MAGYAR TELECOM B.V. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2011 (PRESENTED IN THOUSAND EUROS)

MAGYAR TELECOM B.V. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2011 (PRESENTED IN THOUSAND EUROS)

CONSOLIDATED FINANCIAL STATEMENTS Table of contents Page Independent Auditor s Report 3 Consolidated Balance Sheet 4 Consolidated Statement of Comprehensive Income 5 Consolidated Cash Flow Statement 6 Consolidated Statement of Changes in Equity 7 8 Page 2 of 60

Independent Auditor s Report To the Shareholders and Board of Directors of Magyar Telecom B.V. We have audited the accompanying special purpose consolidated financial statements of Magyar Telecom B.V. and its subsidiaries which comprise the special purpose consolidated balance sheet as of December 31, 2011 and the related special purpose consolidated statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. These special purpose consolidated financial statements have been prepared and audited in compliance with the relevant covenant of the 2009 Notes issued by Magyar Telecom B.V. Management s responsibility for the special purpose consolidated financial statements Management is responsible for the preparation and fair presentation of these special purpose consolidated financial statements in accordance with International Financial Reporting Standard as adopted by the European Union 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 special purpose consolidated 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 whether the special purpose consolidated 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 judgement, 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 entity 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 entity 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. Opinion In our opinion, the accompanying special purpose consolidated financial statements referred to above give a true and fair view of the financial position of Magyar Telecom B.V. and its subsidiaries as of December 31, 2011 and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. PricewaterhouseCoopers Könyvvizsgáló Kft. April 27, 2012 Budapest, Hungary Page 3 of 60

Consolidated Balance Sheet as of December 31, 2011 Notes At 31 December 2011 2010 Non-Current Assets Intangible Assets 12 32 281 42 822 Property, Plant and Equipment 13 257 169 303 039 Other Non-Current Financial Assets 109 69 289 559 345 930 Current Assets Cash and Cash Equivalents 14 35 676 109 010 Trade and Other Receivables 15 30 386 28 303 Derivative Financial Instruments 20-196 Other Current Assets 16 1 873 2 479 67 935 139 988 Total Assets 357 494 485 918 Equity Capital and Reserves Attributable to Equity Holders of the Company Share Capital 18 92 201 92 201 Capital Reserve 18 256 047 256 047 Other Reserve 18 (16 693) (16 693) Cumulative Translation Reserve 18 (87 114) (42 146) Accumulated Losses 18 (258 830) (211 290) (14 389) 78 119 Non-Controlling Interest 18 13 11 Total Equity (14 376) 78 130 Liabilities Non-Current Liabilities Borrowings 19 313 494 351 006 Other Non-Current Liabilities 21 13 967 16 134 Non-Current Derivative Financial Instruments 20-904 327 461 368 044 Current Liabilities Trade and Other Payables 23 25 423 20 840 Derivative Financial Instruments 20 825 1 528 Accrued Expenses and Deferred Income 24 15 740 15 443 Accrued Interest 1 385 1 778 Provisions for Other Liabilities and Charges 22 1 036 155 44 409 39 744 Total Liabilities 371 870 407 788 Total Equity and Liabilities 357 494 485 918 The accompanying notes form an integral part of the consolidated financial statements. Page 4 of 60

