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Annual Report 2016

i

ANNUAL REPORT

2016

Annual Report 2016

ii

CONTENTS 1. DIRECTORS’ REPORT ON GROUP OPERATIONS page 1

1.1 Results of operations page 9 1.2 Principal factors that have influenced the results for the financial year page 11 1.3 Financial position and cash flow page 15 1.4 Reconciliation with the Parent Company’s financial statements page 16 1.5 Sources of funds page 16 1.6 Research and innovation page 17

1.7 Human resources page 18 1.8 Risks and uncertainties page 19

1.9 Strengths and resources not reflected in the financial statements page 20 1.10 Intercompany and related party transactions page 21

1.11 Shareholder structure and corporate governance page 21 1.12 Other information page 21

1.13 Events after 31 December 2016 page 22 1.14 Outlook page 23 2. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 page 24 2.1 Corporate officers page 25 2.2 The Group page 27 3. CONSOLIDATED FINANCIAL STATEMENTS page 28 4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 35 4.1 Principal activities page 36

4.2 Accounting standards used in preparation of the financial statements page 36 4.3 Basis of presentation page 42 4.4 Consolidation policies page 43

4.5 Critical accounting estimates and judgements page 50 4.6 Directors’ assessment of compliance with going concern requirements page 51 4.7 Assets and liabilities held for sale and discontinued operations page 54 4.8 Operating segments page 58

4.9 Notes to the income statement page 61 4.10 Notes to the statement of financial position page 68

4.10.1 Assets page 68 4.10.2 Liabilities and equity page 75 4.11 Net funds page 80 4.12 Additional disclosures on financial instruments and financial risk management page 81 4.13 Litigation and contingencies page 84 4.14 Commitments page 84 4.15 Related party transactions page 84 4.16 Compliance with Legislative Decree 196/2003 page 85 4.17 Other information page 86 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 87 PARENT COMPANY’S REPORT page 89 5. DIRECTORS’ REPORT ON THE PARENT COMPANY’S OPERATIONS page 90 5.1 Financial review page 91 5.2 Sources of funds page 96 5.3 Research and innovation page 96

5.4 Human resources page 96 5.5 Financial risk management page 97

5.6 Strengths and resources not reflected in the financial statements page 98

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5.7 Intercompany and related party transactions page 98 5.8 Intercompany and related party transactions page 99 5.9 Other information page 99 5.10 Events after 31 December 2016 page 99 5.11 Outlook page 100 5.12 Proposed appropriation of profit for the year page 100

5.13 Shareholder resolutions page 100 6. PARENT COMPANY’S FINANCIAL STATEMENTS page 101 7. NOTES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS page 108 7.1 Corporate information page 109 7.2 Accounting standards used in preparation of the financial statements page 109 7.3 Basis of presentation page 115 7.4 Accounting policies page 116 7.5 Critical accounting estimates and judgements page 122 7.6 Directors’ assessment of compliance with going concern requirements page 122

7.7 Notes to the income statement page 125 7.8 Notes to the statement of financial position page 131 7.8.1 Assets page 131 7.8.2 Liabilities and equity page 138 7.9 Net funds page 145 7.10 Additional disclosures on financial instruments and financial risk management page 145 7.11 Litigation and contingencies page 148 7.12 Commitments page 149 7.13 Compliance with Legislative Decree 196/2003 page 149 7.14 Related party transactions page 149

7.15 Other information page 152 ANNEXES TO THE PARENT COMPANY’S FINANCIAL STATEMENTS page 153 ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO. 11971 OF 14 MAY 1999 AND SUBSEQUENT AMENDMENTS AND ADDITIONS page 155 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS page 158 REPORT OF THE INDEPENDENT AUDITORS page 163 FINANCIAL HIGHLIGHTS OF SUBSIDIARIES page 170

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DIRECTORS' REPORT ON OPERATIONS

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In 2016, the Acotel Group pursued its business objectives, aimed at identifying financial resources and cutting costs, partly through continuation of the withdrawal process launched in 2014 with the sale of Jinny Software Ltd. On the business front, the Group focused its efforts on the development of its energy efficiency products and services, above all those relating to energy management and the smart metering of electricity, gas and water consumption, and on the rollout of its programmatic advertising services.

In the Acotel Net business area, we proceeded to work with ENI, which continued to offer its myEnergy service, supplied in partnership with Acotel, to its SOHO and Small Business customers. Acotel shipped its My Energy Meter (MEM), which enables customers to access the platform needed in order to use the service, to around 7,000 of ENI’s customers in 2016, added to around a thousand who took delivery of the devices in late 2015. This service is provided to ENI by a temporary horizontal consortium of companies consisting of AEM Acotel Engineering and Manufacturing SpA and its parent, Acotel Group SpA, with interests of 13% and 87%, respectively. Each company in the consortium bills ENI on a monthly basis for its respective portion, while the related costs are shared via a specific cost sharing agreement.

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The Group also continued to supply its energy management services to Poste Italiane SpA. The use of Acotel Net’s solution in over 8,000 post offices is not only enabling the customer to make significant energy savings, but also allows it to identify the numerous outages that occur in real time. The new system enables the problems, caused by interruptions to electricity supply or malfunctioning automatic switch-off devices, to be rapidly dealt with and normal service to be restored to the offices concerned.

Agreements were also entered into with other major customers in 2016: - in July, an agreement was signed with Vivigas SpA, a company specialising in the sale of

electricity and natural gas throughout Italy, regarding the provision of products and services by Acotel Net. The first 250 devices covered by this agreement were delivered in September;

- in September, an agreement was signed with Iren Mercato SpA, a company that supplies, trades and sells electricity, gas and heat, for the provision of products and services by Acotel Net as part of a reward programme launched by Iren; this initiative constituted a market test in preparation for a framework agreement, signed by the parties at the end of November, that will involve supply of the My Energy Meter solution to Iren’s household customers;

- during the second half of 2016, the Energy Management service was rolled out to a further 7 GEOX SpA stores in Italy and Europe, adding to those already using the service.

In parallel with commercial and development activities, the Group pursued certain strategic initiatives relating to the smart metering and energy management segments. In this regard a contract was signed with Noverca Srl relating to the provision of wholesale services that will enable AEM to act as an autonomous Enhanced Service Provider (ESP), by providing advanced energy

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management services to its customers as part of smart metering services using Machine to Machine (M2M) services implemented via radiomobile technology. In addition, in order to demonstrate the versatility and usefulness of Acotel Net's products and services beyond the borders of Italy, in March AEM participated with its own stand in the National Facilities Management and Technology Conference & Exposition (NFMT) held in Baltimore, and in November in European Utility Week in Barcelona, the most important event for electricity, gas and water utility professionals, as well as for the smart energy and energy efficiency sectors. In the Bucksense business area, in which the subsidiaries Bucksense Inc. and Hera Performance Llc operate, the Group operates internationally in the web advertising market, supporting and enabling its customers with tools that allow them to identify and reach their ideal target customer, using a technology platform developed in-house for online media planning, buying and optimisation.

Bucksense provides the tools and resources that its client companies’ development and marketing departments need: from user acquisition to tracking through to the most advanced forms of App engagement. Above all, the new DSP (Demand Side Platform) purchases media space through real-time bidding on leading Ad Exchanges, with which it is connected via a proprietary algorithm capable of boosting performance throughout the campaign, getting the best possible return from the investment. Bucksense is interconnected with more than 45 SSPs (Supply Side Platforms) or Exchanges, interacts with 45 billion placements a day and offers more than 200 agencies, present across all continents, its in-house technology to plan, launch and optimise their branding and performance campaigns. Bucksense also offers an Engagement solution, which is free to customers who already utilise the services provided by the Acquisition platform, designed for use by developers and to build loyalty among app users, studying their behaviour through retargeting initiatives in order to achieve previously set strategic objectives. All the live Acquisition and Engagement campaigns can be monitored and analysed in real time together with a team of dedicated experts, thanks to detailed and fully personalisable reports providing the KPIs (Key Performance Indicators) needed in order to devise the best possible strategies. Bucksense saw exponential growth of 900% in effective impressions in 2016, compared with the previous year, and expects to achieve even faster growth in the coming months.

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Bucksense presented its programmatic advertising at the Affiliate Summit West in Las Vegas in 2016, the Mobile World Congress in Barcelona in February and the Digital Marketing Exposition & Conference (DMEXCO) in Cologne in September, where it presented the first algorithm able to optimise both volume campaign and target Key Performance Indicators. The algorithm analyses placement data and updates the offering strategy based on an innovative performance variables management solution that is able to automatically exclude inefficiencies.

Through our Acotel Interactive business area, the Group continues to provide VAS services, offering them not only on behalf of mobile operators, but also making its own apps available via the various market places or marketing them directly via the advertising services provided by the investee, Bucksense Inc.. The Group has continued to invest in developing a market for these services in India, where over 40% of the business’s total turnover from Digital Entertainment was generated (21% in 2015). Regarding aspects of management primarily aimed at identifying financial resources and cutting costs, in line with our plan to refocus the business around the development and commercialisation of smart metering, energy management and programmatic advertising solutions, in October 2016, the Group agreed the sale, to Telecom Italia SpA, of its 100% interest in the subsidiary, Noverca Srl, which alone constituted the Acotel TLC business area’s entire Mobile Virtual Network Aggregator operations. Previously, in April 2016, the subsidiary, Noverca Italia Srl (in liquidation), sold Noverca Srl the business unit, including ownership of the licences and contracts required to independently run the MVNA business. The agreed price for the sale was €4.5 million (including €450 thousand to be withheld for 27 months in an escrow account as a guarantee of the seller’s commitments). This price was adjusted by the value of the target company’s net debt at 31 October 2016, amounting to €52 thousand. The consolidated net gain generated by the sale amounted to approximately €3.9 million, recorded

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among discontinued operations in the income statement at 31 December 2016 in application of IFRS 5. The seller will also receive up to a further €500 thousand provided that Noverca’s platform achieves the stated performance indicators and Acotel Group SpA actively supports Telecom Italia SpA in the process of integrating Noverca Srl’s platform. In order to simplify existing operational relations between Acotel Group SpA and Acotel SpA, where the latter trades using the data transmission platform developed and managed by the former, the merger deed, setting out the terms of the merger of Acotel SpA (the acquiree) with and into Acotel Group SpA (the acquirer), was filed with Rome Companies’ Register on 21 October 2016.Following the merger, the accounting tax effects of which have been backdated to 1 January 2016, the acquirer has assumed all the acquiree’s rights and obligations. In accordance with IFRS 5, net assets attributable to Noverca Italia Srl liquidated in 2015, have been reclassified in “ Profit/(Loss) from assets held for sale and discontinued operations” in the income statement, in which net income of €64 thousand was therefore recognised as attributable to the liquidation process. The above transactions have had the following impact on the consolidated financial statements for the year ended 31 December 2016:

• cost and revenue items for 2016 and, for comparative purposes, for the previous year have been reclassified to “Profit/(Loss) from assets held for sale and discontinued operations” in the income statement;

• the current and non-current assets attributable to Noverca Italia Srl’s remaining operations, which are in the process of being liquidated, have been consolidated on a line-by-line basis, but reclassified to “Total assets held for sale and discontinued operations” in the statement of financial position;

• the liabilities attributable to Noverca Italia Srl’s remaining operations, which are in the process of being liquidated, have been fully consolidated but reclassified to “Liabilities directly associated with assets held for sale and discontinued operations” in the statement of financial position.

All the cash flows attributable to Noverca Italia Srl’s remaining operations, which are in the process of being liquidated, for the year ended 31 December 2016 and, for comparative purposes, for the previous year are shown separately in the statement of cash flows. Reference should be made to section 4.7 of the notes to these consolidated financial statements at 31 December 2016, which provides a breakdown of “Assets and liabilities held for sale and discontinued operations”, as presented in the consolidated income statement, the consolidated statement of financial position and the consolidated statement of cash flows. The overall loss reported by the Group, totalling approximately €5.5 million, breaks down as follows:

(a) ACOTEL NET business area: (€3,183) thousand (b) BUCKSENSE business area: (2,548) thousand (c) ACOTEL INTERACTIVE business area: (€470) thousand (d) Taxation and adjustments: (€3,232) thousand (e) Net effect of “discontinued operations”: (€3,954) thousand Loss for the year (€5,479) thousand

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This shows how the Group continues to experience operational difficulties across all its businesses. Whilst marking an improvement on the previous year’s performance, essentially thanks to the gain and cost savings resulting from the sale of the investment in Noverca Srl, the Group’s results for 2016 show how necessary it is for the new businesses to grow sufficiently to compensate, in both operational and financial terms, for the recent decline in revenue from VAS (Value Added Services). At the end of the previous year, the Directors drew up a business plan for the period 2016 – 2020 (the “Plan”). The Plan sets out the steps to be taken to support the revenue and earnings growth needed in order to return to profit (originally expected to occur in 2018) and the ensuing generation of positive operating cash flow, sufficient to support the traditional business (Acotel Interactive) and to fund the investment needed to develop the new businesses. The Plan set out a path to renewed profitability, with the aim of reversing the erosion of the Group’s financial resources, and halting the consequent decline in equity. Despite significant uncertainty regarding projected revenue and earnings growth from the new businesses, key to effectively achieving the expected improvement in the Group’s operating and financial performance, conserving capital and ensuring its renewed ability to generate cash after the outflows seen in past years. The above uncertainties effectively manifested themselves in 2016, with the Group’s actual operating results for the period falling short of the assumptions on which the Plan was based. Given the differences between the consolidated and projected results, the Directors have revised the Business Plan for 2016-2020 by approving a new plan for 2017-2021 and have prepared the consolidated financial statements on a going concern basis. This has also been done on the basis of the outlook for the twelve months after the reporting date for this report, despite the presence of various uncertainties that may give rise to significant doubts about the Group’s ability to continue operating as a going concern, connected with both the performance of its traditional businesses and expected revenue and earnings growth at its new businesses, which are key to effectively achieving the expected improvement in the Group’s operating and financial performance. In this regard, the Directors believe that, based on the results for the year just ended and the anove uncertainties, there is a potential risk that the Group may not be able to turn around its business in the short term and, in accordance with the expectations set out in the plan for 2017-2021, to halt the erosion of capital and cash seen in recent years. This would result in the need to raise fresh capital in the form of equity or debt. In this connection, it is, however, important to note that the Group has no bank borrowings, except for a current account overdraft granted by Intesa San Paolo to the subsidiary, Noverca Italia Srl (in liquidation). In the preparation of these consolidated financial statements on a going concern basis, the Directors have taken the following into account:

• the large number and potential of the commercial initiatives undertaken in order to develop products and services for managing the consumption of electricity, water and gas and the digital advertising business;

• the Business Plan for 2017-2021 which, despite the uncertainty surrounding the complex process of formulating projections, gives the Directors confidence about the availability of sufficient financial resources to meet its current obligations;

• the absence of any difficulties in the management of existing debt; • the substantial absence of any past due payables or legal disputes with creditors; • the presence of sufficient equity reserves in respect of the share capital;

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• the absence of legal and/or tax disputes that could result in liabilities that the Group would not be able to meet;

• the positive results that will presumably be achieved by the Group in 2017 due to the agreement that is being drawn up with Intesa Sanpaolo in accordance with the terms set out in paragraph 1.13 – Events after 31 December 2016.

In order to describe the Group’s results of operations and analyse its financial position and cash flows, reclassified statements have been prepared. These statements present the same amounts shown in the consolidated financial statements, to which reference should be made, and contain alternative performance indicators with respect to those derived directly from the consolidated financial statements. Management deems these indicators to be useful in assessing the Group’s performance and to present the operating and financial performance of the business. With regard to these indicators, on 3 December 2015, the CONSOB issued ruling 92543/15 which, from 3 July 2016, requires application of the guidelines issued by the European Securities and Markets Authority (ESMA) on 5 October 2015. These guidelines regard the presentation of the above indicators in regulatory disclosures or in published accounts, and have updated the earlier CESR Recommendation 05-178b. The aim is to enhance the usefulness and transparency of the alternative performance indicators included in regulatory disclosures, or in accounts prepared in application of Directive 2003/71/EC, in order to improve comparability, reliability and clarity.

It should, however, be noted that the indicators presented in this report are directly derived from the following reclassified financial statements, with the exception of gross operating profit/(loss) (EBITDA), which represents operating profit or loss before provisions and releases of provisions, depreciation and amortisation, impairment losses and reversals of impairment losses on assets. EBITDA so defined is a measure used by management to monitor and assess the Company’s operating performance and is not an accounting measure envisaged by IFRS. Given that the composition of EBITDA is not governed by the relevant accounting standards, the measurement criteria applied by the Group may not be consistent with those adopted by other companies and may, therefore, not be comparable.

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1.1 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT (*)

(€000)2016 2015

Increase/ (Decrease)

Revenue 22,199 35,755 (13,556)

Other income 250 197 53

Total revenue 22,449 35,952 (13,503)

Gross operating profit/(loss) (5,862) (6,681) 818

Amortisation and depreciation (1,284) (858) (425)

Goodwill impairment (294) - (294)Impairment losses/reversal of impairment losses on non-current assets (2) (284) 282

Operating profit/(loss) (7,442) (7,823) 381

Net finance income/(costs) 524 671 (146)

PROFIT/(LOSS) BEFORE TAX (6,918) (7,152) 234

Taxation (2,515) (1,846) (669)

PROFIT/(LOSS) FROM CONTINUING OPERATIONS (9,433) (8,998) (435)

Profit/(Loss) from assets held for sale and discontinued operations 3,954 (1,673) 5,627

PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT (5,479) (10,671) 5,192

Earnings per share (1.33) (2.59)

Diluted earnings per share (1.33) (2.59)

(*): As required by IFRS 5, amounts for 2015 have been reclassified.

Compared with the results for the previous year, the Acotel Group’s results for 2016 reveal a reduction in revenue and improvements in earnings from continuing operations and in the loss attributable to owners of the Parent. Revenue Revenue of approximately €22,199 thousand is down 38% on the previous year. This reduction, if analysed by operating segment, breaks down as follows:

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Turnover by operating segment

(€000) 2016 % 2015 %

ACOTEL INTERACTIVE 18,091 81.5% 33,578 93.9%

ACOTEL NET 2,241 10.1% 1,937 5.4%

BUCKSENSE 1,867 8.4% 240 0.7%

Total 22,199 100% 35,755 100%

The decrease in revenue reflects reduced turnover at the Acotel Interactive business area, primarily caused by a slowdown in its Italian and South American markets, due to the increased offering of services to the advantage of consumers following the spread of mobile internet access. The following table provides an analysis of the Group’s sales in the various geographical segments, regardless of the nature of the goods and services sold: Turnover by geographical segment

(€000)2016 % 2015 %

Latin America 7,787 35.1% 18,796 52.6%

Italy 6,593 29.7% 10,672 29.8%

India 5,991 27.0% 5,814 16.3%

Other European countries 610 2.7% 446 1.2%

North America 828 3.7% 6 0.0%

Other 390 1.8% 21 0.1%

22,199 100% 35,755 100%

Earnings The Group's gross operating loss (negative EBITDA) has been reduced with respect to the same period last year (down 12%), after benefitting from a reduction in the advertising expenses incurred by the Acotel Interactive business area to promote its Digital Entertainment services (down 40%) and lower staff costs (down 21%). The following table shows the Group’s EBITDA for 2016 and 2015 by operating segment:

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EBITDA by operating segment

(€000)ACOTEL NET BUCKSENSE

ACOTEL INTERACTIVE

Eliminations / Other

Total

2016 (2,418) (2,260) (639) (545) (5,862)

2015 (2,848) (455) (1,880) (1,498) (6,681)

1.2 PRINCIPAL FACTORS THAT HAVE INFLUENCED THE GROUP’S RESULTS FOR THE FINANCIAL YEAR

This section describes the principal factors that have influenced the results in each of the Group’s operating segments during the period. ACOTEL INTERACTIVE

The Acotel Interactive business includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and commercial companies (Mobile Services). It has the primary purpose of supplying value added content and services over mobile phones and the web. Management of the Acotel Interactive business is the responsibility of the New York based company with the same name, Acotel Interactive Inc., which, in addition to directly controlling various companies in Italy, Brazil, Argentina, the USA and India, oversees the operations of Acotel Group SpA (Italy) and Acotel do Brasil Ltda (Brazil). As shown in the following table, revenue generated by the Acotel Interactive business have fallen from the €33.6 million of 2015 to €18.1 million in the year just ended, marking a decline of 46%. This primarily reflects reduced turnover in Italy and Latin America.

(€000) 2016 % 2015 %

Digital Entertainment 13,853 76.6% 27,574 82.1%

Mobile Services 4,238 23.4% 6,004 17.9%

Total 18,091 100% 33,578 100%

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Digital Entertainment services include mobile entertainment, casual gaming, social dating and games of skill offerings marketed under consumer brands, such as SkillDerby for smartphone games, SkillSweet for web games, Yabox for casual gaming on PC, Flycell for the download of content, and SurveyLotto, GiocaNews and Palpitamos for prize competitions. In 2016, of total revenue of €13,853 thousand, 43% was generated in India, 32% in Latin America, 24% in Italy and the remaining 1% in other European countries. Mobile Services consist of solutions and products offered to mobile operators in Brazil and Italy.In Brazil, Acotel do Brasil Ltda continued to provide its services to TIM Celular, its main customer. In Italy, Acotel Group SpA proceeded to provide its long-standing ScripTIM services in partnership with Telecom Italia SpA. Revenues in 2016, totalling €4,238 thousand, included €3,245 thousand generated in Brazil and €993 thousand in Italy. ACOTEL NET

The Acotel Net business reports revenue of €2.2 million, as detailed in the following table:

(€000) 2016 % 2015 %

Energy 1,458 65.1% 943 48.7%

Security Systems 783 34.9% 994 51.3%

Total 2,241 100% 1,937 100%

The Energy segment generated revenue of €1,458 thousand during the year, generated primarily by the Group’s contracts with ENI, in relation to its myEnergy service (€652 thousand) and Poste Italiane SpA, relating to energy management at post offices (€576 thousand).

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The increase in revenue is primarily due to the rise in the number of devices distributed by ENI to its SOHO and Small Business customers, up around 7,000 units on the previous year.

The Security Systems segment generated revenue of €783 thousand in 2016. This revenue is generated entirely in Italy from the design, production and maintenance of electronic security systems by the subsidiary, AEM Acotel Engineering and Manufacturing SpA. The subsidiary generates revenue from the installation, supply, servicing and maintenance of remote surveillance equipment primarily installed at certain provincial branches of the Bank of Italy and at Italian police headquarters.

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BUCKSENSE

Bucksense is the Acotel Group's business area that offers all the necessary tools to operate in the mobile marketing sector, enabling its customers to reach over 1.5 billion users around the world every day. The new business area generated revenue of approximately €1,867 thousand in 2016, registering an accelerated growth trend in the second half of the year. 44% of this revenue was generated in North America, 28% in Europe, 8% in Latin America and the remainder in other geographical areas.

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1.3 FINANCIAL POSITION

RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(€000)31 December 2016 31 December 2015


Non-current assets:

Property, plant and equipment 5,014 5,281 (267)

Intangible assets 2,332 2,027 305 Other assets 1,381 2,590 (1,209)

TOTAL NON-CURRENT ASSETS 8,727 9,898 (1,171)

Net current assets:

Inventories 461 585 (124)

Trade receivables 3,813 5,554 (1,741)

Other current assets 1,144 2,036 (892)

Trade payables (3,369) (6,778) 3,409

Other current liabilites (2,978) (4,120) 1,142

TOTAL NET CURRENT ASSETS (929) (2,723) 1,794

TOTAL ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS LESS RELATED LIABILITIES (1,107) (538) (569)

PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (3,638) (3,590) (48)

NON-CURRENT PROVISIONS (160) (240) 80

NET INVESTED CAPITAL 2,893 2,807 86

Equity:

Share capital 1,084 1,084 -

Reserves and retained earnings/(accumulated losses) 15,337 24,000 (8,663)

Profit/(Loss) for the year (5,479) (10,671) 5,192

Non-controlling interests - 30 (30)

TOTAL EQUITY 10,942 14,443 (3,501)

Net cash and cash equivalents:

Current financial assets (4,505) (11,034) 6,529

Cash and cash equivalents (9,810) (6,172) (3,638)Cash and cash equivalents held for sale and included in discontinued operations (121) (395) 274 Current financial liabilities held for sale and included in discontinued operations 6,387 5,965 422

(8,049) (11,636) 3,587

NET FUNDS (8,049) (11,636) 3,587

TOTAL EQUITY AND NET FUNDS 2,893 2,807 86

The Acotel Group’s net invested capital at 31 December 2016 amounts to €2,893 thousand, consisting of non-current assets of €8,727 thousand, net current liabilities of €929 thousand, assets

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and liabilities held for sale and related to discontinued operations, amounting to net liabilities of €1,107 thousand, provisions for staff termination benefits of €3,638 thousand and other non-current provisions of €160 thousand. Net invested capital is financed by consolidated equity of €10,942 thousand and net funds of €8,049 thousand. A detailed analysis of changes in the principal components of the financial position shows that:

• the value of non-current assets has declined, primarily due to the realisation of deferred tax assets recognised in previous years, as well as to the classification of assets held for sale in accordance with IFRS 5;

• changes in net current liabilities are essentially connected to the Group’s trading performance, as well as to the classification of assets held for sale in accordance with IFRS 5;

• the value of net funds at 31 December 2016 amounts to €8 million, down 31% on 31 December 2015, reflecting the financial impact on the Group of the losses incurred by Group companies during the period.

1.4 RECONCILIATION WITH THE PARENT COMPANY’S FINANCIAL STATEMENTS

Pursuant to CONSOB Resolution DEM/6064293 of 28July 2006, the reconciliation between the net result and equity of Acotel Group SpA and the corresponding consolidated items is as follows:

(€000) Result for 2016Equity at

31 December 2016

profit / (loss) positive/(negative)

Equity and profit/(loss) reported in Parent Company's financial statements (10,982) 14,298

Effect of consolidation of Group companies (3,342) (4,623)Effect of sale of Jinny Software Ltd. (*) - (3,589)Effect of sale of Info2cell.com FZ-LLC (*) - 8 Reversal of effect of sale of Noverca Srl in Acotel Group SpA's separate financial statements

4,253 4,253

Effect of sale of Noverca Srl in Acotel Group SpA's consolidated financial statements (para. 4.7)

4,592 4,592

Consolidation reserve - 909 Cash flow hedge and currency translation reserve - (4,906)

Equity and profit/(loss) reported in consolidated financial statements (5,479) 10,942

(*): sales that took place in previous years.

1.5 SOURCES OF FUNDS At the end of 2016, the Group reports net funds receivable from others of €8,049 thousand.

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The Group makes limited use of external sources of funding, being able to meet its cash requirements from its own funds, which were also via extraordinary transactions completed in previous years. Current financial assets not used to finance operations are invested in low-risk financial instruments.

1.6 RESEARCH AND INNOVATION

Since the outset, the Group’s research and innovation activities have focused on the development of new products and services, and the platforms used directly in the supply of its services. The Group continued to develop technologies to be used in the provision of energy control services in 2016. In particular, work on developing technologies to be used in the supply of Energy Management and Smart Metering services proceeded. These activities regarded both the development of new peripherals for installation on customers’ premises and the addition of new functions to the service platform. In terms of peripherals, an innovative family of wireless gateways was developed, including:

- use of a new u-Blox chipset to connect to the mobile network, which offers various connection options (2G or 3G networks, European, US or global channels), thus enabling planning of product marketing in all countries around the world;

- they feature completely redesigned electronics, which lowers the cost of components and considerably simplifies the installation and testing process, thus reducing production costs;

- special attention has been given to ergonomics and the chipsets are available in newly designed cases, which provide a far more enjoyable customer experience.

These new products, while equipped with new firmware, can be connected to the platform using protocols already in use and therefore do not require changes to the application platform. Finally, development of the new software version for the MAU (Management & Automation Unit) has been completed. This enables the product to operate without being connected to the Acotel Net platform, thus making it autonomous and allowing for separate marketing of the platform service. Development regarding the Energy Management service support platform included new functions for:

• management of commercial peripherals (Generic Modbus Device) to be connected to the MAU and the platform;

• complete management of physical quantities with international units of measurement (for example, with the imperial measurement system for sale of the service in some countries formerly part of the British Empire where these units of measurement are still used);

• setting of TAGS on all platform variables to enable automatic selections and calculations; • extension of management of partners via a series of platform APIs which partners may use

for automatic gathering of consumption readings relating to their customers' gateways; • creation of APIs for automatic gathering of gateway consumption readings and all the

quantities derived and calculated from the platform regarding management of owners; • extension of data entry functions to enable corrections of numerical series to be entered

when measurement gathering errors occur; • extension of management functions regarding configuration of MAUs and their devices;

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• extension of international currency and telephone number management capabilities. Regarding the My Energy Meter service, new dashboards were created that display additional analysis of consumption data, for both the web and the mobile versions. Alongside consumption, display of peak power input was also introduced. A series of developments were completed in 2016 that enabled Bucksense to launch new programmatic advertising services in the market. The main initiatives carried out in this area regarded:

• development of a tracking platform that enables users to monitor clicks and performances generated by purchased advertising spaces;

• development of the RTB (Real Time Bidding) platform that enables purchase of advertising spaces on desktop and mobiles anywhere in the world. This complex system can manage millions of transactions per second and enables decisions to be made within a very short time period regarding which available campaigns correspond to pre-set criteria;

• development of the Engagement which enables retention of customers already acquired.

