Tiscali 2007 Annual Report Download

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ANNUAL REPORT 2007

Table of contents

  • Page 1
    ANNUAL REPORT 2007

  • Page 2
    ANNUAL REPORT 2007

  • Page 3
    ... asset: International Network Infrastructure 7 8 10 12 14 16 Market overview Regulatory background Tiscali shares Significant events during the financial year Analysis of the Group economic and financial position Events subsequent to the year, outlook and prospects Corporate Governance 25 32...

  • Page 4
    ... Statements at 31 December 2007 Analysis of the Economic and Financial Position Income Statement Balance Sheet Statement of Changes in Shareholders' Equity Cash Flow Statement Notes to the Financial Statements 115 Reports of the Independent Auditors 149 Report of the Statutory Auditors 159...

  • Page 5

  • Page 6
    T iscali Group 5 T I S C A L I G R O U P

  • Page 7
    G R O U P T I S C A L I Management Vittorio Serafino Chairman Mario Rosso CEO * Massimo Cristofori CFO Mary Turner CEO Tiscali UK Mario Mariani CEO Tiscali Italy Salvatore Pulvirenti CIO Paolo Susnik CEO TINet * from 29/02/2008 6

  • Page 8
    BOARD OF DIRECTORS Chairman Vittorio Serafino Chief Executive Officer Mario Rosso* Chief Financial Officer Massimo Cristofori Directors Arnaldo Borghesi Francesco Bizzarri Tommaso Pompei BOARD OF STATUTORY AUDITORS Chairman Aldo Pavan Statutory Auditors Piero Maccioni Massimo Giaconia Deputy ...

  • Page 9
    ... of Milan. NARROWBAND (DIAL-UP) In March 1999, Tiscali launched the first free Internet access service in Italy giving a significant boost to the growth of the whole market and establishing itself as an undisputed first mover. 8 January 2000 ACQUISITION OF WORLD ONLINE - PAN-EUROPEAN FOOTPRINT...

  • Page 10
    ...OF EXCITE, TINET LINK, ADSL CUSTOMERS IN THE NETHERLANDS AND SPAIN January December 2006 ACQUISITION OF VIDEO NETWORKS LTD. DISPOSAL OF THE DUTCH SUBSIDIARY January December 2007 ACQUISITION OF BROADBAND AND VOICE DIVSION OF PIPEX IPTV SERVICE LAUNCH IN THE UK AND ITALY T I S C A L I G R O U P

  • Page 11
    ...C A L I Tiscali's 2007 Annual Report (and on equal perimeter in 2006) concerns the operations in the United Kingdom, Italy, TINet and other minor subsidiaries. UNITED KINGDOM 2007 Revenues (EUR ml) EBITDA (EUR ml) ADSL subscribers (000) Market share ADSL ULL subscribers (000) Number of Colocations...

  • Page 12
    ITALY 2007 Revenues (EUR ml) EBITDA (EUR ml) ADSL subscribers (000) Market share ADSL ULL subscribers (000) Number of Colocations Coverage on households ULL Investments (EUR ml) 278 50 553 5% 331 486* 50% 79 2006 218 30 432 5% 234 440 30% 47 Change 28% 67% 28% 41% 10% 67% 68% * 486 Colocations in ...

  • Page 13
    G R O U P T I S C A L I Broadband Growth ADSL SUBSCRIBERS 000 1,856 2,037 2,368 2,383 3,000 2,500 2,000 1,000 1,500 1,000 500 0 3 MONTHS 6 MONTHS 9 MONTHS 12 MONTHS ADSL REVENUES Euro ml 77.8 103.9 161 207.5 253.3 319.9 357.9 471.9 500 450 400 350 300 250 200 150 100 50 0 3M 06...

  • Page 14
    ...(75.3) 31 / 12 / 2007 678.5 100.4 (12.8) (136.6) 31 / 12 / 2006 34% 61% - Total Assets Net Financial Debt Shareholders' Equity Capex Non Financial Figures (000) 1,600 636 207 193 31 / 12 / 2007 1,231 397 270 179 31 / 12 / 2006 Access users ADSL (broadband) subscribers 3,475 2,383 3,451 1,856...

  • Page 15
    Results by segment T I S C A L I G R O U P Revenues by country Revenues by business line United Kingdom 67% Italy 30% Others 3% Access 60% Voice 26% B2B 7% Media and Value Added Services (VAS) 6% Others 1% Group Total Revenues (EUR ml) Group Total Revenues (EUR ml) 911 911 14

  • Page 16
    EBITDA by country ADSL subscribers by country United Kingdom 61% Italy 31% Others 8% United Kingdom 77% Italy 23% Group EBITDA (EUR ml) Group ADSL subscribers (ml) 161,4 2,4 15 T I S C A L I G R O U P

  • Page 17
    ... L I G R O U P METROPOLITAN AREA NETWORK IP/MPLS OVER DWDM RINGS A strategic asset: the International Network Infrastructure k k k IP /MPLS network technology Consolidated experience in the realization and management of the IP /MPLS Multiservice network (IPv4, IPv6, Data, video multicasting) 16

  • Page 18
    ...19 countries - 90 Points of Presence (POP) IP/MPLS in Europe, China and the US k Interconnected to 14 Public Exchanges in Europe and 5 in the US k 150 peering agreements with over 95% of traffic exchanged through a high quality private interconnection k Third largest European IPv4 network and the...

