Annual Report 2008

CONTENTS
ANNUAL REPORT 2008 1. DIRECTORS REPORT ON GROUP OPERATIONS 1.1 Principal factors that have influenced the results for the financial year 1.2 Principal events in the Groups three areas of business 1.3 Results of operations 1.4 Financial position and cash flow 1.5 Reconciliation with the Parent Companys financial statements 1.6 Sources of funds 1.7 Research and innovation 1.8 Human resources 1.9 Risks and uncertainties 1.10 Strengths and resources not reflected in the financial statements 1.11 Intercompany and related party transactions 1.12 Shareholdings of management and supervisory bodies, general managers and key managers 1.13 Other information 1.14 Events after 31 December 2008 1.15 Outlook 2. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 2.1 Corporate officers 2.2 The Group 3. CONSOLIDATED FINANCIAL STATEMENTS 4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4.1 Principal activities 4.2 Accounting standards used in preparation of the financial statements 4.3 Basis of presentation 4.4 Consolidation policies 4.5 Financial highlights of companies consolidated using the proportionate method 4.6 Critical accounting estimates and judgements 4.7 Segment information 4.8 Notes to the income statement 4.9 Notes to the balance sheet 4.9.1 Assets 4.9.2 Liabilities and shareholders equity 4.10 Net funds 4.11 Additional disclosures on financial instruments and financial risk management 4.12 Contingencies 4.13 Commitments 4.14 Third-party assets held by the group 4.15 Related party transactions 4.16 Compliance with Legislative Decree no. 196/2003 4.17 Other information ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS PARENT COMPANYS REPORT page page page page page page page page page page page page page page page page page 1 2 3 8 13 16 17 18 18 19 21 22 23 23 23 24 24

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Annual Report 2008

5. DIRECTORS REPORT ON THE PARENT COMPANYS OPERATIONS 5.1 Financial review 5.2 Sources of funds 5.3 Research and innovation 5.4 Human resources 5.5 Financial risk management 5.6 Strengths and resources not reflected in the financial statements 5.7 Intercompany and related party transactions 5.8 Shareholdings of management and supervisory bodies, general managers and key managers 5.9 Shareholder structure and corporate governance 5.10 Other information 5.11 Events after 31 December 2008 5.12 Outlook 5.13 Proposed appropriation of net profit for the year 5.14 Shareholder resolutions

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6. PARENT COMPANYS FINANCIAL STATEMENTS 7. NOTES TO THE PARENT COMPANYS FINANCIAL STATEMENTS 7.1 Corporate information 7.2 Accounting standards used in preparation of the financial statements 7.3 Basis of presentation 7.4 Accounting policies 7.5 Critical accounting estimates and judgements 7.6 Notes to the income statement 7.7 Notes to the balance sheet 7.7.1 Assets 7.7.2 Liabilities and shareholders equity 7.8 Net funds 7.9 Additional disclosures on financial instruments and financial risk management 7.10 Contingencies 7.11 Commitments 7.12 Shareholder pacts 7.13 Compliance with Legislative Decree 196/2003 7.14 Related party transactions 7.15 Other information ANNEXES TO THE PARENT COMPANYS FINANCIAL STATEMENTS ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO. 11971 OF 14 MAY 1999 AND SUBSEQUENT AMENDMENTS AND ADDITIONS REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS REPORT OF THE INDEPENDENT AUDITORS ESSENTIAL INFORMATION ON SUBSIDIARIES AND JOINT VENTURES

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Annual Report 2008

ANNUAL REPORT 2008

Annual Report 2008

DIRECTORS REPORT ON GROUP OPERATIONS

Annual Report 2008

1.1

PRINCIPAL FACTORS THAT HAVE INFLUENCED THE RESULTS FOR THE FINANCIAL YEAR

The Acotel Group achieved significant growth in 2008, increasing revenue by 26% to 88.7 million euros, compared with the 70.3 million euros of the previous year.
100 90 80 70 60 50 40 30 20 10 0 2003 2004 2005 2006 2007 2008

Revenue (m)

The main contribution in terms of revenue generation comes from the Services business (74.1 million euros), followed by Mobile Messaging Solutions (12.7 million euros) and Security Systems (1.9 million euros).

Services: 83.5%

Security Systems: 2.1%

Mobile Messaging Solutions: 14.4%

Revenue growth is primarily a result of the strategy adopted in 2005, which has seen the Group target its services at the Consumer segment, offering its value added mobile services to end consumers. This strategy led to the establishment of Flycell Inc., with its operating headquarters in New York, and the creation of a brand of the same name, with graphics designed specifically to attract younger customers, who represent the largest market for the type of mobile services offered by the Group.

Annual Report 2008

The Flycell brand was created entirely in-house and is protected by copyright in around 100 countries

Flycell operates websites in 5 languages: English, Portuguese, Turkish, Spanish and Italian

Launched in the United States at the end of 2005, Flycell branded services are now also available in Brazil, Turkey, Spain and Italy (the latter two being added during 2008) and contribute approximately 58% of the Groups total revenue. In the Network Operator segment of the Services business, December 2008 saw renewal of the long-term contract between Telecom Italia and Acotel S.p.A.. The new agreement, which has a duration of 4 years, grants the Group exclusive rights to manage the information services provided under the ScripTIM by Acotel brand. These services, launched for the first time in 1997, have built up an extremely loyal customer base and are the pride of the value added services supplied by Acotel S.p.A.. Whilst introducing a number of changes to the previous commercial agreement between the parties, the new contract continues to be of significant strategic and financial value for the company.

Annual Report 2008

ScripTIM services have been developed jointly by Acotel and Telecom Italia since the middle of the1990s. Launched commercially in 1997, they were the first information services in the world to be delivered by SMS

The second largest contribution to the Groups growth is the result of its internationalisation strategy for its Mobile Messaging Solutions business (referred to in previous reports as the Design of ICT equipment), which consists of the design, development and sale of the network equipment used by mobile operators in the provision of messaging, SMS, MMS, Voice and Video services. This area of business is managed by the Dublin-based Jinny Software Ltd, whose revenues for 2008 amount to 13.3 million euros, having increased 49.7% with respect to the 8.9 million euros of 2007. Jinnys expansion has been driven by its commercial offerings aimed at customers in emerging or developing countries (for example, Africa and Central America) where, thanks to the still limited penetration of mobile phones, extremely high rates of growth have been achieved. This success is even more significant if the economic downturn of 2008, resulting in generally weak demand for investment goods, is taken into account.

Annual Report 2008

The Jinny brand continues to expand its global footprint thanks to the companys range of innovative products and the quality of its customer services

Over 350 million mobile users communicate thanks to the messaging platforms produced by Jinny

Without going into too much detail regarding the geographical breakdown of the Groups revenues, a look at the continental macro-areas shows that North America remains the Groups principal market (32.1 million euros or 36.2% of total revenue), followed by Latin America (19.7 million euros or 22.2% of the total). Revenues generated in Africa, which represents a new market for the Group, amount to 5.8 million euros, marking growth of no less than 46.6% on the previous year.

Annual Report 2008

The Acotel Group has offices in 12 countries. Employing 421 people, of which 75% are foreigners, the Acotel Group has one of the largest international footprints of any Italian company

One of the most important events for the Group from a strategic viewpoint took place in May 2008, when the Group concluded an agreement with the banking group, Intesa Sanpaolo S.p.A., regarding a new joint initiative in the field of mobile communications and value added services. This agreement led to: Intesa Sanpaolos acquisition of a 4.75% stake in Acotel at a total cost of 12.3 million euros; Intesa Sanpaolos acquisition of a 10% interest in Noverca S.r.l., previously a wholly owned subsidiary of Acotel Group, via subscription of a capital increase of 3.6 million euros. At the same time, Acotel Group subscribed a further tranche of the same capital increase, amounting to 5.6 million euros; the establishment of a new company named Noverca Italia S.r.l., which is 66% owned by Noverca S.r.l. and 34% owned by Intesa Sanpaolo S.p.A.. Noverca S.r.l. transferred 5 million euros in cash and has granted the new company exclusive rights to its Internet Protocol (IP) platform for the provision of value added services in the Italian market, whilst Intesa Sanpaolo S.p.A. injected 13.3 million euros in cash. From a commercial viewpoint, the most significant transaction is the establishment of Noverca Italia S.r.l., which will act as a Mobile Virtual Network Operator (MVNO) in Italy and offer consumers and business customers a vast range of value added mobile telecommunications services. These will include mobile payments and mobile banking, the latter jointly developed with Intesa Sanpaolo. Noverca Italia will distribute SIM cards to its customers and use Telecom Italias GSM/GPRS and UMTS/HSPDA mobile networks, in accordance with a contract signed in 2008.

Annual Report 2008

Intesa Sanpaolos over 10 million customers represent an important potential base for Noverca Italias development. Under a specific commercial agreement, Noverca Italia and Intesa Sanpaolos Banca dei Territori Division, which covers the banks branch network and other distruibution channels, including the online banking site, will join forces to market and develop targeted offerings designed to meet the specific needs of the banks customers, including mobile payment services, which are expected to be a key factor in the success of the initiative. With regard to the initiative as a whole, Noverca S.r.l., as Noverca Italia S.r.l.s parent company, will have a dual role to play as a technological enabler and as a launchpad for international growth. In terms of technology, Noverca S.r.l. develops, owns and manages the technology platform used by Noverca Italia S.r.l. to supply its services. As a result, the platform plays a key strategic role in the entire initiative, given that it is wholly owned by the company, having been developed by an expert team of technicians who began working more than two years ago in the Groups laboratories. It ensures full independence in managing operations and the ability to develop new services at exremely low cost.

In common with all the Groups brands, Noverca was developed in-house. Noverca will launch its first Italian media advertising campaign in 2009

1.2

PRINCIPAL EVENTS IN THE GROUPS THREE AREAS OF BUSINESS

SERVICES In this area of business, which, as already reported, saw significant revenue growth compared with 2007, the Group operates in Italy, the USA, Brazil, the Middle East, Turkey and Spain, providing services in line with the following business models: B2C (or Business to Consumer): in this segment Acotel sells its services primarily content, ringtones, images, games and information - directly to the final customer, carrying out all the related activities from communications to customer care; Network Operator: in this segment the Group provides services on behalf of telephone companies (mainly mobile) in accordance with the Application Service Provisioning (ASP) model; Corporate: in this segment the Group supplies interactive mobile services to companies, such as banks, that want to offer mobile information and services to their customers; Media: this segment manages value added services on behalf of TV, radio or other media, offering, for example, viewers or listeners the chance to vote or buy content relating to a certain television or radio programme.
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Annual Report 2008

As in the previous year, B2C operations once again proved to be the most important in terms of revenues, generating 52 million euros out of total service revenues of 74 million euros, and thus accounting for 69.8% of the total for this area of business. The next largest contribution in revenue terms was provided by the Network Operator segment, which generated turnover of 18 million euros, equal to 24.6% of total service revenues. The other two areas of activity, Corporate and Media, contributed 3 million euros (4.4% of the total) and 1 million euros (1.2%), respectively. The US subsidiary, Flycell Inc., made the largest contribution to service revenues, having been assigned worldwide responsibility for B2C operations. This company, together with its direct subsidiaries, generated revenues of 51.6 million euros, marking an increase of 45.2% on the 35.5 million euros of 2007, confirming its role as the Groups biggest source of revenue. Flycell Inc., which operates in North America and Spain, is present in Turkey and South America via its direct subsidiaries, Flycell Telekomunikasion Hizmetleri A.S., based in Istanbul, Flycell Latin America LTDA, based in Rio de Janeiro. Its Italian operations are managed by the newly established, Romebased Flycell Italia S.r.l.. Flycell Inc. continued with its geographical expansion strategy in 2008, launching its services in Spain and Italy in July and increasing both investment in advertising and revenues generated in Brazil and Turkey. Its US operations were also a priority, benefiting from improvements to existing services and the addition of new features capable of boosting the loyalty of customers already acquired, and from the development of new services providing new revenue sources. Management of the B2C business by Flycell Inc. aims to maximise ARPU (Average Revenue Per User), increase redemptions, represented by the ability to attract new customers, and reduce the churn rate. In terms of ARPU, the company sells its services in the form of monthly or weekly subscriptions, offering prices in line with those of its main competitors in return for high quality content. This ensures, as far as possible, stable cash flow generation from customers. With regard to redemptions, given that the Internet is the channel used almost exclusively by Flycell Inc. to acquire new customers, the company regularly updates all its websites - www.flycell.com for the US market, www.flycell.br for Brazil, www.flycell.tr for Turkey, www.flycell.sp for Spain and www.flycell.it for Italy in order to improve navigation and content search, and simplify subscription procedures and make them more secure. In order to reduce the churn rate, new sections have been added to the companys websites, using a web 2.0 approach in order to give customers the chance to publish self-produced content and join communities. The second largest contribution to service revenues comes from Acotel S.p.A., with turnover amounting to 12.9 million euros in 2008, marking a reduction of approximately 8% on the 14 million euros of 2007. The Company operates in Italy in the three B2B segments described above, and generates most of its revenues from Network Operator services provided to Telecom Italia within the scope of a partnership that began over 10 years ago.

Annual Report 2008

As noted in the Groups previous reports, above all in the previous interim half-year report, the contract between Telecom Italia and Acotel S.p.A. expired at the end of 2008. As mentioned above, whilst introducing a number of changes to the previous commercial agreement between the parties, the new 4-year contract signed in December continues to be of significant strategic and financial value for the company. It grants the Group exclusive rights to manage the information services provided under the ScripTIM by Acotel brand, since its initial launch in 1997, has built up an extremely loyal customer base. 2008 also saw a further increase in sales of games via the iGameStore platform, developed entirely by Acotel S.p.A. and operated by the company, in ASP mode, on behalf of Telecom Italia. During the year the company embarked on an intensive renewal programme for its technology infrastructure, implementing a project that, during 2009, will lead to the migration of all services to a new platform named NSP New Service Platform. Like the previous one, this platform will also be owned entirely by the Group. Acotel S.p.A. has also continued to operate in the Media segment, working primarily with the TV broadcaster, RAI, and in the Corporate segment, expanding on its existing commercial agreement with the Unicredit Banca Group, on behalf of which it sent approximately 24 million SMS information messages during 2008. The subsidiary, Info2cell, which is based in Dubai and has an operational support centre in Amman, operates in the Middle East, primarily in the B2B segment. This company generated revenues of 4.9 million euros in 2008, marking an increase of 15% on 2007. The company, which operates in 14 countries and has agreements with 32 operators (28 in 2007), representing almost all those present in the Gulf area, is the undisputed leader in terms of competitive position. A description of key events in each country during 2008 is provided below. Jordan: over 10 new SMS services (news, entertainment and Islamic content) were created and sold to all four operators in the country, whilst a Java application was launched for Zain in order to manage two competitions held to mark Mothers Day and Ramadan; Palestine: the main development regarded the RBT (Ring Back Tone) services managed on behalf of Jawwal, which registered a 50% increase in the number of subscribers. In terms of SMS, the company managed the launch of information services for the BBC and Al-Arabia. Syria: the company completed the interconnection with Syriatel (the countrys leading operator), launching various MMS-based services and initiating the distribution of SMS with Islamic content. Iraq: during 2008 the company began operating under two new agreements, one with Zain Iraq and the other with Itisaluna, regarding the supply of content and value added services, including Ring Back Tone. UAE: several new services were developed for Etisalat (the Euro 2008 SMS, MMS and Java application), a contract was signed with the operator, DU, and services developed for firms such as I, Gillette, Al AIN TV and Modus. Kuwait: 2008 saw the successful launches of the Java application for Euro 2008 developed for the operator, Zain, and of a range of RBT services for Watanyia. Bahrain and Qatar: SMS and MMS services focusing on Euro 2008 were provided for Batelco and on the Gulf Cup for Qtel.

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Annual Report 2008

Oman: the operator, Nawras, entered into a contract with Info2cell for the development and management of its WAP portal and of other services and content. Yemen: a competition linked to Euro 2008 was launched with the operators, MTN and Yemen Mobile, whilst a content distribution service, again linked to Euro 2008, was provided to Sabafon. Sudan: Info2cell developed several services on behalf of Zain to coincide with the African Nations Cup 2008, and was the first service provider to launch an MMS service, named Majalaty, for the same operator. Tanzania: entry into this market in 2008 represents an enormous success for Info2cell, which satisfactorily launched services with Islamic content.

The subsidiary, Acotel do Brasil, which also operates in the B2B segment, generated revenues of 4.6 million euros during the year, marking a reduction of 22.6% on the 5.9 million euros of 2007. The decrease reflects a fairly general slowdown in demand for services from customers of the operators, TIM Celular and TIM Nordeste Telecomunicaoes, with which the company has longstanding commercial relationships. The company manages a technology platform in ASP mode for the download of games, videos, information, wallpapers and ringtones, and operates as a Centro Stella, functioning as a gateway between operators and a certain number of smaller service providers. At the end of 2008 over 70 service providers were connected with TIM Brasil via Acotel do Brasil, including Universal, Warner, Globo, SBT and Band.

MOBILE MESSAGING SOLUTIONS The Mobile Messaging Solutions business (previously referred to as the Design of ICT equipment), in which the subsidiary, Jinny Software Ltd, operates, continued the positive trend recorded in 2007. The company acquired orders from 13 new customers in 2008, increasing its total customer base to over 70. Revenues for the period, after adjusting for an intercompany sale eliminated during the consolidation process, amount to 12.7 million euros, marking growth of 44% with respect to the 8.8 million euros of 2007. This reflects the positive results achieved in Africa and Central America, markets that the company had correctly predicted would be less exposed to the effects of the economic crisis that began in 2008. In addition to its core activity, represented by the development and worldwide marketing of messaging platforms, in 2008 the company also focused on the development of mobile marketing and advertising platforms, currently considered one of the most important growth areas in the mobile services market. As part of this new activity, the company has entered into partnership with MCN, a leading Middle-eastern advertising agency and media centre. A key project completed in 2008 regards the supply of a series of Ring Back Tone (RBT) platforms for operators in the Zain/Celtel group, in execution of a framework agreement signed at the end of 2007. In addition to the importance of the commercial relationship established with the Zain/Celtel group, this project confirms the validity of Jinnys RBT offerings, which are proving to be a great success, above all in Middle-eastern and African markets.

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Finally, the company has strengthened its overseas presence by converting its existing offices in Brazil and Panama into local companies and opening a new office in Kenya.

SECURITY SYSTEMS The Italian subsidiary, AEM S.p.A., which operates in this business segment, generated revenues of 1.9 million euros in 2008, marking a 23% increase on the 1.5 million euros of 2007. The company has long-standing relationships with the Bank of Italy and Telecom Italia, which contribute the majority of its revenues and regard both the maintenance and improvement of existing security systems. Within the context of relations with Telecom Italia, the company was awarded a contract to provide maintenance for the telecommunications companys Contact Centre. The contract, worth 550 thousand euros, has a duration of five years. Installation of the new video-surveillance system for the ACEA Group in Rome, which began in 2007, was also completed. This project has been extended following the ACEA Groups decision to assign AEM responsibility for further work with a value of 230 thousand euros. This regards the design and production of two new electronic boards to decode the protocols used in old equipment, some of which has remained in operation, and render it compatible with the new system. As a result of its experience in the video-surveillance sector, AEM is offering its solutions to other customers with similar needs to those it already serves, whilst at the same time developing new products for the banking sector that are expected to be released next September.

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Annual Report 2008

1.3

RESULTS OF OPERATIONS

RECLASSIFIED CONSOLIDATED INCOME STATEMENT

000 2008 2007 Increase/Decrease % inc./(dec.)

Revenues Other income Total revenue Gross operating profit

88,698 211 88,909 2,343

2.64%

70,301 2 70,303 2,806

3.99%

18,397 209 18,606 (463)

26% 10,450% 26% (17%)

Operating profit/(loss) Income from investments Net finance income/(costs) PROFIT/(LOSS) BEFORE TAX

940
1.06%

1,680
2.39%

(740) 7,940 890 8,090

(44%) 304% 410%

7,940 1,183 10,063

11.32%

293 1,973
2.81%

NET PROFIT/(LOSS) BEFORE MINORITY INTERESTS

6,564
7.38%

(1,278)
-1.82%

7,842

614%

NET PROFIT/(LOSS) ATTRIBUTABLE TO PARENT COMPANY

6,564
7.38%

(1,278)
-1.82%

7,842

614%

Earnings per share Diluted earnings per share

1.62 1.62

(0.33) (0.33)

Compared with the results for the previous year, the Acotel Groups results for the year ended 31 December 2008 show an increase in revenue, a positive earnings performance and a significant improvement in both pre- and after-tax profit. The increase in revenue, amounting to 88,698 thousand euros in 2008, derives from the positive performance of certain Group companies, as detailed below: in the Services segment, Flycell Inc., together with its subsidiaries, and I2C have increased turnover by 16,049 thousand euros (up 45%) and 648 thousand euros (up 15%), respectively; in the Mobile Messaging Solutions segment, Jinny Software has significantly improved its performance, achieving revenue growth of approximately 50% (44% excluding the impact of the sale of certain technology platforms to Noverca S.r.l.) compared with the previous year; in the Security Systems segment, the subsidiary, AEM, has increased its revenues by 421 thousand euros (up 28%).

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Gross operating profit amounts to 2,343 thousand euros, representing a margin of 2.6%, while the Group reports operating profit, after amortisation and depreciation and impairment charges on noncurrent assets, of 940 thousand euros (a margin of 1.1%). After income from investments, commented on below, and net finance income, pre-tax profit is 10,063 thousand euros (a margin of 11.3%). The Groups after-tax profit of 6,564 thousand euros marks a significant improvement on the loss of 1,278 thousand euros recorded in 2007.

Revenue In terms of business segment, 83.5% of revenue was earned from the supply of services, 14.3% was generated by mobile messaging solutions and the remaining 2.2% by the design of security systems:

Turnover by business segment

(000)

2008

2007

Services Mobile Messaging Solutions Security Systems Design Total

74,066 12,728 1,904 88,698

83.5% 14.3% 2.2%

59,968 8,850 1,483 70,301

85.3% 12.6% 2.1%

100%

100%

When compared with the results for 2007, turnover in all the Acotel Groups areas of business showed growth: Service revenues are up 23.5%, revenues from Mobile Messaging Solutions are up 44%, and turnover generated by the Security Systems segment has risen 28.4%. A breakdown of the Groups revenue by geographical segment is as follows:
Turnover by geographical segment
(000)

2008

2007

North America Latin Amercia Italy Other European countries Middle East Africa Asia

32,123 19,688 15,741 6,878 6,872 5,760 1,636 88,698

36.2% 22.2% 17.7% 7.8% 7.8% 6.5% 1.8% 100%

34,037 7,756 15,684 1,327 5,599 3,930 1,968 70,301

48.4% 11.0% 22.3% 1.9% 8.0% 5.6% 2.8% 100%

The geographical breakdown of revenue in 2008 shows both an apparent slowdown in turnover generated in the United States by the subsidiary, Flycell Inc., due exclusively to the effect of the depreciation of the dollar against the euro (turnover is up 7.5% in dollar terms), and growth in

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revenues generated in Latin America and Europe, thanks above all to the B2C activities of Flycell Inc. and its direct subsidiaries, Flycell Latin America Ltda and Flycell Telekomnicasyon Hizmetleri A... Finally, revenue growth in the Middle East (up 22.7%) and Africa (up 46.6%) was achieved thanks to the commercial success of the subsidiaries, I2C and Jinny Software.

