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As filed with the Securities and Exchange Commission on July 28, 2011

Registration No. 333-

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TIM W.E. SGPS, S.A.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Republic of Portugal   7372   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Avenida Infante Santo

2H, 3º 1350-178

Lisbon, Portugal

+351-212-487-800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

CT Corporation System

111 Eighth Avenue, 13th Floor

New York, NY 10011

(212) 590-9200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

 

Copies to:

Michael J. Willisch, Esq.

Davis Polk & Wardwell LLP

Paseo de la Castellana 41

Madrid, Spain 28046

Phone: (34) 91 768-9610

Fax: (34) 91-768-9710

 

Sebastian R. Sperber, Esq.

Cleary Gottlieb Steen & Hamilton LLP

City Place House, 55 Basinghall Street

London EC2V 5EH

Phone: (44) 20 7614-2200

Fax: (44) 20 7600-1698

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of each class of securities to be registered   Amount to be
registered(1)
  Proposed maximum
aggregate offering
price per share
  Proposed maximum
aggregate offering
price(2)
  Amount of
registration fee

Common shares, par value €0.03 per common share

  12,937,500   $14.00   $181,125,000   $21,028.61

 

 

(1) Includes common shares that the underwriters may purchase solely to cover over allotments, if any.
(2) Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 28, 2011

PROSPECTUS

11,250,000 Common Shares

LOGO

TIM W.E. SGPS, S.A.

(incorporated in the Republic of Portugal)

We are offering 7,500,000 of our common shares, and the selling shareholders are offering an additional 3,750,000 common shares. We expect that the initial public offering price will be between $12.00 and $14.00 per common share.

 

 

Prior to the offering, there has been no public market for our common shares. We have applied to list the common shares on The NASDAQ Stock Market under the symbol “TMWE”.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per common
share
     Total  

Initial public offering price

   $                            $                        

Underwriting discount

   $                            $                        

Proceeds to us (before expenses)

   $                            $                        

Proceeds to the selling shareholders (before expenses)

   $                            $                        

We and the selling shareholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 843,750 additional shares from us and an aggregate of 843,750 additional outstanding shares from the selling shareholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any overallotments of common shares. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $             and the total underwriting discounts and commissions payable by the selling shareholders will be $            , and the total proceeds to us, before expenses, will be $             million, and the total proceeds to the selling shareholders, before expenses, will be $             million.

Immediately following the offering, the selling shareholders will continue to own, in the aggregate, 80.4% of our common shares. The selling shareholders are members of our management and will continue to exercise significant influence over us. See “Principal and Selling Shareholders” on page 114 of this prospectus.

 

 

Investing in the common shares involves a high degree of risk. See Risk Factors beginning on page 13 of this prospectus for certain factors you should consider before investing in the common shares.

 

 

Delivery of the common shares will be made against payment in New York, New York on or about             , 2011.

 

Credit Suisse    Citigroup
Needham & Company, LLC    Pacific Crest Securities    Piper Jaffray
Santander    ThinkEquity LLC

                , 2011


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LOGO


Table of Contents

TABLE OF CONTENTS

 

 

 

     Page  

Summary

     1   

Risk Factors

     13   

Presentation of Financial and Other Information

     38   

Forward-Looking Statements

     40   

Use of Proceeds

     41   

Capitalization

     42   

Dilution

     43   

Exchange Rates

     44   

Selected Financial and Operating Data

     45   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     48   

Industry

     78   

Business

     83   

Management

     107   

Principal and Selling Shareholders

     114   

Related Party Transactions

     115   

Dividends and Dividend Policy

     116   

Description of Share Capital

     117   

Taxation

     126   

Underwriting

     130   

Expenses of the Offering

     137   

Legal Matters

     137   

Experts

     137   

Service of Process and Enforcement of Judgments

     138   

Where You Can Find More Information

     139   

Index to Consolidated Financial Statements

     F-1   

 

 

We and the selling shareholders have not, and the underwriters have not, authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may refer you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling shareholders and the underwriters have not authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. Neither we nor the underwriters are making an offer to sell the common shares in any jurisdiction where their offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

 

No offer or sale of the common shares may be made to the public in Portugal except in circumstances that do not constitute a public offer or distribution under Portuguese laws and regulations. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the securities and the distribution of the prospectus outside the United States.

Until 25 days after the date of this prospectus, all dealers that buy, sell, or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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SUMMARY

This summary highlights selected information about us and the common shares that we and the selling shareholders are offering. It may not contain all of the information that may be important to you. Before investing in our common shares, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our audited consolidated financial statements and the related notes, and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

Overview

We are a global provider of mobile monetization solutions to mobile carriers, media groups, governments, nongovernmental organizations (“NGOs”), brand owners and content owners. We provide mobile marketing, mobile entertainment and mobile money services through our proprietary platform, which incorporates software-as-a-service technologies. We have connections to more than 280 mobile carriers, giving our clients access to a network of nearly three billion end users worldwide. We leverage this broad reach, along with our in-depth knowledge of local markets to facilitate the monetization and distribution of content and services that are tailored to local preferences. Our services allow end users to consume mobile entertainment, such as music and video, receive marketing and advertising messages and make mobile payments on-the-go and free from the constraints of traditional content, marketing and payment channels. We believe, based on feedback our regional managers receive from local mobile carriers, that we are the leading provider of these services in our core markets, including Brazil, Argentina, Colombia and Mexico. We have a proven track record of execution, growth and diversification, evidenced by both the double-digit organic revenue growth and the profitability we have achieved in each year since 2006.

Our primary focus is delivering our services in high-growth, emerging markets. We have grown 100% organically to become, based on feedback our regional managers receive from local mobile carriers, what we believe to be one of the largest providers of mobile solutions in Latin America and a global participant with 25 local offices and offerings in more than 75 different countries. Our core market is Latin America, where we generated 79% of our 2010 revenues and have local offices in 11 countries. Brazil is our largest market, accounting for 44% of our 2010 revenues. We also have offices and are rapidly expanding in a number of countries in Africa, the Asia Pacific region, Europe and the Middle East.

Our platform is used by clients and end users in connection with three principal activities: mobile marketing, mobile entertainment and mobile money. For the year ended December 31, 2010, we derived €101.3 million, €116.2 million and €16.3 million in revenues from mobile marketing, mobile entertainment and mobile money activities, respectively. In mobile marketing, mobile carriers, media groups, governments, NGOs and brand owners use our platform to leverage the convenience, prevalence and targeting capabilities of mobile telephones for marketing and communications purposes. Next, in mobile entertainment, our connections with mobile carriers and our highly scalable, easily adaptable technology platform give end users access to a broad array of third-party and proprietary mobile entertainment services and allow content owners to connect to a large end user base, which included nearly 20 million mobile entertainment subscribers as of December 31, 2010. Finally, mobile money clients and end users use our platform to leverage our connections with mobile carriers to facilitate easy, mobile-based billing solutions and micropayments for goods and services sold online.

Our business model puts us at the center of the mobile ecosystem, as we facilitate communications and transactions between mobile carriers, media groups, governments, NGOs, brand owners, online merchants, content owners and mobile end users. We believe that our central role allows us to leverage our scale and knowledge to deliver value to these stakeholders. Furthermore, we believe it positions us to benefit from the growth and evolution of this ecosystem as a whole.

 

 

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Our Strengths

High-growth, emerging markets focus

We provide mobile monetization solutions in emerging markets and have a strong presence in Latin America, including large countries such as Brazil, Argentina, Mexico and Colombia. Our expansion into Latin America began in 2005 when we opened offices in Colombia and Argentina, and since then we have expanded within Latin America, where we currently operate in 18 countries through 11 local offices. In 2010, 79% of our revenues were generated in Latin America, with Brazil, our largest market, accounting for 44% of our 2010 revenues. Our extensive footprint and experience in Latin America has made us a partner of choice for mobile carriers in the region, and our deeply embedded local relationships, including those with leading carriers such as Vivo, Movistar and Claro, give us access to a user base of more than 529 million end users throughout Latin America. More recently, we have leveraged our existing assets to expand into other emerging markets, such as those in Africa, the Middle East, the Asia Pacific region and Eastern Europe.

The emerging markets that we target have generally experienced faster economic growth in recent years than those of developed countries. For example, the Economist Intelligence Unit (2011) reported that GDP per capita in Latin America grew at a compound average rate of 5.7% during 2010, compared with just 2% in Western Europe during the same period. Such growth is expected to facilitate the growth of a middle class with more disposable income, contributing to a greater overall demand for mobile services. For example, the number of cellular connections in Central and Latin America is expected to grow by 145 million between 2011 and 2016, according to Analysys Mason Research (2011). The number of cellular connections in the Middle East and Africa is expected to grow by an even greater amount—531 million phones—over this same period. We anticipate that a rapidly growing subscriber base will generate demand for new mobile services and increase demand for existing mobile services. Moreover, individuals in emerging markets tend to rely more upon mobile channels for the delivery of and payment for mobile services such as ours than do people in more developed countries who have greater access to computers, broadband Internet and credit card and banking services. Thus, we believe that our focus on these emerging markets and our experience monetizing mobile channels puts us in a position to service this expected increase in demand and is one of the fundamental strengths of our business.

Dynamic and fast-growing mobile market

The market for mobile services is growing rapidly. For example, Macquarie Equities Research (2010) estimates that worldwide spending on mobile advertising will grow to $14 billion in 2015, compared with $3.5 billion spent on mobile ads in 2010. Similarly, the demand for mobile payment services is expected to increase significantly. For example, Gartner (2011) calculates that approximately $49 billion worth of mobile payment transactions were made worldwide in 2010 and estimates that that figure will increase to approximately $426 billion for 2015. We believe our experience in the mobile market and numerous connections with mobile carriers put us in a unique position to capitalize on this significant opportunity.

A global leader in mobile marketing and monetization

We believe we are one of the largest participants in the mobile marketing and monetization market worldwide, based on feedback our regional managers receive from local mobile carriers. With €233.9 million in total revenues in 2010 and organic revenue growth since our formation in 2002, we have grown with the mobile market and we now provide solutions that leverage our position as a market leader. We have billing connections with more than 280 mobile carriers, many of which have been in place for several years. Our global reach—with access to a network of nearly three billion end users—and our positioning in between mobile carriers, media groups, governments, NGOs, brand owners, content owners and end users, give us unique insights into industry trends and end user demands. We leverage these insights in order to deliver targeted and customized mobile marketing, mobile entertainment and mobile money services to end users, and we draw upon our local market

 

 

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insight, technological platform and experience to offer tailored strategies to our broad range of clients. We believe that these factors combine to create a self-reinforcing cycle that has contributed to the strong growth of our business: our large end user base tends to attract more content owners and marketers; more content owners and marketers tend to drive greater monetization; greater monetization tends to attract more mobile carriers; and more mobile carriers, in turn, tends to increase our end user base.

Scalable, cloud-based technology platform

Every area of our business draws upon our platform, which incorporates flexible, cloud-based, software-as-a-service technologies and spans multiple customer segments and channels. Proprietary technology powers our platform, allowing us to offer unique and differentiated solutions to our clients. In addition to being deeply integrated with the systems of more than 280 mobile carriers worldwide, our platform modules are also integrated with one another, across all our business activities and customer segments. Finally, with its highly scalable and modular architecture, our proprietary platform has given us the flexibility and agility we need to respond to the rapid growth and change that have been hallmarks of the mobile market. This design allows us to leverage our existing platform assets to build our business according to local demands and to deliver significant benefits to our advertiser, content owner and media group clients, including time savings, revenue enhancement, ease of use and risk reduction, even within an evolving mobile ecosystem.

Local presence provides unique market insight and sustainable leadership

Our local presence enables us to deliver location-specific solutions along with targeted services. We have on-the-ground teams in 25 local offices and have created more than 50 local legal entities, each structurally tailored to meet local requirements. This presence provides firsthand insights into local culture, business practices and demographics and allows us to identify up-to-the-minute trends and evolving end user demand, which influence our marketing and targeting strategies in each of our distinct markets. Correspondingly, our ties to these markets enable us to respond to demands and trends we identify by sourcing and then delivering local content, tailored to the particular location, taking into account such factors as language and the predominant handsets used in the area. Additionally, our local focus has played a crucial role in the development and maintenance of lasting connections with mobile carriers, media groups, including broadcasters, as well as advertising agencies and media buyers who, themselves, frequently refer us to their own partners or affiliates in other regions, providing growth opportunities and broadening our reach. We draw on all these benefits to provide a range of monetization solutions to our clients that we believe only a company with such an extensive local knowledge and expertise could provide.

Multiple solutions provide value across the entire mobile value chain

Our cloud-based technology platform, our billing connections to mobile carriers worldwide and corresponding global presence, our local client and carrier relationships and our marketing and sales expertise are common features of each of our mobile marketing, mobile entertainment and mobile money activities. As we grow and devote resources to enhancing any one of these business activities, we also enhance the other business activities by virtue of strengthening our core assets and building upon our mobile monetization solutions platform.

Additionally, by drawing upon resources across our different business activities, we are able to create valuable synergies. For example, end user insights and industry trends that we learned as a providers of mobile entertainment have proven extremely useful to the design of mobile marketing campaigns. Similarly, the close relationships we maintain with mobile carriers in connection with both our mobile entertainment and mobile marketing business activities drive our mobile money activities.

 

 

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We believe our portfolio presents an attractive value proposition to clients, whether for a single monetization solution or as a one-stop shop for multiple solutions in the mobile value chain.

Best-in-class management with an outstanding track record of organic growth

We believe that our success can be traced to the experience and capabilities of our management team. With rich mobile market expertise, nuanced knowledge of local markets, a solid network of business relationships and a proven track record of diversification, internationalization and financial results, our management team has led TIMWE from an idea in 2002, to a large, innovative, global participant in the fast-moving and highly competitive mobile industry.

Our close relationships with key clients give us early insights into new business opportunities and facilitate our expansion into new markets. By drawing on our existing assets—our relationships, adaptable technology and experience—our management team has guided our expansion into new geographical and service markets effectively and without resorting to acquisitions.

Business Strategy

Reinforce our leading position in current, attractive markets

We believe, based on feedback our regional managers receive from local mobile carriers, that we are one of the leading providers of mobile entertainment and mobile marketing services in Latin America, and our historical presence there dates back to 2005. We intend to continue to reinforce our position in our historic stronghold and use our market position to capitalize upon new opportunities, whether in the form of increasing the penetration of our existing monetization solutions or strategically rolling out new services. For example, with Brazil slated to host the World Cup in 2014 and the Olympic Games in 2016, we believe we are ideally positioned to take advantage of the media attention, growth and related opportunities these events are expected to bring, and we are already working with clients to develop related strategies. In addition, we have identified what we believe to be strong growth prospects in each of our business areas that we intend to pursue in our effort to sustain our leading position in Latin America. For example, we have already developed initiatives to capitalize upon location-based chat in our mobile entertainment area, we are focusing on creative solutions for media group and government clients in mobile marketing and in mobile money we are preparing to participate in the expected growth of in-app payments.

Expand into new geographies

We intend to follow our historical business model and expand our current offerings into new, emerging markets where we see high-growth potential. By focusing on geographies such as Africa and the Middle East in particular, and also Asia and Central and Eastern Europe, we can leverage our scalable, cloud-based distribution platform technology and participate in the anticipated growth in demand for mobile services in these markets. In Latin America, we aim to draw upon the experience we have in successfully establishing a strong presence in countries such as Brazil, Argentina and Mexico in order to pursue parallel growth opportunities in smaller markets in Latin America where we do not yet have a footprint, as well as enhance our presence in markets such as Puerto Rico, Ecuador and Nicaragua. We see opportunities in Africa and the Middle East—regions that are characterized by low mobile services penetration—and particularly, in countries such as Nigeria and Pakistan, to build a strong leadership position and participate in the expected rapid growth in these markets. Finally, in Asia, we intend to work to grow our existing operations in countries such as Malaysia, Indonesia and Vietnam.

 

 

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Increase penetration of high-potential customer verticals

In addition to capitalizing upon existing offerings and territories, we believe we have a substantial opportunity to increase our penetration into new verticals, namely those of government/NGO and consumer brand clients.

We currently provide services to government entities and NGOs and we see significant potential for future growth in partnering with government entities and NGOs who wish to leverage the cost-effectiveness, convenience and targeting capability of mobile, digital channels to offer solutions such as awareness campaigns, information services, surveys, support to remote populations and information requests. For instance, in 2010 we worked with the Colombian Agencia Presidencial para la Acción Social y la Cooperación Internacional (“Acción Social”) to design a campaign aimed toward fostering the economic development and social inclusion of vulnerable groups in Colombia who were plagued by poverty, drugs and violence. Leveraging the mobile communication channel, we created a bulk SMS and SMS-based chat service to enhance interactivity between Acción Social and these target groups. End users in these groups were delivered important information concerning government services while Acción Social employed social workers to respond to SMS-based queries in real time. Acción Social was able to communicate with more than 1.2 million individuals—many of whom reside in remote locations—and register their information in its database in order to continue fostering the development of these groups.

We also see significant potential in continuing to work with and develop solutions for consumer brand clients. Consumer brand owners invest considerable amounts in marketing efforts and communicating with existing and potential customers. We believe that consumer brand clients who work with us can differentiate themselves from their competitors by delivering customized, targeted solutions—electronic coupons, loyalty-based discounts and pricing or other key information services—to a narrowly defined audience and exploring new ways that mobile channels can facilitate interaction with their customers. For example, in 2010 we worked with Kellogg’s to develop a campaign for its Special K brand cereal. Leveraging our connections with several mobile carriers in Mexico, we created a Calorie Counter application to supplement Special K’s 15 Day Program initiative to connect with customers and underscore its image as a promoter of healthy lifestyles. More than 120,000 end users in Mexico downloaded the Calorie Counter application, increasing awareness of the Special K initiative and enhancing Kellogg’s relationships with its customers.

Deepen relationships with carriers and media groups

In addition to our numerous, solid relationships with mobile carriers, we have strong existing relationships with media groups, particularly television broadcasters and programmers. We see the potential to develop these relationships through loyalty programs and other innovative solutions that draw on our expertise and combine the power of the broad-reaching mobile and media channels. For example, by combining television advertisements with mobile text-based trivia and other games, we are developing with mobile carriers and media groups joint “anti-zapping” campaigns aimed at reducing the likelihood of viewers skipping or ignoring advertisements and at increasing traffic across the carriers’ networks. Given media groups’ and carriers’ relative lack of mobile marketing experience and scale, we believe that such partnerships could leverage our mobile monetization platform and the wide appeal of television in our markets and deliver significant benefits to our partners and us.

Exploit significant opportunity in the mobile money market

We see significant growth prospects in the mobile money market, and we believe that, with our billing solutions and micropayment services, we are well positioned to participate in such growth. For instance, Gartner (2011) calculated that the total volume of mobile money payments was approximately $49 billion worldwide in 2010 and estimates that such volume will grow to approximately $426 billion in 2015. With our worldwide presence, numerous connections with mobile carriers in our territories and technological expertise, we believe

 

 

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that we can move up the value chain and offer our own brand of compelling micropayment solutions to capitalize upon growth in the mobile money market. By providing both billing and payment services, we can streamline the value chain for online merchants who wish to leverage our direct access to mobile carriers around the world and improve their economics.

Capitalize upon smartphone app opportunity

Our mobile carrier connections and access to a network of nearly three billion end users together with our mobile marketing and sales expertise lay the foundation for our initiative to use our existing technology platform to monetize and distribute mobile apps under our own brand—App Republic Plus—and as a white label service to mobile carrier and other clients. With App Republic Plus and our white label initiatives, we believe that we can offer advantages to each link in the smartphone app distribution value chain. Our ability to offer payment solutions benefits end users who, like the substantial majority of individuals in our target geographies, do not have access to credit cards or banking services. The billing connections we have with mobile carriers and our local presence in our markets, which allows us to service those carriers, provide the global footprint, large-scale access to end users and mobile payment solutions that are important to content owners and aggregators. Lastly, our capabilities address what we believe is a growing concern among mobile carriers that credit-card based app stores, such as those operated by Apple and Google, will cut them out of the app distribution value chain. We believe that our model for App Republic Plus and white label stores combined with our deep relationships with mobile carriers and expertise in developing and operating mobile monetization platforms positions us to monetize and distribute smartphone apps while delivering value.

