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Reply

Interim / Quarterly Report Aug 3, 2023

4108_10-q_2023-08-03_3bda2d63-ebb3-45e8-9067-ec1982294d01.pdf

Interim / Quarterly Report

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REPLY HALF YEAR FINANCIAL REPORT AT 30 JUNE 2023

CONTENTS

Board of Directors and Controlling Bodies 3
Financial highlights 5
Reply Living Network 7
Interim financial report 2023 24
Financial Review of the Group 25
Other information 32
Events subsequents to 30 June 2023 33
Outlook on operations 34
Half year condensed financial statements at 30 June 2023 35
Notes 41
Annexed tables 74
Attestation of the Half-year condensed financial statements pursuant to 154 bis of Legislative Decree No. 58/98 82
Independent auditors' report 83

Board of Directors and Controlling Bodies

Chairman and Chief Executive Officer

Mario Rizzante

Chief Executive Officer

Tatiana Rizzante

Executive Directors

Filippo Rizzante Daniele Angelucci Marco Cusinato Elena Maria Previtera Patrizia Polliotto (1) (2) (3) Secondina Giulia Ravera (1) (2) Francesco Umile Chiappetta (1) (2)

Board of Statutory Auditors

President Ciro Di Carluccio

Statutory auditors Piergiorgio Re Ada Alessandra Garzino Demo

Independent Auditors

PwC S.p.A.

(1) Directors not invested with operational proxies. (2) Independent Directors according to the Corporate Governance code drawn up by the Committee for Corporate Governance (3) Lead independent director

This report has been translated into English from the original Italian version, in case of doubt the Italian version shall prevail.

Financial highlights

The Group's financial highlights

YE 2022 % Economic figures
(Euros/000)
ST
1
half 2023
% ST
1
half 2022
% ST half
1
2021
%
1,891,114 100.0 Revenue 1,038,908 100.0 889,722 100.0 712,833 100.0
340,312 18.0 Gross operating income 154,006 14.8 144,447 16.2 119,481 16.8
285,473 15.1 Operating income 123,677 11.9 122,874 13.8 95,967 13.5
268,695 14.2 Income before taxes 113,561 10.9 108,654 12.2 98,719 13.8
191,016 10.1 Group net income 78,451 7.6 75,598 8.5 71,391 10.0
YE 2022 Financial figures
(Euro/000)
1
ST half
2023
1
ST half
2022
1
ST half
2021
970,291 Group equity 1,013,823 851,766 727,207
1,579 Non-controlling interest 1,730 1,470 1,848
2,228,150 Total assets 2,120,338 1,796,254 1,491,173
46,590 Net working capital 54,711 8,951 24,146
901,298 Net invested capital 913,984 687,495 563,667
184,573 Cashflow 108,148 79,568 74,688
70,572 Net financial position (*) 101,570 165,741 165,388
YE 2022 Data per single share
(in Euros)
ST half
1
2023
ST half
1
2022
ST half
1
2021
37,411,428 Number of shares 37,411,428 37,411,428 37,411,428
7.63 Operating income per share 3.31 3.28 2.57
5.13 Net income per share 2.10 2.03 1.91
4.93 Cash flow per share 2,89 2.13 2.00
25.94 Shareholders' equity per share 27.10 22.77 19.44
YE 2022 Other information 1
ST half
2023
1
ST half
2022
1
ST half
2021
13,467 Number of employees 14,307 11,606 9,648

(*) for ESMA net financial indebtedness see Note 29

Reply Living Network

Reply living network

Reply is a group specialised in consulting, system integration and digital services, dedicated to creating innovative solutions based on new communication channels and digital media.

With its network of companies, Reply supports large industrial groups in defining business models enabled by new technological and digital communication paradigms, such as Artificial Intelligence, Cloud Computing and the Internet of Things (IoT). With distinguished technological and market skills, Reply is able to conceive, design and develop unique solutions to innovate its customers' processes, services and products.

Reply is characterised by:

  • a culture oriented towards technological innovation;
  • a flexible structure, capable of anticipating market evolutions and interpreting new technological drivers;
  • a delivery methodology of proven success and scalability;
  • a network of companies specialised in areas of expertise;
  • a team composed of specialists from the best universities;
  • highly experienced management;
  • continuous investment in research and development;
  • a network of long-term relationships with its customers.

The organisational model

Reply operates with a network structure made up of companies specialised in the field of processes, applications and technologies, constituting excellence in their respective fields of expertise.

Processes - For Reply, understanding and using technology means introducing a new enabling factor to processes, thanks to an in-depth knowledge of the market and specific industrial implementation contexts.

Applications - Reply designs and creates software solutions aimed at responding to the needs of the company's core business, in several industrial sectors.

Technologies - Reply optimises the use of innovative technologies, creating solutions capable of guaranteeing customers maximum efficiency and operational flexibility.

Reply's services

Strategy, creativity and consulting are three elements that feed each other and shape each other in each Reply project, providing concrete and effective solutions to the challenges of each sector.

Reply's services include:

Strategic consulting, communication, design, process, and technology consulting;

System Integration to make the most of the potential of technology, combining business consulting with innovative technological solutions with high-added value;

Digital Services based on new communication channels and digital trends.

Industry Focus

Thanks to its network model, Reply combines a deep knowledge of industrial sectors with the ability to support customers' technological evolution.

Automotive

Reply solidified its role as a partner of the main automotive groups in the evolution of production and logistics activities, as well as in the development of services onboard the vehicle through the design of advanced connectivity systems. In a highly competitive context due to the entry into the market of new players, the Group is supporting the main car manufacturers with integrated projects covering all phases of the supply chain

Reply's support ranges from the management of raw materials to the programming of production, from logistics to distribution and after-sales phases. Taking advantage of the proprietary platforms (Lea Reply for logistics and Brick Reply as a Manufacturing Execution System) and its strong skills in the cloud computing field, the Group is contributing to the transformation of the entire supply chain with a holistic vision and personalised solutions.

The pervasiveness of the ACES paradigm (Autonomous, Connected, Electric, Shared) is increasingly conditioning the automotive sector, pushing it towards greater sustainability of industrial activity and vehicles themselves. An important development area concerns the design of autonomous and semiautonomous driving systems, where Reply sits alongside the manufacturers in designing architecture and application solutions.

Reply is also active in the development of V2i connectivity platforms (Vehicle to Infrastructure) that exploit innovative end-to-end architectures for the management of the next generation of integrated services with traffic and electric charging infrastructures. With its cross-industry skills, the Group supports the dialogue between car manufacturers, utilities and third-party players in the creation of advanced mobility ecosystems.

Integrating data-driven marketing solutions, augmented/virtual reality and 3D systems, Reply is supporting the sector in the digitisation of pre-sales and sales processes. Virtual showrooms, e-commerce, and open finance solutions guide the potential buyer in relation to the configuration of the model, the subscription of value-added services, and requesting instant credit.

Energy & Utilities

Reply has consolidated experience in the energy & utility sector, with its knowledge of the main market dynamics and the ability to design, implement and manage solutions for some of the main operators in the sector. This ranges from energy & demand management to the management of new mobility services and charging of electric vehicles, up to smart grid solutions, asset management, forecasting and generation from renewables.

The trend towards a global energy crisis that began to emerge during the pandemic, is accelerating the transition by energy producers and distributors towards a more sustainable and secure energy system, Driven by global carbon neutrality objectives, the main operators are investing in technological innovation projects, to become increasingly resilient.

Leveraging skills and solutions based on the cloud, IoT, big data, advanced analytics and artificial intelligence, Reply is supporting operators in developing new tools to evolve energy component forecasting and monitoring processes, optimise operations, and activate new services and interaction patterns with consumer and enterprise customers.

Financial Institutions

Reply supports the main European players in the banking and insurance sector, combining a distinctive specialisation in the most relevant technologies, with significant knowledge of the regulatory framework, market dynamics and the evolving needs of operating and business models. In 2022, its leadership has been consolidated in European markets, by expanding its presence in Germany and France.

In addition to regulatory developments, technology has been the main driver of change in recent years, obtaining benefits in terms of the income statement and the balance sheet. In fact, financial institutions are increasingly becoming "tech companies" and to be successful they must innovate the entire value chain they manage (sales/distribution, operations, procurement).

Artificial intelligence, digital assets, and re-platforming of legacy infrastructures are key themes in the investment plans of banks, insurance companies, asset managers and other financial operators. Cloud computing plays the role of supporting innovation projects. This ranges from payments to wealth management, from customer onboarding to process optimisation and efficiency.

Government & Healthcare

Reply's activity in the government context is strongly oriented towards the design and implementation of an interoperable public administration, with the integration of big data and open data, artificial intelligence and deep learning, cloud and new architectures. The technologies are applied to improve the relationship with users and govern internal business processes.

