INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2011

Transcription

1 INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2011 Registered office in Via della Valle dei Fontanili 29/ Rome, Italy Share capital: 1,084, fully paid-in Rome Companies Register Tax Code and VAT number:

2 CONTENTS CORPORATE OFFICERS page 2 THE GROUP page 3 DIRECTORS OPERATING AND FINANCIAL REVIEW page 4 Principal factors that have influenced the results for the period page 5 Results of operations page 13 Financial position page 14 Human resources page 15 Risks and uncertainties page 15 Other information page 16 Events after page 17 Outlook page 17 CONDENSED INTERIM FINANCIAL STATEMENTS page 19 CONSOLIDATED FINANCIAL STATEMENTS page 20 NOTES TO THE FINANCIAL STATEMENTS page 27 Basis of preparation of the condensed interim financial statements and accounting standards page 28 New standards and interpretations not yet effective page 28 Basis of consolidation page 29 Critical accounting estimates and judgements page 30 Operating segments page 31 Notes to the income statement page 34 Notes to the statement of financial position page 42 Net funds page 52 Litigation and contingencies page 52 Commitments page 53 Related party transactions page 53 Other information page 54 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 55 ATTESTATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS PURSUANT TO ART. 154-BIS OF LEGISLATIVE DECREE 58/1998 page 57 INDEPENDENT AUDITORS REPORT page 59 1

3 CORPORATE OFFICERS BOARD OF DIRECTORS Claudio Carnevale Chairman and CEO Francesco Ago (1), (2), (3) Director Margherita Argenziano Director Raffaele Cappiello (1), (2) Director Cristian Carnevale Director Luca De Rita Director Giovanni Galoppi (1), (2) Director Giuseppe Guizzi (1), (2) Director Luciano Hassan Director (1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee (3) Lead Independent Director BOARD OF STATUTORY AUDITORS Antonio Mastrangelo Chairman Umberto Previti Flesca Auditor Maurizio Salimei Auditor INDEPENDENT AUDITORS Deloitte & Touche SpA 2

4 THE GROUP The following chart shows the structure of the Acotel Group at : The parent company of Acotel Group S.p.A. is Clama S.r.l., which at holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama S.r.l. does not carry out management and coordination activities pursuant to art of the Italian Civil Code. 3

5 DIRECTORS OPERATING AND FINANCIAL REVIEW 4

6 PRINCIPAL FACTORS THAT HAVE INFLUENCED THE RESULTS FOR THE PERIOD Despite reporting a 32% decline in revenue from the 80 million euros of the first half of 2010 to 54.2 million euros in the first half of 2011, the Group achieved an improvement of 8 million euros in its gross operating result, transforming a loss of 4.5 million euros for the first half of 2010 into a profit of approximately 3.4 million euros for the period under review. This section describes the principal factors that have influenced the results in the different areas of business in which the Group operates, which are briefly described below. The Group s most important area of business in terms of revenues is Services. The companies that operate in this business are Acotel S.p.A. (Rome), Flycell Inc. (New York), Acotel do Brasil (Rio de Janeiro) and Info2cell (Dubai). These companies provide value added services for mobile users in four segments, each of which has its own business model: B2C (or Business to Consumer): in this segment the Group sells its services primarily content, ringtones, images, games and information - directly to the final customer, carrying out all the related activities from communications to customer care; B2B (or Business to Business) - Network Operator: in this segment the Group provides services similar to those provided under the B2C model to telecommunications companies, primarily mobile operators, who market and resell these services to their final customers; B2B - Corporate: in this segment the Group supplies interactive mobile services to entities that, in the case of banks for example, want to offer mobile information and services to their customers; B2B - Media: this segment regards value added services on behalf of TV, radio or other media, offering, for example, viewers or listeners the chance to vote or buy content relating to a certain television or radio programme. Flycell Inc. has worldwide responsibility for the B2C segment and supervises the initiatives undertaken by the other companies mentioned above, which operate in the three B2B segments in different geographical areas, with Acotel S.p.A. responsible for Italy, Acotel do Brasil for Brazil and Info2cell for the Middle East and North Africa. The second most important area of business in terms of revenue generation is Mobile Messaging Solutions, an area in which Jinny Software Ltd. (Dublin) operates. This company develops and sells platforms to mobile operators around the world, enabling them to provide the following services: messaging, such as, for example, SMS, MMS and USSD; call completion, such as, for example, voice SMS and missed call notification systems; mobile advertising, organising and managing advertising campaigns. By using Jinny Software s platforms, operators can generate additional revenue, boost customer loyalty and reduce the time to market when launching innovative services. The Group s third area of business is Mobile Telecommunications, where Noverca Italia S.r.l. is present as an MVNO (Mobile Virtual Network Operator). The company has operated in Italy since March 2009 and was created thanks to an industrial partnership with the Intesa Sanpaolo banking group, which holds a 40.6% interest in the company. Noverca S.r.l. also operates in this area of 5