Consolidated Statement of Comprehensive Income For the year ended 31 December Notes 2011 2010 Revenue 5 195 066 193 224 Cost of Sales, Exclusive of Depreciation 6 (68 527) (62 657) Depreciation and Amortization 9 (115 485) (53 885) Operating Expenses 7 (46 976) (46 214) Cost of Restructuring 10 (6 067) (1 216) Income / (Loss) from Operations (41 989) 29 252 Gain on acquisition (Negative Goodwill) 3 28 540 - Income / (Loss) before Financing (13 449) 29 252 Financial Income 11 16 757 12 024 Financial Expenses 11 (47 340) (71 682) Income / (Loss) Before Tax (44 032) (30 406) Income Tax (Expense) / Benefit 29 (3 506) (18 355) Income / (Loss) from Continuing Operations (47 538) (48 761) Income / (Loss) from Discontinued Operations 4-59 953 Income / (Loss) for the Year (47 538) 11 192 Attributable to: Owners of the Parent (47 540) 11 199 Non-Controlling Interest 2 (7) (47 538) 11 192 Change in Cumulative Translation Reserve (44 968) (4 263) Total Comprehensive Income / (Loss) for the Year (92 506) 6 929 Attributable to: Owners of the Parent (92 508) 6 936 Non-Controlling Interest 2 (7) (92 506) 6 929 Page 5 of 60

Consolidated Cash Flow Statement For the year ended 31 December 2011 2010 Notes Cash Flows from Operating Activities Income / (Loss) Before Tax of Continued Operations (44 032) (30 406) Income / (Loss) Before Tax of Discontinued Operations - 64 547 Income / (Loss) Before Tax (44 032) 34 141 Adjustments for: Income Taxes 29 (3 506) (5 306) Interest Expense / (Income) 11 36 031 45 747 Amortization 9,12 12 576 12 253 Depreciation 9,13 44 267 41 632 Impairment 9,13 58 642 - Result of Sale of Intangible Assets 12 15 (238) Result of Sale of Property, Plant and Equipment 13 (2 566) (5 142) Gain on Acquisition 3 (28 540) - Result of Sale of Subsidiaries 4 - (41 982) Fair Value Change of Derivative Financial Instruments (782) 6 939 Provision for Impairment of Trade Receivables 15 2 191 3 328 Provisions 770 (1 720) Unrealized Foreign Exchange (Gain) / Loss 3 265 9 331 Other Non-Cash Items (8 557) (4 758) Working Capital Changes: Change in Trade and Other Receivables 7 110 226 Change in Inventories 1 467 144 Change in Prepayments and Accrued Income 962 (1 568) Change in Trade and Other Payables and Accrued Expenses and Deferred Income (11 922) (15 973) Income Taxes Paid (3 113) (3 014) Interest Paid (36 107) (37 753) Net Cash Flow Provided by / (Used in) Operating Activities 28 171 36 287 Cash Flows from Investing Activities Purchase of Intangible Assets (8 607) (8 249) Purchase of Property, Plant and Equipment (35 913) (33 303) Proceeds from Sale of Intangible Assets - 119 Proceeds from Sale of Property, Plant and Equipment 3 335 7 265 Proceeds from Sale of Subsidiaries, Net of Cash 4-190 981 Purchase of Subsidiaries, Net of Cash Acquired 3 (17 604) - Interest Received 3 101 1 203 Net Cash Flow Provided by / (Used in) Investing Activities (55 688) 158 016 Cash Flows from Financing Activities Settlement of Derivative Financial Instruments (583) (16 947) Repurchase of shares (Non-Controlling Interest) 18 (15) - Principal Payments under Capital Lease Obligations - (2 535) Proceeds from Issuance of Additional 2009 Notes 19 79 200 - Refinancing Costs 19 (5 557) - Repurchase of the 2006 Notes 27.3 (20 313) - Repurchase of the 2007 Notes 19 (75 634) (47 593) Repurchase of the 2009 Notes 19 (17 583) (75 003) Repayment of Related Party Loan 19 - (6 407) Repayment of Interest Bearing Borrowings 19 - (1 480) Net Cash Flow Provided by / (Used in) Financing Activities (40 485) (149 965) Effect of Exchange Rate Changes on Cash and Cash Equivalents (5 332) (420) Net Increase / (Decrease) in Cash and Cash Equivalents (73 334) 43 918 Cash and Cash Equivalents at the Beginning of the Year 14 109 010 65 092 Cash and Cash Equivalents at the End of the Year 14 35 676 109 010 Included in Cash and Cash Equivalents per the Balance Sheet 35 676 109 010 Included in Assets of Disposal Group Classified as Held-for-Sale - - Summary of non-cash transactions: The Group had unpaid capital expenditures in the amount of EUR 12,864 and EUR 7,449 thousand as of December 31, 2011 and 2010, respectively. The accompanying notes form an integral part of the consolidated financial statements. Page 6 of 60

