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Telekom Slovenije Group InterCapital Securities Ltd 1/22 Telekom Slovenije Group – Initial Company Analysis Telekom Slovenije Group 15 March 2012 Telecommunications Restructuring starting to bring results… * Unaudited figures ** Multiples and indicators for 2009, 2010 and 2011 calculated based on market values as of 31 December. 2012 and further are based on 1Y target price (80,10 EUR) and projected values Telekom Slovenije Group (“Group” or “Company”) offers a wide selection of telecommunication products and services to residential and business users in the markets of Slovenia, Kosovo, Macedonia, Albania and Bosnia and Herzegovina. Products and services include land telephony, ISDN, ADSL, ATM, TETRA, phone cards and phone directories. In 2011, Telekom Slovenije Group realized EUR 814,6m revenues from sales, -2,9% YoY. Total business revenues amounted to EUR 824.5m, -2.3% YoY. 7% sales growth was recorded only in Kosovo while Macedonia marked 5% decline, the mother company 2%, and sales shrank 18% in other companies in Slovenia. For 2012 we expect 1% sales decrease, and in the projected period from 2011 to 2016 we estimate sales CAGR at -1.1%. Although we expect companies operating within the region (Kosovo, Macedonia, Bosnia and Herzegovina and Albania) to deliver income growth due to substantial regional growth potential, we estimate that this growth would not be sufficient to compensate for a 2% annual drop in sales that is expected to occur due to strong competition and constant price pressures. Although we projected decline of sales in projected period due to cuts in human recourse and material costs, mostly as a result of synergy of merger of Mobitel to the Group, we expect that the Group will manage to preserve operative EBITDA margin in projected period at a level of somewhat above 30%. Due to minor amortization and interests costs (because we expect reduction of financial debt) we expect the net profit margin to significantly increase from 4.1% in 2011 to 9.2% in 2016. In the projected period the Group is not expected to take significant amounts of new loans, but to stabilize its liabilities level at the one from 2011 (EUR 488.5m) and net debt/EBITDA ratio at the level of ca. 1.8%. In 2011 long-term liabilities amounted to 89.3% of the total debt, while in 2010 this portion was less than 75.7%. The main risks are: possible increase of regulatory provisions in the Company's operating markets, possible further pressures on profit margins due to strong competition, difficult collection of receivables (especially from alternative operators), risk of law suits against the Company, risk of user migration to other operators and dependence on the operator with significant market strength in abroad markets. Our analysis indicates a fair value of Telekom Slovenije of EUR 523.5m or EUR 80.10 per share, representing 17.8% growth potential in relation to current market value of the share and making our recommendation BUY. (EUR000) 2009 2010 2011* 2012 F 2013 F 2014 F Sales 847.507 839.337 814.624 806.478 794.381 784.848 EBITDA 267.847 35.972 255.616 252.622 249.546 246.546 EBITDA margin 31,2% 4,2% 30,8% 30,7% 30,8% 30,8% EBIT 70.166 -178.482 63.250 81.416 93.749 101.655 EBIT margin 8,2% -21,0% 7,6% 9,9% 11,6% 12,7% Net income 29.464 -210.317 34.011 48.446 58.327 66.724 Profit margin 3,4% -24,8% 4,1% 5,9% 7,2% 8,3% EPS (EUR) 4,5 -32,2 5,2 7,4 8,9 10,2 DPS (EUR) 3,0 3,4 3,4 4,6 4,6 4,6 P/E** 29,9 N/A 12,1 10,8 9,0 7,8 P/S** 1,0 0,7 0,5 0,6 0,7 0,7 EV/EBITDA** 5,7 30,6 3,3 3,9 3,8 3,9 ROA 1,5% -12,7% 2,2% 3,0% 3,5% 4,0% ROE 2,9% -26,0% 4,2% 6,0% 6,9% 7,4% TLSG and SBITOP from 5 Jan 2009 TLSG price and turnover Share price performance: 1 W 1.3% YTD 8.0% 1Y -10.9% __________________________________ InterCapital Securities Ltd Masarykova 1 Zagreb, Croatia Tel. 01/4825 850 Boris Mažurin Head of Research Tel. 01/4825 864 [email protected] _______________________________ GENERAL SHARE INFORMATION Bloomberg ticker TLSG SV Equity Number of shares (000) 6.535.478 Market capitalization (EURm) 444,4 1Y high/low (EUR) 83,3 / 60 1Y average daily turnover (EUR000) 58,5 Free Float 27,62% Index member YES Website www.telekom.si 60% 40% 20% 0% 20% 40% 60% SBITOP TLSG SV 0.0 0.5 1.0 1.5 2.0 2.5 0 20 40 60 80 100 120 140 160 180 200 Turnover Price BUY 1 Y target price: EUR 80,10 Price (14 Mar 2012): EUR 68 Growth potential: 17,8%

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Telekom Slovenije Group InterCapital Securities Ltd 1/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Telekom Slovenije Group 15 March 2012

Telecommunications

Restructuring starting to bring results…

* Unaudited figures ** Multiples and indicators for 2009, 2010 and 2011 calculated based on market values as of 31 December. 2012 and further are based on 1Y target price (80,10 EUR) and projected values

Telekom Slovenije Group (“Group” or “Company”) offers a wide selection of telecommunication products and services to residential and business users in the markets of Slovenia, Kosovo, Macedonia, Albania and Bosnia and Herzegovina. Products and services include land telephony, ISDN, ADSL, ATM, TETRA, phone cards and phone directories.

In 2011, Telekom Slovenije Group realized EUR 814,6m revenues from sales, -2,9% YoY. Total business revenues amounted to EUR 824.5m, -2.3% YoY. 7% sales growth was recorded only in Kosovo while Macedonia marked 5% decline, the mother company 2%, and sales shrank 18% in other companies in Slovenia. For 2012 we expect 1% sales decrease, and in the projected period from 2011 to 2016 we estimate sales CAGR at -1.1%. Although we expect companies operating within the region (Kosovo, Macedonia, Bosnia and Herzegovina and Albania) to deliver income growth due to substantial regional growth potential, we estimate that this growth would not be sufficient to compensate for a 2% annual drop in sales that is expected to occur due to strong competition and constant price pressures. Although we projected decline of sales in projected period due to cuts in human recourse and material costs, mostly as a result of synergy of merger of Mobitel to the Group, we expect that the Group will manage to preserve operative EBITDA margin in projected period at a level of somewhat above 30%. Due to minor amortization and interests costs (because we expect reduction of financial debt) we expect the net profit margin to significantly increase from 4.1% in 2011 to 9.2% in 2016. In the projected period the Group is not expected to take significant amounts of new loans, but to stabilize its liabilities level at the one from 2011 (EUR 488.5m) and net debt/EBITDA ratio at the level of ca. 1.8%. In 2011 long-term liabilities amounted to 89.3% of the total debt, while in 2010 this portion was less than 75.7%. The main risks are: possible increase of regulatory provisions in the Company's operating markets, possible further pressures on profit margins due to strong competition, difficult collection of receivables (especially from alternative operators), risk of law suits against the Company, risk of user migration to other operators and dependence on the operator with significant market strength in abroad markets. Our analysis indicates a fair value of Telekom Slovenije of EUR 523.5m or EUR 80.10 per share, representing 17.8% growth potential in relation to current market value of the share and making our recommendation BUY.