In the healthcare and pharmaceutical fields, Reply has developed a suite of services based on territorybased healthcare, combining traditional skills in healthcare services (cost optimisation, process digitisation, electronic health records, management of healthcare materials and logistics), with skills in life science innovation, and solutions based on artificial intelligence at the service of new areas of bioinformatics (genomics, radiomics, predictive and precision medicine, digital pathology). It has also strengthened its offering to hospitals and telemedicine services and products, implementing its vision on the patient journey and health population management, improving the efficiency of monitoring and treatment processes from a

connected care perspective and through promoting the "One-Health" model. The model aims to enhancing the possibilities of treatment and prevention deriving from the connection between data, technologies and applications of the health sector with those of the pharmaceutical, environmental, food and welfare industries.

Logistics

Reply develops solutions aimed at the logistics processes of various industries, including fashion, retail, automotive, healthcare and food & beverage. These solutions specialised in the management of flows of raw materials, finished products, fleets and automated warehouses. Reply's logistics expertise is recognised by several analysts, including Gartner, which included the LEA Reply platform in the "Magic Quadrant for Warehouse Management Systems 2022".

Reply is supporting customers in the design and rollout of new distribution methods for e-commerce and quick-commerce, thanks to the implementation of micro-fulfilment centres and "just in time" processes. This support also includes the adoption of electric vehicles, robots and drones in intra-logistics contexts, enabled by the Internet of Things.

Reply have further extended the areas of intervention to sustainability and de-carbonisation of the supply chain, omnichannel models, and the adoption of flexible working models in the logistics and transport fields. Thanks to partnerships with leading industrial and logistics companies, experiments in the field of computer vision, autonomous goods delivery and wearables have also been strengthened.

Manufacturing

The digitisation of industrial procurement, production and maintenance processes is increasingly transforming production plants into open and flexible ecosystems, capable of improving management communication flows and supply chains, obtaining benefits of cost reduction and maximising results.

Following this trend, Reply supports numerous European industrial groups in the process of adopting specific cloud-native Digital Manufacturing Platforms. Reply has supported customers in a number of other relevant areas in relation to this complex transformational process: Procurement; control and planning systems based on the new cloud-native generations of ERP, MOM and MES; production planning and control; and in the integration with supply logistics networks.

Reply's skills extend from planning and control to product lifecycle management, with significant experience in implementing solutions from partner vendors such as Microsoft, Oracle and SAP, and from its own portfolio of platforms and accelerators, such as Brick Reply (MES) and Axulus Reply (Industrial Internet of Things). Particular attention is dedicated to the development of Industrial IoT solutions, as well as underlying new generations of connected products and services.

Retail

Retailer are investing significantly in evolving business models, driven by pressure on margins due to rising costs (energy, transport and human resources). Customers have been price-sensitive but at the same time have shown a need for personalised experiences, high-quality services and fast delivery.

Reply is involved in several initiatives to address these challenges by creating consistent and personalised omnichannel experiences and supporting relevant brands in the implementation, launch and management of engagement and sales platforms.

Reply is also supporting operators in this sector to understand the potential of the new Web3 models. Leveraging its technical capabilities and industry knowledge, Reply has developed several accelerators, including a virtual point of sale solution in the metaverse connected as a new channel to customer

engagement platforms. This "showcase" in the metaverse is allowing retailers to gain a better understanding of the future dynamics in their industry.

Telco & Media

In recent years, as hyperscalers were progressively expanding their presence in the traditional telco space with business models based on innovative technological capabilities, players in the industry have made massive investments in conventional assets, without redefining the underlying technologies. To overcome this trend, Reply is now supporting telcos in their transformation to software-based operators, starting with the redefinition of their technological foundations and creating cloud platforms capable of managing the entire technological stack, from network access to front-end channels, and in the definition of new business models enabled by composable architectures.

The evolution of the Telco market requires not only the massive adoption of technologies such as Artificial Intelligence, Cloud and Edge Computing and the Internet of Things, but also the renewal of Business Support Systems (BSS), so that they can be integrated into a technological context oriented towards valueadded services where Telco operators become increasingly Service Providers. Reply has significant specialist experience in these areas and has also built a strong positioning not only on BSSs but also in infrastructure areas, specializing in Network Engineering, Network Operations and Network Testing & Validation.

In the Media sector, publishers are reacting to the profound crisis of traditional channels, which is leading to a search for innovative digital solutions and new products that can satisfy customer preferences. Reply is supporting relevant European players in the process of converging offers, contributing to the design and implementation of new bundles made up of fixed/mobile broadband connectivity, value-added services and premium editorial or TV content.

Tech Pillars

Over the years, Reply consolidated its leadership in different markets by combining a constant vocation for innovation with an offer structured on the main pillars of digital evolution.

Artificial Intelligence & Automation

Artificial Intelligence is the technological area that saw the greatest acceleration in 2022. The market's attention on the results of generative AI systems, such as Dall-e and ChatGPT, and the search for efficiency has prompted companies to deepen their knowledge and adopt systems for the automatic creation of images, texts, and videos. Reply capitalised on the work done in the last two years on leading platforms such as GPT-3, offering customers the possibility of using artificial intelligence as an accelerator of both business processes and operations.

Reply has also consolidated its experience in the field of artificial intelligence applied to industrial contexts with specific projects related to quality control, predictiveness, cybersecurity, and automation of operational tasks. This is supporting the introduction of efficient and flexible business processes, in a concept of "hybrid work".

Projects combining machine learning and natural language processing have been developed in the field of financial services, e.g. in the field of fraud detection and for real-time credit score/rating calculation. In the healthcare sector Reply has developed specific applications based on AI models aimed at the analysis of radiological images, drug research, and personalised treatment plans.

In the field of customer interaction, AI technologies have been used to analyse data or customer sentiment, but above all, to create the intelligence component linked to digital humans. The development of digital human beings guided by artificial intelligence enriched a catalogue of solutions aimed, in particular, at customer relationship management.

The development of edge AI solutions, which involve running artificial intelligence algorithms directly on edge devices instead of sending data to the cloud for processing, has also seen a significant increase. In

recent months, Reply has participated in the development of edge AI solutions for the manufacturing and energy/utilities sectors.

A particular field of artificial intelligence is the automation applied to business processes. The insurance sector has been among the most active in this regard, particularly in the automation of back offices and document management services. Thanks to a large ecosystem of partnerships with vendors and start-ups, the creation of accelerators allowed Reply to support customers in areas where automation makes it possible to deal with enormous amounts of data. This includes extracting key information and reacting quickly, even in an automated manner, such as in procurement, supply chain, and risk management.

The push towards hyperautomation has also seen the enhancement of AI-powered software engineering. Developers are benefiting from greater efficiency and reliability of the code, which is completed, evaluated, and made secure in near-real time by automatic systems. Therefore, artificial intelligence is increasingly intervening in the development, testing, and deployment phases of software solutions, improving the efficiency of teams.

Cloud computing

Cloud computing is the architectural reference in all the solutions developed by Reply for its customers. With significant experience in the design and deployment of complex multi-cloud and hybrid architectures, Reply supports companies operating in several industries like manufacturing, financial services, automotive, utilities, and retail in the migration from legacy systems to the cloud and launch of innovative cloud-native projects.

Global strategic partnerships with AWS, Microsoft, Google and Oracle support Reply's ability to maintain and evolve solutions and services in the Infrastructure-as-a-Service, Platform-as-a-Service and Function-asa-Service models. Reply's proven ability to work with multi-platform architectures allows companies to easily integrate proprietary cloud-native platforms and Software-as-a-Service offered by global partners such as Adobe, Salesforce, and SAP.

As part of its commitment to sustainable technology, Reply is investing in GreenOps methodology and technologies like edge computing, which brings computation and data storage closer to the user, resulting

in reduced data transfer and lower energy consumption. This move towards edge computing has opened up new opportunities for the development of innovative applications and services, with faster response times and improved user experiences.

Reply has a strong expertise in fields like observability and site reliability engineering (SRE) and of the CAFFE (Cloud Adoption Framework for Enterprise) structured cloud adoption methodology. In addition, Reply strengthened its ability to design, implement and evolve cloud governance and FinOps solutions, helping optimise investments and recurring infrastructure costs for customers.

Cybersecurity

In the last two years, to deal with a continuous increase in cybercrime and geopolitical tensions, Reply has responded with a significant expansion in its ability to assist its customers in the protection, security, and compliance of applications, infrastructures, data, and IoT devices.

In the area of detection and response to cyber threats, Reply has developed significant experience in setting up systems such as Endpoint Detection and Response (EDR) and Extended Detection and Response (XDR), providing customers with high reaction speed and risk containment.

With the adoption of the DevSecOps paradigm, the joint Reply-customer development teams instil the culture of IT security in the application design and development cycle. Furthermore, the automation of test activities supported by artificial intelligence strengthens the reliability of the code.

