Financial Statements and Independent Auditors' Report ... · PTK Holding was the 100% shareholder...

Financial Statements and Independent Auditors' Report

TELEKOMI I KOSOVËS SH.A.

As of and for the year ended 31 December 2015

TELEKOMI I KOSOVËS SH.A.

Contents

Independent Auditor’s Report 1

Statement of financial position 3

Statement of comprehensive income 4

Statement of changes in equity 5

Statement of cash flows 6

Notes to the financial statements 7

Grant Thornton LLC Rr. Rexhep Mala 18 10 000 Prishtina Kosovo

T +381 38 247 771 T +381 38 247 801 F +381 38 247 802 www.grant-thornton.com.mk

Chartered Accountants Member firm of Grant Thornton International Ltd

Independent Auditors’ Report

To the Board of Directors of the Telekomi i Kosovës Sh.a

We have audited the accompanying financial statements of Telekomi i Kosovës Sh.a (“the

Company”) which comprise the statement of financial position as at December 31, 2015 and the

statement of comprehensive income, statement of changes in equity, and statement of cash flows for

the year then ended, and a summary of significant accounting policies and other explanatory

information.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with International Financial Reporting Standards, and for such internal control as

management determines is necessary to enable the preparation of financial statements that are free

from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the Company’s preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the financial

statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion.

2

Chartered Accountants Member firm of Grant Thornton International Ltd

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of Telekomi i Kosovës Sh.a as at 31 December 2015 and of its financial

performance and its cash flows for the year then ended in accordance with International Financial

Reporting Standards.

Emphasis of Matter

i. As disclosed in Note 5 to the accompanying financial statements, the Company connects

international fixed calls to foreign administration through lines managed by Telekom Serbia.

Since there is no interconnection agreement between Telekomi i Kosovës Sh.a and Telekom of

Serbia that would regulate mutual relationships with regard to telecommunication traffic, the

financial effect of the interconnection cannot be measured with any reasonable accuracy.

ii. As disclosed in Note 27 to the accompanying financial statements, the Company’s financial

statements for the years ended December 31, 2013 to 2015 are subject to inspection by local

tax authorities. The Company’s management used its best estimate and judgment to comply

with the tax laws. However until the completion of the tax authorities’ inspection, tax expenses,

liabilities and prepayments as disclosed in these financial statements may not be considered

finalized. A provision for additional taxes and penalties, if any, that may be levied, cannot be

determined with any reasonable accuracy, at this stage.

Our opinion is not modified in respect of the matters as detailed in paragraphs i to ii above

Grant Thornton LLC Prishtina, Kosova April 28, 2016

TELEKOMI I KOSOVËS SH.A. Statement of Financial Position as at December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

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Note December 31

2015 December 31

2014 ASSETS Property, plant and equipment 6 76,307 86,937 Intangible assets 7 28,963 16,449 Available-for-sale financial assets 8 39 39 Deferred tax assets 9 794 565

Total non-current assets 106,103 103,990

Current assets Inventories 10 6,167 5,286 Trade receivables 11 11,300 10,704 Income tax receivable 24 3,619 2,223 Prepaid expenses and other receivables 12 4,640 2,272 Short-term deposit with banks 13.1 - 18,066 Cash and cash equivalents 13.2 4,589 30,375

Total current assets 30,315 68,926

TOTAL ASSETS 136,418 172,916

EQUITY AND LIABILITIES Equity Shared capital 14 4,475 4,475 Reserves 14 55,000 55,000 Retained earnings 46,387 84,291

Total equity 105,862 143,766

Liabilities Current liabilities Trade payables 15 5,280 9,848 Other payables and accruals 16 7,827 16,754 Deferred income 17 2,449 2,548 Dividends payables 14 15,000 -

Total liabilities 30,556 29,150

TOTAL EQUITY AND LIABILITIES

136,418

172,916

Authorized to issue by the Board of Directors of Post and Telecommunications of Kosovo J.S.C. on 28 April 2016 signed on their behalf. Rexhë Gjonbalaj Agron Mustafa Nuredin Krasniqi

TELEKOMI I KOSOVËS SH.A. Statement of Comprehensive Income for the year ended December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

4

Note

Year ended December 31

2015

Year ended December

31 2014

Revenue 18 84,488 99,511

Other income 19 118 338

Operational costs 20 (20,451) (19,739)

Staff costs 21 (26,927) (27,816)

Depreciation 6 (13,534) (12,295)

Amortization 7 (7,299) (3,990)

Release of/Provisions for litigations 22 1,329 (256)

Other operating costs 23 (26,070) (17,636)

Operating (Loss)/Profit

(8,346) 18,117

Interest income 13.1 224 529

(Loss)/Profit before tax (8,122) 18,646

Income tax income/ (expense) 24 218 (2,090)

Net (Loss)/Profit for the year (7,904) 16,556

Other comprehensive income for the year - -

Total comprehensive (loss)/ income for the year (7,904) 16,556

(Loss) / profit attributable to the owners (7,904) 16,556

Total comprehensive (loss)/ income attributable to the owners

(7,904) 16,556

The accompanying notes from 1 to 28 form an integral part of these financial statements

TELEKOMI I KOSOVËS SH.A. Statement of Changes in Equity for the year ended December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

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Note Share capital Reserves Retained earnings Total

Balance at January 1, 2015 4,475 55,000 84,291 143,766

Comprehensive income for the year

(Loss) for the year - - (7,904) (7,904)

Other comprehensive income - - - -

Total comprehensive income for the year - - (7,904) (7,904)

Transactions with owners

Dividends declared 14 - - (30,000) (30,000)

Total transactions with owners - - (30,000) (30,000)

Balance at December 31, 2015 4,475 55,000 46,387 105,862

Balance at January 1, 2014 4,475 55,000 82,735 142,210

Comprehensive income for the year

Profit for the year - - 16,556 16,556 Other comprehensive income - - - -

Total comprehensive income for the year 16,556 16,556

Transactions with owners

Dividends paid 14 - - (15,000) (15,000)

Total transactions with owners - - (15,000) (15,000)

Balance at December 31, 2014 4,475 55,000 84,291 143,766


TELEKOMI I KOSOVËS SH.A. Statement of Cash Flows for the year ended December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

6

Note


2015


2014

Cash flows from operating activities

(Loss) / profit before tax

(8,122)

18,646

Adjustments for: Depreciation 6 13,534 12,295 Amortization 7 7,299 3,990 Impairment losses on doubtful debts 23 1,389 1,311 Release of impairment provision bank deposits 19 (20) (12) Interest income 13 (224) (529) Impairment of available for sale financial assets 23

