interim report for the six months ended 30 june 2006

Transcript

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
Interim report
30 June 2006
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)
(2)
Member of the Remuneration Committee
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.
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THE GROUP
The following chart shows the structure of the Acotel Group at 30 June 2006:
Controlling shareholder of Acotel Group S.p.A. is Clama S.r.l., which at 30 June 2006 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.
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OPERATING AND FINANCIAL REVIEW
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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 30 June 2006. 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.
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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.
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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).
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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.
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RESULTS OF OPERATIONS
RECLASSIFIED CONSOLIDATED INCOME STATEMENT
(€000)
H1 2006
Revenues
H1 2005
27,163
11,134
13
39
Total revenue
27,176
11,173
Gross operating profit
(1,946)
(778)
-7.16%
-6.96%
(2,368)
(1,245)
-8.71%
-11.14%
(590)
350
Other income
Operating profit/(loss)
Net finance income/(costs)
PROFIT/(LOSS) BEFORE TAX
NET PROFIT/(LOSS) BEFORE MINORITY
INTERESTS
NET PROFIT/(LOSS) ATTRIBUTABLE TO
PARENT COMPANY
Earnings per share
Diluted earnings per share
(2,958)
(895)
-10.88%
-8.01%
(3,999)
(1,182)
-14.72%
-10.58%
(3,999)
(1,182)
-14.72%
-10.58%
(1.02)
(1.02)
(0.30)
(0.30)
Increase/
(Decrease)
16,029
(26)
16,003
% inc./(dec.)
143.96%
(66.67%)
143.23%
(1,168)
(150.13%)
(1,123)
(90.20%)
(940)
(268.57%)
(2,063)
(230.50%)
(2,817)
(238.31%)
(2,817)
(238.29%)
(0.71)
(0.71)
(237.64%)
(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
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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.
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FINANCIAL POSITION AND CASH FLOW
RECLASSIFIED CONSOLIDATED BALANCE SHEET
(€000)
30 June 2006
31 December 2005
Increase/
(Decrease)
% inc./(dec.)
Non-current assets:
Property, plant and equipment
Intangible assets
Financial assets
Other assets
1,373
12,540
2
535
1,175
12,584
2
366
198
(44)
169
16.85%
TOTAL NON-CURRENT ASSETS
14,450
14,127
323
2.29%
Net current assets:
Inventories
Trade receivables
Other current assets
Trade payables
Other current liabilities
207
16,290
3,850
(8,809)
(3,097)
299
12,352
1,759
(6,237)
(3,382)
(92)
3,938
2,091
(2,572)
285
(30.77%)
8,441
4,791
TOTAL NET CURRENT ASSETS
STAFF
TERMINATION
BENEFITS
OTHER EMPLOYEE BENEFITS
(0.35%)
46.17%
31.88%
118.87%
(41.24%)
8.43%
3,650
76.18%
(3.48%)
AND
NON-CURRENT PROVISIONS
(981)
(948)
(33)
(179)
(70)
(109)
NET INVESTED CAPITAL
21,731
17,900
Shareholders' equity:
Share capital
Retained profit/(accumulated losses)
Net profit/(loss) for the period
Minority interests
1,084
47,987
(3,999)
30
1,084
48,277
(561)
30
(290)
(3,438)
-
TOTAL SHAREHOLDERS' EQUITY
45,102
48,830
(3,728)
193
193
MEDIUM-/LONG-TERM BORROWINGS
Net cash and cash equivalents:
Current financial assets
Cash and cash equivalents
Current financial liabilities
3,831
-
(17,817)
(5,775)
28
(23,564)
(19,761)
(11,395)
33
(31,123)
1,944
5,620
(5)
7,559
NET FUNDS
(23,371)
(30,930)
7,559
TOTAL SHAREHOLDERS' EQUITY AND NET
FUNDS
21,731
17,900
10
3,831
21.40%
(0.60%)
(612.83%)
(7.63%)
0.00%
9.84%
49.32%
(15.15%)
24.29%
24.44%
21.40%
Interim report
30 June 2006
The Group’s net invested capital at 30 June 2006 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 30 June 2006 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)
Shareholders' equity and result for the period as reported in the
financial statements of the Parent Company
Result for
the period
Shareholders' equity
at 30 June 2006
profit / (loss)
positive/(negative)
(61)
53,893
Effect of consolidation of the Group companies
Amortisation and impairment of goodwill arising from consolidation
Consolidation reserve
Currency translation reserve
(3,938)
-
(4,040)
909
182
-
(5,872)
Group share of shareholders' equity and net result for the period
(3,999)
45,072
-
30
(3,999)
45,102
Minority interests
Shareholders' equity and net result for the period in consolidated
financial statements
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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)
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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.