Earnings Gross operating profit of 2,343 thousand euros for the year ended 31 December 2008 is down 17% on the previous year, mainly due to the decision to accelerate the pace of expansion and entry into new countries, which has entailed: a substantial increase in advertising costs (up 16%), essentially with regard to the companies that provide B2C services in the United States, Turkey, Latin America and Italy; increased staff costs (up 22%); increased purchases of content from external providers (up 17%), and rises in the cost of professional consultants (up 55%) and travel expenses (up 44%). After amortisation and depreciation of 1,401 thousand euros and impairment charges on non-current assets of 2 thousand euros, operating profit is 940 thousand euros, compared with a profit of 1,680 thousand euros for 2007. After income from investments of 7,940 thousand euros, net finance income of 1,183 thousand euros and taxation for the year of 3,499 thousand euros, net profit for 2008 amounts to 6,564 thousand euros, marking a significant improvement (614%) on the loss reported for 2007. This result primarily reflects the expansion of the Groups businesses, an improvement in finance income and the agreement between Acotel Group S.p.A. and the Intesa Sanpaolo banking group, which, among other things, has led to the recognition of income from investments in the Acotel Groups consolidated income statement. This derives from: Intesa Sanpaolo S.p.A.s acquisition of a 10% interest in Noverca S.r.l.; Noverca S.r.l.s transfer to the newly established Noverca Italia S.r.l. of exclusive rights to use its IP platform for the provision of value added services in the Italian market.

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1.4

FINANCIAL POSITION AND CASH FLOW

RECLASSIFIED CONSOLIDATED BALANCE SHEET

(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease) % inc./(dec.)

Non-current assets: Property, plant and equipment Intangible assets Financial assets Other assets TOTAL NON-CURRENT ASSETS Net current assets: Inventories Trade receivables Other current assets Trade payables Other current liabilities TOTAL NET CURRENT ASSETS STAFF TERMINATION BENEFITS AND OTHER EMPLOYEE BENEFITS NON-CURRENT PROVISIONS NET INVESTED CAPITAL Shareholders' equity: Share capital Reserves and retained earnings/(accumulated losses) Net profit/(loss) for the year Minority interests TOTAL SHAREHOLDERS' EQUITY MEDIUM/LONG-TERM DEBT Net cash and cash equivalents: Current financial assets Cash and cash equivalents Current financial liabilities

4,084 12,379 481 16,944

3,221 12,464 2 273 15,960

863 (85) (2) 208 984

27% (1%) 100% 76% 6%

396 22,220 2,340 (9,404) (4,319) 11,233

642 18,620 3,442 (9,526) (4,020) 9,158

(246) 3,600 (1,102) 122 (299) 2,075

(38%) 19% (32%) 1% (7%) 23%

(1,146) (294) 26,737

(947) (318) 23,853

(199) 24 2,884

(21%) 8% 12%

1,084 57,522 6,564 30 65,200 101

1,084 48,469 (1,278) 30 48,305 133

9,053 7,842 16,895 (32)

19% 614% 35% (24%)

(18,764) (23,439) 3,639 (38,564) (38,463)

(12,702) (12,178) 295 (24,585) (24,452)

(6,062) (11,261) 3,344 (13,979) (14,011)

(48%) (92%) 1134% (57%) (57%)

NET FUNDS TOTAL SHAREHOLDERS' EQUITY AND NET FUNDS

26,737

23,853

2,884

12%

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Annual Report 2008

The Acotel Groups net invested capital at 31 December 2008 is 26,737 thousand euros, made up of non-current assets of 16,944 thousand euros, net current assets of 11,233 thousand euros, staff termination benefits of 1,146 thousand euros and other non-current provisions of 294 thousand euros. Net invested capital is financed by shareholders equity of 65,200 thousand euros and net funds of 38,463 thousand euros. A detailed analysis of changes in the principal balance sheet items shows that: non-current assets are 16,944 thousand euros, marking an increase of 984 thousand euros compared to the end of the previous year, primarily due to investment in the development of the VoIP platform owned by the subsidiary, Noverca S.r.l., and to be used in the provision of the Mobile Virtual Network Operator services that the Group is to launch in 2009; the changes to net current assets derive from growth in turnover, which has generated an increase in trade receivables; in addition to the effect of net profit for the period, consolidated shareholders equity rose as a result of Intesa Sanpaolos acquisition of a 4.75% stake in Acotel Group via the purchase of 198,075 treasury shares at a total cost of 12.3 million euros (62 euros per share); this operation generated an increase of 9.1 million euros in consolidated shareholders equity, after the related tax effect; net funds at 31 December 2008 amount to 38,463 thousand euros, marking an increase of 14,011 thousand euros on 31 December 2007, primarily due to the following transactions carried out with Intesa SanPaolo S.p.A.: the sale of treasury shares by Acotel Group S.p.A.; Intesa Sanpaolo S.p.A.s acquisition of a 10% interest in Noverca S.r.l.; the establishment of a new company named Noverca Italia S.r.l., which is 66% owned by Noverca S.r.l. and 34% owned by Intesa Sanpaolo S.p.A..

1.5

RECONCILIATION WITH THE PARENT COMPANYS FINANCIAL STATEMENTS

Pursuant to CONSOB Resolution no. DEM/6064293 of 28 July 2006, the reconciliation between the net result and shareholders equity of Acotel Group S.p.A., and the corresponding consolidated items is as follows:

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Annual Report 2008

(migliaia di euro)

Net result 2008 profit / (loss)

Shareholders' equity at 31 Dec 2008 positive/(negative)

Shareholders' equity and net result reported in the Parent Company's financial statements Effect of consolidation of Group companies Accumulated amortisation and impairment of goodwill Consolidation reserve Cash flow hedge and currency translation reserve Shareholders' equity and net result for the year attributable to the Parent Company

4,123 2,441 6,564

73,443 (923) (5,872) 909 (2,387) 65,170

Shareholders' equity and net result for the year attributable to minority interests Shareholders' equity and net result reported in the consolidated financial statements

30 65,200

6,564

1.6

SOURCES OF FUNDS

The Group reports a very strong balance sheet at the end of 2008, with net cash and cash equivalents of 38,564 thousand euros and net funds of 38,463 thousand euros. As in the past, the Group did not resort to external sources of funding, other than to a limited extent. It is able to finance investment, above all by its foreign subsidiaries during the start-up of their respective businesses, from operating cash flow and its own funds. Current financial assets not used to finance operations are invested in low-risk financial instruments.

1.7

RESEARCH AND INNOVATION

SERVICES Noverca S.r.l.s efforts with regard to innovation were aimed at equipping the pre-existing platform, which is already operative for VoIP (Voice over Internet Protocol) services, with all the functions needed to support the joint venture company, Noverca Italia S.r.l., in its role as an MVNO (Mobile Virtual Network Operator). These include Intelligent Network functions and the signals using the SS7 standard necessary for the interconnection with Telecom Italia, the network operator hosting Noverca Italia S.r.l.. Thanks to these functions the platform is in full control of customers traffic (voice, SMS, data, MMS, WAP, etc.) for both billing and quality control purposes. In the second half of 2008 Acotel Group S.p.A. began development of a new platform, dubbed NSP (New Service Platform), which, during 2009, will replace the old infrastructure that entered service over 10 years ago. The NSP has been designed to ensure maximum flexibility in the configuration of services and offer additional functions with respect to those previously offered in terms of
18

Annual Report 2008

service quality control. The NSP will enable the companys marketing personnel to obtain key business intelligence. Other Group companies also concentrated their research and development activities on improving the performance and functions of the platforms used in their respective markets to provide value added services. Its technological independence represents one of the Groups competitive advantages. Development and operation of the various platforms continue to be conducted by resources from within the Group, in such a way as to guarantee ongoing increases in corporate know-how.

PRODUCTS The research and development carried out by Jinny Software Ltd is key to the success of the companys products in its chosen market, which consists entirely of mobile operators. These customers are large industrial concerns, well-known for imposing strict technical requirements on and having extremely high expectations of their suppliers. Over 30% of the companys staff are employed at the research and development centres in Beirut and Bucharest, working on the design, production and testing of products and solutions that will subsequently form part of the commercial offering. During 2008 the company rolled out a number of new products and released advanced versions of those already on the market. In particular, the company has released a Mobile Advertising platform, which has attracted significant interest, and solutions enabling the interconnection of billing systems used by MVNOs (Mobile Virtual Network Operators) and MVNEs (Mobile Virtual Network Enablers).

SECURITY SYSTEMS As in 2007, the Groups commitment to developing new products and systems for the security market saw it engaged in the study and experimentation of remote video-surveillance solutions for small spaces (homes, shops, small offices, etc.).

1.8

HUMAN RESOURCES

At 31 December 2008 the Group employs 421 people, compared with 350 at the end of 2007. The Group recruited 156 new staff during the year, whilst 85 left its employ. The following tables show key information about the Groups staff at 31 December 2008:

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Annual Report 2008

Staff by category at 31 December 2008 Category Managers Supervisors White- and blue-collar staff Total Staff by geographical area at 31 December 2008 Geographical area Middle East Europe North America South America Asia Africa Total Staff by gender at 31 December 2008 Gender Male Female Total Number 309 112 421 % 73% 27% 100% Number 164 151 65 32 7 2 421 % 39% 36% 15% 8% 2% 100% Number 28 62 331 421 % 7% 14% 79% 100%

Staff by age range at 31 December 2008 Age range under 25 25-35 35-45 45-55 older Total Staff by seniority at 31 December 2008 Seniority 0-2 2-5 5-10 over Total Staff by qualification 31 December 2008 Qualification Degree High-school diploma Total Number 325 96 421 % 77% 23% 100% Number 242 111 59 9 421 % 58% 26% 14% 2% 100% Number 69 248 78 18 8 421 % 16% 59% 19% 4% 2% 100%

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Annual Report 2008

Continued expansion into new countries brings ongoing challenges for the management of human resources, as well as opportunities for gaining new skills and for individual development. The average age of the Groups staff, at just under 32, and their high level of education (with 77% of staff having a degree or a university qualification) helps to create a youthful and dynamic environment, continuously open and receptive to new professional challenges, whilst also ensuring a strong ability to innovate, to be flexible and to effectively understand the market for the Groups services. The Group aims to attract young staff with high potential. After a period working alongside experienced managers, new recruits are immediately involved in innovative projects and given the chance to put the knowledge acquired during their education to the test. This approach boosts the motivation of new staff, speeds up their integration into the organisation and facilitates the sharing of know-how.

1.9

RISKS AND UNCERTAINTIES

Credit risk 40% of total trade receivables relates to amounts due from the mobile transaction network provider, mBlox (19%), which supplies Flycell Inc. with operator connectivity in the US, and Telecom Italia (21%). At the date of publication of this report, around 22% of these receivables, amounting to approximately 2 million euros, have yet to be collected. Group companies are not involved in significant disputes with customers. Liquidity risk The Group does not resort to external sources of funding, being 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 by the Parent Company, with the aim of ensuring effective and efficient management of the Groups financial resources. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to foreign exchange exposures deriving from intercompany loans, which, whilst being eliminated from the consolidated financial statements, generate foreign exchange gains or losses for subsidiaries whose functional currencies are different from the euro. In addition, with the exception of Jinny Software Ltd., the 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 funding, it is not exposed to interest rate risk to any significant extent.

21

Annual Report 2008

Operational risks and uncertainties All Group companies are undoubtedly affected by the overall economic environment, which is clearly heading towards recession. End consumers that use value added services, including those provided by the Group, may cut their spending, which could translate into an increase in the churn rate. In the Mobile Messaging Solutions segment, the economic slowdown could lead mobile operators to put off investment in network equipment for a number of months. The B2C business may be affected by increased regulation of the supply of value added services in all countries. Particularly aggressive behaviour by other market players has led regulators to introduce tougher rules and greater restrictions in order to protect consumers, thus reducing the room to manoeuvre for marketing and commercial initiatives. With particular regard to the United States, a number of class actions that have been launched may involve Flycell Inc.. The decision to invest heavily in the launch of Noverca, in both financial terms and in terms of the number of staff employed, will face its first test with the commercial launch of the service. In order to be successful as a new MVNO, the company will have to take customers away from other mobile network and virtual network operators, differentiating its commercial offerings from theirs. Although all the companies in the Group operate in highly competitive markets, the Group believes it has the technological and commercial expertise and financial strength necessary to compete on a daily basis.

1.10

STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS

This section provides a brief summary of the strengths that the Acotel Group considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: All the technology platforms used by the Group are developed inhouse. This long-standing approach allows the Group, particularly in the Services segment, to replicate its commercial strategy and enter new countries at extremely low costs. Strong business relations: the greater part of the commercial B2B (Business to Business) relationships between Acotel Group companies and their customers are based on long-term partnerships, which help to increase the Groups economic stability. Stable shareholder structure: 57.4% of the share capital of Acotel Group S.p.A. is held by members of the founders family. This concentration of ownership ensures continuity in the management of the Group, which aims to create value over the medium/long-term. Financial independence: as previously indicated, the Acotel Group, both through its operating activities and shrewd management of its financial resources acquired as a result of the flotation, has the necessary financial resources to finance its development without having to resort to bank borrowings. Geographical diversification: during 2008, 36.2% of the Acotel Groups total turnover was generated in North America, 22.2% in Latin America, 17.7% in Italy, 7.8% in other European countries and in the Middle East, 6.5% in Africa and the remainder in Asia. This distribution

22

Annual Report 2008

supports the strategy of diversification into various geographical areas pursued by the Group with a view to minimising the impact of any local problems.

1.11

INTERCOMPANY AND RELATED PARTY TRANSACTIONS

There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arms length basis. Disclosures regarding related party transactions are provided in Section 4.15 of the notes to the consolidated financial statements.

1.12

SHAREHOLDINGS OF MANAGEMENT AND SUPERVISORY BODIES, GENERAL MANAGERS AND KEY MANAGERS (art. 79, CONSOB Regulation no. 11971/99)
NO. OF SHARES HELD AT 1 JAN 2008 NO. OF SHARES PURCHASED NO. OF SHARES SOLD NO. OF SHARES HELD AT 31 DEC 2008 PERCENTAGE INTEREST AT 31 DEC 2008

NAME

GROUP COMPANY

Claudio Carnevale (a) Claudio Carnevale Claudio Carnevale

Acotel Group S.p.A. Acotel S.p.A. AEM S.p.A.

664,980 20,000 2,366

664,980 20,000 2,366

15.95% 0.48% 0.06%

(a) Ownership is exercised via Clama S.A. of which Claudio Carnevale owns 93% of the share capital.

Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which in turn holds 1,727,915 shares of Acotel Group S.p.A. at 31 December 2008. Andrea Morante, who at 31 December 2007 held 36,287 shares of Acotel Group S.p.A., resigned his post as a Director of the Company with effect from 9 May 2008.

1.13

OTHER INFORMATION

No transactions took place between the parent, Clama S.r.l., Acotel Group S.p.A. and other Group companies during the financial year. At 31 December 2008 the Company holds 56,425 treasury shares, which are accounted for as an 871 thousand euro reduction in shareholders equity, representing the average cost of 15.44 euros per share and a total par value of 14,671 euros. In accordance with the agreements between Acotel Group S.p.A. and Intesa Sanpaolo S.p.A., the Company sold the bank 198,075 treasury shares, equal to 4.75% of its issued capital, during the year. 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 such shares during the financial year.

23

Annual Report 2008

Other Group companies do not possess Acotel Group S.p.A. shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the financial year. At 31 December 2008 Acotel Group S.p.A. has not established any branch offices.

1.14

EVENTS AFTER 31 DECEMBER 2008

There have been no material events involving Acotel Group companies during early 2009.

1.15

OUTLOOK

The most important event due to take place in 2009 is the Italian commercial launch of the virtual mobile operator, Noverca. Although related to the Groups existing businesses, the launch will mark a major diversification of the Groups activities, leading it to effectively become a mobile telecommunications provider. Via Noverca, the Group will no longer be a provider of value added services or of equipment, but will be responsible for all technical and commercial aspects of the supply of services to mobile users, whether consumers or businesses. This will range from definition of its offerings, including voice and text messaging, the carrying out of advertising campaigns, the direct distribution of SIM cards and customer care. In common with all mobile virtual network operators, Noverca will be hosted on the network owned by a network operator, in this case Telecom Italia. As previously mentioned in other announcements and in other sections of this report, the strategy behind the establishment of Noverca is based on exploitation of synergies between the Acotel Group, with its experience and technological expertise in the provision of value added mobile services, and a major bank, Intesa Sanpaolo, which has a large customer base and enormous potential for promoting and successfully launching banking-related services, such as mobile banking and mobile payments. Further expansion of the Services business is planned, above all in relation to the B2C services operated by Flycell, which from January 2009 has begun operating in Mexico. The company also aims to roll out its services in South Africa and Argentina during the year. In the Network Operator segment, on the other hand, within the scope of its new contract with Telecom Italia for the provision of ScripTIM by Acotel services, giving Acotel S.p.A. greater independence with regard to marketing and commercial policies, the company will launch a series of promotions aimed at increasing the customer base. With regard to Mobile Messaging Solutions, in response to the current market environment the Group will proceed with the strategy embarked on by Jinny Software in 2008. This involves focusing primarily on emerging markets in Africa and Central America and developing a series of mobile advertising products. It is hoped that this new product line, which enables mobile operators to develop new sources of revenue, will revitalise sales to existing customers. In any event, in part

24

Annual Report 2008

thanks to the companys order book at the end of 2008, Jinny Software is expected to continue to see a good rate of growth in 2009. In the security systems segment, the subsidiary, AEM, will continue to operate in the Italian market, exploiting its customer portfolio and technological expertise in the video surveillance field.

25

Annual Report 2008

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008

Acotel Group S.p.A. Registered offices at Via della Valle dei Fontanili 29/37 00168 Rome, Italy Share capital: 1,084,200.00, fully paid-in Rome Companies Register, Tax and VAT number: 06075181005

26

Annual Report 2008

2.1

CORPORATE OFFICERS

BOARD OF DIRECTORS Claudio Carnevale

Chairman and CEO

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

Director

Margherita Argenziano
Director

Luca De Rita
Director

Giovanni Galoppi (1), (2)

Director

Giuseppe Guizzi (1), (2)

Director

Luciano Hassan (4)

Director
(1) (2) (3) (4)

Member of the Remuneration Committee Member of the Internal Audit Committee Lead Independent Director Appointed on 9 May 2008 to replace the outgoing Director, Andrea Morante.

BOARD OF STATUTORY AUDITORS Antonio Mastrangelo

Chairman

Maurizio Salimei
Auditor

Umberto Previti Flesca

Auditor

INDEPENDENT AUDITORS Deloitte & Touche S.p.A.

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Annual Report 2008

The Board of Directors and the Board of Statutory Auditors of Acotel Group S.p.A. were elected on 28 April 2006 by the General Meeting of Shareholders, which also elected Claudio Carnevale as Chairman. The General Meeting of 28 April 2006 also appointed Deloitte & Touche S.p.A. to audit the consolidated and separate financial statements for the financial years from 2006 until 2011. With a resolution of 10 May 2006 the Board of Directors elected Claudio Carnevale as CEO, granting him all the powers of routine and extraordinary administration to be delegated in accordance with the law and the articles of association. At the same board meeting of 10 May 2006 Francesco Ago, Giovanni Galoppi and Professor Giuseppe Guizzi were elected members of the Remuneration Committee and of the Internal Audit Committee. Francesco Ago was elected as Chairman of both committees. During the board meeting of 8 August 2007, Francesco Ago was elected Lead Independent Director. During the board meeting of 9 May 2008, Andrea Morante, partly in view of the Companys undertakings to Intesa Sanpaolo S.p.A., resigned as a Director of Acotel Group S.p.A.. Luciano Hassan was appointed on to the Board of Directors at the same meeting.

28

Annual Report 2008

2.2

THE GROUP

The parent of Acotel Group S.p.A. is Clama S.r.l., which at 31 December 2008 holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama S.r.l. does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code.

