INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2006

INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2006 Registered office: Via della Valle dei Fontanili 29/37 00168 Rome, Italy Share capital: 1,084,200.00 euros, fully paid-up Rome Companies Register, Tax Code and VAT number: 06075181005

CORPORATE OFFICERS BOARD OF DIRECTORS Claudio Carnevale Chairman and CEO Francesco Ago (1), (2) Director Margherita Argenziano Director Luca De Rita Director Giovanni Galoppi Director Giuseppe Guizzi (1), (2) Director Andrea Morante Director (1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee BOARD OF STATUTORY AUDITORS Antonio Mastrangelo Chairman Maurizio Salimei Statutory auditor Umberto Previti Flesca Statutory auditor INDEPENDENT AUDITORS Deloitte & Touche S.p.A. 1

THE GROUP The following chart shows the structure of the Acotel Group at : Controlling shareholder of Acotel Group S.p.A. is Clama S.r.l., which at holds 1,748,015 ordinary shares, representing 41.9% of the share capital. Clama S.r.l. does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code. 2

OPERATING AND FINANCIAL REVIEW 3

MAIN FACTORS THAT HAVE INFLUENCED THE RESULTS FOR THE PERIOD The most evident result achieved by the Acotel Group in the first half of 2006 is the increase in revenue, which at 27.2 million euros is up 144% on the 11.1 million euros of the same period of 2005. From a geographical point of view, 50.4% of turnover was generated in the USA, which has thus become the Group s principal market. Whilst revenues generated in the Group s historic markets in Italy, the Middle East and South America grew in absolute terms, they have fallen as a proportion of the total, now representing 24%, 12.2% and 9.9%, respectively. The remaining 3.5% is generated in other European countries and in Africa. In terms of business segment, value added services (VAS) for mobile phones continue to represent the Group s most important source of revenue, accounting for 91% of the total. The ICT Platforms and Security Systems business segments account for 7% and 2% of the total, respectively. Revenue growth did not translate into a similar improvement in profits: the Group reports a gross operating loss (EBITDA) of 1,946 thousand euros, compared with a loss of 778 thousand euros in the same period of the previous year. The difference reflects the costs incurred during the first half of 2006 in order to promote B2C services in the US market, totalling 9.6 million euros. Such costs were much lower (307 thousand euros) in the first half of 2005. Such costs are associated with to the acquisition of new customers, who are expected to continue to generate revenue for a considerable period after the related acquisition cost has been incurred. The operating loss also reflects an increase in staff costs, which have increased by 1,140 thousand euros compared with the same period of 2005. In terms of headcount, the number of staff is up from 236 at 30 June 2005 to 282 at. The rise is entirely due to staff hired by overseas subsidiaries, above all Flycell Inc, which in response to the growth in its business had to increase its headcount from 10 at 30 June 2005 to 30 at the end of the first half of 2006. The following sections provide a review of the operating results for each business segment. SERVICES This segment, with revenues of 24.8 million euros for the first semester, accounts for 91% of the Group s total revenue and is today, more than before, the Group s most important area of activity. Most of the Group s revenues from this segment were produced by Flycell Inc. This company, which has its operating headquarters in New York and operates in the B2C segment, proceeded with the commercial launch of its services in February, after an initial period of fine tuning of its technical and organisational structures, which was completed at the end of 2005. Revenues generated by Flycell Inc. during the first six months amounts to 13.6 million euros, compared with almost zero in the same period of 2005. 4

This level of turnover was achieved thanks to substantial expenditure on advertising, totalling 9.6 million euros, aimed at acquiring customers and building awareness of the Flycell brand. It is expected that this expenditure will result in improved profitability as early as the second half of the current year, given that Flycell Inc. s business model is based on the sale of services to customers who pay a monthly subscription. This means that, except in the event of large-scale cancellations, the acquired customer continues to generate revenue for several months after the acquisition costs have been incurred. Flycell Inc. s advertising was based almost entirely on web-based promotions, which proved far more effective in terms of customer acquisition cost than those using other media, such as TV or radio. Adverts were run in collaboration with so-called affiliates, who promote the www.flycell.com site within their portals and are paid on the basis of the number of effective customer subscriptions made through their portal. The second largest contribution to service revenues is provided by Acotel S.p.A., which reports turnover of around 5.8 million euros for the first half, marking an increase of 12% on the same period of 2005. The company generated most of its revenues from services provided to Telecom Italia within the context of the relationship that began over 10 years ago. Activity during the first half was mainly focused on the development of new WAP portals for 3G (UMTS) telephony. The growing spread of UMTS networks and handsets in Italy is revitalising WAP technology, which, thanks to the high speeds offered by the networks (compared with GPRS) and higher performance handsets, is proving popular with end users as a means of choosing and accessing content, above all ringtones and games. Acotel S.p.A. s other sources of revenue are its activities in the media sector, primarily through the broadcasters, Mediaset, RAI, MTV and La7, and in the corporate sector, above all with Unicredit Banca. Substantial contributions to the increase in service revenues were made by the subsidiaries, Acotel do Brasil and Info2cell, which each generated revenues of approximately 2.5 million euros in the first half. This marks growth of 114% and 46%, respectively, compared with the same period of 2005. The two companies primarily supply mobile operators and media companies, the former in Brazil and the latter in the Middle East. In addition to its long-term contracts with Brazilian operators, TIM Celular, TIM Sul, Maxitel and TIM Nordeste Telecomunicaçoes, for whom it operates as a Centro Stella, functioning as a gateway for services supplied by other service providers, Acotel do Brasil has also entered into commercial agreements with leading media companies such as Universal Mobile, Warner Mobile, SBT Mobile and Globo. In the case of the last two, the company provides SMS voting services for TV programmes. Finally, during the World Cup finals the company carried out a number of major commercial initiatives in collaboration with the radio and TV broadcaster, Globo. 5

During the first half Info2cell reached its target for direct interconnections with Middle Eastern mobile operators. The company now provides services to 26 operators, thus consolidating its clear leadership among the service providers operating in this geographical area. The achievement of such a large customer base consisting of practically all mobile users in the Middle East enables the company to acquire the distribution rights for high-quality content and negotiate contracts with major customers. As a result, the first half witnessed the signing of a number of agreements with Associated Press, CNN, Cartoon Network, Al Arabiya, Glu and Mubasher for the distribution of content via SMS/MMS/JAVA, and with Pepsi for management of the Pepsi World Cup Mobile Promotion. The latter contract, which was obtained following the success of an earlier promotional campaign carried out in 2005, generated over 8 million SMS over a period of only 3 months. With regard to the services provided to mobile operators, the Ring Back Tone service proved a success, with the Jordanian operator, Fastlink, attracting 100,000 users. The service was also launched by Etisalat in the United Arab Emirates during the first half. A further agreement has been reached with Rotana for the distribution of content (ringtones) in Oman, Bahrain, Qatar and United Arab Emirates. Info2cell was also given Nokia certification for the launch of an application to be installed on mobile phones, allowing users to access music content owned by Rotana. Finally, the subsidiary, Flycell Telekomunikasion Hizmetleri A.S., which was established during the second half of 2005 and is based in Istanbul, contributed to the Group s revenues for the first time, with turnover of 67 thousand euros. The company, which is still at the start-up stage, launched its services via an SMS marketing campaign for customers of the operator, AVEA. Thanks to the campaign, the Turkish subsidiary reported over 60,000 ringtone downloads. Last April the company completed its interconnection with the mobile operator, Telsim (now Vodafone), enabling it to extend its services to this operator. PRODUCTS The Irish subsidiary, Jinny Software Ltd., operates in this business segment, reporting first-half revenues of 1.9 million euros. This is up by over 18% on the same period of the previous year. The most important commercial result achieved during the period is represented by the volume of orders acquired, which chalked up a company record of 4 million euros. In response to the increase in turnover and the addition of new products, the company also significantly boosted its workforce. Research & Development accounts for around 30% of the company s staff, confirming its strong commitment to technological innovation. New contracts have been acquired with customers in Asia, Africa, the Middle East and Latin America. The products sold include the company s SMSC and MMSC platforms, the more recent Ring Back Tone Server and the new message rating and charging platforms, such as for example the Real Time Charging Gateway (which can be integrated with the message and charging platforms used for prepaid mobile customers). 6

In February, the company also opened an office in Kuala Lumpur (Malaysia), with a view to entering S.E. Asian markets, and signed a commercial collaboration agreement with an American company that has significant contacts in Latin America. SECURITY SYSTEMS The Italian subsidiary, AEM S.p.A., generated revenues of 547 thousand euros in this business segment during the first half, marking an increase of approximately 5% on the same period of 2005. The activities carried out for the Bank of Italy were of particular importance during the first half. In addition to maintaining the Bank s existing security systems, AEM is also engaged in upgrading that involves structural modification of the systems. The company also continued to carry out maintenance of the remote alarm systems used by Telecom Italia, under a long-standing agreement between the two companies. The company continued to work on the development of new products and systems for the active security market, with the first prototypes due to be ready at the end of 2006. 7

RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT ( 000) H1 2006 H1 2005 Increase/ (Decrease) % inc./(dec.) Revenues 27,163 11,134 16,029 143.96% Other income 13 39 (26) (66.67%) Total revenue 27,176 11,173 16,003 143.23% Gross operating profit (1,946) (778) (1,168) (150.13%) -7.16% -6.96% Operating profit/(loss) (2,368) (1,245) (1,123) (90.20%) -8.71% -11.14% Net finance income/(costs) (590) 350 (940) (268.57%) PROFIT/(LOSS) BEFORE TAX (2,958) (895) (2,063) (230.50%) -10.88% -8.01% NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS (3,999) (1,182) (2,817) (238.31%) -14.72% -10.58% NET PROFIT/(LOSS) ATTRIBUTABLE TO PARENT COMPANY (3,999) (1,182) (2,817) (238.29%) -14.72% -10.58% Earnings per share (1.02) (0.30) (0.71) (237.64%) Diluted earnings per share (1.02) (0.30) (0.71) (237.64%) Compared with the same period of the previous year, the Acotel Group s performance in the first half of 2006 was marked by strong revenue growth (up 144%), accompanied, however, by a downturn in profitability. Revenue growth derived almost entirely from overseas markets and is primarily due to the commercial launch of the services provided by the subsidiary, Flycell Inc. After concluding the previous year s market survey phase and the negotiation of interconnection agreements, in February the company started generating increasingly substantial traffic volumes, making provision of B2C services to the US market the Group s main source of the revenue. The increase in revenue is also significantly due to the subsidiaries, Acotel do Brasil, Info2cell and Acotel S.p.A., which registered revenue growth of 114%, 46% and 12%, respectively, compared with the same period of 2005. With regard to Product sales, taking into account that this activity is unsuited to an interim analysis, it should be noted that the subsidiary, Jinny Software, recovered from slow start to the year by 8

generating first-half revenues that were up 18% on the comparable figure for the same period of 2005. The Group reports a gross operating loss of 1,946 thousand euros, compared with a loss of 778 thousand euros in the same period of the previous year. This result was significantly affected by the cost of Flycell Inc. s entry into the US infotainment market. The drive for growth has been pursued via costly advertising campaigns, and involves the payment of substantial charges to telephone operators and the mobile transaction network provider in return for the services they provide. During the first half of 2006, whilst the company earned revenues of 13,640 thousand euros, it incurred advertising and connection and billing costs of 9,555 and 5,754 thousand euros, respectively. It should be noted, however, that in order to make use of Flycell Inc. s services customers pay a monthly subscription, meaning that, except in the event of large-scale cancellations, the acquired customer continues to generate revenue for several months after the acquisition costs have been incurred. After net finance costs of 590 thousand euros and estimated taxation for the period, amounting to 1,041 thousand euros, the net loss for the first half of 2006 amounts to 3,999 thousand euros, compared with a loss of 1,182 thousand euros in the same period of 2005. 9

