Management

Network

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006

1. INCORPORATION AND PRINCIPAL ACTIVITY
The Cyprus Telecommunications Authority (CYTA) is a Semi-Governmental Organisation established by Law 67 of 1954 (Cap. 302), as amended by Laws 20/1960, 34/1962, 25/1963, 54/1977, 98/1988, 21/1989, 39(I)/1995, 20(I)1998, 159(I)/2000, 149(I)2001, 13(I)2002, 7(I)/2004, 164(I)2004, 51(I)/2006 and 117(I)/2006.

The principal activity of CYTA, which is unchanged from last year, is the provision of electronic communication services.

2. ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).  The financial statements comply with both these reporting frameworks because at the time of their preparation all applicable IFRSs issued by the IASB have been adopted by the European Union through the endorsement procedure established by the European Commission.

The financial statements are expressed in Cyprus pounds, the main functional currency of CYTA that expresses the substance of its transactions and activities better.

Basis of preparation
The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities held for trading.

The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying CYTA’s accounting policies.  It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates.

The estimates and supporting interpretations are revised on a continuous basis.  Revisions in accounting estimates are recognised in the period during which the estimate is revised, if the estimate affects only that period, or in the period of the revision and future periods, if the revision affects the present as well as future periods.

Adoption of new and revised International Financial Reporting Standards
During the year CYTA adopted all the new and revised International Financial Reporting Standards that relate to its operations and are applicable to accounting periods commencing on 1st January 2006.  This implementation of these standards is not expected to have a significant impact on CYTA’s accounting policies.

At the date of approval of these financial statements, the following International Financial Reporting Standards, amendments and interpretations had been issued but had not been implemented:

a)

Adopted by the European Union IAS 1 (Revised): Presentation of financial statements - Disclosure of capital (effective for annual periods beginning on or after 1st January 2007). IFRS 7: "Financial Instruments: Disclosures and Presentation" (effective for annual periods beginning on or after 1st January 2007). IFRIC 7: Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (effective for annual periods beginning on or after 1st March 2006). IFRIC 8: Scope of IFRS 2 (effective for annual periods beginning on or after 1st March 2006). IFRIC 9: Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1st June 2006).

b)

Not adopted by the European Union IFRS 8: Operating Segments (applicable as from 1st January 2009). IFRIC 10: Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 1st November 2006). IFRIC 11: IFRS 2 Group and Treasury Share Transactions (effective for annual periods beginning on or after 1st March 2007). IFRIC 12: Service Concession Arrangements (effective for annual periods beginning on or after 1st January 2008).

The Board of Directors anticipates that the adoption of these accounting standards in future accounting periods will not have a significant impact on CYTA’s financial statements.

The adoption of IFRS 7 and the revision of IAS 1 will affect the type and the size of the disclosures of the consolidated financial statements of CYTA but will not have a significant impact on CYTA’s financial results and financial position.

Foreign currencies
Foreign currency transactions are translated using the exchange rates prevailing at the date of transactions.  Monetary assets and liabilities denominated in foreign currencies are translated into Cyprus pounds at the exchange rate prevailing at the balance sheet date.  Foreign exchange gains and losses are recognised in the income statement.

Operating revenue
Operating revenue includes revenue from fixed telephony, mobile telephony and other services.

Revenue generated from calls is recognised in the income statement in the period in which the calls are made from and to CYTA’s network.

Annual rental income is recognised according to the time period that it covers.

Receipts from sales are recognised according to the time of sale.

Dividend income
Dividend income is recognised when the right to receive payment is established.

Finance income
Interest income is recognised on a time-proportion basis using the effective interest method.

Finance costs
Interest expense and other borrowing costs are charged to the income statement as incurred.

Employee benefits
CYTA operates a defined benefit scheme for its permanent employees.  A lump sum amount is specified and is payable at the termination  of employees’ services based on such factors as the length of the employees’ services, their age and salary as well as the investment return.

