Annual / Quarterly Financial Statement • Oct 26, 2018
Annual / Quarterly Financial Statement
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(Financial year 2017/2018)
Via Tortona, 37 – 20144 Milan, Italy VAT No. and tax number 09554160151 Share capital: Euro 6,024,334.80 of which Euro 5,704,334.80 subscribed Milan Companies Register No. 290680 - Vol. 7394 Chamber of Commerce No. 1302132
This report is available in the Investors section of the Company's website at www.digitalbros.com
Digital Bros S.p.A. distributes in Italy, under the Halifax brand, video games acquired from international publishers. The games are marketed through a direct sales network of key accounts and through an indirect sales network of sales agents. The Company also distributes the Yu-Gi-Oh! trading card game in Italy.
The Company also performs management and coordination activities in its capacity as Parent Company of the Digital Bros Group.
Analysis of revenue by geographical area can be found in the Directors' Report attached to the consolidated financial statements.
The video games market is part of the broader entertainment industry. Films, publishing, video games and toys are sectors that share the same characters, brands, distinctive features and intellectual property. The market is in constant flux and its growth rate is driven by non-stop technological advances. Gaming is no longer limited to traditional consoles, such as the various iterations of Sony PlayStation and Microsoft Xbox, but has expanded to mobile phones, tablet devices and hybrid consoles like the Nintendo Switch. Widespread connectivity at increasingly lower costs and the availability of fibre optic networks and high speed mobile phones enable video games to become increasingly diversified, sophisticated and interactive. Widespread use of smartphones by people of all ages and walks of life has expanded the video gaming population and led to the publication of games suited to adult gamers and women only gamers.
As is the case for almost all technological markets, the video games market for consoles follows a cyclical trend depending on the stage of development of the consoles for which the videogames are developed. When a given console is first launched, the prices of the hardware and the video games designed for it are high and relatively small quantities are sold. Over their lifespan, console and game prices gradually fall, as they progress from new releases to maturity and the quantities sold increase while video game quality also increases.
As well as being marketed on the digital market place, high quality video games with strong sales potential are also produced physically and distributed through traditional sales networks. In this case, the value chain is as follows:
Developers are creators and programmers of games which are usually based on an original idea, a successful brand, a film or sports simulations, etc. The developers retain the intellectual property rights but transfer the exploitation rights, for a limited amount of time, as agreed by contract, to international video game publishers, which are therefore key players when it comes to completing the game, raising its awareness, enhancing its reputation and distributing it internationally.
The video game publisher decides when the game is released onto the market, determines global pricing and commercial policy, studies product positioning, packaging design and takes on all of the risks. Together with the developer, it benefits from all the opportunities that the video game may produce if it is a success. Publishers usually finance the game development stage.
The console manufacturer is the company that designs, engineers, produces and markets the hardware or platform on which consumers play the game. Sony is the Sony Playstation 4 console manufacturer, Microsoft is the Microsoft Xbox One console manufacturer and Nintendo is the Nintendo Switch console manufacturer. The console manufacturer produces the physical support format on behalf of publishers at software reproduction facilities. The console manufacturer and the video game publisher are often one and the same.
The role of the distributor varies from market to market. The more a market is fragmented e.g. the Italian market, the more the distributor's role is integrated with that of the publisher, with the implementation of communication policies for the local market and the undertaking of public relations. In certain markets, such as the UK and the U.S., due to a high concentration of retailers, publishers usually have a direct presence. Due to the increasing digitalisation of the market, more recently incorporated video game publishers do not have their own traditional international retail sales structures as they make use of distribution structures pertaining to other publishers present on various markets.
The retailer is the outlet where the end consumer purchases a game. Retailers may be international chains specialized in the sale of video games, mass retail stores, specialized independent shops, or even online shopping web sites that sell directly to the public.
Console manufacturers have developed marketplaces whereby video games can be sold directly to the end consumer without the need for a distributor or retailer. The value chain is less complex for games distributed in digital format in the marketplaces and for those designed for smartphones and tablets, as indicated below:
The main marketplaces on which video games for consoles are sold to end consumers are: Sony's PlayStation Store, Microsoft's Xbox Live and Nintendo's eShop. Steam marketplace is the global leader in the digital distribution of games for personal computers.
The gradual growth of online gaming has established a new trend: Microsoft, with Microsoft XboX Live Pass; and Sony, with Sony PlayStation Now have created digital platforms where, rather than making single purchases, end consumers can subscribe a service to access a batch of games for a limited amount of time. Revenues to the publisher are calculated based on end consumers' usage of the video games.
Free to Play video games are offered to the public in digital format only. The marketplaces used are the App Store for iPhone and iPad video games and the Play Store for Android video games for Western markets, while a huge number of different marketplaces are used for Eastern markets. Some Free to Play video games are also available on Sony and Microsoft's marketplaces for consoles and on Steam for personal computers.
Digital distribution has made it possible to extend the lifespan of a game. In fact, a video game remains on the marketplace once it has been released whereas it would be unlikely to remain on the shelf in the case of physical distribution. This makes it possible to generate an ongoing sales curve that is significantly affected by temporary communications policies and promotional pricing. The extension of product life cycle is also greatly affected by product policies adopted by publishers when, alongside the main game, they create additional episodes or functions available free of charge or for payment on digital marketplaces (so-called DLC, or downloadable content).
Seasonality is influenced by the launch of popular products. Quarter-on-quarter results can be volatile depending on whether or not a successful new game is released. In fact, the launch of these products leads to a concentration of sales in the first few days following their release.
The financial position is closely linked to the revenue trend. The physical distribution of a product in a quarter leads to concentration of net working capital investment. This is temporarily reflected by the level of net cash/debt until such time as the related sales revenue is collected.
The most significant events during the period were as follows:
The last two instalments bear income at 4% per annum. As a result of subsequent contractual agreements, the instalment due on 30 June 2018 has been postponed until the current reporting period. The agreement includes an option in favour of the buyer entitling it to purchase the real estate property owned by subsidiary 133 W Broadway Inc.; the option may be exercised by 15 October 2018 at a price of USD 2.5 million.
A net gain of Euro 11,059 thousand was recognised on the sale.
The following table sets out the Company's results for the year ended 30 June 2018 together with comparative figures for the year ended 30 June 2017:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | ||||
|---|---|---|---|---|---|---|---|
| 1 | Gross revenue | 16,578 | 107.8% | 20,281 | 106.3% | (3,703) | -18.3% |
| 2 | Revenue adjustments | (1,198) | -7.8% | (1,198) | -6.3% | (0) | 0.0% |
| 3 | Net revenue | 15,380 | 100.0% | 19,083 | 100.0% | (3,703) | -19.4% |
| 4 | Purchase of products for resale | (11,248) | -73.1% | (12,524) | -65.6% | 1,276 | -10.2% |
| 5 | Purchase of services for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 7 | Changes in inventories of finished products | (270) | -1.8% | (3,055) | -16.0% | 2,785 | -91.1% |
| 8 | Total cost of sales | (11,518) | -74.9% | (15,579) | -81.6% | 4,061 | -26.1% |
| 9 | Gross profit (3+8) | 3,862 | 25.1% | 3,504 | 18.4% | 358 | 10.2% |
| 10 | Other income | 2,772 | 18.0% | 2,695 | 14.1% | 77 | 2.8% |
| 11 | Costs for services | (2,684) | -17.5% | (2,970) | -15.6% | 286 | -9.6% |
| 12 | Lease and rental costs | (730) | -4.7% | (752) | -3.9% | 22 | -3.0% |
| 13 | Labour costs | (5,315) | -34.6% | (4,946) | -25.9% | (369) | 7.5% |
| 14 | Other operating costs | (536) | -3.5% | (592) | -3.1% | 56 | -9.6% |
| 15 | Total operating costs | (9,265) | -60.2% | (9,260) | -48.5% | (5) | 0.0% |
| 16 | Gross operating margin (EBITDA) (9+10+15) | (2,631) | -17.1% | (3,061) | -16.0% | 430 | -14.0% |
| 17 | Depreciation and amortisation | (389) | -2.5% | (393) | -2.1% | 4 | -1.1% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment adjustments to assets | (1,235) | -8.0% | (2,190) | -11.5% | 955 | -43.6% |
| 20 | Reversal of impairment adjustments and non-monetary income | (0) | 0.0% | 1,491 | 7.8% | (1,491) | n.m. |
| 21 | Total non-monetary operating income and costs | (1,624) | -10.6% | (1,092) | -5.7% | (532) | n.m. |
| 22 | Operating margin (EBIT) (16+21) | (4,255) | -27.7% | (4,153) | -21.8% | (102) | n.m. |
| 23 24 |
Interest and financial income Interest expense and financial expenses |
20,087 (714) |
130.6% -4.6% |
9,861 (1,907) |
51.7% -10.0% |
10,226 1,193 |
n.m. -62.6% |
| 25 | Net financial income (expenses) | 19,373 | 126.0% | 7,954 | 41.7% | 11,419 | n.m. |
| 26 | Profit before tax (22+25) | 15,118 | 98.3% | 3,801 | 19.9% | 11,317 | n.m. |
| 27 | Current tax | 476 | 3.1% | 557 | 2.9% | (81) | -14.5% |
| 28 | Deferred tax | (74) | -0.5% | (121) | -0.6% | 47 | -38.5% |
| 29 | Total income tax expense | 402 | 2.6% | 436 | 2.3% | (34) | -7.6% |
| 30 | Net profit (26+29) | 15,520 | 100.9% | 4,237 | 22.2% | 11,283 | n.m. |
Gross revenue decreased by 18.3% to Euro 16,578 thousand from the prior year figure of Euro 20,281 thousand because of a significant decline in sales of trading cards in the newsstands distribution channel.
Following the large decreases recorded in prior years, inventories decreased slightly by Euro 270 thousand.
Other income increased by Euro 77 thousand from Euro 2,695 thousand in the year ended 30 June 2017 to Euro 2,772 thousand in the year ended 30 June 2018. They mainly consist of income for services provided on behalf of subsidiaries.
Operating costs amount to Euro 9,265 thousand and are unchanged compared to prior year. This is the result of two contrasting trends: a Euro 369 thousand increase in labour costs mainly in relation to costs for the stock option plan approved in the second half of prior year and a Euro 286 thousand decrease in costs for services. Indeed, in prior year, the Statement of Profit or Loss included additional costs for services incurred to set up the stock option plan and consulting expenses incurred in relation to the acquisition of Kunos Simulazioni S.r.l..
Gross operating margin/EBITDA amounts to a negative figure of Euro 2,631 thousand, an improvement of Euro 430 thousand on the negative figure of Euro 3,061 thousand recorded in prior year.
Non-monetary operating costs have increased from Euro 1,092 thousand in prior year to Euro 1,624 thousand in the current reporting period.
Operating margin/EBIT has deteriorated slightly from a negative figure of Euro 4,153 thousand in prior year to Euro 4,255 thousand this year.
Net financial income totalled Euro 19,373 thousand compared to Euro 7,954 thousand in prior year. The improvement was the result of a Euro 10,226 thousand increase in interest and financial income.
| Euro Thousands | 30 June 2018 |
30 June 2017 |
Change | % |
|---|---|---|---|---|
| Gain on disposal of Pipeworks Inc. | 11,509 | 0 | 11,509 | n.m. |
| Dividends from subsidiaries | 7,292 | 6,000 | 1,292 | 21.5% |
| Exchange gains | 1,163 | 713 | 450 | 63.0% |
| Other interest and financial income | 123 | 3,148 | (3,025) | -96.1% |
| Total interest and financial income | 20,087 | 9,861 | 10,226 | n.m. |
Interest and financial income is analysed as follows:
The gross gain realised on the sale of the non-strategic investment in Pipeworks Inc. amounted to Euro 13,924 thousand. The net gain, after transaction related expenses, was Euro 11,509 thousand.
Dividends of Euro 6,000 thousand and USD 1,526 thousand (Euro 1,292 thousand) were received from 505 Games S.p.A. and Pipeworks Inc., respectively.
Interest and other financial income for the year ended 30 June 2017 mainly comprised gains on sales of Starbreeze B shares; such gains totalled just Euro 88 thousand in the year ended 30 June 2018.
Profit before tax for the year ended 30 June 2018 was Euro 15,118 thousand compared to Euro 3,801 thousand in prior year. Meanwhile, net profit totalled Euro 15,520 thousand against Euro 4,237 thousand in prior year.
The Company's statement of financial position at 30 June 2018 is shown below together with comparative figures at 30 June 2017:
| Euro thousands | 30 June 2018 | 30 June 2017 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 2,982 | 3,160 | (178) | -5.6% |
| 2 | Investment property | 0 | 0 | 0 | n.m. |
| 3 | Intangible assets | 302 | 367 | (65) | -17.7% |
| 4 | Equity investments | 16,432 | 18,919 | (2,487) | -13.1% |
| 5 | Non-current receivables and other assets | 9,216 | 637 | 8,579 | n.m. |
| 6 | Deferred tax assets | 330 | 406 | (76) | -18.8% |
| Total non-current assets | 29,262 | 23,489 | 5,773 | 24.6% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (419) | (417) | (2) | 0.5% |
| 8 | Non-current provisions | (80) | (79) | (1) | 1.2% |
| 9 | Other non-current payables and liabilities | (901) | 0 | (901) | n.m. |
| Total non-current liabilities | (1,400) | (496) | (904) | n.m. | |
| Net working capital | |||||
| 10 | Inventories | 3,688 | 3,958 | (270) | -6.8% |
| 11 | Trade receivables | 1,802 | 2,176 | (374) | -17.2% |
| 12 | Receivables from subsidiaries | 23,233 | 20,220 | 3,013 | 14.9% |
| 13 | Tax receivables | 1,968 | 327 | 1,641 | n.m. |
| 14 | Other current assets | 3,078 | 564 | 2,514 | n.m. |
| 15 | Trade payables | (2,012) | (2,306) | 294 | -12.7% |
| 16 | Payables to subsidiaries | (8,933) | (16,262) | 7,329 | -45.1% |
| 17 | Current tax liabilities | (216) | (615) | 399 | -64.9% |
| 18 | Current provisions | (2,393) | (1,246) | (1,147) | 92.0% |
| 19 | Other current liabilities | (753) | (2,277) | 1,524 | -67.0% |
| Total net working capital | 19,462 | 4,539 | 14,923 | n.m. | |
| Capital and reserves | |||||
| 20 | Share capital | (5,704) | (5,704) | 0 | 0.0% |
| 21 | Reserves | (20,577) | (19,764) | (813) | 4.1% |
| 22 | Treasury shares | 0 | 0 | 0 | n.m. |
| 23 | (Retained earnings) accumulated losses | (20,606) | (7,237) | (13,369) | n.m. |
| Total equity | (46,887) | (32,705) | (14,182) | 43.4% | |
| Total net assets | 437 | (5,173) | 5,610 | n.m. | |
| 24 | Cash and cash equivalents | 609 | 3,872 | (3,263) | 84.3% |
| 25 | Current bank borrowing | (845) | (1,558) | 713 | -45.8% |
| 26 | Other current financial assets and liabilities | (176) | 2,899 | (3,075) | n.m. |
| Current net financial position | (412) | 5,213 | (5,625) | n.m. | |
| 27 | Non-current financial assets | 0 | 0 | 0 | n.m. |
| 28 | Non-current bank borrowing | 0 | 0 | 0 | n.m. |
| 29 | Other non-current financial liabilities | (25) | (40) | 15 | -38.4% |
| Non-current net financial position | (25) | (40) | 15 | -38.4% | |
| Total net financial position | (437) | 5,173 | (5,610) | n.m. |
The following table contains an analysis of net working capital together with comparative figures at 30 June 2017:
| Net working capital | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| Inventories | 3,688 | 3,958 | (270) | -6.8% |
| Trade receivables | 1,802 | 2,176 | (374) | -17.2% |
| Receivables from subsidiaries | 23,233 | 20,220 | 3,013 | 14.9% |
| Tax receivables | 1,968 | 327 | 1,641 | n.m. |
| Other current assets | 3,078 | 564 | 2,514 | n.m. |
| Trade payables | (2,012) | (2,306) | 294 | -12.7% |
| Payables to subsidiaries | (8,933) | (16,262) | 7,329 | -45.1% |
| Current tax liabilities | (216) | (615) | 399 | -64.9% |
| Current provisions | (2,393) | (1,246) | (1,147) | 92.0% |
| Other current liabilities | (753) | (2,277) | 1,524 | -67.0% |
| Total net working capital | 19,462 | 4,539 | 14,923 | n.m. |
At 30 June 2018, net working capital amounted to Euro 19,462 thousand, representing an increase of Euro 14,923 thousand compared to 30 June 2017 when it stood at Euro 4,539 thousand. The most significant changes relate to receivables from subsidiaries and payables to subsidiaries – the former have increased by Euro 3,013 thousand while the latter have decreased by Euro 7,329 thousand mainly because of the change in the current account balance with 505 Games S.p.A..
The increase in tax receivables is in line with the negative taxable income of companies taking part in the domestic tax consolidation.
The increase in other current assets is mainly due to the recognition of Euro 2,144 thousand (i.e. USD 2.5 million) representing the portion of the receivable for the sale of Pipeworks Inc. due within a year.
The increase in current provisions is due to the amount allocated to cover the losses of subsidiaries Game Network S.r.l. and Digital Bros Game Academy S.r.l..
The net financial position shows net debt of Euro 437 thousand compared to net cash of Euro 5,173 thousand at 30 June 2017.
More detailed analysis of the change in the net financial position is provided in the Statement of Cash Flows which forms an integral part of the financial statements.
All sales and purchases of goods and services between Digital Bros S.p.A. and other Group companies and related parties are conducted at arm's length.
Digital Bros S.p.A. bills 505 Games S.p.A. an amount equal to 15% of digital revenue that the subsidiary generates in Italy in recognition of the indirect marketing and public relations services performed that are not directly attributable to individual products.
Digital Bros S.p.A. charges 505 Games S.p.A. for the cost of coordinating the acquisition of games and the cost of administrative, financial, legal, logistics and IT services incurred on its behalf.