(EUR000) 2009 2010 2011* 2012 F 2013 F 2014 FSales 847.507 839.337 814.624 806.478 794.381 784.848EBITDA 267.847 35.972 255.616 252.622 249.546 246.546EBITDA margin 31,2% 4,2% 30,8% 30,7% 30,8% 30,8%

EBIT 70.166 -178.482 63.250 81.416 93.749 101.655EBIT margin 8,2% -21,0% 7,6% 9,9% 11,6% 12,7%

Net income 29.464 -210.317 34.011 48.446 58.327 66.724Profit margin 3,4% -24,8% 4,1% 5,9% 7,2% 8,3%

EPS (EUR) 4,5 -32,2 5,2 7,4 8,9 10,2DPS (EUR) 3,0 3,4 3,4 4,6 4,6 4,6P/E** 29,9 N/A 12,1 10,8 9,0 7,8P/S** 1,0 0,7 0,5 0,6 0,7 0,7EV/EBITDA** 5,7 30,6 3,3 3,9 3,8 3,9ROA 1,5% -12,7% 2,2% 3,0% 3,5% 4,0%ROE 2,9% -26,0% 4,2% 6,0% 6,9% 7,4%

TLSG and SBITOP from 5 Jan 2009

TLSG price and turnover

Share price performance:

1 W 1.3% YTD 8.0% 1Y -10.9% __________________________________

InterCapital Securities Ltd Masarykova 1 Zagreb, Croatia Tel. 01/4825 850

Boris Mažurin Head of Research Tel. 01/4825 864 [email protected] _______________________________

GENERAL SHARE INFORMATION

Bloomberg ticker TLSG SV EquityNumber of shares (000) 6.535.478Market capitalization (EURm) 444,4

1Y high/low (EUR) 83,3 / 601Y average daily turnover (EUR000) 58,5

Free Float 27,62%Index member YESWebsite www.telekom.si

‐60%

‐40%

‐20%

0%

20%

40%

60%

SBITOP TLSG SV

0.0

0.5

1.0

1.5

2.0

2.5

020406080100120140160180200

Turnover Price

BUY 1 Y target price: EUR 80,10 Price (14 Mar 2012): EUR 68

Growth potential: 17,8%

Telekom Slovenije Group InterCapital Securities Ltd 2/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Table of contents:

   

RISKS FACTORS ................................................................... 3 

COMPANY PROFILE .............................................................. 4 

History and Development ....................................................................... 4 

Ownership Structure ................................................................................. 4 

Organizational structure ......................................................................... 5 

Products and Services .............................................................................. 5 

Profitability and debt ................................................................................ 7 

Market Position ........................................................................................... 8 

2011 Unaudited Results of Telekom Slovenije Group.............. 10 

SLOVENIAN TELECOMMUNICATIONS MARKET OVERVIEW . 12 

FINANCIAL ESTIMATES ..................................................... 15 

Financial estimates until 2016 ........................................................... 15 

Assumptions for model development .............................................. 15 

Valuation ...................................................................................................... 17 

DCF Method ................................................................................................. 17 

Comparables Method .............................................................................. 18 

Valuation Conclusion .............................................................................. 19 

DISCLAIMER ...................................................................... 21 

Telekom Slovenije Group InterCapital Securities Ltd 3/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Risks Factors In addition to risks typical for the telecommunications sector, factors that determine the investment risk include economic, political, financial and infrastructural risks. Key risks considered in our analysis and valuation of the Company include the following: • Increase of regulatory provisions

Despite implemented measures, risk of increase of regulatory provisions still exists. Potential increase could additionally limit operating business of those telecoms with significant market value (Telecom Slovenije) and affect revenues and profitability of the Company. • Possible further pressure on profit margins Stronger competition and constant pressure on prices of products and services in Slovenia where the Group earns most of its income, and further decrease of purchasing power caused by economy stagnation may result in further pressures on profit margins of the Group. • Difficult receivables collection Economic crises in Slovenia and region resulted in prolonged days of receivables collection, especially from alternative operators in Slovenia who rent the infrastructure from the Group. Due to the crisis there is also enhanced possibility of bankruptcy of these companies and users, which would make the receivables collection even more difficult. • Risk of law suits against the Group

At present the Company is engaged in law suits worth over EUR 400m, most of which are related to processes from Si.mobil (EUR 150m) and Tushmobil (EUR 86m). The Group has no reserved assets for these two largest law suits as they do not see the possibility of losing. • Dependence on the operator with significant market strength in abroad markets Since the Group does not possess its own infrastructure in abroad markets of Kosovo and Albania, the Companies within it are dependent on the operator holding significant market strength in respective markets. Such a significant market player can act to disallow usage of its infrastructure or significantly raise its infrastructure lease prices, which would detain operative activities of these companies. • Risk of user migration

In Slovenia, as well as in other markets where the Group operates, there is significant competition in all segments of telecommunication business (land telephony, mobile telephony and broadband). The biggest threat are the alternative operators that attempt to compete with lower prices and cheaper packages of services, which can become dangerous due to stagnation or decline in personal earnings caused by the crisis. • Currency risk

As it operates in foreign markets, the Group is exposed to foreign currency fluctuations in relation to euro, therefore there is a possibility of loses on negative exchange rate differences.

Telekom Slovenije Group InterCapital Securities Ltd 4/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Company Profile

The Group offers a wide selection of telecommunication products and services to residential and business users in the markets of Slovenia, Kosovo, Macedonia, Albania and Bosnia and Herzegovina. Products and services include land telephony, ISDN, ADSL, ATM, TETRA, telephone cards and telephone directories.

History and Development

Chronology of development:

1991 Establishment of company Mobitel and launching of mobile telecommunications on NTM Mobitel network.

1995 Post and Telecommunication Company of Slovenia divided into Post of Slovenia and Telekom on Slovenia. Mobitel started with testing GSM technology, and Telekom of Slovenia launched ISDN technology.

1996 Telekom Slovenije founded Internet division - Slovenia Online (SiOL), and Mobitel developed GSM network.

1998 Privatization of Telekom Slovenije. Mobitel reached 10.000 users.

2001 New law on telecommunications and liberalization of market.

2002 Telekom Slovenije completed development of Slovenian optic network and launched ADSL technology.

2006 Telekom Slovenije purchased 76% shares of Macedonian On.net and 75% shares of Ipko Net from Kosovo. Shares of the Company listed on Ljubljana Stock Exchange.

2007 Telekom Slovenije purchased 75% shares of Interseek, 50% shares of Gibtelecom (Gibraltar), 70% shares of Aneks (Republic of Srpska) and 74% shares of AOL SP (Tirana).

