INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012

Transcription

1 INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012 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 INTERIM MANAGEMENT REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012 page 4 Principal factors that have influenced the results for the period page 5 Results of operations page 14 Financial position and cash flow page 16 Human resources page 17 Risks and uncertainties page 17 Other information page 18 Events after page 19 Outlook page 19 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS page 20 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2012 page 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2012 page 28 Basis of preparation of the condensed interim consolidated financial statements and accounting standards page 29 New standards and interpretations not yet effective page 29 Basis of consolidation page 30 Critical accounting estimates and judgements page 31 Operating segments page 32 Notes to the income statement page 35 Notes to the statement of financial position page 43 Net funds page 52 Litigation and contingencies page 53 Commitments page 53 Related party transactions page 53 Other information page 54 ANNEXES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2012 page 55 ATTESTATION OF THE CONDENSED INTERIM CONSOLIDATED 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) 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), (3) Director Giovanni La Croce 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 Reconta Ernst & Young SpA (appointed with effect from 24 April 2012) 2

4 THE GROUP The following chart shows the structure of the Group at : The parent company of Acotel Group SpA is Clama Srl, which at 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 of the Italian Civil Code. 3

5 INTERIM MANAGEMENT REPORT FOR THE SIX MONTHS ENDED 30 JUNE

6 PRINCIPAL FACTORS THAT HAVE INFLUENCED THE RESULTS FOR THE PERIOD From 2012 the Group s organisational structure has been changed to reflect the three business areas, in which it operates commercially. In order to ensure comparability of the results for the first halves of 2012 and 2011, income statement items for the first half of 2011 have been reclassified in line with the creation of the above three business areas. The Group reports revenue of 51 million euros for the first half of 2012, down approximately 6% on the 54.2 million euros of the same period of Gross operating profit amounts to approximately 3.7 million euros, up 7% on the 3.4 million euros of the same period of The change in revenue reflects a 11.4% reduction in turnover in the Acotel Interactive business. The impact of this on total turnover was only partially offset by growth recorded by the other two business areas, Acotel TLC and Acotel Net, whose revenues are up 19% and 8.7%, respectively. The performance of gross operating profit, on the other hand, contrasts with the decline in revenue. Acotel Interactive reports a gross operating profit of 6.4 million euros, up 7.6% on the first half of 2011 and Acotel TLC has slightly reduced the loss of the previous first half (1.8 million euros for the first half of 2012, compared with a loss of 1.9 million euros for the same period of 2011), whilst Acotel Net has seen its gross operating loss increase to 0.9 million euros (a loss of 0.6 million euros for the first half of 2011). This section describes the principal factors that have influenced the results in the Group s different business areas. 5

7 ACOTEL INTERACTIVE Revenues are down from 44.2 million euros in the first half of 2011 to 39.1 million euros in the first half under review, marking a decline of 11.4 %. This is largely due to the combined effect of the following: the positive performance of the new generation services of Digital Entertainment segment in Italy, which in the first half of 2012 generated higher revenues than those produced by conventional services in the first half of 2011; the delayed commercial rollout of the new Digital Entertainment services in a number of advanced markets, such as the USA and Spain, where the downturn in revenues from conventional services has not yet been sufficiently offset by revenue growth generated by the new services; a reduction in turnover in Brazil, reflecting a general slowdown in the market for value added mobile services. Gross operating profit is up in both absolute terms, rising from 5.9 million euros for the first half of 2011 to 6.4 million euros for the first half under review, and in relative terms, with the EBITDA margin exceeding 16%, compared with 13% for the first half of From a commercial point of view, the strategy adopted by the business area proved a success. This aims: to shift the focus towards new-generation mobile services in markets with a high degree of smartphone penetration and mobile networks capable of guaranteeing adequate levels of mobile internet service, such as the USA, Saudi Arabia, Australia, Italy and other European countries; to continue to offer its conventional value added services, such as, for example, ringtone and game downloads, in markets that still have low levels of smartphone penetration or where mobile internet remains relatively undeveloped. This type of market includes Brazil, most Latin American countries and the majority of Middle Eastern countries. In line with this strategy, a commercial offering based on three business segments has been devised: Digital Entertainment, with services offered under consumer brands like Yabox for casual web/pc gaming, Flycell for content downloads, SurveyLotto, GiocaNews and Palpitamos for prize competitions and SkillDerby for HTML5 games on smartphones; Mobile Services, consisting of services distributed primarily on a white label basis to mobile operators, such as, for example, ScriptTIM (infotainment) and FunnyTV (video entertainment) with TIM in Italy, Quiz Ilimitado (a game involving questions and answers on general culture and assorted trivia) and Meu Jornal (a press clippings for mobile phones) with TIM Celular, and Breaking News (infotainment via SMS) with a number of Middle Eastern operators. Interactive Advertising, managed by Bucksense Inc., an agency that produces performancebased advertising campaigns. 6