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Annual Report 2008

CONSOLIDATED FINANCIAL STATEMENTS

30

Annual Report 2008

CONSOLIDATED INCOM E STATEM ENT

(000)

Note 1

2008 88,698 211 88,909

2007 70,301 2 70,303

Revenues Other income 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 Internal capitalised costs Impairment charges/reversal of impairment charges on non-current assets Other costs Income from investments Finance income Finance costs PRO FIT/(LOSS) BEFORE TAX FROM CONTINUING O PERATIO NS Taxation NET PRO FIT/(LOSS) FRO M CO NTINUING O PERATIONS Net profit/(loss) from discontinued operations

2 3 4 5 6 7

10 (2,732) (63,332) (1,593) (18,462) (1,401) 1,257 (2) (1,714) 7,940 1,662 (479)

24 (2,071) (47,569) (1,541) (15,187) (1,126) 793 (1,946) 1,263 (970)

8 9 10 10

10,063 11 (3,499) 6,564 -

1,973 (3,251) (1,278) -

NET PRO FIT/(LOSS) BEFORE M INORITY INTERESTS Net profit/(loss) attributable to minority interests NET PRO FIT/(LOSS) FO R THE YEAR ATTRIBUTABLE TO PARENT COM PANY Earnings per share Diluted earnings per share 12 12

6,564 -

(1,278) -

6,564 1.62 1.62

(1,278) (0.33) (0.33)

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Annual Report 2008

CONSOLIDATED BALANCE SHEET

ASSETS
(000)

Note

31 Dec 2008

31 Dec 2007

Non-current assets: Property, plant and equipment Goodwill Other intangible assets Non-current financial assets Other non-current assets Deferred tax assets TOTAL NON-CURRENT ASSETS Current assets: Inventories Trade receivables Other current assets Current financial assets Cash and cash equivalents TOTAL CURRENT ASSETS NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS 17 18 19 20 21 396 22,220 2,340 18,764 23,439 67,159 84,103 642 18,620 3,442 12,702 12,178 47,584 63,544 13 14 15 4,084 11,531 848 116 365 16,944 3,221 11,531 933 2 49 224 15,960

16

32

Annual Report 2008

CONSOLIDATED BALANCE SHEET

LIABIITIES AND SHAREHOLDERS' EQUITY
(000)

Note

31 Dec 2008

31 Dec 2007

Shareholders' equity: Share capital Share premium reserve - Treasury shares Cash flow hedge and currency translation reserve Other reserves Retained earnings/(accumulated losses) Net profit/(loss) for the year Shareholders' equity attributable to the Parent Company Minority interests TOTAL SHAREHOLDERS' EQUITY Non-current liabilities: Non-current financial liabilities Staff termination benefits and other employee benefits Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES Current liabilities: Current financial liabilities Trade payables Tax liabilities Other current liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES HELD FOR SALE TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 22 1,084 55,106 (871) (2,387) 9,538 (3,864) 6,564 65,170 30 65,200 1,084 55,106 (3,873) (567) 342 (2,539) (1,278) 48,275 30 48,305

23 24 25

101 1,146 294 1,541

133 947 318 1,398

26 27 28 29

3,639 9,404 937 3,382 17,362 18,903 84,103

295 9,526 1,343 2,677 13,841 15,239 63,544

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Annual Report 2008

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(000)

Share capital

Share premium reserve

- Treasury shares

Cash flow Reserves hedge and and Net profit for Other currency the year reserves retained translation earnings reserve (279) 298 44 (288) (1,278) (3,726) 1,187 1,231 (1,231)

TOTAL

Balances at 1 January 2007 Appropriation of net profit for 2006 Other movements Net result for 2007 Balances at 31 Dec 2007 Appropriation of net profit for 2007 Sale of treasury shares Other movements Net result for 2008 Balances at 31 Dec 2008

1,084

55,106

(3,873)

49,841 (288) (1,278) 48,275 12,151 (1,820)

1,084

55,106

(3,873)

(567)

342 47

(2,539) (1,325)

(1,278) 1,278

3,002 (1,820)

9,149 6,564

6,564 65,170

1,084

55,106

(871)

(2,387)

9,538

(3,864)

6,564

The portion of shareholders equity attributable to minority interests at 31 December 2008 amounts to 30 thousand euros and has not changed over the years shown in the above statement.

34

Annual Report 2008

CONSOLIDATED CASH FLOW STATEMENT

(000) 2008 2007

A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES Cash flows from operating activities before changes in working capital Net profit/(loss) for the year Amortisation and depreciation Income from investments Impairment of assets Net change in staff termination benefits Net change in deferred tax liabilities (Increase) / decrease in receivables (Increase) / decrease in inventories Increase / (decrease) in payables

24,585 (2,016) 126 6,564 1,401 (7,940) 67 199 (165) (2,565) 246 177 5,696 (216) (1,963) (65) 7,940 10,299 (32) 12,151 (1,820) 13,979 38,564

25,610 645 260 (1,278) 1,126 205 (84) 291 (1,003) (164) 1,552 (1,352) (475) (1,134) 257 (318) (30) (288) (1,025) 24,585

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (Purchases)/disposals of fixed assets: - Intangible assets - Property, plant and equipment - Financial assets Income from investments D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES Increase/(Decrease) in medium/long-term borrowings Sale of treasury shares Other changes in shareholders' equity E. CASH FLOW FOR THE YEAR (B+C+D) F. NET CASH AND CASH EQUIVALENTS AT END OF YEAR (A+E)

35

Annual Report 2008

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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Annual Report 2008

4.1

PRINCIPAL ACTIVITIES

Acotel Group S.p.A. is the leader of a Group of companies operating in the ICT sector, based on a single business project. The main companies in the Acotel group of companies of companies, in addition to Acotel Group S.p.A., which basically performs management functions and manages the Acotel Platform, through which it operates directly on the market as an Application Service Provider, are: - Acotel S.p.A., which markets the multimedia services for Italy; - A.E.M. S.p.A., which deals with the design and production of security systems exclusively in Italy; - Acotel Participations S.A. which acts as a sub-holding and controls the majority of the Groups foreign companies responsible for business development in their local markets; - Jinny Software Ltd, deals with the design, production and development of high-technology ICT equipment; - Info2cell.com FZ-LLC, which operates as a Wireless Application Services Provider in partnership with leading Middle-eastern mobile telephone operators; - Acotel do Brasil Ltda, which markets multimedia services to Brazilian operators; - Flycell Inc., which provides consumer services to the US and Spanish markets; - Flycell Telekomunikasyon Hizmetler A.S., which supplies consumer services in Turkey; - Noverca S.r.l., which manages the Noverca platform used in providing integrated communications services; - Flycell Latin America Contedo Para Telefonia Mvel LTDA, which supplies consumer services in Brazil; - Noverca Italia S.r.l., which supplies integrated communications services (data, audio, video) based on IP Protocol (Internet Protocol); - Flycell Italia S.r.l., which supplies consumer services in Italy. These financial statements have been drawn up in thousand of euros, the Parent Companys accounting currency. The foreign companies are included in the consolidated financial statements according to the accounting standards indicated in the following notes.

4.2

ACCOUNTING STANDARDS USED IN PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements for the year ended 31 December 2008 have been prepared in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union, and effective at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC).

Accounting standards and interpretations effective as of 1 January 2008 The new standards and interpretations regard:

37

Annual Report 2008

IFRIC 14 on IAS 19 The Limit on a Defined benefit Asset and Minimum Funding; Changes to IAS 39 Financial Instruments: Recognition and Measurement; IFRIC 12 Service Concession Arrangements; Changes to IFRS 7 Financial Instruments: Disclosures.

Adoption of these standards and interpretations has had no effect on the consolidated financial statements. New standards and interpretations not yet effective This section shows a list of standards, interpretations and updates to previously published standards, or to those yet to be approved by the European Union, whose application will be obligatory in future periods and whose adoption it was decided not to bring forward: IFRS 8 Operating Segments; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 16 Hedged of a Net Investment in a Foreign Operation; Revised version of IAS 23 Borrowing costs; Changes to IAS 1 Presentation of Financial Statements; Changes to IAS 16 Property, Plant and Equipment; Changes to IAS 19 Employee Benefits; Changes to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance; Changes to IAS 23 Borrowing Costs; Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; Changes to IAS 29 Financial Reporting in Hyperinflationary Economies; Changes to IAS 31 Interests in Joint Ventures; Changes to IAS 32 Financial Instruments: Presentation; Changes to IAS 36 Impairment of Assets; Changes to IAS 38 Intangible Assets; Changes to IAS 39 Financial Instruments: Recognition and Measurement; Changes to IAS 40 Investment Property; Changes to IFRS 2 Share-based Payment; Changes to IFRS 3 Business Combinations; Changes to IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations; Changes to IFRS 7 Financial Instruments: Disclosures.

The Group is evaluating the eventual impact that adoption of these changes may have on the consolidated financial statements.

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Annual Report 2008

4.3

BASIS OF PRESENTATION

The financial statements were drawn up on the basis of the historical cost principle modified, as required, for the measurement of certain financial instruments, and on a going concern basis. In this regard, the Groups management believes that, despite the difficult economic and financial environment, there are no material uncertainties (as defined by section 25 of IAS 1) regarding its ability to continue as a going concern, above all in view of the Groups operational flexibility and financial strength. Acotel Group companies have prepared the income statement on the basis of the nature of expenses format, which is considered more representative of the Groups 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 section 51 et seq of IAS 1. Shareholders equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. The statement of cash flows was prepared in accordance with the indirect method. Finally, with reference to CONSOB Resolution no. 15519 of 27 July 2006, relating to financial statement presentation, specific additional information on the income statement, balance sheet and cash flow statement, showing related party transactions, has not been included, as such transactions are not of a material nature.

4.4

CONSOLIDATION POLICIES

Basis of consolidation At 31 December 2008, in addition to the Parent Company, Acotel Group S.p.A., the following direct or indirect subsidiaries of Acotel Group are consolidated: Companies consolidated on a line-by-line basis
Company Acotel S.p.A. AEM Advanced Electronic Microsystems S.p.A. Acotel Participations S.A. Acotel Chile S.A. Acotel Espana S.L. Acotel Do Brasil LTDA Jinny Software Ltd Millennium Software SAL Info2cell.com FZ-LLC Date of acquisition 28 April 2000 28 April 2000 28 April 2000 28 April 2000 28 April 2000 8 August 2000 (1) 9 April 2001 9 April 2001 29 January 2003 (2)
Groups interest (%)

Registered office Rome Rome Luxembourg Santiago, Chile Madrid Rio de Janeiro Dublin Beirut Dubai

Share capital EURO EURO EURO USD EURO BRL EURO LPD DH 13,000,000 858,000 1,200,000 17,330 3,006 1,868,250 2,972 30,000,000 18,350,000

99.9% (3) 99.9% 100% 100% (4) 100% (4) 100% (4) 100% (4) 99.9% (5) 100% (4)

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Annual Report 2008

Emirates for Information Technology Co. Flycell Inc. Acotel Group (Northern Europe) Ltd Flycell Telekomunikasyon Hizmetleri A.S. Flycell Latin America Contedo Para Telefonia Mvel LTDA Jinny Software Romania SRL Yabox LLC Jinny Software Latin America Importao e Exportao LTDA Rawafid Information Company LLC Jinny Software Panama Inc. Flycell Italia S.r.l. (1) (2) (3) (4) (5) (6) (7)

29 January 2003 28 June 2003 (1) 27 May 2004 (1) 2 July 2005 (1) 6 June 2006 (1) 26 June 2007 (1) 24 October 2007 (1) 11 February 2008 (1) 24 February 2008 (1) 1 July 2008 (1) 10 July 2008 (1)

100% (6) 100% (4) 100% 99.9% (7) 100% (7) 100% (5) 100% (7) 100% (5) 51% (6) 100% (5) 100% (7)

Amman Wilmington Dublin Istanbul Rio de Janeiro Bucharest Wilmington Sao Paolo Riyadh Panama City Rome

JD USD EURO TRY BRL RON USD BRL SAR USD EURO

710,000 10,000 101,000 50,000 250,000 200 1 250,000 500,000 10,000 10,000

The date of the companys entry into the Group coincides with its incorporation. Prior to such date the Group held 33% of the companys 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 FZ-LLC. Controlled via Flycell Inc.

The basis of consolidation changed during the financial year due to the incorporation of: the companies, Jinny Software Latin America Importao e Exportao LTDA and Jinny Software Panama Inc., by Jinny Software Ltd; the company, Rawafid Information Company LLC, by Info2cell.com FZ-LLC; the company, Flycell Italia S.r.l., by Flycell Inc.. Jointly controlled companies (joint ventures) consolidated using the proportionate method
Company Noverca S.r.l. Noverca Italia S.r.l. Date of acquisition 10 July 2002 (1) 9 May 2008 (2)
Groups interest (%)

Registered office Rome Rome

Share capital EURO EURO 2,949,289 120,000

90% 59.4% (3)

(1) Between 10 July 2002 and 9 May 2008 the Group held 100% of the company. As of 9 May 2008 the Group holds a 90% interest in the company. (2) The date of the companys entry into the Group coincides with its incorporation. (3) Investment held through Noverca S.r.l.

On 9 May 2008 all the corporate transactions envisaged in the Investment Agreement signed by Acotel Group S.p.A. and Intesa SanPaolo S.p.A. on 28 December 2007 were executed, including: Intesa Sanpaolo S.p.A.s acquisition of a 10% interest in Noverca S.r.l., which was previously a wholly owned subsidiary of Acotel Group S.p.A.; the establishment of a new company named Noverca Italia S.r.l., which is 66% owned by Noverca S.r.l. and 34% owned by Intesa Sanpaolo S.p.A..

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Annual Report 2008

In both cases the changes made to the articles of association delineate a Joint Venture Agreement, as they envisage that the key strategic decisions regarding Noverca S.r.l. and Noverca Italia S.r.l. should be approved by both shareholders (Acotel Group S.p.A. and Intesa SanPaolo S.p.A. in the first case, and Noverca S.r.l. and Intesa SanPaolo S.p.A. in the second case). Therefore, unless otherwise indicated, all amounts relating to Noverca S.r.l. and Noverca Italia S.r.l. reported in these consolidated financial statements relate to and are based on the percentage interests held directly and indirectly by Acotel Group S.p.A., amounting to 90% and 59.4%, respectively.

Consolidation principles The consolidated financial statements include the financial statements of Acotel Group S.p.A. and those of its subsidiaries and joint ventures, as prepared at and for the year ended 31 December 2008. The net profit or loss of subsidiaries and joint ventures 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 and joint ventures in order to bring their accounting policies into line with those adopted by the Group. 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 Groups 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. Line-by-line consolidation Subsidiaries are defined as entities over which the Group has the power to govern the financial and operating policies. 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, losses, revenues and expenses arising from intercompany transactions, and that have yet to be realised on transactions with third parties, are eliminated. 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.

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Annual Report 2008

Proportionate consolidation A joint venture is a contractual arrangement in which a party undertakes an economic activity with other participants, thereby subjecting it to joint control. Joint venture agreements that entail the establishment of a separate entity in which each participant has a share in the investment are called jointly controlled entities. Joint ventures are defined as entities in which, on a contractual basis, several participants share control of an economic activity, and therefore decisions regarding financial and operating policies require the unanimous consent of the parties sharing control. The Acotel Group reports jointly controlled entities using the proportionate method of consolidation, by which the Groups share of the assets and liabilities and the revenues and expenses of jointly controlled entities are recorded on a line-by-line basis in the consolidated accounts. In transactions carried out between a Group company and a jointly controlled entity, unrealised gains and losses are eliminated in proportion to the Groups interest in the jointly controlled entity, except for when unrealised losses are evidence of a reduction in value of the asset transferred.

Accounting policies The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates: ICT platform VoIP platform Specific plant Other plant and machinery Computers Other industrial equipment Vehicles Furniture, fixtures and fittings 50% 25% 10-20% 15-20% 20% 15-25% 25% 12%

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Annual Report 2008

Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets and goodwill arising from consolidation Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. These assets are accounted for less accumulated amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Goodwill arising from consolidation and other intangible assets with an indefinite useful life are not amortised on a regular basis, but are tested for impairment at least once a year at the level of the cash generating unit that has benefited from the synergies deriving from the acquisition. These impairments are not reversed. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by Group companies are accounted for in the balance sheet, only if all the following conditions are met: the asset may be identified; the asset created is likely to generate profits in the future; the assets development costs may be reliably measured.

These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the balance sheet, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category.
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Annual Report 2008

Impairment of assets Property, plant and equipment and intangible assets are analysed 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, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverability of the carrying amounts of intangible assets with an indefinite useful life and goodwill arising from consolidation is verified each year or whenever there is an indication of a possible impairment. The recoverable amount is the higher of an assets 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 activities of each cash generating unit. If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to this lower recoverable amount. This impairment charge is immediately recognised in the income statement, being first accounted for as a reduction in the carrying amount of goodwill arising from consolidation and, then, as a reduction in other assets in proportion to their carrying amount. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit), except in the case of goodwill, 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. Inventories Inventories are entered at the lower of cost and net realisable value. Cost includes direct materials and direct staff costs, where applicable, and production overheads, in addition to other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average cost method. Net realisable value reflects the selling price less any estimated completion costs and costs to sell. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro 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: - 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;
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Annual Report 2008

available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in a specific reserve in shareholders equity until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period.

Cash and cash equivalents This item includes cash in hand and at bank, other demand deposits and highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. 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, net of the related tax effect. Employee benefits Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a staff cost, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in 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). Payables Trade payables are accounted for at nominal value. Payables denominated in currencies other than the euro 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 year; revenues from software licensing to third parties are recognised upon transfer;

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Annual Report 2008

revenues from design, production and installation of electronic systems are recognised upon performance of the service and delivery of the relevant products to, and acceptance by, the customer.

Income taxes Current income taxes are recognised, for each Group company, on the basis of their estimated taxable income in accordance with tax rates and rules in force, or as substantially approved at the close of the financial year in each country, 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. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in shareholders equity are likewise accounted for in shareholders equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and shareholders equity in line with the underlying transaction. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. 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 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.

4.5

FINANCIAL HIGHLIGHTS OF COMPANIES CONSOLIDATED USING THE PROPORTIONATE METHOD

The following table shows income statement and balance sheet data at and for the year ended 31 December 2008. The amounts are consistent with those included in the consolidated financial statements with regard to joint ventures consolidated using the proportionate method.

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Annual Report 2008

(000)

Noverca S.r.l. Total revenues Costs Current assets Non-current assets Current liabilities Non-current liabilities 48 (1,036) 576 3,132 727 -

Noverca Italia S.r.l. 141 (468) 219 73 219 -

4.6

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group was required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenues, costs, assets and liabilities could differ from these estimates. The estimates were primarily used to record revenues and costs that have yet to be confirmed by customers and suppliers, adjustments to revenues from B2C services, as explained below, as well as the related direct costs, and any impairments of goodwill arising from consolidation and provisions for bad debts and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. In this regard, the situation caused by the current economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. These adjustments, which are currently impossible to estimate or predict, may be material. The balance sheet items primarily affected by these situations of uncertainty are provisions for bad debts and goodwill. In particular, with regard to revenues and costs yet to be confirmed by customers, turnover generated by B2C services in the month of December and a number of related cost items include preliminary figures, deriving primarily from internal reporting systems, and estimates not yet confirmed by mobile transaction network providers and/or operators. The adjustments to revenues from B2C services relate to the value of any refunds that might be requested by Flycell Inc. customers dissatisfied with the services provided by the latter until 31 December 2008. This estimate is carried out based on available data and current contracts entered into with certain telephone operators via the mobile transaction network providers, mBlox and Open Market. Consequently, at 31 December 2008 receivables deriving from this form of revenue were reduced by 241 thousand euros to take account of any further requests for refunds that might be made regarding services provided until 31 December 2008. The portion of revenues deriving from subscriptions for B2C services billed in December 2008 and carried forward to the following year, amounting to 785 thousand euros, is also estimated.

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4.7

SEGMENT INFORMATION

The Acotel Group currently operates in three business segments: - Value added services prevalently supplied through mobile telephony; - Mobile Messaging Solutions for fixed and mobile operators (referred to in previous reports as the Design of ICT equipment; - Design of security systems for large organisations. In compliance with the provisions of IAS 14 on segment information, an analysis of the consolidated income statement, balance sheet and financial position, showing a breakdown of key data in terms of the three segments, adopted as the primary reporting format, and key data based on geographical segments, adopted as the secondary reporting format, is given below. The data shown refers exclusively to continuing operations since, in neither 2007 nor 2008, did the Group engage in operations that were subsequently discontinued or that are held for sale.

Results by business segment

31 Dec 2008
(000) Services Mobile Messaging Solutions Security Systems Design Eliminations / Other Total

Revenue Revenue from third party customers Inter-segment revenues Total Operating profit/(loss) Unallocated costs Sval.ni/ripristini di valore di attivit non correnti Operating profit/loss from continuing operations Income from investments Finance income Finance costs Profit/(loss) before tax Taxation Net profit/(loss) for the year Other information: Increases in PP&E and intangible assets Amortisation and depreciation Balance sheet Assets: Total assets Total unallocated assets Total consolidated assets Liabilities: Total liabilities Total unallocated liabilities Total consolidated liabilities

74,066 410 74,476 (276)

12,728 667 13,395 1,160

1,904 49 1,953 64

(1,126) (1,126) -

88,698 88,698 948 (6) (2) 940 7,940 1,662 (479) 10,063 (3,499) 6,564 2,606 1,401

2,107 1,093

494 301

5 7

72,339

8,865

1,612

82,816 1,287 84,103 17,669 1,234 18,903

15,144

1,975

550

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Annual Report 2008

31 Dec 2007
(000) Services Mobile Messaging Solutions Security Systems Design Eliminations / Other Total

Revenue Revenue from third party customers Inter-segment revenues Total Operating profit/(loss) Unallocated costs Operating profit/loss from continuing operations Income from investments Finance costs Profit/(loss) before tax Taxation Net profit/(loss) for the year Other information: Increases in PP&E and intangible assets Amortisation and depreciation Balance sheet Assets: Total assets Total unallocated assets Total consolidated assets Liabilities: Total liabilities Total unallocated liabilities Total consolidated liabilities

59,968 353 60,321 1,822

8,850 52 8,902 640

1,483 1,483 (368)

(405) (405) (405)

70,301 70,301 1,689 (9) 1,680 1,263 (970) 1,973 (3,251) (1,278) 3,518 1,126

3,000 942

516 179

2 5

53,492

7,198

1,331

62,021 1,523 63,544 13,575 1,664 15,239

10,735

2,245

595

Results by geographical segment The following table provides an analysis of the Groups sales in the various geographical segments, independently of the origin of the goods and services:
Revenues from external customers (000)

2008

2007

North America Latin America Italy Other European countries Middle East Africa Asia Total

32,123 19,688 15,741 6,878 6,872 5,760 1,636 88,698

34,037 7,756 15,684 1,327 5,599 3,930 1,968 70,301

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Annual Report 2008

The following table shows an analysis of the carrying amount of segment assets and increases in property, plant and equipment and intangible assets, analysed on the basis of the geographical segments in which the assets are located:
Increase in PP&E and intangible assets 2008 2007

Total consolidated assets (000) 2008 2007

Italy Middle East Latin America Other European countries Africa North America Asia Total

44,807 9,648 8,968 12,577 3,084 3,906 1,113 84,103

25,505 7,910 7,756 11,248 2,921 6,959 1,245 63,544

1,758 255 153 308 132 2,606

2,653 236 160 344 125 3,518

4.8

NOTES TO THE INCOME STATEMENT

Note 1 - Revenue Revenue amounts to 88,698 thousand euros for 2008, marking an increase of 26% on the 70,301 thousand euros of the previous year. As shown in the table below, revenues increased across all the business segments in which the Group operates:
(000) 2008 2007
Increase/(Decrease)

Services Mobile Messaging Solutions Security Systems Design Total

74,066 12,728 1,904 88,698

59,968 8,850 1,483 70,301

14,098 3,878 421 18,397

SERVICES The Services business includes the services supplied to end customers (B2C), and those provided to telephone and commercial companies, with 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:

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Annual Report 2008

(000) 2008 2007 Increase/(Decrease)

B2C services Network Operator services Corporate services Media services Total

51,696 18,210 3,261 899 74,066

35,476 22,044 1,364 1,084 59,968

16,220 (3,834) 1,897 (185) 14,098

In 2008 B2C services grew 45.7% and represent the most important type of service provided by the Group. This type of service, provided primarily by Flycell Inc. and its direct subsidiaries, saw significant turnover in 2008 not only in North America, but also in Latin America and Europe. In addition to the US subsidiary, Flycell Inc. (31,662 thousand euros in North America and 1,384 thousand euros in Spain in 2008), B2C revenues were almost entirely generated by the Brazilian subsidiary, Flycell Latin America (13,351 thousand euros), the Turkish subsidiary, Flycell Telekomnicasyon Hizmetleri A. (4,322 thousand euros) and the Italian subsidiary, Flycell Italia S.r.l. (818 thousand euros) in their respective home markets. The remainder regards B2C services provided in the Middle East by Info2cell. Revenues from services provided to network operators, amounting to 18,210 thousand euros, are down 17.4% on the previous year. In detail, they include revenues from services rendered by the subsidiary, Acotel S.p.A., to Telecom Italia, which amount to 11,244 thousand euros (down 10.7% on the previous year), revenues from services rendered by the Brazilian subsidiary, Acotel do Brasil, to the Brazilian operators, TIM Celular and TIM Nordeste Telecomunicaoes, amounting to 4,587 thousand euros (down 21.5% on the previous year), and revenues generated by activities carried out by Info2cell for leading mobile telephony operators in the Middle East, totalling 2,362 thousand euros (down 33.9% on the previous year). The remaining portion regards overseas revenues generated by Acotel S.pA. and Flycell Telekomunikasyon Hizmetler A.S.. Revenues from corporate services amount to 3,261 thousand euros. This category of revenue includes 1,771 thousand euros generated in the Middle East by Info2cell and 1,459 thousand euros generated by Acotel S.p.A. from the services provided to major Italian banks. The remaining portion regards services provided by the subsidiaries, AEM S.p.A. and Flycell Telekomunikasyon Hizmetler A.S.. The increase compared with the previous year (up 139%) is essentially due to the increased commercial activities carried out by the Middle-eastern and Italian subsidiaries. Revenues from services provided to media companies, amounting to 899 thousand euros, are down 17% compared with the previous year. In detail, such revenues were generated in the Middle East by the subsidiary Info2cell (678 thousand euros) and in Italy by Acotel S.p.A. (205 thousand euros). The remaining portion regards services provided by the subsidiaries, Acotel do Brasil and Flycell Telekomunikasyon Hizmetler A.S..

