interim report for the three months …...2014/09/30 · interim report for the three months ended...

INTERIM REPORT FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2014

Registered office in Via della Valle dei Fontanili 29/37 – 00168 Rome, Italy Share capital: €1,084,200.00 fully paid-in Rome Companies’ Register, Tax Code and VAT number: 06075181005

Interim report 30 September 2014

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CONTENTS

MANAGEMENT AND CONTROL BODIES ......................................................................................... 2

STRUCTURE OF THE GROUP .............................................................................................................. 3

BASIS OF PRESENTATION .................................................................................................................. 3

BASIS OF CONSOLIDATION................................................................................................................ 4

SIGNIFICANT EVENTS DURING THE QUARTER ............................................................................ 5

OTHER INFORMATION ........................................................................................................................ 9

RESULTS OF OPERATIONS ............................................................................................................... 10

FINANCIAL POSITION ........................................................................................................................ 19

DECLARATION BY THE MANAGER RESPONSIBLE FOR FINANCIAL REPORTING ……….20


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MANAGEMENT AND CONTROL BODIES

Board of Directors

Claudio Carnevale Chairman and CEO

Francesco Ago (1), (2) Director

Margherita Argenziano Director

Raffaele Cappiello (1), (2) Director

Cristian Carnevale Director

Giovanni Galoppi Director

Giorgio Angelo Girelli Director

Giuseppe Guizzi (1), (2), (3) Director

Giovanni La Croce Director (1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee (3) Lead Independent Director

Board of Statutory Auditors

Antonio Mastrangelo Chairman

Umberto Previti Flesca Auditor

Maurizio Salimei Auditor

Independent Auditors

Reconta Ernst & Young SpA


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STRUCTURE OF THE GROUP

The following chart shows the structure of the Acotel Group at 30 September 2014:

The parent company of Acotel Group SpA is Clama Srl, which at 30 September 2014 holds 1,727,915 ordinary shares, representing 41.4% of the share capital.

Clama Srl does not carry out management and coordination activities as defined by art. 2497 of the Italian Civil Code.

BASIS OF PRESENTATION

The Acotel Group’s interim report for the three months ended 30 September 2014 has been prepared in compliance with art. 154-ter (Financial reporting) of Legislative Decree 58/1998 (the Consolidated Finance Act) and subsequent amendments and additions, and the CONSOB’s Regulations for Issuers.

The interim report has been prepared under the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union.


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The accounting standards applied are consistent with those adopted for preparation of the Acotel Group’s consolidated financial statements for the year ended 31 December 2013, with the exception of adoption of IFRS 5 following the sale of the Group’s 100% interest in Jinny Software Ltd. and all its subsidiaries on 1 August 2014. In application of this standard, for the third quarter and the first nine months of 2014 and, for comparative purposes, for the same periods of 2013, cost and revenue items attributable to the Jinny group have been classified in “Profit/(Loss) from discontinued operations”.

The consolidated financial statements for the three months ended 30 September 2014 have been prepared on the basis of the underlying accounting records at that date, as adjusted in accordance with the matching principle.

Preparation of this report required management to make estimates and assumptions which, based primarily on internal records, essentially have an effect on revenues and costs that have yet to be confirmed by customers and suppliers, any impairments of goodwill and inventories, and provisions for bad debts, litigation and taxation.

Above all, a portion of the turnover generated by Digital Entertainment services 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.

Certain measurement processes, above all those of a complex nature relating to the estimate of potential impairments of non-current assets, are generally only fully carried out during preparation of the annual financial statements, unless events or changes in circumstances indicate that there may be an impairment requiring the immediate measurement of a loss.

This interim report is unaudited.

BASIS OF CONSOLIDATION

The following table provides summary information on consolidated companies held, directly or indirectly, by Acotel Group SpA, the Parent Company.

There was a change in the basis of consolidation during the third quarter of 2014, following the sale, to the Canadian group, Enghouse Systems, of the Group’s 100% interest in Jinny Software Ltd. and all its subsidiaries.