7 business, acting as the technology enabler for Noverca Italia S.r.l., and is 10% owned by the Intesa Sanpaolo group. In addition to traditional mobile services (voice and data), Noverca Italia S.r.l. offers its customers a vast range of value added services. The most important of these include location based services (providing users with the addresses of the nearest open pharmacy, of restaurants, cinemas, ATMs and other points of interest in their vicinity), mobile payments, which enable users to top up their cell phone or pay bills directly from their handset without having to go to a post office, and an innovative SMS service that allows people to manage some features of their Facebook profile whilst on the move. Nòverca customers who are also Intesa Sanpaolo current account holders can also have a full mobile banking service which, being based on USSD technology, is accessible from all mobile handsets, even older generation phones. The Group s fourth area of business is Security Systems, in which the subsidiary, AEM S.p.A. (Rome) designs, installs and maintains alarm, access control and remote surveillance systems for medium-sized and large organisations. The company boasts contracts with major customers such as the Bank of Italy, Acea and Telecom Italia. A detailed review of the Group s operating results for the period is provided in the section Results of operations, whilst a description of the most important events in each of the four areas of business mentioned above is provided below. SERVICES Total service revenues of 45.7 million euros are down 37% on the 72.7 million euros of the first half of The B2C segment registered the biggest fall in turnover, which was down from 57.4 million euros in the first half of 2010 to 32.3 million euros in the period under review (a reduction of 44%). The Network Operator segment, on the other hand, performed in line with the first half of 2010, declining 3.6% from 7.8 to 7.5 million euros. Revenues generated by the Corporate segment were down 17% from almost 7 million euros in the first six months of 2010 to 5.7 million euros, whilst the Media segment recorded revenues of 0.2 million euros (0.6 million euros in the first half of 2010). ( 000) H % H % B2C services 32, % 57, % Network Operator services 7, % 7, % Corporate services 5, % 6, % Media services % % Total 45, % 72, % Flycell Inc., which has direct worldwide control over the B2C segment, recorded consolidated revenues of approximately 32.3 million euros, down 44% on the 57.3 million euros of the first half of

8 By reducing advertising expenditure, which since last October has been managed in-house rather than by external agencies, and keeping overheads in check, the company has seen a significant improvement in its gross operating result, transforming a loss of 2.3 million euros for the first half of 2010 to a profit of 4.5 million euros for the period under review. This result demonstrates the impact that the US company s performance has on the Group s overall results. Flycell Inc. operates directly in the USA, South Africa, Mexico and Spain, and indirectly via its operating companies in Brazil (Flycell Latin America Ltda), Italy (Flycell Italia S.r.l.), Turkey (Flycell Telekomunikasion Hizmetleri AS) and Argentina (con Flycell Argentina S.A.). The biggest decline in revenues was recorded in the USA, where turnover is down from around 25 million euros in the first half of 2010 to approximately 11 million euros in the period under review, thus marking a reduction of around 55%. This result is largely due to the company s decision to reduce advertising expenditure against a market backdrop that, following a number of changes to the regulatory framework, including a reduction in the maximum amount for SMS Premium based billing, no longer offered returns on a par with those of previous years. Turnover was, however, also down in the other geographical areas, declining by approximately 21 million euros or 35% compared with the first half of In this case the reduction is largely due to a fall in demand for mobile services from contract customers. Partly in response to the changes in the market that have led to the above fall in revenues, the company is implementing a major strategic repositioning affecting the entire B2C segment, shifting its focus more towards entertainment and gaming services. The prize competitions run during the first half in Italy, Spain, Mexico and Brazil form part of this process. The new positioning is also being associated with a review of how advertising expenditure is allocated, both with regard to the type of promotion used and the processes involved in purchasing web spaces. The benefits of this review have already been seen during the first half, in terms of a reduced acquisition cost per customer and improved customer retention. The launch of the site in May is in line with this new strategy and marks the company s first entry into the world of casual gaming and credit card billing (as an alternative to 7

9 SMS premium billing). The YABOX model is currently in operation in the USA, but its launch in other countries is already planned. In Italy Acotel S.p.A., which operates in the B2B segment, recorded a decline in revenues from 5 million euros in the first half of 2010 to 4.8 million euros in the period under review. The 5% reduction is linked to a general slowdown in the market for content personalising mobile handsets (above all ringtones, wallpapers and other visuals). Early in the first half the company began distributing the 365Test application on the App Store, Apple s website for iphone and ipad applications. The application was developed in collaboration with the quizzi.it portal, with the aim of responding to growing demand for online quizzes and tests, enabling users to play and take part in tests on various subjects. 365Test is free, in that it can be installed free of charge, and generates revenue from banner advertising in accordance with the same model already used in 2010 for the Astri application, which lets users consult their Paolo Fox horoscope. The company also carried out a specific promotion for the ScripTIM by Acotel service which, despite being launched over ten years ago, continues to have a large market following thanks to the high quality of its content and ease of use. Acotel S.p.A. also continued to supply mobile banking services for the Unicredit banking group, managing the mobile SMS platform used in providing the services. The subsidiary, Acotel do Brasil, which operates in the B2B segment of the Services business in Brazil, reports revenue growth of 12%, with revenues rising from 2.9 million euros in the first half of 2010 to 3.3 million euros in the period under review. The growth was driven largely by the services that the company has developed over the last two years for TIM Brasil, its main customer. These include all the infotainment services (above all Meu Jornal, which allows users to create their own personalised collection of press clippings on their mobile phone), the SMS chat service known as Blah, a number of WAP portals (soccer, volleyball, women and sexy) and, finally, the Centro Stella. This involves providing TIM Brasil with a single platform enabling it to aggregate different, mainly small and mid-sized service providers to deliver mobile services under their brands and/or using their content. 8