  • Page 19
    ... % of ADSL revenues YE 2006 70% 3 486 co-locations in Italy, As of 31 December 2007, Tiscali had reached: % of ADSL revenues YE 2007 70% 46% ULL reaching a 50% market coverage 3 800 co-locations in the UK, 19% ULL with a 55% market coverage 25% Bit-stream 26% Bit-stream 56% Wholesale Gross...

  • Page 20
    BIT-STREAM End Users Local Exchange MAN Incumbent ATM / IP Network DSLAM International Network DSLAM Port National Network ATM / IP Backhaul and Conveyance OLO Access Link UNBUNDLING Tiscali Metropolitan Network DSLAM Shared Access DSLAM Port Backhaul and Conveyance 19 Internet T I S ...

  • Page 21
    ... T I S C A L I A strong brand ADV ITALY campaign "Tiscali: the only true independent alternative" (ADSL + Voice campaign launched by Tiscali Italia) This new campaign promotes the fastest and most convenient dual play offer on the market: Tiscali Voice 8 Mega, which, in that particular promotion...

  • Page 22
    ... in 2007, produced by subsidiary Tiscali UK, was "Office Meeting". The campaign promoted the then brand new offer for unlimited broadband at £9.99 a month for the first 3 months then £12.99 thereafter with free UK weekend calls included. The advertisement concept to carry the product message...

  • Page 23

  • Page 24
    Report on operations

  • Page 25

  • Page 26
    ... development of broadband technology - double (Internet access + voice), triple (Internet access + voice + Iptv) and quadruple (Internet access + voice + Iptv + Mvno) play - extend the competitive arena of the fixed telephone market to operators of media services and mobile telephone services while...

  • Page 27
    ... scale aimed at creating new generation network or replacing the copper line with fibre optic network infrastructures which reach the telephone exchange or the end user, appear to be far from effectively implemented under the current state of play. 83% of the broadband connections in Europe take...

  • Page 28
    ... broadband-type access so as to avail of the faster download and upload speeds and exploit the more greatly customized services with a higher added value. Broadband connections within the home-based market, according to IDC, were around 89 million at the end of 2007, and are expected to increase...

  • Page 29
    ... quality aspects such as bandwidth availability, voice services (VoIP), music, video, content and sophisticated interaction with the customer. WHOLESALE MARKET SHARES IN ITALY INCUMBET RETAIL DSL RESALE/BITSTREAM SHARED ACCESS FULL ULL % 70 60 50 40 30 20 10 0 1Q 2007 4Q 2007 4Q 2008 4Q 2009 4Q...

  • Page 30
    ... customers. In order to offer IPTV services, it is important to have a network that provides a high-speed broadband and appropriate technological skills. In the UK, one of the leading IPTV service providers is Homechoice. The latter is a brand of the company VNL - acquired by Tiscali in August 2006...

  • Page 31
    ... The graph below discloses the revenue trend in Western Europe by business segment, where one can note an exponential increase in IPTV revenues. The market broken down by geographic area: Italy and the UK Italy In Italy, broadband connections recorded in 2006 were about 9 million and IDC estimates...

  • Page 32
    ...Italy, VoBB services have risen within the broadband market. VOBB CONNECTIONS AND REVENUES IN ITALY, 2005-2010 CONNECTIONS REVENUES (000) 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 2010 BROADBAND CONNECTIONS IN THE UK, 2005-2010 (000) 25,000 20,000 15,000 10,000 5,000 0 2005 2006 2007...

  • Page 33
    ... and development of the new generation access network (Next Generation Access Network NGAN): for the purpose of ensuring equal and non-discriminatory treatment of the wholesale services offered by Telecom Italia to the other operators (including the Retail division of the Italian incumbent), AGCOM...

  • Page 34
    ... permit the fixed network operators to access new markets and offer convergent and innovative telecommunications services. Tiscali entered into an MVNO agreement with Telecom Italia in July 2007 and will launch its own service within the first half of 2008. Broadband Wireless access technologies (in...

  • Page 35
    ... users. R E P O R T Tiscali shares Tiscali shares have been listed on the Italian Stock Exchange (Milan:Tis) since October 1999. At 31 December 2007, market capitalization came to EUR 764 million, calculated on the value of EUR 1.80 per share as at 28 December 2007. On 31 December 2007, the number...

  • Page 36
    ...-related and speculative dynamics. In the month of October, until the first few days of December, the stock underwent a change in direction and was bullish. The stock closed 2007 with a value of EUR 1.80. The graph below illustrates Tiscali stock trends and volumes traded in 2007: Euro 2.80 PRICE...

  • Page 37
    ... DATA PROCESSING At European level, Tiscali stock performance was better than BT's during the first half of the year, involving performance under that of its competitors between June and November. In the last month of the year, there was slowdown in market performances. This is illustrated by the...