Company Date of acquisition Group’s % interest

Registered office

Share capital

Acotel SpA 28 April 2000 99.9% (3) Rome EURO 13,000,000

AEM Acotel Engineering and Manufacturing SpA

28 April 2000 99.9% Rome EURO 858,000

Acotel Chile SA 28 April 2000 100% Santiago, Chile USD 17,330

Acotel Espana SL 28 April 2000 100% Madrid EURO 3,006

Acotel Do Brasil Ltda 8 August 2000 (1) 100% Rio de Janeiro BRL 1,868,250

Info2cell.com FZ-LLC 29 January 2003 (2) 100% Dubai USD 5,000,000

Emirates for Information Technology Co. 29 January 2003 100% (4) Amman JD 710,000

Acotel Interactive, Inc. 28 June 2003 (1) 100% Wilmington USD 10,000

Flycell Telekomunikasyon Hizmetleri AS 2 July 2005 (1) 99.9% (5) Istanbul TRY 50,000


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Acotel Interactive Conteúdo Para Telefonia Móvel LTDA

6 June 2006 (1) 100% (5) Rio de Janeiro BRL 250,000

Yabox LLC 24 October 2007 (1) 100% (5) Wilmington USD 1

Rawafed Information Company LLC 24 February 2008 (1) 51% (4) Riyadh SAR 500,000

Flycell Italia Srl 10 July 2008 (1) 100% (5) Rome EURO 90,000

Flycell Argentina SA 26 October 2009 100% (6) La Plata ARS 12,000

Acotel Serviços De Telemedicina Ltda. 28 March 2011 (1) 100% (7) Rio de Janeiro BRL 400,000

Acotel Teleçomunicaçāo Ltda. 28 March 2011 (1) 100% (7) Rio de Janeiro BRL 400,000

Bucksense, Inc. 28 June 2011 (1) 100% Nevada USD 10,000

Urbe Roma S.S.D. a r.l. 2 February 2012 100% (8) Rome EURO 10,000

Noverca Srl 10 July 2002 (10) 100% (10) Rome EURO 10,000

Noverca Italia Srl 9 May 2008 (1) 100% (10) Rome EURO 10,000

Acotel S.R.L. 30 July 2013 (1) 100% (6) Buenos Aires ARS 20,000

Acotel Interactive India Private Limited 22 August 2013 (1) 100% (5) Mumbai Rs 100,000

(1) The date of the company’s entry into the Group coincides with its incorporation. (2) Prior to this date the Group owned 33% of this company, accounted for in investments in associates. (3) AEM owns 1.92% of the share capital. (4) Controlled via Info2cell.com FZ-LLC. (5) Controlled via Acotel Interactive Inc. (6) Controlled via Acotel Interactive Inc. and Yabox LLC. (7) Controlled via Acotel do Brasil Ltda. (8) Controlled via Acotel SpA. (9) Prior to this date the Group owned 50% of this company, accounted for in investments in associates. (10) Since 20 May 2013 the Group has full control of this company.

SIGNIFICANT EVENTS DURING THE QUARTER

In line with the decision to focus on the development and commercialisation of energy management solutions, on 1 August of this year the sale of Acotel Group’s 100% interest in Jinny Software Ltd. (which alone made up the entire Mobile VAS Technology segment of the Acotel TLC business area) and all its subsidiaries to the Canadian group, Enghouse Systems (a company listed on the Toronto Stock Exchange), was completed.

The agreed sale price of €13.2 million was paid at the time of transaction closing, with €1.6 million to be held in an escrow account for 12 months until the current administrative and accounting due diligence process has been completed and to guarantee fulfilment of the seller’s other contractual obligations.

In application of IFRS 5, as a result of the above, at 30 September 2014 an impairment loss of €3,621 thousand (after taxation of €7 thousand) has been recognised in order to align the carrying amount of the net assets sold with the agreed sale price, less the costs directly attributable to the sale. This impairment loss was already recognised in the Interim Report for the six months ended 30 June 2014, to which reference should be made, again in application of IFRS 5. Compared with the results for the same period of the previous year, the Acotel Group’s results for the third quarter of 2014 show a reduction in revenue and a deterioration in earnings.


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An analysis of the Group’s quarterly results reveals that:

• turnover is down approximately 37%, falling from €27.2 million in the third quarter of 2013 to €17.2 million in the third quarter of 2014, essentially due to reduced turnover in the Acotel Interactive business area;

• the Group recorded a gross operating loss (negative EBITDA) of €3.4 million, compared with a profit of €0.8 million for the same period of 2013, reflecting the operating losses incurred by Noverca Italia Srl and Acotel Interactive Inc..