10 Finally, as it has for many years now, the company continued to manage mobile voting for the Brazilian TV version of Big Brother. Info2cell, which is based in Dubai, Amman and Riyadh and provides B2B services as part of the Services segment in the Middle East, reports revenues of approximately 5.4 million euros, down around 27% on the 7.4 million euros of the first half of In spite of the decline in turnover, the company has made significant progress in terms of new services and developing new relations with operators, which will form the basis for future growth of the business. The company has renewed its agreement with Samsung, covering the provision of content management services for the Samsung Regional WAP Portal; it has entered into an agreement with IFILM TV for the supply of an SMS2TV service capable of reaching the customers of 25 mobile operators; in Saudi Arabia it has launched the Al-Dawri iphone application, an Info2cell branded application that enables users to access soccer-related content; the Lahta a and Islami iphone applications have been launched, the first an Info2cell branded application for sending personalised greetings cards featuring pictures taken with mobile phone video cameras, the second a Mobily KSA branded application for accessing Islamic content. As part of its diversification strategy, the company has also developed the portal (already available in a beta version), which aims to be an interactive guide to satellite TV programmes available in the Middle East and North Africa. MOBILE MESSAGING SOLUTIONS During the first half of this year the subsidiary, Jinny Software Ltd., recorded its best ever results in terms of revenues. After adjusting for intercompany sales, amounting to 692 thousand euros, the 9

11 company s sales total approximately 6.8 million euros, up 13% on the close on 6 million euros of the first half of In terms of its customer base, the company has acquired new customers among operators present on the American continent, although the bulk of its orders are clearly from existing customers. There was also an encouraging recovery in certain regions of Africa where, after the positive start made some years ago, investment in mobile networks would appear to be picking up again, after the uncertainty seen since In terms of offerings, the company has begun marketing VAVOOMB, a solution designed to enable mobile operators to exploit new sources of broadband revenue (VoIP, for example) and help them respond to the threat posed by so-called Over-The-Top competitive offerings, by allowing mobile operators to offer their customers convergent communication services with just one GSM phone number. Finally, in February the company took part in the Mobile World Congress in Barcelona, the most important global event for the mobile telecommunications industry, where it announced its new strategic positioning, summarised in the new payoff, Powering Mobile Innovation. The new positioning sees the company propose itself as the main partner for all entities real and virtual network operators and enablers wishing to make innovative value added services their principal competitive weapon. In line with recent market trends, moreover, Jinny Software Ltd, has boosted its ability to meet growing demand for Messaging as a Managed Service, offering customers the chance to rapidly adopt its solutions without having to invest their own money. As part of its new positioning, the company has also revamped its website at MOBILE TELECOMMUNICATIONS Total mobile telecommunications revenues for the first half amount to 1.7 million euros, with the Group s share, deriving from the consolidation of Noverca Italia S.r.l. using the proportionate method, totals 1 million euros. This is up 102% on the 0.5 million euros of the same period of

12 This area of business has had a negative impact on the Group s overall results as turnover has yet to reach a level sufficient to cover costs. As regards marketing and sales, during the first half it was decided to adopt a new approach to the market, based on greater integration with Noverca Italia S.r.l. s shareholder and commercial partner for the distribution of SIM cards, Intesa Sanpaolo, not only in terms of services but also in relation to branding. The two companies have launched a project designed to develop payment services based on NFC (Near Field Communication) technology, the communication protocol that represents the standard for contactless payments and that is being increasing used in POS systems for shops, supermarkets and department stores. In June Noverca Italia S.r.l. completed testing of the new platform that will enable it to operate as a Full MVNO from this autumn. The company currently operates as an ESP (Enhanced Service Provider), with a positioning that resembles that of a reseller of mobile connectivity and SIM cards provided by the host operator, Telecom Italia. As a Full MVNO, on the other hand, the company will become a true mobile operator, with its own SIM cards and its own blocks of numbers and technology infrastructure, only depending on the host operator (again Telecom Italia) for the geographical network (cells and frequencies). The effective conversion to a Full MVNO will begin this autumn and will mark a key step in the development of the business initiative, as it will enable the company to acquire greater operational independence and reduce its direct costs (voice, SMS and data). 11

13 SECURITY SYSTEMS In the Security Systems business, AEM S.p.A. reports revenues of 670 thousand euros, down 15% on the 786 thousand euros of the first half of The company operates throughout Italy and has long-term contracts with a number of prestigious customers. The company renewed two important contracts during the first half: one with the Bank of Italy, covering maintenance of the systems installed at the Bank s Italian offices, was extended until 2013, whilst the contract with Telecom, which will see it continue to maintain the videosurveillance systems installed at certain companies in the ACEA Group, has been renewed for a further 5 years. Development of the new alarm control system, named Eura, also proceeded. The launch of this product will mark a return to producing proprietary systems. 12