1.7 HUMAN RESOURCES At 31 December 2016, the Group employs 174 people, compared with 181 at the end of 2015. The Group recruited 28 new staff during the year, whilst 35 people left its employ. The Group sold its interest in Noverca Srl in 2016. As a result, to provide a like-for-like basis for comparison, figures for the Group’s workforce at 31 December 2015 do not include the employees of these investees. For the purposes of full disclosure, the total workforce employed by Noverca Srl at 31 December 2015 amounted to 32. The following tables show key information about the Group’s staff at 31 December 2016:

Staff by category at 31 December 2016

Category Number %Managers 12 7%Supervisors 30 17%White- and blue-collar staff 132 76%

Total 174 100%

Staff by geographical area at 31 December 2016

Geographical area Number %Europe 124 71%South America 33 19%North America 13 8%Asia 4 2%

Total 174 100%

Staff by gender at 31 December 2016

Gender Number %Male 114 66%Female 60 34%

Total 174 100%

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Staff by age range at 31 December 2016

Age range Number %under 25 4 2%25-35 57 33%35-45 73 42%45-55 27 16%older 13 7%

Total 174 100%

Staff by length of service at 31 December 2016

Seniority Number %0-2 27 16%2-5 39 22%5-10 50 29%over 58 33%

Total 174 100%

Staff by qualification 31 December 2016

Qualification Number %Degree 91 52%High-school diploma 83 48%

Total 174 100%

1.8 RISKS AND UNCERTAINTIES Credit risk 55.1% of total trade receivables relates to amounts due from the following telephone companies: Telecom Italia (14.8%), TIM Celular SA (12.4%), Telcel (8.2%), Vodafone (6.7%), Idea Cellular (6.5%) and the customer ENI SpA (6.5%). At the date of the Board of Directors’ meeting, around 36% of these receivables, amounting to approximately €0.8 million, have yet to be collected. Group companies are not involved in significant disputes with their debtors. Liquidity risk The Group makes limited recourse to external sources of funding, being able to meet its cash requirements from its own funds. The cash flows, borrowing requirements and liquidity of Group companies are monitored and managed centrally by the Parent Company, with the aim of ensuring effective and efficient management of the Group’s financial resources. To this end, the Group has prepared a financial plan designed to ensure a return to financial stability in the medium to long term, which is closely linked to general market conditions and, above all, to the Group’s ability to achieve the targets set out in the plan. Further information is provided in section 4.6.

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Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to the partial difference between the currencies in which receivables and payables are denominated, above all in the case of Acotel Interactive Inc., although the risks are in any event limited by the short space of time between the issue of invoices and collection of the amount due. Interest rate risk In view of the fact that the Group makes little use of external sources of funding, its exposure to interest rate risk is limited. Operational risks and uncertainties In addition to the uncertainties linked to the overall macroeconomic environment and growing competition in the markets in which the Group operates, it should be noted that the Acotel Interactive division, and above all the Digital Entertainment (consumer) segment, is subject to numerous data and consumer protection regulations. Whilst Group companies operate within these regulations, given the high numbers of customers served, it is not possible to exclude the risk of litigation involving both individuals and groups of customers. Moreover, as readers will be aware, the above regulations are subject to constant changes that may result in significant restrictions on the marketing and commercial activities carried out in order to support the sale of services. The validity of the Group’s investment, in both financial terms and in terms of the number of staff employed in the in-house development of Acotel Net’s innovative products and services for managing energy, water and gas consumption, as well as the programmatic advertising services offered by Bucksense, will have to face an important test in the near future so it is vital that a substantial increase in revenue can be achieved. Although all the companies in the Group operate in highly competitive markets, the Group believes it has the technological expertise necessary to compete.

1.9 STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS

This section 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: Since its foundation, the Group has pursued a strategy based on technological independence, developing the technology platforms it uses in house. This strategy gives the Group clear competitive advantages in terms of both operational autonomy and financial benefits, thanks to the possibility to adapt or replicate its platforms in new markets without having to pay royalties to third parties. Stable shareholder structure: 57.4% of the share capital of Acotel Group SpA is held by the founder, Claudio Carnevale, and members of his family. This concentration of ownership ensures continuity in the management of the Group.

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Financial independence: the Acotel Group has the necessary financial resources to finance its development without having to make other than limited recourse to bank borrowings. Geographical diversification: the results for 2016 show that 35.1% of the Acotel Group’s total turnover was generated in Latin America, 29.7% in Italy, 27% in India and the remainder in other geographical areas. This distribution is the result of the Group’s strategy of diversifying into various geographical areas, with a view to minimising the impact of any local difficulties.

1.10 INTERCOMPANY AND RELATED PARTY TRANSACTIONS There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arm’s length basis, taking account of the type of goods and services exchanged. Disclosures regarding related party transactions are provided in section 4.16 of the notes to the consolidated financial statements. The Parent Company and its Italian subsidiaries participate in a tax consolidation arrangement, with the exception of Noverca Italia Srl (in liquidation). A specific procedure governing related party transactions was introduced with effect from 1 January 2011 and is described in the annual Corporate Governance Report, available on Acotel Group SpA’s website.

1.11 OWNERSHIP STRUCTURES AND CORPORATE GOVERNANCE Disclosures on the ownership structures required by art. 123-bis of the Consolidated Finance Act are contained in a specific section of the Corporate Governance Report, which the Parent Company makes available in the “Investor relations” section of its corporate website, www.acotel.com.

1.12 OTHER INFORMATION No transactions took place between the parent, Clama Srl, Acotel Group SpA and other Group companies during the period. At 31 December 2016, the Company holds 56,425 treasury shares, which are accounted for as an €871 thousand reduction in equity, representing the average cost of €15.44 per share and a total par value of €14,671. Acotel Group SpA does not possess shares or units issued by its parent, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the period. Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the period.

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At 31 December 2016, Acotel Group SpA has not established any branch offices. The Parent Company and its Italian subsidiaries have complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and have prepared and updated the “Data Protection Planning Document”.

1.13 EVENTS AFTER 31 DECEMBER 2016 In February 2017, Acotel Group SpA and Flycell Italia Srl signed an agreement with Telecom Italia SpA for the provision of services using Decade 4 premium-rate numbers assigned to Telecom Italia SpA and aimed at customers of TIM and those of other mobile operators. In the same month, Acotel Group SpA extended its agreement with Telecom Italia SpA covering the supply of ScripTIM branded services. These agreements will both be in effect from 1 January 2017 until 31 December 2018. In February 2017, Bucksense presented the latest three SaaS (Software-as-a-Service) releases for its programmatic advertising services (Micro Bidding, Full Video Viewability and Planning Tool) at the Mobile World Congress in Barcelona. These services enable marketers and media buyers to put together tailor-made bids aimed at different target markets within the same advertising campaign, to run cross-device video campaigns on mobiles and desktops, with their own or external adservers and in all the available formats, and to better assess eCPM (the effective cost per mille) during both the pre-campaign planning phase and during the campaign itself. At the date of preparation of these consolidated financial statements, the negotiations between Acotel Group SpA and Intesa Sanpaolo SpA regarding settlement of the dispute between the two companies relating to the lack of success of the virtual mobile operator Noverca may be deemed concluded. The agreement commits Acotel Group SpA and Noverca Italia Srl (in liquidation) to not appeal the judgement at first instance handed down by the Court of Turin on 17 November 2016, while Intesa Sanpaolo undertakes to reduce the loan granted by the bank to Noverca Italia Srl (in liquidation) from approximately €6.4 million at 31 December 2016 to €1.1 million. The remaining debt has been transferred to Acotel Group SpA, which paid €550 thousand on signature of the above agreement, and has undertaken to pay five further annual instalments of €110 thousand each. The gain that will be recognised in the 2017 consolidated financial statements by Acotel Group SpA as a result of this agreement amounts to approximately €5.3 million. Pursuant to paragraph 21 of IAS 10, the following table provides an estimate of the effects generated by this transaction (non-adjusting event) with reference to the consolidated financial statements at 31 December 2016:

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(€000)

As in financial statements at 31 December 2016

Impact of settlement

Adjusted alternative

performance indicators for

2016Profit/(Loss) for the year (5,479) 5,287 (192)Equity 10,942 5,287 16,229 Cash and cash equivalents 9,931 5,287 15,218 Net funds 8,049 5,287 13,336

1.14 OUTLOOK The Business Plan for 2017-2021 approved by the Directors of Acotel Group SpA aims to return the Group to profit over the medium term. Under the Plan, the Group will pursue both revenue and earnings growth in its new Energy and Advertising businesses and return its traditional Interactive business to profit. In particular:

- in addition to continuing with the development of products and services for managing the consumption of electricity, water and gas, the Acotel Net business area will work on concluding ongoing talks with a number of major commercial partners, on achieving further growth in sales to existing customers and on expanding both its product range and the Group’s presence in the vast IoT (Internet of Things) market;

- the Bucksense business area expects to see further strong growth in its customer base and in the revenue generated by its programmatic advertising services;

- finally, in the Acotel Interactive business area, we expect to see further growth in the customer base in India, a country in which the Group sees great potential.

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CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

Acotel Group SpA Registered office at Via della Valle dei Fontanili 29/37 – 00168 Rome, Italy Share capital: €1,084,200.00, fully paid-in Rome Companies’ Register Tax code and VAT number: 06075181005 06075181005

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2.1 CORPORATE OFFICERS BOARD OF DIRECTORS

Claudio Carnevale Chairman and CEO

Francesco Ago (1), (2), (3) Director

Margherita Argenziano Director

Rubens Esposito (1), (2) Director Giovanni Galoppi Director

(1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee (3) Lead Independent Director

BOARD OF STATUTORY AUDITORS Sandro Lucidi

Chairman

Antonio Mastrangelo Auditor

Monica Rispoli Auditor

INDEPENDENT AUDITORS

EY SpA

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The Board of Directors and the Board of Statutory Auditors of Acotel Group SpA were elected on 24 April 2015 by the Annual General Meeting of shareholders, which also elected Claudio Carnevale as Chairman. Both boards will remain in office until approval of the financial statements for the year ended 31 December 2017. The Board of Directors’ meeting of 15 May 2015 elected:

- Claudio Carnevale as the Company’s CEO, granting him the powers necessary to ensure effective and timely management of the Company;

- Francesco Ago as Lead Independent Director;

- Francesco Ago and Professor Rubens Esposito to serve as members of the Remuneration

Committee and the Internal Audit Committee. Francesco Ago was appointed Chairman of the Remuneration Committee, whilst Professor Esposito was appointed Chairman of the Internal Audit Committee;

- Giovanni Galoppi as the Director with responsibility for the internal control system;

- Davide Carnevale as Head of Investor Relations,

and assigned the Director, Margherita Argenziano, executive powers in line with her role within the Company.

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2.2 THE GROUP

The parent company of Acotel Group SpA is Clama Srl, which at 31 December 2016 holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama Srl does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code, as, despite holding sufficient voting rights to submit the majority list for election of the Board of Directors, Acotel Group SpA’s Board of Directors is operationally independent.

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CONSOLIDATED FINANCIAL STATEMENTS

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CONSOLIDATED INCOME STATEMENT (*)

(€000) Note 2016 2015

Revenue 1 22,199 35,755

Other income 2 250 197

Total 22,449 35,952

Change in work in progress, semi-finished and finished goods (131) 57

Raw materials, semi-finished and finished goods 3 (300) (371)

External services 4 (17,719) (29,347)

Rentals and leases 5 (977) (1,152)

Staff costs 6 (10,164) (11,809)

Amortisation and depreciation 7 (1,284) (858)

Goodwill impairment 8 (294) -

Capitalised internal costs 9 1,630 1,361 Impairment losses/reversal of impairment losses on non-current assets (2) (284)

Other costs 10 (650) (1,372)

OPERATING PROFIT/(LOSS) (EBIT) (7,442) (7,823)

Finance income 11 851 1,387

Finance costs 11 (327) (716)

PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (6,918) (7,152)

Taxation 12 (2,515) (1,846)

PROFIT/(LOSS) FROM CONTINUING OPERATIONS (9,433) (8,998)

Profit/(Loss) from assets held for sale and discontinued operations(A) 3,954 (1,673)

PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT (5,479) (10,671)

Earnings per share 13 (1.33) (2.59)

Diluted earnings per share 13 (1.33) (2.59)

(*):

(A):

As required by IFRS 5, amounts for 2015 have been reclassified.

Details of the "Profit/(loss) from assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December 2016.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(€000) Note 2016 2015

Profit/(Loss) for the year (5,479) (10,671)

Other comprehensive income/(losses):Other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after taxGains/(Losses) from translation of financial statements of foreign operations 24 2,219 (2,404)Total other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after tax 2,219 (2,404)

Other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax

Actuarial gains/(losses) on defined-benefit plans 25 (302) 297

Tax credit/(expense) on other gains/(losses) 61 (82)Total other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax (241) 215

Total comprehensive income/(loss) for the year (3,501) (12,860)

Total comprehensive income/(loss) for the year attributable to:

owners of the Parent (3,501) (12,860)

non-controlling interests - -

Total comprehensive income/(loss) for the year (3,501) (12,860)

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CONSOLIDATED STATEMENT OF FINANCIAL POSITIONASSETS

(€000)Note 31 December 2016 31 December 2015

Non-current assets:

Property, plant and equipment 14 5,014 5,281 Goodwill 15 - 294 Other intangible assets 16 2,332 1,733 Other non-current assets 17 933 536 Deferred tax assets 18 448 2,054

TOTAL NON-CURRENT ASSETS 8,727 9,898

Current assets:

Inventories 19 461 585 Trade receivables 20 3,813 5,554 Other current assets 21 1,144 2,036 Current financial assets 22 4,505 11,034 Cash and cash equivalents 23 9,810 6,172

TOTAL CURRENT ASSETS 19,733 25,381

ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (A) 135 1,574

TOTAL ASSETS 28,595 36,853

(A): Details of "Assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December 2016.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITIONLIABIITIES AND EQUITY

(€000)Note 31 December 2016 31 December 2015

Equity:

Share capital 1,084 1,084 Share premium reserve 25,120 38,899 - Treasury shares (871) (871) Cash flow hedge and currency translation reserve (4,906) (7,125) Other reserves 461 702 Retained earnings/(accumulated losses) (4,467) (7,605) Profit/(Loss) for the year (5,479) (10,671)

Equity attributable to owners of the Parent 10,942 14,413 Non-controlling interests - 30

TOTAL EQUITY 24 10,942 14,443

Non-current liabilities: Provisions for staff termination benefits and other employee benefits 25 3,638 3,590 Deferred tax liabilities 26 160 240

TOTAL NON-CURRENT LIABILITIES 3,798 3,830

Current liabilities: Provisions 27 329 329 Trade payables 28 3,369 6,778 Tax liabilities 29 292 679 Other current liabilities 30 2,356 3,112

TOTAL CURRENT LIABILITIES 6,347 10,898

LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (A) 7,508 7,682

TOTAL LIABILITIES 17,653 22,410

TOTAL LIABILITIES AND EQUITY 28,595 36,853

(A): Details of "Liabilities directly associated with assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December 2016.

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(€000)

Sharecapital

Sharepremiumreserve

- Treasury shares

Cash flow hedge and currency

translation reserve

Other reserves

Reserves and

retained earnings

Profit for the year

Total equity

attribu-table to

owners of the Parent

Equity attributable

to non-controlling interests

Total consolid-ated

equity

Balances at 31 December 2014 1,084 55,106 (871) (4,721) 5,010 (9,128) (19,347) 27,133 170 27,303

Appropriation of profit for 2014 (16,207) (4,523) 1,383 19,347 - - - Other changes 140 140 (140) - Comprehensive income/ (loss) for 2015 (2,404) 215 (10,671) (12,860) - (12,860)

Balances at 31 December 2015 1,084 38,899 (871) (7,125) 702 (7,605) (10,671) 14,413 30 14,443

Appropriation of profit for 2015 (13,779) 3,108 10,671 - - Other changes 30 30 (30) -

Comprehensive income/ (loss) for 2016 2,219 (241) (5,479) (3,501) (3,501)

Balances at 31 December 2016 1,084 25,120 (871) (4,906) 461 (4,467) (5,479) 10,942 - 10,942

(*):Note 24 in the consolidated financial statements provides information on the main changes in equity during 2016.

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY (*)

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(€000) Note 2016 2015

A. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT BEGINNING OF YEAR 11,636 23,064

B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (5,533) (10,451)

Cash flows from operating activities before changes in working capital (5,683) (7,255)

Profit/(Loss) from continuing operations (9,433) (8,998)

Profit/(Loss) from discontinued operations (A) 3,954 (1,673)

Loss on assets sold (5,054) 2,073

Amortisation and depreciation 7 1,284 858

Goodwill impairment 8 294 -

Impairment losses/reversal of impairment losses on non-current assets 2 284 Impairment of assets (20) 44 Net change in provisions for staff termination benefits 357 548

Net change in current tax liabilities 6 (40)Net change in deferred tax liabilities 1,526 1,291 Net change in provisions - 213 Currency translation differences 1,401 (1,855)

(Increase) / Decrease in receivables 2,418 7,940 (Increase) / Decrease in inventories 124 (149)

Increase / (Decrease) in payables (2,962) (8,188)

Cash generated by/(used in) operating activities included in discontinued operations 570 (2,799)

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES 1,946 (977)

(Purchases)/disposals of fixed assets: - Intangible assets (1,429) (1,389) - Property, plant and equipment 32 537 - Financial assets (397) 38

Proceeds from assets sold, net of cash transferred and the related costs to sell 3,740 (48)

Cash generated by/(used in) investing activities included in discontinued operations - (115)

D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES - -

E. CASH FLOW FOR THE YEAR (B+C+D) (3,587) (11,428)

F. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT END OF YEAR (A+E) 8,049 11,636

of which: net cash and cash equivalents and current financial assets included in assets and liabilities held for sale and discontinued operations (6,266) (5,570)

G. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT END OF YEAR (A+E) ON REPORTED BASIS 14,315 17,206

(*):

(A): Details of the "Profit/(loss) from assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December 2016.

As required by IFRS 5, amounts for 2015 have been reclassified.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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4.1 PRINCIPAL ACTIVITIES Acotel Group SpA is a joint-stock company listed on the Milan Stock Exchange and operates as a holding company for a Group of companies present in the ICT sector, based on a single business project. The main companies in the Acotel group, in addition to Acotel Group SpA, which performs management functions and markets multimedia services for Italy (as a result of the merger of Acotel Group SpA with and into Acotel SpA completed in 2016), are: - Acotel do Brasil Ltda, which markets multimedia services to Brazilian operators; - AEM Acotel Engineering and Manufacturing SpA, which deals with the design, production and

sale of security systems and the marketing of services for the management of energy, water and gas consumption, in addition to assembly of the devices used in providing such services;

- Acotel Interactive Inc., which supplies consumer services, primarily serving the Mexican and Colombian markets;

- Acotel Interactive Conteúdo Para Telefonia Móvel LTDA, which supplies consumer services in Brazil, Peru and Ecuador;

- Acotel Interactive India Private Limited, which supplies consumer services in India; - Bucksense, Inc., which provides global mobile advertising; - Flycell Italia Srl, which supplies consumer services in Italy and Europe; - Hera Performance LLC, which performs the role of interactive global advertising agency.

These financial statements have been drawn up in thousands of euros, the Acotel Group’s functional currency. The foreign companies are included in the consolidated financial statements according to the accounting standards indicated in the following notes. Publication of the consolidated financial statements of Acotel Group SpA for the year ended 31 December 2016 was authorised by the Board of Directors’ meeting of 14 March 2017, which authorised the Chairman and CEO to make any necessary changes to the form of the financial statements.

4.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements for the year ended 31 December 2016 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, and effective at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), previously called the Standing Interpretations Committee (SIC). Accounting standards and interpretations effective as of 1 January 2016 In preparing this document, the Group has adopted certain accounting standards and amendments for the first time. In accordance with the applicable regulations, thede standards and amendments

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must be applied in the preparation of financial statements for annual periods beginning on or after 1 January 2016. The Group did not, on the other hand, deem it necessary to proceed with early adoption of any other standard, interpretation or amendment published but as yet not effective. The nature and impact of the new standards and amendments applied for the first time in 2016 are described below: IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows rate-regulated entities to continue recognising regulatory deferral accounts in accordance with a large part of their previous generally accepted accounting policies (GAAP), upon their first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statements of profit or loss and other comprehensive income. The standard requires disclosure of the nature of, and risks associated with, the entity’s rate regulation and the effects of the rate regulation on its financial statements. This standard does not apply to the Group, as it already uses IFRS. Amendments to IAS 19 Employee Benefits: Employee Contributions IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. IAS 19 requires such contributions that are linked to service to be attributed to periods of service as a negative benefit. The amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. The amendments are effective for annual periods beginning on or after 1 February 2015. This amendment does not apply to the Group, given that no entity belonging to the Group has employee benefit plans involving contributions from employees or third parties. Annual improvements to IFRS- 2010-2012 cycle IFRS 2 Share-based payment The amendment must be applied prospectively and clarifies various aspects linked to performance and service conditions representing the vesting conditions, including:

• a performance condition must contain a service condition; • a performance target must be met while the counterparty is rendering service; • a performance target may relate to the operations or activities of an entity, or to those of

another entity in the same group; • a performance condition may be a market or non-market condition; • if the counterparty, regardless of the reason, ceases to provide service during the vesting

period, the service condition is not satisfied. The Group has not yet used share-based payments and this amendment to IFRS 2 is not applicable. IFRS 3 Business Combinations The amendment must be applied prospectively and clarifies all contingent consideration arrangements classified as liabilities or assets arising from a business combination must be subsequently measured at fair value through profit or loss. This amendment has had no impact as it is consistent with the accounting standards already applied by the Group.

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IFRS 8 Operating Segments This amendment must be applied retrospectively and clarifies that:

• an entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar;

• the reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities;

The Group has not applied the aggregation criteria in paragraph IFRS 8.12.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets This amendment must be applied retrospectively and clarifies that, in IAS 16 and IAS 38, an asset may be revalued by reference to observable data on either the gross or the net carrying amount, and by proportionately adjusting the gross carrying amount so that the resulting carrying amount is equal to market value. In addition, accumulated depreciation/amortisation is the difference between the gross and carrying amounts of the asset. The Group has not account for any revaluation during the accounting period. IAS 24 Related Party Disclosures This amendment must be applied retrospectively and clarifies that a management entity – an entity that provides key management personnel services – is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant to the Group, as it does use the services of a management entity. Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations The amendments require an entity acquiring an interest in a joint operation, in which the activity of the joint operation constitutes a business, to apply, to the extent of its share, the relevant principles in IFRS 3 Business Combinations. the amendments clarify that, for the acquisition of an additional interest in a joint operation in which the activity of the joint operation constitutes a business, previously held interests in the joint operation must not be remeasured if the joint operator retains joint control. Furthermore, the amendments have added a scope exception for IFRS 11 to clarify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under the control of the same ultimate controlling party. The amendments apply to both acquisition of the initial share in the joint operation and the acquisition of additional interests in the same joint operation and must be applied prospectively. These amendments have not had any impact on the Group, as it did not acquire interest in joint operations during the period. Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively and not had any impact on the Group, as it does not use revenue-based methods of depreciation and amortisation for its non-current assets.

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Amendments to IAS 27 Equity method in Separate Financial Statements The amendments allow an entity to use the equity method to account for its investments in subsidiaries, joint ventures and associates in its separate financial statements. Entities who already apply IFRS and decide to amend their accounting method by adopting the equity method in their separate financial statements must apply the change retrospectively. These amendments do not apply to Acotel Group SpA’s separate financial statement in the absence of such investments. Annual improvements to IFRS - 2012-2014 cycle These improvements include: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Instruments: Disclosures

- Servicing Contracts: the amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendment.

- Applicability of the amendments to IFRS 7 to condensed interim financial statements: The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively.

IAS 19 Employee Benefits The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. The amendment must be applied prospectively. IAS 34 Interim Financial Reporting The amendment clarifies that the required interim disclosures must be either in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively. This amendment has not had any impact on the Group. Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 clarify, rather than significantly change, the existing IAS 1 requirements. The amendments clarify:

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• the materiality requirements in IAS 1; • that specific line items in the statement of profit or loss and other comprehensive income or

in the statement of financial position may be disaggregated; • that entities have flexibility as to the order in which they present the notes to financial

statements; • that the share of other comprehensive income of associates and joint ventures accounted for

using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of profit or loss and other comprehensive income or in the statement of financial position. These amendments have not had any impact on the Group. Investment Entities: Applying the Consolidation Exception (amendments to IFRS 10, IFRS 12 and IAS 28) The amendments address the issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These Amendments do not apply to Acotel Group SpA’s financial statements in the absence of such investments. New standards and interpretations not yet effective IFRS 9 Financial Instruments In July 2015, the IASB issued the final version of IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments: Recognition and Measurement and all the previous versions of IFRS 9. IFRS 9 brings together the classification and measurement, impairment (expected credit losses) and hedge accounting requirements. IFRS 9 is effective for annual periods beginning on or after 1 January 2018; early adoption is permitted. With the exception of hedge accounting, the standard must be applied retrospectively, but provision of comparative information is not obligatory. As regards hedge accounting, in general, the standard must be applied prospectively, with a number of limited exceptions. The Group will adopt the new standard from the effective date and will accordingly begin a process of assessing the impact of its adoption. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and introduces a new five-step model to be applied to revenue from contracts with customers. IFRS 15 establishes that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

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IFRS 15 replaces all existing revenue requirements in IFRS. The standard is effective for annual periods beginning on or after 1 January 2018, using either a full retrospective approach or a modified retrospective approach. Early application is permitted. The Group will adopt the new standard from the effective date and will accordingly begin a process of assessing the impact of its adoption. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognised when a transfer to an associate or joint venture involves a business as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has indefinitely postponed the date for application of these amendments, but if an entity should opt for early adoption it must apply the amendments prospectively. IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017 and early application is permitted. Application of the amendments will require the Group to provide additional disclosures. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12 The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explains in which circumstances taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods beginning on or after 1 January 2017 and early application is permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. The Group does not expect these amendments to have any impact. IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB has issued amendments to IFRS 2 Share-based Payment, dealing with three key issues: the effects of vesting conditions on a cash-settled share-based payment; the classification of a share-based payment transaction in which the entity has an obligation under tax laws or regulations to settle the arrangement net by withholding a specified portion of equity instruments to meet its minimum statutory withholding tax obligations; accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

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On adoption, entities must apply the amendments without representing previous periods, but retrospective application is permitted if chosen for all three amendments and other criteria are met. These amendments are effective for annual periods beginning on or after 1 January 2018 and early application is permitted. The Group has not yet used share-based payments and this amendment to IFRS 2 is not currently applicable. IFRS 16 Leases IFRS 16 was published in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 requires lessees and lessors to provide more extensive disclosure compared with IAS 17. IFRS 16 will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. The standard’s transition provisions permit certain reliefs. The Group expects to define the potential effects of IFRS 16 on its consolidated financial statements in 2017, although it should be noted that it is not at present party to any form of lease arrangement.

4.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle, with the exception of certain financial instruments measured at fair value, and on a going concern basis. In this regard, reference should be made to paragraph 4.6 below. Acotel Group companies have 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 chart shows the Operating Profit/Loss (EBIT) intermediate indicator, which represents the algebraic sum of total revenue and total costs. The Group also presents a separate statement of comprehensive income, showing components of income and expense accumulated in equity.

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The form of presentation used for the statement of financial position distinguishes between current and non-current assets and liabilities, as permitted by IAS 1. Equity is presented in columns that reconcile the opening and closing balance of each component of the schedule. The statement of cash flows is prepared in accordance with the indirect method. Finally, with reference to CONSOB Resolution no. 15519 of 27 July 2006, relating to financial statement presentation, related party disclosures have been included as specific line items in the income statement, statement of financial position and statement of cash flows.