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CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED INCOM E STATEM ENT
(€000)
Note
Revenues
Other income
1
Total revenue
M ovement in work in progress, semi-finished and finished goods
Raw materials
External services
Rentals and leases
Staff costs
Amortisation and depreciation
Impairment charges/reversal of impairment charges on non-current
assets
Other costs
Finance income
Finance costs
H1 2005
27,163
13
11,134
39
27,176
11,173
2
3
4
5
6
2
(595)
(21,146)
(718)
(6,064)
(421)
(5)
(447)
(5,428)
(734)
(4,924)
(467)
7
8
8
(1)
(601)
425
(1,015)
(413)
450
(100)
(2,958)
(895)
(1,041)
(287)
(3,999)
(1,182)
PRO FIT/(LO SS) BEFORE TAX FRO M CO NTINUING
OPERATIO NS
Taxation
H1 2006
9
NET PRO FIT/(LO SS) FRO M CO NTINUING O PERATIONS
Net profit/(loss) from discontinued operations
-
NET PRO FIT/(LO SS) BEFO RE M INO RITY INTERESTS
(3,999)
Net profit/(loss) attributable to minority interests
-
NET PRO FIT/(LO SS) FO R TH E PERIO D ATTRIBUTABLE
TO PARENT CO M PANY
Earnings per share
10
10
15
(1,182)
-
(3,999)
(1,182)
(1.02)
(1.02)
(0.30)
(0.30)
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CONSOLIDATED BALANCE SHEET
ASSETS
(€000)
Note
31 December 2005
30 June 2006
Non-current assets:
Goodwill arising from consolidation
Other intangible assets
Non-current financial assets
Other non-current assets
Deferred tax assets
11
12
13
14
15
1,373
11,531
1,009
2
163
372
1,175
11,531
1,053
2
88
278
14,450
14,127
207
16,290
3,850
17,817
5,775
299
12,352
1,759
19,761
11,395
43,939
45,566
-
-
58,389
59,693
Current assets:
Inventories
Trade receivables
Other current assets
16
17
18
19
20
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS HELD FOR SALE
TOTAL ASSETS
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CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(€000)
Note
31 December 2005
30 June 2006
Share capital
Share premium reserve
- Treasury shares
- Cost of capital increase
Currency translation reserve
Other reserves
Shareholders' equity attributable to Parent Company
Minority interests
21
Non-current liabilities
Non-current financial liabilities
Staff termination benefits and other employee benefits
Deferred tax liabilities
22
23
1,084
55,106
(3,873)
(59)
182
357
(3,726)
(3,999)
45,072
30
45,102
1,084
55,106
(3,873)
(59)
(89)
335
(3,143)
(561)
48,800
30
48,830
193
981
179
193
948
70
1,353
1,211
28
8,809
599
2,498
11,934
33
6,237
1,144
2,238
9,652
-
-
TOTAL LIABILITIES
13,287
10,863
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
58,389
59,693
TOTAL NON-CURRENT LIABILITIES
Current liabilities:
Trade payables
Tax liabilities
TOTAL CURRENT LIABILITIES
24
25
26
27
LIABILITIES DIRECTLY ATTRIBUTABLE TO NONCURRENT ASSETS HELD FOR SALE
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STATEMENT OF CHANGES IN
CONSOLIDATED SHAREHOLDERS' EQUITY
(€000)
Share
- Cost of Currency
Share
- Treasury
Other Retained
premium
capital translation
capital
shares
reserves profits
reserve
increases reserve
Balances at 1 Jan 2005
1,084
55,106
(3,206)
(59)
(324)
52
Appropriation of net profit for 2004
Purchase of treasury shares
Other movements
Net result for the period
313
(765)
49,707
(817)
765
(3,143)
(1,182)
(667)
399
(1,182)
48,257
335
(3,143)
(561)
48,800
22
(583)
561
(3,999)
271
(3,999)
(3,999)
45,072
86
(1,182)
1,084
55,106
(3,873)
(59)
(11)
Balances at 1 Jan 2006
1,084
55,106
(3,873)
(59)
(89)
Appropriation of net profit for 2005
Other movements
Net result for the period
335
271
1,084
55,106
(3,873)
(59)
182
TOTAL
(2,326)
(667)
Balances at 30 June 2005
Balances at 30 June 2006
197
Net profit
for the
period
357
(3,726)
The share of shareholders’ equity attributable to minority interests at 30 June 2006 amounts to 30
thousand euros and is unchanged with respect to 31 December 2005 and 30 June 2005.
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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
Impairment of assets
(3,436)
(3,999)
421
-
(620)
(1,182)
467
22
Net change in staff termination benefits
Net change in provisions
(Increase) / decrease in receivables
33
73
109
-
(6,029)
(Increase) / decrease in inventories
Increase/(decrease) in payables
C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES
(2,577)
92
(2)
2,287
1,664
(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
Increase/ (decrease) in medium/long-term borrowings
Purchase of treasury shares
Other changes in shareholders' equity
271
(303)
(35)
(667)
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
Interim report
30 June 2006
NOTES TO THE
INTERIM FINANCIAL STATEMENTS
20
Interim report
30 June 2006
BASIS OF PRESENTATION
The Acotel Group’s interim financial statements for the six months ended 30 June 2006 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 30 June 2006.
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 30 June 2006 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
8 August 2000 (1)
100% (5)
Rio de Janeiro
BRL
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
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
Acotel Do Brasil LTDA
Info2cell.com FZ-LLC
21
1,868,250
Interim report
30 June 2006
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)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The date of the company’s entry into the Group coincides with its incorporation.
Prior to such date the Group held 50% of the company’s share capital, posted to investments in associates.
Prior to such date the Group held 33% of the company’s share capital, posted to investments in associates.
