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TELEKOM SRBIJA

FULL YEAR RESULTS THROUGH 2011

DISCLAIMER & DISCLOSURE

The data in this material are of the informative nature and are intended exclusively as a basis for the further reconsideration. The company Sinteza Invest Group a.d. has prepared this material with all the necessary care and based on the data it received from the sources it believes to be reliable. Sinteza Invest Group a.d. does not guarantee for the accuracy, promptness, completeness and correctness of the data in this material. The information, opinions, estimates and forecasts may be well affected by subsequent changes in market conditions. This report does not take into account the investment objective, financial situation or particular needs of any particular investor. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision based on the recommendations in this report. This document may not be reproduced in whole or in part, or published for any purpose.

The company Sinteza Invest Group is a corporate agent and market maker of the company Sojaprotein on the Belgrade Stock Exchange. In that light, Sinteza Invest Group is expected to regularly update the companys prospectuses for the Belgrade Stock Exchange, disclose and release to the public companys significant events, deliver all necessary documents and reports to the representative regulatory bodies as well as undertake all necessary legal and economic steps to enhance the relations between the company and former, current and prospective investors.

In addition, Sinteza Invest Group and Sojaprotein are both members of the holding Victoria Group which has the stake of 40% in the stated capital of the former and 63% in the legal capital of the latter. Sinteza Invest Group uses reasonable care and judgment to achieve and maintain independence and objectivity in presenting the past performance results and expected earnings power of Sojaprotein.

GENERAL INFORMATION

TELEKOM SRBIJA

- Telekom Srbija (Telekom) is a leading Serbias provider of telecommunication service which drives the business in the following business fields: Fixed telecommunication services in the country and abroad; Internet services; Mobile telephony services; Multimedia services. - Telekom Srbija was founded back in 1997 via the process of restructuring of Post Traffic Srbija (PTT Srbija) when it became a single-member joint stock company; - In June 1997 PTT Srbija sold 49% while having controlled the rest of 51% of the stated capital. 29% was sold to Dutch subsidiary of Telekom Italia and 20% was sold to Greek OTE (majority controlled by Deutsche Telekom); - In February 2003 PTT Srbija entered the repurchase agreement with Telekom Italia and bought back 29% of shares to control 80% of Telekom; - During 2010 PTT Srbija transferred its 80% stake into the ownership under the government of the Republic of Serbia which became Telekoms major shareholder; - In January 2012 Telekom Srbija issued a loan to buy back 20% of OTEs shares as treasury stocks. Through this process Telekom became fully owned and controlled by the Serbian government.

- In addition to the core activities, Telekom maintains, designs, constructs and repairs telecommunication facilities and network, leases, manages and protects telecommunication infrastructure; - In 2006 Telekom got the license for public mobile telecommunication network and public mobile telecommunication network services in accordance with GSM.

- The Government of the Republic of Serbia called for tender of Telekom in October 2010. Deutsche Telekom, Telekom Austria, America Movil, France Telekom, Weather Investments and Turkcell Iletisim Hizmetleri were potential bidders, but Telekom Austria was the only that placed the bid for 51% stake. - Telekom Austria, the phone company that runs mobile networks in seven east European nations, offered EUR 950m in cash and EUR 450m in committed investments over three years. - The offered price was far below the minimum that the government asked of EUR 1.4bn. The evaluation done with CitiGroup showed the value of Telekom of EUR 2.4bn.

mid-2012
2012
Employees 7% Citizens 13%

- After the extension of the bid offer, Telekom Austria raised its bid to EUR 1.1bn.

2010 2003 1997


OTE 20% OTE 20%
PTT Srbija 51%
Republic of Serbia 80% Treasury Stocks 20%

Treasury Stocks 20%

Republic of Serbia 80%

OTE 20%

Republic of Serbia 80%

Tel. Italia 29%

PTT Srbija 80%

- In January 2012 Telekom Srbija issued a EUR 320m loan to buy back 20% of the stake in OTEs hands. Telekom totally paid EUR 380m by adding EUR 60m from own CFO. It paid out additional EUR 17m to OTE in the name of dividends from the profit made in 2011. - Taking that into consideration, 51% of Telekom is EUR 969m worth.