Recent Developments

Based on our preliminary results of operations, our revenues for the three months ended June 30, 2011 grew approximately in the high teens in percentage terms compared with the same period of 2010, with growth across most geographies, particularly in Brazil and Africa. Revenues for the three months ended June 30, 2010 and the subsequent three month period of 2010 were particularly strong as a result of large and successful campaigns in Brazil, which straddled such periods of 2010. Margins were broadly stable in the three months ended June 30, 2011 compared with the same period of the prior year based on our preliminary results of operations, with certain operating expense line items to some degree varying as a percentage of revenues due to changes in our revenue and geographic mix. The preliminary results discussed in this paragraph are not yet final, are subject to ongoing review and may differ from our final results.

Risk Factors

We face numerous risks and uncertainties that may affect our future financial and operating performance, including, among others, the following: risks related to our reliance on mobile carriers, risks relating to a substantial portion of our business being concentrated in Brazil, risks related to the housing of our technology platform in a single datacenter facility, risks relating to the fluctuation of our quarterly results, risks related to the competitive industry in which we operate and risks related to the global nature of our business. One or more of these matters could negatively affect our business or financial performance as well as our ability to successfully implement our strategy. This list of risks is not comprehensive, and you should see the section entitled “Risk Factors” for a more detailed discussion of the risks associated with an investment in our common shares.

 

 

Our registered and principal executive offices are located at Avenida Infante Santo, 2H, 3º 1350-178, Lisbon, Portugal, and our general telephone number is +351-212-487-800. We maintain a number of web sites, including www.timwe.com. The information on, or accessible through, our web sites, including those web sites listed in “Business—Intellectual Property—Proprietary” is not part of this prospectus.

 

 

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THE OFFERING

Issuer

 

  TIM w.e. SGPS, S.A.

Common shares offered by us

 

  7,500,000 common shares

Common shares offered by the selling shareholders

 

  3,750,000 common shares

Selling shareholders

 

  The selling shareholders, who are also members of our management, will in the aggregate own 80.4% of our common shares upon completion of the offering and will continue to exercise significant influence over us. See “Principal and Selling Shareholders.”

Overallotment option

 

  We and the selling shareholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 843,750 additional shares from us and an aggregate of 843,750 additional outstanding shares from the selling shareholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any overallotments of common stock.

Common shares to be outstanding immediately after this offering

 

  57,500,000 common shares

Proposed NASDAQ Stock Market symbol

 

  TMWE

Lockup agreements

 

  We have agreed with the underwriters, subject to certain exceptions, not to sell or dispose of any common shares or securities convertible into or exchangeable or exercisable for any common shares during the period commencing on the date of this prospectus until 180 days after the completion of this offering. Our shareholders, executive officers and directors have agreed to similar lockup restrictions for a period of 180 days. See “Underwriting.”

Use of proceeds

 

  We expect to receive total estimated net proceeds from this offering of approximately $77.9 million, after deducting estimated underwriting discounts and expenses and assuming no exercise of the overallotment option by the underwriters. We will not receive any proceeds from the sale of common shares by the selling shareholders. We intend to use the proceeds from this offering to accelerate expansion into new markets, enhance our monetization solutions portfolio through new developments and strengthen our capacity to pursue strategic acquisitions.

Corporate governance

 

  We rely on NASDAQ rules that exempt us, as a “foreign private issuer,” from certain NASDAQ corporate governance requirements applicable to U.S. issuers. See “Risk Factors—Risks Related to our Common Shares—Our status as a foreign private issuer exempts us from certain of the corporate governance standards of the NASDAQ Stock Market (“NASDAQ”), limiting the protections afforded to investors.”

 

 

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Risk factors

 

  You should carefully read the information set forth under “Risk Factors” and the other information set forth in this prospectus before investing in the common shares.

Unless otherwise indicated, all information contained in this prospectus:

 

   

assumes no exercise of the underwriters’ option to purchase up to 1,687,500 additional common shares to cover overallotments of common shares, if any;

 

   

assumes the common shares to be sold in this offering will be sold at $13.00, which is the midpoint of the range set forth on the cover page of this prospectus, and the resulting amount will be translated into euro at the rate of $1.4366 per €1.00, the noon buying rate for the euro on July 22, 2011, the most recent practicable date prior to the date of this prospectus. The “noon buying rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that euro could have been, or could be, converted into U.S. dollars at that rate or at any other rate;

 

   

gives effect to certain common share splits we have effected in advance of the offering, the most recent of which was a 1.667-for-1 common share split effective as of July 15, 2011 and which increased the number of common shares outstanding from 30,000,000 to 50,000,000 immediately prior to the offering; and

 

   

does not give effect to (i) the proposed incentive plan involving up to a maximum of 10% of our capital stock following the offering described under “Management—Incentive Plan” or (ii) the award by us to one of our executive officers of rights to receive approximately 134,000 common shares from us in connection with the offering which will vest over a three year period, as described under “Management—Compensation.”

 

 

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SUMMARY FINANCIAL AND OPERATING DATA

The following financial data of TIMWE at March 31, 2011 and for the three months ended March 31, 2011 and March 31, 2010 and at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 have been derived from the consolidated financial statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (or “IFRS-IASB”). The financial data of TIMWE at December 31, 2007 and 2006 and for the years ended December 31, 2007 and 2006 have been prepared in accordance with IFRS-IASB, using as a basis our consolidated financial statements prepared in accordance with IFRS as adopted by the European Union (or “EU-IFRS”) for those years, which are not included herein. There are no differences, applicable to TIMWE, between IFRS-IASB and EU-IFRS for any of the periods presented. Our historical results are not necessarily indicative of results to be expected for future periods.

This financial data should be read in conjunction with our audited consolidated financial statements and the related notes and “Selected Financial and Operating Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

 

    Three Months Ended March 31,     Year Ended December 31,  
        2011(1)             2011             2010         2010(1)     2010     2009     2008     2007     2006  
    (in thousands, except share and per share data)  
Income Statement Data  

Revenues

  $ 67,205      47,384      34,600      $ 331,671      233,851      166,241      125,339      67,813      43,548   

Operating Expenses:

                 

Cost of service delivery

    34,202        24,115        18,798        166,392        117,318        97,056        65,059        32,118        15,660   

Commercial and production costs

    22,999        16,216        10,237        107,826        76,025        37,130        35,292        21,511        19,918   

Personnel costs

    4,059        2,862        2,269        13,594        9,585        8,758        6,519        4,430        1,435   

General and administrative

    2,926        2,063        1,631        10,674        7,526        6,980        6,162        3,258        1,791   

Tax expenses

    472        333        445        4,628        3,263        2,306        2,150        420        93   

Amortization and depreciation

    1,879        1,325        932        5,992        4,225        2,490        1,605        517        129   

Provisions expense

    129        91        46        835        589        405        116        853        20   
                                                                       

Total operating expense

    66,667        47,005        34,358        309,943        218,531        155,125        116,903        63,107        39,046   
                                                                       

Operating profit

    538        379        242        21,728        15,320        11,116        8,436        4,706        4,502   
                                                                       

Finance income

    153        108        314        2,340        1,650        139        570        511        484   

Finance costs

    (600     (423     (440     (3,654     (2,576     (2,415     (1,500     (687     (618
                                                                       

Net finance income (costs)

    (447     (315     (126     (1,313     (926     (2,276     (930     (176     (134
                                                                       

Profit before income taxes

    91        64        116        20,415        14,394        8,840        7,506        4,530        4,368   
                                                                       

Income tax expenses

    (254     (179     25        4,807        3,389        1,676        2,119        1,973        1,691   
                                                                       

Net income

    345        243        91        15,608        11,005        7,164        5,387        2,557        2,677   
                                                                       

Profit attributable to non-controlling interests

    (31     (22     (120     1,513        1,067        930        (26     46        50   
                                                                       

Profit attributable to controlling interests

  $ 376      265      211      $ 14,095      9,938      6,234      5,413      2,511      2,627   
                                                                       

Earnings per share (basic and diluted)

    —          —          —        $ 0.17      0.12      0.08      0.07      0.03      0.03   
                                                                       

Weighted average shares used to compute earnings per share

    65,319        65,319        82,917        82,917        82,917        82,917        82,917        83,333        83,333   
                                                                       

 

 

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    At March 31,     At December 31,  
    2011
(Pro Forma)(2)
    2011(1)     2011     2010     2009     2008     2007     2006  
    (in thousands, except share and per share data)  
Balance Sheet Data  

Cash and cash equivalents

  62,225      $ 10,349      7,297      8,610      5,667      4,456      3,886      2,671   

Net working capital(3)

    70,738        22,423        15,811        19,032        11,284        14,222        5,725        4,039   

Total assets

    115,080        85,186        60,153        59,576        46,738        40,049        24,000        14,074   

Total liabilities

    40,630        57,308        40,630        35,564        32,729        31,684        16,923        9,005   

Total debt

    13,724        19,465        13,724        9,835        10,204        15,973        4,329        1,117   

Total stockholders’ equity

    74,451        27,689        19,524        24,012        14,009        8,366        7,078        5,068   

 

    Three Months Ended
March 31,
    Year Ended December 31,  
     2011     2010     2010     2009     2008     2007  
Other Operating Data            

Mobile Marketing

           

Number of mobile marketing campaigns

    30        28        93      115        51        —     

Average revenue per campaign (€ thousands)

    420.6        134.8        1,089.5      470.9        741.8        —     

Mobile Entertainment

           

Number of mobile entertainment subscribers (4)(thousands)

    18,190        18,765        19,334      19,175        11,675        —     

Average revenue per mobile entertainment subscriber (monthly)(€)

    0.48        0.48        0.48      0.45        0.61        —     

Mobile Money

           

Number of mobile money clients(5)(6)

    49        30        44      19        1        —     

Average revenue per client (monthly) (€ thousands)

    45.0        32.2        31.0      20.0        19.4        —     
    (in thousands)  

Total revenues

  47,384      34,600        €233,851   166,241      125,339      67,813   

Mobile marketing revenues

    13,499        3,774        101,320     54,154        37,832        —     

Mobile entertainment revenues

    27,264        27,931        116,185     107,534        87,274        67,813   

Mobile money revenues

    6,621        2,895        16,346     4,552        233        —     

Adjusted EBITDA(7)

    2,128        1,665        23,397     16,317        12,307        6,496   

Net income

    243        91        11,005     7,164        5,387        2,557   

 

(1) Certain euro amounts are translated into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such euro amounts have been translated at the rate of $1.4183 per €1.00, which corresponds to the noon buying rate for the euro calculated on March 31, 2011.

 

(2) Pro forma reflects the issuance by us of 7,500,000 common shares at an offering price of $13.00 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and estimated expenses for the offering payable by us, translated into euro at $1.4183 per €1.00, the noon buying rate on March 31, 2011.

 

(3) Calculated as total current assets, which includes inventories, trade receivables, other receivables, current tax assets, other public entities, cash and cash equivalents and assets as held for sale; less total current liabilities, which includes loans and borrowings, financial lease obligations, suppliers and other current liabilities, current tax liabilities and other public entities.

 

(4) Period average.

 

(5) Represents the number of clients with whom mobile money contracts have been signed.

 

(6) At period end.

 

(7) We define Adjusted EBITDA as net income plus income tax expenses, finance costs, finance income, provisions expense, amortization and depreciation and tax expenses. Please see “—Adjusted EBITDA” for more information and for a reconciliation of Adjusted EBITDA to our net income calculated in accordance IFRS-IASB.

 

 

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Adjusted EBITDA

We include Adjusted EBITDA in this prospectus because (i) we seek to manage our business to a consistent level of Adjusted EBITDA as a percentage of total revenue, (ii) it is a key basis upon which our management assesses our operating performance, (iii) it is one of the primary metrics investors use in evaluating technology companies, and (iv) it is a factor in the evaluation of the performance of our management in determining compensation. We define Adjusted EBITDA as net income plus income tax expenses, finance costs, finance income, provisions expense, amortization and depreciation and tax expenses.

We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or subsidiaries of changes in effective tax rates or fluctuations in permanent differences or discrete quarterly items) and the impact of depreciation and amortization expense on definite-lived intangible assets. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel and in evaluating acquisition opportunities.

In addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under IFRS-IASB. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

 

   

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

 

   

Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other IFRS-IASB financial results.

 

 

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The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable IFRS-IASB measure, for each of the periods indicated:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
          2011               2010          2010     2009     2008     2007     2006  
     (in thousands)  

Net income

   243      91      11,005      7,164      5,387      2,557      2,677   

Income tax expenses

     (179     25        3,389        1,676        2,119        1,973        1,691   

Finance costs

     423        440        2,576        2,415        1,500        687        618   

Finance income

     (108     (314     (1,650     (139     (570     (511     (484

Provisions expense

     91        46        589        405        116        853        20   

Amortization and depreciation

     1,325        932        4,225        2,490        1,605        517        129   

Tax expenses

     333        445        3,263        2,306        2,150        420        93   
                                                        

Adjusted EBITDA

   2,128      1,665      23,397      16,317      12,307      6,496      4,744   
                                                        

 

 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below, as well as the other information in this prospectus, before deciding to purchase the common shares offered hereby. Our business, results of operations, financial condition or prospects could be adversely affected by any of these risks and uncertainties, and as a result, the market price of the common shares could decline and you could lose part or all of your investment. The risks and uncertainties described below are those that are known to us and that we currently believe may materially affect us.

Risks Relating to our Business

We rely on mobile carriers for the delivery and billing of most of our mobile marketing, mobile entertainment and mobile money services and, therefore, we may experience a material adverse effect on our business, results of operations or financial condition if our relationship with any key mobile carrier ceases or deteriorates.

We deliver most of our mobile marketing, mobile entertainment and mobile money services to clients and end users through mobile carriers, and we are therefore dependent on these mobile carriers to a significant degree. During the year ended December 31, 2010 as well as the three months ended March 31, 2011, we received nearly all of our revenue via mobile carriers, which remit to us an agreed portion of the sales price of the services we offer to clients and end users through these carriers’ respective networks and retain the remainder as compensation for the delivery of our services as well as the carrier’s billing and collection efforts. If our contracts with any of the mobile carriers through which we offer our services are terminated or adversely altered, whether as to fee structure or otherwise, it may be difficult to find appropriate replacement operators with the requisite licenses and permits, infrastructure and customer base to offer our services profitably, or at all, and as a result, our business would suffer. Even if available, securing and negotiating alternative delivery and billing channels could cause interruptions to our business, and such alternative channels could greatly limit the usability of our services, all of which could materially and adversely impact our business, results of operations or financial condition.

The terms of our contracts with mobile carriers vary, but generally allow for termination by either party with one to three months’ notice at the discretion of the terminating party, and generally allow for unilateral modification of the contract by the mobile carrier at any time. Except in the instances where our relationship with mobile carriers is arranged through an agreement with a third-party connectivity service provider, all of our contracts with mobile carriers are negotiated directly between the carrier and us.

We provide our services through a network of more than 280 mobile carriers in more than 75 countries. In 2010, 77% of our revenues were generated through the billing systems of our top ten mobile carriers, with approximately a quarter of our revenue in such year being generated through the billing system of our largest carrier in terms of revenues, Vivo (Brazil). The termination of or failure to renew any of the agreements we have with any large mobile carrier, and particularly with Vivo, could have a material adverse effect on our business, results of operations or financial condition.

Additionally, we rely on mobile carriers’ networks to deliver our services to our clients and end users and on their billing systems to track and account for the downloading of our services. Any failure of, or technical problem with, the mobile carriers’ billing and delivery systems, information systems or communications networks could result in the inability of our clients and end users to access our services or prevent the completion of billing for our services. Any failure of, or technical problem with, the mobile carriers’ systems could cause us to lose clients, end users or revenues or incur substantial repair costs and distract management from operating our business. From time to time, we have experienced limited failures with mobile carriers’ billing and delivery systems and communication networks. If any such billing and delivery failures or technical problems were to continue for a prolonged period of time, it could reduce our sales, increase costs or result in a loss of clients or end users, which could have a material adverse effect on our business, results of operations and financial condition.

 

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Factors beyond our control could cause our relationship with one or more key mobile carriers to deteriorate or terminate, which could severly disrupt our operations and result in the loss of a significant portion of our revenues.

We are substantially dependent upon our relationships with mobile carriers for the delivery and billing of most of our services. There are a number of factors beyond our control that could impair our relationship with mobile carriers, including the following:

 

   

a carrier’s decision to offer its own, competing mobile entertainment, mobile marketing or mobile money services to its customers;

 

   

a carrier’s decision to discontinue or suspend the sale of our services, or altogether discontinue sales of services such as ours;

 

   

a carrier’s decision to withdraw a short number allocated to us;

 

   

a carrier’s decision to change the terms under which it arranges the delivery and billing of our services;

 

   

a carrier’s decision not to approve our desired pricing or other terms for the services we offer through such carrier’s network or its failure to approve a price range within which we can profitably offer our services;

 

   

a carrier’s decision to increase the fees it charges to distribute our services or to invoice and collect on our behalf amounts owed by end users, thereby increasing its own revenues and decreasing our share of revenues; or

 

   

a carrier’s preference for the services of our competitors, which could affect our ability to maintain an existing agreement or enter into a new agreement with that carrier. For important information concerning competition in our market, see “Risk Factors—Risks Relating to our Industry—We operate in a highly dynamic and competitive industry. If we are unable to compete effectively with our existing or any new competitors, our business, results of operations or financial condition could be materially and adversely affected.”

Generally, the deterioration of our relationship with any of the mobile carriers through which we offer our services may severely disrupt our operations and result in the loss of a significant portion of our revenues, and may have a material adverse effect on our business, results of operations or financial condition.

A substantial portion of our revenues is derived from our operations in Brazil, and the termination or alteration of our contracts with the mobile carriers in Brazil could have a particularly adverse effect on our results of operations and overall financial condition.

For the year ended December 31, 2010, our operations in Brazil accounted for 44% of our total revenues. No other single country accounted for more than 10% of our total revenues in 2010. Accordingly, if we lose a significant amount of clients or end users in Brazil because of the termination of mobile carrier contracts, the deterioration of important strategic relationships, unexpected government regulation, competitors entering or improving their market share in the Brazilian market, any natural disaster, war or terrorist attack of which Brazil is a victim or for any other reason, our revenue could be substantially reduced, which could materially adversely affect our overall business, results of operations and financial condition.

Because a substantial portion of our revenues is derived from our operations in Brazil, our business is particularly sensitive to economic and political conditions in Brazil. Any economic downturn or adverse political changes in Brazil could have a material, adverse effect on our business, results of operations and financial condition.

A material portion of our business, results of operations and financial condition could be influenced by general economic conditions in Brazil, namely economic growth and its impact on mobile services. Major factors that could have a material adverse effect on our business and results of operations in Brazil include:

Adverse political and economic conditions. The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. The Brazilian government has utilized salary and

 

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price controls, currency devaluation, capital controls and limits on imports, among other things, as tools in its previous attempts to stabilize the Brazilian economy and control inflation. Changes in the Brazilian government’s exchange control policy, or in general economic conditions in Brazil, could have a material adverse effect on the results of our operations in Brazil. Deterioration in economic and market conditions in other countries (mainly in other Latin American and emerging market countries) may adversely affect the Brazilian economy and our business. Past political crises in Brazil have affected the confidence of investors and the public in general, as well as the development of the economy. Future political crises could have an adverse impact on the Brazilian economy and our business, financial condition and results of operations.

Fluctuations in the Real and increases in interest rates. The Brazilian currency historically has experienced frequent fluctuations relative to the Euro and other currencies. In 2005, 2007 and 2009 the Real appreciated against the Euro by 23.5%, 7.5% and 22.6%, respectively, and in 2006, 2008 and 2010 depreciated against the Euro by 1.8%, 24.1% and 12.3%, respectively. Any substantial negative reaction to the policies of the Brazilian government could have a negative impact, including devaluation. The devaluation of the Real could negatively affect the stability of the Brazilian economy and accordingly could negatively affect the profitability and results of our operations. It also would increase costs associated with financing our operations in Brazil.

In response to the global economic and financial crisis, the Brazilian government increased the Banco Central do Brasil’s Special System for Settlement and Custody’s, or “SELIC,” basic interest rate to 13.75% as of December 31, 2008. In 2009, the Brazilian Central Bank reduced the SELIC once more to 8.75%. In 2010, the SELIC was increased to 10.75%. An increase in interest rates could negatively affect our profitability and results of operations and would increase the costs associated with financing our operations in Brazil.

