2006 ANNUAL REPORT FINANCIAL STATEMENTS

2006 ANNUAL REPORT & FINANCIAL STATEMENTS CONTENTS Chairman’s Message CEO’s Review Board of Directors i iii vi Report of the Directors Report of the Remuneration Committee to the Shareholders Corporate Governance Report of the Independent Auditors on Corporate Governance Matters Preparation of Financial Statements and Directors’ Responsibilities Report of the Independent Auditors on the Financial Statements Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements FINANCIAL STATEMENTS 01 04 06 10 11 12 13 14 16 18 20 Share Register Information Company Information Additional Information for Non-Maltese Investors Five Year Record OTHER FINANCIAL INFORMATION 67 69 70 73 CHAIRMAN’S MESSAGE I am pleased to report about another good year for your Company. Cash flow The incentives which were introduced in 2005, whereby our clients were encouraged to settle their bills on time, remained effective. Debtor days continued to fall; in fact at the end of the 2006 they stood at 44 days, facilitating the continued generation of free cash flow by your Company. Results Our results for 2006 were robust, with revenues of Lm55.5 million, and profits before tax of Lm12.1 million. Revenues for the group were nearly one per cent more than those reported at the end of the previous year. Profits before tax were 25 per cent less than the results of the previous year. However the reason for this result was a positive one – I will amplify later. Adjusting to change 2006 was quite an exceptional year for your Company. During the first five months of the year, we were all focussed on the Company’s impending privatisation. During the following seven months, we put in place a strategy of growth through the transformation of our business. Change, and the management of change, occupied and focussed the minds of our management, and of our people. We were busy introducing a new ethos into our business. We also targeted the acquisition of Multiplus which will ensure that we remain the leading player in the local telecoms market. The acquisition of Multiplus is meant to be a powerful demonstration of our determination to remain the leading operator in Malta on the basis of the most extensive service portfolio delivered over state-of-the-art infrastructure with exceptional customer service. Dividends The news on dividends is, once again, positive. The Board is recommending a final net dividend of 5 cents, resulting in a full year net dividend of 6 cents 5 per share, representing a pay out ratio of 66% of earnings before exceptional items, compared with the 59% that we recommended last year. This recommendation demonstrates the Board’s continuing progressive dividend policy, as well as its confidence in the Group’s prospects for the future. About our business Our fixed-line business sustained further erosion in its revenue streams during the year under review, as was expected and predicted; however, the erosion in this revenue stream was more than made up for by the strong growth in our new wave industries, namely mobile and broadband. Both these businesses have contributed significantly to our results. Additionally, I am pleased to report about a new area of growth in our diverse lines of business. Our ‘Call Centre’ services, operated by our subsidiary Telepage Ltd, registered significant growth during 2006. Telepage’s positive performance continues into this year. Voluntary retirement scheme We are also endeavouring to cut down on our costs. Exceptionally, these efforts translate into considerable expenditure in the short term, in order to ensure substantial savings over the long term. The ‘Voluntary Retirement Scheme,’ wished by our people, and utilised by more than 200 of our workforce, has cost us Lm3.2 million. i MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 It is the main reason why our profits, before taxes, for 2006, were lower than those of the previous year. Yet, the long term benefits from this expenditure are assured, and will render your company more efficient, and consequently more competitive. These activities, together with other initiatives, represent our determination to continue contributing to the community wherein we operate, and on whom we depend so much for our continued successes. Regulation I have declared in the past, and I reiterate: we believe that a fair and flexible regulatory regime is good, for the Group as well as for our market. However, we also believe that the Regulator must not lose sight of the fact that Malta is a very small market, and regulating on the principle that one size fits all is dangerous, and is not in the long-term interests of the market. There must be a realisation that service providers can only, and will only, continue to deploy high amounts of capital expenditure, if the returns on their investments are attractive. Throughout Europe today, regulatory risks are posing the gravest concerns in our industry. These risks are magnified and become unreasonable in a small market like Malta. We continue to hope that the Regulator takes heed of these realities and of these concerns. Looking ahead Overall, during 2006, we have performed well. We have met our expectations, and delivered on our strategic objectives. Our job now is to maintain the momentum of: change, transformation, and innovation, which we have achieved to-date. I am confident that we shall be successful, and that we will continue delivering to you, our shareholders, as we have done in the past. I conclude by thanking: Our People, for their excellent work throughout the year; Our clients, for their continued loyalty to our various services; and: You, our shareholders, for your continued trust and support for our initiatives. Your Board is so grateful for your support. Our social responsibilities Throughout 2006 we continued with our support for worthy social initiatives. Our total commitment to the ‘Telecare’ project remained in place. Additionally, we worked closely with MCAST to assist worthy students from that Institution to attain their professional ambitions. We also continued to support the ‘L-Istrina’ initiative. Sonny Portelli Chairman 2 April 2007 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 ii CEO’S REVIEW A milestone year 2006 was a milestone year for Maltacom Group marked by the crystallisation of the process of privatisation and the ensuing process of changes brought about by this important development. As you all know, in May 2006 Dubai Holding LLC, which is the ultimate parent company of Emirates International Telecommunications Malta Ltd (EIT is a joint venture between TECOM Investments and Dubai Investment Group), acquired the Government of Malta’s 60 per cent controlling stake in Maltacom. Privatisation has led to a series of inevitable changes within the Group. The process started with the development of a group wide Value Creation Plan which outlined the new overall strategic objectives of the Maltacom Group for the coming years. It also identified the means to achieve these objectives. A series of key projects were defined as part of this plan, some of which have already been implemented, whilst others will be executed over the coming months and years. For this purpose, a Transformation Office was set up to monitor and track the progress of the various projects, as well as handle change management issues. In 2006, the Group managed to maintain its revenues in the face of intense competition and extensive regulation of the core services. We also managed to maintain Group profitability levels, if one-time and voluntary retirement schemes charges (VRS) are excluded. The decline in traditional fixed-line core services is being compensated by growth in broadband and mobile services. Moreover, the trend of significant cash generation and strong balance sheet was maintained. efficiency and effectiveness. As part of this reorganisation, a voluntary retirement scheme was launched in October 2006 leading to a reduction in headcount of over 200 employees. The year was also characterised by a changing landscape in the market we operate in, with the introduction of number portability, carrier select/ pre-select, as well as the entry of new players, especially in the fixed-line business. Part of our strategy to counter the new market entrants was to launch a series of commercial initiatives aimed at ensuring we retain our customer base. Moreover, in 2006 we initiated the process of acquiring Multiplus – an exercise which was concluded in February 2007. With the acquisition of Multiplus, Maltacom became the only local quadruple-play telecoms organisation offering fixed, mobile, broadband Internet and digital television. Another important milestone was the agreement signed between go mobile and Nortel Networks for the roll-out of a 3G network in 2007. All these important developments were implemented within a new corporate structure that focuses on the Group’s main business units, and which is based on its strategic objectives. Major initiatives In November 2006, Maltacom completed a €6.7 million Fixed Line Switching Network Upgrade project by migrating this platform to softswitch technology, thus ensuring a sound platform for future enhanced services. This upgrade will facilitate the eventual roll-out of next generation services, such as services resulting from the convergence of fixed and mobile services. Maltacom increased its international IP transit capacity by 3 x STM4 to a total of 1.8Gbps offering unparalleled bandwidth in Malta. Moreover, the Company improved the resilience of the national portion of the submarine cable and activated IP back- Strategic developments 2006 saw a number of strategic developments such as the streamlining of the fixed-line operations, with the merger of Coreswitch Limited and Wirenet Limited into the Company. Furthermore, the process was set in place to also merge into the Company another two subsidiaries, DataStream Limited (Maltanet) and Monitoring Services Limited, effective from January 2007. All of these initiatives were aimed at consolidating the Group’s resources and optimising iii MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 up over microwave link to Sicily. These developments have led to increased resilience and capacity and resulted in improved performance in the delivery of Internet bandwidth to both residential as well as business customers. In the year under review, the Company undertook various projects to improve the ADSL service in rural areas as well as to enhance customer support tools. Other technical projects included the improvement of the IP core network. 2006 also brought a number of changes within the team running the IP Networks, with the main focus being the introduction of the 24X7 IP Network Operations Centre. This has improved the overall quality of service provided to end customers. Maltacom’s payphone system was upgraded via the migration of its operation to the Easyline pre-paid platform. In the commercial area, Maltacom offered its customers a number of benefits such as Frequent Caller Bonanza (family and friends type of offer) and free off-peak calls. Moreover a number of bundled offers were launched in 2006, with a combination of broadband and mobile, fixed and broadband, and fixed and digital TV. Local fixed-line traffic and revenue continued to decrease, although there was a significant increase in international calling. Maltacom’s fixed-line subscriber base remained on similar levels as previous years. In 2006, the broadband customer base experienced a significant growth of 30 per cent. 24X7 customer support was extended to all Maltacom broadband customers, via the Maltacom-owned Dial-It call centre, whilst connection speeds were upgraded from 2Mbps to 4Mbps at no extra costs. On the mobile front, in September 2006 go mobile signed an agreement for the supply of a state-of-the-art 3G network infrastructure in Malta. This agreement gave go mobile a competitive edge in the provision of the latest wireless applications, including video telephony and wireless broadband. In 2006, go mobile became the first mobile operator in Malta to launch a streaming service whereby customers can watch television and video clips on their mobile handset. This service is powered by EDGE technology. go mobile’s subscriber base increased by 5 per cent to reach the 164,000 mark last year – representing a 48 per cent market share. The company’s roaming service was further augmented and is currently available in 179 countries over more than 300 foreign operators. In the call centre business, Dial-It managed to secure new international and local contracts. 2006 witnessed a strong growth in the call centre operations and an increase in client portfolio. The turnover of Telepage Limited, the company operating the Dial-It call centre, increased by 49 per cent in 2006. Market environment Carrier select and pre-select were introduced in 2006 with the result that new operators could utilise Maltacom’s infrastructure to start offering customers an alternative telephony service. So far, we have seen a minimal negative impact of such services on our business. Last year, Maltacom and go mobile signed interconnection agreements with two local companies for the provision of two-way communication between subscribers of the respective operators. Number portability was also introduced in 2006, and new operators are expected to enter the market as Mobile Virtual Network Operators or via Broadband Wireless Access networks. All these developments pose serious challenges, but also new opportunities for growth. By developing group wide synergies and rationalising our resources, Maltacom Group will be in a position to face these new forms of competition and maintain its leading role in the market. Our vision The vision of the Maltacom Group for the coming years can be summarised into three statements: We want to exceed customer needs; We want to be the employer of choice in Malta; We want to maximise shareholder value. In order to achieve this vision, we have set the goal of being a truly customer centric organisation. This will be achieved by the reorganisation of our Commercial Division and the way we deal with customers via our call centre, retail outlets and other touch points. We want to become a customer-centric organisation, and focus our energies towards enhancing the customer experience. In this regard, a Business Process Reengineering exercise, with the assistance of a world-class business consultancy firm, was initiated so as to address changes in processes and procedures, in particular those within the Commercial and Technical divisions. In addition, we want to be the leading provider of quadruple play services in Malta with a strategy focused on convergence of our services. In order to do so, we want to be on the cutting edge of innovation in the field of communications and information technology. The internal reorganisation of our company is aimed at developing a performance driven company with a culture of rewards and recognition for excellence. In doing so, Maltacom Group will develop into an operationally efficient organization. Another important aspect is the review of the Group’s capital structure and investment strategy. Thanks to our strong financial position, we are able to invest in new technologies like 3G, as well as enhance the content and accessibility of our digital TV operations. We are investing heavily into hosting and co-location facilities, whilst continuing with our programme of upgrading our networks. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 iv Future growth 2007 will be a transition year in which a number of changes will take place that will help us transform the way we do business. We have set in motion organisational changes which will ensure the future sustainability and profitability of the Group. All the talk about convergence is not only about technology and customer experience, but also on cost rationalisation and maximisation of resources. This is the strategy we have adopted, which will see us make best use of the Group’s ability to create synergies in as many areas as possible, and minimise duplicity. As stated earlier, the Maltacom Group has entered the digital TV market, and the remarkable take-up of the Multiplus digital TV offering in the first few months is an indication that we mean business in this area too. go mobile’s 3G and 3.5G (HSDPA) technology will signify faster wireless download speeds for our customers. The bundling of converged services will result in added value for money for our customers and increased client retention. Further growth is also expected from the increasing international business of our call centre activity. Needless to say, Smart City will signify a significant business potential for the Maltacom Group, which we intend to exploit to the full. Clearly, the environment we are operating in has changed, and will continue to change. Similar to our European incumbent operators’ counterparts, we have to adapt to the increased regulatory pressures, falling prices, changes in technology and other competitive threats. However, I am confident that we are well equipped to face these challenges and move forward and grow further our business. Our strategic outlook coupled with our efforts to continue enhancing customer experience will surely see us lead the market. David Kay CEO 2 April 2007 v MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 BOARD OF DIRECTORS 01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10 MR SONNY PORTELLI [CHAIRMAN] DR FRANCIS GALEA SALOMONE LL.D. [COMPANY SECRETARY] MR PETER J BALDACCHINO MR JOHN ELLUL VINCENTI MR JAMES KINSELLA DR AHMED MAHJOUB MR DEEPAK PADMANABHAN MR JOHN SEVASTA [WORKER DIRECTOR] MR OSMAN SULTAN THE NOBLE PAUL S TESTAFERRATA MORONI VIANI MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 vi REPORT OF THE DIRECTORS For the Year Ended 31 December 2006 The directors are pleased to present their report together with the financial statements of Maltacom Group for the year ended on 31 December 2006. 1 Principal activities The Group is Malta’s leading telecommunications and ancillary services provider. The services provided by the Group include fixed-line and mobile telephony services, broadband and Internet services including Voice over Internet Protocol services (VoIP), radio paging and call centre operations. The Company and certain subsidiary and associated companies, and their activities, are regulated by and are subject to the provisions of the Electronic Communications (Regulation) Act, 2004. 2 Business review and future developments A review of the business of the Group during the year under review and an indication of likely future developments are given in the Chief Executive Officer’s Review on page iii of this annual report. 3 Review of financial performance During the year ended 31 December 2006, the Group generated a profit before tax of Lm12.1 million. Although this result represents a decline of Lm4 million when compared to 2005, during the year under review the Group incurred charges amounting to Lm3.2 million in voluntary retirement schemes. The Group continues to suffer from a decline in revenues from traditional fixed-line services, however, it is experiencing strong growth in broadband and mobile services resulting in a marginal growth in Group revenues which in 2006 amounted to Lm55.5 million. During 2006, the Group’s cost structures remained at 2005 levels, however, initiatives launched during 2006 are expected to reduce costs, particularly within the Company, starting in 2007. One such major initiative is the Voluntary Retirement Scheme which is leading to a reduction of over 200 employees from fixed-line operations. During the year the Company continued with the streamlining of fixed-line operations and Coreswitch Limited and Wirenet Limited were merged into the Company. Furthermore, the process was set in place to also merge into the Company another two subsidiaries, DataStream Limited and Monitoring Services Limited, with effect from 1 January 2007. The results of the Company are adversely affected by a number of high value transactions mainly the charge for Voluntary Retirement Schemes as outlined above and the reversal of fair value adjustments on investment properties recognised in prior years which became owner-occupied as a result of the merger of Coreswitch Limited and Wirenet Limited into the Company. 