In addition to the technical skills of information risk management, Reply has a strong knowledge of the legal and regulatory context. In the enterprise and consumer sectors, particular attention was paid to the world of data protection and privacy, as well as data from IoT devices.

Digital Experience & Customer Interaction

Through its global network of communications agencies and specialised technological companies, Reply offers a range of digital solutions that help organisations build exceptional digital experiences for all their stakeholders, including customers and employees. From defining brand strategies to creating omnichannel experiences and deploying underlying processes, Reply leverages its distinctive capacity to link technology, data, and creativity, with solid methodologies and relevant partnerships with major vendors.

By supporting the design of engaging "phygital" user experiences that are consistent with brands' values, Reply helps companies create flexible and modular digital experience platforms (DXP) and sales solutions that can manage content, communications, and the commerce of goods and services. Reply's technological capacity supports companies in adopting headless architectures, where the digital experience is combined with efficient order management and delivery processes, regardless of the goods delivery channel.

To ensure that both customers and operators have complete visibility into their operations, Reply integrates customer data platforms (CDP), ERP, and supply chain systems, creating a fluid, people-centric, and hyperpersonalised brand experience. Partnerships with leading CRM solution providers allow companies to enhance customer interactions with advanced analytics solutions leveraging zero-party and first-party data while safeguarding customer privacy.

For Reply, one area of particular focus is the adoption of artificial intelligence and machine learning to drive greater personalisation in digital experiences, boosting engagement and driving sales. On top of this focus is the integration of social media and messaging systems into digital experience platforms. By enabling customers to interact with brands through multiple channels and touchpoints, Reply helps clients create a seamless and cohesive brand experience that deepens customer loyalty.

Reply supportes clients in the entertainment, fashion, and gaming sectors with the launch of digital experiences based on Web3 pillars such as NFT, spatial computing, mixed reality, 3D, and blockchain. As the "Decentralised Web" continues to evolve, companies and consumers will increasingly experience immersive experiences in the metaverse. The development of more secure and flexible digital identities will be supported by the adoption of avatars and 3D photo-realistic digital humans interacting with natural voices.

Internet of Things

For Reply, IoT is one of the most mature technological domains, thanks to significant experience in both the industrial and consumer fields. The widespread diffusion of sensors is enabling new business models, especially in the enterprise environment. The market is seeing a growing diffusion of connected products and devices, supported by cloud-based services and increasingly sophisticated IT security systems, again with links to artificial intelligence.

The growth of edge computing has made possible a new era of connected products, primarily cars and industrial vehicles. Connected vehicles make it possible to improve safety, energy optimisation, comfort and onboard entertainment. They are also an important first step towards autonomous driving.

In manufacturing contexts, Industrial IoT systems are used to collect data on machinery, company fleets and connected products, to favour the predictability of maintenance, the improvement of production processes and the efficiency of logistics systems They can also gather useful information for the design of new products and services.

In addition to developing numerous projects in the manufacturing, energy and insurance fields, Reply strengthened the laboratories dedicated to the safety and testing of connected products. Reply also continued the development of the Breed Reply incubator, operating globally in the selection of internationally promising start-ups and scale-ups in the Internet of Things and deep-tech space.

Looking Forward

Reply has activated different international working groups between IT professionals, user experience experts and industry specialists. Their research and development activity allows them to monitor innovations on the market and accelerate new solutions' time to market.

Metaverse & Digital Humans

The metaverse and digital human technologies are rapidly maturing, allowing companies to re-design their interaction with customers. To support customers from different sectors in exploiting these new virtual worlds, Reply leverages its significant expertise in real-time 3D, artificial intelligence and blockchain, as well as international experience with Reply Game Studios in games and augmented, virtual, and mixed reality applications.

Reply started various initiatives to help its customers adopt the different technologies and new operational and organisational methods needed to establish themselves on the main platforms of the metaverse. These areas include 3D modelling, 3D reconstruction of environments, custom world creation, branded experiences, avatar creation, NFTs, and other resources based on extended reality technologies.

Reply is also developing distinctive experiences in the AI-powered Digital Humans area, with customised virtual presence solutions based on real-time tracking and the use of advanced natural language interpretation and generation models. These solutions will support the next generation of brand ambassadors and digital assistants for their stakeholders, including customers and employees.

Web3 & Digital Assets

The technologies that lay the foundation for digital assets, such as blockchain, are growing in importance at an international level, offering new opportunities in various sectors and primarily within the financial industry, both at the banking and insurance level and in more specific areas of asset & wealth management.

Payment tokens, security tokens, utility tokens and NFTs are the main kinds of digital assets. Reply has developed a deep understanding of the specific properties of each asset, allowing its customers to navigate this new phenomenon and supporting them in building journeys and innovative elements in their industries. Reply's consolidated experience in the key elements of this technology (distributed ledger technology and blockchain) and in the underlying strategic and operational dynamics, enabled it to structure a continuous observatory on digital assets at an international level and to build accelerators that can support and accompany its customers in the definition and subsequent implementation of new services and business models.

Mobility evolution

Thanks to the global drive towards ever more sustainable vehicles, electric mobility is rapidly gaining momentum as a solution to everyday transportation needs. With advances in battery technology and a growing charging infrastructure, electric vehicles are becoming more accessible and affordable.

Carmakers are collaborating with major players in the energy & utilities sector to create connected ecosystems, in which cars and commercial vehicles can use the potential offered by "Vehicle to Infrastructure" connectivity, optimising their ecological footprint and at the same time increasing the reliability and durability of electric and hybrid mobility.

Reply founded international working groups focused on the development of solutions for charging networks, bi-directional charging, battery lifecycle management and e-mobility platforms. Together with major carmakers, it is advancing autonomous driving experimentations, leveraging its distinctive capabilities in AI, cloud, and edge computing.

Sustainable & Green Innovation

The production and use of computer devices and systems are energy intensive and have a significant impact on the environment. It is important to consider the sustainability of ICT throughout its life cycle, from production to disposal, and in terms of hardware and software. Measuring energy consumption and

applying recognised standards such as the GHG Protocol ICT Sector Guidance to assess the impact of ICT are crucial steps towards improving sustainability in the sector.

By focusing on energy-efficient programming and developing best practices in software engineering, cloud and web design, Reply is taking a proactive approach to mitigate the environmental impact of ICT. Matcha Reply, Reply's proprietary methodology for managing sustainability in projects, follows the principle of integrating sustainability issues into the planning, execution and monitoring of ICT projects, improving their environmental and social impacts and promoting long-term sustainability.

Reply also believes that addressing sustainability in ICT requires collaboration between companies, governments and other stakeholders and actively promotes knowledge sharing, development of new partnerships and co-creation of innovative solutions. With this spirit, Reply has launched the IT Sustainability User Group, in which relevant players from different sectors investigate and test methodologies.

Next-Generation Telco Networks

Historically, telecommunications companies have been heavily tied to their network equipment vendors. This condition has consolidated a model in which architectures are composed of vertical silos and characterised by significant vendor lock-in, with a huge impact on rigidity and costs.

Network softwarisation and Telco Cloud are some of the areas of innovation that are consolidating, now supported by the paradigm of network disaggregation and the availability of edge computing sites, distinctive assets of telcos. Network cloudification aims to implement the network as cloud-native software and leverage established cloud mechanisms to support performance, reliability, and security needs.

After standing out through support with the rollout of numerous network unbundling initiatives, Reply is collaborating with the main international organisations and the major European telcos in the design and standardisation of solutions based on open source and collaborative ecosystems. These solutions can increase the efficiency of broadband and mobile networks, while improving the sustainability of networks and enabling new business and service models.

Interim financial report 2023

Financial Review of the Group

INTRODUCTION

The Half-Year condensed report for the period ended June 30, 2023 has been prepared in accordance with the Legislative Decree. 58/1998, as amended, and the "Regolamento Emittenti" issued by Consob. The Report also conforms with the requirements of the International Financial Reporting Standards ("IFRS") issued by International Accounting Standards Board ("IASB") adopted by the European Union and has been prepared in accordance with IAS 34 – Interim Financial Reporting.

TREND OF THE FIRST HALF

Since the start of the year, the Group has recorded a consolidated turnover of €1,038.9 million, which is an increase of 16.8% compared to the same period in 2022.

All indicators are positive for the period. In the first half of 2023, consolidated EBITDA of €154.0 million compared to the €144.4 million recorded in 2022 and corresponds to 14.8% of turnover.

EBIT, from January to June, was €123.6 million (€122.9 million in 2022), corresponding to 11.9% of turnover.

Pre-tax profit, from January to June 2023, was €113.5 million (€108.7 million in 2022), corresponding to 10.9% of turnover.

As regards the second quarter 2023, the Group's performance was also positive, with consolidated turnover for the period of €518.3 million, up by 15.5% compared to 2022.