4.4 CONSOLIDATION POLICIES Basis of consolidation In addition to the Parent Company, Acotel Group SpA, the following direct or indirect subsidiaries of Acotel Group SpA are consolidated at 31 December 2016:

Company Date of acquisition Group’s % interest

Registered office Share capital

AEM Acotel Engineering and Manufacturing SpA 28 April 2000 99.9% Rome EURO 264,000

Acotel Chile SA 28 April 2000 100% Santiago, Chile USD 17,330

Acotel Espana SL 28 April 2000 100% Madrid EURO 3,006

Acotel Do Brasil Ltda 8 August 2000 (1) 100% Rio de Janeiro BRL 1,868,250

Acotel Interactive, Inc. 28 June 2003 (1) 100% Wilmington USD 10,000

Acotel Interactive Conteúdo Para Telefonia Móvel LTDA

6 June 2006 (1) 100% (2) Rio de Janeiro BRL 250,000

Yabox LLC 24 October 2007 (1) 100% (2) Wilmington USD 1

Flycell Italia Srl 10 July 2008 (1) 100% (2) Rome EURO 90,000

Flycell Argentina SA 26 October 2009 100% (3) La Plata ARS 12,000

Acotel Serviços De Telemedicina Ltda. 28 March 2011 (1) 100% (4) Rio de Janeiro BRL 400,000

Acotel Teleçomunicaçāo Ltda. 28 March 2011 (1) 100% (4) Rio de Janeiro BRL 400,000

Bucksense, Inc. 28 June 2011 (1) 100% Nevada USD 10,000

Noverca Italia Srl (in liquidation) 9 May 2008 (1) 100% (5) Rome EURO 10,000

Acotel Interactive India Private Limited 22 August 2013 (1) 100% (2) Mumbai Rs 100,000

Hera Performance LLC 11 May 2016 100% (6) Nevada USD 1

(1) The date of the company’s entry into the Group coincides with its incorporation. (2) Controlled via Acotel Interactive Inc. (3) Controlled via Acotel Interactive Inc. and Yabox LLC. (4) Controlled via Acotel do Brasil Ltda. (5) Since 20 May 2013, the Group has full control of this company. (6) Controlled via Bucksense, Inc.

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The basis of consolidation changed during 2016, as a result of the incorporation of Hera Performance LLC by the subsidiary Bucksense, Inc., the sale of the 100% interest in Noverca Srl and the liquidation of the Argentinian subsidiary Acotel SRL owned by Acotel Interactive Inc.. Finally, in October 2016, the merger of the subsidiary Acotel SpA with and into Acotel Group SpA was completed. Consolidation principles The consolidated financial statements include the financial statements of Acotel Group SpA and those of its subsidiaries, as prepared at and for the year ended 31 December 2016. Subsidiaries are defined as entities over which the Parent Company has the power to govern the financial and operating policies of the entity. The net profit or loss of subsidiaries acquired or sold during the period 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 subsidiary’s 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”, while negative differences are recognised in the income statement. Intercompany receivables and payables, including dividends distributed within the Group, are eliminated. Profits, losses, revenues and expenses arising from intercompany transactions, and that have yet to be realised on transactions with third parties, 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 period. Any translation differences are accumulated in equity in the “currency translation reserve”. This reserve is recognised in profit or loss as a gain or a loss in the period in which the related subsidiary is deconsolidated. Non-controlling interests in equity and in profit for the year are shown in the specific items in the consolidated statement of financial position and income statement. Accounting policies The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements:

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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. Buildings, plant and equipment are accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section “Impairment of assets” below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates:

Buildings 4%

ICT platforms 25-50%

Specific plant 10-20%

Other plant and machinery 15-20%

Computers 20%

Other industrial equipment 15-25%

Vehicles 25%

Furniture, fixtures and fittings 12%

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 Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. These assets are accounted for less accumulated amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section “Impairment of assets” below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. 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.

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Concessions, licenses and similar rights include the costs incurred in the preparation and configuration of the technology infrastructure that enables the Group’s customers to use its telecommunications services.These costs are amortised on the basis of their expected useful lives. Goodwill 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 companies are accounted for if the Group is able to demonstrate that:

• it is technically possible to complete the intangible asset, so that it may be available for use

or sale; • it intends to complete the intangible asset, and its capacity and intention to use or sell it; • the means by which the asset will generate profits in the future; • the availability of resources to complete the asset; • the capacity to realiably estimate the cost ascribable to the asset during its development.

These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs (3 years). When internally generated assets may not be accounted for in the statement of financial position, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category. Impairment of assets Property, plant and equipment and intangible assets are tested 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 losses. 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 is tested 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 time value of money and the risks specific to the activities of each cash generating unit. As required by Document 4, published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy’s insurance industry regulator) on 3 March 2010, the impairment test is submitted for approval by the Parent Company’s Board of Directors.

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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 this lower recoverable amount. This impairment loss is immediately recognised in the income statement, being first accounted for as a reduction in the carrying amount of goodwill and, then, as a reduction in other assets in proportion to their carrying amount. 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 and other assets with an indefinite useful life, 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 loss. The reversal is immediately recognised in the income statement in the year in which the impairment is reversed. 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, in addition to other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average cost method. Net realisable value reflects the selling price less any estimated completion costs and costs to sell. Receivables and payables Receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest rate method, less any provisions for bad debts. The amount of the allowance is based on the present value of expected future cash flows. These cash flows take account of expected collection times, estimated realisable value, any guarantees received, and the expected costs of recovering amounts due. Impairment losses are reversed in future periods if the circumstances that resulted in the loss no longer exist. In this case, the reversal is accounted for in the income statement and may not in any event exceed the amortised cost of the receivable had no previous impairment losses been recognised. Payables are initially recognised at cost, which corresponds to the fair value of the liability, after any directly attributable transaction costs. After initial recognition, payables are recognised at amortised cost, using the effective interest method. Financial instruments The Group classifies financial assets at the time of purchase based on the following categories:

- financial assets at fair value through profit or loss, which include financial assets acquired primarily with the intention of profiting from short-term price movements or designated as such upon initial recognition;

- held-to-maturity financial assets, which are financial assets with a fixed maturity and with fixed or determinable payments that the Group has the positive intention and ability to hold to maturity;

- loans and receivables, which are financial assets with fixed or determinable payments that are not quoted in an active market and are different from those classified upon initial

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recognition as financial assets at fair value through profit or loss or as available-for-sale financial assets;

- available-for-sale financial assets, which are financial assets not classified in the above categories or that are designated as such upon initial recognition.

Financial assets are recognised 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 profit or loss for the period;

- financial assets that are not listed on an active market, loans and receivables and all held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment losses;

- available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in other comprehensive income/(losses) 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.

The fair values of financial assets quoted in active markets are calculated on the basis of bid prices quoted on the relevant market. The fair values of financial assets that are not quoted in an active market are estimated on the basis of quoted prices for similar instruments or using appropriate valuation techniques adapted to the specific situation of the issuer. The Group uses the following hierarchy of valuation techniques to determine and record the fair values of financial instruments: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques in which all inputs having a material impact on fair value are observable, either directly or indirectly; Level 3: techniques based on inputs having a material impact on fair value, not based on observable market data. Cash and cash equivalents This item includes cash in hand and at bank, other demand deposits and highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered primarily through sale or liquidation, rather than through continued use. This condition is only deemed to have been satisfied when the sale or liquidation is highly probable and the asset or disposal group is available for immediate sale in its present state. Management must be committed to a plan to sell, which must be completed within 12 months of classification as held for sale. Assets held for sale must be excluded from profit or loss from continuing operations and presented in a separate line item in the income statement showing the after-tax profit or loss from discontinued operations.

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Treasury shares Treasury shares are measured at cost and deducted from equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in equity, net of the related tax effect. 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 comprehensive income. These components may not be reclassified to profit or loss in a future period. Provisions The Group recognises provisions when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Changes in estimates are recognised in the income statement in the period in which the change occurs. Revenue Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account the contractually agreed terms of payment and excluding taxes and duties.

Revenue is recognised upon transfer of the risks and benefits of ownership or upon performance of the service. In particular:

• revenue from services rendered is recognised on the basis of the actual service performed during the year;

• revenue from software licensing to third parties is recognised upon transfer; • revenue from design, production and installation of electronic systems is recognised upon

performance of the service and delivery of the relevant products to, and acceptance by, the customer.

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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 tax laws that have been enacted or substantively enacted by the end of the reporting period in each country, taking account of applicable exemptions and tax credits. Provisions for tax expense that may result from the transfer of subsidiaries’ undistributed earnings are only made if there is an actual expectation that such earnings will be transferred. 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 expected to be in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in equity are likewise accounted for in equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and equity in line with the underlying transaction. 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. Since 2004 and for a three-year period, Acotel Group SpA and its Italian subsidiarie, AEM Acotel Engineering and Manufacturing SpA, have participated in a form of tax consolidation arrangement introduced by articles of 117 and 128 of the Consolidated Income Tax Act and the Ministerial Decree of 9 June 2004. This option which, pursuant to art. 117 of the Act has a duration of three years and is irrevocable, was renewed by the above companies in 2007, 2010, 2013 and 2016. Flycell Italia Srl joined the arrangement in 2010, renewing its participation in 2013 and 2016. Earnings per share Earnings per share is calculated by dividing profit for the year 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 end of the reporting period 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 In their preparation of the consolidated financial statements, the directors are required to apply accounting policies and methods that, in some circumstances, derive from difficult and subjective assessments and estimates based on previous experience and assumptions that are deemed reasonable and realistic in terms of the relative circumstances at the time. Application of these

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estimates and assumptions influences the amounts recognised in the financial statements, such as the statement of financial position, the income state and the statement of cash flows, as well as the information provided. The values of the items in the consolidated finanical statements to which the above-mentioned estimates and assumptions have been applied, may differ from those shown in the financial statements of the individual companies due to the uncertainty underlying the assumptions and the conditions on which the estimates are based. The estimates are primarily used to record revenue and costs that have yet to be confirmed by customers and suppliers, any impairments of goodwill and inventories, and provisions for bad debts, litigation and taxation, as well as for the recognition, subsequent measurement and recoverability of internally generated intangible assets. The estimates and assumptions are constantly monitored and the effects of any change are immediately reflected in the income statement. In this regard, the situation caused by the ongoing global economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. The items primarily affected by these situations of significant uncertainty are goodwill and deferred tax assets. Impairments of such items have been recognised in these consolidated financial statements, as the most recent financial plans drawn up by management do not appear to guarantee their full recoverability, at least in the medium term. The items primarily affected by these situations of significant uncertainty are goodwill and deferred tax assets. In particular, with regard to revenue and costs yet to be confirmed by customers, turnover generated by Digital Entertainment services in the months of November and December and a number of related cost items include preliminary figures, deriving primarily from internal reporting systems, and estimates not yet confirmed by mobile transaction network providers and/or operators. Management also consults the Group’s legal and tax advisors in order to estimate the liabilities deriving from litigation when it deems it probable that an outflow of resources embodying economic benefits will be required and the amount of the resulting losses may be reliably estimated. If it is possible that an cash outflow will be necessary, the fact is disclosed in the notes to the financial statements without any provisions being made.

4.6 DIRECTORS’ ASSESSMENT OF COMPLIANCE WITH GOING CONCERN REQUIREMENTS

For the purposes of preparation of these financial statements and in compliance with the requirements of the Italian Civil Code and the relevant accounting standards, the Directors of Acotel Group SpA conducted an assessment of the Group’s compliance with the requirements of the going concern principle. This was done in view of the fact that, at the end of 2016, the Group had recorded a a consolidated loss of €5,479 thousand (a loss of €10,671 thousand in 2015), resulting primarily from negative EBITDA of €5,862 thousand (negative EBITDA of €6,681 thousand in 2015), reducing consolidated equity to €10,942 thousand (€14,443 thousand at 31 December 2015), and net funds to €8,049 thousand (€11,636 thousand at 31 December 2015).

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Having carried out assessments, the directors deemed that these consolidated financial statements could be prepared on a going concern basis, even though several uncertainties, which are specified below, were identified that give rise to significant doubts regarding the Group's capacity to continue operating in the same way as it has done in recent years. The different business areas in which the Acotel Group operates contributed as follows to the consolidated loss for the year ended 31 December 2016:

(a) ACOTEL NET business area: (€3,183) thousand (b) BUCKSENSE business area: (€2,548) thousand (c) ACOTEL INTERACTIVE business area: (€470) thousand (d) Taxation and adjustments: (€3,232) thousand (e) Net effect of “discontinued operations”: (€3,954) thousand Loss for the year: (€5,479) thousand

This shows how the Group continues to experience operational difficulties across all its businesses, with the losses incurred by the new businesses still unable to compensate for the deteriorating performance of the existing operations. As in the previous year, the operating losses incurred primarily reflect the following:

• in the NET business area, the revenue generated by this business in 2016, amounting to €2,241 thousand (€1,937 thousand in 2015), including €1,458 thousand from the Energy business and €783 thousand from video-surveillance, is not yet sufficient to cover fixed costs and make a positive contribution to the Group’s consolidated results, despite the positive market response to the services offered;

• in the Bucksense business area, the insufficient amount of turnover generated by programmatic advertising services which, in 2016, registered revenue of €1,867 thousand (€240 thousand at 31 December 2015), with negative EBITDA of €2,260 thousand, marking a deterioration compared with the negative EBITDA of €455 thousand reported in the previous year, affected by the investment carried out to launch the business;

• in the Acotel Interactive business area, the persistent contraction of revenue, which fell from €33,578 thousand in 2015 to €18,091 thousand in 2016, only partially offset by the cost rationalisation initiative implemented by the Group, enabling an improvement from the negative EBITDA of €1,880 thousand registered in 2015 to negative EBITDA of €639 thousand in 2016.

The sale of the investment in Noverca Srl enabled the Group to obtain the necessary financial resources to support the launch of new businesses, without having a negative impact on net invested capital and curbing the reduction in net funds at 31 December 2016, as shown in the following table:

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Net invested capital 2,893 2,807 86

Net cash 8,049 11,636 (3,587)

Whilst marking an improvement on the previous year’s performance, essentially thanks to the gain and cost savings resulting from the sale of the investment in Noverca Srl, the Group’s results for 2016 show how necessary it is for the new businesses to grow sufficiently as soon as possible, and in accordance with the provision of the plan for 2017-2021, to compensate, in both operational and financial terms, for the recent decline in revenue from VAS (Value Added Services) and the negative results reported in the business areas related to it. At the end of the previous year, the Directors drew up a business plan for the period 2016 – 2020 (the “Plan”). The Plan sets out the steps to be taken to support the revenue and earnings growth needed in order to return to profit (originally expected to occur in 2018) and the ensuing generation of positive operating cash flow, sufficient to support the traditional business (Acotel Interactive) and to fund the investment needed to develop the new businesses. The Plan set out a path to renewed profitability, with the aim of reversing the erosion of the Group’s financial resources, and halting the consequent decline in equity. Despite significant uncertainty regarding projected revenue and earnings growth from the new businesses, key to effectively achieving the expected improvement in the Group’s operating and financial performance, conserving capital and ensuring its renewed ability to generate cash after the outflows seen in past years. The above uncertainties effectively manifested themselves in 2016, with the Group’s actual operating results for the period falling short of the assumptions on which the Plan was based. Given the differences between the consolidated and projected results, the Directors have revised the Business Plan for 2016-2020 by approving a new plan for 2017-2021 and have prepared the consolidated financial statements on a going concern basis. This has also been done on the basis of the outlook for the twelve months after the reporting date for this report, despite the presence of various uncertainties that may give rise to significant doubts about the Group’s ability to continue operating as a going concern, connected with both the performance of its traditional businesses and expected revenue and earnings growth at its new businesses, which are key to effectively achieving the expected improvement in the Group’s operating and financial performance. In this regard, the Directors believe that, based on the results for the year just ended and the anove uncertainties, there is a potential risk that the Group may not be able to turn around its business in the short term and, in accordance with the expectations set out in the plan for 2017-2021, to halt the erosion of capital and cash seen in recent years. This would result in the need to raise fresh capital in the form of equity or debt. In this connection, it is, however, important to note that the Group has no bank borrowings, except for a current account overdraft granted by Intesa San Paolo to the subsidiary, Noverca Italia Srl (in liquidation). In the preparation of these consolidated financial statements on a going concern basis, the Directors have taken the following into account:

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• the absence of any difficulties in the management of existing debt; • the substantial absence of any past due payables or legal disputes with creditors; • the presence of sufficient equity reserves in respect of the share capital; • the absence of legal and/or tax disputes that could result in liabilities that the Group would

not be able to meet; • the positive results that will presumably be achieved by the Group in 2017 due to the

agreement that is being drawn up with Intesa Sanpaolo in accordance with the terms set out in paragraph 1.13 – Events after 31 December 2016.

4.7 ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS

This section provides a breakdown of “Assets and liabilities held for sale and discontinued operations”, as presented in the consolidated income statement, the consolidated statement of financial position and the consolidated statement of cash flows. As more fully described above in the Directors’ report on operations, in 2016 the Group concluded a number of strategic transactions, involving withdrawal from the Mobile Virtual Network Aggregator business segment no longer deemed to have appreciable earnings potential. The following schedules show details of amounts accounted for in the “Profit/(Loss) from assets held for sale and discontinued operations”, resulting from the discontinuation of Noverca Srl's MVNA business, Noverca Italia Srl, which was put into liquidation last year, and Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC, both of which were sold in 2015:

(€000) 2016 2015

Noverca Italia Srl (in liquidation) 64 1,438

Sale of Noverca Srl 3,890 (2,773)

Sale of Flycell Telekomunikasyon Hizmetler AS - (249)

Sale of Info2cell.com FZ-LLC - (89)

3,954 (1,673)

PROFIT/ (LOSS) FROM ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

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55

Income statement for Noverca Italia Srl (in liquidation)

(€000) 2016 2015

Revenue 730 4,135

Other income 436 3,048 Change in inventories of work in progress, semi-finished and finished goods (1) (16)

Raw materials, semi-finished and finished goods (36) (49)

External services (636) (4,381)

Capitalised internal costs 36 57

Other costs (4) (151)

Gross operating profit (EBITDA) 525 2,643

Amortisation and depreciation (107) (344)

OPERATING PROFIT/(LOSS) (EBIT) 418 2,299

Finance income/(costs) (343) (419)

PROFIT/(LOSS) FOR THE YEAR 75 1,880

Provision for liquidation expenses (11) (442)

PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS 64 1,438

Revenue of €730 thousand generated during the year derives from the Mobile Virtual Network Aggregator (MVNA) activities carried out by the company during the year until the date of sale (April 2016) to Noverca Srl of the business unit, primarily including ownership of the licences and contracts required to carry out the MVNA business. External services, totalling €636 thousand, include €215 thousand relating to costs for use of Telecom Italia’s network infrastructure, and €198 thousand relating to interconnection and outbound traffic costs due to customers and other telephone operators.

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Income statement for Noverca Srl

(€000) 2016 2015

Revenue 1,772 - Other income 368 - Raw materials, semi-finished and finished goods (37) - External services (1,468) (426)Rentals and leases (3) (11)Staff costs (1,301) (1,826)Capitalised internal costs 126 87 Other costs (35) (5)

Gross operating profit (EBITDA) (578) (2,181)

Amortisation and depreciation (570) (590)

OPERATING PROFIT/(LOSS) (EBIT) (1,148) (2,771)

Finance income/(costs) (16) (2)

PROFIT/(LOSS) FOR THE PERIOD (1,164) (2,773)

Gain/(Loss) from sale of the company, before liquidation expenses 4,531 -

Cost of selling the company 61 -

Other gains/(losses) generated by sale of the company 462 -

PROFIT/(LOSS) FROM ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 3,890 (2,773)

Revenue of €1,772 thousand generated during the year derives from the Mobile Virtual Network Aggregator (MVNA) activities directly carried out by Noverca Srl from 2016 following acquisition of the business unit from Noverca Italia Srl (in liquidation). External costs, totalling €1,468 thousand, include:

- €577 thousand, relating to interconnection and outbound traffic termination costs due to customers and other telephone operators;

- €486 thousand, relating to costs for using Telecom Italia’s network infrastructure; - €196 thousand and €146 thousand, relate, respectively, to connection costs and fees paid to

the Ministry of Telecommunications, for the purposes of carrying out corporate activities. Staff costs, amounting to €1.301 thousand, represent the cost of the company’s employees.

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Income statement for Flycell Telekomunikasyon Hizmetler AS

(€000) 2016 2015

Revenue - 53 External services - (55)Rentals and leases - - Staff costs - (6)Other costs - (2)

Gross operating profit (EBITDA) - (10)

Finance income/(costs) - 10

PROFIT/(LOSS) FOR THE PERIOD - -

Gain/(Loss) on sale of company - (249)

PROFIT/(LOSS) FROM ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS - (249)

Income statement for Info2cell.com FZ-LLC

(€000) 2016 2015

Revenue - 8,499 Raw materials, semi-finished and finished goods - (10)External services - (5,628)Rentals and leases - (83)Staff costs - (1,267)Other costs - (123)

Gross operating profit (EBITDA) - 1,388

Amortisation and depreciation - (65)

OPERATING PROFIT/(LOSS) (EBIT) - 1,323

Finance income/(costs) - (81)

PROFIT/(LOSS) FROM ASSETS HELD FOR SALE AND CONTINUING OPERATIONS - 1,242

Taxation - -

PROFIT/(LOSS) FOR THE PERIOD - 1,242

Gain/(Loss) on sale of company - (1,824)Foreign exchange gains/(losses) realised - 493

PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS - (89)

The following schedule shows details of “Assets held for sale and discontinued operations” and “Liabilities directly associated with assets held for sale and discontinued operations” attributable to Noverca Italia Srl (in liquidation) and included in the statement of financial position at 31 December 2016:

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58

Statement of financial position of Noverca Italia Srl in liquidation

(€000) 31 December 2016 31 December 2015

Trade receivables 1 1

Other current assets 13 1,178

Cash and cash equivalents 121 395

TOTAL ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 135 1,574

Provisions 20 443

Current financial liabilities 6,387 5,965

Trade payables 484 1,070

Tax liabilities 4 18

Other current liabilities 613 186

TOTAL LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 7,508 7,682

Current financial liabilities, totalling €6.387 thousand, regard the use as of 31 December 2016 of an overdraft facility granted to the company by Intesa Sanpaolo SpA. Amounts due to suppliers, totalling €484 thousand, primarily regard trade payables in the process of being agreed. Other current liabilities, amounting to €613 thousand, include €590 thousand relating to prepaid telephone credit unused by Nòverca retail customers at 31 December 2016.

4.8 OPERATING SEGMENTS The Acotel Group is currently organised into three business areas: - Acotel Interactive; - Acotel Net; - Bucksense. In compliance with the provisions of IFRS 8, identification of the Group’s operating segments is based on internal reports used by management in taking strategic decisions. These internal reports, which also reflect the current organisational structure of the Group, are based on the various products and services supplied and are prepared using the same accounting standards described in the section “Basis of presentation” in the consolidated financial statements. In continuation of the corporate restructuring process under way, from 2016 the accounts include a new business area called Bucksense, aimed at raising the visibility of the Group's programmatic advertising services. In addition, the Acotel TLC business area no longer appears, following the sale of the Mobile Virtual Network Aggregator business segment. Taking this into account, breakdowns of the Group’s results by operating and geographical segments for 2015, restated to facilitate comparison with the results for 2016, are shown below:

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Results by operating segment

(€000)ACOTEL

INTERACTIVEACOTEL NET BUCKSENSE

Adjustments / Other

Total

Revenue:Revenue from third party customers 18,091 2,241 1,867 - 22,199 Inter-segment revenue - - - - - Total 18,091 2,241 1,867 - 22,199

Gross operating profit/(loss) (639) (2,418) (2,260) (545) (5,862)Amortisation, depreciation and impairments (526) (465) (295) - (1,286)Goodwill impairment - (294) - - (294)Operating profit/(loss) (1,165) (3,177) (2,555) (545) (7,442)

Finance income 1,006 - 17 (172) 851 Finance costs (311) (6) (10) - (327)

Profit/(Loss) for the period before tax (470) (3,183) (2,548) (717) (6,918)

Taxation (2,515)

Profit/(Loss) from continuing operations (9,433)

2016

(€000)ACOTEL

INTERACTIVEACOTEL NET BUCKSENSE

Adjustments / Other

Total

Revenue:Revenue from third party customers 33,578 1,937 240 - 35,755 Inter-segment revenue - - - - - Total 33,578 1,937 240 - 35,755

Gross operating profit/(loss) (1,880) (2,848) (455) (1,498) (6,681)Amortisation, depreciation and impairments (923) (211) (6) (2) (1,142)Operating profit/(loss) (2,803) (3,059) (461) (1,500) (7,823)

Finance income 1,344 12 - 31 1,387 Finance costs (655) (5) (10) (46) (716)

Profit/(Loss) for the period before tax (2,114) (3,052) (471) (1,515) (7,152)

Taxation (1,846)

Profit/(Loss) from continuing operations (8,998)

2015

Total consolidated assets and liabilities by operating segment at 31 December 2016 and 2015 are as follows:

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60

(€000)

ACOTEL INTERACTIVE

ACOTEL NET BUCKSENSE ACOTEL TLCAdjustments/

Other Total

At 31 December 2016 23,062 3,189 2,182 - 162 28,595

At 31 December 2015 27,723 3,660 974 4,475 21 36,853

Results by geographical segment The following table provides an analysis of the Group’s sales in the various geographical segments, regardless of the nature of the goods and services sold:

(€000)

2016 2015Increase/

(Decrease)

Latin America 7,787 18,796 (11,009)Italy 6,593 10,672 (4,079)India 5,991 5,814 177Other European countries 610 446 164North America 828 6 822Other 390 21 369

22,199 35,755 (13,556)

The following table shows a geographical breakdown of the total value of non-current assets, excluding financial assets and deferred tax assets:

(€000)At 31 December 2016 At 31 December 2015

Latin America 3,775 3,254North America 2,287 1,901Italy 2,178 2,638Other European countries 27 34India 12 17

Total non-current assets 8,279 7,844

The Group did not earn revenue from any specific customer representing more than 10% of total revenue for the period.

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4.9 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue amounts to €22,199 thousand for 2016, down 38% on the €35,755 thousand of the previous year. The following table shows a breakdown:

(€000)

2016 2015Increase/ (Decrease)

Acotel Interactive 18,091 33,578 (15,487)

Acotel Net 2,241 1,937 304

Bucksense 1,867 240 1,627

Total 22,199 35,755 (13,556)

A description of the principal events influencing the revenue of each business area during 2016 is provided below. ACOTEL INTERACTIVE The Acotel Interactive business includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and commercial companies (Mobile Services). It has the primary purpose of supplying value added content and services over mobile phones and the web. A breakdown of revenue in this segment is given in the following table:

(€000) 2016 2015Increase/

(Decrease)

Digital Entertainment 13,853 27,574 (13,721)

Mobile Services 4,238 6,004 (1,766)

Total 18,091 33,578 (15,487)

In 2016, Digital Entertainment services generated revenue of €13,853 thousand, down 50% on 2015. These services are supplied by Acotel Interactive Inc. and its direct subsidiaries, accounting for a total of €11,413 thousand, and by Acotel Group SpA, accounting for €2,440 thousand. The decrease on 2015 primarily reflects reduced turnover in South America and Italy. Mobile Service revenue, amounting to €4,238 thousand, is down 29% on 2015. These include the revenues from services rendered by the subsidiary, Acotel do Brasil Ltda, to the Brazilian operator, TIM Celular, amounting to €3,245 thousand, and those generated by the services provided to Telecom Italia and corporate clients by Acotel Group SpA, totalling €993 thousand. The decrease compared with 2015 is due to reduced turnover in the Brazilian and Italian markets.