4 Share capital The Company did not modify in any way the structure of its share capital during the year. No further issues were made and neither did the Company acquire ownership of or any rights over any portion of its issued share capital. 5 Dividends and reserves An interim dividend of Lm0.015 per share out of the Company’s retained earnings amounting to Lm1.5 million was declared on 15 September 2006 and paid on 27 October 2006. The directors recommend that at the next Annual General Meeting, the shareholders approve the declaration of a dividend of Lm0.05 net of taxation per share payable on 6 June 2007. Total distributions relating to this year’s operations amount to Lm0.065 per share. The amount of Lm5,065,524 has been transferred to the dividend payment reserve. Retained profits carried forward at the balance sheet date amounted to Lm55.9 million (2005: Lm54.6 million) for the Group and Lm58.4 million (2005: Lm57.6 million) for the Company. 1 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 REPORT OF THE DIRECTORS For the Year Ended 31 December 2006 6 Directors The directors who served on the Board during the year under review or up to the date of this report are listed hereunder. With the exception of Mr John Sevasta, who is an employee of the Company, none of the directors in office during the year or at the balance sheet date held an executive appointment with the Company or its subsidiaries. Mr Sonny Portelli (Chairman) Mr James Kinsella Mr Osman Sultan Ms Patricia Cook Geery Mr Deepak Padmanabhan Dr Ahmed Mahjoub Mr John Ellul Vincenti Mr Peter J Baldacchino Mr Vince Farrugia Mr Alfred Rizzo The Noble Paul S Testaferrata Moroni Viani Dr Chris Said LL.D. Mr Charles Camilleri Mr John Sevasta (Worker Director) Further to the execution of the share purchase agreement with Emirates International Telecommunications (Malta) Limited, Mr Charles Camilleri, Mr Vincent Farrugia, Mr Alfred Rizzo and Dr Chris Said, all of whom had earlier during the Eighth Annual General Meeting been reappointed directors of Maltacom p.l.c., tendered their resignation from office. Mr James Kinsella, Mr Osman Sultan, Ms Patricia Cook Geery and Mr Deepak Padmanabhan were appointed directors in their stead as from 19th May 2006. On the 17th July 2006, Ms Patricia Cook Geery relinquished her post of Director, with Dr Ahmed Mahjoub being appointed to the Board with effect from the same date. In terms of Article 56.1, the term of appointment of the directors still in office other than the Worker Director, expires at the forthcoming Annual General Meeting. The Worker Director’s term in office expires on 1 January 2008. The Noble Paul S Testaferrata Moroni Viani, Mr Peter J Baldacchino and Mr John Ellul Vincenti have offered themselves for re-election at the Ninth Annual General Meeting. Mr Michael Warrington has also submitted a nomination for election to the post of director at the Ninth Annual General Meeting. No further nominations have been received for the election to the three seats on the Board representing the Company’s shareholders. Of the directors of the Company, only Mr Sonny Portelli and Mr Deepak Padmanabhan (together with Mr David Kay - Chief Executive Officer) were acting as directors of the following subsidiary and associated companies at 31 December 2006: DataStream Limited, Go Mobile Limited, Innovate Software Limited, Innovate Limited, Mobisle Communications Limited, Monitoring Services Limited, Telepage Limited, Terranet Software Limited, Worldwide Communications Limited and Datatrak Holdings plc. 7 Disclosable interests At 31 December 2006, two of the directors of the Company, namely Mr Peter J Baldacchino and the Noble Paul S Testaferrata Moroni Viani, held 1,200 shares and 94,444 shares respectively, either directly or indirectly through their immediate families or entities controlled by them. The other directors did not hold any interests in the Company. None of the directors of the Company have any interest in the shares of the Company’s subsidiaries nor any disclosable interest in any contracts or arrangements either subsisting at the end of the financial year or entered into during the financial year. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 2 REPORT OF THE DIRECTORS For the Year Ended 31 December 2006 8 Substantial shareholdings Except for the holdings listed below, the directors are not aware of any person holding 3% or more of the share capital of the Company at the balance sheet date. Number of ordinary shares Emirates International Telecommunications (Malta) Limited Maltacom Employees’ Foundation 60,786,292 3,039,315 Percentage held 60.0 3.0 9 Remuneration committee and corporate governance The activities of the Remuneration Committee and the Group’s arrangements for corporate governance are reported on pages 4 to 9. 10 Auditors The auditors, KPMG, have expressed their willingness to continue in office. A resolution to appoint the auditors and to authorise the directors to fix their remuneration will be proposed at the Annual General Meeting. Approved by the Board of Directors on 2 April 2007 and signed on its behalf by: Sonny Portelli Chairman Peter J Baldacchino Director 3 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 REPORT OF THE REMUNERATION COMMITTEE TO THE SHAREHOLDERS For the Year Ended 31 December 2006 The Maltacom plc Remuneration Committee (‘Group Remuneration Committee’) is pleased to submit its ninth report to the shareholders. The Group Remuneration Committee is composed of Mr Sonny Portelli (Chairman), the Noble Paul S Testaferrata Moroni Viani and Mr Deepak Padmanabhan, all of whom are non-executive directors of the Company. Mr Yves Heymans, Chief Human Resources Officer of Tecom Investments has been appointed an ex officio member of this committee. The Company Secretary, Dr Francis Galea Salomone has also been appointed Secretary to the Group Remuneration Committee. Introduction The Group Remuneration Committee monitors the remuneration awarded to Board members ensuring that they are consistent with the remuneration policy adopted by the Company. The Group Remuneration Committee also makes recommendations on the remuneration of senior managers of all companies within the Group, whose grades are not regulated through collective agreements with unions. It monitors the remuneration of the individuals who serve on the Boards of Directors of the companies forming part of the Group, whether executive or otherwise. The Group Remuneration Committee considers whether the remuneration packages of the individuals falling within its remit are cost-effective, fair and reasonable for the responsibilities involved, and are sufficiently dependent on achieving the goals of attracting, retaining and motivating individuals of the quality required. Service contracts Mr John Sevasta is employed by the Company on a basic indefinite contract basis under the Employment and Industrial Regulations Act. Should his basic indefinite contract be terminated in a manner not in accordance with Maltese employment legislation, he may become entitled to compensation as laid down in the statutory provisions. The remaining directors have no service contracts with either the Company or its subsidiaries. Base salaries The base salaries of all senior managers are established in accordance with the Company’s formal salary structure. The Group Remuneration Committee is satisfied that in all cases the base salaries established are in line with the criteria described in the introduction to this report. In particular, in reaching this conclusion, the Group Remuneration Committee has paid due regard to market conditions and remuneration rates offered by comparable organisations for comparable roles and to the Group’s established performance-related remuneration and evaluation system. Bonus scheme Members of the senior management are each entitled to a cash performance bonus of up to 15% of their base salaries. In addition, the Board of Directors may approve additional bonuses for outstanding performances and achievements. Performance is measured on the basis of appraisals drawn up or endorsed by the Chief Executive Officer (‘CEO’). The rate at which the bonus is paid depends on the Group Remuneration Committee’s evaluation of the CEO’s assessment of the individual officer’s performance. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 4 REPORT OF THE REMUNERATION COMMITTEE TO THE SHAREHOLDERS For the Year Ended 31 December 2006 Directors’ remuneration The Honorarium paid to members of the Board of Directors is set at Lm5,000 per annum, whilst the Honorarium for the Chairman of the Board of Directors is set at Lm7,500 per annum. The aggregate emoluments earned throughout the year by the directors from the Company and the other members of the Group were as follows: 2006 Lm000 2005 Lm000 Payments to directors Non-executive directors Non-executive chairman Executive director 40 22 16 ----78 === 60 12 13 ----85 === Share options and pensions Neither the Company nor its subsidiaries operate a share option scheme. Nor are they committed to awarding pensions to retired directors or senior executives. Sonny Portelli Chairman, Group Remuneration Committee 2 April 2007 5 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 CORPORATE GOVERNANCE For the Year Ended 31 December 2006 Introduction The Code of Principles of Good Corporate Governance (“the Code”), incorporated in the Listing Rules published by the Listing Authority - the Malta Financial Services Authority, requires listed companies to make a statement of disclosure on the application of the principles of, and compliance with, the provisions of good corporate governance set out in that Code. Compliance Good corporate governance is the responsibility of the whole Board of Directors, and has been and remains a priority for the Company. The Board has reviewed the Company’s compliance with the Code, and hereby provides its report thereon. The Board considers that the Company has been generally in compliance with the Code throughout the year except when circumstances warrant otherwise. In accordance with the provisions of the Company’s Articles of Association, the appointment of directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made to fill a casual vacancy on the Board, and which appointment would expire at the Company’s Annual General Meeting following appointment. In the event of co-option to fill a casual vacancy, suitable candidates would be identified and their appointment proposed to the Board of Directors by a sub-committee composed of two of the Company’s non-executive directors and the Company’s Chairman. The Worker Director is co-opted by the Board of Directors in accordance with the result of an employee electoral process held every two years. The auditors have reported on corporate governance matters in their report on page 10. The Statement on Preparation of Financial Statements and Directors’ Responsibilities is set out on page 11. Group governance The supreme organ of the Company, and therefore the Group, is the shareholder group acting collectively in General Meeting. The Company’s Board of Directors, the members of which are appointed by the shareholders, is primarily tasked with the administration of the Company’s resources in such a way as to enhance the prosperity of the business over time, and therefore the value of the shareholders’ investment. Rules and regulations on their own cannot deliver prosperity. This can only be sought through good strategies, people, teamwork, leadership, enterprise, integrity, experience and skills, relationships and the proper control of risk. The structures and governance processes are therefore designed to reflect and promote these attributes. The Board Board members are appointed by the shareholders at the General Meeting for a term of office which lasts until the next Annual General Meeting. The Board has the overall responsibility for the activities carried out within the Company and the Group and thus decides on the nature, direction, strategy and framework of the activities and sets the objectives for the activities. The Board is currently chaired by Mr Sonny Portelli and comprises eight non-executive directors and one director who, as a Worker Director, holds also an executive office within the Company. Non-Executive Directors Mr Sonny Portelli (Chairman) Mr Deepak Padmanabhan (appointed on the 19th May 2006) Dr Ahmed Mahjoub (appointed on the 17th July 2006) Mr Osman Sultan (appointed on the 19th May 2006) Mr James Kinsella (appointed on the 19th May 2006) Mr John Ellul Vincenti The Noble Paul S Testaferrata Moroni Viani Mr Peter J Baldacchino Mr Charles Camilleri (resigned on the 19th May 2006) Mr Vincent Farrugia (resigned on the 19th May 2006) Mr Alfred Rizzo (resigned on the 19th May 2006) Dr Chris Said (resigned on the 19th May 2006) Ms Patricia Cook Geery (appointed on the 19th May 2006 and resigned on the 17th July 2006) Executive Director Mr John Sevasta MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 6 CORPORATE GOVERNANCE For the Year Ended 31 December 2006 For the purposes of the current Code, the Board considers all the non-executive directors as independent. The Board has a formal schedule of matters reserved to it for decisions, but also delegates specific responsibilities to various board committees and subcommittees, the most prominent being the Audit Committee, the Group Remuneration Committee and the Executive Committee. Directors receive board and committee papers in advance of meetings and have access to the advice and services of the Company Secretary. Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense. The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board. As delegated and monitored by the Board, the Company Secretary keeps detailed records of all dealings by Directors and senior executives of the Company and its subsidiaries in the Company’s shares and all minutes of meetings of the Board and its sub-committees. The roles of Chairman and Chief Executive Officer are required to be filled by separate individuals, and the Chief Executive Officer is appointed by the Board for a definite period of time. During the year under review, Dr Francis Galea Salomone was confirmed as Company Secretary. With effect from the 16 June 2006, Mr. David Kay was appointed Chief Executive Officer. During the year under review the Board met eleven times. On joining the Board, a Director is provided with a presentation by the departmental heads on the activities of their respective business unit in the Company and subsidiaries. The Directors receive monthly management accounts on the group financial performance and position. The Board has the responsibility to ensure that the activities are organised in such a way that the accounts, management of funds and financial conditions in all other respects are controlled in a satisfactory manner and that the risks inherent in the activities are identified, defined, measured, monitored and controlled in accordance with external and internal rules, including the Articles of Association of the Company. The Chairman of the Board informally evaluates the performance of the Board members, which assessment is followed by discussions within the Board. Through this process the activities and working methods of the Board and each committee member are evaluated. Amongst the things examined by the Chairman through his assessment are the following; how to improve the work of the Board further, whether or not each individual member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting atmosphere facilitates open discussions. Under the present circumstances the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is furthermore also under the scrutiny of the shareholders. Director’s dealings Directors are informed and duly reminded of their obligations on dealing in securities of the Company within the parameters of the law and the Listing Rules. A proper procedure of reporting advanced notices has been endorsed by the Board of Directors in line with the Principles, the Listing Rules and internal code of dealing. At 31 December 2006, two of the directors of the Company, namely Mr Peter J Baldacchino and the Noble Paul S Testaferrata Moroni Viani, held 1,200 shares and 94,444 shares respectively, either directly or indirectly through their immediate families or entities controlled by them. The other directors did not hold any interests in the Company. None of the directors of the Company have any interest in the shares of the Company’s subsidiaries nor any disclosable interest in any contracts or arrangements either subsisting at the end of the financial year or entered into during the financial year. 7 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 CORPORATE GOVERNANCE For the Year Ended 31 December 2006 Board committees and corporate governance Group Remuneration Committee The Group Remuneration Committee composed of non-executive directors makes proposals to the Board on the Group’s remuneration policy for executive and non-executive directors. This committee monitors the remuneration awarded to Board members ensuring that they are consistent with the remuneration policy adopted by the Company and the evaluation of the performance of the Directors concerned. Directors’ fees are approved in aggregate by shareholders at the Annual General Meeting. The Group Remuneration Committee is chaired by Mr Sonny Portelli, the other members being the Noble Paul S Testaferrata Moroni Viani and Mr Deepak Padmanabhan. Mr Yves Heymans, Chief Human Resources Officer of Tecom Investments has been appointed an ex officio member of this committee. The Company Secretary, Dr Francis Galea Salomone, has also been appointed to act as Secretary to the Group Remuneration Committee. Directors’ emoluments are disclosed in aggregate rather than as separate figures for each Director as required by the Principles. The Group Remuneration Committee met three times in 2006. The Report of the Group Remuneration Committee to the shareholders is set out on pages 4 to 5. Audit Committee The Audit Committee of the Board supports the work of the Board in terms of quality control of the Group’s financial reports and internal controls. It is chaired by Mr Peter J Baldacchino, its other members being Mr Deepak Padmanabhan and Mr John Ellul Vincenti. The Chief Finance Officer, the Director of Internal Audit, and the external auditors of the Company attend the meetings of the Audit Committee. Other senior managers are requested to attend when required. The Audit Committee, having been approved by the Listing Authority in terms of the Listing Rule 8.64, scrutinizes and monitors related party transactions. It considers the materiality and the nature of the related party transactions carried out by the Company to ensure that the arms’ length principle is adhered to at all times. As part of its duties, the Audit Committee receives and considers reports on the system of internal financial controls and the audited statutory financial statements of all companies comprising the Group. The Audit Committee establishes an annual audit plan for the internal audit function co-ordinated with the external audit plan. The internal audit activities and compliance activities are monitored on a continuous basis. The Audit Committee held ten meetings during the year. The external auditors attended all of these meetings. Risk Management Steering Committee The Risk Management Steering Committee is made up mainly of members of the Management Team and the Internal Audit Directorate, and is chaired by the Chief Executive Officer. The remit of this committee is to identify and deal with the risks faced by the Group. The Risk Management Steering Committee is responsible for the risk management approach of the Group. Annual General Meeting Shareholders’ influence is exercised at the Annual General Meeting (AGM), which is the highest decision-making body of the Company. All shareholders, registered in the Shareholders’ Register and having notified their attendance properly, have the right to participate in the Meeting and to vote for the full number of their respective shares. A shareholder who cannot participate in the Meeting can be represented by proxy. Business at the Company’s AGM will cover the Annual Report and Financial Statements, the declaration of dividends, the election of directors and the approval of their remuneration, the appointment of the external auditors and the authorisation of the directors to set the external auditors’ fees. Shareholders’ meetings are called with sufficient notice to enable the use of proxies to attend, vote or abstain. The Company clearly recognises the importance of maintaining a regular dialogue with its shareholders in order to ensure that its strategies and performance are understood. It communicates with the shareholders through the AGM by way of the Annual Report and Financial Statements and by publishing its results on a regular basis during the year. This it does through the Investor Relations Section on the Company’s internet site, the Office of the Company Secretary, and Company announcements to the market in general. A freephone service is reserved for communication by shareholders with the Company. Regular meetings are held with analysts and stockbrokers. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 8 CORPORATE GOVERNANCE For the Year Ended 31 December 2006 Internal control The key features of the Group’s system of internal control are as follows: Organisation The Group operates through boards of directors of the subsidiaries and the associate with clear reporting lines and delegation of powers. The Company’s Chairman is also the chairman of the Boards of Directors of all the Company’s subsidiaries. Control environment The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations. Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group objectives. Lines of responsibility and delegation of authority are documented. The Group and the individual companies comprising it have implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud. Measures taken include physical controls, segregation of duties and reviews by management, internal audit and the external auditors. Risk identification Group management is responsible together with each company’s management, for the identification and evaluation of key risks applicable to their areas of business. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements. Information and communication Group companies participate in periodic strategic reviews which include consideration of long-term financial projections and the evaluation of business alternatives. Monitoring and corrective action There are clear and consistent procedures in place for monitoring the system of internal financial controls. The Audit Committee meets at least four times a year and, within its terms of reference, reviews the effectiveness of the Group’s systems of internal financial controls. The Audit Committee receives reports from management, internal audit and the external auditors. The Directors confirm that they have reviewed the system of internal control through the monitoring process set out above. Corporate social responsibilities The Group has continued with its commitment to behave ethically and contribute to economic development while improving the quality of life of its work force and their families, as well as of the local community and society at large. Various initiatives and activities were organised throughout the year by the Company and the Group within the context of the Group-wide strategy. Going concern The Directors, as required by the Listing Rule 9.40.19 have considered the Company’s operating performance, the balance sheet at year end, as well as the business plan for the coming year, and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, in preparing the financial statements, they continue to adopt the going concern basis in preparing the financial statements set out on pages 13 to 66. 9 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 REPORT OF THE INDEPENDENT AUDITORS TO MALTACOM P.L.C. On Corporate Governance Matters In addition to our audit on the financial statements, we have reviewed the Directors’ Statement on pages 6 to 9 on the Company’s compliance with the Code of Principles of Good Corporate Governance in terms of the Listing Rules published by the Listing Authority - the Malta Financial Services Authority. In terms of Listing Rule 8.39, as independent auditors of the Company, we are required to include a report on this Statement of Compliance. We read the Statement of Compliance and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with these financial statements. Our responsibilities do not extend to considering whether this statement is consistent with other information, other than the financial statements, included in the Annual Report and Financial Statements. We are not required to, and we do not perform any additional work necessary to express a separate opinion on the effectiveness of either the Group’s system of internal financial control or the Company’s corporate governance procedures, or its risk and control procedures, nor on the ability of the Group to continue in operational existence. In our opinion, the Statement of Compliance set out on pages 6 to 9 provides the disclosures required by the Listing Rules 8.37 and 8.38 issued by the Listing Authority. Joseph C Schembri (Partner) for and on behalf of KPMG Certified Public Accountants 2 April 2007 PREPARATION OF FINANCIAL STATEMENTS AND DIRECTORS’ RESPONSIBILITIES The Companies Act, 1995 (the “Act”) requires the directors of Maltacom p.l.c. (the “Company”) to prepare financial statements for each financial period which give a true and fair view of the financial position of the Company and the Group as at the end of the financial period and of the profit or loss of the Company and the Group for that period in accordance with the requirements of International Financial Reporting Standards as explained in note 2.1 to the financial statements. In preparing such financial statements, Article 14 of the Third Schedule to the Act, requires the directors to: • adopt the going concern basis unless it is inappropriate to presume that the Group will continue in business; • select suitable accounting policies and apply them consistently from one accounting period to another; • make judgements and estimates that are reasonable and prudent; • account for income and charges relating to the accounting period on the accruals basis; and • value separately the components of asset and liability items on a prudent basis. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the financial statements have been properly prepared in accordance with the provisions of the Act. The directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors, through oversight of management, are responsible to ensure that the Company establishes and maintains internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. Management is responsible, with oversight from the directors, to establish a control environment and maintain policies and procedures to assist in achieving the objective of ensuring, as far as possible, the orderly and efficient conduct of the Company’s business. This responsibility includes establishing and maintaining controls pertaining to the Company’s objective of preparing financial statements as required by the Act and managing risks that may give rise to material misstatements in those financial statements. In determining which controls to implement to prevent and detect fraud, management considers the risks that the financial statements may be materially misstated as a result of fraud. Signed on behalf of the Board of Directors on 2 April 2007 by: Sonny Portelli Chairman Peter J Baldacchino Director 11 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 REPORT OF THE INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS To the Shareholders of Maltacom p.l.c. We have audited the financial statements of Maltacom p.l.c. (the “Company”) and of the Group of which the Company is the parent (the “financial statements”) set out on pages 13 to 66, which comprise the balance sheets as at 31 December 2006, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors’ responsibility for the financial statements As described on page 11, the directors are responsible for the preparation and fair presentation of these financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU and of the Company in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinions In our opinion, the financial statements: (a) give a true and fair view of the financial position of the Group as at 31 December 2006, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU; give a true and fair view of the financial position of the Company as at 31 December 2006, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards; and have been properly prepared in accordance with the provisions of the Companies Act, 1995 enacted in Malta. (b) (c) Joseph C Schembri (Partner) for and on behalf of KPMG Certified Public Accountants 2 April 2007 For the Year Ended 31 December 2006 INCOME STATEMENT The Group 2006 Note Revenue Cost of sales Write-back of international traffic and leased circuit costs Gross profit Other operating income Administrative and distribution expenses Voluntary retirement costs Prior year fair value adjustments on investment property Other operating expenses Results from operating activities 7 7 8 6 7 5 Lm000 55,476 (28,610) 31 -------26,897 721 (12,535) (3,155) (253) -------11,675 -------Finance income Finance expenses Net finance income 9 879 (435) -------444 -------Net reversal of impairment losses on equity investments Profits/(losses) on realisation of investments Share of result of associate 10 10 11 (43) -------(43) -------Profit before tax Income tax expense Profit for the year 12 13 12,076 (3,934) -------8,142 ==== Earnings per share 14 8c0 === 2005 Lm000 54,960 (29,093) 698 -------26,565 746 (11,310) (426) --------15,575 --------871 (508) -------363 -------372 (325) 71 -------118 -------16,056 (4,831) -------11,225 ==== 11c1 === The Company 2006 Lm000 29,502 (19,420) 31 -------10,113 1,547 (6,598) (3,155) (1,330) (210) ------367 ------10,439 (112) -------10,327 -------4 36 -------40 -------10,734 (3,417) -------7,317 ==== 7c2 === 2005 Lm000 32,718 (21,149) 698 -------12,267 2,395 (6,254) (579) ------7,829 ------8,265 (194) ------8,071 ------608 (570) -------38 -------15,938 (4,952) -------10,986 ==== 10c8 === The Group has not discontinued any operations within the meaning of IFRS 5 - “Non-Current Assets Held for Sale and Discontinued Operations” during either 2006 or 2005. Group Revenue and Operating Profit are therefore derived entirely from continuing operations. 13 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 BALANCE SHEET As at 31 December 2006 The Group 2006 Note Assets Property, plant and equipment Intangible assets Investment property Investments in subsidiaries Investment in associate Other investments Loans receivable from subsidiaries Finance lease receivables Deferred tax assets Total non-current assets 15 16 17 18 19 20 21 22 23 59,855 5,338 935 13,702 262 574 --------80,666 --------Inventories Term deposit investment Trade and other receivables Loans receivable from subsidiaries Tax recoverable Cash at bank and in hand Total current assets Non-current assets classified as held for sale Total assets Equity Share capital Reserves Retained earnings Total equity 27 27 25,328 7,664 55,901 --------88,893 --------25,328 7,291 54,607 -------87,226 -------26 25 21 24 1,028 13,925 2,314 16,694 ---------33,961 ---------2,014 ---------116,641 ===== 61,820 5,537 978 14,127 294 1,271 -------84,027 -------819 50 15,399 1,491 12,441 ---------30,200 ---------1,992 ---------116,219 ===== Lm000 2005 Lm000 The Company 2006 Lm000 2005 Lm000 45,369 484 2,144 7,943 1,201 13,400 1,920 262 185 --------72,908 --------453 12,961 1,400 2,930 14,007 ---------31,751 ---------2,014 ---------106,673 ===== 41,888 569 7,594 7,990 1,483 13,771 2,354 294 16 -------75,959 -------408 14,560 676 3,247 7,594 ---------26,485 ---------1,992 ---------104,436 ===== 25,328 7,159 58,395 --------90,882 --------- 25,328 7,057 57,652 --------90,037 --------- MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 14 BALANCE SHEET As at 31 December 2006 The Group 2006 Note Liabilities Interest-bearing loans and borrowings Provisions Total non-current liabilities 28 1,903 16 ------1,919 ------Interest-bearing loans and borrowings Derivative liability used for hedging Trade and other payables Total current liabilities Total liabilities Total equity and liabilities 28 29 30 8,252 17,577 ---------25,829 ---------27,748 ---------116,641 ===== 5,267 12 ------5,279 ------7,532 23 16,159 --------23,714 --------28,993 --------116,219 ===== Lm000 2005 Lm000 The Company 2006 Lm000 702 16 ----718 ----5,077 9,996 ---------15,073 ---------15,791 ---------106,673 ===== 2005 Lm000 1,667 12 ------1,679 ------4,899 23 7,798 ---------12,720 ---------14,399 ---------104,436 ===== The financial statements on pages 13 to 66 were approved by the Board of Directors on 2 April 2007 and were signed on its behalf by: Sonny Portelli Chairman Peter J Baldacchino Director 15 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 STATEMENT OF CHANGES IN EQUITY - THE GROUP For the Year Ended 31 December 2006 Fair Insurance Dividend Share Other Hedging value contingency payment Revaluation Retained Total capital reserve reserve reserve reserve reserve reserve earnings Lm000 Lm000 Lm000 Balance at 1 January 2005 79,371 25,328 Cash flow hedges - effective portion of changes in fair value* 17 Change in fair value of other investments* 381 Deferred taxation* (19) Revaluation of land and buildings 405 Dividends approved at general meeting and paid (2,128) Interim dividend paid (2,026) Transfer from retained earnings: Unrealised gains Transfer to insurance contingency reserve Dividends proposed for approval at general meeting Profit for the year 11,225 --------- --------Balance at 31 December 2005 87,226 25,328 ===== ===== Balance at 1 January 2006 87,226 Cash flow hedges - effective portion of changes in fair value* (17) Change in fair value of other investments* 13 Deferred taxation* 13 Revaluation of land and buildings (405) Dividends approved at general meeting and paid (4,559) Interim dividend paid (1,520) Transfer from retained earnings: Unrealised gains Transfer to insurance contingency reserve Dividends proposed for approval at general meeting Profit for the year 8,142 ---------Balance at 31 December 2006 88,893 ===== * Net income recognised directly to equity 25,328 --------25,328 ===== 1,576 243 ------1,819 ==== 1,819 213 -------2,032 ==== Lm000 Lm000 17 (6) ----11 === 11 (17) 6 ----=== (21) 381 (13) ----347 === 347 13 7 ----367 === Lm000 100 50 ----150 === 150 50 ----200 === Lm000 2,128 (2,128) 4,559 ------4,559 ==== 4,559 (4,559) 5,065 -------5,065 ==== Lm000 405 ----405 === 405 (405) Lm000 50,260 (2,026) (243) (50) (4,559) 11,225 --------54,607 ===== 54,607 (1,520) (213) (50) - (5,065) 8,142 ------ ---------- 55,901 === ===== MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 16 STATEMENT OF CHANGES IN EQUITY - THE COMPANY For the Year Ended 31 December 2006 Fair Insurance Dividend Share Other Hedging value contingency payment Revaluation Retained Total capital reserve reserve reserve reserve reserve reserve earnings Lm000 Lm000 Lm000 Balance at 1 January 2005 82,368 Cash flow hedges - effective portion of changes in fair value* 17 Dividends approved at general meeting and paid (2,128) Change in fair value of other investments and investment in associate* 725 Net increase in fair value of investment property 439 Deferred taxation* (344) Interim dividend paid (2,026) Transfer from retained earnings: Unrealised gains Transfer to insurance contingency reserve Dividends proposed for approval at general meeting Profit for the year 10,986 --------Balance at 31 December 2005 90,037 ===== Balance at 1 January 2006 90,037 Cash flow hedges - effective portion of changes in fair value* (17) Dividends approved at general meeting and paid (4,559) Change in fair value of other investments and investment in associate* (275) Net increase in fair value of investment property (439) Deferred taxation* 338 Interim dividend paid (1,520) Transfer to retained earnings: Unrealised gains Transfer to insurance contingency reserve Dividends proposed for approval at general meeting Profit for the year 7,317 --------Balance at 31 December 2006 90,882 ===== * Net income recognised directly to equity 25,328 --------25,328 ===== 25,328 --------25,328 ===== 956 208 ------1,164 ==== 1,164 (61) ------1,103 ==== Lm000 Lm000 17 (6) -----11 === 11 (17) 6 347 725 (13) ------1,059 ==== 1,059 (275) 7 Lm000 100 50 -----150 === 150 50 -----200 === Lm000 2,128 (2,128) 4,559 ------4,559 ==== 4,559 (4,559) 5,065 ------5,065 ==== Lm000 439 (325) Lm000 53,509 (2,026) (208) (50) - (4,559) - 10,986 ------ --------114 57,652 === ===== 114 (439) 325 57,652 (1,520) 61 (50) ------ -------791 === ==== - (5,065) 7,317 ------ ---------- 58,395 === ===== 17 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 For the Year Ended 31 December 2006 CASH FLOW STATEMENT The Group 2006 Lm000 Cash flows from operating activities Profit for the year Adjustments for: Income tax expense Depreciation, amortisation and write-downs Net financing income Share of associate’s results Write offs and net loss arising on disposal of intangible assets and property, plant and equipment Net increase/(decrease) in provisions and write offs Reversal of unclaimed liabilities written back Liabilities written back Profit/(loss) on realisation of equity investments Net reversal of impairment loss on equity investments Voluntary retirement costs Increase in fair value to investment property Reversal of fair value on investment property and property, plant and equipment Reversal of impairment loss on investment property Impairment loss on investment property 8,142 3,934 8,898 (444) 43 161 311 (221) 3,155 -------23,979 (217) 1,125 1,360 14 -------26,261 250 (12) (3,999) (2,679) -------19,821 -------2005 Lm000 11,225 4,831 8,753 (363) (71) 336 (776) 8 325 (372) -------23,896 199 8,560 (3,317) (77) -------29,261 288 (14) (4,163) -------25,372 -------- The Company 2006 Lm000 7,317 3,417 3,739 (10,327) 163 161 (221) (36) (4) 3,155 (175) 1,330 (170) -------8,349 (31) 1,878 1,734 3,848 -------15,778 240 165 (2,679) -------13,504 -------2005 Lm000 10,986 4,952 3,453 (8,071) 306 (838) 8 570 (608) (558) 182 -------10,382 189 9,820 (3,978) 5,332 -------21,745 235 (2) (3,217) -------18,761 -------- Working capital changes: Inventories Trade and other receivables Trade and other payables Movement in group undertakings’ balances Cash generated from operations Interest received (net of withholding tax) Interest paid on bank overdrafts Net taxation (paid)/refunded Payments on voluntary retirement scheme Net cash from operating activities Cash flows from investing activities Payments to acquire property, plant and equipment and investment property Payments to acquire property held for sale Payments to acquire investments Payment to acquire intangible assets Receipts from disposal of property, plant and equipment Receipts from disposal and realisation of investments Amounts advanced to subsidiaries and associate Repayments of loan advanced to subsidiaries and associate Dividends received Investment income received Net cash used in investing activities (7,164) (22) 7 448 (37) 362 -------(6,406) -------- (4,902) (12,045) (2,501) 239 3,325 (29) 7 247 -------(15,659) -------9,713 (3,763) (22) 7 448 (3,333) 3,500 263 -------(2,900) -------10,604 (2,593) (11,885) 281 3,325 (4,847) 110 864 238 -------(14,507) -------4,254 carried forward 13,415 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 18 For the Year Ended 31 December 2006 CASH FLOW STATEMENT The Group 2006 Note brought forward Cash flows from financing activities Repayments of long term borrowings Advances by subsidiaries Dividends paid Loan interest paid Net cash used in financing activities (3,447) (6,077) (308) -------(9,832) -------Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents acquired through merger Effect of exchange rate fluctuations on cash held Movement in cash pledged as guarantees Cash and cash equivalents at 31 December 31 3,583 8,180 (58) 28 -------11,733 ==== (3,450) (4,148) (446) -------(8,044) -------1,669 6,466 27 18 ------8,180 ==== (1,049) 2,579 (6,077) (98) -------(4,645) -------5,959 3,649 193 6 21 ------9,828 ==== Lm000 13,415 2005 Lm000 9,713 2006 Lm000 10,604 The Company 2005 Lm000 4,254 (1,050) 81 (4,148) (139) -------(5,256) -------(1,002) 4,504 110 15 22 ------3,649 ==== 19 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 1 Reporting company Maltacom p.l.c. (the “Company”) is a limited liability company domiciled and incorporated in Malta. The consolidated financial statements of the Company as at and for the year ended 31 December 2006 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in an associate. The Group primarily is involved in the provision of telecommunications services (both fixed and mobile) and Internet related services in Malta (see note 18.4). 