This section describes the principal factors that have influenced the results in the Group’s different business areas in the period under review. ACOTEL INTERACTIVE

Revenues from this business area are down from the €24.4 million of the third quarter of 2013 to €12.5 million in the third quarter under review, marking a decline of 49%. This primarily reflects a downturn in revenue generated in Italy and the Middle East and the decision taken by US mobile operators to no longer sell value added services created by third parties to their customers from this year.

(€000)

2014 2013 Inc./(Dec.) % inc./(dec.)

Digital Entertainment 8,832 18,603 (9,771) (53%) Mobile Services 3,626 5,808 (2,182) (38%)

Total 12,458 24,411 (11,953) (49%)

Q3

During the third quarter of 2014, the Group continued to invest in the acquisition of new customers in the Indian market, where, during the previous quarter, it began to offer its latest generation Digital Entertainment services. The returns in terms of turnover (€0.4 million in the quarter) and customer acquisitions (an average of 15 thousand customers signs up a day) have confirmed the Group’s expectations regarding the market’s revenue potential.

The increase in promotional activity in order to enter new markets and problems encountered in Mexico in billing local operators have weighed heavily on the Group’s gross operating result (EBITDA) for the period.


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ACOTEL TLC

As noted above, on 1 August 2014 Acotel Group SpA sold its Mobile VAS Technology segment (products and services for mobile operators developed and sold by the subsidiary, Jinny Software Ltd.), deemed to no longer form part of the Group’s core business.

Therefore, as required by IFRS 5, revenue and cost items attributable to Jinny Software for the third quarter and the first nine months of 2014 and, for comparative purposes, those for the same periods of 2013, have been reclassified to “Profit/(Loss) from discontinued operations” in the income statement.

The analysis of the results of the Acotel TLC business area for the third quarter thus refers to the remaining segments, as follows:

• Mobile Communications services for end customers provided by Noverca Italia Srl, and SMS information services for corporate customers provided by Acotel SpA and Acotel do Brasil;

• Mobile Virtual Network Aggregator (MVNA) services provided to Mobile Virtual Network Operators (MVNOs), developed and supplied by Noverca Srl.

The Acotel TLC business area recorded an overall 74% increase in revenues from the €2.5 million of the third quarter of 2013 to €4.3 million in the quarter under review.

(€000)

2014 2013 Inc./(Dec.) % inc./(dec.)

Mobile Communications 4,121 2,464 1,656 67%Mobile Virtual Network Aggregator services 165 - 165 -

Total 4,286 2,464 1,821 74%

Q3

Turnover in the Mobile Communications segment during the period was primarily generated by the subsidiary, Noverca Italia Srl, which ended the period with total revenues of approximately €3.9 million, up significantly on the €1.5 million of the same period of 2013. During the period, Noverca Italia Srl, a FULL MVNO operating in the Italian market, further increased its customer base by around 55 thousand, including over 38 thousand via mobile number portability.

The Mobile Virtual Network Aggregator (MVNA) segment generated revenues of €165 thousand. During the third quarter of the year, Noitel Italia Srl was enabled to operate as an airtime reseller.


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The activities involved in the process of enabling Linkem SpA and other customers with which the Group has entered into commercial agreements to operate as mobile virtual network operators continued, without overlooking commercial initiatives designed to boost the number of potential Mobile Virtual Network Operators to be enable. ACOTEL NET

Acotel Net consists of three segments: in addition to Security Systems, it also includes the Energy and Health Management segments.

This business are generated revenues of €0.4 million during the quarter, an improvement on the same period of 2013. €276 thousand was generated by the Security Systems segment attributable to the subsidiary, AEM Acotel Engineering and Manufacturing SpA, whilst €157 thousand was generated almost exclusively by the same company in the Energy segment.

During the quarter the process of installing devices on customers’ premises continued. These devices, which are connected to Acotel Net’s central platform, enable access to the web interface that permits users to monitor their energy consumption and take all the necessary steps to implement energy saving initiatives.

At the same time, the development of the following new solutions proceeded. These were then presented at the Smart Energy Expo held at the Verona Exhibition Centre in October:

• Water Care: this solution monitors water pipes, immediately picking up any leaks or malfunctions; the service is designed for water companies, agribusinesses, sports centres, spas and dams, etc..