EBITDA, from April to June 2023, amounted to €72.9 million, with EBIT of €58.0 million and pre-tax profit of €51.4 million.

As at 30 June 2023, the Group's net financial managerial position was positive for €101.6 million, whereas the financial position at 31 December 2022 was positive for €70.6 million.

In the first half of 2023 the Group has experienced a positive trend, both in terms of revenue and profitability. During these months, Reply has witnessed a continuous surge in companies' investments, with a strong focus on two primary directions of innovation: artificial intelligence and cloud computing.

RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME

Reply's performance is shown below in the following reclassified consolidated income statement of the first half and is compared to the corresponding figures of the previous year:

(thousand Euros) 1
ST half 2023
% 1
ST half 2022 (*)
%
Revenues 1,038,908 100.0 889,722 100.0
Purchases (15,139) (1.5) (17,027) (1.9)
Personnel (574,295) (55.3) (465,683) (52.3)
Services and other costs (297,974) (28.7) (276,566) (31.1)
Other operating (costs)/income 2,506 0.2 14,000 1.6
Operating costs (884,901) (85.2) (745,276) (83.8)
Gross operating income (EBITDA) 154,006 14.8 144,447 16.2
Amortization, depreciation and write-downs (31,421) (3.0) (24,681) (2.8)
Other non-recurring (costs)/income 1,092 0.1 3,109 0.3
Operating income (EBIT) 123,677 11.9 122,874 13.8
(Loss)/gain on investments (4,512) (0.4) (9,981) (1.1)
Financial income/(expenses) (5,603) (0.5) (4,240) (0.5)
Income before taxes 113,561 10.9 108,654 12.2
Income taxes (33,618) (3.2) (32,923) (3.7)
Net income 79,944 7.7 75,731 8.5
Non-controlling interests (1,493) (0.1) (133) -
Net income of the Parent company 78,451 7.6 75,598 8.5

(*) For a better comprehension of the income statement, it should be noted that some reclassifications of the values shown in the comparative figures have been made, which have not in any case changed the results originally exposed

RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME OF THE SECOND QUARTER

Reply's second quarter performance is shown below in the following reclassified consolidated income statement and is compared to corresponding figures of the previous second quarter:

(thousand Euros) Q2 2023 % Q2 2022 (*) %
Revenues 518,346 100.0 448,839 100.0
Purchases (5,527) (1.1) (9,588) (2.1)
Personnel (291,802) (56.3) (236,369) (52.7)
Services and other costs (149,350) (28.8) (142,825) (31.8)
Other operating (costs)/income 1,319 0.3 13,512 3.0
Operating costs (445,360) (85.9) (375,270) (83.6)
Gross operating income (EBITDA) 72,985 14.1 73,569 16.4
Amortization, depreciation and write-downs (15,984) (3.1) (11,469) (2.6)
Other non-recurring (costs)/income 1,092 0.2 3,109 0.7
Operating income (EBIT) 58,092 11.2 65,209 14.5
(Loss)/gain on investments (4,425) (0.9) (11,066) (2.5)
Financial income/(expenses) (2,172) (0.4) (4,852) (1.1)
Income before taxes 51,495 9.9 49,291 11.0

(*) For a better comprehension of the income statement, it should be noted that some reclassifications of the values shown in the comparative figures have been made, which have not in any case changed the results originally exposed

(*)

Region 1: ITA, USA, BRA, POL, ROU, CHN (Nanjing), NZL Region 2: DEU, CHE, CHN (Bejing), HRV Region 3: GBR, LUX, BEL, NLD, FRA, BLR, SGP, HKG, MYS

1

ST half 2023 1

ST half 2022

TREND IN KEY ECONOMIC INDICATORS

ANALYSIS OF THE FINANCIAL STRUCTURE

The table below illustrates the Group's financial structure as at June 30, 2023, compared to December 31, 2022:

(thousand Euros) 30/06/2023 % 31/12/2022 % Change
Current assets 723,827 843,276 (119,449)
Current liabilities (669,116) (796,686) 127,569
Working capital, net (A) 54,711 46,590 8,121
Non current assets 1,069,634 1,070,572 (937)
Non current liabilities (210,361) (215,864) 5,503
Fixed capital (B) 859,273 854,708 4,566
Invested capital, net (A+B) 913,984 100.0 901,298 100.0 12,686
Shareholders' equity (C) 1,015,554 111.1 971,869 107.8 43,684
NET FINANCIAL MANAGERIAL
POSITION (A+B-C)
(101,570) (11.1) (70,572) (7.8) (30,998)

Net invested capital at June 30, 2023, amounted to 913,984 thousand Euros and was funded by Shareholders' equity for 1,015,554 thousand Euros and by available overall funds of 101,570 thousand Euros.

It is to be noted that net invested capital includes Due to minority shareholders and Earn-out for a total of 131,336 thousand Euros (141,502 thousand Euros at 31 December 2022); this item is not included in the net financial managerial position. For the ESMA Net financial indebtedness, that includes Due to minority shareholders and Earn-out, see note 29.

The following table provides a breakdown of net working capital:

(thousand Euros) 30/06/2023 31/12/2022 Change
Work in progress 167,810 83,880 83,930
Trade receivables 419,797 657,568 (237,771)
Other assets 136,220 101,828 34,392
Current operating assets (A) 723,827 843,276 (119,449)
Trade payables 158,674 168,835 (10,161)
Other liabilities 510,442 627,850 (117,409)
Current operating liabilities (B) 669,116 796,686 (127,569)
Working capital, net (A-B) 54,711 46,590 8,121
% return on investments 2.7% 2.5%

NET FINANCIAL MANAGERIAL POSITION AND CASH FLOWS STATEMENT

(thousand Euros) 30/06/2023 31/12/2022 Change
Cash and cash equivalents, net 284,744 263,252 21,492
Current financial assets 41,840 30,608 11,232
Due to banks (32,239) (22,643) (9,596)
Due to other providers of finance (470) (660) 189
Financial liabilities IFRS 16 (30,080) (27,829) (2,251)
Short-term financial position 263,795 242,729 21,065
Due to banks (66,018) (74,533) 8,515
Financial liabilities IFRS 16 (96,207) (97,624) 1,417
M/L term financial position (162,225) (172,157) 9,932
Total net financial managerial position 101,570 70,572 30,998

Change in the item cash and cash equivalents is summarized in the table below:

(thousand Euros) 1
st half 2023
Cash flows from operating activities (A) 108,148
Cash flows from investment activities (B) (28,682)
Cash flows from financial activities (C) (57,974)
Change in cash and cash equivalents (D) = (A+B+C) 21,492
Cash and cash equivalents at beginning of period (*) 263,252
Cash and cash equivalents at year end (*) 284,744
Total change in cash and cash equivalents (D) 21,492

(*) Liquid assets and cash equivalents are net of current account overdrafts

The complete consolidated cash flow statement and the details of cash and other cash equivalents are set forth below in the financial statements.

OTHER INFORMATION

Research and development activities

Reply offers high technology services and solutions in a market where innovation is of primary importance.

Reply considers research and continuous innovation a fundamental asset in supporting clients with the adoption of new technology.

Reply dedicates resources to Research and Development activities in order to project and define highly innovative products and services as well as possible applications of evolving technologies. In this context, Reply has developed its own platforms.

Reply has important partnerships with major global vendors so as to offer the most suitable solutions to different company needs. Specifically, Reply boasts the highest level of certification amongst the technology leaders in the Enterprise sector.

Intergroup transactions and with related parties

During the period, there were no transactions with related parties, including intergroup transactions, which qualified as unusual or atypical. Any related party transactions formed part of the normal business activities of companies in the Group. Such transactions are concluded at standard market terms for the nature of goods and/or services offered, these transactions took place in accordance with the internal procedures containing the rules aimed at ensuring transparency and fairness, under Consob Regulation 17221/2010.

The company in the notes to the financial statements and consolidated financial statements provides the information required pursuant to Art. 154-ter of the TUF [Consolidated Financial Act] as indicated by Consob Reg. no. 17221 of 12 March 2010, indicating that there were no significant transactions concluded during the period as defined by Art. 4, paragraph 1, let a) of the aforementioned regulation that have significantly affected the Group's financial or economic position. The information pursuant to Consob communication of 28 July 2006 are presented in the annexed tables herein.

Human resources

At June 30, 2023 the number of employees of the Group was 14,307 with an increase of 840 compared to December 31, 2022 and an increase of 2,701 resources compared to June 30, 2022.

EVENTS SUBSEQUENT TO 30 JUNE 2023

No significant events have occurred subsequent to 30 June 2023

OUTLOOK ON OPERATIONS

In the first half of 2023 Reply has experienced a positive trend, both in terms of revenue and profitability. During these months, Reply has witnessed a continuous surge in companies' investments, with a strong focus on two primary directions of innovation: artificial intelligence and cloud computing.