Inflation in Brazil. Brazil historically has experienced high rates of inflation. Inflation, as well as governmental measures put in place to combat inflation, have had a material adverse effect on the Brazilian economy. Since the implementation of the Real Plan in 1994, the rate of inflation has been substantially lower than in previous periods. However, inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in the past contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. The Consumer Prices Index (Índice de Preços ao Consumidor), published by Instituto Brasileiro de Geografia e Estatística, rose 5.91% in 2010. The inflation rate was 4.3% in 2009, 5.9% in 2008, 4.5% in 2007 and 3.1% in 2006.

We use a single, leased datacenter to house our information technology, telecommunications and other infrastructure systems and to deliver our services. Any failure of these systems or disruption of service at this datacenter facility could materially and adversely affect our business, financial condition and results of operations.

Our information technology, telecommunications and other infrastructure systems face the risk of failure, which could seriously damage our operations. A significant disruption in the availability of these systems could cause interruptions in our service, loss of or delays in our research and development work or affect our relationships with mobile carriers, clients or end users and present potential liability vis-à-vis end users.

Additionally, we deliver nearly all of our services from a single datacenter facility leased from Mainroad and located in Lisbon, Portugal. This datacenter facility is vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications and Internet failures and similar events. It also could be subject to break-ins, computer viruses, denial of service attacks, sabotage, intentional acts of vandalism and other misconduct. Because we lease our datacenter, we have little control over the physical security of the site and are substantially dependent upon Mainroad to protect the datacenter from physical security threats. The occurrence of a natural disaster or an act of terrorism or other unanticipated problems could result in lengthy interruptions in our services. Although we implement redundancy programs in our platform, maintain off-site backups of our data and have a disaster recovery program in place, we do not currently operate or maintain a backup datacenter for any of our services. This increases our vulnerability to

 

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interruptions or delays in the delivery of our services, which could harm our reputation, cause us to incur financial penalties, subject us to potential liability, cause clients to terminate their contracts and materially and adversely affect our business, results of operations or financial condition.

Our quarterly results of operations may fluctuate significantly due to several factors, some of which are not within our control. Fluctuations in our quarterly results may make period-to-period comparisons of our results of operations and financial condition difficult and could affect the market price of our common shares in a manner unrelated to our long-term operating performance.

Our quarterly results of operations have fluctuated significantly in the past and are expected to fluctuate significantly in the future based on a number of factors, some of which are not in our control. Our business is seasonal, with revenues generally lowest in the first quarter of the year and gradually building throughout the year, prior to beginning to level off or decline toward the end of the fourth quarter of the year as a result of the termination of seasonal campaigns, cash conservation and reduced activity around the Christmas and New Year holidays, which tends to carry over into the subsequent year as a result of Carnival holidays in Brazil and the summer season throughout Latin America, our primary market. Next, our operating expenses do not increase or decrease in direct proportion to our generation of revenue, affecting the period-to-period comparability of our results. For example, in some cases we will have incurred significant commercial and production costs relating to client acquisition efforts and must recognize such costs as expenses in the period when incurred despite the fact that related revenues might be recognized in a subsequent period. As a result of this and our commercial strategy, which usually involves higher spending during the first half of the year, in general terms our operating profit tends to increase throughout the year and is significantly weighted toward the end of the year. Finally, some quarters may be exceptionally strong (or weak) due to the effectiveness of a particular marketing campaign. For example, we had particularly strong second and third quarters in 2010 in terms of revenue growth as a result of particularly large and successful campaigns in Brazil, which straddled the two periods. Similarly, in 2009 we completed a number of large and successful campaigns in the third and fourth quarters, which drove comparably stronger fourth quarter revenues for the year. Our operating expenses, which include general and administrative expenses, are relatively fixed in the short term. If our revenues are lower than we expect because end users or clients reduce the use of our services, our mobile marketing campaigns are not successful, we lose our connections with mobile carriers or for other reasons, we may not be able to quickly reduce our spending in response. These factors are difficult to forecast, and these or other factors could adversely affect our business. Any shortfall in our revenues would have a direct impact on our business. To the extent that we disclose information on a quarterly basis, fluctuations in our quarterly results could affect the market price of our common shares in a manner unrelated to our long-term operating performance. See “—Risks Related to our Common Shares—As a foreign private issuer we are not subject to all of the reporting requirements and other rules applicable to domestic companies.”

The success of our businesses is dependent upon effective advertising and marketing, and any failure by us to design and position effective and cost-efficient advertising and marketing, or to do so at sufficient levels, could have a material adverse effect on our business, results of operations or financial condition.

We rely on advertising and marketing that is effectively designed and positioned to make end users aware of our services. In addition to heightening awareness, our advertisements also provide end users with useful information—typically a telephone or SMS number—which they need to purchase a particular service. Currently, we make advertising and marketing decisions such as media mix planning and audience targeting based on the deep experience of our marketing and sales personnel. Because we offer services in more than 75 different countries, we face the challenge of identifying how tastes vary from region to region, end user to end user, and employing this knowledge to create appealing advertising and marketing campaigns. We cannot guarantee that we can continue to effectively design and position advertising and marketing campaigns.

Additionally, for the year ended December 31, 2010, we spent approximately €57.1 million on commercial costs relating to direct media costs for the placement of our advertising on television, the Internet and other media, with advertising costs accounting for €27.7 million of such amount. Given the importance of effective

 

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advertising and marketing to our business and to our client acquisition efforts, and given the substantial share of our operating expenses that commercial and production costs represent, our business depends on our ability to deploy client acquisition resources—including commercial costs relating to advertising—effectively and cost-efficiently. We cannot accurately predict the future costs associated with our advertising efforts, including the costs of purchasing media space, and if these costs were to increase, we could be forced to reduce the amount of advertising and marketing we do or opt for less effective media, which could detrimentally affect our client acquisition efforts. Finally, the timing of our commercial costs may be influenced by our available cash levels at any time and whether such costs are likely to lead to revenues in the current period or subsequent periods. Any failure by us to design and position effective and cost-efficient advertising and marketing, or to do so at sufficient levels, could have a material adverse effect on our business, results of operations or financial condition.

Our services currently are designed primarily for use with basic phones. If we fail to capture opportunities in the expected growth of the smartphone market, our growth prospects may be materially and adversely affected.

Our services are designed primarily for use with basic phones, which currently have a substantially larger market share in Latin America and the other countries in which we operate compared with smartphones. Smartphones are already popular in developed countries, however, and may also gain popularity in our target geographies.

Smartphones are higher-priced, technologically advanced devices with personal computer-level versatility that operate advanced operating systems such as Android, Apple’s iOS, BlackBerry OS, Linux, Palm WebOS, Symbian and Windows Phone 7. Smartphones are usually characterized by more powerful processors, larger screens and higher data storage capacity than basic phones, and are able to easily install and run high-performance multimedia content and applications. As smartphones are gaining market share around the world, some of our users may migrate to smartphones, which can deliver mobile marketing, mobile entertainment and mobile money services with enhanced functionalities and additional features that may not be available on basic phones.

We currently offer some services for use with smartphones and plan to actively pursue new services for use with smartphones. However, there is no assurance that we can successfully establish new relationships with smartphone companies and application providers and increase or maintain the volume and/or market share of mobile handsets with our future smartphone services. In addition, many manufacturers of smartphones and companies that design operating systems for smartphones have developed their own content distribution systems and application stores. Even if we develop a complete portfolio of services designed to be compatible with smartphones, we will face significant competition and cannot guarantee that users of smartphones will use our services at the same level as basic phone users do. If we fail to adapt our service offerings for use with smartphones or if we fail to attract end users in the smartphone market, our growth prospects, business, results of operations and financial condition could be materially and adversely affected.

If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be harmed.

We rely on a combination of trademarks, trade names, confidentiality and nondisclosure clauses and agreements, copyrights and licenses to define and protect our rights to the intellectual property in our platform and services. However, we cannot assure you that any of our registered or unregistered intellectual property rights, or claims to such rights, will now or in the future successfully protect what we consider to be our intellectual property from third-party use in any or all of the jurisdictions in which we do business, or that our registered or unregistered rights will not be successfully challenged.

To the extent that our innovations, platform and services are not protected by copyrights or other intellectual property rights in any of our key markets, third parties (including competitors) may be able to commercialize our innovations or services or use our know-how. In addition, to the extent we do not register, have not registered or

 

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have not been granted trademarks or other intellectual property rights in certain jurisdictions, it may be possible for third parties to obtain conflicting trademarks or other intellectual property rights that would otherwise be limited or blocked by our applications and registration. Further, legal protection of our intellectual property rights in one country may not provide protection in other countries where we operate. We need to secure copyrights or other registrable intellectual property rights in all countries in which we intend to operate in order to have such protection.

The laws of many countries do not protect intellectual property rights to so great an extent as those of the United States or the member states of the European Union. Thus, effective protection of our intellectual property rights may be unavailable or limited in certain foreign countries. For example, many countries, particularly certain developing countries, do not favor the aggressive enforcement of trademarks and other measures to protect intellectual property. Limited intellectual property rights (whether because we do not have a registration or because the laws of some countries are limited) make piracy and misappropriation more difficult to prevent. Moreover, even when we have adequate intellectual property rights to stop an infringer, we may lack the resources to detect all infringements or to trace the source of the infringement. Finally, and despite agreements we have with certain employees prohibiting their disclosure of confidential or proprietary information, or laws in certain jurisdictions that prevent such disclosure, these agreements and laws may not effectively prevent the disclosure of our confidential or proprietary information.

We also claim rights in our trademarks and service marks. Certain of our marks are registered in Portugal, Brazil and other countries and we have filed applications to register certain other marks in these jurisdictions. We cannot assure you that we will be able to continue using all of our marks or that certain of our marks do not infringe the marks of others.

We operate in an industry with extensive intellectual property litigation. Claims of infringement against us may cause our business, results of operations and financial condition to suffer.

We have faced in the past and may in the future face claims for the infringement of the intellectual property rights of others. We may face claims or encounter situations and allegations which will require us to determine whether we need to license a technology or face the risk of defending an infringement claim. Even when we do license third-party technology, such license agreements customarily contain manner of use and scope of use provisions that restrict our use of the licensed technology to certain applications and geographic regions. Despite our efforts to comply with such restrictions, the increasingly global nature of the Internet and telecommunications technology and the ease with which digital media may be duplicated and transmitted can make it difficult to ensure that the licensed material that we distribute is not subsequently used in a manner or place that is restricted by the relevant license agreement. If our platform or any of our services is found to infringe the patents or other intellectual property rights of others, our development and sale of such services could be severely restricted or prohibited.

Patent and other intellectual property litigation can involve complex factual and legal questions, and its outcome is uncertain. Any claim relating to infringement of patents or other intellectual property that is successfully asserted against us may require us to pay substantial damages. Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Furthermore, an intellectual property infringement suit brought against us or our licensees may force us or our licensees to stop or delay developing or selling services that are claimed to infringe a third party’s intellectual property rights unless that party grants us or our licensees rights of use. In such cases, we may be required to obtain licenses to patents or proprietary rights of others, which may not be available on acceptable terms or at all, or alternatively to modify our services to avoid incorporating such patents or proprietary rights, which may not be possible. Even if we or our licensees were able to obtain rights to the third party’s intellectual property, these rights may be nonexclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may incur significant additional costs or be unable to develop and market some of our services or we may have to cease some of our business operations as a result of patent or other intellectual property rights infringement claims, which could severely harm our business. We currently use

 

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the trade names “TIM w.e.” and “TIMWE,” though we do not currently own trademark rights in connection with such names. We are aware that Telecom Italia Mobile owns trademark rights in connection with its “TIM” trade name in Italy and that it also owns trademark rights in connection with the same trade name in Brazil, where its subsidiary operates under the name “TIM Brazil.” We have not faced any intellectual property infringement suits based on the similarity of our trade name with the registered marks owned by Telecom Italia Mobile, but as we continue to expand and people become more familiar with our company, we face the risk of such disputes, which could force us to change our trade name or incur substantial litigation costs and/or penalties. See “Business—Legal and Administrative Proceedings.”

In addition, we may have to pay compensation for the proprietary rights of employees in certain circumstances. Under Portuguese law, we have rights to exploit the inventions created by employees in the normal course of their duties, and to the patrimonial rights in works covered by intellectual property rights, unless otherwise agreed between the parties. Nevertheless, in certain circumstances, we may be obliged to pay compensation to the employee for such inventions or works. Until now, we have not received any requests for compensation on these grounds, but we cannot assure you that this will continue to be the case.

Our content or the third-party content we license may give rise to liability and expose us to significant costs.

We face possible liability for defamation, negligence and other claims, such as product or service liability, based on the nature and content of the services that we provide. Such claims have been brought, sometimes successfully, against mobile entertainment and mobile marketing companies in the past. The law in these areas is unclear, and, accordingly, we are unable to predict the possible existence or extent of our liability in this area or related areas. Further, we do not verify the accuracy of the information supplied by third-party content owners for which we may be liable. While we carry general liability insurance, our insurance may not cover potential claims of this type in some or all of the markets in which we operate, or may not be adequate to indemnify us for all liability that may be imposed. Additionally, while we are entitled to indemnity rights in certain contracts we have with third parties, some claims may not be covered by these indemnity provisions or the third party may be unwilling or unable to indemnify us. Any imposition of liability that is not covered by insurance or other contractual indemnity rights or is in excess of insurance or other contractual indemnity coverage could have a material adverse effect on our business, results of operations or financial condition.

We depend on our ability to license attractive content from third parties and to continue to develop our own attractive content, and if we are unable to do so, our business could be jeopardized.

Our future success depends to a certain extent on our ability to license or produce and then aggregate, integrate and syndicate content of broad appeal to our end user base. For the year ended December 31, 2010, we derived a majority of our mobile entertainment revenues from third-party content. Our ability to maintain our relationships with such content owners and to build new relationships with additional content owners is critical to the success of our business. Content owners may in the future decide to produce and sell their own mobile entertainment services and may therefore refuse to license their content to companies such as ours. Our inability to secure licenses from content owners or the termination of a significant number of content owner agreements, would decrease the attractiveness of our service offerings to our end users, which could result in decreased revenues and, in turn, have a material adverse effect on our business, results of operations or financial condition.

In general, our license agreements with third-party content owners contain one-year terms and provide for payment of an initial fee for copying the licensed content onto our system as well as for payment of a portion of the revenues we generate from the sale of that particular content, measured by the number of actual downloads of the services relating to that particular licensed content. Our business, results of operations or financial condition could be materially adversely affected if content owners demand more favorable license agreement terms in the future.

We also develop our own content, such as texts and graphics. For the year ended December 31, 2010, approximately 59% of total mobile entertainment downloads were downloads of our proprietary content.

 

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Developing an attractive portfolio of proprietary content requires significant investment in research and development personnel and technology. Moreover, as we offer services in more than 75 different countries, we face the challenge of offering services to individuals whose languages, cultures and tastes vary tremendously.

Additionally, in fast-paced digital industries, content is trending toward having a shorter useful life. In this challenging environment we cannot guarantee you that we can continue to successfully develop content that will be appealing to our end users or that in so doing we can keep pace with our competitors or market demands. Our failure to develop and maintain an attractive content portfolio could increase our reliance on third-party content owners and could have a material adverse affect on our business, results of operations or financial condition.

Capacity constraints could disrupt access to our services, which could materially and adversely affect our business, financial condition and results of operations.

Our service goals of performance, reliability and availability require that we have adequate capacity in our computer systems to cope with the volume of traffic through our mobile entertainment, mobile marketing and mobile money services delivery platform. As our operations grow in size and scope, we will need to improve and upgrade our systems and infrastructure to offer our clients and end users enhanced services, capacity, features and functionality. The expansion of our systems and infrastructure will require us to commit financial, operational and technical resources before the volume of our business rises, with no assurance that our revenues will grow. If our systems cannot be expanded in a timely manner to cope with increased traffic, we could experience disruptions in service, lower client and end user satisfaction and delays in the introduction of new services. Any of these problems could impair our reputation, cause our revenue to decline or otherwise materially and adversely affect our business, financial condition and results of operations.

We may not be able to sustain or improve our reputation, and we may consequently experience difficulty in sustaining or gaining market acceptance.

An important part of our strategy is to continue to establish and reinforce our reputation for consistently offering high-quality services in all our markets and exceeding our clients’ expectations. Maintaining and strengthening our reputation will depend in part upon our success in continuing to offer and deliver high-quality services that are favorably received by our clients and end users, and we cannot assure you that we will be successful in this regard.

Furthermore, continuing to expand internationally presents challenges. With operations in more than 75 different countries, not only are we subject to vastly different regulations restricting the time, manner, place and nature of the advertisements and services we distribute, but also we cater to end users with vastly different sensibilities. The increasingly global nature of the Internet and telecommunications technology and the ease with which digital media may be duplicated and transmitted can make it difficult to ensure that the advertisements and content that we distribute remain within the scope of their intended audience. The transmission of our advertisements or content into regions where, due to its time, manner, place or nature, such dissemination violates local regulations or offends local sensibilities could damage our reputation with our clients, end users, mobile carriers, regulators or other parties and threaten our ability to maintain or grow our end user base.

Additionally, some of our competitors have a stronger reputation in some of the markets in which we operate. Also, a potential market entry by an established, highly visible telecommunications provider or other well-known technology company could overshadow our reputation in the mobile marketing, mobile entertainment and mobile money services markets.

If we fail to strengthen our reputation for providing superior, useful, innovative, easy-to-use and high-quality mobile marketing, mobile entertainment and mobile money services, or if any other factor negatively affects our reputation or our image, such as adverse consumer or regulatory publicity, our business, results of operations or financial condition could be materially and adversely affected.

 

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Our agreements with mobile carriers and other clients provide that, in the event of inconsistencies between their reports of receivables and our own, their reports will prevail, which may limit our ability to collect payment of the full amounts we believe to be due to us under such agreements.

Our agreements with mobile carriers, television broadcasters and other clients generally calculate fees payable to us monthly on the basis of the reported volume of revenues generated by the sale of a particular service that is successfully delivered. Although we can independently monitor the level of successful service deliveries from our platform, the terms and conditions of the contracts we have negotiated with these clients effectively require us to rely on them to accurately record sales and the corresponding amount of revenues they owe us. Furthermore, in the case of mobile carriers, our contracts typically stipulate that, with respect to the revenue sharing portions of such agreements, the carriers pay us fees only for those services for which the carrier has successfully been able to collect payment from its subscriber. And since we are unable to monitor the level of customer collections that the mobile carriers have been able to accomplish, in this respect we must rely solely on their reports of “successful deliveries” for which we are entitled to a share in the amount collected.

Under some of our agreements we have the contractual right to request an inspection by an independent auditor of the mobile carriers’ books to verify the information they provide us. However, this inspection process can be expensive and time-consuming and could possibly undermine the relationships we have with these mobile carriers. In addition, there is no assurance that the amounts recovered will cover the costs of undertaking those investigations. Moreover, there may be accounting disputes associated with such investigations which can make resolving any such discrepancies time-consuming and costly. As a result, to date, we have generally relied on the accuracy of reports supplied by mobile carriers as compared with our own records. Historically, from time to time, we have disputed the total amounts due to us from mobile carriers. As a result, and in accordance with IFRS-IASB, our financial statements present revenues net of amounts which we estimate—based on the historical information tracked by our platform—we will not be able to collect from mobile carriers. Nevertheless, mobile carriers may determine that the amounts due to us are lower than what we have estimated, and our ability to collect payment of the full amounts we believe to be due to us may be limited.

Our client contracts lack uniformity and often are complex, which subjects us to business and other risks.

Our clients include a diverse set of some of the largest mobile carriers and media groups, which have substantial purchasing power and negotiating leverage. As a result, we typically negotiate contracts on a client-by-client basis and sometimes accept contract terms not favorable to us in order to close a transaction, including indemnity, limitation of liability, refund, penalty or other terms that could expose us to significant financial or operating risk. If we are unable to effectively negotiate and enforce our contracts with our key clients, our business, financial condition and results of operations may be materially adversely affected.

In addition, we have contractual indemnification obligations to our clients, many of which are unlimited in nature. If we are required to fulfill our indemnification obligations relating to third-party content that we provide to our end users, we intend to seek indemnification from our suppliers, vendors, and content owners to the full extent of their responsibility. Even if the agreement with such supplier, vendor or content owner contains an indemnity provision, it may not cover a particular claim or type of claim, may be limited in amount or scope or may be unenforceable. As a result, we may or may not have sufficient indemnification from third parties to cover fully the amounts or types of claims that might be made against us. Any significant indemnification obligation to our end users could have a material adverse effect on our business, operating results and financial condition.