2008 Telekom Slovenije purchased 100% shares of Netkom Ltd., cable TV operator in Bosnia and Herzegovina.

2011 Mobitel merged by acquisition to Telekom Slovenije.

Ownership Structure Chart 1 Ownership structure of Telekom Slovenije on 17 January 2012

Source: www.kdd.si

62,5%

5,6%4,3%

1,6%

1,3%

1,2%0,8%0,8%

0,6%

0,6%

20,7%

SLOVENIA

KAPITALSKA DRUŽBA, D.D.

SLOVENSKA ODŠKODNINSKA DRUŽBA, d.d.MODRA ZAVAROVALNICA d.d. ‐PRVI POKOJNINSKI SKLADINTERSVET d.o.o.

NFD 1, delniški podsklad

TRIGLAV VZAJEMNI SKLADI ‐DELNIŠKI TRIGLAV STEBER IPERSPEKTIVA FT d.o.o.

KD GALILEO, FLEKSIBILNA STRUKTURA NALOŽBNLB d.d.

OTHER

Telekom Slovenije Group InterCapital Securities Ltd 5/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Organizational structure Telekom Slovenije is organized as a Group consisting of a parent company (Telekom Slovenije Plc.) with direct and indirect subsidiaries and one joint venture.

Table 1 Organizational structure

Source: Telekom Slovenije Plc.

Products and Services

Products and services include land telephony, ISDN, ADSL, ATM, TETRA, telephone cards and telephone directories.

In 2010 the biggest income growth of 13.4% was recorded in Data services segment, following by Internet services segment with 8.3% growth. On the other hand, revenues of Wholesale segment declined 6.7%, Mobile telephony segment contracted 4.1% and Land telephony lost 3.1%.

TSmedia d.o.o.   100%

POGODAK TRAŽILICA d.o.o.      in liquidation (Croatia)   100%

POGODAK d.o.o. Belgrade       in liquidation (Serbia)   100%

SIOL B.V. in liquidation (Netherlands)   100%

ONE d.o.o. Skopje (Macedonia)  46,01%

SOLINE d.o.o.   100%

M‐Pay d.o.o.   50%

PRIMO Communications d.o.o. (Albania)   75%

SIOL d.o.o. Sarajevo (Bosnia and Herzegovina) 100%

IPKO Telecommunications d.o.o. (Kosovo)   93,1%

DSN d.o.o.   100%

Media Works d.o.o.   100%

Ipko Net Albania d.o.o.   100%

ANEKS d.o.o. Banja Luka         (BiH, Republic of Srpska)    70%

Gibtelecom Limited (Gibraltar)   50%

SIOL d.o.o. (Croatia)  100%

DIGI PLUS MULTIMEDIA DOOEL, Skopje (Macedonia)   100%

SIOL d.o.o. Podgorica          (Montenegro)   100%

ONE d.o.o. Skopje (Macedonia)   53,99%

Telekom Slovenije Plc 

GVO d.o.o.   100%

Slovenia Abroad

AVTENTA.SI d.o.o.   100% 

Telekom Slovenije Group InterCapital Securities Ltd 6/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Graph 1 Overview of 2010 revenues by business segment (in EUR000)

Source: Telekom Slovenije Plc.

Graph 2 ARPU of broadband Internet in EUR

Source: Telekom Slovenije Plc.

Graph 3 Monthly ARPU in mobile telephony in EUR

Source: Telekom Slovenije Plc.

If comparing monthly ARPU by business segments, the biggest ARPU of EUR 36.2 (4Q 2011) was achieved in broadband Internet access segment, up from 4Q 2010 (EUR 35.8). On the other hand, total monthly ARPU (pre- and postpaid) in mobile telephony in 4Q 2011 amounted to EUR 21.3, which is less than in 4Q 2010 (EUR 22.6).

0

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100.000

150.000

200.000

250.000

300.000

350.000

400.000

Fixed telephony Mobile telephony

Internet services Wholesale services

Data services Other services

2010

2009

35,8 36,6 36,6 36,1 36,2

0

5

10

15

20

25

30

35

40

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

28,527

28,7 28,226,7

22,621,2

22,8 22,3 21,3

7,96,5 7,5 6,9 7

0

5

10

15

20

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35

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

Postpaid

Total ARPU

Prepaid

Telekom Slovenije Group InterCapital Securities Ltd 7/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Profitability and debt

The Group's EBITDA in the last five years (2007-2011) was in decline, with CAGR of 3.8%. At the same time Group also experienced contraction of EBIDTA margin from 37.9% in 2007 to 31% in 2011.

Graph 4 Operating profitability in the last five years (EURm)

Source: Telekom Slovenije Plc. Note: EBITDA in 2010 before write-off

Examined by individual companies within the Group, EBITDA looks as follows:

Table 2 Structure of Group's EBITDA by Companies

Source: Telekom Slovenije Plc. * EBITDA in 2010 before write-off

Graph 5 Net financial debt in EUR million (2007-2011)

Source: Telekom Slovenije Plc.

298 312268 247 256

37,9%36,7%

31,3%29,3%

31,0%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

0

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2007 2008 2009 2010 2011

EBITDA

EBITDA margin

EUR (000) 2010* 2011 Change

Telekom Slovenije 208.372 220.999 6,1%

Other companies in Slovenia 8.780 10.776 22,7%

Ipko - Kosovo 6.088 27.416 350,3%

Companies in Macedonia 4.169 -57.070 -

Other companies in SE Europe -144 1.733 -

Gibtelecom 4.527 4.964 9,7%

Total - unconsolidated 231.792 208.818 -9,9%

Eliminations 15.365 46.798 -

Telekom Slovenije Group 247.156 255.616 3,4%

311 380

590 503389

1,01,2

2,22,0

1,5

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2007 2008 2009 2010 2011

Net debt

Net debt/EBITDA

Telekom Slovenije Group InterCapital Securities Ltd 8/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Group's net financial debt at the end of 2011 amounted to EUR 389m, which was 1.5 times more than achieved EBITDA in 2011 (EUR 256m). The largest part of total debt at the end of 2011 was consumed by corporate bonds (EUR 300m), followed by long-term bank loans (EUR 163.4m) and leasing (EUR 3.4m).

Market Position Slovenian Market Group's market share in the Slovenian market is moderately lower compared to previous years. The main reason comes from price pressures exerted by the alternative operators.