14 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT ( 000) H H Inc./(Dec.) % inc./(dec.) Revenues 54,200 79,979 (25,779) (32%) Other income % To tal 54,471 80,156 (25,685) (32%) Gross operating profit/(loss) 3,433 (4,538) 7, % 6.30% -5.66% Operating profit/(loss) 1,643 (6,257) 7, % 3.02% -7.81% Share of the profit/(loss) of associates and joint ventures Net finance income/(costs) % PROFIT/(LOSS) BEFORE TAX 2,237 (6,078) 8, % 4.11% -7.58% PROFIT/(LOSS) BEFORE NON- CONTROLLING IN TERESTS 334 (6,497) 6, % 0.61% -8.11% PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT 234 (6,603) 6, % 0.43% -8.24% Earnings per share 0.06 (1.61) Diluted earnings per share 0.06 (1.61) Compared with the results for the same period of the previous year, the Group s results for the first half of 2011 show a reduction in revenue and an improvement in earnings. Revenue of 54.2 million euros for the first half is down 32% on the first half of 2010, essentially due to a downturn in B2C revenues in the Services segment. In contrast, the gross operating loss of 4.5 million euros reported for the first half of 2010 has been transformed into a profit of 3.4 million euros in the first six months of The improvement reflects the different method of managing advertising expenditure adopted by the US subsidiary, Flycell Inc., from the second half of the previous year and into the first half of After amortisation, depreciation and impairments of non-current assets, operating profit amounts to 1.6 million euros, marking an increase of 126% on the same period of the previous year. After the Group s share of the profit/(loss) of associates and joint ventures and finance income, totalling 0.6 million euros, estimated taxation for the period of 1.9 million euros and profit 13

15 attributable to non-controlling interests of 0.1 million euros, profit for the first half of 2011 is 0.2 million euros, marking a significant improvement on the loss reported for the same period of FINANCIAL POSITION RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ( 000) 31 Dec 2010 Inc./(Dec.) % inc./(dec.) Non-current assets: Property, plant and equipment 7,262 6, % Intangible assets 13,240 13, % Other assets 3,361 3,440 (79) (2%) TOTAL NON-CURRENT ASSETS 23,863 23, % Net current assets: Inventories % Trade receivables 28,672 31,990 (3,318) (10%) Other current assets 6,332 8,633 (2,301) (27%) Trade payables (18,321) (19,332) 1,011 5% Other current liabilites (7,972) (8,527) 555 7% TOTAL NET CURRENT ASSETS 9,265 13,278 (4,013) (30%) PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (1,791) (1,649) (142) (9%) NON-CURRENT PROVISIONS (472) (470) (2) - NET INVESTED CAPITAL 30,865 34,498 (3,633) (11%) Equity: Share capital 1,084 1, Reserves and retained earnings/(accumulated losses) 66,131 69,243 (3,112) (4%) Profit/(Loss) for the period 234 (2,239) 2,473 (110%) Non-controlling interests % TOTAL EQUITY 68,107 68,646 (539) (1%) MEDIUM-/LONG TERM DEBT Net cash and cash equivalents: Current financial assets (25,917) (26,284) 367 1% Cash and cash equivalents (11,411) (11,700) 289 2% Current financial liabilities 51 3,801 (3,750) (99%) (37,277) (34,183) (3,094) (9%) NET FUNDS RECEIVABLE FROM OTHERS (37,242) (34,148) (3,094) (9%) TOTAL EQUITY AND NET FUNDS RECEIVABLE FROM OTHERS 30,865 34,498 (3,633) (11%) The Group s net invested capital at amounts to 30.9 million euros, made up of noncurrent assets of 23.9 million euros, current assets of 9.3 million euros, provisions for staff termination benefits of 1.8 million euros and other non-current provisions of 0.5 million euros. 14

16 Net invested capital is financed by equity of 68.1 million euros and net funds receivable from others of 37.2 million euros. A detailed analysis of changes in the principal components of the statement of financial position shows that: the value non-current assets has not undergone material changes during the first half; changes in net working capital are linked to the performance of the Group s businesses; net funds receivable from others total 37.2 million euros at, marking an increase of 3.1 million euros compared with 31 December 2010 (up 9%). HUMAN RESOURCES At the Group employs 483 people, compared with 479 at the end of The Group recruited 62 new staff during the first half, whilst 58 people left its employ. The average age of the Group s staff, at 33, and their high level of education (with 79% of staff having a degree or a university qualification) helps to create a youthful, dynamic and prepared environment, ensuring a strong ability to innovate and to effectively understand the market for the Group s services. RISKS AND UNCERTAINTIES This section provides an analysis of the principal risks and uncertainties to which the Group s operations are exposed in the short term. Credit risk 36% of total trade receivables relates to amounts due from the mobile transaction network providers, mblox (7.4%) and Open Market (5.3%), which provide Flycell Inc. the necessary connectivity with US and Spanish telephone operators, from TIM Celular SA (9.31%), Wind (5.7%) and Telecom Italia (8.3%). Group companies are not involved in significant disputes with customers. 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. 15

