annual report 2006 - acotel group · annual report 2006 3 1.1 main factors that have influenced the...
TRANSCRIPT
i
Annual Report 2006
CONTENTS ANNUAL REPORT 2006 page 1 1. DIRECTORS’ REPORT ON GROUP OPERATIONS page 2 1.1 Main factors that have influenced the results for the financial year page 3 1.1.1 Results of operations page 7 1.1.2 Financial position and cash flow page 10 1.1.3 Reconciliation with the Parent Company’s financial statements page 11 1.2 Sources of funds page 11 1.3 Research and innovation page 12
1.4 Financial risk management page 13 1.5 Strengths and resources not reflected in the financial statements page 13 1.6 Shareholdings of management and supervisory bodies, general managers and key managers page 14 1.7 Continuity with data published in the fourth quarter of 2006 page 15 1.8 Subsequent events page 15 1.9 Outlook page 15 2. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 page 17 2.1 Corporate officers page 19 2.2 The Group page 21 3. CONSOLIDATED FINANCIAL STATEMENTS page 22 4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 28 4.1 Principal activities page 29
4.2 Accounting standards used in preparation of the financial statements page 29 4.3 Basis of presentation page 30 4.4 Consolidation policies page 31
4.5 Critical accounting estimates and judgements page 36 4.6 Segment information page 37
4.7 Notes to the income statement page 41 4.8 Notes to the balance sheet page 49
4.8.1 Assets page 49 4.8.2 Liabilities and shareholders’ equity page 56 4.9 Net funds page 60 4.10 Contingencies page 60 4.11 Commitments page 61 4.12 Third-party assets held by the group page 61 4.13 Related party transactions page 61 4.14 Compliance with Legislative Decree no. 196/2003 page 64 4.15 Other information page 64 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 65 PARENT COMPANY’S REPORT page 67 5. DIRECTORS’ REPORT ON THE PARENT COMPANY’S OPERATIONS page 68 5.1 Financial review page 69 5.2 Sources of funds page 73 5.3 Research and innovation page 73 5.4 Financial risk management page 74
ii
Annual Report 2006
5.5 Strengths and resources not reflected in the financial statements page 74 5.6 Shareholdings of management and supervisory bodies, general managers
and key managers page 75 5.7 Other information page 75 5.8 Subsequent events page 75 5.9 Outlook page 75 5.10 Proposed appropriation of net profit for the year page 76
5.11 Shareholder resolutions page 76 6. PARENT COMPANY’S BALANCE SHEET AND INCOME STATEMENT page 77 7. NOTES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS page 83 7.1 Corporate information page 84 7.2 Accounting standards used in preparation of the financial statements page 84 7.3 Basis of presentation page 85 7.4 Accounting policies page 85 7.5 Critical accounting estimates and judgements page 89
7.6 Notes to the income statement page 90 7.7 Notes to the balance sheet page 95 7.7.1 Assets page 95 7.7.2 Liabilities and shareholders’ equity page 102 7.8 Net funds page 106 7.9 Contingencies page 106 7.10 Commitments page 107 7.11 Shareholder pacts page 107 7.12 Compliance with Legislative Decree no. 196/2003 page 107 7.13 Related party transactions page 107
7.14 Other information page 111 Annex - Transition to International Financial Reporting Standards (IFRS) by the Parent Company page 112
ANNEXES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS page 121 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS page 123 REPORT OF THE INDEPENDENT AUDITORS page 127 ESSENTIAL INFORMATION ON SUBSIDIARIES page 130
Annual Report 2006
1
ANNUAL REPORT 2006
Annual Report 2006
2
DIRECTORS’ REPORT ON GROUP OPERATIONS
Annual Report 2006
3
1.1 MAIN FACTORS THAT HAVE INFLUENCED THE RESULTS FOR THE FINANCIAL YEAR
The main results achieved by the Acotel Group in 2006 consist of: 1. strong revenue growth, up 126% on the previous year, rising from 27.9 million euros in 2005 to
63.2 million euros in 2006; 2. an even more substantial improvement in all profit margins, as shown in the reclassified
income statement below. Geographically speaking, 54.7% of turnover was generated in the United States which has thus become the Group’s main market. Whilst substantially in line with the previous year in terms of absolute value, revenues from the Group’s three traditional markets – Italy, the Middle East and South America – decreased as a percentage of total turnover, and now account for 21.9%, 9.4% and 8.2%, respectively. The remaining portion of 5.8% derives from Africa, other European countries and Asia. In terms of business segment, value added services (VAS) for mobile operators continue to represent the Group’s main source of revenue, representing 87.5% of the total. The business segments regarding the design of ICT equipment and security systems design account for 9.8% and 2.7% of total revenues, respectively. The main events that took place in 2006 in the three business segments in which the Group operates are described below. SERVICES This business segment, with revenues amounting to 55.3 million euros in 2006, represents 87.5% of total Group turnover, and is now even more important than in previous years. The Group, which operates in Italy, Brazil, the Middle East and Turkey, adopts different operating strategies for each target segment of the market:
B2C – in this segment Acotel sells its services – primarily content, ringtones, images, games and information - directly to the final customer, carrying out all the related activities from communications to customer care;
Network Operators – in this segment Acotel provides services on behalf of telephone companies (mainly mobile) in accordance with the Application Service Provisioning model;
Media – in this segment Acotel manages value added services on behalf of TV, radio or other media, offering, for example, viewers or listeners the chance to vote or buy content relating to a certain television or radio programme;
Corporate – in this segment Acotel supplies interactive mobile services to companies that, for example, intend to carry out mobile marketing campaigns or, as in the case of banks, that want to offer mobile information and services to their customers.
The US subsidiary, Flycell Inc., which produced the highest turnover in this business segment, has been operating in the consumer segment (B2C) since February 2006, after an initial phase of finalising its technical and organisational structures that was completed at the end of 2005. Flycell Inc. generated turnover of 33.7 million euros during the year, entirely in North America, compared with almost zero turnover in 2005. Such revenues were achieved by incurring substantial
Annual Report 2006
4
marketing costs, totaling 15.6 million euros, aimed at acquiring customers and promoting the Flycell brand. The business model used is based on the sale of monthly subscription services and therefore, unless sharp increases in service cancellations occur, customers continue to be remunerative for several months after the month in which the cost of their acquisition was incurred. Flycell Inc. has almost exclusively used the web as a promotional channel, which has proved to be far more effective in terms of customer acquisition costs than other media such as TV and radio. Advertising is conducted in collaboration with third-party affiliates who promote the www.flycell.com website within their portals and are paid on the basis of the subscription contracts entered into by customers via their portal. The second contribution to the Services business segment was made by Acotel S.p.A., with turnover amounting to 11.9 million euros, up 6% on 2005. The Company generated most of its revenues via services provided to Telecom Italia within the scope of relations established over 10 years ago. Specifically, in addition to continuous upgrading of the services activated over the years, such as the “Script TIM” services for SMS and MMS, new WAP portals – for 2.5G (GPRS) and 3G (UMTS) – were developed and put into service during 2006. Undoubtedly the most important of these is the one for downloading games, called “i-Games Store”, which is integrated within TIM’s official portal. It was entirely developed by Acotel and its operation is outsourced by TIM to the company. These activities are fully in line with current market developments, with the increasing spread of GPRS and UMTS networks and mobile phones having revitalised WAP portals. These have turned out to be one of end users’ favourite channels for choosing, accessing and downloading content, especially ringtones and games. Other sources of Acotel S.p.A.’s revenue derive from activities carried out on behalf of media companies, primarily connected to programmes broadcast by the television companies, RAI, Mediaset, MTV and La7, and on behalf of the corporate customers, especially Unicredit Banca. A substantial contribution to Service revenues was also made by the subsidiaries, Acotel do Brasil and Info2cell, which generated 4.7 and 4.4 million euros during the year, up 46% and 19%, respectively, compared with 2005. Both companies mainly carry out activities on behalf of mobile telephone operators and media companies, the former in Brazil and the latter in the Middle East. The substantial growth in Acotel do Brasil was largely due to the well established activities carried out on behalf of certain companies belonging to the TIM Brasil Group. As well as operating as the “Centro Stella”, functioning as a gateway between TIM and other service providers, the Brazilian subsidiary has continued to produce infotainment services and has started to manage the entire platform for downloading games. An important component of the growth in turnover in 2006 derived from the services provided as part of the “World Cup” project, which began in April and ended in July, and was designed to coincide with the world soccer championship. During these months the Brazilian subsidiary’s turnover rose sharply, reaching a peak in June of more than double the average for the other months of the year. Acotel do Brasil’s media-related activities also increased due to the commercial activities carried out in collaboration with the radio and television broadcaster, Globo. In 2006 Info2cell was interconnected with 28 mobile operators, thus consolidating its undisputed leadership amongst Middle East service providers. Indeed, based on a “One Stop Shop” system (publishing, delivery, accounting, billing, CRM), Info2cell’s technological and commercial
Annual Report 2006
5
organisation is perhaps unique in enabling content providers, media or consumer brands to provide value added mobile telephony services in an entire geographical region. Being able to operate over such a wide catchment area – including almost all mobile phone owners in the Middle East – also enables the Company to acquire distribution rights for highly prized content and to sign contracts with major customers. Such contracts entered into in 2006 include agreements with Associated Press, CNN, Cartoon Network, Al Arabiya, Glu and Mubasher, regarding distribution of their content via SMS/MMS/WAP, and with Pepsi in relation to the “Pepsi World Cup Mobile Promotion”. The latter initiative, which was obtained thanks to the success of a previous promotional campaign conducted in 2005, generated over 8 million SMS messages in only 3 months, involving the customers of 10 mobile operators in the GCC (Gulf Cooperation Council) area. Regarding services provided by Info2cell on behalf of mobile telephony operators, the “Ring Back Tone” service was a great success. The Jordanian operator, Fastlink, registered over 100,000 users for the service and it was also launched by Etisalat in the United Arab Emirates. An agreement was also signed for this service with the company, Rotana, regarding the distribution of content (ringtones) in Oman, Bahrain, Qatar and the United Arab Emirates. Services provided on behalf of operators also include “Alert”, which was launched to coincide with the Word Cup, attracting around 50,000 subscribers who received match results in real time via SMS during the championship. Info2cell has also been awarded Nokia certification for the launch of an application to be installed on mobile phones, which enables enjoyment of musical content owned by Rotana. Finally, the subsidiary, Flycell Telekomunikasion Hizmetleri A.S., which was incorporated in the second half of 2005 and is based in Istanbul, reported revenues of 164 thousand euros. The Company started operating by providing services to the customers of the operator, AVEA, and then extended its trading relations to include the operator, Telsim (now Vodafone), and certain media companies, such as the broadcaster, Kanalturk, for voting services, and Estetika, for the distribution of information regarding betting on horse races. DESIGN OF ICT EQUIPMENT The Acotel group of companies operates as a provider of technology platforms for mobile messaging via the subsidiary, Jinny Software Ltd, which reports revenues of 6.2 million euros for 2006, up by around 9.5% on the previous year. The company also grew in size during the year, by increasing staff in its existing offices, and by opening commercial offices in Kuala Lumpur and Rio de Janeiro, from where it has begun to penetrate the Far Eastern and South American markets. Its presence in these two new regions in 2006 also enabled establishment of trading relations with 12 new customers, and the company ended the year with a full order book, including customers from five continents. The high percentage of staff engaged in Research & Development – around 30% – confirms the company’s deep commitment to technological innovation. This commitment enabled creation of a new range of products, developed in full compliance with the IMS (Internet Multimedia Subsystem) architectural framework, towards which all telecommunications operators are gearing their network investment. The new range of products breaks down into four categories – Next Generation Messaging, Media, Routing and Filtering, and Rating and Charging – leading to a change in the company’s tag line,
Annual Report 2006
6
which has become “More than Messaging” to emphasise the fact that thanks to Jinny products operators can offer highly personalised services to their end customers. The most important sales, which put Jinny among the major market players, include a number of platforms in the Caribbean and South America, rating and charging systems in the Middle East and a “Video Ringback Tone” in Asia. SECURITY SYSTEMS DESIGN The Italian subsidiary, AEM S.p.A., which operates in this business segment, generated revenues of 1.7 million euros in 2006, up 28.2% on the previous year. Noteworthy in terms of economic importance and image are the activities carried out for the Bank of Italy. In addition to conducting security systems maintenance, AEM has been involved in extension projects entailing structural modifications to equipment. Under the terms of a contract that has been in force for several years, maintenance of Telecom Italia’s Teleallarme systems also continued during the period. In September, under the terms of a pre-existing contract, activities were launched on behalf of the customer, ACEA, aimed at constructing a new security room for monitoring access to a water supply remote control room. An order was also obtained from ACEA to build a system for controlling vehicle access based on RFID (radio frequency identification) technologies. This system is due to be installed in the first quarter of 2007.
Annual Report 2006
7
1.1.1 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT
€000 2006 2005 Increase/Decrease % inc./(dec.)
Revenues 63,223 27,926 35,297 126%Other income 75 94 (19) (20%)
Total revenue 63,298 28,020 35,278 126%
Gross operating profit 4,752 665 4,087 615%7.51% 2.37%
Operating profit/(loss) 3,902 (258) 4,160 1612%6.16% -0.92%
Net finance income/(costs) (359) 1,136 (1,495) (132%)
PROFIT/(LOSS) BEFORE TAX 3,543 878 2,665 304%5.60% 3.13%
NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS 1,231 (561) 1,792 319%
1.94% -2.00%
NET PROFIT/(LOSS) ATTRIBUTABLE TO PARENT COMPANY 1,231 (561) 1,792 319%
1.94% -2.00%
Earnings per share 0.31 (0.14)Diluted earnings per share 0.31 (0.14)
Compared with the previous year, the Acotel Group reported a sharp upturn in revenues (up 126%) and robust improvement across all profit margins in the year ended 31 December 2006. The increase in turnover, totalling 63,223 thousand euros in 2006, primarily derives from the commercial activity carried out by Flycell Inc., which is now the main source of revenue for the whole Group. Moreover, improvements in turnover registered by the subsidiaries, Acotel do Brasil, Acotel S.p.A., Info2cell, AEM S.p.A. and Jinny Software compared with the previous year, should also be noted. Gross operating profit amounts to 4,752 thousand euros, representing a margin of 7.5%, while the Group reports operating profit, after amortisation and depreciation and impairments of non-current assets, of 3,902 thousand euros (a margin of 6.2%). After net finance income, pre-tax profit is 3,543 thousand euros (a margin of 5.6%). Net profit is thus 1,231 thousand euros.
Annual Report 2006
8
Revenue A breakdown of revenue by business segment shows that, compared with the previous year, growth occurred in all the sectors in which the Group operates, although Service revenues accounted for an increasingly larger share of total turnover:
Turnover by business segment
(€000) 2006 % 2005 %
Services 55,290 87.5% 20,947 75.0%
Design of ICT equipment 6,216 9.8% 5,640 20.2%
Security systems design 1,717 2.7% 1,339 4.8%
Total 63,223 100% 27,926 100%
Revenues from Services rose by 164%, whilst those from the design of ICT equipment and security systems design increased by 10% and 28%, respectively. A breakdown of the Group’s revenue by geographical segment is as follows:
Turnover by geographical segment
(€000) 2006 % 2005 %
North America 34,536 54.7% 715 2.6%
Italy 13,874 21.9% 13,411 48.0%
Middle East 5,943 9.4% 6,547 23.4%
Latin America 5,151 8.2% 3,465 12.4%
Africa 1,980 3.1% 1,472 5.3%
Other European countries 959 1.5% 1,863 6.7%
Asia 780 1.2% 453 1.6%
63,223 100% 27,926 100%
The above table shows how important the US market has become for the Acotel Group in a short space of time. Primarily due to the revenues earned from services rendered during the period by the subsidiary, Flycell Inc., the proportion of the Group’s total revenue generated in North America has risen from 2.6% in 2005 to 54.7% in 2006. As a result of this growth, revenues earned in Italy, whilst up in absolute terms, decreased from 48% in 2005 to 21.9% in 2006, thereby confirming the Group’s previous commitment to the process of internationalising revenue sources.
Annual Report 2006
9
Gross operating profit Gross operating profit of 4,752 thousand euros for the year ended 31 December 2006 rose sharply (up 615%) compared with the previous year, mainly due to:
- the better earnings performances reported by certain Acotel Group companies, especially those achieved by Flycell Inc., Acotel do Brasil, Info2cell and AEM, primarily as a result of increases in their respective turnovers;
- the rationalisation process underway within the Group, which has involved a halt to certain overseas activities whose ability to generate earnings is viewed as too remote.
Profit before tax Profit before tax of 3,543 thousand euros rose sharply (up 304%) compared with the previous year, despite net finance costs of 359 thousand euros, as opposed to net finance income of 1,136 thousand euros in the previous year. The Group reports after-tax income of 1,231 thousand euros compared with an after-tax loss of 561 thousand euros in 2005.
Annual Report 2006
10
1.1.2 FINANCIAL POSITION AND CASH FLOW RECLASSIFIED CONSOLIDATED BALANCE SHEET
(€000) 31 Dec 2006 31 Dec 2005 Increase/(Decrease) % change
Non-current assets: Property, plant and equipment 1,579 1,175 404 34% Intangible assets 13,623 12,584 1,039 8% Financial assets 2 2 - - Other assets 530 366 164 45%
TOTAL NON-CURRENT ASSETS 15,734 14,127 1,607 11%
Net current assets: Inventories 478 299 179 60% Trade receivables 18,301 12,352 5,949 48% Other current assets 2,963 1,759 1,204 68% Trade payables (7,660) (6,237) (1,423) (23%) Other current liabilities (4,334) (3,382) (952) (28%)TOTAL NON-CURRENT ASSETS 9,748 4,791 4,957 103%
STAFF TERM INATION BENEFITS ANDOTHER EM PLOYEE BENEFITS (1,031) (948) (83) (9% )
NON-CURRENT PROVISIONS (27) (70) 43 61%
NET INVESTED CAPITAL 24,424 17,900 6,524 36%
Shareholders' equity: Share capital 1,084 1,084 - - Retained profit/(accumulated losses) 47,526 48,277 (751) (2%) Net profit/(loss) for the year 1,231 (561) 1,792 319% Minority interests 30 30 - - TOTAL SHAREHOLDERS' EQUITY 49,871 48,830 1,041 2%
M EDIUM /LONG-TERM DEBT 163 193 (30) (16% )
Net cash and cash equivalents:Current financial assets (15,050) (19,761) 4,711 24%Cash and cash equivalents (10,620) (11,395) 775 7%Current financial liabilities 60 33 27 82%
(25,610) (31,123) 5,513 18%
NET FUNDS (25,447) (30,930) 5,483 18%
TOTAL SHAREHOLDERS' EQUITY AND NET FUNDS 24,424 17,900 6,524 36%
The Acotel Group’s net invested capital at 31 December 2006 is 24,424 thousand euros, made up of non-current assets of 15,734 thousand euros, net current assets of 9,748 thousand euros, staff termination benefits of 1,031 thousand euros and other non-current provisions of 27 thousand euros. Net invested capital is financed by shareholders’ equity of 49,871 thousand euros and net funds of 25,447 thousand euros.
Annual Report 2006
11
A detailed analysis of changes in the principal balance sheet items shows that: − non-current assets are 15,734 thousand euros, marking a net increase of 1,607 thousand euros
compared to the previous year. The most significant change regards the increase in tangible and intangible assets primarily as a result of investments carried out to develop the “Noverca” platform, which is explained in detail in other sections of this report;
− the changes to net current assets derive from growth in turnover, which generated a higher rate of increase in trade receivables than in trade payables;
− net funds at 31 December 2006 amount to 25,447 thousand euros, a decrease of 5,483 thousand euros compared to 31 December 2005, due primarily to the support given by the Group to the subsidiary, Flycell Inc., for development of the US market.
1.1.3 RECONCILIATION WITH THE PARENT COMPANY’S FINANCIAL STATEMENTS Pursuant to Consob Resolution no. DEM/6064293 of 28 July 2006, the reconciliation between the net result and shareholders’ equity of Acotel Group S.p.A., and the corresponding consolidated items is as follows:
Net result 2006Shareholders' equity at
31 Dec 2006
profit / (loss) positive/(negative)
Shareholders' equity and net result reported in the Parent Company's financial statements 644 54,228
Effect of consolidation of Group companies 587 859 Consolidation reserve - 909 Currency translation reserve - (283)Amortisation and impairment of goodwill arising from consolidation - (5,872)
Group interest in shareholders' equity and net result for the year 1,231 49,841
Minority interest in shareholders' equity and net result for the year - 30
Shareholders' equity and net result reported in the consolidated financial statements 1,231 49,871
1.2 SOURCES OF FUNDS The Group’s financial strength was confirmed in 2006, with net cash and cash equivalents of 25,610 thousand euros and net funds of 25,447 thousand euros. As in the past, the Group did not resort to external sources of funding in 2006, being able to finance investment, above all in its foreign subsidiaries during the start-up of their respective businesses, from operating cash flow and its own funds.
Annual Report 2006
12
Current financial assets not used to finance operations are invested in low-risk financial instruments.
1.3 RESEARCH AND INNOVATION SERVICES During 2006 the Group also concentrated its research and development activities on improving the performance and operations of the platforms that individual companies use in their respective markets to provide value added services. The development and management of platforms continued to be entirely conducted using internal Group resources, in order to guarantee technological independence and the development of know-how. In addition, a new platform was developed in Italy which, as of 2007, will allow the Group to offer communication services using VoIP (Voice over Internet Protocol) technology, to be marketed under the “Noverca” brand. This complex system offers users services such as phone calls, video communication and instant messaging via the internet. The system is based on cooperation between a series of central software applications, called “AS – Application Servers”, operating on hardware that is mainly installed at the Data Center in Rome, and software applications, called “Softclient”, operating on end-user devices (e.g. personal computers and smart phones). A website, www.noverca.com, has also been built, via which users can register, download the Softclient software and access the services. PRODUCTS The Irish subsidiary, Jinny Software Ltd., which designs, produces and develops ICT equipment, continued its strong commitment to research and development in 2006. As previously mentioned, around one third of Jinny’s employees are involved in research and development. Activities during the year focused on the development of equipment for next generation networks (NGN) based on internet multimedia subsystem (IMS) architecture, leading to the completion and presentation on the market of a new product range, which breaks down into four categories: Next Generation Messaging, Media, Routing and Filtering, and Rating and Charging. SECURITY SYSTEMS The Group’s commitment to developing new products and systems for the security market continued during the period via the subsidiary, AEM. In particular, technological activities aimed at developing current systems included continuation of a project to adopt the IP protocol for remote alarm platforms. This technology will enable elimination of the use of dedicated physical telephone lines, resulting in significant cuts in infrastructure and operating costs. The new products have been developed with the aid of market surveys, which forecast a turnaround for the sector, especially for remote video surveillance systems. The new products will be aimed at
Annual Report 2006
13
a market that goes beyond the large organisations with whom AEM has previously operated. They will be based on more recent signal detection and transmission technologies and will be able to meet the most complex security requirements.