Several of our larger clients require us to maintain specified levels of service commitments and failure to meet these levels would both adversely impact our client relationships as well as our overall business.

Many of our clients require us to contractually commit to maintain specified levels of service under agreements commonly referred to as service level agreements. In particular, because of the importance that mobile end users in general attach to the reliability of a mobile network, mobile carriers frequently employ rigorous service level requirements. We are a rapidly growing company and, although to date we have not

 

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experienced any significant interruption of service, if we are unable to meet our contractually committed service level obligations, we could be subject to civil liability as well as adverse reputational consequences. These, in turn, would materially and adversely affect our business, financial condition and results of operations.

Failure to maintain effective customer care could harm our reputation or decrease market acceptance of our services, which would materially and adversely affect our business, financial condition and results of operations.

Customer care is critical to retain current clients and end users and attract potential clients and end users, and we may not be able to maintain and continuously improve the quality of our customer care to meet expectations. If we fail to provide effective customer care, our clients or end users may be less inclined to use or recommend our services to others and may switch to our competitors’ services. Additionally, in some regions in which we operate, we are subject to consumer rights-related regulations that implicate customer care functions. In these jurisdictions we could be subject to fines or other sanctions if we do not maintain an adequate level of customer care.

Moreover, in several countries where we operate, we outsource customer care functions to contracted third parties. These arrangements can make it more difficult for us to monitor the standard of customer care our clients and end users receive. Unsatisfactory customer care can disrupt our operations, adversely affect the user experience, harm our reputation, cause our clients and end users to stop using our services, result in government penalties and delay market acceptance of our brand and/or the mobile content and other services offered through our platform, any of which could materially and adversely affect our business, financial condition and results of operations.

Finally, the digital services we offer are subject to frequent improvement and updates, and as such, may contain errors or flaws that may only become apparent when the updated service is accessed by end users, particularly as we launch new features and updates under tight time constraints. We rely primarily on our users to inform us of programming flaws affecting their experience, and we are typically able to resolve such flaws promptly. However, if for any reason, programming errors or flaws are not resolved in a timely fashion, we may lose some of our clients or end users, and our reputation, business, results of operations and financial condition could be materially and adversely affected.

Our position as an intermediary in several of our business activities introduces risks associated with third-party actions.

In some of our business activities we act in the capacity of an intermediary, facilitating an interaction between a third party (our client) and a mobile carrier. These arrangements introduce the risk that the third party beyond our control would engage in activities that are inappropriate, illegal, or that would subject us to regulatory penalties or reputational harm. Particularly in our mobile money business, we face the risk that the activities of a third-party client or the nature of that client’s business violate certain regulatory restrictions, which could result in a sanction being imposed upon us, our payment channel being closed down or our relationship with the mobile carrier being terminated. The success of our business in all areas where we act as an intermediary is dependent upon our implementation of measures to prevent, identify and stop problematic third-party activities to ensure that they do not subject us to financial or reputational risks. Failure to do so could have a material adverse effect on our business, results of operations or financial condition.

We cannot assure you that the growth we have experienced recently will continue.

We have achieved rapid growth in a relatively short period of time. Our revenues have increased from €67.8 million in the year ended December 31, 2007 to €233.9 million in the year ended December 31, 2010. The future development and success of our business depend in large part on the future level of demand for mobile marketing, mobile entertainment and mobile money services in general and our services specifically. It is difficult to predict both the future growth of demand and the future size of our client base and end user base in the mobile marketing, mobile entertainment and mobile money markets. Demand for mobile marketing, mobile

 

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entertainment and mobile money services in general, or for our services specifically, may fail to grow at anticipated rates. In addition, we may experience decreases in demand for our services due to increased competition from existing competitors or new market entrants. It is possible that we will experience declining rates of revenue growth in the future. If demand for mobile marketing, mobile entertainment and mobile money services generally, or for our services specifically, does not grow as anticipated, or if we lose market share for any reason, our business, results of operations or financial condition would be materially and adversely affected.

Growth and expansion may place significant demands on our resources, systems, internal controls and senior management, which may materially and adversely affect our business, financial condition and results of operations.

Our rapid growth in a relatively short period of time has placed, and may continue to place, significant demands and strains on our resources, systems, internal controls and senior management. Our growth and international expansion, which commenced with the opening of Latin American offices in 2005, has required us to increase the size of our staff, which consisted of approximately 335 full- and part-time employees as of December 31, 2010. We expect to continue to expand our staff, in particular to hire additional managers, service and content developers and sales, marketing and operations personnel at our various regional offices and headquarters in the future. Managing growth will require, among other things:

 

   

further developing operational, financial, management, legal and information technology systems and controls;

 

   

further developing resources, both legal and otherwise, to comply with additional and increasingly complex regulations;

 

   

managing relationships with existing and new mobile carriers and other clients;

 

   

hiring, training, motivating and retaining qualified personnel;

 

   

maintaining quality standards and client and end user satisfaction levels; and

 

   

ensuring close and effective coordination among our management, sales, marketing, operations, customer care, finance and accounting personnel in all of the countries in which we operate.

If we are unable to successfully integrate new personnel or systems, or if we otherwise fail to successfully manage our growth, our business, results of operations or financial condition could be materially and adversely affected.

The global nature of our business and our continued expansion into emerging markets presents business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder our growth.

We are an international business, with approximately 79% of our operations currently concentrated in Latin America, and an important element of our growth strategy is the further expansion of our international sales to new emerging markets, namely in Africa, the Middle East and Asia, which we believe to have growth potential for mobile marketing, mobile entertainment and mobile money services. We expect sales in emerging markets, and particularly Latin America, to continue to be the dominant component of our revenues. Risks affecting our Latin American and other international operations include:

 

   

multiple, conflicting and changing consumer, tax and other laws and regulations, including complications due to unexpected changes in legal and regulatory requirements;

 

   

difficulties stemming from different interpretations of the same law across multiple jurisdictions and adhering to such differing interpretations;

 

   

challenges caused by distance, language and cultural differences;

 

   

the need to adapt our content for local tastes or the possibility that local end users will demand services that favor our competitors;

 

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difficulties incorporating, investing money or receiving the necessary licenses to conduct and sustain business;

 

   

difficulties in enforcing our existing intellectual property rights and obtaining all the third-party intellectual property rights that are necessary to offer our services;

 

   

difficulties in staffing and managing international operations;

 

   

difficulties in ensuring adequate oversight of and regulatory compliance by employees stationed worldwide and in differing political, social and regulatory environments;

 

   

difficulties in maintaining a system of effective internal controls and managing the accounting and tax complexities of a growing, worldwide business;

 

   

protectionist laws and business practices that favor local businesses, subject foreign companies to a higher level of regulatory scrutiny or restrict the transfer of technology in certain countries;

 

   

foreign tax consequences;

 

   

foreign exchange controls that might prevent us from paying dividends or repatriating income;

 

   

bank regulations that could impact our mobile money business;

 

   

price controls;

 

   

imposition of public sector controls;

 

   

fluctuations in currency exchange rates;

 

   

economic, legal and political instability, including the risk of nationalization of our own or our strategic partners’ assets in certain countries;

 

   

higher costs associated with doing business internationally;

 

   

tariffs, quotas, taxes and other market barriers; and

 

   

longer payment cycles and greater difficulty collecting accounts receivable, particularly in developing countries.

All of the foregoing risks could harm our international expansion efforts, which could, in turn, materially and adversely affect our business, results of operations or financial condition.

We are subject to multiple, different tax regimes. Maintaining compliance with and keeping up to date with the changes in the tax laws in the various jurisdictions in which we operate can be difficult and costly.

We operate in multiple different countries, and as such we are subject to a multitude of different tax regimes. Maintaining compliance with many different tax laws and keeping current with changes to the tax laws in all the jurisdictions in which we operate demands significant energy and resources. Though we have developed an internal system to identify and adhere to tax regulations across our entire business, we have faced in the past and may in the future face administrative proceedings in connection with discrepancies in our tax returns in certain jurisdictions. See “Business—Legal and Administrative Proceedings.” Failure to maintain compliance with tax laws in any of the jurisdictions in which we operate could result in significant fines or other regulatory action, which could materially and adversely affect our business, results of operations and financial condition.

Our revenues, gross margins or results of operations may fluctuate due to a number of factors, which could materially and adversely affect our business.

Our revenues, gross margins or results of operations may fluctuate unpredictably due to a number of factors, including:

 

   

changing end user demand;

 

   

our ability to successfully develop and commercialize new services;

 

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the timing of releases of our new services or those of our competitors;

 

   

changes in our pricing policies or those of our competitors;

 

   

our failure to create the necessary demand for our services through targeted advertising;

 

   

the timing of significant media purchases in connection with advertising campaigns, and the timing of any related revenues generated therefrom, which frequently lags the timing of such campaigns;

 

   

the mix of our services sold, the mix of our target end user base and the mix of our sales channels;

 

   

changes in the pricing policies of mobile carriers, content owners or others;

 

   

the availability and cost of third-party content, which we license or seek to license;

 

   

the potential for service obsolescence in the face of rapid technological change; and

 

   

fluctuations in the exchange rate between the euro and other currencies.

Furthermore, given the fixed nature of certain of our operating expenses, a decrease in our revenues for a given year could materially affect our results of operations for that year. In addition, as more competitors enter the mobile marketing, mobile entertainment and mobile money markets, the average selling price of a given service in the corresponding market might decline, thereby decreasing the price that we will be able to charge our clients or end users for our services. Such a decrease in the average selling price of any of our services could cause a decline in our revenues, gross margins or results of operations if we are unable to offset any such price decline with upgrades or new service innovations that could be sold at a higher average selling price. Given the wide range of mobile marketing, mobile entertainment and mobile money services providers in the market, it is crucial that we maintain customer levels by providing a high-quality range of services and managing customer churn, and failure to do so could materially and adversely effect our business, results of operations and financial condition.

Because we may not receive revenue from our clients in the period in which we incur costs associated with generating client agreements, including commercial and production costs associated with client acquisition, our expenses may not increase or decrease in direct proportion to our generation of revenue.

Our expenses may not increase or decrease in direct proportion to our generation of revenue. For example, in some cases we will have incurred significant commercial costs relating to the placement of our advertising on TV, Internet and other media in connection with a client’s campaign and must recognize such costs as expenses in the period when incurred despite the fact that related revenues might be recognized in a subsequent period. Furthermore, these payments, in certain instances, may exceed the amount that we ultimately receive in connection with the particular arrangement, resulting in a net loss with respect to the specific project. Additionally, such up-front payments may have the effect of forcing us to forego certain marketing or other investments that we might otherwise make. If we fail to accurately forecast our expenses or are unable to accurately estimate the revenue-generating potential of specific projects, we could suffer losses that could materially affect our business, operating results and financial condition.

Continuing unfavorable global economic conditions, as well as continuing uncertainties and volatility relating to the Portuguese economy specifically, could have a material adverse effect on our business, results of operations and financial condition.

The crisis in worldwide financial and credit markets has led to a global economic slowdown, with many economies around the world showing significant signs of weakness, which may be exacerbated further by any failure of the U.S. government to raise its debt ceiling. Our services can be viewed as discretionary services, the demand for which is likely to be affected more seriously by economic downturns than that for essential goods and services. If worldwide economies weaken further or fail to improve, our end users may reduce or postpone their spending significantly, and particularly spending on discretionary services, which would materially adversely affect our business, operating results and financial condition.

 

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Several credit rating agencies in recent months have downgraded the credit rating of Portuguese government debt, prompting additional investor concerns with respect to macroeconomic issues. Despite our relatively small amount of debt financing to date, we have sourced all of this financing from Portugal, as opposed to from the emerging markets in which we operate where debt financing has historically been more expensive. As of March 31, 2011 we had a total of €7.3 million in cash and cash equivalents and €13.7 million in debt, €8.4 million (or 61.4%) of which was sourced from Portuguese financial institutions. Additionally, for the year ended December 31, 2010, 2.6% of our total revenues was derived from operations in Portugal. On March 23, 2011 the Portuguese Prime Minister, José Sócrates, resigned amid pressures to implement new fiscal austerity measures. Government elections were held on June 5, 2011 and Pedro Passos Coelho of the Social Democratic Party was elected Prime Minister. On April 7, 2011 the Portuguese government requested a bailout package of approximately €115 billion from the European Central Bank. The terms of the bailout remain unclear and it is difficult to form a reasonable estimate concerning the impact these events will have on the Portuguese economy. Were the Portuguese economy to be impacted by a severe economic crisis our ability to borrow from Portuguese banks may be impaired. In addition, our ability to continue to receive grants under the EU programs administered by the Government of Portugal to aid our technology development efforts could be jeopardized, which could materially adversely affect our business, operating results and financial condition. We have been approved for government grants amounting to approximately €0.3 million for current projects, of which amount we have already received approximately €0.2 million; additionally, we have recently preapplied to another grant for approximately €0.6 million, which concession is yet to be decided. Additionally, we have been granted a subsidized low-interest loan in the amount of €4.5 million under the credit line “PME Invest.” Finally, under the program SIFIDE (Tax Incentives for R&D Program) we have been granted an incentive amounting to approximately €1.4 million in connection with the 2006, 2007 and 2008 fiscal years, of which amount €0.1 million has already been deducted from our 2009 income tax return. We have submitted a request for additional incentives of approximately €2.2 million under the SIFIDE program in connection with research and development investments made during 2009 and expect to submit a request for additional tax incentives relating to our 2010 research and development investments. If the Government of Portugal reduces or eliminates research and development-related grants in response to the current challenging economic environment, our financial condition could be adversely affected.

The growth of our business may be adversely affected due to our failure to ensure the security and privacy of confidential user information.

In each of our business activities, a significant barrier to the development of our business is the secure transmission of confidential information over the mobile network. For example, as part of our mobile marketing business, we may collect personal information from end users of our mobile content or targets of marketing campaigns. Additionally, as we grow our mobile money business we are likely to collect large amounts of sensitive personal and financial information from these users. We rely on proprietary encryption and authentication technology standards to provide the security and authentication necessary to effect secure transmission of confidential user information. While we have not experienced any material breach of our security measures to date, there can be no assurance that advances in technology capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the algorithms used by us to protect user information. A party who is able to circumvent these security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security and privacy of user information may inhibit the mobile marketing, mobile entertainment or mobile money business generally, and our mobile services in particular. To the extent that our activities involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. We cannot assure you that our security measures will prevent security breaches, and failure to prevent such security breaches may have a material adverse effect on our business, prospects, financial condition and results of operations.

 

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We may fail to effectively identify or execute strategic acquisitions, joint ventures, strategic partnerships or investments, and if we do pursue such transactions we may fail to successfully integrate them, fail to realize their anticipated benefits to our business in a timely manner or discover contingent liabilities of which we were not aware prior to the transaction.

We may selectively pursue opportunities to acquire, form joint ventures with or make investments in businesses, services, technologies or innovations which complement or enhance our business and growth strategy. We may not be able to identify suitable candidates for such acquisitions, joint ventures or investments, or if we do identify suitable candidates, we may not be able to complete any particular transaction on acceptable terms, or at all. Any acquisition, strategic partnership, joint venture or investment we may pursue in the future could entail risks including:

 

   

difficulties in realizing cost-related, revenue-related or other anticipated benefits from the acquired entity or investment, including the loss of key employees or intellectual property from the acquired entity, joint venture or investment;

 

   

costs of executing the acquisition, joint venture or investment, both in terms of capital expenditure and increased management attention;

 

   

potential for undermining our growth strategy, our client relationships or other elements critical to the success of our business;

 

   

liabilities or losses resulting from our control of the acquired entity, joint venture or investment; and

 

   

difficulties in adapting acquired technology to our own systems.

We may also fail to integrate successfully any acquisition, partnership or investment we may pursue in the future. In addition, although we expect to conduct legal and financial due diligence prior to consummating any acquisition, partnership or investment, the companies we may acquire, and their assets, may have liabilities or be subject to risks of which we do not become aware through our due diligence investigations, and such liabilities and risks may be significant. If we fail to identify, execute or successfully integrate any acquisitions, partnerships or investments into our operations or if we acquire significant liabilities or risks as a result of any acquisitions, partnerships or investments, our business, results of operations or financial condition could be materially and adversely affected.

Mergers or other strategic transactions by our competitors or by mobile carriers could weaken our competitive position or reduce our revenue.

If two or more of our competitors or two or more mobile carriers in our target markets were to merge or partner, the change in the competitive landscape could adversely affect our ability to compete effectively. In addition, consolidation could result in new, larger entrants in the market. For example, in November 2009, Google, Inc. announced that it has entered into a contract to acquire Admob, Inc. Similarly, in January 2010, Apple, Inc. announced that it had acquired Quattro Wireless, Inc. Although neither Admob nor Quattro Wireless directly compete with us, the transactions are indicative of the level of interest among potential acquirers in the mobile industry generally, and in the mobile marketing industry specifically. Our direct competitors may also establish or strengthen cooperative relationships with their mobile carrier partners, sales channel partners or other parties with whom we have strategic relationships, thereby limiting our ability to promote our services. Additionally, mobile carriers themselves in our target markets may merge, which could affect our existing relationships with such carriers and force us to renegotiate cost of service delivery fees with such newly formed entities, which would have greater negotiating leverage. Such entities may also decide to offer services that compete with ours, which could significantly affect our ability to promote and offer our services and could materially affect our financial success in such markets. Disruptions in our business caused by these or similar events could reduce revenue and adversely affect our business, operating results and financial condition.

 

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Our business depends on our ability to attract, integrate and retain key managerial, content and service development and sales and marketing personnel.

The success of our business depends upon attracting, integrating and retaining qualified personnel in senior management, content and service development, sales and marketing and operations. Competition for qualified personnel in these fields is intense, and there may be a limited number of persons with the requisite skills to serve in those positions. The loss of any of the members of our senior management, in particular of our CEO, Diogo Salvi, or our Managing Partner, Ricardo Carvalho, or delay in recruiting new members, could materially and adversely affect our business. In addition, if we are unable to retain senior research and development or sales and marketing personnel, or to increase our pool of talented personnel to keep pace with our overall rate of growth, our business, results of operations or financial condition could be materially and adversely affected.

We are exposed to risks associated with operations in multiple currencies.

We prepare our consolidated financial statements in euro. However, we conduct our business in multiple currencies, including the euro, the Brazilian real, several other Latin American currencies and other currencies that pertain to the multiple different countries in which we operate. We currently sell our services in Brazil, in European countries that have adopted the euro and various other countries throughout the rest of the world that use other currencies. In 2010, approximately 12% of our revenue was in euro.

We have several different types of currency risks. First, we face a currency translation risk that arises from the fact that the financial records of our subsidiaries located outside the Eurozone are maintained in currencies other than the euro. Upon preparing consolidated financial statements, our euro-denominated consolidated reported financial results can be affected by changes in the relative value of such currencies against the euro. Moreover, fluctuations in currency values may distort period-to-period comparisons of our financial performance.

In some countries, our revenues are denominated in a different currency than our cost base. In addition, we have currency risks with respect to our operations in certain countries that use currencies that are pegged to the U.S. dollar. We are thus affected by fluctuations in the U.S. dollar/euro exchange rate. Also we face the risk that any one or more of these countries could float its currency, which could cause rapid devaluation of any of our assets denominated in such currency.

Given the volatility of currency exchange rates, we cannot assure you that we will be able to effectively manage our currency risk to minimize its impact on our business. Our exposure to currency transaction and translation risks could in the future have a material adverse effect on our business, results of operations or financial condition.

We may require additional capital in the future, which may not be available to us. Future equity financings to provide this capital may dilute your ownership in us, while future debt financings may impose burdensome terms with which we may not be able to comply or which interfere with our business plan.

Based on our current cash balances and projected revenues, and taking into account the additional capital we expect to receive from this offering, we believe that we will have sufficient capital to execute our near-term business plans and maintain positive cash flow. Nevertheless, in the near term or in the future we may require additional capital, which we may raise through public or private debt or equity financings by issuing additional shares or other preferred financing shares, debt or equity securities convertible into our shares, or rights to acquire these securities. We may need to raise this additional capital in order to:

 

   

take advantage of growth opportunities;

 

   

expand geographically;

 

   

extend our marketing and sales efforts;

 

   

upgrade our platform;

 

 

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upgrade our services or develop new services; or

 

   

respond to competitive pressures.