8 As described in previous announcements and reports, this latter business segment reflects the Group s decision to capitalise on the expertise built-up during the creation and management of inhouse advertising campaigns by selling its services to external customers. The improved effectiveness of advertising, which is now managed by Bucksense Inc., has resulted in significant customer acquisition cost savings (CPO, or costs per order). Advertising expenditure during the first half focused on the sale of new-generation services, with promotional campaigns publicised accordingly via smartphone banner advertising and social networks, above all Facebook. Further steps were taken to improve margins, including: reduced use of content providers: creative departments have been set up at Acotel Interactive s New York office and within other operating units in order to conceive and develop the copy, graphics and technology used in a large part of the content distributed; an improvement in a number of KPIs associated with new-generation mobile services, ensuring a lower churn rate compared with the rate for conventional services. With regard to the first of the above points, the market has welcomed the services based on HTML5. This technology allows developers to create, among other things, animated interactive games accessible through smartphone browsers without, therefore, the need to download and install applications from Application Stores. The SkillDerby service is one example, with a number of interactive games launched during the first half. 7

9 Action was also taken during the period to boost the geographical footprint by launching operations in Austria, Ecuador and Peru, continuing the geographical diversification strategy embarked on some years ago, which has enabled the business area to reduce country risk and maximise economies of scale, technology and product. This business area now operates in around 30 countries in five continents. Finally, management of the Acotel Interactive business is the responsibility of the New York based company with the same name, Acotel Interactive Inc. (previously called Flycell Inc.), which, in addition to directly controlling various companies in Italy, Turkey, Brazil, Argentina and the USA, oversees the operations of Acotel SpA (Italy), Acotel do Brasil Ltda (Brazil), Info2cell.com FZ-LLC (Dubai) and Bucksense Inc. (USA). 8

10 ACOTEL TLC Acotel TLC recorded a 19% increase in revenues from 9.4 million euros in the first half of 2011 to 11.2 million euros in the period under review. In terms of margins, the results for the two comparative periods are substantially in line, with a slight improvement on the gross operating loss of 1.92 million euros recorded in the first half of 2011 to a loss of 1.85 million euros for the first half of In percentage terms, the EBITDA margin has recorded a bigger improvement from -20.5% to -16.6%. An analysis of the various segments in which the business area operates reveals the performance underlying the above results: Mobile VAS Technology products and services for mobile operators; Mobile Communications mobile telecommunications services for end users provided by Noverca Italia Srl, and SMS information services for corporate customers provided by Acotel SpA and Acotel do Brasil; Mobile Virtual Network Enabler (MVNE) and Mobile Virtual Network Aggregator (MVNA) services provided to Mobile Virtual Network Operators (MVNOs), developed and supplied by Noverca Srl. Revenues from Mobile VAS Technology developed and sold by Jinny Software Ltd. (Dublin) are up from 6.8 million euros in the first half of 2011 to 7.5 million euros in the first half of This reflects the market success of the company s products, above all its messaging platforms (SMS-C and MMS-C). This growth was also accompanied with a 16% increase in new orders during the two comparative periods. The company also made a positive contribution to the gross operating profit recorded by this business area, partly thanks to close control of overheads, above all staff costs. On a geographical level, the biggest market remains Africa, although the company doubled sales in Europe and Asia and achieved healthy growth in Latin America. The company also achieved a significant degree of success in terms of customer acquisitions, adding six new customers to reach a total of just under 80 operators located in around 60 countries in five continents. 9

