Annual / Quarterly Financial Statement • Oct 2, 2015
Annual / Quarterly Financial Statement
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(FY 2014/2015)
Via Tortona, 37 – 20144 Milan, Italy VAT and tax identification no. 09554160151 Share capital: 5,644,334.80 euros fully paid-in Reg. of Co. Court of Milan 290680 - Vol. 7394 C.C.I.A.A 1302132
This report can be downloaded from the Company's website at www.digital-bros.net in the Investors section
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Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
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Digital Bros S.p.A. distributes, under the Halifax brand, the video games acquired from international publishers in Italy. The games are marketed through a direct network of key accounts and through an indirect network of sales representatives.
The Company also distributes the Yu-Gi-Oh! trading card game in Italy.
For the breakdown of revenue by geographical area refer to the directors' report attached to the consolidated financial statements for the Digital Bros Group of which the Company is the parent.
The video games market is part of the entertainment industry. Movies, publishing, and toys are businesses that build on the same characters and brands.
The market is in constant flux and is expanding quickly as a result of non-stop technological advances. Today, playing is no longer limited to traditional games consoles, Sony Playstation and Microsoft Xbox in the various versions, but also mobile telephones, tablets, etc. The dissemination of connectivity at increasingly lower costs and the availability of optic fibre networks and high speed mobile networks enable video games to diversify increasingly, becoming more and more sophisticated and interactive. The spread of smartphones among the entire population, of all ages and walks of life, has meant that the developers' creativity can be expressed in completely new ways, generating forms of entertainment dedicated to an adult public and the female public too. The growing use of social networks, Facebook in particular, lends itself to types of game that were practically unknown a few years back.
The video games market for the Sony Playstation and Microsoft Xbox instead performs in cycles, in parallel with the life cycle of the consoles themselves for which the video games are developed, as is standard in almost all technological markets. With the rollout of a given console, the price of the hardware and the video games designed for it is high, and relatively small quantities are sold. Console and game prices then gradually go down, as they progress from new releases to maturity, and the quantities sold increase along with the quality of the video games. The games market for a given console usually peaks in its fifth year on the market. The lifespan for consoles is currently around seven years. The new consoles Sony Playstation 4 and Microsoft Xbox One came out in November 2013.
High quality video games with high sales potential, in addition to being marketed on the digital marketplaces, are also produced physically and distributed through the sales networks. In this case, the value chain is as follows:
Developers are those who create and program the game, which is usually based on an original idea, a hot brand, a film or event sports simulators, etc. The developers retain the intellectual property rights, but they transfer the exploitation rights—for a limited amount of time agreed by contract—to international video game publishers, who are therefore crucial for completing the game and giving it a global reputation and clientèle.
Publishers are the links of the value chain that allow the game to reach the consumer, as most of them are equipped with direct and indirect sales networks in various countries. They also finance the phases of development and implement communication strategies to maximise international sales. The publisher decides on a game's release schedule, international pricing and sales policy, positioning, and package design, while taking on all of the risks and, jointly with the developer, enjoying all the opportunities that the video game may generate if it is a success.
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 console manufacturer for Sony Playstation 4 and Sony PSP Vita; Microsoft is the console manufacturer for Microsoft Xbox One; and Nintendo is the console manufacturer for Nintendo 3 DS and Nintendo Wii U.
The console manufacturer prints the game on behalf of publishers in specific plants dedicated to the reproduction of software on the various physical storage devices used. The video game must be approved in advance by the manufacturer, through a structured process known as submission. Only publishers selected in advance will be allowed to publish games by the console manufacturer, according to a licensing publishing agreement. The console manufacturer and the video game publisher are often one and the same.
The role of the distributor varies from country to country. The more a market is fragmented, like Italy's, the more the distributor's role is integrated with that of the publisher, with the implementation of specific communication policies for a local audience and public relations strategies. In some markets, like the U.K. and the U.S., retailers are highly concentrated so publishers usually have a direct commercial presence. The French and Spanish markets have an intermediate structure somewhere between the Italian and Anglo-Saxon markets.
The retailer is the outlet where the consumer purchases the game. Retailers can be international chains specialized in the sale of video games, mass retail stores, specialized independent shops, or online stores.
If video games are distributed in digital format on the marketplaces, but also as regards video games for smartphones and/or tablets, the value chain is less structured and is as follows:
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As distribution goes increasingly digital, console manufacturers have developed "marketplaces" where video games can be sold directly to the consumer without the need for a distributor or retailer. The main marketplaces through which the video games for consoles are sold to the end consumer are: PlayStation Store by Sony, Xbox Live by Microsoft and eShop by Nintendo. The world leader in the digital distribution of games for personal computers is the marketplace Steam. Through its subsidiaries, the Digital Bros Group has entered into publishing contracts with all of the marketplaces mentioned.
Concerning games for mobile phones, on the other hand, Apple has its App Store marketplace, while the marketplace for Android technology is GooglePlayStore. The Group has appropriate distribution agreements with the latter as well.
The video game distribution market has some typical seasonal trends. Consumers are most likely to buy in the autumn, due to the approaching holidays and the imminent cold season when they spend more of their free time indoors. This is why video game publishers prefer to launch their best products in the fall.
Seasonal trends have an impact on the structure of the Group's income statement and financial position. As far as revenues and costs are concerned, fixed costs tend to be under- or over-absorbed. Their higher or lower impact on margins is quite apparent in the second quarter of the fiscal year (over-absorption of fixed costs, hence greater margins in both absolute and percentage terms), which is usually when the Group makes 40-50% of its annual sales, and during the first and last quarters (under-absorption of fixed costs and lower margins), when less than 15% of revenues are earned.
Seasonal trends are influenced by launching hit products at times other than the traditional Christmas period. Specifically, quarter-on-quarter results can be volatile depending on whether or not a popular new game is released during each three-month period. The launch of these products causes sales to build up just before the official release date, known as "day one."
The seasonal pattern is even more pronounced for the video game publisher, which usually releases a limited number of games over the 12-month period, whereas the distributor can count on a steady stream of new products as its business is to sell the games of different publishers in a given geographical market. The launch of a game in one quarter as opposed to another concentrates sales in a restricted period of time, thus magnifying the fluctuations in revenue between different quarters and/or different years.
The publication and distribution of video games in the digital marketplace reduces, but does not neutralize, the volatility of a publisher's results from one quarter to the next. In the event of digital distribution, revenues are achieved when end consumers download the video games from the marketplace, differently to traditional distribution that instead sees revenues at the time of delivery to the distributor/retailer regardless of the purchase by the end consumer. This process takes place more gradually over time and not mainly in the days immediately after launch. The digital distribution of a video game then considerably extends the life cycle of a product, enabling the video game to be constantly available on the digital catalogue of the marketplace, a factor that is difficult to imagine if the product were to be physically distributed, but also giving the publisher the chance to run effective promotions. The extension of the life cycle is also accentuated by the possibility for a publisher to effectively distribute additional episodes to a video game.
The financial structure is also closely related to the pattern in sales. The physical distribution of a product in a quarter entails the concentration of investments in net working capital, which are temporarily reflected in the net financial position at least until the revenues from sales become cash.
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The main events during the period were as follows:
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on 12 February 2015, the shareholders of Ebooks&Kids S.r.l., an associated company in which the Company holds 20% of the share capital, signed an agreement with Giunti Editori S.p.A. for a capital increase of nominal 5 thousand euros plus premium of 195 thousand reserved for Giunti Editori S.p.A. Upon completion of the transaction, the shareholding of Digital Bros S.p.A. in Ebooks&Kids S.r.l. became equal to 16% of the share capital;
on 23 March, as part of efforts to strengthen the long-term ties between the Digital Bros Group with Starbreeze AB, Swedish developer of the video game PAYDAY 2 published by 505 Games S.r.l., Digital Bros S.p.A. decided to purchase 3,872,722 shares of Starbreeze (listed on NASDAQ Stockholm First North Premier) for a total of 5 million US dollars. The transaction envisages three instalments (1 April 2015, 1 July 2015 and 1 October 2015);
Below is the income statement for the year ended 30 June 2015, with comparative figures for the year ended 30 June 2014:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||||
|---|---|---|---|---|---|---|---|
| 1 | Revenues | 24,538 | 106.4% | 47,385 | 108.8% | (22,847) | -48.2% |
| 2 | Revenue adjustments | (1,485) | -6.4% | (3,842) | -8.8% | 2,357 | -61.3% |
| 3 | Total net revenues | 23,053 | 100.0% | 43,543 | 100.0% | (20,490) | -47.1% |
| 4 | Purchase of goods for resale | (17,731) | -76.9% | (30,692) | -70.5% | 12,961 | -42.2% |
| 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 finished product inventories | (541) | -2.3% | (5,126) | -11.8% | 4,585 | -89.5% |
| 8 | Total cost of sold products | (18,272) | -79.3% | (35,818) | -82.3% | 17,546 | -49.0% |
| 9 | Gross profit (3+8) | 4,781 | 20.7% | 7,725 | 17.7% | (2,944) | -38.1% |
| 10 | Other revenues | 1,824 | 7.9% | 2,800 | 6.4% | (976) | -34.8% |
| 11 | Cost of services | (3,484) | -15.1% | (3,950) | -9.1% | 466 | -11.8% |
| 12 | Rent and leasing | (825) (5,474) |
-3.6% | (832) | -1.9% | 7 | -0.7% |
| 13 | Personnel costs | -23.7% | (6,137) | -14.1% | 663 | -10.8% | |
| 14 | Other operating expenses | (667) | -2.9% | (764) | -1.8% | 97 | -12.8% |
| 15 | Total operating costs | (10,450) | -45.3% | (11,683) | -26.8% | 1,233 | -10.6% |
| 16 | EBITDA (9+10+15) | (3,845) | -16.7% | (1,158) | -2.7% | (2,687) | n.s. |
| 17 | Amortisation and depreciation | (359) | -1.6% | (420) | -1.0% | 61 | -14.6% |
| 18 | Provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Write-down of assets | (3,825) | -16.6% | (1,470) | -3.4% | (2,355) | 160.3% |
| 20 | Write-backs of assets and non-monetary income | 12,920 | 56.0% | 4,100 | 9.4% | 8,820 | 215.1% |
| 21 | Total non-monetary income and operating costs | 8,736 | 37.9% | 2,210 | 5.1% | 6,526 | n.s. |
| 22 | EBIT (16+21) | 4,891 | 21.2% | 1,052 | 2.4% | 3,839 | n.s. |
| 23 | Interest and financial income | 2,353 | 10.2% | 135 | 0.3% | 2,218 | n.s. |
| 24 | Interest and financial expenses | (1,035) | -4.5% | (2,243) | -5.2% | 1,208 | -53.9% |
| 25 | Financial income and charges | 1,318 | 5.7% | (2,108) | -4.8% | 3,426 | n.s. |
| 26 | Pre-tax income (22+25) | 6,209 | 26.9% | (1,056) | -2.4% | 7,265 | n.s. |
| 27 | Current taxes | 1,144 | 5.0% | 1,640 | 3.8% | (496) | -30.3% |
| 28 | Deferred taxes | (407) | -1.8% | (1,199) | -2.8% | 792 | -66.1% |
| 29 | Total income taxes | 737 | 3.2% | 441 | 1.0% | 296 | 67.1% |
| 30 | Net profit (26+29) | 6,946 | 30.1% | (615) | -1.4% | 7,561 | n.s. |
Gross revenues decreased by 48.2% to 24,538 thousand euros compared to 47,385 thousand euros in the previous year mainly as a result of the expected and significant reduction of sales of the trading card Yu-Gi-Oh!, due to the delayed airing of the new series of the cartoon only as of May. In addition to this, there has been a further reduction to video games distribution.
Inventories decreased by 541 thousand euros.
With the cost of goods sold at 18,272 thousand euros, the gross profit decreased to 4,781 thousand euros by 2,944 thousand euros, rising from 17.7% of net revenues in the prior year to 20.7%.
Operating costs fell by 10.6% with respect to the previous year to 1,233 thousand euros. This reduction is due primarily to a decrease in the cost of services by 466 thousand euros following lower advertising investments and the cost containment policies implemented by the Company as of a few years and the significant reduction in personnel costs of 663 thousand euros.
Given these trends, EBITDA reached -3,845 thousand euros, compared to the negative 1,158 thousand euros of the previous year with a decrease of 2,687 thousand euros.
Non-monetary operating income and costs are up by negative 6,526 thousand euros. Growth was driven primarily by higher write-backs of assets and non-monetary income for 8,820 thousand euros; these amounts were partially offset by higher asset impairments for 2,355 thousand euros. The first include:
The impairments of assets include:
EBITDA therefore increased by 3,839 thousand euros, from 1,052 thousand euros in the previous year to 4,891 thousand euros in the current year.
Financial income and charges was positive for 1,318 thousand euros, against a loss of 2,108 thousand euros achieved in the previous year. The significant improvement is given by higher interest income and financial income of 2,218 thousand euros. They consist mainly of foreign exchange gains for 1,609 thousand euros and financial income of 737 thousand euros relating to the fair value assessment of the Starbreeze B shares classified as held for trading. Interest expense also improved by 1,208 thousand euros, which decreased by 1,035 thousand euros, in line with the lower average debt.
Pre-tax income as at 30 June 2015 was 6,209 thousand euros, compared to the pre-tax loss of 1,056 thousand euros recorded in the previous year. Net profit instead came to 6,946 thousand euros, with respect to the loss of 615 thousand euros in the previous year.
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| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 3,335 | 3,046 | 289 | 9.5% |
| 2 | Investment property | 0 | 455 | (455) | n.s. |
| 3 | Intangible assets | 322 | 198 | 124 | 62.7% |
| 4 | Equity investments | 13,931 | 14,635 | (704) | 0.0% |
| 5 | Non-current receivables and other assets | 644 | 644 | 0 | 0.0% |
| 6 | Deferred tax assets | 517 | 1,023 | (506) | -49.5% |
| Total non-current assets | 18,749 | 20,001 | (1,252) | -6.3% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (442) | (501) | 59 | -11.7% |
| 8 | Non-current provisions | (171) | (205) | 34 | -16.3% |
| 9 | Other non-current payables and liabilities | 0 | 0 | 0 | 0.0% |
| Total non-current liabilities | (613) | (706) | 93 | -13.2% | |
| Net working capital | |||||
| 10 | Inventories | 9,266 | 9,807 | (541) | -5.5% |
| 11 | Trade receivables | 5,445 | 6,969 | (1,524) | -21.9% |
| 12 | Due from subsidiaries | 14,131 | 25,393 | (11,262) | -44.4% |
| 13 | Tax credits | 471 | 2,205 | (1,734) | -78.6% |
| 14 | Other current assets | 499 | 611 | (112) | n.s. |
| 15 | Trade payables | (2,204) | (2,011) | (193) | 9.6% |
| 16 | Due to subsidiaries | (2,031) | (8,000) | 5,969 | -74.6% |
| 17 | Tax payables | (286) | (920) | 634 | -68.9% |
| 18 | Current provisions | (1,491) | (8,519) | 7,028 | -82.5% |
| 19 | Other current liabilities | (940) | (1,158) | 218 | -18.8% |
| Total net working capital | 22,860 | 24,377 | (1,517) | -6.2% | |
| Shareholders' equity | |||||
| 20 | Share capital | (5,644) | (5,644) | 0 | 0.0% |
| 21 | Reserves | (18,172) | (17,876) | (296) | 1.7% |
| 22 | Treasury shares | 1,199 | 1,574 | (375) | -23.8% |
| 23 | Retained earnings (losses) | (7,214) | (1,228) | (5,986) | n.s. |
| Total shareholders' equity | (29,831) | (23,174) | (6,657) | 28.7% | |
| Total net assets | 11,165 | 20,498 | (9,333) | -45.5% | |
| 24 | Cash and cash equivalents | 1,780 | 490 | 1,290 | n.s. |
| 25 | Current payables to banks | (12,727) | (19,541) | 6,814 | -34.9% |
| 26 | Other current financial assets and liabilities | 1,401 | (1,428) | 2,829 | n.s. |
| Current net financial position | (9,546) | (20,479) | 10,933 | -53.4% | |
| 27 | Non-current financial assets | 0 | 0 | 0 | 0.0% |
| 28 | Non-current payables to banks | (1,619) | 0 | (1,619) | n.s. |
| 29 | Other non-current financial liabilities | 0 | (19) | 19 | n.s. |
| Non-current net financial position | (1,619) | (19) | (1,600) | n.s. | |
| Total net financial position | (11,165) | (20,498) | 9,333 | -45.5% |
The Company's balance sheet at 30 June 2015 is shown below, with comparative figures at 30 June 2014:
\ An analysis of net working capital in comparison with figures at 30 June 2014 is provided below:
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
| Net working capital | 30 June 2015 | 30 June 2014 | Change | |
|---|---|---|---|---|
| Inventories | 9,266 | 9,807 | (541) | -5.5% |
| Trade receivables | 5,445 | 6,969 | (1,524) | -21.9% |
| Due from subsidiaries | 14,131 | 25,393 | (11,262) | -44.4% |
| Tax credits | 471 | 2,205 | (1,734) | -78.6% |
| Other current assets | 499 | 611 | (112) | n.s. |
| Trade payables | (2,204) | (2,011) | (193) | 9.6% |
| Due to subsidiaries | (2,031) | (8,000) | 5,969 | -74.6% |
| Tax payables | (286) | (920) | 634 | -68.9% |
| Current provisions | (1,491) | (8,519) | 7,028 | -82.5% |
| Other current liabilities | (940) | (1,158) | 218 | -18.8% |
| Total net working capital | 22,860 | 24,377 | (1,517) | -6.2% |
Net working capital at 30 June 2015 of 22,860 thousand euros is down 1,517 thousand euros on 30 June 2014, when it was 24,377 thousand euros. The most significant changes are related to receivables from subsidiaries, which decreased by 11,262 thousand euros mainly due to the decrease in receivables from 505 Games S.r.l. and 505 Games US (Inc.), payables to subsidiaries, which decreased by 5,969 thousand euros and to current provisions, which decreased by 7,028 thousand euros.
Total net debt decreased by 9,333 thousand euros with respect to 30 June 2014. This decrease is explained chiefly by the reduction of 6,814 thousand euros in current payables to banks.
For further details, see the statement of cash flows (attached).
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
All sales and purchases of goods and services between Digital Bros S.p.A. and other companies in the Group are conducted at arm's length.
Digital Bros S.p.A. charges 505 Games S.r.l. 15% of the revenues it earns from the distribution, exclusively in digital format, of its own products in exchange for marketing and production services carried out in Italian markets that are not directly attributable to individual products.
Digital Bros S.p.A. charges 505 Games S.r.l. for the costs incurred for the coordination of business in acquiring games, for administrative, finance, legal, logistics and information technology services incurred on its behalf.
Digital Bros S.p.A. charges Digital Bros Game Academy S.r.l. for administrative, finance, legal and information technology services incurred on its behalf and the lease of the property located in Via Labus in Milan, the Company's operative HQ.
Other more minor transactions consist of administrative, financial, legal/advisory and general services that are usually performed by the Digital Bros S.p.A. for other members of the Group.
Digital Bros S.p.A. also provides a centralized cash management service, using giro accounts to which the positive and negative balances between Group companies are transferred at least once per quarter, including through the transfer of receivables. These accounts do not bear interest.
Group companies in Italy also transfer tax receivables and payables to Digital Bros S.p.A. under the domestic tax consolidation scheme.
Transactions with related parties consist of the legal counsel provided by director Dario Treves and the leasing of property by Matov Imm. S.r.l. (owned by the Galante family) and Digital Bros S.p.A.
The impact of the related party transactions is shown in Note 10 of the Explanatory Notes.
