2006 ANNUAL REPORT & FINANCIAL STATEMENTSblackdigits.com.mt/Content/files/reports/Maltacom...

2006 ANNUAL REPORT & FINANCIAL STATEMENTS

Chairman’s MessageCEO’s Review

Board of Directors

Report of the DirectorsReport of the Remuneration Committee to the Shareholders

Corporate GovernanceReport of the Independent Auditors on Corporate Governance Matters

Preparation of Financial Statements and Directors’ ResponsibilitiesReport of the Independent Auditors on the Financial Statements

Income StatementBalance Sheet

Statement of Changes in EquityCash Flow Statement

Notes to the Financial Statements

Share Register InformationCompany Information

Additional Information for Non-Maltese InvestorsFive Year Record

CONTENTS

iiiivi

FINANCIAL STATEMENTS0104061011121314161820

OTHER FINANCIAL INFORMATION67697073

CHAIRMAN’S MESSAGE

I am pleased to report about another good year for your Company.

ResultsOur 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.

DividendsThe 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 businessOur 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.

Cash flowThe 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.

Adjusting to change2006 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.

Voluntary retirement schemeWe 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.

RegulationI 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.

Our social responsibilitiesThroughout 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.

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.

Looking aheadOverall, 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.

Sonny PortelliChairman

2 April 2007

MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 ii

CEO’S REVIEW

A milestone year2006 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.

Strategic developments2006 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

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 initiativesIn 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-

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 environmentCarrier 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 visionThe 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 growth2007 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 KayCEO

2 April 2007

v MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006

BOARD OF DIRECTORS

01 MR SONNY PORTELLI [CHAIRMAN]02 DR FRANCIS GALEA SALOMONE LL.D. [COMPANY SECRETARY]03 MR PETER J BALDACCHINO04 MR JOHN ELLUL VINCENTI05 MR JAMES KINSELLA06 DR AHMED MAHJOUB07 MR DEEPAK PADMANABHAN08 MR JOHN SEVASTA [WORKER DIRECTOR]09 MR OSMAN SULTAN10 THE NOBLE PAUL S TESTAFERRATA MORONI VIANI

01 02

03 04 05 06

07 08 09 10

MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2006 vi

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.

REPORT OF THE DIRECTORSFor the Year Ended 31 December 2006

1 MALTACOM PLC ANNUAL REPORT & FINANCIAL STATEMENTS 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

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.

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 Peter J Baldacchino Chairman Director


Number of ordinary shares Percentage held

Emirates International Telecommunications (Malta) Limited 60,786,292 60.0

Maltacom Employees’ Foundation 3,039,315 3.0


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.


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 2005 Lm000 Lm000 Payments to directors

Non-executive directors 40 60 Non-executive chairman 22 12 Executive director 16 13 ----- ----- 78 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 PortelliChairman, Group Remuneration Committee

2 April 2007


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 VincentiThe Noble Paul S Testaferrata Moroni Viani Mr Peter J BaldacchinoMr 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

CORPORATE GOVERNANCEFor 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.



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.



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.



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

KPMGCertified Public Accountants

2 April 2007

REPORT OF THE INDEPENDENT AUDITORS TO MALTACOM P.L.C.On Corporate Governance Matters

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:


PREPARATION OF FINANCIAL STATEMENTS AND DIRECTORS’ RESPONSIBILITIES


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;

(b) 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

(c) have been properly prepared in accordance with the provisions of the Companies Act, 1995 enacted in Malta.

Joseph C Schembri (Partner) for and on behalf of

KPMGCertified Public Accountants

2 April 2007

REPORT OF THE INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS To the Shareholders of Maltacom p.l.c.

The Group The Company

2006 2005 2006 2005

Note Lm000 Lm000 Lm000 Lm000

Revenue 5 55,476 54,960 29,502 32,718

Cost of sales (28,610) (29,093) (19,420) (21,149)

Write-back of international traffic and leased circuit costs 7 31 698 31 698

-------- -------- -------- --------

Gross profit 26,897 26,565 10,113 12,267

Other operating income 6 721 746 1,547 2,395

Administrative and distribution expenses (12,535) (11,310) (6,598) (6,254)

Voluntary retirement costs 7 (3,155) - (3,155) -

Prior year fair value adjustments on investment property 7 - - (1,330) -

Other operating expenses 8 (253) (426) (210) (579)

-------- --------- ------- -------

Results from operating activities 11,675 15,575 367 7,829

-------- --------- ------- -------

Finance income 879 871 10,439 8,265

Finance expenses (435) (508) (112) (194)

-------- -------- -------- -------

Net finance income 9 444 363 10,327 8,071

-------- -------- -------- -------

Net reversal of impairment losses on equity investments 10 - 372 4 608

Profits/(losses) on realisation of investments 10 - (325) 36 (570)

Share of result of associate 11 (43) 71 - -

-------- -------- -------- --------

(43) 118 40 38

-------- -------- -------- --------

Profit before tax 12 12,076 16,056 10,734 15,938

Income tax expense 13 (3,934) (4,831) (3,417) (4,952)

-------- -------- -------- --------

Profit for the year 8,142 11,225 7,317 10,986

==== ==== ==== ====

Earnings per share 14 8c0 11c1 7c2 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.

INCOME STATEMENTFor the Year Ended 31 December 2006



2006 2005 2006 2005


Assets

Property, plant and equipment 15 59,855 61,820 45,369 41,888

Intangible assets 16 5,338 5,537 484 569

Investment property 17 - - 2,144 7,594

Investments in subsidiaries 18 - - 7,943 7,990

Investment in associate 19 935 978 1,201 1,483

Other investments 20 13,702 14,127 13,400 13,771

Loans receivable from subsidiaries 21 - - 1,920 2,354

Finance lease receivables 22 262 294 262 294

Deferred tax assets 23 574 1,271 185 16

--------- -------- --------- --------

Total non-current assets 80,666 84,027 72,908 75,959

--------- -------- --------- --------

Inventories 24 1,028 819 453 408

Term deposit investment - 50 - -

Trade and other receivables 25 13,925 15,399 12,961 14,560

Loans receivable from subsidiaries 21 - - 1,400 676

Tax recoverable 2,314 1,491 2,930 3,247

Cash at bank and in hand 16,694 12,441 14,007 7,594

---------- ---------- ---------- ----------

Total current assets 33,961 30,200 31,751 26,485

---------- ---------- ---------- ----------

Non-current assets classified as held for sale 26 2,014 1,992 2,014 1,992

---------- ---------- ---------- ----------

Total assets 116,641 116,219 106,673 104,436

===== ===== ===== =====

Equity

Share capital 27 25,328 25,328 25,328 25,328

Reserves 27 7,664 7,291 7,159 7,057

Retained earnings 55,901 54,607 58,395 57,652

--------- -------- --------- ---------

Total equity 88,893 87,226 90,882 90,037

--------- -------- --------- ---------

BALANCE SHEETAs at 31 December 2006



2006 2005 2006 2005


Liabilities

Interest-bearing loans and borrowings 28 1,903 5,267 702 1,667

Provisions 16 12 16 12

------- ------- ----- -------

Total non-current liabilities 1,919 5,279 718 1,679

------- ------- ----- -------

Interest-bearing loans and borrowings 28 8,252 7,532 5,077 4,899

Derivative liability used for hedging 29 - 23 - 23

Trade and other payables 30 17,577 16,159 9,996 7,798

---------- --------- ---------- ----------

Total current liabilities 25,829 23,714 15,073 12,720

---------- --------- ---------- ----------

Total liabilities 27,748 28,993 15,791 14,399

---------- --------- ---------- ----------

Total equity and liabilities 116,641 116,219 106,673 104,436

===== ===== ===== =====

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:


BALANCE SHEETAs at 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 Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Balance at 1 January 2005 79,371 25,328 1,576 - (21) 100 2,128 - 50,260Cash flow hedges - effective portion of changes in fair value* 17 - - 17 - - - - -Change in fair value of other investments* 381 - - - 381 - - - -Deferred taxation* (19) - - (6) (13) - - - -Revaluation of land and buildings 405 - - - - - - 405 -Dividends approved at general meeting and paid (2,128) - - - - - (2,128) - -Interim dividend paid (2,026) - - - - - - - (2,026)Transfer from retained earnings: Unrealised gains - - 243 - - - - - (243)Transfer to insurance contingency reserve - - - - - 50 - - (50)Dividends proposed for approval at general meeting - - - - - - 4,559 - (4,559)Profit for the year 11,225 - - - - - - - 11,225 --------- --------- ------- ----- ----- ----- ------- ----- ---------Balance at 31 December 2005 87,226 25,328 1,819 11 347 150 4,559 405 54,607 ===== ===== ==== === === === ==== === =====

Balance at 1 January 2006 87,226 25,328 1,819 11 347 150 4,559 405 54,607Cash flow hedges - effective portion of changes in fair value* (17) - - (17) - - - - -Change in fair value of other investments* 13 - - - 13 - - - -Deferred taxation* 13 - - 6 7 - - - -Revaluation of land and buildings (405) - - - - - - (405) -Dividends approved at general meeting and paid (4,559) - - - - - (4,559) - -Interim dividend paid (1,520) - - - - - - - (1,520)Transfer from retained earnings: Unrealised gains - - 213 - - - - - (213)Transfer to insurance contingency reserve - - - - - 50 - - (50)Dividends proposed for approvalat general meeting - - - - - - 5,065 - (5,065)Profit for the year 8,142 - - - - - - - 8,142 ---------- --------- -------- ----- ----- ----- -------- ------ ----------Balance at 31 December 2006 88,893 25,328 2,032 - 367 200 5,065 - 55,901 ===== ===== ==== === === === ==== === =====

* Net income recognised directly to equity

STATEMENT OF CHANGES IN EQUITY - THE GROUPFor 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 Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Balance at 1 January 2005 82,368 25,328 956 - 347 100 2,128 - 53,509Cash flow hedges - effective portion of changes in fair value* 17 - - 17 - - - - -Dividends approved at general meeting and paid (2,128) - - - - - (2,128) - -Change in fair value of other investments and investment in associate* 725 - - - 725 - - - -Net increase in fair value of investment property 439 - - - - - - 439 -Deferred taxation* (344) - - (6) (13) - - (325) -Interim dividend paid (2,026) - - - - - - - (2,026)Transfer from retained earnings: Unrealised gains - - 208 - - - - - (208)Transfer to insurance contingency reserve - - - - - 50 - - (50)Dividends proposed for approval at general meeting - - - - - - 4,559 - (4,559)Profit for the year 10,986 - - - - - - - 10,986 --------- --------- ------- ------ ------- ------ ------- ------ ---------Balance at 31 December 2005 90,037 25,328 1,164 11 1,059 150 4,559 114 57,652 ===== ===== ==== === ==== === ==== === =====

Balance at 1 January 2006 90,037 25,328 1,164 11 1,059 150 4,559 114 57,652Cash flow hedges - effective portion of changes in fair value* (17) - - (17) - - - - -Dividends approved at general meeting and paid (4,559) - - - - - (4,559) - -Change in fair value of other investments and investment in associate* (275) - - - (275) - - - -Net increase in fair value of investment property (439) - - - - - - (439) -Deferred taxation* 338 - - 6 7 - - 325 -Interim dividend paid (1,520) - - - - - - - (1,520)Transfer to retained earnings: Unrealised gains - - (61) - - - - - 61Transfer to insurance contingency reserve - - - - - 50 - - (50)Dividends proposed for approval at general meeting - - - - - - 5,065 - (5,065)Profit for the year 7,317 - - - - - - - 7,317 --------- --------- ------- ------ -------- ------ ------- ------ ----------Balance at 31 December 2006 90,882 25,328 1,103 - 791 200 5,065 - 58,395 ===== ===== ==== === ==== === ==== === =====

* Net income recognised directly to equity

STATEMENT OF CHANGES IN EQUITY - THE COMPANYFor the Year Ended 31 December 2006



2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000Cash flows from operating activitiesProfit for the year 8,142 11,225 7,317 10,986Adjustments for: Income tax expense 3,934 4,831 3,417 4,952 Depreciation, amortisation and write-downs 8,898 8,753 3,739 3,453 Net financing income (444) (363) (10,327) (8,071) Share of associate’s results 43 (71) - - Write offs and net loss arising on disposal of intangible assets and property, plant and equipment 161 336 163 306 Net increase/(decrease) in provisions and write offs 311 (776) 161 (838) Reversal of unclaimed liabilities written back - 8 - 8 Liabilities written back (221) - (221) - Profit/(loss) on realisation of equity investments - 325 (36) 570 Net reversal of impairment loss on equity investments - (372) (4) (608) Voluntary retirement costs 3,155 - 3,155 - Increase in fair value to investment property - - (175) (558) Reversal of fair value on investment property and property, plant and equipment - - 1,330 - Reversal of impairment loss on investment property - - (170) - Impairment loss on investment property - - - 182

-------- -------- -------- --------23,979 23,896 8,349 10,382

Working capital changes: Inventories (217) 199 (31) 189 Trade and other receivables 1,125 8,560 1,878 9,820 Trade and other payables 1,360 (3,317) 1,734 (3,978) Movement in group undertakings’ balances 14 (77) 3,848 5,332

-------- -------- -------- --------Cash generated from operations 26,261 29,261 15,778 21,745Interest received (net of withholding tax) 250 288 240 235Interest paid on bank overdrafts (12) (14) - (2)Net taxation (paid)/refunded (3,999) (4,163) 165 (3,217)Payments on voluntary retirement scheme (2,679) - (2,679) -

-------- -------- -------- --------Net cash from operating activities 19,821 25,372 13,504 18,761

-------- -------- -------- --------Cash flows from investing activitiesPayments to acquire property, plant and equipment and investment property (7,164) (4,902) (3,763) (2,593)Payments to acquire property held for sale (22) - (22) -Payments to acquire investments - (12,045) - (11,885)Payment to acquire intangible assets - (2,501) - -Receipts from disposal of property, plant and equipment 7 239 7 281Receipts from disposal and realisation of investments 448 3,325 448 3,325Amounts advanced to subsidiaries and associate (37) (29) (3,333) (4,847)Repayments of loan advanced to subsidiaries and associate - 7 - 110Dividends received - - 3,500 864Investment income received 362 247 263 238