- Telekom Srbija purchased 65% of the Telekom Srpske in June 2007 by injecting 646 EUR. The rest of 35% is diversified amongst Pension Fund of the Republic of Srpska, ZIF Zepter Fond, Restitution Fund of Republic of Srpska and other shareholders.
- In April 2007 Telekom Srbija set up a new telecommunication company in Montenegro by investing EUR 20.4m under the name of m:tel. After a few several changes in the shareholding structure including some recapitalizations, Telekom has gained the stake of 51% (EUR 20.4m) and Telekom Srpske the share of 49% (EUR 19.6m). - The enterprise Telus was set up by Telekom in 2005 and its core business is maintenance and security of facilities, property and provision of other similar services. - FiberNet was founded back in cooperation with Montenegrin Railways in 2008. Its main activities comprise construction, possession, operation and maintenance of transport and telecommunication networks alongside with telecommunication services provisions. - The core business of Amsterdam-based TS:NET is the lease of telecommunication equipment and performance of other associated tasks. The enterprise was set up in 2010.

100%

Telus

m:tel

51%

Telekom Srbija

Telekom Srpske

65%

FiberNet
100%

TS:NET
100%

Managing Director Vice MD

The organizational structure of the Telekom Srbija is constructed in line with functional, territorial and market principles.

Internal Audit Commercial Affairs Marketing & Sales Service Management Customer Care Wholesale & Multimedia

Strategy

PR Dept.

Yellow & White Pages Function Corporate Affairs

Technical Affairs

Economic Affairs

Logistic & General

Planning & Development Technical Preparation Maintenance Capital Construction IT

Treasury Budget & Control Accounting

Legal Affairs Human Resource

Fixed Telephony

99.8%
Orion Telekom 0.20%

In 2010 Telenor was granted a license for provision of fixed telecommunication services and became the first competitor of Telekom in this business line.

The population coverage by GSM is 99%, while the territorial coverage by GSM is 86.5%. Mobile Telephony

HT Mostar 22.50%

39.7%

B&H

SRB

53%

BH Telecom 37.80%

MNE

ADSL Internet

The population coverage by GSM is 87.1%, while the territorial coverage by GSM is 80.6%.

Mobile Telephony

76.7%

Others 23.30%

TMobile 37.00%

23.4%
Telenor 39.60%

The population coverage by GSM is 96%, while the territorial coverage by GSM is 81.9%.

The largest competitors in ADSL internet services are: Eunet, SezamPro, Beotel, Verat net, PTT.

Sales Breakdown (m RSD) Fixed Telephony Domestic Market

2009 42,663 35,456 7,207 39,434 37,015 2,418 3,377 85,473

2010 45,173 36,911 8,262 34,261 32,890 1,371 5,349 84,783

2011 45,357 37,082 8,275 33,590 32,784 806 7,832 86,779

Telekom generates its revenues majorly through fixed and mobile telephony (91%). The Fixed telephony accounts for 52%, while the mobile telephony accounts for 39% in sales revenues.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008 Fixed Telephony 2009 Mobile Telephony 2010 Internet 2011 Other Services

Foreign Market Mobile Telephony Domestic Market Foreign Market Other Services TOTAL

% in Total Sales Fixed Telephony Mobile Telephony Other Services TOTAL

2009 50% 46% 4% 100%

2010 53% 40% 6% 100%

2011 52% 39% 9% 100%

% Growth Fixed Telephony Mobile Telephony Other Services TOTAL

2009 -

2010 5.88% -13.12% 58.40% -0.81%

2011 0.41% -1.96% 46.42% 2.35%

FINANCIALS

TELEKOM SRBIJA

FX EURRSD Statement of Earnings (m RSD) Operating Revenues Sales Growth Fixed Telephony Mobile Telephony Internet Other Services Change in Inventories Operating Expenses COGS Cost of Materials Wages and Other Labour Costs Depreciation and Provision Costs Other Operating Expenses EBITDA Growth EBIT Growth Other Non-Operating Items Interest Expenses FX Gains (Losses) Net Income Growth Source: Sinteza Research, Telekom Srbija

84.95 2008 83,494 83,494 42,045 38,589 1,625 1,235 0 63,013 435 4,171 12,595 16,145 29,667 36,626 20,481 -15,177 -4,795 -7,348 5,304 -

93.95 2009 86,038 86,038 3% 42,663 39,434 3,266 676 0 65,112 51 4,399 13,010 16,857 30,795 37,782 3% 20,925 2% -5,376 -3,316 -5,569 15,549 193%

103.04 2010 85,319 85,319 -1% 45,173 34,261 4,966 919 0 64,935 39 5,300 12,659 16,961 29,976 37,345 -1% 20,384 -3% -4,594 -2,002 -5,620 15,789 2%

101.95 2011 87,319 87,319 2% 45,357 33,590 7,017 1,355 0 67,748 7 6,015 14,959 17,393 29,373 36,965 -1% 19,572 -4% 2,702 -1,620 1,083 22,274 41%

Telekom managed to increase the sales by more than 2% primarily due to the growth in sales generated via internet business line. Internet business segment had the strongest growth pace for last 4 YRS. Its CAGR was 62.85%.