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ACOTEL NET Revenue reported by the Acotel NET business area for 2016 amounts to €2,241 thousand, up 16% on the figure for 2015, as shown in the following table:

(€000) 2016 2015Increasse/ (Decrease)

Energy 1,458 943 515

Security Systems 783 994 (211)

Total 2,241 1,937 304

The Energy segment generated revenue of €1,458 thousand during the year, generated primarily by the Group’s contracts with ENI, in relation to its myEnergy service and Poste Italiane SpA, relating to energy management at more than 8,000 post offices. The Security Systems segment generated revenue of €783 thousand in 2016. This revenue is generated entirely in Italy from the design, production and maintenance of electronic security systems by the subsidiary, AEM Acotel Engineering and Manufacturing SpA. The subsidiary generates revenue from the installation, supply, servicing and maintenance of remote surveillance equipment primarily installed at certain provincial branches of the Bank of Italy and at Italian police headquarters. BUCKSENSE In 2016, the Bucksense business area generated revenue of €1,867 thousand, marking a sharp increase on the earnings registered in the previous year (€240 thousand). 44% of this revenue was generated in North America, 28% in Europe, 8% in Latin America and the remainder in other geographical areas. Note 2 – Other income

Other income of €250 thousand (€197 thousand in 2015), primarily refers to Group consultancy and leasing services offered in Italy and Brazil. Note 3 – Raw materials, semi-finished and finished products

This item, amounting to €300 thousand (€371 thousand in 2015), primarily relates to the purchase of materials for the production of devices used in providing Acotel NET’s services. Note 4 – External services The cost of external services totals €17,719 thousand, representing a decrease compared with 2015. A breakdown of the service costs is shown below:

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63

(€000)

2016 2015Increase/

(Decrease)

Interconnection and billing services 7,165 14,798 (7,633)

Advertising 5,054 7,504 (2,450)

Professional consultants 1,449 1,922 (473)

Connectivity and sundry utilities 1,031 894 137

Remuneration of corporate officers 730 777 (47)

Content providers 657 1,237 (580)

Office security and cleaning 292 317 (25)

Auditors' fees 267 316 (49)

Travel expenses 223 371 (148)

Routine maintenance 112 115 (3)

Outsourcing 96 139 (43)

Insurance 62 72 (10)

Purchase of SMS packages 40 329 (289)

Call centre 31 39 (8)

Other minor expenses 510 518 (8)

Total 17,719 29,347 (11,628)

The decrease primarily reflects a reduction in the cost of interconnection and billing services, linked to the performance of Digital Entertainment revenue, a decrease in advertising expenses and a reduction in the cost of content provision. Remuneration paid to corporate officers, totalling €730 thousand, includes €642 thousand paid to the Directors and €88 thousand paid to the Statutory Auditors. Note 5 – Rentals and leases Rentals and leases amount to €977 thousand (€1,152 thousand in 2015) and primarily include rentals on offices occupied by Group companies. Note 6 - Staff costs Staff costs include:

(€000)

2016 2015Increase/

(Decrease) Salaries and wages 7,422 8,781 (1,359)

Social security contributions 1,780 1,841 (61)

Staff termination benefits 415 402 13

Finance costs (45) (64) 19

Other costs 592 849 (257)

Total 10,164 11,809 (1,645)

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64

Other staff costs include charges incurred in relation to professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries, information about which is provided in Note 30. Finance costs on staff termination benefits are calculated on the basis of the method described in full in the following Note 25, to which reference should be made. This cost item is recognised in finance costs (Note 11). The geographical distribution of the Group’s staff is shown in the table below:

31 December 2016

31 December 2015

Italy 109 109 Brazil 33 41 Spain 15 6 USA 13 22

India 4 3

Total 174 181

The number of staff by category at 31 December 2016, compared with the average number for 2016 and 2015, is reported in the following table.

At 31 December 2016 Average 2016 Average 2015

Managers 12 13 12 Supervisors 30 34 39 White- and blue-collar staff 132 130 151 Total 174 177 202

During 2016, the interest in the subsidiary Noverca Srl was sold. As a result, in order to provide a like-for-like basis for comparison, the figures shown above regarding the geographical distribution of the Group’s staff and the breakdown of staff by category for 2016 and 2015 exclude the staff of this company. For the purposes of full disclosure, the total workforce employed by Noverca Srl at 31 December 2015 amounted to 32. Note 7 - Amortisation and depreciation Details of the amortisation and depreciation of assets are given below:

(€000)

2016 2015Increase/

(Decrease)

Amortisation of non-current intangible assets 614 88 526

Depreciation of property, plant and equipment 670 770 (100)

Total 1,284 858 426

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Amortisation of intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies. Depreciation of property, plant and equipment primarily refers to depreciation of infrastructure used by Group companies. Note 8 – Impairment of goodwill This item, an impairment loss of €294 thousand, regards the impairment of the goodwill of AEM Acotel Engineering and Manufacturing SpA in order to bring the carrying amount into line with the recoverable amount. For further details, reference should be made to Note 15 of these consolidated financial statements. Note 9 - Capitalised internal costs Capitalised internal costs, totalling €1,630 thousand (€1,361 thousand in 2015), essentially relate to staff employed in the development of software and new functions used in delivering NET and advertising services. Capitalisation requirements regarding these costs were met as the conditions of the reference standards were fulfilled, albeit subject to realisation of the assumptions in the business plan approved by the Group. Note 10 - Other costs Other costs of €650 thousand (€1,372 thousand in 2015) include €323 thousand in indirect taxes payable by Acotel do Brasil and Acotel Interactive LTDA in compliance with Brazilian legislation. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 11 - Finance income and costs Net finance income of €524 thousand breaks down as follows:

(€000)

2016 2015Increase/

(Decrease)

Income from investments 687 971 (284)

Foreign exchange gains 156 411 (255)

Interest income on bank deposits 8 5 3

Total finance income 851 1,387 (536) Foreign exchange losses (208) (579) 371

Interest expense and bank charges (52) (43) (9)

Other finance costs (67) (94) 27

Total finance costs (327) (716) 389

Total finance income/(costs) 524 671 (147)

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Income from investments relates to gains on financial assets held for trading, resulting entirely from the fair value measurement of financial assets held by the Group at 31 December 2016. Foreign exchange gains and losses essentially regard realised and unrealised gains and losses generated by Acotel Interactive Inc. and its subsidiaries. Note 12 - Taxation Taxation for 2016 breaks down as follows:

(€000)

2016 2015Increase/

(Decrease)

Current tax expense 791 602 189

Deferred tax income 1,769 1,455 314

Deferred tax expense (45) (211) 166Total 2,515 1,846 669

The total amount of €2,515 thousand includes provisions for taxes on the income of Group companies, recognised in current tax expense. Deferred tax income and expense includes provisions made by Group companies after taking account of the reversal of deferred taxes recognised in previous years. Reconciliation of the statutory rate of IRES (corporation tax) of 27.5% and the effective rate is shown in the following schedule:

(€000)

2016 % 2015 %

Pre-tax profit/(loss) (6,918) (7,152)

Charge calculated at statutory rate of 27.5% of pre-tax result (1,902) 27.5% (1,967) 27.5%

Net tax credit/(expense) deriving from losses of Italian subsidiaries not qualifying for recognition of deferred tax assets 1,367 19.8% 1,105 15.5%

Net tax credit/(expense) on permanent increases and decreases 6 0.1% 344 4.8%

Differences between statutory and effective rates for foreign subsidiaries 1,373 19.8% 1,459 20.4%

Adjustment of deferred tax assets to reflect recoverable amount 1,677 24.2% 560 7.8%

Adjustment of tax rate applicable to deferred tax assets - - 353 4.9%

Other minor changes (6) (0.1%) (14) (0.2%)

2,515 36.3% 1,840 25.7%

IRAP - 6

Income tax expense for the year 2,515 1,846

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67

No account has been taken of IRAP (regional tax) in the comparison between the effective tax charge accounted for in the financial statements and the statutory tax charge as, having a tax base different from pre-tax profit, it would generate a distortion between one period and another. The statutory tax rate was accordingly only determined on the basis of the prevailing statutory rate for IRES (corporation tax) of 27.5%. 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 €3.1 million on tax losses reported by the Parent Company and AEM Acotel Engineering and Manufacturing SpA at 31 December 2016 have not been recognised, as they are not currently deemed to qualify for recognition. The long-term business plans of the companies included in the tax consolidation arrangement do not, at this time, provide sufficient certainty that the unrecognised tax losses are recoverable within the period covered by the plans (2017-2021). For the purposes of full disclosure, the following table shows changes in tax losses generated by the tax consolidation arrangement in 2016, distinguishing between those accounted for in the Group’s deferred tax assets and those not accounted for: (€000)

31 December 2015 Additions Reductions 31 December 2016

Deferred tax assets on tax losses from tax consolidation arrangement accounted for 1,674 (1,674) -

Deferred tax assets on tax losses from tax consolidation arrangement not accounted for

6,000 1,010 (3,924) 3,086

Total 7,674 1,010 (5,598) 3,086

Note 13 - Earnings per share The calculation of basic and diluted earnings per share is based on the following data:

2016 2015

Profit/(Loss) for the year (€000) (5,479) (10,671)

Number of shares ('000)

Shares in circulation at beginning of the year 4,114 * 4,114 *Weighted average of treasury shares acquired/sold in the year - -

Weighted average of ordinary shares in circulation 4,114 4,114

Basic and diluted earnings per share ** (1.33) (2.59)

* : net of treasury shares held at the same date.**: basic earnings per share for 2016 and 2015 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist.

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4.10 NOTES TO THE STATEMENT OF FINANCIAL POSITION

4.10.1 ASSETS NON-CURRENT ASSETS Note 14 - Property, plant and equipment A breakdown of this item, with a separate column for accumulated depreciation, is as follows:

(€000)

Historical cost Accumulated depreciation

ImpairmentsCarrying amount at

31 Dec 2016

Carrying amount at

31 Dec 2015

Land and buildings 3,577 (493) - 3,084 2,551 Plant and machinery 4,844 (4,237) (2) 605 1,192

Industrial equipment 1,242 (1,149) - 93 119

Assets under construction and advances 51 - - 51 22

Other 3,277 (2,096) - 1,181 1,397

Total 12,991 (7,975) (2) 5,014 5,281

Land and buildings regards a property in Rio de Janeiro purchased by the subsidiary, Acotel do Brasil, in 2011 to house the registered offices and operating headquarters of the company and the Group’s other Brazilian companies. Plant and machinery mainly consists of data transmission platforms used in the provision of the Group's services. Industrial equipment includes the computers used by the Group for development and maintenance of hardware and software products used in the development and management of value added services and in internal operating activities. Furniture and fittings are included in “Other” assets, together with leasehold improvements. No item of property, plant or equipment was revalued during the year, whereas assets no longer usable by the Group were subject to impairment, for a total of €2 thousand. No additional impairment indicators were identified regarding this item of the annual consolidated financial statements. Changes in property, plant or equipment during the period are shown in an annex. The increase in Land and buildings in 2016 is essentially due to exchange differences resulting from the rise in the value of the Brazilian real against the euro. The reduction in 2016, as regards other types of property, plant or equipment, is essentially due to fully depreciated assets that no longer generate economic benefits for the Group and to the sale of Noverca Srl.

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Note 15 - Goodwill The Group tests the recoverability of goodwill at least once a year, when preparing the annual financial statements, or more frequently if there are indicators of impairment. Since goodwill 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. Recoverable amounts are determined on the basis of the value in use of the CGU’s net invested capital, using the discounted cash flow method. This takes account of the expected operating cash flow for each company, based on budgets prepared by the companies. The main assumptions used by the Group in determining value in use include the discount rate (WACC), 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 time value of money and the specific risks connected to each CGU. The discount rate used is the average cost of capital consistent with the flows to be discounted. The after-tax discount rates used, which take account of the specific risks associated with the countries in which each subsidiary operates, are expressed in real terms and are 6.52% for AEM Acotel Engineering and Manufacturing SpA. Future cash flows, expressed in real terms regardless of assumed movements in sales prices and direct costs, are derived from the most recent projections approved by the boards of directors of the companies to whom the CGUs are attributable, namely the companies’ budgets for 2017 and their long-term business plans for the next 4 years, as prepared by the above companies’ management. The terminal value, calculated on the basis of the perpetual growth rate, was determined on the basis of an EBITDA equal to the average over the course of the various business plans and “maintenance” investment equal to the level of amortisation and using a long-term growth rate equal to zero. The value in use resulting from the impairment tests has led to the write-off of the goodwill attributed to AEM Acotel Engineering and Manufacturing SpA, amounting to €294 thousand, as shown in the following table.

(€000)

Operating segment CGU 31 Dec 2015 Additions Reductions 31 Dec 2016

Acotel NET AEM 294 - (294) - Total 294 - (294) -

Note 16 - Other intangible assets A breakdown of other intangible assets at 31 December 2016 is as follows:

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(€000)

Historical cost Accumulated amortisation

Carrying amount at

31 Dec 2016

Carrying amount at

31 Dec 2015Industrial patents and intellectual property rights 3,656 (1,475) 2,181 1,017 Concessions, licences and similar rights 401 (392) 9 485 Intangible assets in process and advances 95 - 95 163 Other 82 (35) 47 68

Total 4,234 (1,902) 2,332 1,733

Industrial patents and intellectual property rights consist of the specific software developed in-house or purchased from third parties, and used by the Group in the provision of ICT services and for the internal information system used by Group companies. No revaluations or impairments of Other intangible assets were recognised in 2016. No impairment indicators were identified regarding this item of the annual consolidated financial statements based on the results of impairment tests carried out to assess the recoverability of the goodwill and carry values of the interests held by Acotel Group SpA in Acotel Interactive Inc., AEM Acotel Engineering and Manufactoring SpA and Acotel do Brasil Ltda. Changes in intangible assets during the year are shown in an annex. The increase in 2016 in Industrial patents and intellectual property rights is primarily due to capitalised costs for the development of software and new functions required for the provision of NET services and advertising. The values relating to these intangible assets were deemed to be recoverable, albeit subject to realisation of the assumptions made in the business plan approved by the Group. The reduction in 2016, as regards other types of Other intangible assets, is essentially due to fully depreciated assets that no longer generate economic benefits for the Group and to the sale of Noverca Srl. Note 17 - Other non-current assets This item, amounting to €933 thousand (€536 thousand at 31 December 2015), includes €483 thousand relating to medium- and long-term guarantee deposits, and €450 thousand relating to the escrow account held until 31 January 2019, provided for in the contract regarding the sale of the 100% interest in Noverca Srl. Note 18 - Deferred tax assets The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets:

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(€000)

Taxation Tax Taxation Taxrate rate

Deferred tax assets:

Adjustment for IAS 19 (revised) 186 24% 125 27.5%Refund of IRES for non-deduction of IRAP pursuant to Law Decree 201/2011 91 24% 91 24%Recovery/release of taxed book amortisation and depreciation 34 28,82% - 24% 36 32,32% - 24%Impairment of inventories 24 28.82% 24 28.82%Recovery of taxed provisions for bad debts 3 24% 3 27.5%Other - 3 27,5% - 24%

Sub-total 338 282

Tax losses for the period - 1,674 Tax credits for taxes paid overseas 110 98

Total 448 2,054

31 December 2016 31 December 2015

Deferred tax assets deriving from tax losses carried forward regard tax losses that may be carried forward for an unlimited period of time, generated by the tax consolidation arrangement. The reduction, compared with the end of the previous year, primarily reflects the write-off of deferred tax assets deriving from tax losses carried forward generated by the tax consolidation arrangement as they are deemed to be no longer recoverable, based on the projections of taxable income contained in the long-term plans prepared by the managements of Group companies. CURRENT ASSETS Note 19 - Inventories The table that follows shows 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 2016:

(€000)

Gross valueAccumulated impairments

Carrying amount at

31 Dec 2016

Carrying amount at

31 Dec 2015 Raw and ancillary materials and consumables 275 (95) 180 173 Work in progress and semi-finished products 213 (41) 172 250 Finished products and goods for resale 120 (11) 109 162

Total 608 (147) 461 585

Changes in provisions for inventory impairments during the year are shown below:

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(€000)

Balance at 31 December 2015 89

Provisions 2016 60

Uses 2016 (2)


Note 20 - 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 December 2016 31 December 2015 Increase/ (Decrease)

Trade receivables 3,865 5,698 (1,833)

Provisions for bad debts (52) (144) 92

Total 3,813 5,554 (1,741)

Net trade receivables are fully collectable within 12 months. 55.1% of total trade receivables relates to amounts due from the following telephone companies: Telecom Italia (14.8%), TIM Celular SA (12.4%), Telcel (8.2%), Vodafone (6.7%), Idea Cellular (6.5%) and the customer ENI SpA (6.5%). Changes in provisions for bad debts during the period are shown below:

(€000)


Provisions 2016 20

Uses 2016 (112)


The carrying amount of trade receivables is deemed to approximate to fair value. Note 21 - Other current assets At 31 December 2016, these assets total €1,144 thousand and break down as follows:

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(€000)


Credits for taxation paid overseas 527 1,383 (856)

Prepayments to suppliers 115 171 (56)

IRES refund 101 101 -

Current income tax assets 19 121 (102)

VAT credits 4 20 (16)

Other 378 240 138

Total 1,144 2,036 (892)

Credits for taxation paid overseas, amounting to €527 thousand, derive from overseas subsidiaries’ tax credits. Prepayments to suppliers of €115 thousand relate essentially to service contracts and commissions due for advertising activities carried out by third parties, who are remunerated on the basis of the contracts actually signed with final customers, and insurance premiums paid by Group companies in advance. IRES refunds, totalling €101 thousand, refer to claims submitted for reimbursement of IRES in the absence of deduction of IRAP relating to staff costs and interest. Current income tax assets of €19 thousand regard payments on account for IRES and IRAP, less tax payable for the year. The carrying amount of other current assets is deemed to approximate to fair value. Note 22 - Current financial assets Current financial assets, amounting to €4,505 thousand, include: (€000)


Assets held for trading 2,905 9,434 (6,529)

Loans and receivables 1,600 1,600 -

Total 4,505 11,034 (6,529)

At 31 December 2016, assets held for trading regard: - the “Private Select” portfolio managed by Cordusio SIM SpA and invested in by Acotel Group

SpA for a total of €751 thousand; this fund, which is exposed to limited risk, invests in money market instruments and bonds;

- investment funds and money market instruments invested in by the subsidiaries, Acotel Interactive LTDA and Acotel do Brasil, and primarily managed by ItauBank, totalling €766 thousand and €1,388 thousand, respectively.

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Loans and receivables, totalling €1,600 thousand, refer to a fiduciary deposit held by Cordusio società fiduciaria per azioni. This deposit, provided for in the contract for the sale of the 100% interest in Jinny Software Ltd, is an escrow account to guarantee the current administrative and accounting due diligence process as well as fulfilment of the seller’s other contractual obligations. At 31 December 2016, Acotel Group SpA has made provisions of €329 thousand (Note 27) to reflect the results of the due diligence process at the date of preparation of these financial statements. The following table shows a comparison between the carrying amount and fair value of financial instruments at 31 December 2016: (€000)

Carrying amount Fair value

Current financial assets:Assets held for trading 2,389 2,905Loans and receivables 1,600 1,600Total 3,989 4,505

Current financial liabilities:

Bank borrowings 6,387 6,387 Total 6,387 6,387

The following table shows a summary of financial instruments, other than cash and cash equivalents, held by the Group at 31 December 2016: (€000)

Loans and receivables

Assets held for trading

Fair value through profit or loss

Fair value through other comprehensive income

Current financial assets:Other financial assets 1,600 - - - Investment funds - 2,905 687 - Trade and other receivables 4,957 - - -

Total 6,557 2,905 687 -

Current financial liabilities:Bank borrowings 6,387 - - - Trade and other payables 6,018 - - -

Total 12,405 - - -

The financial instruments listed in the column “Fair value through profit or loss” are financial assets resulting from the short-term investment of liquidity.

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Note 23 - Cash and cash equivalents This item includes bank deposits of €9,803 thousand and cash and notes in hand of €7 thousand. At the end of last year these items amounted to €6,164 thousand and €8 thousand, respectively. Bank deposits represent the closing balances of Group companies’ bank current accounts at the end of the year.

4.10.2 LIABILITIES AND EQUITY EQUITY Note 24 - Equity attributable to owners of the Parent The statement of changes in equity during the period is included in the financial statements, following appropriation of the result for the previous year (€10,671 thousand), the impact of application of IAS 19 (€241 thousand), recognised in comprehensive income, and redetermination of the cash flow hedge and currency translation reserve (€2,219 thousand). At 31 December 2016, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares. The Group’s objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to €25,120 thousand and derives primarily from the capital increases carried out in preparation for the stock market flotation. At 31 December 2016, treasury shares acquired by Acotel Group SpA were recorded as a reduction of consolidated equity, totalling €871 thousand. These shares have a par value of €14,671, representing 1.35% of the share capital. This refers to 56,425 Acotel Group SpA ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. The average purchase price of these shares was €15.44; at 31 December 2015, the share price stood at €6.44. Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the period. At 31 December 2016, Acotel Group SpA does not possess shares or units of parents, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the year. The cash flow hedge and currency translation reserve, which has a negative balance of €4,906 thousand, derives from the application of closing exchange rates in the translation of the financial statements of foreign subsidiaries denominated in foreign currencies other than the euro. Assets and liabilities have been translated into euros using the related closing exchange rates at 31 December 2016, while components of equity are translated on the basis of historical exchange rates. Income statement items were translated utilising average exchange rates for 2016.

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The following exchange rates have been used:

Company Currency Exchange rate at 31 Dec 2016

Average exchange rate 2016

Acotel Interactive Inc. USD 1.054 1.107

Bucksense, Inc. USD 1.054 1.107

Acotel do Brasil LTDA BRL 3.431 3.856

Acotel Serviços De Telemedicina Ltda. BRL 3.431 3.856

Acotel Teleçomunicaçāo Ltda. BRL 3.431 3.856

Acotel Interactive LTDA BRL 3.431 3.856

Flycell Argentina SA Ps 16.749 16.342

Acotel Interactive India Private Limited Rs 71.594 74.372

Other reserves, amounting to €461 thousand, break down as follows:

(€000)


Legal reserve 217 217 -

Profit on sale of treasury shares 9,219 9,219 -

Other (8,975) (8,734) (241)Total 461 702 (241)

Accumulated losses amount to €4,467 thousand.

NON-CURRENT LIABILITIES Note 25 - Provisions for staff termination benefits and other employee benefits At 31 December 2016, this item totals €3,638 thousand and includes 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. Changes during the year are shown below:

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77

(€000) 31 December 2016 31 December 2015

Opening balance 3,590 3,665

Provisions 370 403Finance costs 45 64Uses (97) (203)Various withholding taxes (31) (35)Adjustment for IAS 19 (revised) 302 (297)Transfer of provisions for staff termination benefits from Noverca Srl 166

-

Sale of Noverca Srl (686) - Other changes (21) (7)

Closing balance 3,638 3,590

Actuarial gains/(losses) recognised on defined-benefit plans, as accounted for in other consolidated comprehensive income and permanently excluded from profit or loss, are shown below:

(€000) 2016 2015

Gains/(Losses) from change in financial assumptions (203) 246

Gains/(Losses) from experience adjustments 80 51

(123) 297

Provisions for staff termination benefits shown in the financial statements are 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:

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78

Financial assumptions December 2016

Annual discount rate 1.31%

Annual inflation rate 1.50%

Annual rate of salary increaseManagers 2.50%; Supervisors/White-

collar/Blue-collar 1.00%

The Group has a defined-benefit pension plan in Italy. IAS19 (revised) has been applied retrospectively from 1 January 2012. As a result, the expected return on the defined-benefit plan assets is not accounted for in profit or loss. Interest on the net defined-benefit plan liability (net of plan assets) is, in contrast, accounted for in profit or loss. Interest is calculated using the discount rate applied in measuring the net pension plan liability or asset. In addition, unvested past service costs cannot any longer be deferred over the period until the benefits become vested. Past service costs are, in contrast, recognised fully in profit or loss at the earlier of the date on which the plan is changed or the date on which the related restructuring costs or termination benefits are recognised. Until 2012, unvested past service costs were accounted for on a straight-line basis over the average period until the benefits became vested. Following adoption of IAS 19 (revised), past service costs are accounted for immediately in profit or loss if the benefits vest immediately with the introduction of, or changes to, the pension plan. In the case of post-employment defined-benefit plans, IAS19 (revised) requires a series of disclosures:

• the results of a sensitivity analysis of each significant actuarial assumption at the end of the year, showing the effects of reasonably possible changes in actuarial assumptions at that date, in absolute terms;

• an indication of the contribution payable for the following year; • an indication of the average duration of the obligation; • expected future payments under the plan.

This information is provided below:

Inflation rate

Inflation rate

Discount rate Discount rateTurnover

rateService costs

Expected payments

Plan duration

+0.25% -0.25% +0.25% -0.25% +1% 2017 2017 (years)

3,718 3,560 3,537 3,743 3,593 350 407 17

Sensitivity analysis of measurement assumptions, service costs, expected payments and average duration of the plan

(€000)

Note 26 – Deferred tax liabilities Deferred tax liabilities, amounting to €160 thousand at 31 December 2016, derive from temporary differences between the carrying amount of assets and liabilities and their tax bases. This item primarily regards the Brazilian subsidiary, Acotel do Brasil.

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CURRENT LIABILITIES Note 27 – Provisions This item, amounting to €329 thousand, regards estimated potential liabilities deriving from commitments assumed and has not changed with respect to the previous year. Note 28 - Trade payables Trade payables, totalling €3,369 thousand, regard payables due to suppliers within 12 months, totalling €2,140 thousand (€5,468 thousand at 31 December 2015), and advances received from customers by Group companies, totalling €1,229 thousand (€1,310 thousand at 31 December 2015). The latter refer principally to amounts received from customers and deferred, in accordance with the matching principle, by the subsidiaries, Acotel Interactive Inc. (€704 thousand), AEM Acotel Engineering and Manufacturing SpA (€341 thousand) and the Parent Company (€184 thousand). Note 29 - Tax liabilities This item breaks down as follows:

(€000)

31 December 2016 31 December 2015Increase/

(Decrease)

Substitute tax payable 187 211 (24)

Income tax payable 72 168 (96)

VAT payable 33 300 (267)

Total 292 679 (387)

The item includes VAT due from Group companies, withholding taxes payable on behalf of employees and consultants and income taxes less payments on account. Note 30 - Other current liabilities This item breaks down as follows:

(€000)


(Decrease)

Amounts due to staff 1,160 1,726 (566) Amounts due to pension funds and social security institutions 578 698 (120)

Amounts due to Directors 163 162 1

Other payables 456 526 (70)

Total 2,357 3,112 (755)

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Amounts due to staff essentially refer to pay, bonuses and holiday pay due. Amounts due to pension funds and social security institutions include social security and insurance contributions due, which include the agreed contributions to be made to defined-contribution plans for the employees of overseas subsidiaries. Amounts due to the Directors of Group companies refer to accrued but as yet unpaid remuneration. 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 fair value.

4.11 NET FUNDS

(€000)


(Decrease)

A. Cash and cash equivalents 9,931 6,567 3,364

B. Assets held for trading 2,905 9,434 (6,529)

C. Liquidity (A + B) 12,836 16,001 (3,165)

D. Other current financial receivables 1,600 1,600 - E. Current financial assets (D) 1,600 1,600 -

F. Current bank borrowings (6,387) (5,965) (422) G. Current financial liabilities (F) (6,387) (5,965) (422)

H. Net funds (C+E+G) 8,049 11,636 (3,587)

Net funds at 31 December 2016, amounting to €8,049 thousand, are down 31% on the figure for the end of 2015, reflecting the losses incurred by Group companies during the year. Net funds or net debt, as defined by the CONSOB Ruling of 28 July 2006, represents an alternative performance indicator. At 31 December 2016:

- cash and cash equivalents include €121 thousand attributable to Noverca Italia Srl (in liquidation) and classified in “discontinued operations” in accordance with IFRS 5;

- provisions of €329 thousand have been made for risks associated with other current financial assets, amounting to €1,600 thousand. Further information is provided in Note 27 of these financial statements;

- current financial liabilities regard use of an overdraft facility granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA, classified in “Liabilities directly associated with discontinued operations” in accordance with IFRS 5. At the date of preparation of these consolidated financial statements, the negotiations relating to a settlement of this position, in accordance with the terms set out in paragraph 1.13 – Events after 31 December 2016, can be considered at a conclusion.

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4.12 ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Classes of financial instrument The following table shows the breakdown of financial assets and liabilities required by IFRS 7 and IFRS 13 within the context of the categories provided for by IAS 39:

(€000)

Assets at FV through profit or loss held for

trading


Available-for-sale financial

assets

Carrying amount

Guarantee deposits - 483 - 483 17


Trade receivables Customers - 3,813 - 3,813 20

Escrow accounts - 1,600 - 1,600 22

Other financial assets 2,905 - - 2,905 22

Bank deposits - 9,803 - 9,803 23Cash and notes in hand - 7 - 7 23

2,905 16,156 - 19,061

31 December 2016

Note

NON-CURRENT ASSETS

CURRENT ASSETS

ITEM

Other non-current assets

TOTAL ASSETS

Current financial assets

Cash and cash equivalents

(€000)

Assets at FV through profit or loss held for

trading



assets

Carrying amount


Trade receivables Customers - 5,554 - 5,554 20

Escrow accounts - 1,600 - 1,600 22

Other financial assets 9,434 - - 9,434 22

Bank deposits - 6,164 - 6,164 23Cash and notes in hand - 8 - 8 23

9,434 13,862 - 23,296 TOTAL ASSETS



31 December 2015

Note

NON-CURRENT ASSETS

CURRENT ASSETS

ITEM


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(€000)

Liabilities at amortised cost

Carrying amount

Trade payables Suppliers 2,140 2,140 28

2,140 2,140

31 December 2016Note

CURRENT LIABILITIES

ITEM

TOTAL LIABILITIES

(€000)


Carrying amount

Trade payables Suppliers 5,468 5,468 28

5,468 5,468 TOTAL LIABILITIES


CURRENT LIABILITIES

ITEM

The carrying amounts of trade receivables and payables and financial assets and liabilities accounted for at amortised cost are deemed to approximate to fair value. It should be noted that cash and cash equivalents at 31 December 2016 does not include €121 thousand, classified in “discontinued operations” in accordance with IFRS 5. Fair value hierarchy IFRS 13 requires that financial instruments recognised at fair value in the statement of financial position be classified with reference to a hierarchy of levels, based on the significance of the input used to determine fair value. The standard has introduced the following levels: • Level 1 – quoted prices in active markets for the asset to be measured; • Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset,

either directly (as prices) or indirectly (derived from prices); • Level 3 – inputs for the asset that are not based on observable market data. In Acotel Group SpA’s consolidated financial statements, assets measured at fair value are held for trading. At 31 December 2016, these assets, amounting to €2,905 thousand, are entirely classified as Level 1. There were no transfers between levels in 2016. Types of financial risk and related hedges As stated in the section of the Directors’ report on operations dealing with risks and uncertainties, the Group is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding the Acotel Group’s exposure to these risks.