• Tank Watcher: this service enables the customer to monitor a range of different tanks: service, accumulation and storage tanks and those used to store process fluids, food, fuel and for irrigation. The solution constantly monitors the level, volume and temperature of the liquid in the tank or, in the case of gas, its pressure and temperature. It is also possible to accurately and instantly measure fill and draw rates and easily identify any losses or malfunctions.

• Wind Power: this solution monitors the direction and speed of wind at a certain location, and can be used to analyse the performance of existing wind farms, as part of feasibility studies conducted prior to installation and to reduce the investment cost for unsuitable sites, etc.

• Photovoltaic Performance: this solution continually monitors the productivity of photovoltaic plants and their efficiency.

• Freezer Control: this service enables the remote monitoring of refrigerators or refrigerated trucks in order to check on the temperature inside the refrigerated space, resulting in significant savings in terms of both cost and energy; this solution is designed for use by large retail chains, in the cold chain for food and by restaurants, etc..

• Alight: this intelligent lighting solution enables the user to switch on and off and turn up or down groups of lights or individual lights from a single device.

• Mobigate: this solution allows the user to open or close an automated gate at the touch of a phone key, using a mobile app or directly from the platform; it manages numbers, groups and


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time bands to record who opened the gate and when, and to send a warning message when the gate has not been closed.

• Building Automation: this system monitors and controls the systems installed in buildings (lighting, air conditioning, etc.) and is aimed at all companies looking to combine the need to automate and optimise the management of systems with the provision of comfort and energy saving (hotels, offices, etc.).

OTHER INFORMATION

For the second consecutive year, Acotel took part in the Smart Energy Expo held at the Verona Exhibition Centre in October. The Company presented its innovative products and services, conceived, designed and produced entirely in Italy. These range from solutions for managing the consumption of energy, water and gas, to “intelligent” lighting controls, security and automation.

During the Expo, Acotel and Eni Retail Market G&P announced a major agreement to develop new energy saving products and solutions. The partnership will give Acotel access to all segments of the market and allow Eni, in addition to supplying its customers with gas and electricity, to offer them a service enabling them to keep a closer eye on their consumption and identify what action they need to take to achieve effective savings.


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RESULTS OF OPERATIONS

RECLASSIFIED CONSOLIDATED INCOME STATEMENT (*)

(€000)

2014 2013Increase/

(Decrease)2014 2013

Increase/ (Decrease)

Revenues 1 17,177 27,200 (10,023) 52,373 79,062 (26,689)

Other income 128 21 107 214 455 (241)

Total 17,305 27,221 (9,916) 52,587 79,517 (26,930)

Change in work in progress, semi-finished and finished goods (4) 6 (10) 131 101 30

Raw materials, semi-finished and finished goods 2 (242) (60) (182) (732) (254) (478)

External services 3 (16,656) (22,006) 5,350 (46,337) (67,978) 21,641

Rentals and leases 4 (339) (340) 1 (981) (994) 13

Staff costs 5 (3,553) (3,765) 212 (11,512) (11,668) 156

Internal capitalised costs 6 286 76 210 799 259 540

Other costs (150) (372) 222 (824) (1,352) 528

Gross operating profit/(loss) (3,353) 760 (4,113) (6,869) (2,369) (4,500)

Amortisation and depreciation 7 (990) (876) (114) (2,750) (2,561) (189)

Goodwill impairment - - - - (1,720) 1,720 Impairment losses/reversal of impairment losses on non-current assets - - - - (1) 1

Operating profit/(loss) (4,343) (116) (4,227) (9,619) (6,651) (2,968)

Net finance income/(costs) 8 (102) 30 (132) (27) 38 (65)

PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (4,445) (86) (4,359) (9,646) (6,613) (3,033)

Taxation 9 (682) (1,230) 548 (746) (1,594) 848

PROFIT/(LOSS) FROM CONTINUING OPERATIONS (5,127) (1,316) (3,811) (10,392) (8,207) (2,185)

Profit/(Loss) from discontinued operations - (228) 228 (3,621) (162) (3,459)

PROFIT/(LOSS) BEFORE NON-CONTROLLING INTERESTS (5,127) (1,544) (3,583) (14,013) (8,369) (5,644)