1.4 FINANCIAL RISK MANAGEMENT Credit risk 47.6% of total trade receivables relate to amounts due from the mobile transaction network provider, mBlox (25.7%), which provides Flycell Inc. the necessary connectivity with US telephone operators, and Telecom Italia (21.9%). At the date of publication of this report, around 20% of these receivables, amounting to approximately 1.8 million euros, have yet to be collected. There are no significant disputes with customers. Liquidity risk The Group does not resort to external sources of funding and is able to meet its cash requirements from operating cash flow. The cash flows, borrowing requirements and liquidity of Group companies are monitored and managed centrally under the Parent Company’s control, with the aim of ensuring effective and efficient management of the Group’s financial resources. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is, however, limited to the conversion of the financial statements of certain foreign subsidiaries, as, with the exception of Jinny Software Ltd., foreign operating companies report substantial convergence between the currencies used for receivables and payables. Interest rate risk As the Group does not rely on external sources of funding it is not exposed to interest rate risk.
1.5 STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS
This paragraph provides a brief summary of the strengths that the Acotel Group considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: The Group develops all the technology platforms that it utilises internally. This long-standing approach allows the Group, particularly in the Services segment, to replicate its commercial strategy and enter new countries at extremely low costs.
Annual Report 2006
14
Medium/long-term contracts: the greater part of the commercial B2B (Business to Business) relationships between Acotel Group companies and their customers are based on long-term partnerships, which help to increase the Group’s economic stability. Stable shareholder structure: 57.4% of the share capital of Acotel Group S.p.A. is held by members of the founder’s family. This concentration of ownership ensures continuity in the management of the Group, which aims to create value over the medium/long-term. Financial independence: as previously indicated, the Acotel Group, both through its operating activities and shrewd management of its financial resources acquired as a result of the flotation, has the necessary financial resources to finance its development without having to resort to bank borrowings. Geographical diversification: during 2006, 54.7% the Acotel Group’s consolidated turnover was generated in North America, 21.9% in Italy, 9.4% in the Middle East, 8.2% in Latin America, and the remaining portion in Africa, other European countries and Asia. This distribution supports the strategy of diversification into various geographical areas pursued by the Group with a view to minimising the impact of any local problems.
1.6 SHAREHOLDINGS OF MANAGEMENT AND SUPERVISORY BODIES, GENERAL MANAGERS AND KEY MANAGERS (art. 79, CONSOB Regulation no. 11971/99)
NAME GROUP COMPANY NO. OF SHARES HELD
AT 1 JAN 2006 NO. OF SHARES
PURCHASED NO. OF SHARES
SOLD NO. OF SHARES HELD
AT 31 DEC 2006
PERCENTAGE INTEREST AT 31 DEC
2006
Claudio Carnevale (a) Acotel Group S.p.A. 664,980 - - 664,980 15.95%Andrea Morante Acotel Group S.p.A. 99,827 - - 99,827 2.39%Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 0.48%Claudio Carnevale AEM S.p.A. 2,366 - - 2,366 0.06%
(a) Ownership is exercised via Clama S.A. of which Claudio Carnevale owns 99.9% of the share capital. Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which in turn holds 1,727,915 shares of Acotel Group S.p.A. at 31 December 2006. No transactions took place between Clama S.r.l. and Acotel Group S.p.A. and other Group companies during the period. At 31 December 2006 Acotel Group S.p.A. does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the financial year. Other Group companies do not possess Acotel Group S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the financial year.
Annual Report 2006
15
1.7 CONTINUITY WITH DATA PUBLISHED IN THE FOURTH QUARTER OF 2006
In order to guarantee the continuity of published accounting data, in compliance with the provisions of Annex 3D to the Regulations for Issuers introduced by CONSOB Resolution no. 11971 of 14 May 1999, the differences reported with respect to fourth-quarter data are shown in the table below. Such differences are not significant. (€000)
2006 results Q4 FY Difference
Revenues 63,216 63,223 7 Gross operating profit 4,703 4,752 49 Operating profit 3,852 3,902 50 Net profit attributable to the Parent Company
1,256
1,231
(25)
1.8 SUBSEQUENT EVENTS In February the subsidiary, Info2cell (I2C), obtained authorisation from the Saudi Investment Authority to set up a joint venture with a local partner. This joint venture, which is expected to start up very shortly, will provide services to the Saudi Arabian market, one of the most important in the Middle East region. At the outset it will use the I2C technology platform in Dubai and then later set up its own infrastructure. In Brazil the subsidiary, Acotel do Brasil, has launched a service for downloading personalised wallpapers. This service enables individual customers to create “unique” graphic objects, which are therefore clearly different from other customers’ wallpapers. In March Jinny Software signed a letter of intent, regarding an order of great strategic and economic value, with a customer in Africa.
1.9 OUTLOOK The Group will aim to achieve growth targets and improve profit margins in the three business segments in which it operates, in accordance with the following guidelines. In the Services segment, based on the results achieved in 2006, with particular reference to the strong growth in the consumer segment in the USA and the overall strengthening of the B2B segment in other markets, operations will continue in accordance with well established business models, taking action where possible to improve them. To this end, initiatives are underway on both the technological and content fronts aimed at improving user experiences, in order to increase customers’ satisfaction with the services and thereby boost usage and achieve greater long-term loyalty. An example is the launch of a new version of the www.flycell.com portal, which incorporates tools for creating communities and video and chat services (the latter via WAP portals) in Brazil. In terms of geographical expansion, it is planned to strengthen the Group’s competitive
Annual Report 2006
16
position in the Middle East with the setting up of a joint venture in Saudi Arabia (51% owned via the subsidiary, Info2cell). Also in the Services segment, the Group’s investments in IP (Internet Protocol) technologies will begin to bear fruit during 2007. This category of service can be used via a personal computer or high-tech mobile device (e.g. smart phones and palmtops) and will initially include communications services such as telephony, video calls, instant messaging and presence services. This range will later be extended to include the latest services such as multimedia content distribution and remote home monitoring. In the Products segment the above-mentioned growth targets will be pursued by leveraging investments carried out in 2006 by the subsidiary, Jinny Software. This will entail developing new equipment that perfectly meets the requirements of the Group’s customers (mobile operators), and also building a new direct and indirect marketing structure capable of operating worldwide. The positive growth projections are backed up, at least as far as the first half of the year is concerned, by the healthy state of the company’s order book at the end of 2006. Finally, in the Security Systems segment the Group intends to exploit its prestigious customer portfolio and technological developments in video surveillance (with solutions based on IP technologies and networks) and access control (using RFID technology), in order to boost turnover from both new and existing customers. To this end, AEM aims to obtain all the certifications necessary to take part in private and public tenders during 2007.
Annual Report 2006
17
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006
Annual Report 2006
18
Acotel Group S.p.A. Registered offices at Via della Valle dei Fontanili 29/37 – 00168 Rome, Italy Share capital: €1,084,200.00, fully paid-in Rome Companies’ Register, Tax and VAT number: 06075181005
Annual Report 2006
19
2.1 CORPORATE OFFICERS BOARD OF DIRECTORS
Claudio Carnevale Chairman and CEO
Francesco Ago (1), (2) Director
Margherita Argenziano Director
Luca De Rita Director
Giovanni Galoppi (1), (2) Director
Giuseppe Guizzi (1), (2) Director
Andrea Morante Director
(1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee
BOARD OF STATUTORY AUDITORS Antonio Mastrangelo
Chairman
Maurizio Salimei Auditor
Umberto Previti Flesca Auditor
INDEPENDENT AUDITORS
Deloitte & Touche S.p.A.
Annual Report 2006
20
The Board of Directors and the Board of Statutory Auditors of Acotel Group S.p.A. were appointed on 28 April 2006 by the General Meeting of Shareholders, which also appointed Mr Claudio Carnevale as Chairman. The General Meeting of 28 April 2006 also appointed Deloitte & Touche S.p.A. to audit the consolidated and separate financial statements for the financial years from 2006 until 2011. With a resolution of 10 May 2006 the Board of Directors appointed Mr Claudio Carnevale as CEO, granting him all the powers of routine and extraordinary administration to be delegated in accordance with the law and the articles of association. At the same board meeting of 10 May 2006 Francesco Ago, Giovanni Galoppi and Professor Giuseppe Guizzi were appointed members of the Remuneration Committee and of the Internal Audit Committee. Francesco Ago was appointed as Chairman of both committees.
Annual Report 2006
21
2.2 THE GROUP
The parent company of Acotel Group S.p.A. is Clama S.r.l., which at 31 December 2006 holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama S.r.l. does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code.
Annual Report 2006
22
CONSOLIDATED FINANCIAL STATEMENTS
Annual Report 2006
23
CONSOLIDATED INCOME STATEMENT
(€000) Note 2006 2005
Revenues 1 63,223 27,926 Other income 75 94
Total revenue 63,298 28,020
Movement in work in progress, semi-finished and finished goods (1) (10)Raw materials 2 (1,864) (1,523)External services 3 (42,685) (13,140)Rentals and leases 4 (1,553) (1,422)Staff costs 5 (12,512) (10,271)Amortisation and depreciation 6 (813) (923)Internal capitalised costs 7 1,083 - Impairment charges/reversal of impairment charges on non-current assets (37) - Other costs 8 (1,014) (989)Finance income 9 1,118 1,345 Finance costs 9 (1,477) (209)
PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 3,543 878
Taxation 10 (2,312) (1,439)
NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS 1,231 (561)
Net profit/(loss) from discontinued operations - -
NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS 1,231 (561)
Net profit/(loss) attributable to minority interests - -
NET PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO PARENT COMPANY 1,231 (561)
Earnings per share 11 0.31 (0.14)Diluted earnings per share 11 0.31 (0.14)
Annual Report 2006
24
CONSOLIDATED BALANCE SHEETASSETS
(€000) Note 31 Dec 2006 31 Dec 2005
Non-current assets:
Property, plant and equipment 12 1,579 1,175 Goodwill arising from consolidation 13 11,531 11,531 Other intangible assets 14 2,092 1,053 Non-current financial assets 2 2 Other non-current assets 15 53 88 Deferred tax assets 16 477 278
TOTAL NON-CURRENT ASSETS 15,734 14,127
Current assets:
Inventories 17 478 299 Trade receivables 18 18,301 12,352 Other current assets 19 2,963 1,759 Current financial assets 20 15,050 19,761 Cash and cash equivalents 21 10,620 11,395
TOTAL CURRENT ASSETS 47,412 45,566
NON-CURRENT ASSETS HELD FOR SALE - -
TOTAL ASSETS 63,146 59,693
Annual Report 2006
25
CONSOLIDATED BALANCE SHEETLIABIITIES AND SHAREHOLDERS' EQUITY
(€000) Note 31 Dec 2006 31 Dec 2005
Shareholders' equity:
Share capital 1,084 1,084 Share premium reserve 55,106 55,106 - Treasury shares (3,873) (3,873) - Cost of capital increase (59) (59) Currency translation reserve (279) (89) Other reserves 357 335 Retained profit/(accumulated losses) (3,726) (3,143) Net profit/(loss) for the year 1,231 (561)Shareholders' equity attributable to the Parent Company 49,841 48,800 Minority interest 30 30 TOTAL SHAREHOLDERS' EQUITY 22 49,871 48,830
Non-current liabilities: Non-current financial liabilities 23 163 193 Staff termination benefits and other employee benefits 24 1,031 948 Deferred tax liabilities 27 70
TOTAL NON-CURRENT LIABILITIES 1,221 1,211
Current liabilities: Current financial liabilities 25 60 33 Trade payables 26 7,660 6,237 Tax liabilities 27 1,570 1,144 Other current liabilities 28 2,764 2,238 TOTAL CURRENT LIABILITIES 12,054 9,652
NON-CURRENT LIABILITIES HELD FOR SALE - -
TOTAL LIABILITIES 13,275 10,863
EQUITY 63,146 59,693
Annual Report 2006
26
(€000) Sharecapital
Sharepremiumreserve
- Treasury shares
- Cost of capital
increases
Currency translation
reserve
Other reserves
Retained profits
Net profit for the year TOTAL
Balances at 1 Jan 2005 1,084 55,106 (3,206) (59) (324) 197 (2,326) (765) 49,707
Appropriation of net profit for 2004 52 (817) 765 - Purchase of treasury shares (667) (667)Other movements 235 86 321 Net result for 2005 (561) (561)
Balances at 31 Dec 2005 1,084 55,106 (3,873) (59) (89) 335 (3,143) (561) 48,800
Appropriation of net profit for 2005 22 (583) 561 - Other movements (190) (190)Net result for 2006 1,231 1,231
Balances at 31 Dec 2006 1,084 55,106 (3,873) (59) (279) 357 (3,726) 1,231 49,841
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY AT 31 DECEMBER 2006
The share of shareholders’ equity attributable to minority interests at 31 December 2006 amounts to 30 thousand euros and has not changed over the last three years.
Annual Report 2006
27
CONSOLIDATED CASH FLOW STATEMENT
(€000)2006 2005
A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,123 31,720
B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (2,873) 773
Cash flows from operating activities before changes in working capital 2,092 644 Net profit/(loss) for the year 1,231 (561)Amortisation and depreciation 813 923 Impairment of assets 8 31 Net change in staff termination benefits 83 181
Net change in deferred tax assets (43) 70
(Increase) / decrease in receivables (7,161) (3,154)
(Increase) / decrease in inventories (179) (211)
Increase / (decrease) in payables 2,375 3,494
C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (2,420) (961)
(Purchases)/disposals of fixed assets: - Intangible assets (1,309) (448) - Property, plant and equipment (947) (690)
- Financial assets (164) 177
D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES (220) (409)
Increase / (decrease) in medium/long-term borrowings (30) (63) Changes in treasury shares - (667) Other changes in shareholders' equity (190) 321
E. CASH FLOW FOR THE YEAR (B+C+D) (5,513) (597)
F. NET CASH AND CASH EQUIVALENTS AT END OF YEAR (A+E) 25,610 31,123
Annual Report 2006
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Annual Report 2006
29
4.1 PRINCIPAL ACTIVITIES Acotel Group S.p.A. is the leader of a Group of companies operating in the ICT sector, based on a single business project. The main companies in The Acotel group of companies of companies, in addition to Acotel Group S.p.A., which basically performs management functions and manages the Acotel Platform, through which it operates directly on the market as an Application Service Provider, are: - Acotel S.p.A., which markets the multimedia services for Italy; - A.E.M. S.p.A., which deals with the design and production of security systems exclusively in
Italy; - Acotel Participations S.A. which acts as a sub-holding and controls the majority of the Group’s
foreign companies responsible for business development in their local markets; - Jinny Software Ltd, deals with the design, production and development of high-tech ICT
equipment; - Info2cell.com FZ-LLC, which operates as a Wireless Application Services Provider in
partnership with leading Middle-eastern mobile telephone operators; - Acotel do Brasil Ltda, which markets multimedia services to Brazilian operators; - Flycell Inc., which provides consumer services to the US market; - Flycell Telekomunikasyon Hizmetler A.S., which supplies value added services in Turkey; - Flycell Media S.p.A., which, as of 2007, will offer integrated communications services (data,
audio, video) based on the IP (Internet Protocol) marketed under the “Noverca” brand; - Flycell Latin America Conteúdo Para Telefonia Móvel LTDA, which was established in 2006,
will supply consumer services to the Brazilian market. These financial statements have been drawn up in thousand of euros, the Parent Company’s accounting currency. The foreign companies are included in the consolidated financial statements according to the accounting standards indicated in the following notes.
4.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the year ended 31 December 2006 have been prepared in accordance with the international financial reporting standards (IFRS), as issued by the International Accounting Standards Board (IASB) and approved by the European Union. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC). The Acotel group of companies adopted IFRS from 1 January 2005, with the transition date as of 1 January 2004. The information required by IFRS 1 – First adoption of IFRS, is shown in an Annex to the consolidated financial statements for 2005.
Annual Report 2006
30
Accounting standards and interpretations applied as of 1 January 2006 The new standards and interpretations regard:
• Changes to IAS 19 – employee benefits; • IFRIC 4 – determining whether a contractual agreement contains a lease; • Changes to IAS 39 – fair value measurement options; • Changes IAS 39 – hedging of intercompany transactions; • Changes to IAS 39 and IFRS 4 – changes in the accounting treatment of guarantees issued.
Application of these standards and interpretations has no significant impact on the consolidated financial statements. New standards and interpretations not yet applied As required by IAS 8 – Accounting standards, changes to accounting estimates and errors, the IFRS applied as of or subsequent to 1 January 2007 are indicated below:
• IFRS 7 – Financial instruments: additional disclosures; • Changes to IAS 1 – Presentation of financial statements - Information regarding share
capital; • IFRIC 8 – Scope of application of IFRS 2; • IFRS 8 – Operating segments; • IFRIC 9 – Reassessment of embedded derivatives.
The Group is evaluating the eventual impact that these changes may have on the consolidated financial statements.
4.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle modified, as required, for the valuation of certain financial instruments. The Acotel group of companies of companies has prepared the income statement on the basis of the nature of expenses format, which is considered more representative of the Group’s approach to management of the business and is utilised for internal reporting. The form of presentation used for the balance sheet distinguishes between current and non-current assets and liabilities, as allowed by paragraph 51 et seq of IAS 1. Shareholders’ equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. Finally, the statement of cash flows was prepared in accordance with the indirect method.
Annual Report 2006
31
4.4 CONSOLIDATION POLICIES Basis of consolidation At 31 December 2006, in addition to the Parent Company, Acotel Group S.p.A., the following direct or indirect subsidiaries of The Acotel group of companies were consolidated:
Company Date of acquisition Group’s interest (%)
Registered office Share capital
Acotel S.p.A. 28 April 2000 99.9% (4) Rome EURO 13,000,000
AEM Advanced Electronic Microsystems S.p.A. 28 April 2000 99.9% Rome EURO 858,000
Acotel Participations S.A. 28 April 2000 100% Luxembourg EURO 1,200,000
Acotel Chile S.A. 28 April 2000 100% (5) Santiago, Chile USD 17,310
Acotel Espana S.L. 28 April 2000 100% (5) Madrid EURO 3,006
Acotel Do Brasil LTDA 8 August 2000 (1) 100% (5) Rio de Janeiro BRL 1,868,250
Acotel France S.A.S. 22 October 2002 (1) 100% (5) Paris EURO 56,000
Jinny Software Ltd. 9 April 2001 100% (5) Dublin EURO 2,972
Millennium Software SAL 9 April 2001 99.9% (6) Beirut LPD 30,000,000
Info2cell.com FZ-LLC 29 January 2003 (3) 100% (5) Dubai DH 18,350,000
Emirates for Information Technology Co. 29 January 2003 100% (7) Amman JD 710,000
Flycell Media S.p.A. 10 July 2002 (2) 100% Rome EURO 400,000
Flycell Inc. 28 June 2003 (1) 100% (5) Wilmington USD 10,100,000
Acotel Group (Northern Europe) Ltd 27 May 2004 (1) 100% Dublin EURO 101,000
Flycell Telekomunikasyon Hizmetleri A.S. 2 July 2005 (1) 99.9% Istanbul TRY 50,000
Flycell Latin America Conteúdo Para Telefonia Móvel LTDA 6 June 2006 (1) 100% (8) Rio de Janeiro BRL 250,000
(1) The date of the company’s entry into the Group coincides with its incorporation. (2) Prior to such date the Group held 50% of the company’s share capital, posted to investments in associates. (3) Prior to such date the Group held 33% of the company’s share capital, posted to investments in associates. (4) AEM owns 1.92% of the share capital. (5) Controlled via Acotel Participations S.A. (6) Controlled via Jinny Software Ltd. (7) Controlled via Info2cell.com FZ-LLC. (8) Controlled via Flycell Inc. The basis of consolidation changed during 2006 due to the incorporation by Flycell Inc. of Flycell Latin America Conteúdo Para Telefonia Móvel LTDA. In December 2006 Acotel Participations S.A. sold its interest in Flycell Media S.p.A to Acotel Group S.p.A. In February 2007 Flycell Media S.p.A. changed its name to Noverca S.r.l. Consolidation was based on the financial statements for the year ended 31 December 2006 of the Parent Company and of all its subsidiaries.
Annual Report 2006
32
Consolidation principles The consolidated financial statements include the financial statements of Acotel Group S.p.A. and those of its subsidiaries prepared at and for the year ended 31 December 2006. Subsidiaries are defined as entities over which the Group has the power to govern the financial and operating policies. The net profit or loss of subsidiaries acquired or sold during the year is included in the consolidated income statement from the effective acquisition date until the effective disposal date. Where necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies into line with those adopted by the Group. The assets and liabilities and the revenues and expenses of consolidated companies are recorded on a line-by-line basis. The carrying amount of investments is eliminated against the corresponding share of the investee companies’ shareholders’ equity and the individual assets and liabilities are recognised at fair value at the date control was obtained. Any positive difference is recognised in non-current assets as “Goodwill arising from consolidation”, while negative differences are recognised in the income statement. Intercompany receivables and payables, including dividends distributed within the Group, are eliminated. Profits and losses and revenues and expenses arising from intercompany transactions are eliminated. The financial statements of Group companies are prepared in the functional currency of each company. For the purposes of the consolidated financial statements, the financial statements of each company are translated into the Group’s functional and presentation currency: the euro. The assets and liabilities of overseas subsidiaries are translated into euros at closing exchange rates. Revenues and costs are translated at average rates for the year. Any translation differences are recognised in shareholders’ equity in the “currency translation reserve”. This reserve is recognised in the income statement as a gain or a loss in the period in which the related subsidiary is sold. Minority interests in shareholders’ equity and in net profit for the period year is shown in the specific items in the consolidated balance sheet and income statement. Accounting policies The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is depreciated on a straight-line basis every year, depending on the estimated useful life of the asset, applying the following rates:
Annual Report 2006
33
ICT platform 50%
Specific plant 10-20%
Other plant and machinery 15-20%
Computers 20%
Other equipment 15-25%
Vehicles 25%
Furniture, fixtures and fittings 12% The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section “Impairment of assets” below. Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets and goodwill arising from consolidation Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. Intangible assets are amortised regularly as of the moment the asset is ready for use on the basis of their expected useful lives. The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section “Impairment of assets” below. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Goodwill arising from consolidation and other intangible assets with an indefinite useful life are not amortised on a regular basis, but are tested for impairment at least once a year at the level of the cash generating unit that has benefited from the synergies deriving from the acquisition. These impairments are not reversed. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by Group
Annual Report 2006
34
companies are account for in the balance sheet, only if all the following conditions are met: • the asset may be identified; • the asset created is likely to generate profits in the future; • the asset’s development costs may be reliably measured.