On 26 June 2015, as part of the reorganization and rationalization of the Group's business segments, the following corporate actions were carried out:
• Digital Bros S.p.A. sold to 505 Games S.r.l. the companies 505 Games France S.a.s. and 505 Spain Slu for a 100 thousand euros and 511 thousand euros, respectively. These transfers were made at market value as determined by specific appraisal prepared by an independent expert;
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• Digital Bros S.p.A. sold to 505 Games S.r.l. the company 505 Mobile S.r.l., for 940 thousand euros; subsequently, on the same date, Digital Bros S.p.A. sold to 505 Mobile S.r.l. the company Game Entertainment S.r.l. for 330 thousand euros. These transfers were made at market value as determined by specific appraisal prepared by an independent expert.
On 26 June 2015, Digital Bros S.p.A. also subscribed the share capital increase following the coverage of the losses of Game Network S.r.l. thus becoming new sole shareholder (the ownership of the Company was until then owned 100% by 505 Mobile S.r.l.).
There were no atypical or unusual transactions in the period under examination or the same period of the previous year, as defined by Consob Communication DEM 6064293 of 28 July 2006.
Pursuant to Art. 2428, paragraph 2 no.3 of the Italian Civil Code, at 30 June 2015 Digital Bros S.p.A. owned 400,247 treasury shares, against the 525,247 held as at 30 June 2014.
In accordance with no. 4 of said paragraph 2, please note, in fact, that during the year the Company sold off 125,000 of its treasury shares at the average price of 3.28 euros each, for a total value of 410 thousand euros.
The Company did not engage in research and development during this or the previous periods.
The Company has developed a risk mapping process by which the directors and the front-line organisational units attend coordination meetings held throughout the year. Their work is summarized in a risk matrix that is prepared and regularly reviewed by the director in charge of control, who attends the coordination meetings. In individual charts, each separate risk is described, given a gross rating according to a probability/impact grid, and assigned a net rating on the basis of mitigating factors and/or steps taken to reduce and monitor the risk. The executive director is assisted in this task by the Control and Risks Committee.
The individual risk charts also show the impact that a failure to reach control objectives would have in terms of operations and financial reporting.
The thoroughness of the risk map and the ratings of net risk are assessed jointly by the two managing directors and by the director in charge of control, and updated by the Board of Directors at least once a year.
The risks can be summarised as two types: operational risks and financial risks.
The most significant operational risks are:
This is the risk of depending on the success of the hardware for which games are developed. Most of the Company's revenues come from the sale of video games for the Sony, Microsoft and Nintendo consoles. When signing a development contract, the Company has to pay advances for a game's development and production on the basis of projected demand for these platforms, which takes account of their estimated life cycles. An error in judging the potential of each gaming platform can lead to a drop in revenues or, if underestimated, a loss of sales potential, with consequences for future performance.
The existence of market research, management's familiarity with the market, and the availability of historical data on hardware ownership are mitigating factors. The Company has also implemented a strategic planning procedure that analyzes all of its current development contracts every six months, in an attempt to lower costs, and a contract acquisition procedure that requires accurate economic projections to be made before signing, by testing future profitability on the basis of different market scenarios using sensitivity analyses and other tools.
During the current year, the revenue concentration of the top 10 customers worldwide was about 76% and that of the top 50 customers was 97%. The concentration of revenues on a few key customers makes the Company dependent on their business, which in today's volatile economy requires greater prudence in terms of quantity and a better selection of products in terms of quality. The smaller number of customers also increases credit risk. This is mitigated, however, by the fact that the Company's projected sales in Italy are less concentrated than in other markets and will continue to make up a significant percentage of total revenues, at least for the imminent future. The extensive use of credit insurance will also reduce potential losses on bad debts.
In addition, customer and credit management procedures are in place that substantially reduce this risk.
The Company mainly distributes video games for the Sony Playstation 3, Microsoft Xbox 360, Nintendo Wii and Nintendo DS consoles, which have traditionally had a lifecycle of seven years. Although it currently appears that this lifecycle could be extended by online features and by new technologies for the consoles now on the market, it could also be drastically shortened once the consoles mature, especially in light of the international economic crisis. The lifespan of their predecessors could also be far shorter than thought. The potential volatility of the market makes it difficult to predict results.
This risk is mitigated by the fact that the Company can significantly reduce operating expenses on games scheduled for future release, depending on the forecast trend in demand.
Piracy has always been a bane to the video games market and to the entertainment industry in general. The use of peer-to-peer networks and the growing availability and speed of broadband have made it even easier to copy a video game illegally. National laws and anti-piracy systems used by manufacturers reduce this risk substantially, although it varies sharply from one country to the next.
If piracy were to increase, due in part to a weakening of today's legislation, the Company's sales and margins could go down and its forecasts might no longer be reliable. This risk is mitigated by the fact that video game producers (Microsoft, Sony and Nintendo) earn substantial profits from their game production businesses and it is thus to their advantage to develop anti-piracy measures. The increasing use of online features, or even parts or episodes of games that are only available on the servers of Microsoft, Sony and Nintendo, allows better control over authenticity and deprives bootlegs of much of their interest.
Video games can quickly become obsolete. A game that is sold at a certain price is then repositioned at gradually lower ones over time. The launch price of a game is usually high during the launch of the console, and then decreases throughout the lifecycle of the hardware.
Purchasing decisions in terms of volumes are often made months in advance, while the contract is being negotiated with publishers, so it is possible that these games will remain unsold and will require appropriate write-downs for obsolescence.
This risk is mitigated by the possibility to reduce the production, marketing and royalty costs paid to developers, thereby minimizing the impact on margins; by awareness of the lifecycles of earlier consoles and advance information on new gaming platforms; and last but not least, by the chance to ask publishers for discounts to offset inventory impairment losses, especially for games that do not sell well.
Whether the Company is successful depends largely on the performance of some key individuals who have made a solid contribution to its development and acquired valuable experience in the industry.
The Company has an executive team (chairman, managing director and CFO) with many years' experience in the sector and a decisive role in the management of its business. Losing the services of these individuals without their being suitably replaced could have a negative impact on the Company's performance and financial position, and in particular could affect the process of understanding, appreciating and monitoring risks.
In any case, management feels that the Group has an operational and executive structure that can ensure continuity in the handling of business affairs.
The main financial instruments used by the Company are as follows:
Sight- and short-term bank deposits
Import financing
The purpose of these instruments is to finance the Company's operating activities.
The credit facilities available to the Company with the related uses at 30 June 2015 are as follows:
| EUR/000 | Credit limits | Uses | Availability |
|---|---|---|---|
| Bank account overdrafts | 1,250 | 2 | 1,248 |
| Import financing | 21,700 | 10,529 | 11,171 |
| Advances on invoices and subject to collection | 17,502 | 859 | 16,643 |
| Factor | 1,000 | 134 | 866 |
| Unsecured loans | 1,000 | 0 | 1,000 |
| Total | 42,452 | 11,390 | 31,062 |
Digital Bros S.p.A. manages all financial risks on behalf of itself and its subsidiaries, with the exception of other financial instruments not listed above, namely trade payables and receivables arising from operating activities for which the financial risk is the responsibility of each subsidiary.
The Company tries to maintain a balance between short-term and medium/long-term financial instruments. The Company's core business, the 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 often dedicated to the individual investment, including in the form of 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 to interest rate fluctuations is marginal with respect to its medium- and longterm financial instruments, which were originally designated as fixed-rate instruments or have been converted into fixed rates using appropriate derivative agreements.
For short-term financial instruments, the possibility of rising interest rates is an effective risk, because the Company cannot immediately transfer the higher rates to its prices. These risks are reduced by:
Liquidity risk arises if it becomes difficult or impossible to obtain, under sustainable conditions, 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 in the credit market.
The Company has reduced this risk by:
Given the results of short- and medium/long-term planning, currently available funds, along with those to be generated by operating activities, should allow the Company to satisfy its requirements as far as investment, working capital management, and debt repayment at natural maturity are concerned and in any case to determine financial requirements ahead of time.
The Company is influenced by exchange rate fluctuations in the British pound and US dollars due to the amounts owed by the subsidiaries 505 Games Ltd. and 505 Games US Inc.
To monitor the risk level of the EUR/GBP and EUR/USD exchange rates, the Company closely monitors exchange rate forecasts from independent analysts and other sources, and may use derivative instruments to hedge this risk as appropriate.
The Company sells exclusively to known buyers. If necessary information on customers is not available, merchandise is sold with advance payment and/or cash on delivery to limit credit risk to negligible amounts.
Customer credit facilities are granted by a credit committee which includes the managing directors, the sales department, the finance department and the head of credit management. The credit manager reviews the credit facilities and customer balances on a daily basis, before any shipments are made. Despite these precautions, the Company has taken out insurance covering almost all of its customers.
The policy for using derivative contracts is explained in the notes. Financial instruments held for trading
The policy for using contracts of financial instruments held for trading is explained in the notes.
At 30 June 2015, there were no contingent assets and liabilities.
In the period following the end of the year, Digital Bros S.p.A. purchased 1,149,816 Starbreeze B shares for a total of 902 thousand euros and disposed of 2,682,904 Starbreeze B ordinary shares for a total of 3,285 thousand euros; at the same time, the Company purchased 708,264 Starbreeze A ordinary shares for a total of 621 thousand euros.
In August and September, Digital Bros S.p.A. sold on the open market 270,000 treasury shares for a total value of 3,045 thousand euros. At the date of approval of the reports, the number of treasury shares is equal to 130,247 ordinary shares.
On 11 September 2015, the Company acquired 49% of the Italian video game developer Ovosonico S.r.l. for 720 thousand euros. The company is based in Varese and employs about 25 people. Among the products already developed, Murasaki Baby, award-winning video game published by Sony Computer Entertainment, stands out.
For the following year, volumes are expected to be virtually stable compared to the previous year; however, the Company may benefit from significant cost savings obtained during the current year.
The Company is also expected to benefit from dividends resolved by the subsidiary 505 Games S.r.l.
A decrease is expected in net debt although at lower rates than those seen in recent years.
Below are the details of the workforce at 30 June 2015 with comparative figures at 30 June 2014:
| Type | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Executives | 5 | 6 | (1) |
| Office workers | 51 | 56 | (5) |
| Blue-collar workers and apprentices | 4 | 6 | (2) |
| Total employees | 60 | 68 | (8) |
The average headcount for FY 2014/2015, calculated as the average number of employees in service at the end of every month, is shown below with comparative figures from the prior year:
| Average number for | Change | ||
|---|---|---|---|
| Type | Average number for 2015 | 2014 | |
| Executives | 4 | 6 | (2) |
| Office workers | 55 | 58 | (3) |
| Blue-collar workers and | |||
| apprentices | 6 | 6 | 0 |
| Total employees | 65 | 70 | (5) |
The Company adheres to the current Confcommercio national collective employment contract for the commercial, distribution and services sector.
At 30 June 2015, there were no issues of an environmental nature, and as the Company's environmentrelated activities consist chiefly of packing and shipping video games and affixing labels to packaging, there is no reason any such problems should arise.
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Digital Bros S.p.A.
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 3,335 | 3,046 | 289 | 9.5% |
| 2 | Investment property | 0 | 455 | (455) | n.s. |
| 3 | Intangible assets | 322 | 198 | 124 | 62.7% |
| 4 | Equity investments | 13,931 | 14,635 | (704) | 0.0% |
| 5 | Non-current receivables and other assets | 644 | 644 | 0 | 0.0% |
| 6 | Deferred tax assets | 517 | 1,023 | (506) | -49.5% |
| Total non-current assets | 18,749 | 20,001 | (1,252) | -6.3% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (442) | (501) | 59 | -11.7% |
| 8 | Non-current provisions | (171) | (205) | 34 | -16.3% |
| 9 | Other non-current payables and liabilities | 0 | 0 | 0 | 0.0% |
| Total non-current liabilities | (613) | (706) | 93 | -13.2% | |
| Net working capital | |||||
| 10 | Inventories | 9,266 | 9,807 | (541) | -5.5% |
| 11 | Trade receivables | 5,445 | 6,969 | (1,524) | -21.9% |
| 12 | Due from subsidiaries | 14,131 | 25,393 | (11,262) | -44.4% |
| 13 | Tax credits | 471 | 2,205 | (1,734) | -78.6% |
| 14 | Other current assets | 499 | 611 | (112) | n.s. |
| 15 | Trade payables | (2,204) | (2,011) | (193) | 9.6% |
| 16 | Due to subsidiaries | (2,031) | (8,000) | 5,969 | -74.6% |
| 17 | Tax payables | (286) | (920) | 634 | -68.9% |
| 18 | Current provisions | (1,491) | (8,519) | 7,028 | -82.5% |
| 19 | Other current liabilities | (940) | (1,158) | 218 | -18.8% |
| Total net working capital | 22,860 | 24,377 | (1,517) | -6.2% | |
| Shareholders' equity | |||||
| 20 | Share capital | (5,644) | (5,644) | 0 | 0.0% |
| 21 | Reserves | (18,172) | (17,876) | (296) | 1.7% |
| 22 | Treasury shares | 1,199 | 1,574 | (375) | -23.8% |
| 23 | Retained earnings (losses) | (7,214) | (1,228) | (5,986) | n.s. |
| Total shareholders' equity | (29,831) | (23,174) | (6,657) | 28.7% | |
| Total net assets | 11,165 | 20,498 | (9,333) | -45.5% | |
| 24 | Cash and cash equivalents | 1,780 | 490 | 1,290 | n.s. |
| 25 | Current payables to banks | (12,727) | (19,541) | 6,814 | -34.9% |
| 26 | Other current financial assets and liabilities | 1,401 | (1,428) | 2,829 | n.s. |
| Current net financial position | (9,546) | (20,479) | 10,933 | -53.4% | |
| 27 | Non-current financial assets | 0 | 0 | 0 | 0.0% |
| 28 | Non-current payables to banks | (1,619) | 0 | (1,619) | n.s. |
| 29 | Other non-current financial liabilities | 0 | (19) | 19 | n.s. |
| Non-current net financial position | (1,619) | (19) | (1,600) | n.s. | |
| Total net financial position | (11,165) | (20,498) | 9,333 | -45.5% |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||||
|---|---|---|---|---|---|---|---|
| 1 | Revenues | 24,538 | 106.4% | 47,385 | 108.8% | (22,847) | -48.2% |
| 2 | Revenue adjustments | (1,485) | -6.4% | (3,842) | -8.8% | 2,357 | -61.3% |
| 3 | Total net revenues | 23,053 | 100.0% | 43,543 | 100.0% | (20,490) | -47.1% |
| 4 | Purchase of goods for resale | (17,731) | -76.9% | (30,692) | -70.5% | 12,961 | -42.2% |
| 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 finished product inventories | (541) | -2.3% | (5,126) | -11.8% | 4,585 | -89.5% |
| 8 | Total cost of sold products | (18,272) | -79.3% | (35,818) | -82.3% | 17,546 | -49.0% |
| 9 | Gross profit (3+8) | 4,781 | 20.7% | 7,725 | 17.7% | (2,944) | -38.1% |
| 10 | Other revenues | 1,824 | 7.9% | 2,800 | 6.4% | (976) | -34.8% |
| 11 | Cost of services | (3,484) | -15.1% | (3,950) | -9.1% | 466 | -11.8% |
| 12 | Rent and leasing | (825) | -3.6% | (832) | -1.9% | 7 | -0.7% |
| 13 | Personnel costs | (5,474) | -23.7% | (6,137) | -14.1% | 663 | -10.8% |
| 14 | Other operating expenses | -2.9% | (764) | -1.8% | 97 | -12.8% | |
| 15 | Total operating costs | (10,450) | -45.3% | (11,683) | -26.8% | 1,233 | -10.6% |
| 16 | EBITDA (9+10+15) | (3,845) | -16.7% | (1,158) | -2.7% | (2,687) | n.s. |
| 17 | Amortisation and depreciation | (359) | -1.6% | (420) | -1.0% | 61 | -14.6% |
| 18 | Provisions | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% |
| 19 | Write-down of assets | (3,825) | -16.6% | (1,470) | -3.4% | (2,355) | 160.3% |
| 20 | Write-backs of assets and non-monetary income | 12,920 | 56.0% | 4,100 | 9.4% | 8,820 | 215.1% |
| 21 | Total non-monetary income and operating costs | 8,736 | 37.9% | 2,210 | 5.1% | 6,526 | n.s. |
| 22 | EBIT (16+21) | 4,891 | 21.2% | 1,052 | 2.4% | 3,839 | n.s. |
| 23 | Interest and financial income | 2,353 | 10.2% | 135 | 0.3% | 2,218 | n.s. |
| 24 | Interest and financial expenses | (1,035) | -4.5% | (2,243) | -5.2% | 1,208 | -53.9% |
| 25 | Total net interest | 1,318 | 5.7% | (2,108) | -4.8% | 3,426 | n.s. |
| 26 | Pre-tax income (22+25) | 6,209 | 26.9% | (1,056) | -2.4% | 7,265 | n.s. |
| 27 | Current taxes | 1,144 | 5.0% | 1,640 | 3.8% | (496) | -30.3% |
| 28 | Deferred taxes | (407) | -1.8% | (1,199) | -2.8% | 792 | -66.1% |
| 29 | Total income taxes | 737 | 3.2% | 441 | 1.0% | 296 | 67.1% |
| 30 | Net profit (26+29) | 6,946 | 30.1% | (615) | -1.4% | 7,561 | n.s. |
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Net profit (loss) for the period (A) | 6,946 | (615) | 7,561 |
| Items that will not subsequently be | |||
| reclassified to the income statement (B) | |||
| Actuarial profit (loss) | 30 | (50) | 80 |
| Tax effect relating to the actuarial profit (loss) | (9) | 14 | (23) |
| Fair value adjustment of shares "available for | |||
| sale" | 330 | 0 | 330 |
| Tax effect related to the fair value adjustment of | |||
| shares "available for sale" | (90) | 0 | (90) |
| Items that will subsequently be reclassified to | |||
| the income statement (C) | 261 | (36) | 297 |
| Total other items of comprehensive profit D | |||
| = (B)+(C) | 261 | (36) | 297 |
| Total comprehensive profit (loss) (A)+(D) | 7,207 | (651) | 7,858 |
| Attributable to: | |||
| Shareholders of the parent company | 7,207 | (651) | 7,858 |
| Equity investments pertaining to third parties | 0 | 0 | 0 |
| EUR/000 | 30 June 2015 | 30 June 2014 |
|---|---|---|
| A. Initial net cash and cash equivalents |
(20,498) | (31,276) |
| B. Cash flow from operating activities |
||
| Net profit (loss) for the year | 6,946 | (615) |
| Provisions and non-monetary costs: | ||
| Provisions and impairment of assets | 407 | 1,470 |
| Intangible fixed assets | 95 | 108 |
| Tangible fixed assets | 264 | 312 |
| Net change to other provisions | (34) | (126) |
| Net change to employee benefits | (59) | 2 |
| SUBTOTAL B. | 7,621 | 1,151 |
| C. Changes in net working capital |
||
| Inventories | 541 | 5,126 |
| Trade receivables | 1,117 | 1,478 |
| Due from subsidiaries | 11,262 | 8,797 |
| Tax credits | 1,734 | (1,140) |
| Other current assets | 112 | 100 |
| Trade payables | 193 | (1,944) |
| Due to subsidiaries | (5,969) | (120) |
| Tax payables | (634) | (1,352) |
| Current provisions | (7,028) | (37) |
| Other current liabilities | (218) | 84 |
| SUBTOTAL C. | 1,109 | 10,992 |
| D. Cash flow from investing activities |
||
| Net investments in intangible fixed assets | (219) | (116) |
| Net investments in tangible fixed assets | (98) | (17) |
| Net investments in financial fixed assets | 1,210 | (1,196) |
| SUBTOTAL D. | 892 | (1,329) |
| E. Cash flow from financing activities |
||
| Capital increases | 0 | 0 |
| SUBTOTAL E. | 0 | 0 |
| F. Changes in shareholders' equity |
||
| Dividends distributed | (960) | 0 |
| Changes in treasury shares held | 375 | 0 |
| Increases (decreases) in other items of shareholders' equity | 296 | (36) |
| SUBTOTAL F. | (289) | (36) |
| G. Period cash flow (B+C+D+E+F) |
9,333 | 10,778 |
| H. Closing net financial position (A+G) \ 192 |
(11,165) | (20,498) |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
| E U R / 0 0 0 |
3 0 Ju 2 0 1 5 ne |
3 0 Ju 2 0 1 4 ne |
|---|---|---|
| Inc ( de ) in it ies d l iq i d fun ds rea se cre ase sec ur an u |
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| ( inc ) in b les ba ks De nt to cre ase rea se cu rre p ay a n |
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| ( inc ) in he f ina ia l l ia b i l it ies De ot t cre ase rea se r c urr en nc |
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|---|---|---|---|
| Inc i d e t om ax p a |
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| iv i de ds l lec d D te n co |
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| To l ta |
6 4 5, 5 |
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Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
Separate statement of changes in equity
| To l ta |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| S ha re |
S ha re |
I A S |
Ac ia l tua r |
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ine d ta re |
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ha s re s |
ing ea rn s |
f it p ro |
ing ea rn s |
i ty eq u |
|
| E U R / 0 0 0 |
( A ) |
res erv e |
res erv e |
res erv e |
res erv e |
res erv es |
( B ) |
( C ) |
( los ) ses |
( los ) s |
( D ) |
( A+ B+ C+ D ) |
| 1 is To l a Ju ly b l he d ta t s a p u |
5, 6 4 4 |
1 9 5 4 6, |
1, 1 2 9 |
( 1 4 2 ) |
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1 9 6 2 7, |
( 1, 5 4 ) 7 |
4, 9 7 3 |
( 3, 1 8 0 ) |
1, 9 3 7 |
2 3, 8 2 5 |
| E f fec de iv ing fro he de d I A S 1 9 ts t r m am en |
( 5 0 ) |
( 5 0 ) |
5 1 |
( 1 ) |
5 0 |
0 | ||||||
| 0 1 2 0 1 3 r To ta l a t Ju ly ta te d s a es |
5, 6 4 4 |
1 6, 9 5 4 |
1, 1 2 9 |
( 1 4 2 ) |
( 5 0 ) |
2 1 |
1 9 1 2 7, |
( 1, 5 4 ) 7 |
5, 0 2 4 |
( 3, 1 8 1 ) |
1, 8 4 3 |
2 3, 8 2 5 |
| l loc ion f n f it o f t he A at et o p ro y ea r |
0 | ( 3, 1 8 1 ) |
3, 1 8 1 |
0 | 0 | |||||||
| Pu ha f tr ha rc se o ea su ry s res |
0 | 0 | 0 | |||||||||
| Co he ive f it ( los ) mp re ns p ro s |
( 3 ) 6 |
( 3 6 ) |
( 1 5 ) 6 |
( 6 1 5 ) |
( 6 5 1 ) |
|||||||
| To l a 0 1 Ju ly 2 0 1 4 ta t s a |
5, 6 4 4 |
1 6, 9 5 4 |
1, 1 2 9 |
( 1 4 2 ) |
( 8 6 ) |
2 1 |
1 7, 8 7 6 |
( 1, 5 7 4 ) |
1, 8 4 3 |
( 6 1 5 ) |
1, 2 2 8 |
2 3, 1 7 4 |
| A l loc ion f n f it o f t he at et o p ro y ea r |
0 | ( 1 5 ) 6 |
1 5 6 |
0 | 0 | |||||||
| ist i bu ion f d iv i de ds D t r o n |
0 | ( 9 6 0 ) |
( 9 6 0 ) |
( 9 6 0 ) |
||||||||
| Pu ha f tr ha rc se o ea su ry s res |
3 5 |
3 5 |
3 7 5 |
0 | 4 1 0 |
|||||||
| Co he ive f it ( los ) mp re ns p ro s |
2 2 |
2 3 9 |
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9 4 6, 6 |
6, 9 4 6 |
2 0 7, 7 |
||||||
| To l a 3 0 Ju 2 0 1 5 ta t s a ne |
5, 6 4 4 |
1 5 4 6, 9 |
1, 1 2 9 |
( 1 4 2 ) |
( 4 ) 6 |
2 5 9 |
1 8, 1 7 2 |
( 1, 1 9 9 ) |
2 8 6 |
4 6, 9 6 |
7, 2 1 4 |
2 9, 8 3 1 |
A) not available;
B) available - can be used to cover losses but is not distributable;
D) available - can be used to cover losses, capital increases and pay dividends.