-------- -------- -------- --------Net cash used in investing activities (6,406) (15,659) (2,900) (14,507)

-------- -------- -------- --------

carried forward 13,415 9,713 10,604 4,254

CASH FLOW STATEMENTFor the Year Ended 31 December 2006


2006 2005 2006 2005


brought forward 13,415 9,713 10,604 4,254

Cash flows from financing activities

Repayments of long term borrowings (3,447) (3,450) (1,049) (1,050)

Advances by subsidiaries - - 2,579 81

Dividends paid (6,077) (4,148) (6,077) (4,148)

Loan interest paid (308) (446) (98) (139)

-------- -------- -------- --------

Net cash used in financing activities (9,832) (8,044) (4,645) (5,256)

-------- -------- -------- --------

Net increase/(decrease) in cash and cash equivalents 3,583 1,669 5,959 (1,002)

Cash and cash equivalents at 1 January 8,180 6,466 3,649 4,504

Cash and cash equivalents acquired through merger - - 193 110

Effect of exchange rate fluctuations on cash held (58) 27 6 15

Movement in cash pledged as guarantees 28 18 21 22

-------- ------- ------- -------

Cash and cash equivalents at 31 December 31 11,733 8,180 9,828 3,649

==== ==== ==== ====

CASH FLOW STATEMENTFor 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 Basis of preparation

2.1 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

NOTES TO THE FINANCIAL STATEMENTSFor 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 Basis of consolidation and common-control transactions

3.1.1 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 common- control 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.



3 Significant accounting policies (continued)

3.3 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-to- maturity. 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.




3.4 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 Property, plant and equipment

3.5.1 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.




3.5 Property, plant and equipment (continued)

3.5.4 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:

% • buildings 1 to 2 • improvements to leasehold premises 10 • cable, wireless and mobile networks 4 to 33.33 • subscribers’ equipment and line 8 to 20 • exchange and junction equipment 7 to 15 • radio plant and equipment 6.7 to 15 • plant, machinery and equipment 10 to 30 • office furniture and equipment 10 to 25 • motor vehicles 20 to 35 • air conditioning equipment 10 to 20 • earth station 6.7 to 7 • computer equipment 20 to 33.33

Depreciation methods, useful life and residual values are reassessed at the reporting date.

3.6 Intangible assets

3.6.1 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).




3.6 Intangible assets (continued)

3.6.4 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 5 years • technical knowledge 5 years • capitalised costs of rights and licence costs 15 years • computer software 10 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 Investments in subsidiaries and associate

3.8.1 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.




3.9 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.




3.12 Impairment (continued)

3.12.2 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 Revenue

3.17.1 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.




3.17 Revenue (continued) 3.17.2 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 Expenses

3.18.1 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.




3.20 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, non- current 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.



5 Revenue

5.1 Revenue represents the value of goods sold and services provided and sundry income receivable, and is made up as follows:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Retail and wholesale 37,679 37,020 19,958 22,160

Rentals 8,275 8,673 7,615 8,004

Internet related services 5,947 5,446 687 666

Sale of goods 1,143 1,946 381 935

Installation charges and extra works 499 556 409 481

Radio-paging and telemarketing services 1,167 732 - -

Sundry income 766 587 452 472

--------- --------- --------- ---------

55,476 54,960 29,502 32,718

===== ===== ===== =====

Substantially all the Group’s turnover is generated within Malta.

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:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Gross turnover 55,476 54,960 29,502 32,718

Interconnection charges (5,394) (5,020) (4,285) (4,627)

--------- --------- ---------- ---------

Net turnover 50,082 49,940 25,217 28,091

===== ===== ===== =====



6 Other operating income The Group The Company

2006 2005 2006 2005


Fair value adjustments of investment property - - 175 558

Maintenance of equipment - 6 30 36

Lease of motor vehicles - - 109 221

Lease of payphone network 22 22 22 22

Rent receivable on immovable property 35 36 367 630

Other rent receivable 83 76 146 174

Profit on disposal of property, plant and equipment - 26 - 55

Penalties charged to contractors - - 54 160

Effect/(reversal) of unclaimed liabilities written back - 33 - (8)

Income from USO obligations - 119 - 119

Late payment charges 93 81 93 81

Realised operating exchange gain 122 - 15 -

Subscribers’ deposits written back - 215 - 215

Liabilities written back 7.2 221 - 221 -

Reversal of impairment loss on investment property - - 170 -

Other 145 132 145 132

------ ----- -------- -------

721 746 1,547 2,395

=== === ==== ====

7 Significant one-off income and expenses

7.1 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.



7 Significant one-off income and expenses (continued)

7.5 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 The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Realised operating exchange loss - 17 - 8Unrealised operating exchange losses 5 42 46 22Loss on disposal of plant and equipment - - 3 -Write-off of property, plant and equipment 126 362 126 362Write-off of intangible assets 35 - 35 -Restructuring expenses 87 - - -Claims made by third parties - 5 - 5Impairment loss on investment property - - - 182

----- ----- ----- -----253 426 210 579

=== === === ===

9 Net finance income The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000Dividend income - - 9,548 7,306Bank interest receivable 336 267 219 204Interest charged to subsidiaries and associate 4 3 132 150Finance income from PABX leases 53 65 53 65Income from debt securities 64 139 54 144Interest from investment in funds 234 122 234 110Late payment interest 149 176 149 176Non-operating unrealised exchange gains - 95 11 110Other interest receivable 39 4 39 -

----- ----- -------- -------Finance income 879 871 10,439 8,265

----- ----- -------- -------Non-operating unrealised exchange loss 119 - - -Non-operating realised exchange loss 24 14 21 -Bank loan interest 275 416 88 131Other bank interest 9 9 1 1Other interest 4 7 - -Amortisation of debt securities 3 23 2 23Other - 39 - 39Provision for diminution in value of investment 1 - - -

----- ----- --------- -------Financial expenses 435 508 112 194

----- ----- --------- -------Net finance income 444 363 10,327 8,071

=== === ===== ====



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


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Impairment on investment in subsidiary - - - (15)

Reversal of impairment loss on investment

in subsidiary - - 4 251


in equity securities - 372 - 372

----- ----- ----- -----

- 372 4 608

=== === === ===

10.2 Profit/(losses) on realisation of investments


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Loss on disposal of debt securities - (11) - (11)

Loss on disposal of equity securities - (314) - (314)

Loss on acquisition by merger of subsidiaries - - - (245)

Profit on acquisition by merger of subsidiaries - - 36 -

----- ----- ----- -----

- (325) 36 (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).



11 Share of result of associate

The Group

2006 2005

Lm000 Lm000

Share of:

Turnover 413 342

Operating costs (456) (343)

----- -----

Loss before taxation (43) (1)

(Under)/over-provision taken in prior years (18) 65

Taxation 18 7

----- -----

(Loss)/profit for the year (43) 71

=== === Refer to note 19 to the financial statements.