The cost of the defined benefit scheme is charged in the income statement over the period of the expected service lives of the employees and is estimated annually by independent actuaries, using the projected unit method, in order to create sufficient reserves.

Any surpluses or deficits that may arise from the difference between the expected and actual performance of actuarial assumptions are written off against revenue over a period of 5 years, from 2006 onwards, as opposed to previous years in which write off was over a period of 2 years.

The latest actuarial valuation was conducted on 31 December 2006, assuming annual average salary and pension increases of 3,5% and return on investment of 5%.

Taxation
A provision for corporation tax and defence contribution on taxable surplus for the period is recorded according to Legal Regulations and rates that apply to Semi-Governmental Organisations in Cyprus.

Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.  Currently enacted tax rates are used in the determination of deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Where the carrying amount of an asset is greater than its estimated recoverable amount, the asset is written down immediately to its recoverable amount.

Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount and are included in profit from operations.

A full year’s depreciation is charged in the year of acquisition and no depreciation is charged in the year of disposal.  

Intangible assets
Costs that are directly associated with mobile telephony licences and unique computer software products controlled by CYTA and that will probably generate economic benefits exceeding costs beyond one year are recognised as intangible assets.  Subsequently they are carried at cost less any accumulated amortisation and impairment losses.

Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the computer software.  Costs associated with maintenance of computer software programmes are recognised as an expense when incurred.

The expected useful economic life of the mobile telephony licence is 20 years, whereas for the remaining intangible assets ranges from 3 to 5 years.

Investments
CYTA has classified its financial instruments, which comprise of government and other eligible securities and other fixed and variable income securities, under the following three categories:

(a)	Securities at fair value through profit and loss account Securities at fair value through profit and loss account consist of two categories: Securities held for trading: These are securities acquired either with the intention of generating profit from short-term fluctuations or included in a portfolio in which a pattern of short-term profit generating exists.  Fair value is considered to be the closing bid price at the balance sheet date.  Any unrealised gains and losses arising are recognised in the income statement. Securities that CYTA designated at fair value through the income statement. This category includes financial assets and financial liabilities managed together and their performance is evaluated on a fair value basis. These securities are initially recognised at cost and subsequently re-measured at fair value.  Once a financial instrument is classified at fair value through profit and loss account category, it cannot be reclassified out of this category while it is held.
(b)	Securities available for sale Securities available for sale are securities intended to be held for an undetermined period of time but may be sold in response to needs for liquidity or fluctuations in interest rates, exchange rates or security prices. These investments are initially recognised at cost and subsequently re-measured at fair value.  The fair value of the quoted securities is considered the closing bid price at the balance sheet date.  The fair value of unquoted securities is estimated using specialised methods adjusted to reflect the individual characteristics of the specific issuer.  In cases where cost approximates the fair value then the cost is considered to be the fair value.  Unrealised gains or losses arising from changes in the fair value of securities classified as available for sale are recognised in the revaluation reserves.
(c)	Securities held to maturity Securities held to maturity are securities with fixed maturity dates for which CYTA has both the intention and the ability to hold to maturity.  Held to maturity investments are carried at amortised cost using the effective yield method, less any provisions for impairment. On disposal of such securities, the remaining balance is reclassified to the ‘Available for sale’ category during the current year and for the next two following accounting periods are stated at fair value. The appropriate classification of investments under the above categories is made at the time of acquisition. On disposal of an investment, the difference between the net proceeds and the carrying amount stated in the accounts is transferred to the income statement together with any remaining related balance in the revaluation reserves.

Trade and other receivables
Amounts receivable more than one year from the balance sheet date are classified as non-current.

Bad debts are written off and a specific provision is made for receivables considered to be doubtful.

Inventories
Inventories are stated at the lower of cost and net realisable value. 

The principal methods for determining cost are as follows:

(a) Additions are valued at weighted-average cost, which includes purchase cost and other attributable expenses.