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Credit risk The receivables reported in the Group’s financial statements are not exposed to significant credit risk. Net trade receivables have the following maturities:

(€000)

0-30 days

31-60 days

61-90 days

91-180 days

181-360

days

over 1 year

31 December 2016 2,909 490 43 116 123 22 110 3,813 31 December 2015 3,898 1,029 118 20 31 239 219 5,554

Net trade receivables

Not due Fallen due within last: Total

Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business on acceptable terms and conditions. As shown in the previous tables regarding financial assets and liabilities, the Acotel Group does not resort to external sources of funding, except to a very limited extent, as it is able to meet its cash requirements from operating cash flow, partly generated via extraordinary transactions carried out in recent years. In 2012, Intesa Sanpaolo SpA granted Noverca Italia SpA (in liquidation) a line of credit that has been drawn down for an amount of €6.387 thousand at 31 December 2016. This line of credit provides for the charging and quarterly capitalisation of interest at 1-month EURIBOR rates, in the middle of the current month, plus a spread of 4 percentage points. At the date of preparation of this report the negotiations regarding settlement of this position, in accordance with the terms set out in paragraph 1.13 – Events after 31 December 2016, may be deemed completed. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to the partial difference between the currencies in which receivables and payables are denominated, above all in the case of Acotel Interactive Inc., although the risks are in any event limited by the short space of time between the issue of invoices and collection of the amount due. Interest rate risk In view of the fact that the Group is not dependent on external sources of funding, it is not exposed to interest rate risk, other than in respect of the above overdraft facility. This is also true of the Group’s liquidity, which is invested in readily convertible financial assets, subject to limited risk and with limited exposure to movements in interest rates. A hypothetical movement of +1% in the interest rates applicable to financial instruments measured at fair value would have a positive impact on the income statement of approximately €34 thousand, whilst a hypothetical movement

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of -1% in the interest rates would have a negative impact on the income statement of approximately €33 thousand.

4.13 LITIGATION AND CONTINGENCIES The Board of Directors, having obtained the advice of the Group’s legal experts, considers that there are no liabilities for which it is necessary that Group companies make provision, other than the provisions shown in these financial statements.

4.14 COMMITMENTS The guarantees granted by the Group consist of the surety of €41 thousand issued to the Bank of Italy, guaranteeing fulfilment of the contract between the Bank and AEM Acotel Engineering and Manufacturing SpA. The residual amount is for sureties of €9 thousand granted in fulfilment of contractual agreements with third parties.

4.15 RELATED PARTY TRANSACTIONS There are no material related party transactions to report in the Acotel Group SpA’s consolidated financial statements for the year ended 31 December 2016. A specific procedure governing related party transactions was introduced with effect from 1 January 2011 and is described in the annual Corporate Governance Report, available on Acotel Group SpA’s website. Purchase of investments from shareholders For the purposes of the merger of Acotel Group SpA (the acquirer) and Acotel SpA (the acquiree) in October 2016, on 19 May 2016 Claudio Carnevale sold 20,000 shares held in Acotel SpA to Acotel Group SpA at a price of €8,989, equivalent to the corresponding share of equity recognised in the last financial statements approved by the Company (31 December 2015). Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during 2016: - €363,333 as Chairman and CEO of Acotel Group SpA (including €83,333 as Chairman of the

Board of Directors of Acotel SpA, for the period from 1 January - 21 October 2016, the date on which the merger between Acotel Group SpA and Acotel SpA) was filed in the Rome Companies' Register);

- €50,000 as Chairman of the Board of Directors of AEM Acotel Engineering and Manufacturing SpA.

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Margherita Argenziano earned the following fees during 2016: - €30,000 as a Director of Acotel Group SpA; - €75,000 as CEO of AEM Acotel Engineering and Manufacturing SpA. At 31 December 2016, outstanding amounts due to the above-named Directors from Group companies total €71,439. Transactions with subsidiaries Details of transactions between Acotel Group SpA and consolidated subsidiaries in 2016 are provided in the following table:

TRANSACTIONS WITH OTHER GROUP COMPANIES(€)

Company Receivables Payables Costs Revenue

Acotel Espana S.L. 73,505 - - 447 Acotel Interactive Inc. 32,304 - - - AEM Acotel Engineering and Manufacturing SpA 1,092,725 1,232,998 1,039,090 878,236 Flycell Italia Srl 95,061 2,039,699 12,362 62,000 Bucksense Inc. 928,641 126,489 5,550 883,589 Hera Performance Llc - 9,136 8,626 - Noverca Italia Srl 1,498,556 136,317 33,130 9,425

Total 3,720,792 3,544,639 1,098,758 1,833,697

Transactions with associates At 31 December 2016, the Group does not hold investments in associates. Transactions with other related parties Expenses incurred in 2016 for fees paid to key management personnel totalled approximately €356 thousand, including employee termination benefits of €30 thousand. These expenses do not include social security contributions payable by the employer. Remuneration of €514 thousand paid to other related parties refers to the salaries paid to Margherita Argenziano by Acotel Group SpA and the subsidiary, Actole SpA, to Cristian Carnevale by the subsidiary, Acotel Interactive Inc., and to Davide Carnevale by Noverca Srl and the Acotel Group SpA.

4.16 COMPLIANCE WITH LEGISLATIVE DECREE 196/2003 Acotel Group SpA, AEM Acotel Engineering and Manufacturing SpA, Noverca Italia Srl (in liquidation) and Flycell Italia Srl have complied with the provisions of Legislative Decree 196/2003 regarding Data Protection.

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4.17 OTHER INFORMATION Material non-recurring events and transactions During 2016, Acotel Group SpA sold the 100% interest held in the subsidiary, Noverca Srl. For details of this transaction and the related impact on the income statement, reference should be made to section 4.7 of these consolidated financial statements. Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during 2016. Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2016 for auditing services and other services provided by the Independent Auditors and associates.

(€000)

Type of serviceEntity providing the

serviceClient Fees 2016*

Auditing EY SpA Parent Company 60

EY SpA Subsidiaries 113 EY associates Subsidiaries 85

Total 258

*: Fees are shown net of any expenses charged and gross of any index-linked components.

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ANNEXES TO THE CONSOLIDATED FINANCIAL

STATEMENTS

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PARENT COMPANY'S

REPORT

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DIRECTORS' REPORT ON THE PARENT COMPANY'S

OPERATIONS

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5.1 FINANCIAL REVIEW In 2016, Acotel Group SpA continued to operate as the holding company for a Group of companies in which each subsidiary is directly involved in the market, whilst the Parent Company coordinates overall objectives and strategy. As all investees are wholly owned, either directly or indirectly, the achievement of Group objectives coincides with maximising the Company’s performance. The activities of Acotel Group SpA during 2016 focused on management of the Group’s expansion, carrying out its role as a holding company and continuing to assume responsibility for 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 simplifying information flows, thus promoting efficient decision-making, operating and control procedures throughout the organisation. In order to simplify existing operational relations between Acotel Group SpA and Acotel SpA, where the latter trades using the data transmission platform developed and managed by the former, the merger deed, setting out the terms of the merger of Acotel SpA (the acquiree) with and into Acotel Group SpA (the acquirer), was filed with Rome Companies’ Register on 21 October 2016.Following the merger, the accounting tax effects of which have been backdated to 1 January 2016, the acquirer has assumed all the acquiree’s rights and obligations. As a result of this transaction, all of Acotel SpA's corporate bodies were dissolved. Also in October 2016, the Group agreed the sale, to Telecom Italia SpA, of its 100% interest in the subsidiary, Noverca Srl. The agreed price for the sale was €4.5 million (including €450 thousand to be withheld for 27 months in an escrow account as a guarantee of the seller’s commitments). This price was adjusted by the value of the target company’s net debt at 31 October 2016, amounting to €52 thousand, resulting in recognition of a net loss of €4.3 million in these financial statements. The seller will also receive up to a further €500 thousand provided that Noverca’s platform achieves the stated performance indicators and Acotel Group SpA actively supports Telecom Italia SpA in the process of integrating Noverca Srl’s platform. The following financial review regards Acotel Group SpA’s results of operations and financial position at and for the year ended 31 December 2016. For this purpose, the Company has prepared separate reclassified statements that are different from those required by the IFRS-EU accounting standards adopted by the Company and included in its financial statements. These reclassified statements present the same amounts shown in the Parent Company’s financial statements, to which reference should be made, and contain alternative performance indicators with respect to those derived directly from the financial statements. With regard to these indicators, on 3 December 2015 the CONSOB issued ruling 92543/15 which, from 3 July 2016, requires application of the guidelines issued by the European Securities and Markets Authority (ESMA) on 5 October 2015. These guidelines regard the presentation of the above indicators in regulatory disclosures or in published accounts, and have updated the earlier CESR Recommendation 05-178b. The aim is to enhance the usefulness and transparency of the alternative performance indicators included in regulatory disclosures, or in accounts prepared in application of Directive 2003/71/EC, in order to improve comparability, reliability and clarity. It should, however, be noted that the indicators presented in these financial statements are directly derived from the following reclassified financial statements, with the exception of gross operating profit/(loss) (EBITDA), which represents operating profit or loss before provisions and releases of provisions, depreciation and amortisation,

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impairment losses and reversals of impairment losses on assets. EBITDA so defined is a measure used by management to monitor and assess the Company’s operating performance and is not an accounting measure envisaged by IFRS. Given that the composition of EBITDA is not governed by the relevant accounting standards, the measurement criteria applied by the Group may not be consistent with those adopted by other companies and may, therefore, not be comparable. RECLASSIFIED INCOME STATEMENT

(€) 20162015

pro-forma(*)


Revenue 4,011,290 7,253,430 (3,242,140)

Other income 2,625,856 3,041,652 (415,796)

Total 6,637,146 10,295,082 (3,657,936)

Gross operating profit/(loss) (EBITDA) (2,771,180) (1,641,517) (1,129,663)

Amortisation and depreciation (68,487) (79,631) 11,144 Impairment losses/reversal of impairment losses on non-current assets (1,836,035) (5,474,150) 3,638,115

Operating profit/(loss) (EBIT) (4,675,702) (7,195,298) 2,519,596

Profit on investments 2,752,982 - 2,752,982

Loss on investments (3,377,409) (4,090,188) 712,779

Net finance income/(costs) 226,221 304,290 (78,069)

PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (5,073,908) (10,981,196) 5,907,288

Taxation (1,654,582) (1,032,347) (622,235)

PROFIT/(LOSS) FROM CONTINUING OPERATIONS (6,728,490) (12,013,543) 5,285,053

Profit/(Loss) from discontinued operations (4,253,462) (1,765,471) (2,487,991)

PROFIT/(LOSS) FOR THE YEAR (10,981,952) (13,779,014) 2,797,062

(*): preliminary guidance from Assirevi (OPI 2 R) requires presentation of the revenue, costs, assets and liabilities of the acquiree (Acotel SpA) together with those of the acquirer (Acotel Group SpA) from the accounting period prior to the merger. As a result, to ensure an appropriate basis for comparison, amounts for the year ended 31 December 2015 have been represented to take into account the impact of the merger of Acotel SpA with and into Acotel Group SpA.

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As previously mentioned, in 2016 the Parent Company's income statement includes, from 1 January 2016, the accounting tax effects deriving from assumption of all Acotel SpA's rights and obligations following its merger with and into Acotel Group SpA. The Company reports a gross operating loss (negative EBITDA) of €2.8 million in 2016, marking a deterioration of €1.1 million with respect to 2015 pro-forma, primarily due to the decline in revenue, which fell from €7.3 million in 2015 pro-forma to €4 million in 2016. Revenue and other income Revenue of €4,011 thousand in 2016 includes €3,999 thousand (€7,241 thousand in 2015 on a pro-forma basis) relating to the earnings generated by the Company outside the Group it heads, as shown in the following table:

Turnover by operating segment

(€) 2016 % 2015

pro-forma %

ACOTEL INTERACTIVE 3,431,846 85.8% 7,148,823 98.7%

ACOTEL NET 567,444 14.2% 91,812 1.3%

Total 3,999,290 100% 7,240,635 100%

The decline in revenue is essentially due to a reduction in activities in the Acotel Interactive business area, mainly as the result of a general slowdown in the value added services provided in the Digital Entertainment segment, partly attributable to the more stringent requirements of the new Mobile Services Code of Conduct. Revenue breaks down as follows:

(€) 2016 %2015

pro-forma%

Digital Entertainment 2,439,348 71.1% 5,237,785 73.3%

Mobile Services 992,498 28.9% 1,911,038 26.7%

Total 3,431,846 100% 7,148,823 100%

Digital Entertainment services relate to entertainment products, such as Funnytv, AstriFox and Hottv, designed and developed in house for smartphone and tablet users. Mobile Services primarily regard solutions and products offered to Telecom Italia and corporate clients. Acotel Net’s revenue of €567 thousand primarily regards the myEnergy service offered by ENI to its SOHO and Small Business customers in collaboration with Acotel. This service is provided to ENI by a temporary horizontal consortium of companies, whose members are Acotel Group SpA and its subsidiary, AEM Acotel Engineering and Manufacturing SpA, with interests in the consortium of 87% and 13%, respectively. Each company belonging to the consortium bills ENI on a monthly basis for its respective portion while the related costs are shared via a specific cost sharing agreement.

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Other income of €2,626 thousand primarily represents charges billed to the Group’s other Italian companies for their share of administrative costs, lease expense and related expenses, in addition to the services provided to the subsidiaries and Noverca Srl from Acotel Group SpA. Revenue and other income was entirely earned in Italy. Earnings The Company reports negative EBITDA of €2,771 thousand, marking a deterioration compared with the negative EBITDA of €1,642 thousand registered in 2015 pro-forma. After amortisation and depreciation (€68 thousand) and impairments of non-current assets (€1,836 thousand), the Company reports an operating loss (negative EBIT) of €4,676 thousand compared with the negative EBIT of €7,195 thousand of the previous year pro-forma. As a result of income from investments (€2,753 thousand), the share of losses of investees (€3,377 thousand), net finance income (€226 thousand), taxation (€1,655 thousand) and losses from discontinued operations (€4,253 thousand), the loss reported in 2016 amounts to €10,982 thousand. Income from investments includes: - €2.2 million, regarding the dividend received in 2016 from Acotel do Brasil Ltda; - €0.5 million, regarding the reduction in Provisions allocated for residual future charges the

Company might sustain at the end of the liquidation process of Noverca Italia Srl (in liquidation).

The share of losses of investees regards the coverage of losses of AEM Acotel Engineering and Manufacturing SpA (€2.1 million) and Noverca Srl (€1.3 million).

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RECLASSIFIED STATEMENT OF FINANCIAL POSITION

(€) 31 December 201631 December 2015

pro-forma(*)


Non-current assetsProperty, plant and equipment 221,443 224,938 (3,495)Intangible assets 57,287 40,442 16,845 Non-current financial assets 18,488,003 28,978,795 (10,490,792)Other assets 685,436 1,868,575 (1,183,139)TOTAL NON-CURRENT ASSETS 19,452,169 31,112,750 (11,660,581)

Net current assetsTrade receivables 763,790 916,595 (152,805)Other current assets 2,598,700 2,976,714 (378,014)Trade payables (1,069,779) (1,380,344) 310,565 Other current liabilities (11,652,505) (13,450,845) 1,798,340 TOTAL NET CURRENT ASSETS (9,359,794) (10,937,880) 1,578,086

PROVISIONS FOR STAFF TERMINATION BENEFITS (2,284,383) (1,708,515) (575,868)

NON-CURRENT PROVISIONS (349,506) (357,106) 7,600

NET INVESTED CAPITAL 7,458,486 18,109,249 (10,650,763)

Equity: Share capital 1,084,200 1,084,200 - Reserves and retained earnings/ (accumulated losses) 24,196,098 37,771,663 (13,575,565) Profit/(Loss) for the year (10,981,952) (13,779,014) 2,797,062 Non-controlling interests - 224,730 (224,730)TOTAL EQUITY 14,298,346 25,301,579 (11,003,233)

Net cash and cash equivalents: Current financial assets (2,351,066) (6,295,420) 3,944,354 Cash and cash equivalents (4,986,168) (1,744,390) (3,241,778) Current financial receivables (1,534,474) (1,174,602) (359,872) Current borrowings 2,031,848 2,022,082 9,766

(6,839,860) (7,192,330) 352,470

NET FUNDS (6,839,860) (7,192,330) 352,470

TOTAL EQUITY AND NET FUNDS 7,458,486 18,109,249 (10,650,763)

(*): preliminary guidance from Assirevi (OPI 2 R) requires presentation of the revenue, costs, assets and liabilities of the acquiree (Acotel SpA) together with those of the acquirer (Acotel Group SpA) from the accounting period prior to the merger. As a result, to ensure an appropriate basis for comparison, amounts for the year ended 31 December 2015 have been represented to take into account the impact of the merger of Acotel SpA with and into Acotel Group SpA.

At 31 December 2016, net invested capital amounts to €7,458 thousand, consisting of non-current assets of €19,452 thousand, net current liabilities of €9,360 thousand, provisions for staff termination indemnities of €2,284 thousand and other non-current provisions of €350 thousand. Net invested capital is financed by consolidated equity of €14,298 thousand and net funds of €6,840 thousand.

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A detailed analysis of changes in the principal components of the financial position shows that: - the reduction in non-current assets is essentially due to the sale of the 100% interest in Noverca

Srl and the realisation of deferred tax assets recognised in previous years; - changes in net current liabilities primarily reflect the reduction in the Company’s business

volumes and the reduction in provisions allocated for residual future charges the Company might sustain at the end of the liquidation process of Noverca Italia Srl (in liquidation);

- the change in equity essentially reflects the result for the year; - net funds, totalling €6,840 thousand at 31 December 2016, are down 5% on the figure for 31

December 2015 pro-forma.

5.2 SOURCES OF FUNDS Acotel Group SpA does not resort to external sources of funding, other than to a limited extent, being able to finance investment from operating cash flow and its own funds. The Company’s net funds at 31 December 2015 total €6,840 thousand.

5.3 RESEARCH AND INNOVATION

No research and development costs have been capitalised.

5.4 HUMAN RESOURCES At 31 December 2016, Acotel Group SpA employs 57 people, compared with 54 at the end of 2015. The Company recruited 5 new members of staff during the year, whilst 2 people left its employ. During 2016, the merger of Acotel SpA with and into Acotel Group SpA took place.As a result, to provide a like-for-like basis for comparison, figures for Acotel Group SpA's workforce at 31 December 2015 include the employees of Acotel SpA.For the purposes of full disclosure, the total workforce employed by this company at 31 December 2015 amounted to 35. The following tables show key information about the Company’s staff at 31 December 2016:

Staff by category at 31 December 2016

Category Number %Managers 6 11%Supervisors 15 26%White- and blue-collar staff 36 63%

Total 57 100%

Staff by gender at 31 December 2016

Gender Number %Male 39 68%Female 18 32%

Total 57 100%

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Staff by age range at 31 December 2016

Age range Number %25-35 6 11%35-45 33 58%45-55 10 17%over 8 14%

Total 57 100%

Staff by length of service at 31 December 2016

Seniority Number %0-2 1 2%2-5 7 12%5-10 19 33%over 30 53%

Total 57 100%

Staff by qualification at 31 December 2016

Qualification Number %Degree 23 40%High-school diploma 34 60%

Total 57 100%

5.5 RISK MANAGEMENT The measurement and management of Acotel Group SpA’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 64% of total net trade receivables relate to amounts due from Telecom Italia and ENI. At the date of preparation of this report, around 28% of these amounts due, totalling around €129 thousand, have yet to be collected. The Company is not involved in significant disputes with its debtors. Liquidity risk The Company does not resort to external sources of funding, other than to a limited extent, and is able to meet its cash requirements from operating cash flow. Acotel Group SpA operates as the holding company for a Group of companies and is responsible for coordinating the Group’s overall objectives and strategy. The Company’s financial position depends on that of the Group which is, in turn, influenced by a range of factors, including the achievement of objectives and the general state of the economy, the financial markets and the sectors in which the Group operates. The Group has prepared a financial plan designed to ensure a return to profit and to financial stability in the medium to long term, which is closely linked to general market conditions and,

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above all, to the Group’s ability to achieve the targets set out in the plan. Further information is provided in section 7.6. Foreign exchange risk At 31 December 2016, Acotel Group SpA has no significant amounts payable to and receivable from third parties, nor significant financial instruments exposed to foreign exchange risk. Interest rate risk As the Company does not rely on external sources of funding, the Company’s only exposure to interest rate risk is limited to intercompany loans.

5.6 STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS

This section provides a brief summary of the strengths that the Acotel Group SpA considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: most of the technology infrastructure used by the Company is developed in-house. Stable shareholder structure: 57.4% of the share capital of Acotel Group SpA is held by the founder and members of his 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 always had the necessary financial resources to finance its development without having to resort to external sources of funds, other than to a limited extent.

5.7 INTERCOMPANY AND RELATED PARTY TRANSACTIONS There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arm’s length basis, taking account of the type of services exchanged. Disclosures regarding related party transactions are provided in section 7.14 of the notes to the financial statements.

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5.8 OWNERSHIP STRUCTURES AND CORPORATE GOVERNANCE Disclosures on the ownership structures required by art. 123-bis of the Consolidated Finance Act are contained in a specific section of the Corporate Governance Report, which the Company makes available in the “Investor relations” section of its corporate website, www.acotel.com.

5.9 OTHER INFORMATION At 31 December 2016, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares with a par value of €0.26 each. On the same date, the Company holds 56,425 treasury shares, which are accounted for as an €871 thousand reduction in equity, representing the average cost of €15.44 per share and a total par value of €14,671. At 31 December 2016, Acotel Group SpA does not possess shares or units of parents, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the year. Acotel Group SpA, as the Parent Company, AEM Acotel Engineering and Manufacturing SpA and Flycell Italia Srl have adopted the “tax consolidation arrangement” introduced by articles of 117 and 129 of the Consolidated Act and the Ministerial Decree of 9 June 2004. The Company has complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and has prepared and updated the “Data Protection Planning Document”. At 31 December 2016, the Company has not established any branch offices.

5.10 EVENTS AFTER 31 DECEMBER 2016

In February 2017, Acotel Group SpA and Flycell Italia Srl signed an agreement with Telecom Italia SpA for the provision of services using Decade 4 premium-rate numbers assigned to Telecom Italia SpA and aimed at customers of TIM and those of other mobile operators. In the same month, Acotel Group SpA extended its agreement with Telecom Italia SpA covering the supply of ScripTIM branded services. These agreements will both be in effect from 1 January 2017 until 31 December 2018. At the date of preparation of these financial statements, the negotiations between Acotel Group SpA and Intesa Sanpaolo SpA regarding settlement of the dispute between the two companies relating to the lack of success of the virtual mobile operator Noverca may be deemed concluded. The agreement commits Acotel Group SpA and Noverca Italia Srl (in liquidation) to not appeal the judgement at first instance handed down by the Court of Turin on 17 November 2016, while Intesa Sanpaolo undertakes to reduce the loan granted by the bank to Noverca Italia Srl (in liquidation) from approximately €6.4 million at 31 December 2016 to €1.1 million. The remaining debt has been transferred to Acotel Group SpA, which paid €550 thousand on signature of the above agreement, and has undertaken to pay five further annual instalments of €110 thousand each.

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The gain that will be recognised in the 2017 financial statements by Acotel Group SpA as a result of this agreement amounts to approximately €5.3 million. Pursuant to paragraph 21 of IAS 10, the following table provides an estimate of the effects generated by this transaction (non-adjusting event) with reference to the consolidated financial statements at 31 December 2016:

€000)

As in financial statements at 31 December 2016

Impact of settlement

Adjusted alternative

performance indicators for

2016Profit/(Loss) for the year (10,982) 5,287 (5,695)Equity 14,298 5,287 19,585 Cash and cash equivalents 4,986 - 4,986 Net funds 6,840 - 6,840

5.11 OUTLOOK In the light of the above, in 2017 Acotel Group SpA 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. Reference should be made to section 1.14 of the report on operations accompanying the consolidated financial statements for a description of the key actions taken by the Directors to enable the Company’s subsidiaries to return to profit.

5.12 PROPOSED APPROPRIATION OF THE LOSS FOR THE YEAR The Board of Directors proposes to use the share premium reserve to cover the loss of €10,981,952 incurred in 2016.

5.13 SHAREHOLDER RESOLUTIONS The Annual General Meeting of shareholders held on 21 April 2017 voted to use the share premium reserve to cover the loss of €10,981,952 incurred in 2016.

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PARENT COMPANY'S FINANCIAL STATEMENTS

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INCOME STATEMENT

(€)Note 2016 2015

Revenue: 1 4,011,290 1,366,561 - from related parties 12,000 1,343,344 - other 3,999,290 23,217

Other income: 2 2,625,856 2,257,794 - from related parties 1,808,990 2,199,608 - other 816,866 58,186

Total 6,637,146 3,624,355

Raw materials (6,285) (6,528)

External services: 3 (4,827,297) (1,625,376) - rendered by related parties (1,086,396) (16,144) - other (3,740,901) (1,609,232)

Rentals and leases 4 (747,778) (740,111)

Staff costs 5 (3,716,008) (1,755,560)

Amortisation and depreciation 6 (68,487) (69,950)Impairment losses/reversal of impairment losses on non-current assets 7 (1,836,035) (6,221,487)Other costs (110,958) (434,554)

OPERATING PROFIT/(LOSS) (EBIT) (4,675,702) (7,229,211)

Income from investments 8 2,752,982 -

Share of losses of investees 9 (3,377,409) (4,090,188)

Finance income: 10 319,805 371,615 - from related parties 12,707 8,078 - other 307,098 363,537

Finance costs 10 (93,584) (49,430) - due to related parties (12,362) (12,032) - other (81,222) (37,398)

PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (5,073,908) (10,997,214)

Taxation 11 (1,654,582) (1,016,329)

PROFIT/(LOSS) FROM CONTINUING OPERATIONS (6,728,490) (12,013,543)

Profit/(Loss) from discontinued operations 12 (4,253,462) (1,765,471)

PROFIT/(LOSS) FOR THE YEAR (10,981,952) (13,779,014)

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STATEMENT OF COMPREHENSIVE INCOME

(€) Note 2016 2015

Profit/(Loss) for the year (10,981,952) (13,779,014)

Other comprehensive income/(losses):Other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after tax - - Total other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after - -

Other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax

Actuarial gains/(losses) on defined-benefit plans 24 (219,146) 36,638

Tax credit/(expense) on other gains/(losses) 52,595 (10,075)Total other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, (166,551) 26,563

Total comprehensive income/(loss) for the year (11,148,503) (13,752,451)

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STATEMENT OF FINANCIAL POSITIONASSETS

(€)Note 31 December 2016 31 December 2015

Non-current assets:

Property, plant and equipment 13 221,443 205,830 Intangible assets 14 57,287 39,159 Investments: 15 18,488,003 39,990,497 - in related parties 18,487,998 39,990,497 - other companies 5 - Other non-current assets 16 474,554 3,281 Deferred tax assets 17 210,882 1,830,604

TOTAL NON-CURRENT ASSETS 19,452,169 42,069,371

Current assets:

Trade receivables: 18 763,790 557,071 - due from related parties - 511,523 - other 763,790 45,548 Other current assets: 19 2,598,700 1,570,581 - due from related parties 2,186,318 1,358,029

- other 412,382 212,552

Financial receivables: 20 1,534,474 1,174,602 - due from related parties 1,534,474 1,174,602 Current financial assets 21 2,351,066 3,593,705 Cash and cash equivalents 22 4,986,168 1,248,611

TOTAL CURRENT ASSETS 12,234,198 8,144,570

NON-CURRENT ASSETS HELD FOR SALE - -

TOTAL ASSETS 31,686,367 50,213,941

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STATEMENT OF FINANCIAL POSITIONLIABILITIES AND EQUITY

(€)Note 31 December 2016 31 December 2015

Equity:

Share capital 1.084.200 1.084.200 Share premium reserve 25.120.327 38.899.341 - Treasury shares (871.307) (871.307) Other reserves (52.922) (256.371) Profit/(Loss) for the year (10.981.952) (13.779.014) Equity attributable to non-controlling interests - -

TOTAL EQUITY 23 14.298.346 25.076.849

Provisions for staff termination benefits 24 2.284.383 797.620 Provisions 25 322.770 322.770 - for liabilities attributable to related parties 322.770 322.770

Deferred tax liabilities 26.736 34.336

TOTAL NON-CURRENT LIABILITIES 2.633.889 1.154.726

Current liabilities: Provisions 26 8.734.158 9.248.737 - for liabilities attributable to related parties 8.405.005 8.919.584

- other 329.153 329.153 Borrowings: 27 2.031.848 2.022.082 - from related parties 2.031.848 2.022.082 Trade payables 28 1.069.779 627.946 Tax liabilities 29 126.561 346.228 Other current liabilities: 30 2.791.786 11.737.373 - due to related parties 1.512.791 10.867.793 - other 1.278.995 869.580

TOTAL CURRENT LIABILITIES 14.754.132 23.982.366

LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - -

TOTAL LIABILITIES 17.388.021 25.137.092

TOTAL LIABILITIES AND EQUITY 31.686.367 50.213.941

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(€) Share capitalShare

premium reserve

- Treasury shares

Other reserves

Profit for the year

TOTAL

Balances at 1 January 2015 1,084,200 55,106,013 (871,307) 4,238,806 (20,728,412) 38,829,300

Appropriation of net profit for 2014 (16,206,672) (4,521,740) 20,728,412 -

Comprehensive income/(loss) for 2015 26,563 (13,779,014) (13,752,451)

Balances at 31 December 2015 1,084,200 38,899,341 (871,307) (256,371) (13,779,014) 25,076,849

Appropriation of net profit for 2015 (13,779,014) 13,779,014 -

Other changes 370,000 370,000

Comprehensive income/(loss) for 2016 (166,551) (10,981,952) (11,148,503)

Balances at 31 December 2016 1,084,200 25,120,327 (871,307) (52,922) (10,981,952) 14,298,346

(*):

STATEMENT OF CHANGES IN EQUITY (*)

Note 23 in the financial statements provides information on the main changes in equity during 2016.