12 Profit before tax

12.1 The profit before tax is stated after charging/(crediting):


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Directors’ emoluments:

Salaries 31 26 31 25

Other 47 59 40 26

----- ----- ----- -----

78 85 71 51

=== === === ===

Auditors’ remuneration 65 11 25 5

Amortisation 560 165 50 48

Obsolete inventory and inventory written off 14 (340) 1 (337)

Bad debts written off 29 2,493 27 2,491

=== ==== === ====



12 Profit before tax (continued)

12.2 Personnel expenses incurred by the Group and the Company during the year are analysed as follows:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Wages and salaries 10,053 12,601 5,406 3,831

Social security costs 725 447 435 208

-------- -------- ------- -------

10,778 13,048 5,841 4,039

Capitalised labour costs 754 487 623 359

-------- -------- ------- -------

11,532 13,535 6,464 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:


2006 2005 2006 2005

% % % %

Operational expenses 48 57 41 23

Administrative and distribution expenses 52 43 59 77

----- ----- ----- -----

100 100 100 100

=== === === ===

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 2005 2006 2005

No. No. No. No.

Operating 977 971 596 671

Management and administration 607 614 381 395

Capital works 83 36 83 36

------- ------- ------- -------

1,667 1,621 1,060 1,102

==== ==== ==== ====



12 Profit before tax (continued)

12.2 (continued)

The employees at year-end were as follows:

2006 2005

No. No.

The Company

Full-time employees 850 453

Seconded or on loan to the Company 6 7

Seconded or on loan to group companies 47 621

Seconded or on loan to other entities 4 7

Part-time employees and students 17 8

----- -------

924 1,096

=== ====

Subsidiaries (excluding employees loaned from parent)

Full-time employees 465 420

Part-time employees 142 99

----- -----

607 519

=== ===

13 Income tax expense 13.1 Recognised in the income statement


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Current tax expense

Current year (3,224) (3,267) (3,248) (2,996)

Deferred tax expense

Origination and reversal of temporary differences (710) (1,564) (169) (1,956)

------- ------- ------- -------

Total income tax expense in income statement (3,934) (4,831) (3,417) (4,952)

==== ==== ==== ====



13 Income tax expense (continued)

13.2 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:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Profit before tax 12,076 16,056 10,734 15,938

-------- -------- -------- --------

Income tax using the domestic income tax rate (4,227) (5,620) (3,757) (5,578)

Tax effect of:

Associated undertakings’ results (15) 25 - -

Expenses disallowed for tax purposes (118) (98) (19) (106)

Depreciation charges not deductible by way

of capital allowances in determining taxable income 35 (127) 36 (111)

Further allowance on rental income 42 58 26 44

Adjustment to previous years’ tax charge - 105 - -

Difference in tax rates charged on investment

income and BPA qualifying activities 376 391 374 473

Investment tax credit (152) 244 - -

Liabilities written back - 220 - 206

Realised profit/(loss) on investment in subsidiaries - - 12 (86)


in subsidiaries and associate - - - 88

Consolidation adjustment 99 (87) - -

Other non-temporary differences 26 53 (6) 30

Different tax rates on immovable property valued

at fair value following changes in taxation legislation - - (142) 83

Additional tax benefit on sale of property held for resale - 5 - 5

Reversal of impairment loss on investment property - - 59 -

------- ------- ------- -------

Income tax expense (3,934) (4,831) (3,417) (4,952)

==== ==== ==== ====



13 Income tax expense (continued)

13.3 Deferred tax recognised directly in equity


2006 2005 2006 2005


Deferred tax (charge)/income relating to:

Financial investments available-for-sale (7) 13 (7) 13

Forward contract (6) 6 (6) 6

Investment property - - (325) 325

----- ----- ----- -----

23.3 (13) 19 (338) 344

=== === === ===

14 Earnings per share

14.1 The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Profit for the year attributable to shareholders 8,142 11,225 7,317 10,986

==== ===== ==== =====

Weighted average number of shares in issue 101,310,488

=========

Lm Lm Lm Lm

Earnings per share 8c0 11c1 7c2 10c8

=== === === ===

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:


2006 2005 2006 2005

Lm Lm Lm Lm

Earnings per share 9c9 10c6 10c1 10c4

=== === === ===



15 Property, plant and equipment

15.1 The Group Payments on account and assets Material Land and Plant and Motor in course of awaiting Total buildings equipment vehicles construction installation

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Cost/revalued amount

Balance at 1 January 2005 115,967 15,897 97,047 342 1,435 1,246

Acquisitions 7,285 236 4,259 - 2,420 370

Transfers, disposals and write-offs (3,735) (1,106) (852) - (1,777) -

---------- -------- ---------- ----- ------- -------

Balance at 31 December 2005 119,517 15,027 100,454 342 2,078 1,616

===== ==== ===== === ==== ====

Balance at 1 January 2006 119,517 15,027 100,454 342 2,078 1,616

Acquisitions 6,538 238 4,560 24 1,442 274

Disposals and transfers (1,350) 193 968 - (2,138) (373)

----------- --------- ----------- ----- ------- -------

Balance at 31 December 2006 124,705 15,458 105,982 366 1,382 1,517

====== ===== ====== === ==== ====

Depreciation and impairment losses

Balance at 1 January 2005 50,417 723 49,362 332 - -

Depreciation charge for the year 7,911 336 7,572 3 - -

Impairment loss for the year 386 - 386 - - -

Disposals (1,017) (207) (810) - - -

--------- ----- --------- ----- ----- -----

Balance at 31 December 2005 57,697 852 56,510 335 - -

===== === ===== === === ===

Balance at 1 January 2006 57,697 852 56,510 335 - -

Depreciation charge for the year 7,847 (90) 7,933 4 - -

Impairment loss for the year 420 - 420 - - -

Transfers and disposals (1,114) - (1,114) - - -

--------- ----- --------- ------ ----- -----

Balance at 31 December 2006 64,850 762 63,749 339 - -

===== === ===== === === ===

Carrying amounts

At 1 January 2005 65,550 15,174 47,685 10 1,435 1,246

===== ===== ===== === ==== ====

At 31 December 2005 61,820 14,175 43,944 7 2,078 1,616

===== ===== ===== === ==== ====

At 1 January 2006 61,820 14,175 43,944 7 2,078 1,616

===== ===== ===== === ==== ====

At 31 December 2006 59,855 14,696 42,233 27 1,382 1,517

===== ===== ===== === ==== ====



15 Property, plant and equipment (continued)

15.2 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 Material Land and Plant and Motor in course of awaiting Total buildings equipment vehicles construction installation

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000CostBalance at 1 January 2005 78,969 10,773 66,025 334 591 1,246Acquisitions 2,998 63 963 - 1,642 330Transfers and disposals (3,462) (2,163) (998) - (301) -

--------- -------- -------- ----- ------- -------Balance at 31 December 2005 78,505 8,673 65,990 334 1,932 1,576

===== ==== ===== === ==== ====Balance at 1 January 2006 78,505 8,673 65,990 334 1,932 1,576Acquisitions 3,210 24 2,573 25 442 146Transfer from investment property 4,487 4,487 - - - -Reversal of fair values (405) (405) - - - -Transfers and disposals (1,218) 2 534 - (1,422) (332)