AEM owns 1.92% of the share capital.
Controlled via Acotel Participations S.A.
Controlled via Jinny Software Ltd.
Controlled via Info2cell.com LLC-FZ.
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
Interim report
30 June 2006
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 30 June 2006. 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 30 June 2006 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 30 June 2006.
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 30 June 2006. The following schedule shows the income statement
entries that have undergone the most significant changes.
H1 2006
Revenue
Service costs
Gross operating loss
Operating loss
Loss for the period attributable to Parent
Company
Quarterly report
Interim report
Increase/(Decrease)
28,402
(21,653)
(1,214)
(1,636)
27,163
(21,146)
(1,946)
(2,368)
(1,239)
507
(732)
(732)
(3,271)
(3,999)
(728)
23
Interim report
30 June 2006
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)
Revenue
Revenues from third party customers
Inter-segment revenues
Total
Unallocated costs
Impairment charges/reversal of impairment charges
on non-current assets
Operating profit/(loss) from continuing operations
Income from investments
Finance costs
Profit/(loss) before tax
Taxation
Services
Design of
ICT
equipment
Security
systems design
Eliminations /
Other
24,761
24,761
1,855
10
1,865
547
547
(10)
(10)
(1,613)
(809)
71
Total
-
27,163
27,163
(2,351)
(16)
(1)
(2,368)
425
(1,015)
(2,958)
(1,041)
(3,999)
H1 2005
(€000)
Revenue
Revenues from third party customers
Inter-segment revenues
Total
Unallocated costs
Operating profit/(loss) from continuing operations
Income from investments
Finance costs
Profit/(loss) before tax
Taxation
Services
Design of
ICT
equipment
9,049
9,049
1,565
19
1,584
(719)
24
(377)
Security systems
design
520
520
(130)
Eliminations /
Other
(19)
(19)
-
Total
11,134
11,134
(1,226)
(19)
(1,245)
450
(100)
(895)
(287)
(1,182)
Interim report
30 June 2006
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
Services
Design of ICT equipment
Security systems design
Total
24,761
1,855
547
27,163
H1 2005
9,049
1,565
520
11,134
Increase/
(Decrease)
15,712
290
27
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
B2C services
Network Operator services
Media services
Corporate services
Total
13,831
8,825
1,093
1,012
24,761
H1 2005
302
7,318
434
995
9,049
Increase/
(Decrease)
13,529
1,507
659
17
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
Interim report
30 June 2006
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
Interim report
30 June 2006
(€000)
H1 2006
North America
Italy
Middle East
Latin America
Other European countries
Africa
Asia
Total
13,695
6,523
3,326
2,691
587
341
27,163
H1 2005
138
5,844
2,470
1,210
854
225
393
11,134
Increase/
(Decrease)
13,557
679
856
1,481
(267)
116
(393)
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
Interim report
30 June 2006
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
Salaries and wages
Social security contributions
Staff termination benefits
Finance costs
Other costs
Total
4,497
875
124
(19)
587
6,064
Increase/
(Decrease)
H1 2005
3,610
789
209
(17)
333
4,924
887
86
(85)
(2)
254
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:
Italy
Ireland
Lebanon
United Arab Emirates
Jordan
Brazil
France
USA
Total
30 June 2006
31 Dec 2005
30 June 2005
97
21
49
16
52
17
30
282
95
25
34
17
52
18
2
12
255
95
22
33
19
42
13
2
10
236
The number of staff by category at 30 June 2006, compared with the average number for the first
halves of 2006 and 2005, is reported in the following schedule:
28
Interim report
30 June 2006
30 June 2006
Average
H1 2006
Average
H1 2005
19
30
233
282
18
30
221
269
14
29
184
227
Managers
Supervisors
White- and blue-collar staff
Total
Note 6 - Amortisation and depreciation
Details of the amortisation and depreciation of assets is given below:
(€000)
H1 2006
Amortisation of non-current intangible assets
Depreciation of property, plant and equipment
Total
135
286
421
H1 2005
140
327
467
Increase/
(Decrease)
(5)
(41)
(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
Interim report
30 June 2006
(€000)
H1 2006
Interest income from investments
Interest income on bank deposits
Foreign exchange gains
Other interest income
391
27
Total finance income
Interest expense and bank charges
Foreign exchange losses
Other interest expense
Impairment of current financial assets
Total finance costs
7
425
(76)
(913)
(20)
(6)
(1,015)
Net finance costs
(590)
H1 2005
348
37
17
48
450
(68)
(15)
(17)
Increase/
(Decrease)
(100)
43
(10)
(17)
(41)
(25)
(8)
(898)
(3)
(6)
(915)
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
Income taxes for the year
Deferred tax assets
Total
1,090
(96)
47
1,041
H1 2005
245
42
287
Increase/
(Decrease)
845
(138)
47
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
Interim report
30 June 2006
(€000)
H1 2006
Pre-tax profit/(loss)
%
(2,958)
Expected tax charge calculated at 33% of the pre-tax result
Tax effect of the losses of foreign subsidiaries which do not meet all
requirements for recognition of deferred tax assets
Difference between expected and effective tax charge for foreign
subsidiaries
(976) (33.0%)
1,859