Digital Bros S.p.A. charges Digital Bros Game Academy S.r.l. for the cost of administrative, financial, legal and IT services incurred on its behalf and for the cost of the lease of the property located in Via Labus, Milan, the company's operational headquarters.
Other minor transactions consisted of administrative, financial, legal and general services that are usually performed by Digital Bros S.p.A. on behalf of other Group companies.
The parent company also provides a centralised cash pooling service, using intercompany current accounts to which positive and negative balances between Group companies are transferred, including through the transfer of receivables. These accounts do not bear interest.
Italian Group companies also transfer tax receivables and payables to Digital Bros S.p.A. in accordance with domestic tax group arrangements.
Transactions with related parties include legal advice provided by the director Dario Treves and the lease of property by Matov Imm. S.r.l. (owned by the Galante family) to Digital Bros S.p.A.
The impact of related party transactions on the statement of profit or loss and on the statement of financial position is highlighted in the Notes to the Financial Statements.
There were no atypical or unusual transactions in the year just ended or in the corresponding prior year, as defined by Consob Communication DEM 6064293 of 28 July 2006.
The Company did not hold any treasury shares at 30 June 2018 nor did it purchase or sell any treasury shares during the year then ended.
The Company did not engage in any research and development activity during the year.
The Company has carried out a risk identification process involving the Board of Directors together with top-level organisational structures in coordination meetings held periodically throughout the year. Their work is summarised in a risk matrix that is prepared and regularly reviewed by the Executive Director in charge of internal control, who attends the coordination meetings. Records are maintained for each risk and provide a description of the risk in question, a gross risk rating based on a probability/impact matrix, any mitigating factors and/or safeguards put in place to reduce and monitor the risk and the allocation of a net risk rating. The Executive Director is assisted in these duties by the Control and Risks Committee and by the Board of Statutory Auditors.
The individual risk records also show the impact that failure to meet the control objectives would have in terms of operations and financial reporting.
The completeness of the risk map and the ratings of net risk is assessed jointly by the two Managing Directors. The process is supervised by the Board of Statutory Auditors.
Risks fall into two different categories: operational risks and financial risks.
The most significant operational risks are:
Video games can quickly become obsolete. A game that is sold at a certain price is then repositioned at gradually lower prices over time. The launch price of a game is usually high during the launch of a console and then decreases throughout the lifespan of the hardware.
The decision to invest in a given product is often made years before its actual release. Therefore, management must estimate the price a game will sell for in subsequent periods. A sudden acceleration in the obsolescence of a game or its supporting hardware could result in lower retail prices than those originally foreseen. This will have a negative impact on actual revenues and margins.
The Company's success depends on the performance of certain key individuals who have made an important contribution to its development and have acquired valuable experience in the games industry.
The Company has an executive team (Chairman, Managing Director and CFO) with many years' experience in the sector and who play a decisive role in the management of its business. The loss of the services of these individuals without suitable replacements could have a negative impact on the Company's results and financial position and, in particular, could affect the risk detection, assessment and monitoring process.
In any case, management believes that the Company's operational and executive structure ensures continuity in the handling of business affairs
The main financial instruments used by the Company are:
The purpose of these instruments is to finance the Company's operating activities.
Credit facilities granted to the Company and utilised at 30 June 2018 are as follows:
| Euro Thousands | Facility | Utilised | Available |
|---|---|---|---|
| Bank overdrafts | 1,100 | 0 | 1,100 |
| Import financing | 15,000 | 0 | 15,000 |
| Advances on invoices and cash orders subject to collection | 8,000 | 845 | 7,155 |
| Factoring | 1,000 | 160 | 840 |
| Endorsement credits | 1,000 | 0 | 1,000 |
| Total | 26,100 | 1,005 | 25,095 |
Digital Bros S.p.A. manages all financial risks on behalf of itself and its subsidiaries. This is except in relation to other financial instruments not listed above, namely trade payables and receivables arising from operating activities for which each subsidiary remains responsible for the financial risk.
The Company seeks to maintain a balance between short-term and medium/long-term financial instruments. The Company's core business, the sale and marketing of video games, entails investments primarily in net working capital which are funded through short-term credit lines. Long-term investments are normally financed through medium/long-term lines of credit often dedicated to the individual investment, including finance leases.
Given the above, medium- and long-term financial payables have a well-distributed range of maturities.
The main risks generated by the Company's financial instruments are:
The Company's exposure in US dollars arising from the operations of its U.S. subsidiaries is mitigated by the fact that the Group is party to a considerable number of game development contracts denominated in that currency. This means that any negative changes in the EUR/USD exchange rate would cause licence costs to go up but would also lead to higher margins for the subsidiaries (the reverse also holds true).
In order to monitor the EUR/USD exchange rate risk, the Company closely monitors forecast exchange rate trends – also based on reports by independent analysts - and may use derivative instruments to hedge this risk as appropriate (no such instruments are used at present).
When preparing forecasts, the Company uses models that take account of the various currencies in which Group companies operate and uses forward exchange rates based on reports issued by independent analysts.
The Company's exposure to the risk of interest rate fluctuation is limited with regard to its medium and long-term financial instruments which were originally arranged as fixed-rate instruments or have been converted into fixed rate using appropriate derivative agreements.
The risk of interest rate increases is an effective risk for short-term financial instruments because the Company cannot immediately pass on any interest rate rises by increasing its selling prices.
The level of debt is low or next to zero and the interest rate risk is further mitigated by:
The liquidity risk arises if it becomes difficult or impossible to raise - on sustainable terms and conditions, obtain -the financial resources needed to operate the business.
The factors that influence the Company's financial needs are the resources generated or absorbed by operating and investing activities, the maturity and renewal terms of debt and the liquidity of investments and current conditions and available funds on the credit market.
The Company has taken the following measures in order to reduce this risk:
The results of short and medium/long-term planning, currently available funds and funds to be generated by operating activities are expected to enable the Company to fulfil its funding requirements with regard to capex, working capital management and debt repayment at scheduled maturity. They should also be able to determine the Company's funding requirements in good time.
The Company sells exclusively to well-known customers. For customers on which the Company does not have the necessary information, the sales policy adopted requires advance payment and/or cash on delivery in order to limit credit risk.
The finance department reviews credit facilities and customer balances before any shipments are made. Despite these precautions, the Company has taken out insurance covering a significant percentage of its customers.
At 30 June 2018 – as at 30 June 2017 – there were no contingent assets or liabilities.
In the period since the reporting date:
Longhin. On the same date, the Board of Directors resolved to propose to the General Meeting to reduce the number of Directors to nine.
Modest revenue growth is forecast for the coming year. Profitability is also expected to improve thanks to a reduction in operating costs.
The profit boost during 2018 thanks to the gain on the sale of Pipeworks Inc. and dividends relating to profits generated by the subsidiaries in the year ended 30 June 2017 will not be repeated in the year ahead.
The net financial position will change in line with Group performance with a deterioration expected in the first half of the year followed by a clear improvement in the second half of the year.
The following table contains details of the number of employees at 30 June 2018 with comparative figures at 30 June 2017:
| Category | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Managers | 5 | 5 | 0 |
| Office workers | 40 | 43 | (3) |
| Blue-collar workers and apprentices | 4 | 4 | 0 |
| Total employees | 49 | 52 | (3) |
The average headcount for the year ended 30 June 2018, calculated as the mean number of employees in service at the end of every month, is shown below with prior year comparative figures:
| Category | Average no in 2018 | Average no in 2017 | Change |
|---|---|---|---|
| Managers | 5 | 5 | 0 |
| Office workers | 41 | 44 | (3) |
| Blue-collar workers and | |||
| apprentices | 4 | 4 | 0 |
| Total employees | 50 | 53 | (3) |
The Company's employees are hired under the current Confcommercio national collective employment agreement for the commercial, distribution and services sector.
At 30 June 2018, there were no environmental issues and as the Company's activities consist chiefly of packing and shipping video games and affixing labels to packaging, there is no reason why any environmental issues should emerge in the future.
Digital Bros S.p.A
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 2,982 | 3,160 | (178) | -5.6% |
| 2 | Investment property | 0 | 0 | 0 | 0.0% |
| 3 | Intangible assets | 302 | 367 | (65) | -17.7% |
| 4 | Equity investments | 16,432 | 18,919 | (2,487) | -13.1% |
| 5 | Non-current receivables and other assets | 9,216 | 637 | 8,579 | n.m. |
| 6 | Deferred tax assets | 330 | 406 | (76) | -18.8% |
| Total non-current assets | 29,262 | 23,489 | 5,773 | 24.6% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (419) | (417) | (2) | 0.5% |
| 8 | Non-current provisions | (80) | (79) | (1) | 1.2% |
| 9 | Other non-current payables and liabilities | (901) | 0 | (901) | n.m. |
| Total non-current liabilities | (1,400) | (496) | (904) | n.m. | |
| Net working capital | |||||
| 10 | Inventories | 3,688 | 3,958 | (270) | -6.8% |
| 11 | Trade receivables | 1,802 | 2,176 | (374) | -17.2% |
| 12 | Receivables from subsidiaries | 23,233 | 20,220 | 3,013 | 14.9% |
| 13 | Tax receivables | 1,968 | 327 | 1,641 | n.m. |
| 14 | Other current assets | 3,078 | 564 | 2,514 | n.m. |
| 15 | Trade payables | (2,012) | (2,306) | 294 | -12.7% |
| 16 | Payables to subsidiaries | (8,933) | (16,262) | 7,329 | -45.1% |
| 17 | Current tax liabilities | (216) | (615) | 399 | -64.9% |
| 18 | Current provisions | (2,393) | (1,246) | (1,147) | 92.0% |
| 19 | Other current liabilities | (753) | (2,277) | 1,524 | -67.0% |
| Total net working capital | 19,462 | 4,539 | 14,923 | n.m. | |
| Capital and reserves | |||||
| 20 | Share capital | (5,704) | (5,704) | 0 | 0.0% |
| 21 | Reserves | (20,577) | (19,764) | (813) | 4.1% |
| 22 | Treasury shares | 0 | 0 | 0 | 0.0% |
| 23 | (Retained earnings) accumulated losses | (20,606) | (7,237) | (13,369) | n.m. |
| Total equity | (46,887) | (32,705) | (14,182) | 43.4% | |
| Total net assets | 437 | (5,173) | 5,610 | n.m. | |
| 24 | Cash and cash equivalents | 609 | 3,872 | (3,263) | 84.3% |
| 25 | Current bank borrowing | (845) | (1,558) | 713 | -45.8% |
| 26 | Other current financial assets and liabilities | (176) | 2,899 | (3,075) | n.m. |
| Current net financial position | (412) | 5,213 | (5,625) | n.m. | |
| 27 | Non-current financial assets | 0 | 0 | 0 | n.m. |
| 28 | Non-current bank borrowing | 0 | 0 | 0 | n.m. |
| 29 | Other non-current financial liabilities | (25) | (40) | 15 | -38.4% |
| Non-current net financial position | (25) | (40) | 15 | -38.4% | |
| Total net financial position | (437) | 5,173 | (5,610) | n.m. |
Gruppo Digital Bros Bilancio consolidato e Bilancio separato al 30 June 2018
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | ||||
|---|---|---|---|---|---|---|---|
| 1 | Revenue | 16,578 | 107.8% | 20,281 | 106.3% | (3,703) | -18.3% |
| 2 | Revenue adjustments | (1,198) | -7.8% | (1,198) | -6.3% | (0) | 0.0% |
| 3 | Total net revenue | 15,380 | 100.0% | 19,083 | 100.0% | (3,703) | -19.4% |
| 4 | Purchases of products for resale | (11,248) | -73.1% | (12,524) | -65.6% | 1,276 | -10.2% |
| 5 | Purchases of services for resale | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 6 | Royalties | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 7 | Change in inventories of finished products | (270) | -1.8% | (3,055) | -16.0% | 2,785 | -91.1% |
| 8 | Total cost of sales | (11,518) | -74.9% | (15,579) | -81.6% | 4,061 | -26.1% |
| 9 | Gross profit (3+8) | 3,862 | 25.1% | 3,504 | 18.4% | 358 | 10.2% |
| 10 | Other income | 2,772 | 18.0% | 2,695 | 14.1% | 77 | 2.8% |
| 11 | Costs for services | (2,684) | -17.5% | (2,970) | -15.6% | 286 | -9.6% |
| 12 | Lease and rental costs | (730) | -4.7% | (752) | -3.9% | 22 | -3.0% |
| 13 | Labour costs | (5,315) | -34.6% | (4,946) | -25.9% | (369) | 7.5% |
| 14 | Other operating costs | (536) | -3.5% | (592) | -3.1% | 56 | -9.6% |
| 15 | Total operating costs | (9,265) | -60.2% | (9,260) | -48.5% | (5) | 0.0% |
| 16 | Gross operating margin / EBITDA (9+10+15) | (2,631) | -17.1% | (3,061) | -16.0% | 430 | -14.0% |
| 17 | Depreciation and amortisation | (389) | -2.5% | (393) | -2.1% | 4 | -1.1% |
| 18 | Allocations to provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Impairment adjustments to assets | (1,235) | -8.0% | (2,190) | -11.5% | 955 | -43.6% |
| 20 | Reversal of impairment adjustments and non-monetary income | (0) | 0.0% | 1,491 | 7.8% | (1,491) | n.m. |
| 21 | Total non-monetary operating income and costs | (1,624) | -10.6% | (1,092) | -5.7% | (532) | n.m. |
| 22 | Operating margin / EBIT (16+21) | (4,255) | -27.7% | (4,153) | -21.8% | (102) | n.m. |
| 23 | Interest and financial income | 20,087 | 130.6% | 9,861 | 51.7% | 10,226 | n.m. |
| 24 | Interest and financial expenses | (714) | -4.6% | (1,907) | -10.0% | 1,193 | -62.6% |
| 25 | Net financial income /(expenses) | 19,373 | 126.0% | 7,954 | 41.7% | 11,419 | n.m. |
| 26 | Profit before taxation (22+25) | 15,118 | 98.3% | 3,801 | 19.9% | 11,317 | n.m. |
| 27 | Current tax | 476 | 3.1% | 557 | 2.9% | (81) | -14.5% |
| 28 | Deferred tax | (74) | -0.5% | (121) | -0.6% | 47 | -38.5% |
| 29 | Total taxes on income | 402 | 2.6% | 436 | 2.3% | (34) | -7.6% |
| 30 | Net profit (26+29) | 15,520 | 100.9% | 4,237 | 22.2% | 11,283 | n.m. |
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Profit (Loss) for the period (A) | 15,520 | 4,237 | 11,283 |
| Items that will not be subsequently recycled | |||
| through profit or loss (B) | |||
| Actuarial gain (loss) | 7 | 25 | (18) |
| Income tax relating to the actuarial gain (loss) | (2) | (7) | 5 |
| Fair value measurement of shares available for | |||
| sale | 0 | (3,075) | 3,075 |
| Tax effect of fair value measurement of shares | |||
| available for sale | 0 | 845 | (845) |
| Items that will subsequently be recycled | |||
| through profit or loss (C) | 5 | (2,212) | 2,217 |
| Total other comprehensive income D= | |||
| (B)+(C) | 5 | (2,212) | 2,217 |
| Total comprehensive income (loss) (A)+(D) | 15,525 | 2,025 | 13,500 |
| Attributable to: | |||
| Company Shareholders | 15,525 | 2,025 | 13,500 |
| Non-controlling interests | 0 | 0 | 0 |
| Euro Thousands | 30 June 2018 | 30 June 2017 | |
|---|---|---|---|
| A. | Opening net financial position | 5,173 | (18,059) |
| B. | Cash flows from operating activities | ||
| Profit (loss) for the year attributable to the Group | 15,520 | 4,237 | |
| Depreciation, amortisation and non-monetary costs: | |||
| Provisions and impairment adjustments | 89 | 612 | |
| Amortisation of intangible assets | 154 | 129 | |
| Depreciation of property, plant and equipment | 235 | 233 | |
| Net change in other provisions | 1 | 43 | |
| Net change in employee benefit provisions | 2 | (78) | |
| Net change in other non-current liabilities | 901 | (252) | |
| SUBTOTAL B. | 16,902 | 4,925 | |
| C. | Change in net working capital | ||
| Inventories | 270 | 3,055 | |
| Trade receivables | 320 | 570 | |
| Receivables due from subsidiaries | (3,006) | 12,935 | |
| Tax receivables | (1,641) | 414 | |
| Other current assets | (2,521) | (54) | |
| Trade payables | (294) | 367 | |
| Payables to subsidiaries | (7,329) | 10,855 | |
| Current tax liabilities | (399) | (3,350) | |
| Current provisions | 1,147 | (2,562) | |
| Other current liabilities | (1,524) | 1,480 | |
| SUBTOTAL C. | (14,976) | 23,710 | |
| D. | Cash flows from investing activities | ||
| Net investment in intangible assets | (89) | (97) | |
| Net investment in property, plant and equipment | (57) | (36) | |
| Net investment in non-current financial assets | (6,051) | (5,032) | |
| SUBTOTAL D. | (6,198) | (5,165) | |
| E. | Cash flows from financing activities | ||
| Proceeds from capital increases | 0 | 60 | |
| Increase in share premium reserve | 0 | 1,532 | |
| SUBTOTAL E. | 0 | 1,592 | |
| F. | Changes in equity | ||
| Dividends distributed | (2,139) | (1,834) | |
| Changes in treasury shares held | 0 | 390 | |
| Increases (decreases) in other equity components | 801 | (385) | |
| SUBTOTAL F. | (1,338) | (1,829) | |
| G. | Cash flows for the period (B+C+D+E+F) | (5,610) | 23,232 |
| H. | Closing net financial position (A+G) | (437) | 5,173 |
Gruppo Digital Bros Bilancio consolidato e Bilancio separato al 30 June 2018
| Euro Thousands | 30 June 2018 | 30 June 2017 |
|---|---|---|
| Increase (decrease) in securities and cash and cash equivalents | (3,263) | 3,295 |
| Decrease (increase) in current bank borrowing | 713 | 21,342 |
| Decrease (increase) in other current financial assets and liabilities | (3,075) | (2,978) |
| Cash flows for the period pertaining to current net financial position |
(5,625) | 21,659 |
| Cash flows for the period pertaining to non-current net financial | ||
| position | 15 | 1,573 |
| Cash flows for the period | (5,610) | 23,232 |
Statement of changes in equity at 30 June 2018
| Reserve | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| for | Retained | Total | ||||||||||
| Share | IAS | actuarial | Total | Treasury | earnings | Profit | retained | |||||
| capital | Share | Legal | transition | gains and | Other | reserves | shares | (accumulated | (loss) for | earnings | Equity | |
| Euro Thousands | (A) | premium | reserve | reserve | losses | reserves | (B) | (C) | losses) | the year | (D) | (A+B+C+D) |
| Total at 1 July 2016 |
5,644 | 16,954 | 1,129 | (142) | (98) | 2,286 | 20,129 | (390) | 7,018 | (3,695) | 3,323 | 28,706 |
| Capital increase | 60 | 1,532 | 1,532 | 0 | 1,592 | |||||||
| Allocation of profit for the year | (3,695) | 3,695 | 0 | 0 | ||||||||
| Payment of dividends | (1,834) | (1,834) | (1,834) | |||||||||
| Other changes | 315 | 315 | 390 | 1,511 | 1,511 | 2,216 | ||||||
| Comprehensive income (loss) | 18 | (2,230) | (2,212) | 4,237 | 4,237 | 2,025 | ||||||
| Total at 1 July 2017 |
5,704 | 18,486 | 1,129 | (142) | (80) | 371 | 19,764 | 0 | 3,000 | 4,237 | 7,237 | 32,705 |
| Allocation of profit for the year | 12 | 12 | 4,225 | (4,237) | (12) | 0 | ||||||
| Payment of dividends | (2,139) | (2,139) | (2,139) | |||||||||
| Other changes | 796 | 796 | 0 | 796 | ||||||||
| Comprehensive income (loss) | 5 | 5 | 15,520 | 15,520 | 15,525 | |||||||
| Total at 30 June 2018 |
5,704 | 18,486 | 1,141 | (142) | (80) | 1,172 | 20,577 | 0 | 5,086 | 15,520 | 20,606 | 46,887 |
A) not available;
B) available - can be used to cover losses. Only the share premium reserve is distributable if the legal reserve has reached the limit established by Art. 2430 (one fifth of share capital);
D) available - can be used to cover losses, for capital increases and for the distribution of dividends.
