ANNUAL REPORT 2008 page 1

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DIRECTORS’ REPORT

ON GROUP OPERATIONS

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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.

0 10 20 30 40 50 60 70 80 90 100 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.

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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 Group’s 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.

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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 Group’s 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. Jinny’s 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.

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The Jinny brand continues to expand its global footprint thanks to the company’s 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 Group’s revenues, a look at the continental macro-areas shows that North America remains the Group’s 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.

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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 Sanpaolo’s acquisition of a 4.75% stake in Acotel at a total cost of 12.3 million euros; • Intesa Sanpaolo’s 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 Italia’s GSM/GPRS and UMTS/HSPDA mobile networks, in accordance with a contract signed in 2008.

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Intesa Sanpaolo’s over 10 million customers represent an important potential base for Noverca Italia’s development. Under a specific commercial agreement, Noverca Italia and Intesa Sanpaolo’s “Banca dei Territori” Division, which covers the bank’s 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 bank’s 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 Group’s laboratories. It ensures full independence in managing operations and the ability to develop new services at exremely low cost.

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

1.2

PRINCIPAL EVENTS IN THE GROUP’S 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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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 Group’s 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, Rome-based 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 company’s 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.

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As noted in the Group’s 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 Mother’s 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 country’s 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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• 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 Telecomunicaçoes, with which the company has long-standing 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 Jinny’s 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 company’s 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 Group’s 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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1.3

RESULTS OF OPERATIONS

RECLASSIFIED CONSOLIDATED INCOME STATEMENT

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

Revenues 88,698 70,301 18,397 26%

Other income 211 2 209 10,450%

Total revenue 88,909 70,303 18,606 26%

Gross operating profit 2,343 2,806 (463) (17%)

2.64% 3.99%

Operating profit/(loss) 940 1,680 (740) (44%)

1.06% 2.39%

Income from investments 7,940 - 7,940

-Net finance income/(costs) 1,183 293 890 304%

PROFIT/(LOSS) BEFORE TAX 10,063 1,973 8,090 410%

11.32% 2.81%

NET PROFIT/(LOSS) BEFORE MINORITY

INTERESTS 6,564 (1,278) 7,842 614%

7.38% -1.82%

NET PROFIT/(LOSS) ATTRIBUTABLE TO

PARENT COMPANY 6,564 (1,278) 7,842 614%

7.38% -1.82%

Earnings per share 1.62 (0.33)

Diluted earnings per share 1.62 (0.33)

Compared with the results for the previous year, the Acotel Group’s 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 non-current 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 Group’s 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 74,066 83.5% 59,968 85.3%

Mobile Messaging Solutions 12,728 14.3% 8,850 12.6%

Security Systems Design 1,904 2.2% 1,483 2.1%

Total 88,698 100% 70,301 100%

When compared with the results for 2007, turnover in all the Acotel Group’s 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 Group’s revenue by geographical segment is as follows:

Turnover by geographical segment

(€000) 2008 % 2007 %

North America 32,123 36.2% 34,037 48.4%

Latin Amercia 19,688 22.2% 7,756 11.0%

Italy 15,741 17.7% 15,684 22.3%

Other European countries 6,878 7.8% 1,327 1.9%

Middle East 6,872 7.8% 5,599 8.0%

Africa 5,760 6.5% 3,930 5.6%

Asia 1,636 1.8% 1,968 2.8%

88,698

100% 70,301 100%

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 Telekomünicasyon Hizmetleri A.Ş..

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 Group’s 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 Group’s 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 4,084 3,221 863 27%

Intangible assets 12,379 12,464 (85) (1%)

Financial assets - 2 (2) 100%

Other assets 481 273 208 76% TOTAL NON-CURRENT ASSETS 16,944 15,960 984 6% Net current assets:

Inventories 396 642 (246) (38%)

Trade receivables 22,220 18,620 3,600 19%

Other current assets 2,340 3,442 (1,102) (32%)

Trade payables (9,404) (9,526) 122 1%

Other current liabilities (4,319) (4,020) (299) (7%)

TOTAL NET CURRENT ASSETS 11,233 9,158 2,075 23%

STAFF TERMINATION BENEFITS AND

OTHER EMPLOYEE BENEFITS (1,146) (947) (199) (21%)

NON-CURRENT PROVISIONS (294) (318) 24 8%

NET INVESTED CAPITAL 26,737 23,853 2,884 12%

Shareholders' equity:

Share capital 1,084 1,084 - Reserves and retained earnings/(accumulated losses) 57,522 48,469 9,053 19% Net profit/(loss) for the year 6,564 (1,278) 7,842 614% Minority interests 30 30 -

-TOTAL SHAREHOLDERS' EQUITY 65,200 48,305 16,895 35%

MEDIUM/LONG-TERM DEBT 101 133 (32) (24%)

Net cash and cash equivalents:

Current financial assets (18,764) (12,702) (6,062) (48%)

Cash and cash equivalents (23,439) (12,178) (11,261) (92%)

Current financial liabilities 3,639 295 3,344 1134%

(38,564) (24,585) (13,979) (57%)