Chart 2 Market shares in Slovenia at the end of 2011 by segment

Source: Telekom Slovenije Plc., Post and Electronic Communications Agency of the Republic of Slovenia (APEK)

Taking into consideration the dominant market position of Telekom Slovenije in the land telephony segment, and the rising trend in IP telephony usage, the Group’s market share in traditional land telephony decreased for the past few years as a result of entry of alternative operators in that segment. Market share of Telekom Slovenije in land telephony is still high at more than 70%, which indicates that the Company provides land telephony services for ca 500 thousand Slovenian households. In 2010 its market share decreased by 5.9% YoY. Regarding the broadband segment, at the end of 2011 the Company still held the leading position with the market share of 42%, which included somewhat more than 210 thousand users. The Company is also a leading provider of IPTV services and holds 58% of market share, i.e. somewhat more than 124 thousand users. This segment marked the biggest growth of 12% in 2010 and 31% in 2009. In mobile telephony segment the Company holds 52% market share, with 1.123.778 users.

fixed broadband IPTV

VOIP mobile telephony

Mobitel

Telekom Slovenije Other operators

58%

42% 42%

58%

61%

39%48%52%

Telekom Slovenije Group InterCapital Securities Ltd 9/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Other markets

For other Company's markets, Kosovo and Macedonia, we only have access to the official data for market shares in mobile telephony. The Ipko company in Kosovo holds almost a quarter of mobile telephony market (24%). Penetration of mobile telephony in Kosovo at the end of 2011 was still low (93%), but it is worth to mention that it was strongly increasing from the end of 2010 (70%). Graph 6 Market share of Ipko in Kosovo in %

Source: Telekom Slovenije Plc. In the Macedonian market the One company holds 25% of share of mobile telephony market with tendency of decline as its market share at the end of 2010 amounted to 26.7%. Penetration of mobile telephony in Macedonia is low, with 85% at the end of 2011, which shows a growth of only 2% YoY.

Graph 7 Market share of One and penetration of the mobile telephony in Macedonia in %

Source: Telekom Slovenije Plc.

Overview of retail terminals in all markets

In 2011, the number of broadband retail terminals increased by 2.4% YoY, to 341.083 connections. Kosovo and Bosnia and Herzegovina contributed the most with 11.5% and 11.2% increase in respective figures. In the same year, the number of broadband retail terminals in Slovenia decreased 0.6% to 210.291, accounting for 61.7% of all broadband retail terminals of the Company.

27 24 24 25 24

70 71 71 68 68

2 4 4 6 7

70

86 8188

93

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0%

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50%

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70%

80%

90%

100%

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

D‐3

Z mobile

Vala

Ipko

Penetration

26,7 26,5 26,1 25,4 25

53,8 51,7 50,7 50,2 49,1

19,5 21,8 23,2 24,4 25,9

8385 85 87 85

0

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100%

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

VIP

T‐Home

One

Penetration

Telekom Slovenije Group InterCapital Securities Ltd 10/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Table 3 Broadband retail terminals of the Group

Source: Telekom Slovenije

In 2011, the number of mobile telephony retail terminals shrank 4.1% YoY, to 1.937.262. Kosovo and Macedonia were mostly accounted for the decline with 5.9% and 4.6% respective losses. The same year saw a reduction of fixed telephony retail terminals by 7.1% (to 543.037) YoY. Slovenian market was mostly responsible as it delivered 8.5% reduction in connections. At the same time, the number of terminals rose 4.9% in the market of SE Europe.

Table 4 Fixed and mobile telephony retail terminals

Source: Telekom Slovenije

2011 Unaudited Results of Telekom Slovenije Group In 2011, Telekom Slovenije Group realized EUR 814.6m sales, 2.9% down from 2010. Total operating revenue reached EUR 824.5m, -2.3% YoY. 7% sales growth was delivered only in Kosovo, while Macedonia (-5%), parent company (-2%) and other companies in Slovenia (-18%) marked declined sales. 2011 noted reduction in operating costs from EUR 1.03 billion to EUR 766.2m (-25.4%) YoY, and resulted in improved operating profitability. In the overall structure of operating costs, other operating costs contracted the most by 87.1%, mainly consequent to EUR 211.2m write-off in 2010. EBITDA margin rose 170bps and EBIT increased from -21.2% in 2010 to 7.7% in 2011. Contraction of financial expenditures (lower interest costs) and increase in financial revenues (higher dividend revenues) enabled the Company to reduce its net financial loss by 39.6%. In total, the Company’s bottom line delivered net income of EUR 34m, a definite improvement from last year’s EUR 210.3m net loss. Regardless of positive figures in 2011, net income failed to meet expectations due to additional write-offs, insufficient saving measures and amplified reserves. In 2011, the Group’s Capex reached EUR 92m, of which Telekom Slovenije accounted for EUR 60.6m and Ipko EUR 11.8m. Relative to the previous year, Capex contracted 19% in 2011. Net financial debt dropped from EUR 503.4m in 2010 to EUR 388.6 in 2011 (-22.8%), mainly consequent to repayment of certain credit lines (reduction of short term liabilities by nearly 26%).

2010 2011 Change

Slovenia 211.665 210.291 -0,6%

Bosnia and Herzegovina 15.958 17.747 11,2%

Macedonia 35.987 36.031 0,1%

Kosovo 64.861 72.312 11,5%

Albania 4.743 4.702 -0,9%

SE Europe total 121.549 130.792 7,6%

Total Telekom Slovenije Group 333.214 341.083 2,4%

2010 2011 Change

Slovenia, mobile telephony 1.161.236 1.123.788 -3,2%

Slovenia, fixed voice telephony 522.393 477.730 -8,5%

SE Europe, mobile telephony 858.266 813.474 -5,2%

- Macedonia - One 461.038 439.847 -4,6%

- Kosovo - Ipko 397.228 373.627 -5,9%

SE Europe, fixed voice telephony 62.233 65.307 4,9%

Total Telekom Slovenije Group 2.604.128 2.480.299 -4,8%

Telekom Slovenije Group InterCapital Securities Ltd 11/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Table 5 2011 unaudited results of Telekom Slovenije

Source: Telekom Slovenije

PERIOD EUR (000) FY 2010. FY 2011.

Sales 839.337 814.624Change % ‐2,9%Other operating revenue 4.189 9.883Change % 135,9%OPERATING REVENUE 843.526 824.507Promjena % ‐2,3%Joint venture revenue 4.527 4.964Change % 9,7%COGS 63.502 67.073Change % 5,6%Services costs 331.592 323.815Change % ‐2,3%Personnel costs 162.523 150.160Change % ‐7,6%Amortization 214.454 192.366Change % ‐10,3%Other operating costs 254.464 32.807Change % ‐87,1%OPERATING COSTS 1.026.535 766.221Change % ‐25,4%EBIT ‐178.482 63.250Change % ‐135,4%Financial income 4.267 10.074Change % 136,1%Financial expenditure 28.174 24.506Change % ‐13,0%NET FINANCIAL RESULT ‐23.907 ‐14.432Change % ‐39,6%EBT ‐202.389 48.818Change % ‐124,1%Income tax 7.928 14.807NET INCOME ‐210.317 34.011Change % ‐116,2%

EBITDA margin 29,3% 31%EBIT margin ‐21,2% 7,7%Profit margin ‐24,9% 4,1%CAPEX 113.575 91.966

Total assets 1.658.228 1.575.314Capital and reserves 807.812 815.275Equity ratio 48,7% 51,8%Net financial debt (NFD) 503.360 388.591

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Slovenian Telecommunications Market Overview