Consolidated Statement of Changes in Equity Attributable to Owners of the Parent Cumulative Share Capital Other Translation Accumulated Non-Controlling Total Notes Capital Reserve Reserve Reserve Losses Total Interest Equity Balance at 31 December 2009 92 201 256 047 (17 193) (37 883) (222 489) 70 683 18 70 701 Translation Adjustment for the Year - - - (4 263) - (4 263) - (4 263) Net Income Recognized Directly in Equity - - - (4 263) - (4 263) - (4 263) Net Result for the Period - - - - 11 199 11 199 (7) 11 192 Total Comprehensive Income - - - (4 263) 11 199 6 936 (7) 6 929 Termination of Stock Options 17 - - 500 - - 500-500 Balance at 31 December 2010 92 201 256 047 (16 693) (42 146) (211 290) 78 119 11 78 130 Translation Adjustment for the Year - - - (44 968) - (44 968) - (44 968) Net Income Recognized Directly in Equity - - - (44 968) - (44 968) - (44 968) Net Result for the Period - - - - (47 540) (47 540) 2 (47 538) Total Comprehensive Income - - - (44 968) (47 540) (92 508) 2 (92 506) Balance at 31 December 2011 92 201 256 047 (16 693) (87 114) (258 830) (14 389) 13 (14 376) The accompanying notes form an integral part of the consolidated financial statements. Page 7 of 60

1. General Information Magyar Telecom B.V. ( Matel or the Company ) was incorporated in the Netherlands on December 17, 1996 as a limited liability company and has its statutory seat in Amsterdam (Locatellikade 1, 1076 AZ Amsterdam, The Netherlands). Matel is engaged in investing in telecommunication related activities in Hungary. Its telecommunications service provider subsidiaries, Invitel Távközlési Zrt. ( Invitel ) and Invitel Technocom Kft. ( ITC ) are providing telecommunications services to residential and corporate customers. All subsidiaries are majority owned and controlled subsidiaries of Matel (collectively, the Group ). Matel, through its subsidiaries, is the second largest fixed line telecommunications services provider in Hungary and the incumbent provider of fixed line telecommunications services to residential and corporate customers in its historical concession areas, where it has a dominant market share. The historical concession areas cover an estimated 2.1 million people, representing approximately 21% of Hungary s population. Matel also provides fixed line telecommunications services as an alternative operator in the remainder of Hungary either by connecting corporate customers to its backbone network, or through the use of carrier pre-selection or wholesale DSL services for residential customers. The 100% shareholder of Matel as of December 31, 2011 is HTCC Holdco I. B.V. ( Holdco I B.V. ). Holdco I B.V. was incorporated on April 3, 2007 under the laws of the Netherlands. As of December 31, 2011 Holdco I B.V. is 100% owned by a Danish limited liability company, Invitel Holdings A/S ( Invitel Holdings ), through its holding companies. As of December 31, 2011 Invitel Holdings A/S was the ultimate parent company of the Group. Invitel Holdings A/S is 100% owned by Mid Europa Partners Limited ( Mid Europa ). Mid Europa does not prepare financial statements under International Financial Reporting Standards ( IFRS ). Invitel Holdings is under liquidation as of December 31, 2011 (see note 32 Subsequent events ). As of December 31, 2011 the Group includes the following subsidiaries: Invitel was incorporated on September 20, 1995 as a joint stock company under the laws of Hungary and has its statutory seat at 2040 Budaors, Puskás Tivadar u. 8-10, Hungary. The authorized share capital of Invitel as of December 31, 2011 is HUF 16 billion (approximately EUR 51 million at the year-end exchange rate). ITC was incorporated on September 28, 2001 as a limited liability company under the laws of Hungary and has its statutory seat at 2040 Budaors, Puskás Tivadar u. 8-10, Hungary. The authorized share capital of ITC as of December 31, 2011 is HUF 165 million (approximately EUR 530 thousand at year-end exchange rate). Invitel International Holdings B.V. ( Invitel International Holdings ) was incorporated on March 26, 2009 in Amsterdam and has its statutory seat at Laan van Kronenburg 8, 1183AS Amstelveen, The Netherlands. The 100% owner of Invitel International Holdings is Invitel. Invitel International Holdings was the holding company of the Group s international operations, which was sold on October 7, 2010 (see note 4 - Assets Classified as Held-for-Sale and Discontinued Operations Discontinued ). The authorized share capital of Invitel International Holdings as of December 31, 2011 is EUR 18,000. Invitel International Holdings had no operations during 2011. Page 8 of 60