| Migliaia di Euro | 30 June 2015 | 30 June 2014 | |||
|---|---|---|---|---|---|
| of which: related | of which: related | ||||
| parties | parties | ||||
| 1 | Gross revenues | 24,538 | 0 | 47,385 | 0 |
| 2 | Revenue adjustments | (1,485) | 0 | (3,842) | 0 |
| 3 | Total net revenues | 23,053 | 0 | 43,543 | 0 |
| 4 | Purchase of goods for resale | (17,731) | 0 | (30,692) | 0 |
| 5 | Purchase of services for resale | 0 | 0 | 0 | 0 |
| 6 | Royalties | 0 | 0 | 0 | 0 |
| 7 | Changes in finished product inventories | (541) | 0 | (5,126) | 0 |
| 8 | Total cost of sold products | (18,272) | 0 | (35,818) | 0 |
| 9 | Gross profit (3+8) | 4,781 | 0 | 7,725 | 0 |
| 10 | Other revenues | 1,824 | 0 | 2,800 | 0 |
| 11 | Cost of services | (3,484) | (200) | (3,950) | (196) |
| 12 | Rent and leasing | (825) | (754) | (832) | (744) |
| 13 | Personnel costs | (5,474) | 0 | (6,137) | 0 |
| 14 | Other operating costs | (667) | 0 | (764) | 0 |
| 15 | Total operating costs | (10,450) | (954) | (11,683) | (940) |
| 16 | EBITDA (9+10+15) | (3,845) | (954) | (1,158) | (940) |
| 17 | Amortisation and depreciation | (359) | 0 | (420) | 0 |
| 18 | Provisions | 0 | 0 | 0 | 0 |
| 19 | Write-down of assets | (3,825) | 0 | (1,470) | 0 |
| 20 | Write-backs of assets and non-monetary income | 12,920 | 0 | 4,100 | 0 |
| 21 | Total non-monetary income and operating costs | 8,736 | 0 | 2,210 | 0 |
| 22 | EBIT (16+21) | 4,891 | (954) | 1,052 | (940) |
| 23 | Interest and financial income | 2,353 | 0 | 135 | 0 |
| 24 | Interest and financial expenses | (1,035) | 0 | (2,243) | 0 |
| 25 | Financial income and charges | 1,318 | 0 | (2,108) | 0 |
| 26 | Pre-tax income (22+25) | 6,209 | (954) | (1,056) | (940) |
| 27 | Current taxes | 1,144 | 0 | 1,640 | 0 |
| 28 | Deferred taxes | (407) | 0 | (1,199) | 0 |
| 29 | Total income taxes | 737 | 0 | 441 | 0 |
| 30 | Net profit (26+29) | 6,946 | (954) | (615) | (940) |
| EUR/000 | 30 June 2015 | 30 June 2014 | |||
|---|---|---|---|---|---|
| of which: | of which: | ||||
| Non-current assets | related parties | related parties | |||
| 1 | Property, plant and equipment | 3,335 | 0 | 3,046 | 0 |
| 2 | Investment property | 0 | 0 | 455 | 0 |
| 3 | Intangible assets | 322 | 0 | 198 | 0 |
| 4 | Equity investments | 13,931 | 0 | 14,635 | 0 |
| 5 | Non-current receivables and other assets | 644 | 635 | 644 | 635 |
| 6 | Deferred tax assets | 517 | 0 | 1,023 | 0 |
| Total non-current assets | 18,749 | 635 | 20,001 | 635 | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (442) | 0 | (501) | 0 |
| 8 | Non-current provisions | (171) | 0 | (205) | 0 |
| 9 | Other non-current payables and liabilities | 0 | 0 | 0 | 0 |
| Total non-current liabilities | (613) | 0 | (706) | 0 | |
| Net working capital | |||||
| 10 | Inventories | 9,266 | 0 | 9,807 | 0 |
| 11 | Trade receivables | 5,445 | 0 | 6,969 | 0 |
| 12 | Due from subsidiaries | 14,131 | 25,393 | ||
| 13 | Tax credits | 471 | 0 | 2,205 | 0 |
| 14 | Other current assets | 499 | 0 | 611 | 0 |
| 15 | Trade payables | (2,204) | (18) | (2,011) | (18) |
| 16 | Due to subsidiaries | (2,031) | (8,000) | ||
| 17 | Tax payables | (286) | 0 | (920) | 0 |
| 18 | Current provisions | (1,491) | 0 | (8,519) | 0 |
| 19 | Other current liabilities | (940) | 0 | (1,158) | 0 |
| Total net working capital | 22,860 | (18) | 24,377 | (18) | |
| Shareholders' equity | |||||
| 20 | Share capital | (5,644) | 0 | (5,644) | 0 |
| 21 | Reserves | (18,172) | 0 | (17,876) | 0 |
| 22 | Treasury shares | 1,199 | 0 | 1,574 | 0 |
| 23 | Retained earnings (losses) | (7,214) | 0 | (1,228) | 0 |
| Total shareholders' equity | (29,831) | 0 | (23,174) | 0 | |
| Total net assets | 11,165 | 617 | 20,498 | 617 | |
| 24 | Cash and cash equivalents | 1,780 | 0 | 490 | 0 |
| 25 | Current payables to banks | (12,727) | 0 | (19,541) | 0 |
| 26 | Other current financial assets and liabilities | 1,401 | 0 | (1,428) | 0 |
| Current net financial position | (9,546) | 0 | (20,479) | 0 | |
| 27 | Non-current financial assets | 0 | 0 | 0 | 0 |
| 28 | Non-current payables to banks | (1,619) | 0 | 0 | 0 |
| 29 | Other non-current financial liabilities | 0 | 0 | (19) | 0 |
| Non-current net financial position | (1,619) | 0 | (19) | 0 | |
| Total net financial position | (11,165) | 0 | (20,498) | 0 |
Separate income statement compliant with Consob Resolution 15519 (non recurring)
| Migliaia di Euro | 30 June 2015 | 30 June 2014 | |||
|---|---|---|---|---|---|
| of which: | of which: | ||||
| non | non | ||||
| recurring | recurring | ||||
| 1 | Gross revenues | 121,244 | 0 | 141,574 | 0 |
| 2 | Revenue adjustments | (5,254) | 0 | (8,429) | 0 |
| 3 | Total net revenues | 115,990 | 0 | 133,145 | 0 |
| 0 | |||||
| 4 | Purchase of goods for resale | (34,104) | 0 | (46,394) | 0 |
| 5 | Purchase of services for resale | (5,374) | 0 | (6,570) | 0 |
| 6 | Royalties | (28,328) | 0 | (36,909) | 0 |
| 7 | Changes in finished product inventories | (1,898) | 0 | (5,904) | 0 |
| 8 | Total cost of sold products | (69,704) | 0 | (95,777) | 0 |
| 0 | |||||
| 9 | Gross profit (3+8) | 46,286 | 0 | 37,368 | 0 |
| 0 | |||||
| 10 | Other revenues | 2,295 | 0 | 264 | 0 |
| 0 | |||||
| 11 | Cost of services | (11,733) | (181) | (14,357) | 0 |
| 12 | Rent and leasing | (1,548) | 0 | (1,338) | 0 |
| 13 | Personnel costs | (17,853) | 0 | (12,569) | 0 |
| 14 | Other operating costs | (1,371) | 0 | (1,190) | 0 |
| 15 | Total operating costs | (32,505) | (181) | (29,454) | 0 |
| 0 | |||||
| 16 | EBITDA (9+10+15) | 16,076 | (181) | 8,178 | 0 |
| 0 | |||||
| 17 | Amortisation and depreciation | (2,920) | 0 | (1,211) | 0 |
| 18 | Provisions | 0 | 0 | 0 | 0 |
| 19 | Write-down of assets | (1,455) | 0 | (32) | 0 |
| 20 | Write-backs of assets and non-monetary income | 641 | 0 | 0 | 0 |
| 21 | Total non-monetary income and operating costs | (3,734) | 0 | (1,243) | 0 |
| 0 | |||||
| 22 | EBIT (16+21) | 12,342 | (181) | 6,935 | 0 |
| 0 | |||||
| 23 | Interest and financial income | 3,939 | 0 | 348 | 0 |
| 24 | Interest and financial expenses | (2,027) | 0 | (2,723) | 0 |
| 25 | Financial income and charges | 1,912 | 0 | (2,375) | 0 |
| 0 | |||||
| 26 | Pre-tax income (22+25) | 14,254 | (181) | 4,560 | 0 |
| 0 | |||||
| 27 | Current taxes | (3,897) | 0 | (435) | 0 |
| 28 | Deferred taxes | (1,252) | 0 | (2,200) | 0 |
| 29 | Total income taxes | (5,149) | 0 | (2,635) | 0 |
| 0 | |||||
| 30 | 9,105 | (181) | 1,925 | 0 | |
| Net profit (26+29) |
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Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The activities carried out by Digital Bros S.p.A. are described in the directors' report.
The financial statements at 30 June 2015 have been prepared on a going concern basis. The Company has determined 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 2015 have been prepared in accordance with Art. 154-ter of Legislative Decree 58 of 24 February 1998, as amended. They comply with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), on the basis of the text published in the Official Journal of the European Union. The term "IFRS" encompasses the International Accounting Standards (IAS) still in effect, as well as all interpretations published by the International Financial Reporting Interpretations Committee (IFRIC). All amounts contained in the separate financial statements at 30 June 2015 are expressed in thousands of euros (EUR/000), unless otherwise specified.
The separate financial statements for the year ended 30 June 2015 comply with the IAS/IFRS and with the interpretations thereof (SIC/IFRIC) endorsed by the European Commission as of that date.
The statements and the notes also include the disclosures required by Consob Resolution 15519 of 27 July 2006 and Consob Announcement 6064293 of 28 July 2006.
No changes have been made to the reporting format with respect to previous years, and all schedules are consistent with those used for the separate financial statements at 30 June 2015.
The financial statements are comprised of:
The following have been presented to supplement the information in the financial statements:
The first column of the statement of financial position indicates the number of the relevant note.
The statement of financial position is divided into five categories:
Non-current assets are those whose duration is long-term by nature, such as fixed assets to be used over several years, equity investments, and receivables due in subsequent periods. They also include investment property, and deferred tax assets regardless of when they might be realized.
Non-current liabilities cover provisions not expected to be used during the next 12 months and for postemployment benefits, in particular the provision for employee termination indemnities at the parent company and its Italian subsidiaries.
Net working capital expresses current assets and liabilities. Because of the commercial nature of the Company's operations, net working capital is especially significant, as it represents the amount the Company invests in operating activities to help increase its turnover. Its trend in relation to business volumes, and as a function of seasonal patterns in the market, is extremely important.
Shareholders' equity consists of share capital, reserves, unallocated earnings (the profit for the year plus the portion of previous years' profits not allocated to specific types of reserve by the shareholders), as adjusted by 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 is divided into current and non-current debt and corresponds to the total of net assets.
The first column of the official income statement and of the income statement provided for segment reporting purposes indicates the number of the relevant note.
The income statement has been prepared in vertical format, with individual entries grouped by type, and shows four intermediate levels of profit:
The net profit, the difference between the pre-tax profit and total tax, is followed by earnings per share.
The cash flow statement 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 consolidated equity.
The overall change for the period is given by the sum of the following items:
The statement of changes in equity has been drawn up in accordance with IFRS, and shows movements between 01 July 2013 and 30 June 2015.
There are no minority interests, which are therefore not reported.
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Figures in the separate financial statements were determined according to the International Accounting Standards and their interpretations in effect as of 30 June 2015.
The financial statements were prepared on the basis of the accounts at 30 June 2015 submitted by the Company.
The measurement criteria used to prepare the separate financial statements as at 30 June 2015 are coherent with those used to prepare the separate financial statements as at 30 June 2014. Changes in standards and interpretations adopted by the European Union did not have any significant effect in the preparation of the separate financial statements at 30 June 2014 except as indicated in paragraph 1 "Form and content and other general information and paragraph" and 1.1 "Comparability of the financial statements". Changes in the standards and interpretations adopted by the European Union have had no significant effect on the preparation of the consolidated financial statements as at 30 June 2015.
Property, plant and equipment are recognized at purchase or production cost and are shown net of depreciation and impairment. No revaluations have been conducted in previous years. Any financial charges are not capitalized.
Leasehold improvements and costs incurred after purchase are capitalized only if they increase the future economic benefits associated with the asset. All other costs are charged to the income statement when incurred.
Depreciation is calculated on a straight-line basis over the asset's estimated useful life, as follows:
| Buildings | 3% |
|---|---|
| Plants and machinery | 12%-25% |
| Industrial and commercial equipment | 20% |
| Other assets | 20%-25% |
Assets acquired under existing finance leases, in which all of the risks and benefits of ownership are transferred to the Company, are recognized at the lower of purchase cost and the present value of the minimum payments due for the entire duration of the lease. The corresponding debt to the lessor is listed under financial payables. Depreciation is charged on a straight-line basis over the estimated useful life of the asset.
Leases in which the lessor substantially retains all of the risks and rewards associated with ownership of the assets are classified as operating leases. The costs of operating leases are charged to "rentals and leasing" in the income statement in relation to the term of the contract.
Land is not depreciated, although impairment losses are charged if the fair value falls below cost.
Buildings and property units held for appreciation of the invested capital are recognized at historical cost and are not depreciated. Impairment losses are charged if their market value falls below cost.
Intangible assets purchased or produced internally are capitalized in accordance with IAS 38, when it is likely that their use will generate future economic benefits and when their cost can be reliably determined.
They are recognized at purchase or production cost and, if they have a finite useful life, are amortized on a straight-line basis over that period.
Amortization rates are as follows:
Intangible assets of finite useful life are amortized systematically over their estimated useful lives, starting from the date they are available for use. Their value is tested for recoverability in accordance with IAS 36, as explained under "impairment of assets" below.
The same principle is followed for long-term usage rights and intellectual property, whose amortization method must reasonably and reliably reflect the correlation between costs and income. If that correlation cannot be objectively determined, the Company uses the straight-line method over the duration of the contract, and in any event over a period not exceeding five years.
Rights available for multiple means of exploitation that are used in the distribution business are amortized according to international best practice, considering the relationship between the income earned for each type of exploitation and the total income generated by the exploitation of that right.
The amortization charge is shown in the income statement.
Equity investments in associates are recognized at cost less any impairment.
The positive difference between the purchase cost and the Company's share of net equity at present values, if apparent at the time of the acquisition from third parties, is included in the carrying value of the investment.
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Once a year, or more frequently if necessary, equity investments in subsidiaries and associates undergo impairment testing in accordance with IAS 36. If there is evidence that these investments have suffered an impairment loss, the loss is recognized in the income statement as an impairment loss. If the Company's share of the company's losses exceeds its carrying value, and if the Company is obliged to respond for this, the value of the investment is reduced to zero and the Company's share of the additional losses is charged to the provisions for risks and charges on the liabilities side of the statement of financial position. If the loss in value is subsequently reversed or reduced, the impairment loss is likewise reversed up to an amount not exceeding cost.