11 Finally, Jinny Software completed technological development for new products and presented its 4GMC (4G Messaging Centre) product, during the Mobile World Congress in Barcelona in February This is a messaging platform that allows mobile operators to offer next generation services thanks to its native integration with the IMS (IP Multimedia Subsystem) and LTE (Long Term Evolution) networks. The Mobile Communications segment includes Noverca Italia Srl, an MVNO providing mobile telecommunications services in Italy, and Acotel SpA (Rome) and Acotel do Brasil (Rio de Janeiro), which, in addition to being part of the Acotel Interactive business, supply messaging services for corporate customers in their respective countries of operation. Noverca Italia Srl ended the first half with total revenues of approximately 2 million euros, up approximately 18% on the 1.7 million euros of the first half of The Intesa Sanpaolo banking group holds a direct and indirect interest of 40.6% in the company and, as a result, the Acotel Group SpA s share of revenues for the first half amounts to approximately 1.2 million euros. The company reports a gross operating loss for the first half, given that turnover is not yet sufficient to generate margins capable of covering fixed costs. 10

12 The most significant event during the first half was completion of the migration of all customers to the new Full MVNO platform, a development that distinguishes Noverca Italia Srl from the other MVNOs operating in Italy in technological and regulatory terms. The company is the first and only operator in Italy to have its own mobile operator code and series of numbers, enabling it to have its own SIM (Subscriber Identification Module) cards. Its technological and financial dependence on the host operator, Telecom Italia, is also reduced to a minimum as the company only has to purchase airtime, and is completely autonomous in managing interconnections with other Italian and overseas telecommunications operators. With its shareholder and partner, the Intesa Sanpaolo banking group, the company has intensified its marketing of SIM cards under the Superflash brand, used to sell banking services and products to the young. The partners have launched a promotion specifically designed to meet the needs of this key market segment in terms of prices and services. A new commercial and marketing plan for the distribution of SIM cards via the bank s branch network was also agreed with Intesa Sanpaolo, whilst trials of mobile payment services, first launched in December 2011, continued. The trials are proving useful in helping the company to perfect the processes and technologies needed to develop services based on NFC (Near Field Communication) technology, which is increasingly being used in both mobile handsets, above all smartphones, and in POS (Point of Sale) systems, the two devices forming the basis of many mobile payments system. Remaining in the Mobile Services segment, Acotel SpA in Italy and Acotel do Brasil in Brazil have, over the first half, supplied messaging services to major organisations worth 2.5 million euros, compared with the 1.6 million euros of the first half of This marks growth of 56% and resulted in a positive contribution to the business area s EBITDA. 11

13 In absolute terms, growth is equally distributed between Italy and Brazil. However, the result achieved in this latter market is of particular significance as the Group only began operating in this specific sector at the beginning of The type of organisations making most use of these services were banks (the biggest customer in Italy is the Unicredit banking group), which use so-called SMS alerts to keep their customers informed in real time about, for example, movements on their current accounts and credit card transactions. Noverca Srl provided Mobile Virtual Network Enabler (MVNE) and Mobile Virtual Network Aggregator (MVNA) services exclusively to the subsidiary, Noverca Italia Srl, during the first half and did not thus generate revenues on transactions with entities outside the Group. Talks were, however, initiated with potential customers with the aim of developing business in both Italy and foreign markets. Positive progress was made, above all thanks to interest in the company s technological expertise, which has enabled it to create a tried and tested technology platform. ACOTEL NET Acotel Net reports revenues of 0.73 million euros, up 9% on the 0.67 million euros of the first half of The business s gross operating loss amounts to 0.86 million euros, up on the loss of 0.6 million euros reported for the first half of All this business area s revenues are generated by the Security Systems segment headed by AEM SpA, which substantially broke even at EBITDA level. The gross operating loss thus reflects the performances of the Energy and Health Management segments which, having not yet reached the commercial launch stage, have essentially contributed only the staff and technology costs incurred in the development of the products and services that make up their offerings. The Security Systems segment has renewed contracts to provide and maintain remote surveillance systems at Italian police headquarters. 12

14 In the Energy and Health segments, equipment developed and produced in-house by the Group for use in providing the services was piloted at a number of the Group s offices and at third-party premises. The equipment consists of special gateways that concentrate data from a certain number of sensors that, in the case of energy, may be meters for measuring consumption and, in the case of health, biomedical diagnostic devices. The gateways use GSM modules equipped with M2M (Machine to Machine) SIM cards or ADSL connections to dialogue with Acotel Net s central platform. The platform, accessed via a web interface, thus plays a key role in enabling customers to assess their energy consumption or state of health, and decide on the necessary energy savings or medical treatment. 13