NET FUNDS (38,463) (24,452) (14,011) (57%)

TOTAL SHAREHOLDERS' EQUITY AND

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The Acotel Group’s 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 Sanpaolo’s 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 COMPANY’S 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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(migliaia di euro) _{Net result 2008} Shareholders' equity at 31 Dec 2008 profit / (loss) positive/(negative) Shareholders' equity and net result reported in the Parent Company's

financial statements 4,123 73,443

Effect of consolidation of Group companies 2,441 (923) Accumulated amortisation and impairment of goodwill - (5,872)

Consolidation reserve - 909

Cash flow hedge and currency translation reserve - (2,387) Shareholders' equity and net result for the year attributable to the Parent

Company 6,564 65,170

Shareholders' equity and net result for the year attributable to minority interests - 30 Shareholders' equity and net result reported in the consolidated financial

statements 6,564 65,200

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

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service quality control. The NSP will enable the company’s 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 Group’s 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 company’s 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 company’s 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 Group’s 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.

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Staff by category at 31 December 2008

Category Number %

Managers 28 7%

Supervisors 62 14%

White- and blue-collar staff 331 79%

Total 421 100%

Staff by geographical area at 31 December 2008

Geographical area Number %

Middle East 164 39% Europe 151 36% North America 65 15% South America 32 8% Asia 7 2% Africa 2 -Total 421 100%

Staff by gender at 31 December 2008

Gender Number %

Male 309 73%

Female 112 27%

Total 421 100%

Staff by age range at 31 December 2008

Age range Number %

under 25 69 16% 25-35 248 59% 35-45 78 19% 45-55 18 4% older 8 2% Total 421 100%

Staff by seniority at 31 December 2008

Seniority Number % 0-2 242 58% 2-5 111 26% 5-10 59 14% over 9 2% Total 421 100%

Staff by qualification 31 December 2008

Qualification Number %

Degree 325 77%

High-school diploma 96 23%

(24)

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 Group’s 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 Group’s 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 Group’s financial resources.

Foreign exchange risk

The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to foreign exchange exposures deriving from intercompany loans, which, whilst being eliminated from the consolidated financial statements, generate foreign exchange gains or losses for subsidiaries whose functional currencies are different from the euro. 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.

(25)

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 in-house. 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 Group’s economic stability.

Stable shareholder structure: 57.4% of the share capital of Acotel Group S.p.A. is held by members of the founder’s 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 Group’s 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

(26)

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 arm’s 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)

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

PERCENTAGE INTEREST AT 31 DEC

2008

Claudio Carnevale (a) Acotel Group S.p.A. 664,980 - - 664,980 15.95% Claudio Carnevale Acotel S.p.A. 20,000 - - 20,000 0.48% Claudio Carnevale AEM S.p.A. 2,366 - - 2,366 0.06% (a) Ownership is exercised via Clama S.A. of which Claudio Carnevale owns 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.

(27)

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 Group’s existing businesses, the launch will mark a major diversification of the Group’s 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

(28)

thanks to the company’s 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.

(29)

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,

(30)

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) Member of the Remuneration Committee (2) Member of the Internal Audit Committee (3) Lead Independent Director

(4) 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

(31)

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 Company’s 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.

(32)

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.

(33)

(34)

CO NSOLIDATED INCO M E STATEM ENT

(€000) Note 2008 2007

Revenues 1 88,698 70,301

O ther income 211 2

Total revenue 88,909 70,303

M ovement in work in progress, semi-finished and finished goods 10 24

Raw materials 2 (2,732) (2,071)

External services 3 (63,332) (47,569)

Rentals and leases 4 (1,593) (1,541)

Staff costs 5 (18,462) (15,187)

Amortisation and depreciation 6 (1,401) (1,126)

Internal capitalised costs 7 1,257 793

Impairment charges/reversal of impairment charges on non-current

assets (2)

-O ther costs 8 (1,714) (1,946)

Income from investments 9 7,940

-Finance income 10 1,662 1,263

Finance costs 10 (479) (970)

PRO FIT/(LO SS) BEFO R E TA X FRO M C O NTINUING

O PER ATIO NS 10,063 1,973

T axation 11 (3,499) (3,251)

N ET PRO FIT/(LO SS) FRO M CO NTIN UIN G O PERATIO N S 6,564 (1,278)

N et profit/(loss) from discontinued operations -

-N ET PRO FIT/(LO SS) BEFO R E M I-NO RITY I-NTERESTS 6,564 (1,278)

N et profit/(loss) attributable to minority interests - -N ET PRO FIT/(LO SS) FO R TH E YEAR ATTRIBU TABLE

TO PA RENT CO M PA NY 6,564 (1,278)

Earnings per share 12 1.62 (0.33)

(35)

CONSOLIDATED BALANCE SHEET

ASSETS

(€000) _Note 31 Dec 2008 31 Dec 2007

Non-current assets:

Property, plant and equipment 13 4,084 3,221

Goodwill 14 11,531 11,531

Other intangible assets 15 848 933

Non-current financial assets - 2

Other non-current assets 116 49

Deferred tax assets 16 365 224

TOTAL NON-CURRENT ASSETS 16,944 15,960

Current assets:

Inventories 17 396 642

Trade receivables 18 22,220 18,620

Other current assets 19 2,340 3,442

Current financial assets 20 18,764 12,702

Cash and cash equivalents 21 23,439 12,178

TOTAL CURRENT ASSETS 67,159 47,584

NON-CURRENT ASSETS HELD FOR SALE -

(36)

CONSOLIDATED BALANCE SHEET

LIABIITIES AND SHAREHOLDERS' EQUITY

(€000) _Note 31 Dec 2008 31 Dec 2007

Shareholders' equity:

Share capital 1,084 1,084

Share premium reserve 55,106 55,106

- Treasury shares (871) (3,873)

Cash flow hedge and currency translation reserve (2,387) (567)

Other reserves 9,538 342

Retained earnings/(accumulated losses) (3,864) (2,539)

Net profit/(loss) for the year 6,564 (1,278)

Shareholders' equity attributable to the Parent Company 65,170 48,275

Minority interests 30 30

TOTAL SHAREHOLDERS' EQUITY 22 65,200 48,305

Non-current liabilities:

Non-current financial liabilities 23 101 133

Staff termination benefits and other employee benefits 24 1,146 947

Deferred tax liabilities 25 294 318

TOTAL NON-CURRENT LIABILITIES 1,541 1,398

Current liabilities:

Current financial liabilities 26 3,639 295

Trade payables 27 9,404 9,526

Tax liabilities 28 937 1,343

Other current liabilities 29 3,382 2,677

TOTAL CURRENT LIABILITIES 17,362 13,841

NON-CURRENT LIABILITIES HELD FOR SALE -

-TOTAL LIABILITIES 18,903 15,239

(37)

(€000) Share capital Share premium reserve - Treasury shares Cash flow hedge and currency translation reserve Other reserves Reserves and retained earnings

Net profit for

the year TOTAL

Balances at 1 January 2007 1,084 55,106 (3,873) (279) 298 (3,726) 1,231 49,841

Appropriation of net profit for 2006 44 1,187 (1,231)

-Other movements (288) (288)

Net result for 2007 (1,278) (1,278)

Balances at 31 Dec 2007 1,084 55,106 (3,873) (567) 342 (2,539) (1,278) 48,275

Appropriation of net profit for 2007 47 (1,325) 1,278

-Sale of treasury shares 3,002 9,149 12,151

Other movements (1,820) (1,820)

Net result for 2008 6,564 6,564

Balances at 31 Dec 2008 1,084 55,106 (871) (2,387) 9,538 (3,864) 6,564 65,170

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

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.

(38)

CONSOLIDATED CASH FLOW STATEMENT

(€000) 2008 2007

A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,585 25,610

B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (2,016) 645

Cash flows from operating activities before changes in working capital 126 260

Net profit/(loss) for the year _6,564 _(1,278)

Amortisation and depreciation 1,401 1,126

Income from investments (7,940)

-Impairment of assets 67 205

Net change in staff termination benefits 199 (84)

Net change in deferred tax liabilities (165) 291

(Increase) / decrease in receivables (2,565) (1,003)

(Increase) / decrease in inventories 246 (164)

Increase / (decrease) in payables 177 1,552

C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES 5,696 (1,352)

(Purchases)/disposals of fixed assets:

- Intangible assets (216) (475)

- Property, plant and equipment (1,963) (1,134)

- Financial assets (65) 257

Income from investments 7,940

-D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES 10,299 (318)

Increase/(Decrease) in medium/long-term borrowings (32) (30)

Sale of treasury shares 12,151

Other changes in shareholders' equity (1,820) (288)

E. CASH FLOW FOR THE YEAR (B+C+D) 13,979 (1,025)

(39)

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

(40)

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 Group’s 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 Conteúdo Para Telefonia Móvel 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 Company’s 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

ANNUAL REPORT 2008 page 1

CONTENTS

DIRECTORS’ REPORT

ON GROUP OPERATIONS

1.1

PRINCIPAL FACTORS THAT HAVE INFLUENCED THE RESULTS

FOR THE FINANCIAL YEAR

1.2

PRINCIPAL EVENTS IN THE GROUP’S THREE AREAS OF

BUSINESS

1.3

RESULTS OF OPERATIONS

1.4

FINANCIAL POSITION AND CASH FLOW

1.5

RECONCILIATION WITH THE PARENT COMPANY’S 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 (art. 79, CONSOB

Regulation no. 11971/99)

1.13

OTHER INFORMATION

1.14

EVENTS AFTER 31 DECEMBER 2008

1.15

OUTLOOK

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2008

2.1

CORPORATE OFFICERS

2.2

THE GROUP

CO NSOLIDATED INCO M E STATEM ENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEET

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

4.1

PRINCIPAL ACTIVITIES

4.2

ACCOUNTING STANDARDS USED IN PREPARATION OF THE

CONSOLIDATED FINANCIAL STATEMENTS