EBIT and EBITDA fell in 2011 despite the 2% rise in sales predominantly owing to wages increase and the rise in costs of materials. In relative terms, wages costs rose by 18.2%, while costs of materials advanced 13.5%.

Volatile dinar against the euro caused the net income to be varying for last 4 YRS. Compared to 2008 the bottom line soared 319.93% at the CAGR of 61.33%. In FY 2011 net income surged to RSD 22.27bn due to the fall in FX losses experienced over the previous 12 months and the rise in FX gains.

FX EURRSD Statement of Earnings (m RSD) Operating Revenues Sales Growth Fixed Telephony Mobile Telephony Internet Other Services Change in Inventories Operating Expenses COGS Cost of Materials Wages and Other Labour Costs Depreciation and Provision Costs Other Operating Expenses EBITDA Growth EBIT Growth Other Non-Operating Items Interest Expenses FX Gains (Losses) Net Income Growth Source: Sinteza Research, Telekom Srbija

84.95 2008 83,494 83,494 42,045 38,589 1,625 1,235 0 63,013 435 4,171 12,595 16,145 29,667 36,626 20,481 -15,177 -4,795 -7,348 5,304 -

93.95 2009 86,038 86,038 3% 42,663 39,434 3,266 676 0 65,112 51 4,399 13,010 16,857 30,795 37,782 3% 20,925 2% -5,376 -3,316 -5,569 15,549 193%

103.04 2010 85,319 85,319 -1% 45,173 34,261 4,966 919 0 64,935 39 5,300 12,659 16,961 29,976 37,345 -1% 20,384 -3% -4,594 -2,002 -5,620 15,789 2%

101.95 2011 87,319 87,319 2% 45,357 33,590 7,017 1,355 0 67,748 7 6,015 14,959 17,393 29,373 36,965 -1% 19,572 -4% 2,702 -1,620 1,083 22,274 41%
% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% m RSD 100,000 90,000

Sales and EBITDA

80,000
70,000 60,000 50,000 40,000 30,000 20,000

10,000
0 2008 2009 Sales 2010 EBITDA 2011

Margins

0%
2008 EBITDA Margin 2009 2010 2011 Profit Margin EBIT Margin

FX EURRSD Statement of Earnings (m RSD) Operating Revenues Sales Growth Fixed Telephony Mobile Telephony Internet Other Services Change in Inventories Operating Expenses COGS Cost of Materials Wages and Other Labour Costs Depreciation and Provision Costs Other Operating Expenses EBITDA Growth EBIT Growth Other Non-Operating Items Interest Expenses FX Gains (Losses) Net Income Growth Source: Sinteza Research, Telekom Srbija

84.95 2008 83,494 83,494 42,045 38,589 1,625 1,235 0 63,013 435 4,171 12,595 16,145 29,667 36,626 20,481 -15,177 -4,795 -7,348 5,304 -

93.95 2009 86,038 86,038 3% 42,663 39,434 3,266 676 0 65,112 51 4,399 13,010 16,857 30,795 37,782 3% 20,925 2% -5,376 -3,316 -5,569 15,549 193%

103.04 2010 85,319 85,319 -1% 45,173 34,261 4,966 919 0 64,935 39 5,300 12,659 16,961 29,976 37,345 -1% 20,384 -3% -4,594 -2,002 -5,620 15,789 2%

101.95 2011 87,319 87,319 2% 45,357 33,590 7,017 1,355 0 67,748 7 6,015 14,959 17,393 29,373 36,965 -1% 19,572 -4% 2,702 -1,620 1,083 22,274 41%

% 20%

Main Peers - 2011


Sales Y-o-Y EBITDA Y-o-Y

15% 10% 5% 0% -5% -10% -15%

35%

430%

Apart from VIP Srbija, whose sales and EBITDA boomed y-o-y, sales in the peer group rose by 3.63% on average. Telekom was below that average, and we consider it due to the fall in sales created in mobile industry. In Serbia, two main competitors, Telenor Srbija and VIP Srbija, recorded a rise in sales of 12% and 35% respectively. We believe this comes as a result of stronger market penetration and takeover of Telekoms clients in mobile industry.