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 the fair value may not be reliably determined: in such cases, the cost method is adopted.
Gains and losses resulting from fair value adjustments are recognized in a separate reserve of total gains (losses) until they are sold or impaired; when the asset is sold, the gains and losses previously recognized in total gains (losses) are recognized in the income statement for the period. When the asset is impaired, the accumulated losses are included in the income statement under "interest and financial expenses".
For further information on the standards regarding financial assets, refer to the specific note ("Financial Assets").
At least once a year, therefore, the Company tests the recoverability of these assets' carrying value. If they are found to be impaired, the asset's recoverable amount is estimated in order to determine the extent of the write-down. 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 its fair value net of costs to sell or its value in use, whichever is higher. An asset's value in use is estimated by discounting the present value of estimated future cash flows at a pre-tax rate that reflects the current time value of money and the specific risks inherent to the asset.
If the recoverable amount of an asset (or of a cash-generating unit) is estimated to be lower than the relative book value, it is reduced to the lower recoverable value. The reversal of an impairment loss is immediately recognized in the income statement. In particular, when assessing the existence of any impairment losses of investments in subsidiaries and associates, when these companies are not listed or if a reliable market value (fair value less costs to sell) is not determinable, the recoverable value is defined as the value in use. Value in use is defined as the portion attributable to the Company of the present value of estimated cash flows from operations or dividends to be received in respect of each subsidiary and the amount that is expected to be received from the ultimate disposal of the asset in line with the provisions
When it is no longer necessary to maintain an impairment, the carrying value of the asset (or cashgenerating unit), with the exception of goodwill, is increased to the new value deriving from the estimate of its recoverable value, but not exceeding the net book value that the asset would have had if it had not been written down for impairment. The write-back is recognized in the income statement.
Finished product inventories are recognized at the lower of cost including ancillary expenses and realizable value, as estimated from market trends. Specific cost is the measurement used to define cost. When the realizable value of inventories is less than their purchase cost, impairment is charged directly to the unit value of the article in question.
Receivables are recognized at their estimated realizable value. The face value of receivables is adjusted to their estimated realizable value by means of a provision for doubtful accounts, which is formed in consideration of debtors' individual situations.
Receivables from customers undergoing insolvency procedures are written off in full, or written down to the extent that legal action in course indicates their partial collectibility.
Payables are shown at face value.
The Company has factored its trade receivables without recourse to various companies. In accordance with IAS 39, factored assets can be eliminated from the financial statements only when the associated risks and benefits have been substantially transferred. Thus, receivables factored without recourse that include provisions limiting the transfer of these risks and benefits 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 separate financial statements even though said receivables have been transferred. An amount equal to the sums advanced for factored receivables not yet collected is therefore recognized in the separate financial statements under other current financial liabilities.
Employee termination indemnities (trattamento di fine rapporto or TFR), which are mandatory for Italian companies pursuant to Art. 2120 of the Civil Code, qualify as deferred compensation and depend on the employee's duration of employment and amount of compensation received while in the Company's service.
Since 1 January 2007, Italy has made significant changes to the TFR system, including the employee's choice as to where his or her benefits are to be held (in complementary pension funds or in the "Treasury Fund" managed by the Social Security agency INPS). Thus, the obligation to INPS and the payments to complementary pension funds qualify as defined contribution plans, while the amounts remaining in TFR, in accordance with IAS 19, retain their status as defined benefit plans.
Actuarial gains and losses in accordance with the amendment to IAS 19 are recognized in equity under other reserves.
The Company makes provisions against legal or constructive obligations to third parties whose exact amount and/or timing are unknown, and/or it is likely that the Company's resources will have to be employed to fulfil the obligation and the amount can be reliably estimated. The provisions are adjusted periodically to reflect any changes in the estimated amount of the liability.
Changes in estimates are recorded in the income statement for the period in which the changes are made.
Current financial assets, non-current financial assets, and current and non-current financial liabilities are recognized 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 recognized as assets available for sale.
Current financial assets and securities are booked on the basis of their trading date; upon first-time recognition they are valued at purchase cost including transaction expenses. Following first-time recognition, financial instruments available for sale and trading securities are posted at fair value. If the market price is unavailable, the fair value of financial instruments available for sale is measured with the most appropriate valuation techniques, such as the discounted cash flow method, using the market information available at the close of the year.
Financial liabilities cover financial and other payables, including those arising from the recognition of derivative instruments at market value.
Financial liabilities hedged by derivatives are shown at fair value, according to the rules of hedge accounting: gains and losses from subsequent recognition at fair value, due to changes in interest rates and/or exchange rates, are posted to the income statement and offset by the effective portion of the loss or gain deriving from the subsequent fair-value recognition of the instrument hedged.
Financial assets measured at fair value directly in the income statement
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In accordance with the provision of IAS 39, the 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 recorded in the income statement.
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 from the closing date of the financial statements.
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 at fair value directly through the income statement" are immediately recognized in the income statement.
The 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 knowledgeable and independent parties. In the case of securities traded on regulated markets, the fair value is determined with reference to bid prices at the end of trading at the closing date of the period.
Purchases or sales regulated at "market prices" are recognized on the trade date, which is the date on which the Group commits to purchase or sell the asset. In cases where the fair value cannot be reliably determined, the financial asset is valued at cost, with disclosure in the notes of its type and related reasons.
Investments in financial assets may be derecognised (derecognition process) only upon expiry of the contractual rights to receive cash flows from investments (ex. final redemption of bonds subscribed) or when the Company transfers the financial asset and all related risks and benefits.
Derivatives are normally used to hedge the risk of fluctuation in exchange rates, interest rates and market prices. In accordance with IAS 39, derivative financial instruments may be recognized 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 the financial instruments qualify for hedge accounting, the following rules apply:
Fair value hedge – If a derivative financial instrument is designated as a hedge against changes in the fair value of a recognized asset or liability attributable to a particular risk that may affect the income statement, the gain or loss arising from subsequent fair value accounting of the hedge is recognized in the income statement.
The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of that item and is recognized in the income statement.
Cash flow hedge – If a financial instrument is designated as a hedge against exposure to variations in the cash flows of a recognized asset or liability or a forecast transaction that is highly probable and could affect the income statement, the effective portion of the gain or loss on the financial instrument is recognized directly in equity. The cumulative gain or loss is transferred from shareholders' equity to the income statement in the same period in which the hedged transaction is recognized. The ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the income statement. If a hedge or a hedging relationship is closed, but the hedged transaction has not yet taken place, the gains or losses accrued up to that time in equity are reclassified to the income statement as soon as the transaction occurs. If the hedged transaction is no longer expected to occur, the unrealized gains or losses still recognized in equity are immediately taken to the income statement.
If hedge accounting cannot be used, the gains or losses arising from the fair value accounting of the derivative financial instrument are recognized immediately to the income statement.
Treasury shares held by Digital Bros S.p.A. and other companies in the consolidation are deducted from equity. Their original cost and any positive/negative differences from their subsequent sale are recorded as equity movements under "other reserves."
Revenues are recognized when the Company is expected to obtain economic benefits whose amount can be reliably determined. Specifically, revenues from the sale of goods are recognized 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.
Revenues from services are recognized when the services are rendered and accepted by the customer.
"Gross revenues" are shown net of discounts, rebates and returns. Revenue adjustments are comprised of variable costs depending on the revenues and estimated returns from customers, both contractual and non-contractual.
Costs and other operating expenses are recognized when incurred in accordance with the principles of
209
accrual and matching, when they do not produce future economic benefits, or when those benefits do not qualify for recognition as assets.
Advertising costs are recognized upon receipt of the service.
The cost of goods sold is the purchase or production cost of products, goods and/or services for resale. It includes all materials and workmanship costs.
The item "change in inventories" refers to the gross value of year-end inventories with respect to the previous year, net of the change in provisions for inventory obsolescence.
Dividends received from equity investments are recognized when the right to receive payment is established, provided they derive from the allocation of profits earned after the interest in the company was acquired. If they derive from the distribution of reserves generated prior to the acquisition, such dividends are deducted from the carrying value of the equity investment.
Interest income and expense are recognized on an accruals basis and are shown separately in the income statement without being offset against each other.
Income taxes include all charges calculated on Company's taxable income. Income taxes are generally recognized to the income statement, except when they pertain to items directly charged from or credited to equity, in which case the tax effect is recognized directly to equity.
Other taxes not related to income, such as those on property and capital, are presented in other operating expenses.
Deferred taxes are determined according to the balance sheet liability method. They are calculated on all temporary differences between the accounting and tax value 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 business losses and unused tax credits eligible to be carried forward are recognized in proportion to the likelihood of earning enough future taxable income for these to be recovered. Deferred tax assets and liabilities are calculated at the tax rates expected to be in force, when
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the temporary differences are likely to be realized or reversed.
They are classified as non-current assets and liabilities, regardless of the estimated year of use.
Basic earnings per share are calculated by dividing the net profit for the period by the number of shares outstanding, net of treasury shares. For Digital Bros, diluted earnings per share is the same as basic earnings per share, since there were no financial instruments convertible into shares in circulation during the period.
Transactions in foreign currencies are recognized 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 closure of monetary items or by their translation at rates other than those used upon initial recognition during the year or in prior periods are recognized to the income statement.
The following IFRS standards, amendments and interpretations were applied for the first time by the Company with effect from 1 July 2014:
• IFRS 11 – Joint Arrangements, which replaces IAS 31 – Interests in Joint Ventures and SIC-13 – Jointly-controlled entities – Non-monetary contributions by venturers. The standard is not applicable to the Group.
The new standard, subject to the criteria for the identification of the presence of a jointly controlled entity, provides the criteria for the accounting of joint arrangements by focusing on the rights and obligations deriving from these arrangements, rather than its legal form, distinguishing these arrangements between joint ventures and joint operations. According to IFRS 11, on the contrary of the previous IAS 31, the existence of a separate vehicle is not a sufficient condition for classifying a joint arrangement as a joint venture. For joint ventures, where the parties have rights only on shareholders' equity of the agreement, the standard establishes the equity method as the only method of accounting the consolidated financial statements. For joint operations, where the parties have rights to the assets and obligations for the liabilities of the agreement, the standard involves the direct inclusion in the consolidated financial statements (and in the separate financial statements) of the pro-quota of the assets, liabilities, costs and revenues from the joint operation. In general terms, the application of IFRS 11 requires a significant degree of judgement in certain areas of the Company with regard to the distinction between joint venture and joint operation.
The new standard shall be applied retrospectively from 1 July 2014.
Following the adoption of the new standard IFRS 11, IAS 28 - Investments in associated companies has been amended to include within its scope of application, from the effective date of the standard, also the investments in jointly controlled entities. The adoption of this new standard had no significant impact on the Company;
In accordance with these amendments, investment entities must measure their investments in subsidiaries at fair value. The following criteria were introduced for qualification as an investment company and therefore, have access to said exception:
These amendments shall apply, with the principles of reference, as of 1 July 2014. The adoption of this new standard had no significant impact on the Company;
certain exemptions from the hedge accounting requirements defined by IAS 39 in the circumstance in which an existing derivative shall be replaced with a new derivative in a specific case in which said substitution is against a Central Counterparty – CCP following the introduction of a new law or regulation. The amendments are retrospectively applicable from 1 July 2014. The adoption of this new standard had no significant impact on the Company.
• On 20 May 2013 the interpretation IFRIC 21 – Levies, was published, which provides clarification on when recognition of a liability related to taxes (other than income taxes) imposed by a government agency. The standard is not applicable to the Group.
The standard addresses both the liabilities for taxes that fall within the scope of IAS 37 – Provisions, contingent liabilities and assets, both for the taxes where the amount and timing are certain. The interpretation is applied retrospectively for annual periods commencing no later than 17 June 2014 or later. The directors anticipate that the adoption of this new interpretation will not affect the Company;
and the consequent amendments to IAS 39 and IFRS 9, the possibility of booking current receivables and payables without needing to book the effects of discounting remains valid, if said effects are immaterial;
The amendments shall apply at the latest beginning the years starting 1 July 2015. The directors do not expect a significant impact on the Company from the adoption of said amendments;
The amendments shall apply beginning the years starting 1 July 2015 or subsequently. The directors do not expect a significant impact on the Group's consolidated financial statements from the adoption of said amendments;
• On 21 November 2013, the IASB issued the amendment to IAS 19 "Defined Benefit Plans: Employee Contributions", which aims to present the contributions (relating only to the service provided by the employee during the year) made by employees or third parties to defined benefit plans to reduce the service cost for the year in which the contribution is paid. The need for this proposal stems from the introduction of the new IAS 19 (2011), which states that such contributions are to be interpreted as part of a post-employment benefit, rather than a short-term benefit and, therefore, that this contribution shall be spread over the years of service of the employee. The amendments shall apply at the latest beginning the years starting 1 July 2015. The directors do not expect a significant impact on the Company from the adoption of said amendment.
At the reporting date of these consolidated financial statements, the EU authorities had not yet finished the endorsement process necessary for the adoption of the following amendments and standards:
The amendments require that for these cases the principles set out in IFRS 3 apply related to the effects of a business combination.
The amendments are applicable starting from 1 January 2016. However, earlier application is permitted. The directors do not expect a significant impact on the Company from the adoption of said amendments;
• On 12 May 2014, the IASB issued amendments to IAS 16 Property, plant and Equipment and IAS 38 Intangibles Assets – "Clarification of acceptable methods of depreciation and amortisation". The amendments to IAS 16 require that the amortization criteria based on revenues are not appropriate, since, according to the amendment, the revenues generated by an activity that includes the use of the amortized asset generally reflect different factors only from the consumption of the economic benefits of the asset. The amendments to IAS 38 introduce a related presumption, according to which a depreciation method based on revenues is normally considered inappropriate for the same reasons laid down by the amendments made to IAS 16. In the case of intangible assets, this presumption can be exceeded, however only in limited and specific circumstances.
The amendments are applicable starting from 1 July 2016. However, earlier application is permitted. The directors do not expect a significant impact on the Company from the adoption of said amendments;
• On 28 May 2014, the IASB published the standard IFRS 15 – Revenue from Contracts with Customers, which is destined to replace IAS 18 – Revenue and IAS 11 – Construction Contracts, as well as the interpretations of IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising Services. The standard establishes a new model of revenue recognition that shall apply to all contracts with clients except those that fall within the scope of application of other IAS/IFRS principals such as leasing, insurance contracts and financial instruments. The fundamental steps for the recognition of revenues according to the new model are:
The standard is applicable starting from 1 July 2017. However, earlier application is permitted. The directors expect that the application of IFRS 15 will not have a significant impact on the amounts recorded as revenues and the related disclosure for the Company. However, it is not possible to provide a reasonable estimate of the effect until the Company has completed a detailed analysis of contracts with clients;
• On 24 July 2014, the IASB published the final version of IFRS 9 – Financial instruments. The document includes the results of the phases relating to classification and measurement, impairment and hedge accounting, of the IASB's project aimed at replacing IAS 39. The new standard, which replaces the previous version of IFRS 9, shall be applied for financial statements beginning on 1 July 2018.
Following the financial crisis of 2008, at the request of the main financial and political institutions, the IASB started the project aimed at the replacement of IFRS 9 and proceeded in phases. In 2009, the IASB published the first version of IFRS 9 that only covered the Classification and measurement of financial assets; later, in 2010, the criteria were published for the classification and measurement of financial liabilities and derecognition (the latter topic was transposed unchanged by IAS 39). In 2013, IFRS 9 was amended to include the general model of hedge accounting. Following the current publication, which also includes impairment, IFRS 9 shall be considered completed with the exception of criteria regarding macro hedging, for which the IASB has undertaken an independent project.
The standard introduces new criteria for classifying and measuring financial assets and liabilities. In particular for financial assets, the new principle uses a single approach based on management procedures for financial instruments and the contractual cash flow characteristics of the financial assets in order to determine the valuation criteria, replacing the many different regulations in IAS 39. In terms of financial liabilities, the main modification introduced concerns the recognition of variations in the fair value of financial liabilities measured at fair value in the income statement whenever these changes are due to a change in the issuer's creditworthiness of the liability. Under the new standard, these changes must be recognized in the statement "Other comprehensive income" and no longer in the income statement.
With reference to the impairment model, the new standard requires the estimate of losses on receivables to be made on the basis of the model of expected losses (and not on the model of incurred losses) using supportable information, available without unreasonable effort or expense that include current and prospective historical data. The standard requires that the impairment model apply to all financial instruments, i.e. financial assets measured at amortized cost, those measured at fair value through other comprehensive income, receivables arising from lease agreements 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 sometimes were considered too stringent and unsuitable to reflect the risk management policies of the Company. The main developments are as follows:
The greater flexibility of the new accounting requirements is counterbalanced by enhanced disclosure requirements about the entity's risk management activities. The directors do not expect that the application of IFRS 9 may have a significant impact on the amounts and the disclosure in the Company's financial statements. However, it is not possible to provide a reasonable estimate of the effect until the Company has completed a detailed analysis;
• 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 standard is not applicable to the Group. The document was published in order to resolve the current conflict between IAS 28 and IFRS 10.
According to the provisions of IAS 28, the gain or loss resulting from the sale or transfer of a non-monetary asset to a joint venture or associate in exchange for a share in the capital of the latter is limited to the shareholding in the joint venture or associate by other investors extraneous to the transaction. In contrast, IFRS 10 requires the recording of the entire gain or loss in the event of loss of control of a subsidiary, even if the entity continues to hold a non-controlling stake in it, including in this case also the sale or transfer of a subsidiary to a joint venture or associate. The amendments introduced require that for a sale/transfer of an asset or a subsidiary to a joint venture or associate, the measure of the gain or loss to be recognized in the financial statements of the seller/transferor depends on whether the asset or subsidiary sold/transferred constitute a business, under the meaning of IFRS 3. If the assets or the subsidiary sold/transferred represent a business, the entity shall recognize the gain or loss on the entire investment held; otherwise, the portion of the gain or loss related to the share still held by the entity shall be eliminated. The amendments are applicable starting from 1 January 2016. However, earlier application is permitted. The directors do not expect a significant impact on the Company's financial statements from the adoption of said amendments;
• On 25 September 2014, the IASB published the document: "Annual Improvements to IFRSs: 2012-2014 Cycle". The amendments introduced by the document shall be applied beginning the years starting 1 July 2016.
The document introduces amendments to the following standards:
The directors do not expect a significant impact on the Company's financial statements from the adoption of said amendments;
218
disclosures specifically required by IFRS shall be provided only if the information is significant;
The amendments introduced by the document shall be applied beginning the years starting 1 July 2016. The directors do not expect a significant impact on the Company's financial statements from the adoption of said amendments.
The preparation of the separate financial statements and notes for the year ended 30 June 2015 required the Company to make certain discretionary valuations. These were used to prepare estimates and assumptions that affect the recognized value of assets and liabilities in the separate financial statements and the information on contingent assets and liabilities as of the reporting date. They are formulated on the basis of short- and medium/long-term budgets that are constantly updated and approved by the Board of Directors prior to the approval of all financial reports.
Estimates are based on data reflecting current available knowledge; they are periodically reviewed and the effects are conveyed in the income statement. Actual results may differ even substantially from these estimates due to changes in the factors considered when formulating them. Estimates are used, in particular, to report provisions for doubtful accounts, the measurement of inventories, depreciation and amortization, asset impairment, employee benefits, deferred taxes, and other provisions and reserves.
The main sources of uncertainty in making estimates concerned doubtful accounts, inventory impairment, employee benefits, revenue adjustments, royalties, and deferred taxes.