17 Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to: foreign exchange exposures deriving from intercompany loans, which, whilst being eliminated from the consolidated financial statements, generate foreign exchange gains or losses for subsidiaries whose functional currencies are different from the euro; the partial difference between the currencies in which receivables and payables are denominated, above all in the case of Jinny Software Ltd. and Flycell 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 Group s limited dependence on external sources of funding, it is not exposed to interest rate risk to any significant extent. 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 Services business, and above all the B2C 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 currently undergoing substantial changes that may result in significant restrictions on the marketing and commercial activities carried out in order to support the sale of services. The decision to invest heavily, in both financial terms and in terms of the number of staff employed, in the commercial launch of Nòverca and its conversion to a Full MVNO will face a key test in the near future, when the Group has targeted significant increases in both customers and the average customer spend. Achievement of these targets should be made possible, from autumn 2011, by the greater degree of independence deriving from Nòverca s ability to operate as a Full MVNO. Although all the companies in the Group operate in highly competitive markets, the Group believes it has the technological and commercial expertise and financial strength necessary to compete successfully. OTHER INFORMATION No transactions took place between the parent, Clama S.r.l., Acotel Group S.p.A. and other Group companies during the period. At the Company holds 56,425 treasury shares, which are accounted for as an 871 thousand euro reduction in equity, representing the average cost of euros per share and a total par value of 14,671 euros. 16

18 Acotel Group S.p.A. 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 S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the period. At Acotel Group S.p.A. has not established any branch offices. The Group has not carried out any exceptional and/or unusual transactions during the first half of 2011, with any transactions forming part of the Group s ordinary activities. Such transactions are conducted on an arm s length basis, taking account of the nature of the goods sold and the services provided. Related party disclosures are include in the notes to the condensed interim financial statements. EVENTS AFTER 30 JUNE 2011 There have been no material events affecting the Group s businesses between the end of the first half of 2011 and the date of approval of the interim report. OUTLOOK Over the coming months Flycell Inc. will continue its previously mentioned strategic repositioning, directing its technical and commercial efforts towards development of an offering based on entertainment and gaming services. At the same time the company will, in certain countries, including the USA, reduce sales of ringtones and other content for personalising mobile phones. In these and in the other markets in which it operates the company will begin to promote prize competitions that have already been trialled in the first half in Italy, Spain, Mexico and Brazil. The company also intends to switch to credit card billing, a form that provides better margins than the SMS Premium system. Finally, the services offered through will be introduced into markets outside the USA. Info2cell will release the final version of its site described above. It aims to develop a series of MMS and WAP push services based around this initiative to promote to a number of mobile operators. The company also plans to increase its offering of Islamic services during Ramadan and to launch new services in Iraq. In general, finally, the Group aims to boost organisational integration between the various companies operating in the Services segment, in order to take better advantage of existing technological and commercial synergies. As a result of this integration, for example, the B2C segment will grow its geographical footprint by also covering the Middle East, thanks to the resources available to Info2cell, above all its interconnections with mobile operators. With reference to the company Acotel S.p.A. there are ongoing negotiations in order to renew the contract to supply services to the Public Administration under the project "Vivi facile". 17

19 In the Mobile Messaging Solutions business, in which Jinny Software Ltd. operates, we expect to see increased market demand and a rise in the number of tenders called by mobile operators intending to purchase new equipment or upgrade their existing equipment. During the first half of the year the number of such tenders was well below the numbers seen in previous years. In the second half of the year Jinny Software Ltd. should also benefit from the upturn in sales usually seen towards the end of the year, in line with an investment strategy fairly typical of mobile operators. Noverca Italia S.r.l., which operates in the Mobile telecommunications business, intends to boost the degree of commercial integration with the Intesa Sanpaolo banking group, which is both a shareholder of the company and its commercial partner. This is expected to drive further growth in the customer base. Two initiatives are being prepared for launch in the final quarter of the current year. One will be targeted at the bank s younger customers, whilst the second will add further new forms of payment based on NFC technology (Near Field Communication). AEM S.p.A., which operates in the Security Systems business, will continue to develop the new alarm control system, named Eura, which once available will enable the company to expand its offering and take advantage of new market opportunities. 18

20 CONDENSED INTERIM FINANCIAL STATEMENTS 19

21 CONSOLIDATED FINANCIAL STATEMENTS 20

22 CONSOLIDATED INCOM E STATEM ENT ( 000) Note H H Revenues 1 54,200 79,979 Other income: from related parties other Total 54,471 80,15 6 Change in work in progress, se mi-finished and finished goods 1 (185) Raw m aterials, sem i-finished and finished goods 2 (85 8) (833) External services 3 (37,103) (70,49 3) - rendered by related parties (100) (100) - other (37,003) (70,393) Rentals and lease s 4 (912) (95 4) Staff costs 5 (11,652) (11,54 2) Amortisation and de preciation 6 (1,774) (1,71 9) Capitalise d internal c osts Impairment charges/reversal of impairment charges on non-current assets (16) - Other costs 8 (1,331) (1,36 7) Sha re of profit/(loss) of associa te s and joint ventures 12 - Financ e income 9 1,211 1,347 Financ e c osts 9 (629) (1,16 8) PROFIT /(LOSS) B EFORE T AX FROM CONTINUIN G O PER ATIONS 2,237 (6,07 8) Ta xation 10 (1,903) (41 9) PROFIT /(LOSS) FROM CONTINUING OPER ATIONS 334 (6,49 7) Profit/(L oss) from discontinue d ope ra tions - - PROFIT /(LOSS) B EFORE NON-CONT ROLLING INTE RESTS 334 (6,49 7) Profit/(L oss) attributab le to non-controlling interests PROFIT /(LOSS) FOR T HE PERIOD AT TRIB UTAB LE TO OWNERS OF T HE PARE NT 234 (6,60 3) Earnings per share (1.6 1) Dilute d ea rnings per share (1.6 1) 21