Such intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, over a period of three years, which represents the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the balance sheet, development costs are recognised in the income statement for the year in which they are incurred. Impairment of assets The Group reviews the carrying value of its property, plant and equipment and intangible assets at least once a year to determine whether there are any indications of impairment. In the presence of such indications, the recoverable amount of these assets is estimated to calculate impairment charges. If the recoverable amount of an individual asset cannot be estimated, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverability of the carrying amounts of intangible assets with an indefinite useful life and goodwill arising from consolidation is verified each year or whenever there is an indication of a possible impairment. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In determining value in use, estimated future cash flows are discounted using a discount rate that reflects the current market value of money and the risks specific to the business. If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to such lower recoverable amount. This impairment charge is immediately recognised in the income statement. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit), except in the case of goodwill, is increased to reflect the estimated recoverable amount, but only to the extent of the carrying amount of the asset had there not been any impairment charge. The reversal is immediately recognised in the income statement. Inventories Inventories are entered at the lower of cost and net realisable value. Cost includes direct materials and direct staff costs, where applicable, and production overheads, as well as shipping and maintenance costs. Cost is calculated using the weighted average cost method. Net realisable value reflects the selling price less any estimated completion and costs to sell. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro are translated at closing exchange rates.
Annual Report 2006
35
Financial instruments Financial assets are recognised and derecognised at the trade date and are initially accounted for at cost, including any transaction costs. Subsequent measurement depends on the type of instrument, as follows:
- financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in the income statement for the period;
- loans and receivables, consisting of financial assets that are not listed on an active market, and held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment charges;
- available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in a specific reserve in shareholders’ equity until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period.
Cash and cash equivalents This item includes cash in hand, at bank and other demand deposits, highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. Treasury shares Treasury shares are measured at cost and deducted from shareholders’ equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in shareholders’ equity. Employee benefits Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a “staff cost”, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in the income statement, to the extent that their value not recognised at the end of the previous year is in excess of 10% of the present value of the defined-benefit obligation at such date (the so-called corridor method). Payables Trade payables are accounted for at nominal value. Payables denominated in currencies other than the euro are translated at closing exchange rates.
Annual Report 2006
36
Revenues Sales and service revenues are recognised upon transfer of the risks and benefits of ownership or upon performance of the service. In particular:
• revenues from services rendered are recognised on the basis of the actual service performed during the year;
• revenues from software licensing to third parties are recognised upon transfer; • revenues from design, production and installation of electronic systems are recognised upon
performance of the service and delivery of the relevant products to, and acceptance by, the customer.
Income taxes Current income taxes are recognised, for each Group company, on the basis of their estimated taxable income in accordance with tax rates and rules in force, or as approved at the close of the fiscal year in each country, taking account of applicable exemptions and tax credits. Deferred tax assets and liabilities are calculated on temporary differences between the carrying amount of assets and liabilities and their tax bases, in accordance with the tax rates in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in shareholders’ equity are likewise accounted for in shareholders’ equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Earnings per share Earnings per share is calculated by dividing net profit by the average weighted number of shares outstanding in the period, less treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Foreign currency translation Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the balance sheet date are translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement.
4.5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group was required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. These had an effect on the carrying amounts of the assets and liabilities recorded in the balance sheet and on the related disclosures. The actual results could differ from these estimates.
Annual Report 2006
37
The estimates were used to record adjustments to revenues from B2C services, as explained below, as well as the related direct costs, and any impairments of goodwill arising from consolidation and provisions for bad debts and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. The adjustments to revenues from B2C services relate to the value of any refunds that might be requested by Flycell Inc. customers dissatisfied with the services provided by the latter until 31 December 2006. This estimate is carried out based on available data and current contracts entered into with certain telephone operators via the mobile transaction network provider, mBlox. For other telephone operators, who represents around 21% of Flycell Inc.’s turnover, cumulative data provided by the single operator is used. Such information indicates the month when reimubursements requested and agreed on with its customers are due. In particular, in the case of operators for whom no detailed information is available, it is assumed that their attitude towards granting reimbursement requests is similar to the single operator who makes available such information. Consequently, accrued revenues at 31 December 2006 were reduced by 262 thousand euros (328,995 US dollars) in order to take account of any further requests for refunds that might be made regarding services provided until 31 December 2006, as well as any refunds already granted at the same date. The portion of revenues deriving from subscriptions for B2C services billed in December 2006 and carried forward to the following year, amounting to 491 thousand euros (616,376 US dollars), is also estimated. Rebilled overdue subscription fees, which were not collected in accordance with the contractual payment terms agreed on with the end customer, were also estimated. This occurrence, estimated on the basis of past success rates, led to an increase of 558 thousand euros (701,182 US dollars) in the turnover generated by Flycell Inc. at 31 December 2006.
4.6 SEGMENT INFORMATION The Acotel group of companies of companies currently operates in three business segments: - Value added services prevalently supplied through mobile telephony; - Design of messaging equipment for fixed and mobile operators; - Design of security systems for large organisations. In compliance with the provisions of IAS 14 on segment information, an analysis of the consolidated income statement, shareholders’ equity and the financial position showing a breakdown of key data in terms of the three segments, adopted as the “primary reporting format”, and key data based on geographical segments, adopted as the “secondary reporting format”, is given below. The data shown refers exclusively to continuing operations since, both in 2006 and 2005, the Group has not engaged in operations that were subsequently discontinued or that are held for sale.
Annual Report 2006
38
Results by business segment
(€000)Services Design of Telco
infrastructureSecurity
systems designEliminations /
Other Total
RevenueRevenue from third party customers 55,290 6,216 1,717 - 63,223 Inter-segment revenues - 10 - (10) - Total 55,290 6,226 1,717 (10) 63,223
Operating profit/(loss) 4,056 (44) (68) - 3,944 Unallocated costs (5)Impairment charges/reversals of impairmentcharges on non-current assets (37)Operating profit/loss from continuing operations 3,902 Income from investments 1,118 Finance costs (1,477)Profit/(loss) before tax 3,543 Taxation (2,312)Net profit/(loss) for the year 1,231
Other information:Increases in PP&E and intangible assets 2,158 315 - - 2,473 Amortisation and depreciation 680 125 8 - 813
Balance sheet
Assets:Total assets 54,248 4,998 1,919 - 61,165 Total unallocated assets 1,981 Total consolidated assets 63,146
Liabilities:Total liabilities 9,204 1,454 1,020 - 11,678 Total unallocated liabilities 1,597 Total consolidated liabilities 13,275
31 Dec 2006
Annual Report 2006
39
(€000)Services Design of Telco
infrastructureSecurity systems
designEliminations /
Other Total
RevenueRevenue from third party customers 20,947 5,640 1,339 - 27,926 Inter-segment revenues - 51 - (51) - Total 20,947 5,691 1,339 (51) 27,926
Operating profit/(loss) (695) 641 (169) - (224)Unallocated costs (34)Operating profit/(loss) from continuing operations (258)Income from investments 1,345 Finance costs (209)Profit/(loss) before tax 878 Taxation (1,439)Net profit/(loss) for the year (561)
Other information:Increases in PP&E and intangible assets 1,250 163 11 - 1,424 Amortisation and depreciation 796 104 9 14 923
Balance sheet
Assets:Total assets 52,860 4,114 1,395 (51) 58,318 Total assets held for sale - Total unallocated assets 1,375 Total consolidated assets 59,693
Liabilities:Total liabilities 7,782 1,281 619 (51) 9,631 Total unallocated liabilities 1,232 Total consolidated liabilities 10,863
31 Dec 2005
Annual Report 2006
40
Results by geographical segment The following table provides an analysis of the Group’s sales in the various geographical segments, independently of the origin of the goods and services:
(€000) 2006 2005
North America 34,536 715Italy 13,874 13,411Middle East 5,943 6,547 Latin America 5,151 3,465Africa 1,980 1,472 Other European countries 959 1,863 Asia 780 453
Total 63,223 27,926
Revenues from customers
The following table shows an analysis of the carrying amount of segment assets and increases in property, plant and equipment and intangible assets, analysed on the basis of the geographical segments in which the assets are located:
(€000) 2006 2005 2006 2005
Italy 29,409 35,604 1,708 393 Middle East 8,514 8,305 50 453 Latin America 4,651 2,814 192 254 Other European countries 10,289 10,478 326 189 Africa 1,178 745 - - North America 8,471 1,687 197 135 Asia 634 60 - -
63,146 59,693 2,473 1,424
Total consolidated assets Increase in PP&E and intangible assets
Annual Report 2006
41
4.7 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue amounts to 63,223 thousand euros for 2006, a sharp increase (up 126%) compared with the 27,926 thousand euros of the previous year. Revenue by business segment is as follows:
(€000)
2006 2005 Increase/(Decrease)
Services 55,290 20,947 34,343 Design of ICT equipment 6,216 5,640 576 Security systems design 1,717 1,339 378
Total 63,223 27,926 35,297
SERVICES The Services business includes the activities carried out for telephone and commercial companies, as well as on our own behalf (B2C), and has the primary purpose of supplying value added services and content to mobile phone users. A breakdown of Service revenues is given in the following table:
(€000)2006 2005 Increase/(Decrease)
B2C Services 33,976 1,025 32,951 Network Operator Services 17,702 16,116 1,586 Media Services 2,059 1,051 1,008 Corporate Services 1,553 2,614 (1,061) Software development - 141 (141)
Total 55,290 20,947 34,343
In 2006 B2C services became the most important service provided by the Group. This growth derives from the US subsidiary, Flycell Inc., which generated revenues of 33,684 thousand euros, less estimated refunds amounting to 262 thousand euros, which had not yet been finally calculated at year end. The remaining amount derives from the subsidiaries Info2cell.com FZ-LLC, (159 thousand euros), Flycell Telekomünicasyon Hizmetleri A.Ş., (108 thousand euros) and Acotel Group (Northern Europe) Ltd (25 thousand euros). Revenues from services provided to network operators total 17,702 thousand euros, up 10% on the previous year. They primarily include revenues from services provided by the subsidiary, Acotel S.p.A, to Telecom Italia (10,678 thousand euros), revenues generated by Acotel do Brasil from services provided to the Brazilian operators, TIM Celular, TIM Sul, Maxitel and TIM Nordeste Telecomunicaçoes (4,461 thousand euros) and revenues generated by Info2cell from services provided to the main mobile telephony operators in the Middle East (2,414 thousand euros). The
Annual Report 2006
42
residual amount regards revenues generated overseas by Acotel S.pA., Acotel Group (Northern Europe) Ltd and Flycell Telekomunikasyon Hizmetler A.S. The increase compared with 2005 is due to the higher turnovers posted by Info2cell (up 54%), Acotel do Brasil (up 43%) and Acotel S.p.A. (up 4%). The revenues of 2,059 thousand euros generated on services provided to media companies, were up 96% on the previous year due to increased activities carried out by the subsidiaries, Info2cell, Acotel do Brasil and Acotel S.p.A. These revenues were generated as follows: by Info2cell in the Middle East for services provided to the television broadcaster, SMS 2 TV (1,037 thousand euros); by Acotel S.pA. in Italy for the provision of services connected to certain programmes run by the television broadcasters, MTV, Mediaset, RAI and LA7 (715 thousand euros); by Acotel do Brasil in Brazil via the radio and television broadcaster, Globo (263 thousand euros); and by Flycell Telekomunikasyon Hizmetler A.S. in Turkey (44 thousand euros). Revenues from services to corporate customers amount to 1,553 thousand euros. These include revenues generated in the Middle East by the subsidiary, Info2cell, as part of trading relations with Pepsi-Cola (826 thousand euros); earnings deriving from services provided in Italy by Acotel S.p.A., mainly to banks (479 thousand euros); and revenues deriving from services provided in Italy by the subsidiary, AEM S.p.A., to ACEA S.p.A. (248 thousand euros). The decrease compared with 2005 is mainly due to the lower revenues generated by the subsidiaries Info2cell and AEM, from Pepsi-Cola and ACEA, respectively. DESIGN OF ICT EQUIPMENT The Acotel Group operates in the market, through its subsidiary Jinny Software, as a supplier of telecoms infrastructure, which can be tailored to meet the specific requirements of the customer. In addition to the sale of equipment and the concession of licences, Jinny Software also provides continuous technical assistance and technological updates of the equipment, either remotely or on site. Revenues from ICT equipment design in 2006 amount to 6,216 thousand euros and relate to supply and maintenance contracts signed with mobile telephone operators in Africa, the Middle East, North America, Asia, Europe, Asia and Latin America. The increase with respect to the same period of the previous year (up 10%) is due to development of new VAS platforms and strengthening of the internal sales force, through the recruitment of sales staff, and the external sales force, due to the effects of agreements signed with channel partners, who include products developed by Jinny Software in their offerings. SECURITY SYSTEMS DESIGN Revenues from the design and production of electronic security systems, amounting to 1,717 thousand euros (up 28% on 2005), derive entirely from the the subsidiary, AEM S.p.A. These revenues arose from the installation, supply, maintenance and servicing of remote surveillance equipment installed at Italian police headquarters and at certain provincial branches of the Bank of Italy, and the construction of a security room and a water supply remote control room for ACEA.
Annual Report 2006
43
Note 2 – Raw materials
The cost of raw materials totals 1,864 thousand euros and is made up principally of the purchase of materials for the construction of telecommunications equipment by Jinny Software Ltd. (1,281 thousand euros) and by AEM S.p.A. (523 thousands of euros). The increase compared to the previous year is attributable to growth in the turnovers registered by the Irish and Italian subsidiaries. Note 3 – External services The cost of external services totals 42,685 thousand euros, representing a sharp upturn with respect to the previous year (13,140 thousand euros). This increase, which is closely related to turnover growth, is mainly due to the operating methods chosen by Flycell Inc. to develop business in its market, which entails substantial promotional costs (15,635 thousand euros) in order to raise market awareness of its services and increase its customer base, and high costs (14,281 thousand euros) charged by US telephone operators and the mobile transaction network provider, mBlox, for transport and collection services. Specifically, in addition to the above-mentioned costs, the other significant cost items consist of expenses incurred for the acquisition of editorial content from external content providers (4,036 thousand euros); commercial, adminstrative, legal and technical consultancy fees incurred to support the Group’s activities (1,358 thousand euros); and travel expenses (1,019 thousand euros). Service costs also include the purchase of SMS packages from mobile operators (941 thousand euros); the cost of remuneration paid to directors and statutory auditors (879 thousand euros – 797 thousand euros to directors and 82 thousand euros to statutory auditors); amounts paid to Pepsi by Info2Cell as payment for its contribution in terms of promotional communication and distribution in connection with the related agreement (totalling around 687 thousand euros); telephone expenses (596 thousand euros); agency fees (392 thousand euros); auditing fees (350 thousand euros); and the cost of connecting to terrestrial and satellite transmission networks for the provision of value added services (312 thousand euros). The balance refers to other general expenses (utilities, management and maintenance of the properties occupied by Group companies, insurance, etc.) connected to ordinary operations. Note 4 – Rentals and leases Rentals and leases amount to 1,553 thousand euros and mainly include rentals on offices occupied by Group companies. Note 5 - Staff costs Staff costs include:
Annual Report 2006
44
(€000)
2006 2005 Increase/(Decrease)
Salaries and wages 9,598 7,748 1,850 Social security contributions 1,731 1,578 153 Staff termination indemnities 257 244 13 Finance costs (43) (34) (9) Other costs 969 735 234
Total 12,512 10,271 2,241
The increase in staff costs is due principally to the additional staff employed by overseas Group companies in Europe, the Middle East, Latin America and the United States:
31 Dec 2006 31 Dec 2005
Italy 95 95 Lebanon 57 34 Jordan 52 52 USA 36 12 Ireland 25 25 United Arab Emirates 19 17 Brazil 18 18 Turkey 2 - France - 2 Total 304 255
Finance costs on staff termination benefits equal the discount rate, calculated on the basis of the method fully described in the following Note 24, to which reference should be made. This cost item, in accordance with IFRS, is recognised in finance costs (Note 9).
Other staff costs include charges incurred in relation to canteen services and luncheon vouchers, professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries. Further information is provided in Note 28.
The number of staff by category at 31 December 2006, compared with the average number for 2006 and 2005, is reported in the following schedule.
At 31 Dec 2006 Average 2006 Average 2005
Managers 19 18 16 Supervisors 30 29 28 White- and blue-collar staff 255 232 194 Total 304 279 238
Annual Report 2006
45
Note 6 - Amortisation and depreciation Details of the amortisation and depreciation of assets is given below:
(€000)2006 2005 Increase/(Decrease)
Amortisation of non-current intangible assets 270 319 (49) Depreciation of property, plant and equipment 543 604 (61)
Total 813 923 (110)
Amortisation of non-current intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies. Depreciation of property, plant and equipment mainly refers to depreciation of the telecommunications equipment and infrastructures used by Group companies. Note 7 - Internal capitalised costs Internal capitalised costs, totalling 1,083 thousand euros, include an amount of 997 thousand euros regarding the staff employed on the development of software for the “Noverca” platform. This is the brand that the Acotel Group intends use, from 2007, to market integrated communications solutions (data, audio, video) based on IP protocol, for use via a range of devices: IP telephones, personal computers, palmtops and mobile phones. The residual amount regards the cost of staff employed by Jinny Software in 2006 on the development of new platforms. Note 8 - Other costs Other costs of 1,014 thousand euros include 679 thousand euros for indirect taxes due from Acotel do Brasil in compliance with local legislation. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 9 - Finance income and costs Net finance costs of 359 thousand euros break down as follows:
Annual Report 2006
46
(€000)
2006 2005 Increase/(Decrease)
Interest income from investments 831 820 11 Interest income on bank deposits 101 84 17 Foreign exchange gains 176 436 (260) Other interest income 10 5 5
Total finance income 1,118 1,345 (227) Interest expense and bank charges (168) (162) (6) Foreign exchange losses (1,264) (13) (1,251) Other interest expense (45) (34) (11)
Total finance costs (1,477) (209) (1,268)
Total finance income (359) 1,136 (1,495)
305 thousand euros of interest income from investments relates to profits on loans and receivables, 519 thousand euros relates to profits on financial assets held for trading through the income statement, and 7 thousand euros regards income on held-to-maturity financial assets. Net foreign exchange losses reflect the negative effect of movements in closing exchange rates on the value of intercompany loans issued in dollars. Interest and bank charges payable includes commissions of 11 thousand euros for fund management by Insinger de Beaufort bank. Note 10 – Taxation Taxation for 2006 breaks down as follows:
(€000)
2006 2005 Increase/(Decrease)
Income taxes for the year 2,329 1,273 1,056 Income taxes for previous years 44 (88) 132 Deferred tax assets (75) 196 (271) Deferred tax liabilities 14 58 (44)
Total 2,312 1,439 873
The total amount is 2,312 thousand euros and includes provisions for taxes on the income of Group companies, recognised in current taxes. Deferred tax assets include provisions made by Group companies net of deferred tax assets recognised in previous years. The reconciliation of the expected IRES (corporation tax) charge at 33% and the effective charge is shown in the following schedule:
Annual Report 2006
47
(€000)
2006 % 2005 %
Pre-tax profit/(loss) 3,543 878
Expected tax charge calculated at 33% of the pre-tax result 1,169 33.0% 290 33.0%
Tax effect of the losses of foreign subsidiaries which do not meet all requirements for recognition of deferred tax assets 928 26.2% 463 52.7%Differences between expected and effective charges regarding foreign subsidiaries (304) (8.6%) 335 38.2%
Net tax effect of increases and decreases for Italian companies 57 1.6% 126 14.4%
Tax effect of use of accumulated losses for which no provisionswere made for deferred tax assets - 1.2% (69) (7.9%)
Other minor changes 8 20.7% 6 0.7%
IRES 1,858 52.4% 1,151 131.1%
IRAP 454 288
Taxation for the year 2,312 1,439
No account has been taken of IRAP (regional tax) in the comparison between the tax charge accounted for in the financial statements and the expected tax charge as, being a tax calculated on the basis of a different taxable income from pre-tax profit, it would generate a distortion between one year and another. The expected tax charge was accordingly only determined on the basis of the prevailing IRES (corporation tax) rate in Italy (33% in 2006 and 2005). The taxes relating to the taxable income of foreign subsidiaries were calculated according to the prevailing rates in the respective countries. Deferred tax assets totalling 6.1 million euros on tax losses reported by certain subsidiaries at 31 December 2006 were not recorded as no grounds are currently deemed to exist for such recognition. Specifically, this amount breaks down as follows: around 21 million euros regards the US subsidiary, Flycell Inc., which, despite development plan forecasts of improved performance as of 2007, has not yet generated taxable income; around 2.3 million euros relates to the subsidiary, Flycell Media S.p.A., which will offer its own services as of 2007; and around 1.7 million euros regarding the Luxembourg subsidiary, Acotel Participations S.A., which acts as a sub-holding and is not currently expected to generate taxable income against which accumulated tax losses may be used. Note 11 - Earnings per share The calculation of basic and diluted earnings per share is based on the following data:
Annual Report 2006
48
(€000) 2006 2005
Net profit/(loss) (€000) 1,231 (561)
Number of shares (000)Shares in circulation at the start of the year 3,916 * 3,961 *Weighted average of treasury shares acquired/sold in the year - 49 Weighted average of ordinary shares in circulation 3,916 3,911
Basic and diluted earnings per share ** 0.31 (0.14)
* : net of treasury shares held at the same date.**: basic earnings per share for 2006 and 2005 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist.