62.8%
(44) (1.5%)
Net tax effect of increases and decreases
(14) (0.5%)
IRAP
183
6.2%
33
1.1%
1,041
35.2%
Other minor changes
Taxation for the period
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 30 June 2006. 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
Interim report
30 June 2006
H1 2006
Net profit/(loss) (€000)
H1 2005
(3,999)
(1,182)
Number of shares (000)
Shares in circulation at the start of the period
3,916
Weighted average of treasury shares acquired/sold in the period
*
3,961
-
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
Interim report
30 June 2006
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
Plant and machinery
Industrial equipment
Other
Assets under construction and advances
Total
4,643
1,813
949
126
7,531
Depreciation
Carrying amount Carrying amount
at
at
30 June 2006
31 Dec 2005
(4,049)
(1,434)
(675)
(6,158)
594
379
274
126
1,373
492
397
286
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
Interim report
30 June 2006
(€000)
Jinny
Software
Info2cell
Acquistion cost
12,324
6,150
1,549
792
116
20,931
Shareholders'equity at date of
acquistion
(1,109)
2,784
1,086
570
72
3,403
Goodwill arising from
consolidation
13,433
3,366
463
222
44
17,528
Accumulated amortisation at 1
January 2004
(3,693)
(850)
(169)
(111)
(14)
(4,837)
9,740
2,516
294
111
30
12,691
-
-
-
(1,160)
294
111
30
11,531
-
-
-
294
111
30
-
-
-
294
111
30
consolidation at 1 January 2004
Impairment charge recognised in
2004
consolidation at 31 December
2004
Changes in 2005
consolidation at 31 December
2005
Changes during H1 2006
consolidation at 30 June 2006
(1,160)
8,580
-
2,516
8,580
2,516
-
8,580
-
2,516
AEM
Eitco
Millenium
Software
Total
11,531
-
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 30 June 2006 is as follows:
34
Interim report
30 June 2006
(€000)
Historical cost
Industrial patents and intellectual property rights
Concessions, licences and similar rights
Intangible assets in progress and advances
Total
Depreciation
at
at
30 June 2006
31 Dec 2005
984
(879)
105
123
1,365
263
2,612
(724)
(1,603)
641
263
1,009
768
162
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
Interim report
30 June 2006
(€000)
30 June 2006
Taxation
Tax
rate
Impairment of investments
Recovery of taxed provisions for bad debts
Recovery of taxed provisions for exchange rate
Impairment of inventories
Non-deductible entertainment expenses
Recovery of taxed statutory amortisation and
Provisions for taxed directors' fees
31 Dec 2005
Taxation
Tax
rate
8
33%
37
33%
130
33%
25 38.25% -37.75%
8
37.25%
4
37.25%
6
33%
IFRS adjustments
36
Sub-total
Tax losses carried forward
Total
37.25% -33%
32
33%
37
33%
24 37.25% -36.75%
12
37.25%
8
37.25%
15
33%
32
254
160
118
118
372
278
37.25% -33%
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 30 June 2006:
(€000)
Gross value
91
41
141
273
Raw and ancillary materials and consumables
Work in progress and semi-finished products
Finished products and goods for resale
Total
Impairments
(51)
(13)
(2)
(66)
at
at
30 June 2006
31 Dec 2005
40
28
139
207
45
19
235
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
Interim report
30 June 2006
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)
30 June 2006
T rade receivables
P rovisions for bad debts
16,558
(268)
16,290
T otal
31 D ec 2005
12,577
(225)
12,352
Increase/(D ecrease)
3,981
(43)
3,938
The increase in trade receivables at 30 June 2006, 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 30 June 2006
268
Note 18 - Other current assets
At 30 June 2006 these total 3,850 thousand euros and break down as follows:
(€000)
30 June 2006
VAT credits
Current income tax assets
Supplier advances
Other
1,675
8
1,900
267
3,850
Total
31 Dec 2005
1,061
21
547
130
1,759
Increase/(Decrease)
614
(13)
1,353
137
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
Interim report
30 June 2006
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)
30 June 2006
Held-to-maturity assets
Loans and receivables
Assets held for trading
295
10,355
7,167
17,817
Total
31 Dec 2005
Increase/(Decrease)
(433)
(1,897)
386
(1,944)
728
12,252
6,781
19,761
Held-to-maturity assets comprise the bonds detailed below:
(€000)
Issuer
Nominal value
Banca Toscana S.p.A.
Total
Interest
300 Six-monthly in arrears
300
Rate
6-month Euribor
Maturity
30/11/06
Fair value at 30
June 2006
295
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
Monte dei Paschi di Siena S.p.A.
Banca Nazionale del Lavoro S.p.A.
Total
300
500
2,500
1,100
2,135
6,535
Interest
Rate
Six-monthly in arrears
Quarterly in arrears
2.55%
3-month Euribor
3-month Euribor
3-month Euribor
3-month Euribor
Maturity
31/05/07
17/04/08
30/01/09
17/07/08
16/05/08
Fair value at 30
June 2006
301
503
2,512
1,110
2,143
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 30 June 2006 is 3,790
thousand euros.
38
Interim report
30 June 2006
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 30 June 2006 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
Interim report
30 June 2006
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 30 June 2006 the fully paid-up share capital of Acotel Group S.p.A. consists of 4,170,000
ordinary shares with a par value of 0.26 euros each.