Any additional capital for these or other purposes raised through the sale of additional shares may dilute your percentage ownership interest in us. Furthermore, if we engage in debt financing, we may be required to accept terms that impose liquidity ratios or restrict our ability to incur future indebtedness.

We may not be able to raise additional capital on terms acceptable to us, or at all. If we cannot raise additional capital when needed, or raise it on commercially reasonable terms, we may not be able to pursue our business plan and achieve our strategic and financial goals.

We rely on connectivity service providers to provide certain critical services to our operations and any disruption in the services provided by these connectivity service providers, including a disruption caused by a deterioration in the relationship between the connectivity service provider and the relevant mobile carrier, or inappropriate activity on the part of the connectivity service provider could have a material adverse effect on our ability to deliver our services to clients and end users.

In certain countries in which we operate where we do not have a direct connection to a mobile carrier, we rely on connectivity service providers to connect the technological platform through which our services are transmitted to mobile carriers for delivery to end users. We rely on connectivity service providers predominantly in countries in which we operate that are located outside of Latin America. The connectivity service providers provide continuous monitoring of the interconnection and are responsible for the correction of any technical failures that may affect the connectivity platform. If our connectivity service providers interrupt or discontinue service and we cannot secure alternative services, or secure them on commercially reasonable terms, we could face a significant interruption in our business, which could have a material adverse effect on our reputation, business, results of operations or financial condition. Additionally, even when our connectivity service providers do not interrupt or discontinue service, we cannot control or anticipate their actions, some of which may be illegal or offend certain of our end users. Though we cannot control or anticipate these activities, they may nevertheless expose us to regulatory sanctions or reputational damage. Finally, any deterioration in the relationship between a connectivity service provider and the mobile carrier to which it provides a connection could result in our losing our connection with such mobile carrier, which could decrease our end user base and have a material adverse affect on our business, results of operations and financial condition.

Risks Relating to our Industry

We operate in a highly dynamic and competitive industry. If we are unable to compete effectively with our existing or any new competitors, our business, results of operations or financial condition could be materially and adversely affected.

The market for mobile marketing, mobile entertainment and mobile money services in each of the geographic markets in which we operate is highly dynamic and competitive, and we expect competition to increase as new companies target these markets in response to the perceived high growth potential of mobile entertainment, mobile marketing and mobile money services in certain markets, such as Latin America, Africa and Asia. We compete principally on the basis of the popularity, effectiveness and impact of our services.

Many of the potential competitors for our services are large, well-known companies with greater financial, technical and human resources than our own and stronger reputations. Companies with more resources and larger research and development expenditures also have a greater ability to pursue research and development and capitalize on potential market opportunities, greater negotiating leverage with mobile carriers and third-party content owners, more resources to fund and integrate acquisitions and greater distribution capability. Our services may also face competition in key markets from service offerings from the mobile carriers themselves, handset manufacturers, content owners and online merchants. In addition, a potential market entry by established global telecom companies, Internet service providers or technology companies would significantly increase

 

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competition in the mobile marketing, mobile entertainment and mobile money services markets. Established mobile carriers also may decide to go directly to advertisers, third-party content owners or online merchants to provide to clients and end users the services that we currently offer.

We face different market dynamics and competition across the various markets in which we operate. In some international markets, our competitors have stronger reputations and broader distribution than we have. We may not be as successful as our competitors in generating revenues in international markets due to our inability to provide services that are attractive to the local market, the lack of local reputation or other factors. Developing services that are attractive to end users in other cultures could be expensive. Furthermore, mobile carriers in different markets might alter their pricing structures and terms of service toward certain types of service providers, making it more profitable for some of our competitors to enter these markets. As a result, our international expansion efforts may be more costly and less profitable than we expect.

If we are not as successful as our competitors in our target markets, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could have a material adverse effect on our business, results of operations or financial condition.

The markets for mobile marketing, mobile entertainment and mobile money services and the mobile phones, which run those services are undergoing rapid innovation and change, which could render our services obsolete and could cause us to incur substantial costs to make changes to our services.

The markets for mobile marketing, mobile entertainment and mobile money services and mobile phones are experiencing rapid innovation and change, with evolving industry standards, frequent new service introductions and changes in the marketing and delivery of mobile entertainment, mobile marketing and mobile money services. Wireless network and mobile phone technologies are undergoing rapid innovation. Technologies such as 4G mobile broadband, Wi-Fi, worldwide interoperability for microwave access, or WiMAX, and voice over Internet protocol, or VOIP, are challenging existing wireless communication technologies. At the same time, new mobile phones with more advanced processors and supporting advanced programming languages continue to be introduced in the market. We have no control over the demand for these services. However, if we fail to anticipate and adapt to these and other technological changes, our market share and our operating results may suffer. Our future success will depend on our ability to adapt to rapidly changing technologies, develop services to accommodate evolving industry standards and improve the performance and reliability of our services. In addition, the widespread adoption of networking or telecommunications technologies or other technological changes could require substantial expenditures to modify, develop or adapt existing services and create new services more quickly. Any failure or delay in anticipating technological advances or developing and marketing new services that respond to any significant change in technology or demand could limit the available channels for our services and limit or reduce our sales. Furthermore, as mobile telephone technology becomes more sophisticated and end users seek more advanced services, we may be required to spend significantly more on in-house content development costs or licensing fees. Any of these developments may have a material adverse effect on our business, results of operations or financial condition.

Our revenues and prospects would be adversely affected if demand for mobile services declines or does not continue to grow.

Our success and future growth depend substantially on the general level of demand for mobile marketing, mobile entertainment and mobile money services. If demand for mobile marketing, mobile entertainment and mobile money services declines or does not continue to grow, our revenues and prospects would be materially and adversely affected. The market for mobile marketing, mobile entertainment and mobile money services is still developing, and it is difficult to predict either the future growth of that market or the size of our future end user base. If the markets for mobile marketing, mobile entertainment and mobile money services fail to develop and grow, if we lose market share, if we are forced to reduce our fees to maintain or increase market share, or if we fail to achieve a market share in any significant jurisdiction or market category, this could have a material adverse effect on our future revenue growth and our business, results of operations or financial condition.

 

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If the markets for mobile marketing, mobile entertainment and mobile money services decline or the market share of the mobile carriers with whom we operate declines, our revenue and growth prospects may be adversely affected because we may not have additional services that would generate sufficient revenue to enable us to sustain our business while seeking new markets and applications for our services. If we seek to diversify our service offerings, we may not be successful.

We are subject to distinct regulatory requirements in each of the countries in which we operate, and we may not be able to comply with such requirements, which could expose us to costly penalties and damage our reputation.

We are subject to different time, manner, place and content restrictions in the various regulatory environments in which we operate, compliance with which can be difficult and costly. Even within a single jurisdiction, regulations can differ depending upon the particular media channel being used. For example, we may advertise featured digital content via television, radio broadcast, mobile device or print media channels. Each of these channels could be subject to different regulatory restrictions, depending upon the region. Moreover, each separate country in which we operate may impose different regulatory restrictions on any or all of these media channels. Given our operations in a multitude of different countries, we could face difficulties and increased costs maintaining compliance with numerous different regulatory regimes and tracking the changes in these regimes as they evolve.

Additionally, the increasingly global nature of the Internet and telecommunications technology and the ease with which digital media may be duplicated and transmitted can make it difficult to ensure that the advertisements and content that we distribute remain within the scope of their intended audience. Despite our efforts to comply with local regulatory requirements, our advertisements and content could be transmitted by third parties to locales where such dissemination violates local requirements, and we could face penalties and damage to our reputation. Any such penalties, reputational damage or increased costs associated with maintaining compliance in different regulatory environments could have a material adverse effect on our business, results of operations or financial condition.

We may be affected by data protection laws, laws on unsolicited commercial communications, laws on general terms and conditions, laws on the protection of minors and telecommunication laws, among others.

Our business is subject to governmental regulation, compliance with which can be difficult and costly, and it is possible that we will experience the effects of increased regulation in the future. In Latin America, Europe and other jurisdictions, we face laws and regulations on data protection, unsolicited commercial communications, general terms and conditions, the protection of minors and telecommunications as well as potential restrictions on the transmission of certain kinds of content, which could materially adversely affect our ability to complete, improve, license or distribute our services. Changes in the application or enforcement of these laws or regulations could result in a competitive disadvantage for us and the possible loss of clients, end users and revenue. If we are unable to comply fully with such regulations, we could become subject to substantial fines and exposed to potential liability claims by clients, end users or third parties as well as suspension or termination of our services, which could have a material adverse effect on our reputation, business, results of operations or financial condition.

Moreover, we may also face the risk that, due to the application of regulations in force or of new regulations, we may have to alter the mechanisms in place to ensure that we enter into legally binding contracts with our end users, including minors, and that terms and conditions of our services are known to and accepted by end users, which could have a material adverse effect on our business or results of operations.

Furthermore, in the recent past we have witnessed an increase in regulatory initiatives, particularly among mobile industry organizations, to tighten the rules under which mobile services are offered, including in the area of subscriptions and regulations in how end users accept the general terms and conditions of mobile services.

 

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Though these regulatory initiatives have had a positive impact on our business thus far, the costs of compliance with regulations that may be implemented in the future may have a material adverse effect on our results of operations.

Finally, new regulations may affect the speed or ease by which end users may terminate our subscription and other services, which could have a material adverse effect on our business or results of operations.

The complexity and incompatibilities among next-generation mobile phones and wireless technologies may require us to use additional resources for the development of our applications.

We support numerous mobile phone models and technologies in an effort to reach the maximum number of mobile end users. However, keeping pace with the rapid innovations in mobile phone technologies together with the continuous introduction of new, and often incompatible, mobile phone models by mobile carriers requires us to make significant investments in research and development, including personnel, technologies and equipment. In the future, we may be required to make substantial, additional investments in developing mobile marketing, mobile entertainment and mobile money services that are compatible with next-generation mobile phones.

Actual or perceived security vulnerabilities in mobile phones could reduce demand for our services and adversely affect our revenues.

Maintaining the security of mobile phones and wireless networks is critical for our business. There are individuals and groups who develop and deploy viruses, worms and other malicious software programs that may attack wireless networks and mobile phones. Any actual or perceived security threat to mobile phones or any wireless network could lead our existing and potential end users to reduce or refrain from mobile phone usage, reduce or refrain from purchasing our services or seek refunds from mobile carriers or us. Mobile carriers and mobile phone manufacturers may also increase their expenditures on protecting their wireless networks and mobile phone products from attack, which could delay adoption of new mobile phone models, which, in turn, could lead to a decrease in demand for our services. Any of these activities could materially and adversely affect our revenues.

Risks Related to our Common Shares

The interests of our principal shareholders may differ from the interests of our other shareholders.

Upon completion of the offering, our principal shareholders (see “Principal and Selling Shareholders”) will collectively beneficially own approximately 80.4% of our shares (77.8% if the overallotment option is exercised in full). As a result, they will be able to determine substantially all matters requiring approval by a majority of our shareholders, including the declaration of dividends, the election of directors, changes in our issued share capital and the adoption of amendments to our bylaws. Our principal shareholders will also be able to cause or prevent a change in our control. The interests of our principal shareholders may differ significantly from the interests of our other shareholders.

Shareholder rights under Portuguese law may differ materially from shareholder rights in the United States, which could adversely affect our and our shareholders’ ability to protect our and their interests.

Our corporate affairs are governed by our bylaws and by the laws of the Republic of Portugal. The rights of shareholders to take action against the directors, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Portuguese law are governed by the laws of Portugal. The rights of our shareholders and the fiduciary responsibilities of our directors under Portuguese law in this area are different from those under statutes or judicial precedent in existence in some jurisdictions in the United States. In particular, Portugal has a less well-developed body of judicially interpreted corporate law. Moreover, we could be involved in a corporate combination in which dissenting shareholders would have no rights comparable to appraisal rights which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations. Also, our Portuguese counsel is not aware of any reported class action or derivative action having been brought

 

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in a Portuguese court. Such actions are ordinarily available in respect of U.S. corporations in U.S. courts, but shareholders of Portuguese companies may not have standing to initiate shareholder derivative action before the federal courts of the United States. As a result, our public shareholders may find it more difficult to protect their interests in actions against the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests may be limited if we suffer harm that would otherwise be redressable in a U.S. federal court. In addition, voting procedures also differ between Portuguese and U.S. corporate law, and while we have taken steps consistent with Portuguese legal principles to facilitate the application of customary U.S. voting by beneficial owners in respect of our shares which we believe will be effective, we cannot assure you that these procedures, including those that provide for the pass-through of voting instructions by DTC participants, will be given effect under Portuguese law. See “Description of Share Capital—Corporate Governance.”

Our status as a foreign private issuer exempts us from certain of the corporate governance standards of the NASDAQ Stock Market (“NASDAQ”), limiting the protections afforded to investors.

We are a “foreign private issuer” within the meaning of the NASDAQ corporate governance standards. Under the NASDAQ rules, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NASDAQ corporate governance requirements, including the requirements that (i) a majority of the Board of Directors consist of directors that are independent under NASDAQ rules, (ii) nonmanagement directors meet on a regular basis without management present, (iii) a nominating and corporate governance committee be established that is composed entirely of directors that are independent under NASDAQ rules and has a written charter addressing the committee’s purpose and responsibilities, (iv) a compensation committee be established that is composed entirely of directors that are independent under NASDAQ rules and has a written charter addressing the committee’s purpose and responsibilities and (v) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Although we have a nominating and corporate governance committee and a compensation committee each comprised of directors that are “independent” as such term is defined in the regulations of the Securities and Exchange Commission pursuant to Section 301 of the Sarbanes-Oxley Act, we otherwise intend to use these exemptions. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all NASDAQ corporate governance requirements. For a comprehensive discussion of the significant differences between Portuguese corporate governance practices and the NASDAQ Stock Market’s corporate governance standards, please see “Description of Share Capital—Corporate Governance—Summary of Significant Differences Between Portuguese Corporate Governance Practices and the NASDAQ Stock Market’s Corporate Governance Standards.”

Anti-takeover provisions in our charter documents could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management.

Our bylaws include a provision that could make an acquisition of us more difficult, whereby our board of directors has the right to issue shares (preferential or otherwise) without shareholder approval up to the limit of €1,000,000, which could be used to institute a “poison pill” that would work to dilute any potential hostile acquirer’s ownership interest in us, effectively preventing acquisitions that have not been approved by our board of directors.

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Republic of Portugal, because we do not conduct any of our operations in the United States and because all our directors and officers reside outside of the United States.

We are a company incorporated under the laws of the Republic of Portugal, and substantially all of our assets and all our subsidiaries and affiliates are located outside the United States. In addition, our directors and

 

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officers and their assets are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon our directors or officers, including with respect to matters arising under United States federal securities laws or applicable state securities laws.

We have been advised by CCA Advogados, our Portuguese legal advisors, that:

 

   

the courts of Portugal will not automatically recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of the securities laws of the United States or any State thereof, and

 

   

in original actions brought in Portugal, Portuguese courts are unlikely to impose liabilities against us based on certain of the civil liability provisions of the securities laws of the United States or any state thereof, if and to the extent that such provisions are penal in nature.

We currently do not intend to pay dividends on our common shares and, as a result, your only opportunity to achieve a return on your investment is if the price of our common shares appreciates.

We have never declared or paid any dividends on our common shares and currently do not expect to declare or pay dividends on our common shares in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used in the operation and growth of our business. Any determination to pay dividends in the future must be proposed by our board of directors and then approved by our shareholders. In addition, (i) our ability to pay dividends on our common shares may be restricted by the terms of any future debt or preferred securities and (ii) our dividends, if distributed, would be paid in euro, creating a risk associated with any fluctuation in the exchange rate between the euro and the U.S. dollar. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common shares appreciates and you sell your shares at a profit. The market price for our common shares may never exceed, and may fall below, the price that you pay for such common shares.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common shares, or if our operating results do not meet their expectations, our share price and trading volume could decline.

The trading market for our common shares will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these reports or analysts. If any of the analysts who cover our company downgrade our shares, or if our operating results do not meet the analysts’ expectations, our share price could decline. Moreover, if any of these analysts ceases coverage of our company or fails to publish regular reports on our business, we could lose visibility in the financial markets, which in turn could cause our share price and trading volume to decline.

As a foreign private issuer we are not subject to all of the reporting requirements and other rules applicable to U.S. domestic companies.

We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, and related rules and regulations, most notably those prescribing the content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our common shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or promptly as U.S. companies whose securities are registered under the Exchange Act. As such, if we do not voluntarily file reports and financial statements with the SEC as frequently as U.S. companies whose securities are registered under the Exchange Act, it may be more difficult for shareholders and potential investors to gather timely information about us, and it may be more difficult for industry or securities analysts to prepare reports covering our securities as they may not be able to compare our results to those of our competitors on a synchronized basis.

 

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Risks Related to this Offering

The shares eligible for future sale after this offering could affect the market price of our shares.

Sales of a substantial number of our shares in the public market following this offering, or the perception that such sales could occur, could adversely affect the market price of our shares or our ability to raise capital through a future public offering of our shares. We have agreed, subject to certain limited exceptions, and our shareholders, executive officers and directors have agreed, that without the prior written consent of the joint global coordinators we will not, for a period of 180 days following the date of this prospectus, issue, offer, transfer, sell, contract to sell or pledge in guarantee of any obligation that may become due prior to the expiration of such period or otherwise dispose of, directly or indirectly, or enter into any transaction which could have an effect similar to the sale or offer of, any of our shares or other security convertible into or exchangeable for our shares or any other securities which may provide the right to subscribe for or purchase our shares, including transactions executed with or through derivatives, or announce publicly our intention to do any of the foregoing. After the expiry of the specified lockup period, such shareholders could sell their holdings of our shares, and we could offer to sell new shares in public or private transactions. Such future sales by us could dilute the ownership interests of our then-existing shareholders, and sales by our shareholders or us could materially and adversely affect the trading price of our shares.

As a new investor, you will experience substantial dilution as a result of this offering.

The public offering price per common share will be substantially higher than the net tangible book value per common share prior to the offering. Consequently, if you purchase common shares in this offering at an assumed public offering price of $13.00, you will incur immediate dilution of $11.39 per common share as of March 31, 2011. For further information regarding the dilution resulting from this offering, please see the section entitled “Dilution.” In addition, you may experience further dilution to the extent that additional shares are issued upon exercise of outstanding options. This dilution is due in large part to the fact that our earlier investors paid substantially less than the assumed initial public offering price when they purchased their common shares. In addition, if the underwriters exercise their overallotment option, you will experience additional dilution.

There is no established trading market for our shares.

This offering constitutes our initial public offering of shares, and no public market for our shares currently exists. We have applied to list our shares on the NASDAQ Stock Market, and we expect our shares to be quoted on the Automated Quotation System of the NASDAQ Stock Market on 2011, subject to completion of customary procedures in the United States. Any delay in the commencement of trading of our shares on the NASDAQ Stock Market would impair the liquidity of the market for our shares and make it more difficult for holders to sell our shares.

If our shares are listed on the NASDAQ Stock Market and quoted on the Automated Quotation System of the NASDAQ Stock Market, there can be no assurance that an active trading market for our shares will develop or be sustained after this offering is completed. The initial offering price has been determined by negotiations among the selling shareholders, the joint global coordinators and us. Among the factors considered in determining the initial offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the financial ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. However, there can be no assurance that following this offering our shares will trade at a price equal to or greater than the offering price.

In addition, the market price of our shares may be volatile. Factors such as fluctuations in our results of operations, negative publicity, changes in stock market analyst recommendations regarding us, sectors in which we operate, or the securities market generally and conditions in the financial markets may have a material adverse effect on the market price of our shares. During recent years, securities markets in the United States and

 

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worldwide have experienced significant volatility in prices and trading volumes. This volatility could have a material adverse effect on the market price of our shares, irrespective of our results of operations and financial condition.

Our management will have broad discretion over the use and investment of the net proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

We have not decided on a specific use for the net proceeds we will receive from this offering. You will not have the opportunity, as part of your investment decision, to assess whether we use the net proceeds appropriately. Our management will have considerable discretion in the application of the net proceeds from this offering and, therefore, you must rely on its judgment. We intend to use the proceeds from this offering to accelerate expansion into new markets, enhance our monetization solutions portfolio through new developments and strengthen our capacity to pursue strategic acquisitions. The net proceeds received by us from this offering may be used in acquisitions or investments that do not produce income or which lose value, or could be applied in other ways that do not improve our operating results or increase the value of your investment in our shares.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may, therefore, be adversely impacted.