Annual Report 2006
49
4.8 NOTES TO THE BALANCE SHEET
4.8.1 ASSETS NON-CURRENT ASSETS Note 12 - Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows:
(€000)
Historical cost DepreciationCarrying amount
at31 Dec 2006
Carrying amount at
31 Dec 2005
Plant and machinery 4,757 (4,156) 601 492 Industrial equipment 1,869 (1,475) 394 397 Work in progress 355 - 355 - Other 919 (690) 229 286
Total 7,900 (6,321) 1,579 1,175
Plant and machinery mainly consists of data transmission platforms installed in the Rome, Dubai, Rio de Janeiro and New York offices, and used by the Group to provide value added services. Industrial and commercial equipment includes the computers used by the Group for development and maintenance of hardware and software products, for use by the Company or for sale to third parties, relating to the development and management of value added services and internal operating activities. “Work in progress” regards infrastructure for the provision of services using the IP protocol, which are expected to be marketed via the “Noverca” brand as of 2007. For further information see Note 14. Furniture and fittings are included in “other” assets together with leasehold improvements, consisting of the costs incurred during recent years in order to renovate the building located in Rome, which is used as the registered office and operational headquarters of the Group’s Italian companies. The relevant lease expires in 2013. No property, plant or equipment was revalued or impaired during the year. Changes in property, plant or equipment during the year are shown in an annex. Note 13 - Goodwill arising from consolidation “Goodwill arising from consolidation” comprises the difference arising between prices paid for the purchase of investments and the corresponding value of the subsidiaries’ shareholders’ equity on the date of acquisition. This item breaks down as follows:
Annual Report 2006
50
(€000)
Jinny Software
Info2cell AEM Eitco Millennium Software
Total
Acquisition cost 12,324 6,150 1,549 792 116 20,931
Shareholders' equity at acquisition
(1,109) 2,784 1,086 570 72 3,403
Goodwill arising from consolidation
13,433 3,366 463 222 44 17,528
Accumulated amortisation at 1 January 2004 (3,693) (850) (169) (111) (14) (4,837)
Goodwill arising from consolidation at 1 January 2004 (date of transition to IFRS)
9,740 2,516 294 111 30 12,691
Impairment charge recognised in 2004
(1,160) - - - - (1,160)
Goodwill arising from consolidation at 31 December 2004
8,580 2,516 294 111 30 11,531
Changes in 2005 - - - - - -
Goodwill arising from consolidation at 31 December 2005
8,580 2,516 294 111 30 11,531
Changes in 2006 - - - - - -
Goodwill arising from consolidation at 31 December 2006
8,580 2,516 294 111 30 11,531
The Group tests the recoverability of goodwill arising from consolidation at least once a year or more frequently if there are indicators of impairment. Since goodwill arising from consolidation does not generate independent cash flows and cannot be sold independently, IAS 36 requires a review of its residual recoverable amount. This is based on the cash flows generated by the cash-generating units (CGUs) to which the goodwill is reasonably allocated. The recoverable amount of a CGU is tested by calculating value in use. The main assumptions used by the Group in determining value in use include the discount rate, the growth rate for sales and expected movements in sales prices and direct costs during the period on which the calculation is based. The adopted discount rate reflects the current time value of money and the specific risks connected to each CGU. The discount rate used is the average weighted cost of capital consistent with the flows to be discounted. The discount rates used range between 5% and 8%. Assumed movements in sales prices and direct costs are based on past experience and future market expectations. Operating cash flow estimates are derived from the most recent budgets approved by
Annual Report 2006
51
the boards of directors of the companies to whom the CGUs are attributable and on the basis of expected growth over the next four years, based on past experience. Furthermore a terminal value, determined according to prudential criteria, was taken into account, based on the present value of cash flows for the first five years. The value in use determined by applying the discounted cash flow method exceeds the respective carrying amount of goodwill arising from consolidation recorded in the financial statements at 31 December 2006. Note 14 - Other intangible assets A breakdown of other intangible assets at 31 December 2006 is as follows:
(€000)
Historical cost Accumulated amortisation
Carrying amount at
31 Dec 2006
Carrying amount at
31 Dec 2005
Industrial patents and intellectual property rights 995 (932) 63 123 Concessions, licences and similar rights 1,324 (778) 546 768 Work in progress 1,483 - 1,483 162
Total 3,802 (1,710) 2,092 1,053
Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Group in the provision of computerised services and for the internal information system used by Group companies. Concessions, licenses and similar rights primarily includes the cost of the licence for the software used by the subsidiary, Info2cell, for the supply of value added services. “Work in progress” includes 997 thousand euros relating to costs for company staff employed on developing the “Noverca” platform software (see Note 7) and 400 thousand euros for external supplies used to complete the same platform. The residual amount regards staff costs capitalised by the subsidiary, Jinny Software, relating to internal development activities carried out on new products that will be marketed by the subsidiary. Trials of the “Noverca” platform were launched in the last few months of 2006, involving real customers and connections provided by two telecommunications operators. These activities, which at year end were not quite completed, will enable fine-tuning of the equipment and services so that integrated communications services (data, audio, video) based on the IP protocol may be marketed. No intangible assets were revalued or impaired during the year. Changes in intangible assets during the year are shown in an annex.
Annual Report 2006
52
Note 15 - Other non-current assets The item “Other non-current assets”, totalling 53 thousand euros at 31 December 2006, relates to guarantee deposits paid to third parties in relation to lease and utility contracts signed by Group companies. Note 16 - Deferred tax assets Deferred tax assets of 477 thousand euros arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases. 201 thousand euros relates to Acotel Group S.p.A., 71 thousand euros to Jinny Software Ltd, 45 thousand euros to AEM S.p.A. and 28 thousand euros to Acotel S.p.A. This item increased by 199 thousand euros with respect to the previous year mainly due to the allocation of withholding tax provisions for 2006 regarding fees paid to Group directors. For further information, see Note 28. The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets: (€000)
Taxation Tax Taxation Taxrate rate
Deferred tax assets:
Impairment of investments 8 33% 32 33%Recovery of taxed provisions for bad debts 37 33% 37 33%Impairment of inventories 21 38.25% -37.75% 24 37.25% -36.75%Non-deductible entertainment expenses 9 38.25% 12 37.25%Recovery of taxed accounting-related amortisation and depreciation
68 38.25% 8 37.25%
Provisions for taxed directors' fees 129 33% 15 37.25%Other 100 38.25% -33% 32 37.25% -33%
Sub - Total 372 160
Tax losses carried forward 105 118
Total 477 278
31 Dec 2006 31 Dec 2005
Deferred tax assets regarding accumulated tax losses were recorded in the previous year by the subsidiary, Jinny Software, (71 thousand euros), and the subsidiary, AEM, (34 thousand euros), due to the results achieved and future expectations. However, deferred tax assets were not allocated for tax losses incurred by other foreign companies, as explained above (Note 10).
Annual Report 2006
53
CURRENT ASSETS Note 17 - Inventories The table that follows provides details of inventories, valued using the average weighted cost method, and of provisions made to bring their carrying amounts into line with their estimated realisable values at 31 December 2006:
(€000)
Gross value ImpairmentsCarrying amount
at31 Dec 2006
Carrying amount at
31 Dec 2005 Raw and ancillary materials and consumables 87 (51) 36 45 Work in progress and semi-finished products 28 (3) 25 19 Finished products and goods for resale 418 (1) 417 235
Total 533 (55) 478 299
The increase in the inventory of finished products arises from the products the subsidiary, Jinny Software, held in stock at 31 December 2006. Movements in provisions for inventory impairments are shown below:
(€000)
Balance at 31 December 2005 66
Uses in 2006 (11)
Balance at 31 December 2006 55
Note 18 - Trade receivables These represent trade receivables less provisions for bad debts made to adjust their carrying amount to their estimated realisable value, as shown below:
(€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
T rade receivables 18,544 12,577 5,967 Provisions for bad debts (243) (225) (18)
Total 18,301 12,352 5,949
The increase in trade receivables at 31 December 2006, with respect to the previous year, is due to the Group’s higher turnover in 2006. Trade receivables, for which no provisions have been made, are fully collectable within 12 months. 47.6% of total trade receivables relates to amounts due from the mobile transaction network provider, mBlox (25.7%), which provides Flycell Inc. the necessary connectivity with US telephone operators, and Telecom Italia (21.9%).
Annual Report 2006
54
Movements in provisions for bad debts are shown below:
(€000)
Balance at 31 December 2005 225
Provisions in 2006 8
Uses in 2006 (42)
Reclassifications in 2006 52
Balance at 31 December 2006 243
The carrying amount of trade receivables is believed to approximate fair value. Note 19 - Other current assets At 31 December 2006 these total 2,963 thousand euros and break down as follows: (€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
VAT credits 1,495 1,061 434 Current income tax assets 8 21 (13) Supplier advances 1,283 547 736 Other 177 130 47
Total 2,963 1,759 1,204
VAT credits are almost totally attributable to the subsidiaries Flycell Media S.p.A. (977 thousand euros) and Acotel S.p.A. (497 thousand euros). Supplier advances of 1,283 thousand euros relate mainly to sales commissions, service contracts, commissions due for advertising activities carried out by third parties, who are remunerated on the basis of contracts actually signed with end customers, and insurance premiums paid by Group companies in advance. The increase compared with 31 December 2005 is primarily due to sales and advertising commissions paid in advance by the subsidiaries, Info2cell and Flycell Inc. The carrying amount of other current assets is believed to approximate fair value. Note 20 - Current financial assets “Current financial assets” of 15,050 thousand euros include:
Annual Report 2006
55
(€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
Held-to-maturity assets - 728 (728) Financial assets with fixed or determinable payments 6,814 12,252 (5,438) Assets held for trading 8,236 6,781 1,455
Total 15,050 19,761 (4,711)
The decrease in held-to-maturity assets compared with the previous year derives from Banca Agricola Mantovana S.p.A. and Banca Toscana S.p.A. bonds which matured on 30 April 2006 and 30 November 2006, respectively. Financial assets with fixed or determinable payments include the bonds detailed below: (€000)
Issuer Nominal value Interest Rate Maturity Fair value
Monte dei Paschi di Siena S.p.A. 300 Six-monthly in arrears 2.55% 31 May 2007 301 Banca Nazionale del Lavoro S.p.A. 500 Quarterly in arrears 3-month Euribor 17 Apr 2008 503 Banca Nazionale del Lavoro S.p.A. 2,135 Quarterly in arrears 3-month Euribor 16 May 2008 2,144
Total 2,935 2,948
Financial assets with fixed or determinable payments also include an insurance policy of 3,866 thousand euros (3,728 thousand euros at 31 December 2005) entered into with Montepaschi Vita S.p.A. This is a separately managed fund with a duration of 15 years and the client has the option of withdrawal. This policy has a guaranteed annual interest rate of 1.5%. The annual return for 2006 was 3.33%. Assets held for trading also include investments managed by Insinger de Beaufort Bank and amounting to 5,300 thousand euros. Insinger de Beaufort Bank manages the assets in an individual and limited risk investment portfolio (almost exclusively consisting of bonds) in the name and on behalf of Acotel Group S.p.A. This category also includes investment funds (mainly government bonds), amounting to 2,936 thousand euros, managed by ItauBank (formerly Bank Boston) and Citibank on behalf of the Brazilian subsidiary. At 31 December 2006 the fair value of the financial assets recognised at amortised cost is substantially in line with their carrying amount. Note 21 - Cash and cash equivalents This item includes bank deposits of 10,605 thousand euros and cash and notes in hand of 15 thousand euros. At the end of last year these items amounted to 11,382 and 13 thousand euros, respectively. The bank deposits represent the closing balances of Group companies’ bank current accounts.
Annual Report 2006
56
4.8.2 LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY Note 22 - Shareholders’ equity attributable to the Group Changes in shareholders' equity during 2006 are shown in the financial statements. At 31 December 2006 the fully paid-up share capital of Acotel Group S.p.A. consists of 4,170,000 ordinary shares with a par value of 0.26 euros each. The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital increases carried out in preparation for the Company’s stock market flotation. At 31 December 2006 treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of consolidated shareholders' equity, totalling 3,873 thousand euros. These shares have a carrying amount of 66,170 euros, representing 6.10% of the share capital. This refers to 254,500 Acotel Group S.p.A. ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 226,180, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. In 2006 the average purchase price of these shares was 15.22 euros; at 31 December 2006 the share price stood at 18.65 euros, whilst during the first three months of 2007 the share price ranged from a minimum of 18.56 euros to a maximum of 47.37 euros. Other Group companies do not possess Acotel Group S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the financial year. At 31 December 2006 Acotel Group S.p.A. does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the financial year. The “Cost of capital increase” reserve, which has a negative balance of 59 thousand euros, represents the historical cost relating to two capital increases carried out by the subsidiary, Acotel Participations S.A., in previous years. The currency translation reserve, which has a negative balance of 279 thousand euros, derives from the application of closing exchange rates in the translation of the financial statements of foreign subsidiaries expressed in foreign currencies other than the euro. Assets and liabilities are translated into euros using the related exchange rates at 31 December 2006, while shareholders' equity items are translated on the basis of historical exchange rates Income statement items are translated utilising average exchange rates for the period. The following exchange rates were used:
Annual Report 2006
57
Company Currency Exchange rate at 31 Dec 2006
Average exchange rate
2006Info2cell Dh 4.837 4.612 Eitco JD 0.934 0.890 Millennium Software LBP 1,985.380 1,892.720 Flycell Inc. USD 1.317 1.256 Acotel do Brasil BRL 2.813 2.733 Flycell Latin America BRL 2.813 2.733 Flycell Telekomunikasyon Hizmetleri A.S. TRY 1.864 1.809
Other reserves, totalling 357 thousand euros, break down as follows: (€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
Legal reserve 217 217 - Profit/(loss) on sale of treasury shares 70 70 - Other 70 48 22
Total 357 335 22
Accumulated losses amount to 3,726 thousand euros. Minority interests represent the share of shareholders’ equity attributable to minority shareholders in subsidiaries. At 31 December 2006 minority interests amount to 30 thousand euros and relate to minority interests in the subsidiaries, Acotel S.p.A., AEM S.p.A. and Millennium Software SAL. NON-CURRENT LIABILITIES Note 23 - Non-current financial liabilities This item totals 163 thousand euros at 31 December 2006 and refers to the portion payable after 12 months of the loan from the Ministry of Industry to cover research and development costs incurred by the subsidiary, AEM S.p.A., to develop remote surveillance systems and domestic automation. The agreed repayment schedule started from 2003 and will be completed by 2012. This loan bears an interest rate of 3.625% and is unsecured. Note 24 - Staff termination benefits and other employee benefits At 31 December 2006 these total 1,031 thousand euros and include accrued amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies, less any advances paid. Movements during the year are shown below:
Annual Report 2006
58
(€000) 31 Dec 2006 31 Dec 2005
Opening balance 948 767
Provisions 214 210Finance costs 43 34Uses (151) (42)Various withholding taxes (23) (21)
Closing balance 1,031 948
Provisions for staff termination benefits shown in the financial statements were calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits:
• a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment;
• determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance;
• discounting, at the measurement date, each likely payment; • re-proportioning, for each employee, the likely and discounted calculations based on
seniority at the measurement date with respect to the corresponding projected time of payment.
Details of the financial assumptions adopted are as follows:
Ipotesi finanziarie Dicembre 2006
Tasso annuo di attualizzazione 4,25%
Tasso annuo di inflazione 2,00%
Tasso annuo incremento salariale Dirigenti 2,50%; Quadri/Impiegati/Operai 1,00%
CURRENT LIABILITIES Note 25 - Current financial liabilities Current financial liabilities of 60 thousand euros include 29 thousand euros regarding the portion of the previously described loan from the Ministry of Industry falling due within 12 months. This item also includes bank overdrafts.
Annual Report 2006
59
Note 26 - Trade payables Trade payables of 7,660 thousand euros include payables due to suppliers within 12 months (6,397 thousand euros) and advances received from customers by Group companies (1,263 thousand euros). The latter primarily include 468 thousand euros regarding the portion of revenues from the US subsidiary, Flycell Inc., deriving from subscriptions for B2C services billed in December 2006 and deferred to 2007. Note 27 - Tax liabilities This item breaks down as follows:
(€000)31 Dec 2006 31 Dec 2005 Increase/(Decrease)
Income taxes 705 743 (38) VAT due 687 269 418 Substitute tax due 158 129 29 Other tax liabilities 20 3 17
Total 1,570 1,144 426
The item includes income taxes, less advances paid, and VAT due from the Acotel Group, in addition to withholding taxes due from employees and consultants in the form of substitute tax. It should be noted that no Group companies are in dispute with the tax authorities, nor are any tax audits underway. Note 28 - Other current liabilities This item breaks down as follows:
(€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
Due to employees 1,462 1,283 179 Due to pension funds and social security institutions 406 443 (37) Due to directors 393 36 357 Other payables 503 476 27
Total 2,764 2,238 526
Amounts due to employees mainly refer to pay, bonuses, holiday pay due and contributions to pension plans. In relation to the latter, the Group makes agreed payments according to an established schedule into pension plans for the employees of foreign subsidiaries. Amounts due to pension funds and social security institutions include social security and insurance contributions due.
Annual Report 2006
60
Amounts due to directors of Group companies refer to fees falling due but not yet paid. The increase compared with the previous year is due to the bonus payable to the Chairman of the Board of Directors of Acotel Group S.p.A. for the consolidated results achieved in 2006. Other amounts due include statutory auditors’ fees and other general expenses of Group companies. The carrying amount of trade payables and other payables approximates to their fair value.
4.9 NET FUNDS An analysis of net funds at 31 December 2006 reveals a deterioration in current financial assets, mainly due to the Group’s substantial commitment to support the launch of B2C activities in the US market, especially during the first half of the year. Nevertheless, the Group’s balance sheet was sound at 31 December 2006, with positive net funds of 25,447 thousand euros, which breaks down as follows:
(€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
A. Cash and cash equivalents 10,620 11,395 (775) B. Trading assets 8,236 6,781 1,455 C. Liquidity (A + B) 18,856 18,176 680
D. Other current financial assets 6,814 12,980 (6,166)
E. Current bank borrowings (31) (5) (26) F. Current portion of non-current debt (29) (28) (1) G. Current financial liabilities (E + F) (60) (33) (27)
H. Net current funds (C+D+G) 25,610 31,123 (5,513)
I. Non-current financial liabilities (163) (193) 30 L. Non-current debt (I) (163) (193) 30
M. Net funds (H + L) 25,447 30,930 (5,483)
4.10 CONTINGENCIES The Board of Directors, having obtained the advice of their legal experts, considers that there are no liabilities for which it is necessary that Group companies make provision. Sentence has been passed regarding the legal action in which the shareholder, Medial Project S.A., has requested the Court of Rome to ascertain and declare the nullity of or, as a subordinate matter, the cancellation of the resolution adopted by the Ordinary General Meeting of 29 April 2005, approving the financial statements for the year ended 31 December 2004 and the accompanying documents. Although notification has not yet been received from the registry of the Court of Rome,
Annual Report 2006
61
information viewable on the Court’s computer system reveals that the request submitted by Medial Project S.A. was rejected by ruling no. 5977/2007 of 22 March 2007.
4.11 COMMITMENTS The guarantees granted by the Group include 328 thousand euros for a surety given to Tecnomen in fulfilment of the provisions of the commercial agreement signed by Jinny Software, 139 thousand euros for a surety given to the entity that owns the property that the Parent Company rents and where all the Group’s Italian companies have their offices, 111 thousand euros for a surety given in favour of the Bank of Italy, as provided for in the service contract renewed and obtained by the subsidiary, AEM S.p.A., and 294 thousand euros (equivalent to 387,550 US dollars at 31 December 2006), for a surety given in favour of Flycell Inc. as a guarantee for the lease agreement signed by this company. The residual amount is for sureties of 22 thousand euros granted in fulfilment of agreements with third parties.
4.12 THIRD-PARTY ASSETS HELD BY THE GROUP Third party assets held by the Group, totalling 2 thousand euros, relate to equipment loaned to Acotel S.p.A. by the provider Il Sole 24 ore for connection to their information network.
4.13 RELATED PARTY TRANSACTIONS There are no significant related party transactions to be reported in the consolidated financial statements of Acotel Group S.p.A. Purchase of shares by shareholders During 2006 no shares were traded between Acotel Group companies and their shareholders. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during 2006: - 540,666 euros as Chairman of the Board of Directors of Acotel Group S.p.A.; - 50,000 euros as Chairman of the Board of Directors of Acotel S.p.A.; - 50,000 euros as Chairman of the Board of Directors of AEM S.p.A. The fees paid to Claudio Carnevale with regard to Acotel Group S.p.A. include a bonus of 317,333 euros relating to the operating results achieved by the Group in 2006. Margherita Argenziano earned the following fees during 2006: - 13,333 euros as a member of the Board of Directors of Acotel Group S.p.A.; - 75,000 euros as CEO of AEM S.p.A.
Annual Report 2006
62
Andrea Morante earned 13,333 euros during 2006 as a member of the Board of Directors of Acotel Group S.p.A. At 31 December 2006, outstanding amounts due to the above-named directors from Group companies totalled 389,417 euros. Transactions with subsidiaries Details of transactions between Acotel Group S.p.A. and consolidated subsidiaries are provided in the Directors’ Report on the Parent Company’s Operations. Transactions with associates At 31 December 2006, the Group does not hold investments in associates.
Annual Report 2006
63
Remuneration of Directors, Statutory Auditors, General Managers, Key Managers (art. 78, Consob Regulation no. 11971/99) and other related parties
ACOTEL GROUP SPA (euro)
Name Position Period in which position held
Expiry of term of office
Remuneration for position held in Parent Company
Non-cash bonuses
Bonuses and other
incentives
Other remuneration
Claudio Carnevale Chairman / CEO 01/01/06-31/12/06 30/04/2009 223,333 317,333Francesco Ago Director 01/01/06-31/12/06 30/04/2009 13,600Margherita Argenziano Director 01/01/06-31/12/06 30/04/2009 13,333Luca De Rita Director 01/01/06-31/12/06 30/04/2009 13,333 2,940 215,359Giovanni Galoppi Director 01/01/06-31/12/06 30/04/2009 13,600 110,160Andrea Morante Director 01/01/06-31/12/06 30/04/2009 13,333Giuseppe Guizzi Director 01/01/06-31/12/06 30/04/2009 13,600Antonio Mastrangelo Chairman Board of Stat. Aud. 01/01/06-31/12/06 30/04/2009 15,600Umberto Previti Flesca Statutory Auditor 01/01/06-31/12/06 30/04/2009 10,400Maurizio Salimei Statutory Auditor 01/01/06-31/12/06 30/04/2009 10,400
AEM SPA
Name Position Period in which position held
Expiry of term of office
Remuneration for position held in Parent Company
Non-cash bonuses
Bonuses and other
incentives
Other remuneration
Claudio Carnevale Chairman / CEO 01/01/06-31/12/06 * 50,000
Margherita Argenziano Director 01/01/06-31/12/06 * 75,000
Antonio Mastrangelo Chairman Board of Stat. Aud. 01/01/06-31/12/06 * 5,616
Umberto Previti Flesca Statutory Auditor 01/01/06-31/12/06 * 3,744
*: General Meeting called to approve financial statements for 2007
ACOTEL SPA
Name Position Period in which position held
Expiry of term of office
Remuneration for position held in Parent Company
Non-cash bonuses
Bonuses and other
incentives
Other remuneration
Claudio Carnevale Chairman / CEO 01/01/06-31/12/06 26/04/2007 50,000Margherita Argenziano Director 01/01/06-31/12/06 26/04/2007 - 76,030
Antonio Mastrangelo Chairman Board of Stat. Aud. 01/01/06-31/12/06 * 8,112
Umberto Previti Flesca Statutory Auditor 01/01/06-31/12/06 * 5,408
*: General Meeting called to approve financial statements for 2007
FLYCELL MEDIA SPA
Name Position Period in which position held
Expiry of term of office
Remuneration for position held in Parent Company
Non-cash bonuses
Bonuses and other
incentives
Other remuneration
Claudio Carnevale Chairman / CEO 01/01/06-31/12/06 * - Margherita Argenziano Director 01/01/06-31/12/06 * - Giovanni Galoppi Director 01/01/06-31/12/06 * - Antonio Mastrangelo Chairman Board of Stat. Aud. 01/01/06-31/12/06 * 6,001
Umberto Previti Flesca Statutory Auditor 01/01/06-31/12/06 * 4,001
*: General Meeting called to approve financial statements for 2007
“Non-monetary benefits” regard personal use of company motor vehicles. “Other remuneration” paid to the directors, Luca De Rita and Margherita Argenziano, regards the salary paid to Mr De Rita as CFO of Acotel Group S.p.A. and the salary paid to Ms Argenziano as a manager of Acotel S.p.A. These amounts exclusively regard remuneration for employment, and do not include social security contributions and employee termination benefits for which the company is not responsible.
Annual Report 2006
64
Giovanni Galoppi received fees of 110,160 euros as legal counsel for Acotel Group S.p.A. Expense incurred in 2006 for fees paid to key managers totalled approximately 155 thousand euros, including employee termination benefits of 10 thousand euros. Such expense, which does not include social security contributions for which the employer is responsible, relates to a key manager who has been in office since 2005. Remuneration of 187 thousand euros paid to related parties refers entirely to the salaries paid to Cristian Carnevale, who is employed by the Parent Company, and Davide Carnevale, who is employed by the subsidiary, Acotel S.p.A.