- 201

Loss from write off of property plant and eq. 23 143 -

Operating profit before changes in working capital and provisions

13,999 35,902

Changes in inventories (881) (605) Changes in trade receivables (1,985) 2,311 Changes in prepaid expenses and other receivables

(327) 53

Changes in trade payables (4,568) 5,999 Changes in accruals and other payables (8,927) 268 Changes in deferred income (99) 285

Cash generated from operations (2,788) 44,213

Income taxes paid (3,629) (5,807)

Net cash generated from operating activities (6,417) 38,406

Cash flows from investing activities Interest received 405 422 Purchase of property, plant and equipment (22,860) (30,107) Proceeds from / (investments in) bank deposits

18,086

(18,054)

Net cash used in investing activities (4,369) (47,739)

Cash flows from financing activities

Dividends paid (15,000) (15,000)

Net cash used in investing activities (15,000) (15,000)

Net change in cash and cash equivalents

(25,786) (24,333) Cash and cash equivalents at the beginning of the year 30,375 54,708

Cash and cash equivalents at the end of the

year 13 4,589

30,375


TELEKOMI I KOSOVËS SH.A. Notes to the Financial Statements for the year ended December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

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1 INTRODUCTION

1.1 General

Telekomi i Kosovës Sh.a (“the Company”) is a Joint Stock Company incorporated in the Republic of Kosovo. The Company's head office is located at Dardania Street, Prishtina, Republic of Kosovo. The Company provides telecommunication services, such as mobile and fixed telephony, postal services, internet services and IPTV services. As at December 31, 2015 the Company has 2,304 employees (2014: 2,339). On August 1, 2012 by the decision of the Government of Kosovo postal services were transferred to Post of Kosovo a newly formed Company where 926 staff has left. Based on the Board decision and approval from the shareholder dated 22 July 215 the Company changed it legal name from Post and Telecommunications of Kosovo J.S.C. into Telekomi i Kosovës Sh.a. The new legal entity name was updated with the Kosovo Business Registration Agency on 12 August 2015. In order for the financial statements to be more understandable previous name of the Company will be used where necessary.

1.2 Background information

Telekomi i Kosovës Sh.a. (TK) previously Post and Telecommunications of Kosovo J.S.C (PTK) enterprise was an enterprise within the meaning of UNMIK Regulation No. 2005/18, amending UNMIK Regulation No. 2002/12 “On the Establishment of the Kosovo Trust Agency” (“KTA”). Regulation 2005/18 has given to KTA the authority to transform enterprises into corporations. At a meeting dated May 9, 2005 the Board of Directors of the KTA resolved to transform PTK enterprise into a joint stock Company, named Post and Telecommunications of Kosovo Holding, J.S.C. On the incorporation date June 22, 2005 PTK Holding effectively substituted the former “enterprise” formerly doing business as “Post and Telecommunications of Kosovo” on a continuing basis, without liquidation. PTK enterprise was the first enterprise that was transformed into a Corporation under the KTA Regulation and Administrative Directive 2005/6. KTA acted as trustee for the ultimate owners of Kosovo’s enterprises pursuant to the KTA Regulation, was the current holder of 100 percent of the shares of PTK Holding. The issued share capital upon incorporation amounts to Euro 260 million. Shortly after its incorporation, PTK Holding formed an operating Company, Post and Telecommunications of Kosovo J.S.C. (“PTK”) and transferred certain of its assets to PTK as a capital contribution. PTK Holding was the 100% shareholder of Post and Telecommunications of Kosovo J.S.C. The registered capital of the wholly owned subsidiary amounts to Euro 250 million, and the shares of the subsidiary were issued in exchange for certain net assets contributed in kind by PTK Holding. Given the practical effect of the transformation and of incorporation, the Tax Administration has approved the restructuring process of PTK enterprise as “reorganization” for the purposes of Section 24.1 of UNMIK Regulation No. 2004/51 “On Corporate Income Taxes”. On June 13, 2008 the Assembly of the Republic of Kosovo approved the Law on Publicly owned Enterprises (Law No.03/L-087), and based on provision of section 3 of this Law, Central publicly owned Enterprises including PTK JSC are declared to be assets of the Republic of Kosovo. Government of the Republic of Kosovo has through the Ministry of Economy and Finance the exclusive authority to exercise the shareholder rights over the publicly owned Enterprises.


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1.2 Background information (Continued)

On October 13, 2009 the Government has issued a decision for merging of these two companies PTK Holding and PTK JSC into one company Post and Telecommunications of Kosovo J.S.C. (“the Company”) with registered capital of Euro 5,000,000, composed of five million common shares with nominal value of Euro 1 per share. All shares are issued in the name of Republic of Kosovo. On December 21, 2011, the Government has issued a decision on the establishment of the Public Central Enterprise Post of Kosovo JSC. The Public Central Enterprise Post of Kosovo JSC established the separation of the Postal Unit from the current division of Public Enterprise Post and Telecommunications of Kosovo J.S.C.. Onn 22 July 2015 the shareholder government of the republic of Kosovo approved the Bod request to change the legal name of the Company from Post and Telecommunications of Kosovo J.S.C. into Telekomi i Kosovës Sh.a. The new legal entity name was updated with the Kosovo Business Registration Agency on 12 August 2015.

1.3 Business activities

At December 31, 2015 the Company has three business units, two of which are licensed by Telecommunication Regulation Authority of Kosovo (“TRA”), one of them is also authorized by the TRA for offering internet services and one is licensed by the Ministry of Transport and Communications:

In accordance with Government of Kosovo starting from August 1, 2012 Post of Kosovo has started the separate operations as separate unit from PTK. Process of division of Post of Kosovo has started in 2012 in accordance with Government of Kosovo decision No. 16/53 dated December 21, 2011 for division of Post of Kosovo. This division was done in accordance with independent advisor report dated July 2011 which was then approved by Management of PTK.

Fixed Telecommunications Unit (“Fixed Telecommunications”) The Fixed Telecommunications Unit is the licensed network and service provider of fixed telecommunication services to retail and business customers in the territory of Kosovo. Fixed Telecommunications Unit also offered internet services from 2001 and today is on of operators offering internet services in Kosovo, authorized by the TRA.

Mobile Telephony Unit (“Vala”) Vala is the GSM mobile operating unit and is currently one of licensed network and service providers of mobile telecommunication services in Kosovo.

PTK enterprise entered into an agreement in 2000, to provide mobile services in Kosovo, with Monaco Telecom International (“MTI”) which entitles PTK to use the MTI international dialing code and enables PTK to connect its mobile network to international networks. As a component of this agreement PTK compensate MTI with a share of revenues and pay certain international traffic costs. During 2006, the contract between MTI and PTK J.S.C. has been re-negotiated and amended. The new framework Agreement covers the use of Monaco’s International Dialing Code, International traffic, Roaming and technical know-how transfer. In addition the framework Agreement provides for a termination clause in the event that Kosovo acquires an International Dialing Code (IDC) of its own. Also in May of 2009, the contract between MTI and PTK JSC was re-negotiated and changed, again. New Annex of the Framework Contract covers the use of the Monaco International dialing code, international traffic, roaming and transfer technical knowledge, which came into force on January 1, 2010.