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STATEMENT OF CASH FLOWS(€) Note 2016 2015

A. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT BEGINNING OF YEAR 4,842,316 6,710,157

B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (6,588,656) (2,441,812)

Cash flows from operating activities before changes in working capital (3,040,008) (1,053,268)Profit/(Loss) for the year (10,981,952) (13,779,014)Profit/(Loss) from discontinued operations 12 4,253,462 1,765,471Amortisation and depreciation 6 68,487 69,950Dividends Acotel Do Brasil Ltda 8 (2,238,403) - Cost of covering losses incurred by Noverca Italia Srl - 18,841Cost of covering losses incurred by Noverca Srl 505,027 1,569,449Cost of covering losses incurred by AEM SpA 2,010,476 1,639,093Income from investment in Noverca Italia 8 (514,579) - Impairment of investment in AEM SpA 7 1,836,035 - Impairment of investment in Acotel SpA - 1,641,487Impairment of investment in Acotel Interactive Inc. - 4,580,000Net change in provisions for staff termination benefits 356,722 96,323Net change in provisions - 329,153Net change in deferred tax liabilities 1,664,717 1,015,979

(Increase) / Decrease in receivables (356,249) (1,383,902) - due from related parties (430,393) (1,703,468) - other 74,144 319,566

Increase / (Decrease) in payables (12,805,188) (4,642) - due to related parties (11,929,046) 145,091 - other (876,142) (149,733)

Effect on working capital of elimination of balances due to and from Acotel SpA 9,612,789 -

C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES 6,970,315 4,241,017

(Purchases)/disposals of fixed assets: - Intangible assets (20,558) (35,018) - Property, plant and equipment (61,279) (108,787) - Financial assets 4,813,749 4,384,822 - related parties 4,805,279 4,384,719 - other 8,470 103

Dividends collected 2,238,403 -

D. CASH FLOW FROM (FOR) FINANCING ACTIVITIES (1,084,235) (3,667,046)

Net loans received 9,766 12,032 - from related parties 9,766 12,032Net loans provided (1,094,001) (3,679,078) - to related parties (1,094,001) (3,679,078)

E. CASH FLOW FOR THE YEAR (B+C+D) (702,576) (1,867,841)

Merger contribution 3,197,494 -

F. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT END OF YEAR (A+E) 7,337,234 4,842,316

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NOTES TO THE PARENT COMPANY'S

FINANCIAL STATEMENTS

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7.1 CORPORATE INFORMATION

Acotel Group SpA 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 and operational headquarters are in Rome, Italy. The duration of the Company, in accordance with its articles of association, is to 31 December 2100. The financial statements of Acotel Group SpA have been drawn up in euros, the Company’s functional currency. Acotel Group SpA has also prepared consolidated financial statements for the Acotel Group for the year ended 31 December 2016. The financial statements of Acotel Group SpA for the year ended 31 December 2016 were drawn up by the Board of Directors on 14 March 2017, when the Board authorised the Chairman and CEO to make any necessary changes to the form of the financial statements prior to their publication.

7.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The financial statements of Acotel Group SpA for the year ended 31 December 2016 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, and in force at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), 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 SpA, have been prepared in accordance with these standards from 2006. Accounting standards and interpretations effective as of 1 January 2016 In preparing this document, the Company has adopted certain accounting standards and amendments for the first time. In accordance with the applicable regulations, thede standards and amendments must be applied in the preparation of financial statements for annual periods beginning on or after 1 January 2016. The Company did not, on the other hand, deem it necessary to proceed

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with early adoption of any other standard, interpretation or amendment published but as yet not effective. The nature and impact of the new standards and amendments applied for the first time in 2016 are described below: IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows rate-regulated entities to continue recognising regulatory deferral accounts in accordance with a large part of their previous generally accepted accounting policies (GAAP), upon their first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statements of profit or loss and other comprehensive income. The standard requires disclosure of the nature of, and risks associated with, the entity’s rate regulation and the effects of the rate regulation on its financial statements. This standard does not apply to the Company, as it already uses IFRS. Amendments to IAS 19 Employee Benefits: Employee Contributions IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. IAS 19 requires such contributions that are linked to service to be attributed to periods of service as a negative benefit. The amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. The amendments are effective for annual periods beginning on or after 1 February 2015. This amendment does not apply to the Company, given that no entity belonging to the Company has employee benefit plans involving contributions from employees or third parties. Annual improvements to IFRS- 2010-2012 cycle IFRS 2 Share-based payment The amendment must be applied prospectively and clarifies various aspects linked to performance and service conditions representing the vesting conditions, including:

• a performance condition must contain a service condition; • a performance target must be met while the counterparty is rendering service; • a performance target may relate to the operations or activities of an entity, or to those of

another entity in the same Company; • a performance condition may be a market or non-market condition; • if the counterparty, regardless of the reason, ceases to provide service during the vesting

period, the service condition is not satisfied. The Company has not yet used share-based payments and this amendment to IFRS 2 is not applicable. IFRS 3 Business Combinations The amendment must be applied prospectively and clarifies all contingent consideration arrangements classified as liabilities or assets arising from a business combination must be subsequently measured at fair value through profit or loss. This amendment has had no impact as it is consistent with the accounting standards already applied by the Company.

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IFRS 8 Operating Segments This amendment must be applied retrospectively and clarifies that:

• an entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar;

• the reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities;

The Company has not applied the aggregation criteria in paragraph IFRS 8.12.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets This amendment must be applied retrospectively and clarifies that, in IAS 16 and IAS 38, an asset may be revalued by reference to observable data on either the gross or the net carrying amount, and by proportionately adjusting the gross carrying amount so that the resulting carrying amount is equal to market value. In addition, accumulated depreciation/amortisation is the difference between the gross and carrying amounts of the asset. The Company has not account for any revaluation during the accounting period. IAS 24 Related Party Disclosures This amendment must be applied retrospectively and clarifies that a management entity – an entity that provides key management personnel services – is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant to the Company, as it does use the services of a management entity. Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations The amendments require an entity acquiring an interest in a joint operation, in which the activity of the joint operation constitutes a business, to apply, to the extent of its share, the relevant principles in IFRS 3 Business Combinations. the amendments clarify that, for the acquisition of an additional interest in a joint operation in which the activity of the joint operation constitutes a business, previously held interests in the joint operation must not be remeasured if the joint operator retains joint control. Furthermore, the amendments have added a scope exception for IFRS 11 to clarify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under the control of the same ultimate controlling party. The amendments apply to both acquisition of the initial share in the joint operation and the acquisition of additional interests in the same joint operation and must be applied prospectively. These amendments have not had any impact on the Company, as it did not acquire interest in joint operations during the period. Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively and not had any impact on the Company, as it does not use revenue-based methods of depreciation and amortisation for its non-current assets.

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Amendments to IAS 27 Equity method in Separate Financial Statements The amendments allow an entity to use the equity method to account for its investments in subsidiaries, joint ventures and associates in its separate financial statements. Entities who already apply IFRS and decide to amend their accounting method by adopting the equity method in their separate financial statements must apply the change retrospectively. These amendments do not apply to Acotel Company SpA’s separate financial statement in the absence of such investments. Annual improvements to IFRS - 2012-2014 cycle These improvements include: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Assets (or disposal Companys) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Instruments: Disclosures

- Servicing Contracts: the amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendment.

- Applicability of the amendments to IFRS 7 to condensed interim financial statements: The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively.

IAS 19 Employee Benefits The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. The amendment must be applied prospectively. IAS 34 Interim Financial Reporting The amendment clarifies that the required interim disclosures must be either in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively. This amendment has not had any impact on the Company.

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Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 clarify, rather than significantly change, the existing IAS 1 requirements. The amendments clarify:

• the materiality requirements in IAS 1; • that specific line items in the statement of profit or loss and other comprehensive income or

in the statement of financial position may be disaggregated; • that entities have flexibility as to the order in which they present the notes to financial

statements; • that the share of other comprehensive income of associates and joint ventures accounted for

using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of profit or loss and other comprehensive income or in the statement of financial position. These amendments have not had any impact on the Company. Investment Entities: Applying the Consolidation Exception (amendments to IFRS 10, IFRS 12 and IAS 28) The amendments address the issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These Amendments do not apply to Acotel Company SpA’s financial statements in the absence of such investments. New standards and interpretations not yet effective IFRS 9 Financial Instruments In July 2015, the IASB issued the final version of IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments: Recognition and Measurement and all the previous versions of IFRS 9. IFRS 9 brings together the classification and measurement, impairment (expected credit losses) and hedge accounting requirements. IFRS 9 is effective for annual periods beginning on or after 1 January 2018; early adoption is permitted. With the exception of hedge accounting, the standard must be applied retrospectively, but provision of comparative information is not obligatory. As regards hedge accounting, in general, the standard must be applied prospectively, with a number of limited exceptions. The Company will adopt the new standard from the effective date and will accordingly begin a process of assessing the impact of its adoption.

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IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and introduces a new five-step model to be applied to revenue from contracts with customers. IFRS 15 establishes that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 replaces all existing revenue requirements in IFRS. The standard is effective for annual periods beginning on or after 1 January 2018, using either a full retrospective approach or a modified retrospective approach. Early application is permitted. The Company will adopt the new standard from the effective date and will accordingly begin a process of assessing the impact of its adoption. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognised when a transfer to an associate or joint venture involves a business as defined in IFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has indefinitely postponed the date for application of these amendments, but if an entity should opt for early adoption it must apply the amendments prospectively. IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017 and early application is permitted. Application of the amendments will require the Company to provide additional disclosures. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12 The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explains in which circumstances taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods beginning on or after 1 January 2017 and early application is permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. The Company does not expect these amendments to have any impact. IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB has issued amendments to IFRS 2 Share-based Payment, dealing with three key issues: the effects of vesting conditions on a cash-settled share-based payment; the classification of a share-

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based payment transaction in which the entity has an obligation under tax laws or regulations to settle the arrangement net by withholding a specified portion of equity instruments to meet its minimum statutory withholding tax obligations; accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. On adoption, entities must apply the amendments without representing previous periods, but retrospective application is permitted if chosen for all three amendments and other criteria are met. These amendments are effective for annual periods beginning on or after 1 January 2018 and early application is permitted. The Company has not yet used share-based payments and this amendment to IFRS 2 is not currently applicable. IFRS 16 Leases IFRS 16 was published in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 requires lessees and lessors to provide more extensive disclosure compared with IAS 17. IFRS 16 will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. The standard’s transition provisions permit certain reliefs. The Company expects to define the potential effects of IFRS 16 on its consolidated financial statements in 2017, although it should be noted that it is not at present party to any form of lease arrangement.

7.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle, with the exception of certain financial instruments measured at fair value, and on a going concern basis. Further information on the latter aspect is provided in section 7.6 below.

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Acotel Group SpA has prepared the income statement on the basis of the nature of expenses format, taking into account the specific activity carried out. This format is also used for internal reporting. The Company also presents a separate statement of comprehensive income, showing components of income and expense accumulated in equity. The form of presentation used for the statement of financial position distinguishes between current and non-current assets and liabilities, as permitted by IAS 1. Equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. The statement of cash flows is prepared in accordance with the indirect method. Finally, with reference to CONSOB Resolution no. 15519 of 27 July 2006, relating to financial statement presentation, related party disclosures have been included in the income statement, statement of financial position and statement of cash flows. Following the merger of Acotel SpA with and into Acotel Group SpA, the accounting tax effects of which have been backdated to 1 January 2016, in compliance with the provisions of OPI 2 R, in the Directors' report on operations of these financial statements, the financial and operating results for 2015 have been restated for the purposes of comparison. The restated figures do not replace those reported in the previous year and approved by the General Meeting of Acotel Group SpA, but rather supplement them to enable a like-for-like comparison with the figures for 2016. In this regard, the following tables in the notes to these financial statements include the appropriately restated figures for 2015 (pro-forma).

7.4 ACCOUNTING POLICIES The most significant accounting policies used in the preparation of the financial statements for the year ended 31 December 2016 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. Buildings, plant and equipment are accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section “Impairment of assets” below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates:

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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 disposals occur. 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. These assets are accounted for less accumulated amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section “Impairment of assets” below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. 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 the Company is accounted for if the Company is able to demonstrate that:

• it is technically possible to complete the intangible asset, so that it may be available for use

or sale; • it intends to complete the intangible asset, and its capacity and intention to use or sell it;

ICT platform 50%-25%

Specific plant 20%

Other plant and machinery 20%

Computers 20%

Vehicles 25%

Equipment 25%-15%

Furniture, fixtures and fittings 12%

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• the means by which the asset will generate profits in the future; • the availability of resources to complete the asset; • the capacity to reliably estimate the cost ascribable to the asset during its development.

These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the statement of financial position, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category. Impairment of assets Property, plant and equipment and intangible assets are tested 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 losses. If the recoverable amount of an individual asset cannot be estimated, Acotel Group SpA 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 time value of money and the risks specific to the activities of each cash generating unit. As required by Document 4 published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy’s insurance industry regulator) on 3 March 2010, the impairment test is submitted for approval by the Company’s Board of Directors. 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 this lower recoverable amount. This impairment loss 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 loss. 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. Impairment losses are recognised in the income statement. The original amount is reinstated in future years if the circumstances that led to the impairment no longer exist. Receivables and payables Receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest rate method, less any provisions for bad debts. The amount of the

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allowance is based on the present value of expected future cash flows. These cash flows take account of expected collection times, estimated realisable value, any guarantees received, and the expected costs of recovering amounts due. Impairment losses are reversed in future periods if the circumstances that resulted in the loss no longer exist. In this case, the reversal is accounted for in the income statement and may not in any event exceed the amortised cost of the receivable had no previous impairment losses been recognised. Payables are initially recognised at cost, which corresponds to the fair value of the liability, after any directly attributable transaction costs. After initial recognition, payables are recognised at amortised cost, using the effective interest method. Financial instruments

The Company classifies financial assets at the time of purchase based on the following categories:

- financial assets at fair value through profit or loss, which include financial assets acquired primarily with the intention of profiting from short-term price movements or designated as such upon initial recognition;

- held-to-maturity financial assets, which are financial assets with a fixed maturity and with fixed or determinable payments that the Company has the positive intention and ability to hold to maturity;

- loans and receivables, which are financial assets with fixed or determinable payments that are not quoted in an active market and are different from those classified upon initial recognition as financial assets at fair value through profit or loss or as available-for-sale financial assets;

- available-for-sale financial assets, which are financial assets not classified in the above categories or that are designated as such upon initial recognition.

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: In particular:

- financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in profit or loss for the period;

- financial assets that are not listed on an active market, loans and receivables and all held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment losses;

- available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in other comprehensive income/(losses) 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.

The fair values of financial assets quoted in active markets are calculated on the basis of bid prices quoted on the relevant market. The fair values of financial assets that are not quoted in an active market are estimated on the basis of quoted prices for similar instruments or using appropriate valuation techniques adapted to the specific situation of the issuer.

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Cash and cash equivalents This item includes cash in hand and at bank, other demand deposits and highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered primarily through sale or liquidation, rather than through continued use. This condition is only deemed to have been satisfied when the sale or liquidation is highly probable and the asset or disposal group is available for immediate sale in its present state. Management must be committed to a plan to sell, which must be completed within 12 months of classification as held for sale. Assets held for sale must be excluded from profit or loss from continuing operations and presented in a separate line item in the income statement showing the after-tax profit or loss from discontinued operations. Treasury shares Treasury shares are measured at cost and deducted from equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in 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 comprehensive income. These components may not be reclassified to profit or loss in a future period. Provisions The Company recognises provisions when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will

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be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Changes in estimates are recognised in the income statement in the period in which the change occurs. Revenue Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account the contractually agreed terms of payment and excluding taxes and duties.

Revenue is recognised upon transfer of the risks and benefits of ownership or upon performance of the service. In particular:

• revenue from services rendered is recognised on the basis of the actual service performed during the year;

• revenue from the sale of energy management systems is recognised upon delivery of the relevant products to, and acceptance by, the customer.

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 financial year, taking account of applicable exemptions and tax credits. Provisions for tax expense that may result from the transfer of investee companies’ undistributed earnings are only made if there is an actual expectation that such earnings will be transferred. 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 expected to be in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in equity are likewise accounted for in equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and equity in line with the underlying transaction. 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. Since 2004 and for a three-year period, Acotel Group SpA and its Italian subsidiaries, AEM Acotel Engineering and Manufacturing SpA, have participated in a form of tax consolidation arrangement introduced by articles of 117 and 128 of the Consolidated Income Tax Act and the Ministerial Decree of 9 June 2004. This option which, pursuant to art. 117 of the Act has a duration of three years and is irrevocable, was renewed by the above companies in 2007, 2010, 2013 and 2016. Flycell Italia Srl joined in 2010, renewing its participation in 2013 and 2016.

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Foreign currency translation Acotel Group SpA’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 end of the reporting period 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 is required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenue, costs, assets and liabilities could differ from these estimates. The estimates are primarily used to record revenue and costs that have yet to be confirmed by customers and suppliers, provisions for bad debts, litigation and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. [This is where I stopped incorporating the additional text] In this regard, the situation caused by the ongoing global economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. Management also consults the Company’s legal and tax advisors in order to estimate the liabilities deriving from litigation when it deems it probable that an outflow of resources embodying economic benefits will be required and the amount of the resulting losses may be reliably estimated. If it is possible that there will be an outflow of resources embodying economic benefits but the amount of the obligation cannot be measured with sufficient reliability, the resulting contingent liability is disclosed in the notes to the financial statements.

7.6 DIRECTORS’ ASSESSMENT OF COMPLIANCE WITH GOING CONCERN REQUIREMENTS

Given that Acotel Group SpA operates as the holding company for a Group of companies for which it is responsible for coordinating individual objectives and strategies, application of the going concern principle depends on the results of an overall going concern assessment of the companies that form the Group. To this end, your attention is drawn to the corresponding section of the notes to the consolidated financial statements for the year ended 31 December 2016, which is included in full below. For the purposes of preparation of the consolidated financial statements for 2016 and in compliance with the requirements of the Italian Civil Code and the relevant accounting standards, the Directors of Acotel Group SpA conducted an assessment of the Group’s compliance with the requirements of

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the going concern principle. This was done in view of the fact that, at the end of 2016, the Group had recorded a a consolidated loss of €5,479 thousand (a loss of €10,671 thousand in 2015), resulting primarily from negative EBITDA of €5,862 thousand (negative EBITDA of €6,681 thousand in 2015), reducing consolidated equity to €10,942 thousand (€14,443 thousand at 31 December 2015), and net funds to €8,049 thousand (€11,636 thousand at 31 December 2015). The assessment conducted by the Directors has led them to prepare the consolidated financial statements on a going concern basis, despite the uncertainties described below, which may give rise to significant doubts about the Group’s ability to continue operating as a going concern, as in previous years. The different business areas in which the Acotel Group operates contributed as follows to the consolidated loss for the year ended 31 December 2016:

(a) ACOTEL NET business area: (€3,183) thousand (b) BUCKSENSE business area: (€2,548) thousand (c) ACOTEL INTERACTIVE business area: (€470) thousand (d) Taxation and adjustments: (€3,232) thousand (e) Net effect of “discontinued operations”: (€3,954) thousand Loss for the year: (€5,479) thousand

This shows how the Group continues to experience operational difficulties across all its businesses, with the losses incurred by the new businesses still unable to compensate for the deteriorating performance of the existing operations. As in the previous year, the operating losses incurred primarily reflect the following:

• in the NET business area, the revenue generated by this business in 2016, amounting to €2,241 thousand (€1,937 thousand in 2015), including €1,458 thousand from the Energy business and €783 thousand from video-surveillance, is not yet sufficient to cover fixed costs and make a positive contribution to the Group’s consolidated results, despite the positive market response to the services offered;

• in the Bucksense business area, the insufficient amount of turnover generated by programmatic advertising services which, in 2016, registered revenue of €1,867 thousand (€240 thousand at 31 December 2015), with negative EBITDA of €2,260 thousand, marking a deterioration compared with the negative EBITDA of €455 thousand reported in 2015, affected by the investment carried out to launch the business;

• in the Acotel Interactive business area, the persistent contraction of revenue, which fell from €33,578 thousand in 2015 to €18,091 thousand in 2016, only partially offset by the cost rationalisation initiative implemented by the Group, enabling a marked improvement from the negative EBITDA of €1,880 thousand registered in 2015 to negative EBITDA of €639 thousand in 2016.

The sale of the investment in Noverca Srl enabled the Group to obtain the necessary financial resources to support the launch of new businesses, without having a negative impact on net invested capital and curbing the reduction in net funds at 31 December 2016, as shown in the following table:

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Net invested capital 2,893 2,807 86

Net cash 8,049 11,636 (3,587)

Whilst marking an improvement on the previous year’s performance, essentially thanks to the gain and cost savings resulting from the sale of the investment in Noverca Srl, the Group’s results for 2016 show how necessary it is for the new businesses to rapidly achieve, and in line with the guidelines set out in the plan for 2017-2021, a sufficient size to compensate, in both operational and financial terms, for the recent decline in revenue from VAS (Value Added Services) and the losses incurred by the relevant business area. At the end of the previous year, the Directors drew up a business plan for the period 2016 – 2020 (the “Plan”). The Plan sets out the steps to be taken to support the revenue and earnings growth needed in order to return to profit (originally expected to occur in 2018) and the ensuing generation of positive operating cash flow, sufficient to support the traditional business (Acotel Interactive) and to fund the investment needed to develop the new businesses. The Plan set out a path to renewed profitability, with the aim of reversing the erosion of the Group’s financial resources, and halting the consequent decline in equity. Despite significant uncertainty regarding projected revenue and earnings growth from the new businesses, key to effectively achieving the expected improvement in the Group’s operating and financial performance, conserving capital and ensuring its renewed ability to generate cash after the outflows seen in past years. The above uncertainties effectively manifested themselves in 2016, with the Group’s actual operating results for the period falling short of the assumptions on which the Plan was based. Given the differences between the consolidated and projected results, the Directors have revised the Business Plan for 2016-2020 by approving a new plan for 2017-2021 and have prepared the consolidated financial statements on a going concern basis. This has also been done on the basis of the outlook for the twelve months after the reporting date for this report, despite the presence of various uncertainties that may give rise to significant doubts about the Group’s ability to continue operating as a going concern, connected with both the performance of its traditional businesses and expected revenue and earnings growth at its new businesses, which are key to effectively achieving the expected improvement in the Group’s operating and financial performance. In this regard, the Directors believe that, based on the results for the year just ended and the anove uncertainties, there is a potential risk that the Group may not be able to turn around its business in the short term and, in accordance with the expectations set out in the plan for 2017-2021, to halt the erosion of capital and cash seen in recent years. This would result in the need to raise fresh capital in the form of equity or debt. In this connection, it is, however, important to note that the Group has no bank borrowings, except for a current account overdraft granted by Intesa San Paolo to the subsidiary, Noverca Italia Srl (in liquidation). In the preparation of these financial statements on a going concern basis, the Directors have taken the following into account:

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• the absence of any difficulties in the management of existing debt; • the substantial absence of any past due payables or legal disputes with creditors; • the presence of sufficient equity reserves in respect of the share capital; • the absence of legal and/or tax disputes that could result in liabilities that the Group would

not be able to meet; • the positive results that will presumably be achieved by the Group in 2017 due to the

agreement that is being drawn up with Intesa Sanpaolo in accordance with the terms set out in paragraph 1.13 – Events after 31 December 2016.

In conclusion, based on their assessment of the validity of the actions taken, the Directors have prepared the separate financial statements on a going concern basis, aware of the fact that, in the medium to long term, the application of such a basis is subject to the effective ability of the Company and its investees to fulfil the assumptions and carry out the initiatives contained in the Plan, or to raise fresh capital in the form of equity or debt.

7.7 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue of €4,011 thousand for 2016 is broken down in the following table:

(€)

2016 2015 2015

pro-formaFrom related parties 12,000 1,343,344 12,795Other 3,999,290 23,217 7,240,635

Total 4,011,290 1,366,561 7,253,430

Other revenue, amounting to €3,999 thousand, breaks down by business area as follows:

(€)

2016 2015 2015

pro-formaAcotel Interactive 3,431,846 - 7,148,823Acotel Net 567,444 23,217 91,812

Total 3,999,290 23,217 7,240,635

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The reduction in Revenue due from others is due to the general slowdown in the value added services market (Digital Entertainment and Mobile Services) and corporate services provided in the Acotel Interactive business area. Acotel Net revenue, amounting to €567 thousand, essentially regards the myEnergy service offered by ENI to its SOHO and Small Business customers in collaboration with Acotel since 2015. This service is provided to ENI by a temporary horizontal consortium of companies in which Acotel Group SpA participates with an 87% interest. Note 2 – Other income Other income, totalling €2,626 thousand (€2,258 thousand in 2015 and €3,042 thousand in 2015 pro-forma), includes €1,809 thousand for the billing of administrative services provided to other Group companies, lease expense and building running costs charged to the subsidiaries, as well as billing Bucksense for services provided by Acotel Group SpA, and €817 thousand primarily relating to billing Noverca Srl for services provided by Acotel Group SpA (€803 thousand). Note 3 – External services External service costs, amounting to € 4,827 thousand, break down as follows:

(€)

2016 20152015

pro-formaRendered by related parties 1,086,396 16,144 998,992Other 3,740,901 1,609,232 5,841,558

Total 4,827,297 1,625,376 6,840,550

Costs for services rendered by related parties, amounting to €1,086 thousand, include €952 thousand for recharging costs to AEM Acotel Engineering and Manufacturing SpA in application of the cost sharing agreement that provides for sharing costs relating to provision of the myEnergy service by ENI as part of the temporary consortium of companies. Costs for services rendered by others, amounting to €3,741 thousand, regard:

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(euro)

2016 20152015

pro-forma Interconnection and billing 1,251,124 - 2,693,581 Remuneration of corporate officers 589,821 513,923 632,851 Professional consultants 342,976 282,709 313,352 Advertising 312,000 - 402,000 Content providers 291,496 - 413,411 Connectivity and sundry utilities 251,008 172,254 315,558 Security 109,107 109,476 109,476 Travel expenses 87,810 77,273 92,540 Cleaning 87,186 90,643 90,643 Auditors' fees 64,029 77,527 98,151 Purchase of SMS packages 47,183 - 266,792 Routine maintenance 41,192 43,091 43,091 Regulatory compliance 11,831 25,071 25,071 Other minor expenses 254,138 217,265 345,041

Total 3,740,901 1,609,232 5,841,558

The decrease primarily reflects a reduction in the cost of interconnection and billing services, linked to the performance of Digital Entertainment revenue, lower SMS packages purchase costs, a reduction in the cost of content provision and a decrease in advertising expenses. Remuneration paid to corporate officers, totalling €590 thousand, includes €517 thousand paid to the Directors and €73 thousand to the Statutory Auditors. Note 4 – Rentals and leases Lease expense, amounting to €748 thousand (€740 thousand in 2015 and €758 thousand in 2015 pro-forma), mainly includes rental costs related to the building in Rome in which the Group’s Italian companies operate. The annual cost of €696 thousand is partly recovered from the other companies in proportion to the surface areas effectively used. Note 5 - Staff costs Staff costs include:

(€)

2016 20152015

pro-forma

Salaries and wages 2,622,407 1,255,372 2,764,190 Social security contributions 855,496 412,439 881,492 Staff termination benefits 248,083 91,517 211,706 Finance costs (27,763) (13,302) (13,302) Other costs 17,785 9,534 22,106

Total 3,716,008 1,755,560 3,866,192

Finance costs on staff termination benefits are calculated on the basis of the method described in full in the following Note 24. This cost item is recognised in finance costs (Note 10).