15 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT ( 000) H H Inc./(Dec.) % inc./(dec.) Revenues 51,000 54,200 (3,200) (6%) Other income 1, , % Total 52,410 54,471 (2,061) (4%) Gross operating profit/(loss) 3,665 3, % 7.19% 6.33% O perating profit/(loss) 1,534 1,643 (109) (7%) 3.01% 3.03% Share of the profit/(loss) of associates and joint ventures - 12 (12) (100%) Net finance income/(costs) (18) (3%) PROFIT/(LOSS) BEFO RE TAX 2,098 2,237 (139) (6%) 4.11% 4.13% PROFIT/(LOSS) BEFO RE NO N- CO NTR OLLING INTERESTS % 1.21% 0.62% PROFIT/(LOSS) ATTRIBUTABLE TO O WNERS OF THE PA RENT % 1.09% 0.43% Earnings per share Diluted earnings per share Compared with the results for the same period of the previous year, the Group s results for the first half of 2012 show a reduction in revenue and an improvement in gross operating profit and profit for the period. Revenue of 51 million euros for the first half is down 6% on the same period of 2011, essentially due to a reduction in Digital Entertainment revenue in the Acotel Interactive business. In contrast, gross operating profit is up from the 3.4 million euros of the first half of 2011 to 3.7 million euros in the first half under review, marking an improvement of 7%. After amortisation and depreciation and impairments of non-current assets, the Group reports an operating profit of 1.5 million euros, down 7% on the same period of the previous year. After net finance income (0.6 million euros), estimated taxation for the period (1.5 million euros), and profit attributable to non-controlling interests (0.1 million euros), the profit attributable to 14

16 owners of the Parent for the first half of 2012 amounts to 0.6 million euros, marking a significant improvement (up 137%) on the result for the same period of

17 FINANCIAL POSITION AND CASH FLOW RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ( 000) 31 December 2011 Inc./(Dec.) % inc./(dec. Non-current assets: Property, plant and equipment 9,461 9,661 (200) (2%) Intangible assets 14,620 14, % Other assets 4,478 4,755 (277) (6%) TOTAL NON-CURRENT ASSETS 28,559 28,682 (123) - Net current assets: Inventories % Trade receivables 29,836 29, % Other current assets 6,222 5, % Trade payables (21,478) (20,878) (600) (3%) Other current liabilites (7,609) (8,242) 633 8% TOTAL NET CURRENT ASSETS 7,570 6, % PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (2,079) (1,950) (129) (7%) NON-CURRENT PROVISIONS (622) (365) (257) (70%) NET INVESTED CAPITAL 33,428 33, Equity: Share capital 1,084 1, Reserves and retained earnings/(accumulated losses) 66,672 65, % Profit/(Loss) for the period 555 1,860 (1,305) (70%) Non-controlling interests % TOTAL EQUITY 69,093 69,428 (335) - MEDIUM/LONG-TERM DEBT Net cash and cash equivalents: Current financial assets (18,087) (21,913) 3,826 17% Cash and cash equivalents (17,625) (14,215) (3,410) (24%) Current financial liabilities % (35,665) (36,093) 428 1% NET FUNDS RECEIVABLE FROM OTHERS (35,665) (36,093) 428 1% TOTAL EQUITY AND NET FUNDS RECEIVABLE FROM OTHERS 33,428 33, The Acotel Group s net invested capital at amounts to 33.4 million euros, made up of non-current assets of 28.5 million euros, net current assets of 7.6 million euros, provisions for staff termination benefits of 2.1 million euros and other non-current provisions of 0.6 million euros. Net invested capital is financed by consolidated equity of 69.1 million euros and net funds of 35.7 million euros. 16

18 A detailed analysis of changes in the principal components of the financial position shows that: there have been no material changes in non-current assets during the period; changes in net current assets reflect the performance of the Group s business volumes; net funds receivable from others at amount to 35,665 thousand euros, substantially in line with 31 December 2011 (down 1%). HUMAN RESOURCES At the Group employs 464 people, compared with 477 at the end of The Group recruited 50 new staff during the first half, whilst 63 people left its employ. The low average age of the Group s staff, at 34, and their high level of education (with 76% of staff having a degree or a university qualification) results in a dynamic and highly skilled workforce, 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 35% of total trade receivables relates to amounts due from telephone companies, such as Telecom Italia (21%), TIM Celular SA (4%) and Wind (3%), and the mobile transaction network providers Open Market (4%) and mblox (3%), who provide Acotel Interactive Inc. with the necessary connectivity with US and Spanish telephone operators. Group companies are not involved in significant disputes with their debtors. Liquidity risk The Group does not make 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. 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 Acotel Interactive Inc., although 17