(b) Recoveries of equipment are valued at original cost less accumulated depreciation.

Net realisable value is the estimated selling price in the ordinary course of business, less the costs to completion and selling expenses.

Items of capital nature are capitalised as property, plant and equipment.

Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand.

Non-current liabilities
Non-current liabilities represent amounts that are due more that twelve months from the balance sheet date.

Impairment of assets
The carrying amounts of CYTA’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment.  If any such indication exists, the asset’s recoverable amount is estimated.  The recoverable amount of an asset is the greater of its net selling price at an arms length transaction and its present value of future cash flows from the use of the asset and its disposal at the end of its useful economic life.  This impairment is recognised as a charge in the income statement, if and only if, the asset’s carrying amount is greater than its recoverable amount.

For available for sale investments, whenever the recoverable amount is lower than cost, the difference between the two is transferred from the revaluation reserve to the income statement.

Revaluation deficit previously recognised in the revaluation reserve is being transferred to the income statement and is recognised as part of the impairment.  Revaluation surplus previously recognised in the revaluation reserve is being reversed to the extent of the impairment.  Any additional impairment is recognised in the income statement.

The impairment loss is reversed when there is an indication that it no longer exists, and there are changes in the estimations of the recoverable amount.

In the case of debt securities, if in future accounting periods there is a decrease in the amount of impairment due to conditions that incurred after the recognition of the impairment, the relevant amount of the impairment is being reversed through the income statement, whereas in the case of equity securities the impairment is reversed through the revaluation reserve and not the income statement.

Comparative figures
Comparative figures included in the financial statements are restated, where necessary, to comply with the changes of the current year’s presentation format.

3. OPERATING REVENUE

	2006 £’000	2005 £’000
Fixed telephony Mobile telephony Other services	77.352 119.569 52.260	81.807 108.763 39.880
	249.181	230.450

4. OPERATING EXPENSES

	2006 £’000	2005 £’000
Out payments to telecommunication organisations Staff costs Maintenance costs Depreciation Provision for doubtful debts Provision for obsolete materials International leased circuits rentals Gratuities Deficit on pension funds (Note 7) Other expenses	37.815 66.792 16.489 52.595 1.172 419 1.475 1.106 4.026 34.566	36.276 63.595 12.609 52.565 1.493 725 1.354 801 17.697 31.074
	216.455	218.189
Less:  Costs that are capitalised or payable by third parties	(6.967)	(5.948)
	209.488	212.241

5. OTHER INCOME

	2006 £’000	2005 £’000
Investment income Other income Gain from sale of property, plant and equipment	390 740 -	814 685 317
	1.130	1.816

6. NET FINANCE INCOME

	2006 £’000	2005 £’000
Finance income
Interested received Foreign exchange profit	9.510 229	9.128 510
	9.739	9.638
Finance cost
Bank charges and other interest Impairment loss on bonds	246 169	157 635
	415	792
Net finance income	9.324	8.846

7. DEFICIT ON PENSION FUNDS

	2006 £’000	2005 £’000
Pension Scheme deficiency Superannuation fund deficiency	3.943 83	17.650 47
	4.026	17.697

CYTA operates two separate staff retirement benefit schemes, the Superannuation fund and the Pension scheme for permanent employees.

CYTA’s total liability for retirement benefits is as follows:

	2006 £’000	2005 £’000
Short-term	30.100	35.300

(a) Superannuation fund
The fund was set up in order to provide pensions to monthly employees and for this reason, contributions were made by both CYTA and the employees. The fund, which had no active members as at 31 December 2006 operates independently of the finances of CYTA.  According to the regulations of the fund, CYTA is liable to contribute to the fund for any deficits that might arise from periodic actuarial valuations.            The last actuarial valuation which took place on 31 December 2001 by a professional actuary, showed an additional deficit of £432.226, and was written off in the income statement equally in the years 2001 and 2002.