--------- --------- --------- ----- ------- -------Balance at 31 December 2006 84,579 12,781 69,097 359 952 1,390

===== ===== ===== === ==== ====Depreciation and impairment lossesBalance at 1 January 2005 33,966 459 33,183 324 - -Depreciation charge for the year 3,383 316 3,064 3 - -Impairment loss for the year 22 - 22 - - -Transfers and disposals (754) (207) (547) - - -

-------- ----- -------- ----- ----- -----Balance at 31 December 2005 36,617 568 35,722 327 - -

===== === ===== === === ===Balance at 1 January 2006 36,617 568 35,722 327 - -Depreciation charge for the year 3,313 (63) 3,371 5 - -Impairment loss for the year 376 - 376 - - -Transfers and disposals (1,096) - (1,096) - - -

-------- ----- -------- ----- ----- -----Balance at 31 December 2006 39,210 505 38,373 332 - -

===== === ===== === === ===Carrying amountsAt 1 January 2005 45,003 10,314 32,842 10 591 1,246

===== ===== ===== === === ====At 31 December 2005 41,888 8,105 30,268 7 1,932 1,576

===== ===== ===== === ==== ====At 1 January 2006 41,888 8,105 30,268 7 1,932 1,576

===== ===== ===== === ==== ====At 31 December 2006 45,369 12,276 30,724 27 952 1,390

===== ===== ===== === === ====



16 Intangible assets 16.1 The Group Internally IRUs generated and computer Other Total DDPs software intangibles

Lm000 Lm000 Lm000 Lm000

Cost

Balance at 1 January 2005 3,095 938 921 1,236

Acquisitions 3,268 - - 3,268

Development 388 - 388 -

------- ----- ------- -------

Balance at 31 December 2005 6,751 938 1,309 4,504

==== === ==== ====

Balance at 1 January 2006 6,751 938 1,309 4,504

Acquisitions 192 - - 192

Development 275 - 275 -

Write-offs (56) (56) - -

------- ----- ------- -------

Balance at 31 December 2006 7,162 882 1,584 4,696

==== === ==== ====

Amortisation and impairment losses

Balance at 1 January 2005 758 321 156 281

Amortisation for the year 437 48 116 273

Impairment loss for the year 19 - 19 -

------- ----- ----- -----

Balance at 31 December 2005 1,214 369 291 554

==== === === ===

Balance at 1 January 2006 1,214 369 291 554

Amortisation for the year 573 50 145 378

Impairment loss for the year 58 - - 58

Write-offs (21) (21) - -

------- ----- ----- -----

Balance at 31 December 2006 1,824 398 436 990

==== === === ===

Carrying amounts

At 1 January 2005 2,337 617 765 955

==== === === ===

At 31 December 2005 5,537 569 1,018 3,950

==== === ==== ====

At 1 January 2006 5,537 569 1,018 3,950

==== === ==== ====

At 31 December 2006 5,338 484 1,148 3,706

==== === ==== ====



16 Intangible assets (continued) 16.1 The Company

IRUs and DDPs

Lm000

Cost

Balance at 1 January 2005 938

-----

Balance at 31 December 2005 938

===


Write-offs (56)

-----


===

Amortisation


Amortisation for the year 48

-----


===


Amortisation for the year 50

Write-offs (21)

-----

Balance at 31 December 2006 398===

Carrying amounts

At 1 January 2005 617===

At 31 December 2005 569

===

At 1 January 2006 569

===

At 31 December 2006 484 ===

16.2 Amortisation charge

The amortisation charge is recognised within cost of sales in the income statement for the Company and the Group.



17 Investment property

17.1 The Company

2006 2005

Lm000 Lm000

Balance at 1 January 7,594 5,664Acquisitions 56 97Transfers from property, plant and equipment - 2,755Transfers to property, plant and equipment (4,487) (1,737)Reversal of fair value (1,364) -Impairment loss - (182)Reversal of impairment loss 170 -Increase in fair value 175 997

------- -------Balance at 31 December 2,144 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.

17.3 Investment property comprises a number of commercial properties that are leased to Group entities.

18 Investments in subsidiaries

18.1 The Company

Note 2006 2005

Lm000 Lm000

At 1 January as originally stated 7,990 9,997------- -------

Effect of change in accounting policy: Reversal of share of equity results 18.2 - (1,804) Impairment loss on investments in subsidiaries 18.2 - (438)

------- --------Restatements 7,990 (2,242)

------- --------At 1 January as restated 7,990 7,755Increase in investment in subsidiary - 299Merger of subsidiaries with the Company’s operations (51) (300)Reversal of impairment loss on investments in merged subsidiaries - 251Impairment loss charged for the year - (15)Reversal of impairment loss for the year 4 -

------- -------At 31 December 7,943 7,990

==== ====



18 Investments in subsidiaries (continued)

18.2 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 Nature of business

2006 2005

% %

Coreswitch Limited Spencer Hill, Marsa - 99.99 Operation and management of systems for provision of communication services

Innovate Limited Spencer Hill, Marsa 0.09 0.09 Provision of IT-related management and

consultancy services

Innovate Software Limited Spencer Hill, Marsa 99.99 99.99 Development of software, including

implementation, support and maintenance

Mobisle Communications Limited

Spencer Hill, Marsa 99.99 99.99 Operation of mobile and wireless telecommunication systems and networks

Monitoring Services Limited Spencer Hill, Marsa 99.99 99.99 Provision of advisory and consultancyservices on monitoring and security control

Telepage Limited Spencer Hill, Marsa 99.99 99.99 Operation of call centre and radio-pagingand voice messaging system

DataStream Limited(formerly Terranet Limited)

Dolphin CentreMain Street, Balzan

99.99 99.99 Provision of connections to the Internet, Internet services, retail and wholesalebroadband services.

Wirenet Limited Spencer Hill, Marsa - 99.99 Operation and management of accessnetwork infrastructure

Worldwide Communications Limited

Spencer Hill, Marsa 99.99 99.99 Operation of an international multilingualcall centre




18.5 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).

18.6 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 Wirenet Limited Allcom Limited

Lm Lm Lm Assets Property, plant and equipment - 13,505 400,130 Investments in debt securities 54,780 - - Other investments 50,000 - - Inventories - 16,504 198,491 Trade and other receivables 73,063 130,813 137,787 Tax recoverable - 23,377 - Cash at bank and in hand 149,688 61,913 100,267 --------- ---------- ---------- 327,531 246,112 836,675 --------- ---------- ---------- Liabilities Bank borrowings 69,097 - 63,363 Other interest bearing liabilities - - 200,000 Trade and other payables 128,759 229,229 524,181 Taxation 59,384 - - ---------- ---------- ---------- 257,240 229,229 787,544 ---------- ---------- ---------- Reserves Retained earnings/(accumulated losses) 20,291 16,383 (250,869) ===== ===== ======

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.