MOBILE MESSAGING SOLUTIONS Revenues from mobile messaging solutions in 2008 amounted to 12,728 thousand euros, marking an increase of 44% on 2007. Turnover in this business segment is generated exclusively by the activities of Jinny Software, which supplies ICT equipment that can be tailored to meet the specific requirements of the customer. In addition to the sale of equipment and the concession of licences,

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Jinny Software also provides continuous technical assistance and technological updates of the equipment, either remotely or on site. The increase with respect to the previous year reflects the commercial success of the new platforms developed and 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. At a geographical level, the company has succeeded in increasing turnover in Africa, the Middle East, Latin America, Europe and North America, whilst also continuing to maintain a presence in Asia.

SECURITY SYSTEMS DESIGN Revenues from the design of electronic security systems amount to 1,904 thousand euros and are up 28.4% with respect to the previous year. They are entirely generated by the subsidiary, AEM S.p.A., which is responsible for the installation, supply, servicing and maintenance of remote surveillance equipment installed at certain provincial branches of the Bank of Italy, at Italian police headquarters and at certain companies in the ACEA Group.

Note 2 Raw materials The cost of raw materials during the year, amounting to 2,732 thousand euros, refers principally to the purchase of materials for the construction of telecommunications systems by Jinny Software Ltd (2,347 thousand euros) and for the construction of security equipment by AEM S.p.A. (295 thousand euros). The increase compared to the previous year is attributable to growth in the turnover at the Irish subsidiary.

Note 3 External services The cost of external services totals 63,332 thousand euros, representing an increase with respect to the previous year. A breakdown of the services acquired is shown below:

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Annual Report 2008

(000) 2008 2007 Increase/(Decrease)

Advertising Interconnection and billing services Content providers Professional consultants Travel expenses Purchase of SMS packages Connectivity and sundry utilities Remuneration of governance bodies Auditors' fees Outsourcing Regulatory compliance Insurance Security Transport and shipping Other minor expenses Total

23,032 22,955 6,354 2,523 1,920 1,562 1,515 681 506 329 242 192 140 108 1,273 63,332

19,784 13,985 5,412 1,629 1,332 1,277 1,193 611 405 184 187 174 128 54 1,214 47,569

3,248 8,970 942 894 588 285 322 70 101 145 55 18 12 54 59 15,763

The most significant components of this item reflect the business model adopted by Flycell Inc. and its direct subsidiaries, Flycell Latin America Ltda, Flycell Telekomnicasyon Hizmetleri A. and Flycell Italia S.r.l. to develop business in their principal markets. This entails substantial promotional costs (22,910 thousand euros out of a Group total of 23,032 thousand euros) in order to raise market awareness of their services and increase their customer base, and significant costs (22,955 thousand euros) charged by telephone operators and mobile transaction network providers for transport and collection services. The other most significant costs regard the cost of acquiring content from external content providers, amounting to 6,354 thousand euros, the fees paid to marketing, administrative, legal, tax and technical consultants by Group companies (2,523 thousand euros), travel expenses (1,920 thousand euros), the cost of purchasing SMS packages from telecommunications operators (1,562 thousand euros), and the cost of connecting to terrestrial and satellite transmission networks, together with other utilities (1,515 thousand euros). Other cost items, in order of importance, regard the fees paid to governance bodies, totalling 681 thousand euros (575 thousand euros paid to the directors and 106 thousand euros to the statutory auditors), auditors fees of 506 thousand euros and agency fees of 329 thousand euros. The balance refers to other general expenses (management and maintenance of the properties occupied by Group companies, insurance, transport and shipping, etc.) connected to ordinary operations.

Note 4 Rentals and leases Rentals and leases amount to 1,593 thousand euros and mainly include rentals on offices occupied by Group companies.

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Note 5 - Staff costs Staff costs include:

(000) 2008 2007 Increase/(Decrease)

Salaries and wages Social security contributions Staff termination benefits Finance costs Other costs Total

14,416 2,385 316 (51) 1,396 18,462

11,855 1,917 326 (46) 1,135 15,187

2,561 468 (10) (5) 261 3,275

The increase in staff costs is due principally to the additional staff recruited by Group companies following the growth in their businesses:
31 Dec 2008 31 Dec 2007

Italy Lebanon Jordan USA

Brazil

104 79 67 65 32 33 18 8 7 3 3 2 421

97 65 62 49 20 30 20 1 4 2 350

Ireland United Arab Emirates Romania Malaysia Turkey Spain South Africa Total

Finance costs on staff termination benefits equal the discount rate, calculated on the basis of the method fully described in the following Note 24, to which reference should be made. This cost item is recognised in finance costs (Note 10). Other staff costs include charges incurred in relation to canteen services and luncheon vouchers, professional training and refresher courses, prevention and healthcare expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries. Further information is provided in Note 29. The number of staff by category at 31 December 2008, compared with the average number for 2008 and 2007, is reported in the following schedule.

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Annual Report 2008

At 31 Dec 2008

Average 2008

Average 2007

Managers Supervisors White- and blue-collar staff Total

28 62 331 421

27 63 309 399

19 31 281 331

The average number of staff of the joint venture companies in 2008, by category, is shown in the following table, based on the proportion attributable to the Acotel Group:
Average 2008

Managers Supervisors White- and blue-collar staff Total

1 6 23 30

Note 6 - Amortisation and depreciation Details of the amortisation and depreciation of assets is given below:
(000) 2008 2007 Increase/(Decrease)

Amortisation of non-current intangible assets Depreciation of property, plant and equipment Total

301 1,100 1,401

237 889 1,126

64 211 275

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 mainly refers to depreciation of the telecommunications equipment and infrastructures used by Group companies. The increase compared with 2007 is essentially due to depreciation of the VoIP platform owned by the subsidiary, Noverca S.r.l., which began in May 2008.

Note 7 - Internal capitalised costs Internal capitalised costs, totalling 1,257 thousand euros, include an amount of 1,056 thousand euros regarding the staff employed in the development of software and new applications that will interact with the Noverca platform. The Acotel Group has been supplying integrated IP communications solutions (data, audio, video) via this brand since mid-2007, and, from the end of the first quarter of 2009, will use it to provide telephone and value added services as a virtual mobile operator.

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Annual Report 2008

The residual amount regards the cost of staff employed by Jinny Software in 2008 in the development of new platforms, and by Acotel Group S.p.A. in the development of the new Acotel platform, which is due to enter service in early 2009.

Note 8 - Other costs Other costs amount to 1,714 thousand euros, including 1,188 thousand euros for indirect taxes payable by Acotel do Brasil, Flycell Latin America and Jinny Latin America in compliance with local legislation. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities.

Note 9 - Income from investments Income from investments, amounting to 7,940 thousand euros, regards:
(000) 2008 2007 Increase/(Decrease)

Gains on transfer of assets Gains on investments Total

5,742 2,198 7,940

5,742 2,198 7,940

The granting by Noverca S.r.l. of exclusive rights to use its IP platform to provide value added services in the Italian market to the newly established joint venture, Noverca Italia S.r.l., generated income of 5,742 thousand euros in the Acotel Groups consolidated income statement, for the share not attributable to the Group, net of the related consultancy fees of 631 thousand euros incurred for the establishment of Noverca Italia S.r.l.. Income from investments, amounting to 2,198 thousand euros, net of related consultancy fees amounting to 147 thousand euros, derives from the subscription by Intesa Sanpaolo S.p.A. of a 10% interest in the capital increase approved by Noverca S.r.l.. Due to amendments to the Articles of Association made on this occasion, which entailed changing from a situation of full control to one of joint control, this subscription resulted in a transaction similar to the sale of an interest to third parties outside the Group.

Note 10 - Finance income and costs Net finance income of 1,183 thousand euros breaks down as follows:

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Annual Report 2008

(000) 2008 2007

Increase/(Decrease)

Interest income from investments Interest income on bank deposits Foreign exchange gains Other interest income Total finance income Interest expense and bank charges Foreign exchange losses Other interest expense Total finance costs Total finance income/(costs)

861 513 227 61 1,662 (328) (98) (53) (479) 1,183

751 134 339 39 1,263 (252) (671) (47) (970) 293

110 379 (112) 22 399 (76) 573 (6) 491 890

102 thousand euros of interest income from investments relates to profits on loans and receivables, whilst 759 thousand euros relates to profits on financial assets held for trading through the income statement. Interest income on bank deposits regards interest received on ordinary current accounts in which Group companies hold their liquidity. Net foreign exchange gains reflect the positive effect of movements in closing exchange rates on the value of intercompany loans issued in dollars.

Note 11 - Taxation Taxation for 2008 breaks down as follows:

(000) 2008 2007
Increase/(Decrease)

Income taxes for the year Income taxes for previous years Deferred tax assets Deferred tax liabilities Total

3,651 35 (191) 4 3,499

3,100 5 136 10 3,251

551 30 (327) (6) 248

The total amount of 3,499 thousand euros includes provisions for taxes on the income of Group companies, recognised in current taxes. Deferred tax assets include provisions made by Group companies after taking account of the reversal of deferred taxes recognised in previous years. The reconciliation of the expected IRES (corporation tax) charge at 27.5% and the effective charge is shown in the following schedule:

57

Annual Report 2008

(000) 2008 % 2007 %

Pre-tax profit/(loss) Expected tax charge calculated at 27.5% of the pre-tax result (33% in 2007) Differences between expected and effective charges regarding Italian subsidiaries Tax effect of the losses of foreign subsidiaries which do not meet all requirements for recognition of deferred tax assets Differences between expected and effective charges regarding foreign subsidiaries Net tax effect of increases and decreases for Italian companies Adjustment of tax rates on deferred taxes Other minor changes

10,063

1,973

2,767

27.5%

651 2,022 116 14 47 (21) 2,829 422 3,251

33.0% 102.5%
5.9%

(2,450) (24.3%) 1,588 862 323 (29) 3,061 15.8%

8.6%

3.2% (0.3%)

0.7%
2.4% (1.1%)

143.3%

143.3%

IRAP Taxation for the year

438 3,499

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 (27.5% in 2008 and 33% in 2007). The taxes relating to the taxable income of foreign subsidiaries were calculated according to the prevailing rates in the respective countries. The item Difference between expected and effective tax charge for Italian subsidiaries primarily includes the effect of the non-liability to taxation of the gain on the transfer of assets (Note 9).

Deferred tax assets totalling 9.4 million euros on tax losses reported by certain subsidiaries at 31 December 2008 were not recorded as no grounds are currently deemed to exist for such recognition. Specifically, this amount breaks down as follows: around 5.7 million euros regarding the US subsidiary, Flycell Inc., which, despite its development plans forecasting an improved performance in 2009, has not yet generated taxable income; around 1.9 million euros relating to the subsidiary, Noverca S.r.l., which is in the start-up phase and whose reorganisation has yet to be implemented; and approximately 1.8 million euros regarding the Luxembourg subsidiary, Acotel Participations S.A., which acts as a sub-holding and is not currently expected to generate taxable income against which accumulated tax losses may be used.

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Annual Report 2008

Note 12 - Earnings per share The calculation of basic and diluted earnings per share is based on the following data:

2008

2007

Net profit/(loss) (000) Number of shares (000) Shares in circulation at beginning of year Weighted average of treasury shares acquired/sold in the year Weighted average of ordinary shares in circulation Basic and diluted earnings per share **

6,564

(1,278)

3,916 (132) 4,048 1.62

3,916 3,916 (0.33)

* : net of treasury shares held at the same date. **: basic earnings per share for 2008 and 2007 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist.

4.9
4.9.1

NOTES TO THE BALANCE SHEET

ASSETS

NON-CURRENT ASSETS Note 13 - Property, plant and equipment A breakdown of this item, with a separate column for accumulated depreciation, is as follows:
(000)
Historical cost Accumulated depreciation Carrying amount Carrying amount at at 31 Dec 2008 31 Dec 2007

Plant and machinery Industrial equipment Assets under construction and advances Other Total

7,202 2,381 1,481 1,069 12,133

(5,484) (1,771) (794) (8,049)

1,718 610 1,481 275 4,084

2,530 480 16 195 3,221

Plant and machinery mainly consists of data transmission platforms installed in Rome, Dubai, Rio de Janeiro and New York offices, and used by the Group to provide value added services.

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Annual Report 2008

Industrial 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. Assets under construction include 1,337 thousand euros in costs incurred by Noverca S.r.l. in developing its MVNO (Mobile Virtual Network Operator) platform, with which, in 2009, the Group will launch the Noverca brand on the Italian market as a provider of virtual mobile services. The remaining amount regards the costs incurred by Acotel Group S.p.A. in the development of the new Acotel platform. Furniture and fittings are included in other assets together with leasehold improvements, consisting of the costs incurred in recent years in order to renovate the building located in Rome, which is used as the registered office and operational headquarters of the Groups Italian companies. The relevant lease expires in 2013. No property, plant or equipment was revalued or impaired during 2008. Changes in property, plant or equipment during the year are shown in an annex.

Note 14 - Goodwill Goodwill has been allocated to the cash generating units (CGUs) identified within the context of the Groups business segments. The following table shows the allocation of goodwill:
(000)

Operating segment Mobile Messaging Solutions Services Security Systems Design

CGU Jinny Software Info2cell AEM Total

31 Dec 2008 31 Dec 2007

Increase/ (Decrease)

8,610 2,627 294 11,531

8,610 2,627 294 11,531

The Group tests the recoverability of goodwill at least once a year or more frequently if there are indicators of impairment. Since goodwill does not generate independent cash flows and cannot be sold independently, IAS 36 requires a review of its residual recoverable amount. This is based on the cash flows generated by the cash-generating units (CGUs) to which the goodwill is reasonably allocated. The recoverable amount of a CGU is tested by calculating value in use. The main assumptions used by the Group in determining value in use include the discount rate, the growth rate for sales and expected movements in sales prices and direct costs during the period on which the calculation is based. The adopted discount rate reflects the current time value of money and the specific risks connected to each CGU. The discount rate used is the average cost of capital consistent with the flows to be discounted. The discount rates used, which take account of the specific risks associated with the countries in which each subsidiary operates, range between 15% and 20%. Assumed movements in sales prices and direct costs are based on past experience and future market expectations. Operating cash flow estimates are derived from the most recent budgets approved by the boards of directors of the companies to whom the CGUs are attributable and on the basis of
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expected growth over the next four years, based on past experience. Furthermore a terminal value, determined according to prudential criteria, was taken into account, based on the present value of cash flows for the first five years, and using a medium/long-term growth rate of approximately 2%. The resulting value in use exceeds the respective carrying amount of goodwill recorded in the financial statements at 31 December 2008.

Note 15 - Other intangible assets A breakdown of other intangible assets at 31 December 2008 is as follows:
(000)
Historical cost Accumulated amortisation Carrying amount Carrying amount at at 31 Dec 2008 31 Dec 2007

Industrial patents and intellectual property rights Concessions, licences and similar rights Intangible assets in process and advances Total

1,401 1,477 185 3,063

(1,166) (1,049) (2,215)

235 428 185 848

221 478 234 933

Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Group in the provision of computerised services and for the internal information system used by Group companies. Concessions, licenses and similar rights primarily includes the cost of the licence for the software used by the subsidiary, Info2cell, for the supply of value added services. Intangible assets in process and advances, totalling 117 thousand euros, regards staff costs capitalised by the subsidiary, Jinny Software, relating to internal development activities carried out in relation to new products. The residual amount essentially relates to the cost of internal staff employed by Noverca Italia S.r.l. in the development of the software to be used in supplying new services, such as m-banking and m-payment, to bank customers. No intangible assets were revalued or impaired during the year. Changes in intangible assets during the year are shown in an annex.

Note 16 - Deferred tax assets The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets:

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Annual Report 2008

(000) 31 Dec 2008 Taxation Tax rate 31 Dec 2007 Taxation Tax rate

Deferred tax assets: IAS/IFRS adjustments Consolidation adjustments Recovery of taxed provisions for bad debts Impairment of inventories Recovery of taxed accounting-related amortisation and depreciation Provisions for taxed directors' fees Other Sub-total Tax losses to be carried forward Total 102 90 31 21 78 30 365 365 27.5% 27.5% 27.5% 31.86% 32.32% -27.5% 27.5% 31 28% 21 31.86% 59 32.32% -31.86% 20 11 142 82 224 27.50% 32.32%-27.5%

13 32.32%-27.5%

Deferred tax assets on consolidation adjustments were calculated with reference to the temporary deductible differences arising in the consolidated financial statements as a result of the elimination of an intercompany sale during the consolidation process.

CURRENT ASSETS Note 17 - 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 31 December 2008:
(000)
Gross value Accumulated impairments Carrying amount Carrying amount at at 31 Dec 2008 31 Dec 2007

Raw and ancillary materials and consumables Work in progress and semi-finished products Finished products and goods for resale Total

86 47 329 462

(60) (5) (1) (66)

26 42 328 396

32 31 579 642

The reduction in the inventory of finished products arises from the products the subsidiary, Jinny Software, held in stock at 31 December 2008. Movements in provisions for inventory impairments are shown below:

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Annual Report 2008

(000)

Balance at 31 December 2007 Provisions 2008 Uses 2008 Balance at 31 December 2008

66 6 (6) 66

Note 18 - Trade receivables These represent trade receivables less provisions for bad debts made to adjust their carrying amount to their estimated realisable value, as shown below:
(000) 31 D ec 2008 31 D ec 2007 Increase/(D ecrease)

T rade receivables Provisions for bad debts T otal

22,502 (282) 22,220

19,045 (425) 18,620

3,457 143 3,600

The increase in trade receivables at 31 December 2008, with respect to the previous year, is essentially due to the Groups higher turnover in 2008. Trade receivables are fully collectable within 12 months. 40% of total trade receivables relates to amounts due from the mobile transaction network provider, mBlox (19%), which provides Flycell Inc. the necessary connectivity with US telephone operators, and from Telecom Italia (21%).

Movements in provisions for bad debts are shown below:

(000)

Balance at 31 December 2007 Provisions 2008 Uses 2008 Balance at 31 December 2008

425 67 (210) 282

Provisions for bad debts and the uses made in 2008 primarily regard the subsidiary, Info2cell. The carrying amount of trade receivables is held to approximate fair value.

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Note 19 - Other current assets At 31 December 2008 these assets total 2,340 thousand euros and break down as follows:
(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease)

VAT credits Current income tax assets Prepayments to suppliers Other Total

835 82 1,111 312 2,340

1,239 54 1,840 309 3,442

(404) 28 (729) 3 (1,102)

VAT credits are primarily attributable to the subsidiaries, Noverca S.r.l. (466 thousand euros), Noverca Italia S.r.l. (177 thousand euros), Acotel S.p.A. (100 thousand euros) and Jinny Software (63 thousand euros). Prepayments to suppliers of 1,111 thousand euros relate mainly to sales commissions, service contracts, commissions due for advertising activities carried out by third parties, who are remunerated on the basis of contracts actually signed with end customers, and insurance premiums paid by Group companies in advance. The decrease compared with 31 December 2007 is primarily due to sales and advertising commissions paid in advance by the subsidiaries, Flycell Inc. and Info2cell, which, at 31 December 2008, are lower than at the end of the previous year. The carrying amount of other current assets is held to approximate fair value.

Note 20 - Current financial assets Current financial assets, amounting to 18,764 thousand euros, include:
(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease)

Loans and receivables Assets held for trading Total

2,617 16,147 18,764

2,650 10,052 12,702

(33) 6,095 6,062

Loans and receivables include an amount of 2,113 thousand euros blocked in an account until 19 May 2009 as surety for the loans amounting to US$5 million granted by the Bank of the West N.Y. (USA) to the subsidiary Flycell Inc., and, for the remaining balance, the bonds detailed below:
(000) Issuer Par value Interest Rate Maturity Fair value at 31 Dec 2008

Banca Nazionale del Lavoro S.p.A. Total

500 Quarterly in arrears 500

3-month Euribor

January 2009

504 504

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Annual Report 2008

Assets held for trading, amounting to 10,408 thousand euros, regard the Money Market Invest EUR fund in which Acotel Group S.p.A. has invested. This fund, managed by UBS (Italia) S.p.A., has a limited risk exposure and invests its assets in money market instruments, bonds, treasury bills and other similar securities. This category also includes investment funds (mainly government bonds), amounting to 5,543 thousand euros, managed by ItauBank and Citibank on behalf of the Brazilian subsidiary, and 196 thousand euros managed by GarantiBank on behalf of the Turkish subsidiary. At 31 December 2008 the fair value of the financial assets accounted for at amortised cost is substantially in line with their carrying amount.