  • Page 38
    ...to the end of the financial year"). The main events during the financial year are listed below, in chronological order. Stock option plan for management On 10 May 2007, accomplishing the incentive plan for the Chief Executive Officer, Tiscali S.p.A.'s Board of Directors allocated the same 3,593,143...

  • Page 39
    ... the 2008-2012 Business Plan On 26 November 2007, the Company's Board of Directors approved the 2008-2012 business plan which outlines the new strategic approach and the financial targets of the Tiscali Group and its subsidiaries in Italy and the UK. In detail, the business plan aims to (i) enhance...

  • Page 40
    ... new marketing campaign in Italy and choice of a testimonial In November 2007, Tiscali launched a new marketing campaign in Italy choosing a testimonial for the first time, the actor Ezio Greggio, with the aim of promoting the Tiscali Italia dual play option, comprising joint voice and ADSL products...

  • Page 41
    ...The accounting period ended at 31 December 2007 saw the consolidation of the Tiscali Group in the geographic areas of Italy and the UK, where product and infrastructural investments were concentrated. Furthermore, the acquisition of Pipex's broadband and voice division was concluded on the UK market...

  • Page 42
    ...Tiscali Italia S.p.A., the Italian subsidiary responsible for all Tiscali Group business operations in Italy, recorded revenues of EUR 277.7 million in 2007, compared to the EUR 217.5 million in 2006, disclosing a 28% increase. In detail, revenues pertaining to Internet access services via broadband...

  • Page 43
    ... revenues from Internet access services via narrowband (dial-up) and broadband (ADSL), in 2007 generated revenues of EUR 549.9 million, representing 60% of total Group revenues for the quarter and showing a 16% increase over the same period in 2006 (EUR 473.5 million). The figure takes into account...

  • Page 44
    ... 303.8 million in 2006). As a percentage of revenues it increased from 45% to 46%, due to the greater use of the direct network infrastructure. Indirect operating costs (including payroll and related costs, marketing and sales and other costs including general ones) during 2007 amounted to EUR 261...

  • Page 45
    ... when compared with 2006. Furthermore, the 2007 operating result was influenced by the charges relating to the fair-value assigned to the stock option plans of Tiscali S.p.A. and Tiscali UK, with an overall amount of EUR 9.9 million plus further benefits for the managers of the Group, amounting to...

  • Page 46
    ... in relation to the profits of the tax unit estimated in the business plan, whose total value equals EUR 34.3 million. CONSOLIDATED BALANCE SHEET - EUR (000) 31.12.2007 31.12.2006 Non current assets Current assets Assets held for sale Total Assets Group shareholders' Equity Shareholders' equity...

  • Page 47
    ...the remaining EUR 34.3 million to Tiscali International BV (Netherlands), a Group sub-holding company and reference entity for the purposes of the Dutch tax unit. Current assets Current assets mainly include "Receivables from customers" (EUR 164.4 million at 31 December 2007, compared to the EUR 135...

  • Page 48
    ... 2006 (EUR 63.5 million) is essentially attributable to the sale & lease back transaction on the Sa Illetta headquarters (Cagliari) while the residual portion concerns the rise in lease agreements on network equipment, servers and other equipment used directly in the production process. Bonds issued...

  • Page 49
    ... N S Events subsequent to the end of the half year period, Business outlook and prospects Execution of share capital increase under option On 10 January 2008, Tiscali S.p.A.'s Board of Directors approved the issue conditions for the shares offered under option to the shareholders. The share capital...

  • Page 50
    ... corporate disclosure to the shareholders and the investors, Tiscali S.p.A.'s ("Tiscali" or the "Company") 2.Adopted model In relation to the system of management and control, the Company has adopted the traditional model, which envisages the presence of the Board of Directors and the Board...

  • Page 51
    ... the provisions of Italian Law No. 262/2005, on 20 December 2006 the Board of Directors took steps to appoint the Director Massimo Cristofori, currently Chief Financial Officer of the Company, as executive in charge of drawing up the Company's accounting documents. The shareholders' meeting held on...

  • Page 52
    ... the share capital is held by the market. The Company is not aware of the existence of any shareholders' agreements. Part II: Disclosure on compliance with the recommenda- 1.3. Chairman of the Board of Directors and Chief Executive tions contained in the Code of Conduct for Listed Officer Companies...

  • Page 53
    ... BV Director of Tiscali Italia S.p.A. Director of Tiscali UK Ltd Director of Tiscali UK Holdings Ltd Director of Tiscali International BV Director of Tiscali Financial Services SA Director of Shar.DNA S.p.A. In the specific " investor relations" section of the website www.tiscali.com , the Company...

  • Page 54
    ... Law No. 262/2005, as amended by Italian Legislative Decree No. 303/2006. Pursuant to the aforementioned Article 11 (Board of Directors), the list of nominations must be filed at the Company's registered office at least ten days prior to the date of the next Shareholders' Meeting, together with...