The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital
increases carried out in preparation for the Company’s stock market flotation.
At 30 June 2006 treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of
consolidated shareholders' equity, totalling 3,873 thousand euros. These shares have a carrying
amount of 66,170 euros, representing 6.10% of the share capital.
This refers to 254,500 Acotel Group S.p.A. ordinary shares, of which 28,320 were acquired in
execution of the authority granted by the General Meeting of 24 April 2002 and 226,180, net of
sales to date, in execution of the authority granted by the General Meeting of 30 April 2004.
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 30 June 2006 Acotel Group S.p.A. does not possess shares or units of holding companies, either
directly or through fiduciary companies or proxies, nor has it acquired or sold shares during the
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 30 June 2006,
while shareholders' equity items are translated on the basis of historical exchange rates. Income
statement items are translated utilising average exchange rates for the period.
The following exchange rates were used:
Company
Currency
Exchange rate
at
30 June 2006
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
Interim report
30 June 2006
Other reserves of 357 thousand euros breakdown as follows:
(€000)
30 June 2006
Legal reserve
Profit/(loss) on sale of treasury shares
31 Dec 2005
287
70
357
Total
Increase/(Decrease)
22
22
265
70
335
Accumulated losses amount to 3,726 thousand euros.
Minority interests represent the share of shareholders’ equity attributable to minority shareholders
in subsidiaries. At 30 June 2006 minority interests amount to 30 thousand euros and relate to
minority interests in the subsidiaries, Acotel S.p.A., AEM S.p.A. and Millennium Software SAL.
NON-CURRENT LIABILITIES
Note 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 30 June 2006 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)
30 June 2006
31 Dec 2005
Opening balance
948
767
Provisions
Finance costs
Uses
Various withholding taxes
105
19
(79)
(12)
210
34
(42)
(21)
Closing balance
981
948
Provisions for staff termination benefits shown in the financial statements were calculated by an
independent actuary.
41
Interim report
30 June 2006
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 30 June 2006.
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
Interim report
30 June 2006
(€000)
30 June 2006
Income taxes
VAT due
Substitute tax due
Other tax liabilities
Total
128
285
168
18
599
31 Dec 2005
Increase/(Decrease)
743
269
129
3
1,144
(615)
16
39
15
(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)
30 June 2006
Due to employees
Due to pension and funds social security institutions
Due to directors
Other payables
Total
1,490
423
32
553
2,498
31 Dec 2005
Increase/(Decrease)
1,283
443
36
476
2,238
207
(20)
(4)
77
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 30 June 2006 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
Interim report
30 June 2006
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
Interim report
30 June 2006
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
Claudio Carnevale (a)
Andrea Morante
Claudio Carnevale
Claudio Carnevale
GROUP COMPANY
NO. OF SHARES HELD
AT
1 JAN 2006
NO. OF SHARES
PURCHASED
Acotel Group S.p.A.
Acotel Group S.p.A.
Acotel S.p.A.
AEM S.p.A.
664,980
99,827
20,000
2,366
-
NO. OF SHARES
SOLD
NO. OF SHARES HELD
AT 30 JUNE 2006
PERCENTAGE
INTEREST AT 3O JUNE
2006
664,980
99,827
20,000
2,366
15.95%
2.39%
0.48%
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 30 June 2006.
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
Interim report
30 June 2006
At 30 June 2006, 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 30 June 2006, the Group does not hold investments in associates.
46
Interim report
30 June 2006
ANNEXES TO THE CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
47
Interim report
30 June 2006
48
Interim report
30 June 2006
PARENT COMPANY’S
FINANCIAL STATEMENTS
49
Interim report
30 June 2006
INCOM E STATEM ENT O F THE PARENT COM PANY, ACOTEL GROUP S.p.A.
(€)
H1 2006
H1 2005
Revenue:
- from subsidiaries
- other
Other income:
- from subsidiaries
- other
2,813,321
2,813,321
212,685
202,567
10,118
2,838,301
2,725,671
112,630
203,566
175,396
28,170
Total
3,026,006
3,041,867
(9,794)
(884,709)
(884,709)
(327,383)
(1,417,673)
(111,998)
(27,587)
(988,883)
(34,349)
(954,534)
(341,586)
(1,432,862)
(204,321)
(245,961)
(19,341)
658,801
431,085
227,716
(454,101)
(28,636)
471,742
215,358
256,384
(55,496)
213,847
434,238
(274,863)
(164,561)
(61,016)
269,677
Raw materials
External services
- rendered by subsidiaries
- other
Rentals and leases
Staff costs
Impairment charges/reversal of impairment charges on noncurrent assets
Other costs
Finance income:
- from subsidiaries
- other
Finance costs
PRO FIT/(LO SS) BEFO RE TAX FRO M CONTINUING
O PERATIO NS
Taxation
NET PRO FIT/(LO SS) FRO M CO NTINUING
O PERATIO NS
-
NET PRO FIT/(LO SS) BEFO RE M INO RITY
INTERESTS
(61,016)
Net profit/(loss) attributable to minority interests
-
NET PRO FIT/(LO SS) FO R TH E PERIOD
ATTRIBUTABLE TO PARENT CO M PANY
Earnings per share
50
-
269,677
-
(61,016)
269,677
(0.02)
(0.02)
0.07
0.07
Interim report
30 June 2006
BALANCE SHEET OF THE PARENT COMPANY, ACOTEL GROUP S.p.A.