Separate statement of profit or loss prepared in accordance with Consob Resolution no. 15519 of 27 July 2006
| Euro Thousands | 30 June 2018 | 30 June 2017 | ||||
|---|---|---|---|---|---|---|
| of which | of which | |||||
| Total | related | Total | related | |||
| parties | parties | |||||
| 1 | Gross revenue | 16,578 | 0 | 20,281 | 0 | |
| 2 | Revenue adjustments | (1,198) | 0 | (1,198) | 0 | |
| 3 | Total net revenue | 15,380 | 0 | 19,083 | 0 | |
| 4 | Purchases of products for resale | (11,248) | 0 | (12,524) | 0 | |
| 5 | Purchases of services for resale | 0 | 0 | 0 | 0 | |
| 6 | Royalties | 0 | 0 | 0 | 0 | |
| 7 | Change in inventories of finished products | (270) | 0 | (3,055) | 0 | |
| 8 | Total cost of sales | (11,518) | 0 | (15,579) | 0 | |
| 9 | Gross profit (3+8) | 3,862 | 0 | 3,504 | 0 | |
| 10 | Other income | 2,772 | 0 | 2,695 | 0 | |
| 11 | Costs for services | (2,684) | (335) | (2,970) | (262) | |
| 12 | Lease and rental costs | (730) | (690) | (752) | (705) | |
| 13 | Labour costs | (5,315) | 0 | (4,946) | 0 | |
| 14 | Other operating costs | (536) | 0 | (592) | 0 | |
| 15 | Total operating costs | (9,265) | (1,025) | (9,260) | (967) | |
| 16 | Gross operating margin / EBITDA (9+10+15) | (2,631) | (1,025) | (3,061) | (967) | |
| 17 | Depreciation and amortisation | (389) | 0 | (393) | 0 | |
| 18 | Allocations to provisions | 0 | 0 | 0 | 0 | |
| 19 | Impairment adjustments to assets | (1,235) | 0 | (2,190) | 0 | |
| 20 | Reversal of impairment adjustments and non-monetary income | 0 | 0 | 1,491 | 0 | |
| 21 | Total non-monetary operating income and costs | (1,624) | 0 | (1,092) | 0 | |
| 22 | Operating margin / EBIT (16+21) | (4,255) | (1,025) | (4,153) | (967) | |
| 23 | Interest and financial income | 20,087 | 0 | 9,861 | 0 | |
| 24 | Interest and financial expenses | (714) | 0 | (1,907) | 0 | |
| 25 | Net financial income / (expenses) | 19,373 | 0 | 7,954 | 0 | |
| 26 | Profit before taxation (22+25) | 15,118 | (1,025) | 3,801 | (967) | |
| 27 | Current tax | 476 | 0 | 557 | 0 | |
| 28 | Deferred tax | (74) | 0 | (121) | 0 | |
| 29 | Total income tax | 402 | 0 | 436 | 0 | |
| 30 | Net profit (26+29) | 15,520 | (1,025) | 4,237 | (967) | |
| Euro Thousands | 30 June 2018 | 30 June 2017 | ||||
|---|---|---|---|---|---|---|
| Total | of which with | Total | of which with | |||
| Non-current assets | related parties | related parties | ||||
| 1 | Property, plant and equipment | 2,982 | 0 | 3,160 | 0 | |
| 2 | Investment property | 0 | 0 | 0 | 0 | |
| 3 | Intangible assets | 302 | 0 | 367 | 0 | |
| 4 | Equity investments | 16,432 | 0 | 18,919 | 0 | |
| 5 | Non-current receivables and other assets | 9,216 | 635 | 637 | 635 | |
| 6 | Deferred tax assets | 330 | 0 | 406 | 0 | |
| Total non-current assets | 29,262 | 635 | 23,489 | 635 | ||
| Non-current liabilities | ||||||
| 7 | Employee benefits | (419) | 0 | (417) | 0 | |
| 8 | Non-current provisions | (80) | 0 | (79) | 0 | |
| 9 | Other non-current payables and liabilities | (901) | 0 | 0 | 0 | |
| Total non-current liabilities | (1,400) | 0 | (496) | 0 | ||
| Net working capital | ||||||
| 10 | Inventories | 3,688 | 0 | 3,958 | 0 | |
| 11 | Trade receivables | 1,802 | 0 | 2,176 | 0 | |
| 12 | Receivables from subsidiaries | 23,233 | 210 | 20,220 | 0 | |
| 13 14 |
Tax receivables Other current assets |
1,968 3,078 |
0 0 |
327 564 |
0 0 |
|
| 15 | Trade payables | (2,012) | (48) | (2,306) | (22) | |
| 16 | Payables to subsidiaries | (8,933) | 0 | (16,262) | 0 | |
| 17 | Tax payables | (216) | 0 | (615) | 0 | |
| 18 | Current provisions | (2,393) | 0 | (1,246) | 0 | |
| 19 | Other current liabilities | (753) | 0 | (2,277) | 0 | |
| Total net working capital | 19,462 | 162 | 4,539 | (22) | ||
| Capital and reserves | ||||||
| 20 | Share capital | (5,704) | 0 | (5,704) | 0 | |
| 21 | Reserves | (20,577) | 0 | (19,764) | 0 | |
| 22 | Treasury shares | 0 | 0 | 0 | 0 | |
| 23 | (Retained earnings) accumulated losses | (20,606) | 0 | (7,237) | 0 | |
| Total equity | (46,887) | 0 | (32,705) | 0 | ||
| Total net assets | 437 | 797 | (5,173) | 613 | ||
| 24 | Cash and cash equivalents | 609 | 0 | 3,872 | 0 | |
| 25 | Current bank borrowing | (845) | 0 | (1,558) | 0 | |
| 26 | Other current financial assets and liabilities | (176) | 0 | 2,899 | 0 | |
| Current net financial position | (412) | 0 | 5,213 | 0 | ||
| 27 | Non-current financial assets | 0 | 0 | 0 | 0 | |
| 28 | Non-current bank borrowing | 0 | 0 | 0 | 0 | |
| 29 | Other non-current financial liabilities | (25) | 0 | (40) | 0 | |
| Non-current net financial position | (25) | 0 | (40) | 0 | ||
| Total net financial position | (437) | 0 | 5,173 | 0 |
Separate statement of profit or loss prepared in accordance with Consob Resolution no 15519 of 27 July 2006
| Euro Thousands | 30 June 2018 | 30 June 2017 | |||
|---|---|---|---|---|---|
| of which | of which | ||||
| Total | non | Total | non | ||
| recurring | recurring | ||||
| 1 | Gross revenue | 16,578 | 0 | 20,281 | 0 |
| 2 | Revenue adjustments | (1,198) | 0 | (1,198) | 0 |
| 3 | Total net revenue | 15,380 | 0 | 19,083 | 0 |
| 4 | Purchases of products for resale | (11,248) | 0 | (12,524) | 0 |
| 5 | Purchases of services for resale | 0 | 0 | 0 | 0 |
| 6 | Royalties | 0 | 0 | 0 | 0 |
| 7 | Change in inventories of finished products | (270) | 0 | (3,055) | 0 |
| 8 | Total cost of sales | (11,518) | 0 | (15,579) | 0 |
| 9 | Gross profit (3+8) | 3,862 | 0 | 3,504 | 0 |
| 10 | Other income | 2,772 | 0 | 2,695 | 0 |
| 11 | Costs for services | (2,684) | 0 | (2,970) | 0 |
| 12 | Lease and rental costs | (730) | 0 | (752) | 0 |
| 13 | Labour costs | (5,315) | 0 | (4,946) | 0 |
| 14 | Other operating costs | (536) | 0 | (592) | 0 |
| 15 | Total operating costs | (9,265) | 0 | (9,260) | 0 |
| 16 | Gross operating margin / EBITDA (9+10+15) | (2,631) | 0 | (3,061) | 0 |
| 17 | Depreciation and amortisation | (389) | 0 | (393) | 0 |
| 18 | Allocations to provisions | 0 | 0 | 0 | 0 |
| 19 | Impairment adjustments to assets | (1,235) | 0 | (2,190) | 0 |
| 20 | Rvrsl of impairment adjustments and non-monetary income | (0) | 0 | 1,491 | 0 |
| 21 | Total non-monetary operating income and costs | (1,624) | 0 | (1,092) | 0 |
| 22 | Operating margin / EBIT (16+21) | (4,255) | 0 | (4,153) | 0 |
| 23 | Interest and financial income | 20,087 | 0 | 9,861 | 0 |
| 24 | Interest and financial expenses | (714) | 0 | (1,907) | 0 |
| 25 | Net financial income / (expenses) | 19,373 | 0 | 7,954 | 0 |
| 26 | Profit before taxation (22+25) | 15,118 | 0 | 3,801 | 0 |
| 27 | Current tax | 476 | 0 | 557 | 0 |
| 28 | Deferred tax | (74) | 0 | (121) | 0 |
| 29 | Total income tax | 402 | 0 | 436 | 0 |
| 30 | 15,520 | 0 | 4,237 | 0 | |
| Net profit (26+29) |
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The main activities carried out by Digital Bros S.p.A. are described in the Directors' Report.
The financial statements for the year ended 30 June 2018 have been prepared on a going concern basis. The Company has concluded that the uncertainties and risks to which it is exposed, as described in the directors' report, do not cast doubt on its ability to operate as a going concern.
The separate financial statements of Digital Bros S.p.A. for the year ended 30 June 2018 have been prepared in accordance with Art. 154-ter of Legislative Decree 58 of 24 February 1998 and subsequent amendments thereto. They have been prepared in compliance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as based on the text published in the Official Journal of the European Union. The term "IFRS" encompasses International Accounting Standards (IAS) still in effect, as well as all interpretations published by the International Financial Reporting Interpretations Committee (IFRIC). All amounts included in the separate financial statements for the year ended 30 June 2018 are stated in Euro thousands, unless otherwise specified.
The separate financial statements for the year ended 30 June 2018 have been prepared in accordance with IAS/IFRS and with the related interpretations (SIC/IFRIC) endorsed by the European Commission as of the reporting date.
The financial statements and the notes thereto also include the disclosures required by Consob Resolution 15519 of 27 July 2006 and Consob Communication 6064293 of 28 July 2006.
No changes have been made to the reporting format compared to previous years and all schedules are consistent with those used when preparing the separate financial statements for the year ended 30 June 2017.
The financial statements comprise:
The following have been provided to supplement the information presented in the financial statements:
The left-hand column of the statement of financial position indicates the number of the relevant note.
The components of the statement of financial position have been allocated to the following five categories:
Non-current assets consist of assets that are long-term in nature, such as property, plant and equipment to be used for more than one period, equity investments and receivables that fall due in subsequent periods. They also include investment property and deferred tax assets regardless of when they might be realised.
Non-current liabilities comprise provisions not expected to be used within 12 months as well as postemployment benefits, particularly the provision for employee termination indemnities.
Net working capital comprises current assets and liabilities. Due to the commercial nature of the Company's operations, net working capital is particularly significant, as it represents the amount the Company invests in operating activities to boost its turnover. Net working capital is significantly influenced by the revenue trend and by the seasonality that is a feature of the market.
Equity consists of share capital, reserves, retained earnings (profit for the year plus prior year profits not allocated to specific reserves by the shareholders in general meeting) as adjusted for treasury shares.
Total net assets are the sum of non-current assets plus net working capital, less non-current liabilities and equity.
The net financial position has been split between the current net financial position and the non-current net financial position and represents total net assets.
The left-hand column of the consolidated statement of profit or loss and of the statement of profit or loss presented for segment reporting purposes indicates the number of the relevant note.
The statement of profit or loss has been presented in a multi-step format, with expenses analysed by nature and shows four intermediate levels of profit:
• gross profit, the difference between net revenue and total cost of sales;
Profit for the year i.e. the difference between profit before tax and total income tax income (expense) is followed by earnings per share.
The statement of cash flows has been prepared using the indirect method, whereby profit is adjusted for the effects of transactions of a non-cash nature, changes in net working capital, cash flows from financing and investing activities and changes in equity.
The overall change for the period is given by the sum of the following:
The statement of changes in equity has been prepared in accordance with International Financial Reporting Standards and shows changes between 1 July 2016 and 30 June 2018.
There are no non-controlling interests, so none are reported.
The separate financial statements for the year ended 30 June 2018 have been prepared in accordance with International Financial Reporting Standards and their interpretations in force at that date.
The financial statements have been prepared on the basis of the Company's accounting records as at 30 June 2018.
The valuation criteria used to prepare the separate financial statements for the year ended 30 June 2018 are consistent with those used to prepare the separate financial statements for the year ended 30 June 2017. Changes in the standards and interpretations endorsed by the European Union have had no significant effect on preparation of the separate financial statements for the year ended 30 June 2018.
Property, plant and equipment are recognised at purchase or production cost and are shown net of depreciation and impairment. No assets have been revalued in prior years. No borrowing costs have been capitalised.
Leasehold improvements and costs incurred subsequent to purchase are capitalised only if they increase the future economic benefits associated with the asset. All other costs are recognised in profit or loss when incurred.
Depreciation is computed on a straight-line basis over the assets' estimated useful lives, as follows:
| Buildings | 3% |
|---|---|
| Plant and machinery | 12%-25% |
| Industrial and commercial equipment | 20% |
| Other assets | 20%-25% |
Assets held under finance leases, whereunder all risks and rewards of ownership are transferred to the Group, are recognised at the lower of their fair value at the inception of the lease and the present value of the minimum lease payments payable over the entire lease term. The corresponding lease obligation is recognised under financial liabilities. Depreciation is charged on a straight-line basis over the estimated useful life of each asset category.
Leases where the lessor retains substantially all the risks and rewards of ownership of an asset are accounted for as operating leases. Operating lease costs are recognised in profit or loss over the lease term as lease and rental expenses.
Land is not depreciated but impairment adjustments are made if fair value falls below reported cost.
Intangible assets purchased or produced internally are capitalised in accordance with IAS 38 - Intangible
assets when it is likely that their use will generate future economic benefits and when their cost can be reliably determined.
They are recognised at purchase or production cost and those with a finite useful life are amortised on a straight-line basis over their estimated useful live.
The amortisation rates applied are as follows:
Intangible assets with finite useful lives are amortised systematically over their estimated useful lives and amortisation begins when the assets are available for use; carrying amount is tested for recoverability in accordance with IAS 36, as explained under "impairment of assets" below.
The same criterion is used for long-term licences for user rights, the amortisation method of which must reasonably and reliably reflect the correlation between costs and income. If that correlation cannot be objectively determined, the Company applies amortisation on a straight-line basis over the contract term and, in any event, over a period not exceeding five years.
The related amortisation is included in depreciation and amortisation expense in the statement of profit or loss.
Equity investments in subsidiaries are recorded at cost as adjusted for impairment.
Any positive difference arising at the time of acquisition from third parties between the purchase cost and the Company's share of the fair value of equity is included in the carrying amount of the investment.
Once a year, or more frequently if necessary, equity investments in subsidiaries are tested for impairment in accordance with IAS 36. If there is evidence that these investments have been impaired, the related adjustment is duly recognised in profit or loss. If the Company's share of an investee's losses exceeds the carrying amount of the equity investment and if the Company is obliged to cover this loss, the carrying amount of the investment is reduced to zero and the Company's share of the additional losses is recognised as a provision in the statement of financial position. If there is any subsequent indication that an impairment loss may no longer exist or may have decreased, it is reversed in profit or loss up to the cost of the asset.