The risk of credit default is assessed periodically, on the basis of opinions provided by the external legal advisor in charge of customer disputes. According to the Company's credit collection procedure, receivables not paid within 45 days of falling due are passed on to the legal advisor for collection. Frequent meetings between the legal advisor and the credit manager, and frequent updates of the legal advisor's collectibility forecasts, make the estimate of doubtful accounts reliable over time.
The Company values inventories on a quarterly basis, in consideration of the rapid obsolescence of its products. Impairment losses may be charged to reflect individual products' lower market value with respect to their historical cost. To arrive at these estimates, the Company uses revenue forecasts for the four following quarters, produced by the sales department. Any differences found between the market valuation of a product held in inventory, taking account of its platform/price category, and its historical cost are recognized to the income statement in the quarter they are discovered.
The Company offers no pension plans and/or other employee benefits, with the exception of the employee termination indemnities (trattamento di fine rapporto, or TFR) required by Italian law. Estimating those benefits requires an assessment of the future financial outlays that may arise as a result
220
of employees' voluntary and involuntary departure from the Company, in relation to their seniority and the revaluation rates these benefits enjoy by law.
The TFR system underwent significant changes during the year ended 30 June 2006. Estimating the liability is still complex, due to a small portion of benefits that have remained with the Company. To arrive at this estimate, the Company is assisted by a registered actuary to help define the necessary parameters.
A significant cost element defined as "revenue adjustments" involves analytical computations for which the Company has adopted suitable procedures.
Revenue adjustments are made up of two kinds of cost. The first, discounts granted to customers at the end of the contractual period (known as year-end credits), are easier to determine. The second are difficult to estimate and consist of potential credit notes that the Company will have to issue to customers as a result of unsold products. To estimate this amount, management uses calculations based on an analysis by individual customer as well as an analysis by individual product, in which the risk is shown separately for price cuts and potential returns. The forecast is made quarterly, on a product-by-product basis, comparing volumes sold to retailers with the volumes they have sold to end consumers. The availability of sales classifications on a single national basis makes the forecast reliable over time, often product inventory data can be used for certain clients that make forecasts easier.
There are two areas of uncertainty in the calculation of deferred taxes. The first is their recoverability, an uncertainty the Company mitigates by comparing the deferred tax assets recognized by individual companies with their budgets. The second is the tax rate, which is assumed to be constant over time, and/or modified if we can already be certain that the changes will come into force.
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The statement of financial position as at 30 June 2015 compared with the statement of financial position as at 30 June 2014 is given below:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||
|---|---|---|---|---|---|
| Non-current assets | |||||
| 1 | Property, plant and equipment | 3,335 | 3,046 | 289 | 9.5% |
| 2 | Investment property | 0 | 455 | (455) | n.s. |
| 3 | Intangible assets | 322 | 198 | 124 | 62.7% |
| 4 | Equity investments | 13,931 | 14,635 | (704) | 0.0% |
| 5 | Non-current receivables and other assets | 644 | 644 | 0 | 0.0% |
| 6 | Deferred tax assets | 517 | 1,023 | (506) | -49.5% |
| Total non-current assets | 18,749 | 20,001 | (1,252) | -6.3% | |
| Non-current liabilities | |||||
| 7 | Employee benefits | (442) | (501) | 59 | -11.7% |
| 8 | Non-current provisions | (171) | (205) | 34 | -16.3% |
| 9 | Other non-current payables and liabilities | 0 | 0 | 0 | 0.0% |
| Total non-current liabilities | (613) | (706) | 93 | -13.2% | |
| Net working capital | |||||
| 10 | Inventories | 9,266 | 9,807 | (541) | -5.5% |
| 11 | Trade receivables | 5,445 | 6,969 | (1,524) | -21.9% |
| 12 | Due from subsidiaries | 14,131 | 25,393 | (11,262) | -44.4% |
| 13 | Tax credits | 471 | 2,205 | (1,734) | -78.6% |
| 14 | Other current assets | 499 | 611 | (112) | n.s. |
| 15 | Trade payables | (2,204) | (2,011) | (193) | 9.6% |
| 16 | Due to subsidiaries | (2,031) | (8,000) | 5,969 | -74.6% |
| 17 | Tax payables | (286) | (920) | 634 | -68.9% |
| 18 | Current provisions | (1,491) | (8,519) | 7,028 | -82.5% |
| 19 | Other current liabilities | (940) | (1,158) | 218 | -18.8% |
| Total net working capital | 22,860 | 24,377 | (1,517) | -6.2% | |
| Shareholders' equity | |||||
| 20 | Share capital | (5,644) | (5,644) | 0 | 0.0% |
| 21 | Reserves | (18,172) | (17,876) | (296) | 1.7% |
| 22 | Treasury shares | 1,199 | 1,574 | (375) | -23.8% |
| 23 | Retained earnings (losses) | (7,214) | (1,228) | (5,986) | n.s. |
| Total shareholders' equity | (29,831) | (23,174) | (6,657) | 28.7% | |
| Total net assets | 11,165 | 20,498 | (9,333) | -45.5% | |
| 24 | Cash and cash equivalents | 1,780 | 490 | 1,290 | n.s. |
| 25 | Current payables to banks | (12,727) | (19,541) | 6,814 | -34.9% |
| 26 | Other current financial assets and liabilities | 1,401 | (1,428) | 2,829 | n.s. |
| Current net financial position | (9,546) | (20,479) | 10,933 | -53.4% | |
| 27 | Non-current financial assets | 0 | 0 | 0 | 0.0% |
| 28 | Non-current payables to banks | (1,619) | 0 | (1,619) | n.s. |
| 29 | Other non-current financial liabilities | 0 | (19) | 19 | n.s. |
| Non-current net financial position | (1,619) | (19) | (1,600) | n.s. | |
| Total net financial position | (11,165) | (20,498) | 9,333 | -45.5% | |
| 223 |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
This item went from 3,046 thousand euros to 3,335 thousand euros. Movements during this and the previous year were as follows:
| Use of | ||||||
|---|---|---|---|---|---|---|
| 01 July | provision for |
30 June | ||||
| EUR/000 | 2014 | Increases | Decreases Amort./Dep. | amort./dep. | 2015 | |
| Industrial buildings | 2,010 | 455 | 0 | (91) | 0 | 2,374 |
| Land | 600 | 0 | 0 | 0 | 0 | 600 |
| Plants and machinery | 96 | 92 | 0 | (82) | 0 | 106 |
| Other assets | 340 | 6 | (27) | (91) | 27 | 255 |
| Leasehold improvements | 0 | 0 | 0 | (0) | 0 | 0 |
| Total | 3,046 | 553 | (27) | (264) | 27 | 3,335 |
| Use of provision |
||||||
|---|---|---|---|---|---|---|
| EUR/000 | 01 July 2013 |
Increases | Decreases Amort./Dep. | for amort./dep. |
30 June 2014 |
|
| Industrial buildings | 2,090 | 2 | 0 | (82) | 0 | 2,010 |
| Land | 600 | 0 | 0 | 0 | 0 | 600 |
| Plants and machinery | 220 | 13 | 0 | (137) | 0 | 96 |
| Other assets | 431 | 2 | (48) | (93) | 48 | 340 |
| Leasehold improvements | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 3,341 | 17 | (48) | (312) | 48 | 3,046 |
Property, plant and equipment, with the exception of land, are depreciated over their individual useful lives.
The heading "Industrial buildings" refers to the warehouse in Trezzano sul Naviglio, which also accounts for the 600 thousand euros in land. These assets were acquired by the Group under a finance lease and are recognized in the balance sheet in accordance with IAS 17.
The increase in industrial buildings relates exclusively to the reclassification to this item of the property owned and intended for use as offices and laboratories, situated in via Labus, Milan, which has become the operative headquarters of Digital Bros Game Academy S.r.l. as of March 2015.
Investments for the year in relation to plant and machinery, amounting to 92 thousand euros, refer to 46 thousand euros for work performed on the building in Milan to make it suitable to the activity of Digital Bros Game Academy S.r.l. and 46 thousand euros for the purchase of office automation equipment.
Investments in other assets for 6 thousand euros are related to the purchase of some lifting equipment.
The decrease of 27 thousand euros recorded in the year concerns the sale during the year of a motor vehicle fully depreciated.
Movements in property, plant and equipment and in accumulated amortization, in this and the previous year, were as follows:
Gross value of property, plant and equipment
| EUR/000 | 01 July 2014 | Increases | Disposals | 30 June 2015 |
|---|---|---|---|---|
| Industrial buildings | 2,736 | 455 | 0 | 3,191 |
| Land | 600 | 0 | 0 | 600 |
| Plants and machinery | 1,895 | 92 | 0 | 1,987 |
| Other assets | 1,324 | 6 | (27) | 1,303 |
| Leasehold improvements | 312 | 0 | 0 | 312 |
| Total | 6,867 | 553 | (27) | 7,393 |
Accumulated amortization
| EUR/000 | 01 July 2014 | Increases | Disposals | 30 June 2015 |
|---|---|---|---|---|
| Industrial buildings | (726) | (91) | 0 | (817) |
| Land | 0 | 0 | 0 | 0 |
| Plants and machinery | (1,799) | (82) | 0 | (1,881) |
| Other assets | (984) | (91) | 27 | (1,048) |
| Leasehold improvements | (312) | (0) | 0 | (312) |
| Total | (3,821) | (264) | 27 | (4,058) |
Gross value of property, plant and equipment
| EUR/000 | 01 July 2013 | Increases | Disposals | 30 June 2014 |
|---|---|---|---|---|
| Industrial buildings | 2,734 | 2 | 0 | 2,736 |
| Land | 600 | 0 | 0 | 600 |
| Plants and machinery | 1,882 | 13 | 0 | 1,895 |
| Other assets | 1,370 | 2 | (48) | 1,324 |
| Leasehold improvements | 312 | 0 | 0 | 312 |
| Total | 6,898 | 17 | (48) | 6,867 |
Accumulated amortization
| EUR/000 | 01 July 2013 | Increases | Disposals | 30 June 2014 |
|---|---|---|---|---|
| Industrial buildings | (644) | (82) | 0 | (726) |
| Land | 0 | 0 | 0 | 0 |
| Plants and machinery | (1,662) | (137) | 0 | (1,799) |
| Other assets | (939) | (93) | 48 | (984) |
| Leasehold improvements | (312) | 0 | 0 | (312) |
| Total | (3,557) | (312) | 48 | (3,821) |
The Group's property, plant and equipment are unencumbered by liens, mortgages or other real guarantees.
In the period, the amount of property investments at 30 June 2014, equal to 455 thousand euros for the owned property in Milan, was reclassified to property, plant and equipment as, from the third quarter of the year, it has become the operative headquarters of Digital Bros Game Academy S.r.l.
All of the intangible assets recognized by the Company have finite useful lives. No intangible assets have been recorded in connection with internal development costs and business combinations.
Intangible assets increased by 124 thousand euros, with additions of 219 thousand euros less amortization of 95 thousand euros. The following table shows movements for this and the previous year by type of intangible asset:
| EUR/000 | 01 July 2014 | Increases Decreases | Amort./Dep. | 30 June 2015 | |
|---|---|---|---|---|---|
| Concessions and licences | 154 | 207 | 0 | (65) | 296 |
| Trademarks and similar rights | 4 | 2 | 0 | (2) | 4 |
| Other assets | 40 | 10 | 0 | (28) | 22 |
| Total | 198 | 219 | 0 | (95) | 322 |
| EUR/000 | 01 July 2013 | Increases Decreases | Amort./Dep. | 30 June 2014 | |
|---|---|---|---|---|---|
| Concessions and licences | 158 | 86 | 0 | (90) | 154 |
| Trademarks and similar rights | 6 | 0 | 0 | (2) | 4 |
| Other assets | 26 | 30 | 0 | (16) | 40 |
| Total | 190 | 116 | 0 | (108) | 198 |
Concessions and licenses increased in the year by 142 thousand euros as a result of investing 95 thousand euros in ERP systems and 112 thousand euros in an application for mobile platforms, net of 65 thousand euros in amortization.
The item Other assets decreased by 18 thousand euros as a result of the new investments made in the Halifax website of 10 thousand euros, less amortization of 28 thousand euros.
Movements in intangible assets and accumulated amortization for this and the previous year were as follows:
Gross value of intangible assets
| EUR/000 | 01 July 2014 | Increases | Disposals | 30 June 2015 |
|---|---|---|---|---|
| Concessions and licences | 2,235 | 207 | 0 | 2,442 |
| Trademarks and similar rights | 1,506 | 2 | 0 | 1,508 |
| Other assets | 63 | 10 | 0 | 73 |
| Total | 3,804 | 219 | 0 | 4,023 |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015 226
Accumulated amortization
| EUR/000 | 01 July 2014 | Increases | Disposals | 30 June 2015 |
|---|---|---|---|---|
| Concessions and licences | (2,081) | (65) | 0 | (2,146) |
| Trademarks and similar rights | (1,502) | (2) | 0 | (1,504) |
| Other assets | (23) | (28) | 0 | (51) |
| Total | (3,606) | (95) | 0 | (3,701) |
Gross value of intangible assets
| EUR/000 | 01 July 2013 | Increases | Disposals | 30 June 2014 |
|---|---|---|---|---|
| Concessions and licences | 2,149 | 86 | 0 | 2,235 |
| Trademarks and similar rights | 1,506 | 0 | 0 | 1,506 |
| Other assets | 33 | 30 | 0 | 63 |
| Total | 3,688 | 116 | 0 | 3,804 |
Accumulated amortization
| EUR/000 | 01 July 2013 | Increases | Disposals | 30 June 2014 |
|---|---|---|---|---|
| Concessions and licences | (1,991) | (90) | 0 | (2,081) |
| Trademarks and similar rights | (1,500) | (2) | 0 | (1,502) |
| Other assets | (7) | (16) | 0 | (23) |
| Total | (3,498) | (109) | 0 | (3,606) |
The Company did not recognize any costs relating to internal development, research and development and advertising under intangible assets.
All of the intangible assets recognized by the Company have finite useful lives.
Equity investments amounted to 13,931 thousand euros, a decrease in the year of 704 thousand euros.
The item at 30 June 2015 is broken down as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| 505 Games S.r.l. | 10,100 | 10,100 | 0 |
| Game Entertainment S.r.l. | 0 | 1,000 | (1,000) |
| 505 Games France S.a.s. | 0 | 100 | (100) |
| 505 Games Spain Slu | 0 | 2,100 | (2,100) |
| Game Service S.r.l. | 85 | 85 | (0) |
| 505 Mobile S.r.l. | 0 | 940 | (940) |
| Pipeworks Inc. | 2,412 | 0 | 2,412 |
| Digital Bros Game Academy S.r.l. | 50 | 0 | 50 |
| Game Network S.r.l. | 10 | 0 | 10 |
| Total subsidiaries | 12,657 | 14,325 | (1,668) |
| Italian Gaming Entertainment S.r.l. | 0 | 5 | (5) |
| Games Analytics Ltd. | 60 | 60 | 0 |
| Ebooks S.r.l. | 200 | 200 | 0 |
| Cityglance S.r.l. | 45 | 45 | 0 |
| Total associates | 305 | 310 | (5) |
| Starbreeze AB Shares A | 969 | 0 | 969 |
| Total other investments | 969 | 0 | 969 |
| Total investments | 13,931 | 14,635 | (704) |
With regard to subsidiaries, as already described in the paragraph on significant events during the period, on 4 September 2014, Digital Bros Game Academy S.r.l. was established. It is engaged in the organization of IT specialization courses, training courses and professional refresher courses also in multimedia form and became operational in March. On 12 September 2014, the Company acquired 100% of Pipeworks Inc. based in Eugene and which has realized in the past products such as Devil May Cry, Godzilla and Zumba Fitness. As part of the rationalization and reorganization process of the Group's business segments, on 26 June 2015, Digital Bros S.p.A. sold to 505 Games S.r.l. the companies 505 Games France S.a.s. and 505 Spain Slu. On the same date, Digital Bros S.p.A. sold to 505 Games S.r.l. the company 505 Mobile S.r.l. and to 505 Mobile S.r.l. the company Game Entertainment S.r.l. These transfers were made at market value as determined by specific appraisal prepared by a third-party independent expert. Also on 26 June 2015, Digital Bros S.p.A. also subscribed the share capital increase following the coverage of the losses of Game Network S.r.l. thus becoming new sole shareholder (the ownership of the Company was until then owned 100% by 505 Mobile S.r.l.).
Regarding investments in associates, during the year, Digital Bros S.p.A. sold its 40% shareholding in Italia Gaming Entertainment S.r.l. at a price substantially in line with the book value.
The item Starbreeze AB shares A includes 783,188 shares issued by the company Starbreeze AB (listed on Nasdaq Stockholm First North Premier). These shares were measured at fair value with recognition in equity reserve of the difference between the book value and the market value at 30 June 2015 as instruments classified as available for sale.
At the close of the year, the carrying value of the equity investments in comparison with the Company's portion of their equity was as follows:
| Company name | Registered Office |
Book value a |
Share capital b |
SE pro rata c |
Result for the FY |
Change d=c-a |
|---|---|---|---|---|---|---|
| 505 Games S.r.l. | Milan | 10,100 | 100 | 12,662 | 11,247 | 2,562 |
| Game Service S.r.l. | Milan | 85 | 50 | 255 | 0 | 170 |
| Pipeworks Inc. | Milan | 2,412 | 1,442 | 921 | (461) | (1,491) |
| Digital Bros Game Academy S.r.l. | Milan | 50 | 10 | (96) | (146) | (146) |
| Game Network S.r.l. | Milan | 10 | 10 | (80) | (362) | (90) |
| Total subsidiaries | 12,657 | |||||
| Games Analytics Ltd. (1) | Edinburgh | 60 | 3 | 28 | (2,352) | (32) |
| Ebooks S.r.l. (1) | Milan | 200 | 26 | 42 | 2 | (158) |
| Cityglance S.r.l. (2) | Milan | 45 | 10 | 8 | 52 | (37) |
| Total associates | 305 |
(1)The data was obtained from the financial statements at 31 December 2014
(2)The data was obtained from the interim report at 30 November 2014 approved by the Shareholders' Meeting on 17 December 2014
During the year, the Company set aside an investment write-down provision in relation to the subsidiary Pipeworks Inc. amounting to 1,491 thousand euros while it considered it was not necessary to allocate any amount for Digital Bros Game Academy S.r.l. as the subsidiary started its activities only in March 2015, or for Game Network S.r.l. as in September, the new game Fantasfida will be launched that, according to the development plans presented, will allow the return to profitability of the Company.
This item, unchanged over 30 June 2014, amounted to 644 thousand euros and consists exclusively of security deposits for contractual obligations. The most significant component is related to the 635 thousand euros deposited with Matov Imm. S.r.l. to secure rent on the premises at Via Tortona 37, where the Company's headquarters are located.
Deferred tax assets at 30 June 2015 amounted to 517 thousand euros, down 506 thousand euros with respect to 30 June 2014.
Deferred tax assets are calculated on temporary differences between values applicable for tax purposes and those recognized in the financial statements, and are estimated according to the tax rates expected to be applicable at the time of use, on the basis of current tax rates and/or modified rates when rates are expected to change. Those rates are 27.5% for IRES (corporate income tax) and 3.9% for IRAP (regional business tax). The following table reports the details of temporary differences existing at 30 June 2015 and 30 June 2014:
| Item | Balance of temporary differences at 30 June 2014 |
Changes in the year of temporary differences |
Balance of temporary differences at 30 June 2015 |
|---|---|---|---|
| Taxed provision for doubtful receivables | 1,483 | 0 | 1,483 |
| Non-deductible interest expense | 1,515 | (1,515) | 0 |
| Provisions for derivative risks | 41 | 0 | 41 |
| Provision for clients' indemnities | 81 | (40) | 41 |
| Directors' fees not pertinent | 202 | 105 | 307 |
| Employee termination indemnities | 13 | 8 | 21 |
| (82) | 292 | ||
| Inventory obsolescence provision | 374 | (330) | (330) |
| Other | 0 | 15 | 15 |
| Total | 3,709 | (1,839) | 1,870 |
The greatest difference on the previous year is the decrease in deferred tax assets on temporarily nondeductible interest expense.