We will be subject to reporting obligations under U.S. securities laws. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Beginning with our annual report on Form 20-F for the fiscal year ending December 31, 2012, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

Prior to this offering, we have been a private company with a limited number of accounting personnel and other resources with which to address our internal controls and procedures. At the same time, we have grown significantly in recent years. In connection with the offering, we have been implementing a number of measures to improve our internal control over financing reporting in order to obtain reasonable assurance regarding the reliability of our financial statements. Though we have not yet fully implemented a system of internal controls over financial reporting that complies with the requirements of Section 404 of the Sarbanes-Oxley Act, as of December 31, 2010 we had not, using our current procedures, identified any material weaknesses or significant deficiencies relating to our internal controls over financial reporting. We do not currently have an internal audit function.

We will continue to implement measures to improve our internal controls over financial reporting to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely implement, and maintain the adequacy of, our internal controls, we may not be able to conclude that we have effective internal control over financial reporting. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our common shares. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act.

 

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We will incur significant increased costs as a result of operating as a company whose shares are publicly traded in the U.S., and our management will be required to devote substantial time to new compliance initiatives.

As a company whose shares will be publicly traded in the U.S., we will incur significant legal, accounting and other expenses that we did not previously incur. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the rules of the SEC and The NASDAQ Stock Market, have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.

Based on the expected composition of our income and assets and the value of our assets (including the value of our goodwill, determined, in part, on the expected price of common shares in this offering), we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year or in the foreseeable future. However, because we expect to have a significant amount of passive assets following the offering, and because PFIC status is determined annually after the end of each taxable year and will depend on the composition of our income and assets and the market value of our assets (which may depend, in part, on the price of our common shares, which could change significantly) from time to time, there can be no assurance that we will not be a PFIC for any taxable year. In general, a non-U.S. corporation will be considered a PFIC for any taxable year in which either (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

If we were to be or become a PFIC, a U.S. Holder (as defined in “Taxation”) would generally be subject to imputed interest charges, characterization of a portion of any gain from the sale or exchange of our common shares as ordinary income, and other disadvantageous tax treatment with respect to our common shares. You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, holding and disposing of common shares if we are or become a PFIC. For more information, see “Taxation—Capital Gains—U.S. Federal Income Taxation—Passive Foreign Investment Company Rules.”

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

This prospectus translates certain euro amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such euro amounts have been translated at the rate of $1.4183 per €1.00, which corresponds to the noon buying rate for the euro calculated on March 31, 2011. The “noon buying rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that euro could have been, or could be, converted into U.S. dollars at that rate or any other rate. See “Exchange Rates” for information regarding exchange rates for the euro since 2006.

Financial Statements

Our consolidated financial statements at December 31, 2010 and 2009 and for each of the years ended December 31, 2010, 2009 and 2008 have been audited, as stated in the report appearing herein, and are included in this prospectus and referred to as our audited consolidated financial statements. We have prepared these financial statements and other financial data included herein in accordance with IFRS-IASB.

Market Share and Other Information

We obtained the market data, including market forecasts, used throughout this prospectus from market research, publicly available information and industry publications. We have presented this data on the basis of information from third-party sources that we believe are reliable, including, among others, Analysys Mason, Pyramid Research and the Economist Intelligence Unit. In many countries in which we operate, we are not aware of available public information concerning our and our competitors’ market positions. Therefore, in order to ascertain our market position, we rely on the feedback of our regional managers in these countries who, in the ordinary course of business, gather market and competitive positioning information from mobile carriers in their regions. Statements we make in this prospectus concerning our market position are not based on independent public data and are instead based such feedback we receive from our regional managers and the information our regional managers receive from local mobile carriers, which we believe is reliable because our competitors’ businesses, like ours, use mobile carriers’ networks and we believe that mobile carriers are well-positioned to evaluate our position in our markets.

Trademarks

We have proprietary rights to trademarks used in this prospectus, which are important to our business. We have omitted the “®” and “™” designations for certain trademarks, but nonetheless reserve all rights to them. Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its respective holder.

Glossary

In this prospectus, unless the context otherwise requires, the terms:

 

   

“client” refers to any carrier, media company, government or brand owner to whom we offer our solutions;

 

   

“end user” refers to any mobile telephone user who maintains a subscription or prepaid arrangement with any mobile carrier to whom our platform is connected, and who consequently uses or could use our platform to access our mobile entertainment or mobile payment services and/or could be targeted in connection with our mobile marketing activities; end users who maintain more than a single arrangement with a carrier are counted as end users in respect of each such arrangement;

 

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“mobile entertainment subscriber” refers to an end user who has subscribed for our services and has not cancelled or been deactivated by us or the relevant mobile carrier prior to year-end; subscribers are generally deactivated if they fail to pay amounts owed or do not use services for a prescribed period, which varies based on the mobile carrier and jurisdiction involved; and

 

   

“subscriber” refers generally to any mobile telephone user who maintains a subscription or prepaid arrangement with any mobile carrier, whether or not our platform is connected with such mobile carrier. Mobile telephone users who maintain more than a single arrangement with a carrier are counted as subscribers in respect of each such arrangement.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains estimates and forward-looking statements, principally in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Some of the matters discussed concerning our operations and financial performance include estimates and forward-looking statements within the meaning of the Securities Act and the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.

These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause those differences include, but are not limited to:

 

   

the state of our relationships with mobile carriers;

 

   

our operations in Brazil;

 

   

our use of a single, leased datacenter;

 

   

the fluctuation of our quarterly results;

 

   

the growth of the market for mobile services in the regions in which we operate;

 

   

the success of our advertising efforts;

 

   

the impact of increased adoption of smartphones in our markets;

 

   

our success in protecting and enforcing our intellectual property rights and avoiding infringement of the intellectual property of others;

 

   

the global nature of our operations and the impact of changes in economic conditions in the markets in which we operate and worldwide; and

 

   

intense competition in the markets in which we operate.

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors.” Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this prospectus not to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this prospectus might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

 

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USE OF PROCEEDS

We expect to receive total estimated net proceeds from this offering of approximately $77.9 million, based on the midpoint of the range set forth on the cover page of this prospectus, or $88.1 million if the underwriters exercise the overallotment option in full, in each case after deducting estimated underwriting discounts and estimated expenses of the offering payable by us. The estimated expenses of the offering payable by us include an aggregate amount of approximately €4.4 million to be paid to approximately 10 directors, executive officers and other employees in connection with the completion of this offering and are set forth under “Expenses of the Offering.” Each $1.00 increase (decrease) in the public offering price per common share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and expenses, by approximately $7.0 million (assuming no exercise of the overallotment option by the underwriters). We will not receive any proceeds from the sale of common shares by the selling shareholders.

We intend to put the net proceeds of this offering received by us to three principal uses. We intend to devote approximately 80% of the net proceeds of the offering toward (i) accelerating the expansion of our global footprint to include new markets which we believe offer significant opportunities for growth, such as Africa and Asia; and (ii) capitalizing upon market opportunities to acquire or partner with firms with strategically important technology or market positions in mobile marketing and/or mobile money segments, although we do not have commitments for any specific acquisitions at this time. We intend to devote the balance of the net proceeds of the offering toward enhancing our monetization solutions portfolio by incorporating new technologies into our platform and exploring new service offerings. The amount of net proceeds devoted to the foregoing uses may vary from these amounts, and we may devote some or all of the net proceeds of the offering to other uses as a result of changing business conditions or other developments subsequent to the offering. See “Risk Factors—Our management will have broad discretion over the use and investment of the net proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.”

See “Capitalization” for information on the impact of the net proceeds of this offering on our financial condition.

 

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CAPITALIZATION

The following table presents our consolidated capitalization at March 31, 2011:

 

   

on an actual basis derived from our audited consolidated financial statements prepared in accordance with IFRS-IASB; and

 

   

on an as adjusted basis to give effect to the sale by us of 7,500,000 common shares in this offering at an offering price of $13.00 per common share (the midpoint of the range set forth on the cover page of this prospectus), after deduction of the underwriting discount and estimated offering expenses payable by us in connection with the offering and assuming no exercise of the overallotment by the underwriters. We have shown the net proceeds of the offering in the line items cash and cash equivalents and total equity pending the application of such proceeds by us.

You should read this table in conjunction with our financial statements and the related notes and with the sections entitled “Selected Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

 

     As of March 31, 2011  
     Actual      As Adjusted(1)  
     (in thousands)  

Cash and cash equivalents

   7,297       62,225   
                 

Debt, current

     4,332         4,332   
                 

Debt, non current(2)

     9,392         9,392   

Total equity

     19,524         74,451   
                 

Total capitalization

   28,916       83,843   
                 

 

(1) Based on the midpoint of the range set forth on the cover of this prospectus and translated into euro at the rate of $1.4183 per €1.00, the noon buying rate for the euro on March 31, 2011.

 

(2) As of March 31, 2011, all of our non current debt was unsecured.

 

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DILUTION

At March 31, 2011, we had a net tangible book value of €10.4 million ($14.8 million) and a net tangible book value of €0.21 ($0.30) per common share at that date. Net tangible book value represents the amount of our total tangible assets less our total liabilities, and net tangible book value per common share represents net tangible book value divided by 50,000,000, the total number of our common shares outstanding immediately prior to the offering.

After giving effect to the issuance and sale by us of 7,500,000 common shares in the offering, and (1) considering an offering price of $13.00 per common share (based on the midpoint of the range set forth on the cover of this prospectus) and (2) assuming the underwriters have not exercised the overallotment option, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, our as adjusted net tangible book value would have been approximately €65.4 million ($92.7 million), representing €1.14 per share or $1.61 per common share as of March 31, 2011. This represents an immediate increase in net tangible book value of €0.93 per share or $1.32 per common share to existing shareholders and an immediate dilution in net tangible book value of €8.03 per share or $11.39 per common share to new investors purchasing common shares in this offering. Dilution for this purpose represents the difference between the price per common share paid by these purchasers and net tangible book value per common share immediately after the completion of the offering.

The following table presents this dilution to new investors purchasing common shares in the offering:

 

     As of March 31, 2011(1)  
     (per common share)
(in €)
 

Initial public offering price

     9.17   

Net tangible book value at March 31, 2011

     0.21   

Increase in net tangible book value attributable to new investors

     0.93   

As adjusted net tangible book value immediately after the offering

     1.14   

Dilution to new investors

     8.03   

 

(1) Based on the midpoint of the range set forth on the cover of this prospectus and translated into euro at the rate of $1.4183 per €1.00, the noon buying rate for the euro on March 31, 2011.

Each $1.00 increase (decrease) in the offering price per common share, respectively, would increase (decrease) the net tangible book value after the offering by €0.09 per common share or $0.12 per common share assuming no exercise of the overallotment option granted to the underwriters and the dilution to investors in the offering by €0.62 per common share or $0.88 per common share.

We used an exchange rate of $1.4183 per €1.00, the noon buying rate for the euro on March 31, 2011, for purposes of the U.S. dollar calculations in this dilution discussion.

 

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EXCHANGE RATES

The following table sets forth, for the periods indicated, information concerning the noon buying rate for euro, expressed in U.S. dollars per €1.00. The rates set forth below are provided solely for your convenience and are not used by us in the preparation of our consolidated financial statements included elsewhere in this prospectus. The “noon buying rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that euro could have been, or could be, converted into U.S. dollars at that rate or at any other rate. The noon buying rate on July 22, 2011 was $1.4366 per €1.00.

 

     Noon Buying Rate  
     Period End      Average(1)      High      Low  

Year:

           

2006

     1.3197         1.2661         1.3327         1.1860   

2007

     1.4603         1.3793         1.4862         1.2904   

2008

     1.3919         1.4695         1.6010         1.2446   

2009

     1.4332         1.3955         1.5100         1.2547   

2010

     1.3269         1.3218         1.4536         1.1959   

Month:

           

January 2011

     1.3715         1.3371         1.3715         1.2944   

February 2011

     1.3793         1.3656         1.3794         1.3474   

March 2011

     1.4183         1.4020         1.4212         1.3813   

April 2011

     1.4821         1.4460         1.4821         1.4211   

May 2011

     1.4604         1.4335         1.4875         1.4426   

June 2011

     1.4523         1.4403         1.4675         1.4155   

July 2011 (through July 22)

     1.4366         1.4239         1.4508         1.4104   

 

(1) The average of the noon buying rate for euro on the last day of each full month during the relevant year or each business day during the relevant month.

 

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SELECTED FINANCIAL AND OPERATING DATA

The following financial data of TIMWE at March 31, 2011 and for the three months ended March 31, 2011 and March 31, 2010 and at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 have been derived from the consolidated financial statements prepared in accordance with IFRS-IASB. The financial data of TIMWE at December 31, 2007 and 2006 and for the years ended December 31, 2007 and 2006 have been prepared in accordance with IFRS-IASB, using as a basis our consolidated financial statements prepared in accordance with IFRS as adopted by the European Union (or “EU-IFRS”) for those years, which are not included herein. There are no differences, applicable to TIMWE, between IFRS-IASB and EU-IFRS for any of the periods presented. Our historical results are not necessarily indicative of results to be expected for future periods.

This financial data should be read in conjunction with our audited consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

 

    Three Months Ended
March 31,
    Year Ended December 31,  
    2011(1)     2011     2010     2010(1)     2010     2009     2008     2007     2006  
    (in thousands, except share and per share data)  
Income Statement Data  

Revenues

  $ 67,205      47,384      34,600      $ 331,671      233,851      166,241      125,339      67,813      43,548   

Operating Expenses:

                 

Cost of service delivery

    34,202        24,115        18,798        166,392        117,318        97,056        65,059        32,118        15,660   

Commercial and production costs

    22,999        16,216        10,237        107,826        76,025        37,130        35,292        21,511        19,918   

Personnel costs

    4,059        2,862        2,269        13,594        9,585        8,758        6,519        4,430        1,435   

General and administrative

    2,926        2,063        1,631        10,674        7,526        6,980        6,162        3,258        1,791   

Tax expenses

    472        333        445        4,628        3,263        2,306        2,150        420        93   

Amortization and depreciation

    1,879        1,325        932        5,992        4,225        2,490        1,605        517        129   

Provisions expense

    129        91        46        835        589        405        116        853        20   
                                                                       

Total operating expense

    66,667        47,005        34,358        309,943        218,531        155,125        116,903        63,107        39,046   
                                                                       

Operating profit

    538        379        242        21,728        15,320        11,116        8,436        4,706        4,502   
                                                                       

Finance income

    153        108        314        2,340        1,650        139        570        511        484   

Finance costs

    (600     (423     (440     (3,654     (2,576     (2,415     (1,500     (687     (618
                                                                       

Net finance income (costs)

    (447     (315     (126     (1,313     (926     (2,276     (930     (176     (134
                                                                       

Profit before income taxes

    91        64        116        20,415        14,394        8,840        7,506        4,530        4,368   
                                                                       

Income tax expenses

    (254     (179     25        4,807        3,389        1,676        2,119        1,973        1,691   
                                                                       

Net income

    345        243        91        15,608        11,005        7,164        5,387        2,557        2,677   
                                                                       

Profit attributable to non-controlling interests

    (31     (22     (120     1,513        1,067        930        (26     46        50   
                                                                       

Profit attributable to controlling interests

  $ 376      265      211      $ 14,095      9,938      6,234      5,413      2,511      2,627   
                                                                       

Earnings per share (basic and diluted)

    —          —          —        $ 0.17      0.12      0.08      0.07      0.03      0.03   
                                                                       

Weighted average shares used to compute earnings per share

    65,319        65,319        82,917        82,917        82,917        82,917        82,917        83,333        83,333   
                                                                       

 

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    At March 31,     At December 31,  
    2011
(Pro Forma)(2)
    2011(1)     2011     2010     2009     2008     2007     2006  
    (in thousands, except share and per share data)  
Balance Sheet Data  

Cash and cash equivalents

  62,225      $ 10,349      7,297      8,610      5,667      4,456      3,886      2,671   

Net working capital(3)

    70,738        22,423        15,811        19,032        11,284        14,222        5,725        4,039   

Total assets

    115,080        85,186        60,153        59,576        46,738        40,049        24,000        14,074   

Total liabilities

    40,630        57,308        40,630        35,564        32,729        31,684        16,923        9,005   

Total debt

    13,724        19,465        13,724        9,835        10,204        15,973        4,329        1,117   

Total stockholders’ equity

    74,451        27,689        19,524        24,012        14,009        8,366        7,078        5,068   

 

    Three Months Ended
March 31,
    Year Ended December 31,  
        2011             2010         2010     2009     2008     2007  
Other Operating Data            

Mobile Marketing

           

Number of mobile marketing campaigns

    30        28        93        115        51        —     

Average revenue per campaign (€ thousands)

    420.6        134.8        1,089.5        470.9        741.8        —     

Mobile Entertainment

           

Number of mobile entertainment subscribers (4)(thousands)

    18,190        18,765        19,334        19,175        11,675        —     

Average revenue per mobile entertainment subscriber (monthly)(€)

    0.48        0.48        0.48        0.45        0.61        —     

Mobile Money

           

Number of mobile money clients (5)(6)

    49        30        44        19        1        —     

Average revenue per client (monthly)(€ thousands)

    45.0        32.2        31.0        20.0        19.4        —     
    (in thousands)  

Total revenues

  47,384      34,600      233,851      166,241      125,339      67,813   

Mobile marketing revenues

    13,499        3,774        101,320        54,154        37,832        —     

Mobile entertainment revenues

    27,264        27,931        116,185        107,534        87,274        67,813   

Mobile money revenues

    6,621        2,895        16,346        4,552        233        —     

Adjusted EBITDA(7)

    2,128        1,665        23,397        16,317        12,307        6,496   

Net income

    243        91        11,005        7,164        5,387        2,557   

 

(1) Certain euro amounts are translated into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such euro amounts have been translated at the rate of $1.4183 per €1.00, which corresponds to the noon buying rate for the euro calculated on March 31, 2011.

 

(2) Pro forma reflects the issuance by us of 7,500,000 common shares at an offering price of $13.00 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and estimated expenses for the offering payable by us, translated into euro at $1.4183 per €1.00, the noon buying rate on March 31, 2011.

 

(3) Calculated as total current assets, which includes inventories, trade receivables, other receivables, current tax assets, other public entities, cash and cash equivalents and assets as held for sale; less total current liabilities, which includes loans and borrowings, financial lease obligations, suppliers and other current liabilities, current tax liabilities and other public entities.

 

(4) Period average.

 

(5) Represents the number of clients with whom mobile money contracts have been signed.

 

(6) At period end.

 

(7) We define Adjusted EBITDA as net income plus income tax expenses, finance costs, finance income, provisions expense, amortization and depreciation and tax expenses. Please see “—Adjusted EBITDA” for more information and for a reconciliation of Adjusted EBITDA to our net income calculated in accordance IFRS-IASB.

Adjusted EBITDA

We include Adjusted EBITDA in this prospectus because (i) we seek to manage our business to a consistent level of Adjusted EBITDA as a percentage of total revenue, (ii) it is a key basis upon which our management assesses our operating performance, (iii) it is one of the primary metrics investors use in evaluating technology companies, and (iv) it is a factor in the evaluation of the performance of our management in determining

 

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compensation. We define Adjusted EBITDA as net income plus income tax expenses, finance costs, finance income, provisions expense, amortization and depreciation and tax expenses.

We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or subsidiaries of changes in effective tax rates or fluctuations in permanent differences or discrete quarterly items) and the impact of depreciation and amortization expense on definite-lived intangible assets. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel and in evaluating acquisition opportunities.

In addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under IFRS-IASB. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

 

   

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

 

   

Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other IFRS-IASB financial results.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable IFRS-IASB measure, for each of the periods indicated:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
         2011             2010         2010     2009     2008     2007     2006  
     (in thousands)  

Net income

   243      91      11,005      7,164      5,387      2,557      2,677   

Income tax expenses

     (179     25        3,389        1,676        2,119        1,973        1,691   

Finance costs

     423        440        2,576        2,415        1,500        687        618   

Finance income

     (108     (314     (1,650     (139     (570     (511     (484

Provisions expense

     91        46        589        405        116        853        20   

Amortization and depreciation

     1,325        932        4,225        2,490        1,605        517        129   

Tax expenses

     333        445        3,263        2,306        2,150        420        93   
                                                        

Adjusted EBITDA

   2,128      1,665      23,397      16,317      12,307      6,496      4,744   
                                                        

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with “Selected Financial and Operating Data” and our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. Our financial statements have been prepared in accordance with IFRS-IASB.