Note 21 - Cash and cash equivalents This item includes bank deposits of 23,426 thousand euros and cash and notes in hand of 13 thousand euros. At the end of last year these items amounted to 12,163 thousand euros and 15 thousand euros, respectively. The bank deposits represent the closing balances of Group companies bank current accounts.

4.9.2

LIABILITIES AND SHAREHOLDERS EQUITY

SHAREHOLDERS EQUITY Note 22 - Shareholders equity attributable to the Group The statement of changes in shareholders' equity during the period is included in the financial statements. At 31 December 2008 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 Groups objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital increases carried out in preparation for the Companys stock market flotation. At 31 December 2008 treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of consolidated shareholders' equity, totalling 871 thousand euros. These shares have a par value of 14,671 euros, representing 1.35% of the share capital. This refers to 56,425 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 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. The average purchase price of these shares was 15.44 euros; at 31 December 2008 the share price stood at 39.61 euros. Within the scope of the agreements signed between the Group and Intesa SanPaolo S.p.A. during the period, Acotel Group S.p.A. sold 198,075 of own shares to the bank, equivalent to 4.75% of its
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Annual Report 2008

share capital, for an amount totalling 12,281 thousand euros (62 euros per share), thereby making capital gains of 9,149 thousand euros, after the related tax effect, registered as an increase in Other equity reserves. 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 31 December 2008 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 currency translation reserve, which has a negative balance of 2,387 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 31 December 2008, 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:
Exchange rate at Average exchange 31 Dec 2008 rate 2008

Company

Currency

Info2Cell Eitco Millenium Software Flycell Inc. Acotel do Brasil Flycell Latin America Jinny Software Latin America Flycell Telekomunikasyon Hizmetleri A.S. Jinny Software Romania Jinny Software Panama

Dh JD LBP USD BRL BRL BRL TRY RON PAB

5.112 0.987 2,096.250 1.392 3.244 3.244 3.244 2.149 4.023 1.392

5.402 1.043 2,215.660 1.471 2.674 2.674 2.674 1.906 3.683 1.471

Other reserves, amounting to 9,538 thousand euros, break down as follows:

(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease)

Legal reserve Profit/(loss) on sale of treasury shares Other Total

217 9,219 102 9,538

217 70 55 342

9,149 47 9,196

The reserves for accumulated losses amount to 3,864 thousand euros. Minority interests represent the share of shareholders equity attributable to minority shareholders in subsidiaries. At 31 December 2008 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.

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NON-CURRENT LIABILITIES Note 23 - Non-current financial liabilities This item totals 101 thousand euros at 31 December 2008 and refers to the portion payable after 12 months 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 24 - Staff termination benefits and other employee benefits At 31 December 2008 this item totals 1,146 thousand euros and includes accrued amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies, less any advances paid. Movement during the year are shown below:
(000) 31 Dec 2008 31 Dec 2007

Opening balance Provisions Finance costs Uses Various withholding taxes Other changes Closing balance

947 265 52 (56) (24) (38) 1,146

1,031 280 46 (388) (22)

-

947

Provisions for staff termination benefits shown in the financial statements were calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits: a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment; determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance; discounting, at the measurement date, each likely payment; re-proportioning, for each employee, the likely and discounted calculations based on seniority at the measurement date with respect to the corresponding projected time of payment. Details of the financial assumptions adopted are as follows:

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Annual Report 2008

Financial assumptions Annual discount rate Annual inflation rate Annual rate of salary increase

December 2008 4.60% 3.20% Managers 2.50%; Supervisors/Whitecollar/Blue-collar 1.00%

Note 25 Deferred tax liabilities Deferred tax liabilities, amounting to 294 thousand euros at 31 December 2008, derive from temporary differences between the carrying amount of assets and liabilities and their tax bases. This item primarily regards the Brazilian subsidiary, Acotel do Brasil.

CURRENT LIABILITIES Note 26 - Current financial liabilities Current financial liabilities of 3,639 thousand euros include advances of 3,607 thousand euros received from banks primarily by the subsidiary, Flycell Inc., and 32 thousand euros regarding the portion of the previously described loan from the Ministry of Industry to the subsidiary, AEM S.p.A., falling due within 12 months of 31 December 2008.

Note 27 - Trade payables Trade payables of 9,404 thousand euros include payables due to suppliers within 12 months, totalling 7,618 thousand euros (7,605 thousand euros at 31 December 2007) and advances received from customers by Group companies, totalling 1,786 thousand euros (1,921 thousand euros at 31 December 2007). The latter refer principally to amounts received from customers and deferred by the subsidiaries, Jinny Software (572 thousand euros), Flycell Inc. (536 thousand euros) and Info2cell (507 thousand euros).

Note 28 - Tax liabilities This item breaks down as follows:

(000) 31 Dec 2008 31 Dec 2007 Increase/Decrease)

Income taxes VAT due Substitute tax due Other tax liabilities Total

431 338 168 937

790 412 140 1 1,343

(359) (74) 28 (1) (406)

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Annual Report 2008

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. The subsidiary, Flycell Inc., and Acotel Group S.p.A. are currently undergoing tax audits. The audit of the US subsidiary has yet to result in the notification of any irregularities. At the time of preparation of this report, management believes that the findings of the tax audit of the Parent Company will not generate significant potential liabilities.

Note 29 - Other current liabilities This item breaks down as follows:

(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease)

Due to staff Due to pension funds and social security institutions Due to directors Other payables Total

1,565 964 142 711 3,382

1,347 711 64 555 2,677

218 253 78 156 705

Amounts due to employees mainly refer to pay, bonuses and holiday pay due. Amounts due to pension funds and social security institutions include social security and insurance contributions due, which include the agreed contributions to be made to defined contribution plans for the employees of overseas subsidiaries. Other amounts due include statutory auditors fees and other general expenses of Group companies. The carrying amount of trade payables and other payables approximates to fair value.

4.10

NET FUNDS

Net funds at 31 December 2008, amounting to 38,463 thousand euros, are up sharply with respect to 31 December 2007, primarily due to the transactions carried out by the Group with Intesa SanPaolo S.p.A.. These have been fully described in other sections of this report, to which reference should be made. An analysis of net funds is provided below:

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Annual Report 2008

(000) 31 Dec 2008 31 Dec 2007 Increase/(Decrease)

A. Cash and cash equivalents B. Assets held for trading C. Liquidity (A + B) D. Other current financial assets E. Current bank borrowings F. Current portion of non-current debt G. Current financial liabilities (E + F) H. Net current funds (C+D+G) I. Non-current financial liabilities L. Non-current debt (I) M. Net funds (H + L)

23,439 16,147 39,586 2,617 (3,607) (32) (3,639) 38,564 (101) (101) 38,463

12,178 10,052 22,230 2,650 (265) (30) (295) 24,585 (133) (133) 24,452

11,261 6,095 17,356 (33) (3,342) (2) (3,344) 13,979 32 32 14,011

4.11

ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Classes of financial instruments The following table shows the breakdown of financial assets and liabilities required by IFRS7 within the context of the categories provided for by IAS 39:
(000)

31 Dec 2008 BALANCE SHEET ITEM Assets held for trading Loans and receivables Available-forsale financial assets Carrying amount Note

NON-CURRENT ASSETS Other non-current assets Guarantee deposits CURRENT ASSETS Trade receivables Current financial assets Customers Bonds Term deposits Investment funds Cash and cash equivalents Bank deposits Cash and notes in hand TOTAL ASSETS

16,147 16,147

116 22,220 504 2,113 23,426 13 48,392

116 22,220 504 2,113 16,147 23,426 13 64,539 18 20 20 20 21 21

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Annual Report 2008

(000)

31 Dec 2007 BALANCE SHEET ITEM Assets held for trading Loans and receivables Available-forCarrying sale financial amount assets Note

NON-CURRENT ASSETS Non-current financial assets Other non-current assets Guarantee deposits CURRENT ASSETS Trade receivables Customers Bonds Current financial assets Investment funds Cash and cash equivalents Bank deposits Cash and notes in hand TOTAL ASSETS

10,052 10,052

49 18,620 2,650 12,163 15 33,497

2 2

2 49 18,620 2,650 10,052 12,163 15 43,551 18 20 20 21 21

(000)

BALANCE SHEET ITEM NON-CURRENT LIABILITIES Non-current financial liabilities Borrowings

31 Dec 2008 Liabilities at Carrying amortised cost amount

Note

101

101

23

CURRENT LIABILITIES Current financial liabilities Trade payables Borrowings Bank borrowings Suppliers TOTAL LIABILITIES 32 3,607 7,618 11,358 32 3,607 7,618 11,358 26 26 27

BALANCE SHEET ITEM NON-CURRENT LIABILITIES Non-current financial liabilities Borrowings

31 Dec 2007 Liabilities at Carrying amortised cost amount 133 133

Note

23

CURRENT LIABILITIES Current financial liabilities Trade payables Borrowings Bank borrowings Suppliers TOTAL LIABILITIES 30 265 7,605 8,033 30 265 7,605 8,033 26 26 27

The carrying amounts of trade receivables and payables and financial assets and liabilities accounted for at amortised cost are held to approximate to fair value.

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Type of financial risks and related hedges As stated in the section of the Directors report on operations dealing with risks and uncertainties, the Group is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding the Acotel Groups exposure to these risks. Credit risk The receivables reported in the Groups financial statements are not exposed to significant credit risk. Trade receivables have the following maturities:
(000)

N et trade receivables N ot due

31 D ecem ber 2008 31 D ecem ber 2007

14,472 12,074

F allen due w ithin last: 0-30 31-60 61-90 91-180 181-360 over 1 days days days days year days 5,282 1,151 567 492 102 154 4,438 399 218 492 814 185

T otal

22,220 18,620

Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business at acceptable financial conditions. As shown in the previous tables regarding financial assets and liabilities, the Group does not resort to external sources of funds, except to a very limited extent, as it is able to meet its cash requirements from operating cash flow. The Groups only form of borrowing regards a small amount, as fully described in Note 23 above. The following table shows details of this borrowing in terms of maturities of the related repayments of interest and principal:
(000)

M aturity D ec 2009 D ec 2010 D ec 2011 D ec 2012

Interest 5 3 2 1 11

P rincipal 32 32 34 35 133

Instalm ent 37 35 36 36 144

Bank of the West N.Y. (USA) has also granted an advance of 3,607 thousand euros to the subsidiary, Flycell Inc., at 31 December 2008. This is repayable in May 2009. Trade payables and other financial liabilities mature in 2009.

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Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to foreign exchange exposures deriving from intercompany loans, which, whilst being eliminated from the consolidated financial statements, generate foreign exchange gains or losses for subsidiaries whose functional currencies are different from the euro. A hypothetical movement of 10% in the exchange rates applicable to intercompany loans at 31 December 2008 would result in an impact on the income statement of approximately 330 thousand euros.

Interest rate risk As the Group does not rely on external sources of funds, with the exception of the fixed-rate borrowing and the advance maturing in May 2009 referred to above, it is not exposed to interest rate risk. This is also true of the Groups liquidity, which is invested in readily convertible financial assets, subject to limited risk and with limited exposure to movements in interest rates.

4.12

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. However, it should be pointed out that the subsidiary, Flycell Inc., is indirectly involved in three claims for damages, which have been contested by the company, that might result in class actions.

4.13

COMMITMENTS

The guarantees granted by the Group include 259 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 Acotel Group S.p.A. rents and where all the Groups Italian companies have their offices, 111 thousand euros for a surety given to the Bank of Italy as provided for in the service contract obtained from the subsidiary AEM S.p.A and 278 thousand euros (equivalent to 387,550 US dollars) for a surety given in favour of Flycell Inc. as a guarantee for the lease agreement signed by this company. The residual amount is for sureties of 91 thousand euros granted in fulfilment of agreements with third parties.

4.14

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.

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4.15

RELATED PARTY TRANSACTIONS

There are no significant related party transactions to be reported in the consolidated financial statements of Acotel Group S.p.A. Purchase of investments from shareholders In 2008 no investments were traded between Acotel Group companies and their shareholders. Remuneration of shareholders for membership of governance bodies Claudio Carnevale earned the following fees during 2008: - 225,000 euros as Chairman of the Board of Directors and CEO of Acotel Group S.p.A.; - 100,000 euros as Chairman of the Board of Directors of Acotel S.p.A.; - 50,000 euros as Chairman of the Board of Directors of AEM S.p.A. - 3,233 euros as the Chairman of the Board of Directors of Noverca S.r.l.; - 3,233 euros as the Chairman of the Board of Directors of Noverca Italia S.r.l.. Margherita Argenziano earned the following fees during 2008: - 15,000 euros as a Director of Acotel Group S.p.A.; - 75,000 euros as CEO of AEM S.p.A. At 31 December 2008 outstanding amounts due to the above-named directors from Group companies total 56,250 euros.

Transactions with subsidiaries Details of transactions between Acotel Group S.p.A. and consolidated subsidiaries are provided in the Directors report on the Parent Companys operations.

Transactions with jointly controlled entities At 31 December 2008 the most significant business and financial transactions between Acotel Group S.p.A. and the companies it jointly controls regard administrative, rental and management services regarding the building transferred to Noverca S.r.l. and Noverca Italia S.r.l. and services provided to these companies by the Parent Companys staff. Acotel Group S.p.A., as the consolidating company, and the jointly controlled entities, Noverca S.r.l. and Novecra Italia S.r.l., 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 31 December 2008, the Group does not hold investments in associates.

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Remuneration of Directors, Statutory Auditors, General Managers, Key Managers (art. 78, CONSOB Regulation no. 11971/99) and other related parties
ACOTEL GROUP SPA
Name Position Period in which position held 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-09/05/08 01/01/08-31/12/08 09/05/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 Remuneration for Expiry of term position held in Parent of office Company 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 225,000 15,300 15,000 15,000 15,300 5,000 15,300 10,000 15,600 10,400 10,400 3,000 309,546 123,930 Non-cash bonuses Bonuses and other incentives Other remuneration ()

Claudio Carnevale Francesco Ago Margherita Argenziano Luca De Rita Giovanni Galoppi Andrea Morante Giuseppe Guizzi Luciano Hassan Antonio Mastrangelo Umberto Previti Flesca Maurizio Salimei

Chairman / CEO Director Director Director Director Director Director Director Chairman Board of Statutory Auditors Statutory Auditor Statutory Auditor

AEM SPA
Name Claudio Carnevale Margherita Argenziano Antonio Mastrangelo Umberto Previti Flesca Position Chairman Director Chairman Board of Statutory Auditors Statutory Auditor Period in which position held 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 Remuneration for Expiry of term position held in Parent of office Company 30/04/2011 30/04/2011 30/04/2011 30/04/2011 50,000 75,000 5,616 3,744 Non-cash bonuses Bonuses and other incentives Other remuneration

ACOTEL SPA
Name Position Period in which position held 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 Remuneration for Expiry of term position held in Parent of office Company 30/04/2010 30/04/2010 30/04/2010 30/04/2010 30/04/2011 30/04/2011 100,000 Non-cash bonuses Bonuses and other incentives Other remuneration

Claudio Carnevale Margherita Argenziano Luca De Rita Giovanni Galoppi Antonio Mastrangelo Umberto Previti Flesca

Chairman Director Director Director Chairman Board of Statutory Auditors Statutory Auditor

8,112 5,408

128,267

NOVERCA SRL
Name Position Period in which position held 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 Remuneration for Expiry of term position held in Parent of office Company 30/04/2011 30/04/2011 30/04/2011 30/04/2011 30/04/2011 3,233 3,298 3,233 9,984 8,308 2,639 Non-cash bonuses Bonuses and other incentives Other remuneration

Claudio Carnevale Giovanni Galoppi Luca De Rita Antonio Mastrangelo Umberto Previti Flesca

Chairman Director Director Statutory Auditor Statutory Auditor

NOVERCA ITALIA SRL

Name Claudio Carnevale Luca De Rita Antonio Mastrangelo Umberto Previti Flesca Position Chairman Director Statutory Auditor Statutory Auditor Period in which position held 09/05/08-31/12/08 09/05/08-31/12/08 09/05/08-31/12/08 09/05/08-31/12/08 Remuneration for Expiry of term position held in Parent of office Company 30/04/2011 30/04/2011 30/04/2011 30/04/2011 3,233 3,233 5,408 5,408 Non-cash bonuses Bonuses and other incentives Other remuneration

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Non-monetary benefits regard personal use of company motor vehicles. Other remuneration paid to the directors, Luca De Rita and Margherita Argenziano, regards the salary paid to Mr De Rita as CFO of Acotel Group S.p.A. and the manager responsible for financial reporting, and the salary paid to Ms Argenziano as a manager of Acotel S.p.A. These amounts exclusively regard remuneration for employment, and do not include social security contributions payable by the Company or employee termination benefits. The Director, Giovanni Galoppi, received fees of 126,569 euros as legal counsel for Acotel Group S.p.A. and Noverca S.r.l.. Expenses incurred in 2008 for fees paid to key managers totalled approximately 260 thousand euros, including employee termination benefits of 13 thousand euros. Such expenses, which do not include social security contributions payable by the employer, relate to a key manager who was in office in 2007 and remains so. Remuneration of 287 thousand euros paid to other related parties refers entirely to the salaries paid to Cristian Carnevale, who is employed by the subsidiary, Flycell Inc., and Davide Carnevale, who is employed by Noverca S.r.l..

4.16

COMPLIANCE WITH LEGISLATIVE DECREE 196/2003

Acotel Group S.p.A., Acotel S.p.A., AEM S.p.A., Noverca S.r.l. and Noverca Italia S.r.l. have complied with all the provisions of Legislative Decree 196/2003 regarding Data Protection, and prepared the Data Protection Planning Document and any necessary amendments by the annual deadline of 31 March.

4.17

OTHER INFORMATION

Material non-recurring events and transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that the material non-recurring transactions carried out by the Acotel Group in 2008 regarded the agreements concluded with the Intesa Sanpaolo banking group. The effects of these transactions are described in various sections of this report, to which reference should be made.

Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during 2008.

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Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2008 for auditing services and other services provided by the Independent Auditors and entities belonging to their network.
(000)

Type of service Auditing

Entity providing the service Deloitte & Touche S.p.A. Deloitte & Touche S.p.A. Deloitte network Deloitte network Deloitte network Deloitte & Touche S.p.A. Deloitte & Touche S.p.A.

Client Parent Company Subsidiaries Subsidiaries Parent Company Subsidiaries Parent Company Subsidiaries

Fees 2008* 57 69 355 26 13 1 3 524

Tax consultancy

Other services (preparation of tax declarations) Total

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

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ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

78

Annual Report 2008

79

Annual Report 2008

PARENT COMPANYS REPORT

80

Annual Report 2008

DIRECTORS REPORT ON THE PARENT COMPANYS OPERATIONS

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5.1

FINANCIAL REVIEW

Acotel Group S.p.A. operates as the holding company for a Group of companies in which each subsidiary is directly involved in the market, whilst the Parent Company coordinates overall objectives and strategy. As all the subsidiaries, with the exception of Noverca S.r.l. and Noverca Italia S.r.l., are almost totally owned, either directly or indirectly, the achievement of Group objectives coincides with maximising the Companys performance. The activities of Acotel Group S.p.A. during 2008 continued to focus on management of the Groups expansion, carrying out its role as provider of centralised strategic planning, administration, organisation and control. The organisational model adopted ascribes specific functions to each Group company, with the aim of maximising operating synergies and the efficiency of decision-making, operating and control procedures, thanks to the rapid circulation of information flows within the Group. It is in this context that in May Acotel Group S.p.A. concluded an agreement with the Intesa Sanpaolo banking group regarding the creation of a Mobile Virtual Network Operator, with a view to offering both consumers and business customers a range of value added mobile telecommunications services. This agreement led to: Intesa Sanpaolo S.p.A.s acquisition of a 4.75% stake in Acotel Group S.p.A. via the purchase of 198,075 treasury shares at a total cost of 12.3 million euros (62 euros per share); Intesa Sanpaolo S.p.A.s acquisition of a 10% interest in Noverca S.r.l., previously a wholly owned subsidiary of Acotel Group S.p.A., via subscription of a capital increase of 3.6 million euros. Acotel Group S.p.A. has, at the same time, subscribed a further tranche of the same capital increase, amounting to 5.6 million euros; the establishment of Noverca Italia S.r.l., which is 66% owned by the subsidiary, Noverca S.r.l., 34% owned by Intesa Sanpaolo S.p.A.. Further details are provided in the Directors report on the Groups operations in 2008. The following financial review regards Acotel Group S.p.A. at 31 December 2008.

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RECLASSIFIED INCOME STATEMENT

() 2008 2007 Increase/(Decrease) % inc./(dec.)

Revenues Other income Total Gross operating profit

6,741,405 1,558,820 8,300,225 3,802,418

45.81%

7,455,661 1,073,036 8,528,697 3,505,523

41.10%

(714,256) 485,784 (228,472) 296,895

(10%)
45%

(3%)
8%

Operating profit/(loss) Net finance income/(costs)

3,639,877
43.85%

3,347,637
39.25%

292,240 979,125

9%

2,451,165

1,472,040

67%

PROFIT/(LOSS) BEFORE TAX

6,091,042
73.38%

4,819,677
56.51%

1,271,365

26%

NET PROFIT/(LOSS) FOR THE YEAR Earnings per share Earnings per diluted share

4,122,667
49.67%

2,938,759
34.46%

1,183,908

40%

1.02 1.02

0.75 0.75

The Parent Companys income statement reports net profit of 4,123 thousand euros, marking an increase of 40% on the previous year. As shown in the following schedule, revenues amount to approximately 6,741 thousand euros for 2008 and are therefore down 10% on 2007:
Segment information
()

2008 6,717,405 24,000 6,741,405

%
99.6% 0.4% 100.0%

2007 7,430,661 25,000 7,455,661

%
99.7% 0.3% 100.0%

Services for service providers Services for corporate customers

The services provided to service providers are supplied to the subsidiary, Acotel S.p.A., and regard the acquisition, processing, management and transmission of data using Acotels proprietary ICT platform. The services provided to corporate customers arise from an agreement signed between Acotel Group S.p.A. and Info2cell regarding software development activities.