4.14 COMPLIANCE WITH LEGISLATIVE DECREE NO. 196/2003 Acotel Group S.p.A., Acotel S.p.A. and AEM S.p.A. have complied with all the provisions of Legislative Decree no. 196/2003 regarding Data Protection, and prepared the “Data Protection Planning Document” and any necessary amendments by 31 March, the date established for each year.
4.15 OTHER INFORMATION Material non-recurring events and transactions No material non-recurring events or transactions occured during 2006. Positions or transactions deriving from exceptional and/or unusual transactions No positions or transactions deriving from exceptional and/or unusual transactions occurred during 2006.
Annual Report 2006
65
ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Annual Report 2006
66
Annual Report 2006
67
PARENT COMPANY’S
REPORT
Annual Report 2006
68
DIRECTORS’ REPORT ON THE PARENT COMPANY’S
OPERATIONS
Annual Report 2006
69
5.1 FINANCIAL REVIEW Acotel Group S.p.A. operates as the holding company for a Group companies in which each subsidiary is directly or indirectly involved in the market, whilst the Parent Company coordinates overall objectives and strategy. As all the subsidiaries are almost totally owned, either directly or indirectly, the achievement of Group objectives coincides with maximising the Company’s performance. The activities of Acotel Group S.p.A. during 2006 continued to focus on management of the Group’s expansion, carrying out its role as provider of centralised strategic planning, administration, organisation and control. The organisational model adopted ascribes specific functions to each Group company, with the aim of maximising operating synergies and the efficiency of decision-making, operating and control procedures, thanks to the rapid circulation of information flows within the Group. The following financial review regards Acotel Group S.p.A. as of 31 December 2006. The Acotel Group adopted IFRS from 1 January 2005, following the entry into force of European Regulation no. 1606 of 19 July 2002. In compliance with the Italian legislation that implements the above regulations, the financial statements of Acotel Group S.p.A. were prepared in accordance with these standards as of 2006, and also applied to data from prior periods presented for comparative purposes, as shown in the appropriate Annex attached to these Notes, to which reference should be made.
Annual Report 2006
70
RECLASSIFIED INCOME STATEMENT
(€) 2006 2005 Increase/(Decrease) % inc./(dec.)
Revenues 6,108,988 6,635,070 (526,082) (8%)Other income 445,320 445,537 (217) -
Total 6,554,308 7,080,607 (526,299) (7%)
Gross operating profit 1,401,525 960,130 441,395 46%
21.38% 13.56%
Operating profit/(loss) 923,535 128,633 794,902 618%
14.09% 1.82%
Net finance income/(costs) 605,202 1,012,030 (406,828) (40%)
PROFIT/(LOSS) BEFORE TAX 1,528,737 1,140,663 388,074 34%23.32% 16.11%
NET PROFIT/(LOSS) FOR THE YEAR 644,220 527,911 116,309 22%
9.83% 7.46%
Earnings per share 0.16 0.14Earnings per diluted share 0.16 0.14
The Parent Company’s income statement reports net profit of 644 thousand euros, up 22% on the previous year. As shown in the following schedule, revenues amount to approximately 6,109 thousand euros for 2006, down 8% on 2005.
Segment information
(€) 2006 % 2005 %
Services for service providers 6,090,988 99.7% 5,893,170 88.8%
Services for corporate customers 18,000 0.3% 741,900 11.2%
6,108,988 100.0% 6,635,070 100.0%
The services provided to service providers are supplied to the subsidiary, Acotel S.p.A., and regard the acquisition, processing, management and transmission of data using Acotel’s proprietary ICT platform. The services provided to corporate customers arose from an agreement signed between Acotel Group S.p.A. and Info2cell regarding software development activities.
Annual Report 2006
71
The decrease compared with the previous year is due to the transfer by Acotel Group S.p.A. to the subsidiary, AEM S.p.A., of the contract signed with ACEA regarding the maintenance of the hardware and software components that make up the ICT platform that was formerly supplied by the Group to ACEA. Other operating income of 445 thousand euros primarily represents charges billed to the Group’s other Italian companies for their share of administrative costs, lease expense and related expenses. Gross operating profit, amounting to 1,402 thousand euros, was up 46% on the previous year, mainly due to the capitalisation of internal costs (997 thousand euros). which was fully described in the consolidated financial statements earlier in this report (Note 7). After amortisation and depreciation and impairments of non-current assets, net operating profit amounts to 924 thousand euros, compared with 129 thousand euros for the previous year. After net finance income, profit before tax is 1,529 thousand euros, up 34% on 2005. As a result of the above, Acotel Group S.p.A. reports net profit for 2006 of 644 thousand euros.
Annual Report 2006
72
RECLASSIFIED BALANCE SHEET
(€) 31 Dec 2006 31 Dec 2005 Increase/(Decrease) % change
Non-current assetsProperty, plant and equipment 573,319 269,449 303,870 112.77%Intangible assets 1,452,375 282,845 1,169,530 413.49%Non-current financial assets 41,190,171 32,386,039 8,804,132 27.18%Other assets 202,810 105,234 97,576 92.72%TOTAL NON-CURRENT ASSETS 43,418,675 33,043,568 10,375,107 31.40%
Net current assetsTrade receivables 3,001,757 6,561,614 (3,559,857) (54.25%)Other current assets 9,391,891 9,104,303 287,588 3.16%Payables (740,210) (808,509) 68,299 8.45%Other current liabilities (11,788,460) (11,179,638) (608,822) (5.45%)TOTAL NET CURRENT ASSETS (135,022) 3,677,770 (3,812,792) (103.67%)
STAFF TERMINATION BENEFITS (492,739) (407,515) (85,224) 20.91%
NON-CURRENT PROVISIONS (633,356) (379,398) (253,958) 66.94%
NET INVESTED CAPITAL 42,157,558 35,934,425 6,223,133 17.32%
Shareholders' equityShare capital 1,084,200 1,084,200 - - Retained profit/(accumulated losses) 52,499,641 52,341,726 157,915 0.30%Net profit/(loss) for the year 644,220 527,911 116,309 (22.03%)TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 54,228,061 53,953,837 274,224 0.51%
MEDIUM/LONG-TERM DEBT - - - -
Net cash and cash equivalents:Current financial assets (8,023,328) (12,673,568) 4,650,240 36.69%Cash and cash equivalents (4,047,268) (5,345,876) 1,298,608 24.29%Current financial liabilities 93 32 61 190.63%
(12,070,503) (18,019,412) 5,948,909 33.01%
NET FUNDS (12,070,503) (18,019,412) 5,948,909 33.01%
TOTAL SHAREHOLDERS' EQUITY AND NET FUNDS 42,157,558 35,934,425 6,223,133 17.32%
Annual Report 2006
73
Acotel Group S.p.A.’s net invested capital at 31 December 2006 is 42,158 thousand euros, made up of non-current assets of 43,419 thousand euros, net current liabilities of 135 thousand euros, staff termination benefits of 493 thousand euros and other non-current provisions of 633 thousand euros. Net invested capital is financed by shareholders’ equity of 54,228 thousand euros and net funds of 25,447 thousand euros. A detailed analysis of changes in the principal balance sheet items shows that: − non-current assets increased by 10,375 thousand euros compared to the previous year. The
most significant changes regard the increase in tangible and intangible assets due to investments carried out on development of the “Noverca” platform, as well as the more substantial increase in non-current financial assets primarily due to loans granted to Acotel Participations to fund an increase in the share capital of Flycell Inc.;
− changes to net working capital derive from a reduction in trade receivables due from subsidiaries;
− net funds at 31 December 2006 amount to 12,071 thousand euros, a decrease of 5,949 thousand euros compared to 31 December 2005, due primarily to the support given by the Parent Company to Flycell Inc. for development of its activities in the US market.
5.2 SOURCES OF FUNDS Acotel Group S.p.A. did not resort to external sources of funding in 2006, being able to finance investment, above all in its foreign subsidiaries during the start-up of their respective businesses, from operating cash flow and its own funds. The Company’s net funds at 31 December 2006, totaling 20,170 thousand euros, consist of net cash and cash equivalents and current loans and receivables due from subsidiaries. Current financial assets not used to finance operations are invested in low-risk financial instruments.
5.3 RESEARCH AND INNOVATION Acotel Group S.p.A. continued its research and development activities during 2006, which were also aimed at continuous updating of the platform used to supply value added mobile telephony services to customers. Some members of Acotel Group S.p.A.’s technical staff were engaged in developing a platform for Internet Protocol services, which will be marketed under the “Noverca” brand. Full details have been given in other sections of this report, to which reference should be made.
Annual Report 2006
74
5.4 FINANCIAL RISK MANAGEMENT The measurement and management of Acotel Group S.p.A.’s exposure to risk are in line with the Group’s policies. The main categories of risk to which the Company is exposed are described below. Credit risk The greatest potential credit risk for Acotel Group S.p.A. at 31 December 2006 consists almost exclusively of outstanding amounts due at year end from Group companies, as well as the nominal value of guarantees primarily issued on behalf of Group companies and described in detail in Paragraph 7.10. Liquidity risk The Company does not resort to external sources of funding and is able to meet its cash requirements from operating cash flow. Foreign exchange risk At 31 December 2006 Acotel Group S.p.A. has no significant amounts payable to and receivable from third parties, nor financial instruments exposed to foreign exchange risk. Interest rate risk As the Company does not rely on external sources of funding it is not exposed to interest rate risk. 5.5 STRENGTHS AND RESOURCES NOT REFLECTED IN THE
FINANCIAL STATEMENTS This paragraph provides a brief summary of the strengths that Acotel Group S.p.A. considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: the Company develops internally most of the software solution that it uses. Stable shareholder structure: 57.4% of the share capital of Acotel Group S.p.A. is held by members of the founder’s family. This concentration of ownership ensures continuity in the management of the Company, which aims to create value over the medium/long-term. Financial independence: as previously indicated, the Company, both through its operating activities and shrewd management of its financial resources acquired as a result of the flotation, has the necessary financial resources to finance its development without having to resort to bank borrowings.
Annual Report 2006
75
5.6 SHAREHOLDINGS OF MANAGEMENT AND SUPERVISORY BODIES, GENERAL MANAGERS AND KEY MANAGERS (art. 79, Consob Regulation no. 11971/99)
NAME GROUP COMPANY NO. OF SHARES HELD AT 1 JAN 2006
NO. OF SHARES PURCHASES
NO. OF SHARES SOLD
NO OF SHARES HELD AT 31 DEC 2006
PERCENTAGE INTEREST AT 31 DEC
2006
Claudio Carnevale (a) Acotel Group S.p.A. 664,980 - - 664,980 15.95%Andrea Morante Acotel Group S.p.A. 99,827 - - 99,827 2.39%Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 0.48%Claudio Carnevale AEM S.p.A. 2,366 - - 2,366 0.06%
(a) Ownership is exercised via Clama S.A. of which Claudio Carnevale holds 99.9% of the share capital Claudio Carnevale and Margherita Argenziano each own 25% of the share capital of Clama S.r.l., which in turn owns 1,727,915 shares of Acotel Group S.p.A. at 31 December 2006. Moreover, no transactions were carried out between Clama S.r.l. and Acotel Group S.p.A. during the period.
5.7 OTHER INFORMATION At 31 December 2006 the fully paid-up share capital of Acotel Group S.p.A. consists of 4,170,000 ordinary shares with a par value of 0.26 euros each. At the same date, the Company owns 254,500 treasury shares, a figure unchanged from the previous year. These are recorded as a reduction of shareholders' equity, totalling 3,873 thousand euros. The shares have an average unit cost of 15.22 euros and a total par value of 66,170 euros. At 31 December 2006 Acotel Group S.p.A. does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the financial year.
5.8 SUBSEQUENT EVENTS
Reference should be made to the Director’s Report on Group Operations, given that no events of sole significance to Acotel Group S.p.A. have taken place in early 2006.
5.9 OUTLOOK In the light of the above and as the Group’s holding company, Acotel Group S.p.A. will continue to carry out its management role within the Group, providing the other companies with strategic guidelines, coordinating their activities and supplying operating and financial support.
Annual Report 2006
76
5.10 PROPOSED APPROPRIATION OF NET PROFIT FOR THE YEAR Having assessed the financial position of the Company and Group, for which Acotel Group S.p.A. acts as the holding company, and having taken account of the financial requirements linked to implementation of the development plan, the Board of Directors proposes to appropriate net profit of 644,220 euros in full to retained profit.
5.11 SHAREHOLDER RESOLUTIONS The General Meeting of 30 April 2007 approved the Board of Directors’ proposal to take net profit for the year of 644,220 euros in full to distributable reserves as retained profit.
Annual Report 2006
77
PARENT COMPANY’S
BALANCE SHEET AND INCOME STATEMENT
Annual Report 2006
78
INCOME STATEMENT
(€) Note 2006 2005
Revenues: 1 6,108,988 6,635,070 - from subsidiaries 6,108,988 5,820,440 - other - 814,630 Other income: 2 445,320 445,537 - from subsidiaries 438,254 430,043 - other 7,066 15,494
Total 6,554,308 7,080,607
Raw materials (17,646) (80,595)External services: 3 (2,531,062) (2,412,539) - rendered by subsidiaries (465,559) (467,612) - other (2,065,503) (1,944,927)Rentals and leases 4 (655,704) (650,893)Staff costs 5 (2,897,113) (2,883,821)Amortisation and depreciation 6 (229,489) (362,963)Internal capitalised costs 7 997,159 - Impairment charges/reversal of impairments of non-current assets 8 (248,501) (468,534)Other costs 9 (48,417) (92,629)Finance income: 10 1,561,667 1,131,896 - from subsidiaries 1,136,883 476,481 - other 424,784 655,415 Finance costs: 10 (956,465) (119,866) - payable to subsidiaries (35,809) - - other (920,656) (119,866)
PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 1,528,737 1,140,663
Taxation 11 (884,517) (612,752)
NET PROFIT/(LOSS) FROM CONTINUING 644,220 527,911
Net profit/(loss) from discontinued activities - -
NET PROFIT/(LOSS) FOR THE YEAR 644,220 527,911
Earnings per share 12 0.16 0.14Diluted earnings per share 0.16 0.14
Annual Report 2006
79
BALANCE SHEETASSETS
(€) Note 31 Dec 2006 31 Dec 2005
Non-current assets:Property, plant and equipment 13 573,319 269,449 Intangible assets 14 1,452,375 282,845 Investments in: 15 16,570,701 16,170,701 - subsidiaries 16,568,451 16,168,451 - other companies 2,250 2,250 Other non-current assets: 16 24,621,124 16,216,993 - due from subsidiaries 24,619,470 16,215,339 - other 1,654 1,654 Deferred tax assets 17 201,156 103,580
TOTAL NON-CURRENT ASSETS 43,418,675 33,043,568
Current assets:
Trade receivables: 18 3,001,757 6,561,614 - due from subsidiaries 3,001,157 6,118,706 - other 600 442,908 Other current assets: 19 1,292,739 1,057,474 - due from subsidiaries 1,189,873 1,010,019 - other 102,866 47,455 Loans and receivables: 20 8,099,152 8,046,829 - due from subsidiaries 8,099,152 8,046,829 Current financial assets 21 8,023,328 12,673,568 Cash and cash equivalents 22 4,047,268 5,345,876
TOTAL CURRENT ASSETS 24,464,244 33,685,361
NON-CURRENT ASSETS HELD FOR SALE - -
TOTAL ASSETS 67,882,919 66,728,929
Annual Report 2006
80
BALANCE SHEETLIABILITIES AND SHAREHOLDERS' EQUITY
(€) Note 31 Dec 2006 31 Dec 2005
Shareholders' equity:
Share capital 1,084,200 1,084,200 Share premium reserve 55,106,013 55,106,013 - Treasury shares (3,872,586) (3,872,586) Other reserves (83,380) 286,616 Retained profit/(accumulated losses) 1,349,594 821,683 Net profit/(loss) for the year 644,220 527,911 TOTAL SHAREHOLDER'S EQUITY 23 54,228,061 53,953,837
Non-current liabilities: Provisions 24 616,035 367,534 Staff termination benefits 25 492,739 407,515 Deferred tax liabilities 17,321 11,864 TOTAL NON-CURRENT ASSETS 1,126,095 786,913
Current liabilities: Current financial liabilities 93 32 Trade payables 26 740,210 808,509 Tax liabilities 27 940,916 740,584 Other current liabilities: 28 10,847,544 10,439,054 - due to subsidiaries 9,490,314 9,406,857 - other 1,357,230 1,032,197TOTAL CURRENT LIABILITIES 12,528,763 11,988,179
NON-CURRENT LIABILITIES HELD FOR SALE - -
TOTAL LIABILITIES 13,654,858 12,775,092
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 67,882,919 66,728,929
Annual Report 2006
81
(€) Share capital
Share premium reserve
- Treasury shares
Other reserves
Retained profits
Net profit for the year TOTAL
Balances at 1 Jan 2005 1,084,200 55,106,013 (3,205,511) 196,645 (182,629) 1,008,312 54,007,030
Appropriation of net profit for 2004 4,000 1,004,312 (1,008,312) - Purchase of treasury shares (667,075) (667,075)Other movements 85,971 85,971 Net result for 2005 527,911 527,911
Balances at 31 Dec 2005 1,084,200 55,106,013 (3,872,586) 286,616 821,683 527,911 53,953,837
Appropriation of net profit for 2005 527,911 (527,911) - Other movements (369,996) (369,996)Net result for 2006 644,220 644,220
Balances at 31 December 2006 1,084,200 55,106,013 (3,872,586) (83,380) 1,349,594 644,220 54,228,061
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Annual Report 2006
82
CASH FLOW STATEMENT
(€)2006 2005
A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,019,412 20,966,451
B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES 5,025,683 (1,598,684)
Cash flows from operating activities before changes in working capital 1,212,891 1,354,637 Net profit/(loss) for the year 644,220 527,911 Amortisation and depreciation 229,489 362,963 Net change in staff termination benefits 85,224 84,365 Net change in provisions 253,958 379,398 - payable to subsidiaries 248,501 367,534 - other 5,457 11,864
(Increase) / decrease in receivables 3,272,269 (4,501,446) - due from subsidiaries 2,885,372 (4,604,436) - other 386,897 102,990
Increase / (decrease) in payables 540,523 1,548,125 - due to subsidiaries 83,457 560,974 - other 457,066 987,151
C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES (10,604,596) (767,251)(Purchases)/disposals of fixed assets: - Intangible assets (1,272,620) (251,774) - Property, plant and equipment (430,269) (57,784) - Financial assets (8,901,707) (457,693) - subsidiaries (8,804,132) (500,834) - other (97,575) 43,141
D. CASH FLOW FROM (FOR) FINANCING ACTIVITIES (369,996) (581,104)
Changes in treasury shares - (667,075)Other changes in shareholders' equity (369,996) 85,971 - subsidiaries (369,996) -
E. CASH FLOW FOR THE YEAR (B+C+D) (5,948,909) (2,947,039)
F. NET CASH AND CASH EQUIVALENTS AT END OF YEAR (A+E) 12,070,503 18,019,412
Annual Report 2006
83
NOTES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS
Annual Report 2006
84
7.1 CORPORATE INFORMATION Acotel Group S.p.A. is an entity incorporated in accordance with Italian law, and is the company that directly and indirectly owns the investments in the operating companies that form part of the Acotel Group. The Company’s registered office is in Rome, Italy. The financial statements of Acotel Group S.p.A. have been drawn up in euros, the Company’s accounting currency. Acotel Group S.p.A. has also prepared the consolidated financial statements for the Acotel Group for the eyar ended 31 December 2006.
7.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of Acotel Group S.p.A. for the year ended 31 December 2006 have been prepared in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC). In compliance with European Regulation no. 1606 of 19 July 2002 the Acotel Group adopted the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) in the preparation of its consolidated financial statements as of 2005. In compliance with Italian legislation that transposed the above regulations, the separate financial statements of the Parent Company, Acotel Group S.p.A., have been prepared in accordance with these standards as of 2006. The accounting policies applied are in line with those adopted in the preparation of the opening IFRS balance sheet at 1 January 2005, as well as the IFRS income statement for 2005 and the IFRS balance sheet at 31 December 2005. In accordance with IFRS, this information is reported in the appropriate Annex attached to these Notes, to which reference should be made. This Annex includes reconciliations between the net result and shareholders' equity under Italian GAAP and the net result and shareholders' equity under IFRS, as required by IFRS 1 – First-time adoption of IFRS, as well as the related notes. New standards and interpretations not yet applied The IFRS that come into force as of or subsequent to 1 January 2007 are as follows:
• IFRS 7 – Financial instruments: additional disclosures; • Changes to IAS 1 – Presentation of financial statements - Information regarding share
capital; • IFRIC 8 – Scope of application of IFRS 2; • IFRS 8 – Operating segments;
Annual Report 2006
85
• IFRIC 9 – Reassessment of embedded derivatives. • IFRIC 11 – IFRS 2 Group and treasury shares transactions.
The Company is evaluating the eventual impact that these changes may have on the separate financial statements.
7.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle modified, as required, for the valuation of certain financial instruments. Acotel Group S.p.A. has prepared the income statement on the basis of the nature of revenues and expenses format, taking into account the specific activity carried out. This format is also used for internal reporting. The form of presentation used for the balance sheet distinguishes between current and non-current assets and liabilities, as allowed by paragraph 51 et seq of IAS 1. Shareholders’ equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. Finally, the statement of cash flows was prepared in accordance with the indirect method.
7.4 ACCOUNTING POLICIES The most significant accounting policies used in the preparation of the financial statements for the year ended 31 December 2006 are as follows: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is depreciated on a straight-line basis every year, depending on the estimated useful life of the asset, applying the following rates:
ICT platform 50%
Specific plant 20%
Other plant and machinery 20%
Computers 20%
Vehicles 25%
Furniture, fixtures and fittings 12%
Annual Report 2006
86
The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section “Impairment of assets” below. Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period in which the sale or disposal took place. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. Intangible assets are amortised regularly as of the moment the asset is ready for use on the basis of their expected useful lives. The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section “Impairment of assets” below. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by Group companies are account for in the balance sheet, only if all the following conditions are met:
• the asset may be identified; • the asset created is likely to generate profits in the future; • the asset’s development costs may be reliably measured.
Such intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, over a period of three years, which represents the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the balance sheet, development costs are recognised in the income statement for the year in which they are incurred.