2 2.1 Basis of preparation Statement of compliance The Company’s financial statements have been prepared in accordance with the Companies Act, 1995 enacted in Malta (the “Act”) which requires adherence to International Financial Reporting Standards (IFRSs). In the case of the Group, Article 4 of Regulation 1606/2002/EC (“the Regulation”) requires that, for each financial year starting on or after 1 January 2005, companies governed by the law of an EU Member State shall prepare their consolidated financial statements in conformity with IFRSs as adopted by the EU if, at their balance sheet date, their securities are admitted to trading on a regulated market of any EU Member State. The Regulation overrides the provisions of the Act, relating to the form and content of the financial statements (and in particular the Third and Fourth Schedules of the Act) of companies as described above. Notwithstanding the above, there were no incompatibilities between the provision of the Companies Act, 1995 and the requirements of the Regulation in relation to the preparation of these financial statements. 2.2 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • derivative financial instruments are measured at fair value • available-for-sale financial assets are measured at fair value • investment property is measured at fair value The methods used to measure fair values are discussed further in note 4. 2.3 Functional and presentation currency These consolidated financial statements are presented in Maltese Lira, which is the Company’s functional currency. All financial information presented in Maltese Lira has been rounded to the nearest thousand. 2.4 Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: • Note 15.2 - measurement of the recoverable amounts of cash-generating units • Note 19.4 - valuation of investment in associate • Note 23.2 - utilisation of investment tax credits by a subsidiary MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 20 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. Certain comparative amounts have been reclassified to conform with the current year’s presentation (see note 38). 3.1 3.1.1 Basis of consolidation and common-control transactions Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. 3.1.2 Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method (equity accounted investee). The consolidated financial statements include the Group’s share of the income and expenses of the equity accounted investee, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in the equity accounted investee, the Group’s carrying amount of that interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. 3.1.3 Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 3.1.4 Common-control transactions A common-control transaction is a business combination in which all the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory. A party is considered to have control of combining entities, if it has the power to govern their financial and operating policies so as to obtain benefits from their activities. At Group level and Company level, a common-control transaction is an intra-group transaction. The acquisition of assets and liabilities of a Group’s entity by another Group’s entity as a consequence of a commoncontrol transaction are recorded in the “acquirer’s” financial statements using book values in the financial statements of the “acquired” entity. The difference between the carrying amount of the net assets acquired, at the date of the transaction, and the consideration paid, if any, is recognised in the “acquirer’s” equity. 3.2 Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the exchange rate ruling at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Foreign currency differences arising on re-translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at the exchange rates ruling at the dates the fair value was determined. 21 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.3 Significant accounting policies (continued) Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs, except as described below. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for finance income and costs is disclosed in note 3.18.4. 3.3.1 Held-to-maturity investments If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-tomaturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. 3.3.2 Available-for-sale financial assets The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3.12), and foreign exchange gains and losses on available-for-sale monetary items (see note 3.2), are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. When an investment does not have a quoted market price in an active market and its fair value cannot be reliably measured, that instrument is stated at cost, including transaction costs, less any impairment losses. 3.3.3 Investments at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Upon initial recognition, attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. 3.3.4 Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 22 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.4 Significant accounting policies (continued) Derivative financial instruments The Group held derivative financial instruments to hedge its exposure to foreign exchange risks arising from investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivative financial instruments are stated at fair value, and changes therein are accounted for as described below. Cash flow hedge Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss. 3.5 3.5.1 Property, plant and equipment Recognition and measurement Items of property, plant and equipment are initially stated at cost and subsequently measured at cost less accumulated depreciation (see below) and impairment losses (see accounting policy 3.12). Cost includes expenditures that are directly attributable to the acquisition. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of overheads. 3.5.2 Reclassification to investment property Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified as investment property. Any gain or loss arising on remeasurement is recognised in profit or loss. When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasurement is recognised directly in equity. Any loss is recognised immediately in profit or loss. 3.5.3 Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in profit or loss as an expense as incurred. 23 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.5 3.5.4 Significant accounting policies (continued) Property, plant and equipment (continued) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. In the case of items of property, plant and equipment taken over from Telemalta Corporation, a full year’s charge is provided during the year of acquisition and none during the year in which the item is disposed of or scrapped. In all other cases, a charge equivalent to half a year’s depreciation is provided for during the year in which the item of property, plant and equipment is first brought into use, and half a year’s depreciation is charged during the year in which the item is disposed of or scrapped. Land is not depreciated. The rates of depreciation used are as follows: % to 10 to to to to to to to to to to • • • • • • • • • • • • buildings improvements to leasehold premises cable, wireless and mobile networks subscribers’ equipment and line exchange and junction equipment radio plant and equipment plant, machinery and equipment office furniture and equipment motor vehicles air conditioning equipment earth station computer equipment 1 4 8 7 6.7 10 10 20 10 6.7 20 2 33.33 20 15 15 30 25 35 20 7 33.33 Depreciation methods, useful life and residual values are reassessed at the reporting date. 3.6 3.6.1 Intangible assets Indefeasible rights of use The expenditure incurred in the acquisition of rights in connection with the Indefeasible Right of Use (IRUs) and Droit de Passage (DDPs) is capitalised by the Group. Capitalised cost of rights is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy 3.12). 3.6.2 Technical knowledge Technical knowledge acquired or developed for its application to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised expenditure on technical knowledge is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy 3.12). 3.6.3 Computer software The Group’s computer software comprises software generated by Group entities and software acquired by the Group entities. Expenditure on computer software developed for the Group’s use is capitalised by the Group if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of direct labour and an appropriate proportion of overheads. Capitalised expenditure on computer software is stated at cost less accumulated amortisation (see below) and any impairment losses (see accounting policy 3.12). MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 24 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.6 3.6.4 Significant accounting policies (continued) Intangible assets (continued) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy 3.12). Expenditure on internally generated goodwill and brands is recognised in profit or loss as an expense as incurred. 3.6.5 Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. 3.6.6 Borrowing costs Borrowing costs directly attributable to the acquisition of a qualifying asset are capitalised as part of the cost of that asset. 3.6.7 Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: • • • • patents technical knowledge capitalised costs of rights and licence costs computer software 5 5 15 10 years years years years 3.7 Investment property Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value with any change therein recognised in profit or loss. Rental income from investment property is accounted for as described in accounting policy 3.17.2. If an investment property becomes owner-occupied, it is reclassified as property, fixtures and fittings and its fair value at the date of reclassification becomes its cost for accounting purposes of subsequent recording. When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured based on fair value model, and is not reclassified as property, plant and equipment during the redevelopment. 3.8 3.8.1 Investments in subsidiaries and associate Investments in subsidiaries Investments in subsidiaries are shown in the balance sheet of the Company at cost less any impairment losses (see accounting policy 3.12). 3.8.2 Investment in associate Investment in associate is shown in the balance sheet of the Company at fair value, with any resultant gain or loss recognised directly in equity, except for impairment losses. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. The fair value of these investments is their quoted bid price at the balance sheet date. 25 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.9 Significant accounting policies (continued) Loans with no fixed maturity date Loans receivable by the Company, which do not have a fixed maturity date, but which are repayable after more than twelve months from the balance sheet date, are measured at the fair value of the consideration given less impairment losses (see accounting policy 3.12) and are included within non-current assets. Loans payable by the Group, which do not have a fixed maturity date, but which are repayable after more than twelve months from the balance sheet date, are measured at the fair value of the consideration received and are included within non-current liabilities. Loans receivable and payable by the Group with no fixed maturity date are included within current assets and current liabilities respectively. 3.10 Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. 3.11 Trade and other receivables Trade and other receivables are measured at amortised cost less any impairment losses (see accounting policy 3.12). 3.12 Impairment The carrying amounts of the Group’s assets, other than investment property (see accounting policy 3.7), inventories (see accounting policy 3.10) and deferred tax assets (see accounting policy 3.19), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (see accounting policy 3.12.1). For assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. 3.12.1 Calculation of recoverable amount The recoverable amount of the Group’s receivables carried at amortised cost and the investment in associate as carried in the Company’s consolidated financial statements is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 26 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.12 3.12.2 Significant accounting policies (continued) Impairment (continued) Reversals of impairment An impairment loss in respect of a receivable carried at amortised cost and the investment in associate as carried in the Company’s consolidated financial statements is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 3.13 Dividends Dividends are recognised as a liability in the period in which they are declared. 3.14 Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. 3.15 Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Staff restructuring The provision for staff restructuring is calculated on the basis of the estimated maximum payment. In cases where savings are attained, any excess amount provided for is reversed to profits when the payment or liability crystallises. 3.16 Trade and other payables Trade and other payables are stated at amortised cost. 3.17 3.17.1 Revenue Services rendered and goods sold Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed. Revenue from the sale of goods is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods. 27 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.17 3.17.2 Significant accounting policies (continued) Revenue (continued) Rental income Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income. 3.18 3.18.1 Expenses Employee benefits The Group contributes towards the State defined contribution plan in accordance with local legislation and to which it has no commitment beyond the payment of contribution. Obligations for contributions to the defined contribution plan are recognised immediately in profit or loss. 3.18.2 Operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense. 3.18.3 Purchase of modems The Group purchases modems and provides them to subscribers either free of charge or against the payment of a refundable deposit. The cost of modems provided for free is considered as a customer acquisition cost to be immediately recognised as an expense in profit or loss. The cost of modems provided to subscribers against the collection of a refundable deposit is deemed as a resource that is under the Group’s control and is hence recognised as an asset to be depreciated over the period of its use by the subscriber. 3.18.4 Net finance income Net finance income comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the income statement (see accounting policy 3.4). Interest income is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in profit or loss on the date the entity’s right to receive payments is established which in the case of quoted securities is usually the ex-dividend date. 3.19 Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and/or sufficient taxable temporary differences are available. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 28 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 3 3.20 Significant accounting policies (continued) Non-current assets held for sale Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, noncurrent assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement. 3.21 Segment reporting A segment is a distinguishable component of the Group that is envisaged in providing products or services (business segment), which is subject to risks and rewards that are different from those of other segments. 3.22 Unrealised profits Part II of the Third Schedule to the Act requires that only profits realised at the balance sheet date may be included in retained earnings available for distribution. Any unrealised profits at this date, taken to the credit of the income statement, are transferred to non-distributable reserves. 3.23 New standards not yet adopted IFRS 7 Financial Instruments: Disclosures and the Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these financial statements. These standards require extensive disclosures about the significance of financial instruments for a company’s financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, are mandatory for the Company’s 2007 financial statements. 4 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. 4.1 Investment property An external, independent valuer, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s investment property portfolio every year. The fair values are based on market values, being the estimated amounts for which properties could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. 4.2 Investments in equity and debt securities The fair value of available-for-sale investments is determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. 4.3 Derivatives The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. 