% 50% 47%

Main Peers - 2011


Wages/Sales % 37% 33% 31% 34% 32% 26% EBITDA Margin

45%
40% 35% 30% 25% 20% 15% 11% 35% 36% 33%

43%

42%

Peer group average = 35.87%

17%

Peer group average = 15.30%

10%
5% 0% H-Telekom Telenor Magyar Telekom Telekom Slovenia Telekom Montenegro France Telekom Telekom Austria

7% N/A Deutsche Telekom VIP Srbija Telenor Srbija Telekom Srbija

N/A
America Movil

Telekom Srbija had stable EBITDA margin for last four YRs at the range 42-44% meaning that EBITDA followed the trend of sales. Despite the fixed costs, operating income margin was also stable drawing the conclusion that operating leverage is quite low. EBITDA margin of Telekom is above the average of our peer group by 6 pp. In the Serbian telecommunication sector, VIP Srbija has significantly lower margin due to negative operating income. Telenor Srbija has EBITDA margin similar to the Telekoms value. In 2011, Telekoms wages accounted for 17% of sales made in last 12 months. It is above the average of our peer group, and co nsiderably above the figures of competitors in Serbia. Last year, Telekom paid out RSD 1.56bn for severance and compensation which attributed wages cost rise by 15%.

FX EURRSD Balance Sheet (m RSD) Assets Long-lived Assets PP&E Other Long-lived Assets Current Assets Inventories Receivables Cash and Cash Equivalents Deferred Tax Assets Equity Growth Stated Capital Reserves Liabilities Long-term Borrowings Growth Other Long-term Liabilities Short-term Liabilities Short-term Borrowings Growth Accounts Payable Other Short-term Liabilities Deferred Tax Liabilities Source: Sinteza Research, Telekom Srbija

88.60 2008 207,619 180,141 110,381 69,761 26,760 6,853 12,397 4,861 718 101,518 82,521 18,996 106,102 49,755 1,899 54,447 30,768 9,756 13,923 0

95.89 2009 210,694 178,540 110,866 67,674 31,304 5,836 13,363 9,462 850 113,169 11% 82,521 30,648 97,525 49,324 -1% 2,067 46,134 23,547 -23% 6,876 15,710 0

105.50 2010 209,967 179,092 110,340 68,752 29,766 6,446 12,395 7,949 1,108 122,294 8% 82,521 39,773 87,673 41,720 -15% 1,849 44,105 21,370 -9% 5,652 17,083 0

104.64 2011 210,232 172,972 103,998 68,974 35,924 6,648 12,381 14,019 1,336 131,003 7% 82,521 48,482 79,229 17,317 -58% 1,614 60,298 28,339 33% 6,634 25,325 0

Source Structure
% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Equity 2008 2009 Long-term Borrowings 2010 2011 Short-term Borrowings

Asset Structure
m RSD 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2008 2009 Long-lived Assets 2010 Current Assets 2011

FX EURRSD Balance Sheet (m RSD) Assets Long-lived Assets PP&E Other Long-lived Assets Current Assets Inventories Receivables Cash and Cash Equivalents Deferred Tax Assets Equity Growth Stated Capital Reserves Liabilities Long-term Borrowings Growth Other Long-term Liabilities Short-term Liabilities Short-term Borrowings Growth Accounts Payable Other Short-term Liabilities Deferred Tax Liabilities Source: Sinteza Research, Telekom Srbija

88.60 2008 207,619 180,141 110,381 69,761 26,760 6,853 12,397 4,861 718 101,518 82,521 18,996 106,102 49,755 1,899 54,447 30,768 9,756 13,923 0

95.89 2009 210,694 178,540 110,866 67,674 31,304 5,836 13,363 9,462 850 113,169 11% 82,521 30,648 97,525 49,324 -1% 2,067 46,134 23,547 -23% 6,876 15,710 0

105.50 2010 209,967 179,092 110,340 68,752 29,766 6,446 12,395 7,949 1,108 122,294 8% 82,521 39,773 87,673 41,720 -15% 1,849 44,105 21,370 -9% 5,652 17,083 0

104.64 2011 210,232 172,972 103,998 68,974 35,924 6,648 12,381 14,019 1,336 131,003 7% 82,521 48,482 79,229 17,317 -58% 1,614 60,298 28,339 33% 6,634 25,325 0