  • Page 55
    ... with law must be made available to them at the registered office when meetings are due to be held, the Company has made said information available in a special "investor relations" section of its website www.tiscali.com, allowing said information to be downloaded in electronic format. As indicated...

  • Page 56
    ... by the shareholders' meeting called to approve the 2007 financial statements. The Committee took part in drafting the stock option plan for the Italian management team of the Tiscali Group, discussed by the Board of Directors during the meetings held on 11 October 2006, 9 November 2006, 18 January...

  • Page 57
    ...the meeting held on 9 November 2006, the former Chief Executive Officer Tommaso Pompei presented the Board of Directors with the main guidelines of the new organization and governance model adopted by the Company and the Tiscali Group, necessary in light of the review and simplification of the scope...

  • Page 58
    ... 146/2006 (transactional offences) and Italian Law No. 123/2007 (violation of accident-prevention norms); 3 an audit was carried out on the administrative-accounting internal audit system of the subsidiary Tiscali UK. A final report was drawn up containing the recommendations of local management for...

  • Page 59
    ... non-executive and independent directors on the board, it will be re-established by the new Board of Directors, which will be appointed by the shareholders' meeting called to approve the 2007 financial statements. During 2007, the Internal Audit Committee met seven times on the following dates: 18...

  • Page 60
    ... communications. Investor Relations office As part of the corporate governance model adopted pursuant to Italian Legislative Decree No. 231/2001, the Company has drawn up a number of control procedures for the management of confidential information, in accordance with national and international best...

  • Page 61
    ...-group transactions, it is pointed out that the same are not defined as atypical or unusual, since they are part of the usual course of business of the Group's companies. The information concerning the relationships with related parties is illustrated in the Note 43 of the Consolidated Financial...

  • Page 62

  • Page 63

  • Page 64
    Consolidated Financial Statements and Explanatory Notes at 31 December 2007

  • Page 65
    2 0 0 7 Consolidated income statement NOTES Revenues Other income Purchase of materials and outsourced services Payroll and related costs Stock option plan costs (4) (5) (6) (7) (8) (9) (10) (11) (12) 31.12.2007 910,969 5,652 651,144 97,166 11,697 6,885 27,332 40,101 162,744 (13) (80,448) (10) (14...

  • Page 66
    Consolidated Balance Sheet NOTES 31.12.2007 (EUR 000) 31.12.2006 Non-current assets Goodwill Intangible assets Properties, plant and machinery Equity investments Other financial assets Deferred tax assets (18) (19) (20) (21) (22) (23) 515,022 286,042 272,260 2,465 28,269 106,634 1,210,692 316,646 ...

  • Page 67
    ... costs relating to stock options Other unusual income Income Taxes Financial income/charges Cash flow from operations before capital changes (Increase)/Decrease in inventories (Increase)/Decrease in trading activities and other (Increase/Decrease) in trading liabilities and other (Increase)/Decrease...

  • Page 68
    ... (847,294) Group shareholders' equity 308,767 62,546 2,087 - Minority interests 2,553 Total 311,320 Increases Transfers covering losses Exchange differences arising on the translation of the financial statements of foreign companies Changes in the consolidation area Minority interests Profit...

  • Page 69
    Investments 194 EUR million

  • Page 70
    ... Board ("IASB") and ratified by the European Union, and the measures issued in conformity with Article 9 of Italian Legislative Decree no. 38/2005. IFRS include also all the reviewed international accounting standards ("IAS") and all the interpretations by the International Financial Reporting...

  • Page 71
    ... fair values, at the date of the exchange, of assets, liabilities incurred or undertaken concerning the acquired company, and the financial instruments possibly issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree...

  • Page 72
    ... in the shareholders' equity special conversion reserve. The main exchange rates used for translation of the 2007 and 2006 financial statements for foreign companies into Euro were: 2.5 Assets held for sale and discontinued operations Assets and/or groups of assets undergoing disposal, relating to...

  • Page 73
    ...broadband (ADSL) services, such as contributions for connection to the Tiscali network to 'networks managers' in the various geographic areas and relevant user equipment. These capitalised costs are amortised on a straight-line basis in relation to the minimum legal duration of the customer contract...

  • Page 74
    ... cost is calculated by using the average cost method. The net realisable value is the selling price less the costs considered necessary for achieving the sale. The profits and the losses from financial assets available for sale are estimated directly on the shareholders' equity, until the time in...

  • Page 75
    ... their respective book values at the date of issue. The part relating to the shareholders' equity is directly meant for reducing the same. The interest expenses relating to the liability component are calculated by using the current interest rate in the market for similar non-convertible bonds. The...

  • Page 76
    ... options at the date of allocation, and for accounting purposes, it follows the rules fixed by "IFRS 2 - Payments based on shares"; the cost is reported in the income statement with countervalue relating directly to the shareholders' equity. 2.16 Revenue recognition Revenues from sales of services...

  • Page 77
    ... income will be available to allow all or part of the asset to be recovered. Provisions for risks and charges Provisions for risks and charges relating to potential legal and tax liabilities are established following estimates performed by directors on the basis of judgements developed by the Group...