In addition, the annex of the new framework contract covers a provision for termination of contract if Kosovo provides / receives its own code as well as international calls for reduction of tariff code.


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2. ADOPTION OF NEW AND REVISED STANDARDS

2.1 New standards, interpretations and amendments effective from January 1, 2015

Defined Benefit Plans: Employee Contributions’ (Amendments to IAS 19) came into mandatory effect for the first time in 2015 but the Company had the chance to early adopt these Amendments in 2014. The amendments to IFRSs that became mandatorily effective in 2015 have no impact on the Company’s financial results or position. Accordingly, the Company has not made changes to its accounting policies in 2015.

(a) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company

At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the Company. Information on those expected to be relevant to the Company’s financial statements is provided below.

Management anticipates that all relevant pronouncements will be adopted in the Companies accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on the Company’s financial statements.

IFRS 9 ‘Financial Instruments’ (2014)

The IASB recently released IFRS 9 ‘Financial Instruments’ (2014), representing the completion of its project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. The Company’s management has yet to assess the impact of IFRS 9 on these financial statements. The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2018.

IFRS 15 ‘Revenue from Contracts with Customers

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for reporting periods beginning on or after 1 January 2017. The Company’s management has assessed the impact of IFRS 15 on these financial statements

Amendments to IFRS 11 Joint Arrangements

These amendments provide guidance on the accounting for acquisitions of interests in joint operations constituting a business. The amendments require all such transactions to be accounted for using the principles on business combinations accounting in IFRS 3 ‘Business Combinations’ and other IFRSs except where those principles conflict with IFRS 11. Acquisitions of interests in joint ventures are not impacted by this new guidance.

The amendments are effective for reporting periods beginning on or after 1 January 2016. The Company’s management has assessed the impact of IFRS 11 on these financial statements.

TELEKOMI I KOSOVËS SH.A. Notes to the Financial Statements as at and for the year ended December 31, 2015 (all amounts are in thousands of Euro unless otherwise stated)

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3. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. The accounting policies set out below have been applied consistently to all years presented in these financial statements, unless otherwise stated.

3.1 Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

3.2 Basis of preparation

The financial statements have been prepared under the historical cost convention, as modified by available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) if any, at fair value through profit or loss. The measurement bases are more fully described in the accounting policies below.

The financial statements are prepared as of and for the years ended December 31, 2015 and 2014. Where necessary comparative figures have been reclassified to conform to the changes in presentation for the current year.

3.3 Functional and presentation currency

These financial statements are presented in Euro, which is the Company’s functional currency. All financial information presented in Euro has been rounded to the nearest thousand.

3.4 Use of estimates and judgments

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

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

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the financial statements are described in the Note 5 – Accounting estimates and judgments.

3.5 Foreign currency

Transactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the translation of available-for-sale equity instruments (if any).


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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.6 Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment provisions. Deemed cost represents revalued cost of certain items of property, plant and equipment revalued on January 1, 2005 the date of transition to IFRS, to fair value in relation to the initiated incorporation of PTK Holding.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor (if involved), any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Capital expenditure on assets in the course of construction is carried forward under Assets under construction and is capitalized and transferred to the appropriate asset category once completed, from which time depreciation is applied at the rate applicable to the category concerned.

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

(ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in statement of comprehensive income as incurred.

Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining the operating result for the period.

(iii) Depreciation Depreciation is recognized in statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land and assets under construction are not depreciated. The estimated useful lives for the major classes of assets are as follows (in both 2015 and 2014):

Buildings (from date of valuation) 20 years

Post offices (wooden structure) 10 years

Network lines 20 years

Cable duct and Towers 20 years

Base Stations 5 years

Machinery and equipment 5 to 10 years

The useful lives, deprecation methods and residual values, if not insignificant, of property, plant and equipment are reassessed at the reporting date.


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3.7 Intangible assets

(i) Recognition and measurement Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses, if any.

(ii) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss when incurred.

(ii) Amortization Amortization is recognized in statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The estimated useful lives are as follows (in both 2015 and 2014):

Software 5 years

Telecom Licenses 15 years

3.8 Impairment of non-financial assets

Property, plant and equipment, as well as intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in statement of comprehensive income. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit.

3.9 Financial assets

The Company classifies its financial assets in the following categories: loans and receivables and available for sale financial assets. Management determines the classification of its investments at initial recognition.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. Company’s loans and receivables at the statement of financial position dates consist of trade and other receivables, short term deposits with banks and cash and cash equivalents.

Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statement of financial position date.


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3.9 Financial assets (continued)

Recognition and measurement

Purchases and sales of financial assets are recognized on trade-date – the date on which the Company commits to purchase or sell the asset.

All financial assets other than assets at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.

Changes in the fair value of monetary securities classified as available-for-sale are recognized in other comprehensive income.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of comprehensive income as gains and losses from investment securities.

Interest on available-for-sale securities calculated using the effective interest method is recognized in the statement of comprehensive income as part of other income. Dividends on available for sale equity instruments are recognized in the statement of comprehensive income as part of other income when the group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques.

Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

a. Assets carried at amortized cost

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Assets with a short maturity are not discounted. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of comprehensive income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Company may measure impairment on the basis of an instrument’s fair value using an observable market price.


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3.9 Financial assets (continued)

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income. Impairment testing of trade receivables is described in this Note 3.11.

b. Assets classified as available for sale

In case of available for sale investments, significant or prolonged decline in the fair value of the assets below their cost is considered in determining whether the assets are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of comprehensive income. Impairment losses recognized in the statement of comprehensive income on equity instruments are not reversed through the income statement.

3.10 Trade receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Individually significant debtors are tested for impairment on an individual basis. The remaining debtors are assessed collectively in groups that share similar credit risk characteristic. 3.11 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

3.12 Offseting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

3.13 Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. The cost of inventories consumed is based on the weighted average formula.


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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.14 Share capital

Share capital and retained earnings (i) Shareholders’ capital

Share capital represents the nominal value of shares that have been issued.

(ii) Retained earnings Retained earnings comprise of non-distributed earnings from the current and past periods.

(iii) Dividends Dividends are recognized as liabilities in the periods in which are declared and approved by the shareholders. 3.15 Financial liabilities Financial liabilities are classified in accordance with the substance of the contractual arrangement. All financial liabilities of the company at the reporting dates are classified as other financial liabilities at amortised cost. Financial liabilities at amortised cost consist of trade payables.