18.6 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 Investment in associate

19.1 The Group and the Company have an investment in the following associate:

Ownership interest

Country 2006 2005

% %

Datatrak Holdings p.l.c. Malta 30 30 == ==

19.2 Summary financial information on associate - 100 per cent:

Assets Liabilities Equity Revenues Profit/(loss)

Lm000 Lm000 Lm000 Lm000 Lm000 2006 Datatrak Holdings p.l.c. 5,137 1,781 3,356 1,377 126 ==== ==== ==== ==== === 2005 Datatrak Holdings p.l.c. 4,948 1,651 3,297 1,408 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.



19 Investment in associate (continued)

19.3 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).

19.4 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 The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Non-current investments

Listed debt securities 1,296 1,763 1,166 1,575

Units in listed funds 12,406 12,364 12,234 12,196

---------- --------- ---------- ---------

13,702 14,127 13,400 13,771

===== ===== ===== =====

Current investment

Term deposit held to maturity - 50 - -

=== === === ===

21 Loans receivable from subsidiaries

21.1 Lm000

At 1 January 2005 2,546

Advances 959

Elimination of loan advanced upon merger (200)

Settlement by set-off (260)

-------

At 31 December 2005 3,045

====

At 1 January 2006 3,045

Advances 275

-------

At 31 December 2006 3,320

====



21 Loans receivable from subsidiaries (continued)

21.2 Terms and repayment schedule by subsidiaries

Repayment _________________________________________ Within Between After Interest By 1 year 2-5 years 5 years Security

Lm % Lm Lm Lm

Loan 1 to Innovate Group 2,653,840 5.5 2011 1,248,575 1,344,152 61,113 None

Loan 2 to Innovate Group 428,495 5.5 2014 135,807 153,739 138,949 None

Loan to Telepage Limited 221,934 3.75 After 31.12.07 - 221,934 - None

Loan to Worldwide Communications Limited 16,034 Free On demand 16,034 - - None

------------- ------------- ------------- -----------

3,320,303 1,400,416 1,719,825 200,062

======= ======= ======= ======

22 Finance lease receivables

The finance lease receivables classified as non-current assets are analysed as follows:

Group and Company Asset Interest Principal Asset Interest Principal

2006 2006 2006 2005 2005 2005

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Between one and five years 262 - 262 294 - 294 === === === === === ===



23 Deferred tax assets and liabilities

23.1 Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

The Group Assets Liabilities Net

2006 2005 2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Property, plant and equipment - - (3,749) (2,621) (3,749) (2,621)Financial investments 20 12 - - 20 12Inventories 260 254 - - 260 254Provisions 951 922 - (14) 951 908Derivative liability - - - (6) - (6)Other items - 8 (1) - (1) 8Trade receivables 1,472 1,406 - - 1,472 1,406Deferred expenditure - - (169) (199) (169) (199)Tax value of losses carried forward 460 433 - - 460 433Tax value of capital allowances carried forward 452 - - - 452 -Investment tax credit 878 1,076 - - 878 1,076

------- ------- ------- ------- ------- -------Tax assets/(liabilities) 4,493 4,111 (3,919) (2,840) 574 1,271Set off of tax (3,919) (2,840) 3,919 2,840 - -

-------- ------- ------- ------- -------- -------Net tax assets 574 1,271 - - 574 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 Assets Liabilities Net

2006 2005 2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Property, plant and equipment - - (2,535) (1,570) (2,535) (1,570) Investment property - - (260) (846) (260) (846)Financial investments 19 12 - - 19 12Investments in subsidiaries 69 71 - - 69 71Inventories 131 130 - - 131 130Provisions 922 922 (36) (49) 886 873Derivative liability - - - (6) - (6)Trade receivables 1,319 1,278 - - 1,319 1,278Deferred expenditure - - (169) (199) (169) (199)Tax value of loss carried forward 273 273 - - 273 273Tax value of capital allowances carried forward 452 - - - 452 -

------- ------- ------- ------- ------- -------Tax assets/(liabilities) 3,185 2,686 (3,000) (2,670) 185 16Set off of tax (3,000) (2,670) 3,000 2,670 - -

-------- -------- -------- ------- -------- -------Net tax assets 185 16 - - 185 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).



23 Deferred tax assets and liabilities (continued)

23.2 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 Balance

1 Jan 05 in income in equity 31 Dec 05

Lm000 Lm000 Lm000 Lm000

Property, plant and equipment (1,821) (800) - (2,621)

Financial investments 270 (245) (13) 12

Inventories 391 (137) - 254

Provisions 902 6 - 908

Other items (4) 12 - 8

Trade receivables 2,108 (702) - 1,406

Deferred expenditure (216) 17 - (199)

Tax value of loss carry- forwards 254 179 - 433

Investment tax credit 918 158 - 1,076

Unabsorbed research and development allowances 52 (52) - -

Derivative liability - - (6) (6)

------- ------- ----- -------

2,854 (1,564) (19) 1,271

==== ==== === ====

Balance Recognised Recognised Balance

1 Jan 06 in income in equity 31 Dec 06

Lm000 Lm000 Lm000 Lm000

Property, plant and equipment (2,621) (1,128) - (3,749)

Financial investments 12 1 7 20

Inventories 254 6 - 260

Provisions 908 43 - 951

Other items 8 (9) - (1)

Trade receivables 1,406 66 - 1,472

Deferred expenditure (199) 30 - (169)

Tax value of loss carry-forwards 272 1 - 273

Tax value of capital allowances carried forward 161 478 - 639

Investment tax credit 1,076 (198) - 878

Derivative liability (6) - 6 -

------- ------- ------ ------

1,271 (710) 13 574

==== ==== === ===



23 Deferred tax assets and liabilities (continued) 23.3 Movement in temporary differences during the year (continued)

The Company Balance Effect 1 Jan 05 as of change Balance originally in accounting 1 Jan 05 Recognised Recognised Balance stated policy as restated in income in equity 31 Dec 05

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Property, plant and equipment (611) - (611) (959) - (1,570)

Investment property (409) - (409) (112) (325) (846)

Financial investments 148 - 148 (123) (13) 12

Investments in subsidiaries (763) 828 65 6 - 71

Inventories 250 - 250 (120) - 130

Provisions 904 - 904 (31) - 873

Other items (4) - (4) 4 - -

Trade receivables 2,016 - 2,016 (738) - 1,278

Deferred expenditure (216) - (216) 17 - (199)

Tax value of loss carry-forwards 173 - 173 100 - 273

Derivative liability - - - - (6) (6) ------- ----- ------- ------- ----- ------- 1,488 828 2,316 (1,956) (344) 16 ==== === ==== ==== === ==== Balance Effect 1 Jan 06 as of change Balance originally in accounting 1 Jan 06 Recognised Recognised Balance stated policy as restated in income in equity 31 Dec 06

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Property, plant and equipment (1,570) - (1,570) (965) - (2,535)

Investment property (846) - (846) 261 325 (260)

Financial investments 12 - 12 - 7 19

Investments in subsidiaries 71 - 71 (2) - 69

Inventories 130 - 130 1 - 131

Provisions 873 - 873 13 - 886

Trade receivables 1,278 - 1,278 41 - 1,319

Deferred expenditure (199) - (199) 30 - (169)