Profit/(Loss) attributable to non-controlling interests (12) 74 (86) (41) 205 (246)

PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT (5,115) (1,618) (3,497) (13,972) (8,574) (5,399)

Earnings per share 10 (1.24) (0.39) (3.40) (2.08)

Diluted earnings per share 10 (1.24) (0.39) (3.40) (2.08)

(*):

Note9MQ3

The subsidiary, Jinny Software Ltd., and all its subsidiaries were sold on 1 August 2014. The related cost and revenue items have, therefore, been classified in "Profit/(Loss) from discontinued operations". Amounts for 2013 have been restated for comparative purposes and to comply with IFRS 5 in order to separately report the results for 2013 deriving from assets sold during 2014.


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Compared with the results for the same period of the previous year, the Acotel Group’s results for the third quarter of 2014 show a reduction in revenue and a deterioration in earnings.

Revenue for the quarter, totalling €17,177 thousand, is down €10,023 thousand on the figure for the third quarter of 2013.

Compared with a gross operating profit (EBITDA) of €760 thousand for the third quarter of 2013, the Group reports a gross operating loss (negative EBITDA) of €3,353 thousand for the third quarter just ended. A closer look shows that the following weighed on the Group’s performance in the third quarter of 2014:

the losses incurred by the Acotel Interactive business area, due to billing problems in the Mexican market, negative growth in the Middle Eastern and Italian markets and the costs incurred by the Group in launching its services in the new Indian market;

the operating loss reported by Noverca Italia Srl in the Acotel TLC business area.

After amortisation, depreciation, impairments of non-current assets, the Group reports an operating loss of €4,343 thousand, compared with a loss of €116 thousand for the same period of the previous year.

After net finance costs of €102 thousand, estimated taxation for the period of €682 thousand and the loss attributable to non-controlling interests of €12 thousand, the loss attributable to owners of the Parent for the third quarter of 2014 amounts to €5,115 thousand.

Note 1 - Revenue

Revenue of €17,177 thousand for the third quarter of 2014 is down compared with the €27,200 thousand of the same period of the previous year, as shown below:

(€000)

Q3 9M Q3 9M

ACOTEL INTERACTIVE 12,458 41,431 24,411 71,290

ACOTEL TLC 4,286 9,872 2,464 6,754

ACOTEL NET 433 1,070 325 1,018

17,177 52,373 27,200 79,062

2014 2013

ACOTEL INTERACTIVE

The Acotel Interactive business includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and commercial companies (Mobile Services), and has the primary purpose of supplying value added content and services over mobile phones and the web.


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As the following table shows, revenues from this business area are down 49% from €24,411 thousand in the third quarter of 2013 to €12,458 thousand in the quarter under review:

(€000)

2014 2013 Inc./(Dec.) 2014 2013 Inc./(Dec.)

Digital Entertainment 8,832 18,603 (9,771) 31,081 54,016 (22,965)

Mobile Services 3,626 5,808 (2,182) 10,350 17,274 (6,924)

Total 12,458 24,411 (11,953) 41,431 71,290 (29,889)

Q3 9M

A closer look shows that Digital Entertainment services generated revenues of €8,832 thousand in the third quarter of 2014, down 53% compared with the same period of 2013. These services are supplied by Acotel Interactive Inc. and its direct subsidiaries, accounting for a total of €5,539 thousand, by Acotel SpA, accounting for €1,950 thousand, and Info2cell, which reports revenues of €1,343 thousand. The decline, compared with the same period of 2013, primarily reflects reduced turnover in the United States, Italy, Turkey and Brazil.

Mobile Service revenues, amounting to €3,626 thousand, are down 38% on the third quarter of 2013. These include the revenues generated by the services rendered by the subsidiary, Acotel do Brasil, to the Brazilian operator, TIM Celular, amounting to €1,857 thousand, the revenues generated by Info2cell Llc from the services it provides to the leading mobile operators in the Middle East, amounting to €1,430 thousand, and those generated by the services provided to Telecom Italia by the subsidiary, Acotel SpA, totalling €339 thousand. The fall compared with the same period of 2013 is almost entirely attributable to the Middle Eastern market.