19 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 Given that the Group is not dependent on external sources of funding, it is not exposed to interest rate risk. 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 business, 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 decision to invest heavily, in both financial terms and in terms of the number of staff employed, in the commercial launch of Noverca and its conversion to a Full MVNO, completed in the second quarter of this year, will face a key test in the near future, when the Group has targeted significant increases in both customers and the average customer spend, as it benefits from the greater degree of independence deriving from its 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 There were no transactions between the parent, Clama Srl, Acotel Group SpA 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. 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. At Acotel Group SpA has not established any branch offices. 18

20 The Group did not carry out any exceptional and/or unusual transactions during the first half of 2012, given that the transfer to Acotel Group SpA of the investments previously held by Acotel Participations SA does not qualify as such. All intercompany 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 included in the notes to the condensed interim consolidated financial statements. EVENTS AFTER 30 JUNE 2012 Between the end of the first half of 2012 and the date of approval of the interim report the Acotel Interactive business has proceeded with the commercial launch of its new-generation mobile Digital Entertainment services in the Netherlands and Australia. OUTLOOK The Acotel Interactive business area plans to continue with its geographical expansion, involving the launch of new-generation mobile services in Saudi Arabia and the United Arab Emirates, the two Middle Eastern countries with the greatest smartphone penetration. The offering for smartphone owners will be expanded with the development and commercial launch of services resembling existing App-based services. From a marketing viewpoint, the plan is to promote services increasingly integrated with the ios (Apple) and Android (Google) systems so as to better engage with users of the two systems. With regard to the Mobile VAS technology segment of the Acotel TLC business, in which Jinny Software Ltd. operates, the size of the order book at and the market success of the new products developed by the Irish subsidiary lead us to expect a positive performance during the second half of the current year. In the Mobile Communications segment of the Acotel TLC business, Noverca Italia Srl is committed to developing an initiative dubbed the Partner Program, which aims to enable thirdparties to distribute own-brand SIM cards to their customers to boost brand loyalty and open up new sources of revenue. This initiative has been made possible by the conversion to Full MVNO, which enables Noverca to have its own SIM cards and boost its distribution capacity in the Italian market. Noverca will also be engaged in a series of commercial initiatives with its shareholder and partner, Intesa Sanpaolo, to take advantage of mobile number portability to acquire new customers. The company will also work with Intesa Sanpaolo in order to drive the take-up of mobile payments based on NFC (Near Field Communication) technology. Following rollout of the website during the first half of the year, the Acotel Net business will proceed with the commercial launch of the related services, above all those provided by the Energy segment. 19

21 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 20

22 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE

23 CO NSO LIDATED INCOME STATEMENT ( 000) N ote H H Reve nues 1 51, ,200 Othe r in come: 2 1, from related parties other 1, Total 5 2, ,4 71 Change in work in progress, semi-finished and finished goo ds 74 1 Raw materials, semi-finished and finishe d g oods 3 (1,30 8) (858 ) Exte rnal servic es 4 (3 3,913) (3 7,1 03) - rendered by related parties - (100) - other (33,913) (37,003) Rentals and leases 5 ( 1,035) (9 12) Staff cos ts 6 (1 2,072) (1 1,6 52) Amortisation and de prec iation 7 ( 2,096) ( 1,7 74) Cap italised internal costs Impairment charges/reversal of impairment charges on non-current assets (35) (16) Other costs 9 (1,063) (1,3 31) Share of profit/(loss) of associates and joint ventures - 12 Finan ce income 1 0 1,475 1,211 Finan ce costs 10 (911) (6 29) PRO FIT/(LOSS ) B EFO RE TAX FR OM C ONTIN UING OP ERATI ONS 2,098 2,2 37 Taxation 11 (1,480) (1,9 03) PRO FIT/(LOSS ) F ROM CON TINUIN G OPER ATION S Pr ofit/(lo ss) from disco ntinued op eratio ns - - PRO FIT/(LOSS ) B EFO RE NON -CON TRO LLING INTE RESTS Pr ofit/(lo ss) attrib utable to non -c ontro lling interes ts PRO FIT/(LOSS ) F OR TH E P ERIOD A TTRIB UTAB LE TO OW NERS O F T HE PAR ENT Earnings per share Diluted earning s p er share