Telekom reduced its long-term liabilities by 58% to RSD 17.3bn. The most significant fall was in IB liabilities to foreign banks (from RSD 20.9bn at the end of 2010 to RSD 512.7m at the end of 2011) which mature in more than 1 YR. That caused shortterm borrowings to rise to RSD 28.3bn (RSD 20.3bn refer to long-term credits that mature in 2012), or by a third. That might hurt companys liquidity in the short-run. The largest Telekoms creditor is Citibank London with outstanding loan of RSD 19.9bn which is due in 2012.
3-4 YRs 8% 2-3 YRs 11% over 5 YRs 1% 4-5 YRs 3%

1-2 YRs 15%

up to 1 YR 62%

At the same time Telekom had greater liabilities towards foreign goods suppliers who it also pays interest to. These liabilities fell from RSD 17.3bn to RSD 14.4bn at the end of 2011.

FX EURRSD Balance Sheet (m RSD) Assets Long-lived Assets PP&E Other Long-lived Assets Current Assets Inventories Receivables Cash and Cash Equivalents Deferred Tax Assets Equity Growth Stated Capital Reserves Liabilities Long-term Borrowings Growth Other Long-term Liabilities Short-term Liabilities Short-term Borrowings Growth Accounts Payable Other Short-term Liabilities Deferred Tax Liabilities Source: Sinteza Research, Telekom Srbija

88.60 2008 207,619 180,141 110,381 69,761 26,760 6,853 12,397 4,861 718 101,518 82,521 18,996 106,102 49,755 1,899 54,447 30,768 9,756 13,923 0

95.89 2009 210,694 178,540 110,866 67,674 31,304 5,836 13,363 9,462 850 113,169 11% 82,521 30,648 97,525 49,324 -1% 2,067 46,134 23,547 -23% 6,876 15,710 0

105.50 2010 209,967 179,092 110,340 68,752 29,766 6,446 12,395 7,949 1,108 122,294 8% 82,521 39,773 87,673 41,720 -15% 1,849 44,105 21,370 -9% 5,652 17,083 0

104.64 2011 210,232 172,972 103,998 68,974 35,924 6,648 12,381 14,019 1,336 131,003 7% 82,521 48,482 79,229 17,317 -58% 1,614 60,298 28,339 33% 6,634 25,325 0

Long-Term Borrowings - 2011


Banks

100% Foreign

3%

Banks Suppliers

97%

14%

Domestic 86% Foreign

Suppliers

FX EURRSD Balance Sheet (m RSD) Assets Long-lived Assets PP&E Other Long-lived Assets Current Assets Inventories Receivables Cash and Cash Equivalents Deferred Tax Assets Equity Growth Stated Capital Reserves Liabilities Long-term Borrowings Growth Other Long-term Liabilities Short-term Liabilities Short-term Borrowings Growth Accounts Payable Other Short-term Liabilities Deferred Tax Liabilities Source: Sinteza Research, Telekom Srbija

88.60 2008 207,619 180,141 110,381 69,761 26,760 6,853 12,397 4,861 718 101,518 82,521 18,996 106,102 49,755 1,899 54,447 30,768 9,756 13,923 0

95.89 2009 210,694 178,540 110,866 67,674 31,304 5,836 13,363 9,462 850 113,169 11% 82,521 30,648 97,525 49,324 -1% 2,067 46,134 23,547 -23% 6,876 15,710 0

105.50 2010 209,967 179,092 110,340 68,752 29,766 6,446 12,395 7,949 1,108 122,294 8% 82,521 39,773 87,673 41,720 -15% 1,849 44,105 21,370 -9% 5,652 17,083 0

104.64 2011 210,232 172,972 103,998 68,974 35,924 6,648 12,381 14,019 1,336 131,003 7% 82,521 48,482 79,229 17,317 -58% 1,614 60,298 28,339 33% 6,634 25,325 0

Short-Term Borrowings - 2011


Banks

100% Foreign

72%

Banks Suppliers

28%

33%

Domestic
Foreign 67%

Suppliers

FX EURRSD Cash Flow Statement (m RSD) Inflows from Operating Activities Sale and Received Payments in Advance Other Inflows from Operating Activities Outflows from Operating Activities Outflows to Suppliers and Payments in Advance Other Outflows from Operating Activities CFO Inflows from Investing Activities Dividends Received Other Inflows from Investing Activities Outflows from Investing Activities Acquisition of Fixed Assets Other Financial Investments CFI Inflows from Financing Activities Prinicpal Amounts of Debt Issued Other Inflows from Financing Activities Outflows from Financing Activities Dividends Paid to Shareholders Other Outflows from Financing Activities CFF NET INFLOWS/OUTFLOWS Source: Sinteza Research, Telekom Srbija