The profits and losses and assets and liabilities of associated companies are recorded in the consolidated financial statements using the equity method, except where the investments have been classified as held for sale.
Under this method, investments in associated companies are initially recognised at cost. The consolidated financial statements include the Group share of the profits or losses of the associated companies as recognised using the equity method until the date on which significant influence ends.
In accordance with IAS 39, investments in companies other than subsidiaries and associates, constituting non-current financial assets which are not held for trading, are classified as financial assets available for sale and are measured at fair value, except in situations where fair value cannot be reliably determined: in such cases, the cost method is adopted.
Gains and losses resulting from fair value adjustments are recognised in a specific other comprehensive income reserve until an asset is sold or impaired; when an asset is sold, gains or losses previously recognised in other comprehensive income are reclassified to profit or loss for the period. When an asset is adjusted for impairment, the accumulated loss is recognised in profit or loss under "Interest and financial expenses".
For further information on the accounting policy for financial assets, reference should be made to the relevant note ("Financial Assets").
At each reporting date the Company reviews the carrying amount of its tangible and intangible assets and investments in subsidiaries and associates to determine if there are any indicators of impairment. If any such indicators exists, the asset's recoverable amount is estimated in order to determine the extent of the impairment adjustment. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs.
The recoverable amount of an asset is the higher of fair value less costs to sell and value in use. The value in use of an asset is estimated by discounting estimated future cash flows after taxes to their present value at a discount rate that reflects the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or of a cash-generating unit) is estimated to be lower than its carrying amount, it is reduced to the lower recoverable amount. The reversal of an impairment loss is immediately recognised in profit or loss. In particular, when assessing the existence of any impairment losses pertaining to investments in subsidiaries and associates, when these entities are not listed or if a reliable market value (fair value less costs to sell) is not determinable, the recoverable amount is deemed to be the value in use. Value in use is the portion attributable to the Company of the present value of estimated cash flows from operations or dividends to be received from each subsidiary and the amount that is expected to be received from the ultimate disposal of the asset in line with the provisions of IAS 28 and the part of IAS 36 referred to by IAS 28.
When it is no longer necessary to maintain an impairment adjustment, the carrying value of the asset (or cash-generating unit) – except for goodwill - is increased to the new value based on its estimated recoverable amount; this cannot exceed the net carrying amount the asset would have had if it had never been adjusted for impairment. The reversal of an impairment adjustment is recognised in profit or loss.
Inventories of finished goods are recognised at the lower of purchase cost including ancillary expenses and realisable value, as estimated based on market trends. Cost is determined based on specific cost.
When the realisable value of inventories is lower than their purchase cost, impairment is charged directly to the unit value of the article in question.
Receivables are measured at amortised cost which coincides with their estimated realisable value. The nominal amount of receivables is brought into line with estimated realisable amount by means of a provision for doubtful accounts, taking account of the specific circumstances of each debtor.
Receivables due from customers involved in insolvency proceedings are written off in full, or written down to the extent that ongoing legal action indicates they are partially collectible.
Payables are stated at nominal amount.
The Company factors trade receivables on a non-recourse basis with various factoring companies. In accordance with IAS 39, factored assets may be derecognised only when the associated risks and rewards have been substantially transferred. Accordingly, receivables factored without recourse that include provisions limiting the transfer of these risks and rewards at the time of the transaction, such as deferred payments or deductibles by the transferor, or that imply continued significant exposure to the trend in inflows deriving from the receivables, remain in the consolidated financial statements even though said receivables have been transferred. An amount equal to the sums advanced for factored receivables not yet collected is therefore recognised in the consolidated financial statements under other current financial liabilities.
Employee termination indemnities (trattamento di fine rapporto or TFR) - mandatory for Italian companies pursuant to Art. 2120 of the Civil Code - constitute deferred compensation and depend on the employees' period of employment and the amount of compensation received while in the Company's service.
Effective 1 January 2007, significant changes were made to Italian law governing the TFR. These changes included the choice given to employees to decide where to allocate their TFR entitlement accruing (in supplementary pension schemes or in the "Treasury Fund" managed by the Social Security agency INPS). Thus, the obligation towards INPS and the payments to supplementary pension schemes qualify as defined contribution plans while the amounts remaining in TFR, in accordance with IAS 19, retain their status as defined benefit plans.
In accordance with the amendment to IAS 19, actuarial gains and losses are recognised in equity under other reserves.
The Company creates provisions for risks and charges when it has legal or constructive obligations to third parties whose exact amount and/or timing is uncertain and/or it is probable that the Company will have to employ resources to fulfil the obligation and the amount can be reliably estimated. The provisions are adjusted periodically to reflect any increases/decreases in the estimated amount of the liability.
Changes in estimates are recognised in the statement of profit or loss for the period in which the change occurs.
Current financial assets, non-current financial assets and current and non-current financial liabilities are recognised in accordance with IAS 39 – Financial Instruments: Recognition and Measurement.
Cash and cash equivalents include cash on hand, bank deposits, mutual fund units, other highly negotiable securities and other financial assets recognised as available-for-sale.
Current financial assets and securities are recognised based on their trading date and, upon initial recognition, they are measured at purchase cost including transaction expenses. After initial recognition, financial instruments and securities available for sale are measured at fair value. If no market price is available, the fair value of financial instruments available for sale is measured with the most appropriate valuation techniques e.g. the discounted cash flow method, using market information available at the reporting date.
Financial liabilities comprise financial payables and other financial liabilities, including those arising from the recognition of derivative instruments at market value.
Financial liabilities hedged by derivatives are measured at fair value, according to hedge accounting rules as applicable to fair value hedges: gains and losses from subsequent fair value measurement, due to changes in interest rates and/or exchange rates, are recognised in profit or loss and offset by the effective portion of the loss or gain deriving from the subsequent fair value measurement of the instrument hedged.
In accordance with IAS 39 this category includes the following cases:
On initial recognition, financial assets held for trading are measured at fair value, without adding directly attributable transaction costs or income that are recognised in profit or loss.
All assets within this category are classified as current if they are held for trading or if they are expected to be sold within 12 months of the reporting date.
Designation of a financial instrument to this category is final (IAS 39 only envisages some exceptional circumstances in which said financial assets may be classified in another category) and can only be done on initial recognition.
Gains or losses on financial assets measured at fair value through profit or loss are immediately recognised in profit or loss.
Fair value is the amount for which an asset could be exchanged, or to be paid to transfer the liability ("exit price") in an arm's length transaction between well-informed and independent parties. In the case of securities traded on regulated markets, fair value is determined with reference to bid prices at the end of trading on the reporting date.
Purchases or sales settled at "market price" are recognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. In cases where fair value cannot be reliably determined, the financial asset is measured at cost, with disclosure in the notes of its type and related reasons.
Investments in financial assets may be derecognised only upon expiry of the contractual rights to receive cash flows from investments (e.g. final redemption of bonds subscribed) or when the Company transfers the financial asset and all related risks and benefits.
Derivatives are used only to hedge the risk of fluctuation in exchange rates and interest rates. In accordance with IAS 39, derivative financial instruments may be recognised on a hedge accounting basis only if, at the inception of the hedge, the relationship is formally designated and documented, the hedge is expected to be highly effective, its effectiveness can be reliably measured and the hedge is assessed as being highly effective throughout the financial reporting periods for which it was designated.
All derivative financial instruments are measured at fair value, as established by IAS 39.
When derivative financial instruments meet the conditions for hedge accounting, they are accounted for as follows:
Fair value hedge – If a derivative financial instrument is designated as a hedge against changes in the fair value of a recognised asset or liability attributable to a particular risk that may affect profit or loss, the gain or loss arising from subsequent fair value measurement of the hedge is recognised in profit or loss.
The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of that item and is recognised in profit or loss.
Cash flow hedge – If a financial instrument is designated as a hedge against exposure to variations in the cash flows of a recognised asset or liability or a forecast transaction that is highly probable and could affect profit or loss, the effective portion of the gain or loss on the financial instrument is recognised directly in equity. The cumulative gain or loss is transferred from equity to profit or loss in the same period in which the hedged transaction is recognised. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in profit or loss. If a hedge or a hedging relationship is closed, but the hedged
transaction has not yet taken place, the gains or losses recognised up to that time in equity are reclassified to profit or loss as soon as the transaction occurs. If the hedged transaction is no longer deemed probable, the profits or losses not yet realised that have been accounted for in equity are immediately recognised in profit or loss.
If hedge accounting cannot be applied, the gains or losses arising from the fair value measurement of the derivative financial instrument are recognised immediately in profit or loss as interest income/expense or financial income/expense.
Treasury shares held by Digital Bros S.p.A. and other consolidated companies are deducted from equity. Their original cost and any positive/negative differences from their subsequent sale are recorded as equity movements under "other reserves".
Revenue is recognised when the Company is expected to obtain economic benefits and the amount of which can be reliably determined. Specifically, revenue from the sale of goods is recognised when the risks and benefits of ownership are transferred to the buyer and the price has been agreed or can be determined and is expected to be received.
Revenue from services is recognised when the services are rendered and accepted by the customer.
Gross revenue is shown net of discounts, rebates and returns. Revenue adjustments comprise revenuebased variable costs and estimated returns from customers, both contractual and non-contractual.
Costs and other operating expenses are recognised when incurred in accordance with the accrual and matching principles, when they do not produce future economic benefits, or when those benefits do not qualify for recognition as assets.
Advertising costs are recognised upon receipt of the service.
Cost of sales is the purchase or production cost of products, goods and/or services for resale. It includes all materials and workmanship costs.
Changes in inventories refer to the change in the period in the gross amount of period end inventories, net of the change in provisions for inventory obsolescence.
Dividends received from investee companies are recognised when the right to receive payment is established, provided they derive from the allocation of profits earned subsequent to the acquisition of the investee. If they derive from the distribution of reserves generated prior to the acquisition, such dividends are deducted from the carrying amount of the equity investment.
Interest income and expenses are recognised on an accrual basis and shown separately in the income statement without being offset against each other.
Income tax includes all taxes computed on the Company's taxable income. Income tax is generally recognised in profit or loss, except when it pertains to items debited or credited directly to equity, in which case the tax effect is recognised directly in equity.
Other taxes not related to income, such as those on property and capital, are recognised as other operating costs.
Deferred taxes are computed in accordance with the balance sheet liability method. They are calculated on all temporary differences between the accounting and tax basis of an asset or liability, with the exception of non-deductible goodwill and differences deriving from investments in subsidiaries that are not expected to reverse in the foreseeable future.
Deferred tax assets on tax losses and unused tax credits eligible to be carried forward are recognised to the extent of the likelihood of earning enough future taxable income for these to be recovered. Deferred tax assets and liabilities are computed using the tax rates expected to be in force when the temporary differences are likely to be realised or reversed.
They are classified as non-current assets and liabilities, regardless of the estimated year of use.
Basic earnings per share is calculated by dividing the profit for the period by the number of shares outstanding, excluding treasury shares. Diluted earnings per share is equal to basic earnings per share as e no financial instruments convertible to shares were in issue during the period.
Transactions in foreign currencies are recognised at the exchange rate in effect on the transaction date. Monetary assets and liabilities denominated in foreign currencies as of the reporting date are translated at the exchange rate in force on that date. Exchange gains and losses generated by the settlement of monetary items or by their translation at rates other than those used upon initial recognition during the year or in prior periods are recognised in profit or loss.
The standard will be applied from 1 July 2018. The analysis process is still in progress and a reasonable estimate of the potential effects cannot be provided at present.
• On 24 July 2014, the IASB published the final version of IFRS 9 – Financial instruments. The document contains the results of the IAS 39 replacement project. The new standard is effective for annual periods beginning on or after 1 January 2018 .
The standard introduces new criteria for the classification and measurement of financial assets and liabilities. For financial assets, IFRS 9 uses a single approach based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial assets themselves to determine how those assets are measured, replacing the many different rules in IAS 39. For financial liabilities, the main amendments relate to the accounting treatment of changes in fair value of a financial liability designated at fair value through profit or loss, in the event that these changes are due to a change in the credit risk of the issuer of the liability in question. Under the new standard, these changes shall be presented in other comprehensive income and shall no longer be presented in the statement of profit or loss. Moreover, in case of non-substantial changes in liabilities, the profit or loss effects of renegotiation can no longer be spread over the residual duration of the liability by amending the effective interest rate at that date; rather, the related effect must be recorded in profit or loss.
With regard to impairment, the new standard requires credit losses to be estimated based on an expected loss model (and not on an incurred loss model used by IAS 39) using supportable information, which is available without undue cost or effort and includes historical, current and prospective figures. The standard provides that this impairment model shall be applied to all financial instruments i.e. to financial assets measured at amortised cost, those measured at fair value through other comprehensive income, lease receivables and trade receivables.
Finally, the standard introduces a new model of hedge accounting in order to adapt the requirements of the current IAS 39 that were sometimes considered too stringent and unsuitable to reflect companies' risk management policies. The main changes introduced by the document regard:
The greater flexibility of the new accounting rules is offset by additional disclosure requirements concerning a company's risk management activities.
The standard will be applied from 1 July 2018. The analysis provides is still in progress and a reasonable estimate of the potential effects cannot be provided at present.
• Amendment to IFRS 2 "Classification and measurement of share-based payment transactions" (published on 20 June 2016) which contains several clarifications on the accounting treatment of the effects of vesting conditions in the presence of cash-settled share-based payments, on the classification of share-based payments with net settlement characteristics and on the accounting treatment of changes to the terms and conditions of a share-based payment which change its classification from cash-settled to equity-settled. The amendments will be applied from 1 July 2018. The Directors do not expect adoption of these amendments to have a significant effect on the financial statements.
The directors do not expect adoption of these amendments to have a significant effect on the financial statements.
determine the date of a transaction, and, consequently, the spot exchange rate to be used in case of foreign currency transactions where payment is made or received in advance. The interpretation clarifies that the transaction date is the earlier of:
If there are numerous payments or receipts of advance consideration, a specific transaction date must be established for each of them. IFRIC 22 will be applied from 1 July 2018. The Directors do not expect adoption of these amendments to have a significant effect on the financial statements.
• On 13 January 2016, the IASB published IFRS 16 – Leaseswhich will replace IAS 17 – Leases, as well as the interpretations IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The new standard provides a new definition of a lease and introduces a criterion based on control (right of use) over an asset in order to differentiate lease contracts from service contracts. It identifies the following differentiating features: identification of the asset, the right to replacement of the asset, the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the underlying asset.
The standard sets out a single model for the recognition and measurement of lease contracts for a lessee that requires the recognition of assets held under leases, inclusive of operating leases, as balance sheet assets with an opposite entry to financial liabilities and it also makes it possible not to recognise as leases contracts for low-value assets (i.e. leases for assets with a value of less than Euro 5,000) and leases with a contractual duration of less than or equal to 12 months. Meanwhile, the standard does not include any significant amendments for lessors.
The standard is applicable from 1 January 2019, although early application is permitted but only for companies that have already adopted IFRS 15 - Revenue from Contracts with Customers. The directors believe that the application of IFRS 16 may have a significant impact on the recognition of lease arrangements and on related disclosures in the financial statements. They have already commenced an initial phase of detailed analysis of lease agreements and accounting effects and a second phase of implementation and/or adaptation of administrative processes and the accounting system. The Directors have not yet finalised the approach they intend to adopt from among those permitted by IFRS 16.
• Amendment to IFRS 9 "Prepayment Features with Negative Compensation" (published on 12 October 2017). This document specifies that instruments with prepayment features could pass the SPPI test even if the "reasonable additional compensation" payable in case of prepayment is a "negative compensation" for the financing entity. The amendment is applicable from 1 January 2019 but early application is permitted. The Directors do not expect adoption of these amendments to have a significant effect on the financial statements.
As of the reporting date, the competent European Union bodies had not yet completed the endorsement process necessary for the adoption of the amendments and standards described below:
• On 18 May 2017, the IASB published IFRS 17 – Insurance Contracts which is destined to replace IFRS 4 – Insurance Contracts.
The aim of the new standard is to ensure that an entity provides relevant information that faithfully represents the rights and obligations resulting from the insurance contracts issued. The IASB has developed the standard in order to eliminate inconsistencies and weaknesses in existing accounting standards while providing a single principle-based approach to take account of all of the types of insurance contracts held by an insurer, including reinsurance contracts.
The new standards also lay down presentation and disclosure requirements to improve comparability between entities belonging to this segment.
The new standard measures insurance contracts based on a General Model or a simplified version thereof, called the Premium Allocation Approach ("PAA").
The main characteristics of the General Model are as follows:
The PAA provides for measurement of the liability for the residual cover of a group of insurance contracts con condition that, at the time of initial recognition, the entity believes that the liability represents a reasonable approximation of the General Model. Contracts with a cover period of a year or less are automatically suitable for the PAS approach. Simplifications due to application of the PAA method do not apply to the measurement of liabilities for existing claims which are measured using the General Model. Nonetheless, it is not necessary to discount those cash flows if it is expected that the balance to be paid or collected will fall due within a year of the date on which the claim was made.
The entity shall apply the new standard to insurance contracts issued, including reinsurance contracts issued, reinsurance contracts held and investment contracts with a discretionary participation feature (DPF).
The standard is applicable from 1 January 2021 with early application permitted but only for entities that apply IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers. The Directors do not expect adoption of this standard to have a significant effect on the financial statements.
• On 7 June 2017, the IASB issued IFRIC 23 – Uncertainty over Income Tax Treatments. The document addresses the issue of uncertainty over income tax treatments. The document provides that uncertainties in the determination of tax liabilities or assets should be reflected in the financial statements only when it is probable that an entity will pay or recover the amount in question. Moreover, the interpretation does not contain any new disclosure requirements but highlights that an entity should establish whether there will be a need to provide any disclosures based on management considerations relating to any uncertainty over the accounting treatment of taxation, in accordance with IAS 1.
The new interpretation is applicable from 1 January 2019 but early application is permitted. The Directors do not expect adoption of this interpretation to have a significant effect on the financial statements.