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The number of staff by category at 31 December 2016, compared with the average number for 2016 and 2015, is reported in the following table:

At 31 December Average 2016 Average 2015

Managers 6 6 5

Supervisors 15 15 14

Administrative staff 36 33 35

Total 57 54 54

During 2016, the merger of Acotel SpA with and into Acotel Group SpA took place. As a result, in order to provide a like-for-like basis for comparison, the breakdown of staff by category for 2015 includes the staff of Acotel SpA. For the purposes of full disclosure, the total workforce employed by this company at 31 December 2015 amounted to 35. Note 6 - Amortisation and depreciation Amortisation of intangible assets amounts to €3 thousand (€4 thousand in 2015 and €7 thousand in 2015 pro-forma). These assets refer to software licenses used by the Company in providing IT services. Depreciation of property, plant and equipment, totalling €65 thousand (€66 thousand in 2015 and €73 thousand in 2015 pro-forma), mainly regards the ICT platform and computers. Note 7 – Impairment losses/reversal of impairment losses on non-current assets Impairment losses, totalling €1,836 thousand (losses of €6,221 thousand in 2015 and €5,474 thousand in 2015 pro-forma), regard the impairment of the investment in AEM Acotel Engineering and Manufacturing SpA in order to adjust the carrying amount to the recoverable amount. The result of the impairment test based on the most recent plan for 2017-2021 prepared by the investee's management was used for this purpose. The lower result compared with the previous year was essentially due to the difficulty the Company had in generating volumes of business in its main market that might with reasonable certainty provide sufficient cash flows to confirm the carrying value of the investment. The after-tax rate, expressed in real terms, used to discount the cash flows shown in the long-term plan of AEM Acotel Engineering and Manufacturing SpA is 6.52%. This rate is deemed to represent the company’s average cost of capital. The terminal value, which represents the company’s operating value at the end of the plans, was calculated without applying any long-term growth rate. Despite their awareness of the fact that achievement of the objectives set out in long-term plans is subject to uncertainty surrounding the development of the businesses, the Directors deem the assumptions used in preparing the plans to be reasonable. They thus believe that there is, at present,

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no need to recognise a further impairment of the investment in the company accounted for in the financial statements, in addition to the impairment accounted for at 31 December 2016. In this regard, the Parent Company undertook to guarantee financial support for the subsidiary AEM Acotel Engineering and Manufacturing SpA, at least for the next 12 months, to help achieve the plan's objectives. The Directors are also aware of the need to periodically monitor occurrence of the principal assumptions used in preparing the plans and to conduct the impairment tests, which could lead to a change in the value in use and in the resulting recoverable amounts of the assets accounted for in the financial statements. Note 8 – Income from investments Income from investments, amounting to €2,753 thousand, includes: - €2.2 million, regarding the dividend received in 2016 from Acotel do Brasil Ltda; - €0.5 million, regarding the reduction in Provisions allocated for residual future charges the

Company might sustain at the end of the liquidation process of Noverca Italia Srl (in liquidation).

Note 9 – Share of losses of investees Share of losses of investees, amounting to €3,377 thousand (€4,090 thousand in 2015 and 2015 pro forma), regards the coverage of losses of AEM Acotel Engineering and Manufacturing SpA (€2.1 million) and Noverca Srl (€1.3 million). Note 10 - Finance income and costs Net finance income of €226 thousand breaks down as follows:

(€)

2016 20152015

pro-forma

Income from investments 277,919 196,999 290,367

Foreign exchange gains 27,766 166,425 167,479

Interest income due from related parties 12,707 8,078 8,078

Interest income on bank deposits 74 113 119

Other interest income 1,339 -

Total finance income 319,805 371,615 466,043

Foreign exchange losses (28,072) (6,512) (103,913)

Interest expense and bank charges (13,271) (16,709) (16,709)

Interest expense due to related parties (12,362) (12,032) (12,032)

Other finance costs (39,879) (14,177) (29,099)

Total finance costs (93,584) (49,430) (161,753)

Net finance income 226,221 322,185 304,290

Income from investments is generated by returns on financial assets held for trading, resulting from the fair value measurement of financial assets held by the Company at 31 December 2016.

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Foreign exchange gains and losses primarily regard the differences resulting from conversion of a US dollar current account closed by the Company in 2016, and trading relations with the US associate, Bucksense Inc.

Interest due from related parties mainly regards interest due on loans to Noverca Italia Srl (in liquidation), AEM Acotel Engineering and Manufacturing SpA and Acotel Espana. This interest is calculated using the 6-month interbank LIBOR rate plus a spread of 0.5 percentage points. Interest expense due to related parties regards the loan received from Flycell Italia Srl. The interest on these loans is calculated using the 6-month interbank LIBOR rate plus a spread of 0.5 percentage points. Note 11 - Taxation Taxation for 2016 breaks down as follows:

(€)

2016 20152015

pro-forma

Current tax (income)/expense (15,082) 350 350

Deferred tax income 1,677,264 1,013,683 1,029,701 Deferred tax expense (7,600) 2,296 2,296

Total 1,654,582 1,016,329 1,032,347

Income tax for the year, amounting to €1,655 thousand, primarily regards the reversal of deferred tax assets accounted for in previous years. Reconciliation of the statutory rate of IRES (corporation tax) of 27.5% and the effective rate is shown in the following schedule:

(€000) 2016 % 2015 %

Pre-tax profit/(loss) less profit from discontinued operations (5,074) (10,997)

Charge calculated at statutory rate of 27.5% of pre-tax profit (1,395) 27.5% (3,024) 27.5%

Permanent differences 732 14.4% 2,929 26.6%

Deferred tax assets at statutory rate (27.5%) not recognised on Company's losses 685 13.5% 139 1.3%

Temporary differences deductible in future years 39 0.8% 41 0.4%

Temporary differences taxable in future years (65) (1.3%) (82) (0.7%)

Other minor changes (11) (0.2%) (3) -

(15) (0.3%) - -

IRAP - -

Current tax (income)/expense for the year for Acotel Group SpA (15) -

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No account has been taken of IRAP (regional tax) in the comparison between the effective tax charge accounted for in the financial statements and the statutory tax charge as, having a tax base different from pre-tax profit, it would generate a distortion between one period and another. Deferred tax assets totalling €3.1 million recognised on tax losses incurred by the Parent Company and by AEM Acotel Engineering and Manufacturing SpA in 2016 and in previous years and transferred to Acotel Group SpA under the tax consolidation arrangement, have not been recognised, as they are not currently deemed to qualify for recognition. The long-term business plans of the companies included in the tax consolidation arrangement do not, at this time, provide sufficient certainty that the unrecognised tax losses are recoverable within the period covered by the plans (2017-2021). Note 12 – Profit/(Loss) from discontinued operations The loss from discontinued operations, totalling €4,253 thousand, was generated by the sale of the 100% interest in Noverca Srl.

7.8 NOTES TO THE STATEMENT OF FINANCIAL POSITION

7.8.1 ASSETS NON-CURRENT ASSETS Note 13 - Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows:

(€)

Historical cost Accumulated depreciation

Carrying amount at

31 Dec 2016

Carrying amount at

31 Dec 2015

Carrying amount at

31 Dec 2015 pro-forma

Plant and machinery 2,481,243 (2,448,281) 32,962 50,068 50,245 Industrial equipment 959,050 (912,391) 46,659 29,803 47,204 Assets under construction and advances 5,454 - 5,454 6,908 8,438 Other 778,259 (641,891) 136,368 119,051 119,051

Total 4,224,006 (4,002,563) 221,443 205,830 224,938

No item of property, plant or equipment has been revalued or impaired. Plant and machinery primarily includes the ICT platform used to supply value added services. Industrial equipment includes the computers used in the development and management of value added services.

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“Other” essentially includes furniture and fittings and leasehold improvements on the Company’s registered office, which is leased from a third party. The related lease contract expires in 2024. Changes in property, plant or equipment during the period are shown in an annex. Note 14 - Intangible assets A breakdown of intangible assets at 31 December 2016 is as follows:

(€)

Historical cost Accumulated amortisation

Carrying amount at

31 Dec 2016

Carrying amount at

31 Dec 2015

Carrying amount at

31 Dec 2015 pro-forma

Industrial patents and intellectual property rights 587,340 (587,340) - - 1,240

Concessions, licences and similar rights 111,191 (108,060) 3,131 4,456 4,499

Intangible assets in process and advances 54,156 - 54,156 34,703 34,703

Other 6,306 (6,306) - - -

Total 758,993 (701,706) 57,287 39,159 40,442

No intangible assets were revalued or impaired during the year. Industrial patents and intellectual property rights consist of the Company’s IT system and the specific software purchased from third parties and used by the Company in the provision of ICT services. Concessions, licenses and similar rights primarily include the cost of the licences for the software used by the Company. Changes in intangible assets during the year are shown in an annex. Note 15 – Investments At 31 December 2016, investments total €18,488 thousand (€39,991 thousand in 2015 and €28,979 thousand in 2015 pro-forma) and essentially regard investments in subsidiaries. A breakdown of investments and the related changes during the year is shown below:

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(€000)

Company % interestBalance at

31 Dec 2015Increases Reductions

Balance at 31 Dec 2016

Investments in subsidiaries:

Acotel SpA 99.9% 11,012 - (11,012) -

(a)

Acotel Chile SA 100% 17 - - 17

Acotel do Brasil Ltda 100% 8,615 - - 8,615

Acotel Espana S.L. 100% 3 - - 3

Acotel Interactive Inc. 100% 9,398 - - 9,398

AEM Advanced Electronic Microsystems SpA 99.9% 2,284 - (1,836) 448

Bucksense Inc. 100% 7 - - 7

Noverca Srl 100% 8,655 - (8,655) -

39,991 18,488

(a)This percentage represents the sum of the 98% interest held directly and the 1.92% interest held by the subsidiary, AEM Acotel Engineering and Manufacturing SpA.

The most important corporate transactions that took place in 2016 were the sale of the Company’s 100% interest in the subsidiary, Noverca Srl and the merger of Acotel SpA with and into Acotel Group SpA. Regarding this transaction, in 2016 Acotel Group SpA acquired from AEM Acotel Engineering and Manufacturing SpA and Claudio Carnevale the minority interests they previously held in Acotel SpA at a price equivalent to the share of equity recognised in the last financial statements approved by the latter company (31 December 2015), amounting to €216 thousand and €9 thousand, respectively. In addition, impairment of the investment in AEM Acotel Engineering and Manufacturing SpA, amounting to €1,836 thousand, has been recognised to adjust the related carrying amount to the recoverable amount, as previously described. The following table shows a complete list of investments with the information required by CONSOB Ruling DEM/6064293 of 28 July 2006:

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(€000)

Company Registered officeShare capital

Equity at 31 Dec 2016

Profit/(Loss) for 2016

% interestNumber of

sharesCarrying amount

Investments in subsidiaries:

Acotel Chile SASantiago del Cile - Avenida Andres Bello

17 17 - 100% 49,999 17

Acotel do Brasil LtdaRio de Janeiro - Rua General Argolo, 33

538 6,484 599 100% 1,868,231 8,615

Acotel Espana S.L.Madrid - Calle Velazquez 63

3 38 12 100% 501 3

Acotel Interactive Inc.Wilmington - Centerville Road 2711

10 10,019 (657) 100% 100,000 9,398

AEM Acotel Engineering and Manufacturing SpA

Rome - Via della Valle dei Fontanili 29/37

264 477 (1,828) 99.9% 1,647,634 448

Bucksense Inc.Nevada - 711 S Carson ST STE 4

7 (1,833) (2,692) 100% 1,000 7

Noverca Italia Srl in liq.Rome - Via della Valle dei Fontanili 29/37

10 (8,395) 525 100% 1 -

18,488

Recoverability of the carrying amounts of investments is verified whenever there are indications of impairment. Recoverable amounts are determined on the basis of the value in use of the net invested capital of the investments being tested for impairment, using the discounted cash flow method. This takes account of the expected operating cash flow for each company, based on budgets prepared by the companies. The main assumptions used by the Company in determining value in use include the discount rate (WACC), 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 time value of money and the specific risks connected to each subsidiary. The discount rate used is the average cost of capital consistent with the flows to be discounted. The after-tax discount rates used, which take account of the specific risks associated with the countries in which each subsidiary operates, are expressed in real terms and are 6.39% for Acotel Interactive Inc., 6.52% for AEM Acotel Engineering and Manufacturing SpA and 12.51% for Acotel do Brasil Ltda. Future cash flows, expressed in real terms regardless of assumed movements in sales prices and direct costs, are derived from the companies’ budgets for 2017 and their long-term business plans for the next 4 years, as prepared by the above companies’ management. The terminal value, calculated on the basis of the perpetual growth rate, was determined on the basis of an EBITDA equal to the average over the course of the various business plans and “maintenance” investment equal to the level of amortisation and using a long-term growth rate equal to zero. The value in use resulting from the impairment tests was higher than the respective carrying amounts of the above investments. In line with the indications set out in Document 4 published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy’s insurance industry regulator) on 3 March 2010, a sensitivity analysis

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was conducted. The analysis assessed the effects of two worst-case scenarios, assuming a 1 percentage point increase in the discount rate (WACC) and a 5% reduction in EBITDA in each of the years covered by the plan. In both cases, there would be no impairment of the carrying accounts of the investments in Acotel Interactive Inc. and Acotel do Brasil Ltda in Acotel Group SpA’s separate financial statements. The a further impairment loss would have to be recognised on the carrying amount of the investment in AEM Acotel Engineering and Manufacturing SpA. This would amount to €694 thousand, taking into account the 1% increase in WACC, and €373 thousand, based on the 5% reduction in EBITDA. Note 16 - Other non-current assets This item, amounting to €475 thousand (€3 thousand in 2015 and €33 thousand in 2015 pro-forma), includes €450 thousand relating to the escrow account held until 31 January 2019, provided for in the contract regarding the sale of the 100% interest in Noverca Srl, and €25 thousand relating to medium- and long-term guarantee deposits. Note 17 - Deferred tax assets Deferred tax assets of €211 thousand arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases, applying the tax rates expected to be in force when the differences will reverse. 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 Taxation Tax rate

Deferred tax assets:Refund of IRES for non-deduction of IRAP pursuant to Law Decree 201/2011 91,420 24% 91,420 24.0% 91,420 24%Adjustment for IAS 19 (revised) 86,781 24% 34,186 24.0% 34,186 24%Recovery/release of taxed book amortisation and depreciation 30,641 28,82%-24% 30,574 28,82%-24% 30,651

28,82%-24%

Recovery taxed provisions for impairment of receivables 2,040 24% - - 2,338 24%Recovery unrealised foreign exchange losses - - - - 2,532 24%

Sub-total 210,882 156,180 161,127

Tax losses carried forward - 1,674,424 1,674,424

Total 210,882 1,830,604 1,835,551

31 December 2016 31 December 2015 31 December 2015 pro-forma

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The reduction, compared with the end of the previous year, primarily reflects the write-off of deferred tax assets deriving from tax losses carried forward generated by the tax consolidation arrangement as they are deemed to be no longer recoverable, based on the projections of taxable income contained in the long-term plans prepared by the managements of Group companies. CURRENT ASSETS Note 18 - Trade receivables This item breaks down as follows at 31 December 2016:

(€)

31 December 2016 31 December 201531 December 2015

pro-forma Due from related parties - 511,523 -

Other 772,390 45,548 925,195

Allowance for bad debts (8,600) - (8,600)

Total 763,790 557,071 916,595

Trade receivables due from others, amounting to €763,790, shown net of provisions for bad debts of €8,600, are unchanged with respect to 2015, reflecting the adjustment made to bring them into line with their estimated realisable value. 64% of trade receivables regard amounts due from Telecom Italia and ENI. Trade receivables are fully collectable within 12 months. The carrying amount of trade receivables is deemed to approximate to fair value. Note 19 - Other current assets This item breaks down as follows:

(€)


pro-forma

Due from related parties 2,186,318 1,358,029 2,647,940

Other 412,382 212,552 328,774

Total 2,598,700 1,570,581 2,976,714

Other current assets due from related parties primarily regard amounts due from Bucksense Inc. for services provided by Company staff, amounts due from Flycell Italia Srl, AEM SpA and Noverca Italia Srl (in liquidation) as a result of Group VAT, amounts due from Flycell Italia Srl as a result of participation in the tax consolidation arrangement, and the amount charged to AEM SpA for portions of general, administrative and staff costs that are incurred on its behalf.

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Other current assets primarily regards tax assets and prepayments to suppliers for services to be provided to the Company in the following year. Disclosures regarding related party transactions are provided in section 7.14 of the notes. To complete the disclosures required by the Italian Civil Code, it should be noted that all receivables classified in current assets in the statement of financial position at 31 December 2016 are due from Italian debtors, with the exception of the intercompany items described in section 7.14. Note 20 – Financial receivables Financial receivables due from related parties, totalling €1,534 thousand, regard short-term loans granted to Noverca Italia Srl (in liquidation) (€1,1461 thousand) and Acotel Espana (€73 thousand). Interest is charged on these loans at a capitalised annual rate indexed to 6-month LIBOR plus a spread of 0.5 percentage points. With regard to the loan to Noverca Italia Srl (in liquidation), the Company has made provision (Note 25 to these financial statements) to cover the charges that it may incur at the end of the liquidation of Noverca Italia Srl. The liquidator expects this process to be completed within the next 12 months. Disclosures regarding related party transactions are provided in section 7.14 of the notes. Note 21 - Current finanical assets Current financial assets, amounting to €2,351 thousand, include: (€)


pro-forma

Assets held for trading 751,066 1,993,705 4,695,420

Loans and receivables 1,600,000 1,600,000 1,600,000

Total 2,351,066 3,593,705 6,295,420

At 31 December 2016, assets held for trading regard the “Private Select” portfolio managed by Cordusio SIM SpA and subscribed by Acotel Group SpA (€751 thousand); this fund, which is exposed to limited risk, invests in money market instruments and bonds. Loans and receivables, totalling €1,600 thousand, refer to a fiduciary deposit held by Cordusio società fiduciaria per azioni. This deposit, provided for in the contract for the sale of the 100% interest in Jinny Software Ltd, is an escrow account to guarantee the current administrative and accounting due diligence process as well as fulfilment of the seller’s other contractual obligations. At 31 December 2016, Acotel Group SpA has made provisions of €329 thousand (Note 25) to reflect the results of the due diligence process under way at the date of preparation of these financial statements. The following table shows a comparison between the carrying amount and fair value of financial instruments at 31 December 2016:

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(€)

Carrying amount Fair value

Current financial assets:Assets held for trading 695,425 751,066Loans and receivables 1,600,000 1,600,000Total 2,295,425 2,351,066

The following table shows a summary of financial instruments, other than cash and cash equivalents, held by the Group at 31 December 2016: (€)


Assets held for trading

Fair value through profit or loss

Fair value through other comprehensive income

Current financial assets:Other financial assets 1,600,000 - - - Investment funds - 751,066 277,919 - Financial receivables 1,534,474 - - - Trade and other receivables 3,362,490 - - -

Total 6,496,964 751,066 277,919 -

Current financial liabilities:Borrowings 2,031,848 - - - Trade and other payables 3,988,126 - - -

Total 6,019,974 - - -

The financial instruments listed in the column “Fair value through profit or loss” are financial assets resulting from the short-term investment of liquidity. Note 22 - Cash and cash equivalents This item includes bank deposits of €4,985 thousand and cash and notes in hand of €2 thousand. At the end of last year these items amounted to €1,247 thousand and €2 thousand, respectively, while in 2015 pro-forma they amounted to €1,742 thousand and 2 thousand, respectively.

7.8.2 LIABILITIES AND EQUITY

EQUITY Note 23 - Equity The statement of changes in equity during the period is included in the financial statements, following appropriation of the result for the previous year (€13,779 thousand), the impact of application of IAS 19 (€167 thousand), recognised in comprehensive income, and the release of the reserve following the sale of Noverca Srl (€370 thousand).

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At 31 December 2016, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares. The Company’s objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to €25,120 thousand and derives primarily from the capital increases carried out in preparation for the stock market flotation. At 31 December 2016, treasury shares were recorded as a reduction of equity, totalling €871 thousand. These shares have a par value of €14,671, representing 1.35% of the share capital. This refers to 56,425 Acotel Group SpA ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. These shares are accounted for at cost and have an average purchase price, calculated using the LIFO method, of €15.44. At 31 December 2016, the share price stood at €6.44. Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the period. At 31 December 2016, Acotel Group SpA does not possess shares or units of parents, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the year. Other reserves, amounting to a negative €53 thousand, break down as follows:

(€000)


pro-forma

Legal reserve 217 217 217 Other (270) (473) (473)

Total (53) (256) (256)

In addition to the notes regarding equity, the following should be noted:

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(€000)

to cover lossesfor other reasons

Share capital 1,084Capital reserves:

Share premium reserve 25,120 A, B, C 25,120 29,986 -

Revenue reserves:Legal reserve 217 B - - -Other reserves - A, B, C - 9,219 -Retained earnings - A, B, C - 2,712 -

Total 25,120Undistributable portion -

Residual distributable portion 25,120

Key:A: to increase capitalB: to cover lossesC: to pay dividends

Nature/description Amount Potential useAvailable portion

Summary of uses in the last three years

Note 24 – 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. Changes during the year are shown below.

(€)31 December 2016 31 December 2015

31 December 2015 pro-forma

Opening balance 797,620 737,935 1,590,778

Transfer of initial provisions following merger with Acotel SpA 904,455 - -

Provisions 220,320 78,215 198,404

Finance costs 27,763 13,302 13,302

Transfer of provisions from Group companies 173,343 68,108 40,408

Uses (30,921) (50,368) (74,660)

Adjustment for IAS 19 (revised) 219,146 (36,638) (36,638)

Various withholding taxes (27,343) (12,934) (23,079)

Closing balance 2,284,383 797,620 1,708,515

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Actuarial gains/(losses) recognised on defined-benefit plans in 2016, as accounted for in other consolidated comprehensive income and permanently excluded from profit or loss, are shown below:

(€000) 2016 2015

Gains/(Losses) from change in financial assumptions (169,927) 32,811

Gains/(Losses) from experience adjustments 143,133 3,827

(26,794) 36,638

Provisions for staff termination benefits shown in the financial statements are 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 Dicembre 2016

Annual discount rate 1.31%

Annual inflation rate 1.50%

Annual rate of salary increaseManagers 2.50%; Supervisors/White-

collar/Blue-collar 1.00%

The Company has a defined-benefit pension plan. IAS19 (revised) has been applied retrospectively from 1 January 2012. As a result, the expected return on the defined-benefit plan assets is not accounted for in profit or loss. Interest on the net defined-benefit plan liability (net of plan assets) is, in contrast, accounted for in profit or loss. Interest is calculated using the discount rate applied in measuring the net pension plan liability or asset. In addition, unvested past service costs cannot any longer be deferred over the period until the benefits become vested. Past service costs are, in contrast, recognised fully in profit or loss at the earlier of the date on which the plan is changed or the date on which the related restructuring costs or termination benefits are recognised. Until 2012, unvested past service costs were accounted for on a straight-line basis over the average period until the benefits became vested. Following adoption

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of IAS 19 (revised), past service costs are accounted for immediately in profit or loss if the benefits vest immediately with the introduction of, or changes to, the pension plan. In the case of post-employment defined-benefit plans, IAS19 (revised) requires a series of disclosures:

• the results of a sensitivity analysis of each significant actuarial assumption at the end of the year, showing the effects of reasonably possible changes in actuarial assumptions at that date, in absolute terms;

• an indication of the contribution payable for the following year; • an indication of the average duration of the obligation; • expected future payments under the plan.

This information is provided below:

(€)

Inflation rate

Inflation rate

Discount rate Discount rateTurnover

rateService costs

Expected payments

Plan duration

+0.25% -0.25% +0.25% -0.25% +1% 2017 2017 (years)

2,322,988 2,246,865 2,235,774 2,334,995 2,264,082 214,445 300,845 13

Sensitivity analysis of measurement assumptions, service costs, expected payments and average duration of the plan

Note 25 – Provisions This item includes €323 thousand accounted for in non-current liabilities and €8,734 thousand in current liabilities. The provisions classified as non-current liabilities regard estimated potential liabilities deriving from commitments assumed. The provisions classified as current include €8,405 thousand in provisions for future charges that the Company may incur following completion of the process of liquidating Noverca Italia Srl (in liquidation), and €329 thousand regarding estimated potential liabilities deriving from commitments assumed. Changes in provisions during 2016 are shown below:

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(€)

31 December 2015 Increases Reductions 31 December 2016

Non-current liabilities:Provisions 322,770 - - 322,770

Current liabilities:Provisions - related parties 8,919,584 - (514,579) 8,405,005Provisions - other 329,153 - - 329,153

CURRENT LIABILITIES Note 26 - Current borrowings Current borrowings due to related parties, totalling €2,032 thousand (€2,022 thousand at 31 December 2015 and at 31 December 2015 pro-forma), regard short-term loans received from Flycell Italia Srl. Interest is charged on these loans at a capitalised annual rate indexed to 6-month LIBOR plus 0.5 percentage points. Disclosures regarding related party transactions are provided in section 7.14 of the notes. Note 27 - Trade payables This item, which amounts to €1,070 thousand, compared with €628 thousand at 31 December 2015 and €1,380 thousand at 31 December 2015 pro-forma, is entirely made up of trade payables falling due within 12 months.

Note 28 - Tax liabilities This item breaks down as follows:

(€)


pro-forma Substitute tax payable 125,205 105,229 161,403

Other taxes payable 1,356 - 409

VAT payable - 240,999 240,999

Total 126,561 346,228 402,811

The item primarily regards withholding taxes due from employees and consultants in the form of substitute tax. It should be noted that the Company is not in dispute with the tax authorities.

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Note 29 - Other current liabilities This item breaks down as follows:

(€)


pro-forma Due to related parties 1,512,791 10,867,793 2,300,696

Other 1,278,995 869,580 1,498,601

Total 2,791,786 11,737,373 3,799,297

Other current liabilities due to related parties primarily include charging of costs by AEM SpA in application of the cost sharing agreement that provides for sharing costs relating to provision of the myEnergy service by ENI as part of the temporary consortium of companies, tax credits transferred from AEM SpA in previous years and advertising services provided by Bucksense Inc.. Intercompany transactions are analysed in section 7.14 below. Current liabilities due to others breaks down as follows:

(€)


pro-forma

Due to employees 641,836 362,848 735,328

Due to pension funds and social security institutions 325,675 168,374 334,259

Due to Directors 152,411 143,189 151,522

Other payables 159,073 195,169 277,492Total 1,278,995 869,580 1,498,601

Amounts due to employees mainly refer to pay, bonuses and holiday pay due. 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 Directors primarily refer to accrued but as yet unpaid remuneration.