2. Significant Accounting Policies The significant accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies set out below have been consistently applied by all Group entities to all periods presented in these consolidated financial statements, unless otherwise stated. Where it was necessary, accounting policies of the subsidiaries were modified to ensure consistency with the policies adopted by the Group. 2.1. Statement of Compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union ( EU ). These consolidated financial statements have been prepared to comply with the covenants relating to the 2009 Notes and will not be filed for Dutch statutory purposes. A separate Dutch Annual Report will be prepared to meet the Dutch statutory filing obligation in compliance with the Dutch Law. 2.2. Basis of Preparation The consolidated financial statements are presented in euro ( EUR ) rounded to the nearest thousand of EUR ( TEUR ). The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are discussed in note 2.24. The Group has adopted the following new and amended IFRS as of January 1, 2011, which are relevant to the Group s consolidated financial statements: IAS 24 (revised) Related party disclosures was issued in November 2009. It supersedes IAS 24 Related party disclosures issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after January 1, 2011. The adoption of this standard did not have a material impact on the Group s consolidated financial statements. IFRIC 19 Extinguishing financial liabilities with equity instruments is effective July 1, 2010. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The Group applies the interpretation from January 1, 2011 and it did not have an impact on the Group s consolidated financial statements. Page 9 of 60

IAS 32 (Amendment) Classification of rights issues was issued in October 2009 and applies to annual periods beginning on or after February 1, 2010. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors. The Group applies the amended standard from January 1, 2011. It did not have an impact on the consolidated financial statements. The following standards and amendments to existing standards, which are mostly relevant to the Group s consolidated financial statements, have been published and are mandatory for the Group s accounting periods beginning on or after January 1, 2011 or later periods, but the Group has not early adopted them: IFRS 9 Financial instruments is replacing IAS 39 Financial instruments: recognition and measurement and shall apply for annual periods beginning on or after January 1, 2015. The Group is currently evaluating the impact of IFRS 9 on the consolidated financial statements. IFRS 7 (Amendments) Transfers of financial assets is effective for annual periods beginning on or after July 1, 2011, requires that the transfer of financial assets is disclosed as a single note in an entity s financial statement. An entity shall disclose information that enables users of its financial statements to understand the relationship between transferred financial assets that are not derecognised in their entirety and the associated liabilities and to evaluate the nature of, and risks associated with, the entity s continuing involvement in derecognised financial assets. The Group is currently assessing the impact of this amendment, though its adoption is not expected to have a material impact on the Group s financial statements. IFRS 10 Consolidated Financial Statements is effective for annual periods beginning on or after January 1, 2013. IFRS 10 must be applied retrospectively. IFRS 10 establishes a single control model, including special purpose entities, and takes over the portion of IAS 27 Consolidated and Separate Financial Statements that addressess accounting for consolidated financial statements. The changes introduced in IFRS 10 require management to exercise significant judgement to determine which entities are controlled. The application of this standard is not expected to have a significant impact of the Group s consolidated financial statements. IFRS 12 Disclosure of Interests in Other Entities was issued on May 12, 2011 by the IASB. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 will require enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvment. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders involvement in the activities of consolidated entities. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The application of this standard is not expected to have a significant impact of the Group s consolidated financial statements. IAS 19 (Amendments) Employee Benefits was issued in June 2011 by the IASB. The amendments focus on the following key areas: Elimination of the corridor approach, Presentation of gains and losses that arises from remeasurements and Disclosures of the characteristics of a company s defined benefit plans, amounts recognized in the financial statements and risks arising from defined benefit plans, The application of the amendment is required for annual periods beginning on or after January 1, 2013. We do not expect that the adoption of the amended standard would result in significant changes in the financial statements of the Group. The European Union has not yet endorsed the amendments of the standard. Page 10 of 60