In 2010, Slovenian telecommunications market counted 152 operators offering mobile and fixed telephony services, broadband internet, infrastructure leasing, broadcasting transfer to end users and other services. 20 new market operators were registered and 9 delisted in the same year. The largest telecommunications operators in Slovenia by realized revenue at the end of 2010 were Telekom Slovenije with 30.9% overall market share and Mobitel with 30.7% market share. Since Mobitel was merged by acquisition to Telekom Slovenije, the Company owned 61.6% of overall telecommunications market share in Slovenia at the end of 2010. Si.mobil followed with 13% market share and Tušmobil with 6%. Other operators hold less than 20% market share and include Akton, T-2, Telemach, Amis, Debitel, RTV Slovenija, Stelkom, Telemach Rotovž and other. Chart 3 Slovenian telecommunications market – overview by market share in 2010

Source: APEK

The number of users/terminals in the Slovenian telecommunications market had an upward trend in the last five years in the segment of mobile telephony and broadband internet access, whereas fixed telephony segment contracted with CAGR at 1.5%. The number of users/terminals in the broadband segment rose the fastest with CAGR at 11.4%, while mobile telephony delivered a solid increase in user base with CAGR at 3.3%. Graph 8 Number of users/terminals in the Slovenian telecommunications market

Source: SORS, 3Q 2011

Telekom Slovenije ‐ 30,9%

Mobitel ‐30,7%

Si.mobil ‐ 13%

Tušmobil  ‐ 6%

Akton ‐ 3,1%

T‐2 ‐ 2,8%

Telemach ‐ 2%

Amis‐ 2%

Debitel ‐ 1,4%

RTV Slovenija  ‐ 0,6%

Stelkom ‐ 0,6%

Telemach Rotovž  ‐ 0,6%

Other ‐ 6,3%

1.898.2162.019.983 2.076.755 2.113.325 2.162.871

850.137 871.259 832.356 821.968 800.632

322.169 397.417 455.606 483.003 495.864

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

2007 2008 2009 2010 2011

mobile telephony fixed telephony broadband Internet access

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Mobile Telephony Penetration of mobile telephony in Slovenia reached 106% at the end of 2011, up by 2% from 2010. Telekom Slovenije holds the largest market share in this segment with 52%, -3% YoY. Simobil is the second largest Slovenian player in the telecommunications market with 29.5% market share at the end of 2011. Telekom Slovenije’s contraction in market share most benefited Tušmobil as it increased its market share from 7.9% at the end of 2010 to 10.1% at the end of 2011, placing it as third in the Slovenian telecommunications market. Forth place is held by Debitel with a constant 4.4% market share throughout 2011. Izi mobil and T-2 are also present in the market, but with less than 3% market share. Graph 9 Penetration of mobile telephony and market shares in Slovenia in %

Source: Telekom Slovenije, APEK

Fixed telephony

In the last three years, the Slovenian fixed telephony market experienced a considerable shift from classic fixed telephony services to IP telephony. Included graph illustrates a significant increase in VOIP terminals within two years, particularly in the residential segment.

Graph 10 Increase in VOIP terminals in Slovenia

Source: Post and Electronic Communications Agency of the Republic of Slovenia (APEK)

54,7 53,9 53,4 52,6 51,8

29,2 29,6 29,6 29,2 29,5

7,9 8,1 8,6 9,7 10,1

4,4 4,5 4,4 4,4 4,4

104 104 104 105 106

0

20

40

60

80

100

0%

20%

40%

60%

80%

100%

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

T‐2

Izi mobil

Debitel

Tušmobil

Simobil

Telekom Slovenije

Penetration

204.784223.111

234.541248.300

264.418279.541 286.071

302.441

18.786 19.599 20.160 23.596 23.475 24.568 25.455 26.357

223.570242.710 254.701

271.896287.893 304.109

311.526 328.798

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010

Residential  Business Total

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Examining market shares in fixed telephony according to quantity of VOIP terminals at the end of 2010, with 42.7% Telekom Slovenije had the largest market portion, albeit 3.8% smaller than at the beginning of 2010. With 20% market share, Telemach came in second, up 3.8% YoY. T-2 followed with 18.6%, 2.1% lower YoY. Other operators (Amis, In.life, UPC Ljubljanski kabel, Softnet, Tušmobil, Teleing and other) account for less than 20% of overall market share in this segment.

Broadband Internet access

Penetration of a broadband internet access in Slovenia reached 24.5% at the end of 2011, up 1% YoY. Telekom Slovenije holds the largest market share in this segment with 42% at the end of 2011, down more than 2% YoY. With 16.9% T-2 holds a second largest market portion. Telemach benefited the most from contraction of the Company’s market share as it increased its share from 15.5% in 2010 and won 17.2% of the market at the end of 2011. Following in the fourth position in the Slovenian broadband market is Amis with 11.1% at the end of 2011, up from 10.4% realized in 2010. Other operators accounted for around 13% at the end of 2011.

Graph 11 Penetration of broadband internet and market shares in Slovenia in %

Source: Telekom Slovenije, APEK

44,2 43,6 43 42,6 41,8

17,4 17,1 16,9 16,9 16,9

15,5 16 16,5 16,8 17,2

10,4 10,7 10,8 10,9 11,12,4 2,3 2,3 2,2 2,210,1 10,3 10,5 10,7 10,9

23,5 23,8 23,9 24,2 24,5

0

5

10

15

20

25

0%

20%

40%

60%

80%

100%

4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011

Other

Tuš

Amis

Telemach

T‐2

Telekom Slovenije

Penetration

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Financial Estimates

Financial estimates until 2016 The time horizon of our estimates is 5 years. Our financial model was developed based on data obtained from the Company, the available financial reports and analysis of trends in the telecommunications sector in SE Europe.

Assumptions for model development Based on trends in the telecom sector in SE Europe and data obtained from the Company, we expect 1% sales decline in 2012. In the projected period from 2012 – 2016 we expect sales to drop with CAGR at 1.1%. Sales of companies active in the region (Kosovo, Macedonia, Bosnia and Herzegovina and Albania) are expected to rise due to the substantial regional potential, although it will not be enough to compensate contraction of sales in Slovenia, where we expect revenues to drop 2% annually on strong competition and continuous price pressures.

Table 6 Income statement: 2009 – 2011 and estimates until 2016

Source: Telekom Slovenije, InterCapital estimate

We expect operating expenses CAGR at -0.8%. In operating costs, most substantial savings are expected in personnel costs for which the Group will implement an optimization plan. In 2011, the number of employed shrank by 81 to 4.760. Most part related to personnel employed in companies in Macedonia (63 employees) where the Group already underwent business restructuring. We expect the Group to continue optimizing its personnel numbers and project personnel costs CAGR at -1.3% in the projected period. Although we estimated contraction in sales in the projected period based on cuts in personnel and material costs mostly resulting from synergies created through merger of Mobitel to the Group, we expect Telekom Slovenije to maintain its operating EBITDA margin in the projected period somewhat above 30%. Reduced amortization and interest costs consequential to expected drop in financial debt are expected to increase net profit margin from 4.1% in 2011 to 9.2% in 2016.