FINANCIAL POSITION AND CASH FLOW RECLASSIFIED CONSOLIDATED BALANCE SHEET ( 000) 31 December 2005 Increase/ (Decrease) % inc./(dec.) Non-current assets: Property, plant and equipment 1,373 1,175 198 16.85% Intangible assets 12,540 12,584 (44) (0.35%) Financial assets 2 2 - - Other assets 535 366 169 46.17% TOTAL NON-CURRENT ASSETS 14,450 14,127 323 2.29% Net current assets: Inventories 207 299 (92) (30.77%) Trade receivables 16,290 12,352 3,938 31.88% Other current assets 3,850 1,759 2,091 118.87% Trade payables (8,809) (6,237) (2,572) (41.24%) Other current liabilities (3,097) (3,382) 285 8.43% TOTAL NET CURRENT ASSETS 8,441 4,791 3,650 76.18% STAFF TERMINATION BENEFITS AND OTHER EMPLOYEE BENEFITS (981) (948) (33) (3.48%) NON-CURRENT PROVISIONS (179) (70) (109) - NET INVESTED CAPITAL 21,731 17,900 3,831 21.40% Shareholders' equity: Share capital 1,084 1,084 - - Retained profit/(accumulated losses) 47,987 48,277 (290) (0.60%) Net profit/(loss) for the period (3,999) (561) (3,438) (612.83%) Minority interests 30 30 - - TOTAL SHAREHOLDERS' EQUITY 45,102 48,830 (3,728) (7.63%) MEDIUM-/LONG-TERM BORROWINGS 193 193-0.00% Net cash and cash equivalents: Current financial assets (17,817) (19,761) 1,944 9.84% Cash and cash equivalents (5,775) (11,395) 5,620 49.32% Current financial liabilities 28 33 (5) (15.15%) (23,564) (31,123) 7,559 24.29% NET FUNDS (23,371) (30,930) 7,559 24.44% TOTAL SHAREHOLDERS' EQUITY AND NET FUNDS 21,731 17,900 3,831 21.40% 10

The Group s net invested capital at stands at 21,731 thousand euros, made up of noncurrent assets of 14,450 thousand euros, net current assets of 8,441 thousand euros, staff termination benefits of 981 thousand euros and other non-current provisions of 179 thousand euros. Net invested capital is financed by shareholders equity of 45,102 thousand euros and net funds of 23,371 thousand euros. A detailed analysis of changes in the principal balance sheet items shows that: non-current assets record a net increase of 323 thousand euros compared with 31 December 2005. This essentially reflects investment in hardware used in the Group s ordinary activities and the recognition of deferred tax assets; changes in net current assets are, on the other hand, ascribable to the increase in turnover that generated an increase in receivables and payables; net funds at amount to 23,371 thousand euros, marking a decrease of 7,559 thousand euros compared with 31 December 2005. This is primarily due to the financial support provided by the Group to the subsidiary, Flycell Inc., in its efforts to build up its business in the US. Reconciliation with the Parent Company s financial statements The reconciliation between the net result and shareholders equity of Acotel Group S.p.A. and the corresponding consolidated items is as follows: ( 000) Result for the period profit / (loss) Shareholders' equity at positive/(negative) Shareholders' equity and result for the period as reported in the financial statements of the Parent Company (61) 53,893 Effect of consolidation of the Group companies (3,938) (4,040) Amortisation and impairment of goodwill arising from consolidation - 909 Consolidation reserve - 182 Currency translation reserve - (5,872) Group share of shareholders' equity and net result for the period (3,999) 45,072 Minority interests - 30 Shareholders' equity and net result for the period in consolidated financial statements (3,999) 45,102 11

FINANCIAL RISK MANAGEMENT Credit risk 56.8% of total trade receivables relates to amounts due from the integrator, mblox (36.2%), which supplies Flycell Inc. with operator connectivity in the US, and Telecom Italia S.p.A. (20.6%). All such receivables had been collected by the date of preparation of this report. There are no significant disputes with customers regarding the payment of receivables. Liquidity risk The Group does not resort to external sources of funds, as it is able to meet its cash requirements from operating cash flow. The cash flows, borrowing requirements and liquidity of Group companies are monitored and managed centrally under the Parent Company s control, with the aim of ensuring effective and efficient management of the Group s financial resources. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is, however, limited to the conversion of the financial statements of certain foreign subsidiaries, as, with the exception of Jinny Software Ltd., foreign operating companies report substantial convergence between the currencies used for receivables and payables. Interest rate risk As the Group does not rely on external sources of funds, it is not exposed to interest rate risk. OUTLOOK The Group s development strategy will remain unchanged in the immediate future. Growth targets, which will continue to be given major priority, will be pursued in both markets where the Group has an established presence and in new markets in which, by exploiting all available synergies, efforts will be made to reproduce the business models successfully developed elsewhere. In the Services segment, the Group expects to see an improvement in profits reported by the US subsidiary, Flycell Inc., during the second half. In line with the above business model, the company should benefit from revenues generated by customers acquired during the first half. An increase in revenues is also expected in Brazil, where the Centro Stella gateway service provided to the Brazilian operators, TIM Celular, TIM Sul, Maxitel and TIM Nordeste Telecomunicaçoes should report an increase in activity. Product sales revenues are forecast to grow on the back of the current order book and expected deliveries to customers during the second half. Finally, in the Security Systems market the Group expects to acquire new orders in market segments such as video surveillance systems (with solutions based on IP technology and networks) 12

and access controls (using RFID technologies), thanks both to negotiations currently underway with direct customers, and to the impact of the commercial collaboration agreement recently entered into with a company that has significant experience in this market segment. 13

CONSOLIDATED FINANCIAL STATEMENTS 14

CONSOLIDATED INCOME STATEMENT ( 000) Note H1 2006 H1 2005 Revenues 1 27,163 11,134 Other income 13 39 Total revenue 27,176 11,173 Movement in work in progress, semi-finished and finished goods 2 (5) Raw materials 2 (595) (447) External services 3 (21,146) (5,428) Rentals and leases 4 (718) (734) Staff costs 5 (6,064) (4,924) Amortisation and depreciation 6 (421) (467) Impairment charges/reversal of impairment charges on non-current assets (1) - Other costs 7 (601) (413) Finance income 8 425 450 Finance costs 8 (1,015) (100) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (2,958) (895) Taxation 9 (1,041) (287) NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS (3,999) (1,182) Net profit/(loss) from discontinued operations - - NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS (3,999) (1,182) Net profit/(loss) attributable to minority interests - - NET PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO PARENT COMPANY (3,999) (1,182) Earnings per share 10 (1.02) (0.30) Diluted earnings per share 10 (1.02) (0.30) 15

CONSOLIDATED BALANCE SHEET ASSETS ( 000) Note 31 December 2005 Non-current assets: Property, plant and equipment 11 1,373 1,175 Goodwill arising from consolidation 12 11,531 11,531 Other intangible assets 13 1,009 1,053 Non-current financial assets 2 2 Other non-current assets 14 163 88 Deferred tax assets 15 372 278 TOTAL NON-CURRENT ASSETS 14,450 14,127 Current assets: Inventories 16 207 299 Trade receivables 17 16,290 12,352 Other current assets 18 3,850 1,759 Current financial assets 19 17,817 19,761 Cash and cash equivalents 20 5,775 11,395 TOTAL CURRENT ASSETS 43,939 45,566 NON-CURRENT ASSETS HELD FOR SALE - - TOTAL ASSETS 58,389 59,693 16

CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY ( 000) Note 31 December 2005 Shareholders' equity: Share capital 1,084 1,084 Share premium reserve 55,106 55,106 - Treasury shares (3,873) (3,873) - Cost of capital increase (59) (59) Currency translation reserve 182 (89) Other reserves 357 335 Retained profit/(accumulated losses) (3,726) (3,143) Net profit/(loss) for the period (3,999) (561) Shareholders' equity attributable to Parent Company 45,072 48,800 Minority interests 30 30 TOTAL SHAREHOLDERS' EQUITY 21 45,102 48,830 Non-current liabilities Non-current financial liabilities 22 193 193 Staff termination benefits and other employee benefits 23 981 948 Deferred tax liabilities 179 70 TOTAL NON-CURRENT LIABILITIES 1,353 1,211 Current liabilities: Current financial liabilities 24 28 33 Trade payables 25 8,809 6,237 Tax liabilities 26 599 1,144 Other current liabilities 27 2,498 2,238 TOTAL CURRENT LIABILITIES 11,934 9,652 LIABILITIES DIRECTLY ATTRIBUTABLE TO NON- CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 13,287 10,863 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 58,389 59,693 17

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY ( 000) Share capital Share premium reserve - Treasury shares - Cost of capital increases Currency translation reserve Other reserves Retained profits Net profit for the period TOTAL Balances at 1 Jan 2005 1,084 55,106 (3,206) (59) (324) 197 (2,326) (765) 49,707 Appropriation of net profit for 2004 52 (817) 765 - Purchase of treasury shares (667) (667) Other movements 313 86 399 Net result for the period (1,182) (1,182) - Balances at 30 June 2005 1,084 55,106 (3,873) (59) (11) 335 (3,143) (1,182) 48,257 Balances at 1 Jan 2006 1,084 55,106 (3,873) (59) (89) 335 (3,143) (561) 48,800 Appropriation of net profit for 2005 22 (583) 561 - Other movements 271 271 Net result for the period (3,999) (3,999) Balances at 1,084 55,106 (3,873) (59) 182 357 (3,726) (3,999) 45,072 The share of shareholders equity attributable to minority interests at amounts to 30 thousand euros and is unchanged with respect to 31 December 2005 and 30 June 2005. 18

CONSOLIDATED CASH FLOW STATEMENT ( 000) H1 2006 H1 2005 A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 31,123 31,720 B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (7,086) (1,535) Cash flows from operating activities before changes in working capital (3,436) (620) Net profit/(loss) for the period (3,999) (1,182) Amortisation and depreciation 421 467 Impairment of assets - 22 Net change in staff termination benefits 33 73 Net change in provisions 109 - (Increase) / decrease in receivables (6,029) (2,577) (Increase) / decrease in inventories 92 (2) Increase/(decrease) in payables 2,287 1,664 C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES (744) (557) (Purchases)/disposals of fixed assets: - Intangible assets (91) (170) - Property, plant and equipment (484) (430) - Financial (169) 43 D. CASH FLOW FROM (FOR) FINANCING ACTIVITIES 271 (303) Increase/ (decrease) in medium/long-term borrowings - (35) Purchase of treasury shares - (667) Other changes in shareholders' equity 271 399 E. CASH FLOW FOR THE PERIOD (B+C+D) (7,559) (2,395) F. NET CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (A+E) 23,564 29,325 19

NOTES TO THE INTERIM FINANCIAL STATEMENTS 20

BASIS OF PRESENTATION The Acotel Group s interim financial statements for the six months ended have been prepared in compliance with the requirements of art. 81 of the Regulations for Issuers introduced by CONSOB Resolution no. 11971/1999 and subsequent amendments. The Group has adopted the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union, and has complied with the related interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). 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. Comparative amounts for the same period of 2005 have been restated and presented in accordance with IFRS. Further details of the effects of application of these standards on the amounts for the six months ended 30 June 2005 are provided in the Annex to the Quarterly Report for the three months ended. 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 2005, to which reference should be made. 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. BASIS OF CONSOLIDATION The following table provides summary information on consolidated companies held, directly or indirectly, by Acotel Group S.p.A., the Parent Company. Company Date of acquisition Group s interest (%) Registered office Share capital Acotel S.p.A. 28 April 2000 99.9% (4) Rome EURO 13,000,000 AEM Advanced Electronic Microsystems S.p.A. 28 April 2000 99.9% Rome EURO 858,000 Acotel Participations S.A. 28 April 2000 100% Luxembourg EURO 1,200,000 Acotel Chile S.A. 28 April 2000 100% (5) Santiago, Chile USD 17,310 Acotel Espana S.L. 28 April 2000 100% (5) Madrid EURO 3,006 Acotel Do Brasil LTDA 8 August 2000 (1) 100% (5) Rio de Janeiro BRL 1,868,250 Acotel France S.A.S. 22 October 2002 (1) 100% (5) Paris EURO 56,000 Jinny Software Ltd. 9 April 2001 100% (5) Dublin EURO 2,972 Millennium Software SAL 9 April 2001 99.9% (6) Beirut LPD 30,000,000 Info2cell.com FZ-LLC 29 January 2003 (3) 100% (5) Dubai Dh 18,350,000 Emirates for Information Technology Co. 29 January 2003 100% (7) Amman JD 710,000 Flycell Media S.p.A. 10 July 2002 (2) 100% Rome EURO 400,000 Flycell Inc. 28 June 2003 (1) 100% (5) Wilmington USD 100,000 Acotel Group (Northern Europe) Ltd 27 May 2004 (1) 100% Dublin EURO 101,000 21