ACOTEL TLC

The revenues generated by the Acotel TLC business in the third quarter of 2014 amount to €4,286 thousand, up 74% on the same period of 2013, as shown in the following table:

(€000)

2014 2013 Inc./(Dec.) 2014 2013 Inc./(Dec.)

Mobile Communications 4,121 2,464 1,656 9,662 6,754 2,908 Mobile Virtual Network Aggregator services 165 - 165 210 - 210

Total 4,286 2,464 1,821 9,872 6,754 3,118

Q3 9M

Revenues from Mobile Communications services almost entirely (€3,946 thousand) regard the MVNO revenues generated by Noverca Italia Srl. Compared with the third quarter of 2013, when turnover amounted to €1,529 thousand, the increase of 160% reflects significant growth in the customer base.


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On a purely indicative basis, the number of SIM cards activated during the first nine months of 2014 amount to approximately 165 thousand (38 thousand in the third quarter), including 77% via number portability.

In the Mobile Virtual Network Aggregator (MVNA) segment, Acotel generated revenues of €165 thousand from the provision of services, during the quarter just ended, enabling Noitel Italia Srl to operate as an airtime reseller and from the activity, still underway at 30 September 2014, in order to prepare to enable Linkem SpA and other customers with which the Group has entered into commercial agreements to operate as Mobile Virtual Network Operators.

ACOTEL NET

Revenues generated by the Acotel Net business area in the third quarter of 2014 amount to €433 thousand, up 33% on the same period of 2013, as shown below:

(€000)

2014 2013 Inc./(Dec.) 2014 2013 Inc./(Dec.)

Security Systems 276 325 (49) 840 1,018 (178)

Energy 157 - 157 230 - 230

Total 433 325 108 1,070 1,018 52

Q3 9M

The revenues reported by the Security Systems segment, totalling €276 thousand in the third quarter, were generated by the design, production and maintenance of electronic security systems in Italy by the subsidiary, AEM Acotel Engineering and Manufacturing SpA. These revenues derive from the installation, supply, servicing and maintenance of remote surveillance equipment primarily installed at certain provincial branches of the Bank of Italy, at Italian police headquarters and at a number of companies in the ACEA Group.

The revenues generated by the Energy segment during the quarter, totalling €157 thousand, are primarily attributable to the commercial agreement that AEM Acotel Engineering and Manufacturing SpA has entered into with Poste Italiane SpA to manage energy consumption at around 8,500 post offices.

A geographical breakdown of the Group’s revenue is as follows:


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(€000)

Q3 % 9M % Q3 % 9M %

ITALY 7.551 44% 20.963 40,0% 9.654 35,5% 28.058 35,5%

LATIN AMERICA 6.031 35% 19.781 37,8% 8.424 31,0% 21.658 27,4%

MIDDLE EAST 2.772 16% 8.969 17,1% 5.469 20,1% 15.389 19,5%

INDIA 407 3% 601 1,1% - - - -

OTHER EUROPEAN COUNTRIES 383 2% 1.566 3,0% 1.641 6,0% 4.782 6,0%

NORTH AMERICA 25 - 466 0,9% 1.993 7,3% 9.092 11,5%

AFRICA 8 - 27 0,1% 19 0,1% 83 0,1%

17.177 100% 52.373 100% 27.200 100% 79.062 100%

2014 2013

The geographical breakdown of revenue for the third quarter of 2014 shows that turnover fell in all the countries in which the Group trades, with the exception of India, a market in which the Group launched its services in the second quarter of 2014.

Note 2 - Raw materials, semi-finished and finished products

This item, amounting to €242 thousand in the third quarter, relates primarily to the purchase of materials used in the production of devices used in providing Acotel NET’s services and to the purchase of SIM cards for Nòverca.