2.3. Basis of Consolidation 2.3.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of the transaction with contingent payments classified as debt subsequently re-measured through the income statement. Any costs attributable to the acquisition are expensed from January 1, 2010 in accordance with IFRS 3 (revised). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated income statement. 2.3.2. Transactions eliminated on consolidation All inter-group balances, transactions, unrealized gains and losses on transactions between Group companies are eliminated from the consolidated financial statements. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.3.3. Transactions with entities under common control Business combinations arising from transfers of interests in entities that are under the common control of the shareholders that control the Group are accounted for by using predecessor accounting, at the date that the common control was established. The assets and liabilities are recorded at book values by the acquiree. The components of equity of the acquired entities are added to the same components within Group equity except that any share capital of the acquired entities is recognized as part of reserves. The difference between the consideration given and the aggregate book value of the assets and liabilities of the acquired entity as of the date of the transaction is recorded as an adjustment to other reserve in equity. No additional goodwill is created by these transactions. 2.3.4. Disposal of subsidiaries When the group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retaind interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had disposed of the related assets or liabilities. This may mean that amounts previosusly recognized in other comprehensive income are reclassified to profit or loss. Page 11 of 60

2.4. Foreign Currency 2.4.1. Translation of financial statements Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The functional currency of Matel is the EUR. The functional currency of the Hungarian subsidiaries of Matel is the Hungarian forint ( HUF ), the functional currency of the non-hungarian subsidiaries of Matel is the EUR. The assets and liabilities of operations that are measured in functional currencies other than the EUR are translated into EUR at foreign exchange rates in effect at the balance sheet date. Revenues and expenses of transactions measured in currencies other than the EUR are translated into EUR at average rates. Equity amounts are translated at historical exchange rates. Exchange rate translation differences are reported as a component of equity as cumulative translation reserve. 2.4.2. Transactions and balances Transactions in foreign currencies are translated to the respective functional currencies at the foreign exchange rate in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate in effect 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. Foreign currency differences arising on translation are recognized in the consolidated income statement as net foreign exchange gain / (loss) in financial expenses. Non-monetary assets and liabilities denominated in foreign currencies other than the functional currency that are stated at historical cost are translated using the exchange rate at the date of the transaction. 2.5. Cash and Cash Equivalents Cash and cash equivalents is comprised of cash in bank balances and highly liquid call deposits with original maturities of three months or less and exclude all overdrafts which are shown within borrowings in current liabilities on the face of the consolidated balance sheet. Page 12 of 60