CYTA is also liable to pay annual amounts, according to actuarial valuations, in order to finance the increases in pensions, after retirement.  An amount of £83.019 has been paid during 2006.

(b) Pension scheme
The scheme offers retirement benefits to monthly employees and their dependants. The scheme operates independently of the finances of CYTA.  According to the regulations of the scheme, CYTA is liable to make contributions to the scheme which are determined by periodic actuarial valuations. The contributions represent a percentage of the pensionable salary of employees - members of the scheme. Additionally, CYTA is liable to contribute to the scheme for any deficits which may be indicated by the actuarial valuation, relating to past service cost.

According to the last actuarial valuation on 31 December 2006 an additional deficit of £2.400.000 arose which will be written off in the income statement equally between the years 2006 and 2010 (the balance of the 2005 deficit will be written off between the years 2006 and 2009). The unrecognised actuarial losses as at 31 December 2006 amounted to £12.307.500.  Full repayment of the liability will occur after the approval of the supplementary budget by the House of Representatives.

The amount which appears in the balance sheet regarding retirement benefits is as follows:

	2006 £’000	2005 £’000
Present value of the scheme and fund	390.169	355.404
Present value of the scheme and fund	(387.769)	(327.704)
Actuarial loss - current year                    - previous years	2.400 27.700	27.700 7.600
Unrecognised actuarial losses	30.100 (12.307)	35.300 (13.850)
	17.793	21.450

The pension scheme assets include shares, share options and bonds whose fair value amounted to £187.011.109 as at 31 December 2006 (2005: £157.876.388).

Movement in net liability recognised in the Balance Sheet:

	2006 £’000	2005 £’000
Balance 1 January Expenses recognised in the income statement	21.450 4.026	15.400 17.697
Actual contributions	(7.683)	(11.647)
	17.793	21.450

8. TAXATION

	2006 £’000	2005 £’000
Corporation tax - current year                        - previous years Deferred tax Defence contribution - current year                              - previous years	13.045 120 - 2.400 (36)	6.000 - 1.700 1.400 -
	15.529	9.100

Analysis of taxation charge
The reconciliation of the taxation charge and the surplus for the year using the current taxation rates is as follows:

	2006 £’000	2005 £’000
Surplus for the year before tax	49.755	27.409
Tax calculated at the applicable tax rates	13.647	7.403
Tax effect of expenses not deductible for tax purposes	15.621	15.803
Tax effect of allowances and income not subject to tax	(15.462)	(17.165)
Defence contribution on interest Previous years’ taxation charge increase in tax provision Additional charge	950 84 144 545	903 - - 456
Deferred tax	15.529 -	7.400 1700
	15.529	9.100

From 2005 onwards, the entire taxable income of CYTA is subject to corporation tax at 25%.  In addition, CYTA is subject to special contribution for defence on its taxable income at a fixed rate of 3%.
 

9. PROPERTY, PLANT AND EQUIPMENT
Press to see the table.
 

10. INTANGIBLE ASSETS

For the year ended 31 December 2006
	Computer software £’000	Mobile telephony licence £’000	2006 Total £’000
Cost 1 January Additions Transfers	77.787 9.856 19	13.103 - -	90.890 9.856 191
31 December	87.662	13.103	100.765
Depreciation 1 January Charge for the year Transfers	65.256 11.013 2	1.510 755 -	66.766 11.768 2
31 December	76.271	2.265	78.536
Net Book Value 31 December	11.391	10.838	22.229
For the year ended 31 December  2005
	Computer software £’000	Mobile telephony licence £’000	2005 Total £’000
Cost 1 January Additions Disposals Transfers	69.004 8.639 (1.127) 1.271	13.103 - - -	82.107 8.639 (1.127) 1.271
31 December	77.787	13.103	90.890
Depreciation 1 January Charge for the year Disposals Transfers	54.238 11.208 (1.117) 927	755 755 - -	54.993 11.963 (1.117) 927
31 December	65.256	1.510	66.766
Net Book Value 31 December	12.531	11.593	24.124

11. INVESTMENT IN SUBSIDIARY COMPANY

	Investment at cost		Participation
	2006 £’000	2005 £’000	2006 %	2005 %
Digimed Communications Ltd	32.219	32.219	100	100

Digimed Communications Ltd, a company registered in Cyprus, is a wholly owned subsidiary of CYTA.  The principal activity of the company is the conduct of telecommunication projects.