The preparation of the consolidated financial statements required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods addressed and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated because of various factors that affect our business, including, among others, those identified under “Forward-Looking Statements” and “Risk Factors” and other factors discussed in this prospectus.

Overview

General

We are a global provider of mobile monetization solutions to mobile carriers, media groups, governments, nongovernmental organizations (“NGOs”), brand owners and content owners. We provide mobile marketing, mobile entertainment and mobile money services through our proprietary platform, which incorporates software-as-a-service technologies. We have connections to more than 280 mobile carriers, giving our clients access to a network of nearly three billion end users worldwide. We leverage this broad reach, along with our in-depth knowledge of local markets to facilitate the monetization and distribution of content and services that are tailored to local preferences. Our services allow end users to consume mobile entertainment, such as music and video, receive marketing and advertising messages and make mobile payments on-the-go and free from the constraints of traditional content, marketing and payment channels.

We began expanding into Latin America in 2005 and have since continued seeking out high-growth, emerging markets. We have grown 100% organically to become, based on feedback our regional managers receive from local mobile carriers, what we believe to be one of the largest providers of mobile solutions in Latin America and a global participant with 25 local offices and offerings in more than 75 different countries worldwide. Our core market remains Latin America, where we generated 79% of our 2010 revenues and have local offices in 11 countries. Brazil is our largest market, accounting for 44%, 40% and 36% of our consolidated revenues in 2010, 2009 and 2008, respectively. We also have offices and are rapidly expanding in a number of countries in Africa, the Asia Pacific region, Europe and the Middle East.

Our platform is used by clients and end users in connection with three principal activities: mobile marketing, mobile entertainment and mobile money. For the year ended December 31, 2010, we derived €101.3 million, €116.2 million and €16.3 million in revenues from mobile marketing, mobile entertainment and mobile money activities, respectively. Our total revenue grew from €166.2 million for the year ended December 31, 2009 to €233.9 million for the year ended December 31, 2010 and from €34.6 million in the three months ended March 31, 2010 to €47.4 million in the three months ended March 31, 2011. Our net income also increased from €7.2 million for the year ended December 31, 2009 to €11.0 million for the year ended December 31, 2010 and from €0.1 million in the three months ended March 31, 2010 to €0.2 million in the three months ended March 31, 2011.

Principal factors affecting our results of operations

We consider the following factors to be the principal drivers of our results of operations for the periods under review.

 

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Growth of the mobile market and demand for monetization solutions. Our financial results have been, and we expect them to continue to be, largely dependent on growth in the mobile market in emerging countries. Historically, mobile marketing and entertainment services have represented the predominant portion of the mobile market in Latin America and of our revenues. We believe that our financial success in the near term will depend on the growth of the market for our services in our target geographies, particularly the market for mobile marketing and entertainment services where we have an established position. Such mobile market growth encompasses, for our purposes, both an increase in the number of mobile end users and an increase in demand for our solutions from our carrier, media group, brand owner and government clients in our target regions. In the longer term, we believe our ability to adapt our technology platform to offer favored mobile services that incorporate new technologies introduced in our target markets will be critical to our financial success. See “Risk Factors—Risks Relating to our Industry—Our revenues and prospects would be adversely affected if demand for mobile services declines or does not continue to grow.”

Growth in the use of our technology platform. We generate revenues primarily through clients’ and end users’ purchases of services delivered through our technology platform, which substantially depends on our ability to source, develop and market services that appeal to rapidly changing preferences and appropriately price our offerings. Our financial results are significantly affected by the frequency with which end users use our services, and we believe our ability to identify, market and deliver services appealing to end users in our target markets has significantly contributed to the frequency with which they use our services. In 2010 we processed approximately 5,489 million SMS messages through our platform compared to approximately 4,554 million SMS messages in 2009 and approximately 3,000 million in 2008. We leverage our substantial end user base by offering solutions to our various carrier, media group, brand owner and government clients who wish to target such end users. Thus, we believe our ability to generate revenues will depend not only upon our access to a large and growing end user base, but also upon our ability to continue to develop and expand our relationships with carrier, media group, brand owner and government clients by offering new, attractive solutions. If we cannot successfully sustain or expand upon our end user base and sustain or increase the frequency with which they use our services and if we cannot retain and attract clients by offering appealing mobile solutions, our financial results could be adversely affected.

Growth of operations in Brazil. Brazil is our largest market, accounting for 44%, 40% and 36% of our consolidated revenues in 2010, 2009 and 2008 respectively. We have direct connections to the mobile network of Vivo, the largest mobile carrier in Brazil, and have relationships with several important media companies in Brazil, such as Globo, the largest television network in Brazil. Our heritage as a Portuguese company and the historical and linguistic ties between Portugal and Brazil facilitated our early efforts to forge relationships among key mobile carriers and clients in Brazil. Today, Brazil is the largest economy in Latin America and continues to show signs of strong growth. As such, we expect to continue to devote substantial effort toward maintaining or increasing our presence in Brazil, leveraging our existing relationships and developing attractive new mobile solutions. Given the significant percentage of our consolidated revenues we have derived and expect to continue to derive from our operations in Brazil, we are substantially influenced by general economic and political conditions in Brazil, and particularly economic growth and its impact on mobile services. See “Risk Factors—Risks Relating to our Business—Because a substantial portion of our revenues is derived from our operations in Brazil, our business is particularly sensitive to economic and political conditions in Brazil. Any economic downturn or adverse political changes in Brazil could have a material, adverse effect on our business, results of operations and financial condition.”

International expansion. Expanding into emerging countries that we believe have significant mobile market growth potential has been a touchstone of our business strategy and we expect our financial results to continue to be largely dependent upon successfully executing our growth strategies. We believe that developing new relationships with mobile carrier, media group, brand owner and government clients in our targeted areas of expansion will be a critical element of such strategies. Expanding into new regions presents complex new regulatory, legal and tax challenges, however, and we believe that our ability to effectively manage such challenges will ultimately be a significant factor in the success of any growth strategy and, accordingly,

 

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substantially impact our financial success. See “Risk Factors—Risks Related to our Business—The global nature of our business and our continued expansion into emerging markets presents business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder our growth.”

Mobile carrier connections and contract agreements. We deliver nearly all of our services through a network of more than 280 mobile carriers in more than 75 countries, either through direct agreements with mobile carriers or indirectly through connectivity service providers. This network gives us access to nearly three billion end users. In general, mobile carriers pay us an agreed portion of the sale price of the services we offer through their respective networks and retain the remainder as compensation for the delivery of our services as well as for their billing and collection efforts. Consequently, our financial success, and particularly our profitability, is substantially dependent upon our ability to negotiate favorable revenue sharing and other contractual terms with mobile carriers. Additionally, because our business depends upon the mobile carriers’ infrastructure, any deterioration of that infrastructure, our relationships with key mobile carriers or their mobile subscriber bases could adversely affect our financial results. See “Risk Factors—Risks Relating to our Business—We rely on mobile carriers for the delivery and billing of most of our mobile marketing, mobile entertainment and mobile money services and, therefore, we may experience a material adverse effect on our business, results of operations or financial condition if our relationship with any key mobile carrier ceases or deteriorates.”

Commercial and production costs. Commercial and production costs comprise a substantial portion of our expenses associated with acquiring clients. Commercial costs, which include direct media costs relating to the placement of our advertising on television, the Internet and other media, were €57.1 million in 2010, with advertising costs accounting for €27.7 million of such amount. We rely to a substantial extent upon advertising and marketing that is effectively designed and positioned to make end users aware of our services and create effective campaigns for clients. Frequently, our advertisements also provide end users with essential information that they need to effect the purchase of a particular service from us or a client. Given the importance of effective advertising and marketing to our business and to our client acquisition efforts, and given the substantial share of our operating expenses that commercial and production costs represent, our financial success will depend on our ability to continue to deploy client acquisition resources—including commercial costs relating to advertising—effectively and cost-efficiently. Were such costs, including the costs of purchasing media space, to unexpectedly increase, we could be forced to reduce the amount of advertising and marketing we do or opt for less effective media, which could detrimentally affect our client acquisition efforts. Finally, the timing of our commercial costs may be influenced by our available cash levels at any time and whether such costs are likely to lead to revenues in the current period or subsequent periods. See “Risk Factors—Risks Relating to our Business—The success of our business is dependent upon effective advertising and marketing, or to do so at sufficient levels, could have a material adverse effect on our business, results of operations or financial condition.”

Scalability. We base our platform on scalable, module-based technology, which has complemented our business growth strategy, allowing us to respond to industry changes and expand into new geographies and service markets. In the past, we have entered new markets on the basis of a narrow demand for one of our service offerings and then subsequently rolled out additional services, leveraging commercial synergies and the scalable nature of our platform and driving growth. For example, in 2008 we offered predominantly mobile entertainment services in Mexico. By the end of 2010, nearly a quarter of our revenues from Mexico were derived from mobile marketing and mobile money services. We expect to derive certain efficiencies of scale as we continue to expand our platform, geographical footprint and portfolio of service offerings. Our financial success will depend to a certain extent on our ability to continue to scale effectively and derive efficiencies therefrom.

Foreign exchange rates. We prepare our consolidated financial statements in euro. However, we conduct our business in multiple currencies, including the euro, the Brazilian real, several other Latin American currencies and other currencies that pertain to the more than 75 different countries in which we operate. In 2010, approximately 88% of our revenue was in currencies other than the euro. We are exposed to translation risks that arise from the fact that the financial records of our subsidiaries located outside the Eurozone are maintained in

 

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currencies other than the euro. As a result, changes in the relative value of such currencies against the euro can affect our consolidated financial results. See “Risk Factors—Risks Relating to our Business—We are exposed to risks associated with operations in multiple currencies.”

Fluctuations in and comparability of our quarterly results

Our quarterly results of operations have fluctuated significantly in the past and are expected to fluctuate significantly in the future based on a number of factors, some of which are not in our control. Our business is seasonal, with revenues generally lowest in the first quarter of the year and gradually building throughout the year, prior to beginning to level off or decline toward the end of the fourth quarter of the year as a result of the termination of seasonal campaigns, cash conservation and reduced activity around the Christmas and New Year holidays, which tends to carry over into the subsequent year as a result of Carnival holidays in Brazil and the summer season throughout Latin America, our primary market. Next, our operating expenses do not increase or decrease in direct proportion to our generation of revenue, affecting the period-to-period comparability of our results. For example, in some cases we will have incurred significant commercial and production costs relating to client acquisition efforts and must recognize such costs as expenses in the period when incurred despite the fact that related revenues might be recognized in a subsequent period. As a result of this and our commercial strategy, which usually involves higher spending during the first half of the year, in general terms our operating profit tends to increase throughout the year and is significantly weighted toward the end of the year. Finally, some quarters may be exceptionally strong (or weak) due to the effectiveness of a particular marketing campaign. For example, we had particularly strong second and third quarters in 2010 in terms of revenue growth as a result of particularly large and successful campaigns in Brazil, which straddled the two periods. Similarly, in 2009 we completed a number of large and successful campaigns in the third and fourth quarters, which drove comparably stronger fourth quarter revenues for the year.

Consequently, we believe period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicative of future results. See “Risk Factors—Risks Relating to our Business—Our quarterly results of operations may fluctuate significantly due to several factors, some of which are not within our control. Fluctuations in our quarterly results may make period-to-period comparisons of our results of operations and financial condition difficult and could affect the market price of our common shares in a manner unrelated to our long-term operating performance.” and “Risk Factors—Risks Relating to our Business—Because we may not receive revenue from our clients in the period in which we incur costs associated with generating client agreements, including commercial and production costs, our expenses may not increase or decrease in direct proportion to our generation of revenue.”

 

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Selected Quarterly Results of Operation

The following table sets forth our selected unaudited consolidated quarterly income statements for the five quarters ended March 31, 2011. You should read the following information in conjunction with our audited financial statements and related notes thereto included elsewhere in this prospectus. We have prepared the selected unaudited consolidated quarterly financial information on the same basis as our audited consolidated financial statements included in this prospectus, and reflect all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of this data. Our financial results for these quarterly periods may not be indicative of our financial results for any future quarterly periods.

 

     Three Months Ended  
     March 31,
2011
    December 31,
2010
    September 30,
2010
    June 30,
2010
    March 31,
2010
 
     (in thousands)  
Selected Quarterly Income Statement Data:   

Revenues

   47,384      70,492      69,645      59,114      34,600   

Operating Expenses:

          

Cost of service delivery

     24,115        34,770        34,502        29,248        18,798   

Commercial and production costs

     16,216        20,443        23,436        21,909        10,237   

Personnel costs

     2,862        2,476        2,701        2,139        2,269   

General and administrative

     2,063        1,903        1,797        2,195        1,631   

Tax expenses

     333        433        2,162        223        445   

Amortization and depreciation

     1,325        1,253        1,048        992        932   

Provisions expense

     91        447        46        50        46   
                                        

Total operating expense

     47,005        61,725        65,692        56,756        34,358   
                                        

Operating profit

     379        8,767        3,953        2,358        242   
                                        

Finance income

     108        878        47        411        314   

Finance costs

     (423     (983     (601     (552     (440
                                        

Net finance income (costs)

     (315     (105     (554     (141     (126
                                        

Profit before income taxes

     64        8,662        3,399        2,217        116   
                                        

Income tax expenses

     (179     2,023        409        932        25   
                                        

Net income

     243        6,639        2,990        1,285        91   
                                        

Profit attributable to non-controlling interests

     (22     (146     384        949        (120
                                        

Profit attributable to controlling interests

   265      6,785      2,606      336      211   
                                        

Application of Critical Accounting Policies and Use of Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience, where applicable, and on other assumptions that we believe are reasonable under the circumstances, which form the basis for making judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material impact on our reported results.

In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its application; in other cases, management’s judgment is required in the selection of the most appropriate alternative among available accounting principles.

 

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We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our historical and future performance, as these policies relate to significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: 1) it requires us to make assumptions because information was not available at the time or it involved consideration of matters that were highly uncertain at the time we were making our estimate; and 2) changes in the estimate or the use of different estimates could have a material impact on our financial condition or results of operations.

Revenue recognition

We recognize revenue when the amount of revenue can be measured reliably, service delivery has been performed, it is probable that the economic benefits will flow to us, costs incurred can be measured reliably and collectability is reasonably assured.

We generate revenues principally from the sale of a wide range of mobile applications and content to mobile end users. Our platform facilitates mobile marketing, including solutions to execute and monitor mobile marketing campaigns and mobile payment services. It also includes the sale and delivery of mobile entertainment applications and content (e.g., games, mobile music) to mobile handset users. Revenue is derived from data delivery to, and transactions executed by, mobile handset users, with revenues and cost of delivery recognized upon data transfer.

We utilize mobile network operators’ channels to distribute content and to collect payment from our customers. In return, the mobile network operators are entitled to commissions, which are a percentage of the gross fees collected from our customers.

We evaluate our agreements with mobile carriers to determine whether to recognize our revenues on a gross or net basis. Pursuant to applicable accounting standards, our determination is based upon an assessment of whether we act as a principal or agent in providing our services. With respect to most of these arrangements we act as a principal in providing our services and therefore recognize revenues on a gross basis in our consolidated income statement and recognize the commissions retained by mobile carriers as a cost of revenues. With respect to the remainder of these arrangements we act as an agent and recognize our revenues on a net basis in our consolidated income statement.

Where we recognize revenues on a gross basis, we do so generally in reliance on the following factors:

 

   

We are the primary obligor in the sale and are responsible for providing the product or service ordered by the mobile handset user (end-user);

 

   

We have latitude in establishing prices within ranges prescribed by the mobile operators;

 

   

We determine the nature, type, characteristics and specifications of the products and services we will be rendering;

 

   

We have the ability to control the selection of our content suppliers; and,

 

   

We assume credit risk of nonpayment for all amounts billed to the end-user customers related to our services.

Mobile marketing

We generate mobile marketing revenues from clients who use our platform to create, execute and measure mobile marketing campaigns. Usage-based fees are earned based on the number of SMS messages a campaign generates. We recognize revenues when individual SMS messages are tracked within our technology platform, which interfaces with, and receives instant verifications from, the mobile carriers.

 

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Performance-based fees are variable fees that are tied to the consumer response that a particular campaign generates for a client and calculated based on contract-specific metrics—such as the number of coupons redeemed or leads in a given month—for the specific clients. We recognize revenues from performance-based campaigns based on response data for each month, as calculated by our platform traffic reports.

Mobile marketing revenues also include fees charged to clients for professional services relating to the implementation, execution and monitoring of customized mobile marketing and advertising campaigns. Such fees are typically paid over a fixed period corresponding to the duration of the campaign. We recognize these fees based on the percentage of completion of the campaign. In order to reliably measure the level of services performed for each contract, we compare services performed to date as a percentage of total services to be performed as well as the proportion that costs incurred to date compared to the estimated total costs of the campaign.

Mobile entertainment

We generate mobile entertainment revenues from end users who use our platform to access mobile entertainment services. Our mobile entertainment revenues include weekly and monthly usage-based fees charged to end users for access to content libraries and other services. Delivery of mobile entertainment services is recorded by data transfer reports generated by our IT platform, which interfaces with, and receives instant verifications from, the mobile network operators’ systems. The operators also send us monthly billing statement confirmations, which we use as a basis for invoicing and for the measurement of revenue. Since we do not receive collection statements from mobile operators until 30 to 60 days after our monthly cut-off date, we usually estimate revenues for the last month of the period, based on information as recorded on our IT platforms. These platforms record all transactions carried out with mobile operators and historically represent a reliable source of information to perform revenue estimates for our business.

By the time we report our financial results, we receive substantially all the monthly collection statements from the mobile carrier and have recognized revenues and sent invoices based on these monthly statements. In the event that a monthly statement is not received at a period-end, we will recognize revenue based on the data transfer reports generated by our IT platform. Fees that have been invoiced are recorded in trade receivables and fees that have not been invoiced as of the reporting date but on which all revenue recognition criteria are met are accrued and reported as unbilled trade receivables.

Given the nature of our business model, we have no deferred revenue, since revenue is earned and recognized immediately upon mobile data transfer.

Our mobile entertainment revenues also include fees for portal management, which are paid by mobile carriers for providing their mobile end users with carrier-specific access to entertainment content. These fees primarily include periodic fees charged for maintenance of a digital portal along with fees derived from revenue-sharing agreements. Revenue is measured by the total number of downloads from the portal, and we earn a fixed percentage of the total revenues generated by each portal.

Mobile money

We provide mobile billing solutions to consumer-facing micropayment providers, who provide mobile payment options to their customers through our billing connections with mobile carriers. We offer connectivity and bulk SMS packages, serving mainly as a technology intermediary between the micropayment provider, the mobile carrier and mobile end user. We earn a percentage of the transaction value that we charge for facilitating the mobile payment, which is earned and recognized at the point of the transaction.

In some circumstances, we provide both the content and micropayment solution to the end user. We provide end users access to virtual for online games and applications. These services are provided by our platform and

 

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the connections we have with different mobile carriers. Revenues and costs are recognized at the moment we receive a request by SMS text from the end user to purchase the product, at which time content and service are also delivered.

Intangible assets

Separately acquired intangible assets

Separately acquired intangible assets comprise principally software licenses. They also include intellectual property and contractual rights. We recognize a separately acquired intangible asset based on the price paid to acquire the asset, including its purchase price and any directly attributable cost of preparing the asset for its intended use.

Software acquisition and development

We capitalize internally generated intangible assets related to the development of our proprietary software platform and other internally developed technology. Software includes assets acquired from third parties, as well as the cost of internally developed software. Directly attributable costs include the costs of employee salaries specifically dedicated to projects that qualify for capitalization as an intangible asset.

An internally generated intangible asset arising from development, or from the development phase, of an internal project is recognized if all of the following have been demonstrated:

 

   

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

 

   

the intention to complete the intangible asset and use or sell it;

 

   

the ability to use or sell the intangible asset;

 

   

the intangible asset will generate probable future economic benefits;

 

   

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

   

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for an internally generated intangible asset is the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Software is uniquely identified and controlled by the company, and only when the future economic benefit is likely to occur are these assets recognized as intangible assets.

Expenditures on research and development projects that cannot be separately measured or do not qualify for capitalization are recognized as expenses in the period in which they are incurred. Research and development expenses primarily consist of personnel-related expenses.