84.95 2008 98,826 97,710 1,115 71,076 46,017 25,059 27,750 2,322 316 2,006 24,805 20,475 4,330 -22,483 8,873 8,873 0 4,062 4,062 0 4,811 10,078

93.95 2009 103,371 102,431 940 73,960 46,890 27,070 29,411 5,720 5,094 626 14,871 14,109 762 -9,151 0 0 0 11,549 3,897 7,652 -11,549 8,710

103.04 2010 105,978 105,274 704 73,726 46,564 27,161 32,252 5,339 4,717 622 17,829 15,641 2,188 -12,490 0 0 0 16,447 6,665 9,782 -16,447 3,315

101.95 2011 106,363 105,392 971 71,272 44,632 26,641 35,091 4,373 3,485 889 11,563 10,773 790 -7,190 0 0 0 22,170 4,737 17,434 -22,170 5,730
0.50 0.40 0.30 0 1.00 CFO/Sales - left axis 0.90 30 0.80 0.70 0.60 20 Cash Flow Earnings Index - right axis 40

Main Peers - 2011

10

-10

0.20 -20
0.10 0.00 -30

Worst performer

Best performer

LIQUIDITY Current Ratio Quick Ratio Cash Ratio SOLVENCY Debt-to-Equity Debt-to-Capital Debt-to-Assets Financial Leverage Financial Liabilities/EBITDA - ttm PROFITABILITY - Margins EBITDA Margin EBIT Margin Profit Margin PROFITABILITY - Returns Operating Return on Assets - ttm Return on Assets (ROA) - ttm Return on Equity (ROE) - ttm Tax Burden Interest & FX Burden EBIT Margin Asset Turnover Financial Leverage Return on Capital (ROTC) - ttm Source: Sinteza Research

2008 0.49 0.37 0.09 2008 0.79 0.44 0.39 2.05 2.20 2008 43.9% 24.5% 6.4% 2008 9.9% 4.6% 5.2% 11.3%

2009 0.68 0.55 0.21 2009 0.64 0.39 0.35 1.86 1.93 2009 43.9% 24.3% 18.1% 2009 10.0% 8.9% 14.5% 97.5% 76.2% 24.3% 0.41 1.95 11.4%

2010 0.67 0.53 0.18 2010 0.52 0.34 0.30 1.72 1.69 2010 43.8% 23.9% 18.5% 2010 9.7% 8.4% 13.4% 97.7% 79.3% 23.9% 0.41 1.79 11.0%

2011 0.60 0.49 0.23 2011 0.35 0.26 0.22 1.60 1.24 2011 42.3% 22.4% 25.5% 2011 9.3% 11.3% 17.6% 96.2% 118.3% 22.4% 0.42 1.66 10.8%
-30% -10% -20% 10% 0% 40% 30% ROA ROE

Main Peers - 2011

20%

Statement of Earnings (m RSD) Sales Growth Fixed Telephony Mobile Telephony Internet Other Services Operating Expenses COGS Cost of Materials Wages and Other Labour Costs Depreciation and Provision Costs Other Operating Expenses EBITDA Growth EBIT Growth Other Non-Operating Items Interest Expenses FX Gains (Losses) Other Items Net Income Growth Source: Sinteza Research

2012F 88,057 0.8% 46,518 32,072 8,070 1,398 67,109 140 5,109 13,687 17,332 30,841 38,280 3.6% 20,948 7.0% -4,662 -1,826 -6,164 3,328 16,286 -26.9%

2013F 89,053 1.1% 47,708 30,622 9,280 1,443 67,868 141 5,167 13,842 17,528 31,190 38,712 1.1% 21,185 1.1% -2,691 -1,426 -4,631 3,365 18,494 13.6%

2014F 90,328 1.4% 48,930 29,238 10,672 1,488 68,840 143 5,241 14,040 17,778 31,636 39,267 1.4% 21,488 1.4% -722 -1,516 -2,620 3,414 20,766 12.3%

2015F 91,906 1.7% 50,182 27,916 12,273 1,535 70,043 146 5,333 14,286 18,089 32,189 39,953 1.7% 21,864 1.7% 1,069 -1,577 -827 3,473 22,933 10.4%