ASSETS
(€)
31 Dec 2005
30 June 2006
Non-current assets:
Intangible assets
Investments:
- investments in subsidiaries
- investments in other companies
Other non-current assets
- due from subsidiaries
- other
Deferred tax assets
377,318
362,795
16,170,701
16,168,451
2,250
16,247,890
16,246,236
1,654
195,480
269,449
282,845
16,170,701
16,168,451
2,250
16,216,993
16,215,339
1,654
103,580
33,354,184
33,043,568
Trade receivables:
- other
Other current assets:
- other
Intercompany loans and receivables:
4,187,648
4,185,540
2,108
1,336,800
1,277,633
59,166
18,589,743
18,589,743
10,701,232
462,444
6,561,614
6,118,706
442,908
1,057,474
1,010,019
47,455
8,046,829
8,046,829
12,673,568
5,345,876
TOTAL CURRENT ASSETS
35,277,867
33,685,361
-
-
68,632,051
66,728,929
Current assets:
NON-CURRENT ASSETS HELD FOR SALE
TOTAL ASSETS
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Interim report
30 June 2006
BALANCE SHEET OF THE PARENT COMPANY, ACOTEL GROUP S.p.A.
LIABILITIES
(€)
31 Dec 2005
30 June 2006
Share capital
- Treasury shares
Other reserves
1,084,200
55,106,013
(3,872,586)
286,619
1,349,595
(61,016)
53,892,825
Non-current liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
1,084,200
55,106,009
(3,872,586)
286,619
821,684
527,911
53,953,837
613,495
458,935
11,864
1,084,294
367,534
407,515
11,864
786,913
271
2,050,000
2,050,000
699,081
301,343
10,604,237
9,574,132
1,030,105
13,654,932
32
808,509
740,584
10,439,054
9,406,857
1,032,197
11,988,179
-
-
TOTAL LIABILITIES
14,739,226
12,775,092
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
68,632,051
66,728,929
Current liabilities:
Intercompany borrowings:
- due to subsidiaries
Trade payables
Tax liabilities
- other
TOTAL CURRENT LIABILITIES
LIABILITIES DIRECTLY ATRIBUTABLE TO NONCURRENT ASSETS HELD FOR SALE
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
Interim report
30 June 2006
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
Interim report
30 June 2006
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
Interim report
30 June 2006
•
•
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:
(€ )
A t 1 Ja n u a ry
2005
S H A R E H O L D E R S ' E Q U IT Y U N D E R
IT A L IA N G A A P
5 7 ,2 4 2 ,1 4 4
T ax a tio n fo r th e p e rio d
-
A t 3 0 Ju n e
2005
A t 3 1 D ec em b e r
2005
5 7 ,8 9 5 ,4 3 7
5 7 ,8 9 0 ,8 4 5
-
(2 6 5 ,1 7 8 )
A D JU S T M E N T S :
1 . trea su ry sh a re s
2 . re v e rsa l o f tra d e m ark c o sts
3 . sta ff te rm in atio n b en efits
T ax effe ct o n rec o n cile d ite m s
(3 ,2 0 5 ,5 1 1 )
(5 4 ,8 7 3 )
8 ,2 7 0
1 7 ,0 0 0
(3 ,8 7 2 ,5 8 6 )
(1 0 1 ,2 6 3 )
1 4 ,0 8 5
2 9 ,7 0 0
(3 ,8 7 2 ,5 8 6 )
(1 2 4 ,4 0 7 )
1 8 ,4 9 3
3 6 ,9 0 0
S H A R E H O L D E R S ' E Q U IT Y U N D E R
5 4 ,0 0 7 ,0 3 0
5 3 ,6 9 5 ,6 0 3
5 3 ,9 5 3 ,8 3 7
(€ )
H 1 2005
N E T P R O F IT /(L O S S ) U N D E R
IT A L IA N G A A P
6 4 8 ,7 0 1
T ax a tio n fo r th e p e rio d
(2 6 5 ,1 7 8 )
FY 2005
6 5 3 ,2 9 4
-
A D JU S T M E N T S :
1 . re v e rsa l o f g ain s/lo sses o n trad in g o f
o w n sh a re s
2 . re v e rsa l o f tra d e m ark c o sts
3 . b en e fits
T ax effe cts o n rec o n ciled item s
(8 5 ,9 7 1 )
(4 6 ,3 9 1 )
5 ,8 1 6
1 2 ,7 0 0
(8 5 ,9 7 1 )
(6 9 ,5 3 5 )
1 0 ,2 2 3
1 9 ,9 0 0
N E T P R O F IT /(L O S S ) U N D E R IF R S
2 6 9 ,6 7 7
5 2 7 ,9 1 1
55
Interim report
30 June 2006
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
Interim report
30 June 2006
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
Interim report
30 June 2006
B A L A N C E SH E E T O F A C O T E L G R O U P S.P .A . A T 1 JA N U A R Y 2005
(€)
Italian G A A P
E ffects of IFR S adoption
R eclassifications
IFR S
A justm ents
N on-current assets:
P roperty, plant and equipm ent
Intangible assets
Investm ents:
- investm ents in subsidiaries
O ther non-current assets:
- other
D eferred tax assets
387,076
273,496
16,237,541
16,237,541
18,850,925
15,645,414
3,205,511
-
T O T A L N O N -C U R R E N T A SSE T S
a)
a)
33,599
(33,599)
1,654
1,654
131,972
(54,873)
(3,205,511)
(3,205,511)
17,000
420,675