2.6. Financial Assets Financial assets are classified in the following categories: at fair value through profit or loss, loans and receivables and available for sale. The classification depends on the purpose for which the financial asset was acquired. The classification of financial assets is determined at initial recognition. Financial assets at fair value through profit or loss are financial assets held for trading. These financial assets are acquired for the purpose of sale in the short term. Derivative financial intruments are also classified as held for trading unless they are designated hedges. Assets in this category are classified as current assets, except it is expected to be settled in more than twelve months after the balance sheet date, which are classified as non-current assets. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in active markets. They are included in current assets, except it is expected to be settled in more than twelve months after the balance sheet date, which are classified as non-current assets. Available-for-sale financial assets are are defined as financial assets that do not fall into one of the other categories described above. Gains and losses from revaluation of available-for-sale financial asset are recognized in other comprehensive income to the extent that any losses are assessed as being permanent and the asset is therefore impaired under IAS 39. If the asset is sold or impaired, the revaluation gain or loss implicit in the transaction is recognised within profit or loss. Regular sales and purchases of financial assets are recognized on the trade date, the date on which the Group commits to sell or purchase the financial asset. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows from that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet 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. Page 13 of 60

2.7. Derivative Financial Instruments The Group uses derivative financial instruments to manage its exposure to foreign exchange and interest rate risks arising from operational, financing and investing activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments held by the Group do not qualify for hedge accounting and are therefore designated as fair value through profit and loss. Derivative financial instruments are recognized at fair value. The gains or losses resulting from the changes in fair value of financial instruments are recorded in profit or loss in the period to which they relate within financial income expenses. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counter-parties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. The fair value of cross currency interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates, foreign exchange rates and the current creditworthiness of the swap counter-parties. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss within financial income or expenses. Financial instruments are classified as current or non-current depending on the terms of the contract. The portion of the financial instruments that is expected to be realized or settled within twelve months of the balance sheet date or where settlement can not be deferred for at least twelve months after the balance sheet date, is presented as current, the remainder is presented as a non-current financial instrument. 2.8. Trade and Other Receivables Receivables are recognized initially at fair value, and subsequently thereafter they are measured at amortized cost using the effective interest rate method less accumulated impairment losses. Receivables with a short duration are not discounted. The amounts of any impairment losses are included in Operating expenses. Trade receivables and payables from other network operators are offset and the net amount is reported in the consolidated balance sheet when there is a legally enforcable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and liability simultaneously. Page 14 of 60

2.9. Trade and Other Payables Trade and other payables are initially recognized at fair value and subsequently at amortized cost. 2.10. Inventories Inventories consist of materials to be used in construction and repair of the telephone network. Inventories are carried at the lower of cost and net realizable value. Cost is based on the first-in, first-out principle and includes expenditures incurred in acquiring the inventories and bringing them to their existing condition and location. 2.11. Intangible Assets and Goodwill 2.11.1. Intangible assets with indefinite useful life Intangible assets with indefinite useful life are stated at cost less accumulated impairment losses. Intangible assets with indefinite useful life are are tested for impairment annually. After initial recognition it is determined whether an intangible asset has a finite or an indefinite useful life. 2.11.2. Intangible assets with definite useful life Intangible assets with definite useful life are stated at cost less accumulated amortization and impairment losses. The cost of intangible assets with a finite useful life is amortized on a straight-line basis over the period in which the asset is expected to be used. The Group has the following types of intangible assets with definite useful lives, which are amortized over the following estimated useful lives: Software Property rights Other 3 years 1-43 years 1-16 years Property rights represent amounts paid for the right to use third party property for the placement of telecommunication equipment. Useful lives are determined based on the underlying contracts. Other intangible assets include subscriber acquisition costs, which are sales commissions paid to internal sales force and third parties in relation to fixed term subscriber contracts. Subscriber acquisition costs are amortized over the term of the related subscriber contracts. Amortization of intangible assets ceases at the earlier of the date that the asset is classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations and the date the asset is derecognized. The amortization periods are reviewed annually at each financial year-end. Any changes arising from such review are accounted for as a change in an accounting estimate. Page 15 of 60