The sales growth in the following period we base on the revenues from fixed telephony and internet business segment. We assume that each segment of the business will continue to rise at the compound annual growth rate experienced in last 4 YRs except for internet sector which has soared so far. We see it to increase at a slower pace in the following period. Our assumption is also that Telekom will not be sold to a strategic partner in three-year time and that all costs, incl. wages and other operating costs, will have the same participation in sales they have had since 2008. Provided that, Telekom will enjoy slower EBITDA rise through up to 2015.
Sales and EBITDA
m RSD 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2008 2009 2010 2011 2012F 2013F 2014F 2015F Sales EBITDA

Huge depreciation of the domestic currency against euro will cause the net income to plunge in 2012 to around RSD 16bn. Up to 2015 the bottom line may reach RSD 23bn.

The initial Telekoms value, set by the Government of Serbia, will be EUR 2.27bn which, at the FX rate of EURRSD 112, gives the value of RSD 254.24bn. The number of outstanding shares , distributed to current shareholders, will be exactly 1bn, and the price per share, hence, is to be EUR 2.27 (RSD 254.24).

Telekom paid out to Greeces OTE EUR 17m in the name of dividends for 2011. That makes 20% of the total dividend Telekom may pay out this year. The calculation gives the payout ratio of 38.9% and dividend per share of 9 eurocents.

as of 18-May-2012 Name P/E P/S P/B P/EBITDA EV/EBITDA ROA (%) ROE (%) P/CF EBITDA Margin (%) 33.2 34.8 33.9 42.3 47.0 32.0 33.2 32.4 34.9 31.1 34.3 30.8 37.4 Profit Margin (%) 8.6 8.9 11.8 25.5 22.5 17.4 8.6 0.9 7.3 12.6 -5.7 4.2 12.5 Debt/Equity (%) 57.9 111.5 89.2 34.9 0.5 43.8 133.1 121.0 39.0 32.7 447.2 57.9 128.7 Divi. Yield (%) 5.5 5.7 5.5 3.7 5.5 6.0 14.0 8.0 4.7 0.0 4.9 7.2 1.1

Median Average Market Cap Weight. Aver. Telekom Srbija

13.5 20.6 20.7 11.4

1.6 1.4 1.6 2.9 2.5 2.0 0.7 0.6 1.6 2.1 0.9 0.5 1.9

1.8 2.0 2.0 1.9 1.8 1.0 1.2 1.1 1.9 1.8 4.6 0.5 4.3

4.6 4.0 4.8 6.9 5.2 6.3 2.1 2.0 4.6 6.7 2.7 1.6 5.0

4.9 5.2 6.5 7.7 4.2 8.3 4.3 4.5 5.2 5.7 4.9 3.2 6.2

4.2 4.7 5.4 42.3 13.6 5.2 4.1 0.4 4.2 7.3 -3.4 2.1 9.1

9.0 7.9 13.1 17.6 16.4 9.0 13.7 1.5 8.3 11.5 -21.4 4.2 27.9

5.8 5.0 5.6 7.2 6.5 6.8 2.5 2.4 5.8 9.8 3.4 1.8 6.4

HRVATSKI TELEKOM 10.9 VODAFONE GROUP 11.6 FRANCE TELECOM 8.3 DEUTSCHE TELEKOM 68.2 TELENOR 22.0 TURKCELL ILETISIM HIZMET 16.5 TELEKOM AUSTRIA TELEKOM SLOVENIJE 12.0 AMERICA MOVIL 15.0 Source: Sinteza Research, Bloomberg

At the current price and earnings made in 2011, we see the stock price of Telekom to fall on the first days of trading despite the fresh breath the listing of the company brings onto the market. This particularly when we concentrate on core-business results (EBITDA and EBIT), which fell y-o-y. In the future, these two result subtotals are likely to stagnate or even decline owing to the stronger competition arising especially in the mobile industry from VIP Srbija and Telenor Srbija. Furthermore, when it comes to the bottom line, we see the net income to plunge in 2012 due to huge FX loss burdens, which fuelled the result in 2011. The additional downward pressure on the price will also arise from the significant ask orders given by citizens who are in the need for money.
as of 18-May-2012 Name P/E P/S P/B P/EBITDA EV/EBITDA ROA (%) ROE (%) P/CF EBITDA Margin (%) 33.2 34.8 33.9 42.3 47.0 32.0 33.2 32.4 34.9 31.1 34.3 30.8 37.4 Profit Margin (%) 8.6 8.9 11.8 25.5 22.5 17.4 8.6 0.9 7.3 12.6 -5.7 4.2 12.5 Debt/Equity (%) 57.9 111.5 89.2 34.9 0.5 43.8 133.1 121.0 39.0 32.7 447.2 57.9 128.7 Divi. Yield (%) 5.5 5.7 5.5 3.7 5.5 6.0 14.0 8.0 4.7 0.0 4.9 7.2 1.1