Flycell Telekomunikasyon Hizmetleri A.S. 2 July 2005 (1) 99.9% Istanbul TRY 50,000 Flycell Latin America Conteúdo Para Telefonia Móvel LTDA 6 June 2006 (8) 100% Rio de Janeiro BRL 250,000 (1) The date of the company s entry into the Group coincides with its incorporation. (2) Prior to such date the Group held 50% of the company s share capital, posted to investments in associates. (3) Prior to such date the Group held 33% of the company s share capital, posted to investments in associates. (4) AEM owns 1.92% of the share capital. (5) Controlled via Acotel Participations S.A. (6) Controlled via Jinny Software Ltd. (7) Controlled via Info2cell.com LLC-FZ. (8) Controlled via Flycell Inc. The basis of consolidation changed during the first half of 2006 due to Flycell Inc. s incorporation of Flycell Latin America Conteúdo Para Telefonia Móvel LTDA. CONSOLIDATION PRINCIPLES The consolidated financial statements include the financial statements of Acotel Group S.p.A. and those of its subsidiaries. Subsidiaries are defined as entities over which the Group has the power to govern the financial and operating policies. The net profit or loss of subsidiaries acquired or sold during the period is included in the consolidated income statement from the effective acquisition date until the effective disposal date. Where necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies into line with those adopted by the Group. The assets and liabilities and the revenues and expenses of consolidated companies are recorded on a line-by-line basis. The carrying amount of investments is eliminated against the corresponding share of the investee companies shareholders equity and the individual assets and liabilities are recognised at fair value at the date control was obtained. Any positive difference is recognised in non-current assets as Goodwill arising from consolidation, while negative differences are recognised in the income statement. Intercompany receivables and payables, including dividends distributed within the Group, are eliminated. Profits and losses and revenues and expenses arising from intercompany transactions are eliminated. The financial statements of Group companies are prepared in the functional currency of each company. For the purposes of the consolidated financial statements, the financial statements of each company are translated into the Group s functional and presentation currency: the euro. The assets and liabilities of overseas subsidiaries are translated into euros at closing exchange rates. Revenues and costs are translated at average rates for the period. Any translation differences are recognised in shareholders equity in the currency translation reserve. This reserve is recognised in the income statement as a gain or a loss in the period in which the related subsidiary is sold. Minority interests in shareholders equity and in net profit for the period is shown in the specific items in the consolidated balance sheet and income statement. 22

USE OF ESTIMATES Preparation of the interim financial statements may require the use of estimates and assumptions, which essentially have an effect on the amounts entered for revenues, costs, assets and liabilities in the financial statements and on the related notes. Should in the future these estimates and assumptions, which are based on the best evaluations of the Directors, differ from the actual amounts, they will be appropriately adjusted in the period in which the change of circumstances occurs. Estimates and assumptions are primarily used in order to account for any refunds payable to B2C customers, impairment of goodwill arising from consolidation, provisions for bad debts and current and deferred tax assets and liabilities. Estimates of the refunds payable to B2C customers are based on the value of any claims received from dissatisfied customers of Flycell Inc. through to. This estimate was based on final figures supplied by the only telephone operator to indicate the month in which the refunds requested and granted to customers accrue and assuming that the approach used by this operator, which was responsible for generating approximately 37% of Flycell Inc. s turnover during the period, is representative of the approach adopted by the other operators with regard to claims for refunds: based on the above accrued revenues at have been reduced by 631 thousand euros (775,375.33 US dollars) in order to take account of potential claims for refunds relating to services provided up to. In addition, certain evaluation processes, above all the most complex ones relating to the estimate of potential impairments of fixed 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 an immediate evaluation of any loss. CONTINUITY WITH THE FINANCIAL STATEMENTS FOR THE SECOND QUARTER OF 2006 In accordance with the requirements of Annex 3D to the Regulations for Issuers (introduced by the CONSOB with Resolution no. 11971 of 14 May 1999), this section, with the aim of ensuring the continuity of the information reported to the public, discloses the reasons for any differences with respect to quarterly amounts. Certain amounts in these interim financial statements, regarding the first six months of the year, differ from those announced to the market at the time of approval of the Group s report for the second quarter from 1 April to. The following schedule shows the income statement entries that have undergone the most significant changes. H1 2006 Quarterly report Interim report Increase/(Decrease) Revenue 28,402 27,163 (1,239) Service costs (21,653) (21,146) 507 Gross operating loss (1,214) (1,946) (732) Operating loss (1,636) (2,368) (732) Loss for the period attributable to Parent Company (3,271) (3,999) (728) 23

The differences relate entirely to Flycell Inc., due to the fact that the subsidiary had to make adjustments in response to changes in traffic figures recognised by a telephone operator with respect to those previously communicated by mblox, and to the fact that the quarterly figures included estimates calculated with a greater degree of approximation compared with those used in the preparation of this interim report, as, moreover, noted in the quarterly report itself. SEGMENT INFORMATION Results by business segment H1 2006 ( 000) Services Design of ICT equipment Security systems design Eliminations / Other Total Revenue Revenues from third party customers 24,761 1,855 547-27,163 Inter-segment revenues - 10 - (10) - Total 24,761 1,865 547 (10) 27,163 Operating profit/(loss) (1,613) (809) 71 - (2,351) Unallocated costs (16) Impairment charges/reversal of impairment charges on non-current assets (1) Operating profit/(loss) from continuing operations (2,368) Income from investments 425 Finance costs (1,015) Profit/(loss) before tax (2,958) Taxation (1,041) Net profit/(loss) for the period (3,999) H1 2005 ( 000) Services Design of ICT equipment Security systems design Eliminations / Other Total Revenue Revenues from third party customers 9,049 1,565 520-11,134 Inter-segment revenues - 19 - (19) - Total 9,049 1,584 520 (19) 11,134 Operating profit/(loss) (719) (377) (130) - (1,226) Unallocated costs (19) Operating profit/(loss) from continuing operations (1,245) Income from investments 450 Finance costs (100) Profit/(loss) before tax (895) Taxation (287) Net profit/(loss) for the period (1,182) 24

NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue for the first half of 2006, reported less estimated refunds payable to B2C customers for the first half of 2006 (631 thousand euros), amounts to 27,163 thousand euros, which is significantly up (144%) on the figure for the same period of the previous year (11,134 thousand euros). Revenue by business segment is as follows: ( 000) H1 2006 H1 2005 Increase/ (Decrease) Services 24,761 9,049 15,712 Design of ICT equipment 1,855 1,565 290 Security systems design 547 520 27 Total 27,163 11,134 16,029 SERVICES The Services business includes the activities carried out for telephone and commercial companies, as well as those supplied to end customers (B2C), and has the primary purpose of supplying value added services and content to mobile phone users. A breakdown of service revenues is given in the following table: ( 000) H1 2006 H1 2005 Increase/ (Decrease) B2C services 13,831 302 13,529 Network Operator services 8,825 7,318 1,507 Media services 1,093 434 659 Corporate services 1,012 995 17 Total 24,761 9,049 15,712 As the table shows, in 2006 B2C services have become the most important service provided by the Group. During the first half of 2006 these revenues include an amount of 13,640 thousand euros generated by the US subsidiary, Flycell Inc., which, having completed its entry into the market, has begun to generate significant traffic volumes. The remainder derives primarily from the subsidiaries, Flycell Telekomünicasyon Hizmetleri A.Ş., Info2cell.com FZ-LLC and Acotel S.p.A. Revenues from services provided to network operators, amounting to 8,825 thousand euros, are up 1,507 thousand euros on the same period of the previous year. They primarily include revenues from services rendered by the subsidiary, Acotel S.p.A, to Telecom Italia, which amount to 5,053 thousand euros, revenues from services rendered by the Brazilian subsidiary, Acotel do Brasil, to the Brazilian operators, TIM Celular, TIM Sul, Maxitel and TIM Nordeste Telecomunicaçoes, amounting to 2,416 thousand euros, and revenues generated by 25

activities carried out by Info2cell with the main mobile telephony operators in the Middle East, totalling 1,242 thousand euros. The 20.6% increase compared with the same period of the previous year is essentially due to the performances of the overseas subsidiaries, Acotel do Brasil (up 114%) and Info2cell (up 81%). Revenues from services provided to media companies, amounting to 1,093 thousand euros, are up compared with the same period of 2005 for all the Group subsidiaries that provide this type of service. Such revenues were generated in the Middle East (511 thousand euros), Italy (474 thousand euros), via the supply of services connected to certain programmes run by the television broadcasters, MTV, Mediaset, LA7 and RAI, and in Brazil (108 thousand euros), via the services provided to the radio broadcaster, Radio Globo. Revenues from corporate services amount to 1,012 thousand euros, and are essentially in line with those produced in the first half of 2005. These include revenues of 634 thousand euros generated in the Middle East as a result of the agreement entered into by the subsidiary, Info2cell, in April 2006 with Pepsi-Cola, 213 thousand euros generated by the Italian operations of Acotel S.p.A., which primarily serves banks, and 165 thousand euros deriving from services provided in Italy by the subsidiary, AEM S.p.A., to ACEA S.p.A.. DESIGN OF ICT EQUIPMENT Revenues from ICT equipment design in the first half of 2006 amount to 1,855 thousand euros and regard supply and maintenance contracts entered into by Jinny Software with mobile operators in the Middle East, Latin America, Africa and Europe. The increase with respect to the same period of the previous year (up 18.5%) is due to development of new VAS platforms, and to a strengthening of the sales structure. The latter has taken the form of both additional recruitment of in-house sales staff and the negotiation of agreements with so-called channel partners, who include products developed by Jinny Software in their product offerings. SECURITY SYSTEMS DESIGN Revenues from the design of electronic security systems amount to 547 thousand euros, which is in line with the figure for the first half of 2005. Such revenues essentially regard the installation, supply, maintenance and servicing of remote surveillance equipment installed at Italian police headquarters and at certain provincial branches of the Bank of Italy by the subsidiary, AEM S.p.A. A breakdown of the Group s revenue by geographical segment is as follows: 26

( 000) H1 2006 H1 2005 Increase/ (Decrease) North America 13,695 138 13,557 Italy 6,523 5,844 679 Middle East 3,326 2,470 856 Latin America 2,691 1,210 1,481 Other European countries 587 854 (267) Africa 341 225 116 Asia - 393 (393) Total 27,163 11,134 16,029 The breakdown of revenue for the first half of 2006 by geographical segment highlights how important the United States market has become for the Acotel Group. Due to the revenues earned from services rendered during the period by the subsidiary, Flycell Inc., the proportion of the Group s total revenue generated in North America has risen 50.4%. As a result, revenues generated in Italy, although up by 11.6% in absolute terms, have fallen from 52.5% of the total in the first half of 2005 to 24% in the same period of 2006. Note 2 Raw materials The cost of raw materials during the period, amounting to 595 thousand euros, refers principally to the purchase of materials for the construction of telecommunications equipment by Jinny Software (542 thousand euros). Note 3 External services The cost of external services amounts to 21,146 thousand euros, representing a significant increase on the 5,428 thousand euros of the same period of 2005. This growth is entirely due to the operating methods chosen by Flycell Inc. to develop its business in the relevant market. This has entailed substantial costs (5,754 thousand euros) charged by mobile operators and the transaction network provider, as well as considerable promotional expenses (9,555 thousand euros) to raise awareness of the company s services in the market and increase its customer base. In addition to the above costs, the most significant items regard the cost of acquiring content from external content providers, totalling 2,155 thousand euros, and marketing, administrative, legal and technical consulting fees incurred by Group companies, amounting to 569 thousand euros. Service costs also include around 525 thousand euros paid to Pepsi Cola by Info2cell as payment for its contribution to advertising and distribution, and the cost of purchasing SMS packages from mobile operators, amounting to 504 thousand euros. Service costs also include travel expenses of 372 thousand euros, remuneration paid to directors and statutory auditors (271 thousand euros), telephone expenses (212 thousand euros), and the cost of connecting to terrestrial and satellite transmission networks for the provision of value added services (158 thousand euros). The balance reflects overheads (utilities, management and maintenance of the Group s operating properties, insurance, etc.) incurred by the Group in its day-to-day operations. 27