  • Page 78
    ...the Group On 30 November 2006, IASB issued accounting standard IFRS 8 - Business Segments, applicable as of 1 January 2009 in replacement of IAS 14 Segment Reporting. The new accounting standard requires that the company bases information given in the Segment Report on elements used by management to...

  • Page 79
    ...the Tiscali Group operates (Italy and the UK). This note reports the main results of these business segments, together with the balance sheet data of the various geographic areas and other information required by the reference standards. Lines of business (Access, Voice, Business services / Business...

  • Page 80
    ...) 78,511 (75,324) Italy United Kingdom Others Segment report Unallocated Total 31.12.2006 EUR (000) Revenues From third parties Intra-group Total revenues Operating result Portion of results of equity inv. carried at equity Net financial income (Charges) Pre-tax result Income taxes Net result from...

  • Page 81
    ... investments carried at shareholders' equity Goodwill Total consolidated assets Liabilities Segment liabilities Total consolidated liabilities OTHER INFORMATION Investments Amortization/depreciation Provisions to risk provisions and receivable write-downs Italy United Kigdom Others Segments...

  • Page 82
    ... 9,912 27,514 8,158 130,022 186,361 972,230 31.12.2006 EUR (000) Goodwill Intangible assets Properties, plant and machinery Equity investments Other financial assets Deferred tax assets Access Access Voice Business services Media & Vas Unallocated Total 144,371 80,672 225,043 3,368 21,618...

  • Page 83
    ... relating to the Video Network Ltd restructuring plan for EUR 1 million, restructuring charges attributable to Tiscali Italia S.p.A. for EUR 0.5 million and to Tiscali S.p.A. and Tiscali Service S.p.A. for a total of EUR 0.4 million. 13. Other atypical (Income) Charges 9. Stock option plan cost...

  • Page 84
    ...Charges) N O T E S of borrowing. Indeed, in 2006 debt was made up primarily of a financial instrument convertible into shares (bond issue), while in 2007 debt was made up entirely of bank instruments entailing higher credit spreads, in the framework of a general increase in market rates. In detail...

  • Page 85
    ... on the taxable income which can be generated with reasonable certainty in light of the business plans, accompanied by the related tax plans, and the current performance of the Group companies to whom the tax losses refer. The balance relates in particular to the Tiscali Group companies listed below...

  • Page 86
    ... 490,275 106,634 383,642 The tax losses correspond to those recorded in tax returns and, for 2007, to taxable income calculations. These losses relate to the parent company and Italian subsidiaries (EUR 599.6 million), Tiscali International BV and Dutch subsidiaries (EUR 155.8 million less...

  • Page 87
    ... write-offs of assets and the other disposal charges are represented in the table in note 11.1. Income statement of the operating assets Held for sale and sold EUR (000) Revenues Operating result Pre-tax result Net result 31.12.2007 66,427 2,889 (4,350) (4,952) 31.12.2006 190,085 5,874 3,538 3,540...

  • Page 88
    ...goodwill. The item other movements, EUR 11.1 million, is attributable to the exchange delta on the opening value of the goodwill of Video Network Ltd.. EUR (000) Italy United Kingdom 31.12.2006 3,406 313,240 316,646 Increases 212,915 212,915 Decreases Other Movements (3,406) (3,406) (11,133) (11...

  • Page 89
    ... date of the acquisition. On the whole, the increase in such item, amounting to EUR 17.9 million, mainly depended (EUR 12.6 million) on the opening of new IRU contracts, in relation to the investments made for the development of the unbundling network. The item "Broadband service activation costs...

  • Page 90
    ... relating to those customers whose contracts were normally cancelled, depending on the normal churn rate of the customer database, as well as exchange differences. N O T E S A T 3 1 D E C E M B E R opment costs relating to the projects UNIT2 and IPTV, depending on the subsidiary Tiscali Service...

  • Page 91
    ... 80.3 million. These receivables accrued from the sale of internet services, billing of network access services, inverse interconnection traffic, advertising revenues and business and telephone services provided by the Group. The book value of trade receivables, in view of the maturities mentioned...

  • Page 92
    ... December 2007 amounted to EUR 134.2 million and include the Group's cash, essentially held in bank current accounts. Please see the section relating to information on operations for a detailed analysis of the financial position. Share capital Share premium reserve Translation reserve Stock Options...

  • Page 93
    ...allocation date using the Black-Scholes valuation model, taking into consideration the terms and conditions under which the options were assigned. In January 2007, the UK management was assigned 2,920 non performance options and 1,301 performance options on Tiscali UK Ltd shares, at the strike price...

  • Page 94
    ... taxes. On 27 December 2007, M&C subscribed a bond for EUR 60 million convertible into Tiscali shares. The bonds were issued by the Luxembourg-based company Tiscali Financial Services SA, a Tiscali subsidiary, and guaranteed by Tiscali. On 21 December 2007, the Issuer's extraordinary shareholders...

  • Page 95
    ... the Group's economic performance and the realization timescales of the share capital increase transaction and recourse to market debt instruments. The final cost of the debt relating to the bridging loan for the debt market transaction, amounting to EUR 400 million, will be established at the time...