Median Average Market Cap Weight. Aver. Telekom Srbija

13.5 20.6 20.7 11.4

1.6 1.4 1.6 2.9 2.5 2.0 0.7 0.6 1.6 2.1 0.9 0.5 1.9

1.8 2.0 2.0 1.9 1.8 1.0 1.2 1.1 1.9 1.8 4.6 0.5 4.3

4.6 4.0 4.8 6.9 5.2 6.3 2.1 2.0 4.6 6.7 2.7 1.6 5.0

4.9 5.2 6.5 7.7 4.2 8.3 4.3 4.5 5.2 5.7 4.9 3.2 6.2

4.2 4.7 5.4 42.3 13.6 5.2 4.1 0.4 4.2 7.3 -3.4 2.1 9.1

9.0 7.9 13.1 17.6 16.4 9.0 13.7 1.5 8.3 11.5 -21.4 4.2 27.9

5.8 5.0 5.6 7.2 6.5 6.8 2.5 2.4 5.8 9.8 3.4 1.8 6.4

HRVATSKI TELEKOM 10.9 VODAFONE GROUP 11.6 FRANCE TELECOM 8.3 DEUTSCHE TELEKOM 68.2 TELENOR 22.0 TURKCELL ILETISIM HIZMET 16.5 TELEKOM AUSTRIA TELEKOM SLOVENIJE 12.0 AMERICA MOVIL 15.0 Source: Sinteza Research, Bloomberg

On the other hand, valuation indicators may look better when consolidated results have been reported and included in the calculations. Dividend paying policy and the sale of the controlling stake in the future to a strategic partner may hold the price at the higher level compared to main peers. This also as Telekom will be the leading and the biggest company in the market by market capitalization .
as of 18-May-2012 Name P/E P/S P/B P/EBITDA EV/EBITDA ROA (%) ROE (%) P/CF EBITDA Margin (%) 33.2 34.8 33.9 42.3 47.0 32.0 33.2 32.4 34.9 31.1 34.3 30.8 37.4 Profit Margin (%) 8.6 8.9 11.8 25.5 22.5 17.4 8.6 0.9 7.3 12.6 -5.7 4.2 12.5 Debt/Equity (%) 57.9 111.5 89.2 34.9 0.5 43.8 133.1 121.0 39.0 32.7 447.2 57.9 128.7 Divi. Yield (%) 5.5 5.7 5.5 3.7 5.5 6.0 14.0 8.0 4.7 0.0 4.9 7.2 1.1

Median Average Market Cap Weight. Aver. Telekom Srbija

13.5 20.6 20.7 11.4

1.6 1.4 1.6 2.9 2.5 2.0 0.7 0.6 1.6 2.1 0.9 0.5 1.9

1.8 2.0 2.0 1.9 1.8 1.0 1.2 1.1 1.9 1.8 4.6 0.5 4.3

4.6 4.0 4.8 6.9 5.2 6.3 2.1 2.0 4.6 6.7 2.7 1.6 5.0

4.9 5.2 6.5 7.7 4.2 8.3 4.3 4.5 5.2 5.7 4.9 3.2 6.2

4.2 4.7 5.4 42.3 13.6 5.2 4.1 0.4 4.2 7.3 -3.4 2.1 9.1

9.0 7.9 13.1 17.6 16.4 9.0 13.7 1.5 8.3 11.5 -21.4 4.2 27.9

5.8 5.0 5.6 7.2 6.5 6.8 2.5 2.4 5.8 9.8 3.4 1.8 6.4

HRVATSKI TELEKOM 10.9 VODAFONE GROUP 11.6 FRANCE TELECOM 8.3 DEUTSCHE TELEKOM 68.2 TELENOR 22.0 TURKCELL ILETISIM HIZMET 16.5 TELEKOM AUSTRIA TELEKOM SLOVENIJE 12.0 AMERICA MOVIL 15.0 Source: Sinteza Research, Bloomberg

CONTACT DETAILS
Analysts: Ivan Dzakovic Milos Bijanic ivan.dzakovic@sinteza.net milos.bijanic@sinteza.net +381 11 2099 574 +381 11 2099 582 Email:

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