3.15.1 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are carried at their fair value and subsequently measured at their amortized cost by applying the effective interest rate method. 3.16 Employee benefits

Mandatory pensions The Company, in the normal course of its business, makes payments on its own behalf and on behalf of its employees to contribute to the mandatory pensions according to the local legislation. The costs incurred on behalf of the Company are charged to statement of comprehensive income as incurred.

Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognized for the amount expected to be paid under a short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 3.17 Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.


16


3.18 Recognition of revenue

Mobile service revenue Mobile service revenue from prepaid scratch and sim cards is recognized based on usage. Unused airtime is included in “deferred income” in the Statement of financial position. Upon the expiration of pre-paid scratch cards, any unused airtime is recognized as income.

Revenue from post-paid traffic is recognized based on the actual traffic generated by the caller in the current period.

Revenue from international roaming air time and incoming calls is recognized on a per-minute basis in accordance with the periodic financial reports provided by its network services provider, Monaco Telecom International.

Fixed line revenue Fixed line revenue is recognized on a per-impulse basis related to the current period. Internet service revenue

Internet service revenue is recognized on a straight-line basis over the customer subscription period.

Other revenue Revenue from the sale of goods is recognized in the statement of comprehensive income when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognized in the statement of comprehensive income in proportion to the stage of completion of the transaction at the financial position date.

3.19 Expenses

Commissions due to Monaco Telecom International Commission costs to Monaco Telecom International are recognized on an accrual basis when incurred.

Operating lease payments Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

3.20 Finance income and expenses

Finance income comprises interest income on funds invested in bank deposits, gains on the disposal of available-for-sale financial assets, and foreign currency gains. Interest income is recognized as it accrues, using the effective interest method. Finance expenses comprise foreign currency losses, unwinding of the discount on provisions, if material, and impairment losses recognized on financial assets. 3.21 Dividend distribution

Distribution of dividends to the Company’s shareholders is recognized as a liability in the financial statements in the period when they are approved by the Company’s shareholders.


17

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.22 Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

The tax currently payable is calculated and paid in accordance with Income Corporate Law No Law no.05/L -029 entered into force commencing from 01 September 2015. Final tax on profit at a rate of 10% is payable based on the annual profit shown in the statutory statement of income as adjusted for items, which are non-assessable or disallowed. According to the current tax legislation, tax losses may be carried forward within a period seven years following the year in which the tax loss was incurred.

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. . Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

3.23 Commitments and contingencies

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. The amount of a contingent loss is recognized as a provision if it is probable that future events will confirm that, a liability incurred as at the financial position date and a reasonable estimate of the amount of the resulting loss can be made. 3.24 Related parties

Related parties are those where one of the parties is controlled by the other or has significant influence in making financial or business decisions of the other party.

3.25 Events after reporting date

Post-year-end events that provide additional information about a Company’s position at the statement of financial position date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.


18

4 FINANCIAL RISK MANAGEMENT

4.1 Financial instruments by categories The carrying amounts of the Company’s financial assets and liabilities as recognised at the statement of financial position date may also be categorised as follows:

December 31

2015 December 31

2014 Assets Available for sale Equity interest in foreign legal entities 39 39

Loans and receivables Trade receivables 11,300 10,704 Short-term deposit with banks - 18,066 Cash and cash equivalents 4,589 30,375

15,889 59,145

15,928 59,184

Liabilities

Other liabilities at amortized cost

Trade payables 5,280 9,848

5,280 9,848

4.2 Financial risk factors

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements.

The management has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market and legislative conditions and the Company’s activities.

4.3 Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments in bank deposits.

Trade receivables The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a collective loss component established for similar customers in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.


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4 FINANCIAL RISK MANAGEMENT (CONTINUED)

4.3 Credit risk (continued)

Investments in bank deposits The Company has significant current and investment accounts with all of Kosovo’s bank institutions.

Guarantees The Company’s policy is to provide financial guarantees only upon a decision of authorized directors or other key management personnel.

The process of managing the credit risk from operating activities includes preventive measures such as creditability checking and prevention barring, corrective measures during legal relationship for example reminding and disconnection activities, collaboration with collection agencies and collection after legal relationship as litigation process, court proceedings, involvement of the executive unit and factoring. The overdue payments are followed through a debt escalation procedure based on customer’s type, credit class and amount of debt.

The Company’s maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position as summarized below:

December 31

2015 December 31

2014 Classes of financial assets - carrying amounts: Equity interest in foreign legal entities 39 39 Trade receivables 11,300 10,704 Short-term deposit with banks - 18,066 Cash and cash equivalents 4,589 30,375

15,928 59,184

The credit risk for cash and cash equivalents and deposits is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. The age structure of trade receivables is as follows:

2015 2015 2015 2014 2014 2014

Gross

amount Impair. Net

Amount Gross

amount Impair. Net

amount Up to 30 days 3,796 (97) 3,699 3,918 (109) 3,809 From 1-3 months 3,487 (169) 3,318 3,398 (154) 3,244 From 3-6 months 2,966 (309) 2,657 2,377 (229) 2,148 From 6-12 months 2,285 (910) 1,375 2,087 (913) 1,174 Over 1 year 46,840 (46,589) 251 45,609 (45,280) 329

59,374 (48,074) 11,300 57,389 (46,685) 10,704

As of December 31, 2015 and December 31, 2014 the age structure of past due, not impaired receivables is as follows:

December 31 2015

December 31 2014

From 1-3 months 3,318 3,244

From 3-6 months 2,657 2,148

From 6-12 months 1,375 1,174

Over 1 year 251 329

7,601 6,895


20


4.4 Liquidity risk

Liquidity risk is defined as the risk that the Company could not be able to settle or meet its obligations on time.

The Company’s policy is to maintain sufficient cash and cash equivalents to meet its commitments in the foreseeable future. Finance sector is preparing cash flow forecasting for liquidity requirements to ensure that there is sufficient cash to meet operational needs at any time. The forecasting takes into consideration the Company’s debt financing plans and compliance with internal balance sheet ratio targets. Any surplus cash held by the Company over and above balance required for working capital needs is usually deposited in commercial banks.

The table below analyses the Company’s financial liabilities into relevant maturity based on the remaining period at the financial position date to the contractual maturity date. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Great part of the trade payables has maturity within one year.

At December 31, 2015 Less than 1

year Between 1 and 2 years

Between 2 and 5 years

Above 5 years

Trade payables 5,280 - - -

Total 5,280 - - -

At December 31, 2014

Trade payables 9,848 - - -

Total 9,848 - - -

4.5 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Foreign exchange risk As a whole, the Company is not exposed to currency risk because:

revenue is earned in Euro

purchases of main assets and materials used in the Company’s investment activities are denominated in Euro

financial assets are denominated in Euro.