Annual Report 2006
87
Impairment of assets Acotel Group S.p.A. reviews the carrying value of its property, plant and equipment and intangible assets at least once a year to determine whether there are any indications of impairment. In the presence of such indications, the recoverable amount of these assets is estimated to calculate impairment charges. If the recoverable amount of an individual asset cannot be estimated, Acotel Group S.p.A. estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In determining value in use, estimated future cash flows are discounted using a discount rate that reflects the current market value of money and the risks specific to the business. If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to such lower recoverable amount. This impairment charge is immediately recognised in the income statement. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit) is increased to reflect the estimated recoverable amount, but only to the extent of the carrying amount of the asset had there not been any impairment charge. The reversal is immediately recognised in the income statement. Investments in subsidiaries Investments in subsidiaries are accounted for in accordance with the cost method, less any impairments pursuant to IAS 36. Impairments are charged to the income statement. The original amount is reinstated in future years if the circumstances that led to the impairment no longer exist. Goodwill included in the value of the investment is subject to an annual impairment test in accordance with the previously described methods. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro are translated at closing exchange rates. Financial instruments Financial assets are recognised and derecognised at the trade date and are initially accounted for at cost, including any transaction costs. Subsequent measurement depends on the type of instrument. In particular:
- financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in the income statement for the period;
- loans and receivables, consisting of financial assets that are not listed on an active market, and held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment charges;
- available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in a specific reserve in shareholders’ equity until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period.
Annual Report 2006
88
Cash and cash equivalents This item includes amounts and balances held in the Company’s current bank accounts at 31 December 2006. Treasury shares Treasury shares are measured at cost and deducted from shareholders’ equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in shareholders’ equity. Employee benefits Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a “staff cost”, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in the income statement, to the extent that their value not recognised at the end of the previous year is in excess of 10% of the present value of the defined-benefit obligation at such date (the so-called corridor method). Payables Trade payables are accounted for at nominal value. Payables denominated in currencies other than the euro are translated at closing exchange rates. Revenues Sales and service revenues are recognised upon transfer of the risks and benefits of ownership or upon performance of the service. Revenues from services rendered are recognised on the basis of the actual service performed during the year. Income taxes Current income taxes are recognised on the basis of their estimated taxable income in accordance with tax rates and rules in force, or as approved at the close of the fiscal year in each country, taking account of applicable exemptions and tax credits. Deferred tax assets and liabilities are calculated on temporary differences between the carrying amount of assets and liabilities and their tax bases, in accordance with the tax rates in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from
Annual Report 2006
89
transactions whose results are recognised directly in shareholders’ equity are likewise accounted for in shareholders’ equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Earnings per share Earnings per share is calculated by dividing net profit by the average weighted number of shares outstanding in the period, less treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Foreign currency translation Acotel Group S.p.A.’s functional and presentation currency is the euro. Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the balance sheet date are translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement.
7.5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Company was required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. These had an effect on the carrying amounts of the assets and liabilities recorded in the balance sheet and on the related disclosures. The actual results could differ from these estimates. The estimates were mainly used in estimating impairments of investments, amortisation and depreciation and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement.
Annual Report 2006
90
7.6 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue for 2006, amounting to 6,109 thousand euros (6,635 thousand euros in 2005), includes 6,091 thousand euros regarding revenues earned in Italy on the supply to the Italian subsidiary, Acotel S.p.A., of the data management service carried out via the ICT platform. The total also includes revenues of 18 thousand euros from corporate customers deriving from the contract with the Middle Eastern subsidiary, Info2cell, and relating to software development activities. The decrease in turnover compared with the previous year is due to the transfer to the subsidiary, AEM S.p.A., of the service contract originally entered into by Acotel Group S.p.A. with regard to maintenance of the platform owned by ACEA. Note 2 - Other income Other income, amounting to 445 thousand euros, is substantially in line with 2005 and mainly includes the invoicing of administrative services provided and lease expense and building running costs charged to the subsidiaries, Acotel S.p.A., AEM S.p.A. and Flycell Media S.p.A. Note 3 - External services External service costs, amounting to 2,531 thousand euros, break down as follows:
(€)2006 2005 Increase/(Decrease)
Rendered by subsidiaries 465,559 467,612 (2,053) Other 2,065,503 1,944,927 120,576
Total 2,531,062 2,412,539 118,523
Service costs include 360 thousand euros due to Acotel S.p.A for employment of the latter’s staff on development of the “Noverca” software (Note 7). The remainder was paid to the subsidiaries, AEM S.p.A., Flycell Media S.p.A. and Jinny Software for various purposes. Service costs due to the Group mainly regard the cost of remuneration paid to directors and statutory auditors (658 thousand euros, with 622 thousand euros paid to directors and 36 thousand euros to statutory auditors); business and marketing consultancy fees (181 thousand euros); travel expenses (153 thousand euros); regulatory compliance costs (145 thousand euros); legal fees (120 thousand euros); telephone costs (96 thousand euros); and administrative and technical consultancy fees (89 thousand euros). The running costs for the building in which the Group’s Italian companies operate total 241 thousand euros, a portion of which is charged to the various companies in the Group.
Annual Report 2006
91
Note 4 – Rentals and leases Lease expense, amounting to 656 thousand euros, mainly includes rental costs related to the Rome-based building in which the Group’s Italian companies operate. The annual cost of 603 thousand euros is partly recovered from the other companies in proportion to the surface areas effectively used. Note 5 - Staff costs Staff costs include:
(€)
2006 2005 Increase/(Decrease)
Salaries and wages 2,048,649 2,048,718 (69) Social security contributions 679,857 683,487 (3,630) Staff termination benefits 136,407 126,883 9,524 Finance costs (19,923) (14,742) (5,181) Other 52,123 39,475 12,648
Total 2,897,113 2,883,821 13,292
Finance costs on staff termination benefits equal the discount rate, calculated on the basis of the method fully described in the following Note 24, to which reference should be made. This cost item, in accordance with IFRS, is recognised in finance costs (Note 10).
The number of staff by category at 31 December 2006, compared with the average number for 2006 and 2005, is reported in the following schedule.
At 31 Dec 2006 Average 2006 Average 2005
Managers 7 7 7 Supervisors 8 8 7 White-collar 27 26 23
Total 42 41 37
Note 6 - Amortisation and depreciation Amortisation of intangible assets amounts to 103 thousand euros (154 thousand euros in 2005). Such assets primarily refer to software licenses used by the Company in providing IT services. Depreciation of tangible assets, totalling 127 thousand euros (209 thousand euros in 2005), mainly regards the ICT platform, computers, and furniture and fittings.
Annual Report 2006
92
Note 7 - Internal capitalised costs Internal capitalised costs, totalling 997 thousand euros, regard the staff employed on the development of software for the “Noverca” platform. This is the brand that the Acotel Group intends use, from 2007, to market integrated communications solutions (data, audio, video) based on IP protocol, for use via a range of devices: IP telephones, personal computers, palmtops and mobile phones. Note 8 – Impairment charges/reversal of impairment charges on non-current assets This item reports a negative balance of 249 thousand euros (469 thousand euros in 2005) and reflects the impairment of the investment in the subsidiary, Acotel Group (Northern Europe), deriving from losses incurred in 2006. As in the previous year, this impairment was necessary as a loss in value was recognised and sufficient short-term funds were not allocated to cover the accumulated losses. Note 9 - Other operating costs Other operating costs amount to 48 thousand euros, compared with 93 thousand euros in 2005, and mainly include taxes other than income taxes, totalling 32 thousand euros, and sundry membership fees of 12 thousand euros. Note 10 - Finance income and costs Net finance income of 605 thousand euros breaks down as follows:
(€)
2006 2005 Increase/(Decrease)
Interest income from subsidiaries 1,136,883 476,481 660,402 Interest income from investments 384,573 483,488 (98,915) Interest income on bank deposits 24,354 73,991 (49,637) Foreign exchange gains 15,454 97,936 (82,482) Other interest income 403 - 403
Total finance income 1,561,667 1,131,896 429,771 Interest expense from subsidiaries (35,809) - (35,809) Interest expense and bank charges (84,774) (104,778) 20,004 Foreign exchange losses (814,990) (188) (814,802) Other interest expense (20,892) (14,900) (5,992)
Total finance costs (956,465) (119,866) (836,599)
Net finance income 605,202 1,012,030 (406,828)
Interest due from subsidiaries mainly relates to loans granted to Acotel Participations. This interest is calculated at market rates (six-month Libor).
Annual Report 2006
93
174 thousand euros of interest income from investments relates to profits on loans and receivables, 206 thousand euros relates to profits on financial assets held for trading through the income statement, and 5 thousand euros regards income on held-to-maturity financial assets. Interest and bank charges payable includes commissions of 11 thousand euros for fund management by Insinger de Beaufort bank. Net foreign exchange losses reflect the negative effect of movements in closing exchange rates on the value of loans issued in dollars to subsidiaries. Note 11 – Taxation Income taxes for 2006 amount to 885 thousand euros. This includes IRES (corporation tax) of 1,106 thousand euros, after the positive impact of adoption of tax consolidation at Group level, amounting to 430 thousand euros. The total also includes IRAP (regional tax) of 257 thousand euros, IRES relating to the previous year of 44 thousand euros, and recognition in 2006 of deferred tax assets of 97 thousand euros (after recovery of deferred tax assets accounted for in previous years) and deferred tax liabilities of 5 thousand euros. In fact, it should be noted that Acotel Group S.p.A., as the Parent Company, Acotel S.p.A. and AEM S.p.A. have adopted the so-called “tax consolidation”, introduced by articles of 117 and 128 of the Consolidated Act and the Ministerial Decree of 9 June 2004, for the three-year period 2004-2006. The reconciliation between the effective tax charge accounted for in the financial statements and the expected tax charge, calculated on the basis of expected tax rates in Italy, is as follows:
(€000)
2006 %
Pre-tax profit/(loss) 1,529
Expected tax charge calculated at 33% of the pre-tax result 505 33.0%
Temporary differences taxable in subsequent years (44) (2.9%)
Temporary differences deductible in subsequent years 154 10.1%
Permanent differences 105 6.9%
Other minor changes (44) (2.9%)
IRES for Acotel Group S.p.A. 676 44.2%
IRAP 257
Taxation for the year for Acotel Group S.p.A. 933
No account has been taken of IRAP (regional tax) in the comparison between the tax charge accounted for in the financial statements and the expected tax charge as, being a tax calculated on the basis of a different taxable income from pre-tax profit, it would generate a distortion between one year and another. The expected tax charge was accordingly only determined on the basis of the prevailing IRES (corporation tax) rate in Italy.
Annual Report 2006
94
Note 12 - Earnings per share The calculation of basic and diluted earnings per share is based on the following data:
(€) 2006 2005
Net profit/(loss) 644,220 527,911
Number of sharesShares in circulation at the start of the year 3,915,500 * 3,960,610 *Weighted average of treasury shares sold/acquired in the year - 53,493 Weighted average of ordinary shares in circulation 3,915,500 3,907,118
Basic and diluted earnings per share ** 0.16 0.14
* : net of treasury shares held at the same date.**: basic earnings per share for 2006 and 2005 coincides with the diluted earnings per share as conditions provided for by IAS 33 do not exist.
Annual Report 2006
95
7.7 NOTES TO THE BALANCE SHEET 7.7.1 ASSETS NON-CURRENT ASSETS Note 13 - Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows:
(€)
Historical cost DepreciationCarrying amount
at31 Dec 2006
Carrying amount at
31 Dec 2005
Plant and machinery 995,273 (972,981) 22,292 60,364 Industrial equipment 400,263 (292,443) 107,820 109,835 Work in progress 354,844 - 354,844 - Other 287,833 (199,470) 88,363 99,250
Total 2,038,213 (1,464,894) 573,319 269,449
During the year no tangible asset was the subject of disposal, revaluation or impairment. Plant and machinery primarily include the ICT platform used to supply value added services. Industrial equipment includes the computers used in the development and management of value added services. The item “Work in progress” regards infrastructure for the provision of services using the IP protocol via the “Noverca” brand. The item “Other” mainly includes furniture and fittings and leasehold improvements on the Company’s registered office. The related lease contract expires in 2013. Movements in property, plant and equipment during the year are shown in an annex. Note 14 - Intangible assets A breakdown of intangible assets at 31 December 2006 is as follows:
Annual Report 2006
96
(euro)
Historical cost Accumulated amortisation
Carrying amount at
31 Dec 2006
Carrying amount at
31 Dec 2005
Industrial patents and intellectual property rights 571,098 (524,834) 46,264 102,790 Concessions, licences and similar rights 30,698 (21,669) 9,029 18,055 Work in progress 1,397,082 - 1,397,082 162,000
Total 1,998,878 (546,503) 1,452,375 282,845
Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Group in the provision of IT services and for its internal information system. Concessions, licenses and similar rights primarily includes the cost of the licence for the software used by the Company for the supply of value added services. Work in progress includes 997 thousand euros relating to capitalised internal costs for staff employed on developing the “Noverca” platform software (see Note 7) and external costs incurred in development of the same software. During the year no intangible asset was the subject of disposal, revaluation or impairment. Movements in intangible assets during the year are shown in an annex. Note 15 - Investments At 31 December 2006 movements in investments, totalling 16,571 thousand euros, break down as follows:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)Investments in subsidiaries 16,568,451 16,168,451 400,000 Investments in other companies 2,250 2,250 -
Total 16,570,701 16,170,701 400,000
Movements in “Investments in subsidiaries” break down as follows:
Annual Report 2006
97
(€000)
Company
Parent Company's
interest (%)
Balance at 31 Dec 2005
Impairments/ Reversals of
impairments / Recapitalisations
Acquisitions / Sales
Balance at 31 Dec 2006
Acotel S.p.A. 99.9% 12,653 - - 12,653 (a)
AEM-Advanced Electronic Microsystems S.p.A. 99.9% 2,284 - - 2,284
Acotel Participations S.A. 100% 1,200 - - 1,200
Acotel Group (Northern Europe) Ltd 100% - - - -
Flycell Telekomunikasyon Hizmetleri A.S. 99.9% 31 - - 31
Flycell Media S.p.A. 100% - - 400 400
16,168 16,568
(a) This figure is the sum of the directly owned 98% interest and the1.92% stake held via the subsidiary, AEM S.p.A.
Regarding changes that took place during 2006, in December 2006 Acotel Group S.p.A. acquired 100% of the shares of Flycell Media S.p.A. from the subsidiary, Acotel Participations. This investment is accounted for in the financial statements at a value of 400 thousand euros. The following table shows a complete list of investments with the information required by CONSOB Ruling no. DEM/6064293 of 28 July 2006:
Annual Report 2006
98
(€000)
Company Registered office Share capital
Shareholders' equity at 31 Dec
2006
Net profit/(loss) for 2006
Parent Company's interest (%)
Number of shares
Carrying amount
Investments in subsidiaries
Acotel S.p.A.Rome - Via della Valle dei Fontanili 29 13,000 14,106 630 99.9% 24,980,000 12,653
(a) AEM-Advanced Electronic Microsystems S.p.A.
Rome - Via della Valle dei Fontanili 29/37 858 994 (28) 99.9% 1,647,634 2,284
Acotel Participations S.A.
Luxembourg -8 Boulevard Royal 1,200 (1,034) 429 100% 12,000 1,200
Acotel Group (Northern Europe) Ltd
Dublin - 29 North Anne Street 101 (616) (249) 100% 100,000 -
(b)
Flycell Telekomunikasyon Hizmetleri A.S.
Turkey - Tesvikiye Cad. Ikbal Is Merkezi, 103 - kat 5 D.21 Tesvikiye - 34365 Sisli Istanbul 31 (92) (57) 99.9% 4,996 31
Flycell Media S.p.A.Rome - Via della Valle dei Fontanili 29/37 400 717 (59) 100% 400,000 400
16,568
Investments in other companies
VOIPEX consortium 2
(a) This figure is the sum of the directly owned 98% interest and the 1.92% stake held via the subsidiary, AEM S.p.A.
(b) An amount equivalent to the capital deficit at 31 Dec 2006 is recorded under provisions.
No impairment of the investment in AEM S.p.A. was applied, taking into account the targets set in the 2007 budget drawn up by the subsidiary’s directors. The investment in Acotel Participations S.A. is not impaired, given the positive results expected in the short and medium term, especially from Jinny Software, Info2cell and Flycell Inc., whose developments plans envisage improvements in performance as of 2007. The investment in the subsidiary, Flycell Telekomunikasyon Hizmetler A.S., is not impaired as the company is still in the start-up phase. No “Investments in other companies” entail assumption of unlimited liability for these companies' obligations (art. 2361, paragraph 2 of the Italian Civil Code).
Annual Report 2006
99
Note 16 - Other non-current assets Other non-current assets, amounting to 24,621 thousand euros at 31 December 2006, break down as follows:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Due from subsidiaries 24,619,470 16,215,339 8,404,131 Other 1,654 1,654 -
Total 24,621,124 16,216,993 8,404,131
Other non-current assets due from subsidiaries include loans granted to Acotel Participations (24,125 thousand euros) used by the latter to acquire and financially support its investment activity. The residual portion regards loans granted to Flycell Media S.p.A. and Flycell Telekomünicasyon Hizmetleri A.Ş. These loans are subject to annual interest indexed to LIBOR rates. Such interest accrues every six months. In accordance with the provisions of art. 2427, paragraph 1 of the Italian Civil Code, it should be noted that no receivables at 31 December 2006 have terms to maturity of over 5 years. Note 17 - Deferred tax assets Deferred tax assets of 201 thousand euros arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases. The increase compared with the previous year is primarily due to the recognition of provisions for deferred tax assets on fees received by the Chairman of the Board of Directors, as explained in detail in Note 28. The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets: (€)
Taxation Tax rate Taxation Tax rate
Deferred tax assets:
Recovery of taxed accounting-related amortisation and depreciation 68,354 38.25% 8,094 37.25%
Provisions for taxed directors' fees 129,118 33% 15,400 33%Other 3,684 38.25% - 33% 80,086 37.25% - 33%
Total 201,156 103,580
31 Dec 2006 31 Dec 2005
Annual Report 2006
100
CURRENT ASSETS Note 18 - Trade receivables This item breaks down as follows at 31 December 2006:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Due from subsidiaries 3,001,157 6,118,706 (3,117,549) Other 600 442,908 (442,308) Provisions for bad debts - - -
Total 3,001,757 6,561,614 (3,559,857)
Trade receivables due from subsidiaries include an amount of 2,983 thousand euros due from Acotel S.p.A. regarding services provided via the ICT platform, which the subsidiary uses for its activities as a service provider. The residual portion regards an amount due from Info2cell. Trade receivables are fully collectable within 12 months. Note 19 - Other current assets This item breaks down as follows:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Due from subsidiaries 1,189,873 1,010,019 179,854 Other 102,866 47,455 55,411
Total 1,292,739 1,057,474 235,265
Other current assets due from subsidiaries include amounts totalling 724 thousand euros due from Acotel S.p.A., deriving from participation in the tax consolidation. The remainder relates to the charging of Acotel S.p.A., AEM S.p.A. and Flycell Media S.p.A. for their respective portions of general and administrative costs that are incurred entirely by Acotel Group S.p.A. Other current assets due from other parties primarily relate to amounts due from staff and advances to suppliers. Note 20 – Loans and receivables Loans and receivables due from subsidiaries, totalling 8,099 thousand euros, refer to short-term loans granted to Group companies, primarily to Acotel Participations S.A. (7,400 thousand euros) in order to finance operations. In common with the loans recorded under non-current financial assets, these loans are subject to annual interest indexed to the 6-month euro and dollar LIBOR rates, according to whether the loan was issued in euros or dollars. Such interest accrues every six months.
Annual Report 2006
101
For a detailed analysis of intercompany transactions, see paragraph 7.14 below. To complete the disclosure required by the Civil Code, as amended following the reform of corporate law pursuant to Legislative Decree no. 6 dated 17 January 2003, it should be noted that all receivables classified under current assets in the balance sheet at 31 December 2006 are due from Italian debtors, with the exception of intercompany items, for which reference should be made to Paragraph 7.14 below. Note 21 - Current financial assets Current financial assets, amounting to 8,023 thousand euros, include: (€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Held-to-maturity assets - 300,000 (300,000) Financial assets with fixed or determinable payments 2,722,831 7,216,197 (4,493,366) Assets held for trading 5,300,497 5,157,371 143,126
Total 8,023,328 12,673,568 (4,650,240)
The decrease in held-to-maturity assets compared with the previous year derives from Banca Toscana S.p.A. bonds which matured on 30 November 2006. Financial assets with fixed or determinable payments include the bonds detailed below: (€000)
Issuer Nominal value Interest Rate Maturity Value at 31
Dec 2006
Banca Nazionale del Lavoro S.p.A. 500 Quarterly in arrears 3-month Euribor 17 Apr 2008 503
Total 500 503
Financial assets with fixed or determinable payments also include an insurance policy of 2,220 thousand euros entered into with Montepaschi Vita S.p.A. This is a separately managed fund with a duration of 15 years and the client has the option of withdrawal. This policy has a guaranteed annual interest rate of 1.5%. The annual return for 2006 was 3.33%. Assets held for trading also include investments managed by Insinger de Beaufort Bank, which manages the assets in an individual and limited risk investment portfolio (almost exclusively consisting of bonds) in the name and on behalf of Acotel Group S.p.A. The decrease in “Current financial assets” during the year mainly relates to the disposal of bonds following the financial support granted to Flycell Inc. At 31 December 2006 the fair value of the financial assets recognised at amortised cost is substantially in line with their carrying amount.
Annual Report 2006
102
Note 22 - Cash and cash equivalents This item comprises bank deposits of 4,046 thousand euros and cash and notes in hand of 1 thousand euros. At the end of last year these items amounted to 5,344 and 2 thousand euros, respectively. 7.7.2 LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY Note 23 - Shareholders’ equity Changes in shareholders' equity during 2006 are shown in the financial statements. At 31 December 2006 the fully paid-up share capital of Acotel Group S.p.A. consists of 4,170,000 ordinary shares with a par value of 0.26 euros each. The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital increases carried out in preparation for the Company’s stock market flotation. At 31 December 2006 treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of shareholders' equity, totalling 3,873 thousand euros. These shares have a carrying amount of 66,170 euros, representing 6.10% of the share capital. This refers to 254,500 Acotel Group S.p.A. ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 226,180, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. These shares are recorded at cost in accordance with the LIFO method and have an average value of 15.22 euros. At 31 December 2006 the share price stood at 18.65 euros, whilst during the first three months of 2007 the price of Acotel’s shares ranged from a minimum of 18.56 euros to a maximum of 47.37 euros. Other Group companies do not possess Acotel Group S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the financial year. At 31 December 2006 Acotel Group S.p.A. does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the financial year. Other reserves, accounting for a reduction of 83 thousand euros in shareholders’ equity, break down as follows:
Annual Report 2006
103
(€000)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Legal reserve 217 217 - Profit/(loss) on sale of treasury shares 70 70 - Other (370) - (370)
Total (83) 287 (370)
The item “Other” regards recognition of the acquisition of 100% of the shares of Flycell Media S.p.A. from the subsidiary, Acotel Participations, for an amount of 770 thousand euros. This investment was recorded in assets in the balance sheet, based on the continuity principle, at a value of 400 thousand euros. As the transfer price was greater than the carrying amount of the investment in the financial statements of the seller, the difference was reversed by adjusting the Company’s shareholders’ equity, deducting the amount from reserves. The reserves relating to retained profit amounted to 1,350 thousand euros. In addition to the notes regarding shareholders equity, the following should be noted:
Note 24 - Provisions Provisions of 616 thousand euros have been made to cover the losses of the subsidiary, Acotel Group (Northern Europe).