23 CONSOLIDATED STATEM ENT OF COMPREHENSIVE INCOME ( 000) Note H H Pro fit/(l oss) for the pe riod 334 (6,497) Other gains/(losses) o f the statement of com prehensive income: Gains/(Losses) from translation of financial statements of foreign operations (873) 1,84 0 Tax credit/(expense) on o ther gains/(losses) - - Tota l other gains/(losses), ne t of tax (873) 1,84 0 Total com prehensive inc ome/(loss) for the pe riod (539) (4,657) Total com prehensive inc ome/(loss) for the pe riod attributable to: owne rs of the Parent (639) (4,763) non-controlling interests Total com prehensive inc ome/(loss) for the pe riod (539) (4,657) 22

24 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS ( 000) Note 31 December 2010 Non-current assets: Property, plant and equipment 12 7,262 6,787 Goodwill 13 11,531 11,531 Other intangible assets 14 1,709 1,581 Other non-current assets Deferred tax assets 15 3,180 3,271 TOTAL NON-CURRENT ASSETS 23,863 23,339 Current assets: Inventories Trade receivables 17 28,672 31,990 Other current assets 18 4,396 7,642 - due from related parties other 3,552 7,048 Financial receivables: 19 1, due from related parties 1, Current financial assets 20 25,917 26,284 Cash and cash equivalents 21 11,411 11,700 TOTAL CURRENT ASSETS 72,886 79,121 NON-CURRENT ASSETS HELD FOR SALE - - TOTAL ASSETS 96, ,460 23

25 CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQUITY ( 000) Note 31 December 2010 Equity: Share capital 1,084 1,084 Share premium reserve 55,106 55,106 - Treasury shares (871) (871) Cash flow hedge and currency translation reserve 586 1,459 Other reserves 10,289 10,266 Retained earnings/(accumulated losses) 1,021 3,283 Profit/(Loss) for the period 234 (2,239) Equity attributable to owners of the Parent 67,449 68,088 Non-controlling interests TOTAL EQUITY 22 68,107 68,646 Non-current liabilities: Non-current financial liabilities Provisions for staff termination benefits and other employee benefits 24 1,791 1,649 Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES 2,298 2,154 Current liabilities: Provisions Current financial liabilities ,801 Trade payables 28 18,321 19,332 Tax liabilities 29 1,455 1,958 Other current liabilities 30 6,158 6,209 - due to related parties 1,490 1,322 - other 4,668 4,887 TOTAL CURRENT LIABILITIES 26,344 31,660 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 28,642 33,814 TOTAL LIABILITIES AND EQUITY 96, ,460 24

26 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ( 000) Share capital Share - Treasury premium shares reserve Cash flow hedge and currency translation reserve Other reserves Reserves and retained earnings Profit for the period Total equity attributable to owners of the Parent Equity attributable to noncontrolling interests Total consolidated equity Balances at 1 Jan ,084 55,106 (871) (394) 10,159 2,079 1,311 68, ,782 Appropriation of profit for ,204 (1,311) - - Comprehensive income/ (loss) for the period 1,840 (6,603) (4,763) 106 (4,657) Balances at 30 June ,084 55,106 (871) 1,446 10,266 3,283 (6,603) 63, ,125 Balances at 1 Jan ,084 55,106 (871) 1,459 10,266 3,283 (2,239) 68, ,646 Appropriation of profit for (2,262) 2, Comprehensive income/ (loss) for the period (873) 234 (639) 100 (539) Balances at 1,084 55,106 (871) ,289 1, , ,107 25

27 CONSOLIDATED STATEMENT OF CASH FLOWS ( 000) H H A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,183 43,365 B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES 7,098 (2,891) Cash flows from operating activities before changes in working capital 2,159 (4,485) Profit/(Loss) for the period 234 (6,603) Amortisation and depreciation 1,774 1,719 Share of profit/(loss) of associates and joint ventures (12) - Impairment of assets 20 - Net change in staff termination benefits Net change in deferred tax liabilities 2 (92) Net change in provisions (1) 376 (Increase) / decrease in receivables 6,544 (3,281) - due from related parties (250) (235) - other 6,794 (3,046) (Increase) / decrease in inventories (40) 142 Increase / (decrease) in payables (1,565) 4,733 - due to related parties other (1,733) 3,992 C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (2,286) (4,562) (Purchases)/disposals of non-current assets: - Intangible assets (747) (467) - Property, plant and equipment (1,630) (2,665) - Financial assets 79 (1,430) Share of profit/(loss) of associates and joint ventures 12 - D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES (1,718) 1,733 Net loans: (945) (213) - due from related parties (945) (213) Other changes in equity (873) 1,840 Change in non-controlling interests E. CASH FLOW FOR THE PERIOD (B+C+D) 3,094 (5,720) F. NET CASH AND CASH EQUIVALENTS AT END OF PERIOD (A+E) 37,277 37,645 26