Note 4 Rentals and leases The cost of rentals and leases, amounting to 718 thousand euros, mainly includes rentals on offices occupied by Group companies. Note 5 - Staff costs Staff costs include: ( 000) H1 2006 H1 2005 Increase/ (Decrease) Salaries and wages 4,497 3,610 887 Social security contributions 875 789 86 Staff termination benefits 124 209 (85) Finance costs (19) (17) (2) Other costs 587 333 254 Total 6,064 4,924 1,140 The increase in staff costs shown in the table is primarily connected with the expansion of the Group s overseas subsidiaries. Finance costs on staff termination benefits equal the discount rate, calculated on the basis of the method fully described in the following Note 23, to which reference should be made. This cost item, in accordance with IFRS, is recognised in finance costs (Note 8). Other staff costs include charges incurred in relation to canteen services and luncheon vouchers, professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries. Further information is provided in Note 27. The geographical distribution of the Group s staff is shown below: 31 Dec 2005 30 June 2005 Italy 97 95 95 Ireland 21 25 22 Lebanon 49 34 33 United Arab Emirates 16 17 19 Jordan 52 52 42 Brazil 17 18 13 France - 2 2 USA 30 12 10 Total 282 255 236 The number of staff by category at, compared with the average number for the first halves of 2006 and 2005, is reported in the following schedule: 28

Average H1 2006 Average H1 2005 Managers 19 18 14 Supervisors 30 30 29 White- and blue-collar staff 233 221 184 Total 282 269 227 Note 6 - Amortisation and depreciation Details of the amortisation and depreciation of assets is given below: ( 000) H1 2006 H1 2005 Increase/ (Decrease) Amortisation of non-current intangible assets 135 140 (5) Depreciation of property, plant and equipment 286 327 (41) Total 421 467 (46) Amortisation of non-current intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies. Depreciation of property, plant and equipment essentially refers to depreciation of the telecommunications equipment and infrastructure used by Group companies. Note 7 Other costs Other costs of 601 thousand euros include 362 thousand euros for indirect taxes due from Acotel do Brasil in compliance with local legislation, and 93 thousand euros in the form of recruitment costs incurred by the US subsidiary, Flycell Inc.. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 8 - Finance income and costs Net finance costs of 590 thousand euros break down as follows: 29

( 000) H1 2006 H1 2005 Increase/ (Decrease) Interest income from investments 391 348 43 Interest income on bank deposits 27 37 (10) Foreign exchange gains - 17 (17) Other interest income 7 48 (41) Total finance income 425 450 (25) Interest expense and bank charges (76) (68) (8) Foreign exchange losses (913) (15) (898) Other interest expense (20) (17) (3) Impairment of current financial assets (6) - (6) Total finance costs (1,015) (100) (915) Net finance costs (590) 350 (940) Interest income from investments includes 221 thousand euros in profits on financial assets held for trading through the income statement, 162 thousand euros in income on loans and receivables, and 8 thousand euros in income on held-to-maturity financial assets. Net foreign exchange losses reflect the substantial and penalising effect of movements in closing exchange rates on the value of intercompany loans issued in dollars. Note 9 Taxation Taxation for the first half of 2006 breaks down as follows: ( 000) H1 2006 H1 2005 Increase/ (Decrease) Income taxes for the year 1,090 245 845 Deferred tax assets (96) 42 (138) Deferred tax liabilities 47-47 Total 1,041 287 754 The total amount is 1,041 thousand euros and includes provisions for taxes on the income of Group companies, recognised in current taxes. Deferred tax assets include deferred tax assets recognised in the period, primarily as a result of foreign exchange losses on loans issued in dollars, less the reversal of amounts accounted for in prior years. The reconciliation of the expected IRES (corporate tax) charge at 33% and the effective charge is shown in the following schedule: 30

( 000) H1 2006 % Pre-tax profit/(loss) (2,958) Expected tax charge calculated at 33% of the pre-tax result (976) (33.0%) Tax effect of the losses of foreign subsidiaries which do not meet all requirements for recognition of deferred tax assets 1,859 62.8% Difference between expected and effective tax charge for foreign subsidiaries (44) (1.5%) Net tax effect of increases and decreases (14) (0.5%) IRAP 183 6.2% Other minor changes 33 1.1% Taxation for the period 1,041 35.2% No account has been taken of IRAP (regional tax) in the comparison between the tax charge accounted for in the financial statements and the expected tax charge as, being a tax calculated on the basis of a different taxable income from pre-tax profit it would generate a distortion between one year and another. The expected tax charge was accordingly only determined on the basis of the prevailing IRES (corporation tax) rate in Italy (33% in the first halves of 2006 and 2005). The taxes relating to the taxable income of foreign subsidiaries were calculated according to the prevailing rates in the respective countries. Even though the development plans of foreign companies in the start-up phase anticipate improvements in their performance as early as the current year, no deferred tax assets have been provided for on the tax losses they had accumulated to. Above all, with reference to the US subsidiary, Flycell Inc., which has yet to generate taxable income, the deferred tax assets not accounted for in the interim financial statements amount to approximately 3.2 million euros. Note 10 Earnings per share The calculation of basic and diluted earnings per share is based on the following data: 31

H1 2006 H1 2005 Net profit/(loss) ( 000) (3,999) (1,182) Number of shares (000) Shares in circulation at the start of the period 3,916 * 3,961 * Weighted average of treasury shares acquired/sold in the period - 53 Weighted average of ordinary shares in circulation 3,916 3,907 Basic and diluted earnings per share ** (1.02) (0.30) * : net of treasury shares held at the same date. **: basic earnings per share for the first halves of 2006 and 2005 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist. 32

NOTES TO THE BALANCE SHEET NON-CURRENT ASSETS Note 11 - Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows: ( 000) Historical cost Depreciation Carrying amount at Carrying amount at 31 Dec 2005 Plant and machinery 4,643 (4,049) 594 492 Industrial equipment 1,813 (1,434) 379 397 Other 949 (675) 274 286 Assets under construction and advances 126-126 - Total 7,531 (6,158) 1,373 1,175 Plant and machinery mainly consists of data transmission platforms installed in Rome, Dubai, Dublin, Rio de Janeiro and New York offices, and used by the Group to provide value added services. Industrial and commercial equipment includes the computers used by the Group for development and maintenance of hardware and software products, for use by the Company or for sale to third parties, relating to the development and management of value added services and internal operating activities. Furniture and fittings are included in other assets together with leasehold improvements, consisting of the costs incurred during recent years in order to renovate the building located in Rome, which is used as the registered office and operational headquarters of the Group s Italian companies. The relevant lease expires in 2013. Assets under construction and advances regard the infrastructure used in the provision of services over IP, which should be launched commercially during the last quarter of 2006. No property, plant or equipment was revalued or impaired during the period. Changes in property, plant or equipment during the period are shown in an annex. Note 12 Goodwill arising from consolidation Goodwill arising from consolidation comprises the difference arising between prices paid for the purchase of investments and the corresponding value of the subsidiaries shareholders equity on the date of acquisition. This item breaks down as follows: 33

( 000) Jinny Software Info2cell AEM Eitco Millenium Software Total Acquistion cost 12,324 6,150 1,549 792 116 20,931 Shareholders'equity at date of acquistion Goodwill arising from consolidation Accumulated amortisation at 1 January 2004 (1,109) 2,784 1,086 570 72 3,403 13,433 3,366 463 222 44 17,528 (3,693) (850) (169) (111) (14) (4,837) Goodwill arising from consolidation at 1 January 2004 9,740 2,516 294 111 30 12,691 Impairment charge recognised in 2004 Goodwill arising from consolidation at 31 December 2004 (1,160) - - - - (1,160) 8,580 2,516 294 111 30 11,531 Changes in 2005 - - - - - - Goodwill arising from consolidation at 31 December 2005 8,580 2,516 294 111 30 11,531 Changes during H1 2006 - - - - - - Goodwill arising from consolidation at 8,580 2,516 294 111 30 11,531 The Group tests the recoverability of goodwill arising from consolidation at least once a year, when closing its financial year, or more frequently if there are indicators of impairment. Note 13 Other intangible assets A breakdown of other intangible assets at is as follows: 34

( 000) Historical cost Depreciation Carrying amount at Carrying amount at 31 Dec 2005 Industrial patents and intellectual property rights 984 (879) 105 123 Concessions, licences and similar rights 1,365 (724) 641 768 Intangible assets in progress and advances 263-263 162 Total 2,612 (1,603) 1,009 1,053 Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Group in the provision of ICT services and for the internal information system used by Group companies. Concessions, licenses, trademarks and similar rights primarily include the costs of the software used by the subsidiary, Info2cell, for the supply of value added services. Intangible assets in progress and advances relates to the software to be used in the provision of services over IP, as previously mentioned in the note to Property, plant and equipment. No intangible assets were revalued or impaired during the period. Changes in intangible assets during the period are shown in an annex. Note 14 - Other non-current assets The item Other non-current assets, totalling 163 thousand euros, relates to guarantee deposits paid to third parties in relation to lease and utility contracts signed by Group companies. Note 15 Deferred tax assets Deferred tax assets of 372 thousand euros arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases. 196 thousand euros relates to Acotel Group S.p.A., 71 thousand euros to Jinny Software Ltd, 69 thousand euros to AEM S.p.A. and 36 thousand euros to Acotel S.p.A.. The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets: 35

( 000) 31 Dec 2005 Taxation Tax Taxation Tax rate rate Impairment of investments 8 33% 32 33% Recovery of taxed provisions for bad debts 37 33% 37 33% Recovery of taxed provisions for exchange rate 130 33% - Impairment of inventories 25 38.25% -37.75% 24 37.25% -36.75% Non-deductible entertainment expenses 8 37.25% 12 37.25% Recovery of taxed statutory amortisation and 4 37.25% 8 37.25% Provisions for taxed directors' fees 6 33% 15 33% IFRS adjustments 36 37.25% -33% 32 37.25% -33% Sub-total 254 160 Tax losses carried forward 118 118 Total 372 278 Due to the results achieved in 2005 and the prospects for the current financial year, in 2005 the subsidiary, Jinny Software, recognised deferred tax assets of 71 thousand euros, and the subsidiary, AEM, deferred tax assets of 47 thousand euros, in both cases generated by previous tax losses. Deferred tax assets on the tax losses incurred by other foreign companies were not recognised, as mentioned above (Note 9). CURRENT ASSETS Note 16 - Inventories The table that follows gives the detail of the inventories, valued using the average weighted cost method, and of provisions made to bring their carrying amounts into line with their estimated realisable values at : ( 000) Gross value Impairments Carrying amount at Carrying amount at 31 Dec 2005 Raw and ancillary materials and consumables 91 (51) 40 45 Work in progress and semi-finished products 41 (13) 28 19 Finished products and goods for resale 141 (2) 139 235 Total 273 (66) 207 299 The decrease in the inventory of finished products is primarily attributable to the subsidiary, Jinny Software. There were no movements in provisions for inventory impairments during the first half. 36