(€000)
to cover losses for other reasons
Share capital 1,084Capital reserves:
Share premium reserve 55,106 A, B, C 55,106 - -
Revenue reserves:Legal reserve 217 B - - -Other reserves 70 A, B, C 70 - -Retained profit 1,350 A, B, C 1,350 - -
Total 57,827 56,526Undistributable portion -
Residual distributable portion 56,526
Key:A: to increase capitalB: to cover lossesC: to pay dividends
Summary of uses during previous 3 years
Nature/description Amount Potential use Available portion
Annual Report 2006
104
Note 25 - Provisions for staff termination benefits The total balance includes amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies and further explained below, less any advances paid. The following table shows movements during the period.
(€) 31 Dec 2006 31 Dec 2005
Opening balance 407,515 323,150
Provisions 116,484 112,141Finance costs 19,923 14,742Uses (39,167) (31,970)Various withholding taxes (12,016) (10,548)
Closing balance 492,739 407,515
Provisions for staff termination benefits shown in the financial statements were calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits:
• a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment;
• determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance;
• discounting, at the measurement date, each likely payment; • re-proportioning, for each employee, the likely and discounted calculations based on
seniority at the measurement date with respect to the corresponding projected time of payment.
Details of the financial assumptions adopted are as follows:
Financial assumptions December 2006
Annual discount rate 4.25%
Annual inflation rate 2.00%
Annual rate of salary increase Executives 2.50%; Managers/White-collar/Blue-collar1.00%
Annual Report 2006
105
CURRENT LIABILITIES Note 26 - Trade payables This item, which amounts to 740 thousand euros, compared with 809 thousand euros at 31 December 2005, is entirely made up of trade payables falling due within 12 months. Note 27 - Tax liabilities This item breaks down as follows:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Current income taxes 499,068 627,903 (128,835) VAT due 355,900 39,294 316,606 Substitute tax due 85,569 72,944 12,625 Other tax liabilities 379 443 (64)
Total 940,916 740,584 200,332
The item includes income taxes, less advances paid, and VAT due from the Company, in addition to withholding taxes due from employees and consultants in the form of substitute tax. Note 28 - Other current liabilities This item breaks down as follows:
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Due to subsidiaries 9,490,314 9,406,857 83,457 Other 1,357,230 1,032,197 325,033
Total 10,847,544 10,439,054 408,490
Other payables due to subsidiaries include an amount of 8,780 thousand euros due to Acotel S.p.A. as unpaid called-up share capital, following the capital increase approved by the subsidiary in 2000. The residual portion mainly regards the charging of sundry services by Acotel S.p.A. and AEM S.p.A.and the tax credit transferred by them. Intercompany transactions are broken down in Paragraph 7.14 below. Other payables break down as follows:
Annual Report 2006
106
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease) Due to pension funds and social security institutions 221,671 237,756 (16,085) Due to staff 402,832 463,635 (60,803) Due to directors 378,306 17,639 360,667 Other amounts due 354,421 313,167 41,254
Total 1,357,230 1,032,197 325,033
Amounts due to pension funds and social security institutions include social security and insurance contributions to be paid on wages and remuneration paid to employees and consultants. Amounts due to employees refer to pay, additional months’ pay, bonuses and holiday pay. Amounts due to directors refer to fees falling due but not yet paid. The increase compared with the previous year is due to the bonus payable to the Chairman of the Board of Directors of Company for the consolidated results achieved in 2006.
7.8 NET FUNDS An analysis of net funds of 20,170 thousand euros at 31 December 2006 reveals a deterioration in liquidity and current financial assets, mainly due to Acotel Group S.p.A’s substantial commitment to support the launch of B2C activities in the US market.
(€)
31 Dec 2006 31 Dec 2005 Increase/(Decrease)
A. Cash and cash equivalents 4,047,268 5,345,876 (1,298,608) B. Trading assets 5,300,497 5,157,371 143,126 C. Liquidity (A + B) 9,347,765 10,503,247 (1,155,482)
D. Current loans and receivables due from subsidiaries 8,099,152 8,046,829 52,323 E. Other current financial assets 2,722,831 7,516,197 (4,793,366) F. Current loans and receivables (D + E) 10,821,983 15,563,026 (4,741,043)
G. Current bank borrowings (93) (32) (61) H. Current financial liabilities (G) (93) (32) (61)
I. Net funds (C + F + H) 20,169,655 26,066,241 (5,896,586) - due from subsidiaries 8,099,152 8,046,829 52,323 - other 12,070,503 18,019,412 (5,948,909)
7.9 CONTINGENCIES The Board of Directors, having obtained the advice of their legal experts, considers that there are no liabilities for which it is necessary that Acotel Group S.p.A. make provision.
Annual Report 2006
107
Sentence has been passed regarding the legal action in which the shareholder, Medial Project S.A., has requested the Court of Rome to ascertain and declare the nullity of or, as a subordinate matter, the cancellation of the resolution adopted by the Ordinary General Meeting of 29 April 2005, approving the financial statements for the year ended 31 December 2004 and the accompanying documents. Although notification has not yet been received from the registry of the Court of Rome, information viewed on the Court’s computer system reveals that the request submitted by Medial Project S.A. was rejected by ruling no. 5977/2007 of 22 March 2007.
7.10 COMMITMENTS The guarantees granted by Acotel Group S.p.A include 328 thousand euros for a surety given to Tecnomen in fulfilment of the provisions of the commercial agreement signed by Jinny Software, 139 thousand euros for a surety given to the entity that owns the property that the Parent Company rents and where all the Group’s Italian companies have their offices, and 294 thousand euros (equivalent to 387,550 US dollars at 31 December 2006), for a surety given in favour of Flycell Inc. as a guarantee for the lease agreement signed by this company.
7.11 SHAREHOLDER PACTS At 31 December 2006 there are no existing pacts between shareholders of Acotel Group S.p.A., following the expiry of all previous pacts, which in any event did not involve any commitment or agreement regarding the exercise of voting rights at general meetings.
7.12 COMPLIANCE WITH LEGISLATIVE DECREE NO. 196/2003 The Company has complied with all the provisions of Legislative Decree no. 196/2003 regarding Data Protection and prepared the “Data Protection Planning Document”, which was approved by the Board of Directors’ meeting of 13 February 2007.
7.13 RELATED PARTY TRANSACTIONS The related party transactions reported in the financial statements of Acotel Group S.p.A. regard transactions entered into with direct or indirect subsidiaries. The impact of these transactions on items in the financial statements is as follows:
Annual Report 2006
108
(€)
Amount %
Effect of related party transactions on balance sheet Investments 16,570,701 16,568,451 99.99%Other non-current assets 24,621,124 24,619,470 99.99%Trade receivables 3,001,757 3,001,157 99.98%Other current assets 1,292,739 1,189,873 92.04%Loans and receivables 8,099,152 8,099,152 100.00%Other current liabilities 10,847,544 9,490,314 87.49%
Effect of related party transactions on income statement itemsRevenue 6,108,988 6,108,988 100.00%Other income 445,320 438,254 98.41%External services 2,531,062 465,559 18.39%Finance income 1,561,667 1,136,883 72.80%Finance costs 956,465 35,809 3.74%
Effect of related party transactions on cash flowsCash flows from operating activities 5,025,683 3,217,330 64.02%Cash flows from investing activities (10,604,596) (8,804,132) 83.02%Cash flows from financing activities (369,996) (369,996) 100.00%
Total item in financial
statements
Related parties
The following section provides the information required by CONSOB regulations. Purchase of shareholdings by Group companies In December 2006 Acotel Group S.p.A. acquired 100% of the shares of Flycell Media S.p.A. from the subsidiary, Acotel Participations S.A. Purchase of shares by shareholders During 2006 no shares were traded between the Acotel Group and their shareholders. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned 540,666 euros as Chairman and CEO of Acotel Group S.p.A. during 2006, including a bonus of 317,333 in connection with the operating results achieved by the Group in 2006. Margherita Argenziano and Andrea Morante earned 13,333 each as members of the Board of Directors of Acotel Group S.p.A. At 31 December 2006 the above Directors are owed a total of 374,833 euros.
Annual Report 2006
109
Intercompany transactions The following table shows transactions between Acotel Group S.p.A. and its subsidiaries in 2006: (€ )
C o m p a n y R ece iv a b les P a y a b les C o sts R ev en u es
A E M S .p .A . 2 5 1 ,6 2 7 1 4 4 ,5 1 1 4 9 ,2 5 8 2 2 6 ,5 1 9A c o te l S .p .A . 3 ,9 1 4 ,0 3 4 9 ,2 9 9 ,8 0 3 3 9 6 ,1 0 9 6 ,7 2 2 ,0 4 2A c o te l P a r tic ip a tio n s S .A . 3 1 ,5 2 5 ,0 2 9 - - 1 ,1 1 6 ,4 7 7F lyc e ll M e d ia S .p .A . 3 3 3 ,1 1 2 4 6 ,0 0 0 4 6 ,0 0 0 3 ,7 0 3A c o te l G ro u p (N o rth e rn E u ro p e ) L td . 6 4 8 ,8 7 9 - - 1 5 ,9 3 4J in n y S o ftw a re L td . 5 0 ,3 0 7 - 1 0 ,0 0 0 7 ,6 5 6F lyc e ll T e le k o m u n ik a syo n H iz m e tle r i A .S . 1 6 8 ,6 6 6 - - 4 ,1 6 6In fo 2 c e ll.c o m F Z -L L C 1 8 ,0 0 0 - - 1 8 ,0 0 0
T o ta l 3 6 ,9 0 9 ,6 5 4 9 ,4 9 0 ,3 1 4 5 0 1 ,3 6 7 8 ,1 1 4 ,4 9 7
Amounts due from AEM represent the subsidiary’s share of administrative costs, lease expense and running costs relating to the building used as the company’s headquarters. Amounts due from Acotel S.p.A. regard, in addition to the company’s share of the above overheads, the subsidiary’s use of the technology platform in its role as service provider, and receivables deriving from compliance with the tax consolidation, as described in the notes. Amounts due from Acotel Participations regard the loans granted in order to finance the sub-holding company’s activities. The portion disbursed to finance the acquisition of investments and finance overseas subsidiaries is classified among non-current financial assets and amounts to 24,125,063 euros. A further 7,399,966 euros, disbursed in order to enable Acotel Participations to finance the operations of its subsidiaries, is classified among current assets. Amounts due from Flycell Media derive from loans granted to the subsidiary to fund administrative costs, lease expense and running costs relating to the building used as the company’s headquarters. Amounts due from Acotel Group (Northern Europe) and Flycell Telekomunikasyon Hizmetleri derive from loans granted to the subsidiaries to fund their activities and payment of overheads. Loans and receivables earn interest at market rates (6-month dollar and euro Libor rates). The amount payable to Acotel S.p.A., totalling 8,779,767 euros, regards unpaid called-up share capital deriving from the capital increase carried out by the subsidiary. The residual amount relates to services received and an amount due to the subsidiary for expenses. The costs charged by AEM relate to staff employed by AEM but seconded to Acotel Group S.p.A. Amounts due from AEM primarily regard the subsidiary’s share of administrative costs, lease expense and running costs incurred by the Parent Company on behalf of the subsidiary. Revenues earned from Acotel S.p.A. mianly include the amount charged in return for the data processing services supplied via the ICT platform, the subsidiary’s share of administrative costs, lease expense and running costs relating to the building paid for by the Parent Company on behalf
Annual Report 2006
110
of its subsidiaries, and an amount deriving from compliance with the tax consolidation, as described in the notes. Revenues earned from Acotel Participations, Acotel Group (Northern Europe) and Flycell Telekomunikasyon Hizmetleri relate to interest on the loans issued. Revenues earned from Jinny Software regard the subsidiary’s share of overheads incurred by Acotel Group S.p.A. Revenues earned from Info2cell derive from the software development contract signed in 2006. Remuneration of Directors, Statutory Auditors, General Managers, Key Managers (art. 78, Consob Regulation no. 11971/99) and other related parties
(euro)
Name Position Period in which position held
Expiry of term of office
Remuneration for position held in Parent
CompanyNon-cash bonuses Bonuses and
other incentives Other
remuneration
Claudio Carnevale Chairman / CEO 01/01/06-31/12/06 30/04/2009 223,333 317,333Francesco Ago Director 01/01/06-31/12/06 30/04/2009 13,600Margherita Argenziano Director 01/01/06-31/12/06 30/04/2009 13,333Luca De Rita Director 01/01/06-31/12/06 30/04/2009 13,333 2,940 215,359Giovanni Galoppi Director 01/01/06-31/12/06 30/04/2009 13,600 110,160Andrea Morante Director 01/01/06-31/12/06 30/04/2009 13,333Giuseppe Guizzi Director 01/01/06-31/12/06 30/04/2009 13,600Antonio Mastrangelo Chairman Board of Stat. Aud. 01/01/06-31/12/06 30/04/2009 15,600Umberto Previti Flesca Statutory Auditor 01/01/06-31/12/06 30/04/2009 10,400Maurizio Salimei Statutory Auditor 01/01/06-31/12/06 30/04/2009 10,400
“Non-monetary benefits” regard personal use of company motor vehicles. “Other remuneration” regards the salary paid to the Director, Luca De Rita as CFO of the Company. These amounts exclusively regard remuneration for employment, and do not include social security contributions and employee termination benefits for which the Company is not responsible. The Director, Giovanni Galoppi, received fees of 110,160 euros as legal counsel for the Company. Expense incurred in 2006 for fees paid to Key Managers totalled approximately 155 thousand euros, including employee termination benefits of 10 thousand euros. Such expense, which does not include social security contributions for which the employer is responsible, relates to a key manager who has been in office since 2005. Remuneration of 138 thousand euros paid to related parties refers entirely to the salary paid to Cristian Carnevale.
Annual Report 2006
111
7.14 OTHER INFORMATION At 31 December 2006 the Company had no secondary offices. The Parent Company, Clama S.r.l., does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code. Material non-recurring events and transactions No material non-recurring events or transactions occured during 2006. Positions or transactions deriving from exceptional and/or unusual transactions No positions or transactions deriving from exceptional and/or unusual transactions occurred during 2006.
Annual Report 2006
112
ANNEX TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BY THE PARENT COMPANY, ACOTEL GROUP S.P.A. In compliance with Regulation (EC) 1606/2002, issued by the European Parliament and the Council of the European Union in July 2002, the Acotel Group adopted the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) for the preparation of its consolidated financial statements as of 2005. On the basis of Italian legislation that transposed these regulations (Legislative Decree no. 38 of 2005), Acotel Group S.p.A. has adopted IFRS in the preparation of its separate financial statements as of 1 January 2006. For the purposes of presenting the effects of transition to IFRS, and to meet the requirements of IFRS 1 – First-time adoption of International Financial Reporting Standards, this Annex provides the reconciliations of balance sheet items at 1 January and 31 December 2005, as well as income statement items for 2005, and the related notes. This information has been prepared as part of the process of transition to IFRS and in readiness for preparation of the financial statements of Acotel Group S.p.A. at 31 December 2006 in accordance with the IFRS endorsed by the European Union. It does not include all the necessary accounting schedules, comparative data and notes necessary to provide a full and complete view, in compliance with IFRS, of the financial position and operating results of Acotel Group S.p.A. Such additional information will be provided in the first IFRS financial statements for the year ended 31 December 2006. RECONCILIATIONS REQUIRED BY IFRS 1 As required by IFRS 1 – First-time adoption of International Financial Reporting Standards, this Annex shows the reconciliations between the previously published data prepared under Italian GAAP and the corresponding data restated under IFRS regarding the opening balance sheet at 1 January 2005 and at 31 December 2005 and the income statement for 2005. The financial position and operating results for 2005 have been prepared in accordance with IFRS, applicable as of 1 January 2006, as published by 31 December 2005. FIRST-TIME APPLICATION OF IFRS General principles In compliance with IFRS 1, in Acotel Group S.p.A’s first IFRS financial statements the accounting policies in force at the date of the first financial statements prepared under IFRS were retrospectively applied, except for the optional exemptions described below. In particular, having adopted IFRS for the preparation of its financial statements subsequent to the consolidated financial statements (which reported an opening balance sheet at 1 January 2004), Acotel Group S.p.A. recognised assets and liabilities in accordance with IFRS at the same values in both the separate and consolidated financial statements, except for items subject to consolidation adjustments.
Annual Report 2006
113
The accounting schedules for 2005 shown in this Annex contain data that will be used for comparative purposes in the financial statements for the year ended 31 December 2006. Such figures may be subject to changes that may become necessary if any international financial reporting standard is revised or amended during 2006. Such circumstances might have effects on the balance sheet and income statement for 2005 as restated in accordance with IFRS and presented here. As required by IFRS 1, an opening balance sheet at 1 January 2005 was prepared in which: • all assets and liabilities whose recognition is required by the new standards are recognised; • all assets and liabilities have been measured and the relevant amounts accounted for as if the
new standards had been applied retrospectively; • certain items have been reclassified as required by IFRS. The effect of adjustments of the initial balances of assets and liabilities in accordance with the new standards has been directly recognised in opening shareholders’ equity. Financial statement formats Acotel Group S.p.A. has prepared the income statement on the basis of the nature of expenses format, which is considered more representative of the Group’s approach to management of the business and is utilised for internal reporting. The form of presentation used for the balance sheet distinguishes between current and non-current assets and liabilities, as allowed by paragraph 51 et seq of IAS 1. Finally, the statement of cash flows was prepared in accordance with the indirect method. Optional exemptions adopted by Acotel Group S.p.A. Acotel Group S.p.A. elected to apply the following options during restatement of the balance sheet at the IFRS transition date, in accordance with IFRS 1: • business combinations: as a first-time adopter of IFRS, Acotel Group S.p.A. elected not to
retrospectively apply IFRS 3 to the business combinations occurring prior to the IFRS transition date (1 January 2005). Thus, the fair value of the assets and liabilities of the companies acquired by Acotel Group S.p.A. has not been determined;
• measurement of property, plant and equipment and intangible assets: Acotel Group S.p.A. elected to use historical cost (in alternative to fair value) to measure property, plant and equipment and intangible assets after initial recognition;
• employee benefits: with respect to post-employment benefits, Acotel Group S.p.A. has decided not to retrospectively apply the so-called “corridor” method, which calls for the full recognition of all cumulative actuarial gains and losses until the IFRS transition date, and to adopt instead the corridor method for actuarial gains and losses after this date;
• share-based payment transactions: Acotel Group S.p.A. has elected to apply IFRS 2 prospectively as of 1 January 2005. Thus, the effects of the transition to IFRS have not been recognised for share options assigned prior to 7 November 2002.
Annual Report 2006
114
EFFECTS OF THE APPLICATION OF IFRS TO THE OPENING BALANCE SHEET AT 1 JANUARY 2005 AND TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2005 The application of IFRS entailed a restatement of the financial statements prepared under Italian GAAP, the effects of which may be summarised as follows:
A t 1 Jan 2005 A t 31 D ec 2005
57 ,242 ,144 57 ,895 ,437
- -
1 . treasury shares (3 ,205 ,511) (3 ,872 ,586)2 . reversal o f tradem ark costs (54 ,873) (124 ,407)3 . p rovisions fo r staff term ination benefits 8 ,270 18 ,493
17 ,000 36 ,900 54 ,007 ,030 53 ,953 ,837
A D JU ST M E N T S:
T ax effect on reconciled item s
SH A R E H O L D E R S' E Q U IT Y U N D E R
(€ )
SH A R E H O L D E R S' E Q U IT Y U N D E R IT A L IA N G A A P
Incom e tax for the period
The individual adjustment items are shown in the table gross of taxes and inclusive of minority interests, while the relevant tax effects and effects on minority interests are shown cumulatively in two separate adjustment items. The main IFRS adjustments are discussed below: 1. Reclassification of treasury shares: under Italian GAAP, treasury shares are recognised as assets
and a specific undistributable reserve established in shareholders’ equity for the same amount. Under IFRS the carrying amount of treasury shares is deducted from shareholders’ equity. The different accounting treatment has determined, at 1 January 2005 and 31 December 2005, a decrease in shareholders’ equity of 3,206 and 3,873 thousand euros, respectively, as a result of the deduction of the carrying amount of treasury shares. Furthermore, under IFRS gains and
N et p ro fit fo r 2005
653 ,294
-
1 . reversal o f gains/losses on trad ing o f ow n shares (85 ,971)
2 . reversal o f tradem ark costs (69 ,535)3 . ad justm ent to staff term ination benefits 10 ,223
19 ,900
527 ,911 P R O F IT /(L O SS) U N D E R IF R S
(€ )
P R O F IT /(L O SS) U N D E R IT A L IA N G A A P
A D JU ST M E N T S:
T ax effects on reconciled item s
Incom e taxes fo r the period
Annual Report 2006
115
losses on the trading of treasury shares cannot be recognised in the income statement but must be taken to shareholders’ equity. This caused net profit for 2005 to fall by 86 thousand euros;
2. reversal of trademark costs: under IFRS, the cost of registering internally developed trademarks
is expensed as incurred, while under Italian GAAP they may be capitalised and recognised in assets. Such different accounting treatment has determined, at 1 January 2005 and at 31 December 2005, a decrease in shareholders’ equity of 55 and 124 thousand euros, respectively, determined by the reversal of assets arising from the capitalisation of such costs. The pre-tax result for the year reports a decrease of 70 thousand euros, net of amortisation of 14 thousand euros, and inclusivie of a positive tax effect of 26 thousand euros, as the costs incurred to register trademarks in 2005 were fully expensed;
3. Adjustment to staff termination benefits: under Italian GAAP, staff termination benefits give
rise to a liability equivalent to the nominal debt toward employees, as accrued in accordance with the provisions of the Italian Civil Code in force at the balance sheet date. Under IFRS, these benefits qualify as a defined-benefit plan and as such must undergo actuarial valuation (mortality, forecast salary trends, etc.) to reflect the present value of the benefit payable upon severance that has accrued to staff at the balance sheet date. Such different treatment determined the following impacts: • at 1 January 2004: an increase of 8 thousand euros in shareholders’ equity arising from a
decrease in the benefits of the same amount; • at 31 December 2005: an increase of 18 thousand euros in shareholders’ equity arising from
a decrease in the benefits of the same amount. The pre-tax result rose by 10 thousand euros, including a negtative tax effect of 4 thousand euros, due to the lesser provisions made.
EFFECTS ON NET FUNDS AT 1 JANUARY 2005 AND 31 DECEMBER 2005 The application of IFRS had no significant impact on net funds at 1 January 2005 and 31 December 2005. IFRS BALANCE SHEETS AT 1 JANUARY 2005 AND 31 DECEMBER 2005 AND IFRS INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 In addition to the reconciliations of shareholders’ equity at 1 January 2005 and 31 December 2005, and of net profit for 2005, together with the notes to the adjustments to the amounts determined under Italian GAAP, the balance sheets at 1 January 2005 and 31 December 2005 are presented along with the income statement for 2005. These tables show for each item: • the amounts determined under Italian GAAP but shown under IFRS formats; • the reclassifications deriving from IFRS adjustments; • the changes deriving from IFRS adjustments; • the amounts adjusted under IFRS.