28 NOTES TO THE FINANCIAL STATEMENTS 27

29 BASIS OF PREPARATION OF THE CONDENSED INTERIM FINANCIAL STATEMENTS AND ACCOUNTING STANDARDS The Group s condensed interim financial statements for the six months ended 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. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the International Accounting Standards (IAS) in effect and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC). In particular, these financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, which establishes the basis for the preparation of interim financial statements. The financial statements have been prepared in condensed form, applying the option provided for by IAS 34. They do not, therefore, include all the information required for annual IFRS financial statements and should be read alongside the annual financial statements prepared for the year ended 31 December The accounting standards applied are consistent with those adopted for preparation of the Acotel Group s consolidated financial statements for the year ended 31 December 2010, to which reference should be made. These condensed interim financial statements have been prepared on the basis of the accounting standards in force at the date of preparation. These standards may not coincide with the IFRS in force at 31 December 2011, as a result of future changes introduced by the European Commission during the process of endorsing international accounting standards, or due to the issue of new standards or interpretations by the IASB or IFRIC. The consolidated financial statements for the six months ended have been prepared on the basis of the underlying accounting records at that date, as adjusted in accordance with the matching principle. NEW STANDARDS AND INTERPRETATIONS NET YET EFFECTIVE This section shows a list of standards, interpretations and updates to previously published standards, or to those yet to be endorsed by the European Union, whose application will be obligatory in future periods and whose adoption it was decided not to bring forward: IFRS 9 Financial Instruments; IFRS 10 Consolidated Financial Statements; IFRS 11 Joint Arrangements; IFRS 12 Disclosure of Interests in Other Entities; IFRS 13 Fare Value Measurement; Changes to IAS 1 Presentation of Financial Statements; Changes to IAS 12 Income Taxes; Changes to IAS 19 Employee Benefits; Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; 28

30 Changes to IFRS 1 First-time Adoption of IFRS; Changes to IFRS 7 Financial Instruments: Disclosures; The Group is evaluating the eventual impact that adoption of these standards and interpretations may have on the consolidated financial statements. BASIS OF CONSOLIDATION The following table provides summary information on consolidated companies held, directly or indirectly, by Acotel Group SpA, the Parent Company. Companies consolidated on a line-by-line basis Company Date of acquisition Group s interest (%) Registered office Share capital Acotel S.p.A. 28 April % (3) Rome EURO 13,000,000 AEM Advanced Electronic Microsystems S.p.A. 28 April % Rome EURO 858,000 Acotel Participations SA 28 April % Luxembourg EURO 6,200,000 Acotel Chile SA 28 April % (4) Santiago, Chile USD 17,330 Acotel Espana SL 28 April % (4) Madrid EURO 3,006 Acotel Do Brasil Ltda 8 August 2000 (1) 100% (4) Rio de Janeiro BRL 1,868,250 Jinny Software Ltd. 9 April % (4) Dublin EURO 3,201 Millennium Software SAL 9 April % (5) Beirut LPD 30,000,000 Info2cell.com FZ-LLC 29 January 2003 (2) 100% (4) Dubai DH 18,350,000 Emirates for Information Technology Co. 29 January % (6) Amman JD 710,000 Flycell Inc. 28 June 2003 (1) 100% (4) Wilmington USD 10,000 Flycell Telekomunikasyon Hizmetleri AS 2 July 2005 (1) 99.9% (7) Istanbul TRY 50,000 Flycell Latin America Conteúdo Para Telefonia Móvel Ltda 6 June 2006 (1) 100% (7) Rio de Janeiro BRL 250,000 Jinny Software Romania SRL 26 June 2007 (1) 100% (5) Bucharest RON 200 Yabox LLC 24 October 2007 (1) 100% (7) Wilmington USD 1 Jinny Software Latin America Importaçāo e Exportaçāo Ltda Rawafed Information Company LLC 11 February 2008 (1) 24 February 2008 (1) 100% (5) Sao Paolo BRL 3,714,816 51% (6) Riyadh SAR 500,000 Jinny Software Panama Inc. 1 July 2008 (1) 100% (5) Panama City USD 10,000 Flycell Italia Srl 10 July 2008 (1) 100% (7) Rome EURO 90,000 Flycell Argentina SA 26 October % (8) La Plata ARS 12,000 Acotel Serviços De Telemedicina Ltda. 28 March % (9) Rio de Janeiro BRL 300,000 Acotel Teleçomunicaçāo Ltda. 28 March % (9) Rio de Janeiro BRL 150,000 Bucksense, Inc. 28 June % Nevada USD 10,000 (1) The date of the company s entry into the Group coincides with its incorporation. (2) Prior to this date the Group held 33% of the company s share capital, accounted for in investments in associates. (3) AEM owns 1.92% of the share capital. 29