The table below, in thousands of Euro, shows the calculation of deferred tax assets relating to IRES at 30 June 2015:
| Item | Balance temporary differences at 30 June 2015 |
Rate IRES |
IRES deferred tax assets at 30 June 2015 |
|---|---|---|---|
| Taxed provision for doubtful receivables | 1,483 | 27.5% | 408 |
| Non-deductible interest expense | 0 | 27.5% | 0 |
| Provisions for derivative risks | 41 | 27.5% | 11 |
| Provision for clients' indemnities | 41 | 27.5% | 11 |
| Directors' fees not pertinent | 307 | 27.5% | 84 |
| Employee termination indemnity | 21 | 27.5% | 6 |
| Inventory obsolescence provision | 292 | 27.5% | 80 |
| Reserve from security revaluation | (330) | 27.5% | (90) |
| Other | 15 | 27.5% | 4 |
| Total | 1,870 | 514 |
The table below, in thousands of Euro, shows the calculation of deferred tax assets relating to IRAP at 30 June 2014:
| Item | Balance | Rate | IRAP deferred |
|---|---|---|---|
| temporary | tax assets at 30 | ||
| differences at 30 | IRAP | June 2015 | |
| June 2015 | |||
| Taxed provision for doubtful receivables | 1,483 | n.a. | 0 |
| Non-deductible interest expense | 0 | n.a. | 0 |
| Provisions for derivative risks | 41 | n.a. | 0 |
| Provision for clients' indemnities | 41 | 3.9% | 2 |
| Directors' fees not pertinent | 307 | n.a. | 0 |
| Employee termination indemnity | 21 | n.a. | 0 |
| Inventory obsolescence provision | 292 | n.a. | 0 |
| Reserve from security revaluation | (330) | n.a. | |
| Other | 15 | 3.9% | 1 |
| Total | 1,870 | 3 |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The following table, in thousands of Euro, shows total deferred tax assets at 30 June 2015:
| Item | IRES deferred tax assets at 30 June 2015 |
IRAP deferred tax assets at 30 June 2015 |
Total deferred tax assets at 30 June 2015 |
|---|---|---|---|
| Taxed provision for doubtful receivables | 408 | 0 | 408 |
| Non-deductible interest expense | 0 | 0 | 0 |
| Provisions for derivative risks | 11 | 0 | 11 |
| Provision for clients' indemnities | 11 | 2 | 13 |
| Directors' fees not pertinent | 84 | 0 | 84 |
| Employee termination indemnity | 6 | 0 | 6 |
| Inventory obsolescence provision | 80 | 0 | 80 |
| Reserve from security revaluation | (90) | 0 | (90) |
| Other | 4 | 1 | 5 |
| Total | 514 | 3 | 517 |
This provision reflects the actuarial value of the Company's effective liability to employees, calculated by an independent actuary in accordance with IAS 19. It decreased by 59 thousand euros with respect to the previous year.
Under the scope of the actuarial valuation IAS19 as at the date of 30 June 2015, a discounting rate Iboxx Corporate A was used, with a duration in excess of ten years, in line with the rate used at the end of last year. The use of a discounting rate Iboxx Corporate AA would not cause significant differences.
The calculation method can be summarised as follows:
The estimate is based on a year-end workforce at the Italian companies of 60 employees, with an average age of around 43 years.
The economic and financial parameters used in the actuarial calculation are as follows:
The table below shows movements in the provision for employee termination indemnities, in comparison with the previous year.
| EUR/000 | 2014/15 | 2013/14 |
|---|---|---|
| Reserve for employee termination indemnities (T.F.R.) as at 01 July 2014 | 501 | 499 |
| Use of the provision for disposals | (51) | (67) |
| Provisions for the period | 208 | 230 |
| Adjustment for complementary welfare | (186) | (210) |
| Adjustment for actuarial recalculation | (30) | 49 |
| Reserve for employee termination indemnities (T.F.R.) as at 30 June 2015 | 442 | 501 |
The Company has no supplementary pension plans in course.
232
These consist entirely of the provision for agents' indemnities. The amount as at 30 June 2015 of 171 thousand euros is down 34 thousand euros on 30 June 2014, when it was 205 thousand euros. The change relates to uses for 20 thousand euros, period provisions for 3 thousand euros and the elimination of positions no longer necessary for 17 thousand euros.
At 30 June 2015, as in the previous year, there were no other non-current payables or liabilities.
At 30 June 2015, there were no receivables or payables with a residual duration of more than five years and no payables secured by collateral on the Company's assets. There has been no significant impact from fluctuations in foreign exchange rates occurring since the close of the year. In addition, there are no receivables or payables concerning transactions that involve a reconveyance obligation for the buyer.
The following table reports the geographical breakdown of all working capital items at 30 June 2015:
| EUR/000 | Italy | EU | NON-EU | Total | |
|---|---|---|---|---|---|
| 10 | Inventories | 9,266 | 0 | 0 | 9,266 |
| 11 | Trade receivables | 5,143 | 269 | 33 | 5,445 |
| 12 | Due from subsidiaries | 11,440 | 1,174 | 1,517 | 14,131 |
| 13 | Tax credits | 471 | 0 | 0 | 471 |
| 14 | Other current assets | 499 | 0 | 0 | 499 |
| 15 | Trade payables | (1,359) | (806) | (39) | (2,204) |
| 16 | Due to subsidiaries | (100) | (1,538) | (393) | (2,031) |
| 17 | Tax payables | (286) | 0 | 0 | (286) |
| 18 | Current provisions | 0 | 0 | (1,491) | (1,491) |
| 19 | Other current liabilities | (940) | 0 | 0 | (940) |
| Total net working capital | 24,134 | (902) | (372) | 22,860 |
Inventories consist of finished products for resale.
Inventories went from 9,807 thousand euros as at 30 June 2014 to 9,266 thousand euros as at 30 June 2015, a decrease of 541 thousand euros. The decrease in inventories is due to the pursuit of the Company's strategy of selling off games for older generation consoles thus systematically reducing the finished product inventories.
The item is shown net of the provision for obsolescence amounting to 315 thousand euros compared to 374 thousand euros at 30 June 2014.
Receivables due from customers and for video game licenses showed the following movements for the year:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Receivables due from customers in Italy | 7,202 | 8,273 | (1,071) |
| Receivables due from customers in EU | 269 | 315 | (46) |
| Receivables due from customers in the rest of world | 33 | 33 | 0 |
| Allowance for doubtful receivables | (2,059) | (1,652) | (407) |
| Total trade receivables | 5,445 | 6,969 | (1,524) |
Trade receivables include advances on receivables factored without recourse, amounting to 134 thousand at 30 June 2015, with respect to 366 thousand euros at 30 June 2014.
Total trade receivables at 30 June 2015 amounting to 5,445 thousand euros compared to the figure at 30 June 2014 amounting to 6,969 thousand euros shows a decrease of 1,524 thousand euros, in line with the decrease in revenues.
Receivables are adjusted for the credit notes the Company will have to issue for price repositioning and returns. These amounted to 142 thousand euros versus 248 thousand euros at 30 June 2014.
The following table breaks down receivables from customers by due date at 30 June 2015 and 30 June 2014:
| EUR/000 | 30 June 2015 | % of total | 30 June 2014 | % of total |
|---|---|---|---|---|
| Not past due | 3,885 | 71% | 4,851 | 70% |
| 0 > 30 days | 92 | 2% | 902 | 13% |
| 30 > 60 days | 114 | 2% | 181 | 3% |
| 60 > 90 days | 13 | 0% | 19 | 0% |
| > 90 days | 1,341 | 25% | 1,016 | 15% |
| Total receivables due from | ||||
| customers | 5,445 | 100% | 6,969 | 100% |
The provision for doubtful accounts reflects potential losses on receivables due to customer default. The estimated losses are based on an analytical estimate of each customer's degree of solvency.
Receivables from subsidiaries amount to 14,131 thousand euros, a decrease of 11,262 thousand euros on the previous year, due mainly to lower receivables from 505 Games S.r.l. and the U.S. subsidiary.
For further details, see the section on related party transactions, which specifies the nature and amount of receivables due to Digital Bros S.p.A. by its subsidiaries.
Tax receivables decreased from 2,205 thousand euros to 471 thousand euros at 30 June 2015 mainly due to the full utilization of the receivable related to the national tax consolidation that at 30 June 2014 amounted to 1,730 thousand euros. At 30 June 2015, the balance is composed of 120 thousand euros for the receivable for the IRES reimbursement regarding the deductibility of IRAP on personnel costs and 351 thousand euros for other reimbursements.
Other current assets are comprised of advances paid to suppliers, employees and sales representatives. They totalled 611 thousand euros as at 30 June 2014 and 499 thousand euros as at 30 June 2015. The composition is analysed below:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Insurance reimbursements to be received | 1 | 1 | 0 |
| Trade payables | 356 | 341 | 15 |
| Advances to suppliers | 10 | 75 | (65) |
| Advances to employees | 101 | 96 | 5 |
| Other receivables | 31 | 98 | (67) |
| Total other current assets | 499 | 611 | (112) |
Trade payables due within 12 months increased from 2,011 thousand euros at 30 June 2014 to 2,204 thousand euros at 30 June 2015, an increase of 193 thousand euros and consist mainly of amounts due to publishers for the purchase of finished products.
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Italian trade payables | (1,359) | (1,819) | 460 |
| EU trade payables | (806) | (143) | (663) |
| Rest of world trade payables | (39) | (49) | 10 |
| Total payables due to suppliers | (2,204) | (2,011) | (193) |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
Payables to subsidiaries amount to 2,031 thousand euros, a decrease of 5,969 thousand euros over the previous year mainly due to the decrease in the payable to Game Entertainment S.r.l. for 5,391 thousand euros as a result of the dividends received.
For further details, see the section on related party transactions, which specifies the nature and amount of payables due by Digital Bros S.p.A. to its subsidiaries.
Tax payables went from 920 thousand euros to 286 thousand euros, a decrease of 634 thousand euros. Details are as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Tax payables | (113) | (757) | 644 |
| Other tax payables | (173) | (163) | (10) |
| Total tax payables | (286) | (920) | 634 |
Tax payables only refer to the VAT payable at 30 June 2015, which is significantly lower than at 30 June 2014, having decreased by 644 thousand euros. Other tax liabilities refer to withholding taxes on remuneration paid in June.
The item only applies to investment write-down provisions and amounted to 1,491 thousand euros. It decreased by 7,028 thousand euros on 30 June 2014, when it was 8,519 thousand euros.
| EUR/000 | 30 June | Provisions | Uses | 30 June |
|---|---|---|---|---|
| 2014 | 2015 | |||
| 505 Games S.r.l. | 5,460 | 0 | (5,460) | 0 |
| 505 Games Spain Sl | 1,589 | 0 | (1,589) | 0 |
| 505 Mobile S.r.l. | 1,470 | 0 | (1,470) | 0 |
| Pipeworks Inc. | 0 | 1,491 | 0 | 1,491 |
| Total current provisions | 8,519 | 1,491 | (8,519) | 1,491 |
The changes in the period are as follows:
The Company used the provision related to 505 Games Spain Sl and 505 Games Mobile S.r.l. and released the investment write-down provision for 5,460 thousand euros in 505 Games S.r.l., considered no longer necessary following the actual positive results and expected cash flows for future years. It has set aside a provision for 1,491 thousand euros relating to the subsidiary Pipeworks Inc. Reference is made to the paragraph on equity investments for further details.
Other current liabilities went from 1,158 thousand euros at 30 June 2014 to 940 thousand euros at 30 June 2015, a decrease of 218 thousand euros as detailed below:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Amounts due to social security institutions | (270) | (332) | 62 |
| Amounts due to employees | (569) | (683) | 114 |
| Amounts due to collaborators | (40) | (39) | (1) |
| Agents' commission | (35) | (100) | 65 |
| Other payables | (26) | (4) | (22) |
| Total other current liabilities | (940) | (1,158) | 218 |
Amounts due to employees include pay in lieu of holiday and personal leave not taken by the end of the period, as well as the standard contractual bonus (13th monthly salary).
The decrease in payables to social security institutions and employees is due to lower provisions for company bonuses compared to 30 June 2014.
This item also includes commissions accrued to sales representatives but not yet paid at the end of the year, and those on sales already closed even if the commissions have not officially accrued. The decrease is in line with the trend in revenues.
| Details of equity are reported in the statement of changes in equity. They can be summarised as follows: | |||
|---|---|---|---|
| ---------------------------------------------------------------------------------------------------------- | -- | -- | -- |
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Share capital | 5,644 | 5,644 | 0 |
| Treasury shares | (1,199) | (1,574) | 375 |
| Legal reserve | 1,129 | 1,129 | 0 |
| Share premium reserve | 16,954 | 16,954 | 0 |
| Reserve from IFRS introduction | (142) | (142) | 0 |
| Actuarial revaluation reserve | (64) | (86) | 22 |
| Security valuation reserve | 240 | 0 | 240 |
| Other reserves | 55 | 21 | 34 |
| Profits previous years | 268 | 1,843 | (1,575) |
| Result for the year | 6,946 | (615) | 7,561 |
| Total shareholders' equity | 29,831 | 23,174 | 6,657 |
Detailed changes in shareholders' equity are reported in the statement of changes in equity. They can be summarised as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Initial shareholders' equity | 23,174 | 23,825 | (651) |
| Distribution of dividends | (960) | 0 | (960) |
| Change in treasury shares | 375 | 0 | 375 |
| Actuarial profit (loss) | 22 | (36) | 58 |
| Change in the security revaluation reserve | 240 | 0 | 240 |
| Other changes | 34 | 0 | 34 |
| Result for the period | 6,946 | (615) | 7,561 |
| Final shareholders' equity | 29,831 | 23,174 | 6,657 |
Share capital, unchanged since the previous year, is made up exclusively of 14,110,837 ordinary shares issued and fully paid-in, with a par value of 0.40 euros each. There are no rights, preferences or restrictions on ordinary shares.
Treasury shares held at year-end, 400,247 ordinary Digital Bros S.p.A. shares, amounted to 1,199 thousand euros or 2.84% of the share capital as it sold 125,247 during the year for an amount of 410 thousand euros.
The security valuation reserve is related to the fair value adjustment with recognition in equity reserve of the difference between the book value of Starbreeze A shares and the market value at 30 June 2015 as instruments classified as available for sale.
No specific uses or objectives have been designated for individual equity reserves, other than those defined by law.
As of the approval date of this annual report, no dividends had been authorized but not yet paid.
The Company has issued no dividend-bearing shares, convertible bonds, or securities of a similar nature.
238
The breakdown of net debt at 30 June 2015 with comparative figures at 30 June 2014 is as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | ||
|---|---|---|---|---|---|
| 24 | Cash and cash equivalents | 1,780 | 490 | 1,290 | n.s. |
| 25 | Current payables to banks | (12,727) | (19,541) | 6,814 | -34.9% |
| 26 | Other current financial assets and liabilities | 1,401 | (1,428) | 2,829 | n.s. |
| Current net financial position | (9,546) | (20,479) | 10,933 | -53.4% | |
| 27 | Non-current financial assets | 0 | 0 | 0 | 0.0% |
| 28 | Non-current payables to banks | (1,619) | 0 | (1,619) | n.s. |
| 29 | Other non-current financial liabilities | 0 | (19) | 19 | n.s. |
| Non-current net financial position | (1,619) | (19) | (1,600) | n.s. | |
| Total net financial position | (11,165) | (20,498) | 9,333 | -45.5% |
At the close of the period, the carrying values of the financial instruments held by the Company were equal to their fair values.
The following table shows the financial liabilities at 30 June 2015, grouped by maturity:
| EUR/000 | Due within 12 months |
1-5 years |
over 5 years |
Total |
|---|---|---|---|---|
| Amounts due to banks relating to current accounts | (2) | 0 | 0 | (2) |
| Amounts due to banks relating to the financing of import | ||||
| and export | (10,529) | 0 | 0 | (10,529) |
| Amounts due to banks relating to advances on invoices | ||||
| and subject to collection | (859) | 0 | 0 | (859) |
| Amounts due to banks for unsecured loans | (1,337) | (1,619) | 0 | (2,956) |
| Total amounts due to banks (A) | (12,727) | (1,619) | 0 | (14,346) |
| Other financial liabilities (B) | (152) | 0 | 0 | (152) |
| Total (A+B) | (12,879) | (1,619) | 0 | (14,498) |
The current net financial position is made up as follows:
| 30 June | 30 June | Change | ||
|---|---|---|---|---|
| EUR/000 | 2015 | 2014 | ||
| 22 | Cash and cash equivalents | 1,780 | 490 | 1,290 |
| 23 | Current payables to banks | (12,727) | (19,541) | 6,814 |
| 24 | Other current financial payables | 1,401 | (1,428) | 2,829 |
| Total current net financial position | (9,546) | (20,479) | 10,933 |
Cash and cash equivalents at 30 June 2015, which are not restricted in any way, were comprised of sight deposits at banks and a Quadrante policy taken out by Digital Bros S.p.A. on 21 October 2002 in connection with the Montepaschivita insurance scheme. Details are as follows:
239
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Cash on hand and bank deposits | 1,459 | 176 | 1,283 |
| Quadrante policy with Banca Toscana | 321 | 314 | 7 |
| Total liquid funds | 1,780 | 490 | 1,290 |
The Company's cash and cash equivalents at 30 June 2015 amount to 1,780 thousand euros, an increase of 1,290 thousand euros with respect to 30 June 2014 mainly due to the increase in bank account cash and deposits for 1,283 thousand euros.
Current payables to banks are comprised of account overdrafts, import-export financing, advances on invoices, advances subject to collection, and the short-term portion of two loans. The decrease in current payables to banks with respect to 30 June 2014 for 6,814 thousand euros is mainly due to the reduction in import-export financing and advances on invoices subject to collection only partially offset by the increase in loans payable within 12 months. Details are as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Current account overdrafts | (2) | (435) | 433 |
| Loans for import and export | (10,529) | (15,807) | 5,278 |
| Advances on invoices and subject to collection | (859) | (3,286) | 2,427 |
| Loans payable within 12 months | (1,337) | 0 | (1,337) |
| Fair value of derivatives within 12 months | 0 | (13) | 13 |
| Total current payables due to banks | (12,727) | (19,541) | 6,814 |
Payables to banks do not involve pledges, guarantees or covenants to be satisfied by the Company.
The portion of loans payable within twelve months at 30 June 2015 consists of, for 456 thousand euros, the outstanding debt of an unsecured loan granted by Banco Popolare Società Cooperativa maturing in January 2016 and for 881 thousand euros from the portion maturing in the short term of a loan granted by Unicredit S.p.A. maturing in January 2018.
The unsecured loan granted by Banco Popolare Società Cooperativa to Digital Bros S.p.A. was granted on 2 December 2014 and had an original value of 1 million euros. The loan is being paid back in twelve monthly instalments starting on 02 January 2015 and charges variable interest at the Euribor three-month rate plus a spread of 1.25 points.