• On 12 October 2017, the IASB published the document "Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)". The document provides clarification on the need to apply IFRS 9, including requirements regarding impairment, to long-term interests in associates and joint ventures to which the equity method is not applied. The amendment is applicable from 1 January 2009 but early application is allowed.
The Directors do not expect adoption of the amendments to have a significant effect on the financial statements.
The amendments are applicable from 1 January 2019 but early application is permitted. The Directors do not expect adoption of these amendments to have a significant effect on the financial statements.
• Amendment to IAS 19 "Plan Amendment, Curtailment or Settlement" (published on 7 February 2018). The document clarifies how an entity should record an amendment (i.e. a curtailment or a settlement) to a defined benefit plan. The amendment requires the entity to update its assumptions and to remeasure the net liability or asset resulting from the plan. The amendment clarifies that, after such an event, an entity shall use the updated assumptions to measure the current service cost and interest for the rest of the period after the event. The Directors do not expect adoption of the amendment to have a significant effect on the financial statements.
• On 11 September 2014, the IASB published an amendment to IFRS 10 and IAS 28 Sales or Contribution of Assets between an Investor and its Associate or Joint Venture. The document was published in order to resolve the current conflict between IAS 28 and IFRS 10.
IAS 28 requires that the gain or losses resulting from the sale or contribution of a non-monetary asset to a joint venture or associate in exchange for an equity interest in the latter is limited to the extent of the investor's interest in the joint venture or associate. Meanwhile, IFRS 10 requires full profit or loss recognition when a parent loses control of a subsidiary, even if the entity continues to hold a non-controlling interest therein, inclusive of in the case of a sale or contribution of a subsidiary to a joint venture or associate. The amendments require that, in the case of a sale or contribution of an asset or a subsidiary to a joint venture or associate, the extent of the gain or loss to be recognised in the financial statements of the seller or contributor depends on whether the assets or the subsidiary sold or contributed consist of a business, as defined by IFRS 3. If the assets or the subsidiary sold or contributed consist of a business, then the entity should recognise the full profit or loss in line with the previously held equity interest; otherwise, the portion of the gain or loss relating to the equity interest that is still held should be eliminated. For the time being, the IASB has postponed the application of these amendments. The directors do not expect adoption of these amendments to a significant impact on the financial statements.
Preparation of the separate financial statements for the year ended 30 June 2018 and the notes thereto required the use of discretionary judgment in order to make estimates and assumptions with an effect on the carrying amount of assets and liabilities recognised in the consolidated financial statements and on disclosures relating to contingent assets and liabilities as at the reporting date. These judgements are made on the basis of short- and medium/long-term forecasts that are constantly updated and approved by the Board of Directors prior to the approval of all financial reports.
Estimates are based on figures that reflect current available knowledge. They are periodically reviewed and the effects are reflected in profit or loss. Actual results may differ, even significantly, from these estimates due to changes in the factors considered when formulating them. Estimates are used, in particular, to recognise provisions for doubtful accounts and for the measurement of inventories, depreciation and amortisation, equity investments, asset impairment, employee benefits, deferred taxes and other provisions and allowances.
The main sources of uncertainty when making estimates regarded the recoverable amount of intangible assets, credit risk, inventory impairment, employee benefits, provisions, revenue adjustments, royalties and deferred tax estimates.
The credit risk regarding trade receivables is periodically assessed periodically based on opinions provided by the external legal advisor who handles customer disputes. Under the credit recovery procedure adopted by the Company receivables not paid within 45 days of their due date are passed on to the legal advisor for collection. Frequent updates from the lawyer on the likelihood of collection ensure that the credit risk estimate remains reliable over time.
Equity investments are adjusted for impairment whenever events or a change in circumstances indicate that their carrying amount is no longer recoverable. Events that may potentially require an impairment adjustment to an equity investment include changes in the strategic plan and changes in market prices that lead to a poorer operational performance and reduce the subsidiary's capacity to generate dividends. Measurement of the recoverable amount of equity investments is performed using estimates of expected cash flows and appropriate discount rates to calculate present value. Therefore, it is based on a set of hypothetical assumptions relating to future events and actions by the Directors of subsidiaries that may not necessarily occur in the manner and within the timescale envisaged.
The Company measures inventories on a quarterly basis, in light of the rapid obsolescence of its products. Impairment adjustments may be recorded in relation to individual products whose market value is lower than their historical cost. In order to make these estimates, the Company uses revenue forecasts for the subsequent four quarters, as periodically produced by the sales department. Any differences identified between the market value of a product held in inventory, taking account of its price category and historical cost, are recognised in profit or loss in the period they come to light.
Estimating employee termination indemnities is made more complex by the fact that it requires an assessment of the future cash outflows that may arise as a result of employees' voluntary and involuntary departure, in relation to their seniority and the revaluation rates these benefits enjoy by law.
The TFR/employee termination indemnity system underwent significant change during the year ended 30 June 2006. Estimating the liability remains complex because a residual portion of indemnities have remained with the Company. The Company makes its estimate with assistance from an actuary in order to determine the necessary parameters.
Following the approval of the "2016-2026 Stock Option Plan", an actuarial measurement was require. An independent professional has been appointed to perform the measurement.
A significant cost element known as "revenue adjustments" involves detailed calculations for which the Company has adopted appropriate procedures.
Revenue adjustments consist of various types of cost. The first category, which is easier to determine, consists of discounts granted to customers at the end of the contractual period – normally annual – in the form of year-end bonuses. The second category regards credit notes that the Company might have to issue to customers in relation to unsold products. In order to make this estimate, management performs analysis by customer and by product, highlighting the risks and dividing them between price differences and potential returns. The forecast is made quarterly, on a product-by-product basis, comparing volumes sold to customers with the volumes they have sold to end consumers. The availability of sales figures by country makes the estimate reliable over time. Many customers submit sales and inventory figures on a weekly basis, thus facilitating the estimation process.
The statement of financial position at 30 June 2018 is set out below together with comparative figures at 30 June 2017:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 2,982 | 3,160 | (178) | -5.6% |
| 2 | Investment property | 0 | 0 | 0 | 0.0% |
| 3 | Intangible assets | 302 | 367 | (65) | -17.7% |
| 4 | Equity investments | 16,432 | 18,919 | (2,487) | -13.1% |
| 5 | Non-current receivables and other assets | 9,216 | 637 | 8,579 | n.m. |
| 6 | Deferred tax assets | 330 | 406 | (76) | -18.8% |
| Total non-current assets | 29,262 | 23,489 | 5,773 | 24.6% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (419) | (417) | (2) | 0.5% |
| 8 | Non-current provisions | (80) | (79) | (1) | 1.2% |
| 9 | Other non-current payables and liabilities | (901) | 0 | (901) | n.m. |
| Total non-current liabilities | (1,400) | (496) | (904) | n.m. | |
| Net working capital | |||||
| 10 | Inventories | 3,688 | 3,958 | (270) | -6.8% |
| 11 | Trade receivables | 1,802 | 2,176 | (374) | -17.2% |
| 12 | Receivables from subsidiaries | 23,233 | 20,220 | 3,013 | 14.9% |
| 13 | Tax receivables | 1,968 | 327 | 1,641 | n.m. |
| 14 | Other current assets | 3,078 | 564 | 2,514 | n.m. |
| 15 | Trade payables | (2,012) | (2,306) | 294 | -12.7% |
| 16 | Payables to subsidiaries | (8,933) | (16,262) | 7,329 | -45.1% |
| 17 | Current tax liabilities | (216) | (615) | 399 | -64.9% |
| 18 | Current provisions | (2,393) | (1,246) | (1,147) | 92.0% |
| 19 | Other current liabilities | (753) | (2,277) | 1,524 | -67.0% |
| Total net working capital | 19,462 | 4,539 | 14,923 | n.m. | |
| Capital and reserves | |||||
| 20 | Share capital | (5,704) | (5,704) | 0 | 0.0% |
| 21 | Reserves | (20,577) | (19,764) | (813) | 4.1% |
| 22 | Treasury shares | 0 | 0 | 0 | 0.0% |
| 23 | (Retained earnings) accumulated losses | (20,606) | (7,237) | (13,369) | n.m. |
| Total equity | (46,887) | (32,705) | (14,182) | 43.4% | |
| Total net assets | 437 | (5,173) | 5,610 | n.m. | |
| 24 | Cash and cash equivalents | 609 | 3,872 | (3,263) | 84.3% |
| 25 | Current bank borrowing | (845) | (1,558) | 713 | -45.8% |
| 26 | Other current financial assets and liabilities | (176) | 2,899 | (3,075) | n.m. |
| Current net financial position | (412) | 5,213 | (5,625) | n.m. | |
| 27 | Non-current financial assets | 0 | 0 | 0 | n.m. |
| 28 | Non-current bank borrowing | 0 | 0 | 0 | n.m. |
| 29 | Other non-current financial liabilities | (25) | (40) | 15 | -38.4% |
| Non-current net financial position | (25) | (40) | 15 | -38.4% | |
| Total net financial position | (437) | 5,173 | (5,610) | n.m. |
Gruppo Digital Bros Bilancio consolidato e Bilancio separato al 30 June 2018
Property, plant and equipment has decreased from Euro 3,160 thousand to Euro 2,982 thousand. Movements during the reporting period were as follows:
| Euro Thousands | 1 July 2017 |
Additions | Disposals | Depreciation | Use of accum. deprec'n |
30 June 2018 |
|---|---|---|---|---|---|---|
| Industrial buildings | 2,237 | 0 | 0 | (103) | 0 | 2,134 |
| Land | 600 | 0 | 0 | 0 | 0 | 600 |
| Plant and machinery | 187 | 57 | 0 | (61) | 0 | 183 |
| Other assets | 133 | 0 | 0 | (70) | 0 | 63 |
| Leasehold improvements | 3 | 0 | 0 | (1) | 0 | 2 |
| Total | 3,160 | 57 | 0 | (235) | 0 | 2,982 |
| Use of | ||||||
|---|---|---|---|---|---|---|
| 1 July | accum. | 30 June | ||||
| Euro Thousands | 2016 | Additions | Disposals | Depreciation | deprec'n | 2017 |
| Industrial buildings | 2,340 | 0 | 0 | (103) | 0 | 2,237 |
| Land | 600 | 0 | 0 | 0 | 0 | 600 |
| Plant and machinery | 208 | 36 | 0 | (57) | 0 | 187 |
| Other assets | 205 | 0 | 0 | (72) | 0 | 133 |
| Leasehold improvements | 4 | 0 | 0 | (1) | 0 | 3 |
| Total | 3,357 | 36 | 0 | (233) | 0 | 3,160 |
Property, plant and equipment – except for land – is depreciated over the useful life of each individual asset.
Industrial buildings include the warehouse in Trezzano sul Naviglio while land includes the land at the same location, as valued at Euro 600 thousand.
Additions for the year consisted almost entirely of electronic equipment.
Movements in the gross carrying amount of property, plant and equipment and in accumulated depreciation, in the current year and in the previous year, were as follows:
Gross carrying amount of property, plant and equipment
| Euro Thousands | 1 July 2017 | Additions | Disposals | 30 June 2018 |
|---|---|---|---|---|
| Industrial buildings | 3,258 | 0 | 0 | 3,258 |
| Land | 600 | 0 | 0 | 600 |
| Plant and machinery | 2,170 | 57 | 0 | 2,227 |
| Other assets | 1,333 | 0 | 0 | 1,333 |
| Leasehold improvements | 317 | 0 | 0 | 317 |
| Total | 7,678 | 57 | 0 | 7,735 |
Accumulated depreciation
| Euro Thousands | 1 July 2017 | Increases | Disposals | 30 June 2018 |
|---|---|---|---|---|
| Industrial buildings | (1,021) | (103) | 0 | (1,124) |
| Land | 0 | 0 | 0 | 0 |
| Plant and machinery | (1,983) | (61) | 0 | (2,044) |
| Other assets | (1,200) | (70) | 0 | (1,270) |
| Leasehold improvements | (314) | (1) | 0 | (315) |
| Total | (4,518) | (235) | 0 | (4,753) |
Gross carrying amount of property, plant and equipment
| Euro Thousands | 1 July 2016 | Additions | Disposals | 30 June 2017 |
|---|---|---|---|---|
| Industrial buildings | 3,258 | 0 | 0 | 3,258 |
| Land | 600 | 0 | 0 | 600 |
| Plant and machinery | 2,134 | 36 | 0 | 2,170 |
| Other assets | 1,333 | 0 | 0 | 1,333 |
| Leasehold improvements | 317 | 0 | 0 | 317 |
| Total | 7,642 | 36 | 0 | 7,678 |
Accumulated depreciation
| Euro Thousands | 1 July 2016 | Increases | Disposals | 30 June 2017 |
|---|---|---|---|---|
| Industrial buildings | (918) | (103) | 0 | (1,021) |
| Land | 0 | 0 | 0 | 0 |
| Plant and machinery | (1,926) | (57) | 0 | (1,983) |
| Other assets | (1,128) | (72) | 0 | (1,200) |
| Leasehold improvements | (313) | (1) | 0 | (314) |
| Total | (4,285) | (233) | 0 | (4,518) |
The Company's property, plant and equipment are unburden by liens, mortgages or other securities.
All of the intangible assets recognised by the Company have finite useful lives. No intangible assets have been recorded in connection with internal development costs and business combinations.
Intangible assets have recorded a net decrease of Euro 65 thousand after the amortisation charge for the year of Euro 154 thousand. The following table shows movements for the current year and the previous year by asset category
| Euro Thousands | 1 July 2017 | Additions | Disposals | Amortisation | 30 June 2018 |
|---|---|---|---|---|---|
| Concessions and licences | 357 | 89 | 0 | (150) | 296 |
| Trademarks and similar rights | 6 | 0 | 0 | (2) | 4 |
| Other intangible assets | 4 | 0 | 0 | (2) | 2 |
| Total | 367 | 89 | 0 | (154) | 302 |
| 30 June | |||||
|---|---|---|---|---|---|
| Euro Thousands | 1 July 2016 | Additions | Disposals | Amortisation | 2017 |
| Concessions and licences | 380 | 127 | 0 | (150) | 357 |
| Trademarks and similar rights | 6 | 2 | 0 | (2) | 6 |
| Other intangible assets | 13 | 0 | 0 | (9) | 4 |
| Total | 399 | 129 | 0 | (161) | 367 |
Concessions and licences increased by Euro 89 thousand over the year due to expenditure on ERP systems.
Movements on intangible assets and accumulated amortisation in the current year and in prior year were as follows:
Gross carrying amount of intangible assets
| Euro Thousands | 1 July 2017 | Additions | Disposals | 30 June 2018 |
|---|---|---|---|---|
| Concessions and licences | 2,788 | 89 | 0 | 2,877 |
| Trademarks and similar rights | 1,514 | 0 | 0 | 1,514 |
| Other intangible assets | 73 | 0 | 0 | 73 |
| Total | 4,375 | 89 | 0 | 4,464 |
| Euro Thousands | 1 July 2017 | Increases | Disposals | 30 June 2018 |
|---|---|---|---|---|
| Concessions and licences | (2,431) | (150) | 0 | (2,581) |
| Trademarks and similar rights | (1,508) | (2) | 0 | (1,510) |
| Other intangible assets | (69) | (2) | 0 | (71) |
| Total | (4,008) | (154) | 0 | (4,162) |
Gross carrying amount of intangible assets
| Euro Thousands | 1 July 2016 | Additions | Disposals | 30 June 2017 |
|---|---|---|---|---|
| Concessions and licences | 2,661 | 127 | 0 | 2,788 |
| Trademarks and similar rights | 1,512 | 2 | 0 | 1,514 |
| Other intangible assets | 73 | 0 | 0 | 73 |
| Total | 4,246 | 129 | 0 | 4,375 |
| Euro Thousands | 1 July 2016 | Increases | Disposals | 30 June 2017 |
|---|---|---|---|---|
| Concessions and licences | (2,281) | (150) | 0 | (2,431) |
| Trademarks and similar rights | (1,506) | (2) | 0 | (1,508) |
| Other intangible assets | (60) | (9) | 0 | (69) |
| Total | (3,847) | (161) | 0 | (4,008) |
At the reporting date, there were no intangible assets with an indefinite useful life.
Equity investments amount to Euro 16,446 thousand and have decreased by Euro 2,473 thousand compared to prior year.
The following table contains details of equity investments at 30 June 2018, together with comparatives at 30 June 2017:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| 505 Games S.p.A. | 10,100 | 10,100 | 0 |
| Game Service S.r.l. | 85 | 85 | 0 |
| Pipeworks Inc. | 0 | 2,412 | (2,412) |
| Digital Bros Game Academy S.r.l. | 300 | 300 | 0 |
| Game Network S.r.l. | 10 | 10 | 0 |
| Digital Bros Game China | 100 | 100 | 0 |
| Digital Bros Holdings Ltd. | 125 | 125 | 0 |
| 133 W Broadway Inc. | 91 | 91 | 0 |
| Kunos Simulazioni S.r.l. | 4,351 | 4,351 | 0 |
| Total subsidiaries | 15,162 | 17,574 | (2,412) |
| Ovosonico S.r.l. | 751 | 720 | 31 |
| Seekhana Ltd. | 421 | 511 | (90) |
| Total associated companies | 1,172 | 1,231 | (59) |
| Games Analytics Ltd. | 60 | 60 | 0 |
| Ebooks&Kids S.r.l. | 38 | 52 | (14) |
| Cityglance S.r.l. in liquidation | 0 | 2 | (2) |
| Total other companies | 98 | 114 | (16) |
| Total equity investments | 16,432 | 18,919 | (2,487) |
The most significant change was due to the sale of the investment in US company Pipeworks Inc. The disposal has already been described under Significant Events During the Reporting Period.