  • Page 96
    ... to be used for financing the working capital in Italy / UK 31 December 2011 (not yet disbursed as of the date of the Information Prospectus) JP Morgan Chase Bank N.A. Tiscali UK Holdings Ltd, wholly-owned subsidiary of Tiscali In the event of change of control These include limitations such...

  • Page 97
    ADSL subscribers 2,4 million 96

  • Page 98
    ...,935 29,920 Current value of minimum payments due 31.12.2007 19,502 79,467 98,969 31.12.2006 12,304 15,917 28,221 Less future financial charges Current value of minimum payments Included in the balance sheet Payables due to current finance leases Payables due to non-current finance leases (31,102...

  • Page 99
    ... shareholders of Video Network Ltd relating to the current value of the tax losses of this company, amounting to EUR 93.9 million, as well as medium/long-term trade payables due to suppliers for the purchase of plant linked to the stipulation of IRU (indefeasible right of use) contracts originated...

  • Page 100
    ...mainly attributable to the following events: 3 use of the provision established as at 31 December 2006 by the UK subsidiary in order to cover the charges for reorganizing Video Network Ltd, in relation to the effective incurring of these charges during the first half of 2007, for an amount totalling...

  • Page 101
    ... 38.1 Financial risk management objectives The Group's Corporate Treasury division provides business services, co-ordinates access to the local and international financial markets, and monitors and handles the financial risk associated with Group operations by means of internal risk reports which...

  • Page 102
    ...the acquisition date The interest rates used for the calculation of the fair value range from 6% to 11%. 39. Acquisition of subsidiaries On 13 July 2007, Tiscali and Pipex Communications Plc ("Pipex") entered into an agreement for the acquisition by Tiscali UK Holdings Limited of Pipex's broadband...

  • Page 103
    ...of the Board of Directors, on 3 May 2007 the shareholders' meeting approved a stock option plan in favour of the Chief Executive Officer and key employees of the Company and its Italian subsidiaries, with the aim of aligning management's interests with the creation of value for the Tiscali Group and...

  • Page 104
    ... the time of listing relating to his shareholding. Consequently, World Online International N.V was held responsible vis-Ã -vis the parties who had subscribed the shares of the company at the time of the IPO on 17 March 2000 (start date of trading) and who acquired shares on the secondary market up...

  • Page 105
    ...The Dutch tax authorities forwarded World On Line International NV (and the direct subsidiary Tiscali International BV) a number of notices of assessment concerning the alleged non-payment of withholdings on remuneration and stock options acknowledged in previous years to Group executives. The total...

  • Page 106
    ...related parties During the year, the Tiscali Group had a number of dealings with related parties, under conditions considered normal on the respective reference markets, taking into account the characteristics of the goods and services provided The table below summarises the balance sheet and income...

  • Page 107
    ... 2007 and at 31 December 2006 were as follows: Consolidated balance sheet EUR (000) Non-current assets Current assets Assets held for sale Total Assets 31.12.2007 1,210,692 389,249 1,599,941 of which: related parties 360 360 0.09% % change F I N A N C I A L S T A T E M E N T S Group shareholders...

  • Page 108
    ... at market rates. The loan agreement explicitly envisages subordination with respect to the other debts of the Tiscali Group. (5) Mr. F. Bizzarri, member of Tiscali Spa's Board of Directors, has stipulated an IPTV consultancy contract with the Parent Company and with the subsidiary Tiscali Italia...

  • Page 109
    964.000 unbundling subscribers

  • Page 110
    ...) Tiscali International Network GmbH Tiscali International Network Ltd Tiscali International Network USA Tiscali Business International Ltd Green Dot Property Man Ltd World Online Ltd. World Online Telecom Ltd. Tiscali Holdings UK Ltd Tiscali Uk Ltd Tiscali Network Distribution Ltd Video Network Ltd...

  • Page 111
    ... SA France in liquidazione C O N S O L I D A T E D Germany Non-trading Entity Italy Dormant Entity 60% Tiscali International 40% Network S.p.A. Italy Czech Republic Trading Entity Tiscali International 100% Network GmbH Germany Spain the Netherland Tiscali International 100% Network Ltd UK...

  • Page 112
    ...% Tiscali Financial Services SA 100% Tiscali Finance SA Luxembourg 99,5% World Online International N.V. The Netherlands 100% Tiscali International B.V. The Netherlands Tiscali España SL Spain Tiscali Business Ltd UK Tiscali UK Holdings Ltd 100% Green Dot Property Man. Ltd UK World Online...

  • Page 113
    ... E S Party providing EUR (000) the service Beneficiary Fees for 2007 Accounts auditing Deloitte & Touche S.p.A. Deloitte & Touche S.p.A. Deloitte Network Tiscali Spa Subsidiary companies Subsidiary companies Tiscali Spa Subsidiary companies Subsidiary companies Tiscali Spa Subsidiary companies...