Note 3 - External services

The cost of external services totals €16,656 thousand, marking a reduction compared with the third quarter of 2013. A breakdown of the service costs is shown below:


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(€000)

Q3 9M Q3 9M

Interconnection and billing services 4,884 17,528 9,981 28,357

Telecommunications services 4,049 8,365 1,268 3,265

Advertising 2,383 5,472 4,128 16,364

Content providers 2,110 5,529 3,815 11,267

Customer acquisitions 712 1,923 79 193

Professional consultants 533 1,526 537 1,828

Connectivity and sundry utilities 398 1,171 418 1,173

Call Centre 385 1,001 181 529

Remuneration of corporate officers 217 647 219 665

Commissions on telephone topups 149 302 33 104

Travel expenses 92 357 125 426

Outsourcing 85 227 79 247

Auditors' fees 45 248 75 210

Purchase of SMS packages 42 209 389 1,266

Other minor expenses 572 1,832 679 2,084

Total 16,656 46,337 22,006 67,978

2014 2013

The decrease primarily reflects a reduction in the cost of interconnection and billing services linked to the method of accounting for Digital Entertainment revenues on a gross basis, reduced investment in advertising and a reduction in the cost of content provision. The increase in the cost of telecommunications services is due to the increase in turnover at Noverca Italia Srl in the quarter under review.

Note 4 - Rentals and leases

Rentals and leases amount to €339 thousand and mainly include rentals on offices occupied by Group companies.

Note 5 – Staff costs

Staff costs include:


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(€000)

Q3 9M Q3 9M

Salaries and wages 2,639 8,514 2,872 8,800 Social security contributions 559 1,881 528 1,721 Staff termination benefits 126 375 126 338 Finance costs (21) (67) (25) (61) Other costs 250 809 264 870

Total 3,553 11,512 3,765 11,668

2014 2013

Other staff costs include charges incurred in relation to professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries.

The number of staff by category at 30 September 2014 and a comparison of the average numbers for the third quarter and first nine months of 2014 and 2013 are reported in the following table:

At 30 Sept 2014 Average Q3 2014

Average Q3 2013

Average 9M 2014

Average 9M 2013

Managers 19 19 23 20 22

Supervisors 61 60 63 60 56

White- and blue-collar staff 226 229 249 238 243

Total 306 308 335 318 321

The geographical distribution of the Group’s staff is shown in the table below:

At 30 September 2014 At 30 September 2013

Italy 144 139

Jordan 54 61

Brazil 53 70

USA 30 39

Spain 13 15

United Arab Emirates 6 5

Saudi Arabia 4 5

Turkey 2 2

Total 306 336

During the third quarter of 2014, the investment in the subsidiary, Jinny Software, and in all its investee companies was sold. As a result, the figures in the above tables regarding the geographical distribution of the Group’s staff and its workforce by category in 2014 and, for comparative purposes, 2013 are


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presented without taking into account the staff of the above companies. For the sake of completeness, at 30 September 2013 Jinny Software and its direct subsidiaries employed a total of 184 staff.

Note 6 - Capitalised internal costs

Capitalised internal costs, totalling €286 thousand, include €224 thousand relating to Nòverca SIM cards and the devices used in the provision of energy management services, which are distributed to Acotel’s customers on free loan, with the remaining amount regarding staff employed in the development of software and new functions used in delivering MVNO and MVNA services.

Note 7 - Amortisation and depreciation

Details of the amortisation and depreciation of assets are given below:

(€000)

Q3 9M Q3 9M

Amortisation of intangible assets 164 468 198 499 Depreciation of property, plant and equipment 826 2,282 678 2,062

Total 990 2,750 876 2,561

2014 2013

Amortisation of intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies, and the expenses paid to Telecom Italia in return for preparation and configuration of the technology infrastructure used in delivering MVNO and MVNA services.

Depreciation of property, plant and equipment primarily refers to depreciation of the telecommunications equipment and infrastructures used by Group companies.

Note 8 - Finance income and costs

Net finance costs of €102 thousand for the third quarter of 2014 breaks down as follows:


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(€000)

Q3 9M Q3 9M

Income from investments 286 671 130 498

Foreign exchange gains 8 137 170 387 Interest income on bank deposits - 2 5 7

Total finance income 294 810 305 892

Foreign exchange losses (238) (430) (140) (471)

Interest expense and bank charges (113) (303) (106) (305)

Other finance costs (45) (104) (29) (78)

Total finance costs (396) (837) (275) (854)

Net finance income/(costs) (102) (27) 30 38

2014 2013

Income from investments includes gains on the short-term investment of the Group’s cash. Foreign exchange gains and losses largely regard realised and unrealised gains and losses generated by Acotel Interactive Inc. and its subsidiaries.

Note 9 - Taxation

Taxation for the period, amounting to €682 thousand, reflects estimated income tax expense and deferred tax income and expense recognised by Group companies, net of the related reversals.