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7.9 NET FUNDS

(€)

31 December 2016 31 December 2015 31 December 2015

pro-forma

A. Cash and cash equivalents 4,986,168 1,248,611 1,744,390

B. Assets held for trading 751,066 1,993,705 4,695,420

C. Liquidity (A + B) 5,737,234 3,242,316 6,439,810 D. Current financial receivables due from related parties 1,534,474 1,174,602 1,174,602 E. Other current financial receivables 1,600,000 1,600,000 1,600,000 F. Current financial receivables (D+E) 3,134,474 2,774,602 2,774,602

G. Current borrowings from related parties (2,031,848) (2,022,082) (2,022,082) H. Current net debt (G) (2,031,848) (2,022,082) (2,022,082)

I. Net funds (C + F + H) 6,839,860 3,994,836 7,192,330 - receivable from related parties (497,374) (847,480) (847,480) - receivable from others 7,337,234 4,842,316 8,039,810

(*): Includes the receivable due from Noverca Italia Srl in liq. (Nota 19 in the financial statements)

Net funds at 31 December 2016, totalling €6,840 thousand, are down 5% on 2015 pro-forma. Net funds or net debt, as defined by the CONSOB Ruling of 28 July 2006, represents an alternative performance indicator. At 31 December 2016, provisions of €329 thousand have been made for risks associated with other current financial assets, amounting to €1,600 thousand. Further information is provided in Note 25 of these financial statements.

7.10 ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Classes of financial instrument The following table shows the breakdown of financial assets and liabilities required by IFRS 7 and IFRS 13 within the context of the categories provided for by IAS 39:

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(€)

Assets at FV through

profit or loss held for trading



assets

Carrying amount

Investments In other companies - - - - Due from subsidiaries - - - - Guarantee deposits - 24,554 - 24,554 16Escrow accounts - 450,000 - 450,000 16

Due from related parties - - - - Other 763,790 763,790 18

Financial receivables Due from related parties - 1,534,474 - 1,534,474 20Escrow accounts - 1,600,000 - 1,600,000 21Other financial assets 751,066 - - 751,066 21Bank deposits - 4,984,530 - 4,984,530 22Cash and notes in hand - 1,638 - 1,638 22

751,066 9,358,986 - 10,110,052

31 December 2016

Note

NON-CURRENT ASSETS

CURRENT ASSETS

ITEM

Trade receivables




TOTAL ASSETS

(€)

Assets at FV through

profit or loss held for trading



assets

Carrying amount

Guarantee deposits - 3,281 - 3,281 16

Due from related parties - 511,523 - 511,523 18Other 45,548 45,548 18

Financial receivables Due from related parties - 1,174,602 - 1,174,602 20Escrow accounts - 1,600,000 - 1,600,000 21Other financial assets 1,993,705 - - 1,993,705 21Bank deposits - 1,247,207 - 1,247,207 22Cash and notes in hand - 1,404 - 1,404 22

1,993,705 4,583,565 - 6,577,270

31 December 2015

Note

NON-CURRENT ASSETS

CURRENT ASSETS

ITEM


Trade receivables



TOTAL ASSETS

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(€)


Carrying amount

Financial liabilities Due to related parties 2,031,848 2,031,848 26Trade payables Suppliers 1,069,779 1,069,779 27

3,101,627 3,101,627


CURRENT LIABILITIES

TOTAL LIABILITIES

ITEM

(€)


Carrying amount

Financial liabilities Due to related parties 2,022,082 2,022,082 26Trade payables Suppliers 627,946 627,946 27

2,650,028 2,650,028


CURRENT LIABILITIES

TOTAL LIABILITIES

ITEM

Fair value hierarchy IFRS 13 requires that financial instruments recognised at fair value in the statement of financial position be classified with reference to a hierarchy of levels, based on the significance of the input used to determine fair value. The standard has introduced the following levels: • Level 1 – quoted prices in active markets for the asset to be measured; • Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset,

either directly (as prices) or indirectly (derived from prices); • Level 3 – inputs for the asset that are not based on observable market data. In Acotel Group SpA’s financial statements, assets measured at fair value are held for trading. At 31 December 2016, these assets, amounting to €751 thousand, are entirely classified as Level 1. Types of financial risk and related hedges As stated in the section of the Directors’ report on operations dealing with risks and uncertainties, the Company is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding Acotel Group SpA’s exposure to these risks. Credit risk The receivables reported in the Company’s financial statements are not exposed to significant credit risk.

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Trade receivables due from subsidiaries and others have the following maturities. 97% of these receivables had yet to mature at 31 December 2016:

(€000)

0-30 days

31-60 days

61-90 days

91-180

days

181-360

days

over 1 year

31 December 2016 752 12 - - - - - 764 31 December 2015 548 - - - - - 9 557 31 December 2015 pro-forma 908 - - - - - 9 917

Net trade receivables due from subsidiaries

Not due Fallen due within last: Total

Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business on sustainable terms and conditions. As shown in the previous tables regarding financial assets and liabilities, the Company does not resort to external sources of funding, except to a very limited extent, as it is able to meet its cash requirements from operating cash flow. Trade payables mature in 2017. Foreign exchange risk The Company is not exposed to any significant extent to foreign exchange risk, as it does not report foreign currency receivables or payables due from or to third parties. Interest rate risk As the Company does not rely on external sources of funds, it is only exposed to the interest rate risk associated with the loans granted to and by investee companies. A hypothetical movement of 1% in the interest rates applicable to the loans provided to investee companies at 31 December 2016, after deducting those received at the same date, would have an impact on the income statement equal to approximately €3 thousand.

7.11 LITIGATION AND 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 SpA make provision.

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7.12 COMMITMENTS The guarantees granted by Acotel Group SpA, amounting to €7,128 thousand, regard a surety granted by the Company to guarantee its share (59.4%) of the overdraft facility of up to €12,000 thousand granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA. At 31 December 2016, drawdowns on this facility amount to €6,387 thousand.

7.13 COMPLIANCE WITH LEGISLATIVE DECREE 196/2003 The Company has complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and has prepared and updated the “Data Protection Planning Document”.

7.14 RELATED PARTY TRANSACTIONS The related party transactions reported in the financial statements of Acotel Group SpA regard transactions entered into with direct or indirect subsidiaries. The impact of these transactions on items in the financial statements is as follows:

(€)

Amount %

Impact of related party transactions or positions on items in statement of financial position Investments 18,488,003 18,487,998 100.0% Other current assets 2,598,700 2,186,318 84.1% Financial receivables 1,534,474 1,534,474 100.0% Provisions 9,056,928 8,727,775 96.4% Borrowings 2,031,848 2,031,848 100.0% Other current liabilities 2,791,786 1,512,791 54.2%

Impact of related party transactions or positions on items in income statement Revenue 4,011,290 12,000 0.3% Other income 2,625,856 1,808,990 68.9% External services 4,827,297 1,086,396 22.5% Finance income 319,805 12,707 4.0% Finance costs (93,584) (12,362) 13.2%

Impact of related party transactions or positions on cash flows Cash flows from operating activities (6,588,656) (791,373) 12.0% Cash flows for investing activities 6,970,315 7,043,683 101.1% Cash flows for financing activities (1,084,235) (1,084,235) 100.0%

Total items in financial

statements

Related parties

Given that they are not material, transactions with other related parties are not reported separately in the financial statements.

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On 1 January 2011 the specific procedure for related party transactions referred to in the Annual Corporate Governance Report, which is available on the Company’s website, came into effect. The Company is committed to guaranteeing financial support for its subsidiary, AEM Acotel Engineering and Manufacturing SpA, at least in the next 12 months. In addition, in 2016, the Parent Company already provided fresh capital for the above subsidiary, in part through the forgiveness of sundry receivables and in part via cash injections. The following section provides the information required by CONSOB regulations. Purchase and sale of investments from Group companies For the purposes of the merger of Acotel Group SpA (the acquirer) and Acotel SpA (the acquiree) in October 2016, in May 2016 AEM Acotel Engineering and Manufacturing SpA sold Acotel Group SpA 480,000 shares held in Acotel SpA at a price of €215,740, equivalent to the share of equity recognised in the last financial statements approved by the company (31 December 2015). Remuneration of shareholders for membership of corporate bodies As Chairman and CEO of Acotel Group SpA, Claudio Carnevale was paid €363,333 in 2016 (including €83,333 as Chairman of the Board of Directors of Acotel SpA, for the period from 1 January - 21 October 2016, the date on which the merger between Acotel Group SpA and Acotel SpA) was filed in the Rome Companies' Register). Margherita Argenziano earned €30,000 as a Director of Acotel Group SpA. At 31 December 2016, outstanding amounts due to the above-named Directors total €61,022. Intercompany transactions The following table shows trading and financial transactions between Acotel Group SpA and the following companies in 2016:

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RELATIONS WITH OTHER GROUP COMPANIES(€)

Company Receivables Payables Costs Revenue

Acotel Espana S.L. 73,505 - - 447 Acotel Interactive Inc. 32,304 - - - AEM Acotel Engineering and Manufacturing SpA 1,092,725 1,232,998 1,039,090 878,236 Flycell Italia Srl 95,061 2,039,699 12,362 62,000 Bucksense Inc. 928,641 126,489 5,550 883,589 Hera Performance Llc - 9,136 8,626 - Noverca Italia Srl 1,498,556 136,317 33,130 9,425

Total 3,720,792 3,544,639 1,098,758 1,833,697

Amounts due from Acotel Espana SL regard loans disbursed in previous years to fund the company’s operations. These financial receivables are subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. Revenue earned from Acotel Interactive Inc. regards revenue collected by the latter but attributable to the Company. Revenue earned from AEM Acotel Engineering and Manufacturing SpA primarily regards administrative costs, lease expense and running costs relating to the building used as the company’s headquarters and amounts due for Group VAT. Amounts due from Flycell Italia Srl relate to services provided to the latter and the consideration due for participation in the tax consolidation arrangement. Amounts due from Bucksense regard services provided by Company staff. Amounts due from Noverca Italia Srl (in liquidation) regard Group VAT and the loan granted to the company. These financial receivables are subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. Other current liabilities due to related parties primarily include charging of costs by AEM SpA in application of the cost sharing agreement that provides for sharing costs relating to provision of the myEnergy service by ENI as part of the temporary consortium of companies, tax credits transferred from AEM SpA in previous years and advertising services provided by Bucksense Inc.. The amounts due to Flycell Italia Srl regard the loan received. The debt is subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. The amounts due from Bucksense and Hera Performance relate to advertising services provided by these companies. The amounts due to Noverca Italia Srl primarily regard the recovery of staff costs.

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Transactions with other related parties Expenses incurred in 2016 for fees paid to key management personnel totalled approximately €356 thousand, including employee termination benefits of €30 thousand. Such expenses, which do not include social security contributions payable by the employer, relate to a key manager who was in office in 2015 and remains so.

7.15 OTHER INFORMATION Clama Srl does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code, as, despite holding sufficient voting rights to submit the majority list for election of the Board of Directors, Acotel Group SpA’s Board of Directors is operationally independent. Material non-recurring events and transactions As described in detail in other sections of these financial statements, in 2016 Acotel Group SpA sold 100% of the interest held in Noverca Srl ,and concluded a merger with Acotel SpA. Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during 2016. Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2016 for auditing services and other services provided by the Independent Auditors and associates. (€)

Type of service Entity providing the service Fees 2016*

Auditing EY SpA 60,299

Total 60,299

*: Fees are shown net of any expenses charged and gross of any index-linked components.

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ANNEXES TO THE PARENT COMPANY'S FINANCIAL STATEMENTS

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155

ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION 11971 OF 14

MAY 1999, AS AMENDED

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158

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE ANNUAL GENERAL MEETING OF

SHAREHOLDERS

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163

REPORT OF THE INDEPENDENT AUDITORS

EY S.p.A.Sede Legale: Via Po, 32 - 00198 RomaCapitale Sociale deliberato Euro 3.250.000,00, sottoscritto e versato Euro 2.950.000,00 i.v.Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di RomaCodice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904P.IVA 00891231003Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998Iscritta all’Albo Speciale delle società di revisioneConsob al progressivo n. 2 delibera n.10831 del 16/7/1997

A member firm of Ernst & Young Global Limited

EY S.p.A.Via Po, 3200198 Roma

Tel: +39 06 324751Fax: +39 06 32475504ey.com

Independent auditor’s report in accordance with articles 14 and 16 of LegislativeDecree n. 39, dated 27 January 2010(Translation from the original Italian text)

To the Shareholders ofAcotel Group S.p.A.

Report on the consolidated financial statementsWe have audited the accompanying consolidated financial statements of Acotel Group, which comprisethe consolidated balance sheet as at 31 December 2016, the consolidated income statement, theconsolidated statement of comprehensive income, the consolidated statement of changes in equity,the consolidated cash flow statement for the year then ended, and a summary of significantaccounting policies and other explanatory information.

Directors’ responsibility for the consolidated financial statements

The Directors of Acotel Group S.p.A. are responsible for the preparation of these consolidated financialstatements that give a true and fair view in accordance with International Financial ReportingStandards as adopted by the European Union as well as with the regulations issued to implementarticle 9 of Legislative Decree n. 38, dated 28 February 2005.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia)implemented in accordance with article 11 of Legislative Decree n. 39, dated 27 January 2010. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor's professionaljudgment, including the assessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considersinternal control relevant to the entity's preparation of the consolidated financial statements that give atrue and fair view in order to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Anaudit also includes evaluating the appropriateness of accounting policies used and the reasonablenessof accounting estimates made by Directors, as well as evaluating the overall presentation of theconsolidated financial statements.

However, we were unable to express an opinion on these consolidated financial statements because ofthe matter described in the Basis for Disclaimer of Opinion paragraph.

Basis for Disclaimer of Opinion

Acotel Group in the current year and in previous ones recorded significant losses, in particular theconsolidated financial statements at 31 December 2016 close with a loss of Euro 5,479 thousand (lossof Euro 10,671 thousand at 31 December 2015), a net equity of Euro 10,942 thousand (Euro 14,443thousand at 31 December 2015) and highlights a significant negative cash flow from operatingactivities, which impacted the net financial position, in any case positive and amounting to Euro 8,049thousand (Euro 11,613 thousand at 31 December 2015).

In the Directors’ Report on Group Operations and in the section "Assessment Of Compliance WithGoing Concern Requirements" of the explanatory notes, the Directors point out that the economic andfinancial results of the Group during the year - although an improvement compared to the previousyear essentially deriving from the effects of the sale of the subsidiary Noverca S.r.l. - highlight thepersistent period of cross-operational difficulties for the various business areas. In this respect, theDirectors indicate that on 14 March 2016 a business plan was approved for the years 2016-2020,which outlined a path to support the revenue and margin growth, necessary to achieve a positiveeconomic result and, consequently, generate operating cash flows sufficient to support the historicbusiness activities (Acotel Interactive) and the investments to develop new lines of business. (mainlyEnergy management and Bucksense). In this context, it is highlighted how the plan traced a path toachieve a positive margin, aimed to reverse the cash outflows and their associated impacts on theGroup net equity, which occurred in previous years, despite the significant uncertainties related to thegrowth forecast of revenues and margins of the emerging business, critical to effectively achieving theexpected operational and financial results.

The Directors illustrate how such uncertainties have arisen during the course of the current fiscal year,whereby the economic results achieved by the Group in the various business areas differ, in certaincases significantly, from the forecasts made in the business plan. These misalignments are due to thefailure in acquiring certain contracts as well as sales volumes falling short of expectations for thosealready acquired for what concerns new businesses; conversely, with regard to the historical business,the variations are linked to political, commercial and regulatory factors, that contributed to a decreasein turnover, which was only partially offset by a lower amount of operating expenses. In light of thechanged operational and market circumstances compared to those considered in the 2016-2020business plan, the Directors illustrate that they have taken steps to update the business plan byapproving of a new 2017-2021 business plan. They also indicate that the consolidated financialstatements have been on a going concern basis notwithstanding that there are several uncertainties,which give rise to significant doubts about such assertion. Such uncertainties, according to theDirectors, are due to forecasts regarding the expected development of new lines of business and, inparticular, to the growth of related revenues and to the consequent recovery of positive margins.These variables are fundamental to effectively achieving the forecasted operating and financial results,so as to end, based on the business plan, the equity and financial erosion experienced in recent yearsand to limit the need to raise funds by way of equity or debt.

The multiple significant uncertainties described above, cast significant doubt on the Acotel Group'sability to continue to operate on the assumption of going concern with potential interactions andcumulative effects on the consolidated financial statements.

Opinion

Because of the effects of the uncertainties described in the "Basis for Disclaimer of Opinion", we areunable to express an opinion on the consolidated financial statements of Acotel Group as at31December 2016.

Report on other legal and regulatory requirementsDisclaimer of Opinion on the consistency of the Directors’ Report on Group Operations and ofspecific information of the Report on Corporate Governance and the Company’s OwnershipStructure with the consolidated financial statements

We have been engaged to perform the procedures required under audit standard (ISA Italia) n. 720B inorder to express an opinion on the consistency of the Directors’ Report on Group Operations and ofspecific information of the Report on Corporate Governance and the Company’s Ownership Structureas provided for by art. 123-bis, paragraph 4 of Legislative Decree n. 58/98, with the consolidatedfinancial statements as at 31 December 2016, as required by the law. Management is responsible forthe preparation of the Directors’ Report on Group Operations and of the Report on CorporateGovernance and the Company’s Ownership Structure in accordance with the applicable laws andregulations. Because of the significance of the matter discussed in the Basis for Disclaimer of Opinionparagraph of the Auditor’s Report on the consolidated financial statements, we are unable to expressan opinion on the consistency of the Directors’ Report on Group Operations and the specificinformation of the Report on Corporate Governance and the Company’s Ownership Structure with theconsolidated financial statements of Acotel Group as at 31 December 2016.

Rome, 30 March 2017EY S.p.A.Signed by: Simone Scettri, partner

This report has been translated into the English language solely for the convenience of internationalreaders.

EY S.p.A.Sede Legale: Via Po, 32 - 00198 RomaCapitale Sociale deliberato Euro 3.250.000,00, sottoscritto e versato Euro 2.950.000,00 i.v.Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di RomaCodice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904P.IVA 00891231003Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998Iscritta all’Albo Speciale delle società di revisioneConsob al progressivo n. 2 delibera n.10831 del 16/7/1997

A member firm of Ernst & Young Global Limited

EY S.p.A.Via Po, 3200198 Roma

Tel: +39 06 324751Fax: +39 06 32475504ey.com

Independent auditor’s report in accordance with articles 14 and 16 of LegislativeDecree n. 39, dated 27 January 2010(Translation from the original Italian text)

To the Shareholders ofAcotel Group S.p.A.

Report on the financial statementsWe have audited the accompanying financial statements of Acotel Group S.p.A., which comprise thebalance sheet as at 31 December 2016, the income statement, the statement of comprehensiveincome, the statement of changes in equity, the cash flow statement for the year then ended, and asummary of significant accounting policies and other explanatory information.

Directors’ responsibility for the financial statements

The Directors of Acotel Group S.p.A. are responsible for the preparation of these financial statementsthat give a true and fair view in accordance with International Financial Reporting Standards asadopted by the European Union as well as with the regulations issued to implement article 9 ofLegislative Decree n. 38, dated 28 February 2005.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing (ISA Italia) implemented inaccordance with article 11 of Legislative Decree n. 39, dated 27 January 2010. Those standardsrequire that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor's professional judgment,including the assessment of the risks of material misstatement of the financial statements, whetherdue to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity's preparation of the financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made byDirectors, as well as evaluating the overall presentation of the financial statements.

However, we were unable to express an opinion on these financial statements because of the matterdescribed in the Basis for Disclaimer of Opinion paragraph.

Basis for Disclaimer of Opinion

Note 7.6 " Assessment Of Compliance With Going Concern Requirements " of the financial statements,describes the circumstances that led the Company to a loss of Euro 10,982 thousand in 2016 (Euro13,779 loss in 2015), which has affected both the net equity of the Company amounting to Euro14,298 thousand (Euro 25,077 on 31 December 2015) and net financial position, in any case positiveand amounting to Euro 8,049 thousand (Euro 11,636 at 31 December 2015).

The Directors illustrate how the results achieved by the Company and its subsidiaries highlights thepersistent period of cross-operational difficulties for the various business areas. In this respect, theDirectors indicate that on 14 March 2016 a business plan was approved for the years 2016-2020,which outlined a path to support the revenue and margin growth, necessary to achieve a positiveeconomic result and, consequently, to generate operating cash flows sufficient to support the historicbusiness activities (Acotel Interactive) and the investments to develop new lines of business (mainlyEnergy management and Bucksense). In this context, it is highlighted how the plan traced a path toachieve a positive margin, aimed to reverse the cash outflows and their associated impacts on theGroup net equity, which occurred in previous years, despite the significant uncertainties related to thegrowth forecast of revenues and margins of the emerging business, critical to effectively achieving theexpected operational and financial results.

The Directors illustrate how such uncertainties have arisen during the course of this current year,whereby the economic results achieved by the Company and its subsidiaries in the various businessareas differ, in certain cases significantly, from the forecasts made in the business plan. Thesemisalignments are due to the failure in acquiring certain contracts as well as sales volumes fallingshort of expectations for those already acquired, for what concerns new businesses,; conversely, withregard to the historical business, the variations are to be linked to political, commercial and regulatoryfactors, that contributed to a decrease in turnover, which was only partially offset by a lower amount ofoperating expenses. In light of the changed operational and market circumstances compared to thoseconsidered in the 2016-2020 business plan, the Directors illustrate that they have taken steps toupdate the business plan by approving a new 2017-2021 business plan. They also indicate that thefinancial statements have been prepared on a going concern basis notwithstanding that there areseveral uncertainties, which give rise to significant doubts about such assertion. Such uncertainties,according to the Directors, are due to forecasts regarding the expected development of new lines ofbusiness and, in particular, to the growth of related revenues and to the consequent recovery ofpositive margins. These variables are fundamental to effectively achieving the forecasted operatingand financial results, so as to end, based on the Plan, the equity and financial erosion experienced inrecent years and to limit the need to raise funds by way of equity or debt.

The uncertainties outlined and described above, cast significant doubt on the Acotel Group ability tocontinue to operate on the assumption of going concern. In particular, the going concern assumption issubject to multiple and significant uncertainties with potential interactions and possible cumulativeeffects on the financial statements.

OpinionBecause of the effects of the uncertainties described in the "Basis for Disclaimer of Opinion", we areunable to express an opinion on the financial statements of Acotel Group as at 31 December 2016.

Report on other legal and regulatory requirementsDisclaimer of Opinion on the consistency of the Directors’ Report on the Parent Company’sOperations and of specific information of the Report on Corporate Governance and the Company’sOwnership Structure with the financial statements

We have been engaged to perform the procedures required under audit standard (ISA Italia) n. 720B inorder to express an opinion on the consistency of the Directors’ Report on the Parent Company’sOperations and of specific information of the Report on Corporate Governance and the Company’sOwnership Structure as provided for by art. 123-bis, paragraph 4 of Legislative Decree n. 58/98, withthe financial statements as at 31 December 2016, as required by the law. Management is responsiblefor the preparation of the Directors’ Report on the Parent Company’s Operations and of the Report onCorporate Governance and the Company’s Ownership Structure in accordance with the applicable lawsand regulations. Because of the significance of the matter discussed in the Basis for Disclaimer ofOpinion paragraph of the Auditor’s Report on the financial statements, we are unable to express anopinion on the consistency of the Directors’ Report on the Parent Company’s Operations and thespecific information of the Report on Corporate Governance and the Company’s Ownership Structurewith the financial statements of Acotel Group as at 31 December 2016.

Rome, 30 March 2017EY S.p.A.Signed by: Simone Scettri, partner

This report has been translated into the English language solely for the convenience of internationalreaders.

Annual Report 2016

170

FINANCIAL HIGHLIGHTS ON SUBSIDIARIES

Annual Report 2016

171

AEM Acotel Engineering and Manufacturing SpA Share capital €264,000 Registered office Via della Valle dei Fontanili 29/37 00168 Rome

(€000)

Balance sheet highlights

2016 2015

Non-current assets 1,424 1,172Current assets 2,978 2,543

Total assets 4,402 3,715

Equity 477 240Provisions for staff termination benefits 1,097 732Current liabilities 2,828 2,743

Total liabilities and equity 4,402 3,715

Income statement highlights

2016 2015

Value of production 3,520 2,782Operating costs 5,362 4,947Operating profit/(loss) (1,842) (2,165)

Finance income/(costs) (6) (5)Impairment losses on financial assets - (41)

Profit/(loss) before tax (1,848) (2,211)

Taxation 20 (8)Profit/(Loss) for the year (1,828) (2,219)

Annual Report 2016

172

Acotel Chile SA Share capital US$17,330 Registered office Santiago - Chile

(US$000)


2016 2015

Current assets 17 17

Total assets 17 17

Equity 17 17

Total liabilities and equity 17 17

Annual Report 2016

173

Acotel Do Brasil Ltda Share capital 1,868,250 Brazilian reals Registered office Rua General Argolo, 33

Rio de Janeiro Brazil

(R000)


2016 2015



Equity 21,764 27,605Current liabilities 736 1,230



2016 2015

Value of production 11,957 15,358 Operating costs 9,194 12,104Operating profit/(loss) 2,763 3,254

Finance income/(costs) 1,253 1,200Profit/(Loss) before tax 4,016 4,454

Taxation (1,557) (1,763)Profit/(Loss) for the year 2,459 2,691

note: The financial statements of Acotel do Brasil Ltda consolidate the accounts of the subsidiary, Acotel Serviços De Telemedicina Ltda., incorporated in March 2011, with share capital of 400,000 Brazilian reals and its registered office in Rio de Janeiro, Brazil, and of the subsidiary, Acotel Teleçomunicaçāo Ltda., incorporated in March 2011, with share capital of 400,000 Brazilian reals and its registered office in Rio de Janeiro, Brazil.

Annual Report 2016

174

Acotel Espana SL Share capital €3,006 Registered office Calle Velazquez 52 Madrid - Spain

(€000)


2016 2015

Non-current assets 27 34 Current assets 398 114

Total assets 425 148

Equity 35 23Current liabilities 390 125

Total liabilities and equity 425 148


2016 2015

Value of production 533 505Operating costs 516 484Operating profit/(loss) 17 21

Finance income/(costs) (1) (1)Profit/(Loss) before tax 16 20

Taxation (4) (6)Profit/(Loss) for the year 12 14

Annual Report 2016

175

Acotel Interactive Inc. Share capital US$10,000 Registered office 2711 Centerville Road

Wilmington - Delaware - USA

(US$000)


2016 2015



Equity 10,568 10,808Provisions for deferred tax liabilities 3 2 Current liabilities 2,061 2,441



2016 2015

Value of production 14,475 24,925Operating costs 14,821 28,320Operating profit/(loss) (346) (3,395)

Finance income/(costs) 147 63Impairment losses on financial assets (276)Profit/(Loss) before tax (199) (3,608)

Taxation (528) (549)Profit/(Loss) for the year (727) (4,157)

note: The financial statements of Acotel Interactive Inc. consolidate the accounts of the following subsidiaries: Acotel Interactive Conteúdo Para Telefonia Móvel LTDA, incorporated in June 2006, with share capital of 250,000 Brazilian reals and its registered office in Rio de Janeiro, Brazil; Yabox LLC, incorporated in October 2007, with share capital of US$1 and its registered office in Wilmington, Delaware, USA; Flycell Italia Srl, incorporated in July 2008, with share capital of €90,000 and its registered office in Rome, Italy; Flycell Argentina SA, acquired in October 2009, with share capital of 12,000 Argentine pesos and its registered office in La Plata, Argentina; Acotel SRL, incorporated in July 2013, with share capital of 20,000 Argentine pesos and its registered office in Buenos Aires, Argentina; and Acotel Interactive India Private Limited, incorporated in August 2013, with share capital of 100,000 Indian rupees and its registered office in Mumbai, India.

Annual Report 2016

176

Bucksense, Inc. Share capital US$10,000 Registered office 711 S. Carson, Suite 4, Carson City, Nevada

note: The financial statements of Bucksense Inc. consolidate the accounts of the subsidiary, Hera Performance LLC, incorporated in May 2016, with a share capital of US$1 and registered office in Carson City – Nevada.

(US$000)


2016 2015



Equity (1,618) 1,486Current liabilities 5,517 1,540



2016 2015

Value of production 4,656 7,729Operating costs 7,730 7,623Operating profit/(loss) (3,074) 106

Finance income/(costs) 8 (10)Profit/(Loss) before tax (3,066) 96

Taxation (38) (27)Profit/(Loss) for the year (3,104) 69

Annual Report 2016

177

Noverca Italia Srl (in liquidation) Share capital €10,000 Registered office Via della Valle dei Fontanili 29 00168 Rome

(€000)


2016 2015

Non-current assets - 455Current assets 876 3,441

Total assets 876 3,896

Equity (8,395) (8,910)Provisions 21 443 Provisions for staff termination benefits - 298Current liabilities 9,250 12,065

Total liabilities and equity 876 3,896


2016 2015

Value of production 1,804 7,835Operating costs 1,285 6,923Operating profit/(loss) 519 912

Finance income/(costs) 6 (159)Profit/(Loss) before tax 525 753

Taxation - -

Profit/(Loss) for the year 525 753

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