The derivatives fair value was determined by the interest rate swap contract in place as at 30 June 2014 stipulated with Banca Intesa San Paolo, which was terminated at the same time as the financial lease contract relative to the Trezzano sul Naviglio warehouse, in November 2014.
The breakdown of current financial assets and liabilities is as follows:
| EUR/000 | 30 June 2015 |
30 June 2014 |
Change |
|---|---|---|---|
| Starbreeze AB Shares B | 1,553 | 0 | 1,553 |
| Advances on the non-recourse factoring of trade receivables | (133) | (366) | 233 |
| Leasing instalments due within twelve months | (19) | (1,062) | 1,043 |
| Total other current financial assets and liabilities | 1,401 | (1,428) | 2,829 |
The item Starbreeze AB shares B represents the market value at 30 June 2015 of 1,220,691 shares issued by the company Starbreeze (listed on Nasdaq Stockholm First North Premier). These shares were measured at fair value with recognition in the income statement of the difference between the book value and the market value at 30 June 2015 as instruments classified as available for sale. In July 2015, the shares were all sold with the simultaneous recognition of the gains.
Advances on the non-recourse factoring of trade receivables, in the amount of 133 thousand euros, a decrease of 233 thousand euros compared with 30 June 2014.
Leasing instalments due within twelve months consist of the entire residual amount of the instalments of the financial lease contracts stipulated with Unicredit Leasing and Volkswagen Bank. The leases currently in force concern two cars. During the period, the financial lease contract for the warehouse in Trezzano sul Naviglio was redeemed for 911 thousand euros.
As at 30 June 2015, there are two lease contracts in force, with a residual debt that is all due in the shortterm:
The non-current net financial position is made up as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | |
|---|---|---|---|---|
| 25 | Non-current financial assets | 0 | 0 | 0 |
| 26 | Non-current payables to banks | (1,619) | 0 | (1,619) |
| 27 | Other non-current financial liabilities | 0 | (19) | 19 |
| Total non-current net financial position | (1,619) | (19) | (1,600) |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
There were no non-current financial assets at 30 June 2015, as there were none at 30 June 2014.
Non-current payables to banks consist exclusively of the portion with maturity beyond 12 months of a loan granted by Unicredit S.p.A. The unsecured loan granted by Unicredit S.p.A. to Digital Bros S.p.A. was granted on 1 April 2015 for a counter-value of 2.5 million euros. The loan provides for interest payments and the repayment of capital through deferred quarterly instalments starting from 31 July 2015. The interest rate is variable and is determined based on the 3-month Euribor plus a spread of 3.50 points.
There are no non-current financial liabilities as the debt at 30 June 2014 of 19 thousand euros was related solely to the non-current portion of the debt for two financial lease contracts which at 30 June 2015, had only short-term residual debt.
| EUR/000 | Nominal value of instalments |
|---|---|
| Due within 12 months | 19 |
| 1-5 years | 0 |
| Over 5 years | 0 |
| Total | 19 |
The following table shows finance lease payments by maturity:
The Company's current commitments are as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| Commitments for purchase of Starbreeze shares | (5,534) | 0 | (5,534) |
| Financial commitments | (4,450) | 0 | (4,450) |
| Total commitments | (9,984) | 0 | (9,984) |
Commitments for the purchase of A and B shares of the Swedish company Starbreeze refer to the agreement described in significant events that includes the total purchase of 5 million shares of the Swedish company for a total price of 8.2 million dollars. At 30 June 2015, the Group purchased 1,533 thousand shares at a price of 2,008 thousand dollars.
Financial commitments refer to mandates of receivables from subsidiaries for 4,450 thousand euros.
Total net revenues went from 43,543 thousand euros to 23,053 thousand euros, a decrease of 47%.
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | |
|---|---|---|---|---|
| Gross sales - Italy | 24,225 | 46,615 | (22,390) | -48.0% |
| Gross sales - Abroad | 313 | 770 | (457) | -59.4% |
| Total gross revenues | 24,538 | 47,385 | (22,847) | -48.2% |
| Total revenue adjustments | (1,485) | (3,842) | 2,357 | -61.3% |
| Total net revenues | 23,053 | 43,543 | (20,490) | -47.1% |
The geographical breakdown of gross revenues at 30 June 2015 is as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | |
|---|---|---|---|---|
| Gross revenues - Italy | 24,225 | 46,615 | (22,390) | -48.0% |
| Gross revenues - EU | 313 | 758 | (445) | -58.7% |
| Gross sales - Non-EU | 0 | 12 | (12) | n.s. |
| Total gross revenues | 24,538 | 47,385 | (22,847) | -48.2% |
The cost of goods sold is detailed below:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Purchase of goods for resale | (17,731) | (30,692) | 12,961 | -42.2% |
| Changes in finished product inventories | (541) | (5,126) | 4,585 | -89.5% |
| Total cost of sold products | (18,272) | (35,818) | 17,546 | -49.0% |
Refer to the directors' report for more detailed information on the individual components of revenues and the cost of goods sold.
Other revenues stems mainly from activities performed on behalf of subsidiaries.
The following table provides details of the cost of services:
| EUR/000 | 30 June 2015 |
30 June 2014 | Change | % |
|---|---|---|---|---|
| Advertising, marketing, trade fairs and exhibitions | (1,148) | (1,686) | 538 | -31.9% |
| Freight and transport | (290) | (513) | 223 | -43.5% |
| Other costs related to sales | 0 | 0 | 0 | 0.0% |
| Sub-total services related to sales | (1,438) | (2,199) | 761 | -34.6% |
| Miscellaneous insurance | (114) | (214) | 99 | -46.5% |
| Legal and notary consultancy | (1,295) | (834) | (462) | 55.5% |
| Postal and telegraph | (55) | (69) | 16 | -22.3% |
| Trips and transfers | (218) | (213) | (6) | 2.7% |
| Utilities | (129) | (227) | 98 | -43.3% |
| Maintenance | (89) | (78) | (10) | 12.4% |
| Fees to corporate bodies | (74) | (74) | 0 | 0.0% |
| Sub-total general services | (1,974) | (1,709) | (265) | 15.6% |
| Intercompany services | (72) | (42) | (30) | 74.1% |
| Sub-total | (2,046) | (1,751) | (295) | 17.0% |
| Total costs of services | (3,484) | (3,950) | 466 | -11.8% |
The item amounting to 3,484 thousand euros decreased by 466 thousand euros compared to 30 June 2014, when it was 3,950 thousand euros mainly due to lower advertising and logistics costs only partially offset by higher consultancy costs.
The item rentals and leases amounted to 825 thousand euros, slightly down on 30 June 2014, when it was 832 thousand euros. The item includes 754 thousand euros related to the rental of offices of the Company, in Via Tortona 37, Milan and 71 thousand euros related to the operating lease of cars assigned to employees and to the leasing of warehouse equipment.
Personnel costs, including commissions paid to sales representatives, directors' fees approved by the shareholders, amounts paid to temporary workers and contract workers, and the cost of cars assigned to employees, came to 5,474 thousand euros and decreased by 663 thousand euros on the previous year:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Wages and salaries | (2,975) | (3,373) | 398 | -11.8% |
| Social security contributions | (1,004) | (1,169) | 165 | -14.1% |
| Employee termination indemnity | (208) | (230) | 22 | -9.5% |
| Directors' fees | (1,094) | (996) | (98) | 9.8% |
| Temporary work and collaborators | (80) | (64) | (16) | 25.1% |
| Agents' commission | (99) | (264) | 165 | -62.7% |
| Other personnel costs | (14) | (41) | 28 | -67.6% |
| Total personnel costs | (5,474) | (6,137) | 663 | -10.8% |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The increase in directors' fees for 98 thousand euros takes into account the fact that during the year, a variable component was introduced of the fee for managing directors related to the three-year results achieved by the Group.
Personnel costs in the strict sense of the term consist of employee wages and salaries, social security charges and provisions for employee termination indemnities. They fell by 586 thousand euros with respect to the previous year:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Wages and salaries | (2,975) | (3,373) | 398 | -11.8% |
| Social security contributions | (1,004) | (1,169) | 165 | -14.1% |
| Employee termination indemnity | (208) | (230) | 22 | -9.5% |
| Total personnel costs | (4,188) | (4,772) | 584 | -12.2% |
| Average number for 2014 of employees | 65 | 70 | (5) | -7.1% |
| Average cost per employee | (64) | (68) | 4 | -5.5% |
The average cost per employee decreased by 5.5%.
The breakdown of the Company's workforce at 30 June 2015 by type is provided in the directors' report under "Other information".
The details of operating expenses by type are presented below, with the previous year's figures for comparison:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Purchase of miscellaneous materials | (33) | (40) | 7 | -17.2% |
| General and administrative costs | (483) | (527) | 44 | -8.4% |
| Representation costs | (56) | (56) | 0 | -0.5% |
| Miscellaneous bank charges | (95) | (141) | 46 | -32.7% |
| Total other operating costs | (667) | (764) | 97 | -12.7% |
Operating costs went down by 12.7% on the previous year, from 764 thousand euros to 667 thousand euros due primarily to a drop in general and administrative expenses, as well as miscellaneous bank charges.
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Amortisation and depreciation | (359) | (420) | 61 | -14.6% |
| Provisions | 0 | 0 | 0 | 0.0% |
| Write-down of assets | (3,825) | (1,470) | (2,355) | n.s. |
| Asset write-backs | 12,920 | 4,100 | 8,820 | n.s. |
| Total non-monetary income and operating costs | 8,736 | 2,210 | 6,526 | n.s. |
Depreciation and amortization are discussed in the notes concerning non-current assets and investments.
245
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The impairment of assets at 30 June 2015 includes:
Asset write-backs include:
Financial income and charges was positive for 1,318 thousand euros, against a loss of 2,108 thousand euros achieved in the previous year.
The item consists of:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % | |
|---|---|---|---|---|---|
| 23 | Interest and financial income | 2,353 | 135 | 2,218 | n.s. |
| 24 | Interest and financial expenses | (1,035) | (2,243) | 1,208 | -53.9% |
| 25 | Financial income and charges | 1,318 | (2,108) | 3,426 | n.s. |
Interest and financial income is broken down below:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Interest income on bank accounts | 0 | 1 | (1) | -83.3% |
| Financial income | 744 | 12 | 732 | n.s. |
| Exchange gains | 1,609 | 122 | 1,487 | n.s. |
| Total interest and financial income | 2,353 | 135 | 2,218 | n.s. |
Interest and financial income increased by 2,218 thousand euros. They consist mainly of foreign exchange gains for 1,609 thousand euros and financial income of 737 thousand euros relating to the valuation of the Starbreeze B shares measured at fair value and classified as held for trading.
Below are the details of interest expense:
| EUR/000 | 30 June 2015 | 30 June 2014 |
Change | % |
|---|---|---|---|---|
| Interest expenses on bank account and sales activities | (830) | (1,725) | 895 | -51.9% |
| Other interest expense | 0 | (18) | 18 | n.s. |
| Interest expense on financing and leasing | (13) | (33) | 20 | -59.7% |
| Interest on factoring | (10) | (29) | 19 | -66.1% |
| Total interest expense on sources of finance | (853) | (1,805) | 952 | -52.8% |
| Exchange losses | (182) | (438) | 256 | -58.4% |
| Total interest and financial expenses | (1,035) | (2,243) | 1,208 | -53.9% |
Interest expenses improved by 1,208 thousand euros and decreased by 1,035 thousand euros, in line with the lower average debt.
The implied cost of debt is calculated on the average net debt at the end of each quarter. Gross interest expense is shown net of interest expense on derivative products and on exchange losses. It went from 6.8% at 30 June 2014 to 5.9% at 30 June 2015:
| EUR/000 | 30 June 2015 | 30 June 2014 |
|---|---|---|
| Average debt | 14,524 | 26,408 |
| Net interest expense | (853) | (1,805) |
| Cost of debt | -5.9% | -6.8% |
The breakdown of current and deferred taxes at 30 June 2015 is as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change | % |
|---|---|---|---|---|
| Current taxes | 1,144 | 1,640 | (496) | -30.3% |
| Deferred taxes | (407) | (1,199) | 793 | -66.2% |
| Total income taxes | 737 | 441 | 297 | 67.3% |
Below is the breakdown of current taxes between corporate income tax (IRES) and the regional business tax (IRAP):
| EUR/000 | 30 June 2014 | 30 June 2013 | Change | % |
|---|---|---|---|---|
| IRES | 1,144 | 1,734 | (590) | -34.0% |
| IRAP | 0 | (94) | 94 | n.s. |
| Total current taxes | 1,144 | 1,640 | (496) | -30.2% |
IRES for the period was determined as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| IRES taxable income | (1,320) | (2,545) | 1,225 |
| IRES rate | 27.5% | 27.5% | 0 |
| IRES for the period | 363 | 700 | (337) |
| Effect from tax consolidation | 763 | 1,051 | (288) |
| Taxes on income for the previous FY | 18 | (17) | 35 |
| IRES for the period | 1,144 | 1,734 | (590) |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
Below is a reconciliation between the IRES provision for the year and the profit shown in the financial statements:
| EUR/000 | 30 June 2015 | 30 June 2014 | ||
|---|---|---|---|---|
| Pre-tax profit of the Company | 6,209 | (1,057) | ||
| IRES rate | 27.5% | 27.5% | ||
| Theoretical tax | (1,707) | -27.5% | 291 | -27.5% |
| Tax effect of non-deductible costs | 2,066 | 33% | 604 | 4% |
| Tax effect of the use of tax losses not previously used |
0 | 0% | 0 | 0% |
| Net tax effect of the release of deferred tax assets not included in the points above |
5 | (196) | ||
| Effect from tax consolidation | 763 | 1,051 | ||
| Taxes on income for the previous FY | 18 | (17) | ||
| Income tax for the FY and effective tax rate | 1,144 | 18.4% | 1,733 | -34.6% |
IRAP for the period was determined as follows:
| EUR/000 | 30 June 2015 | 30 June 2014 | Change |
|---|---|---|---|
| IRAP taxable income | (4,204) | 1,897 | (6,101) |
| IRAP rate | 3.90% | 3.90% | 0 |
| Taxes on income for the year | 0 | (74) | 74 |
| Taxes on income for the previous year | 0 | (20) | 20 |
| IRAP for the period | 0 | (94) | 94 |
Below is a reconciliation between the IRAP provision for the year and the profit shown in the financial statements:
| EUR/000 | 30 June 2015 | 30 June 2014 | ||
|---|---|---|---|---|
| Company EBIT | (4,204) | (1,580) | ||
| IRAP rate (3.9%) | 3.9% | 3.9% | ||
| Theoretical tax | 0 | 0.0% | 62 | -3.9% |
| Tax effect of non-deductible costs | 0 | 0.0% | (135) | 8.6% |
| Income tax for the FY and effective tax | ||||
| rate | 0 | 0.0% | (74) | 4.7% |
The main financial instruments used by the Company are as follows:
The purpose of these instruments is to finance the Company's operating activities.
Digital Bros S.p.A. manages all financial risks on behalf of itself and its subsidiaries, with the exception of other financial instruments not listed above, namely trade payables and receivables arising from operating activities for which the financial risk is the responsibility of each individual subsidiary.
The Company tries to maintain a balance between short-term and medium/long-term financial instruments. The Company's core business, the 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 often dedicated to the individual investment, including in the form of finance leases.
Given the above, there are no significant maturities for medium- and long-term financial payables. Current net debt is deemed to be suitably balanced by the careful management of working capital.
In the following tables, the disclosures required by IFRS 7 regarding the significance of financial instruments for the Company's financial position and performance are provided separately for 2015 and 2014.
| ina ia ins As F l tru ts ts nc me n se – ( ) 3 0 Ju 2 0 1 5 E U R / 0 0 0 t a ne |
Fa ir lue set va as s he l d for d ing tr a |
Inv he l d t est nts me o ity tur ma |
Re iva b les d ce an loa ns |
As he l d for le set s sa |
Bo k v 0 Ju lue 3 at o a 2 0 1 5 ne |
No tes |
|---|---|---|---|---|---|---|
| Eq ity inv est nts me u |
- | 1 3, 9 3 1 |
1 3, 9 3 1 |
4 | ||
| No iva b les d o he t r t ts n-c urr en ec e an r a sse |
6 4 4 |
- | 6 4 4 |
5 | ||
| de iva b les Tr a re ce |
- | - | 5, 4 4 5 |
- | 5, 4 4 5 |
1 1 |
| fro bs i d iar ies Du e m su |
- | - | 1 4, 1 3 1 |
- | 1 4, 1 3 1 |
1 2 |
| Ot he t a ts r c urr en sse |
- | - | 4 9 9 |
- | 4 9 9 |
2 2 |
| Ca h a d c h e iva len ts s n as q u |
- | - | 1, 7 8 0 |
- | 1, 7 8 0 |
2 4 |
| Ot he f ina ia l a t ts r c urr en nc sse |
1, 5 5 3 |
- | - | - | 1, 5 5 3 |
2 6 |
| To l ta |
1, 5 5 3 |
- | 2 2, 4 9 9 |
1 3, 9 3 1 |
3 7, 9 8 3 |
| ina ia ins ia i i ies F l L b l tru ts t nc me n – 3 0 Ju 2 0 1 5 ( E U R / 0 0 0 ) t a ne |
Fa ir lue l ia b i l it ies va he l d for d ing tr a |
L ia b i l it ies d a t m ea su re ise d c ort t am os |
Bo k v lue 3 0 Ju at o a ne 2 0 1 5 |
No tes |
|---|---|---|---|---|
| de b les Tr a p ay a |
- | 2, 2 0 4 |
2, 2 0 4 |
1 5 |
| Du bs i d iar ies e t o s u |
- | 2, 0 3 1 |
2, 0 3 1 |
1 6 |
| Ot he l ia b i l it ies t r c urr en |
- | 9 4 0 |
9 4 0 |
1 9 |
| Cu b les ba ks nt to rre p ay a n |
- | 1 9, 5 2 8 |
1 9, 5 2 8 |
2 5 |
| Ot he f ina ia l l ia b i l it ies t r c urr en nc |
- | 1 5 2 |
1 5 2 |
2 6 |
| No b les ba ks t p to n-c urr en ay a n |
- | - | - | 2 8 |
| he f ina ia l l ia b i l it ies Ot nt r n on -cu rre nc |
- | 1, 6 1 9 |
1, 6 1 9 |
2 9 |
| To l ta |
- | 2 6, 4 7 4 |
2 6, 4 7 4 |
250
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
| F ina ia l ins As tru ts ts nc me n se – 3 0 2 0 1 4 ( / 0 0 0 ) Ju E U R t a ne |
Fa ir lue set va as s he l d for d ing tr a |
Inv he l d t est nts me o ity tur ma |
Re iva b les d ce an loa ns |
As he l d for le set s sa |
Bo k v 0 Ju lue 3 at o a 2 0 1 4 ne |
No tes |
|---|---|---|---|---|---|---|
| ity inv Eq est nts u me |
- | 5 1 4, 6 3 |
5 1 4, 6 3 |
4 | ||
| No iva b les d o he t r t ts n-c urr en ec e an r a sse |
6 4 4 |
- | 6 4 4 |
5 | ||
| Tr de iva b les a re ce |
- | - | 9 9 6, 6 |
- | 9 9 6, 6 |
1 1 |
| fro bs i d iar ies Du e m su |
- | - | 2 5, 3 9 3 |
- | 2 5, 3 9 3 |
1 2 |
| Ot he t a ts r c urr en sse |
- | - | 1 1 6 |
- | 1 1 6 |
2 2 |
| Ca h a d c h e iva len ts s n as q u |
- | - | 4 0 9 |
- | 4 0 9 |
2 4 |
| To l ta |
- | - | 3 4, 1 0 7 |
1 4, 6 3 5 |
4 8, 4 2 7 |
Category of financial liabilities pursuant to IAS 39
| F ina ia l ins L ia b i l i ies tru ts t nc me n – 3 0 Ju 2 0 1 4 ( E U R / 0 0 0 ) t a ne |
Fa ir lue l ia b i l it ies va he l d for d ing tr a |
L ia b i l it ies d a t m ea su re ise d c ort t am os |
Bo k v lue 3 0 Ju at o a ne 2 0 1 4 |
No tes |
|---|---|---|---|---|
| de b les Tr a p ay a |
- | 2, 0 1 1 |
2, 0 1 1 |
1 5 |
| Du bs i d iar ies e t o s u |
- | 8, 0 0 0 |
8, 0 0 0 |
1 6 |
| Ot he l ia b i l it ies t r c urr en |
- | 1, 1 5 8 |
1, 1 5 8 |
1 9 |
| Cu b les ba ks nt to rre p ay a n |
1 3 |
1 9, 5 2 8 |
1 9, 5 4 1 |
2 5 |
| Ot he f ina ia l p b les t r c urr en nc ay a |
- | 1, 4 2 8 |
1, 4 2 8 |
2 6 |
| No b les ba ks t p to n-c urr en ay a n |
- | - | - | 2 8 |
| Ot he f ina ia l l ia b i l it ies nt r n on -cu rre nc |
- | 1 9 |
1 9 |
2 9 |
| To l ta |
1 3 |
3 2, 1 4 4 |
3 2, 1 5 7 |
|
| 2 5 1 |
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The main risks generated by the Company's financial instruments are:
The Company's exposure to interest rate fluctuations is marginal with respect to its medium- and longterm financial instruments, which were originally designated as fixed-rate instruments or have been converted into fixed rates using appropriate derivative agreements.