31 (4) Controlled via Acotel Participations SA. (5) Controlled via Jinny Software Ltd. (6) Controlled via Info2cell.com FZ-LLC. (7) Controlled via Flycell Inc. (8) Controlled via Flycell Inc. and Yabox LLC. (9) Controlled via Acotel do Brasil Ltda. The basis of consolidation has changed during the first half, following completion of the liquidation of Acotel Group (Northern Europe) Ltd. and the incorporation of Acotel Serviços De Telemedicina Ltda. and Acotel Teleçomunicaçāo Ltda. by Acotel do Brasil Ltda. and of Bucksense, Inc. by Acotel Group S.p.A.. At the end of the first half of 2011 these companies have yet to begin operating. Jointly controlled entities (joint ventures) consolidated using the proportionate method Company Date of acquisition Group s interest (%) Registered office Share capital Noverca S.r.l. 10 July 2002 (1) 90% Rome EURO 2,949,289 Noverca Italia S.r.l. 9 May 2008 (2) 59.4% (3) Rome EURO 120,000 (1) Prior to this date the Group held a 50% interest in the company, posted to investments in associates. As of 9 May 2008 the Group holds a 90% interest in the company. (2) The date of the company s entry into the Group coincides with its incorporation. (3) Investment held through Noverca S.r.l.. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group was required to make assumptions and estimates during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenues, costs, assets and liabilities could differ from these estimates. The estimates were primarily used to record revenues and costs that have yet to be confirmed by customers and suppliers, adjustments to revenues from B2C services, as explained below, as well as the related direct costs, any impairments of goodwill and inventories, and 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. In this regard, the situation caused by the current 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 reporting period may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. These adjustments, which are currently impossible to estimate or predict, may be material. The items primarily affected by these situations of uncertainty are provisions for bad debts and impairments of inventories and goodwill. In particular, with regard to revenues and costs yet to be confirmed by customers, turnover generated by B2C services in the months of May and June 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. 30

32 The adjustments to revenues from B2C services relate to the value of any refunds that might be requested by Flycell Inc. customers dissatisfied with the services provided by the latter until 30 June This estimate is carried out based on available data and current contracts entered into with the mobile transaction network providers, mblox and Open Market, and telephone operators. The portion of revenues deriving from subscriptions for B2C services billed in June 2011 and carried forward to the following period is also estimated. 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 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. In this regard, it should be noted that no provisions have been made in relation to the tax audit of Acotel Group S.p.A., which is described in the Section, Litigation and contingencies. Finally, certain measurement processes, above all those of a complex nature relating to the estimate of potential impairments of non-current assets, are generally only fully carried out during preparation of the annual financial statements, unless events or changes in circumstances indicate that there may be an impairment requiring the immediate measurement of a loss. OPERATING SEGMENTS The Group currently operates in four business segments: - Value Added Services prevalently supplied through mobile telephony; - Mobile Messaging Solutions for fixed and mobile operators; - Security Systems Design for large organisations; - Mobile Telecommunications. 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 preparation in the condensed interim financial statements. Breakdowns of the Group s results by operating and geographical segments are shown below. Results by operating segment The income statements by operating segment for the first half of 2011 and the first half of 2010 are as follows: 31

33 H ( 000) Services Mobile Messaging S olutions Security Systems Mobile Telecommunications Inter-segment eliminations / Other Total Revenue: Revenue from third party customers 45,764 6, ,200 Inter-segment revenues (692) - Total 45,764 7, (692) 54,200 Gross operating profit/(loss) 4, (15) (1,671) 34 3,433 Amortisation, depreciation and impairments (441) (262) (2) (1,820) 735 (1,790) Operating profit/(loss) 4,496 (114) (17) (3,491) 769 1,643 Share of profit/(loss) of associates and joint ventures Finance income 1, (492) 1,211 Finance costs (832) (85) (5) (143) 436 (629) Profit/(loss) before tax 5,325 (186) (21) (3,594) 713 2,237 Taxation (1,903) Profit/(Loss) attributable to noncontrolling interests 100 Profit/(Loss) attributable to owners of the Parent 234 H ( 000) Services Mobile Messaging S olutions Security Systems Mobile Telecommunications Inter-segment eliminations / Other Total Revenue: Revenue from third party customers 72,703 6, ,979 Inter-segment revenues - 2, (2,833) - Total 72,703 8, (2,833) 79,979 Gross operating profit/(loss) (759) (3,449) (921) (4,538) Amortisation, depreciation and impairments (396) (325) (2) (1,710) 714 (1,719) Operating profit/(loss) (1,155) (5,159) (207) (6,257) Finance income 1, (299) 1,347 Finance costs (1,355) (59) (5) (22) 273 (1,168) Profit/(loss) before tax (977) (5,180) (233) (6,078) Taxation (419) Profit/(Loss) attributable to noncontrolling interests 106 Profit/(Loss) attributable to owners of the Parent (6,603) Total consolidated assets by operating segment at and 31 December 2010 are as follows: 32