24 CO NSO LIDATED STATEM ENT OF COM PREHENSIVE INCOM E ( 000) No te H H Pro fit/(l oss) for th e p eriod Other comprehensiv e in come/(losses): Gain s/(losses) from translation of financial statements of foreign op eratio ns (953) (8 73) Ta x c redit/( expense) on other gains/(losses) - - To tal other gains/(losses), net o f tax (953) (8 73) Total compreh ensive in come/(lo ss) for the period (335) (5 39) Total compreh ensive in come/(lo ss) for the period attributable to: owners o f the P arent (398) (6 39) non-c ontrolling interests Total compreh ensive in come/(lo ss) for the period (335) (5 39) 23

25 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS ( 000) Note 31 December 2011 Non-current assets: Property, plant and equipment 13 9,461 9,661 Goodwill 14 11,531 11,531 Other intangible assets 15 3,089 2,735 Other non-current assets Deferred tax assets 16 4,158 4,423 TOTAL NON-CURRENT ASSETS 28,559 28,682 Current assets: Inventories Trade receivables 18 29,836 29,616 Other current assets 19 4,748 4,839 - due from related parties other 4,336 4,236 Financial receivables: 20 1,474 1,100 - due from related parties 1,474 1,100 Current financial assets 21 18,087 21,913 Cash and cash equivalents 22 17,625 14,215 TOTAL CURRENT ASSETS 72,369 72,216 NON-CURRENT ASSETS HELD FOR SALE - - TOTAL ASSETS 100, ,898 24

26 CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQUITY ( 000) Note 31 December 2011 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 (733) 220 Other reserves 10,288 10,287 Retained earnings/(accumulated losses) 2,882 1,023 Profit/(Loss) for the period 555 1,860 Equity attributable to owners of the Parent 68,311 68,709 Non-controlling interests TOTAL EQUITY 23 69,093 69,428 Non-current liabilities: Provisions for staff termination benefits and other employee benefits 24 2,079 1,950 Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES 2,701 2,315 Current liabilities: Provisions Current financial liabilities Trade payables 28 21,478 20,878 Tax liabilities 29 1,332 1,588 Other current liabilities 30 6,174 6,555 - due to related parties 1,215 1,162 - other 4,959 5,393 TOTAL CURRENT LIABILITIES 29,134 29,155 LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 31,835 31,470 TOTAL LIABILITIES AND EQUITY 100, ,898 25

27 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ( 000) Share capital Share premium reserve - Treasury shares 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) 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 30 June ,084 55,106 (871) ,289 1, , ,107 Balances at 1 Jan ,084 55,106 (871) ,287 1,023 1,860 68, ,428 Appropriation of profit for ,859 (1,860) - - Comprehensive income/ (loss) for the period (953) 555 (398) 63 (335) Balances at 1,084 55,106 (871) (733) 10,288 2, , ,093 26

28 CONSOLIDATED STATEMENT OF CASH FLOWS ( 000) H H A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 36,093 34,183 B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES 2,809 7,098 Cash flows from operating activities before changes in working capital 3,068 2,159 Profit/(Loss) for the period Amortisation and depreciation 2,096 1,774 Share of profit/(loss) of associates and joint ventures - (12) Impairment of assets Net change in staff termination benefits Net change in deferred tax liabilities Net change in provisions 4 (1) (Increase) / Decrease in receivables (156) 6,544 - due from related parties 191 (250) - other (347) 6,794 (Increase) / Decrease in inventories (66) (40) Increase / (Decrease) in payables (37) (1,565) - due to related parties other (90) (1,733) C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (1,973) (2,286) (Purchases)/disposals of fixed assets: - Intangible assets (885) (747) - Property, plant and equipment (1,365) (1,630) - Financial assets Share of profit/(loss) of associates and joint ventures - 12 D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES (1,264) (1,718) Net borrowings: (374) (945) - due to related parties (374) (945) Other changes in equity (953) (873) Change in non-controlling interests E. CASH FLOW FOR THE PERIOD (B+C+D) (428) 3,094 F. NET CASH AND CASH EQUIVALENTS AT END OF PERIOD (A+E) 35,665 37,277 27