Annual Report 2006
116
BALANCE SH EET O F ACO TEL GRO UP S.P.A . AT 1 JANUARY 2005
(€)
Reclassi-fications
Adjustments
Non-current assets:
Property, plant and machinery 387,076 a) 33,599 - 420,675 Intangible assets 273,496 a) (33,599) (54,873) 185,024 Investments: 16,237,541 - - 16,237,541 - investments in subsidiaries 16,237,541 - - 16,237,541 O ther non-current assets: 18,850,925 b) 1,654 (3,205,511) 15,647,068 - due from subsidiaries 15,645,414 - - 15,645,414 - other 3,205,511 1,654 (3,205,511) 1,654 Deferred tax assets - c) 131,972 17,000 148,972
TO TAL NO N-CURRENT ASSETS 35,749,038 133,626 (3,243,384) 32,639,280
Current assets: T rade receivables: 7,332,756 - - 7,332,756 - due from subsidiaries 6,960,261 - - 6,960,261 - other 372,495 - - 372,495 O ther current assets: 846,876 d) (122,401) - 724,475 - due from subsidiaries 503,617 - - 503,617 - other 343,259 (122,401) - 220,858 Intercompany loans and receivables 3,107,239 - - 3,107,239 Current financial assets 9,435,829 d) 98,979 - 9,534,808 Cash and cash equivalents 11,431,670 - - 11,431,670 Accrued income and prepaid expenses 110,204 d) (110,204) - -
TO TAL CURRENT ASSETS 32,264,575 (133,626) - 32,130,949
TO TAL ASSETS 68,013,613 - (3,243,384) 64,770,229
Shareholders' equity: Share capital 1,084,200 - - 1,084,200 Share premium reserve 52,398,247 e) 2,707,766 - 55,106,013 - T reasury shares - b) - (3,205,511) (3,205,511) Other reserves 3,418,403 e) - f) (3,205,511) (16,247) 196,645 Retained profit/(accumulated losses) 341,294 e) 497,745 (13,356) 825,683 TO TAL SH AREH O LDERS' EQUITY 57,242,144 - (3,235,114) 54,007,030
Non-current liabilities: Staff termination benefits 331,420 g) - (8,270) 323,150
TO TAL NO N-CURRENT ASSETS 331,420 - (8,270) 323,150
Current liabilities: Current financial liabilities 27 - - 27 T rade payables 642,712 - - 642,712 Tax liabilities 224,732 - - 224,732 O ther current liabilities: 9,547,958 h) 24,620 - 9,572,578 - due to subsidiaries 8,845,882 - - 8,845,882 - other 702,076 24,620 - 726,696 Accrued liabilities and deferred income 24,620 h) (24,620) - - TO TAL CURRENT LIABILITIES 10,440,049 - - 10,440,049
TO TAL LIABILITIES 10,771,469 - (8,270) 10,763,199
TO TAL SH AREH O LDERS' EQUITY AND LIABILITIES 68,013,613 - (3,243,384) 64,770,229
Italian GAAP Effects of IFRS adoption IFRS
Annual Report 2006
117
BALANCE SH EET O F ACO TEL GRO UP S.P.A . AT 31 DECEM EBER 2005
(€)Reclassifi-
cationsAdjustments
Non-current assets:
Property, plant and equipment 237,583 a) 31,866 - 269,449 Intangible assets 439,118 a) (31,866) (124,407) 282,845 Investments: 16,170,701 - - 16,170,701 - investments in subsidiaries 16,168,451 - - 16,168,451 - investments in other companies 2,250 - - 2,250 O ther non-current assets: 20,087,925 b) 1,654 (3,872,586) 16,216,993 - due from subsidiaries 16,215,339 - - 16,215,339 - other 3,872,586 1,654 (3,872,586) 1,654 Deferred tax assets - c) 66,680 36,900 103,580
TO TAL NO N-CURRENT ASSETS 36,935,327 68,334 (3,960,093) 33,043,568
Current assets: T rade receivables: 6,561,614 - - 6,561,614 - due from subsidiaries 6,118,706 - - 6,118,706 - other 442,908 - - 442,908 O ther current assets: 1,105,140 d) (47,666) - 1,057,474 - due from subsidiaries 1,010,019 - - 1,010,019 - other 95,121 (47,666) - 47,455 Intercompany loans and receivables 8,046,829 - - 8,046,829 Current financial assets 12,562,074 d) 111,494 - 12,673,568 Cash and cash equivalents 5,345,876 - - 5,345,876 Accrued income and prepaid expenses 132,162 d) (132,162) - -
TO TAL CURRENT ASSETS 33,753,695 (68,334) - 33,685,361
TO TAL ASSETS 70,689,022 - (3,960,093) 66,728,929 Shareholders' equity: Share capital 1,084,200 - - 1,084,200 Share premium reserve 52,068,462 e) 3,037,551 - 55,106,013 - T reasury shares - b) - (3,872,586) (3,872,586) O ther reserves 4,089,481 e) - f) (3,872,589) 69,724 286,616 Retained profit/(accumulated losses) - e) 835,038 (13,355) 821,683 Net profit/(loss) for the year 653,294 - (125,383) 527,911 TO TAL SH AREH O LDERS' EQUITY 57,895,437 - (3,941,600) 53,953,837
Non-current liabilities: Provisions 367,534 - - 367,534 Staff termination benefits 426,008 g) - (18,493) 407,515 Deferred tax liabilities 11,864 - - 11,864 TO TAL NO N-CURRENT LIABILITIES 805,406 - (18,493) 786,913
Current liabilities: Current financial liabilities 32 - - 32 T rade payables 808,509 - - 808,509 Tax liabilities 740,584 - - 740,584 O ther current liabilities: 10,418,396 h) 20,658 - 10,439,054 - due to subsidiaries 9,406,857 - - 9,406,857 - other 1,011,539 20,658 - 1,032,197 Accrued liabilities and deferred income 20,658 h) (20,658) - - TO TAL CURRENT LIABILITIES 11,988,179 - - 11,988,179
TO TAL LIABILITIES 12,793,585 - (18,493) 12,775,092
TO TAL LIABILITIES AND SH AREH O LDERS' EQUITY 70,689,022 - (3,960,093) 66,728,929
Italian GAAP Effects of IFRS adoption IFRS
Annual Report 2006
118
INCOM E STATEM ENT FOR ACOTEL GROUP S.P.A. FOR 2005
(€)
Reclassi-fications
Adjustments
Revenues: 6,635,070 - - 6,635,070 - from subsidiaries 5,820,440 - - 5,820,440 - other 814,630 - - 814,630 Other income: 445,537 - - 445,537 - from subsidiaries 430,043 - - 430,043 - other 15,494 - - 15,494
Total 7,080,607 - - 7,080,607
Raw materials (80,595) - - (80,595)External services: (2,319,661) a) - d) (8,843) (84,035) (2,412,539) - rendered by subsidiaries (467,612) - - (467,612) - other (1,852,049) (8,843) (84,035) (1,944,927)Rentals and leases (650,893) - - (650,893)Staff costs (2,908,786) b) 14,742 10,223 (2,883,821)Amortisation and depreciation (377,463) c) - 14,500 (362,963)Impairment charges/reversal of impairment charges onnon-current assets (468,534) - - (468,534)Other costs (102,541) d) 9,912 - (92,629)Finance income: 1,217,867 - (85,971) 1,131,896 - from subsidiaries 476,481 - - 476,481 - other 741,386 - (85,971) 655,415 Finance costs (105,124) b) (14,742) - (119,866)Extraordinary income/(expense) 88,986 d) (88,986) - -
PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 1,373,863 (87,917) (145,283) 1,140,663
Taxation (720,569) d) - e) 87,917 19,900 (612,752)
NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS 653,294 - (125,383) 527,911
Net profit/(loss) from discontinued operations - - - -
NET PROFIT/(LOSS) FOR THE YEAR 653,294 - (125,383) 527,911
Effects of IFRS adoptionItalian GAAP IFRS
Annual Report 2006
119
NOTES TO THE IFRS ADJUSTMENTS AND RECLASSIFICATIONS IN THE BALANCE SHEETS AT 1 JANUARY 2005 AND 31 DECEMBER 2005 AND THE INCOME STATEMENT FOR 2005 The following notes discuss the adjustments and reclassifications as well as references to the adjustments included in the reconciliations of shareholders’ equity and the net result illustrated above. Balance sheet - Assets a) Intangible assets: this item reflects adjustments (down 55 thousand euros at 1 January 2005 and
down 124 thousand euros at 31 December 2005) related to the elimination of trademark costs (see adjustment 2) which, under IFRS, cannot be capitalised, as well as to the reclassification (34 thousand euros at 1 January 2005 and 32 thousand euros at 31 December 2005) of leasehold improvements which, under IFRS, must be recognised as property, plant and equipment and not as intangible assets, as allowed by Italian GAAP.
b) Other non-current assets: this item reflects adjustments (down 3,206 thousand euros at 1 January 2005 and down 3,873 thousand euros at 31 December 2005) related to the elimination of treasury shares (see adjustment 1), which under Italian GAAP are classified as non-current assets whereas under IFRS they must be deducted from shareholders’ equity, and reclassifications (2 thousand euros at 1 January and 31 December 2005) of guarantee deposits, which under IFRS must be classified as non current assets whereas under Italian GAAP they are classified under current assets (see note d).
c) Deferred tax assets: this item reflects reclassifications (132 thousand euros at 1 January 2005 and 67 thousand euros at 31 December 2005) of deferred tax assets, which under IFRS are classified as non-current assets while under Italian GAAP they are classified as current assets (see note d), and adjustments whereas under IFRS they must be deducted from shareholders’ equity, and adjustments (up 17 thousand euros at 1 January 2005 and up 37 thousand euros at 31 December 2005) determined by the tax effects on the reconciled items.
d) Receivables and current financial assets: these items reflect the reclassifications of guarantee deposits (see note d) and deferred tax assets (see note c), as well as the portion of accrued income and deferred expenses that, under IFRS, may be recognised as current assets (11 thousand euros at 1 January 2005 and 21 thousand euros at 31 December 2005) and among current financial assets (99 thousand euros at 1 January 2005 and 111 thousand euros at 31 December 2005).
Balance sheet - Liabilities and shareholders’ equity e) Retained profit/(accumulated losses): this item reflects the following adjustments (€000):
1 Jan 2005 31 Dec 2005Reversal of trademark costs (see adjustment 2) (55) (55)Adjustment to staff termination benefits (see adjustment 3) 8 8 Losses on sale of treasury shares in 2004 (see f above) 16 16 Tax effects on reconciled items 17 17 Total (14) (14)
The reclassification shown in the balance sheet highlights the different accounting treatment of treasury shares introduced by IFRS: the balance of the equity reserve established under Italian
Annual Report 2006
120
GAAP (3,206 thousand euros at 1 January 2005 and 3,873 thousand euros at 31 December 2005) must be reclassified to a specific reserve and then allocated to “Retained profit/(accumulated losses)” (498 thousand euros at 1 January 2005 and 835 thousand euros at 31 December 2005) and the “Share premium reserve” (2,708 thousand euros at 1 January 2005 and 3,038 thousand euros at 31 December 2005).
f) Other reserves: at 1 January 2005 this adjustment (down 16 thousand euros) regards the loss on treasury share trading, whilst at 31 December (up 70 thousand euros) it reflects the net effect of this loss (down 16 thousand euros) and net profit for 2005 (up 86 thousand euros) on the sale of treasury shares (see adjustment 1).
g) Staff termination benefits: these adjustments (down 8 thousand euros at 1 January 2005 and down 18 thousand euros at 31 December 2005) relate to the application of actuarial methods to staff termination benefits, as required by IFRS (see adjustment 3).
h) Other current liabilities: these reclassifications (25 thousand euros at 1 January 2005 and 21 thousand euros at 31 December 2005) are related to accrued expenses and deferred income that, under IFRS are directly allocated to the items to which they refer.
Items in the income statement for 2005 a) External services: this adjustment (up 84 thousand euros) relates to recognition in the income
statement of costs incurred in 2005 for the registration of trademarks developed internally by Acotel Group S.p.A., which under Italian GAAP were capitalised as fixed assets (see adjustment 2).
b) Staff costs: the reclassification (15 thousand euros at 31 December 2005) concerned the imputed interest cost determined by actuarial calculations related to staff termination benefits, which under IFRS should be classified under other finance costs. The adjustment (down 10 thousand euros) reflects the lower provisions for staff termination benefits on the basis of the actuarial calculations performed under IAS 19 (see adjustment 3).
c) Amortisation: this adjustment (down 14 thousand euros at 31 December 2005) regards reversal of the amortisation of trademark costs (see adjustment 2).
d) Extraordinary income/(expense): this reclassification (89 thousand euros) reflects the different accounting treatment of extraordinary items under IFRS. In fact, these items may no longer be stated separately but must be recognised in the revenue and cost items they refer to.
e) Taxation: this adjustment (down 20 thousand euros) reflects positive tax effects determined by the recognition in the income statement of trademark registration costs (32 thousand euros), negative tax effects on the reversal of the losses on the sale of treasury shares (5 thousand euros), negative tax effects related to the reversal of amortisation of trademark registration costs (6 thousand euros), negative tax effects related to lesser provisions for staff termination benefits (4 thousand euros), and the reversal of previously recorded deferred tax assets on the basis of IFRS adjustments (2 thousand euros).
Annual Report 2006
121
ANNEXES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS
Annual Report 2006
122
Annual Report 2006
123
REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS
Annual Report 2006
127
REPORT OF THE INDEPENDENT AUDITORS
Annual Report 2006
130
ESSENTIAL INFORMATION ON SUBSIDIARIES
Annual Report 2006
131
Acotel S.p.A. Share capital 13,000,000 euros Registered office Via della Valle dei Fontanili 29 00168 Rome
(€000)
Summary balance sheet
2006 2005
Amounts due from shareholders 8,780 8,780Fixed assets 47 86Current assets 11,957 13,634
Total assets 20,784 22,500
Shareholders' equity 14,106 13,476Provisions 6 3 Staff termination benefits 350 277Current liabilities 6,322 8,744
Total liabilities 20,784 22,500
Summary income statement
2006 2005
Value of production 12,303 11,260Operating costs 11,258 10,628Operating profit/(loss) 1,045 632
Net finance income/(costs) 164 206 Net extraordinary income/(expense) 3 6Profit/(loss) before tax 1,212 844
Taxation (582) (402)Net profit/(loss) for the period 630 442
Annual Report 2006
132
AEM Advanced Electronic Microsystems S.p.A. Share capital 858,000 euros Registered office Via della Valle dei Fontanili 29/37 00168 Rome
(€000)
Summary balance sheet
2006 2005
Fixed assets 273 287Current assets 2,358 2,069
Total assets 2,631 2,356
Shareholders' equity 994 1,022Provisions 4 2 Staff termination benefits 197 256Non-current liabilities 163 193Current liabilities 1,273 883
Total liabilities 2,631 2,356
Summary income statement
2006 2005
Value of production 2,046 1,832Operating costs 2,021 1,710Operating profit/(loss) 25 122
Net finance income/(costs) (6) (7)Net extraordinary income/(expense) 23 (2)Profit/(loss) before tax 42 113
Taxation (70) (84)Net profit/(loss) for the period (28) 29
Annual Report 2006
133
Acotel Participations S.A. Share capital 1,200,000 euros Registered office 8, Boulevard Royal L-2449 Luxembourg
(€000)
Summary balance sheet
2006 2005
Fixed assets 24,488 19,578Current assets 6,004 6,359
Total assets 30,492 25,937
Shareholders' equity (1,034) (1,463)Non-current liabilities 20,184 19,837Current liabilities 11,342 7,563
Total liabilities 30,492 25,937
Summary income statement
2006 2005
Value of production 370 18Operating costs 193 170Operating profit/(loss) 177 (152)
Net finance income/(costs) 3,244 (449)Adjustments to financial assets (2,992) (1,505)Profit/(loss) before tax 429 (2,106)
Taxation - - Net profit/(loss) for the period 429 (2,106)
Annual Report 2006
134
Acotel CHILE S.A. Share capital 17,310 US dollars Registered office Santiago, Chile
(US$000)
Summary balance sheet
2006 2005
Current assets 17 17
Total assets 17 17
Shareholders' equity 17 17
Total liabilities 17 17
Annual Report 2006
135
Acotel Do Brasil Ltda Share capital 1,868,250 reals Registered office Rua Visconte de Pirajà, 550
Bairro Ipanema, Rio De Janeiro Brazil
(R000)
Summary balance sheet
2006 2005
Fixed assets 1,005 697Current assets 10,209 5,423
Total assets 11,214 6,120
Shareholders' equity 9,309 4,541Current liabilities 1,905 1,579
Total liabilities 11,214 6,120
Summary income statement
2006 2005
Value of production 12,964 9,426 Operating costs 6,690 5,811Operating profit/(loss) 6,274 3,615
Net finance income/(costs) 957 564Profit/(loss) before tax 7,231 4,179
Taxation (2,463) (1,053)Net profit/(loss) for the period 4,768 3,126
Annual Report 2006
136
Acotel Espana S.L. Share capital 3,006 euros Registered office Calle Velazquez 52 Madrid, Spain
(€000)
Summary balance sheet
2006 2005
Current assets 5 4
Total assets 5 4
Shareholders' equity (18) (13)Current liabilities 23 17
Total liabilities 5 4
Summary income statement
2006 2005
Operating costs 4 6Operating profit/(loss) (4) (6)
Net finance income/(costs) (1) - Profit/(loss) before tax (5) (6)
Taxation - - Profit/(loss) for the period (5) (6)
Annual Report 2006
137
Acotel France S.A. Share capital 56.000 euros Registered office Rue de Bassano 42 Paris, France
(€000)
Summary balance sheet
2006 2005
Fixed assets - 29Current assets 25 74
Total assets 25 103
Shareholders' equity (5) (178)Current liabilities 30 281
Total liabilities 25 103
Summary income statement
2006 2005
Value of production 29 23Operating costs 160 668Operating profit/(loss) (131) (645)
Net finance income/(costs) (7) (32)Net extraordinary income/(expense) 311 - Profit/(loss) before tax 173 (677)
Taxation - - Profit/(loss) for the period 173 (677)
Annual Report 2006
138
Flycell Inc. Share capital 100,000 US dollars Registered office 2711 Centerville Road
Wilmington, Delaware, USA
(US$000)
Summary balance sheet
2006 2005
Fixed assets 241 270Current assets 9,886 1,673
Total assets 10,127 1,943
Shareholders' equity 3,784 (4,638)Non-current liabilities - 13Current liabilities 6,343 6,568
Total liabilities 10,127 1,943
Summary income statement
2006 2005
Value of production 42,293 957Production costs 42,990 4,112Operating profit/(loss) (697) (3,155)
Net finance income/(expense) (887) 167Profit/(loss) before tax (1,584) (2,988)
Taxation - - Net profit/(loss) for the period (1,584) (2,988)
note: Company incorporated on 28 June 2003. The financial statements of Flycell Inc. include the consolidated amounts reported by the subsidiary, Flycell Latin America Conteúdo Para Telefonia Móvel LTDA (share capital of 250,000 Brazilian Real and registered office in Rio de Janeiro - Brazil) incorporated on June 2006.
Annual Report 2006
139
Flycell Media S.p.A. Share capital 400,000 euros Registered office Via della Valle dei Fontanili 29 00168 Rome
(€000)
Summary balance sheet
2006 2005
Fixed assets 5 11Current assets 1,089 975
Total assets 1,094 986
Shareholders' equity 717 776Current liabilities 377 210
Total liabilities 1,094 986
Summary income statement
2006 2005
Value of production 46 - Operating costs 97 44Operating profit/(loss) (51) (44)
Net finance income/(costs) (8) (4)Net extraordinary income/(expense) - Profit/(loss) before tax (59) (48)
Taxation - - Net profit/(loss) for the period (59) (48)
Annual Report 2006
140
Info2cell.com FZ-LLC Share capital 18,350,000 UAE dollars Registered office Internet City Dubai
(US$000)
Summary balance sheet
2006 2005
Fixed assets 982 1,148Current assets 5,755 3,552
Total assets 6,737 4,700
Shareholders' equity 1,984 1,500Non-current liabilities 161 133Passivo corrente 4,592 3,067
Total liabilities 6,737 4,700
Summary income statement
2006 2005
Value of production 5,569 4,620Operating costs 4,949 4,863Operating profit/(loss) 620 (243)
Net finance income/(costs) (141) (15)Profit/(loss) before tax 479 (258)
Taxation - - Net profit/(loss) for the period 479 (258)
note: The financial statements of Info2cell.com include the consolidated amounts reported by the subsidiary, EITCO LLC (share capital 710,000 Jordanian dinars and registered office in Amman, Jordan).
Annual Report 2006
141
Jinny Software Ltd Share capital 2,972 euros Registered office 29 North Anne Street Dublin 7, Dublin Ireland
(€000)
Summary balance sheet
2006 2005
Fixed assets 516 270Current assets 4,553 3,958
Total assets 5,069 4,228
Shareholders' equity 2,676 2,865Current liabilities 2,393 1,363
Total liabilities 5,069 4,228
Summary income statement
2006 2005
Value of production 6,340 5,687Operating costs 6,448 5,018Operating profit/(loss) (108) 669
Net finance income/(costs) (35) 3Profit/(loss) before tax (143) 672
Taxation (6) 56 Net profit/(loss) for the period (149) 728
note: The financial statements of Jinny Software Ltd include the consolidated amounts reported by the subsidiary, Millenium Software SAL (share capital of 30,000,000 Lebanese pounds and registered office in Samra Center, Fanar - Beirut, Lebanon).
Annual Report 2006
142
Acotel Group (Northern Europe) Ltd Share capital 101,000 euros Registered office 29 North Anne Street Dublin 7, Dublin Ireland
(€000)
Summary balance sheet
2006 2005
Fixed assets - 11Current assets 54 353
Total assets 54 364
Shareholders' equity (616) (367)Current liabilities 670 731
Total liabilities 54 364
Summary income statement
2006 2005
Value of production 91 994Operating costs 322 1,288Operating profit/(loss) (231) (294)
Net finance income/(costs) (18) (7)Profit/(loss) before tax (249) (301)
Taxation - - Net profit/(loss) for the period (249) (301)
note: Company incorporated on 27 May 2004.
Annual Report 2006
143
Flycell Telekomunikasyon Hizmetleri A.S. Share capital 50,000 new Turkish lira Registered office Tesvikiye Cad. Ikbal Is Merkezi, 103 kat 5 D.21 Tesvikiye 34365 Sisli Istanbul, Turkey
(TL000)
Summary balance sheet
2006 2005
Fixed assets 36 29 Current assets 164 3
Total assets 200 32
Shareholders' equity (118) (68)Current liabilities 318 100
Total liabilities 200 32
Summary income statement
2006 2005
Value of production 289 - Operating costs 341 122Operating profit/(loss) (52) (122)
Net finance income/(costs) 2 4 Profit/(loss) before tax (50) (118)
Taxation - - Net finance income/(expense) (50) (118)
note: Company incorporated on 2 July 2005.