Price risk The Company is not significantly exposed to equity securities price risk since beside the available-for-sale financial assets disclosed in Note 8, there are no other investments classified as available-for-sale, which could be affected by risk variables such as stock exchange prices.


21


4.5 Market risk (continued) Cash flow and fair value interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s investments in bank deposits. Company’s bank deposit accounts earn interest at commercial rates fixed at the date of the respective contract and mature upon fixed dates. The Company had no interest-bearing borrowings in both 2015 and 2014.

The table below summarizes the Company’s exposure to interest rate risk.

Assets December 31

2015 December 31

2014 Non-interest bearing: Available-for-sale financial assets 39 39 Trade receivables 11,300 10,704 Cash and cash equivalents 28 60

11,367 10,803 With fixed interest rate: Cash and cash equivalents 4,561 30,315

Short term deposits with banks - 18,066

4,561 48,381

15,928

59,184

Liabilities Non-interest bearing: Trade and other payables 5,280 9,848

5,280 9,848

4.6 Capital risk management The management’s policy is to maintain a strong capital base so as to maintain market confidence and to sustain future development of the business. Due to the external restrictions imposed by the environment (e.g. inability to place deposits abroad, lengthy procurement processes, etc.) the management of the Company cannot implement an efficient capital management specific to liberalized economies. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to contractual or legally imposed capital requirements. 4.7 Fair value estimation Fair value represents the amount at which an asset could be replaced or a liability settled on an arm’s length basis. Fair values have been based on management assumptions according to the profile of the asset and liability base. 4.7.1 Financial instruments presented at fair value The financial assets measured according to the fair value in the Statement of financial position in accordance with the hierarchy of the fair value are shown in the next table. This hierarchy groups the financial assets and liabilities into three levels that are based on the significance of the incoming data used during the measurement of the fair value of the financial assets. The hierarchy according to the fair value is determined as follows:


22


4.7.1 Financial instruments presented at fair value (continued)

Level 1: quoted prices (not adjusted) on the active markets for identical assets or

liabilities;

Level 2: other incoming data, aside from the quoted prices, included in Level 1 which are available for asset or liability observing, directly (i.e. as prices), or indirectly (i.e. made of

prices) and

Level 3: incoming data on the asset or liability that are not based on data available for

market observing.

The financial assets that are registered according to their fair values in the Statement of financial position are grouped according to the hierarchy level of the fair value, as follows: Assets Level 1 Level 2 Level 3 Total Financial assets available–for–sale at December 31, 2015 - 39 - 39 Financial assets available–for–sale at December 31, 2014 - 39 - 39

Financial assets available–for–sale comprise of participation in equity of foreign legal entities.

4.7.2 Financial instruments that are not presented at fair value

The following table summarizes the carrying amounts and fair values to those financial assets and liabilities that are not presented on Statement of financial position at their fair value.

Carrying value Fair value 2015 2014 2015 2014

Assets

Cash and cash equivalents

4,589

30,375

4,589

30,375 Trade receivables 11,300 10,704 11,300 10,704 Short term deposits with banks - 18,066 - 18,066

Total assets 15,889 59,145 15,889 59,145

Liabilities Trade payables 5,280 9,848 5,280 9,848

Total liabilities 5,280 9,848 5,280 9,848

Trade receivables Trade receivables are carried at amortized cost, less provisions for impairment. Due to their short maturity, their fair value corresponds to their carrying value. Cash and cash equivalents The fair value of monetary assets that includes cash and cash equivalents is considered to approximate their respective carrying values by definition and due to their maturity of less than 3 months. Trade payable Carrying value of trade payable approximates their fair value, due to their short maturity.


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5 ACCOUNTING ESTIMATES AND JUDGEMENTS

Management discussed with the Audit, Finance and Insurance Committee, an Advisory Committee to the Board of Directors of Telekomi I Kosovës Sh.a the development, selection and disclosure of the critical accounting policies and estimates and the application of these policies and estimates. Key sources of estimation uncertainty

Lack of an interconnection agreement with Telekom Serbia

Telekomi I Kosovës Sh.a (TK) connects international fixed calls to foreign administrations through Belgrade on the fixed lines managed by Telekom Serbia. Neither in the past nor currently have formal contracts TK between and Telekom Serbia been established. An interconnection agreement that would regulate mutual relationships with regard to telecommunications traffic is absent.

TK’s management considers it unrealistic to expect any kind of retrospective settlement in regard to telephone traffic between Telekom Serbia and TK and, instead, estimates it possible that, pending further political developments between Kosovo and Serbia, it might take more years before an interconnect agreement between the two parties is established.

In the absence of a formal interconnection agreement that would set out the tariffs for incoming and outgoing calls to/from the ‘381’ network, it is impractical to measure the value of the traffic to and from the ‘381’ network. It is measurable, however, that the incoming calls to the ‘381’ network areas in Kosovo (“calls terminating in Kosovo”) are significantly higher than the outgoing traffic from Kosovo to abroad (“outgoing calls”). This indicates that if a settlement takes place, it would be likely to give rise to net revenue in favor of TK. As a retrospective settlement is considered unrealistic at present, these financial statements do not reflect any financial effect from such international traffic in regard to assets, liabilities, revenue and expenses.

Recoverability of bank accounts and deposits

Subsequent to the end of 2005, Credit Bank of Prishtina, with which the Company had deposits at December 31, 2005, went into receivership following the withdrawal of its license by Banking and Payments Authority of Kosovo on March 13, 2006. Provision has been made in these and prior year financial statements for the balances at December 31, 2015 and 2014 of 11,841 and Euro 11,861 thousand, as significant uncertainty exists on the recoverability of the balances with this bank. In 2015 Euro 20 thousand are reimbursed and recognized as income accordingly (2014: EUR 12 thousand).

To the extent that it is still not possible to determine the outcome of the liquidation process and the amount of the deposits guaranteed by BPK, significant uncertainty exists on the recoverability of the balances with this bank. Therefore, an impairment loss of 100% of the amounts held with the bank has been provided. If there are enough liquidation assets to cover creditors’ claims, revenue will be recognized in future periods up to the recovered amount.


24

5 ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

Key sources of estimation uncertainty (continued)

Useful life of assets

The determination of the useful lives of assets is based on historical experience with similar assets as in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that the accounting estimate related to the determination of the useful lives of assets is a critical accounting estimate since it involves assumptions about technological development in an innovative industry. Following this the Company had made an assumption that the useful life of assets should remain the same as the previous year.