12. AVAILABLE FOR SALE INVESTMENTS

	Investment at cost		Participation
	2006 £’000	2005 £’000	2006 %	2005 %
Eutelsat Communications	635	526	0,04	0,03
ICO Global Communications (Holdings) Limited	301	1	0,10	0,05
	936	527

During 2005, CYTA sold its 500.000 ordinary shares, of nominal value 1 Euro each in Eutelsat Ltd, to SatBirds, the parent company of Eutelsat S.A., for the amount of 1.285.000 Euro. The proceeds consisted of 1.133.370 Euro in cash and 151.630 shares of nominal value 1 Euro each in SatBirds. The profit from the sale amounted to £266.259. Furthermore, the company decided to reduce the nominal value of its share to Euro 0,50. The company was renamed to Eutelsat Communications and offered to its shareholders 1 share of nominal value 1 Euro, for every 2 shares held of nominal value 0,50 Euro. CYTA now holds 75.815 shares of nominal value 1 Euro each in Eutelsat Communications. The company Eutelsat Communications is listed in the Paris Stock Exchange Euronext. The total value of CYTA’s investment at 31 December 2006 was 1.097.801 Euro (£634.749).

The Company ICO Global Communications (Holdings) Limited was listed in the NASDAQ stock exchange on 13 September 2006.  CYTA holds 150.000 shares of nominal value 0,01 US dollars each. The total value of CYTA’s investment at 31 December 2006 was 685.500 US dollars (£300.658).
 

13. HELD TO MATURITY INVESTMENTS

	2006 £’000	2005 £’000
Government bonds Bonds of the Cyprus Athletic Committee Hellenic Bank bonds	69.865 1.449 2.057	73.550 1.448 -
	73.371	74.998
Bonds maturing: Within one year Between two and five years	26.059 47.312	15.504 59.494
Total	73.371	74.998

14. TRADE AND OTHER RECEIVABLES

	2006 £’000	2005 £’000
Deficit on pension funds (Note 7) Amounts due from overseas telecommunication organisations	12.307 1.359	13.850 2.088
Trade receivables	26.124	24.856
Amount receivables from subsidiaries and other group companies (Note 19)	262	1.380
Other receivables and prepayments	23.546	37.549
	63.598	79.723
Less Non current receivables Loans to staff	(790)	(766)
Current receivables amount	62.808	78.957

15. RESERVES

	2006 £’000	2005 £’000
Retained earnings Balance 1 January Surplus for the year	474.873 34.226	456.564 18.309
	509.099	474.873
Contribution to the Cyprus Government (Note 21)	(55.000)	-
Balance 31 December	454.099	474.873
Revaluation Reserve Balance 1 January Surplus for the year Sale of investments	439 409 -	26 439 (26)
Balance 31 December	848	439
	454.947	475.312

16. LOANS
Loans from foreign financial institutions

	2006 £’000	2005 £’000
Amount due within one year	204	203
Amount due between two and five years Amount due after more than five years	783 615	777 805
	1.398	1.582
Total	1.602	1.785

The loans from foreign financial institutions are repayable between the years 2007 and 2015 and bear interest ranging from 2% to 11,62% per annum. The loans are secured with guarantees provided by the Cyprus Government.
 