29 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 5 5.1 Revenue Revenue represents the value of goods sold and services provided and sundry income receivable, and is made up as follows: The Group 2006 Lm000 Retail and wholesale Rentals Internet related services Sale of goods Installation charges and extra works Radio-paging and telemarketing services Sundry income 37,679 8,275 5,947 1,143 499 1,167 766 --------55,476 ===== Substantially all the Group’s turnover is generated within Malta. 2005 Lm000 37,020 8,673 5,446 1,946 556 732 587 --------54,960 ===== The Company 2006 Lm000 19,958 7,615 687 381 409 452 --------29,502 ===== 2005 Lm000 22,160 8,004 666 935 481 472 --------32,718 ===== 5.2 In common with other providers of telecommunications services, the Company and some of its subsidiaries earn a portion of their revenues from traffic that is subject to interconnection agreements with other providers. The revenue net of interconnection charges is therefore analysed as follows: The Group 2006 Lm000 Gross turnover Interconnection charges Net turnover 55,476 (5,394) --------50,082 ===== 2005 Lm000 54,960 (5,020) --------49,940 ===== The Company 2006 Lm000 29,502 (4,285) ---------25,217 ===== 2005 Lm000 32,718 (4,627) --------28,091 ===== MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 30 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 6 Other operating income The Group 2006 Note Fair value adjustments of investment property Maintenance of equipment Lease of motor vehicles Lease of payphone network Rent receivable on immovable property Other rent receivable Profit on disposal of property, plant and equipment Penalties charged to contractors Effect/(reversal) of unclaimed liabilities written back Income from USO obligations Late payment charges Realised operating exchange gain Subscribers’ deposits written back Liabilities written back Reversal of impairment loss on investment property Other 7.2 Lm000 22 35 83 93 122 221 145 -----721 === 2005 Lm000 6 22 36 76 26 33 119 81 215 132 ----746 === The Company 2006 Lm000 175 30 109 22 367 146 54 93 15 221 170 145 -------1,547 ==== 2005 Lm000 558 36 221 22 630 174 55 160 (8) 119 81 215 132 ------2,395 ==== 7 7.1 Significant one-off income and expenses Write-back of international traffic and leased circuits costs During the year ended 31 December 2006, the Company agreed upon settlements with some foreign administrations that reversed the costs of international voice traffic and international leased circuit costs recognised in previous years by Lm17,002 (2005: Lm587,955) and Lm13,752 (2005: Lm109,871), respectively. 7.2 Write-back of unclaimed liabilities During the year ended 31 December 2006, the Company wrote back to the income statement, foreign and local payables amounting to Lm221,377. These balances were prescribed by end of year. 7.3 Contributions for pensions and gratuities Following a decision taken by the Courts of Justice on 7 October 2004, the Company was deemed liable to pay a service pension to a number of former employees. This liability was deemed as taken over by Telemalta Corporation and subsequently by Maltacom p.l.c. Although the Company appealed against the decision taken, it was considered necessary to provide in the financial statements for the year ended 31 December 2004 for the liability covering the period up to 31 December 2004 and increase the liability during the years ended 31 December 2006 and 31 December 2005 with amounts that may be payable in future years in accordance with the requirements of International Accounting Standard 19, Employee Benefits. This resulted in an amount of Lm537,980 being accrued. During the years ended 31 December 2006 and 31 December 2005, the Company increased this provision by a further Lm13,048 and Lm19,129 respectively. 7.4 Voluntary retirement costs During the year ended 31 December 2006, the Company offered a voluntary retirement scheme to its employees. Over 200 employees have opted for and are in the process of benefiting from this scheme. 31 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 7 7.5 Significant one-off income and expenses (continued) Prior year fair value adjustments in investment property Following the merger of two subsidiaries with effect from 1 July 2006 (see note 18.6), the Company reversed the fair value adjustments recognised in prior years with respect to investment property that was rented to those subsidiaries. The Company had revalued each year this investment property according to IAS 40 Investment Property (see note 3.7). These fair value adjustments were eliminated upon consolidation in prior years and hence did not affect the Group’s results. 8 Other operating expenses The Group 2006 Lm000 Realised operating exchange loss Unrealised operating exchange losses Loss on disposal of plant and equipment Write-off of property, plant and equipment Write-off of intangible assets Restructuring expenses Claims made by third parties Impairment loss on investment property 5 126 35 87 ----253 === 2005 Lm000 17 42 362 5 ----426 === The Company 2006 Lm000 46 3 126 35 ----210 === 2005 Lm000 8 22 362 5 182 ----579 === 9 Net finance income The Group 2006 Lm000 Dividend income Bank interest receivable Interest charged to subsidiaries and associate Finance income from PABX leases Income from debt securities Interest from investment in funds Late payment interest Non-operating unrealised exchange gains Other interest receivable Finance income Non-operating unrealised exchange loss Non-operating realised exchange loss Bank loan interest Other bank interest Other interest Amortisation of debt securities Other Provision for diminution in value of investment Financial expenses Net finance income 336 4 53 64 234 149 39 ----879 ----119 24 275 9 4 3 1 ----435 ----444 === 2005 Lm000 267 3 65 139 122 176 95 4 ----871 ----14 416 9 7 23 39 ----508 ----363 === The Company 2006 Lm000 9,548 219 132 53 54 234 149 11 39 -------10,439 -------21 88 1 2 --------112 --------10,327 ===== 2005 Lm000 7,306 204 150 65 144 110 176 110 ------8,265 ------131 1 23 39 ------194 ------8,071 ==== MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 32 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 10 Net reversal of impairment losses and losses realised on investments During the year ended 31 December 2005, the Company and the Group had disposed of their investment in Intelsat Limited and reversed the impairment loss that had been recognised in the income statement during the previous year. In addition, during the comparative year, the Company and the Group had disposed of investments in available-for-sale debt securities, realising a loss of Lm11,306. 10.1 Net reversal of impairment losses The Group 2006 Lm000 Impairment on investment in subsidiary Reversal of impairment loss on investment in subsidiary Reversal of impairment loss on investment in equity securities ----=== 372 ----372 === ----4 === 372 ----608 === 4 251 2005 Lm000 The Company 2006 Lm000 2005 Lm000 (15) 10.2 Profit/(losses) on realisation of investments The Group 2006 Lm000 Loss on disposal of debt securities Loss on disposal of equity securities Loss on acquisition by merger of subsidiaries Profit on acquisition by merger of subsidiaries ----=== 2005 Lm000 (11) (314) ----(325) === The Company 2006 Lm000 36 ----36 === 2005 Lm000 (11) (314) (245) ----(570) === On 1 July 2006, the Company merged by acquisition two of its subsidiaries, Wirenet Limited and Coreswitch Limited. The Company took over the assets, liabilities and reserves of these subsidiaries realising a profit of Lm16,383 and Lm19,142 respectively, which is equivalent to the difference between the net book value of the subsidiaries and the cost of the Company in these investments on the date of merger (refer to note 18.6 to the financial statements). 33 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 11 Share of result of associate The Group 2006 Lm000 Share of: Turnover Operating costs Loss before taxation (Under)/over-provision taken in prior years Taxation (Loss)/profit for the year 413 (456) ----(43) (18) 18 ----(43) === Refer to note 19 to the financial statements. 342 (343) ----(1) 65 7 ----71 === 2005 Lm000 12 12.1 Profit before tax The profit before tax is stated after charging/(crediting): The Group 2006 Lm000 Directors’ emoluments: Salaries Other 31 47 ----78 === Auditors’ remuneration Amortisation Obsolete inventory and inventory written off Bad debts written off 65 560 14 29 === 26 59 ----85 === 11 165 (340) 2,493 ==== 31 40 ----71 === 25 50 1 27 === 25 26 ----51 === 5 48 (337) 2,491 ==== 2005 Lm000 The Company 2006 Lm000 2005 Lm000 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 34 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 12 12.2 Profit before tax (continued) Personnel expenses incurred by the Group and the Company during the year are analysed as follows: The Group 2006 Lm000 Wages and salaries Social security costs 10,053 725 -------10,778 Capitalised labour costs 754 -------11,532 ==== 2005 Lm000 12,601 447 -------13,048 487 -------13,535 ==== The Company 2006 Lm000 5,406 435 ------5,841 623 ------6,464 ==== 2005 Lm000 3,831 208 ------4,039 359 ------4,398 ==== Wages, salaries and social security costs, other than those relating to capital works, are allocated between operational expenses (included within cost of sales) and administrative and distribution expenses as follows: The Group 2006 % Operational expenses Administrative and distribution expenses 48 52 ----100 === 2005 % 57 43 ----100 === The Company 2006 % 41 59 ----100 === 2005 % 23 77 ----100 === The weekly average number of persons employed including part-timers, students and secondees during the year is analysed as follows: The Group The Company 2006 No. Operating Management and administration Capital works 977 607 83 ------1,667 ==== 2005 No. 971 614 36 ------1,621 ==== 2006 No. 596 381 83 ------1,060 ==== 2005 No. 671 395 36 ------1,102 ==== 35 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 12 12.2 Profit before tax (continued) (continued) The employees at year-end were as follows: 2006 No. The Company Full-time employees Seconded or on loan to the Company Seconded or on loan to group companies Seconded or on loan to other entities Part-time employees and students 850 6 47 4 17 ----924 === Subsidiaries (excluding employees loaned from parent) Full-time employees Part-time employees 465 142 ----607 === 420 99 ----519 === 453 7 621 7 8 ------1,096 ==== 2005 No. 13 13.1 Income tax expense Recognised in the income statement The Group 2006 Lm000 Current tax expense Current year Deferred tax expense Origination and reversal of temporary differences Total income tax expense in income statement (710) ------(3,934) ==== (1,564) ------(4,831) ==== (169) ------(3,417) ==== (1,956) ------(4,952) ==== (3,224) (3,267) (3,248) (2,996) 2005 Lm000 The Company 2006 Lm000 2005 Lm000 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 36 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 13 13.2 Income tax expense (continued) The income tax expense for the year and the result of the accounting profit multiplied by the tax rate applicable in Malta, the Company’s country of incorporation, are reconciled as follows: The Group 2006 Lm000 Profit before tax Income tax using the domestic income tax rate Tax effect of: Associated undertakings’ results Expenses disallowed for tax purposes Depreciation charges not deductible by way of capital allowances in determining taxable income Further allowance on rental income Adjustment to previous years’ tax charge Difference in tax rates charged on investment income and BPA qualifying activities Investment tax credit Liabilities written back Realised profit/(loss) on investment in subsidiaries Reversal of impairment loss on investment in subsidiaries and associate Consolidation adjustment Other non-temporary differences Different tax rates on immovable property valued at fair value following changes in taxation legislation Additional tax benefit on sale of property held for resale Reversal of impairment loss on investment property Income tax expense ------(3,934) ==== 5 ------(4,831) ==== (142) 59 ------(3,417) ==== 83 5 ------(4,952) ==== 99 26 (87) 53 (6) 88 30 376 (152) 391 244 220 374 12 473 206 (86) 35 42 (127) 58 105 36 26 (111) 44 (15) (118) 25 (98) (19) (106) 12,076 -------(4,227) 2005 Lm000 16,056 -------(5,620) The Company 2006 Lm000 10,734 -------(3,757) 2005 Lm000 15,938 -------(5,578) 37 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 13 13.3 Income tax expense (continued) Deferred tax recognised directly in equity The Group 2006 Note Deferred tax (charge)/income relating to: Financial investments available-for-sale Forward contract Investment property 23.3 (7) (6) ----(13) === 13 6 ----19 === (7) (6) (325) ----(338) === 13 6 325 ----344 === Lm000 2005 Lm000 The Company 2006 Lm000 2005 Lm000 14 14.1 Earnings per share The Group 2006 Lm000 Profit for the year attributable to shareholders 8,142 ==== Weighted average number of shares in issue 2005 Lm000 11,225 ===== 101,310,488 ========= Lm Earnings per share 8c0 === Lm 11c1 === Lm 7c2 === Lm 10c8 === The Company 2006 Lm000 7,317 ==== 2005 Lm000 10,986 ===== 14.2 The earnings per share before one-off items described in note 7 which affected the income statement for the years ended 31 December 2006 and 2005, are as follows: The Group 2006 Lm Earnings per share 9c9 === 2005 Lm 10c6 === The Company 2006 Lm 10c1 === 2005 Lm 10c4 === MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 38 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 15 15.1 Property, plant and equipment The Group Payments on account and assets in course of construction Lm000 1,435 2,420 (1,777) ------2,078 ==== 2,078 1,442 (2,138) ------1,382 ==== ----=== ----=== 1,435 ==== 2,078 ==== 2,078 ==== 1,382 ==== Material awaiting installation Lm000 1,246 370 ------1,616 ==== 1,616 274 (373) ------1,517 ==== ----=== ----=== 1,246 ==== 1,616 ==== 1,616 ==== 1,517 ==== Total Lm000 Cost/revalued amount Balance at 1 January 2005 Acquisitions Transfers, disposals and write-offs Balance at 31 December 2005 115,967 7,285 (3,735) ---------119,517 ===== Balance at 1 January 2006 Acquisitions Disposals and transfers Balance at 31 December 2006 Depreciation and impairment losses Balance at 1 January 2005 Depreciation charge for the year Impairment loss for the year Disposals Balance at 31 December 2005 Balance at 1 January 2006 Depreciation charge for the year Impairment loss for the year Transfers and disposals Balance at 31 December 2006 Carrying amounts At 1 January 2005 At 31 December 2005 At 1 January 2006 At 31 December 2006 65,550 ===== 61,820 ===== 61,820 ===== 59,855 ===== 50,417 7,911 386 (1,017) --------57,697 ===== 57,697 7,847 420 (1,114) --------64,850 ===== 119,517 6,538 (1,350) ----------124,705 ====== Land and buildings Lm000 15,897 236 (1,106) -------15,027 ==== 15,027 238 193 --------15,458 ===== 723 336 (207) ----852 === 852 (90) ----762 === 15,174 ===== 14,175 ===== 14,175 ===== 14,696 ===== Plant and equipment Lm000 97,047 4,259 (852) ---------100,454 ===== 100,454 4,560 968 ----------105,982 ====== 49,362 7,572 386 (810) --------56,510 ===== 56,510 7,933 420 (1,114) --------63,749 ===== 47,685 ===== 43,944 ===== 43,944 ===== 42,233 ===== Motor vehicles Lm000 342 ----342 === 342 24 ----366 === 332 3 ----335 === 335 4 -----339 === 10 === 7 === 7 === 27 === 39 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 15 15.2 Property, plant and equipment (continued) Recoverability of the Group’s mobile telecommunications infrastructure At 31 December 2006, the Group’s mobile telecommunications infrastructure was carried at Lm6,909,857. An impairment test was carried out at the end of 2006, following the grant of a license in August 2005 to the Group for the establishment and implementation of a 3G network and the management’s decision to invest in such network. On the basis of this impairment test, management is confident that no impairment loss needs to be recognised. 15.3 The Company Payments on account and assets in course of construction Lm000 591 1,642 (301) ------1,932 ==== 1,932 442 (1,422) ------952 ==== ----=== ----=== 591 === 1,932 ==== 1,932 ==== 952 === Material awaiting installation Lm000 1,246 330 ------1,576 ==== 1,576 146 (332) ------1,390 ==== ----=== ----=== 1,246 ==== 1,576 ==== 1,576 ==== 1,390 ==== Total Lm000 Cost Balance at 1 January 2005 Acquisitions Transfers and disposals Balance at 31 December 2005 Balance at 1 January 2006 Acquisitions Transfer from investment property Reversal of fair values Transfers and disposals Balance at 31 December 2006 Depreciation and impairment losses Balance at 1 January 2005 Depreciation charge for the year Impairment loss for the year Transfers and disposals Balance at 31 December 2005 Balance at 1 January 2006 Depreciation charge for the year Impairment loss for the year Transfers and disposals Balance at 31 December 2006 Carrying amounts At 1 January 2005 At 31 December 2005 At 1 January 2006 At 31 December 2006 78,969 2,998 (3,462) --------78,505 ===== 78,505 3,210 4,487 (405) (1,218) --------84,579 ===== 33,966 3,383 22 (754) -------36,617 ===== 36,617 3,313 376 (1,096) -------39,210 ===== 45,003 ===== 41,888 ===== 41,888 ===== 45,369 ===== Land and buildings Lm000 10,773 63 (2,163) -------8,673 ==== 8,673 24 4,487 (405) 2 --------12,781 ===== 459 316 (207) ----568 === 568 (63) ----505 === 10,314 ===== 8,105 ===== 8,105 ===== 12,276 ===== Plant and equipment Lm000 66,025 963 (998) -------65,990 ===== 65,990 2,573 534 --------69,097 ===== 33,183 3,064 22 (547) -------35,722 ===== 35,722 3,371 376 (1,096) -------38,373 ===== 32,842 ===== 30,268 ===== 30,268 ===== 30,724 ===== Motor vehicles Lm000 334 ----334 === 334 25 ----359 === 324 3 ----327 === 327 5 ----332 === 10 === 7 === 7 === 27 === MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 40 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 16 16.1 Intangible assets The Group IRUs and DDPs Lm000 938 ----938 === 938 (56) ----882 === 321 48 ----369 === 369 50 (21) ----398 === 617 === 569 === 569 === 484 === Internally generated computer Other software intangibles Lm000 921 388 ------1,309 ==== 1,309 275 ------1,584 ==== 156 116 19 ----291 === 291 145 ----436 === 765 === 1,018 ==== 1,018 ==== 1,148 ==== Lm000 1,236 3,268 ------4,504 ==== 4,504 192 ------4,696 ==== 281 273 ----554 === 554 378 58 ----990 === 955 === 3,950 ==== 3,950 ==== 3,706 ==== Total Lm000 Cost Balance at 1 January 2005 Acquisitions Development Balance at 31 December 2005 Balance at 1 January 2006 Acquisitions Development Write-offs Balance at 31 December 2006 Amortisation and impairment losses Balance at 1 January 2005 Amortisation for the year Impairment loss for the year Balance at 31 December 2005 Balance at 1 January 2006 Amortisation for the year Impairment loss for the year Write-offs Balance at 31 December 2006 Carrying amounts At 1 January 2005 At 31 December 2005 2,337 ==== 5,537 ==== At 1 January 2006 At 31 December 2006 5,537 ==== 5,338 ==== 758 437 19 ------1,214 ==== 1,214 573 58 (21) ------1,824 ==== 3,095 3,268 388 ------6,751 ==== 6,751 192 275 (56) ------7,162 ==== 41 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 16 16.1 Intangible assets (continued) The Company IRUs and DDPs Lm000 Cost Balance at 1 January 2005 Balance at 31 December 2005 Balance at 1 January 2006 Write-offs Balance at 31 December 2006 Amortisation Balance at 1 January 2005 Amortisation for the year Balance at 31 December 2005 Balance at 1 January 2006 Amortisation for the year Write-offs Balance at 31 December 2006 Carrying amounts At 1 January 2005 At 31 December 2005 617 === 569 === At 1 January 2006 At 31 December 2006 569 === 484 === 321 48 ----369 === 369 50 (21) ----398 === 938 ----938 === 938 (56) ----882 === 16.2 Amortisation charge The amortisation charge is recognised within cost of sales in the income statement for the Company and the Group. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 42 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 17 17.1 Investment property The Company 2006 Lm000 Balance at 1 January Acquisitions Transfers from property, plant and equipment Transfers to property, plant and equipment Reversal of fair value Impairment loss Reversal of impairment loss Increase in fair value Balance at 31 December 7,594 56 (4,487) (1,364) 170 175 ------2,144 ==== 2005 Lm000 5,664 97 2,755 (1,737) (182) 997 ------7,594 ==== 17.2 The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Company’s investment property. Investment property comprises a number of commercial properties that are leased to Group entities. 17.3 18 18.1 Investments in subsidiaries The Company Note 2006 Lm000 At 1 January as originally stated Effect of change in accounting policy: Reversal of share of equity results Impairment loss on investments in subsidiaries Restatements At 1 January as restated Increase in investment in subsidiary Merger of subsidiaries with the Company’s operations Reversal of impairment loss on investments in merged subsidiaries Impairment loss charged for the year Reversal of impairment loss for the year At 31 December 7,990 ------18.2 18.2 ------7,990 ------7,990 (51) 4 ------7,943 ==== 2005 Lm000 9,997 ------(1,804) (438) -------(2,242) -------7,755 299 (300) 251 (15) ------7,990 ==== 43 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 18 18.2 Investments in subsidiaries (continued) Change in accounting policy During the comparative year, the Company ceased to measure its investments in subsidiaries using the equity method and started to measure these investments at cost less impairment loss, in accordance with the revised IAS 27, Consolidated and Separate Financial Statements. In accordance with IAS 8, Changes in Accounting Policies, the Company applied retrospectively these changes in accounting policies as if the new accounting policy had always been applied. As a result, the Company had restated its investments in the subsidiaries as at 1 January 2005 from Lm9,997,457 to Lm7,754,910. 18.3 Control of the group The ultimate parent of the Group is Dubai Holding LLC, the registered office of which is situated at Emirates Towers, Level 43, Office Block, Sheikh Zayed Road, Dubai, UAE. 18.4 Subsidiaries Registered office Ownership interest 2006 % 2005 % 99.99 Nature of business Coreswitch Limited Spencer Hill, Marsa - Operation and management of systems for provision of communication services Provision of IT-related management and consultancy services Innovate Limited Spencer Hill, Marsa 0.09 0.09 Innovate Software Limited Spencer Hill, Marsa 99.99 99.99 Development of software, including implementation, support and maintenance Mobisle Communications Limited Monitoring Services Limited Spencer Hill, Marsa 99.99 99.99 Operation of mobile and wireless telecommunication systems and networks Provision of advisory and consultancy services on monitoring and security control Operation of call centre and radio-paging and voice messaging system Provision of connections to the Internet, Internet services, retail and wholesale broadband services. Operation and management of access network infrastructure Operation of an international multilingual call centre Spencer Hill, Marsa 99.99 99.99 Telepage Limited Spencer Hill, Marsa 99.99 99.99 DataStream Limited (formerly Terranet Limited) Dolphin Centre Main Street, Balzan 99.99 99.99 Wirenet Limited Spencer Hill, Marsa - 99.99 Worldwide Communications Limited Spencer Hill, Marsa 99.99 99.99 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 44 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 18 18.5 18.6 Investments in subsidiaries (continued) At 31 December 2006, all the above investments were fully paid-up, with the exception of the investment in Worldwide Communications Limited, which was 75% paid-up (2005: 75%) (see note 35.4). Merger of subsidiaries By virtue of directors’ resolutions dated 12 May 2006 and 30 December 2004, it was resolved that three of the subsidiaries namely, Wirenet Limited, Coreswitch Limited and Allcom Limited be merged with the Company in terms of the provisions of Chapter I, Title II, Part VIII of the Companies Act, 1995, whereby, through a merger by acquisition, the Company, as the acquiring company, acquired the assets, rights, liabilities and obligations of these subsidiaries. The Company had a 99.99% holding in these subsidiaries. The merger of both Wirenet Limited and Coreswitch Limited became both effective on 31 August 2006 whereas the merger of Allcom Limited became effective on 23 July 2005. The transactions of Wirenet Limited and Coreswitch Limited were treated, for accounting purposes, as being those of the Company, as from 1 July 2006. On the other hand, the transactions of Allcom Limited were treated for accounting purposes as being those of the Company as from 1 January 2005. The assets, liabilities and reserves which were taken over by Maltacom p.l.c. as the acquiring company were as follows: Coreswitch Limited Lm Assets Property, plant and equipment Investments in debt securities Other investments Inventories Trade and other receivables Tax recoverable Cash at bank and in hand 54,780 50,000 73,063 149,688 --------327,531 --------69,097 128,759 59,384 ---------257,240 ---------20,291 ===== Wirenet Limited Lm 13,505 16,504 130,813 23,377 61,913 ---------246,112 ---------229,229 ---------229,229 ---------16,383 ===== Allcom Limited Lm 400,130 198,491 137,787 100,267 ---------836,675 ---------63,363 200,000 524,181 ---------787,544 ---------(250,869) ====== Liabilities Bank borrowings Other interest bearing liabilities Trade and other payables Taxation Reserves Retained earnings/(accumulated losses) On 23 June 2005, the directors had resolved that the subsidiaries, Datastream Limited and Terranet Limited, be merged by acquisition as described in Section 343(2) of the Companies Act, whereby Terranet Limited acquired the assets, rights and obligations of Datastream Limited. On 12 August 2005, the directors of Datastream Limited and Terranet Limited resolved that both entities be merged in terms of the provision of Section 344 of the Companies Act, as drawn up in the draft terms of merger published by the Registrar of Companies on 18 August 2005. As a result, the Company increased its shareholding in Terranet Limited through the allotment of a further 650,000 ordinary shares in Terranet Limited to the Company on the basis of the share exchange ratio set out in the said draft terms of merger (see note 18.7). On 23 December 2005, the directors of Terranet Limited resolved to change the name of this subsidiary from Terranet Limited to DataStream Limited. 45 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 18 18.6 Investments in subsidiaries (continued) Merger of subsidiaries (continued) On 5 December 2006, the directors resolved to merge DataStream Limited with the Company in terms of the provision of Title II, Chapter III of Part VIII of the Companies Act, 1995, whereby through a merger by acquisition, the Company has acquired the assets, rights, liabilities and obligations of DataStream Limited as at 1 January 2007 in accordance with Section 358 of the Companies Act, 1995. 18.7 Increase in share capital of subsidiaries During the year ended 31 December 2005, the Company increased its share capital in Telepage Limited through the capitalisation of a balance due to it by this subsidiary amounting to Lm299,000. In addition, the Company had increased its share capital in DataStream Limited (formerly Terranet Limited) through the acquisition of 650,000 ordinary shares of Lm1 each, fully paid up, issued at a premium of Lm1.08,5 each, according to the share exchange ratio set out in the draft terms of merger between Datastream Limited and Terranet Limited (see note 18.6). 18.8 Sub-subsidiaries As at 1 January 2005, Mobisle Communications Limited had a 99.99% holding in Go Mobile Limited. On 4 March 2005, Mobisle Communications Limited increased its share capital in Go Mobile Limited by Lm4,000, representing 4,000 ordinary shares of Lm1 each. As at 1 January 2005, DataStream Limited (formerly Terranet Limited) had a 99.99% holding in maltaNET Ltd. On 12 August 2005, the directors of maltaNET Ltd and DataStream Limited (formerly Terranet Limited) resolved that both entities be merged in terms of the provision of Title II, Chapter III of Part VIII of the Companies Act 1995, whereby through a merger by acquisition, DataStream Limited (formerly Terranet Limited), as the acquiring entity acquired the assets, rights, liabilities and obligations of maltaNET Ltd in accordance with Section 358 of the Companies Act, 1995. 19 19.1 Investment in associate The Group and the Company have an investment in the following associate: Ownership interest Country 2006 % Datatrak Holdings p.l.c. Malta 30 == 2005 % 30 == 19.2 Summary financial information on associate - 100 per cent: Assets Lm000 2006 Datatrak Holdings p.l.c. 2005 Datatrak Holdings p.l.c. 5,137 ==== 4,948 ==== Liabilities Lm000 1,781 ==== 1,651 ==== Equity Lm000 3,356 ==== 3,297 ==== Revenues Lm000 1,377 ==== 1,408 ==== Profit/(loss) Lm000 126 === 3 === The financial information for 2006 was extracted from unaudited consolidated financial statements of Datatrak Holdings p.l.c. for the year ended 31 December 2006. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 46 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 19 19.3 19.4 Investment in associate (continued) At 31 December 2006, the market value of the Company’s investment in Datatrak Holdings p.l.c. amounted to Lm1,200,997 (2005: Lm1,483,303). The investment in associate is carried by the Company at fair value, which is equivalent to market value. On the other hand, the investment in associate is carried by the Group at its equity value (see note 3.1.2). It appears that this associate is still seeking to break into its intended key markets and has a history of losses. Furthermore, its listed share price has followed a declining trend during the accounting period. In spite of these factors, the associate’s management, which includes a member of Maltacom p.l.c.’s board of directors, a senior executive and the company secretary of Maltacom p.l.c. appears confident that the Company will recover and achieve its objective in the short-term. Based on this respresentation, the directors have concluded that no impairment has resulted on this investment. 20 Other investments The Group 2006 Lm000 Non-current investments Listed debt securities Units in listed funds 1,296 12,406 ---------13,702 ===== Current investment Term deposit held to maturity === 50 === === === 1,763 12,364 --------14,127 ===== 1,166 12,234 ---------13,400 ===== 1,575 12,196 --------13,771 ===== 2005 Lm000 The Company 2006 Lm000 2005 Lm000 21 21.1 Loans receivable from subsidiaries Lm000 At 1 January 2005 Advances Elimination of loan advanced upon merger Settlement by set-off At 31 December 2005 2,546 959 (200) (260) ------3,045 ==== At 1 January 2006 Advances At 31 December 2006 3,045 275 ------3,320 ==== 47 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 21 21.2 Loans receivable from subsidiaries (continued) Terms and repayment schedule by subsidiaries Repayment _________________________________________ Within Between After By 1 year 2-5 years 5 years Lm 2011 2014 After 31.12.07 On demand 1,248,575 135,807 16,034 1,400,416 Lm 1,344,152 153,739 221,934 1,719,825 Lm 61,113 138,949 ----------200,062 None None None None Interest Lm Loan 1 to Innovate Group Loan 2 to Innovate Group Loan to Telepage Limited Loan to Worldwide Communications Limited 2,653,840 428,495 221,934 16,034 ------------3,320,303 ======= % 5.5 5.5 3.75 Free Security ------------- ------------- ======= ======= ====== 22 Finance lease receivables The finance lease receivables classified as non-current assets are analysed as follows: Group and Company Asset 2006 Lm000 Between one and five years 262 === Interest 2006 Lm000 === Principal 2006 Lm000 262 === Asset 2005 Lm000 294 === Interest 2005 Lm000 === Principal 2005 Lm000 294 === MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 48 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 23 23.1 Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: The Group 2006 Lm000 Property, plant and equipment Financial investments Inventories Provisions Derivative liability Other items Trade receivables Deferred expenditure Tax value of losses carried forward Tax value of capital allowances carried forward Investment tax credit Tax assets/(liabilities) Set off of tax Net tax assets 20 260 951 1,472 460 452 878 ------4,493 (3,919) -------574 ==== Assets 2005 Lm000 12 254 922 8 1,406 433 1,076 ------4,111 (2,840) ------1,271 ==== Liabilities 2006 Lm000 (3,749) (1) (169) ------(3,919) 3,919 ------==== 2005 Lm000 (2,621) (14) (6) (199) ------(2,840) 2,840 ------==== 2006 Lm000 (3,749) 20 260 951 (1) 1,472 (169) 460 452 878 ------574 -------574 ==== Net 2005 Lm000 (2,621) 12 254 908 (6) 8 1,406 (199) 433 1,076 ------1,271 ------1,271 ==== Provisions include a deductible provision for VAT claims and a taxable provision for exchange fluctuations amounting to Lm921,553 and Lm13,579 respectively (2005: Lm921,553 and Lm13,579 respectively). The Company 2006 Lm000 Property, plant and equipment Investment property Financial investments Investments in subsidiaries Inventories Provisions Derivative liability Trade receivables Deferred expenditure Tax value of loss carried forward Tax value of capital allowances carried forward Tax assets/(liabilities) Set off of tax Net tax assets 19 69 131 922 1,319 273 452 ------3,185 (3,000) -------185 ==== Assets 2005 Lm000 12 71 130 922 1,278 273 ------2,686 (2,670) -------16 ==== Liabilities 2006 Lm000 (2,535) (260) (36) (169) ------(3,000) 3,000 -------==== 2005 Lm000 (1,570) (846) (49) (6) (199) ------(2,670) 2,670 ------==== 2006 Lm000 (2,535) (260) 19 69 131 886 1,319 (169) 273 452 ------185 -------185 ==== Net 2005 Lm000 (1,570) (846) 12 71 130 873 (6) 1,278 (199) 273 ------16 ------16 ==== Provisions include a deductible provision for VAT claims and a taxable provision for exchange fluctuations amounting to Lm921,553 and Lm36,010 respectively (2005: Lm921,553 and Lm48,551 respectively). 49 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 23 23.2 Deferred tax assets and liabilities (continued) Recognition of deferred tax asset on investment tax credit by a subsidiary During the year under review, the Company’s subsidiary, Innovate Software Limited (see note 18.4) continued to generate taxable profit. As a result, a deferred tax asset representing the tax value of investment tax credits has been recognised in the Group’s financial statements. The directors have based this estimate on evidence supporting their belief that the subsidiary will have enough taxable profits in the future against which this deferred tax asset can be utilised. 23.3 Movement in temporary differences during the year The Group Balance Recognised Recognised 1 Jan 05 in income in equity Lm000 Lm000 Lm000 (1,821) 270 391 902 (4) 2,108 (216) 254 918 52 ------2,854 ==== (800) (245) (137) 6 12 (702) 17 179 158 (52) ------(1,564) ==== (13) (6) ----(19) === Balance 31 Dec 05 Lm000 (2,621) 12 254 908 8 1,406 (199) 433 1,076 (6) ------1,271 ==== Property, plant and equipment Financial investments Inventories Provisions Other items Trade receivables Deferred expenditure Tax value of loss carry- forwards Investment tax credit Unabsorbed research and development allowances Derivative liability Balance Recognised Recognised 1 Jan 06 in income in equity Lm000 Lm000 Lm000 Property, plant and equipment Financial investments Inventories Provisions Other items Trade receivables Deferred expenditure Tax value of loss carry-forwards Tax value of capital allowances carried forward Investment tax credit Derivative liability (2,621) 12 254 908 8 1,406 (199) 272 161 1,076 (6) ------1,271 ==== (1,128) 1 6 43 (9) 66 30 1 478 (198) ------(710) ==== 7 6 -----13 === Balance 31 Dec 06 Lm000 (3,749) 20 260 951 (1) 1,472 (169) 273 639 878 -----574 === MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 50 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 23 23.3 Deferred tax assets and liabilities (continued) Movement in temporary differences during the year (continued) The Company Balance Effect 1 Jan 05 as of change originally in accounting stated policy Lm000 Property, plant and equipment Investment property Financial investments Investments in subsidiaries Inventories Provisions Other items Trade receivables Deferred expenditure Tax value of loss carry-forwards Derivative liability (611) (409) 148 (763) 250 904 (4) 2,016 (216) 173 ------1,488 ==== Lm000 828 ----828 === Balance 1 Jan 05 as restated Lm000 (611) (409) 148 65 250 904 (4) 2,016 (216) 173 ------2,316 ==== Recognised in income Lm000 (959) (112) (123) 6 (120) (31) 4 (738) 17 100 ------(1,956) ==== Recognised in equity Lm000 (325) (13) (6) ----(344) === Balance 31 Dec 05 Lm000 (1,570) (846) 12 71 130 873 1,278 (199) 273 (6) ------16 ==== Balance Effect 1 Jan 06 as of change originally in accounting stated policy Lm000 Property, plant and equipment Investment property Financial investments Investments in subsidiaries Inventories Provisions Trade receivables Deferred expenditure Tax value of losses carried forward Tax value of capital allowances carried forward Derivative liability (1,570) (846) 12 71 130 873 1,278 (199) 273 Lm000 ----=== Balance 1 Jan 06 as restated Lm000 (1,570) (846) 12 71 130 873 1,278 (199) 273 (6) ------16 ==== Recognised in income Lm000 (965) 261 (2) 1 13 41 30 452 ----(169) === Recognised in equity Lm000 325 7 6 ----338 === Balance 31 Dec 06 Lm000 (2,535) (260) 19 69 131 886 1,319 (169) 273 452 ------185 ==== (6) ------16 ==== 51 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 24 Inventories The Group 2006 Lm000 Operating spares Work in progress Consumables and stationery Goods for resale 516 4 64 444 ------1,028 ==== 2005 Lm000 478 17 53 271 ----819 === The Company 2006 Lm000 321 46 86 ----453 === 2005 Lm000 325 32 51 ----408 === 25 25.1 Trade and other receivables The Group 2006 Lm000 Trade receivables Amounts receivable under finance lease Amounts owed by subsidiaries Amounts owed by associate Loan receivable from associate Other receivables Prepayments and accrued income 7,763 239 17 66 368 5,472 -------13,925 ===== 2005 Lm000 9,150 355 15 29 244 5,606 --------15,399 ===== The Company 2006 Lm000 5,157 239 4,241 11 66 190 3,057 -------12,961 ===== 2005 Lm000 6,411 355 3,831 12 29 128 3,794 --------14,560 ===== 25.2 25.3 Amounts receivable include VAT charged to and recoverable from customers and subscribers. The balance of other receivables includes an amount owed by Public Broadcasting Services Limited to the Company and the Group in respect of the transfer of the assets and liabilities of the Xandir Malta Division. The amount is repayable on demand. The amounts due by subsidiaries and associate are all interest free and repayable on demand. Transactions with related parties are set out in note 37 to these financial statements. The loan receivable from associate amounting to Lm66,237 (2005: Lm28,858) bears interest at 8% and is repayable on demand. 