Note 17 - Trade receivables These represent trade receivables less provisions for bad debts made to adjust their carrying amount to their estimated realisable value, as shown below: ( 000) 31 Dec 2005 Increase/(Decrease) Trade receivables 16,558 12,577 3,981 Provisions for bad debts (268) (225) (43) Total 16,290 12,352 3,938 The increase in trade receivables at, compared with 31 December 2005, is primarily due to the Group s higher turnover in the first half. Trade receivables, for which no provisions have been made, are collectible in full within 12 months. 56.8% of total trade receivables relates to amounts due from the integrator, mblox (36.2%), which supplies Flycell Inc. with operator connectivity in the US, and Telecom Italia S.p.A. (20.6%). All such receivables had been collected by the date of preparation of this report. Movements in provisions for bad debts are shown below: ( 000) Balance at 31 December 2005 225 Provisions in 2006 43 Uses in 2006 - Balance at 268 Note 18 - Other current assets At these total 3,850 thousand euros and break down as follows: ( 000) 31 Dec 2005 Increase/(Decrease) VAT credits 1,675 1,061 614 Current income tax assets 8 21 (13) Supplier advances 1,900 547 1,353 Other 267 130 137 Total 3,850 1,759 2,091 VAT credits include 963 thousand euros attributable to Flycell Media S.p.A. and 645 thousand euros to Acotel S.p.A. Supplier advances of 1,900 thousand euros include 683 thousand euros relating fees payable to third parties in return for advertising carried out by so-called affiliates, who are paid on the basis of the 37

contracts effectively signed by end users. The residue, amounting to 1,217 thousand euros, essentially regards sales commissions, service contracts and insurance premiums paid by Group companies in advance. The increase with respect to 31 December 2005 is primarily due to the advertising fees and sales commissions paid in advance by the subsidiaries, Flycell Inc. and Info2cell. The carrying amount of trade and other receivables is believed to approximate to fair value. Note 19 Current financial assets Current financial assets of 17,817 thousand euros include: ( 000) 31 Dec 2005 Increase/(Decrease) Held-to-maturity assets 295 728 (433) Loans and receivables 10,355 12,252 (1,897) Assets held for trading 7,167 6,781 386 Total 17,817 19,761 (1,944) Held-to-maturity assets comprise the bonds detailed below: ( 000) Issuer Nominal value Interest Rate Maturity Fair value at 30 June 2006 Banca Toscana S.p.A. 300 Six-monthly in arrears 6-month Euribor 30/11/06 295 Total 300 295 The decrease with respect to 31 December 2005 is due to the fact that the bonds issued by Banca Agricola Mantovana S.p.A. matured on 30 April 2006. Loans and receivables include the bonds detailed below: ( 000) Nominal value Interest Rate Maturity Fair value at 30 June 2006 Monte dei Paschi di Siena S.p.A. 300 Six-monthly in arrears 2.55% 31/05/07 301 Banca Nazionale del Lavoro S.p.A. 500 Quarterly in arrears 3-month Euribor 17/04/08 503 Banca Nazionale del Lavoro S.p.A. 2,500 Quarterly in arrears 3-month Euribor 30/01/09 2,512 Banca Nazionale del Lavoro S.p.A. 1,100 Quarterly in arrears 3-month Euribor 17/07/08 1,110 Banca Nazionale del Lavoro S.p.A. 2,135 Quarterly in arrears 3-month Euribor 16/05/08 2,143 Total 6,535 6,569 Loans and receivables also include an insurance policy of 3,786 thousand euros (3,728 thousand euros at 31 December 2005) entered into with Montepaschi Vita S.p.A.. This is a separately managed fund with a duration of 15 years and the client has the option of withdrawal. This policy has a guaranteed annual interest rate of 1.5%. The redemption value at is 3,790 thousand euros. 38

The decrease in loans and receivables with respect to 31 December 2005 is due to the sale of a portion of the bonds issued by Banca Nazionale del Lavoro S.p.A. during the period. Assets held for trading include investments managed by Insinger de Beaufort Bank and amounting to 5,219 thousand euros (5,158 thousand euros at 31 December 2005). Insinger de Beaufort Bank manages the assets in an individual and limited risk investment portfolio (almost exclusively consisting of bonds) in the name and on behalf of Acotel Group S.p.A.. This category also includes investment funds (mainly government bonds), amounting to 1,948 thousand euros (1,623 thousand euros at 31 December 2005), managed by Bank Boston on behalf of the Brazilian subsidiary. At the fair value of the financial assets recognised at amortised cost is substantially in line with their carrying amount. Note 20 - Cash and cash equivalents This item includes bank deposits of 5,764 thousand euros and cash and notes in hand of 11 thousand euros. At the end of last year these items amounted to 11,382 and 13 thousand euros, respectively. The bank deposits represent the closing balances of Group companies bank current accounts. 39

SHAREHOLDERS EQUITY Note 21 Shareholders' equity attributable to the Group Changes in shareholders' equity during the first half are shown in the financial statements. At the fully paid-up share capital of Acotel Group S.p.A. consists of 4,170,000 ordinary shares with a par value of 0.26 euros each. The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital increases carried out in preparation for the Company s stock market flotation. At treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of consolidated shareholders' equity, totalling 3,873 thousand euros. These shares have a carrying amount of 66,170 euros, representing 6.10% of the share capital. This refers to 254,500 Acotel Group S.p.A. ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 226,180, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. Other Group companies do not possess Acotel Group S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the period. At Acotel Group S.p.A. does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the period. The Cost of capital increase reserve, which has a negative balance of 59 thousand euros, represents the historical cost relating to two capital increases carried out by the subsidiary, Acotel Partecipations S.A., in previous years. The currency translation reserve, which has a positive balance of 182 thousand euros, derives from the application of closing exchange rates in the translation of the financial statements of foreign subsidiaries expressed in foreign currencies other than the euro. Assets and liabilities are translated into euros using the related exchange rates at, while shareholders' equity items are translated on the basis of historical exchange rates. Income statement items are translated utilising average exchange rates for the period. The following exchange rates were used: Company Currency Exchange rate at Average exchange rate H1 2006 Info2cell Dh 4.669 4.515 Eitco JD 0.901 0.872 Millenium Software LBP 1,916.480 1,852.560 Acotel USA USD 1.271 1.229 Acotel do Brasil BRL 2.758 2.693 Flycell Telekomunikasyon Hizmetleri A.S. TRY 2.008 1.718 40

Other reserves of 357 thousand euros breakdown as follows: ( 000) 31 Dec 2005 Increase/(Decrease) Legal reserve 287 265 22 Profit/(loss) on sale of treasury shares 70 70 - Total 357 335 22 Accumulated losses amount to 3,726 thousand euros. Minority interests represent the share of shareholders equity attributable to minority shareholders in subsidiaries. At minority interests amount to 30 thousand euros and relate to minority interests in the subsidiaries, Acotel S.p.A., AEM S.p.A. and Millennium Software SAL. NON-CURRENT LIABILITIES Note 22 - Non-current financial liabilities This item totals 193 thousand euros and refers to the portion payable after 12 months from 30 June 2006 of the loan from the Ministry of Industry to cover research and development costs incurred by the subsidiary, AEM S.p.A., to realise the remote surveillance systems and domestic automation. The agreed repayment schedule started from 2003 and will be completed by 2012. This loan bears an interest rate of 3.625% and is unsecured. Note 23 - Staff termination benefits and other employee benefits At these total 981 thousand euros and include accrued amounts due to employees as staff termination benefits, less any advances paid. Movements during the period are shown below: ( 000) 31 Dec 2005 Opening balance 948 767 Provisions 105 210 Finance costs 19 34 Uses (79) (42) Various withholding taxes (12) (21) Closing balance 981 948 Provisions for staff termination benefits shown in the financial statements were calculated by an independent actuary. 41

In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits: a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment; determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance; discounting, at the measurement date, each likely payment; re-proportioning, for each employee, the likely and discounted calculations based on seniority at the measurement date with respect to the corresponding projected time of payment. Details of the financial assumptions adopted are as follows: Financial assumptions June 2006 Annual discount rate 4.50% Annual inflation rate 2.00% Annual rate of salary increase Executives 2.50%; Managers/Whitecollar/Blue-collar 1.00% CURRENT LIABILITIES Note 24 - Current financial liabilities Current financial liabilities of 28 thousand euros regard the portion of the previously described loan from the Ministry of Industry, falling due within 12 months from. Note 25 - Trade payables Trade payables of 8,809 thousand euros include payables due to suppliers within 12 months (6,451 thousand euros), advances on subscriptions taken out by the B2C customers of the US subsidiary in June 2006 as payment for services to be provided in the following months (1,438 thousand euros), and other forms of advance received from customers by Group companies (920 thousand euros). Note 26 Tax liabilities This item breaks down as follows: 42

( 000) 31 Dec 2005 Increase/(Decrease) Income taxes 128 743 (615) VAT due 285 269 16 Substitute tax due 168 129 39 Other tax liabilities 18 3 15 Total 599 1,144 (545) The item includes income taxes, less advances paid, and VAT due from Acotel Group companies, in addition to withholding taxes due from employees and consultants in the form of substitute tax. It should be noted that no Group company is in dispute with the tax authorities, nor are any tax audits underway. Note 27 - Other current liabilities This item breaks down as follows: 000) 31 Dec 2005 Increase/(Decrease) Due to employees 1,490 1,283 207 Due to pension and funds social security institutions 423 443 (20) Due to directors 32 36 (4) Other payables 553 476 77 Total 2,498 2,238 260 Amounts due to employees mainly refer to pay, bonuses, holiday pay due and contributions to pension plans. In relation to the latter, the Group makes agreed payments according to an established schedule into defined contribution pension plans for the employees of foreign subsidiaries. Amounts due to pension funds and social security institutions include social security and insurance contributions due. The carrying amount of trade payables and other payables approximates to their fair value. CASH FLOW An analysis of the cash flow statement and net funds at reveals a fall in net liquidity. This is primarily due to the significant cost incurred by the Group in order to launch its B2C services in the US market. The Acotel Group s balance sheet remains very strong, however, with net funds of 23,371 thousand euros at the end of the first half of 2006. 43

CONTINGENCIES The Board of Directors, having obtained the advice of their legal experts, considers that there are no liabilities for which it is necessary that Group companies make provision. Legal action is still ongoing, in which the shareholder Medial Project S.A. has requested the Court of Rome to ascertain and declare the nullity of or, as a subordinate matter, the cancellation of the resolution adopted by the Ordinary General Meeting of 29 April 2005, approving the financial statements for the year ended 31 December 2004 and the accompanying documents. As a result of Acotel Group S.p.A. s defence, the investigating magistrate decided not to call for an expert appraisal, as requested by the plaintiff, and fixed the first hearing for 24 January 2007. The Board of Directors, having obtained the advice of their legal experts, considers Medial Project S.A. s action to be totally without grounds. COMMITMENTS The guarantees granted by the Group include 616 thousand euros for a surety given to Tecnomen in fulfilment of the provisions of the commercial agreement signed by Jinny Software, 139 thousand euros for a surety given to the entity that owns the property that the Parent Company rents and where all the Group s Italian companies have their offices, 111 thousand euros for a surety given in 2005 in favour of the Bank of Italy, as provided for in the service contract renewed and obtained by the subsidiary, AEM S.p.A., 305 thousand euros (equal to the relevant value at the end of the period of 387,550 US dollars) regarding a surety given in favour of Flycell Inc. in order to guarantee a lease agreement entered into by the subsidiary, and 50 thousand euros for a surety given in favour of Acotel France as a guarantee for the lease agreement signed by this company. The residual amount is for sureties of 22 thousand euros granted in fulfilment of agreements with third parties. THIRD-PARTY ASSETS HELD BY THE GROUP Third party assets held by the Group, totalling 2 thousand euros, relate to equipment loaned to Acotel S.p.A. by the provider Il Sole 24 ore for connection to their information network. SUBSEQUENT EVENTS In July the subsidiary, Acotel Italia SpA, completed and rolled out the i.gamestore platform developed for Telecom Italia, which will enable the operator to distribute the full range of Java games to its subscribers. Java games also drove the increase in traffic reported by the Brazilian subsidiary, Acotel do Brasil. With regard to products, despite the fact that the period immediately following the close of the first half is generally quiet in terms of sales, Jinny Software Ltd. has acquired an order for an SMSC from a new customer in Latin America, has completed its first sale in the USA, and has also received orders from customers in Africa, the Middle East and Asia. The company has also 44