Tax value of losses carried forward 273 - 273 - - 273

Tax value of capital allowances carried forward - - - 452 - 452

Derivative liability (6) - (6) - 6 - ------- ----- ------- ----- ----- ------- 16 - 16 (169) 338 185 ==== === ==== === === ====



24 Inventories The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Operating spares 516 478 321 325

Work in progress 4 17 - -

Consumables and stationery 64 53 46 32

Goods for resale 444 271 86 51

------- ----- ----- -----

1,028 819 453 408

==== === === ===

25 Trade and other receivables

25.1 The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Trade receivables 7,763 9,150 5,157 6,411

Amounts receivable under finance lease 239 355 239 355

Amounts owed by subsidiaries - - 4,241 3,831

Amounts owed by associate 17 15 11 12

Loan receivable from associate 66 29 66 29

Other receivables 368 244 190 128

Prepayments and accrued income 5,472 5,606 3,057 3,794

-------- --------- -------- ---------

13,925 15,399 12,961 14,560

===== ===== ===== =====

25.2 Amounts receivable include VAT charged to and recoverable from customers and subscribers.

25.3 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.

25.4 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.

25.5 The loan receivable from associate amounting to Lm66,237 (2005: Lm28,858) bears interest at 8% and is repayable on demand.



25 Trade and other receivables (continued)

25.6 The amounts receivable under finance lease are as follows:

Group and Company Asset Interest Principal Asset Interest Principal

2006 2006 2006 2005 2005 2005

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

239 52 186 355 32 323 === === === === === ===

25.7 The impairment losses are as follows: The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Trade and other receivables 4,166 3,975 3,768 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 Capital and reserves

27.1 Share capital Group and Company No. of Ordinary Shares

2006 2005

On issue at 1 January 101,310,488 101,310,488 ======== ========

On issue at 31 December 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.



27 Capital and reserves (continued)

27.2 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 Gain taxation Net

Lm000 Lm000 Lm000

The Group

Exchange gains 103 (36) 67

Tax effect of unabsorbed capital allowances 639 - 639

Tax effect of capital loss on investment 273 - 273

Tax effect of investment tax credit 878 - 878

Revaluation to equity of investment in associate 175 - 175 ------- ----- ------- 2,068 (36) 2,032 ==== === ====The Company

Exchange gains 103 (36) 67

Fair value changes of investment property 570 (259) 311

Tax effect of capital allowances carried forward 452 - 452

Tax effect of capital loss on investment 273 - 273 ------- ----- ----- 1,398 (295) 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.



27 Capital and reserves (continued)

27.7 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 Interest-bearing loans and borrowings

28.1 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 2005 2006 2005


Non-current liabilities

Secured bank loans 1,903 5,267 702 1,667

==== ==== === ====

Current liabilities

Current portion of secured bank loans 3,367 3,450 966 1,050

Bank overdrafts 28.3 4,885 4,082 4,111 3,849

------- ------- ------- -------

8,252 7,532 5,077 4,899

==== ==== ==== ====

28.2 Terms and debt repayment schedule

Interest Repayable by Balance

% Lm000 Company: Loan A 4.1 (2005: 4) July 2007 175 Loan B 4.5 (2005: 4) September 2007 90 Loan C 4.1 (2005: 4) December 2008 1,403

Subsidiary: Loan A 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.



28 Interest-bearing loans and borrowings (continued)

28.3 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 Trade and other payables 30.1 The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Trade and capital payables 8,951 9,488 3,859 4,028

Accruals and prepaid income 8,626 6,671 4,709 3,095

Amounts owed to subsidiaries - - 1,428 675

---------- -------- ------- -------

17,577 16,159 9,996 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 The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Cash at bank and in hand

Bank balances 6,345 9,861 4,188 5,917

Call deposits 9,874 2,390 9,350 1,500

Cash in hand 475 190 469 177 --------- -------- --------- -------

16,694 12,441 14,007 7,594

Bank overdrafts (4,885) (4,082) (4,111) (3,849)

Cash pledged as guarantees (76) (104) (68) (89)

Effect of exchange fluctuations - (75) - (7)

--------- ------- -------- -------

Cash and cash equivalents 11,733 8,180 9,828 3,649

===== ==== ==== ====



32 Financial instruments

32.1 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.

32.2 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).



32 Financial instruments (continued)

32.6 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.



33 Operating leases

33.1 Leases as lessee

Non-cancellable operating lease rentals are payable as follows:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Less than one year 197 157 75 45

Between one and five years 462 498 172 125

More than five years 147 156 147 155

----- ----- ----- -----

806 811 394 325

=== === === ===

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:


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Less than one year 30 36 30 37

Between one and five years 13 46 13 46

----- ----- ----- -----

43 82 43 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.



34 Capital commitments


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Contracted for:

Property, plant and equipment 5,414 2,462 1,061 2,375

Authorised but not contracted for:

Property, plant and equipment - 1,830 - 210

------- ------- ------- -------

5,414 4,292 1,061 2,585

==== ==== ==== ====

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.

35.2 Limited cover for risks on property and claims in connection with legal liabilities arising in the course of operations.

35.3 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.

35.4 The Company’s investment in Worldwide Communications Limited representing 25% of the share capital not yet called up amounting to Lm100,000.

35.5 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.

35.6 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.

35.7 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.

35.8 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.



36 Segmental information

The Group

Year ended 31 December 2006 Regulated activities _________________________________________ Non- Local regulated Core access Retail Other and other Total network network business business activities

Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Revenue 55,476 1,723 6,348 22,598 20,927 3,880

--------- ------- ------- --------- -------- -------

Depreciation amortisation and write-downs (8,898) (1,731) (2,282) (625) (4,195) (65)

Voluntary retirement scheme (3,155) (749) (1,676) (637) (93) -

Remaining costs (31,748) (7,800) (6,998) (4,196) (10,357) (2,397)

--------- --------- --------- --------- --------- --------

(43,801) (10,280) (10,956) (5,458) (14,645) (2,462)

--------- --------- --------- --------- --------- --------

Results from operating activities 11,675 (8,557) (4,608) 17,140 6,282 1,418

Costs transferred to retail business - 8,760 - (9,458) 698 -

-------- -------- -------- --------- ------- -------

Segment result: profit/(loss) 11,675 203 (4,608) 7,682 6,980 1,418

==== ===== ==== ==== ====

Unallocated items:

Finance income 879

Finance expenses (435)

Share of associate’s results (43)

Taxation (3,934)

---------

Profit for the year 8,142

=====

Segment assets 97,006 29,609 35,241 6,988 23,348 1,820

Unallocated assets 19,635 ===== ===== ==== ===== ====

----------

Group total assets 116,641

=====

Segment liabilities (17,613) (3,762) (4,533) (1,256) (6,583) (1,479)

Unallocated liabilities (10,135) ==== ==== ==== ==== ====

----------

Group total liabilities (27,748)

=====



36 Segmental information (continued)

The Group

Year ended 31 December 2005 Regulated activities _________________________________________ Non- Local regulated Core access Retail Other and other Total network network business business activities Lm000 Lm000 Lm000 Lm000 Lm000 Lm000