25.4 25.5 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 52 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 25 25.6 Trade and other receivables (continued) The amounts receivable under finance lease are as follows: Group and Company Asset 2006 Lm000 239 === Interest 2006 Lm000 52 === Principal 2006 Lm000 186 === Asset 2005 Lm000 355 === Interest 2005 Lm000 32 === Principal 2005 Lm000 323 === 25.7 The impairment losses are as follows: The Group 2006 Lm000 Trade and other receivables 4,166 ==== 2005 Lm000 3,975 ==== The Company 2006 Lm000 3,768 ==== 2005 Lm000 3,652 ==== 26 Non-current assets held for sale The non-current assets held for sale include land at Qawra and improvements to premises at Ricasoli, which until recently was being utilised by a subsidiary, amounting to Lm1,053,478 (2005: Lm1,053,478) and Lm960,393 (2005: Lm938,542) respectively. The amounts recognised in the financial statements represent the lower of the carrying amount and the fair value less costs to sell. During 2003, the Board of Directors decided to dispose of the land at Qawra and embarked on a plan to sell the land. During the year ended 31 December 2005, the Company and the Group commenced negotiations with the Government of Malta for the sale of the Ricasoli improvements. Events and circumstances incident to the local environment surrounding the sale of property have delayed the sale of any or all of these properties. In the case of the land at Qawra, the Company is committed to a plan to sell, and circumstances extending the period to complete sale beyond one year are considered to be beyond the Company’s control. In the case of the improvements to premises at Ricasoli, the Company considers these improvements to be substantially recoverable from their disposal in view of the negotiations currently undertaken by the Company with the Government of Malta. 27 27.1 Capital and reserves Share capital Group and Company No. of Ordinary Shares 2006 On issue at 1 January On issue at 31 December 101,310,488 ======== 101,310,488 ======== 2005 101,310,488 ======== 101,310,488 ======== At 31 December 2006, the authorised share capital comprised 600,000,000 ordinary shares (2005: 600,000,000) at a par value of Lm0.25 each. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings of the Company. All shares rank equally with regard to the Company’s residual assets. 53 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 27 27.2 Capital and reserves (continued) Other reserve The ‘other reserve’ is non-distributable and comprises transfers of amounts equivalent to the following unrealised gains from retained earnings, in accordance with the requirements of the Companies Act, 1995: Deferred taxation Lm000 Gain Lm000 The Group Exchange gains Tax effect of unabsorbed capital allowances Tax effect of capital loss on investment Tax effect of investment tax credit Revaluation to equity of investment in associate 103 639 273 878 175 ------2,068 ==== Net Lm000 (36) ----(36) === 67 639 273 878 175 ------2,032 ==== The Company Exchange gains Fair value changes of investment property Tax effect of capital allowances carried forward Tax effect of capital loss on investment 103 570 452 273 ------1,398 ==== (36) (259) ----(295) === 67 311 452 273 ----1,103 === 27.3 Hedging reserve The hedging reserve comprised the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that had not yet occurred. During the current year, the cumulative unrealised gain recognised in equity was recognised in profit or loss upon occurrence of hedged transactions. 27.4 Fair value reserve The fair value reserve represents the cumulative net change in fair value of an available-for-sale investment held by the Company and the Group, net of related deferred tax effects. This reserve is non-distributable. 27.5 Insurance contingency reserve The insurance contingency reserve represents amounts that are intended to be utilised in the event that adequate coverage for an incident will not be provided by the current Company’s insurance policies. This reserve is non-distributable. 27.6 Dividend payment reserve The dividend payment reserve represents the dividend proposed at the end of each financial year. This reserve is realised on the approval of the dividend at the Annual General Meeting. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 54 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 27 27.7 Capital and reserves (continued) Revaluation reserve As at 31 December 2005, the revaluation reserve of the Company related to land and buildings and represents the cumulative increase in the fair value of such property at the date of its reclassification as investment property in excess of any related previous impairment losses. This reserve is non-distributable. During the current year, this reserve was reversed following the merger of subsidiaries (see note 7.5). The revaluation reserve of the Group related to land and buildings and represented the cumulative increase in the fair value of such property when transferred by the Company from investment property to land and buildings. This reserve which was non-distributable was reversed during the current year. 28 28.1 Interest-bearing loans and borrowings This note provides information about the contractual terms of the Company’s and the Group’s interest-bearing loans and borrowings. For more information about the Company’s and the Group’s exposure to interest rate and foreign currency risk, see note 32. The Group The Company 2006 Note Non-current liabilities Secured bank loans 1,903 ==== Current liabilities Current portion of secured bank loans Bank overdrafts 28.3 3,367 4,885 ------8,252 ==== 3,450 4,082 ------7,532 ==== 966 4,111 ------5,077 ==== 1,050 3,849 ------4,899 ==== 5,267 ==== 702 === 1,667 ==== Lm000 2005 Lm000 2006 Lm000 2005 Lm000 28.2 Terms and debt repayment schedule Interest % Company: Loan A Loan B Loan C Subsidiary: Loan A 4.1 (2005: 4) 4.5 (2005: 4) 4.1 (2005: 4) July 2007 September 2007 December 2008 Repayable by Balance Lm000 175 90 1,403 4.1 (2005: 4) June 2008 4,115 During the year ended 31 December 2006, the Company and one of its subsidiaries re-negotiated with the bank the conversion of their loan facilities from Maltese Lira to Euros. The Company’s loans are unsecured while the subsidiary’s loan is secured by guarantees provided by the Company. The interest rate of these loans is 0.75% over the Central Intervention Rate issued by the Central Bank of Malta and the Euro Base Rate issued by the European Central Bank. As at 31 December 2006, the Central Intervention Rate and the Euro Base Rate stood at 3.75% (2005: 3.25%) and 3.35% respectively. 55 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 28 28.3 Interest-bearing loans and borrowings (continued) Overdraft facilities The Company enjoys overdraft facilities of Lm13.1 million with various local financial institutions. Overdraft facilities of Lm2.6 million are also enjoyed by certain subsidiaries. The facilities enjoyed by these subsidiaries are secured by guarantees provided by Maltacom p.l.c. As at year-end, these overdraft facilities bore interest at the rates varying between 4.5% and 5% (2005: 4% and 5%). 29 Derivative liability used for hedging During the year ended 31 December 2005, the Company and the Group entered into forward exchange contracts to cash flow hedge its available-for-sale investment in Bank Nederlandse Gemeenten 2.5%, denominated in US Dollars. These forward contracts matured on 3 April 2006. At 31 December 2005, the fair value of these forward contracts amounted to Lm22,533. 30 30.1 Trade and other payables The Group 2006 Lm000 Trade and capital payables Accruals and prepaid income Amounts owed to subsidiaries 8,951 8,626 ---------17,577 ===== 2005 Lm000 9,488 6,671 -------16,159 ==== The Company 2006 Lm000 3,859 4,709 1,428 ------9,996 ==== 2005 Lm000 4,028 3,095 675 ------7,798 ==== 30.2 The amounts owed to subsidiaries are all unsecured, interest free and repayable on demand. Transactions with related parties including subsidiaries, are set out in note 37 to these financial statements. 31 Cash and cash equivalents The Group 2006 Lm000 Cash at bank and in hand Bank balances Call deposits Cash in hand 6,345 9,874 475 --------16,694 Bank overdrafts Cash pledged as guarantees Effect of exchange fluctuations Cash and cash equivalents (4,885) (76) --------11,733 ===== 9,861 2,390 190 -------12,441 (4,082) (104) (75) ------8,180 ==== 4,188 9,350 469 --------14,007 (4,111) (68) -------9,828 ==== 5,917 1,500 177 ------7,594 (3,849) (89) (7) ------3,649 ==== 2005 Lm000 The Company 2006 Lm000 2005 Lm000 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 56 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 32 32.1 32.2 Financial instruments Exposure to credit, interest rate and currency risks arise in the normal course of the Company’s and the Group’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates. Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Company and the Group do not require collateral in respect of financial assets. Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or better than the Company and the Group. Transactions involving derivative financial instruments are with counterparties with whom the Company and the Group have a signed netting agreement as well as sound credit ratings. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet. 32.3 Interest rate risk The Company and the Group adopt a policy of ensuring that its exposure to changes in interest rates on borrowings is on a fixed rate basis, linked to the Bank’s base rate. 32.4 Effective interest rates and repricing analysis In respect of income-earning financial assets and interest-bearing financial liabilities, their effective interest rates at the balance sheet date and the periods in which they reprice, are not different from the interest rates and classifications disclosed in notes 21 and 28. 32.5 Foreign currency risk The Company and the Group are exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the Maltese Lira. The currencies giving rise to this risk are primarily Pounds Sterling, U.S. Dollars, Euro and Special Drawing Rights. As from 2 May 2005, the exchange rate of the Maltese Lira against the Euro is fixed at Lm0.4293. The Company and the Group used forward exchange contracts to hedge its foreign currency risk arising upon the maturity of its investment in Bank Nederlandse Gemeenten 2.5%, which was denominated in U.S. Dollars. These forward exchange contracts were exercised in April 2006. No other hedging procedures are in place. 32.5.1 Forecasted transactions The Company and the Group classified their forward exchange contracts hedging forecasted transactions as cash flow hedges and stated them at fair value until their utilisation in April 2006. 32.5.2 Recognised assets and liabilities Changes in the fair value of forward exchange contracts that hedge the investments in foreign currencies and for which hedge accounting is applied are recognised in equity for the effective portion of the hedge and in the income statement for the ineffective portion of the hedge. The ineffective portion of the hedge is recognised as part of “net finance income” (see note 9). 57 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 32 32.6 Financial instruments (continued) Sensitivity analysis In managing interest rate and currency risks the Company and the Group aim to reduce the impact of short-term fluctuations on the Company’s and the Group’s earnings. 32.7 Fair values There is no difference between fair values and the carrying amounts of financial instruments shown in the balance sheet. There are also no unrecognised gains or losses with respect to financial instruments. 32.8 Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of the various financial instruments disclosed in notes 21, 25, 26, 28, 29 and 30. 32.8.1 Securities Fair value is based on quoted market prices at the balance sheet date without any deduction for transaction costs. 32.8.2 Derivatives Forward exchange contracts are marked to market by discounting the contractual forward price and deducting the current spot rate. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date. 32.8.3 Interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash flows. 32.8.4 Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. 32.8.5 Rates used for determining fair value of derivatives The interest rates used by the Company and the Group were 3.185% for domestic derivatives and 4.498% for foreign derivatives. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 58 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 33 33.1 Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows: The Group 2006 Lm000 Less than one year Between one and five years More than five years 197 462 147 ----806 === 2005 Lm000 157 498 156 ----811 === The Company 2006 Lm000 75 172 147 ----394 === 2005 Lm000 45 125 155 ----325 === The Company and the Group lease various premises under operating leases. The leases run for an initial period of two to twenty years, with an option to renew the lease after that date. Certain lease agreements provide that the lease payments increase by a predetermined percentage every year. During the current year, amounts of Lm497,795 (2005: Lm731,818) for the Group and Lm380,437 (2005: Lm337,880) for the Company, were recognised as an operating expense in the income statement in respect of operating leases. 33.2 Leases as lessor The Company and the Group lease out certain premises and plant and equipment under operating leases. The future minimum lease payments under non-cancellable leases are as follows: The Group 2006 Lm000 Less than one year Between one and five years 30 13 ----43 === 2005 Lm000 36 46 ----82 === The Company 2006 Lm000 30 13 ----43 === 2005 Lm000 37 46 ----83 === During the current year, an amount of Lm117,705 (2005: Lm111,839) for the Group and Lm513,043 (2005: Lm804,158) for the Company, were recognised as rental income in the profit and loss account under other operating income. Out of the Company’s rental income, an amount of Lm395,339 (2005: Lm692,319) was receivable from subsidiaries. 59 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 34 Capital commitments The Group 2006 Lm000 Contracted for: Property, plant and equipment Authorised but not contracted for: Property, plant and equipment ------5,414 ==== 1,830 ------4,292 ==== ------1,061 ==== 210 ------2,585 ==== 5,414 2,462 1,061 2,375 2005 Lm000 The Company 2006 Lm000 2005 Lm000 35 Contingencies The contingencies of the Company and its subsidiaries are listed below: 35.1 Guarantees and performance bonds arising in the ordinary course of the Company’s business on which no material losses are anticipated. In addition, the Company has guaranteed banking facilities to Mobisle Communications Limited and DataStream Limited (formerly known as Terranet Limited) amounting to Lm13,000,000 and Lm650,000 respectively. Furthermore, the Company has guaranteed banking facilities to Telepage Limited for a maximum amount of Lm200,000. Limited cover for risks on property and claims in connection with legal liabilities arising in the course of operations. Certain claims that cannot be quantified for damages and other issues, including alleged irregularities in promotions, submitted by, or on behalf of, certain of the Company’s former and present employees. However, certain claims amounting to Lm21,791 can be quantified. The Company’s investment in Worldwide Communications Limited representing 25% of the share capital not yet called up amounting to Lm100,000. Actual or potential claims and litigation against the Company by certain persons and organisations arising from acquisitions of goods and services by the Company in the ordinary course of its business. The Company’s possible total exposure in this regard cannot be quantified. However, an amount of Lm20,655 representing certain capital purchases and other claims can be quantified. Local guarantees by the Company in favour of the third parties amounting to Lm68,000. Three subsidiaries have guarantees in favour of third parties amounting to Lm130,750. Claim for damages against a subsidiary arising out of an alleged breach of contract amounting to USD156,590, equivalent to Lm50,975. The subsidiary undertaking is disputing this claim. In addition, the same subsidiary may incur further costs in connection with certain services acquired during prior financial years amounting to Lm18,238. The Company and the Group’s cellular provider have, with effect from 1 October 2003, and in compliance with a formal decision by the Malta Communications Authority, adopted the rates approved by that Authority for Interconnection Services in the recognition of related revenues and costs in these financial statements. The other local cellular provider, has however, appealed the Authority’s decision to the Telecommunications Appeals Board. Should the appeals prove successful, the Company and its cellular provider may be requested to compensate the other local cellular provider for the difference in rates being charged that would amount to a maximum of Lm825,077. No provision has been made for these amounts in both the Group and Company’s financial statements. 35.2 35.3 35.4 35.5 35.6 35.7 35.8 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 60 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 36 Segmental information The Group Year ended 31 December 2006 Regulated activities _________________________________________ Local access network Lm000 6,348 ------(2,282) (1,676) (6,998) --------(10,956) --------(4,608) -------(4,608) ===== Nonregulated and other activities Lm000 3,880 ------(65) (2,397) -------(2,462) -------1,418 ------1,418 ==== Total Lm000 Revenue Depreciation amortisation and write-downs Voluntary retirement scheme Remaining costs 55,476 --------(8,898) (3,155) (31,748) --------(43,801) --------Results from operating activities Costs transferred to retail business Segment result: profit/(loss) Unallocated items: Finance income Finance expenses Share of associate’s results Taxation Profit for the year 879 (435) (43) (3,934) --------8,142 ===== Segment assets Unallocated assets Group total assets 97,006 19,635 ---------116,641 ===== Segment liabilities Unallocated liabilities Group total liabilities (17,613) (10,135) ---------(27,748) ===== 11,675 -------11,675 Core network Lm000 1,723 ------(1,731) (749) (7,800) --------(10,280) --------(8,557) 8,760 -------203 ==== Retail business Lm000 22,598 --------(625) (637) (4,196) --------(5,458) --------17,140 (9,458) --------7,682 ==== Other business Lm000 20,927 -------(4,195) (93) (10,357) --------(14,645) --------6,282 698 ------6,980 ==== 29,609 ===== 35,241 ===== 6,988 ==== 23,348 ===== 1,820 ==== (3,762) ==== (4,533) ==== (1,256) ==== (6,583) ==== (1,479) ==== 61 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 36 Segmental information (continued) The Group Year ended 31 December 2005 Regulated activities _________________________________________ Core network Lm000 2,403 ------(2,058) 698 (8,109) -------(9,469) -------(7,066) 7,169 ------103 ==== Unallocated items: Financial income Financial expenses Net reversal of impairment losses on equity investments Losses on realisation of equity investments Share of associate’s results Taxation Profit for the year 372 (325) 71 (4,831) --------11,225 ==== Segment assets Unallocated assets Group total assets 96,164 20,055 --------116,219 ===== Segment liabilities Unallocated liabilities Group total liabilities (16,134) (12,859) --------(28,993) ===== (3,151) ==== (4,096) ==== (1,482) ==== (6,524) ==== (881) === 24,964 ===== 32,444 ===== 11,737 ===== 24,478 ===== 2,541 ==== 871 (508) Local access network Lm000 6,624 ------(1,695) (7,323) -------(9,018) -------(2,394) -------(2,394) ===== Retail business Lm000 24,596 -------(514) (4,599) -------(5,113) -------19,483 (8,018) --------11,465 ===== Other business Lm000 18,698 -------(3,881) (9,849) --------(13,730) --------4,968 849 ------5,817 ==== Nonregulated and other activities Lm000 2,639 ------(200) (1,855) ------(2,055) ------584 ------584 ==== Total Lm000 Revenue Depreciation and amortisation charges Write-back of international traffic and leased circuit costs Remaining costs 698 (31,735) --------(39,385) --------Results from operating activities Costs transferred to retail business Segment result: profit/(loss) 15,575 -------15,575 54,960 -------(8,348) MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 62 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 36 Segmental information (continued) Regulated activities for the comparative year include those activities of Maltacom p.l.c., Mobisle Communications Limited, Go Mobile Limited, Coreswitch Limited, Wirenet Limited, DataStream Limited, Innovate Software Limited, Innovate Limited and Monitoring Services Limited falling to be regulated under the Electronic Communications (Regulation) Act. Regulated activities for the current year include the activities of all the above entities except for Wirenet Limited and Coreswitch Limited following their merger with Maltacom p.l.c. on 1 July 2006. Non-regulated activities include all other activities of the Group. During the current year, the activities formerly carried out by Terranet Limited (see note 18.6), now carried out by DataStream Limited, have continued to be considered as non-regulated activities. No compensation for cost of capital is included in this segmental information contrary to what will be the case when Regulatory Accounts are produced in compliance with the relevant regulations. 