  • Page 114
    ... the financial condition of the issuer and of the Group companies included in the scope of consolidation. S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L Milan, 19th March 2008 Chief Executive Officer Manager responsible for preparing Tiscali S.p.A.'s financial reports Mario...

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    T iscali S.p.A. - Financial Statements at 31 December 2007

  • Page 117
    ...In this connection, note that the 2007 statutory financial statements represent the separate financial statements of the Parent Company Tiscali S.p.A. and have been prepared in observance of the International Accounting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB...

  • Page 118
    ...International BV, a sub-holding of the Tiscali Group. 117 T I S C A L I S . P. A . - S I N A N C I A L S T A T E M E N T S Non-current liabilities, other than items relating to the financial position for which reference should be made to the next note, include provisions for risks and charges...

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    D E C E M B E R 2 0 0 7 TISCALI S.P.A. - FINANCIAL STATEMENTS 2007 Income Statement NOTES Revenues Other income Purchase of materials and outsourced services Payroll and related costs Other operating costs (4) (5) (6) (7) (8) (9) (9) 31.12.2007 30,902 897 (23,566) (10,392) (2,686) (873) (17,347) ...

  • Page 120
    ... Sheet NOTES 31.12.2007 (EUR 000) 31.12.2006 Non-current assets Intangible assets(12) Properties, plant and machinery Equity investments Other financial assets (13) (14) (15) 612 141 1,133,883 53,144 1,187,779 911 218 1,170,203 4,779 1,176,111 Current assets Receivables from customers Other...

  • Page 121
    ... of changes in shareholders' equity Share Capital Balance at 01.01.2006 198,369 Share premium reserve 953,717 Retained earnings (215,950) Stock option reserve - (EUR 000) Total 936,136 D E C E M B E R Increases Transfers covering losses Net profit (loss) for the period Balance at 01.01.2007 13...

  • Page 122
    ... of intangible fixed assets - Payments for the sale of financial fixed assets NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES (9) (5) 486 (30,171) 16 (49) (3,501) Changes in financial assets Increase (decrease) in other non-current liabilities Changes in shareholders' equity NET...

  • Page 123
    ... of accounting statements The 2007 statutory financial statements represent the separate financial statements of the Parent Company Tiscali S.p.A. and have been prepared in observance of the International Accounting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB...

  • Page 124
    ... time the cumulative gain or loss previously 2.4 Foreign currency transactions Sums receivable and payable in foreign currency are recorded at the exchange rate valid at the end of the year, and related gains or losses from conversion are credited or charged to the income statement under "Exchange...

  • Page 125
    ...capital (stock option plans). These plans represent a component of the remuneration of the beneficiaries. The cost, represented by the fair value of the stock options as of the date of allocation is recorded, for accounting purposes in accordance with "IFRS 2- Payments based on shares" in the income...

  • Page 126
    ... well as payments based on shares of a Group company (for example the parent company) allocated to employees of other Group companies. The adoption of this interpretation did not lead to the recording of any significant accounting effects on outstanding plans. In August 2005, the IASB issued the new...

  • Page 127
    ... identification of the business segments based on internal reporting regularly reviewed by management for resource allocation purposes to the various segments and for performance analysis purposes. On 29 March 2007, the IASB issued a revised version of IAS 23 - Financial charges which will be...

  • Page 128
    3.476.000 Active users

  • Page 129
    ... essentially in line with those of 2006. The remunerative component deriving from the Stock Option plans totalling EUR 0.8 million, refers to the figurative charges accrued in 2007 deriving from the plans assigned to the Chief Executive Officer for EUR 0.45 million and to the Company's managers for...

  • Page 130
    ... Other financial charges (343) (68) (411) Net financial charges (310) (539) (53) (592) (508) 3 81 83 31.12.2007 31.12.2006 11. Income taxes EUR (000) Current taxes Net taxes for the year 31.12.2007 77 77 31.12.2006 163 163 The balance of current taxes includes IRAP (regional business tax) for 2007...

  • Page 131
    ... S.p.A. Tiscali Czech Republic a.s. Tiscali Deutschland Gmbh Tiscali Finance SA Tiscali Italia S.p.A. Tiscali Motoring S.r.l. in liquidation Tiscali Services S.p.A Tiscali Telecomunicaciones SA World Online International N.V. Tiscali Int.l Network S.p.A. Tiscali Financial Services Sa Cost 1,027...

  • Page 132
    ... Ideare S.p.A. Quinary S.p.A. Tiscali Czech Republic a.s. Tiscali Deutschland Gmbh Tiscali Finance SA Tiscali Italia S.p.A. Tiscali Motoring S.r.l Tiscali Services S.p.A Tiscali Telecomunicaciones SA World Online International N.V. Tiscali Int.l Network S.p.A. Tiscali Financial Services Sa 226 6,387...

  • Page 133
    ...equity investment by mean of booking to the income statement. S I N A N C I A L World Online International N.V. This is a sub-holding based in the Netherlands which, at 31 December 2007, controlled Tiscali Group companies operating, in particular, in the UK. Impairment testing on the book value of...