completed a strategic repositioning designed to take better advantage of the opportunities deriving from fixed-mobile convergence and the spread of mobile IP networks. The new positioning largely consists of a renewed product range, which, when presented to the market during the 3GSM Fair in Dubai, was adjudged to be a perfect match for the new needs of potential customers. With regard to security systems, September saw the start-up of activities that will lead to the development of a new security room for ACEA Electrabel and a remote control room for ACEA s water business. Both projects are due to be completed by the end of the year. ACEA also awarded the Group a contract to develop an access control system for vehicles based on RFID (Radio Frequency IDentification) technology. RELATED PARTY TRANSACTIONS Shareholdings of directors and statutory auditors NAME GROUP COMPANY NO. OF SHARES HELD AT 1 JAN 2006 NO. OF SHARES PURCHASED NO. OF SHARES SOLD NO. OF SHARES HELD AT 30 JUNE 2006 PERCENTAGE INTEREST AT 3O JUNE 2006 Claudio Carnevale (a) Acotel Group S.p.A. 664,980 - - 664,980 15.95% Andrea Morante Acotel Group S.p.A. 99,827 - - 99,827 2.39% Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 0.48% Claudio Carnevale AEM S.p.A. 2,366 - - 2,366 0.06% (a) Ownership is exercised via Clama S.A. of which Claudio Carnevale owns 99.9% of the share capital Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which, in turn, held 1,785,015 shares in Acotel Group S.p.A. at. No transactions were carried out between Clama S.r.l. and Acotel Group S.p.A. during the period Purchase of shares by shareholders During the first half of 2006 no shares were traded between Acotel Group companies and their shareholders. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during the first half of 2006: - 110,833 euros as Chairman of the Board of Directors of Acotel Group S.p.A.; - 25,000 euros as Chairman of the Board of Directors of Acotel S.p.A.; - 25,000 euros as Chairman of the Board of Directors of AEM S.p.A. Margherita Argenziano earned the following fees during the first half of 2006: - 5,833 euros as a director of Acotel Group S.p.A.; - 37,500 euros as the CEO of AEM S.p.A. Andrea Morante earned 5,833 euros during the first half of 2006 as a member of the Board of Directors of Acotel Group S.p.A. 45

At, outstanding amounts due to the above-named directors from Group companies totalled 60,944 euros. Transactions with subsidiaries The most significant trading and financial relations during the first half of 2006 between Acotel Group S.p.A. and its subsidiaries are as follows: services rendered to Acotel S.p.A. for its role as service provider via the Parent Company s technological platform; administrative services, leasing and property management services rendered to Italian subsidiaries; loans granted to Acotel Partecipations S.A. in order to finance the sub-holding company s acquisition of investments and provide financial support to its foreign subsidiaries; loans granted to Acotel Group (Northern Europe) Ltd and Flycell Telekomünicasyon Hizmetleri A.Ş. to cover their financial requirements; sureties issued to Jinny Software Ltd and AEM S.p.A. with regard to the companies business commitments, and to Flycell Inc. and Acotel France S.A.S. to guarantee lease agreements signed by these companies. Acotel Group S.p.A., as the consolidating company, and the Italian subsidiaries, Acotel S.p.A. and AEM S.p.A., have adopted the so-called tax consolidation introduced by articles of 117 and 128 of the Consolidated Act and the Ministerial Decree of 9 June 2004. Transactions with associates At, the Group does not hold investments in associates. 46

ANNEXES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 47

48 Interim report

PARENT COMPANY S FINANCIAL STATEMENTS 49

INCOME STATEMENT OF THE PARENT COMPANY, ACOTEL GROUP S.p.A. ( ) H1 2006 H1 2005 Revenue: 2,813,321 2,838,301 - from subsidiaries 2,813,321 2,725,671 - other - 112,630 Other income: 212,685 203,566 - from subsidiaries 202,567 175,396 - other 10,118 28,170 Total 3,026,006 3,041,867 Raw materials (9,794) (27,587) External services (884,709) (988,883) - rendered by subsidiaries - (34,349) - other (884,709) (954,534) Rentals and leases (327,383) (341,586) Staff costs (1,417,673) (1,432,862) Amortisation and depreciation (111,998) (204,321) Impairment charges/reversal of impairment charges on noncurrent assets (245,961) - Other costs (19,341) (28,636) Finance income: 658,801 471,742 - from subsidiaries 431,085 215,358 - other 227,716 256,384 Finance costs (454,101) (55,496) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 213,847 434,238 Taxation (274,863) (164,561) NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS (61,016) 269,677 Net profit/(loss) from discontinued operations - - NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS (61,016) 269,677 Net profit/(loss) attributable to minority interests - - NET PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO PARENT COMPANY (61,016) 269,677 Earnings per share (0.02) 0.07 Diluted earnings per share (0.02) 0.07 50

BALANCE SHEET OF THE PARENT COMPANY, ACOTEL GROUP S.p.A. ASSETS ( ) 31 Dec 2005 Non-current assets: Property, plant and equipment 377,318 269,449 Intangible assets 362,795 282,845 Investments: 16,170,701 16,170,701 - investments in subsidiaries 16,168,451 16,168,451 - investments in other companies 2,250 2,250 Other non-current assets 16,247,890 16,216,993 - due from subsidiaries 16,246,236 16,215,339 - other 1,654 1,654 Deferred tax assets 195,480 103,580 TOTAL NON-CURRENT ASSETS 33,354,184 33,043,568 Current assets: Trade receivables: 4,187,648 6,561,614 - due from subsidiaries 4,185,540 6,118,706 - other 2,108 442,908 Other current assets: 1,336,800 1,057,474 - due from subsidiaries 1,277,633 1,010,019 - other 59,166 47,455 Intercompany loans and receivables: 18,589,743 8,046,829 - due from subsidiaries 18,589,743 8,046,829 Current financial assets 10,701,232 12,673,568 Cash and cash equivalents 462,444 5,345,876 TOTAL CURRENT ASSETS 35,277,867 33,685,361 NON-CURRENT ASSETS HELD FOR SALE - - TOTAL ASSETS 68,632,051 66,728,929 51

BALANCE SHEET OF THE PARENT COMPANY, ACOTEL GROUP S.p.A. LIABILITIES ( ) 31 Dec 2005 Shareholders' equity: Share capital 1,084,200 1,084,200 Share premium reserve 55,106,013 55,106,009 - Treasury shares (3,872,586) (3,872,586) Other reserves 286,619 286,619 Retained profit/(accumulated losses) 1,349,595 821,684 Net profit/(loss) for the period (61,016) 527,911 TOTAL SHAREHOLDERS' EQUITY 53,892,825 53,953,837 Non-current liabilities Provisions 613,495 367,534 Staff termination benefits 458,935 407,515 Deferred tax liabilities 11,864 11,864 TOTAL NON-CURRENT LIABILITIES 1,084,294 786,913 Current liabilities: Current financial liabilities 271 32 Intercompany borrowings: 2,050,000 - - due to subsidiaries 2,050,000 - Trade payables 699,081 808,509 Tax liabilities 301,343 740,584 Other current liabilities 10,604,237 10,439,054 - due to subsidiaries 9,574,132 9,406,857 - other 1,030,105 1,032,197 TOTAL CURRENT LIABILITIES 13,654,932 11,988,179 LIABILITIES DIRECTLY ATRIBUTABLE TO NON- CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 14,739,226 12,775,092 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 68,632,051 66,728,929 The above schedules have been prepared under IFRS. Information on the effects of the transition to IFRS is provided in the Annex Transition to international financial reporting standards (IAS/IFRS) by the Parent Company, Acotel Group S.p.A.. 52

ANNEX TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BY THE PARENT COMPANY, ACOTEL GROUP S.P.A. Following the entry into force of Regulation (EC) 1606/2002, passed by the European Parliament and the Council of the European Union in July 2002, as of 2005 the Acotel Group has adopted the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) in the preparation of its consolidated financial statements. In accordance with the Italian legislation that has implemented the above regulation (Legislative Decree 38 of 2005), Acotel Group S.p.A. has adopted IFRS in the preparation of its separate financial statements as of 1 January 2006. To describe the effects of the transition to IFRS, and to comply with the disclosure requirements laid down by IFRS 1 - First-time adoption of international financial reporting standards, this Annex provides: reconciliations, together with the related notes, of shareholders equity and the net result for the period under Italian GAAP and under IFRS at the transition date (1 January 2005), which represents the beginning of the first of the comparative periods used, relating to 30 June 2005 and 31 December 2005; a description of the accounting policies adopted by Acotel Group S.p.A. as of 1 January 2006. This annex has been prepared within the context of the transition to IFRS and the preparation of Acotel Group S.p.A. s financial statements for the year ended 31 December 2006 under the IFRS endorsed by the European Commission. It does not, therefore, include all the schedules, comparable data and notes that would be necessary to provide a true and fair view of the financial position and results of operations of Acotel Group S.p.A. under IFRS. Such additional information will be provided in the first IFRS financial statements for the year ended 31 December 2006. The Acotel Group S.p.A. has retained Deloitte & Touche S.p.A. to audit the preliminary IFRS reconciliations at 1 January 2005 and 31 December 2005. RECONCILIATIONS REQUIRED BY IFRS 1 As required by IFRS 1 First-time adoption of international financial reporting standards, this Annex provides reconciliations between amounts previously published under Italian GAAP and the corresponding amounts restated under IFRS. The reconciliations refer to the opening balance sheet at 1 January 2005, the balance sheets at 30 June 2005 and at 31 December 2005, and the income statements for the six months ended 30 June 2005 and for the year ended 31 December 2005. The balance sheets and income statements for 2005 have been prepared under the IFRS applicable from 1 January 2006, as published by 31 December 2005. 53

FIRST-TIME ADOPTION OF IFRS General principle In compliance with IFRS 1, in determining the amounts in its first IFRS financial statements, Acotel Group S.p.A. has retrospectively applied the accounting standards in force at the balance sheet date for the first IFRS financial statements, with the exception of the optional exemptions described below. Having adopted IFRS for the preparation of its separate financial statements one year later than for the preparation of its consolidated financial statements (which included an opening balance sheet at 1 January 2004), Acotel Group S.p.A. has stated assets and liabilities under IFRS at the same amounts in both financial statements (separate and consolidated), with the exception of items subject to consolidation adjustments. The schedules for 2005 included in this Annex contains amounts that will be used for comparative purposes in the financial statements for the year ended 31 December 2006. These amounts may undergo changes in response to the review or modification of an international accounting standard during 2006. These changes may have an effect on the following balance sheet and income statement for 2005 restated under IFRS. As required by IFRS1, an opening IFRS balance sheet has been prepared at 1 January 2005, whereby: all assets and liabilities whose recognition is required by the new standards are recognised; all assets and liabilities have been measured and the relevant amounts accounted for as if the new standards had been applied retrospectively; certain items have been reclassified as required by IAS/IFRS. The effect of adjustments of the initial balances of assets and liabilities in accordance with the new standards has been recognised in opening shareholders equity. Financial statement formats In terms of the new financial statements formats, Acotel Group S.p.A. has prepared the income statement on the basis of the nature of expenses format, which is considered more representative of the Group s approach to management of the business and is utilised for internal reporting. The form of presentation used for the balance sheet distinguishes between current and non-current assets and liabilities, as allowed by paragraph 51 et seq of IAS 1. Finally, the Company has opted to use the indirect method in preparing its cash flow statement. Optional exemptions adopted by Acotel Group S.p.A. As a first-time adopter, Acotel Group S.p.A. elected to apply the following options during restatement of the balance sheet at the IFRS transition date, in accordance with IFRS 1: business combinations: as a first-time adopter of IFRS, Acotel Group S.p.A. has elected not to retrospectively apply IFRS 3 to the business combinations occurring prior to the IFRS transition date (1 January 2005). Thus, the fair value of the assets and liabilities of the companies acquired by Acotel Group S.p.A. has not been re-determined; measurement of property, plant and equipment and intangible assets: Acotel Group S.p.A. has elected to use historical cost (in alternative to fair value) to measure property, plant and equipment and intangible assets after initial recognition; 54

employee benefits: with respect to post-employment benefits, Acotel Group S.p.A. has decided not to retrospectively apply the so-called corridor method, which calls for the full recognition of all cumulative actuarial gains and losses until the IFRS transition date, and to adopt instead the corridor method for actuarial gains and losses after this date; share-based payment transactions: Acotel Group S.p.A. has elected to apply IFRS 2 prospectively as of 1 January 2005. Thus, the effects of the transition to IFRS have not been recognised for share options assigned prior to 7 November 2002. EFFECTS OF THE APPLICATION OF IFRS TO THE OPENING BALANCE SHEET AT 1 JANUARY 2005, TO THE BALANCE SHEET AT 30 JUNE 2005 AND TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2005 The application of IFRS entailed a restatement of the financial statements prepared in accordance with Italian GAAP, the effects of which can be summarised as follows: ( ) At 1 January 2005 At 30 June 2005 At 31 December 2005 SHAREHOLDERS' EQUITY UNDER ITALIAN GAAP Taxation for the period 57,242,144 57,890,845 57,895,437 - (265,178) - ADJUSTMENTS: 1. treasury shares (3,205,511) (3,872,586) (3,872,586) 2. reversal of trademark costs (54,873) (101,263) (124,407) 3. staff termination benefits 8,270 14,085 18,493 Tax effect on reconciled items 17,000 29,700 36,900 SHAREHOLDERS' EQUITY UNDER 54,007,030 53,695,603 53,953,837 ( ) NET PROFIT/(LOSS) UNDER ITALIAN GAAP Taxation for the period H1 2005 FY 2005 648,701 653,294 (265,178) - ADJUSTMENTS: 1. reversal of gains/losses on trading of own shares (85,971) (85,971) 2. reversal of trademark costs (46,391) (69,535) 3. benefits 5,816 10,223 Tax effects on reconciled items 12,700 19,900 NET PROFIT/(LOSS) UNDER IFRS 269,677 527,911 55