29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE

30 BASIS OF PREPARATION OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND ACCOUNTING STANDARDS The Group s condensed interim consolidated financial statements for the six months ended 30 June 2012 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. 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 2011, to which reference should be made. Income tax expense is calculated on the basis of taxable income at the end of the reporting period. Current income tax liabilities and assets are recognised at the amount expected to be paid to (recovered from) the taxation authorities, using the tax laws that have been enacted at the end of the reporting period and tax rates estimated on an annual basis. These condensed interim consolidated 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 2012, 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 16 Property, Plant and Equipment; Changes to IAS 19 Employee Benefits; 29

31 Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; Changes to IAS 32 Financial Instruments: Presentation; 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 SpA 28 April % (3) Rome EURO 13,000,000 AEM Advanced Electronic Microsystems SpA 28 April % Rome EURO 858,000 Acotel Participations SA 28 April % Luxembourg EURO 6,200,000 Acotel Chile SA 28 April % Santiago, Chile USD 17,330 Acotel Espana SL 28 April % Madrid EURO 3,006 Acotel Do Brasil Ltda 8 August 2000 (1) 100% Rio de Janeiro BRL 1,868,250 Jinny Software Ltd. 9 April % Dublin EURO 3,201 Millennium Software SAL 9 April % (4) Beirut LPD 30,000,000 Info2cell.com FZ-LLC 29 January 2003 (2) 100% Dubai USD 5,000,000 Emirates for Information Technology Co. 29 January % (5) Amman JD 710,000 Acotel Interactive, Inc. 28 June 2003 (1) 100% Wilmington USD 10,000 Flycell Telekomunikasyon Hizmetleri AS 2 July 2005 (1) 99.9% (6) Istanbul TRY 50,000 Flycell Latin America Conteúdo Para Telefonia Móvel LTDA 6 June 2006 (1) 100% (6) Rio de Janeiro BRL 250,000 Jinny Software Romania SRL 26 June 2007 (1) 100% (4) Bucharest RON 200 Yabox LLC 24 October 2007 (1) 100% (6) Wilmington USD 1 Jinny Software Latin America Importaçāo e Exportaçāo Ltda Rawafed Information Company LLC 11 February 2008 (1) 24 February 2008 (1) 100% (4) Sao Paolo BRL 3,714,816 51% (5) Riyadh SAR 500,000 Jinny Software Panama Inc. 1 July 2008 (1) 100% (4) Panama City USD 10,000 Flycell Italia Srl 10 July 2008 (1) 100% (6) Rome EURO 90,000 Flycell Argentina SA 26 October % (7) La Plata ARS 12,000 Acotel Serviços De Telemedicina Ltda. 28 March % (8) Rio de Janeiro BRL 400,000 Acotel Teleçomunicaçāo Ltda. 28 March % (8) Rio de Janeiro BRL 400,000 Bucksense, Inc. 28 June % Nevada USD 10,000 30

32 Urbe Roma S.S.D. a r.l. 2 February % (9) Rome EURO 10,000 (1) The date of the company s entry into the Group coincides with its incorporation. (2) Prior to such 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. (4) Controlled via Jinny Software Ltd. (5) Controlled via Info2cell.com FZ-LLC. (6) Controlled via Acotel Interactive Inc. (7) Controlled via Acotel Interactive Inc. e Yabox LLC. (8) Controlled via Acotel do Brasil Ltda. (9) Controlled via Acotel SpA The basis of consolidation was modified during the period following the acquisition, by Acotel SpA, of a 100% interest in Urbe Roma S.S.D. a r.l.. In addition, the subsidiary, Flycell Inc., changed its name to Acotel Interactive, Inc. and, in order to simplify the structure of the Group, ownership of Acotel Participations SA s investments in Acotel Interactive Inc., Acotel do Brasil Ltda, Info2cell.com FZ-LLC, Jinny Software Ltd., Acotel Espana SL and Acotel Chile SA was transferred to Acotel Group SpA. Jointly controlled entities (joint ventures) consolidated using the proportionate method Company Date of acquisition Group s %interest Registered office Share capital Noverca Srl 10 July 2002 (1) 90% Rome EURO 2,949,289 Noverca Italia Srl 9 May 2008 (2) 59.4% (3) Rome EURO 196,077 (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 Srl. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group was required to make estimates and assumptions during preparation of the condensed interim consolidated 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 Digital Entertainment 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 half year 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. 31