(in EUR 000) UnauditedINCOME STATEMENT 2009 2010 2011 2012 2013 2014 2015 2016Sales 847.507 839.337 814.624 806.478 794.381 784.848 777.784 771.562 -1,1%Other operating revenue 8.599 4.189 9.883 10.081 10.181 10.589 10.906 11.015 2,2%% in joint venture revenue 3.611 4.527 4.964 5.063 5.114 5.318 5.478 5.533 2,2%Operating revenue 859.717 848.053 829.471 821.622 809.676 800.755 794.169 788.110 -1,0%

Material costs 408.076 395.094 390.888 386.979 379.240 369.759 363.473 356.203 -1,8%Personnel costs 152.909 162.523 150.160 142.652 138.372 137.681 139.057 140.448 -1,3%Other operating costs 30.885 254.464 32.807 39.368 42.518 46.770 51.447 54.019 10,5%Operating costs 591.870 812.081 573.855 569.000 560.130 554.209 553.977 550.670 -0,8%

EBITDA 267.847 35.972 255.616 252.622 249.546 246.546 240.192 237.440 -1,5%D&A costs 197.681 214.454 192.366 171.206 155.797 144.891 137.647 130.765 -7,4%EBIT 70.166 -178.482 63.250 81.416 93.749 101.655 102.545 106.676 11,0%Net financial result -26.885 -23.907 -14.432 -18.500 -18.000 -15.000 -15.000 -13.000 -2,1%Income before tax 43.281 -202.389 48.818 62.916 75.749 86.655 87.545 93.676 13,9%Tax 13.817 7.928 14.807 14.471 17.422 19.931 20.135 21.545 7,8%Net income 29.464 -210.317 34.011 48.446 58.327 66.724 67.410 72.130 16,2%

CAGR 11 - 16

Audited InterCapital estimate

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Table 7 Margins 2009 - 2011 and estimates until 2016

Source: Telekom Slovenije, InterCapital estimate

We expect Capex at around EUR 120m – 150m in the projected period, approximately simultaneous to amortization costs. Assets are estimated to rise from CAGR at 1.5% in 2012 to CAGR at 2.5%. On the liabilities side we expect equity CAGR at 3.8%, primarily as a result of presumed continuous growth of the Company's net income during the projected period. In the same period, we expect the Company to pay EUR 30m dividend, or EUR 4.5 – 5 per share. We expect that the Company will stabilize its debt at 2011 level (EUR 488.5m), assuming that the Company will not take significant amounts of new loans. The Company's debt/EBITDA ratio is expected to stabilize at around 1.8x. Worth noting are long-term financial liabilities which accounted for 89.3% of total liabilities in 2011, while in 2010 this portion was less than 75.7%.

Table 8 Balance sheet: 2009 – 2011 and estimates until 2016

Source: Telekom Slovenije, InterCapital estimate

Nerevidirano2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016.

EBITDA marža 31,2% 4,2% 30,8% 30,7% 30,8% 30,8% 30,2% 30,1%EBIT marža 8,2% -21,0% 7,6% 9,9% 11,6% 12,7% 12,9% 13,5%Profitna marža 3,4% -24,8% 4,1% 5,9% 7,2% 8,3% 8,5% 9,2%

Revidirano Interkapitalova procjena

(in EUR 000) UnauditedBALANCE SHEET 2009 2010 2011 2012 2013 2014 2015 2016Intangible assets 351.951 162.867 157.418 196.773 216.450 238.095 285.714 314.285 14,8%Tangible assets 1.206.694 1.108.408 994.438 943.232 932.435 947.544 959.897 979.132 -0,3%Other noncurrent assets 99.160 103.192 108.410 146.354 153.671 138.304 145.219 130.697 3,8%Total noncurrent assets 1.657.805 1.374.467 1.260.266 1.286.358 1.302.556 1.323.942 1.390.830 1.424.115 2,5%Inventories 26.154 26.643 27.272 27.817 28.374 29.792 30.090 30.391 2,2%Accounts receivable 134.489 142.869 142.553 143.619 141.465 139.767 138.510 137.401 -0,7%Current financial assets 554 13.392 24.243 36.365 40.001 46.001 46.921 47.860 14,6%Other current assets 85.314 54.131 59.715 65.687 70.530 81.110 93.276 93.276 9,3%Cash and cash equivalents 21.210 46.726 61.265 38.828 61.072 68.117 31.118 48.457 -4,6%Total current assets 267.721 283.761 315.048 312.316 341.442 364.788 339.915 357.385 2,6%TOTAL ASSETS 1.925.526 1.658.228 1.575.314 1.598.674 1.643.998 1.688.730 1.730.745 1.781.500 2,5%

Total capital and reserves 1.001.566 807.812 815.275 812.429 850.637 895.759 933.854 980.705 3,8%Reserves 30.529 37.814 45.619 44.205 48.625 49.112 50.094 51.096 2,3%Noncurrent financial liabilities 581.014 443.445 436.380 440.744 442.948 445.162 447.388 449.625 0,6%Other noncurrent liabilities 14.158 19.201 18.650 18.837 18.931 18.969 18.874 18.949 0,3%Total noncurrent liabilities 625.701 500.460 500.649 503.785 510.503 513.242 516.356 519.670 0,7%Accounts payable 103.431 85.705 77.867 98.600 96.628 94.212 92.611 90.759 3,1%Current financial liabilities 95.148 142.493 52.088 53.130 54.192 55.276 56.382 57.509 2,0%Other current liabilities 74.399 96.115 101.870 102.889 103.918 101.839 102.858 103.886 0,4%Passive time separation 25.281 25.643 27.565 27.841 28.119 28.400 28.684 28.971 1,0%Total current liabilities 298.259 349.956 259.390 282.459 282.857 279.728 280.534 281.125 1,6%TOTAL CAPITAL AND LIABILITIES 1.925.526 1.658.228 1.575.314 1.598.674 1.643.998 1.688.730 1.730.744 1.781.500 2,5%

CAGR 11 - 16

Audited InterCapital estimate

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Table 9 Key financial indicators: 2009 – 2011 and estimates until 2016

Source: Telekom Slovenije, InterCapital estimate

Valuation

DCF Method In the DCF method, we have used the FCFF (free cash flow to firm) model, which we estimate is optimally adjusted to the Company’s business model, capital structure and business strategy, and most objectively reflects its real value. As a starting point in the valuation we have used a weighted average cost of capital (WACC) of 8.15%.

Table 10 DCF method valuation

Using this method, we have calculated Telekom Slovenije's equity value of EUR 491.6m or EUR 75.22 per share.