Other changes in equity investments in associated companies included:
The investments held in Ovosonico S.r.l. and Seekhana Ltd. are measured using the equity method so their amount includes the Company's share of their profits/losses and the amortisation and/or writedown of the difference between the price paid and the proportionate equity value at the date of acquisition of each investment.
| Carrying amount |
Capital | Pro-rata share of equity |
Result for the year |
Change d=c-a |
||
|---|---|---|---|---|---|---|
| Name | Location | a | b | c | ||
| 505 Games S.p.A. | Milan | 10,100 | 10,000 | 27,048 | 2,153 | 16,948 |
| Game Service S.r.l. | Milan | 85 | 50 | 209 | (11) | 124 |
| Digital Bros Game Academy S.r.l. | Milan | 82 | 300 | 82 | (128) | 0 |
| Game Network S.r.l. | Milan | (2,165) | 10 | (2,165) | (1,019) | 0 |
| Digital Bros Game China | Shenzhen | 100 | 100 | 92 | 9 | (8) |
| Milton | ||||||
| Digital Bros Holdings Ltd. | Keynes | 125 | 125 | 109 | (2) | (16) |
| 133 W Broadway Inc. | Eugene | 91 | 90 | (108) | (98) | (199) |
| Kunos Simulazioni S.r.l. | Rome | 4,351 | 10 | 5,297 | 2,434 | 946 |
| Total subsidiaries | 12,769 | |||||
| Games Analytics Ltd. (1) | Edinburgh | 60 | 3 | 7 | (293) | (53) |
| Ebooks&Kids S.r.l. (1) | Milan | 38 | 26 | 38 | (90) | 0 |
| Total other companies | 98 |
At the reporting date, the carrying amount of equity investments along with a comparison to the Group's share of the investees' equity was as follows:
(1)Figures taken from financial statements at 31 December 2017
(2) Figures taken from Six-Monthly Report at 30 June 2018
All of the subsidiaries are 100% owned. The percentage investments held in Games Analytics Ltd. and Ebooks&Kids S.r.l. are 1.04% and 16%, respectively.
The carrying amounts of the investments in Digital Bros Game Academy S.r.l. and Game Network S.r.l. are stated net of impairment adjustments which total Euro 2,175 thousand for Game Network S.r.l. and Euro 218 thousand for Digital Bros Game Academy S.r.l.
No impairment adjustments have been made to the investments in 133 W. Broadway Inc., Ovosonico S.r.l. and Seekhana Ltd. as medium/long-term business plans suggest that their impairment is not permanent.
Non-current receivables and other assets amount to Euro 9,216 thousand. The balance has increased by Euro 8,579 thousand compared to 30 June 2017 mainly because of recognition of the medium/long-term receivable of USD 10 million resulting from the disposal of Pipeworks Inc. The remaining balance of Euro 638 thousand consists entirely of guarantee deposits paid in respect of contractual obligations. The largest deposit is the amount of Euro 635 thousand paid to Matov Imm. S.r.l. as a deposit for the rental of premises in Via Tortona 37, Milan, the Company's headquarters.
At 30 June 2018, deferred tax assets amount to Euro 330 thousand and have decreased by euro 76 thousand compared to 30 June 2017.
The balance includes IRES deferred tax assets of Euro 321 thousand and IRAP deferred tax assets of Euro 9 thousand.
Deferred tax assets are calculated on temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax basis and are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The rate applied for IRES purposes was 24%. The following table provides details of temporary differences at 30 June 2018 and 30 June 2017:
| Description | Temporary differences at 30 June 2017 |
Changes in temporary differences in the year |
Temporary differences at 30 June 2018 |
|---|---|---|---|
| Taxed provision for bad debts | 620 | 34 | 654 |
| Provision for derivative risks | 41 | (41) | 0 |
| Directors' emoluments not paid | 601 | (332) | 269 |
| Employee termination indemnity | 39 | 0 | 39 |
| Inventory obsolescence provision | 343 | (93) | 250 |
| Deduction for "Economic Growth Assistance " (ACE) |
0 | 93 | 93 |
| Other | 49 | (16) | 33 |
| Total | 1,693 | (355) | 1,338 |
The following table shows the calculation of deferred tax assets for IRES purposes at 30 June 2018:
| Description | Temporary differences at 30 June 2018 |
IRES rate |
Deferred tax assets for IRES purposes at 30 June 2018 |
|---|---|---|---|
| Taxed provision for bad debts | 654 | 24.0% | 157 |
| Provision for derivative risks | 0 | 24.0% | 0 |
| Directors' emoluments not paid | 269 | 24.0% | 65 |
| Employee termination indemnity | 39 | 24.0% | 9 |
| Inventory obsolescence provision | 250 | 24.0% | 60 |
| Deduction for "Economic Growth Assistance " (ACE | 93 | 24.0% | 22 |
| Other | 33 | 24.0% | 8 |
| Total | 1,338 | 321 |
"Employee benefits" reflects the actuarial value of the Company's liability towards employees, as calculated by an independent actuary. It has decreased by Euro 29 thousand compared to prior year.
The IAS 19 actuarial measurement at 30 June 2018 was performed using a discount rate based on the Iboxx Corporate A 10y+ index, in line with the rate used at the previous reporting date. Use of a discount rate based on the Iboxx Corporate AA index would not have made a significant difference.
The calculation method can be summarised as follows:
The estimate is based on the Company's reporting date headcount of 49 employees.
The economic and financial parameters used in the actuarial calculation are as follows:
The following table shows movements on the provision for employee termination indemnities in the reporting period and in the previous reporting period:
| Euro Thousands | 30 June 2018 | 30 June 2017 |
|---|---|---|
| Provision for employee termination indemnities at 1 July 2017 | 417 | 495 |
| Employees transferred to 505 Games S.p.A. | 39 | (55) |
| Utilisation of provision for payments to leavers | (40) | (4) |
| Allocations to provision in the year | 141 | 149 |
| Measurement of supplementary pension schemes | (131) | (143) |
| Actuarial measurement | (7) | (25) |
| Provisions for employee termination indemnities at 30 June 2018 | 419 | 417 |
The Company is not party to any supplementary pension funds.
These consist entirely of the agents' termination indemnity provision. The balance of Euro 80 thousand at 30 June 2018 was Euro 1 thousand higher than the 30 June 2017 balance of Euro 79 thousand. The increase is entirely due to allocations for the period.
At 30 June 2018, other non-current payables and liabilities amounted to Euro 901 thousand and entirely consisted of the amount payable for advisory services received in relation to the disposal of Pipeworks Inc. which will be settled upon collection of the amount of USD 10 million previously described.
At 30 June 2018, the Company had no receivables or payables with a residual duration of more than five years and no payables were secured on the Company's assets. Exchange rate fluctuation since the reporting date has not had any significant effect. Moreover, there were no receivables or payables linked to repurchase agreements.
| Euro Thousands | Italy | Other EU | Non EU | Total | |
|---|---|---|---|---|---|
| 10 | Inventories | 3,688 | 0 | 0 | 3,688 |
| 11 | Trade receivables | 1,739 | 63 | 0 | 1,802 |
| 12 | Receivables from subsidiaries | 21,947 | 139 | 1,147 | 23,233 |
| 13 | Tax receivables | 1,968 | 0 | 0 | 1,968 |
| 14 | Other current assets | 2,957 | 0 | 121 | 3,078 |
| 15 | Trade payables | (1,222) | (729) | (61) | (2,012) |
| 16 | Payables to subsidiaries | 0 | (8,454) | (479) | (8,933) |
| 17 | Current tax liabilities | (216) | 0 | 0 | (216) |
| 18 | Current provisions | (2,393) | 0 | 0 | (2,393) |
| 19 | Other current liabilities | (753) | 0 | 0 | (753) |
| Total net working capital | 27,715 | (8,981) | 728 | 19,462 |
The following table contains a geographical breakdown of net working capital at 30 June 2018:
Inventories entirely consist of finished products for resale. They have decreased by Euro 270 thousand from Euro 3,958 thousand at 30 June 2017 to Euro 3,688 thousand at 30 June 2018. Inventories are stated net of a provision for obsolescence of Euro 250 thousand against Euro 343 thousand at 30 June 2017.
Changes in trade receivables compared to prior year are as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Trade receivables - Italy | 2,416 | 2,612 | (196) |
| Trade receivables – Other EU | 63 | 196 | (133) |
| Trade receivables - Rest of the world | 1 | 2 | (1) |
| Provision for doubtful debts | (678) | (634) | (44) |
| Total trade receivables | 1,802 | 2,176 | (374) |
At 30 June 2018, trade receivables amounted to Euro 1,802 thousand, a decrease of Euro 374 thousand compared to Euro 2,176 thousand at 30 June 2017. The Company's trade receivables are primarily due from Italian customers. The balance is stated net of the provision for doubtful debts.
Trade receivables are stated net of an estimate of credit notes totalling Euro 638 thousand to be issued by the Company for price repositioning or returns. This compares to the amount of Euro 481 thousand estimated at 30 June 2017.
The provision for doubtful debts has increased by Euro 44 thousand from Euro 644 thousand at 30 June 2017 to Euro 688 thousand at 30 June 2018. The provision is estimated based on a detailed analysis of each trade receivable balance in order to assess its recoverability. The change compared to prior year is the net result of Euro 54 thousand provided for potential bad debts due to the insolvency of a number of customers minus Euro 10 thousand utilised for specific bad debts.
The following table contains an analysis of trade receivables at 30 June 2018 by due date, together with comparative figures at 30 June 2017:
| Euro Thousands | 30 June 2018 | % of total | 30 June 2017 | % of total |
|---|---|---|---|---|
| Current | 1,224 | 68% | 1,718 | 79% |
| 0 -30 days overdue | 227 | 13% | 59 | 3% |
| 30 - 60 days overdue | 11 | 0% | 32 | 1% |
| 60 - 90 days overdue | 0 | 0% | 85 | 4% |
| > 90 days overdue | 340 | 19% | 282 | 13% |
| Total trade receivables | 1,802 | 100% | 2,176 | 100% |
The provision for doubtful debts reflects potential losses on receivables due to customer default. The estimated losses are based on an analysis of each customer's ability to pay.
Receivables from subsidiaries amount to Euro 23,233 thousand and have increased by Euro 3,013 thousand compared to prior year.
Receivables from subsidiaries at 30 June 2018 and at 30 June 2017 are analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| 505 Mobile S.r.l. | 9,169 | 10,605 | (1,436) |
| Game Entertainment S.r.l. | 8,081 | 5,855 | 2,226 |
| Game Network S.r.l. | 2,477 | 1,627 | 850 |
| 505 Games S.p.A. | 1,248 | 1 | 1,247 |
| 133 W Broadway Inc. | 576 | 430 | 146 |
| Hawkwen Entertainment Inc. | 571 | 1,041 | (470) |
| Kunos Simulazioni S.r.l. | 523 | 0 | 523 |
| Game Service S.r.l. | 406 | 396 | 10 |
| 505 Games France S.a.s. | 139 | 224 | (85) |
| Digital Bros Game Academy S.r.l. | 43 | 0 | 43 |
| 505 Games Iberia Slu | 0 | 41 | (41) |
| Total receivables from subsidiaries | 23,233 | 20,220 | 3,013 |
Based on medium/long-term business plans, the Company believes that all receivables from subsidiaries are recoverable.
At 30 June 2018, tax receivables amounted to Euro 1,968 thousand and increased by Euro 1,641 thousand compared to a balance of Euro 327 thousand at 30 June 2017.
Tax receivables at 30 June 2018 and at 30 June 2017 are analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Receivable under domestic tax group arrangement | 1.486 | 0 | 1.486 |
| IRES rebate receivable | 120 | 120 | 0 |
| VAT receivable | 112 | 25 | 87 |
| Other receivables | 250 | 182 | 68 |
| Total tax receivables | 1.968 | 327 | 1.641 |
The IRES rebate receivable relates to the deductibility of IRAP on labour costs.
Other current assets have increased from Euro 564 thousand at 30 June 2017 to Euro 3,078 thousand at 30 June 2018, mainly because of the recognition of Euro 2,144 thousand (the equivalent of USD 2.5 million) representing the portion of the receivable for the sale of Pipeworks Inc. due within a year. The balance may be analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Insurance refunds receivable | 1 | 1 | 0 |
| Advances to suppliers | 351 | 391 | (40) |
| Advances to employees | 192 | 113 | 79 |
| Other receivables | 2,534 | 59 | 2,475 |
| Total other current assets | 3,078 | 564 | 2,514 |
In addition to the Euro 2,144 thousand mentioned above, other receivables also include Euro 210 thousand representing a loan to associated company Ovosonico S.r.l. and Euro 121 thousand receivable for interest accruing up to 30 June 2018 from the purchaser of Pipeworks Inc. on the portion of the selling price not yet collected. The rest of the balance includes advances paid to suppliers and employees.
Trade payables due within a year have decreased by Euro 294 thousand and consist mainly of payables to publishers for purchases of finished products. The balance is analysed below:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Trade payables – Italy | (1,222) | (1,366) | 142 |
| Trade payables – Other EU | (543) | (868) | 325 |
| Trade payables – Rest of World | (247) | (72) | (175) |
| Total trade payables | (2,012) | (2,306) | 294 |
Payables to subsidiaries amount to Euro 8,933 thousand and have decreased by Euro 7,329 thousand compared to prior year mainly because of a reduction in the payable to 505 Games Ltd. They are analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| 505 Games (US) Inc. | (3,071) | (1,017) | (2,054) |
| 505 Games Ltd. | (1,952) | (3,484) | 1,532 |
| 505 Games GmbH | (1,552) | (590) | (962) |
| DR Studios Ltd. | (885) | (859) | (26) |
| 505 Games Iberia Slu | (883) | 0 | (883) |
| 505 Games Mobile (US) | (234) | (256) | 22 |
| 505 Games Interactive | (219) | (242) | 23 |
| Digital Bros Holdings Ltd. | (111) | (113) | 2 |
| Digital Bros China (Shenzen Ltd.) | (26) | (4) | (22) |
| 505 Games S.p.A. | 0 | (7,722) | 7,722 |
| Digital Bros Game Academy S.r.l. | 0 | (44) | 44 |
| Pipeworks Inc. | 0 | (1,931) | 1,931 |
| Total payables to subsidiaries | (8,933) | (16,262) | 7,329 |
Tax payables have decreased by Euro 399 thousand from Euro 615 thousand at 30 June 2017 to Euro 216 thousand. They mainly include payables for taxes deducted at source from employees and contract personnel.
This caption mainly consists of provisions for impairment of equity investments. It has increased by Euro 1,147 thousand compared to the 30 June 2017 balance of Euro 1,246 thousand as a result of the amount allocated to cover the losses of subsidiaries Game Network S.r.l. and Digital Bros Game Academy S.r.l..
Movements during the period were as follows:
| Euro Thousands | 30 June 2017 | Allocated | 30 June 2018 |
|---|---|---|---|
| Digital Bros Game Academy S.r.l. | 90 | 128 | 218 |
| Game Network S.r.l. | 1,156 | 1,019 | 2,175 |
| Total current provisions | 1,246 | 1,147 | 2,393 |
The amount of Euro 1,147 thousand allocated during the reporting period is in line with the losses reported by the two subsidiaries for the year ended 30 June 2018.
Other current liabilities have decreased by Euro 1,524 thousand from Euro 2,277 thousand at 30 June 2017 to Euro 753 thousand at 30 June 2018, as shown below:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Amounts due to social security institutions | (219) | (244) | 25 |
| Amounts due to employees | (482) | (605) | 123 |
| Amounts due to contract staff | (36) | (36) | 0 |
| Other payables | (16) | (1.392) | 1.376 |
| Total other current liabilities | (753) | (2.277) | 1.524 |
The decrease in other payables includes Euro 1,375 thousand due to payment by the Parent Company of the outstanding liability for the acquisition of Kunos Simulazioni S.r.l.
Amounts due to employees includes accrued holiday pay and leave of absence at the reporting date and the amount provided for payment of the 13th month's salary.
The decrease in amounts due to social security institutions and amounts due to employees is due to the lower amounts provided for the variable portion of remuneration than at 30 June 2017.
The following table contains a detailed breakdown of equity at 30 June 2018 and at 30 June 2017:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Share capital | 5,704 | 5,704 | 0 |
| Treasury shares | 0 | 0 | 0 |
| Legal reserve | 1,141 | 1,129 | 12 |
| Share premium reserve | 18,486 | 18,486 | 0 |
| IFRS adoption reserve | (142) | (142) | 0 |
| Reserve for actuarial gains and losses | (75) | (80) | 5 |
| Fair value reserve | 0 | 0 | 0 |
| Other reserves | 0 | 0 | 0 |
| Stock option reserve | 1,167 | 371 | 796 |
| Retained earnings | 5,086 | 3,000 | 2,086 |
| Profit / (Loss) for the year | 15,520 | 4,237 | 11,283 |
| Total shareholders' equity | 46,887 | 32,705 | 14,182 |
Detailed movements on equity are shown in the statement of changes in equity. The following table contains a summary of these movements:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Opening equity | 32,705 | 28,706 | 3,999 |
| Capital increase | 0 | 60 | (60) |
| Increase in share premium reserve | 0 | 1,532 | (1,532) |
| Distribution of dividends | (2,139) | (1,834) | (305) |
| Change in treasury shares | 0 | 390 | (390) |
| Actuarial gains (losses) | 5 | 18 | (13) |
| Change in reserve for revaluation of securities | 0 | (2,230) | 2,230 |
| Stock option plan reserve | 796 | 371 | 425 |
| Other changes | 0 | 1,455 | (1,455) |
| Profit / (Loss) for the year | 15,520 | 4,237 | 11,283 |
| Closing equity | 46,887 | 32,705 | 14,182 |
Share capital at 30 June 2018 is unchanged compared to 30 June 2017 and is divided into 14,260,837 ordinary shares with a par value of Euro 0.4 each, for a total of Euro 5,704 thousand.
There are no rights, liens or restrictions associated with the ordinary shares.
The Euro 796 thousand increase in the Stock option plan reserve regards the amount relating to the period for the "Stock option plan 2016-2026" approved in prior year.
No specific uses or objectives have been designated for individual equity reserves, other than those laid down by law.
At the date of approval of the financial statements, no dividends had already been approved but not yet paid.
The Company has not issued any shares with dividend rights, convertible bonds, or securities of a similar nature.