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Other operating income of 1,559 thousand euros primarily represents charges billed to the Groups other Italian companies for their share of administrative costs, lease expense and related expenses, in addition to the costs incurred by the Company for staff employed in the management and development of projects on behalf of subsidiaries. The increase compared with the previous year essentially reflects this last item. Gross operating profit, amounting to 3,802 thousand euros, is up 8% on the previous year, primarily due to the reduction in staff costs. After amortisation and depreciation and impairment charges on non-current assets, operating profit amounts to 3,640 thousand euros, compared with 3,348 thousand euros for the previous year. After net finance income of 2,451 thousand euros, profit before tax is 6,091 thousand euros, up 26% on 2007. Net profit for 2008 is 4,123 thousand euros.

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RECLASSIFIED BALANCE SHEET

()

31 Dec 2008

31 Dec 2007

Increase/(Decrease)

% inc./(dec.)

Non-current assets Property, plant and equipment Intangible assets Non-current financial assets Other assets TOTAL NON-CURRENT ASSETS Net current assets Trade receivables Other current assets Payables Other current liabilities TOTAL NET CURRENT ASSETS STAFF TERMINATION BENEFITS NON-CURRENT PROVISIONS NET INVESTED CAPITAL Shareholders' equity Share capital Reserves and retained earnings/(accumulated losses) Net profit/(loss) for the year TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY MEDIUM/LONG-TERM DEBT Net cash and cash equivalents: Current financial assets Cash and cash equivalents Current financial liabilities

402,359 38,957 58,583,935 107,340 59,132,591

262,166 29,532 50,211,308 90,759 50,593,765

140,193 9,425 8,372,627 16,581 8,538,826

53% 32% 17% 18% 17%

2,995,541 9,429,469 (702,066) (10,972,120) 750,824 (324,342) (30,635) 59,528,438

2,247,480 8,225,668 (589,764) (11,523,616) (1,640,232) (379,635) (32,612) 48,541,286

748,061 1,203,801 (112,302) 551,496 2,391,056 55,293 1,977 10,987,152

33% 15% (19%) 5% 146% 15% 6% 23%

1,084,200 68,235,861 4,122,667 73,442,728 -

1,084,200 53,146,410 2,938,759 57,169,369 -

15,089,451 1,183,908 16,273,359 -

28% (40%) 28% -

(13,024,729) (889,583) 22 (13,914,290) (13,914,290)

(5,902,792) (2,725,356) 65 (8,628,083) (8,628,083)

(7,121,937) 1,835,773 (43) (5,286,207) (5,286,207)

(121%) 67% (66%) (61%) (61%)

NET FUNDS TOTAL SHAREHOLDERS' EQUITY AND NET FUNDS

59,528,438

48,541,286

10,987,152

23%

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Annual Report 2008

Acotel Group S.p.A.s net invested capital at 31 December 2008 is 59,528 thousand euros, made up of non-current assets of 59,133 thousand euros, net current assets of 751 thousand euros, staff termination benefits of 324 thousand euros and other non-current provisions of 31 thousand euros. Net invested capital is financed by shareholders equity of 73,443 thousand euros and net funds of 13,914 thousand euros. A detailed analysis of changes in the principal balance sheet items shows that: non-current assets increased by 8,539 thousand euros compared with the previous year. The most significant changes regard the substantial increase in non-current financial assets, due essentially to: a) the increased value of the investment in Noverca S.r.l. as a result of the capital increase carried out by the company to enable Intesa Sanpaolo S.p.A. to acquire a 10% stake the company was previously a wholly owned subsidiary of Acotel Group S.p.A.. The remaining increase was subscribed by Acotel Group S.p.A.; b) accrued interest on loans to Acotel Participations; changes in net working capital (from a net current liability balance to net current assets) derive primarily from increases in financial receivables and trade receivables due from subsidiaries; in addition to the effect of net profit for the period, consolidated shareholders equity rose as a result of Intesa Sanpaolos acquisition of a 4.75% stake in Acotel Group via the purchase of 198,075 treasury shares previously held by Acotel Group S.p.A. at a total cost of 12.3 million euros (62 euros per share); this operation generated an increase of 9.1 million euros in consolidated shareholders equity, after the related tax effect; net funds at 31 December 2008 amount to 13,914 thousand euros, representing an increase of 5,286 thousand euros compared with 31 December 2007, primarily due to the above sale of treasury shares.

5.2

SOURCES OF FUNDS

Acotel Group S.p.A. does not resort to external sources of funding, being able to finance investment, above all in its foreign subsidiaries during the start-up of their respective businesses, from operating cash flow and its own funds. The Companys net funds at 31 December 2008, totalling 20,985 thousand euros, consist of net cash and cash equivalents and current financial receivables due from subsidiaries. Current financial assets not used to finance operations are invested in low-risk financial instruments.

5.3

RESEARCH AND INNOVATION

In the second half of 2008 Acotel Group S.p.A. began development of a new platform, dubbed NSP (New Service Platform), which, during 2009, will replace the old infrastructure that entered service
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over 10 years ago. The NSP has been designed to ensure maximum flexibility in the configuration of services and offer additional functions with respect to those previously offered in terms of service quality control. The NSP will enable the companys marketing personnel to obtain key business intelligence. Some members of Acotel Group S.p.A.s technical staff were engaged in completing development of the proprietary platform used by Noverca S.r.l., which has been fully described in other sections of this report.

5.4

HUMAN RESOURCES

At 31 December 2008 Acotel Group S.p.A. employs 17 people, compared with 30 at the end of 2007. The Company recruited 3 new staff during the year, whilst 3 left its employ and 13 were transferred to other Group companies. The following tables show key information about the Companys staff at 31 December 2008:

Staff by category at 31 December 2008 Category Managers Supervisors White- and blue-collar staff Total Staff by gender at 31 December 2008 Gender Male Female Total Staff by age range at 31 December 2008 Age range 25-35 35-45 45-55 over Total Number 5 5 6 1 17 % 29% 29% 36% 6% 100% Number 10 7 17 % 59% 41% 100% Number 4 3 10 17 % 23% 18% 59% 100%

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Staff by seniority at 31 December 2008 Seniority 0-2 2-5 5-8 Total Staff by qualification at 31 December 2008 Qualification Degree High-school diploma Total Number 8 9 17 % 47% 53% 100% Number 6 2 9 17 % 35% 12% 53% 100%

5.5

FINANCIAL RISK MANAGEMENT

The measurement and management of Acotel Group S.p.A.s exposure to risk are in line with the Groups policies. The main categories of risk to which the Company is exposed are described below. Credit risk The greatest potential credit risk for Acotel Group S.p.A. at 31 December 2008 consists of outstanding amounts due at year end from subsidiaries, as well as the nominal value of guarantees primarily issued on behalf of the subsidiaries and described in detail in Section 7.11. Liquidity risk The Company does not resort to external sources of funding and is able to meet its cash requirements from operating cash flow. Foreign exchange risk At 31 December 2008 Acotel Group S.p.A. has no significant amounts payable to and receivable from third parties, nor financial instruments exposed to foreign exchange risk. Interest rate risk As the Company does not rely on external sources of funding, the Companys only exposure to interest rate risk is limited to the loans granted to subsidiaries.

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5.6

STRENGTHS AND RESOURCES FINANCIAL STATEMENTS

NOT

REFLECTED

IN

THE

This section provides a brief summary of the strengths that Acotel Group S.p.A. considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: most of the technology infrastructure used by the Company is developed in-house. Stable shareholder structure: 57.4% of the share capital of Acotel Group S.p.A. is held by members of the founders family. This concentration of ownership ensures continuity in the management of the Company, which aims to create value over the medium/long-term. Financial independence: as previously indicated, the Company, both through its operating activities and shrewd management of its financial resources acquired as a result of the flotation, has the necessary financial resources to finance its development without having to resort to bank borrowings.

5.7

INTERCOMPANY AND RELATED PARTY TRANSACTIONS

There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arms length basis. Disclosures regarding related party transactions are provided in Section 7.14 of the notes to the separate financial statements.

5.8

SHAREHOLDINGS OF MANAGEMENT AND SUPERVISORY BODIES, GENERAL MANAGERS AND KEY MANAGERS (art. 79, CONSOB Regulation no. 11971/99)
PERCENTAGE INTEREST AT 31 DEC 2008

NAME

GROUP COMPANY

NO. OF SHARES HELD AT 1 JAN 2008

NO. OF SHARES PURCHASED

NO. OF SHARES SOLD

NO. OF SHARES HELD AT 31 DEC 2008

Claudio Carnevale (a) Claudio Carnevale Claudio Carnevale

Acotel Group S.p.A. Acotel S.p.A. AEM S.p.A.

664,980 20,000 2,366

664,980 20,000 2,366

15.95% 0.48% 0.06%

(a) Ownership is exercised via Clama S.A. of which Claudio Carnevale owns 93% of the share capital.

Claudio Carnevale and Margherita Argenziano each hold 25% of the share capital of Clama S.r.l., which in turn holds 1,727,915 shares of Acotel Group S.p.A. at 31 December 2008. No transactions took place between the parent, Clama S.r.l., and Acotel Group S.p.A. during the financial year.

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5.9

SHAREHOLDER STRUCTURE AND CORPORATE GOVERNANCE

Disclosures on the shareholder structure required by art. 123-bis of the Consolidated Finance Law are contained in a specific section of the Corporate Governance Report, which the Company makes available in the Investors section of its corporate website, www.acotel.com.

5.10

OTHER INFORMATION

At 31 December 2008 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. At the same date the Company holds 56,425 treasury shares, which are accounted for as an 871 thousand euro reduction in shareholders equity, representing the average cost of 15.44 euros per share and a total par value of 14,671 euros. In accordance with the agreements between Acotel Group S.p.A. and Intesa Sanpaolo S.p.A., the Company sold the bank 198,075 treasury shares, equal to 4.75% of its issued capital, during the year. At 31 December 2008 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 such shares during the financial year. Acotel Group S.p.A., as the Parent Company, Acotel S.p.A., AEM S.p.A., Noverca S.r.l. and Noverca Italia S.r.l. 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. The Company has complied with all the provisions of Legislative Decree 196/2003 regarding Data Protection, and prepared the Data Protection Planning Document and any necessary amendments by the annual deadline of 31 March. At 31 December 2008 the Company has not established any branch offices.

5.11

EVENTS AFTER 31 DECEMBER 2008

No material events of sole significance to Acotel Group S.p.A. have taken place in early 2009.

5.12

OUTLOOK

In the light of the above, in 2009 Acotel Group S.p.A. will continue to carry out its management role within the Group, providing the other companies with strategic guidelines, coordinating their activities and supplying operating and financial support.

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5.13

PROPOSED APPROPRIATION OF NET PROFIT FOR THE YEAR

Having assessed the financial position of the Company and Group, for which Acotel Group S.p.A. acts as the holding company, and having taken account of the financial requirements linked to implementation of the development plan, the Board of Directors proposes to appropriate net profit of 4,122,667 euros in full to distributable reserves as retained earnings.

5.14

SHAREHOLDER RESOLUTIONS

The General Meeting of 24 April 2009 approved the Board of Directors proposal to take net profit for the year of 4,122,667 euros in full to distributable reserves as retained profit.

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PARENT COMPANYS FINANCIAL STATEMENTS

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Annual Report 2008

INCOM E STATEM ENT

()

Note 1 2

2008 6,741,405 6,741,405 1,558,820 1,556,418 2,402 8,300,225 (18,873) (1,739,293) (51,174) (1,688,119) (660,709) (2,041,530) (160,291) 42,172 (2,250) (79,574) 2,480,587 2,071,401 409,186 (29,422) (29,422)

2007 7,455,661 7,455,661 1,073,036 1,072,968 68 8,528,697 (16,019) (1,787,546) (112,451) (1,675,095) (651,332) (2,471,424) (145,170) (12,716) (96,853) 1,942,133 1,604,100 338,033 (470,093) (470,093)

Revenues: - from related parties Other income: - from related parties - other Total Raw materials External services: - rendered by related parties - other Rentals and leases Staff costs Amortisation and depreciation Internal capitalised costs Impairment charges/reversal of impairments on non-current assets Other costs Finance income: - from related parties - other Finance costs: - other PRO FIT/(LOSS) BEFORE TAX FROM CONTINUING O PERATIO NS Taxation NET PRO FIT/(LOSS) FRO M CO NTINUING O PERATIO NS Net profit/(loss) from discontinued operations NET PRO FIT/(LOSS) FO R THE YEAR Earnings per share Diluted earnings per share

4 5 6 7

8 9

6,091,042 10 (1,968,375)

4,819,677 (1,880,918)

4,122,667 4,122,667 11 1.02 1.02

2,938,759 2,938,759 0.75 0.75

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BALANCE SHEET
ASSETS
() Non-current assets: Property, plant and equipment Intangible assets Investments: - investments in subsidiaries - investments in other companies Other non-current assets - due from related parties - other Deferred tax assets TOTAL NON-CURRENT ASSETS Current assets: Trade receivables: - due from related parties Other current assets: - due from related parties - other Financial receivables: - due from related parties Current financial assets Cash and cash equivalents TOTAL CURRENT ASSETS NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS 17 18 2,995,541 2,995,541 2,358,507 2,186,484 172,023 7,070,962 7,070,962 13,024,729 889,583 26,339,322 85,471,913 2,247,480 2,247,480 2,477,180 2,378,697 98,483 5,748,488 5,748,488 5,902,792 2,725,356 19,101,296 69,695,061 12 13 14 402,359 38,957 25,022,103 25,022,103 33,563,486 33,561,832 1,654 105,686 59,132,591 262,166 29,532 18,373,774 18,371,524 2,250 31,839,188 31,837,534 1,654 89,105 50,593,765 Note
31 Dec 2008 31 Dec 2007

15

16

19 20 21

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Annual Report 2008

BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
()

Note

31 Dec 2008

31 Dec 2007

Shareholders' equity: Share capital Share premium reserve - Treasury shares Other reserves Retained earnings/(accumulated losses) Net profit/(loss) for the year TOTAL SHAREHOLDER'S EQUITY Non-current liabilities: Staff termination benefits Deferred tax liabilities TOTAL NON-CURRENT ASSETS Current liabilities: Current financial liabilities Trade payables Tax liabilities Other current liabilities: - due to related parties - other TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES HELD FOR SALE TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 22 1,084,200 55,106,013 (871,307) 9,066,033 4,935,122 4,122,667 73,442,728 1,084,200 55,106,013 (3,872,586) (83,380) 1,996,363 2,938,759 57,169,369

23

324,342 30,635 354,977

379,635 32,612 412,247

24 25 26

22 702,066 67,031 10,905,089 9,964,837 940,252 11,674,208 12,029,185 85,471,913

65 589,764 472,913 11,050,703 10,032,305 1,018,398 12,113,445 12,525,692 69,695,061

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STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

()

Share capital

Share premium reserve

- Treasury shares

Reserves Other Net profit for and retained reserves the year earnings (83,380) 1,349,594 644,220 2,549 2,938,759 644,220 (644,220)

TOTAL

Balances at 1 Jan 2007 Appropriation of net profit for 2006 Other movements Net result for 2007 Balances at 31 Dec 2007 Appropriation of net profit for 2007 Sale of treasury shares Net result for 2008 Balances at 31 Dec 2008

1,084,200

55,106,013 (3,872,586)

54,228,061 2,549 2,938,759 57,169,369 12,150,692 4,122,667 73,442,728

1,084,200

55,106,013 (3,872,586)

(83,380) 1,996,363 2,938,759

2,938,759 (2,938,759) 4,122,667

3,001,279 9,149,413

1,084,200

55,106,013

(871,307) 9,066,033 4,935,122

4,122,667

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CASH FLOW STATEMENT

()

2008

2007

A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES Cash flows from operating activities before changes in working capital Net profit/(loss) for the year Amortisation and depreciation Net change in staff termination benefits Net change in deferred tax liabilities - payable to related parties - other
(Increase) / decrease in receivables - due from related parties - other Increase / (decrease) in payables - due to related parties - other

8,628,083 1,818,051 4,209,107 4,122,667 160,291 (55,293) (18,558) (18,558) (1,951,862) (1,878,322) (73,540) (439,194) (67,468) (371,726) (8,682,536) (28,842) (281,067) (8,372,627) (8,374,877) 2,250 12,150,692 12,150,692 5,286,207 13,914,290

12,070,503 3,827,217 2,399,217 2,938,759 145,170 (83,968) (600,744) (616,035) 15,291 1,843,290 1,838,307 4,983 (415,290) 541,991 (957,281) (7,272,186) (20,125) (142,975) (7,109,086) (7,221,137) 112,052 2,549 2,549 (3,442,420) 8,628,083

C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES (Purchases)/disposals of fixed assets: - Intangible assets - Property, plant and equipment - Financial assets - due from related parties - other D. CASH FLOW FROM (FOR) FINANCING ACTIVITIES
Sale of treasury shares Other changes in shareholders' equity

E. CASH FLOW FOR THE YEAR (B+C+D) F. NET CASH AND CASH EQUIVALENTS AT END OF YEAR (A+E)

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NOTES TO THE PARENT COMPANYS FINANCIAL STATEMENTS

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7.1

CORPORATE INFORMATION

Acotel Group S.p.A. is an entity incorporated in accordance with Italian law, and is the company that directly and indirectly owns the investments in the operating companies that form part of the Acotel Group. The Companys registered office is in Rome, Italy. The financial statements of Acotel Group S.p.A. have been drawn up in euros, the Companys accounting currency. Acotel Group S.p.A. has also prepared the consolidated financial statements for the Acotel Group for the year ended 31 December 2008.

7.2

ACCOUNTING STANDARDS USED IN PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of Acotel Group S.p.A. for the year ended 31 December 2007 have been prepared in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union, and in force at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC). In compliance with European Regulation no. 1606 of 19 July 2002 the Acotel Group adopted the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) in the preparation of its consolidated financial statements as of 2005. In compliance with Italian legislation that transposed the above regulations, the separate financial statements of the Parent Company, Acotel Group S.p.A., have been prepared in accordance with these standards as of 2006.

Accounting standards and interpretations effective as of 1 January 2008 The new standards and interpretations regard: IFRIC 14 on IAS 19 The Limit on a Defined benefit Asset and Minimum Funding; Changes to IAS 39 Financial Instruments: Recognition and Measurement; IFRIC 12 Service Concession Arrangements; Changes to IFRS 7 Financial Instruments: Disclosures.

Adoption of these standards and interpretations has had no effect on the financial statements.

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New standards and interpretations not yet effective This section shows a list of standards, interpretations and updates to previously published standards, or to those yet to be approved by the European Union, whose application will be obligatory in future periods and whose adoption it was decided not to bring forward: IFRS 8 Operating Segments; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 16 Hedged of a Net Investment in a Foreign Operation; Revised version of IAS 23 Borrowing costs; Changes to IAS 1 Presentation of Financial Statements; Changes to IAS 16 Property, Plant and Equipment; Changes to IAS 19 Employee Benefits; Changes to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance; Changes to IAS 23 Borrowing Costs; Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; Changes to IAS 29 Financial Reporting in Hyperinflationary Economies; Changes to IAS 31 Interests in Joint Ventures; Changes to IAS 32 Financial Instruments: Presentation; Changes to IAS 36 Impairment of Assets; Changes to IAS 38 Intangible Assets; Changes to IAS 39 Financial Instruments: Recognition and Measurement; Changes to IAS 40 Investment Property; Changes to IFRS 2 Share-based Payment; Changes to IFRS 3 Business Combinations; Changes to IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations; Changes to IFRS 7 Financial Instruments: Disclosures.

The Company is evaluating the eventual impact that adoption of these changes may have on the financial statements.

7.3

BASIS OF PRESENTATION

The financial statements were drawn up on the basis of the historical cost principle modified, as required, for the measurement of certain financial instruments, and on a going concern basis. In this regard, the Companys management believes that, despite the difficult economic and financial environment, there are no material uncertainties (as defined by paragraph 25 of IAS 1) regarding its ability to continue as a going concern, above all in view of the Companys operational flexibility and financial strength. Acotel Group S.p.A. has prepared the income statement on the basis of the nature of expenses format, taking into account the specific activity carried out. This format is also used for internal reporting.

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The form of presentation used for the balance sheet distinguishes between current and non-current assets and liabilities, as allowed by section 51 et seq of IAS 1. Shareholders equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. The statement of cash flows was prepared in accordance with the indirect method.

7.4

ACCOUNTING POLICIES

The most significant accounting policies used in the preparation of the financial statements for the year ended 31 December 2008 are as follows: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates: ICT platform Specific plant Other plant and machinery Computers Vehicles Furniture, fixtures and fittings 50% 20% 20% 20% 25% 12%

Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. These assets are accounted for less accumulated
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amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by the Company are accounted for in the balance sheet, only if all the following conditions are met: the asset may be identified; the asset created is likely to generate profits in the future; the assets development costs may be reliably measured.

These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the balance sheet, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category. Impairment of assets Property, plant and equipment and intangible assets are analysed 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 assets 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 activities of each cash generating unit. 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) is increased to reflect the estimated recoverable amount, but only to the extent of the carrying

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amount of the asset had there not been any impairment charge. The reversal is immediately recognised in the income statement. Investments in subsidiaries and joint ventures Investments in subsidiaries and joint ventures are accounted for in accordance with the cost method, less any impairments pursuant to IAS 36. Impairment charges are recognised in the income statement. The original amount is reinstated in future years if the circumstances that led to the impairment no longer exist. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro 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: - financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in the income statement for the period; - loans and receivables, consisting of financial assets that are not listed on an active market, and held-to-maturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment charges; - available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in a specific reserve in shareholders equity until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period. Cash and cash equivalents This item includes amounts and balances held in the Companys bank current accounts at 31 December 2008. 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 Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service.

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Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a staff cost, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in 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). Payables Trade payables are accounted for at nominal value. Payables denominated in currencies other than the euro 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. Revenues from services rendered are recognised on the basis of the actual service performed during the year. Income taxes Current income taxes are recognised on the basis of their estimated taxable income in accordance with tax rates and rules in force, or as approved at the close of the financial year, taking account of applicable exemptions and tax credits. 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. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in shareholders equity are likewise accounted for in shareholders equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and shareholders equity in line with the underlying transaction. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. 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 financial instruments in issue or whose issue has already been approved together with the related plans. Foreign currency translation Acotel Group S.p.A.s functional and presentation currency is the euro. Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the balance sheet date are
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translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement.

7.5

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Company was required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenues, costs, assets and liabilities could differ from these estimates. The estimates were mainly used in estimating impairments of investments, amortisation and depreciation and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. In this regard, the situation caused by the current economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. These adjustments, which are currently impossible to estimate or predict, may be material.