Inventories

Inventories are stated at the lower of cost and net realizable value. When determining the net realizable value, the most objective evidence / data available at the making of assessments are taken.

Recoverability of trade receivables

Impairment for doubtful accounts is calculated based on estimated losses resulting from the inability of our customers to make required payments. We base our estimate on the aging of our account receivables balance and our historical write-off experience, customer credit-worthiness and changes in our customer payment terms when evaluating the adequacy of the impairment loss for doubtful accounts. These involve assumptions about future customer behavior and the resulting future cash collections. If the financial condition of our customers were to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may exceed the level of the impairment losses recognized so far.


25

6 PROPERTY, PLANT AND EQUIPMENT

Land and Buildings Network Lines

Machinery and equipment

Advances for, and W.I.P. Total

Cost / Deemed Cost Balance at January 1, 2014 707 75,474 111,343 4,914 192,438 Additions - - 12 30,095 30,107 Write Off (7) (117) (7,676) - (7,800) Transfers to Post of Kosovo - - (11) - (11) Transfers 1 1,649 4,282 (8,624) (2,692)

Balance at December 31, 2014 701 77,006 107,950 26,385 212,042

Balance at January 1, 2015 701 77,006 107,950 26,385 212,042 Additions - 397 22,463 22,860 Write Off (4) (11) (9,892) (9,907) Transfers 14 2,089 20,890 (42,806) (19,813)

Balance at December 31, 2015 711 79,084 119,345 6,042 205,182

Accumulated depreciation Balance at January 1, 2015 (203) (33,868) (86,550) - (120,621) Charge for the period (39) (4,179) (8,077) - (12,295) Write Off 7 117 7,676 - 7,800 Transfer to Post of Kosovo - - 11 - 11

Balance at December 31, 2014 (235) (37,930) (86,940) - (125,105)

Balance at January 1, 2015 (235) (37,930) (86,940) - (125,105)

Charge for the period (40) (4,334) (9,160) (13,534) Write Off 1 10 9,753 9,764

Balance at December 31, 2015 (274) (42,254) (86,347) - (128,875)

Net Carrying amount At December 31, 2014 466 39,076 21,010 26,385 86,937

At December 31, 2015 437 36,830 32,998 6,042 76,307


26

6 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Transfers

During year 2015 the amount of Euro 19,813 thousand (2014: Euro 2,692) were transferred from work in progress into Intangibles (see note 7). Property, plant and equipment written off

During 2015 the Company wrote off against current profit and loss, items of property, plant and equipment net carrying value of which amount EUR 143 thousand (2014: EUR 0 thousand). Impairment loss and subsequent reversal

The Company is continuously assessing the technological advancements and progress on the property, plant and equipment, revising also their functionality and suitability to the existing infrastructure. Should there be damaged or obsolete property, plant and equipment, then an impairment test is carried out and the property, plant and equipment is either impaired or disposed of. Property, plant and equipment under construction

As of December 31, 2015 and 2014 advances for and construction in progress consist of the following:

December 31 2015

December 31 2014

- Project 3G/LTE 378 21,683 - Construction of Mobile Network and BTS Equipment 1,429 1,756 - Renewal and expansion of the infrastructure and

construction of local landline networks 3,252

2,231 - Expansion of billing mobile platform 733 715 - Advances for projects for mobile network 171 - - Other 79 -

6,042 26,385

Assets collateralized

No property, plant and equipment are given as collateral for any borrowings. Ownership

Ownership issues exist regarding the infrastructure inherited at the commencement of the UN administration of Kosovo in 1999. This represents a contingent liability to the Company which is not quantifiable at the present time. The resolution of title is one element of institutionalizing the final status of Kosovo, to which Company is not a party. Other matters

There are no assets acquired under finance lease terms. At December 31, 2015 fully depreciated assets amount to Euro 86,392 thousand at cost (At December 31, 2014: Euro 103,518 thousand).


27

7 INTANGIBLE ASSETS

Software Licenses Total

Cost

Balance at January 1, 2014 26,693 25,172 51,865

Write off (3,691) - (3,691)

Transfers (Note 6) 2,692 - 2,692

Balance at December 31, 2014 25,694 25,172 50,866

Balance at January 1, 2015 25,694 25,172 50,866

Write off (10,026) (30) (10,056)

Transfers (Note 6) 19,813 - 19,813

Balance at December 31, 2015 35,481 25,142 60,623

Accumulated amortization

Balance at January 1, 2014 (23,850) (10,268) (34,118)

Charge for the period (996) (2,994) (3,990)

Write off 3,691 - 3,691

Balance at December 31, 2014 (21,155) (13,262) (34,417)

Balance at January 1, 2015 (21,155) (13,262) (34,417)

Charge for the period (1,106) (6,193) (7,299)

Write off 10,026 30 10,056

Balance at December 31, 2015 (12,235) (19,425) (31,660)

Carrying amount

At December 31, 2014 4,539 11,910 16,449

At December 31, 2015 23,246 5,717 28,963

Software relates to cost of acquisition of the billing system and the internet service platform. In 2004 two licenses were granted for 15 years to operate telecommunications within Kosovo, consisting of a mobile license for Euro 6,500 thousand and a fixed license for Euro 2,900 thousand. 8 AVAILABLE-FOR-SALE FINANCIAL ASSETS

As of December 31, 2015, available-for-sale financial assets in amount of Euro 39 thousand (2014: Euro 39 thousand) entirely consist of equity interest in Mobile 4 AL Sh.a, a foreign legal entity incorporated in Albania. During the year ended December 31, 2014 the company recognized impairment loss in the amount of Euro 201 thousand (Note 23).


28

9 DEFERRED TAX ASSETS AND LIABILITIES

Recognized deferred tax assets and liabilities

The Company’s applicable tax rate represents the statutory corporate tax rate being 10%.

December 31

2015 December 31

2014

Deferred tax liabilities at January 1, - - Change recognized in statement of comprehensive income - -

Deferred tax liability at December 31, - -

Deferred tax assets at January 1, 565 23 Change recognized in statement of comprehensive income (Note 24) 229 542

Deferred tax assets at December 31, 794 565

Deferred tax assets recognized in the Statement of financial position relate to temporary differences between the accounting and tax base of property, plant and equipment.