The individual adjustment items are shown in the table gross of taxes, while the relevant tax effects are shown cumulatively in two separate adjustment items. The main IFRS adjustments are discussed below: 1. treasury shares: under Italian GAAP, treasury shares are recognised as assets and a specific undistributable reserve established in shareholders equity for the same amount. Under IFRS the carrying amount of treasury shares is deducted from shareholders equity. The different accounting treatment has determined a reduction in shareholders equity of 3,206 thousand euros at 1 January 2005 and a reduction of 3,873 thousand euros at 30 June and 31 December 2005, as a result of the reversal of treasury shares from assets. Furthermore, under IFRS gains and losses on the trading of treasury shares cannot be recognised in the income statement but must be taken to shareholders equity. This has caused net profit for the first half of 2005 and for full year 2005 to decrease by 86 thousand euros; 2. reversal of trademark costs: under Italian GAAP the costs involved in registering internally developed trademarks may be capitalised and recorded as an asset, whilst under IFRS they are expensed as incurred. This different treatment has determined reductions of 55 thousand euros, 101 thousand euros and 124 thousand euros in shareholders equity at 1 January 2005, 30 June 2005 and 31 December 2005, respectively, following the reversal of assets arising from the capitalisation of such costs. The pre-tax result for the first six months of 2005 thus decreases by 46 thousand euros, net of amortisation of 6 thousand euros, and inclusive of a positive tax effect of 18 thousand euros, as the costs incurred to register trademarks during the period have been fully expensed. The pre-tax result for 2005, on the other hand, decreases by 70 thousand euros, net of amortisation of 14 thousand euros, and inclusive of a positive tax effect of 26 thousand euros, as the costs incurred to register trademarks during 2005 have been fully expensed; 3. adjustment to staff termination benefits: under Italian GAAP, staff termination benefits give rise to a liability equivalent to the nominal debt toward employees, as accrued in accordance with the provisions of the Italian Civil Code in force at the balance sheet date. Under IFRS, such indemnities qualify as a defined-benefit plan and as such must undergo actuarial valuation (mortality, forecast salary changes, etc.) to reflect the present value of the benefit payable upon severance that has accrued to staff at the balance sheet date. Such different treatment determined the following impacts: at 1 January 2005: an increase in shareholders equity of 8 thousand euros following a reduction of the same amount in provisions for staff termination benefits; at 30 June 2005: an increase in shareholders equity of 14 thousand euros following a reduction of the same amount in provisions for staff termination benefits. The pre-tax result thus increases by 6 thousand euros, inclusive of a negative tax effect of 2 thousand euros, due to the reduction in provisions; at 31 December 2005: an increase in shareholders equity of 18 thousand euros following a reduction of the same amount in provisions for staff termination benefits. The pre-tax result thus increases by 10 thousand euros, inclusive of a negative tax effect of 4 thousand euros, due to the reduction in provisions. 56

EFFECTS ON NET FUNDS AT 1 JANUARY 2005, 30 JUNE 2005 AND 31 DECEMBER 2005 The adoption of IFRS has not had a significant impact on net funds at 1 January 2005, 30 June 2005 and 31 December 2005. IFRS BALANCE SHEETS AT 1 JANUARY 2005 AND 31 DECEMBER 2005 AND IFRS INCOME STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 AND THE YEAR ENDED 31 DECEMBER 2005 In addition to the reconciliations of shareholders equity at 1 January 2005 and 31 December 2005, and of the net result for the first half of 2005 and full year 2005, together with the notes to the adjustments to the amounts determined under Italian GAAP, the balance sheets at 1 January 2005 and 31 December 2005 are presented along with the income statements for the first half of 2005 and full year 2005. These show for each item: amounts determined under Italian GAAP but shown under IFRS formats; IFRS reclassifications; IFRS adjustments; IFRS adjusted amounts. 57

BALANCE SHEET OF ACOTEL GROUP S.P.A. AT 1 JANUARY 2005 ( ) Italian GAAP Effects of IFRS adoption IFRS Reclassifications Ajustments Non-current assets: Property, plant and equipment 387,076 a) 33,599-420,675 Intangible assets 273,496 a) (33,599) (54,873) 185,024 Investments: 16,237,541 - - 16,237,541 - investments in subsidiaries 16,237,541 - - 16,237,541 Other non-current assets: 18,850,925 b) 1,654 (3,205,511) 15,647,068 - due from subsidiaries 15,645,414 - - 15,645,414 - other 3,205,511 1,654 (3,205,511) 1,654 Deferred tax assets - c) 131,972 17,000 148,972 TOTAL NON-CURRENT ASSETS 35,749,038 133,626 (3,243,384) 32,639,280 Current assets: Trade receivables: 7,332,756 - - 7,332,756 - due from subsidiaries 6,960,261 - - 6,960,261 - other 372,495 - - 372,495 Other current assets: 846,876 d) (122,401) - 724,475 - due from subsidiaries 503,617 - - 503,617 - other 343,259 (122,401) - 220,858 Intercompany loans and receivables 3,107,239 - - 3,107,239 Current financial assets 9,435,829 d) 98,979-9,534,808 Cash and cash equivalents 11,431,670 - - 11,431,670 Accrued income and prepayments 110,204 d) (110,204) - - TOTAL CURRENT ASSETS 32,264,575 (133,626) - 32,130,949 TOTAL ASSETS 68,013,613 - (3,243,384) 64,770,229 Shareholders' equity: Share capital 1,084,200 - - 1,084,200 Share premium reserve 52,398,247 e) 2,707,766-55,106,013 - Treasury shares - b) - (3,205,511) (3,205,511) Other reserves 3,418,403 e) - f) (3,205,511) (16,247) 196,645 Retained profit (accumulated losses) 341,294 e) 497,745 (13,356) 825,683 TOTAL SHAREHOLDERS' EQUITY 57,242,144 - (3,235,114) 54,007,030 Non-current liabilities: Staff termination benefits 331,420 g) - (8,270) 323,150 TOTAL NON-CURRENT LIABILITIES 331,420 - (8,270) 323,150 Current liabilities: Current financial liabilities 27 - - 27 Trade payables 642,712 - - 642,712 Taxes payable 224,732 - - 224,732 Other current liabilities: 9,547,958 h) 24,620-9,572,578 - due to subsidiaries 8,845,882 - - 8,845,882 - other 702,076 24,620-726,696 Accrued expenses and deferred income 24,620 h) (24,620) - - TOTAL CURRENT LIABILITIES 10,440,049 - - 10,440,049 TOTAL LIABILITIES 10,771,469 - (8,270) 10,763,199 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 68,013,613 - (3,243,384) 64,770,229 58

BALANCE SHEET OF ACOTEL GROUP S.P.A. AT 31 DECEMBER 2005 ( ) Italian GAAP Effects of IFRS adoption IFRS Reclassifications Ajustments Non-current assets: Property, plant and equipment 237,583 a) 31,866-269,449 Intangible assets 439,118 a) (31,866) (124,407) 282,845 Investments: 16,170,701 - - 16,170,701 - investments in subsidiaries 16,168,451 - - 16,168,451 - investments in other companies 2,250 - - 2,250 Other non-current assets: 20,087,925 b) 1,654 (3,872,586) 16,216,993 - due from subsidiaries 16,215,339 - - 16,215,339 - other 3,872,586 1,654 (3,872,586) 1,654 Deferred tax assets - c) 66,680 36,900 103,580 TOTAL NON-CURRENT ASSETS 36,935,327 68,334 (3,960,093) 33,043,568 Current assets: Trade receivables: 6,561,614 - - 6,561,614 - due from subsidiaries 6,118,706 - - 6,118,706 - other 442,908 - - 442,908 Other current assets: 1,105,140 d) (47,666) - 1,057,474 - due from subsidiaries 1,010,019 - - 1,010,019 - other 95,121 (47,666) - 47,455 Intercompany loans and receivables 8,046,829 - - 8,046,829 Current financial assets 12,562,074 d) 111,494-12,673,568 Cash and cash equivalents 5,345,876 - - 5,345,876 Accrued income and prepayments 132,162 d) (132,162) - - TOTAL CURRENT ASSETS 33,753,695 (68,334) - 33,685,361 TOTAL ASSETS 70,689,022 - (3,960,093) 66,728,929 Shareholders' equity: Share capital 1,084,200 - - 1,084,200 Share premium reserve 52,068,462 e) 3,037,547-55,106,009 - Treasury shares - b) - (3,872,586) (3,872,586) Other reserves 4,089,481 e) - f) (3,872,586) 69,724 286,619 Retained profit (accumulated losses) - e) 835,039 (13,355) 821,684 Net profit/(loss) for the year 653,294 - (125,383) 527,911 TOTAL SHAREHOLDERS' EQUITY 57,895,437 - (3,941,600) 53,953,837 Non-current liabilities: Provisions 367,534 - - 367,534 Staff termination benefits 426,008 g) - (18,493) 407,515 Deferred tax liabilities 11,864 - - 11,864 TOTAL NON-CURRENT LIABILITIES 805,406 - (18,493) 786,913 Current liabilities: Current financial liabilities 32 - - 32 Trade payables 808,509 - - 808,509 Taxes payable 740,584 - - 740,584 Other current liabilities: 10,418,396 h) 20,658-10,439,054 - due to subsidiaries 9,406,857 - - 9,406,857 - other 1,011,539 20,658-1,032,197 Accrued expenses and deferred income 20,658 h) (20,658) - - TOTAL CURRENT LIABILITIES 11,988,179 - - 11,988,179 TOTAL LIABILITIES 12,793,585 - (18,493) 12,775,092 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 70,689,022 - (3,960,093) 66,728,929 59

INCOME STATEMENT OF ACOTEL GROUP S.P.A. FOR THE SIX MONTHS ENDED 30 JUNE 2005 ( ) Italian GAAP Effects of IFRS adoption IFRS Reclassifications Ajustments Revenue: 2,838,301 - - 2,838,301 - from subsidiaries 2,725,671 - - 2,725,671 - other 112,630 - - 112,630 Other income: 203,566 - - 203,566 - from subsidiaries 175,396 - - 175,396 - other 28,170 - - 28,170 Total 3,041,867 - - 3,041,867 Cost of raw materials (27,587) - - (27,587) External services: (933,583) a) - d) (3,258) (52,042) (988,883) - rendered by subsidiaries (34,349) - - (34,349) - other (899,234) (3,258) (52,042) (954,534) Rentals and leases (341,586) - - (341,586) Staff costs (1,445,737) b) 7,059 5,816 (1,432,862) Amortisation and depreciation (209,972) c) - 5,651 (204,321) Impairment charges/reversal of impairment charges on non-current assets - - - - Other costs (34,315) d) 5,679 - (28,636) Finance income: 557,713 - (85,971) 471,742 - from subsidiaries 215,358 - - 215,358 - other 342,355 - (85,971) 256,384 Finance costs (48,437) b) (7,059) - (55,496) Extraordinary income/(expense) 90,338 d) (90,338) - - PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 648,701 (87,917) (126,546) 434,238 Taxation - d) - e) 87,917 (252,478) (164,561) NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS 648,701 - (379,024) 269,677 Net profit/(loss) from discontinued operations - - - - NET PROFIT/(LOSS) FOR THE PERIOD 648,701 - (379,024) 269,677 60