The Company's net financial position at 30 June 2018 is analysed in detail below. Comparative figures at 30 June 2017 are also provided:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| 24 | Cash and cash equivalents | 609 | 3,872 | (3,263) |
| 25 | Current bank borrowing | (845) | (1,558) | 713 |
| 26 | Other current financial assets and liabilities | (176) | 2,899 | (3,075) |
| Net financial position – current | (412) | 5,213 | (5,625) | |
| 27 | Non-current financial assets | 0 | 0 | 0 |
| 28 | Non-current bank borrowing | 0 | 0 | 0 |
| 29 | Other non-current financial liabilities | (25) | (40) | 15 |
| Net financial position – non-current | (25) | (40) | 15 | |
| Total net financial position | (437) | 5,173 | (5,610) |
When preparing its statement of cash flows, the Company analysed the main changes in liabilities due to financing activities during the year and noted that there were no significant changes not involving cash flows.
At the reporting date, the carrying amount of the financial instruments held by the Company was equal to their fair value.
The following table contains details of financial liabilities by maturity at 30 June 2018:
| Euro Thousands | Within 1 year | 1 - 5 years | More than 5 years | Total |
|---|---|---|---|---|
| Bank overdrafts | 0 | 0 | 0 | 0 |
| Import and export financing | 0 | 0 | 0 | 0 |
| Advances on invoices and notes receivable | (845) | 0 | 0 | (845) |
| Unsecured bank loans | 0 | 0 | 0 | 0 |
| Total bank borrowing (A) | (845) | 0 | 0 | (845) |
| Other financial liabilities (B) | (176) | (25) | 0 | (201) |
| Total (A+B) | (1,021) | (25) | 0 | (1,046) |
The current net financial position is analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| 24 | Cash and cash equivalents | 609 | 3,872 | (3,263) |
| 25 | Current bank borrowing | (845) | (1,558) | 713 |
| 26 | Other current financial assets and liabilities | (176) | 2,899 | (3,075) |
| Current net financial position | (412) | 5,213 | (5,625) |
Cash and cash equivalents amounted to Euro 609 thousand at 30 June 2018, a decrease of Euro 3,263 thousand compared to 30 June 2017. They are unrestricted and consist entirely of current account deposits accessible on demand.
Current bank borrowing consists entirely of Euro 845 thousand of advances on invoices and on notes receivable.
Details are provided below:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Advances on invoices and on notes receivable | (845) | 0 | (845) |
| Loan instalments due within a year | 0 | (1,558) | 1,558 |
| Total current bank borrowing | (845) | (1,558) | 713 |
Current bank borrowing has decreased by Euro 713 thousand as a result of settlement of Euro 1,558 thousand of loans due in instalments within a year, as partially offset by a Euro 845 thousand increase in advances on invoices and notes receivable.
Details of other current financial assets and liabilities are provided below:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Starbreeze B shares | 0 | 2,972 | (2,972) |
| Advances on trade receivables factored without | |||
| recourse | (161) | (58) | (103) |
| Lease instalments due within a year | (15) | (15) | 0 |
| Total other current financial assets and liabilities | (176) | 2,899 | (3,075) |
The Starbreeze B shares held by Digital Bros at 30 June 2017 were all sold during the period at a net gain of Euro 88 thousand.
Advances on trade receivables factored without recourse totalled Euro 161 thousand and increased by Euro 103 thousand compared to 30 June 2017.
Lease instalments due within a year, amounting to Euro 15 thousand, comprise the current portion of instalments due under two lease agreements signed last year with Unicredit Leasing.
The non-current net financial position is analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| 27 | Non-current financial assets | 0 | 0 | 0 |
| 28 | Non-current bank borrowing | 0 | 0 | 0 |
| 29 | Other non-current financial liabilities | (25) | (40) | 15 |
| Non-current net financial position | (25) | (40) | 15 |
There were no non-current financial assets at 30 June 2018 or at 30 June 2017.
There was no non-current bank borrowing at 30 June 2018 or at 30 June 2017.
Other non-current financial liabilities amount to Euro 25 thousand and refer to lease repayments due after more than a year under two finance lease agreements entered into with Unicredit Leasing for the purchase of a server and a motor vehicle. The first lease agreement provides for a financed amount of Euro 54 thousand and the payment of fifty-nine monthly instalments plus an advance payment of Euro 5 thousand and a final purchase option of Euro 1 thousand. The finance lease expires on 29 December 2020. Lease instalments due after more than a year amount to Euro 15 thousand. The interest rate is variable and is determined based on the Euribor 3 month rate plus a spread of 3 percentage points. The lease agreement for the motor vehicle involves a financed amount of Euro 31 thousand and requires payment of fifty-nine monthly instalments plus an advance payment of Euro 1 thousand and a final purchase option of Euro 1 thousand. This finance lease expires on 28 April 2021. Lease instalments due after more than a year amount to Euro 10 thousand. There is a variable rate of interest of 1.41%.
The following table shows finance lease instalments by maturity:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Due within a year | 15 | 15 | 0 |
| 1-5 years | 25 | 40 | (15) |
| More than 5 years | 0 | 0 | 0 |
| Total | 40 | 55 | (15) |
At 30 June 2018, the Company's commitments totalled Euro 19,796 thousand and referred to credit mandates in favour of subsidiaries. At 30 June 2017, they totalled Euro 12,346 thousand and the increase relates to additional guarantees in favour of 505 Games S.p.A..
Total net revenue has decreased by 18.3% from Euro 19,083 thousand in prior year to Euro 16,578 thousand in the year ended 30 June 2018.
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| Gross sales – Italy | 16,051 | 19,759 | (3,708) | -18.8% |
| Gross sales – Other countries | 527 | 522 | 5 | 1.0% |
| Total gross revenue | 16,578 | 20,281 | (3,703) | -18.3% |
| Total revenue adjustments | (1,198) | (1,198) | 0 | 0.0% |
| Total net revenue | 15,380 | 19,083 | (3,703) | -19.4% |
Gross revenue for the year ended 30 June 2018 may be analysed by geographical area as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | |
|---|---|---|---|---|
| Gross revenue – Italy | 16,051 | 19,759 | (3,708) | -18.8% |
| Gross revenue – Other EU | 527 | 522 | 5 | 1.0% |
| Total gross revenue | 16,578 | 20,281 | (3,703) | -18.3% |
Cost of sales is analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Purchases of products for resale | (11,248) | (12,524) | 1,276 | -10.2% |
| Change in inventories of finished products | (270) | (3,055) | 2,785 | -91.1% |
| Total cost of sales | (11,518) | (15,579) | 4,061 | -26.1% |
More detailed analysis of the individual revenue and cost of sales items is provided in the Directors' Report.
Other income mainly comprises revenue for activities on behalf of the subsidiaries.
Costs for services are detailed as follows:
| Euro Thousands | 30 June 2018 |
30 June 2017 | Change | % |
|---|---|---|---|---|
| Advertising, marketing, trade fairs and exhibitions | (771) | (736) | (35) | 4.7% |
| Transport and freight | (177) | (175) | (2) | 1.3% |
| Sub-total: sales related services | (948) | (911) | (37) | 4.0% |
| Sundry insurance | (102) | (95) | (7) | 6.9% |
| Legal and notary fees | (944) | (1,268) | 324 | -25.6% |
| Postage and telegraph | (106) | (107) | 1 | -1.1% |
| Travel and subsistence costs | (280) | (259) | (21) | 8.2% |
| Utilities | (106) | (99) | (7) | 7.1% |
| Maintenance | (62) | (64) | 2 | -3.2% |
| Statutory auditors' fees | (74) | (73) | (1) | 1.1% |
| Sub-total: general services | (1,674) | (1,965) | 291 | -14.8% |
| Intercompany services | (62) | (94) | 32 | -33.8% |
| Sub-total | (1,736) | (2,059) | 323 | -15.7% |
| Total costs for services | (2,684) | (2,970) | 286 | -9.7% |
Costs for services amount to Euro 2,684 thousand, a decrease of Euro 286 thousand compared to the year ended 30 June 2017. The decrease is mainly due to lower consulting fees – the high figure in prior year was mainly due to costs incurred for the preparation of the share incentive plan and for the acquisition of Kunos Simulazioni S.r.l.
Lease and rental costs amount to Euro 730 thousand compared to Euro 752 thousand in prior year. The amount includes Euro 690 thousand for the rental of the Company's offices at Via Tortona 37, Milan and Euro 40 thousand of operating lease expenses for cars assigned to employees and for warehouse equipment.
Labour costs include agents' commission, directors' fees approved by the shareholders, costs for temporary workers and contract personnel and costs for company cars assigned to employees. They totalled Euro 5,315 thousand which was Euro 369 thousand more than in prior year:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Wages and salaries | (2,306) | (2,338) | 32 | -1.4% |
| Social contributions | (846) | (863) | 17 | -1.9% |
| Employee termination indemnity | (143) | (150) | 7 | -4.5% |
| Stock option plan | (796) | (371) | (426) | n.m. |
| Agents' commission | (28) | (51) | 23 | -45.2% |
| Other labour costs | (48) | (34) | (14) | 39.7% |
| Total labour costs | (5,315) | (4,946) | (369) | 7.5% |
Labour costs, in the narrow sense, include wages and salaries, social contributions and the cost of employee termination indemnities. They have increased by Euro 57 thousand compared to prior year:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Wages and salaries | (2,306) | (2,338) | 32 | -1.4% |
| Social contributions | (846) | (863) | 17 | -1.9% |
| Employee termination indemnity | (143) | (150) | 8 | -5.1% |
| Total labour costs | (3,295) | (3,351) | 57 | -1.7% |
| Average number of employees | 50 | 53 | (3) | -5.7% |
|---|---|---|---|---|
| Average cost per employee | (66) | (63) | (3) | 4.2% |
The average cost per employee has increased by 4.2%.
A detailed breakdown of the Company's workforce by employee category at 30 June 2018 is provided in the Directors' Report.
The following table contains details of operating costs, together with prior year comparatives:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Purchase of sundry materials | (40) | (36) | (4) | 12.1% |
| General and administrative costs | (433) | (425) | (8) | 1.8% |
| Entertainment costs | (15) | (19) | 4 | -20.8% |
| Sundry bank charges | (48) | (112) | 64 | -57.0% |
| Total other operating costs | (536) | (592) | 56 | -9.4% |
Operating costs have decreased by 9.4% from Euro 592 thousand in prior year to Euro 536 thousand, mainly because of a reduction in bank charges.
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Depreciation and amortisation | (389) | (393) | 4 | -1.1% |
| Allocations to provisions | 0 | 0 | 0 | n.m. |
| Impairment adjustments to assets | (1,235) | (2,190) | 955 | -43.6% |
| Reversal of impairment adjustments | 0 | 1,491 | (1,491) | n.m. |
| Total non-monetary operating income and costs | (1,624) | (1,092) | (532) | n.m. |
Depreciation and amortisation are detailed in the notes on property, plant and equipment and intangible assets.
Impairment adjustments to assets in the years ended 30 June 2018 and 30 June 2017 are analysed as follows:
| Euro Thousands | 30 June 2018 |
30 June 2017 |
Change |
|---|---|---|---|
| Impairment adjustment to investment in Game Networks S.r.l. | (1,019) | (1,459) | 440 |
| Impairment adjustment to investment in Digital Bros Game Academy S.r.l. | (128) | (119) | (9) |
| Impairment adjustment to investment in Cityglance S.r.l. | (20) | (44) | 24 |
| Impairment adjustment to investment in Ebooks&Kids S.r.l. | (14) | (148) | 134 |
| Allocation to provision for doubtful debts | (54) | (420) | 366 |
| Total impairment adjustments to assets | (1,235) | (2,190) | 955 |
In the year ended 30 June 2017, the reversal of impairment adjustments to assets related entirely to the reversal of the impairment adjustment of Euro 1,491 thousand relating to subsidiary Pipeworks Inc..
Net financial income totalled euro 19,373 thousand compared to Euro 7,954 thousand in prior year. The increase was mainly due to a Euro 10,226 thousand increase in interest and financial income. The caption may be analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % | |
|---|---|---|---|---|---|
| 23 | Interest and financial income | 20,087 | 9,861 | 10,226 | n.m. |
| 24 | Interest and financial expenses | (714) | (1,907) | 1,193 | -62.6% |
| 25 | Net interest and financial income | 19,373 | 7,954 | 11,419 | n.m. |
Interest and financial income may be analysed as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Gain on disposal of Pipeworks Inc. | 11,509 | 0 | 11,509 | n.m. |
| Dividends from subsidiaries | 7,292 | 6,000 | 1,292 | 21.5% |
| Exchange gains | 1,163 | 713 | 450 | 63.0% |
| Other interest and financial income | 123 | 3,148 | (3,025) | -96.1% |
| Total interest and financial income | 20,087 | 9,861 | 10,226 | n.m. |
The gross gain on the sale of the non-strategic investment in Pipeworks Inc. was Euro 13,924 thousand. The net gain after disposal related expenses was Euro 11,509 thousand.
Dividends were received from 505 Games S.p.A. and Pipeworks Inc. in the amount of Euro 6,000 thousand and Euro 1,292 thousand, respectively.
Other interest and financial income includes Euro 31 thousand relating to the equity method measurement of the investment in associated company Ovosonico S.r.l.. In the year ended 30 June 2017, this caption mainly included the gains realised on the sale of Starbreeze B shares but they totalled just Euro 88 thousand in the current reporting period.
| Euro Thousands | 30 June 2018 |
30 June 2017 |
Change | % |
|---|---|---|---|---|
| Bank interest on overdrafts and trade finance | (23) | (273) | 250 | -91.5% |
| Other interest expenses | (8) | (35) | 27 | -77.5% |
| Interest expenses on loans and leases | (20) | (91) | 71 | -77.8% |
| Factoring interest | (4) | (6) | 2 | -30.5% |
| Total interest expenses on sources of financing | (55) | (405) | 350 | -86.3% |
| Exchange gains | (518) | (503) | (15) | 2.9% |
| Losses on disposal of securities | 0 | (999) | 999 | n.m. |
| Equity measurement of investments | (141) | 0 | (141) | n.m. |
| Total interest and financial expenses | (714) | (1,907) | 1,193 | -62.6% |
Interest and financial expenses are detailed as follows:
Interest and financial expenses have decreased by Euro 11,193 thousand to stand at Euro 714 thousand. The decrease is due to lower losses on the disposal of Starbreeze A and B shares. Interest expenses on sources of financing have decreased by Euro 350 thousand in line with the change in the net financial position over the year.
The caption Equity measurement of investments regards the restatement of the carrying amount of the investment in associated company Seekhana Ltd. to reflect the Company's share of the losses of the associate since it was acquired by Digital Bros S.p.A..
Details of current and deferred taxes for the year ended 30 June 2018 are provided below:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change | % |
|---|---|---|---|---|
| Current taxes | 476 | 557 | (81) | -14.5% |
| Deferred taxes | (74) | (121) | 47 | -38.5% |
| Total taxation | 402 | 436 | (34) | -7.8% |
Current taxes consist entirely of IRES which was determined as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | Change |
|---|---|---|---|
| Taxable income for IRES | (2,442) | (1,225) | (1,217) |
| IRES rate | 24.0% | 27.5% | |
| IRES for the period | 586 | 337 | 249 |
| Effect of tax consolidation | 0 | 160 | (160) |
| Prior year taxes | (110) | 60 | (170) |
| IRES for the period | 476 | 557 | (81) |
IRES for the period is reconciled with the result reported in the financial statements as follows:
| Euro Thousands | 30 June 2018 | 30 June 2017 | ||
|---|---|---|---|---|
| Company profit before taxation | 15,118 | 3,801 | ||
| IRES rate | 24.0% | 27.5% | ||
| Theoretical taxation | (3,628) | -24.0% | (1,045) | -27.5% |
| Tax effect of non-deductible costs | 4,100 | 27% | 1,439 | 38% |
| Tax effect of utilisation of tax loss carryforwards |
0 | 0% | 0 | 0% |
| Net tax effect of reversal of deferred tax assets not included in above captions |
86 | (57) | ||
| Effect of tax consolidation | 0 | 160 | ||
| IRES on gain classified under financial income | 28 | |||
| Prior year taxation | (110) | 60 | ||
| Taxes on income for the year and effective tax rate |
476 | 3.1% | 557 | 14.6% |
No IRAP tax expense was recognised in the current reporting period or in the previous one.
The main financial instruments used by the Company are:
The goal of the above financial instruments is to finance the Company's activities.
The credit facilities available to the Company, together with utilisation at 30 June 2018, are detailed below:
Digital Bros S.p.A. manages all financial risks on behalf of itself and its subsidiaries. This is except for other financial instruments not listed above i.e. trade payables and receivables arising from operating activities for which the financial risk remains the responsibility of the individual subsidiary.
The Company seeksto maintain a balance between short-term and medium/long-term financial instruments. The Company's core business i.e. the marketing of video games mainly involves investment in net working capital which is funded through short-term lines of credit. Long-term investments are normally financed through medium/long-term lines of credit, often dedicated to the individual investment, sometimes in the form of finance leases.