185,024
16,237,541
16,237,541
15,647,068
15,645,414
1,654
148,972
35,749,038
133,626
(3,243,384)
32,639,280
T rade receivables:
- other
O ther current assets:
- other
Intercom pany loans and receivables
C urrent financial assets
C ash and cash equivalents
A ccrued incom e and prepaym ents
7,332,756
6,960,261
372,495
846,876
503,617
343,259
3,107,239
9,435,829
11,431,670
110,204
(122,401)
(122,401)
98,979
(110,204)
-
7,332,756
6,960,261
372,495
724,475
503,617
220,858
3,107,239
9,534,808
11,431,670
-
T O T A L C U R R E N T A SSE T S
32,264,575
(133,626)
-
32,130,949
T O T A L A SSE T S
68,013,613
Share capital
Share prem ium reserve
- T reasury shares
O ther reserves
R etained profit (accum ulated losses)
T O T A L SH A R E H O L D E R S' E Q U IT Y
1,084,200
52,398,247
3,418,403
341,294
57,242,144
b)
c)
C urrent assets:
N on-current liabilities:
Staff term ination benefits
331,420
T O T A L N O N -C U R R E N T L IA B IL IT IE S
331,420
d)
d)
d)
-
e)
b)
e) - f)
e)
g)
2,707,766
(3,205,511)
497,745
-
(3,243,384)
64,770,229
(3,205,511)
(16,247)
(13,356)
(3,235,114)
1,084,200
55,106,013
(3,205,511)
196,645
825,683
54,007,030
-
(8,270)
323,150
-
(8,270)
323,150
C urrent liabilities:
C urrent financial liabilities
T rade payables
T axes payable
O ther current liabilities:
- other
A ccrued expenses and deferred incom e
T O T A L C U R R E N T L IA B IL IT IE S
27
642,712
224,732
9,547,958
8,845,882
702,076
24,620
10,440,049
T O T A L L IA B IL IT IE S
10,771,469
-
(8,270)
10,763,199
T O T A L L IA B IL IT IE S A N D
SH A R E H O L D E R S' E Q U IT Y
68,013,613
-
(3,243,384)
64,770,229
58
h)
h)
24,620
24,620
(24,620)
-
-
27
642,712
224,732
9,572,578
8,845,882
726,696
10,440,049
Interim report
30 June 2006
B A LA N C E SH EET O F A C O TEL G R O U P S.P.A . A T 31 D EC EM B ER 2005
(€)
Italian G AAP
Effects of IFRS adoption
Reclassifications
IFRS
Ajustments
N on-current assets:
Intangible assets
Investments:
- investm ents in subsidiaries
- investm ents in other com panies
O ther non-current assets:
- other
D eferred tax assets
237,583
439,118
16,170,701
16,168,451
2,250
20,087,925
16,215,339
3,872,586
-
a)
a)
TO TAL N O N -CU R R EN T A SSETS
36,935,327
68,334
T rade receivables:
- other
O ther current assets:
- other
Intercompany loans and receivables
Accrued income and prepayments
6,561,614
6,118,706
442,908
1,105,140
1,010,019
95,121
8,046,829
12,562,074
5,345,876
132,162
(47,666)
(47,666)
111,494
(132,162)
-
6,561,614
6,118,706
442,908
1,057,474
1,010,019
47,455
8,046,829
12,673,568
5,345,876
-
TO TAL C U R R EN T A SSETS
33,753,695
(68,334)
-
33,685,361
TO TAL A SSETS
70,689,022
Share capital
- T reasury shares
O ther reserves
Retained profit (accumulated losses)
N et profit/(loss) for the year
TO TAL SH A R EH O LD ER S' EQ U ITY
1,084,200
52,068,462
4,089,481
653,294
57,895,437
b)
c)
31,866
(31,866)
(124,407)
1,654 (3,872,586)
1,654 (3,872,586)
66,680
36,900
(3,960,093)
269,449
282,845
16,170,701
16,168,451
2,250
16,216,993
16,215,339
1,654
103,580
33,043,568
C urrent assets:
N on-current liabilities:
Provisions
D eferred tax liabilities
TO TAL N O N -CU R R EN T LIA B ILITIES
367,534
426,008
11,864
805,406
d)
d)
d)
-
e)
b)
e) - f)
e)
g)
(3,960,093)
3,037,547
- (3,872,586)
(3,872,586)
69,724
835,039
(13,355)
(125,383)
- (3,941,600)
-
(18,493)
(18,493)
66,728,929
1,084,200
55,106,009
(3,872,586)
286,619
821,684
527,911
53,953,837
367,534
407,515
11,864
786,913
C urrent liabilities:
T rade payables
T axes payable
O ther current liabilities:
- other
Accrued expenses and deferred income
TO TA L C U RR EN T LIA B ILITIES
32
808,509
740,584
10,418,396
9,406,857
1,011,539
20,658
11,988,179
TO TA L LIA B ILITIES
12,793,585
-
(18,493)
12,775,092
TO TA L LIA B ILITIES A N D
SH AR EH O LD ER S' EQ U ITY
70,689,022
-
(3,960,093)
66,728,929
59
h)
h)
20,658
20,658
(20,658)
-
-
32
808,509
740,584
10,439,054
9,406,857
1,032,197
11,988,179
Interim report
30 June 2006
INCOM E STATEM ENT OF ACOTEL GROUP S.P.A. FOR THE SIX M ONTHS ENDED 30 JUNE 2005
(€)
Italian GAAP
Reclassifications