  • Page 134
    ...in liquidation Quinary S.p.A. Tiscali Czech Republic a.s. (**) in liquidation Tiscali Deutschland Gmbh (***) Tiscali Finance SA Tiscali Italia S.p.A. Tiscali Motoring S.r.l in liquidation World Online International N.V. Tiscali Int.l Network S.p.A. Tiscali Financial Services Sa S.Francisco (USA...

  • Page 135
    ... SpA Tiscali Deutschland Gmbh Tiscali International BV Tiscali Business Gmbh Tiscali Gmbh Tiscali B.V. Tiscali Espana SLU Tiscali UK Ltd Tiscali UK Holdings Ltd Tiscali International Network BV Tiscali International Network SpA Tiscali Italia S.p.A. Tiscali Services S.p.A. Total 31.12.2007 122...

  • Page 136
    ... the stock option plans assigned to the Chief Executive Officer for EUR 0.45 million and the Company's managers for EUR 0.43 million (see Note 7). On 10 May 2007, the Board of Directors allocated the Chief Executive Officer 3,593,143 options for the purchase of ordinary shares in the Company, which...

  • Page 137
    ... (000) Tiscali International BV Tiscali B.V. Tiscali Motoring S.r.l. Tiscali Italia S.p.A. Tiscali Services S.p.A. Quinary SpA Tiscali International Network SpA Tiscali International Network BV Tiscali International Network SA Total 31.12.2007 234,270 69 509 927 268 3 16 236,062 31.12.2006 206,223...

  • Page 138
    .... Trade payables to Group companies are detailed below: EUR (000) Tiscali International BV Tiscali Business Gmbh Tiscali Deutschland Gmbh Tiscali Gmbh Tiscali B.V. Tiscali Espana SL Tiscali UK Ltd Tiscali Italia S.p.A. Tiscali Services S.p.A. Quinary S.p.A. Tiscali International Network BV Total...

  • Page 139
    ...trading D. Cash and cash equivalents (A) + (B) + (C) E. Current financial receivables (*) 31.12.2007 171 2,012 2,183 - 31.12.2006 152 152 - D E C E M B E R ces, co-ordinates access to the local and international financial markets, and monitors and handles the financial risk associated with Group...

  • Page 140
    ...Non-current liabilities Current liabilities Liabilities directly related to assets held for sale Total liabilities and Shareholders' equity 258,469 50,397 1,239,067 236,062 32,477 269,425 91% 64% BALANCE SHEET EUR (000) 31.12.2006 of which: related parties % change Non-current assets Current...

  • Page 141
    ... Sro Tiscali Uk Ltd Tiscali Business Gmbh Tiscali Italia S.p.A. Tiscali Services S.p.A. Total Group companies S I N A N C I A L Bizzarri Francesco Borghesi e Colombo Associati Srl Stock options CEO Stock options - employees Other related parties Total Group companies and other related parties...

  • Page 142
    ...of the Board of Directors, on 3 May 2007 the shareholders' meeting approved a stock option plan in favour of the Chief Executive Officer and key employees of the Company and its Italian subsidiaries, with the aim of aligning management's interests with the creation of value for the Tiscali Group and...

  • Page 143
    ... the time of listing relating to his shareholding. Consequently, World Online International N.V was held responsible vis-Ã -vis the parties who had subscribed the shares of the company at the time of the IPO on 17 March 2000 (start date of trading) and who acquired shares on the secondary market up...

  • Page 144
    ... demand for payment of this amount given the damages sustained from interruption of the service. On 17 March 2006, Citybank (acting as liquidator of KPNQwest) filed a precautionary attachment request for a value of around EUR 5 million on the bank current accounts of Tiscali International Network BV...

  • Page 145
    ... for the 2004 tax period. With regard to the tax assessments relating to direct taxation in Germany (Corporate and Trade Tax), the assessment procedures have concluded. The assessment reports received disclose tax liabilities payable solely by the parent company Tiscali Deutschland GmbH for a total...

  • Page 146
    ... activities associated with the corporate acquisitions which were not concluded successfully On behalf of the Board of Directors The Chairman Vittorio Serafino 145 T I S C A L I S . P. A . - S I N A N C I A L (1) Services associated with the share capital increases resolved during 2007...

  • Page 147
    T I S C A L I S . P. A . - S I N A N C I A L S T A T E M E N T S A T 3 1 D E C E M B E R 2 0 0 7 146

  • Page 148
    ... issued in implementation of Article 9 of Italian Legislative Decree no. 38/2005) and based on their knowledge, fairly and correctly represent the financial condition of the issuer. Milan, 19th March 2008 Chief Executive Officer Manager responsible for preparing Tiscali S.p.A.'s financial reports...

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    Reports of the Independent Auditors

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    151 R E P O R T S O F T H E I N D E P E N D E N T A U D I T O R S

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    Report of the Statutory Auditors

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    161 R E P O R T O F T H E S T A T U T O R Y A U D I T O R S

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    163 R E P O R T O F T H E S T A T U T O R Y A U D I T O R S

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    R E P O R T O F T H E S T A T U T O R Y A U D I T O R S 164