In particular, the revolution triggered by the introduction of artificial intelligence, is just beginning its path of disruptive growth. In order to seize business opportunities related to AI, Reply has set up competence groups and dedicated companies that work on AI, vertically in specific areas and sectors.

Turin, August 1, 2023

/s/ Mario Rizzante

For the Board of Directors The Chairman Mario Rizzante

Half year condensed financial statements at 30 June 2023

CONSOLIDATED STATEMENT OF INCOME (*)

(thousand Euros) Note 1st half 2023 1
st half 2022 (**)
2022
Revenues 5 1,038,908 889,722 1,891,114
Other income 6 8,063 6,141 19,452
Purchases 7 (15,139) (17,027) (27,328)
Personnel 8 (574,295) (465,683) (986,744)
Services costs 9 (306,037) (282,706) (606,853)
Amortization, depreciation and write-downs 10 (31,421) (24,681) (58,612)
Other operating and non-recurring (cost)/income 11 3,598 17,109 54,445
Operating income 123,677 122,874 285,473
(Loss)/gain on investments 12 (4,512) (9,981) (12,102)
Financial income/(expenses) 13 (5,603) (4,240) (4,676)
Income before taxes 113,561 108,654 268,695
Income taxes 14 (33,618) (32,923) (76,511)
Net income 79,944 75,731 192,184
Non-controlling interest (1,493) (133) (1,168)
Net result of the Parent company 78,451 75,598 191,016
Basic and diluted earnings per share 15 2.10 2.03 5.13

(*) Pursuant to Consob Regulation No. 15519 of 27 July 2006, the effects of related-party transactions on the Consolidated statement of income are reported in the section "Annexed tables" herein and fully described in Note 36.

(**) For a better comprehension of the income statement, it should be noted that some reclassifications of the values shown in the comparative figures have been made, which have not in any case changed the results originally exposed

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

thousand Euros) Note 1st half 2023 st half 2022
1
Profit of the period (A) 79,944 75,731
Other comprehensive income that will not be reclassified subsequently to
profit or loss
Actuarial gains/(losses) from employee benefit plans (836) 3,680
Total Other comprehensive income that will not be reclassified
subsequently to profit or loss, net of tax (B1):
27 (836) 3,680
Other comprehensive income that may be reclassified subsequently to profit
or loss:
Gains/(losses) on cash flow hedges 323 1,561
Gains/(losses) on exchange differences on translating foreign
operations
2,639 11,213
Total Other comprehensive income that may be reclassified
subsequently to profit or loss, net of tax (B2)
2,962 12,774
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX
(B) = (B1) +(B2)
27 2,126 16,454
Total comprehensive income (A)+(B) 82,070 92,185
Total comprehensive income attributable to:
Owners of the parent 80,577 92,052
Non-controlling interest 1,493 133

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (*)

(thousand Euros) Note 30/06/2023 31/12/2022 30/06/2022
Tangible assets 16 103,156 98,068 87,768
Goodwill 17 630,084 630,255 488,428
Intangible assets 18 99,107 105,173 41,632
RoU Assets 19 112,438 112,341 114,750
Equity investments 20 49,189 51,049 55,590
Other financial assets 21 8,915 11,706 6,428
Deferred tax assets 22 66,745 61,979 68,439
Non-current assets 1,069,634 1,070,572 863,035
Inventories 23 167,810 83,880 155,554
Trade receivables 24 419,797 657,568 320,682
Other receivables and current assets 25 136,220 101,828 73,658
Financial assets 21 41,840 30,608 28,366
Cash and cash equivalents 21, 26 285,037 283,695 354,960
Current assets 1,050,704 1,157,578 933,219
TOTAL ASSETS 2,120,338 2,228,150 1,796,254
Share Capital 4,863 4,863 4,863
Other reserves 930,509 774,411 771,305
Net result of the period 78,451 191,016 75,598
Equity of the Parent company 27 1,013,823 970,291 851,766
Non-controlling interest 1,730 1,579 1,470
NET EQUITY 27 1,015,554 971,869 853,236
Due to minority shareholders and Earn-out 28 105,996 112,827 97,365
Financial liabilities 29 66,018 74,533 63,428
Financial liabilities from RoU 29 96,207 97,624 96,671
Employee benefits 30 45,162 42,831 45,812
Deferred tax liabilities 31 44,278 44,964 25,876
Provisions 32 14,925 15,242 15,436
Non-current liabilities 372,586 388,021 344,590
Due to minority shareholders and Earn-out 28 25,340 28,675 3,384
Financial liabilities 29 33,003 43,745 29,652
Financial liabilities from RoU 29 30,080 27,829 27,833
Trade payables 33 158,674 168,835 151,924
Other current liabilities 34 484,543 598,557 384,567
Provisions 32 559 619 1,067
Current liabilities 732,198 868,260 598,428
TOTAL LIABILITIES 1,104,785 1,256,281 943,018
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,120,338 2,228,150 1,796,254

(*) Pursuant to Consob Regulation No. 15519 of 27 July 2006, the effects of related-party transactions on the Consolidated statement of financial position are reported in the section "Annexed tables" herein and fully described in Note 36.

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY

(thousand Euros) Share
capital
Treasury
shares
Capital
reserve
Earning
reserve
Cash flow
hedge
reserve
Translation
reserve
Reserve for
actuarial
gains/(losses)
Non
controlling
interests
Total
At January 1°,
2022
4,863 (7,220) 299,533 527,724 (1,033) (3,032) (7,566) 2,625 815,895
Dividends
distributed
- - - (29,760) - - - (875) (30,635)
Change in treasury
shares
- (19,986) - - - - - - (19,986)
Total
comprehensive
income/(loss)
- - - 75,598 1,561 11,213 3,680 133 92,185
Other changes - - - (3,810) - - - (413) (4,223)
At June 30, 2022 4,863 (27,206) 299,533 569,752 528 8,181 (3,886) 1,470 853,236
(thousand Euros) Share
capital
Treasury
shares
Capital
reserve
Earning
reserve
Cash flow
hedge
reserve
Translatio
n reserve
Reserve for
actuarial
gains/(losses)
Non
controlling
interests
Total
At January 1°,
2023
4,863 (17,122) 299,533 684,679 2,599 (3,659) (603) 1,579 971,869
Dividends
distributed
- - - (37,278) - - - (1,120) (38,398)
Total
comprehensive
income/(loss)
- - - 78,451 323 2,639 (836) 1,493 82,070
Other changes - - - 235 - - - (221) 14
At June 30,
2023
4,863 (17,122) 299,533 726,087 2,922 (1,020) (1,439) 1,730 1,015,554

CONSOLIDATED STATEMENT OF CASH FLOWS

(thousand Euros) 1st half 2023 1st half 2022 (*)
Net result of the period 79,944 75,731
Income taxes 37,426 30,708
Depreciation and amortization 31,421 24,681
Other non-monetary expenses/(income) 11,172 14,103
Change in work in progress (90,096) (131,572)
Change in trade receivables 132,658 129,570
Change in trade payables (10,161) 12,003
Change in other assets and liabilities (42,851) (38,335)
Change in deferred tax liabilities (5,451) 2,213
Change in employee benefits and provisions 1,955 (2,789)
Income tax paid (36,843) (36,153)
Interest paid (2,495) (602)
Interest collected 1,469 11
Net cash flows from operating activities (A) 108,148 79,568
Payments for tangible and intangible assets (13,779) (14,722)
Payments for financial assets (5,370) (275)
Payments for the acquisition of subsidiaries (9,532) (30,310)
Net cash flows from investment activities (B) (28,682) (45,307)
Dividends paid (38,398) (30,635)
Payments for treasury shares - (19,986)
Financing granted 6,500 60,000
Reimbursement of lease liabilities (16,899) (15,007)
Repayment of loans (9,177) -
Net cash flows from financing activities (C) (57,974) (5,627)
Net cash flows (D) = (A+B+C) 21,492 28,634
Cash and cash equivalents at beginning of period 263,252 314,680
Cash and cash equivalents at period end 284,744 343,315
Total change in cash and cash equivalents (D) 21,492 28,634
Detail of cash and cash equivalents 1st half 2023 1st half 2022
(thousand Euros)
Cash and cash equivalents at beginning of period 263,252 314,680
Cash and cash equivalents 283,695 329,051
Bank overdrafts (20,443) (14,371)
Cash and cash equivalents at period end 284,744 343,315
Cash and cash equivalents 285,037 354,960
Bank overdrafts (293) (11,645)

(*) For a better comprehension of the cash flow statement, it should be noted that some reclassifications of the values shown in comparative figures have been made, which have not in any case changed the cash flows originally exposed.