33 In particular, with regard to revenues and costs yet to be confirmed by customers, turnover generated by Digital Entertainment 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. The adjustments to revenues from Digital Entertainment services relate to the value of any refunds that might be requested by Acotel Interactive Inc. customers dissatisfied with the services provided by the latter until. 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 companies. The portion of revenues deriving from subscriptions for Digital Entertainment services billed in June 2012 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. 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 As noted in the Principal factors that have influenced the results for the period, which provides more detailed information, the Group has undertaken a complex process of restructuring that has resulted in, among other things, a redefinition of its business areas, which have become: - Acotel Interactive; - Acotel TLC; - Acotel Net. 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 consolidated 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 2012 and the first half of 2011 are as follows: 32

34 H ( 000) ACOTEL INTERACTIVE ACOTEL TLC ACOTEL NET Eliminations / Other Total Revenue: Revenue from third party customers 39,118 11, ,000 Inter-segment revenues Total 39,118 11, ,000 Gross operating profit/(loss) 6,356 (1,851) (856) 16 3,665 Amortisation, depreciation and impairments (509) (2,355) (2) 735 (2,131) Operating profit/(loss) 5,847 (4,206) (858) 751 1,534 Share of profit/(loss) of associates and joint ventures Finance income 1, (554) 1,475 Finance costs (1,101) (416) (2) 608 (911) Profit/(loss) before tax 6,529 (4,379) (857) 805 2,098 Taxation (1,480) Profit/(Loss) attributable to non-controlling interests 63 Profit/(Loss) attributable to owners of the Parent 555 H ( 000) ACOTEL INTERACTIVE ACOTEL TLC ACOTEL NET Eliminations / Other Total Revenue: Revenue from third party customers 44,153 9, ,200 Inter-segment revenues Total 44,153 9, ,200 Gross operating profit/(loss) 5,904 (1,917) (588) 34 3,433 Amortisation, depreciation and impairments (438) (2,085) (2) 735 (1,790) Operating profit/(loss) 5,466 (4,002) (590) 769 1,643 Share of profit/(loss) of associates and joint ventures Finance income 1, (503) 1,211 Finance costs (827) (233) (5) 436 (629) Profit/(loss) before tax 6,285 (4,168) (594) 714 2,237 Taxation (1,903) Profit/(Loss) attributable to non-controlling interests 100 Profit/(Loss) attributable to owners of the Parent 234 The above comparison between the two periods highlights the following: - the fact that the improvement in Acotel Interactive s earnings is all the more notable if measured as a percentage of the business area s turnover; 33

35 - the growth in revenues reported by the Acotel TLC business area, thanks primarily to the improved performances of Jinny Software, Acotel do Brasil and Acotel SpA; - the economic difficulties of the Acotel Net business area, which includes the activities carried out by AEM SpA in the security systems market, in addition to the Group s development of energy management, remote medical and security systems, which is having a negative impact on the business s operating results. Total consolidated assets by operating segment at and 31 December 2011 are as follows: ( 000) ACOTEL INTERACTIVE ACOTEL TLC ACOTEL NET Eliminations/ot her Total At 61,784 36,629 2, ,928 At 31 December ,132 35,216 2, ,898 Results by geographical segment The following table provides an analysis of the Group s sales in the various geographical segments, regardless of the origin of the goods and services: ( 000) H % H % Italy 16, % 10, % Latin America 12, % 17, % North America 8, % 11, % Middle East 6, % 7, % Other European countries 2, % 4, % Africa 2, % 2, % Asia 1, % % Total revenue from third parties 51, % 54, % The breakdown of revenues for the first half of 2012 by geographical segment reveals: - significant growth in turnover in Italy (up 55%) thanks to the Digital Entertainment services provided by Flycell Italia Srl, and the Mobile Services and Mobile Communications services supplied by Acotel SpA; - growth in turnover in Asia thanks to the activities of the subsidiary, Jinny Software; - a downturn in turnover in Latin America, North America and other European countries. The following table shows a geographical breakdown of the total value of non-current assets, excluding financial assets and deferred tax assets: 34