Subsequent measurement of intangible assets

We subsequently measure intangible assets at cost less accumulated amortization and accumulated impairment losses (if any).

Management determines the amortization period and useful life of an intangible asset based on its best estimates, taking into account the following factors:

 

   

the expected use of the asset;

 

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typical content and product life cycles and public information on estimates of useful lives of similar assets;

 

   

technological and commercial or other types of obsolescence;

 

   

changes in the market demand for the services derived from the asset;

 

   

maintenance expenditures required to obtain the expected future economic benefits from the asset and the company’s ability and intention to make such expenditures; and

 

   

contractual and legal limits relating to the term of use of the asset.

Acquired intangible assets such as intellectual property are amortized using a useful life of three years. Developed technology assets are amortized using a useful life of three to four years. We hold no intangible assets with indefinite useful lives. Management reviews the amortization periods and the amortization methods for intangible assets at each fiscal year-end.

Income tax expenses

Corporate taxes are payable on taxable profits at current rates. Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statements of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

We account for income taxes using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities based on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized and the differences are expected to reverse in the foreseeable future. Deferred tax assets applicable to the company include unused tax losses, tax credits and deductible temporary differences. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit nor accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

We are subject to corporate taxes in a number of different jurisdictions, and management applies judgment in determining the appropriate provision for transactions where the ultimate tax determination is uncertain. We recognize liabilities for anticipated taxes based on the best information available and where the anticipated liability is both probable and estimable. Where the final outcome of such matters differs from the amount recorded, any differences may impact the income tax and deferred tax provisions in the period in which the final determination is made.

In Portugal, tax authorities are allowed to review the corporate income tax (“CIT”) calculation of the company and its subsidiaries during a period of four to six years after the taxable year in question in the case of tax losses. Tax authorities may adjust the CIT charge if there are differences in tax legislation interpretation. However, we believe that there are no significant adjustments to income taxes in the financial statements.

 

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Description of Certain Statement of Operations Items

Revenues

We derive our revenues primarily from monetization of our platform through its use in the sale of mobile marketing, mobile entertainment and mobile money services to clients and end users who use our platform. We generate revenues as follows:

Mobile marketing revenues: We generate mobile marketing revenues from clients who use our platform to create, execute and measure mobile marketing campaigns. There are three principal types of fees we charge in connection with campaigns and which comprise our mobile marketing revenues. Usage-based fees account for the predominant portion of revenues generated by mobile marketing campaigns and are calculated based on the number of SMS messages a campaign generates. Performance-based fees are variable fees that are tied to the consumer response that a particular campaign generates for a client and calculated based on contract-specific metrics—such as the number of coupons redeemed—tailored to measure successful results generated for the specific client. Finally, mobile marketing revenues also include fees charged to clients for professional services relating to the implementation, execution and monitoring of customized mobile marketing and advertising campaigns. Such fees are typically paid over a fixed period corresponding to the duration of the campaign. Due to the nature of the services that we provide, our client contracts may include service level requirements that may require us to pay penalties if we fail to meet the required service levels. We recognize any such penalties, when incurred, as a reduction to revenue.

Mobile entertainment revenues: We generate mobile entertainment revenues from end users who use our platform to access mobile entertainment services. Our mobile entertainment revenues include usage-based fees charged to end users for subscription-based access to content libraries and other services, renewable on a daily or weekly basis. Additionally, our mobile entertainment revenues include portal management revenues, which primarily include periodic fees charged for maintenance of the digital portal along with fees derived from revenue-sharing agreements, which are generally based on the total number of downloads from the portal and pursuant to which we collect a percentage of the total revenues generated by the portal.

Mobile money revenues: We generate mobile money revenues from end users who use our platform to execute mobile payments from clients with whom we contract to promote and offer such services. Our mobile money revenues include transaction- and usage-based fees, which are charged through our platform and mobile carrier networks.

Cost of service delivery

The principal component of our cost of service delivery is the fee charged by mobile carriers or connectivity service providers, as the case may be, for the use of their communications and billing channels. We maintain agreements with mobile carriers and connectivity service providers worldwide to facilitate our delivery of mobile content to end users and solutions to clients. Mobile carriers and connectivity service providers charge us fees for, among other things, SMS costs, usage of bandwidth on their networks and access to their billing systems, which fees vary from carrier to carrier and depending on the service to which they relate.

Commercial and production costs

Commercial and production costs includes media expenses, consisting primarily of direct costs of advertising, purchasing media inventory for the placement of advertising and media messaging services; fees paid to third parties for creative development and other services in connection with the creation and execution of marketing and advertising campaigns; costs associated with incentives and promotional items provided to end users to encourage participation in campaigns; content and third-party fees related to mobile entertainment services; and third-party fees related to our mobile money services. Commercial and production costs do not include any wages or salaries of employees. In connection with our growth strategy, we expect to continue to commit significant resources to develop our services and generate revenue growth which, accordingly, is likely to increase our commercial and production costs in absolute values in the future periods.

 

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Personnel costs

Personnel costs consists primarily of personnel wages, benefits, social security taxes, remuneration charges and directors’ wages. Personnel costs related to information technology development are capitalized and not expensed as incurred, if the criteria set forth in International Accounting Standard No. 38 – Intangible Assets are met. We do not allocate personnel costs by function, and accordingly no wages or employee benefits expense is recorded under costs of service delivery or commercial and production costs.

General and administrative

General and administrative expenses consist primarily of travelling expenses, rents, fees and other general office expenses.

Tax expenses

Tax expenses consist principally of taxes and social contributions levied on company revenues by certain Latin American countries where we have significant sales operations. The majority of such expenses were paid in Brazil, which levies federal social contribution taxes that are based on operating margins.

Amortization and depreciation expenses

Amortization and depreciation expenses consist primarily of the depreciation of the cost of our technology and transportation equipment, principally hardware and motor vehicles, respectively, and amortization of our information technology programs.

Provisions expense

Provisions expense consists primarily of contingencies relating to tax and labor disputes.

Finance income

Finance income consists primarily of foreign currency translation differences, other finance revenues and interest.

Finance costs

Finance costs consists primarily of interest on bank loans, foreign exchange rate losses, impairment losses and other finance costs.

Income tax expenses

Generally, Portuguese companies were subject to corporate tax on their taxable income at the rate of 25% for the 2008, 2009 and 2010 tax years. This rate can be increased by a municipal surcharge of up to 1.5% of taxable profit and, from 2010 onward, a state surcharge of 2.5% on taxable profits in excess of €2.0 million. Under current legislation, tax returns are subject to revision and correction by the tax authorities during subsequent years. In Portugal and Spain that period is four years, and in Brazil, Turkey and Argentina it is five years. Tax losses are also subject to inspection and adjustment and can be deducted from taxable income in subsequent years (four years in Portugal, fifteen years in Spain, five years in Argentina and Turkey and no limit in Brazil except that only 30% of taxable income may be used per year).

A deferred tax asset or liability is created for temporary differences between income recognized for tax purposes and for accounting purposes.

 

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Results of Operations

The following tables sets forth components of our consolidated statements of income for the periods indicated:

 

    Three Months Ended
March 31,
    Year Ended December 31,     Change  
        2011             2010         2010     2009     2008     Q1 2011 vs.
Q1 2010
    2010 vs.
2009
    2009 vs.
2008
 
    (€ thousands except percentages)  

Revenues

    47,384        34,600        233,851        166,241        125,339        37     41     33

Operating expenses:

               

Cost of service delivery

    24,115        18,798        117,318        97,056        65,059        28     21     49

Commercial and production costs

    16,216        10,237        76,025        37,130        35,292        58     105     5

Personnel costs

    2,862        2,269        9,585        8,758        6,519        26     9     34

General and administrative

    2,063        1,631        7,526        6,980        6,162        26     8     13

Tax expenses

    333        445        3,263        2,306        2,150        (25 )%      42     7

Amortization and depreciation

    1,325        932        4,225        2,490        1,605        42     70     55

Provisions expense

    91        46        589        405        116        98     45     249
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Total operating expense

    47,005        34,358        218,531        155,125        116,903        37     41     33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Operating profit

    379        242        15,320        11,116        8,436        57     38     32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Finance income

    108        314        1,650        139        570        (66 )%      n.m.        (76 )% 

Finance costs

    (423     (440     (2,576     (2,415     (1,500     (4 )%      7     61
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Net finance income (costs)

    (315     (126     (926     (2,276     (930     150     (59 )%      145
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Profit before income taxes

    64        116        14,394        8,840        7,506        (45 )%      63     18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Income tax expense (benefit)

    (179     25        3,389        1,676        2,119        n.m.        102     (21 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Net income

    243        91        11,005        7,164        5,387        167     54     33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Profit attributable to non-controlling interests

    (22     (120     1,067        930        (26     (82 )%      15     n.m.   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Profit attributable to controlling interests

    265        211        9,938        6,234        5,413        26     59     15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Comparison of three months ended March 31, 2011 and 2010

Revenues

 

     Three Months Ended March 31,      Change  
         2011              2010          Q1 2011 vs.
Q1 2010
 
     (€ thousands)         

Revenues

     47,384         34,600         37%   

Our revenues for the three months ended March 31, 2011 were €47.4 million compared with €34.6 million for the three months ended March 31, 2010, representing an increase of €12.8 million or 37%. This increase was the result of overall growth in revenues in mobile marketing and mobile money (€9.7 million and €3.7 million, respectively), predominantly in Brazil (€6.2 million) and Africa (€2.2 million).

 

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The following table sets forth the breakdown of our revenues for the periods indicated based on the geographic sources thereof:

 

     Three Months Ended March 31,  
     2011     2010     Change  
     Revenues      % of Total
Revenues
    Revenues      % of Total
Revenues
    Q1 2011 vs.
Q1 2010
 
     (€ thousands)            (€ thousands)               

Brazil

     14,126         30     7,894         23     79

Andean

     9,640         20     6,028         17     60

South Cone

     7,184         15     6,915         20     4

Mexico

     3,616         8     5,409         16     (33 )% 

EE CA(1)

     1,722         4     1,278         4     35

Middle East

     942         2     593         2     59

Europe

     6,207         15     5,063         15     23

Africa

     3,422         7     1,266         4     170

North America

     174         0     77         0     126

APAC(2)

     350         0     78         0     n.m.   

Total

     47,384         100     34,600         100     37

 

(1) Eastern Europe and Central Asia
(2) Asia Pacific

Our revenues from Brazil (comprising approximately 30% of total revenues) increased from €7.9 millon for the first three months of 2010 to €14.1 million for the first three month of 2011, as the result of increased mobile marketing activities. Revenues from mobile marketing activities in Brazil increased from €1.9 million for the first three months of 2010 to €7.1 million for the first three months of 2011 due to several significant campaigns with carriers and media groups. During this period, revenues from the Andean region (comprising approximately 20% of total revenues) increased by 60%. This increase was underpinned by growth in mobile money (€1.8 million), mobile entertainment (€1.2 million) and mobile marketing (€0.7 million). Revenues derived from mobile entertainment in the Andean region increased from €5.4 million for the first three months of 2010 to €6.6 million for the first three months of 2011, primarily due to activities in Colombia and Ecuador. Revenues derived from activities in Europe increased from €5.0 million for the first three months of 2010 to €6.2 million for the first three months of 2011, due primarily to increased mobile marketing activities (€1.1 million). Revenues derived from operations in Mexico decreased €1.8 million (or 33%) for the first three months of 2010 compared with the first three months of 2011 due to increased costs of investment in media and acquiring clients, which decreased overall investment levels of mobile entertainment activities in Mexico during the period.

The following table sets forth the breakdown of our revenues for the periods indicated based on the business sources thereof:

 

     Three Months Ended March 31,  
     2011     2010     Change  
     Revenues      % of Total
Revenues
    Revenues      % of Total
Revenues
    Q1 2011 vs.
Q2 2010
 
     (€ thousands)            (€ thousands)               

Mobile marketing

     13,499         28     3,774         11     n.m.   

Mobile entertainment

     27,264         58     27,931         81     (2 )% 

Mobile money

     6,621         14     2,895         8     129
                                    

Total

     47,384         100     34,600         100     37
                                    

 

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The following table sets forth key performance indicators for the periods indicated:

 

     Three Months Ended
March 31,
     Change  
     2011      2010      Q1 2011 vs.
Q1 2010
 

Mobile Marketing

        

Number of mobile marketing campaigns

     30         28         7

Average revenue per campaign (€ thousands)

     420.6         134.8         n.m.   

Mobile Entertainment

        

Number of mobile entertainment subscribers (thousands)(1)

     18,190         18,765         (3 )% 

Monthly average revenue per mobile entertainment subscriber

     0.48         0.48         —     

Mobile Money

        

Number of mobile money clients(2)(3)

     49         30         63

Monthly average revenue per client (€ thousands)

     45.0         32.2         40

 

(1) Period average.
(2) Represents the number of clients with whom mobile money contracts have been signed.
(3) At period end.

Mobile marketing

Our mobile marketing revenues increased from €3.8 million for the first three months of 2010 to €13.5 million for the first three months of 2011, representing a €9.7 million increase. This increase was driven principally by mobile marketing revenue increases in Brazil (€5.2 million), Africa (€2.0 million), Europe (€1.1 million) and the Andean region (€0.7 million). Increases in Brazil were the result of our continued focus on large campaigns with carrier and media group clients, as well as the introduction of performance-based campaigns in the region. Increases across other regions were principally due to our expanded portfolio of mobile marketing services, which allowed us to capitalize on additional market opportunities. Though our total number of mobile marketing campaigns increased from 28 during the first three months of 2010 to 30 during the first three months of 2011, our average revenue per campaign (€0.4 million) during the first three months of 2011 was lower than our average revenue per campaign for the year ended December 31, 2010 (€1.1 million) due to the fact that our larger campaigns are typically conducted during the second quarter.

Mobile entertainment

Our mobile entertainment revenues decreased from €27.9 million for the first three months of 2010 to €27.3 million for the first three months of 2011, representing a 2% decrease. This decrease was mainly caused by lower mobile entertainment revenues in Brazil (a €1.2 million decrease) and Mexico (a €1.5 million decrease), which were the result of lower billing rates for our services in the regions, despite overall increases in our number of mobile entertainment subscribers in such regions. This decrease was partially offset by increases in mobile entertainment revenues in the Andean region (€1.2 million) and APAC (€0.3 million) regions.

Mobile money

Our mobile money revenues increased from €2.9 million for the first three months of 2010 to €6.6 million for the first three months of 2011, representing a 129% increase. This increase was driven principally by growth in Brazil, where we had a €2.1 million increase in mobile money revenues for the period. Additionally, in the Andean region our number of mobile money clients increased from 7 to 15 during the period, contributing to a €1.8 million increase in mobile money revenues attributable to operations in the Andean region for the period.

 

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Operating expenses

 

     Three Months
Ended March 31,
     Change     Percent of Total Revenues  
     2011      2010      Q1 2011 vs.
Q1 2010
    Q1 2011     Q1 2010  
     (€ thousands)                     

Cost of service delivery

     24,115         18,798         28     51     54

Commercial and production costs

     16,216         10,237         58     34     30

Personnel costs

     2,862         2,269         26     6     7

General and administrative

     2,063         1,631         26     4     5

Tax expenses

     333         445         (25 )%      1     1

Amortization and depreciation

     1,325         932         42     3     3

Provisions expense

     91         46         98     —          —     
                                    

Total

     47,005         34,358         37     99     99
                                    

Cost of service delivery

The increase in cost of service delivery in the first three months of 2011 compared with the first three months of 2010 was due mainly to the increase in our revenues during that period. As a percentage of total revenues cost of service delivery decreased by 3 percentage points in the first three months of 2011 compared with the first three months of 2010. This decrease was due primarily to an overall increase in the percent of total revenues generated from mobile marketing activities, which generally are associated with lower cost of delivery. In connection with many mobile marketing campaigns and mobile money services we are generally able to negotiate better payout ratios with mobile carriers, compared with the typical mobile carrier agreements relating to our mobile entertainment activities. Thus, increasing mobile marketing activities allowed us to increase revenues while reducing costs of service delivery as a percentage of revenues.

Commercial and production costs

The increase in commercial and production expenses in the first three months of 2011 compared with the first three months of 2010 was due primarily to a €4.2 million increase in commercial costs, which represented 81% of total commercial and production costs for the first three months of 2011. This increase in commercial costs is attributable to our revenue growth, particularly in Brazil, which accounted for €2.2 million of the total increase in our commercial costs for the period. That increase is primarily associated with mobile marketing activities. Production costs in Europe also increased €0.6 million during the period, contributing to the overall increase in commercial and production costs. That increase is primarily associated with mobile marketing campaigns. As a percentage of total revenues, commercial and production expenses increased by 4 percentage points. This increase was due primarily to expanding the array of mobile marketing services we offer and giving greater weight to these services in respect of our overall business efforts.

Personnel costs

The increase in personnel costs in the first three months of 2011 compared with the first three months of 2010 stemmed principally from the overall growth of our operations and, in particular, from an increase in our headcount from 334 employees as of March 31, 2010 to 377 as of March 31, 2011 as we reinforced our sales and development teams in order to assert a stronger presence in the market. As a percentage of total revenues, personnel costs decreased by 1 percentage point. This decrease was due primarily to efficiency gains derived from the increased scale of our business.

 

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General and administrative

The increase in general and administrative costs in the first three months of 2011 compared with the first three months of 2010 was due mainly to the increase in office rents (€0.2 million) in connection with opening new offices and an increase in external fees (€0.2 million) associated with the offering to which this prospectus relates. Due to efficiencies derived from the scale of our operations and internal cost initiatives, as a percentage of total revenues, general and administrative costs decreased by 1 percentage point during the period.

Tax expenses

The decrease in tax expenses in the first three months of 2011 compared with the first three months of 2010 was due mainly to decreased federal taxes recorded in Brazil.

Amortization and depreciation

The increase in amortization and depreciation in the first three months of 2011 compared with the first three months of 2010 was due mainly to an increase in capitalized costs in 2010 and 2011 associated with internally developed software used in our technology platforms. As a percentage of total revenues, amortization and depreciation costs did not change significantly during the period, representing 3% of total revenues.

Provisions expense

The increase in provisions expense in the first three months of 2011 compared with the first three months of 2010 was due principally to an increase in tax contingency provisions. As a percentage of total revenues, provisions expense remained insignificant in both periods.

Financial results

 

     Three Months Ended
March 31,
     Change     Percent of Total Revenues  
     2011      2010      Q1 2011 vs.
Q1 2010
    Q1 2011     Q1 2010  
     (€ thousands)                     

Finance income

     108         314         (66 )%      —          1

Finance costs

     423         440         (4 )%      1     1

The decrease in finance income of €0.2 million in the first three months of 2011 compared with the first three months of 2010 was primarily due to the exchange rate translation gain of €0.2 million associated with Brazil during the first three months of 2010 which was not repeated in the first three months of 2011.

Finance costs remained the same (€0.4 million) in the first three months of 2011 and in the first three months of 2010 with such amount including €0.2 million in exchange rate losses, €0.1 million in interest expense and €0.1 million in other financial costs.

Income tax expense (benefit)

 

     Three Months Ended
March 31,
     Change     Percent of Total Revenues  
     2011     2010      Q1 2011 vs.
Q1 2010
    Q1 2011      Q2 2010  
     (€ thousands)               

Income tax expenses

     (179     25         (204     —           —     

 

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We had a tax benefit of €0.2 million for the first three months of 2011 compared with a tax expense of €0.3 million for the first three months of 2011. This change was due mainly to the fact that income tax losses were recorded with respect to tax-bearing assets of certain of our subsidiaries during the first three months of 2011 that have higher income tax rates than our group’s weighted average.

Net income for the year

 

     Three Months Ended
March 31,
     Change     Percent of Total Revenues  
     2011      2010      Q1 2011 vs.
Q1 2010
    Q1 2011     Q1 2010  
     (€ thousands)                     

Net income for the year

     243         91         167     1     —     

The foregoing had the effect of increasing our net income by 167% for the first three months of 2011 compared with the first three months of 2010. This increase was generally due to increased revenues and, consequently, increased operating profit, which was only partially offset by increased financial costs associated with exchange rate translation losses.

Profit attributable to non-controlling interests

 

     Three Months Ended
March 31,
    Change     Percent of Total Revenues  
     2011     2010     Q1 2011 vs.
Q1 2010
    Q1 2011      Q2 2010 <