Notes

General information Note 1 - General information
Note 2 - Accounting principles and basis of consolidation
Note 3 - Risk management
Note 4 - Consolidation
Income statement Note 5 - Revenue
Note 6 - Other revenues
Note 7 - Purchases
Note 8 - Personnel
Note 9 - Service costs
Note 10 - Amortization, depreciation and write-downs
Note 11 - Other operating and non-recurring (cost)/income
Note 12 - (Loss)/gain on investments
Note 13 - Financial income/(expenses)
Note 14 - Income taxes
Note 15 - Earnings per share
Statement of financial position - Assets Note 16 - Tangible assets
Note 17 - Goodwill
Note 18 - Other intangible assets
Note 19 - RoU Assets
Note 20 - Equity Investments
Note 21 - Financial assets
Note 22 - Deferred tax assets
Note 23 - Work-in-progress
Note 24 - Trade receivables
Note 25 - Other receivables and current assets
Note 26 - Cash and cash equivalents
Statement of financial position - Liabilities
and equity
Note 27 - Shareholders' equity
Note 28 - Due to minority shareholders and Earn-out
Note 29 - Financial liabilities
Note 30 - Employee benefits
Note 31 - Deferred tax liabilities
Note 32 - Provisions
Note 33 - Trade payables
Note 34 - Other current liabilities
Other information Note 35 - Segment Reporting
Note 36 - Transactions with related parties
Note 37 - Guarantees, commitments and contingent liabilities
Note 38 - Events subsequent to 30 June 2023
Note 39 - Approval of the Half year condensed Consolidated financial statements and
authorization to publish

NOTE 1 – GENERAL INFORMATION

Reply [EXM, STAR: REY] specialises in the design and implementation of solutions based on new communication channels and digital media. Reply is a network of highly specialised companies supporting key European industrial groups operating in the telecom and media, industry and services, banking, insurance and public administration sectors in the definition and development of business models enabled for the new paradigms of AI, cloud computing, digital media and the Internet of Things. Reply services include: Consulting, System Integration and Digital Services. www.reply.com

NOTE 2 - ACCOUNTING PRINCIPLES AND BASIS OF CONSOLIDATION

Compliance with International accounting principles

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board and endorsed by the European Union. The designation "IFRS" also includes all valid International Accounting Standards ("IAS"), as well as all interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), formerly the Standing Interpretations Committee ("SIC"). Following the coming into force of European Regulation No. 1606 of July 2002, starting from 1 January, 2005, the Reply Group adopted International Financial Reporting Standards (IFRS). The accounting principles applied are consistent with those used for preparation of the Consolidated Financial Statements at December 31, 2022.

More specifically the half year condensed consolidated financial statements at June 30, 2023 have been prepared in accordance to IAS 34 "Interim financial reporting".

The Half-Year financial report has been prepared in accordance with Consob regulations regarding the format of financial statements, in application of art. 9 of Legislative Decree 38/2005 and other Consob regulations and instructions concerning financial statements.

General principles

The consolidated financial statements are prepared on the basis of the historic cost principle, modified as requested for the appraisal of some financial instruments for which the fair value criterion is adopted in accordance with IFRS 9.

The consolidated financial statements have been prepared on the going concern assumption. In this respect, despite operating in a difficult economic and financial environment, the Group's assessment is that no material uncertainties (as defined in paragraph 25 of IAS 1) exist with regards its ability to continue as a going concern.

These consolidated financial statements are expressed in thousands of Euros and are compared to the consolidated financial statements of the previous year prepared in accordance with the same principles.

Further indication related to the format of the financial statements respect to IAS 1 is disclosed here within as well as information related to significant accounting principles and evaluation criteria used in the preparation of the following consolidated report.

Financial statements

The consolidated financial statements include the statement of income, statement of comprehensive income, statement of financial position, statement of changes in shareholders' equity, statement of cash flows and the explanatory notes.

The income statement format adopted by the Group classifies costs according to their nature, which is deemed to properly represent the Group's business.

The Statement of financial position is prepared according to the distinction between current and noncurrent assets and liabilities. The statement of cash flows is presented using the indirect method. The most significant items are disclosed in a specific note in which details related to the composition and changes compared to the previous year are provided.

It should be noted that in order to comply with the indications contained in Consob Resolution no. 15519 of 27 July 2006 "as to the format of the financial statements", additional statements: income statement and statement of financial position have been disclosed showing the amounts of related party transactions.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED SINCE JANUARY 1ST, 2023

With regard to the accounting standards approved but not yet applicable or not yet approved by the European Union, please refer to the Annual Report as at 31 December 2022.

With regard to the standards issued by the IASB but not yet effective or not yet approved by the European Union, please refer to the Annual Report as at 31 December 2022.

NOTE 3 - RISK MANAGEMENT

Credit risk

For business purposes, specific policies are adopted to assure its clients' solvency. With regards to financial counterparty risk, the Group does not present significant risk in credit-worthiness or solvency.

Liquidity risk

The group is exposed to funding risk if there is difficulty in obtaining finance for operations at any given point in time.

The cash flows, funding requirements and liquidity of the Group companies are monitored and centrally managed under the control of the Group Treasury. The aim is to guarantee the efficiency and effectiveness of the management of current and perspective capital resources (maintaining an adequate level of reserves of liquidity and availability of funds via a suitable amount of committed credit lines).

The difficult economic situation of the markets and of financial markets necessitates special attention being given to the management of the liquidity risk, and in that sense particular emphasis is being placed on measures taken to generate financial resources through operations and maintaining an adequate level of liquid assets. The Group therefore plans to meet its requirements to settle financial liabilities as they fall due and to cover expected capital expenditures by using cash flows from operations and available liquidity, renewing or refinancing bank loans.

Exchange rate and interest rate risk

The Group entered into most of its financial instruments in Euros, which is its functional and presentation currency. Although it operates in an international environment, it has a limited exposure to fluctuations in the exchange rates.

The exposure to interest rate risk arises from the need to fund operating activities and M&A and investments, as well as the necessity to deploy available liquidity. Changes in market interest rates may have the effect of either increasing or decreasing the Group's net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.

The interest rate risk to which the Group is exposed derives from bank loans; to mitigate such risks, the Group, when necessary, has used derivative financial instruments designated as "cash flow hedges". The use of such instruments is disciplined by written procedures in line with the Group's risk management strategies that do not contemplate derivative financial instruments for trading purposes.

Fair value assessment hierarchy levels

The IFRS 13 establishes a fair value hierarchy which classifies the input of evaluation techniques on three levels adopted for the measurement of fair value. Fair value hierarchy attributes maximum priority to prices quoted (not rectified) in active markets for identical assets and liabilities (Level 1 data) and the non-observable

minimum input priority (Level 3 data). In some cases, the data used to assess the fair value of assets or liabilities could be classified on three different levels of the fair value hierarchy. In such cases, the evaluation of fair value is wholly classified on the same level of the hierarchy in which input on the lowest level is classified, taking account its importance for the assessment.

The levels used in the hierarchy are:

  • Level 1 inputs are prices quoted (not rectified) in markets active for identical assets and liabilities which the entity can access on the date of assessment;
  • Level 2 inputs are variable and different from the prices quoted included in Level 1 observable directly or indirectly for assets or liabilities;
  • Level 3 inputs are variable and not observable for assets or liabilities.

The following table presents the assets and liabilities which were assessed at fair value on 30 June 2023, according to the fair value hierarchical assessment level.

(thousand Euros) Note Level 1 Level 2 Level 3
Investments 20 - - 49,189
Convertible loans 21 - - 3,200
Financial securities 21 36,343 - -
Derivative financial instruments 21 - 3,582 -
Total financial assets 36,343 3,582 52,389
Liabilities to minority shareholders and earn out 28 - - 131,336
Total financial liabilities - - 131,336

The valuation of investments in start-ups within the Internet of Things (IoT) business, through the acquisition of equity investments and through the issuance of convertible loans, is based on data not directly observable on active stock markets, and therefore falls under the fair value hierarchical Level 3.

The item Financial securities is related to securities listed on the active stock markets and therefore falls under the fair value hierarchical Level 1.

To determine the effect of interest rate derivate financial instruments Reply refers to evaluation deriving from third parties (banks and financial institutes). The latter, in the calculation of their estimates made use of data observed on the market directly (interest rates) or indirectly (interest rate interpolation curves observed directly): consequently, for the purposes of IFRS 7 the fair value used by the Group for the exploitation of hedging derivatives contracts in existence as at 30 June fall under the hierarchy profile in level 2.

The fair value of Liabilities to minority shareholders and earn out was determined by Group management on the basis of the sales purchase agreements for the acquisition of the company's shares and on economic parameters based on budgets and plans of the purchased company. As the parameters are not observable on stock markets (directly or indirectly) these liabilities fall under the hierarchy profile in Level 3.

As at 30 June 2023, there have not been any transfers within the hierarchy levels.