7.6

NOTES TO THE INCOME STATEMENT

Note 1 - Revenue Revenue for 2008, amounting to 6,741 thousand euros (7,456 thousand euros in 2007), includes 6,717 thousand euros regarding revenues earned in Italy on the supply to the Italian subsidiary, Acotel S.p.A., of the data management service carried out via the ICT platform. The total also includes revenues of 24 thousand euros from corporate customers deriving from the contract with the Middle Eastern subsidiary, Info2cell, and relating to software development activities. The decrease in turnover, compared with the previous year, reflects the reduced volume of business with the subsidiary, Acotel S.p.A., in that the related agreement partly links fees to the performance of the subsidiarys business.

Note 2 - Other operating income Other operating income, amounting to 1,559 thousand euros (1,073 thousand euros in 2007), mainly
includes the invoicing of administrative services and lease expense and building running costs to

the subsidiaries, Acotel S.p.A., AEM S.p.A, Noverca Italia S.r.l. and Noverca S.r.l.. The latter company and the subsidiary, Jinny Software, were also charged for the costs incurred by Acotel Group S.p.A. for staff employed in the management and development of projects on behalf of these subsidiaries.

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Note 3 - External services External service costs, amounting to 1,739 thousand euros, break down as follows:
()

Rendered by related parties Other Total

2008 51,174 1,688,119 1,739,293

2007 112,451 1,675,095 1,787,546

Increase/(Decrease) (61,277) 13,024 (48,253)

The cost of external services provided by entities outside the Group, totalling 1,688 thousand euros, relates to:
()

Professional consultants Remuneration of governance bodies Connectivity and sundry utilities Security Travel expenses Regulatory compliance Cleaning Auditors' fees Other minor expenses Total

2008 337,375 352,300 152,077 139,226 123,312 119,261 77,183 64,415 322,970 1,688,119

2007 413,764 352,300 162,305 127,443 136,295 99,574 76,506 61,567 245,341 1,675,095

Increase/(Decrease) (76,389) (10,228) 11,783 (12,983) 19,687 677 2,848 77,629 13,024

There are no significant changes with respect to the previous year.

Note 4 Rentals and leases Lease expense, amounting to 661 thousand euros (651 thousand euros in 2007), mainly includes rental costs related to the Rome-based building in which the Groups Italian companies operate. The annual cost of 620 thousand euros is partly recovered from the other companies in proportion to the surface areas effectively used. Note 5 - Staff costs Staff costs include:

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Annual Report 2008

() 2008 2007 Increase/(Decrease)

Salaries and wages Social security contributions Staff termination indemnities Finance costs Other costs Total

1,473,982 464,401 117,513 (19,183) 4,817 2,041,530

1,761,730 564,751 125,284 (20,465) 40,124 2,471,424

(287,748) (100,350) (7,771) 1,282 (35,307) (429,894)

The reduction in staff costs reflects the decrease in the workforce, which has fallen from 30 at the beginning of 2008 to a total of 17 at 31 December 2008. Most of the staff who left the Company in 2008 were transferred on a permanent basis to Noverca S.r.l., Acotel S.p.A. and Noverca Italia S.r.l.. Finance costs on staff termination benefits equal the discount rate, calculated on the basis of the method fully described in the following Note 23. This cost item is recognised in finance costs (Note 9). The number of staff by category at 31 December 2008, compared with the average number for 2008 and 2007, is reported in the following schedule:
At 31 Dec 2008 Average 2008 Average 2007

Managers Supervisors White- and blue-collar staff Total

4 3 10 17

3 5 15 23

5 7 24 36

Note 6 - Amortisation and depreciation Amortisation of intangible assets amounts to 19 thousand euros (46 thousand euros in 2007). Such assets primarily refer to software licenses used by the Company in providing IT services. Depreciation of tangible assets, totalling 141 thousand euros (99 thousand euros in 2007), mainly regards the ICT platform, computers, and furniture and fittings.

Note 7 - Internal capitalised costs Internal capitalised costs, totalling 42 thousand euros, regarded the staff employed on the development of software for the new Acotel platform to be used in the supply of value added services.

Note 8 - Other costs Other costs amount to 80 thousand euros, compared with 97 thousand euros in 2007, and mainly include taxes other than income taxes, totalling 43 thousand euros, and donations made primarily to Italian cultural or charitable organisations, amounting to 21 thousand euros.

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Note 9 - Finance income and costs Net finance income of 2,451 thousand euros breaks down as follows:
( )
20 08 2 007 In crea se/(D ecrea se)

Interest inco m e fro m sub sidiaries Interest inco m e fro m investm ents Interest inco m e on b ank deposits F oreign exchange gains O ther interest incom e T o ta l fin an ce incom e Interest expense and bank charges F oreign exchange losses O ther interest expense T otal fin an ce costs N et fin an ce incom e

2 ,071,4 01 251,3 00 80,2 52 24,0 79 53,555 2 ,480,5 87 (9,8 60) (2 00) (19,3 62) (29,4 22) 2 ,451,1 65

1,604 ,100 301 ,500 3 2,112 330 4,091 1,942 ,133 (14 4,813 ) (30 4,617 ) (20 ,663 ) (47 0,093 ) 1,472 ,040

467 ,301 (5 0,200 ) 4 8,140 2 3,749 4 9,464 538 ,454 134 ,953 304 ,417 1,301 440 ,671 979 ,125

Interest due from related parties mainly regards loans granted to Acotel Partecipations. This interest is calculated at market rates (six-month LIBOR plus 0.5). 64 thousand euros of interest income from investments relates to profits on loans and receivables, whilst 187 thousand euros relates to profits on financial assets held for trading through the income statement. Interest income on bank deposits regards interest received on ordinary current accounts in which Group companies hold their liquidity. Net foreign exchange gains reflect the positive effect of movements in closing exchange rates on the value of loans issued in dollars to subsidiaries.

Note 10 Taxation Income taxes for 2008 amount to 1,968 thousand euros. This includes IRES (corporation tax) of 1,324 thousand euros, after the negative impact of adoption of tax consolidation at Group level, amounting to 377 thousand euros. The total also includes IRAP (regional tax) of 262 thousand euros, IRES and IRAP relating to the previous year (expense of 1 thousand euros and income of 24 thousand euros, respectively), and the reversal of deferred tax assets and liabilities accounted for in previous years, totalling 16 thousand euros and 2 thousand euros, respectively (after deducting those recognised in 2008). It should be noted that Acotel Group S.p.A., as the Parent Company, Acotel S.p.A., AEM S.p.A., Noverca S.r.l. and Noverca Italia S.r.l. 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. The reconciliation between the effective tax charge accounted for in the financial statements and the expected tax charge, calculated on the basis of expected tax rates in Italy, is as follows:
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(000)
2008 % 2007 %

Pre-tax profit/(loss) Expected tax charge calculated at 27.5% of the pre-tax result (33% in 2007) Temporary differences taxable in subsequent years Temporary differences deductible in subsequent years Permanent differences Adjustment of tax rates on deferred taxes Other minor changes

6,091 1,675 (26) 42 11

-

4,820 27.5%
(0.4%)

1,591 (148) 33 2 32 (32) 1,478 271 1,749

33.0%
(3.1%)

0.7% 0.2%
(0.1%)

0.7%
-

0.7%
(0.7%)

(1) 1,701

27.9%

30.7%

IRAP Taxation for the year for Acotel Group S.p.A.

262 1,963

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 (27.5% in 2008 and 33% in 2007).

Nota 11 Earnings per share The calculation of basic and diluted earnings per share is based on the following data:

()

2008

2007

Net profit/(loss) Number of shares Shares in circulation at beginning of year Weighted average of treasury shares acquired/sold in the year Weighted average of ordinary shares in circulation Basic and diluted earnings per share **

4,122,667

2,938,759

3,915,500 (132,050) 4,047,550 1.02

* 3,915,500 *
3,915,500 0.75

* : net of treasury shares held at the same date. **: basic earnings per share for 2008 and 2007 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist.

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7.7
7.7.1

NOTES TO THE BALANCE SHEET

ASSETS

NON-CURRENT ASSETS Note 12 - Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows:
()
Historical cost Accumulated depreciation Carrying amount Carrying amount at at 31 Dec 2008 31 Dec 2007

Plant and machinery Industrial equipment Assets under construction and advances Other Total

1,136,463 473,934 143,427 353,586 2,107,410

(1,073,003) (376,563) (255,485) (1,705,051)

63,460 97,371 143,427 98,101 402,359

88,452 103,271 70,443 262,166

No item of property, plant or equipment was revalued or impaired during the year. Plant and machinery primarily includes the ICT platform used to supply value added services. Industrial equipment includes the computers used in the development and management of value added services. Assets under construction regard the costs incurred in the development of the new Acotel platform, which is to enter service in 2009. Other mainly includes furniture and fittings and leasehold improvements on the Companys registered office. The related lease contract expires in 2013. Changes in property, plant and equipment during the year are shown in an annex.

Note 13 - Intangible assets A breakdown of intangible assets at 31 December 2008 is as follows:

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Annual Report 2008

()
Historical cost Accumulated amortisation Carrying amount Carrying amount at at 31 Dec 2008 31 Dec 2007

Industrial patents and intellectual property rights Concessions, licences and similar rights Intangible assets in process and advances Totale

577,042 71,213 2,508 650,763

(574,675) (37,131) (611,806)

2,367 34,082 2,508 38,957

16,082 2,650 10,800 29,532

No intangible assets were revalued or impaired during the year. Industrial patents and intellectual property rights consist of the specific software purchased from third parties and used by the Company in the provision of IT services and for its internal information system. Concessions, licenses and similar rights primarily includes the cost of the licence for the software used by the Company. Changes in intangible assets during the year are shown in an annex.

Note 14 - Investments At 31 December 2008 movements in investments, totalling 25,022 thousand euros, break down as follows:
()

Investments in related parties Investments in other companies Total

31 Dec 2008 25,022,103 25,022,103

31 Dec 2007 Increase/(Decrease) 18,371,524 6,650,579 2,250 (2,250) 18,373,774 6,648,329

A breakdown of investments and the related movements is shown below:

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(000) P arent Balance at 31 Company's Dec 2007 int erest (%)

Company

Increases

Reduct ions

Balance at 31 Dec 2008

Investments in subsidiaries: Acotel S.p.A. 99.9%

(a)

12,653

12,653

AEM-Advanced Electronic Microsystems S.p.A. Acotel Participations S.A. Acotel Group (Northern Europe) Ltd

99.9% 100% 100%

2,284 1,200 34 16,171

2,284 1,200 34 16,171

Investments in joint ventures: Noverca S.r.l. 90%

(b)

2,200

6,651

8,851

Total investments in related parties

18,371

25,022

(a) T his figure is t he sum of t he direct ly owned 98% int erest and t he 1.92% st ake held via t he subsidiary, AEM S.p.A. (b) Since 9 May 2008 Acot el Group S.p.A. owns 90% of Noverca S.r.l.. P rior t o t his dat e Acot el Group held a 100% int erest in Noverca S.r.l..

On 9 May 2008 all the corporate transactions envisaged in the Investment Agreement signed by Acotel Group S.p.A. and Intesa SanPaolo S.p.A. on 28 December 2007 were executed, including Intesa Sanpaolo S.p.A.s acquisition of a 10% interest in Noverca S.r.l., which was previously a wholly owned subsidiary of Acotel Group S.p.A.. The changes made to the articles of association delineate a Joint Venture Agreement, as they envisage that the key strategic decisions regarding Noverca S.r.l. should be approved by both shareholders.

The following table shows a complete list of investments with the information required by CONSOB Ruling no. DEM/6064293 of 28 July 2006:

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Annual Report 2008

(000) Shareholders' equity at 31 Dec 2008 Parent Net profit/(loss) for Company's 2008 interest (%)

Company

Registered office

Share capital

Number of shares

Carrying amount

Investments in subsidiaries: Acotel S.p.A. Rome - Via della Valle dei Fontanili 29 13,000 15,872 826 99.9%
(a)

24,980,000

12,653

AEM-Advanced Rome - Via della Valle Electronic Microsystems dei Fontanili 29/37 S.p.A. Acotel Participations S.A. Luxembourg 8 Bolulevard Royal

858

750

14

99.9%

1,647,634

2,284

1,200

(1,643)

(2,000)

100%

12,000

1,200

Acotel Group (Northern Dublin Europe) Ltd 29 North Anne Street

101

48

14

100%

100,000

34

16,171

Investments in joint ventures: Noverca S.r.l. Rome - Via della Valle dei Fontanili 29/37 2,949 31,114 19,258 90%
(b)

8,851

(a) This figure is the sum of the directly owned 98% interest and the 1.92% stake held via the subsidiary, AEM S.p.A. (a) Since 9 May 2008 Acotel Group S.p.A. owns 90% of Noverca S.r.l.. Prior to this date Acotel Group held a 100% interest in Noverca S.r.l..

No impairment was applied to the investment in AEM S.p.A., taking into account the targets set in the 2009 budget drawn up by the subsidiarys directors. No impairment was applied to the investment in Acotel Partecipations S.A., given the value attributed to the subsidiary, Jinny Software, the positive results achieved by Acotel do Brasil and the positive results expected in the short to medium term, especially from Info2cell and Flycell Inc., whose development plans envisage significant improvements in performance from 2009.

Note 15 - Other non-current assets Other non-current assets, amounting to 33,563 thousand euros, break down as follows:
()

Due from related parties Other Total

31 Dec 2008 33,561,832 1,654 33,563,486

31 Dec 2007 Increase/(Decrease) 31,837,534 1,724,298 1,654 31,839,188 1,724,298

Other non-current assets due from related parties include loans granted to Acotel Participations and used by the latter to acquire investments and financially support the acquired companies. The

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increase compared with the previous year primarily reflects accrued interest on the above loans in 2008. These loans are subject to annual interest indexed to LIBOR plus a spread of 0.5, as adjusted at the beginning of each calendar half year. In accordance with the provisions of art. 2427, paragraph 1 of the Italian Civil Code, it should be noted that no receivables at 31 December 2008 have terms to maturity of over 5 years.

Note 16 Deferred tax assets Deferred tax assets of 106 thousand euros arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases, applying the tax rates in force when the differences will reverse. The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets:
()

31 Dec 2008 Taxation Tax rate Deferred tax assets: Recovery of taxed accounting-related amortisation and depreciation Provisions for taxed directors' fees Other Total 78,249 32.32% - 27.5% 20,038 27.5% 7,399 32.32% - 27.5% 105,686

31 Dec 2007 Taxation Tax rate

58,636 20,038 89,105

32.32% 28%

10,431 32.32% - 27.5%

CURRENT ASSETS Note 17 - Trade receivables This item breaks down as follows at 31 December 2008:
()

31 Dec 2008 Due from related parties Total 2,995,541 2,995,541

31 Dec 2007 2,247,480 2,247,480

Increase/(Decrease) 748,061 748,061

Trade receivables due from related parties include an amount of 2,929 thousand euros due from Acotel S.p.A. regarding services provided via the ICT platform, which the subsidiary uses for its activities as a service provider. The residual portion regards an amount due from Info2cell. Trade receivables are fully collectable within 12 months.

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Note 18 - Other current assets This item breaks down as follows:

()

31 Dec 2008 Due from related parties Other Total 2,186,484 172,023 2,358,507

31 Dec 2007 2,378,697 98,483 2,477,180

Increase/(Decrease) (192,213) 73,540 (118,673)

Other current assets due from related parties include amounts totalling 694 thousand euros due from Acotel S.p.A., deriving from participation in the tax consolidation. The remainder primarily relates to amounts charged to Jinny Software, Acotel S.p.A., AEM S.p.A., Noverca S.r.l. and Noverca Italia S.r.l. for their respective portions of general and administrative costs that are incurred entirely by Acotel Group S.p.A.. Other current assets due from others primarily relate to prepayments to suppliers.

Note 19 Financial receivables Financial receivables due from subsidiaries, totalling 7,071 thousand euros (5,748 thousand euros at 31 December 2007), refer to short-term loans granted to Group companies, primarily to Acotel Partecipations S.A. in order to finance operations. In common with the loans recorded under noncurrent financial assets, these loans are subject to annual interest indexed to the 6-month euro and dollar LIBOR rates plus a spread of 0.5, adjusted at the beginning of each calendar half year, according to whether the loan was issued in euros or dollars. The reduction in this item, compared with the previous year, primarily reflects the financial support received by Acotel Participations essentially in order to meet the financial needs of the subsidiary, Flycell Inc.. For a detailed analysis of intercompany transactions, see Section 7.14 below. To complete the disclosure required by the Civil Code, it should be noted that all receivables classified under current assets in the balance sheet at 31 December 2008 are due from Italian debtors, with the exception of intercompany items, for which reference should be made to Section 7.14 below.

Note 20 - Current financial assets Current financial assets, amounting to 13,025 thousand euros, include:
()

31 Dec 2008 Loans and receivables Assets held for trading Total 2,616,977 10,407,752 13,024,729

31 Dec 2007 503,544 5,399,248 5,902,792

Increase/(Decrease) 2,113,433 5,008,504 7,121,937

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Loans and receivables include an amount of 2,113 thousand euros blocked in an account until 19 May 2009 as surety for the loans amounting to US$5 million granted by the Bank of the West N.Y. (USA) to the subsidiary Flycell Inc., and, for the remaining balance, the bonds detailed below:
(000)

Issuer Banca Nazionale del Lavoro S.p.A. Total

Par value

Interest

Rate 3-month Euribor

Maturity January 2009

Fair value at 31 Dec 2008 504 504

500 Quarterly in arrears 500

Assets held for trading regard the Money Market Invest EUR fund in which Acotel Group S.p.A. has invested. This fund, managed by UBS (Italia) S.p.A., has a limited risk exposure and invests its assets in money market instruments, bonds, treasury bills and other similar securities. At 31 December 2008 the fair value of the financial assets recognised at amortised cost is substantially in line with their carrying amount.

Note 21 - Cash and cash equivalents This item comprises bank deposits of 888 thousand euros and cash and notes in hand of 2 thousand euros. At the end of last year these items amounted to 2,723 thousand euros and 2 thousand euros, respectively.

7.7.2

LIABILITIES AND SHAREHOLDERS EQUITY

SHAREHOLDERS EQUITY Note 22 - Shareholders equity The statement of changes in shareholders' equity during the year is included in the financial statements. At 31 December 2008 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 Companys objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to 55,106 thousand euros and derives mainly from capital increases carried out in preparation for the Companys stock market flotation.

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At 31 December 2008 treasury shares acquired by Acotel Group S.p.A. were recorded as a reduction of shareholders' equity, totalling 871 thousand euros. These shares have a par value of 14,671 euros, representing 1.35% of the share capital. This refers to 56,425 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 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April 2004. The average purchase price of these shares was 15.44 euros; at 31 December 2008 the share price stood at 39.61 euros. Within the scope of the agreements signed between the Group and Intesa SanPaolo S.p.A. during the period, Acotel Group S.p.A. sold 198,075 of own shares to the bank, equivalent to 4.75% of its share capital, for an amount totalling 12,281 thousand euros (62 euros per share), thereby making capital gains of 9,149 thousand euros, net of the tax effect, registered as an increase in Other equity reserves. 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 31 December 2008 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. Other reserves, totalling 9,066 thousand euros, break down as follows:
(000)

31 Dec 2008 Legal reserve Profit/(loss) on sale of treasury shares Other Total 217 9,219 (370) 9,066

31 Dec 2007 217 70 (370) (83)

Increase/(Decrease) 9,149 9,149

Retained earnings amount to 4,935 thousand euros. In addition to the notes regarding shareholders equity, the following should be noted:

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(000)

Nature/description

Am ount

Potential use

Available portion

Sum ary of uses during m previous 3 years to cover losses for other reasons

Share capital Capital reserves: Share prem reserve ium Revenue reserves: Legal reserve Other reserves Retained earnings Total Undistributable portion Residual distributable portion Key: A: to increase capital B: to cover losses C: to pay dividends

1,084 55,106 A, B, C 55,106 -

217 9,219 4,935 70,561

B A, B, C A, B, C

--9,219 4,935 69,260 69,260

Note 23 Provisions for staff termination benefits The total balance includes amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies and further explained below, less any advances paid. Movement during the year are shown below.

() Opening balance Provisions Finance costs Transfer of provisions Uses Various withholding taxes Closing balance

31 Dec 2008 379,635 98,330 19,183 (130,313) (34,231) (8,262) 324,342

31 Dec 2007 492,739 104,819 20,465 (32,671) (196,034) (9,683) 379,635

Provisions for staff termination benefits shown in the financial statements were calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits:
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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 Annual discount rate Annual inflation rate Annual rate of salary increase

December 2008 4.60% 3.20% Managers 2.50%; Supervisors/Whiteand blue-collar staff 1.00%

CURRENT LIABILITIES Note 24 - Trade payables This item, which amounts to 702 thousand euros at 31 December 2008, compared with 590 thousand euros at 31 December 2007, is entirely made up of trade payables falling due within 12 months.

Note 25 - Tax liabilities This item breaks down as follows:

()

31 Dec 2008 Current income taxes VAT due Substitute tax due Other tax liabilities Total 14,657 52,339 35 67,031

31 Dec 2007 354,481 51,999 66,086 347 472,913

Increase/(Decrease) (339,824) (51,999) (13,747) (312) (405,882)

The item includes income taxes, less advances paid, and withholding taxes due from employees and consultants in the form of substitute tax.

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It should be noted that the Company is not in dispute with the tax authorities, although a tax audit is currently underway with regard to 2007. At the time of preparation of this report, management believes that the findings of the tax audit will not generate significant potential liabilities.

Note 26 - Other current liabilities This item breaks down as follows:

()

31 Dec 2008 Due to related parties Other Total 9,964,837 940,252 10,905,089

31 Dec 2007 10,032,305 1,018,398 11,050,703

Increase/(Decrease) (67,468) (78,146) (145,614)

Other payables due to related parties include an amount of 8,780 thousand euros due to Acotel S.p.A. as unpaid called-up share capital, following the capital increase approved by the subsidiary in 2000. The residual portion mainly regards charges for sundry services payable to Acotel S.p.A. and AEM S.p.A. and the tax credit transferred from Noverca S.r.l. and Noverca Italia S.r.l.. Intercompany transactions are broken down in Section 7.14 below. Other payables break down as follows:
()

Due to pension funds and social security institutions Due to staff Due to directors Other amounts due Total

31 Dec 2008 142,676 302,824 88,101 406,651 940,252

31 Dec 2007 Increase/(Decrease) 177,289 (34,613) 371,328 (68,504) 57,500 30,601 412,281 (5,630) 1,018,398 (78,146)

Amounts due to pension funds and social security institutions include social security and insurance contributions to be paid on wages and remuneration paid to employees and consultants. Amounts due to employees refer to pay, additional months pay, bonuses and holiday pay. Amounts due to directors refer to fees falling due but not yet paid.