IFRS
Ajustments
Revenue:
- from subsidiaries
- other
Other income:
- from subsidiaries
- other
2,838,301
2,725,671
112,630
203,566
175,396
28,170
-
-
2,838,301
2,725,671
112,630
203,566
175,396
28,170
Total
3,041,867
-
-
3,041,867
Cost of raw materials
External services:
- other
Rentals and leases
Staff costs
Impairment charges/reversal of impairment charges on
non-current assets
Other costs
Finance income:
- from subsidiaries
- other
Finance costs
Extraordinary income/(expense)
PROFIT/(LOSS) BEFORE TAX FROM
CONTINUING OPERATIONS
(27,587)
(933,583) a) - d)
(34,349)
(899,234)
(341,586)
(1,445,737) b)
(209,972) c)
(34,315)
557,713
215,358
342,355
(48,437)
90,338
d)
b)
d)
648,701
Taxation
- d) - e)
NET PROFIT/(LOSS) FROM CONTINUING
OPERATIONS
648,701
(3,258)
(3,258)
7,059
-
(52,042)
(52,042)
5,816
5,651
(27,587)
(988,883)
(34,349)
(954,534)
(341,586)
(1,432,862)
(204,321)
5,679
(7,059)
(90,338)
(85,971)
(85,971)
-
(28,636)
471,742
215,358
256,384
(55,496)
-
(87,917)
(126,546)
434,238
87,917
(252,478)
(164,561)
(379,024)
269,677
-
-
-
NET PROFIT/(LOSS) FOR THE PERIOD
648,701
-
60
(379,024)
269,677
Interim report
30 June 2006
INCOM E STATEM ENT OF ACOTEL GROUP S.P.A. FOR THE YEAR ENDED 31 DECEM BER 2005
(€)
Italian GAAP
ReclassiAjustments
fications
IFRS
Revenue:
- from subsidiaries
- other
Other income:
- from subsidiaries
- other
6,635,070
5,820,440
814,630
445,537
430,043
15,494
-
-
6,635,070
5,820,440
814,630
445,537
430,043
15,494
Total
7,080,607
-
-
7,080,607
Cost of raw materials
External services:
- other
Rentals and leases
Staff costs
Impairment charges/reversal of impairment charges on
non-current assets
Other costs
Finance income:
- from subsidiaries
- other
Finance costs
Extraordinary income/(expense)
PROFIT/(LOSS) BEFORE TAX FROM
CONTINUING OPERATIONS
(80,595)
(2,319,661) a) - d)
(467,612)
(1,852,049)
(650,893)
(2,908,786) b)
(377,463) c)
(468,534)
(102,541)
1,217,867
476,481
741,386
(105,124)
88,986
d)
b)
d)
1,373,863
Taxation
(720,569) d) - e)
NET PROFIT/(LOSS) FROM CONTINUING
OPERATIONS
653,294
NET PROFIT/(LOSS) FOR THE YEAR
61
(8,843)
(8,843)
14,742
-
(84,035)
(84,035)
10,223
14,500
(80,595)
(2,412,539)
(467,612)
(1,944,927)
(650,893)
(2,883,821)
(362,963)
9,912
(14,742)
(88,986)
(85,971)
(85,971)
-
(468,534)
(92,629)
1,131,896
476,481
655,415
(119,866)
-
(87,917)
(145,283)
1,140,663
87,917
19,900
(612,752)
(125,383)
527,911
-
-
-
653,294
-
(125,383)
527,911
Interim report
30 June 2006
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):
Reversal of trademark costs (see adjustment 2)
Adjustment to staff termination benefits (see adjustment 3)
Loss on sale of own shares in 2004 (see item f)
Tax effects on reconciled items
Total
1 Jan 2005
(55)
8
16
17
(14)
31 Dec 2005
(55)
8
16
17
(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
Interim report
30 June 2006
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
Interim report
30 June 2006
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 used to manufacture or supply goods and services is recognised at
historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset
ready for use.
Property, plant and equipment is depreciated on a straight-line basis every year, depending on the
estimated useful life of the asset, applying the following rates:
ICT platform
50%
Specific plant
20%
Other plant and machinery
20%
Computers
20%
Vehicles
25%
Furniture, fixtures and fittings
12%
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
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
Interim report
30 June 2006
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
Interim report
30 June 2006
-
-
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.
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
Interim report
30 June 2006
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
Relazione semestrale
30 giugno 2006
69
30 giugno 2006
70
30 giugno 2006
71
30 giugno 2006
72

interim report for the six months ended 30 june 2006

Transcript

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