17. DEFERRED TAX
Deferred arises as follows:

	2006 £’000	2005 £’000
Differences between depreciation and capital allowances	11.066	10.815
Unrealised exchange profit/(loss)	(45)	253
Over/(under) provision of deferred taxation	11)	(36)
	11.032	11.032

18. TRADE AND OTHER PAYABLES

	2006 £’000	2005 £’000
Trade payables Deferred income	28.048 8.842	21.094 10.301
Amounts due to telecommunication organisations	12.191	12.402
Accrued expenses Value added tax	4.124 9.469	2.859 8.425
Amount payable to subsidiaries and other group companies (Note 19)	310	96
Other creditors	9.025	11.492
Pension scheme and Superannuation fund (Note 7)	30.100	35.300
	102.109	101.969

19. RELATED PARTY TRANSACTIONS

Amounts receivable from related parties (Note 14)
	2006 £’000	2005 £’000
Digimed Communications Ltd Cytacom Solutions Ltd Emporion Plaza Ltd Iris Gateway Satellite Services Ltd Bestel Communications Ltd Cyta (UK) Ltd Cyta Hellas S.A. ACTEL Telecommunication Ltd	- - 19 17 12 213 - 1	567 434 68 21 6 145 139 -
	262	1.380
Amounts payable to related parties (Note 18)
	2006 £’000	2005 £’000
Digimed Communications Ltd Cytacom Solutions Ltd Emporion Plaza Ltd Iris Gateway Satellite Services Ltd Cyta Hellas S.A.	119 136 21 3 31	- 93 3 - -
	310	96

20. PENALTIES IMPOSED BY THE COMMISSION FOR THE PROTECTION OF COMPETION (C.P.C.)
On 14 March and 4 August 2006, the C.P.C.  imposed on CYTA a penalty of £160.000 and £80.000 respectively, for violation of sections 4 and/or 6 of the Protection of Competition Law 207/89 (the Law) in relation to a cooperation agreement between CYTA and Lumiere Public Company Ltd, to offer TV subscription services, broadband and other related services.

On 28 April 2006, the C.P.C. imposed a penalty of £130.000 on CYTA, following a lawsuit filed from Callsat Telecom Ltd against CYTA, in respect of National Private Leased Lines service charges.  The decision of the C.P.C. referred to four infringements of section 6 of the Law, for abusive use of CYTA’s dominant position in the telecommunications service market.

On 19 December 2006, the C.P.C. imposed a penalty of £22.000 on CYTA, for possible abuse of its dominant position, by denying to offer access to Golden Telemedia on its telecommunication network, which would have enabled the provision of the Short Message Service.

21. CONTRIBUTION TO THE CYPRUS GOVERNMENT
The amount of £55.000.000 was contributed to the Cyprus Government Treasury, following the Council of Ministers ("the Cabinet") decision on 26 October 2006, according to the Telecommunication Services Law, Cap. 302, as amended with the Telecommunication Services Law of 2006 (section 117 (I)/2006).

The amount was set after taking into account the surplus for the financial year, the reserves at the end of the 2005 financial year, as well as the other provisions of the amended Telecommunications Services Law in relation to CYTA’s liquidity, its ability to pay the amount set, the safeguard of its future investments, its contractual and other commitments and the repayment of the pension scheme deficit.

The contribution of £55.000.000 was set off with the £20.000.000 owed by the Cyprus Government, relating to a penalty imposed, and subsequently cancelled, for infringement of the Law, which had been paid by CYTA on 31 December 2002.

22. CONTRACTUAL COMMITMENT
Contractual commitments in respect of capital expenditure as at 31 December 2006 not provided for in the financial statements, amounted to £15.295.153 (2005: £20.148.615) of which £9.482.453 (2005: £11.753.267) is payable in foreign currencies.  Foreign currency amounts have been converted into Cyprus pounds at the rates of exchange prevailing at the end of the year.

The entire amount of contractual commitments at 31 December 2006 will be repaid on completion of the relevant projects within 2007.