2.11.3. Goodwill All business combinations are accounted for by applying the purchase method. Goodwill arising in a business combination represents the excess of the cost of the acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree after a reassessment of such fair values. Goodwill on acquisition of subsidiaries is included among intangible assets. 2.12. Property, Plant and Equipment 2.12.1. Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labor and an appropriate proportion of overhead, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Capital work in progress is stated at cost less accumulated impairment losses and represents property, plant and equipment that has not been completed and capitalized. 2.12.2. Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. An asset acquired by way of a finance lease is measured initially at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease. Leased assets are depreciated over the shorter of the lease term or their useful lives unless it is reasonably certain that ownership will be obtained by the end of the lease term. Other leases are operating leases and the leased assets are not recognized in the consolidated balance sheet. 2.12.3. Subsequent expenditure on property, plant and equipment Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure is included in the carrying amount if it is probable that future economic benefits embodied in that expenditure will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. All other expenditures are recognized in the consolidated income statement as an expense as incurred. Page 16 of 60

2.12.4. Depreciation Depreciation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Land and capital work in progress are not depreciated. The estimated useful lives are as follows: Buildings Network and equipment Other equipment 25-50 years 3-25 years 3-7 years Depreciation of property, plant and equipment ceases at the earlier of the date that the asset is classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations and the date the asset is derecognized. Depreciation methods, useful lives and residual values are reviewed annually at each financial year-end. Any changes arising from such review are accounted for as a change in an accounting estimate. 2.13. Impairment of Non-Financial Assets Assets that are subject to amortization are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. For goodwill and intangible assets with an indefinite useful life or not available for use, the recoverable amount is estimated annually, irrespective of whether any indication of impairment exists. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the goodwill maybe impaired, in accordance with IAS 36 Impairment of assets. Goodwill is allocated into operating segments for the purposes of impairment testing. The allocation is made to those operating segments that are expected to benefit from the business combination in which the goodwill was recognized. Segments of the Group are as follows: Residential Voice In-Concession, Residential Voice Out-of-Concession, Residential Internet (including IPTV), Cable, Corporate Voice In-Concession, Corporate Voice Out-of-Concession, Corporate Data and Internet and Wholesale. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. A cashgenerating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognized in the consolidated income statement. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to fixed assets with any residual amount reducing the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Page 17 of 60

2.13.1. Calculation of recoverable amount The recoverable amount of financial assets carried at amortized cost is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. The recoverable amount of the cash-generating units is the greater of their fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 2.13.2. Reversal of impairment An impairment loss on non-financial assets other than goodwill is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. 2.14. Non-Current Assets (or Disposal Groups) Held-for-Sale Non-current assets (or disposal groups) are classified as held-for-sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. 2.15. Borrowings Borrowings are recognized initially at fair value net of transaction costs. Subsequent to initial recognition, borrowings are stated at amortized cost with any difference between initial cost and redemption value being recognized in the consolidated income statement over the period of the borrowings on an effective interest basis. Costs and expenses directly related to raising funds and borrowings or refinancing are deferred and amortized using the effective interest rate method. Such transaction costs are disclosed in the consolidated balance sheet as a reduction of borrowings and current portion of borrowings. 2.16. Provisions Provisions for restructuring costs and legal claims are recognized in the consolidated balance sheet when the Group has a legal or constructive obligation as a result of past events that can be measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. A provision for restructuring is recognized when a detailed and formal restructuring plan is approved, and the restructuring has either commenced or has been announced publicly. 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, where appropriate, the risks specific to the obligation. Provisions are not recognized for future operating costs or losses. Page 18 of 60