Unaudited2009 2010 2011 2012 2013 2014 2015 2016

Sales growth 0,6% -1,0% -2,9% -1,0% -1,5% -1,2% -0,9% -0,8%EBITDA margin 31,2% 4,2% 30,8% 30,7% 30,8% 30,8% 30,2% 30,1%EBIT margin 8,2% -21,0% 7,6% 9,9% 11,6% 12,7% 12,9% 13,5%Profit margin 3,4% -24,8% 4,1% 5,9% 7,2% 8,3% 8,5% 9,2%ROA 1,5% -12,7% 2,2% 3,0% 3,5% 4,0% 3,9% 4,0%ROE 2,9% -26,0% 4,2% 6,0% 6,9% 7,4% 7,2% 7,4%Capex/Sales 21,8% 13,5% 11,7% 14,9% 18,3% 20,4% 19,3% 19,4%

Audited InterCapital estimate

(in EUR000) 2012 2013 2014 2015 2016NOPLAT 66.946 76.327 81.724 82.410 85.130

Amortization 171.206 155.797 144.891 137.647 130.765

CAPEX 120.000 145.000 160.000 150.000 150.000

Change in working capital -19.121 374 2.137 642 1.045

FCFF 137.273 86.750 64.479 69.415 64.850

WACC (2012.) 8,15%

Growth rate (perpetual ) 1,20%

WACC (perpetual ) 9,22%

Terminal value

PV of terminal value

PV of FCFF 371.507

Enterprise value

Net debt 455.046

Equity value 491.612

Price per share (EUR) 75,22

946.658

818.414

575.150

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Table 11 Sensitivity analysis

Using sensitivity analysis and variations in perpetual growth rate (PGR) and the weighted average cost of capital (WACC), we have calculated the value of Telekom Slovenije between EUR 416.1m and EUR 589m.

Comparables Method

The key step in using the comparables method for valuation is the selection of companies operating in the SE Europe and whose business model is comparable with Telekom Slovenije. Table 12 Comparables – financial indicators for FY11

Source: companies' financial reports for FY11

Table 13 Comparables – multiples

Source: Bloomberg, companies' financial reports

Using this method and applying the multiples on appropriate items which are expected from Telekom Slovenije in 2012, we generated the Value of Telekom Slovenije Group of EUR 765.8m or EUR 117.2 per share. However, due to significantly lower liquidity of Telekom Slovenije's shares relative to its comparables, we applied a 15% discount to the obtained price and finally generated a value of Telekom Slovenije of EUR 99.60 per share.

-0,50% -0,25% WACC 0,25% 0,50%0,50% 589.033 559.962 532.889 507.622 483.9900,25% 564.305 537.037 511.587 487.784 465.478PGR 541.221 515.587 491.612 469.145 448.053-0,25% 519.623 495.474 472.845 451.601 431.622-0,50% 499.371 476.578 455.180 435.057 416.102

Company EBITDA margin EBIT margin Net margin Sales Capex/Sales ROAMAGYAR TELEKOM 32,8% 10,6% ‐1,2% ‐2,0% 14,0% ‐0,7%TELEKOMUNIKACJA POLSKA 39,7% 14,9% 12,8% ‐8,2% 17,5% 7,2%TELEFONICA 02 CZECH REP. 41,5% 19,3% 16,6% ‐5,7% 10,7% 9,8%TELEKOM AUSTRIA 33,5% ‐0,2% ‐5,5% ‐4,2% 16,6% ‐3,4%HRVATSKI TELEKOM 44,9% 27,3% 22,4% ‐3,6% 10,9% 13,8%

Average 38,5% 14,4% 9,0% ‐4,7% 13,9% 5,3%

TELEKOM SLOVENIJE 31,4% 7,8% 4,2% ‐2,9% 11,7% 2,2%

P / E 2012 Est

EV / EBITDA 2012 Est

11,73 4,7219,46 4,6215,25 6,2918,32 4,9810,14 4,3414,98 4,9915,25 4,7210,78 3,87

Company

MAGYAR TELEKOM TELEKOMUNIKACJA POLSKATELEFONICA O2 CZECH REP.TELEKOM AUSTRIAHRVATSKI TELEKOM

TELEKOM SLOVENIJE

AverageMedian

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Valuation Conclusion In our valuation of Telekom Slovenije, we have applied a combination of the DCF and the comparables method, where we applied an 80% weight to the DCF method. Table 14 Summary calculation

Using the estimated values for 2012, we have calculated the weighted value of Telekom Slovenije of EUR 523.5m or EUR 80.10 per share as of 31 Dec. 2012, which makes our recommendation BUY.

(in EUR 000) COMPARABLES DCF

EQUITY VALUE 650.949 491.612

WEIGHT 20,0% 80,0%

WEIGHTED VALUE 523.479

SHARES OUTSTANDING (in 000) 6.535,5

PRICE PER SHARE (in EUR) 80,10

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Table 14 Financial results: 2009 – 2011 and estimates until 2016

(in EUR 000) UnauditedINCOME STATEMENT 2009 2010 2011 2012 2013 2014 2015 2016Sales 847.507 839.337 814.624 806.478 794.381 784.848 777.784 771.562 -1,1%Other operating revenue 8.599 4.189 9.883 10.081 10.181 10.589 10.906 11.015 2,2%% in joint venture revenue 3.611 4.527 4.964 5.063 5.114 5.318 5.478 5.533 2,2%Operating revenue 859.717 848.053 829.471 821.622 809.676 800.755 794.169 788.110 -1,0%

Material costs 408.076 395.094 390.888 386.979 379.240 369.759 363.473 356.203 -1,8%Personnel costs 152.909 162.523 150.160 142.652 138.372 137.681 139.057 140.448 -1,3%Other operating costs 30.885 254.464 32.807 39.368 42.518 46.770 51.447 54.019 10,5%Operating costs 591.870 812.081 573.855 569.000 560.130 554.209 553.977 550.670 -0,8%

EBITDA 267.847 35.972 255.616 252.622 249.546 246.546 240.192 237.440 -1,5%D&A costs 197.681 214.454 192.366 171.206 155.797 144.891 137.647 130.765 -7,4%EBIT 70.166 -178.482 63.250 81.416 93.749 101.655 102.545 106.676 11,0%Net financial result -26.885 -23.907 -14.432 -18.500 -18.000 -15.000 -15.000 -13.000 -2,1%Income before tax 43.281 -202.389 48.818 62.916 75.749 86.655 87.545 93.676 13,9%Tax 13.817 7.928 14.807 14.471 17.422 19.931 20.135 21.545 7,8%Net income 29.464 -210.317 34.011 48.446 58.327 66.724 67.410 72.130 16,2%

(in EUR 000) UnauditedBALANCE SHEET 2009 2010 2011 2012 2013 2014 2015 2016Intangible assets 351.951 162.867 157.418 196.773 216.450 238.095 285.714 314.285 14,8%Tangible assets 1.206.694 1.108.408 994.438 943.232 932.435 947.544 959.897 979.132 -0,3%Other noncurrent assets 99.160 103.192 108.410 146.354 153.671 138.304 145.219 130.697 3,8%Total noncurrent assets 1.657.805 1.374.467 1.260.266 1.286.358 1.302.556 1.323.942 1.390.830 1.424.115 2,5%Inventories 26.154 26.643 27.272 27.817 28.374 29.792 30.090 30.391 2,2%Accounts receivable 134.489 142.869 142.553 143.619 141.465 139.767 138.510 137.401 -0,7%Current financial assets 554 13.392 24.243 36.365 40.001 46.001 46.921 47.860 14,6%Other current assets 85.314 54.131 59.715 65.687 70.530 81.110 93.276 93.276 9,3%Cash and cash equivalents 21.210 46.726 61.265 38.828 61.072 68.117 31.118 48.457 -4,6%Total current assets 267.721 283.761 315.048 312.316 341.442 364.788 339.915 357.385 2,6%TOTAL ASSETS 1.925.526 1.658.228 1.575.314 1.598.674 1.643.998 1.688.730 1.730.745 1.781.500 2,5%