INCOME STATEMENT OF ACOTEL GROUP S.P.A. FOR THE YEAR ENDED 31 DECEMBER 2005 ( ) Italian GAAP Effects of IFRS adoption IFRS Reclassifications Ajustments Revenue: 6,635,070 - - 6,635,070 - from subsidiaries 5,820,440 - - 5,820,440 - other 814,630 - - 814,630 Other income: 445,537 - - 445,537 - from subsidiaries 430,043 - - 430,043 - other 15,494 - - 15,494 Total 7,080,607 - - 7,080,607 Cost of raw materials (80,595) - - (80,595) External services: (2,319,661) a) - d) (8,843) (84,035) (2,412,539) - rendered by subsidiaries (467,612) - - (467,612) - other (1,852,049) (8,843) (84,035) (1,944,927) Rentals and leases (650,893) - - (650,893) Staff costs (2,908,786) b) 14,742 10,223 (2,883,821) Amortisation and depreciation (377,463) c) - 14,500 (362,963) Impairment charges/reversal of impairment charges on non-current assets (468,534) - - (468,534) Other costs (102,541) d) 9,912 - (92,629) Finance income: 1,217,867 - (85,971) 1,131,896 - from subsidiaries 476,481 - - 476,481 - other 741,386 - (85,971) 655,415 Finance costs (105,124) b) (14,742) - (119,866) Extraordinary income/(expense) 88,986 d) (88,986) - - PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 1,373,863 (87,917) (145,283) 1,140,663 Taxation (720,569) d) - e) 87,917 19,900 (612,752) NET PROFIT/(LOSS) FROM CONTINUING OPERATIONS 653,294 - (125,383) 527,911 Net profit/(loss) from discontinued operations - - - - NET PROFIT/(LOSS) FOR THE YEAR 653,294 - (125,383) 527,911 61

NOTES TO THE IFRS ADJUSTMENTS AND RECLASSIFICATIONS IN THE BALANCE SHEETS AT 1 JANUARY 2005 AND 31 DECEMBER 2005 AND THE INCOME STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 AND THE YEAR ENDED 31 DECEMBER 2005 The following notes discuss the adjustments and reclassifications as well as references to the adjustments included in the reconciliations of shareholders equity and the net result illustrated above. Balance sheet - Assets a) Other intangible assets: this item reflects adjustments (down 55 thousand euros at 1 January 2005 and down 124 thousand euros at 31 December 2005) related to the elimination of trademark costs (see adjustment 2), which, under IFRS, cannot be capitalised, as well as to the reclassification (34 thousand euros at 1 January 2005 and 32 thousand euros at 31 December 2005) of leasehold improvements which, under IFRS, must be recognised as property, plant and equipment and not as intangible assets, as allowed by Italian GAAP. b) Other non-current assets: this item refers to adjustments (down 3,206 thousand euros at 1 January 2005 and 3,873 thousand euros at 31 December 2005) related to the reversal of treasury shares (see adjustment 1), which, under Italian GAAP, are recognised in non-current assets, as opposed to IFRS, which require that they be deducted from shareholders equity, and to reclassifications (2 thousand euros at 1 January and at 31 December 2005) of guarantee deposits which, under IFRS, must be recognised as non-current assets, as opposed to Italian GAAP whereby they are entered as current assets (see note d below). c) Deferred tax assets: this item relates to reclassifications (132 thousand euros at 1 January 2005 and 67 thousand euros at 31 December 2005) of deferred tax assets which, under IRFS, must be classified as non-current assets, while under Italian GAAP they may be entered as current assets (see note d below), and to adjustments (up 17 thousand euros at 1 January 2005 and up 37 thousand euros at 31 December 2005) determined by the tax effects on the reconciled items. d) Receivables and current financial assets: these items reflect the reclassifications of the above guarantee deposits (see note b) and deferred tax assets (see note c), and of the portion of accrued income and deferred expenses that, under IFRS, may be recognised as other current assets (11 thousand euros al 1 January 2005 and 21 thousand euros at 31 December 2005) and current financial assets (99 thousand euros at 1 January 2005 and 111 thousand euros at 31 December 2005). Balance sheet Liabilities and shareholders equity e) Retained profit/(accumulated losses): this item reflects the following adjustments ( 000): 1 Jan 2005 31 Dec 2005 Reversal of trademark costs (see adjustment 2) (55) (55) Adjustment to staff termination benefits (see adjustment 3) 8 8 Loss on sale of own shares in 2004 (see item f) 16 16 Tax effects on reconciled items 17 17 Total (14) (14) The reclassification shown in the balance sheet highlights the different accounting treatment of treasury shares introduced by IFRS: the balance of the equity reserve established under Italian 62

GAAP (3,206 thousand euros at 1 January 2005 and 3,873 thousand euros at 31 December 2005) must be reclassified to a specific reserve and then allocated to Retained profit/(accumulated losses) (498 thousand euros at 1 January 2005 and 835 thousand euros at 31 December 2005) and the Share premium reserve (2,708 thousand euros at 1 January 2005 and 3,038 thousand euros at 31 December 2005). f) Other reserves: at 1 January 2005 this adjustment (down 16 thousand euros) regards the loss on treasury share trading, whilst at 31 December 2005 (up 70 thousand euros) it reflects the net impact of the above loss (down 16 thousand euros) and the gain made in 2005 (up 86 thousand euros) on treasury share trading (see adjustment 1). g) Staff termination benefits: these adjustments (down 8 thousand euros at 1 January 2005 and 18 thousand euros at 31 December 2005) are related to the application of actuarial methods to staff termination benefits, as required by IFRS (see adjustment 3). h) Other current liabilities: these reclassifications (25 thousand euros at 1 January 2005 and 21 thousand euros at 31 December 2005) relate to accrued expenses and deferred income that, under IFRS, must be classified directly in the items to which they refer. Items in the income statement for 2005 a) External services: this adjustment (up 52 thousand euros for the first half of 2005 and 84 thousand euros for 2005) relates to recognition in the income statement for 2005 of the costs incurred in order to register trademarks developed internally by Acotel Group S.p.A. and which, under Italian GAAP, were capitalised in intangible assets (see adjustment 2). b) Staff costs: the reclassification (7 thousand euros at 30 June 2005 and 15 thousand euros at 31 December 2005) concerned the imputed interest cost determined by actuarial calculations related to staff termination benefits, which, under IFRS, should be classified under other finance costs. The adjustment (down 6 thousand euros at 30 June 2005 and 10 thousand euros at 31 December 2005) reflects the lower provisions necessary on the basis of the actuarial calculations performed under IAS 19 (see adjustment 3). c) Amortisation: this adjustment (down 6 thousand euros at 30 June 2005 and 14 thousand euros at 31 December 2005) relates to the reversal of amortisation of trademark costs (see adjustment 2). d) Extraordinary income/(expense): this reclassification (90 thousand euros at 30 June 2005 and 89 thousand euros at 31 December 2005) reflects the different accounting treatment required by IFRS for extraordinary items, which can no longer be shown separately but have to be recognised under the revenue and cost items they refer to. e) Taxation: the adjustment reported in this item refers to: for the first half of 2005 (up 252 thousand euros) current taxes (up 218 thousand euros) and deferred taxes (up 47 thousand euros) on income for the period and, in terms of the residue, the positive tax effects due primarily to the fact that trademark costs were expensed as incurred in the income statement; for 2005 (down 20 thousand euros) the positive tax effects of the fact that trademark costs were expensed as incurred in the income statement, amounting to 32 thousand euros, the negative tax effects of the reversal of amortisation of trademark costs, totalling 6 thousand euros, the negative tax effects of reduced provisions for staff termination benefits, amounting to 4 thousand euros, and the recovery of deferred tax assets previously recognised on adjustments accounted for under IFRS, totalling 2 thousand euros. 63

ACCOUNTING POLICIES The financial statements of Acotel Group S.p.A. are prepared in euros and on the basis of the historical cost principle, modified, as required, for the measurement of certain financial instruments. The following is a summary of significant accounting policies used in the preparation of the Parent Company s financial statements. Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is depreciated on a straight-line basis every year, depending on the estimated useful life of the asset, applying the following rates: The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section Impairment of assets below. Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the net carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets ICT platform 50% Specific plant 20% Other plant and machinery 20% Computers 20% Vehicles 25% Furniture, fixtures and fittings 12% Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. Intangible assets are amortised regularly as of the moment the asset is ready for use on the basis of their expected useful lives. 64

The recoverability of the value of assets is estimated in accordance with the criteria set out by IAS 36, as illustrated in the section Impairment of assets below. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Impairment of assets Acotel Group S.p.A. reviews the carrying value of its property, plant and equipment and intangible assets at least once a year to determine whether there are any indications of impairment. In the presence of such indications, the recoverable amount of these assets is estimated to calculate impairment charges. If the recoverable amount of an individual asset cannot be estimated, Acotel Group S.p.A. estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. In determining value in use, estimated future cash flows are discounted using a discount rate that reflects the current market value of money and the risks specific to the business. If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to such lower recoverable amount. This impairment charge is immediately recognised in the income statement. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit), except in the case of goodwill, is increased to reflect the estimated recoverable amount, but only to the extent of the carrying amount of the asset had there not been any impairment charge. The reversal is immediately recognised in the income statement. Investments in subsidiaries Investments in subsidiaries are accounted for at cost, less any impairments identified in accordance with IAS 36. In the event of impairment, the resulting charge is recognised in the income statement. The original carrying amount is reinstated in future years should the circumstances that gave rise to the impairment no longer apply. Goodwill attributed to the value of investments is tested annually for impairment in accordance with the above method. Accounts receivable Accounts receivable are recognised according to their estimated realisable value. Accounts denominated in currencies other than the euros are translated at closing exchange rates. Financial instruments Financial assets are recognised and derecognised at the trade date and are initially accounted for at cost, including any transaction costs. Subsequent measurement depends on the type of instrument, as follows: 65

- financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in the income statement for the period; - loans and receivables, consisting of financial assets that are not listed on an active market, and held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment charges; - available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in a specific reserve in shareholders equity until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period. Cash and cash equivalents This item includes cash in hand and bank current accounts. Treasury shares Treasury shares are measured at cost and deducted from shareholders equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in shareholders equity. Employee benefits According to IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a staff cost, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in the income statement, to the extent that their value not recognised at the end of the previous year is in excess of 10% of the present value of the defined-benefit obligation at such date (the so-called corridor method). Accounts payable Trade payables are accounted for at nominal value. Payables denominated in currencies other than the euros are translated at closing exchange rates. Revenues Sales and service revenues are recognised upon transfer of the risks and benefits of ownership or upon performance of the service. In particular, revenues from services rendered are recognised on the basis of the actual service performed during the period. 66

Income taxes Current income taxes are recognised on the basis of estimated taxable income in accordance with tax rates and rules in force, or as approved at the close of the period, taking account of applicable exemptions and tax credits. Deferred tax assets and liabilities are calculated on temporary differences between the carrying amount of assets and liabilities and their tax bases, in accordance with the tax rates in force when the differences will reverse. When results are charged directly to equity, so are current taxes and deferred tax assets and liabilities. Earnings per share Earnings per share is calculated by dividing net profit by the average weighted number of shares outstanding in the period, less treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Foreign currency translation The euro is Acotel Group S.p.A. s functional and presentation currency. Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the balance sheet date are translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement. 67

69 Relazione semestrale 30 giugno 2006

70 Relazione semestrale 30 giugno 2006

71 Relazione semestrale 30 giugno 2006