37 37.1 Related parties Identity of related parties The Company and its subsidiaries have relationships with the Company’s majority shareholder and the entities controlled by it, subsidiaries (see note 18) associates (see note 19), their directors and executive officers, and with the companies over which their directors and executive officers exercise significant influence. 37.2 Transactions with majority shareholder and entities controlled by it Transactions with majority shareholders and entities controlled by it include transactions with the Government of Malta and its related entities until 19 May 2006 and transactions with entities controlled by Dubai Holding LLC, which is the ultimate parent company of Emirates International Telecommunications (Malta) Limited, (the “present majority shareholder”) after 19 May 2006, being the acquisition date of the Company by the present majority shareholder. 37.3 Transactions with key management personnel Directors of the Company and their immediate relatives control less than 0.1 per cent of the voting shares of the Company. There were no loans to directors during the current and comparative year. In addition to their salaries, the Group also provides non-cash benefits to directors and executive officers. 37.4 Related party transactions The Group 2006 Lm000 Majority shareholder and the entities controlled by it Services provided to Services provided and goods sold by Funds invested with Dividends paid to Set-offs with Property acquired from Finance interest payable by Finance interest receivable by Repayment of loans advanced by Refundable modem deposits received from 2,562 1,842 2,735 34 101 4 87 ==== 6,362 3,560 11,250 2,492 866 590 139 15 174 2 ===== 1,916 1,648 2,735 34 94 4 87 ==== 4,532 3,037 11,250 2,492 866 123 14 174 ===== 2005 Lm000 The Company 2006 Lm000 2005 Lm000 63 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 37.4 Related party transactions (continued) The Group 2006 Lm000 Subsidiaries Services provided to Services provided by Goods provided by Property, plant and equipment sold to Expenses paid by the Company on behalf of Repayment of expenses paid by Company to Advances by Expenses paid on behalf of Company by Dividends received from Interim dividends credited to current account of Company by Capitalisation of dividends receivable from Loan receivable set-off against current account of Assignment by Company of balance due by Finance interest payable by Rental income payable by Set-offs amongst trade balances payable to and receiveable from 1,439 ==== Associate Services provided to Services received from Loan advanced to Repayment of advances to Finance interest payable by 28 46 37 4 === Key management personnel Services provided by Services provided to 557 86 === Other related parties Services provided to Services provided by 306 46 === 689 === 46 === 100 === 441 220 === 257 86 === 257 127 === 34 29 7 === 8 46 37 4 === 19 29 7 === 1,872 ==== 2,610 106 298 5,120 299 260 4 478 265 3,181 9,755 67 208 3,296 82 2,581 719 3,860 4,471 14,181 5 803 4,818 103 81 864 2005 Lm000 The Company 2006 Lm000 2005 Lm000 In addition to those transactions described above, the individual companies comprising the Group may have transacted with members of key management personnel or other related parties of other companies within the Group. Any such transactions would have been in the ordinary course of their business and do not include the advance or borrowing of funds. It is not possible to determine the nature and monetary value of any such transactions. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 64 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 37.5 Related party balances The Group 2006 Lm000 Majority shareholders and the entities controlled by it Amount receivable from Amount payable to Key management personnel Amount receivable from Amount payable to Other related parties Amount receivable from 13 === 12 === 13 === 12 === 8 16 === 33 25 === 8 === 30 23 === 1 118 === 2,204 3,710 ==== 1 114 === 1,950 3,692 ==== 2005 Lm000 The Company 2006 Lm000 2005 Lm000 Information on amounts due from or payable to other related parties are set out in notes 25 and 30 to these financial statements. 65 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 31 December 2006 38 Change in classification As restated Lm000 The Group Property, plant and equipment 61,820 ===== Intangible assets 5,537 ==== The Company Finance lease receivables: Non-current Current 294 355 ----649 === Loans receivable from subsidiaries: Non-current Current 2,354 691 ------3,045 ==== 222 15 ----237 === 2,132 676 ------2,808 ==== 2,425 1,031 ------3,456 ==== (2,132) (676) ------(2,808) ==== 64,129 ===== 3,228 ==== (2,309) ==== 2,309 ==== As previously reported Lm000 Change Lm000 39 39.1 39.2 Subsequent events In February 2007, the Group entered into the digital TV market through the acquisition of Multiplus Limited. On 15 February 2007, the directors of the Company resolved to merge Monitoring Services Limited with the Company with effect from 1 January 2007. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 66 SHARE REGISTER INFORMATION The following shareholder information is being published in terms of The Malta Financial Services Authority Listing Rule 9.37. Directors’ interest in the shareholding of the Company Number of shares as at 31 December 2006 Mr Sonny Portelli Mr John Ellul Vincenti Mr Peter J Baldacchino Mr James Kinsella Mr Osman Sultan The Noble Paul S Testaferrata Moroni Viani Mr Deepak Padmanabhan Mr John Sevasta Dr Ahmed Mahjoub nil nil 1,200 nil nil 94,944 nil nil nil There were no changes in the directors’ interest in the shareholding of the Company between year-end and 2 March 2007. Shareholders holding 3% or more of the share capital Ordinary share of Lm0.25 each Number of shares Emirates International Telecommunications (Malta) Limited Maltacom Employees’ Foundation The shareholders’ interest as at 2 March 2007 was same as above. 60,786,292 3,039,315 Percentage holding 60 3 Number of shareholders The total number of registered shareholders both at 31 December 2006 and 2 March 2007 was 8,787. Shareholding details as at 31 December 2006 All shares are of equal class and carry voting rights. Range 1 - 500 500 - 1000 1001 - 5000 5001 and over Totals Shareholders 1,680 1,767 4,517 823 8,787 Shares 485,543 1,529,749 9,476,046 89,819,150 101,310,488 67 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 SHARE REGISTER INFORMATION Shareholding details as at 2 March 2007 All shares are of equal class and carry voting rights. Range 1 - 500 500 - 1000 1001 - 5000 5001 and over Totals Shareholders 1,686 1,766 4,510 825 8,787 Shares 487,198 1,526,968 9,448,065 89,848,257 101,310,488 Company Secretary, registered address and contact number Dr Francis Galea Salomone LL.D. Maltacom p.l.c. Spencer Hill Marsa Malta Tel: (+356) 21233168 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 68 COMPANY INFORMATION Company secretary Dr Francis Galea Salomone L.L.D. Financial calendar Preliminary Announcement of Results - 3 April 2007 Record date: Final dividend – 30 April 2007 Ex dividend date - 1 May 2007 Annual General Meeting - 30 May 2007 Final dividend payment date - 6 June 2007 Announcement of half yearly results (provisional) September 2007 Auditors KPMG Certified Public Accountants Malta Registrar Malta Stock Exchange Malta Shareholder information Telephone Number - (+356) 21233168 Fax Number (+356) 21233169 E-mail - francis.galeasalomone@maltacom.com Website: www.maltacom.com/investor_portal.asp Depositary (GDRs) Bank of New York United States of America Legal counsel Mamo TCV Malta Gatt Frendo Tufigno (Advocates) Malta Registered office Spencer Hill Marsa Company number C 22334 69 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 ADDITIONAL INFORMATION FOR NON-MALTESE INVESTORS UK listing The Company’s shares are listed on the London Stock Exchange in the form of Global Depositary Receipts (GDRs). Each GDR represents six shares. The GDR programme is administered on behalf of the Company by the Depositary, the Bank of New York, 101 Barclay Street, New York, New York 10286, USA. Enquiries relating to the GDRs and dividend payment should be addressed to them. Other enquiries regarding the Company should be addressed to The Company Secretary, Maltacom p.l.c., Spencer Hill, Marsa HMR 12, Malta. Dividends to GDR holders Payment of the final dividend to GDR holders will be made by the Depositary on 6 June 2007 to holders of record on 30 April 2007. The GDRs are expected to trade ex-dividend on the London Stock Exchange from 1 May 2007. Basis of preparation of the financial statements The Company’s financial statements have been prepared in accordance with the Companies Act, 1995 enacted in Malta, which requires adherence to International Financial Reporting Standards (IFRS). In the case of the Group, Article 4 of Regulation 1606/2002/EC (“the Regulation’’) requires that, for each financial year starting on or after 1 January 2005, companies governed by the law of an EU Member State shall prepare their consolidated financial statements in conformity with IFRS as adopted by the EU if, at their balance sheet date, their securities are admitted to trading on a regulated market of any EU Member State. The Regulation overrides the provisions of the Companies Act, 1995 enacted in Malta, relating to the form and content of the financial statements (and in particular the Third and Fourth Schedules of the Act) of companies as described above. Notwithstanding the above, there were no incompatibilities between the provision of the Companies Act, 1995 and the requirements of the Regulation in relation to the preparation of the financial statements. This basis differs in certain material respects from generally accepted accounting principles in United States of America (US GAAP). The principal differences between IFRS and US GAAP applicable to the Company’s financial statements are set out below: Property, plant and equipment IFRS permit the use of either revalued amount or historical costs, where the revalued amount is the fair value at date of revaluation less subsequent accumulated depreciation and impairment losses. Under US GAAP, the basis that is generally required to be used is the historical cost. Internally generated intangibles - measurement Under IFRS, the cost of internally generated intangibles comprises all expenditures that can be directly attributed or allocated to creating, producing and preparing the asset from the date when recognition criteria are met. Under US GAAP, the costs of internally developing, maintaining or restoring intangible assets that are not specifically identifiable and that have indeterminable lives, or that are inherent in a continuing business and related to an entity as a whole, are recognised as an expense when incurred. Investment property Under IAS 40 Investment Property, an entity shall choose as its accounting policy either the fair value model or the cost model and shall apply that policy to all of its investment property. If an entity chooses the fair value model, the value changes are recognised through the income statement, while if an entity that chooses the cost model shall measure all of its investment property in accordance with the requirements of IAS 16 Property, Plant and Equipment for this model, that is at cost less any accumulated depreciation and any accumulated impairment losses. US GAAP generally require the use of the historical cost model. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 70 ADDITIONAL INFORMATION FOR NON-MALTESE INVESTORS Investments in subsidiaries IFRS permit the use of either cost method or use of IAS 39 Financial Instruments: Recognition and Measurement, where an application of the financial instrument rules is made. IFRS prohibit the use of the equity method. The US GAAP require that the accounting for investments in subsidiaries in the parent’s separate financial statements may be presented either using equity or cost method. Business combinations involving entities under common control A common-control transaction is a business combination in which all the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory. IFRS do not specifically address such transactions. Entities should develop and apply consistently an accounting policy; management can elect to apply purchase accounting or the pooling-of-interests method of a business combination involving entities under common control. The accounting policy can be changed only when the criteria in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, are met. US GAAP require that common-control transactions are generally recorded at predecessor cost, reflecting the transferor’s carrying amount of the assets and liabilities transferred. The use of predecessor values or fair values depends on a number of individual criteria. Investments in associates Under IFRS, the accounting for investments in associates in parent’s separate financial statement is either cost method or use of IAS 39 Financial Instruments: Recognition and Measurement. IFRS prohibit the use of equity method whereas under US GAAP the equity method is used for accounting for investments in associates. Deferred taxation IFRS require that a deferred tax charge or credit is recognised on temporary differences in arriving at the profit or loss for each financial period. Deferred tax assets, other than those arising from tax losses yet to be recovered, are only recognised if realisation of tax benefit is probable. Deferred tax assets arising from tax losses yet to be recovered are only carried forward if there is reasonable assurance that future taxable income will be sufficient to absorb these tax losses, or to the extent of the net credits in the deferred tax balance. Under IFRS, deferred tax is always classified as non-current on the balance sheet. Under US GAAP deferred tax assets are always recognised, but a valuation allowance is provided unless realisation is ‘more likely than not’. Further, applying the ‘more likely than not’ criterion through use of a valuation allowances results in disclosure differences between IAS 12 and SFAS 109. Deferred tax is split into current and non-current components on the balance sheet based on the classification of underlying asset or liability, or on the expected reversal of items not related to an asset or liability. Cash and cash equivalents Under IFRS, cash and cash equivalents may include bank overdrafts, if these form an integral part of an entity’s cash management. Under US GAAP, cash and cash equivalents do not include bank overdrafts. 71 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 ADDITIONAL INFORMATION FOR NON-MALTESE INVESTORS Impairment loss IAS 36 Impairment of Assets permits that an impairment loss recognised in prior periods for an asset other than goodwill be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset shall, be increased to its recoverable amount. That increase is a reversal of an impairment loss. US GAAP prohibit the reversal of an impairment loss. Measurement of provisions Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets the amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, which generally involve the expected value method and where discounting required. Under US GAAP, the measurement of provisions is made on the best estimate to settle the obligation. If no one item is more likely than another, US GAAP permit the use of the low end of the range of possible amounts. Under US GAAP, most provisions are not discounted. Earnings per share IAS 33 Earnings per Share requires the disclosures of basic and diluted income from continuing operations per share and net profit or loss per share. Under US GAAP, the required disclosure is that of the basic and diluted income from continuing operations, discontinued operations, extraordinary items, cumulative effect of a change in accounting policy and net profit or loss per share. Cash flow statement IFRS permit the classification of interest received and paid as an operating, investing or financing activity, whereas under US GAAP these must be classified as an operating activity. Segmental information IAS 14 Segmental Reporting gives a definition of segment result as segment revenue less segment expense. Segment result is determined before any adjustments for minority interest. This is not defined under the US GAAP. Furthermore, the accounting basis for reportable segments, which is defined under IAS 14 as a business segment or a geographical segment identified based on the foregoing definitions for which segment information is required to be disclosed by this Standard, are the amounts which are based on IFRS measures. Under US GAAP, the amounts are based on whatever basis is used for internal reporting purposes. Then, these amounts are reconciled to the relevant amounts contained in the financial statements. Note to readers: The foregoing comparison of treatments of selected transactions between IFRS and US GAAP is provided solely as a high level aid to the understanding of the group’s financial information and is not intended to, and does not, provide an exhaustive analysis of the different treatments which would have been applied to the group’s financial statements had these been prepared under US GAAP. Readers requiring a more detailed and exhaustive analysis are encouraged to consult an appropriate advisor. MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 72 FIVE YEAR RECORD 2006 LmM Turnover 55.5 2005 LmM 55.0 2004 LmM 54.7 2003 LmM 55.1 2002 LmM 54.6 Operating profit 11.7 15.6 13.1 11.3 14.3 Profit before taxation 12.1 16.1 12.0 20.6 13.5 Profit for the year 8.1 11.2 7.5 13.6 9.6 Total assets 116.6 116.2 115.6 130.0 126.7 Total liabilities 27.7 29.0 36.2 51.6 58.0 Shareholders’ funds 88.9 87.2 79.4 78.4 68.7 Operating cash flow 19.8 25.4 21.2 17.4 8.8 Investing cash flows (6.4) (15.7) (8.2) 4.6 (13.6) Financing cash flows (9.8) (8.0) (11.8) (7.2) (5.6) Lm Lm Lm Lm Lm Earnings per share 0.080 0.111 0.073 0.134 0.095 Dividends per share 0.065 0.065 0.049 0.037 0.037 73 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 MALTACOM PLC HEAD OFFICE SPENCER HILL MARSA HMR 12 MALTA PHONE: +356 2121 2121 EMAIL: INFO@MALTACOM.COM FAX: +356 2124 8925 WWW.MALTACOM.COM