For short-term financial instruments, the possibility of rising interest rates is an effective risk, because the Company cannot immediately transfer the higher rates to its prices. These risks are reduced by:
Liquidity risk arises if it becomes difficult or impossible to obtain, under sustainable conditions, 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 in the credit market.
The Company has reduced this risk by:
Given the results of short- and medium/long-term planning, currently available funds, along with those to be generated by operating activities, should allow the Company to satisfy its requirements as far as investment, working capital management, and debt repayment at natural maturity are concerned and in any case to determine financial requirements ahead of time.
252
The following table shows the Company's financial obligations by maturity, in the worst-case scenario and using undiscounted values, considering the nearest date by which the Company could be asked for payment and providing the number of the relevant note.
| F ina ia l l ia b i l i ies 3 0 Ju 2 0 1 5 t t nc a ne |
Ov 5 er |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| ( / 0 0 0 ) E U R |
Bo k v lue o a |
W it h in he F Y t |
1- 2 y ea rs |
2- 3 y ea rs |
3- 4 y ea rs |
4- 5 y ea rs |
y ea rs |
To l ta |
No tes |
| Cu b les ba ks nt to rre p ay a n |
1 2, 7 2 7 |
1 2, 7 2 7 |
1 2, 7 2 7 |
2 3 |
|||||
| Ot he f ina ia l l ia b i l it ies t r c urr en nc |
1 5 2 |
1 5 2 |
1 5 2 |
2 4 |
|||||
| No b les ba ks t p to n-c urr en ay a n |
1, 6 1 9 |
9 1 3 |
7 0 6 |
1, 6 1 9 |
2 6 |
||||
| Ot he f ina ia l l ia b i l it ies nt r n on -cu rre nc |
2 7 |
||||||||
| To l ta |
2 0, 9 8 8 |
2 0, 9 6 9 |
1 9 |
- | - | - | - | 2 0, 9 8 8 |
| ina ia ia i i ies F l l b l 3 0 Ju 2 0 1 4 t t nc a ne ( E U R / 0 0 0 ) |
k v lue Bo o a |
it h in he W F Y t |
1- 2 y ea rs |
2- 3 y ea rs |
3- 4 y ea rs |
4- 5 y ea rs |
Ov 5 er ea rs y |
l To ta |
No tes |
|---|---|---|---|---|---|---|---|---|---|
| Cu b les ba ks nt to rre p ay a n |
1 9, 5 4 1 |
1 9, 5 4 1 |
1 9, 5 4 1 |
2 3 |
|||||
| Ot he f ina ia l p b les t r c urr en nc ay a |
1, 4 2 8 |
1, 4 2 8 |
1, 4 2 8 |
2 4 |
|||||
| No b les ba ks t p to n-c urr en ay a n |
2 6 |
||||||||
| he f ina ia l l ia b i l it ies Ot nt r n on -cu rre nc |
1 9 |
1 9 |
1 9 |
2 7 |
|||||
| To l ta |
2 0, 9 8 8 |
2 0, 9 6 9 |
1 9 |
- | - | - | - | 2 0, 9 8 8 |
The Company has sufficient financial resources to satisfy all debts maturing within one year, in the form of cash and cash equivalents, undrawn credit lines, which at the date of these financial statements amount to about 31 million euros, and cash flows from core operations.
The Company is influenced by exchange rate fluctuations in the British pound and US dollars due to the amounts owed by the subsidiaries 505 Games Ltd. and 505 Games US Inc.
To monitor the risk level of the EUR/GBP and EUR/USD exchange rates, the Company closely monitors exchange rate forecasts from independent analysts and other sources, and may use derivative instruments to hedge this risk as appropriate.
In Italy, the Company sells exclusively to known buyers. If necessary information on customers is not available, merchandise is sold cash on delivery to limit credit risk to negligible amounts.
Customer credit facilities are granted by a credit committee which includes the managing directors, the sales department, the finance department and the head of credit management. The credit manager reviews the credit facilities and customer balances on a daily basis, before any shipments are made. Despite these precautions, the Company has taken out insurance covering almost all of its customers. The insurance policy does not eliminate all credit risk on the customers covered, but considerably limits potential losses.
Receivables are shown in the financial statements net of the provision for doubtful accounts, to represent the fair value of trade receivables.
The following table breaks down receivables from customers by due date at 30 June 2015 and 30 June 2014:
| EUR/000 | 30 June 2015 | % of total | 30 June 2014 | % of total |
|---|---|---|---|---|
| Not past due | 3,885 | 71% | 4,851 | 70% |
| 0 > 30 days | 92 | 2% | 902 | 13% |
| 30 > 60 days | 114 | 2% | 181 | 3% |
| 60 > 90 days | 13 | 0% | 19 | 0% |
| > 90 days | 1,341 | 25% | 1,016 | 15% |
| Total receivables due from | 5,445 | 100% | 6,969 | 100% |
The table below presents the fair value of assets and liabilities by type of method used to calculate them.
Financial assets whose fair value cannot be objectively determined are not included.
The fair value of payables to banks has been calculated on the basis of the interest rate curve as of the reporting date, without making assumptions as to the credit spread.
254
Digital Bros Group Consolidated and Separate Financial Statements at 30 June 2015
The fair value of financial instruments listed in an active market is based on market prices as of the reporting date. 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 according to the market's prevailing models and techniques, using inputs observable in the market.
For trade receivables and payables and other financial assets, fair value has not been calculated as it is approximated by carrying value.
For lease instalments due and payables to other lenders, there is held to be no significant difference between fair value and the carrying value at which they are recognized.
| E U R / 0 0 0 |
Ba lan he lue t v ce s e a 3 0 Ju 2 0 1 5 ne |
M k ke to t ar ma r |
M k de l to ar mo |
To l fa ir lue ta va |
No tes |
|---|---|---|---|---|---|
| Fa ir lue va |
Fa ir lue va |
||||
| Ca h a d c h e iva len ts s n as q u |
1, 7 8 0 |
4 9 0 |
4 9 0 |
2 4 |
|
| Cu b les ba ks nt to rre p ay a n |
1 2, 2 7 7 |
1 9, 5 2 8 |
1 9, 5 2 8 |
2 5 |
|
| he f ina ia l a Ot t ts r c urr en nc sse |
1, 5 5 3 |
0 | 1, 5 3 3 |
2 6 |
|
| Int st rat ere e s wa p |
0 | 0 | 0 | 2 5- 2 8 |
|
| E U R / 0 0 0 |
Ba lan he lue t v ce s e a 3 0 Ju 2 0 1 4 ne |
M k ke to t ar ma r |
M k de l to ar mo |
To l fa ir lue ta va |
No tes |
|---|---|---|---|---|---|
| Fa ir lue va |
Fa ir lue va |
||||
| Ca h a d c h e iva len ts s n as q u |
4 9 0 |
4 9 0 |
4 9 0 |
2 4 |
|
| b les ba ks Cu nt to rre p ay a n |
5 1 9, 2 8 |
5 1 9, 2 8 |
5 1 9, 2 8 |
5 2 |
|
| d ing de iva ive Tr t a r s |
0 | 0 | 0 | ||
| Int st rat ere e s wa p |
1 3 |
1 3 |
1 3 |
2 5- 2 8 |
The sensitivity analysis was performed in accordance with IFRS 7. It applies to all financial instruments recognized in the financial statements.
The Company has performed the sensitivity analysis, which measures the estimated impact on the income statement and on the statement of financial position of a fluctuation in the exchange rate of +/-10% and in the interest rate of +/-1% with respect to the rates in effect at 30 June 2015 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 2015, the Company was not exposed to additional risks, such as commodity risk.
For the sensitivity analysis on exchange rates, account was taken of the risk that may arise for any financial instrument denominated in a currency other than the euro. Consequently, translation risk was also taken into consideration.
These financial instruments are subject to gains or losses in value as a result of movements in interest rates:
The table below shows the impact on net debt and pre-tax profit of an increase/decrease of 10% in the EUR/USD exchange rate with respect to the budgeted figures of 1.12:
| Type of change | Effect on net financial position | Effect on pre-tax profit |
|---|---|---|
| +10% Dollar | 2,203 | 744 |
| -10% Dollar | (2,581) | (973) |
Also, given the absolute value of the Company's unhedged, variable-rate borrowings, it is estimated that a 1-point change in annual interest rates would affect net debt and the pre-tax profit by around 150 thousand euros.
IFRS 7 requires that financial instruments recognized at fair value be classified in a hierarchy reflecting the significance of the inputs used to measure fair value. The levels are as follows:
− Level 3: inputs not based on observable market data.
To calculate the market value of financial instruments, the Company uses various measurement and valuation models, as summarized below for 2015 and 2014:
| Book value at 30 June 2015 |
Instrument | Level 1 | Level 2 | Level 3 | Total | Notes |
|---|---|---|---|---|---|---|
| Other current financial assets |
Listed shares | 1,553 | 1,553 | 24 | ||
| Book value at 30 June 2014 |
Instrument | Level 1 | Level 2 | Level 3 | Total | Notes |
| Derivatives for trading |
Interest rate swap |
13 | 13 | 25-28 |
As required by Consob Resolution no. 15519 of 27 July 2006, non-recurring income and expenses are shown separately in the income statement. These are generated by transactions or events that by nature do not occur on a regular basis as part of the business.
In the year, the Company booked non-recurring expenses for 181 thousand euros relative to costs incurred for professionals used for the acquisitions completed during the period.
At 30 June 2015, there were no contingent assets and liabilities.
In accordance with Consob Resolution 17221 of 12 March 2010, it is hereby reported 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 do not qualify as atypical or unusual transactions.
Commercial and financial transactions between Digital Bros S.p.A. and other Group companies at 30 June 2015 were settled at arm's length. Such transactions are summarized below:
| EUR/000 | Receivables | Payables | Income | Costs | ||
|---|---|---|---|---|---|---|
| comm. | finan. | comm. | finan. | |||
| 505 Games S.r.l. | 600 | 4,108 | 0 | 0 | 1,671 | (549) |
| 505 Mobile S.r.l. | 0 | 5,582 | 0 | 0 | 11 | 0 |
| Digital Bros Game Academy S.r.l. | 0 | 124 | 0 | 0 | 84 | 0 |
| Game Entertainment S.r.l. | 0 | 0 | 0 | (100) | 0 | 0 |
| Game Network S.r.l. | 0 | 598 | 0 | 0 | 11 | 0 |
| Game Service S.r.l. | 0 | 428 | 0 | 0 | 0 | 0 |
| 505 Games France S.a.s. | 0 | 120 | 0 | 0 | 0 | 0 |
| 505 Games Ltd. | 0 | 0 | 0 | (771) | 0 | 0 |
| 505 Games Iberia Slu | 0 | 516 | 0 | 0 | 0 | 0 |
| 505 Games (US) Inc. | 0 | 1,518 | 0 | 0 | 13 | 0 |
| 505 Games GmbH | 0 | 537 | 0 | 0 | 0 | 0 |
| 505 Games Interactive | 0 | 0 | 0 | (180) | 0 | 0 |
| 505 Games Mobile (US) | 0 | 0 | 0 | (170) | 0 | 0 |
| DR Studios Ltd. | 0 | 0 | 0 | (767) | 0 | 0 |
| Pipeworks Inc. | 0 | 0 | 0 | (43) | 0 | 0 |
| Total | 600 | 13,531 | 0 | (2,031) | 1,790 | (549) |
Transactions in the year ended 30 June 2014 are summarized below:
| EUR/000 | Receivables | Payables | Income | Costs | ||
|---|---|---|---|---|---|---|
| comm. | finan. | comm. | finan. | |||
| 505 Games S.r.l. | 1,695 | 12,260 | 0 | 0 | 2,298 | (1,227) |
| 505 Mobile S.r.l. | 0 | 1,499 | 0 | 0 | 0 | 0 |
| Game Service S.r.l. | 0 | 388 | 0 | 0 | 12 | (211) |
| Game Entertainment S.r.l. | 0 | 0 | 0 | (5,491) | 12,783 | 0 |
| Game Network S.r.l. | 0 | 927 | 0 | 0 | 11 | 0 |
| 505 Games France S.a.s. | 0 | 0 | 0 | (2,300) | 0 | 0 |
| 505 Games Ltd. | 0 | 777 | 0 | 0 | 4 | 0 |
| 505 Games Iberia Slu | 0 | 1,139 | 0 | 0 | 0 | 0 |
| 505 Games (US) Inc. | 0 | 5,326 | 0 | 0 | 17 | 0 |
| 505 Games GmbH | 0 | 1,382 | 0 | 0 | 0 | 0 |
| 505 Games Interactive | 0 | 0 | 0 | (99) | 0 | 0 |
| 505 Games Mobile (US) | 0 | 0 | 0 | (110) | 0 | 0 |
| Total | 1,695 | 23,698 | 0 | (8,000) | 15,125 | (1,438) |
The Company also provides a centralized cash management service, using giro accounts to which the positive and negative balances between Group companies are transferred at least once per quarter. The accounts do not bear interest.
260
Transactions with other related parties consist of the legal counsel provided by director Dario Treves and the leasing of property by Matov Imm. S.r.l., which is owned by the Galante family.
Transactions in the year ended 30 June 2015 are summarized below:
| EUR/000 | Receivables | Payables | Revenues | Costs | ||
|---|---|---|---|---|---|---|
| comm. | finan. | comm. | finan. | |||
| Dario Treves | 0 | 0 | (18) | 0 | 0 | (200) |
| Matov Imm. S.r.l. | 0 | 635 | 0 | 0 | 0 | (754) |
| Total | 0 | 635 | (18) | 0 | 0 | (954) |
Transactions in the year ended 30 June 2014 are summarized below:
| EUR/000 | Receivables | Payables | Revenues | Costs | ||
|---|---|---|---|---|---|---|
| comm. | finan. | comm. finan. |
||||
| Dario Treves | 0 | 0 | (18) | 0 | 0 | (196) |
| Matov Imm. S.r.l. | 0 | 635 | 0 | 0 | 0 | (744) |
| Total | 0 | 635 | (18) | 0 | 0 | (940) |
The financial receivable due to Digital Bros S.p.A. by Matov Imm. S.r.l. refers to the security deposit on the Via Tortona 37 premises in Milan.
Digital Bros S.p.A., in its capacity as parent company/consolidating company, has opted for the tax consolidation allowed by Italian law with the companies 505 Games Mobile S.r.l., Game Entertainment S.r.l., Game Service S.r.l. and 505 Games S.r.l.
This has made it necessary to prepare a set of rules for intercompany relations to ensure that no prejudice is caused to the individual participants in the system.
There were no atypical or unusual transactions in this or the previous year, as defined by Consob Communication DEM 6064293 of 28 July 2006.
Pursuant to Art. 2425 (15) of the Italian Civil Code, the Company did not receive any income from equity investments other than dividends.
The compensation paid to members of the board of directors is detailed in the table on the following pages.
During the year ended 30 June 2015, a total of 73,840 euros was paid to the members of the board of statutory auditors.
The Company has issued no financial instruments.
The Company has not taken out loans with subordination clauses from its shareholders.
The Company has not earmarked any capital for a specific use.
The Company has not taken out any loans earmarked for a specific use.
There are no off-balance sheet arrangements.
Pursuant to CONSOB Regulation 11971/99 (as amended), which implemented Legislative Decree 58 of 24 February 1998, below are the details of fees paid or due to members of the Board of Directors and Board of Statutory Auditors, to the general managers and to executives with strategic responsibilities. At the close of the year, there were no general managers per Article 2396 of the Italian Civil Code. For further information, refer to the remuneration report.
| Na d Su me an rn am e |
O f f ice d co ve re |
Pe io d fo h ic h he t r r w f f ice d o w as co ve re |
En d o f ter m |
Fe fo he t es r f f ice o |
Bo d nu ses an he t o r inc ive t en s |
No n ta mo ne ry be f i ts ne |
O he t r ion t co mp en sa |
|---|---|---|---|---|---|---|---|
| f ire Bo d o d to ar c rs |
|||||||
| C ha irm d m ing an an an ag |
|||||||
| A br Ga lan te am o |
d ire cto r ( 1) |
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M ing d ire cto r ( 1) an ag |
0 1 / 0 7 / 1 4 t 3 0 / 0 6 / 1 5 o |
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| i de Ga lan Da te v |
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D ire cto r ( 1) ( 4) |
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D ire cto r ( 2) |
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(1) Executive directors
(2) Non-executive directors
(3) Independent directors
(4) Financial reporting officer per Art. 154-bis of Legislative Decree 58/98
At 30 June 2015, the share capital was comprised of 14,110,837 ordinary shares issued and fully paid in of par value 0.40 eurocents each.
The Company has not issued shares in different categories or other financial instruments entitling the holder to subscribe to newly issued shares. There are no share-based incentive plans in course that entail increasing the share capital against payment or free of charge.
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 shares have been issued that confer special rights of control.
The Company offers no employee stock sharing plans.
There are no restrictions on the right to vote.
There are no agreements in existence among the shareholders.
Please see the Corporate Governance section of the consolidated annual report, available in the Investor Relations section at www.digital-bros.net.
The board of directors has no authorization to increase the share capital pursuant to Civil Code Art. 2443 or to issue quotas or shares.
The board has been authorized to purchase treasury shares as described in the Corporate Governance and Ownership section of the consolidated annual report, available in the Investor Relations section at www.digital-bros.net.
There are no change of control provisions.
No agreements are in place that provide for indemnities in the event of dismissal, resignation and/or departure from office, even if a takeover bid is 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, no loans have been granted to members of the Company's administrative, managerial and supervisory bodies.
Pursuant to Art. 149-duodecies of the Issuers' Regulations, the external auditing company, Deloitte & Touche, was paid fees of 179 thousand euros for the current year.
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We, the undersigned, Abramo Galante as chairman of the Board of Directors and Stefano Salbe as financial reporting officer of the 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, 11 September 2015
Signed
Chairman of the Board of Directors Financial Reporting Officer
Abramo Galante Stefano Salbe
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