, with the aim of

recouping these investments through increased revenues and profitability.

In particular, the Group expects certain communications technologies that are

currently under development, namely 5G, to become increasingly important in our market.

The Group successfully performed tests of next generation 5G networks across the Balkan

region, which demonstrated technological readiness for commercial launch when the needed

spectrum frequencies become available. Significant investments in 5G technology will be

critical to stay competitive in the mobile market and meet the needs of our customers.


35

The Group’s ability to compete effectively and maintain or increase the customer base

depends on its ability to anticipate and react quickly to technological developments and

evolving industry standards and develop successful new and enhanced products and services

to adapt to changes in the market. United Group invests in new or enhanced technologies,

products or services in periods over which industry standards change, or to upgrade

technologies. Additionally, capital expenditure costs are incurred relating to the replacement

of existing equipment.

Foreign Currency Exchange Rates

United Group operates across the Balkan region generating revenues in many local

currencies, which fluctuate from time to time in relation to the euro. Revenues in Slovenia and

Montenegro are generated in euro. SBB Serbia, Telemach BH, Nova TV and Tele2 record their

financial results in their respective functional currencies (the Serbian dinar, the Bosnian and

Herzegovinian mark and Croatian kuna, respectively), which are then translated into euros in

preparing the consolidated financial statements. In H1 2020, 48% of revenue was generated

in euros or currencies pegged to euro, with 32% of revenue generated in the Serbian dinar

and 20% of revenue generated in Croatian kuna. While the Bosnian and Herzegovinian mark

is pegged against the euro at a fixed exchange rate of BAM 1.9558 per €1.00, the Serbian

dinar and Croatian kuna fluctuate freely against the euro. In H1 2020, the value of the Serbian

dinar increased approximately 0.3% relative to the Euro compared to H1 2019. However, due

to the historic indexation of the Serbian dinar against the German mark, which was replaced

by the euro in 2002, the Group believes the Serbian consumer price index closely tracks the

depreciation of the Serbian dinar against the euro which has historically allowed the Group to

“pass through” a portion of the impact of the depreciation of the dinar to customers. The

Group believes that its pricing strategy reflects this “pass through” principle. In H1 2020, the

value of the Croatian kuna decreased approximately 2.3% relative to the Euro compared to

H1 2019. The Croatian National Bank’s chose the stability of the exchange rate of the Croatian

kuna against the euro as the nominal anchor of the monetary policy and occasionally

participates in the foreign exchange market, mostly when it considers the exchange rate

fluctuation to be or may become excessive.

United Group presents its consolidated financial statements in euros. As a result, the

Group must translate the assets, liabilities, revenue and expenses of all operations with a

functional currency other than the euro into euro at then-applicable exchange rates.

Consequently, increases or decreases in the value of these currencies against the euro may

affect the value of assets, liabilities, revenue and expenses with respect to the Group’s

non-Euro businesses in the consolidated financial statements, even if their value has not

changed in their original currency. These translations could significantly affect the

comparability of results between financial periods and result in significant changes to the

carrying value of assets, liabilities and stockholders’ equity.

Additionally, certain expenses, primarily content and satellite costs, are in euro and

U.S. dollar. Where the Group is unable to match sales received in foreign currencies with costs


36

paid in the same currency, the results of operations are impacted by currency exchange rate

fluctuations. A substantial portion of indebtedness is denominated in euro. In March 2015, the

Group entered into a EUR/USD currency hedge agreement, pursuant to which it hedges a part

of its exposure to the U.S. dollar. The Group entered into an additional EUR/USD currency

hedge agreement in May 2016 pursuant to which it hedged the remaining portion of its

exposure to the U.S. dollar for the year 2016. An additional EUR/USD hedge was implemented

in February 2017, which hedged most of its 2017 USD exposure. As there has been no material

change in exposure to the U.S. dollar in H1 2020, the Group did not enter into any additional

currency hedge agreements during the period ended June 30, 2020.

Growth in our Markets

Three of the Group’s key markets, Serbia, Bosnia and Herzegovina and Montenegro,

are generally characterized by lower internet broadband household penetration rates

compared to elsewhere in Western Europe and the CEE region and both Serbia and Bosnia

and Herzegovina have lower pay television household penetration rates compared to

elsewhere in Western Europe and the CEE region. As a result, growth in the Group’s markets

have been higher than in certain CEE region and Western Europe jurisdictions. The Group

believes this is primarily due to the increasing importance of high-quality broadband internet

and an increasing convergence of the Group’s regions with the EU. Slovenia is a more mature

market, with subscriber rates similar to the CEE region, and as a result, growth in that market

will depend more on the Group’s ability to effectively compete with other market participants

and to continue to offer high quality customer propositions. In each of the aforementioned

markets, a number of factors will impact the rate of growth of pay television, broadband

internet and telephony industries, including economic conditions, political stability, increases

in infrastructure and an increased distribution of wealth. Furthermore, these industries may

not grow at the same rate as they have in the past.

Regulation

The Group’s operations are subject to various regulations in Europe and in its regional

markets. The Group is generally free from price regulation other than, prior to January 2017,

with respect to the Basic TV package in Serbia, due to SBB Serbia’s prior SMP in the Serbian

pay-TV market. Since the beginning of 2017, the Group is no longer considered a significant

market participant in the pay-TV market in Serbia, thus the Basic TV package is no longer

subject to price regulation, though this may change in the future. SBB Serbia is, however,

currently deemed to have SMP on the wholesale market for call termination in public telephone

networks and the wholesale market of central access at a fixed location for mass market

products, which imposes certain regulatory obligations. Prior to the change to the Group’s

status in the pay-TV market in Serbia, in January 2017, the pricing of the Basic TV package

in Serbia, which accounted for 12% of revenue for the year ended December 31, 2017, and

which is used as a platform to up- and cross-sell products, was regulated and the Group was

not permitted to increase the price for such packages without regulatory approval. In 2015,

the Group’s first application for a price increase for this package was not accepted by the


37

Serbian regulator; however, the second application, in November 2015, was accepted by the

Serbian regulator, and the Group implemented price increases for its Basic TV package in

Serbia on January 1, 2016. The Group also implemented price increases in January 2018,

which the Serbian Commission for Protection of Competition investigated, but ultimately

accepted. In addition, the Group may be subject to conditions imposed in connection with

competition authority clearances as it continues to expand its business through bolt on, value

accretive acquisitions and may be subject to market power analysis from the relevant

regulators, which could force the Group to adjust its prices or sell various parts of the

businesses.

Tax Treatment in Local Jurisdictions

The results of the Group’s operations depend on tax treatment under the tax laws and

regulations of local jurisdictions. For instance, in Serbia, taxable income can be reduced in the

same proportion as capital expenditure for the year in Serbia divided by the carrying amount

of assets in Serbia. Due to significant

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