7.8

NET FUNDS

An analysis of net funds of 20,985 thousand euros at 31 December 2008 reveals increases in liquidity and current financial assets, mainly due to the sale the treasury shares held by Acotel Group S.p.A. to Intesa Sanpaolo S.p.A..

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()

31 Dec 2008 A. Cash and cash equivalents B. Securities held for trading C. Liquidity (A + B) D. Current financial receivables due from subsidiaries E. Other current financial receivables F. Current financial receivables (D + E) G. Current bank borrowings H. Current debt (G) I. Net funds (C + F + H) - due from related parties - other 889,583 10,407,752 11,297,335 7,070,962 2,616,977 9,687,939 (22) (22) 20,985,252 7,070,962 13,914,290

31 Dec 2007 2,725,356 5,399,248 8,124,604 5,748,488 503,544 6,252,032 (65) (65) 14,376,571 5,748,488 8,628,083

Increase/(Decrease) (1,835,773) 5,008,504 3,172,731 1,322,474 2,113,433 3,435,907 43 43 6,608,681 1,322,474 5,286,207

7.9

ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Classes of financial instruments The following table shows the breakdown of financial assets and liabilities required by IFRS7 within the context of the categories provided for by IAS 39:
()

BALANCE SHEET ITEM

Assets held for trading

31 Dec 2008 Available-forLoans and sale financial receivables assets 33,561,832 1,654 2,995,541 7,070,962 503,736 2,113,241 887,807 1,776 47,136,550 -

Carrying amount

Note

NON-CURRENT ASSETS Due from subsidiaries Other non-current assets Guarantee deposits CURRENT ASSETS Trade receivables Due from related parties Financial receivables Due from related parties Bonds Current financial assets Term deposits Investment funds Bank deposits Cash and cash equivalents Cash and notes in hand TOTAL ASSETS

10,407,752 10,407,752

33,561,832 1,654 2,995,541 7,070,962 503,736 2,113,241 10,407,752 887,807 1,776 57,544,302

15 15 17 19 20 20 20 21 21

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()

BALANCE SHEET ITEM

Assets held for trading

31 Dec 2007 Available-forLoans and sale financial receivables assets 31,837,534 1,654 2,247,480 5,748,488 503,544 2,723,620 1,736 43,064,056 2,250 2,250

Carrying amount

Note

NON-CURRENT ASSETS In other companies Due from subsidiaries Other non-current assets Guarantee deposits Investments CURRENT ASSETS Trade receivables Due from subsidiaries Financial receivables Due from subsidiaries Bonds Current financial assets Investment funds Bank deposits Cash and cash equivalents Cash and notes in hand TOTAL ASSETS

5,399,248 5,399,248

2,250 31,837,534 1,654 2,247,480 5,748,488 503,544 5,399,248 2,723,620 1,736 48,465,554

15 15 17 19 20 20 21 21

()

BALANCE SHEET ITEM CURRENT LIABILITIES Current financial liabilities Bank borrowings Trade payables Suppliers TOTAL LIABILITIES

31 Dec 2008 Liabilities at Carrying amortised cost amount 22 702,066 702,088 22 702,066 702,088

Note

24

BALANCE SHEET ITEM CURRENT LIABILITIES Current financial liabilities Bank borrowings Trade payables Suppliers TOTAL LIABILITIES

31 Dec 2007 Liabilities at Carrying amortised cost amount 65 589,764 589,829 65 589,764 589,829

Note

24

Type of financial risks and related hedges As stated in the section of the Directors report on operations dealing with financial risk management, the Company is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding Acotel Group S.p.A.s exposure to these risks.

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Credit risk The receivables reported in the Companys financial statements are not exposed to significant credit risk. Acotel Group S.p.A.s maximum potential exposure to credit risk at 31 December 2008 relates to amounts due from subsidiaries, in addition to the face value of guarantees granted primarily to these companies and detailed in Section 7.11. Trade receivables due from subsidiaries have the following maturities. 98% of these receivables had yet to mature at 31 December 2008:
(000)

N et trade receivables due from subsidiaries 31 D ecem ber 2008 31 D ecem ber 2007

N ot due 0-30 days -

2,934 2,210

F allen due w ithin last: 31-60 61-90 91-180 181-360 over 1 days days days days year 6 6 12 37 6 7 22 2

T otal

2,995 2,247

Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business at acceptable financial conditions. As shown in the previous tables regarding financial assets and liabilities, the Company does not resort to external sources of funds as it is able to meet its cash requirements from operating cash flow. Trade payables mature in 2009.

Foreign exchange risk The Company is not exposed to foreign exchange risk, as it does not report receivables or payables due from or to third parties or financial instruments exposed to foreign exchange risk.

Interest rate risk As the Company does not rely on external sources of funds, it is not exposed to interest rate risk, with the exception of the loans granted to subsidiaries. A hypothetical movement of 100bps in the interest rates applicable to intercompany loans at 31 December 2008 would result in an impact on interest income of approximately 380 thousand euros.

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7.10 CONTINGENCIES
The Board of Directors, having obtained the advice of their legal experts, considers that there are no liabilities for which it is necessary that Acotel Group S.p.A. make provision.

7.11

COMMITMENTS

The guarantees granted by Acotel Group S.p.A. include 259 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 Acotel Group S.p.A. rents and where all the Groups Italian companies have their offices, and 278 thousand euros (equivalent to 387,550 US dollars at 31 December 2008), for a surety given in favour of Flycell Inc. as a guarantee for the lease agreement signed by this company.

7.12

SHAREHOLDER PACTS

On re-election of the Board of Directors of Acotel Group S.p.A., the shareholders, Clama S.A., Clama S.r.l. and Intesa Sanpaolo S.p.A. have undertaken to submit and vote for one joint list of directors only, comprising nine members, of which one, to be numbered eighth on the list, is to be nominated by Intesa Sanpaolo. The same result must be obtained even if it is not possible to elect the new Board of Directors by slate vote. The above commitment will cease to be effective should Intesa Sanpaolo, for any reason, reduce its investment in Acotel Group S.p.A. to below 2%: should this occur the bank will ensure that its nominated director resigns from the post.

7.13

COMPLIANCE WITH LEGISLATIVE DECREE 196/2003

The Company has complied with all the provisions of Legislative Decree 196/2003 regarding Data Protection, and prepared the Data Protection Planning Document and any necessary amendments by the annual deadline of 31 March.

7.14

RELATED PARTY TRANSACTIONS

The related party transactions reported in the financial statements of Acotel Group S.p.A. regard transactions entered into with direct or indirect subsidiaries and jointly controlled entities. The impact of these transactions on items in the financial statements is as follows:

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()

Total item in financial statements Effect of related party transactions or positions on balance sheet items Investments Other non-current assets Trade receivables Other current assets Financial receivables Other current liabilities Effect of related party transactions or positions on income statement items Revenue Other income External services Finance income Effect of related party transactions or positions on cash flows Cash flows from operating activities Cash flows for investing activities

Related parties Amount %

25,022,103 33,563,486 2,995,541 2,358,507 7,070,962 10,905,089

25,022,103 33,561,832 2,995,541 2,186,484 7,070,962 9,964,837

100.0% 100.0% 100.0% 92.7% 100.0% 91.4%

6,741,405 1,558,820 1,739,293 2,480,587

6,741,405 1,556,418 51,174 2,071,401

100.0% 99.8% 2.9% 83.5%

1,818,051 (8,682,536)

(1,945,790) (8,374,877)

Given that they are not material, transactions with other related parties are not reported in the financial statements. The following section provides the information required by CONSOB regulations.

Purchase and sale of investments from Group companies No purchases or sales of investments took place between Acotel Group companies in 2008.

Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned 225,000 as Chairman and CEO of Acotel Group S.p.A. during 2008. Margherita Argenziano earned 15,000 euros each as a member of the Board of Directors of Acotel Group S.p.A.. At 31 December 2008 the above Directors are owed a total of 37,500 euros.

Intercompany transactions The following table shows transactions between Acotel Group S.p.A. and the following companies in 2008:

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( ) C om pany R e c e iv a b le s P a y a b le s C o s ts R evenu es

A E M S .p .A . A c o te l S .p .A . A c o te l P a rtic ip a tio n s S .A . N o v e rc a S .r .l. J in n y S o ftw a r e L td . N o v e rc a I ta lia S .r.l. F ly c e ll In c . In fo 2 c e ll.c o m F Z -L L C T o ta l

3 7 7 ,2 4 5 3 ,8 5 4 ,1 4 5 4 0 ,4 0 2 ,5 0 4 2 4 0 ,1 2 5 5 2 6 ,0 4 4 1 1 5 ,6 8 6 2 3 0 ,4 6 9 6 8 ,6 0 0 4 5 ,8 1 4 ,8 1 8

2 9 ,0 0 0 8 ,8 5 3 ,6 1 2 8 1 1 ,1 9 7 2 7 1 ,0 2 8 9 ,9 6 4 ,8 3 7

2 9 ,0 0 0 2 2 ,1 7 4 5 0 0 ,2 3 7 2 5 5 ,1 1 9 8 0 6 ,5 3 0

2 0 7 ,8 2 8 7 ,3 2 5 ,1 1 2 2 ,0 4 4 ,3 7 0 4 8 6 ,1 5 8 5 2 7 ,8 9 5 1 2 0 ,2 8 5 1 1 ,6 2 7 2 4 ,0 0 0 1 0 ,7 4 7 ,2 7 5

Amounts due from AEM represent the subsidiarys share of administrative costs, lease expense and running costs relating to the building used as the companys headquarters. In addition to the companys share of the above overheads, amounts due from Acotel S.p.A. regard the subsidiarys use of the technology platform in its role as service provider, and receivables deriving from its participation in the tax consolidation, as described in the notes to the financial statements. Amounts due from Acotel Participations regard the loans granted in order to finance the subholding companys activities. The portion disbursed to finance the acquisition of investments and the operations of overseas subsidiaries is classified in other non-current assets and amounts to 33,561,832 euros. A further 6,840,672 euros, disbursed in order to enable Acotel Participations to finance the operations of its subsidiaries, is classified among current financial assets. Amounts due from Noverca S.r.l. regard charges for its share of administrative costs, lease expense and running costs relating to the building used as the companys headquarters, and services provided by the Companys staff. Amounts due from Jinny Software derive from services provided by staff from Acotel Group S.p.A.. Amounts due from Noverca Italia S.r.l. regard charges for its share of administrative costs, lease expense and running costs relating to the building used as the companys headquarters. Amounts due from Flycell Inc. relate primarily to the sale, in 2007, of the investment in Flycell Telekomunikasyon Hizmetleri, which was previously owned by Acotel Group S.p.A.. Amounts due from Info2cell derive from charges for software development. Financial receivables earn interest at market rates (6-month dollar and euro LIBOR rates plus a spread of 0.5). The amount payable to Acotel S.p.A., totalling 8,779,767 euros, regards unpaid called-up share capital deriving from the capital increase carried out by the subsidiary. The residual amount relates to services received and an amount due to the subsidiary for expenses. The amount payable to Noverca S.r.l. and Noverca Italia S.r.l. regards the transfer of the tax credit deriving from participation in the tax consolidation and payable by the Parent Company.
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Revenues earned from AEM primarily regard the subsidiarys share of administrative costs, lease expense and running costs incurred by the Parent Company on behalf of the subsidiary. Revenues earned from Acotel S.p.A. mainly include the amount charged in return for the data processing services supplied via the ICT platform, the subsidiarys share of administrative costs, lease expense and building running costs, and an amount deriving from participation in the tax consolidation. Revenues earned from Noverca S.r.l. and Noverca Italia S.r.l. derive primarily from charges for its share of administrative costs, lease expense and running costs relating to the building used as the companys headquarters, and services provided by the Companys staff. Revenues earned from Acotel Participations and Flycell Inc. relate to interest on the loans issued. Revenues earned from Jinny Software regard services received from Acotel Group S.p.A. Revenues earned from Info2cell derive from the software development contract signed in 2006.

Remuneration of Directors, Statutory Auditors, General Managers, Key Managers (art. 78, CONSOB Regulation no. 11971/99) and other related parties
() Remuneration for Period in which position Expiry of Bonuses and position held in Parent Non-cash bonuses held term of office other incentives Company 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-09/05/08 01/01/08-31/12/08 09/05/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 01/01/08-31/12/08 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 30/04/2009 225,000 15,300 15,000 15,000 15,300 5,000 15,300 10,000 15,600 10,400 10,400 3,000 309,546 123,930

Name

Position

Other remuneration

Claudio Carnevale Francesco Ago Margherita Argenziano Luca De Rita Giovanni Galoppi Andrea Morante Giuseppe Guizzi Luciano Hassan Antonio Mastrangelo Umberto Previti Flesca Maurizio Salimei

Chairman / CEO Director Director Director Director Director Director Director Chairman Board of Statutory Auditors Statutory Auditor Statutory Auditor

Non-monetary benefits regard personal use of company motor vehicles. Other remuneration paid to the director, Luca De Rita, regards the salary paid to Mr De Rita as the Companys CFO and remuneration for the post of manager responsible for financial reporting for Acotel Group S.p.A.. These amounts do not include social security contributions payable by the Company or employee termination benefits. The Director, Giovanni Galoppi, received fees of 129,930 euros as legal counsel for the Company.

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Expenses incurred in 2008 for fees paid to key managers totalled approximately 260 thousand euros, including employee termination benefits of 13 thousand euros. Such expenses, which do not include social security contributions for which the employer is responsible, relate to a key manager who was in office in 2007 and remains so.

7.15

OTHER INFORMATION

The parent, Clama S.r.l., does not carry out management and coordination activities pursuant to art. 2497 of the Italian Civil Code.

Material non-recurring events and transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that the material non-recurring transactions carried out by the Company in 2008 regarded the agreements concluded with the Intesa Sanpaolo banking group. The effects of these transactions are described in various sections of this report, to which reference should be made.

Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during 2008.

Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2008 for auditing services and other services provided by the Independent Auditors and entities belonging to their network.
()

Type of service Auditing Tax consultancy Other services (preparation of tax declarations) Total

Entity providing the service Deloitte & Touche S.p.A. Rete Deloitte Deloitte & Touche S.p.A.

Fees 2008* 56,861 26,000 1,000

83,861

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

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ANNEXES TO THE PARENT COMPANYS FINANCIAL STATEMENTS

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ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO. 11971 OF 14 MAY 1999 AND SUBSEQUENT AMENDMENTS AND ADDITIONS

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REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS

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REPORT OF THE INDEPENDENT AUDITORS

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ESSENTIAL INFORMATION ON SUBSIDIARIES AND JOINT VENTURES

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Acotel S.p.A.
Share capital Registered office 13,000,000 euros Via della Valle dei Fontanili 29 00168 Rome

(000)

Summary balance sheet 2008 Amounts due from shareholders Fixed assets Current assets Total assets 8,780 6 13,306 22,092 2007 8,780 10 12,457 21,247

Shareholders' equity Provisions Staff termination benefits Current liabilities Total liabilities

15,872 15 369 5,836 22,092

15,046 14 303 5,884 21,247

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Net extraordinary income/(expense) Profit/(loss) before tax Taxation Net profit/(loss) for the year 13,066 11,972 1,094 246 (31) 1,309 (483) 826 2007 14,304 12,857 1,447 154 23 1,624 (684) 940

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AEM Advanced Electronic Microsystems S.p.A.

Share capital Registered office 858,000 euros Via della Valle dei Fontanili 29/37 00168 Rome

(000)

Sum arybalancesheet m 2008 Fixedassets C urrent assets T assets otal 266 1,711 1,977 2007 269 1,565 1,834

Shareholders' equity Provisions Staff term inationbenefits N on-current liabilities C urrent liabilities T liabilities otal

750 2 265 101 859 1,977

736 2 223 133 740 1,834

Sum aryincom statem m e ent 2008 V of production alue O peratingcosts O peratingprofit/(loss) N financeincom et e/(costs) N extraordinaryincom et e/(expense) Profit/(loss) beforetax Taxation N profit/(loss) fortheyear et 2,023 1,941 82 (6) 76 (62) 14 2007 1,628 1,961 (333) (11) (3) (347) 89 (258)

144

Annual Report 2008

Acotel Participations S.A.

Share capital Registered office 1,200,000 euros 8, Boulevard Royal L-2449 Luxembourg

(000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 33,192 5,569 38,761 2007 33,192 3,667 36,859

Shareholders' equity Current liabilities Total liabilities

(1,642) 40,403 38,761

358 36,501 36,859

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year 197 (197) (1,803) (2,000) (2,000) 2007 221 (221) (1,013) (1,234) (1,234)

145

Annual Report 2008

Acotel CHILE S.A.

Share capital Registered office 17,330 US dollars Santiago, Chile

(US$000)

Summary balance sheet 2008 Current assets Total assets 17 17 2007 17 17

Shareholders' equity Total liabilities

17 17

17 17

146

Annual Report 2008

Acotel Do Brasil Ltda

Share capital Registered office 1,868,250 reals Rua Visconte de Piraj, 550 Bairro Ipanema, Rio De Janeiro Brazil

(R000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 1,040 19,095 20,135 2007 1,125 16,065 17,190

Shareholders' equity Current liabilities Total liabilities

18,221 1,914 20,135

14,074 3,116 17,190

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year 13,890 8,835 5,055 1,308 6,363 (2,216) 4,147 2007 15,833 9,582 6,251 932 7,183 (2,419) 4,764

147

Annual Report 2008

Acotel Espana S.L.

Share capital Registered office 3,006 euros Calle Velazquez 52 Madrid, Spain

(000)

Summary balance sheet 2008 Current assets Total assets 11 11 2007 11 11

Shareholders' equity Current liabilities Total liabilities

(37) 48 11

(29) 40 11

Summary income statement 2008 Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Profit/(loss) for the year 6 (6) (2) (8) (8) 2007 9 (9) (2) (11) (11)

148

Annual Report 2008

Flycell Inc.
Share capital Registered office 10,000 US dollars 2711 Centerville Road Wilmington, Delaware, USA

(US$000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 467 10,805 11,272 2007 448 11,276 11,724

Shareholders' equity Deferred tax liabilities Current liabilities Total liabilities

(1,642) 103 12,811 11,272

5,713 78 5,933 11,724

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(expense) Profit/(loss) before tax Taxation Net profit/(loss) for the year 75,849 81,019 (5,170) (369) (5,539) (1,149) (6,688) 2007 48,683 54,515 (5,832) (326) (6,158) (146) (6,304)

note: Company incorporated on 28 June 2003. The financial statements of Flycell Inc. consolidate the accounts of the following subsidiaries: Flycell Telekomnicasyon Hizmetleri A., incorporated in July 2005, with share capital of 50,000 new Turkish lira and its registered office in Istanbul, Turkey; Flycell Latin America Contedo Para Telefonia Mvel LTDA, incorporated in June 2006, with share capital of 250,000 reals and its registered office in Rio de Janeiro, Brazil; Yabox LLC, incorporated in October 2007, with share capital of 1 US dollar and its registered office in Wilmington, Delaware, USA; Flycell Italia S.r.l. incorporated in July 2008, with share capital of 10,000 Euros and its registered office in Rome, Italy.

149

Annual Report 2008

Info2cell.com FZ-LLC
Share capital Registered office 18,350,000 UAE dollars Internet City Dubai

(US$000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 752 6,629 7,381 2007 845 5,728 6,573

Shareholders' equity Non-current liabilities Passivo corrente Total liabilities

1,496 235 5,650 7,381

1,469 200 4,904 6,573

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year 7,281 7,217 64 (44) 20 (2) 18 2007 5,896 6,140 (244) (271) (515) (515)

note: The financial statements of Info2cell.com consolidate the accounts of the subsidiary, EITCO LLC, with share capital 710,000 Jordanian dinars and its registered office in Amman, Jordan and Rawafid Information Company LLC, with share capital 500,000 Saudi Riyal and its registered office Riyadh, Saudi Arabia.

150

Annual Report 2008

Jinny Software Ltd

Share capital Registered office 2,972 euros 29 North Anne Street Dublin 7, Dublin Ireland

(000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 882 8,076 8,958 2007 730 6,570 7,300

Shareholders' equity Current liabilities Total liabilities

4,072 4,886 8,958

3,104 4,196 7,300

Summary income statement 2008 2007

Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year

13,328 12,167 1,161 (75) 1,086 (173) 913

8,901 8,351 550 (44) 506 (21) 485

note: The financial statements of Jinny Software Ltd consolidate the accounts of the following subsidiaries: Millenium Software SAL, with share capital of 30,000,000 Lebanese pounds and its registered office in Samra Center, Fanar, Beirut, Lebanon ; and Jinny Software Romania SRL, incorporated in June 2007, with share capital of 200 lei and its registered office in Bucharest, Romania; Jinny Software Latin America Importao e Exportao LTDA incorporated in February 2007, with share capital of 250.000 reals and its registered office in San Paolo, Brasil; Jinny Software Panama Inc. incorporated in June 2008, with share capital of 10,000 US dollars and its registered office in Panama City, Panama.

151

Annual Report 2008

Acotel Group (Northern Europe) Ltd

Share capital Registered office 101,000 euros 29 North Anne Street Dublin 7, Dublin Ireland

(000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 48 48 2007 51 51

Shareholders' equity Current liabilities Total liabilities

48 48

34 17 51

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year 16 1 15 (1) 14 14 2007 (13) (13) (13)

note: Company incorporated on 27 May 2004.

152

Annual Report 2008

Noverca S.r.l.
Share capital Registered office 2,949,289 euros Via della Valle dei Fontanili 29 00168 Rome

(000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 29,552 2,938 32,490 2007 2,116 1,380 3,496

Shareholders' equity Staff termination benefits Current liabilities Total liabilities

31,114 205 1,171 32,490

1,584 60 1,852 3,496

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Net extraordinary income/(expense) Profit/(loss) before tax Taxation Net profit/(loss) for the year 1,307 3,398 (2,091) 12 20,830 18,751 507 19,258 2007 735 2,095 (1,360) (27) (1,387) 454 (933)

153

Annual Report 2008

Noverca Italia S.r.l.

Share capital Registered office 120,000 euros Via della Valle dei Fontanili 29 00168 Rome

(000)

Summary balance sheet 2008 Fixed assets Current assets Total assets 30,486 17,268 47,754

Shareholders' equity Deferred tax liabilities Staff termination benefits Current liabilities Total liabilities

37,504 9,516 67 667 47,754

Summary income statement 2008 Value of production Operating costs Operating profit/(loss) Net finance income/(costs) Profit/(loss) before tax Taxation Net profit/(loss) for the year 149 2,703 (2,554) 233 (2,321) 692 (1,629)

note: Company incorporated on 9 May 2008.

154