NOTE 4 – CONSOLIDATION

Companies included in the consolidation are included on a line-by-line basis.

Changes in consolidation compared to 30 June 2022 are related to:

  • Fincon Reply GmbH, a company established under German law, acquired in the month of July 2022, specializing in core processes and systems in the financial services sector, such as mobile banking, payments, banking CRM, internal control and compliance system, BIPRO and insurance systems, of which Reply Deutschland SE holds 100% of the share capital;
  • Wemanity Group, a company established under French law, acquired in the month of October 2022, digital transformation leader in France and Benelux, of which Reply France Sas, subsidiary of Reply S.p.A., holds 100% of the share capital.

Change in the consolidation as at June 30, 2023 affected Group's revenues by approximately 7% and profits before tax by 0.1%.

Furthermore, the list of the Reply Group companies, presented as an annex herein include the start-up companies, compared to 30 June 2022, Atomic Reply Ltd, Business Reply Public Sector S.r.l., Everlo Reply Gmbh, Logistics Reply Roma S.r.l., Neo Reply GmbH, Ki Reply GmbH, Shield Reply S.r.l., Spike Digital Reply GmbH, Spike Reply Ltd, Storm Reply Inc, Storm Reply Roma S.r.l., Tender Reply S.r.l., WM Reply S.r.l. and WM Reply GmbH.

NOTE 5 - REVENUE

Revenues from sales and services, including change in work in progress, amounted to 1,038,908 thousand Euros (889,722 thousand Euros at 30 June 2022).

This item includes consulting services, fixed price projects, assistance and maintenance services and other minor revenues.

The following table shows the percentage breakdown of revenues by Region. Moreover, the breakdown reflects the business management of the Group by Management and the allocation approximates the localization of the services provided:

Region (*) 1
st half 2023
1
st half 2022
Region 1 61.8% 65.0%
Region 2 19.4% 18.1%
Region 3 18.8% 16.9%
IoT Incubator 0.0% 0.0%
Total 100.0% 100.0%

(*)

Region 1: ITA, USA, BRA, POL, ROU, CHN (Nanjing), NZL Region 2: DEU, CHE, CHN (Bejing), HRV Region 3: GBR, LUX, BEL, NLD, FRA, BLR, SGP, HKG, MYS

Disclosure required by IFRS 8 ("Operating segment") is provided in Note 35 herein.

The following table shows the breakdown of revenues by Business Line:

Business line st half 2023
1
st half 2022
1
Technologies 61.4% 64.4%
Applications 25.2% 23.4%
Processes 13.4% 12.1%
Total 100.0% 100.0%

NOTE 6 – OTHER REVENUES

Other revenues amounted to 8,063 thousand Euros (6,141 thousand Euros at 30 June 2022) and mainly refer to miscellaneous income, non-recurring income and R&D contributions.

NOTE 7 - PURCHASES

Detail is as follows:

(thousand Euros) 1st half 2023 1
st half 2023
Change
Software licenses for resale 11,011 12,425 (1,414)
Hardware for resale 1,049 1,732 (683)
Other 3,080 2,870 209
Total 15,139 17,027 (1,888)

Purchases of Software licenses and Hardware licenses for resale are recognized net of any change in inventory.

The item Other includes the purchase of fuel for 2,137 thousand Euros, the purchase of tangible assets for 501 thousand Euros and the purchase of office stationery for 296 thousand Euros.

NOTE 8 - PERSONNEL

Detail is as follows:

(thousand Euros) 1st half 2023 1st half 2023 Change
Payroll employees 533,332 430,000 103,332
Executive Directors 40,963 35,683 5,280
Total 574,295 465,683 108,612

Personnel includes payroll employees and executive directors amounting to 574,295 thousand Euros compared to 465,683 thousand Euros of the first half 2022.

The increase in the cost of employees, amounting to 108,612 thousand Euros, is attributable to the total increase in the Group's business and in the increase of the number of employees.

Detail of personnel by category is provided below:

(thousand Euros) 1st half 2023 1st half 2023 Change
Directors 451 411 40
Managers 1,744 1,405 339
Staff 12,112 9,790 2,322
Total 14,307 11,606 2,701

On 30 June 2023 the Group had 14,307 employees compared with 11,606 of the first half 2022.

Change in consolidation brought an increase to the workforce equal to 952 employees.

Employees are mainly electronic engineers and economic, computer science, and business graduates from the best Universities.

NOTE 9 – SERVICE COSTS

Services and other costs comprised the following:

(thousand Euros) 1st half 2023 1st half 2022 Change
Commercial and technical consulting 210.616 202.542 8.075
Travelling and professional training expenses 21.089 13.258 7.830
Other service costs 47.956 44.542 3.415
Office expenses 10.499 9.184 1.315
Lease and rentals 4.027 2.969 1.058
Other 11.850 10.211 1.639
Total 306.037 282.706 23.331

Change in Commercial and technical consulting, amounting to 23,331 thousand Euros, is attributable to an overall increase in the Group's business.

The item Other service costs mainly includes marketing services, administrative and legal services, telephone and canteen; the increase is linked to the return to pre-pandemic levels.

Office expenses include services rendered by related parties referred to service contracts for the use of premises, domiciliation and provision of secretarial services for 644 thousand Euros and rent charged by third parties for 2,881 thousand Euros, utility costs for 4,681 thousand Euros, cleaning expenses for 1,101 thousand Euros and maintenance expenses for 776 thousand Euros.

NOTE 10 – AMORTIZATION, DEPRECIATION AND WRITE-DOWNS

Depreciation of tangible assets, calculated on the basis of economic-technical rates determined in relation to the residual useful lives of the assets, resulted in an overall charge as at 30 June 2023 of 7,574 thousand Euros. Details of depreciation are provided in the notes to tangible assets.

Amortization of intangible assets for the first half 2023 amounted to 8,120 thousand Euros. Details of depreciation are provided in the notes to intangible assets.

Amortization related to RoU assets arising from the adoption of IFRS 16 amounted to 15,713 thousand Euros.

NOTE 11 – OTHER OPERATING AND NON-RECURRING INCOME/(EXPENSES)

Other operating and non-recurring net income are related to events and operations that because of their nature do not occur continuously in normal operations, at 30 June 2023 they amounted to 3,598 thousand Euros (17,109 thousand Euros at 30 June 2022) and referred to:

  • Other operating non-recurring income/(expenses): 2,506 thousand Euros related to net positive changes in the provision for risks and charges for contractual, commercial and litigation risks and to provisions allocated to adjust assets.
  • Other non-operating and non-recurring income/(expenses): 1,092 thousand Euros related to the fair value adjustment of the liability for deferred consideration in relation to the purchase of investments in subsidiaries (Business combinations) which, for their nature, did not impact EBITDA.

NOTE 12 – (LOSS)/GAIN ON INVESTMENTS

The item amounting to negative 4,512 thousand Euros and is related to the fair value adjustments to equity investments in start-up companies made by the Investment company Breed Investments Ltd..

NOTE 13 – FINANCIAL INCOME/(EXPENSES)

Detail is as follows:

(thousand Euros) 1st half 2023 1st half 2023 Change
Financial income 2,200 960 1,240
Interest expenses (2,787) (1,023) (1,764)
Other (5,016) (4,176) (840)
Total (5,603) (4,240) (1,364)

Financial gains mainly include interest on bank accounts amounting to 1,469 thousand Euros and interest on financial investments amounting to 551 thousand Euros.

Interest expenses mainly include expenses related to loans for M&A operations.

The item Other mainly includes:

  • the interest expenses arising from the adoption of the International Accounting Standard IFRS 16 for 1,477 thousand Euros (1,520 at 30 June 2022);
  • the exchange rate differences from the translation of balance sheet items not stated in Euros resulting in a net loss of 2,871 thousand Euros (positive 1,817 thousand Euros at 30 June 2022);

  • the changes in fair value of financial liabilities pursuant to IFRS 9 resulting in a net loss of 870 thousand Euros (positive 1,112 thousand Euros at 30 June 2022);

  • the net changes in fair value of Convertible Loans including capitalized interest amounting to negative 70 thousand Euros (negative 1,824 thousand Euros at 30 June 2022);
  • the financial gain related to the fair value adjustments of the investments mainly held by Reply S.p.A. amounting to 287 thousand Euros (negative 3,676 thousand Euros at 30 June 2022).

NOTE 14 – INCOME TAXES

At June 30, 2023 income taxes amounted to 33,618 thousand Euros and were recognized in accordance to the expected annual average income tax rates.

NOTE 15 – EARNINGS PER SHARE

The basic earnings per share as at 30 June 2023 was calculated on the basis of the Group's net result amounting to 78,451 thousand Euros (75,598 thousand Euros as at 30 June 2022) divided by the weighted average number of shares at 30 June 2023, net of treasury shares, which amounted to 37,278,236 (37,253,888 at 30 June 2022).