Unrecognized deferred tax assets

Deferred tax assets have not been recognized in respect of impairment of trade receivables because it is not probable at this stage that these assets will be utilized in future periods. 10 INVENTORIES

December 31 2015

December 31 2014

Cables and maintenance materials 5,522 4,638

SIM cards and scratch cards 361 358 Consignment goods 77 80 Other inventories 207 210

6,167

5,286


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11 TRADE RECEIVABLES

December 31 2015

December 31 2014

Fixed line – individuals 28,949 29,600 Fixed line – companies 7,053 6,303 Mobile network 12,049 11,881 Incoming calls - locally 9,424 6,780 Roaming – Monaco Telecom International 178 752 Incoming calls – Monaco Telecom International 1,677 2,030 Other accounts receivable 44 43

59,374 57,389

Impairment of doubtful debts (48,074) (46,685)

11,300 10,704

Provision for impairment

The movement in the impairment for doubtful debts account is summarized as follows:

Fixed Mobile Total

Opening balance at January 1, 2014 32,748 12,626 45,374

Increase (Note 23) (94) 1,405 1,311

Closing balance at December 31, 2014 32,654 14,031 46,685

Opening balance at January 1, 2015 32,654 14,031 46,685

Increase (Note 23) 443 946 1,389

Closing balance at December 31, 2015 33,097 14,977 48,074

At December 31, 2015, the Company assessed the recoverability of its trade receivables, and recognized impairment loss as current expenses in statement of comprehensive income in the amount of Euro 1,389 thousand (2014: Euro 1,311 thousand) (see Note 23). 12 PREPAID EXPENSES AND OTHER RECEIVABLES

December 31 2015

December 31 2014

Value added tax receivable 217 611 Advances for health insurance of employee 133 136 Rent 1,878 335 Insurances 16 15 Interest receivables - 181 Other prepayments and receivables 2,396 994

4,640 2,272


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13 CASH AND SHORT TERM DEPOSITS WITH BANKS

13.1 SHORT – TERM DEPOSITS WITH BANKS

December 31

2015 December 31

2014 Short-term financial investments (bank deposits 3 to 12 months maturity) - 18,066

Short-term deposits with banks - 18,066

As at 31 December 2015 there are no deposits held in banks. There are no current or investment accounts held with foreign banks.

The effective interest rate earned on bank deposits in 2015 varied between 1.30% and 2.05%. The interest income earned during 2015 amounted to Euro 224 thousand (2014: Euro 529 thousand).

During the year Company has recognized recovery in the amount of Euro 20 thousand (Note 19) from the written off balance in Banka Kreditore e Prishtines Sh.a (Credit Bank of Prishtina) which was written off in amount of Euro 11,873.

Restricted deposits for unutilized letters of credit

As of December 31, 2015 and 2014 the Company does not have any restricted cash for letter of credits.

13.2 CASH AND CASH EQUIVALENTS

December 31

2015 December 31

2014 Current bank accounts with local banks 4,561 16,441 Bank deposits with original maturity three months or less - 13,874 Cash on hand 28 60

Cash and cash equivalents 4,589 30,375


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14 SHARE CAPITAL, RESERVES AND RETAINED EARNINGS

Share capital

On June 13, 2008, the Assembly of Kosovo approved the Law on Public Owned Enterprises (Law Nr. 03/L-087), and based on Article 3 of this Law, public enterprises including PTK JSC are declared as property of the Republic of Kosovo. Government of Kosovo has, through the Ministry of Economy and Finance exclusive authority to exercise shareholder rights over POEs.

On 13 October 2009, the Company status is changed and supplemented: the registered issued capital comprises 5 million shares Euro (Five million), composed of five million common shares with nominal value of 1 (One) Euro each.

On August 1, 2012 Euro 525 thousand shares were transferred to Post of Kosovo, the share capital as of December 31, 2015 and 2014 consists of 4,475 thousand shares, composed of Euro 4,475 thousand. All shares are issued at the name of Government of Republic of Kosovo.

On 22 July 215 the shareholder - Government of the Republic of Kosovo approved the Board of Directors request to change the legal name of the Company from Post and Telecommunications of Kosovo J.S.C. into Telekomi i Kosovës Sh.a. The new legal entity name was updated with the Kosovo Business Registration Agency on 12 August 2015.

Reserves Reserves are created during 2009 by merging of two companies PTK Holding and PTK JSC, upon decision of the Government for allocation part of consolidated equity into reserves in amount of Euro 55,000 thousand. Dividends Declared

During 2015, the Company has declared in accordance with decision from Board of Directors and shareholders the amount of EUR 30,000 thousand (2014: Euro 15,000 thousand).The amount of EUR 15,000 thousand was paid during the year whereas the EUR 15,000 thousand is recorded as payable in the statement of financial position.

15 TRADE ACCOUNTS PAYABLE

December 31

2015 December 31

2014 Monaco Telecom International - 142 Cacttus Sh.a 422 1,085

Post of Kosovo 1,022 686

Paykos 1,006 -

DARDAFON. Net - 620

NOKIA - Siemens Networks - 495

ALCATEL-LUCENT. Deutschland AG - 3,238

NOKIA - Siemens Networks. Finland - 1,687 Other suppliers 2,830 1,895

5,280 9,848


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16 OTHER PAYABLES AND ACCRUALS

December 31

2015 December 31

2014 Provisions for litigations (Note 22) - 10,329 Other provisions 4,808 3,146 Accruals for commission costs 2,146 2,528 Pension contributions payable to Kosovo pension fund 207 217 Personal income tax payable 146 155 Salaries payable 34 51 Tax on rent 323 62 Other payables 163 266

7,827 16,754

17 DEFERRED INCOME

December 31

2015 December 31

2014

Mobile prepaid (top up and scratch cards) 2,285 2,394

Mobile fees billed in advance 164 154

2,449

2,548

Deferred income relates to unused portion at the yearend of prepaid and scratch cards sold to mobile customers during the year. 18 REVENUE


2015


2014

Mobile phone service revenue 72,154 85,816

Fixed line revenue 9,621 10,786 Internet services revenue 1,403 1,563 Income from public phone booths 273 329 Other revenue 1,037 1,017

84,488

99,511

19 OTHER INCOME


2015


2014 Income from release of impairment provision on short-term deposits (Note 13.1) 20 12 Other revenue 98 326

118 338


33

20 OPERATIONAL COSTS


2015


2014

Mobile phone network costs 4,833

5,311

Sales discount 2,472 3,395 Commissions for sales through Post of Kosovo 3,017 3,278 Public services 2,675 2,789 Commissions for sales through Paykos 852 - Direct cost of sold products 3,813 2,597 Commission for mobile services provided by MTI 1,183 1,183 Fuel costs 355 497 Cost for international traffic/leased line 545 285 Cost of material for maintenance 493 240 Costs for IP intercommunication 172 146 Satellite link and equipment 41 18

20,451 19,739

21 STAFF COSTS


2015


2014 Salaries 25,321 26,231 Pension contribution 1,314 1,312 Health insurance contribution 292 273

26,927 27,816


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22 PROVISION FOR LITIGATION

The provision relates termination of the contracts on 8 June 2010 amounted to repudiation of these contracts (this termination was done by order from the Government of Kosovo). AMDOX Development Limited has claimed against the Company Euro 20,662 thousand. This has been subject to ruling of International Court of Arbitration where the court has awarded AMDOX Development Limited with Euro 8,712 thousand including their court costs. During 2014 were accrued additional Euro 256 thousand (2013: Euro 1,361 thousand) for the AMDOX Development Limited.