Total capital and reserves 1.001.566 807.812 815.275 812.429 850.637 895.759 933.854 980.705 3,8%Reserves 30.529 37.814 45.619 44.205 48.625 49.112 50.094 51.096 2,3%Noncurrent financial liabilities 581.014 443.445 436.380 440.744 442.948 445.162 447.388 449.625 0,6%Other noncurrent liabilities 14.158 19.201 18.650 18.837 18.931 18.969 18.874 18.949 0,3%Total noncurrent liabilities 625.701 500.460 500.649 503.785 510.503 513.242 516.356 519.670 0,7%Accounts payable 103.431 85.705 77.867 98.600 96.628 94.212 92.611 90.759 3,1%Current financial liabilities 95.148 142.493 52.088 53.130 54.192 55.276 56.382 57.509 2,0%Other current liabilities 74.399 96.115 101.870 102.889 103.918 101.839 102.858 103.886 0,4%Passive time separation 25.281 25.643 27.565 27.841 28.119 28.400 28.684 28.971 1,0%Total current liabilities 298.259 349.956 259.390 282.459 282.857 279.728 280.534 281.125 1,6%TOTAL CAPITAL AND LIABILITIES 1.925.526 1.658.228 1.575.314 1.598.674 1.643.998 1.688.730 1.730.744 1.781.500 2,5%

Unaudited2009 2010 2011 2012 2013 2014 2015 2016

Sales growth 0,6% -1,0% -2,9% -1,0% -1,5% -1,2% -0,9% -0,8%EBITDA margin 31,2% 4,2% 30,8% 30,7% 30,8% 30,8% 30,2% 30,1%EBIT margin 8,2% -21,0% 7,6% 9,9% 11,6% 12,7% 12,9% 13,5%Profit margin 3,4% -24,8% 4,1% 5,9% 7,2% 8,3% 8,5% 9,2%ROA 1,5% -12,7% 2,2% 3,0% 3,5% 4,0% 3,9% 4,0%ROE 2,9% -26,0% 4,2% 6,0% 6,9% 7,4% 7,2% 7,4%Capex/Sales 21,8% 13,5% 11,7% 14,9% 18,3% 20,4% 19,3% 19,4%

CAGR 11 - 16

Audited InterCapital estimate

CAGR 11 - 16

Audited InterCapital estimate

Audited InterCapital estimate

Telekom Slovenije Group InterCapital Securities Ltd 21/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Disclaimer Information in this report is intended for informative purposes only and does not represent the solicitation to buy or sell any financial instruments or participate in any particular trading strategy. The information contained in this report has been obtained from public sources as well as directly from Companies’ Management. Although we believe our information and price quotes to be reasonably reliable, we do no guarantee their accuracy or completeness. In addition, the price or value of financial instruments described in this report may fluctuate and realize gains or losses. InterCapital Securities Ltd does not assume any responsibility for the damage caused by the use of information and projections contained in this report. Opinions expressed in this report constitute current judgment of the author(s) as of the date of this report and are subject to change without notice. InterCapital Securities Ltd uses various methods in Company valuations. Among the rest are comparative analyses of peer companies, discounted cash flow methods and other. Technical analysis is a valuation method of financial instruments made by analyzing statistically generated market activities such as historical prices and trading volumes. Technical analysis usually uses various types of graphical displays, on the basis of which special techniques try to predict future trends. The main task of technical analysis is to attempt to identify historical price movements and accordingly identify possible future trends. Fundamental analysis is a financial analysis of industries and companies based on factors such as sales, assets, profit, products or services, markets and management. In conducting fundamental analysis, InterCapital Securities Ltd uses various methods to determine a value of the Issuer. Among the rest, analysis of comparable companies, discounted cash flow and other methods are being used. Although InterCapital Securities Ltd uses models commonly accepted in the financial industry and theory, the results of these models depend on plans and information obtained from the Issuer as well as subjective opinions of analysts. InterCapital Securities Ltd owns the following issues: ACI-R-A, ADPL-R-A, ADRS-P-A, ATGR�R�A, ATPL�R�A, BD62-R-A, BLJE-R-A, BLSC-R-A, CKML-R-A, CROS-R-A, DDJH-R-A, DIOK-R-A, DLKV-R-A, ERNT-R-A, FRNK-R-A, HDEL-R-A, HGSP-R-A, HRBC-R-A, HT-R-A, HTPK-R-A, HUPZ-R-A, IGH-R-A, INA-R-A, JDBA-R-A, JDPL-R-A, JNAF-R-A, KODT-R-A,KOEI-R-A, KOKA-R-A, KRAS-R-A, LEDO-R-A, LKPC-R-A, MAIS-R-A, MDKA-R-A, OPTE-R-A, PBZ-R-A, PIVK-R-A, PLAG-R-A, PODR-R-A, PTKM-R-A, RIVP-R-A, THNK-R-A, TNPL-R-A, VDKT-R-A, VIRO-R-A, ZABA-R-A, ZLAR-R-A. The author of technical and fundamental analyses in this report is Boris Mažurin. Boris Mažurin is employed as an analyst in InterCapital Securities Ltd registered in Zagreb, Masarykova 1. Boris Mažurin has no ownership interest in Telekom Slovenije Group. He does not own any shares of Telekom Slovenije Group, and neither do his immediate family members. InterCapital Securities Ltd is supervised by Croatian Financial Services Supervisory Agency (HANFA). Fundamental rating values of an Issuer are given according to the following scale: Sell - equities with expected absolute value decrease in the monitored time period Hold - equities with expected absolute revenue of 0%-10% in the monitored time period Buy - equities with expected absolute revenue of 10%-20% in the monitored time period

Telekom Slovenije Group InterCapital Securities Ltd 22/22

Te lekom S loven i je Group – In i t ia l Company Analys is

Strong buy - equities with expected absolute repayment of more than 20% in the monitored time period Any investments indicated in the report constitute risk, are not readily available in all jurisdictions, can be illiquid and may not be suitable for all investors. Value or income realized on any one investment mentioned in the report may vary. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Investors must make their own informed investment decisions without depending on this Recommendation. Only investors with sufficient knowledge and expertise in financial dealings who are able to evaluate risk and return may consider investing in any form of securities or markets indicated herein. Protection of copyright and data base contained in this Recommendation is of great importance. The report may not be reproduced, distributed or published by any person for any purpose without prior consent given by InterCapital Securities Ltd. Please cite source when quoting. All rights are reserved.

Chronology of share recommendations

InterCapital Securities Research contacts Boris Mažurin, Head of Research, 01/4825-864, [email protected] Tomislav Bajić, Analyst, 01/4825-858, [email protected]

Date Report Recommendation Market price Target price

15 March 2012 Initial analysis BUY EUR 68 EUR 80,10