2.17. Revenue Recognition Revenue from all goods and services are shown net of VAT, rebates and discounts. Revenue from services is recognized when services are provided. Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of products sold have been transferred to the buyer. Revenue from connection fees are recognized upon service activation. Revenue from monthly fees charged for accessing the network is recognized in the month during which the customer is permitted to access the network. Traffic revenue is recognized in the period of the related usage. Leased line and data transmission revenue is recognized in the period of usage or of the service available to the customer. Revenue from contracts relating to Indefeasible Rights of Use ( IRU ) comprises installation fees, oneoff or up-front fees, monthly fees and maintenance fees. One-off or up-front fees of IRU contracts are deferred over the term of the related contract. Installation fees, monthly fees and maintenance fees are charged periodically as specified in the related contract and the revenue is recognized straight-line over the life of the related contract. Revenues and cost of sales from other network operators for IRU contracts are shown net where a right of set-off exists and the amounts are intended to be settled on a net basis. Third parties using the Group s telecommunications network include roaming customers of other service providers and other telecommunications providers which terminate or transit calls on the Group s network. These wholesale traffic revenues are recognized in the period of related usage. A proportion of the revenue received is often paid to other operators for interconnection for the use of their networks, where applicable. The revenues and costs of these transit calls are stated gross in the consolidated financial statements as the Group is the principal supplier of these services using its own network freely defining the pricing of the services, and recognized in the period of related usage. The Group s main operating revenue categories are as follows: Residential Voice. The revenue generated from the fixed line voice and voice-related services provided to residential customers in the historical concession areas ( Residential Voice In ) and out of the historical concession areas ( Residential Voice Out ). Residential Voice revenue comprises time based call charges, subject to a minimum monthly fee charged for accessing the network and time based fixed-to-mobile, local, long distance and international call charges, interconnect charges on calls terminated in the Group s network, monthly fees for value added services, subsidies, one-off connection and new service fees, as well as monthly fees for packages with built-in call minutes. Residential Voice In revenue also includes access calls to dial-up ISPs networks at local call tariffs and revenue from providing DSL access to other ISPs, but revenue from bundled Internet call and Internet services is recorded under Residential Internet. Residential Internet. The revenue generated from dial-up and DSL Internet connections provided to residential customers nationwide both inside and outside the historical concession areas. Residential Internet comprises dial-up revenue, which is generated through a combination of time based and access fees, and DSL revenue, which is generated through a variety of monthly packages. Cable. The revenue generated from the provision of cable voice, broadband internet and TV services to residential customers outside our historical concession areas using our cable network acquired in the acquisition of Fibernet in March 2011. We charge our Cable voice customers a monthly subscription fee. We generally charge our Cable TV and internet customers a monthly subscription fee. Page 19 of 60

Corporate. The revenue generated from the fixed line voice, data and Internet services provided to business, government and other institutional customers nationwide. Corporate revenue comprises access charges, monthly fees, time based fixed-to-mobile, local, long distance and international call charges, interconnect charges on calls terminated in the Group s network, monthly fees for value added services, Internet access packages and regular data transmission services. Corporate revenue includes the same components as Residential Voice In and Residential Internet revenues and includes, in addition, revenue from leased line, Internet and data transmission services which is comprised of fixed monthly rental fees based on the capacity/bandwidth of the service and the distance between the endpoints of the customers. Wholesale. The revenue generated from voice and data services provided on a wholesale basis to a selected number of resellers to use the Group s excess network capacity. Wholesale revenue comprises rental payments for high bandwidth leased line services, which are based on the bandwidth of the service and the distance between the endpoints of the customers, and voice transit charges from other Hungarian and international telecommunications service providers, which are based on the number of minutes transited. 2.18. Pension Costs and Employee Benefits Contributions are made to the Hungarian pension, health and unemployment schemes at the statutory rates in force during the year, based on gross salary payments to employees. The cost of social security payments is charged to the income statement in the same period when the related salary costs incurred. The Group has no obligation for defined benefit pension or other post employment benefits beyond the government programs. 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 shortterm cash bonuses or profit-sharing plans if the Group 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. 2.19. Share Capital and Share Based Compensation Incremental costs directly attributable to issue of ordinary shares and share options are recognized as a deduction from equity. When share capital recognized as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity until cancelled. Page 20 of 60