Revenue 54,960 2,403 6,624 24,596 18,698 2,639

-------- ------- ------- -------- -------- -------

Depreciation and amortisation charges (8,348) (2,058) (1,695) (514) (3,881) (200)

Write-back of international traffic and

leased circuit costs 698 698 - - - -

Remaining costs (31,735) (8,109) (7,323) (4,599) (9,849) (1,855)

--------- -------- -------- -------- --------- -------

(39,385) (9,469) (9,018) (5,113) (13,730) (2,055)

--------- -------- -------- -------- --------- -------

Results from operating activities 15,575 (7,066) (2,394) 19,483 4,968 584

Costs transferred to retail business - 7,169 - (8,018) 849 -

-------- ------- -------- --------- ------- -------

Segment result: profit/(loss) 15,575 103 (2,394) 11,465 5,817 584

==== ===== ===== ==== ====

Unallocated items:

Financial income 871

Financial expenses (508)

Net reversal of impairment losses on

equity investments 372

Losses on realisation of equity investments (325)

Share of associate’s results 71

Taxation (4,831)

---------

Profit for the year 11,225

====

Segment assets 96,164 24,964 32,444 11,737 24,478 2,541

Unallocated assets 20,055 ===== ===== ===== ===== ====

---------

Group total assets 116,219

=====

Segment liabilities (16,134) (3,151) (4,096) (1,482) (6,524) (881)

Unallocated liabilities (12,859) ==== ==== ==== ==== ===

---------

Group total liabilities (28,993)

=====



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 Related parties

37.1 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


2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Majority shareholder and the entities

controlled by it

Services provided to 2,562 6,362 1,916 4,532

Services provided and goods sold by 1,842 3,560 1,648 3,037

Funds invested with - 11,250 - 11,250

Dividends paid to 2,735 2,492 2,735 2,492

Set-offs with 34 866 34 866

Property acquired from - 590 - -

Finance interest payable by 101 139 94 123

Finance interest receivable by 4 15 4 14

Repayment of loans advanced by 87 174 87 174

Refundable modem deposits received from - 2 - -

==== ===== ==== =====



37.4 Related party transactions (continued) The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Subsidiaries

Services provided to 3,181 4,471

Services provided by 9,755 14,181

Goods provided by 67 5

Property, plant and equipment sold to 208 803

Expenses paid by the Company on behalf of 3,296 4,818

Repayment of expenses paid by Company to 82 103

Advances by 2,581 -

Expenses paid on behalf of Company by 719 81

Dividends received from 3,860 864

Interim dividends credited to current account

of Company by 2,610 5,120

Capitalisation of dividends receivable from - 299

Loan receivable set-off against current account of - 260

Assignment by Company of balance due by - 4

Finance interest payable by 106 478

Rental income payable by 298 265

Set-offs amongst trade balances payable to and

receiveable from 1,439 1,872

==== ====

Associate

Services provided to 28 34 8 19

Services received from 46 - 46 -

Loan advanced to 37 29 37 29

Repayment of advances to - 7 - 7

Finance interest payable by 4 - 4 -

=== === === ===

Key management personnel

Services provided by 557 441 257 257


=== === === ===

Other related parties


Services provided by 46 - - -

=== === === === 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.



37.5 Related party balances The Group The Company

2006 2005 2006 2005

Lm000 Lm000 Lm000 Lm000

Majority shareholders and the entities

controlled by it

Amount receivable from 1 2,204 1 1,950

Amount payable to 118 3,710 114 3,692

=== ==== === ====

Key management personnel

Amount receivable from 8 33 8 30

Amount payable to 16 25 - 23

=== === === ===

Other related parties

Amount receivable from 13 12 13 12

=== === === ===

Information on amounts due from or payable to other related parties are set out in notes 25 and 30 to these financial statements.



38 Change in classification As As previously restated reported Change

Lm000 Lm000 Lm000

The Group

Property, plant and equipment 61,820 64,129 (2,309)

===== ===== ====

Intangible assets 5,537 3,228 2,309

==== ==== ====

The Company

Finance lease receivables:

Non-current 294 2,425 (2,132)

Current 355 1,031 (676)

----- ------- -------

649 3,456 (2,808)

=== ==== ====

Loans receivable from subsidiaries:

Non-current 2,354 222 2,132

Current 691 15 676

------- ----- -------

3,045 237 2,808

==== === ====

39 Subsequent events

39.1 In February 2007, the Group entered into the digital TV market through the acquisition of Multiplus Limited.

39.2 On 15 February 2007, the directors of the Company resolved to merge Monitoring Services Limited with the Company with effect from 1 January 2007.



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 nilMr John Ellul Vincenti nilMr Peter J Baldacchino 1,200Mr James Kinsella nilMr Osman Sultan nilThe Noble Paul S Testaferrata Moroni Viani 94,944Mr Deepak Padmanabhan nilMr John Sevasta nilDr Ahmed Mahjoub 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 Percentage of shares holding

Emirates International Telecommunications (Malta) Limited 60,786,292 60Maltacom Employees’ Foundation 3,039,315 3

The shareholders’ interest as at 2 March 2007 was same as above.

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 Shareholders Shares

1 - 500 1,680 485,543

500 - 1000 1,767 1,529,749

1001 - 5000 4,517 9,476,046

5001 and over 823 89,819,150

Totals 8,787 101,310,488

SHARE REGISTER INFORMATION


Shareholding details as at 2 March 2007

All shares are of equal class and carry voting rights.

Range Shareholders Shares

1 - 500 1,686 487,198

500 - 1000 1,766 1,526,968

1001 - 5000 4,510 9,448,065

5001 and over 825 89,848,257

Totals 8,787 101,310,488

Company Secretary, registered address and contact number

Dr Francis Galea Salomone LL.D.

Maltacom p.l.c.Spencer HillMarsaMalta

Tel: (+356) 21233168

SHARE REGISTER INFORMATION


Company secretary Dr Francis Galea Salomone L.L.D.

AuditorsKPMGCertified Public AccountantsMalta

RegistrarMalta Stock ExchangeMalta

Depositary (GDRs)Bank of New YorkUnited States of America

Legal counsel Mamo TCV Malta

Gatt Frendo Tufigno (Advocates)Malta

Registered officeSpencer HillMarsa

Company numberC 22334

COMPANY INFORMATION

Financial calendar Preliminary Announcement of Results - 3 April 2007Record date: Final dividend – 30 April 2007Ex dividend date - 1 May 2007Annual General Meeting - 30 May 2007Final dividend payment date - 6 June 2007Announcement of half yearly results (provisional) - September 2007

Shareholder informationTelephone Number - (+356) 21233168 Fax Number - (+356) 21233169 E-mail - [email protected] Website: www.maltacom.com/investor_portal.asp


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.

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.



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.



FIVE YEAR RECORD

2006 2005 2004 2003 2002

LmM LmM LmM LmM LmM

Turnover 55.5 55.0 54.7 55.1 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


MALTACOM PLC

HEAD OFFICE SPENCER HILL MARSA HMR 12 MALTA

PHONE: +356 2121 2121 FAX: +356 2124 8925

EMAIL: [email protected] WWW.MALTACOM.COM

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