23. FINANCIAL RISK MANAGEMENT
Financial risk factors
CYTA is exposed to market price risk, interest rate risk, credit risk and liquidity risk arising from the financial instruments it holds.  The risk management policies employed by CYTA to manage these risks are discussed below:

Market price risk
Market price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices. CYTA’s available-for-sale financial assets at fair value through profit or loss are susceptible to market price risk arising from uncertainties about future prices of the investments.  CYTA’s market price risk is managed through diversification of the investment portfolio.

Interest risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates.  CYTA’s income and operating cash flows are substantially independent of changes in market interest rates as CYTA has no significant interest-bearing assets.  CYTA is exposed to interest rate risk in relation to its non-current loans. Loans issued at fixed rates expose CYTA to fair value interest rate risk. CYTA’s management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

Credit risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.  CYTA has no significant concentration of credit risk.  CYTA has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables.  Cash balances are held with high credit quality financial institutions and CYTA has policies to limit the amount of credit exposure to any financial institution.

Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match.  An unmatched position potentially enhances profitability, but can also increase the risk of losses.  CYTA has procedures with the object of minimising these losses, such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

Fair value estimation
The fair values of CYTA’s financial assets and liabilities approximate their carrying amounts at the balance sheet date.

The fair value of financial instruments traded in active markets, such as publicly traded and available-for-sale financial assets is based on quoted market prices at the balance sheet date.  The quoted market price used for financial assets held by CYTA is the current bid price.  The appropriate quoted market price for financial liabilities is the current ask price.

24. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

CYTA makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Provision for bad and doubtful debts
CYTA reviews its trade and other receivables for evidence of their recoverability.  Such evidence includes the customer’s payment record and the customer’s overall financial position.  If indications of irrecoverability exist, the recoverable amount is estimated and a respective provision for bad and doubtful debts is made.  The amount of the provision is charged through the income statement.  The review of credit risk is continuous and the methodology and assumptions used for estimating the provision are reviewed regularly and adjusted accordingly.

Provision for obsolete and slow-moving inventory
CYTA reviews its inventory records for evidence regarding the saleability of inventory and its net realisable value on disposal.  The provision for obsolete and slow-moving inventory is based on management’s past experience, taking into consideration the value of inventory as well as the movement and the level of stock of each category of inventory.

The amount of provision is recognised in the income statement.  The review of the net realisable value of the inventory is continuous and the methodology and assumptions used for estimating the provision for obsolete and slow-moving inventory are reviewed regularly and adjusted accordingly.

Taxation
Significant judgement is required in determining the provision for taxation.  There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.  CYTA recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due.  Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the corporation and deferred tax provisions in the period in which such determination is made.

Impairment of available-for sale securities
CYTA follows the guidance of IAS 39 on determining when an investment is other-than-temporarily impaired.  The determination requires significant judgement.  In making this judgement, CYTA evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

Impairment of intangible assets
Intangible assets are initially recorded at acquisition cost and are amortised on a straight line basis over their useful economic life.  Intangible assets that are acquired through a business combination are initially recorded at fair value at the date of acquisition.  Intangible assets with indefinite useful life are reviewed for impairment at least once per year.  The impairment test is performed using the discounted cash flows expected to be generated through the use of the intangible assets, using a discount rate that reflects the current market estimations and the risks associated with the asset.  When it is impractical to estimate the recoverable amount of an asset, CYTA estimates the recoverable amount of the cash generating unit in which the asset belongs to.

Valuation of non-listed investments
CYTA uses various valuation methods to value non-listed investments.  These methods are based on assumptions made by the Board of Directors which are based on market information at the balance sheet date.

25. CONTINGENT LIABILITIES
Contingent liabilities in respect of claims against CYTA for which no provision was made in the financial statements, amounted to approximately £166.270 and US$ 14.300.000 (2005: US$14.300.000). 

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