2015


2014

Provisions for litigations - 256

- 256

On 28 May 2015 AMDOX Development Limited and PTK J.SC, respectively Telekomi I Kosoves Sh.a singed a settlement agreement with the following terms; PTK J.SC, respectively Telekomi I Kosoves Sh.a acknowledges and confirms that is liable to pay to AMDOX the following sums under Arbitration award (the outstanding debt) composed of the following:

Arbitration Award Amount

Damages 8,712 Legal fees 769 ICC fees 140 Interest at 2.66% p.a 708

Outstanding Debt 10,329

In consideration of the above AMDOX will accept a payment of EUR 9,000 thousand in full for settlement of the outstanding debt if the payments are done latest by 26 September 2015. The Company made the payments of EUR 9,000 thousand to AMDOX as per agreement and settled the outstanding debt. Since the amount of EUR 10,329 thousand was recoded as provision in the Company’s financial statement as at 31 December 2014, the difference in amount of EUR 1,329 thousand is recognized as release of provision in the profit and loss for the year ended 31 December 2015.


35

23 OTHER OPERATING COSTS


2015


2014

Rent 6,810 6,331 Security and maintenance 5,207 3,526 Marketing 3,057 1,880 License fees, customs duties and taxes 2,674 2,109 Penalties from tax authorities 1,693 - Other provisions 1,953 108 Impairment loss on doubtful debts (refer Note 11) 1,389 1,311 Training and travel expenses 1,219 389 Office and administration expenses 900 963 Motor vehicle expense 372 572 Consulting expenses 279 33 Impairment of available for sale financial assets - 201 Loss for write off of property, plant and equipment (Note 5)

143

-

Other 374 213

26,070 17,636

The other expenses include bank service charges, vehicles costs, loss from write off etc.


36

24 INCOME TAX EXPENSE

The total income tax expense recognized in the income statement consists of:


2015


2014 Current tax expense

Current year 11 2,632

Deferred tax expense

Origination and reversal of temporary differences (229) (542)

Total income tax (credit)/expense in income statement (218) 2,090

An explanation of the relationship between the income tax expense in the income statement and the accounting (loss)/profit is presented below:

Tax adjustments 2015 Effective

tax* (%) Tax Tax

adjustments 2014 Effective

tax* (%) Tax

Accounting (loss)/profit before tax (8,122) 18,646

Income tax using the standard tax rate 10% (812) 10% 1,865

Non-deductible expenses:

- depreciation and amortization 2,277 (2.80%) 228 5,421 2.9% 542

- impairment loss on doubtful debts 1,389 (1.71%) 138 1,311 0.7% 131

- fines and penalties 3,646 (4.49%) 365 49 0.0% 4 - Other expenses (non- residents/creditors)

941 (1.16%) 94 919 0.5% 90

- nontaxable income (20) (0.02%) (2) - - - Effects of temporary differences debited to the income statement

2.82% (229) - (2.9%) (542)

Total income tax (credit) expense in income statement

(7.32%) (218) 11.2% 2,090

*The average effective tax rate is the tax expense/(income) divided by the accounting (loss)/profit.


37

24. INCOME TAX EXPENSE (CONTINUED)

A reconciliation of corporate tax receivable at the Statement of financial position date is presented as follows:


2015


2014 Income tax receivable / (payable) as at 01 January 2,223 (952) Transferred in prepayments (2,222) - Income tax expenses (11) (2,632) Income tax payments made during the year 3,629 5,807

Income tax receivable / (payable) as at 31 December 3,619 2,223

25 RELATED PARTIES

In the ordinary course of business, Telekomi I Kosoves Sh.a entered into transactions during the financial reporting periods with customers who are Government entities and individuals who are associated with or work for Government entities. The Company has also a related party relationship with its directors and executive officers. The monetary transactions with related parties and its directors and chief executive officer where only related to the payment of the:


2015


2014

Executive and non-executive officers compensations 184 162

184 162

26 COMMITMENTS

Leases as a lessee Non-cancelable operating lease are payable as follows:

December 31 2015

December 31 2014

Less than one year 62 32

Between one and five years 7,633 3,409

More than five years 940 848

8,635 4,289

The major part of the operating lease rentals relate to the rent of one administrative building for the operations of the Company.


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27 CONTINGENCES

Legal proceedings At December 31, 2015, legal proceedings raised against the Company amount in Euro 214,225 thousand. As of the financial position date of these financial statements, there are no provisions or potential losses recorded, regarding legal proceedings. The Company’s Management, regularly analyses potential risks resulting from losses regarding legal proceedings, along with proceedings and possible receivables aimed against the Company, which may arise in the future. Although the outcome of these matters cannot always be ascertained with precision, the management of the Company believes that no extra material liabilities are likely to result.

Tax Litigations

The Company’s financial statements for the years ended December 31, 2011 to 2012 were subject to inspection by local tax authorities, regarding income tax, withholding tax and VAT. The final report was issued on 15 January 2016 with modified opinion and liabilities were imposed in the amount of EUR 2,167 thousand. The Company filled a complain to department of complains with tax authorities on 19 February 2016 and based on that the penalties were reduced to EUR 1,650 thousand. These penalties are recorded in these financial statements.

During 2015, tax authorities started another tax inspection on financial statements for financial years 2013 and 2014. However no report is issued as at the date of this report. The Company’s management used its best estimate and judgment to comply with the tax laws including the use of results of previous tax inspections. Owing to use of judgment in complying with certain requirements of tax laws and depending on the tax authorities’ assessment, tax expenses, liabilities and prepayments as at December 31, 2015 and 2014 may differ significantly compared to the one reported in these financial statements and additional liabilities can be imposed.

Ownership of property, plant and equipment Note 5, Property, plant and equipment, refer to ownership issues existing regarding the infrastructure inherited at the commencement of the UN administration of Kosovo. This represents a contingent liability to Telekomi I Kosoves Sh.a which is not quantifiable at the present time.

Guarantees in favor of third parties As of December 31, 2015 and 2014 there are no guarantees issued in favor of third parties.

Capital commitments There are no significant capital commitments contracted at the financial position date that are not already recognized in the financial statements. 28 EVENTS AFTER THE REPORTING PERIOD

After December 31, 2015 and the reporting date until the approval of these financial reports, there are no other adjusting events reflected in the financial statements or events that are materially significant for disclosure in these financial statements.

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