Note 10 – Earnings per share

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

(€000)

Q3 9M Q3 9M

Profit/(loss) for the period (€000) (5,115) (13,972) (1,618) (8,574)

Number of shares (000)Shares in circulation at the start of the period* 4,114 4,114 4,114 4,114 Weighted average of treasury shares acquired/sold in the period - - - - Weighted average of ordinary shares in circulation 4,114 4,114 4,114 4,114

Basic and diluted earnings per share ** (1.24) (3.40) (0.39) (2.08)

* : net of treasury shares held at the same date.**: basic earnings for the third quarter and first nine months of 2014 and 2013 coincide with diluted earnings per share as the conditions provided for by IAS 33 do not exist.

2014 2013


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FINANCIAL POSITION

(€000)30 September 2014 31 December 2013

Increase/ (Decrease)

Non-current assets: Property, plant and equipment 8.362 9.180 (818)

Intangible assets 3.735 14.147 (10.412)

Other assets 4.128 3.726 402

TOTAL NON-CURRENT ASSETS 16.225 27.053 (10.828)

Net current assets: Inventories 614 526 88

Trade receivables 18.873 32.997 (14.124)

Other current assets 3.052 4.056 (1.004)

Trade payables (25.833) (24.748) (1.085)

Other current liabilites (4.839) (7.987) 3.148

TOTAL NET CURRENT ASSETS (8.133) 4.844 (12.977)

PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (3.618) (2.939) (679)

NON-CURRENT PROVISIONS (596) (812) 216

NET INVESTED CAPITAL 3.878 28.146 (24.268)

Equity: Share capital 1.084 1.084 -

Reserves and retained earnings/(accumulated losses) 44.851 54.916 (10.065)

Profit/(Loss) for the period (13.972) (10.661) (3.311)

Non-controlling interests 994 1.036 (42)

TOTAL EQUITY 32.957 46.375 (13.418)

MEDIUM/LONG-TERM DEBT - - -

Net cash and cash equivalents: Current financial assets (20.882) (7.257) (13.625)

Cash and cash equivalents (13.699) (16.377) 2.678

Current financial liabilities 5.502 5.405 97

(29.079) (18.229) (10.850)

NET FUNDS RECEIVABLE FROM OTHERS (29.079) (18.229) (10.850)

TOTAL EQUITY AND NET FUNDS RECEIVABLE FROM OTHERS 3.878 28.146 (24.268)

The Acotel Group’s net invested capital at 30 September 2014 amounts to €3,878 thousand, consisting of non-current assets of €16,225 thousand, net current liabilities of €8,133 thousand, provisions for staff termination benefits of €3,618 thousand and other non-current provisions of €596 thousand.


page 20

Net invested capital is financed by consolidated equity of €32,957 thousand and net funds of €29,079 thousand.

A detailed analysis of changes in the principal components of the financial position shows that: • the value of non-current assets has decreased, essentially due to the sale of Jinny Software

which, at 31 December 2013, contributed goodwill of €8.6 million and other non-current assets of €1.9 million;

• changes in net current liabilities are again primarily connected to the sale of Jinny Software; • net funds at 30 September 2014 amount to a €29.1 million, up 60% on the figure for 31

December 2013 due to the proceeds of the sale of Jinny Software.

NET FUNDS

(€000)

30 September 2014 30 June 2014 31 December 2013

A. Cash and cash equivalents 13,699 13,962 16,377

B. Assets held for trading 19,282 7,903 7,000

C. Liquidity (A + B) 32,981 21,865 23,377

D. Other current financial receivables 1,600 - 257

E. Current financial assets (D) 1,600 - 257

F. Current bank borrowings (5,502) (5,425) (5,405) G. Current financial liabilities (F) (5,502) (5,425) (5,405)

H. Non-current debt - - -

I. Net funds (C+E+G+H) 29,079 16,440 18,229

DECLARATION BY THE MANAGER RESPONSIBLE FOR FINANCIAL REPORTING The manager responsible for the Group’s financial reporting, Luca De Rita, hereby declares, pursuant to article 154 bis, paragraph 2 of the Consolidated Finance Act, that this consolidated interim report is consistent with the underlying accounting records.

interim report for the three months …...2014/09/30 · interim report for the three months ended...

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