Given the above, medium- and long-term financial payables have a well-distributed range of maturities.
| Financial Instruments– Assets at 30 June 2018 (in Euro Thousands) |
Fair Value Assets held for trading |
Investments held to maturity |
Loans and Receivables |
Assets available for sale |
Carrying Amount at 30 June 2018 |
Note |
|---|---|---|---|---|---|---|
| Non-current receivables and other assets | 9,216 | - | 9,216 | 5 | ||
| Trade receivables | - | - | 1,802 | - | 1,802 | 11 |
| Receivables from subsidiaries | - | - | 23,233 | - | 23,233 | 12 |
| Other current assets | - | - | 3,078 | - | 3,078 | 14 |
| Cash and cash equivalents | - | - | 609 | - | 609 | 24 |
| Other current financial assets | - | - | - | - | - | 26 |
| Total | - | - | 37,938 | 16,432 | 54,370 |
| Financial Instruments - Liabilities at 30 June 2018 (in Euro Thousands) |
Fair value liabilities held for trading |
Liabilities measured at amortised cost |
Carrying amount at 30 June 2018 |
Note |
|---|---|---|---|---|
| Trade payables | - | 2,012 | 2,012 | 15 |
| Payables to subsidiaries | - | 8,933 | 8,933 | 16 |
| Other current liabilities | - | 753 | 753 | 19 |
| Current bank borrowing | - | 845 | 845 | 25 |
| Other current financial liabilities | - | 176 | 176 | 26 |
| Non-current bank borrowing | - | 0 | 0 | 28 |
| Other non-current financial liabilities | - | 25 | 25 | 29 |
| Total | - | 12,744 | 12,744 |
| Financial Instruments– Assets at 30 June 2017 (in Euro Thousands) |
Fair Value Assets held for trading |
Investments held Loans and to maturity Receivables |
Assets available for sale |
Carrying Amount at 30 June 2017 |
Note | |
|---|---|---|---|---|---|---|
| Non-current receivables and other assets | 637 | - | 637 | 5 | ||
| Trade receivables | - | - | 2,176 | - | 2,176 | 11 |
| Receivables from subsidiaries | - | - | 20,220 | - | 20,220 | 12 |
| Other current assets | - | - | 564 | - | 564 | 14 |
| Cash and cash equivalents | - | - | 3,872 | - | 3,872 | 24 |
| Other current financial assets | 2,972 | - | - | - | 2,972 | 26 |
| Total | 2,972 | - | 27,469 | 18,919 | 49,360 |
Category of financial liabilities in terms of IAS 39
| Financial Instruments - Liabilities at 30 June 2017 (in Euro Thousands) |
Fair value liabilities held for trading |
Liabilities measured at amortised cost |
Carrying amount at 30 June 2017 |
Note |
|---|---|---|---|---|
| Trade payables | - | 2,306 | 2,306 | 15 |
| Payables to subsidiaries | - | 16,262 | 16,262 | 16 |
| Other current liabilities | - | 2,277 | 2,277 | 19 |
| Current bank borrowing | - | 1,558 | 1,558 | 25 |
| Other current financial liabilities | - | 73 | 73 | 26 |
| Non-current bank borrowing | - | 0 | 0 | 28 |
| Other non-current financial liabilities | - | 40 | 40 | 29 |
| Total | - | 22,516 | 32,779 |
The main risks generated by the Company's financial instruments are:
The Company's exposure to the risk of interest rate fluctuation is marginal with respect to its medium and long-term financial instruments which were originally arranged as fixed-rate instruments or have been transformed into fixed rate instruments by means of appropriate derivative contracts.
For short-term financial instruments, the risk of interest rate increases is a genuine one because the Company cannot immediately pass on any rate increases through higher prices.
The level of debt is low or next to zero and the interest rate risk is further mitigated by:
The liquidity risk arises if it becomes difficult or impossible to raise - on sustainable terms and conditions, obtain -the financial resources needed to operate the business.
The factors that influence the Company's financial needs are the resources generated or absorbed by operating and investing activities, the maturity and renewal terms of debt and the liquidity of investments and current conditions and available funds on the credit market.
The Company has taken the following measures in order to reduce this risk:
The results of short and medium/long-term planning, currently available funds and funds to be generated by operating activities are expected to enable the Company to fulfil its funding requirements with regard to capex, working capital management and debt repayment at scheduled maturity. They should also be able to determine the Company's funding requirements in good time.
The following table shows the Company's financial obligations by maturity, in the worst-case scenario and using undiscounted amounts, considering the earliest date by which the Company could be asked for payment and providing the number of the relevant note:
| Financial liabilities at 30 June 2018 (in Euro Thousands) |
Carrying amount |
Within a year | 1 to 2 years | 2 to 3 years |
3 to 4 years |
4 to 5 years |
More than 5 years |
Total | Note |
|---|---|---|---|---|---|---|---|---|---|
| Current bank borrowing | 845 | 845 | 845 | 25 | |||||
| Other current financial liabilities | 176 | 176 | 176 | 26 | |||||
| Non-current bank borrowing | 0 | 0 | 0 | 28 | |||||
| Other non-current financial liabilities | 25 | 16 | 9 | 25 | 29 | ||||
| Total | 1,046 | 1,021 | 16 | 9 | - | - | - | 1,046 | |
| Financial liabilities at 30 June 2017 (in Euro Thousands) |
Carrying amount |
Within a year | 1 to 2 years | 2 to 3 years |
3 to 4 years |
4 to 5 years |
More than 5 years |
Total | Note |
| Current bank borrowing | 1,558 | 1,558 | 1,558 | 25 | |||||
| Other current financial liabilities | 73 | 73 | 73 | 26 | |||||
| Non-current bank borrowing | 0 | 0 | 0 | 28 | |||||
| Other non-current financial liabilities | 40 | 15 | 16 | 9 | 40 | 29 | |||
| Total | 1,671 | 1,631 | 15 | 16 | 9 | - | - | 1,671 |
The Company has sufficient financial resources to satisfy its debt maturing within one year. These financial resources include cash and cash equivalents, unutilised credit facilities totalling around Euro 25 million at the reporting date and cash flows from operating activities.
The Company's exposure in US dollars arising from the operations of its U.S. subsidiaries is mitigated by the fact that the Group is party to a considerable number of game development contracts denominated in that currency. This means that any negative changes in the EUR/USD exchange rate would cause licence costs to go up but would also lead to higher margins for the subsidiaries (the reverse also holds true).
In order to monitor the EUR/USD and EUR/GBP exchange rate risk, the Company closely monitors forecast exchange rate trends – also based on reports by independent analysts - and may use derivative instruments to hedge this risk as appropriate (no such instruments are used at present).
When preparing forecasts, the Company uses models that take account of the various currencies in which Group companies operate and uses forward exchange rates based on reports issued by independent analysts.
The Company sells exclusively to well-known customers. For customers on which the Company does not have the necessary information, the sales policy adopted requires advance payment and/or cash on delivery in order to limit credit risk.
The finance department reviews credit facilities and customer balances before any shipments are made. In addition to these precautions, the Company has taken out insurance covering a significant percentage of its customers.
The following table contains a breakdown of trade receivables by due date at 30 June 2018 and at 30 June 2017:
| Euro Thousands | 30 June 2018 | % of total | 30 June 2017 | % of total |
|---|---|---|---|---|
| Not overdue | 1,224 | 68% | 1,718 | 79% |
| 0 -30 days overdue | 227 | 13% | 59 | 3% |
| 30 - 60 days overdue | 11 | 0% | 32 | 1% |
| 60 - 90 days overdue | 0 | 0% | 85 | 4% |
| > 90 days overdue | 340 | 19% | 282 | 13% |
| Total trade receivables | 1,802 | 100% | 2,176 | 100% |
The table below presents the fair value of assets and liabilities based on the calculation methods and models used.
Financial assets whose fair value cannot be reasonably determined have not been included.
The fair value of Bank borrowing has been calculated based on the interest rate curve at the reporting date, without making assumptions as to the credit spread.
The fair value of financial instruments listed on an active market is based on reporting date market prices. The market prices used are bid/ask prices depending on the asset/liability held. The fair value of unlisted financial instruments and derivatives is determined using the valuation models and techniques most prevalent on the market, using inputs observable on the market.
Fair value has not been calculated for trade receivables and trade payables as their carrying amount approximates fair value.
For finance lease payables and payables to other lenders, we believe there is no significant difference between fair value and carrying amount.
| Euro Thousands | Carrying amount at 30 June 2018 |
Mark to Market | Mark to Model | Total Fair Value | Note |
|---|---|---|---|---|---|
| Fair Value | Fair Value | ||||
| Cash and cash equivalents | 609 | 609 | 609 | 24 | |
| Current bank borrowing | 845 | 845 | 845 | 25 | |
| Other current financial assets and liabilities | (176) | (176) | (176) | 26 | |
| Other non-current financial liabilities | 25 | 25 | 25 | 29 |
| Euro Thousands | Carrying amount at 30 June 2017 |
Mark to Market | Mark to Model | Total Fair Value | Note |
|---|---|---|---|---|---|
| Fair Value | Fair Value | ||||
| Cash and cash equivalents | 3,872 | 3,872 | 3,872 | 24 | |
| Current bank borrowing | 1,558 | 1,558 | 1,558 | 25 | |
| Other current financial assets and liabilities | 2,899 | 2,899 | 2,899 | 26 | |
| Other non-current financial liabilities | 40 | 40 | 40 | 29 |
A sensitivity analysis has been performed in accordance with IFRS 7. It applies to all financial instruments reported in the financial statements.
The Copmany's sensitivity analysis measures the estimated impact on profit or loss and on the statement of financial position of an exchange rate fluctuation of +/-10% compared to the rates in effect at 30 June 2018 for each class of financial instrument, with all other variables remaining constant. The analysis is purely illustrative, as such changes rarely take place in an isolated manner.
At 30 June 2018, the Company was not exposed any additional risks, such as the commodity risk.
The sensitivity analysis of exchange rates took account of the risk that may arise for any financial instrument denominated in a currency other than the Euro. Consequently, the translation risk was also taken into account.
Financial instruments that are subject to changes in value as a result of interest rate fluctuation include floating rate instruments and fixed rate instruments but which are measured at fair value.
The table below shows the impact on the net financial position and on profit before taxation of a 10% increase/decrease in the EUR/USD exchange rate compared to the budgeted rate of USD 1.18/EUR 1:
| Type of change | Effect on net financial position | Effect on profit before taxation |
|---|---|---|
| +10% USD | (115) | (244) |
| -10% USD | 140 | 299 |
IFRS 7 requires that financial instruments recognised at fair value be classified in a hierarchy reflecting the significance of the inputs used to measure fair value. The levels are as follows:
At 30 June 2018, there were no financial instruments measured at fair value. At 30 June 2017, the caption included:
| Balance at 30 June 2017 |
Instrument | Level 1 | Level 2 | Level 3 | Total | Note |
|---|---|---|---|---|---|---|
| Other current financial assets |
Treasury shares | 2,972 | 2,972 | 24 |
In accordance with Consob Resolution 15519 of 27 July 2006, non-recurring income and expenses shall be presented separately in the statement of profit or loss. They are generated by transactions or events that, by their nature, do not occur on a regular basis during ordinary operating activities.
During the year, the Company did not account for any non-recurring income and expenses.
At 30 June 2018 – as at 30 June 2017 – there were no contingent assets and liabilities.
In accordance with Consob Resolution 17221 of 12 March 2010, it is hereby disclosed that all commercial and financial transactions between Digital Bros S.p.A. and its direct subsidiaries and associates have been conducted at arm's length and cannot be classed as atypical or unusual transactions.
Commercial and financial transactions between Digital Bros S.p.A. and other Group companies in the year ended 30 June 2018 took place on an arm's length basis. The following table provides a summary of year end balances and transactions in the year, together with prior year comparatives:
| Euro Thousands | Receivables | Payables | Revenue | Costs | ||
|---|---|---|---|---|---|---|
| Trade | Financial | Trade | financial | |||
| 505 Games S.p.A. | 0 | 1,248 | 0 | 0 | 2,588 | (1,360) |
| 505 Mobile S.r.l. | 0 | 9,169 | 0 | 0 | 0 | 0 |
| Digital Bros Game Academy S.r.l. | 0 | 43 | 0 | 0 | 77 | (21) |
| Game Entertainment S.r.l. | 0 | 8,081 | 0 | 0 | 3,090 | 0 |
| Game Network S.r.l. | 0 | 2,477 | 0 | 0 | 10 | 0 |
| Game Service S.r.l. | 0 | 406 | 0 | 0 | 0 | 0 |
| 505 Games France S.a.s. | 0 | 523 | 0 | 0 | 0 | 0 |
| 505 Games Ltd. | 0 | 139 | 0 | 0 | 0 | 0 |
| 505 Games Iberia Slu | 0 | 0 | 0 | (1,952) | 0 | 0 |
| 505 Games (US) Inc. | 0 | 0 | 0 | (883) | 1 | 0 |
| 505 Games GmbH | 0 | 0 | 0 | (3,071) | 0 | 0 |
| 505 Games Interactive | 0 | 0 | 0 | (1,552) | 0 | 0 |
| 505 Games Mobile (US) | 0 | 0 | 0 | (219) | 0 | 0 |
| DR Studios Ltd. | 0 | 0 | 0 | (234) | 0 | 0 |
| Pipeworks Inc. | 0 | 0 | 0 | (885) | 0 | 0 |
| Digital Bros China (Shenzen Ltd.) | 0 | 0 | 0 | (26) | 0 | 0 |
| Digital Bros Holdings Ltd. | 0 | 0 | 0 | (111) | 0 | 0 |
| 133 W Broadway Inc. | 0 | 576 | 0 | 0 | 0 | 0 |
| Hawkwen Entertainment Inc. | 0 | 571 | 0 | 0 | 0 | 0 |
| Total at 30 June 2018 | 0 | 23,233 | 0 | (8,933) | 5,766 | (1,381) |
The Company also provides a centralised cash management service, using intercompany current accounts to which positive and negative balances between Group companies are transferred. These accounts do not bear interest.
Transactions with related parties regard the legal advice provided by Director Dario Treves and the lease by Matov Imm. S.r.l. of property owned by the Galante family.
Outstanding balances at the reporting date and total transactions during the period are shown below, together with prior year comparatives:
| Euro Thousands | Receivables | Payables | Revenue | Costs | ||
|---|---|---|---|---|---|---|
| Trade | Financial | Trade | Financial | |||
| Ovosonico S.r.l. | 0 | 210 | 0 | 0 | 0 | 0 |
| Dario Treves | 0 | 0 | (48) | 0 | 0 | (335) |
| Matov Imm. S.r.l. | 0 | 635 | 0 | 0 | 0 | (690) |
| Total at 30 June 2018 | 0 | 845 | (48) | 0 | 0 | (1,025) |
Related party balances and transactions at 30 June 2017 were as follows:
| Euro Thousands | Receivables | Payables | Revenue | Costs | ||
|---|---|---|---|---|---|---|
| Trade | Financial | Trade | Financial | |||
| Dario Treves | 0 | 0 | (22) | 0 | 0 | (262) |
| Matov Imm. S.r.l. | 0 | 635 | 0 | 0 | 0 | (705) |
| Total at 30 June 2017 | 0 | 635 | (22) | 0 | 0 | (967) |
The receivable of Euro 210 thousand from associated company Ovosonico S.r.l. relates to a loan disbursed during the year.
Digital Bros S.p.A.'s financial receivable from Matov Imm. S.r.l. regards the guarantee deposit paid in relation to the rental of premises at Via Tortona 37, Milano.
Following the introduction of the consolidated taxation regime into the Italian tax system, Digital Bros S.p.A. has elected for consolidated taxation in a tax group with 505 Mobile S.r.l., Game Entertainment S.r.l., Game Service S.r.l., 505 Games S.p.A., Digital Bros Game Academy S.r.l., Game Network S.r.l. and Kunos Simulazioni S.r.l..
Membership of a domestic tax group has made it necessary to prepare an implementing regulation to govern intercompany transactions to ensure there are arrangements prejudicial to any of the participating companies.
There were no atypical or unusual transactions during the reporting period or in prior year, as defined by Consob Communication DEM 6064293 of 28 July 2006.
Pursuant to Art. 2425 (15) of the Italian Civil Code, it is hereby disclosed that the Company did not receive any income from equity investments other than dividends.
The fees paid to members of the Board of Directors amounted to Euro 1,148 thousand.
During the year ended 30 June 2018, fees totalling Euro 74 thousand were paid to the members of the Board of Statutory Auditors.
The Company has issued options linked to the previously described 2016-2026 Stock Option Plan.
The Company is not party to any shareholder loans with subordination clauses.
The Company has not earmarked any capital for a specific use.
The Company has not earmarked any loans for a specific use.
There are no off balance sheet agreements.
At 30 June 2018, share capital consisted of 14,260,837 issued and wholly paid ordinary shares with a par value of Euro 0.4 each. The Company has not issued different classes of shares or other financial instruments entitling the holder to subscribe to newly issued shares. On 11 January 2017, the General Meeeting of the Digital Bros Group shareholders approved the "2016-2026 Stock Option Plan".
There are no statutory restrictions on the transfer of securities, such as limits on the possession of shares or the need to obtain permission from the issuer or from other shareholders.
No securities granting special rights of control have been issued.
There are no employee share ownership schemes.
There are no restrictions on voting rights.
There are no shareholder agreements in place.
Please see the Corporate Governance section of the consolidated annual report, available in the investors section at www.digitalbros.com.
No powers to authorise share capital increases have been granted to the Board of Directors.
The Board has been authorised to purchase treasury shares as described in the corporate governance and ownership structure section of the consolidated annual report, available in the investors section at www.digitalbros.com.
There are no change of control clauses.
There are no agreements that provide for indemnities in the event of dismissal, resignation and/or departure from office, even if a takeover bid were to be the cause of termination.
No revaluations have been carried out on the Company's assets pursuant to Art. 10 of Law 72/83.
Pursuant to Art. 43 (1) of the Fourth Council Directive 78/660/EEC, it is hereby disclosed that no loans have been granted to members of the Company's administrative, management and supervisory bodies.
Pursuant to Art. 149- duodecies of the Listing Rules, it is hereby disclosed that external auditors, Deloitte & Touche, received fees of Euro 183 for the year ended 30 June 2018. See the attachment in the Notes to the Consolidated Financial Statements for further information.
It is proposed that the net profit of Euro 15,520 thousand for the year ended 30 June 2018 should be taken to reserves.
We, the undersigned, Abramo Galante, chairman of the Board of Directors and Stefano Salbe, financial reporting manager of Digital Bros Group, hereby declare, including in accordance with Art. 154-bis (3) and (4) of Legislative Decree 58 of 24 February 1998:
We also confirm that:
Milan, 13 September 2018
Signed
Chairman of the Board of Directors Financial Reporting Manager
Abramo Galante Stefano Salbe
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