(Euros) 1st half 2023 1st half 2023
Group net result 78,451,000 75,598,000
No. of shares 37,278,236 37,253,888
Basic earnings per share 2.10 2.03

The basic earnings per share is equal to the diluted earnings per share as there are no financial instruments potentially convertible in shares (stock options).

NOTE 16 - TANGIBLE ASSETS

Tangible assets as at 30 June 2023 amounted to 103,156 thousand Euros and were detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Buildings 64,814 58,592 6,222
Plant and machinery 6,298 6,665 (367)
Hardware 12,257 12,102 155
Other 19,787 20,710 (923)
Total 103,156 98,068 5,087

Change in tangible assets in the first half of 2023 is summarized in the table below:

(thousand Euros) Buildings Plant and
machinery
Hardware Other Total
Historical cost 63,130 19,856 54,598 54,562 192,147
Accumulated depreciation (4,538) (13,191) (42,496) (33,852) (94,078)
31/12/2022 58,592 6,665 12,102 20,710 98,068
Historical cost
Increases 6,800 567 3,771 1,603 12,741
Disposals - (186) (12,754) (755) (13,695)
Other changes 1 33 356 258 648
Accumulated depreciation
Depreciations (566) (997) (3,558) (2,454) (7,574)
Utilized - 186 12,607 696 13,488
Other changes (13) 32 (267) (272) (520)
Historical cost 69,931 20,270 45,972 55,669 191,841
Accumulated depreciation (5,117) (13,971) (33,714) (35,882) (88,685)
30/06/2023 64,814 6,298 12,257 19,787 103,156

The item Buildings mainly includes:

  • the net value of a building owned by the group amounting to 4,428 thousand Euros located in Guetersloh, Germany.
  • the real estate complex located in Turin and called "ex Caserma De Sonnaz" for 34,236 thousand Euros, that after proper renovation will be used to host the offices of the Group.
  • the real estate complex located in Turin Via Nizza 250 in the net amount of 25,807 thousand Euros that hosts the offices of the Group.

Increase in the item Buildings mainly refers to the restructuring of the real estate complex located in Turin and called "ex Caserma De Sonnaz".

Increase in the item Plant and machinery mainly refers to purchases of general devices and to plant systems for the offices in which the Group operates.

Change in the item Hardware is related to investments made by the companies included in Region 1 for 1,770 thousand Euros, 1,590 thousand Euros for investments made by the companies included in Region 2 and 411 thousand Euros for investments made by the companies included in Region 3.

The item Other as at 30 June 2023 mainly includes improvements to third party assets and office furniture. The increase of 1,630 Euros mainly refers to the purchases of furniture and fittings for 609 thousand Euros, to improvements made to the offices where the Group's companies operate for 376 thousand Euros and the purchase of other assets for 645 thousand Euros.

Other changes mainly refer to exchange differences.

As at 30 June 2023 tangible assets were depreciated by 46.2% of their value, compared to 49.0% at the end of 2022.

NOTE 17 - GOODWILL

This item includes goodwill arising from consolidation of subsidiaries purchased against payment made by some Group companies.

Goodwill was allocated to the cash generating units ("CGU"), identified in the Region in which the Group operates (Region 1 includes the CGU related to American companies). The breakdown reflects the business management of the Group by Management and is summarized as follows:

Value at Value at
(thousand Euros) 31/21/2022 Increases Exchange difference 30/06/2023
Region 1 205,427 - (2,738) 202,689
Region 2 233,053 - - 233,053
Region 3 191,774 - 2,567 194,342
Total 630,255 - (171) 630,084

As at 30 June 2023 the Group did no detect any impairment indicator that required interim impairment testing.

NOTE 18 - OTHER INTANGIBLE ASSETS

Net intangible assets as at 30 June 2023 amounted to 99,107 thousand Euros (105,173 thousand Euros at 31 December 2022) and are detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Development costs 3,035 2,422 614
Software 4,088 4,892 (805)
Trademark 537 537 -
Customer lists (PPA) 91,448 97,323 (5,875)
Total 99,107 105,173 (6,066)

Change in intangible assets in the first half of 2023 is summarized in the table below:

Other
intangible
(thousand Euros) Development costs Software Trademark assets Total
Historical cost 33,580 27,238 537 120,151 181,506
Accumulated depreciation (31,158) (22,346) - (22,829) (76,333)
31/12/2022 2,422 4,892 537 97,323 105,173
Historical cost
Increases 1,408 1,038 - - 2,446
Disposals - (2,602) - - (2,602)
Other changes - (4) - 310 306
Accumulated depreciation
Depreciations (798) (1,396) - (5,927) (8,120)
Utilized - 2,125 - - 2,125
Other changes 3 34 - (258) (221)
Historical cost 34,988 25,670 537 120,461 181,656
Accumulated depreciation (31,953) (21,582) - (29,014) (82,549)
30/06/2023 3,035 4,088 537 91,448 99,107

Development costs refer to software and are accounted for in accordance with provisions of IAS 38.

The item Software mainly refers to software licenses purchased and used internally by the Group companies. This item includes 424 thousand Euros related to software development for internal use.

The item Trademark mainly refers to the value of the "Reply" trademark granted on 9 June 2000 to the Parent Company Reply S.p.A. (at the time Reply Europe Sàrl), in connection with the share capital increase that was resolved and subscribed to by the Parent Company. Such amount is not subject to systematic amortization.

The item Customer lists mainly refers to the Purchase Price Allocation following several Business combinations carried out in previous years.

NOTE 19 – ROU ASSETS

The application of the IFRS 16 accounting standard, in use since 1 January 2019, resulted in the accounting of the book value of the right-of-use asset ("RoU Asset") that is equal to the book value of the liabilities for leasing on the date of first application, net of any accrued income/costs or deferred revenue/expenses related to the lease.

The table below shows the RoU Assets divided by category:

(thousand Euros) 31/12/2022 Net changes Amortization Exchange
differences
30/06/2023
Buildings 96,670 8,247 (11,252) 1,786 95,452
Vehicles 14,660 5,617 (4,276) 186 16,187
Office equipment 1,010 (26) (185) - 800
Total 112,341 13,838 (15,713) 1,972 112,438

The net changes mainly refer to the signing of new financial leasing agreements, resulting in an increase in the value of the right of use, the redetermination of certain liabilities, increases in rents and the renegotiation of existing contracts.

NOTE 20 - EQUITY INVESTMENTS

The item Equity investments amounts to 49,189 thousand Euros and includes investments in start-up companies principally in the IoT field made by the Investment company Breed Investments Ltd for 48,932 thousand Euros.

Note that the companies, mainly held through an Investment Entity, are designated at fair value and accounted for in accordance with IFRS 9 "Financial Instruments: Recognition and Measurements". The fair value is determined using the International Private Equity and Venture Capital valuation guideline (IPEV) and, as per industry practice, any change therein is recognized in profit /(loss) in the period in which they occurred.

Detail of investments in start-up companies is as follows:

(thousand Euros) Value at
31/12/2022
Net
increases/disposals
Equity
conversion of
the
convertible
loans
Net fair
value
adjustments
Exchange
differences
Value at
30/06/2023
Investments 50,823 2 2,913 (4,512) (294) 48,932

Net fair value adjustments

The net fair value evaluation amounting to 4,512 thousand Euros reflects the market value adjustments of the last rounds that took place in the first half 2023 on investments already in portfolio.

All fair value assessments shall be part of the hierarchy level 3.

NOTE 21 - FINANCIAL ASSETS

Current and non-current financial assets amounted to a total of 50,754 thousand Euros compared to 42,314 thousand Euros at 31 December 2022.

Detail is as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Short term securities 8,111 1,451 6,660
Financial investments 28,232 27,201 1,031
Derivative financial instruments 3,582 - 3,582
Loans to third parties 133 156 (23)
Receivables from factor 1,781 1,800 (19)
Current financial assets 41,840 30,608 11,231
Receivables from insurance companies 3,262 3,250 11
Guarantee deposits 2,065 1,808 257
Other financial assets 388 358 30
Convertible loans 3,200 6,289 (3,089)
Non-current financial assets 8,915 11,706 (2,791)
Total 50,754 42,314 8,440

Short-term securities mainly refer to Time Deposit investments.

The item Financial investments refers to bonds held by the parent company Reply S.p.A.. The valuation of these short-term investments, based on their fair value at 30 June 2023, showed a positive difference amounting to 286 thousand Euros compared to the purchase cost of the same.

Receivables from factor refer to the receivable related to the sale of non-recourse invoices net of advances received amounting to 1.781 thousand Euros.

The item Derivative financial instruments refers to several loans established with Unicredit S.p.A. to hedge changes in floating interest rates on mortgages; the total underlying notional amounts to 65,333 thousand Euros. The effective component of the instruments is stated in the Statement of changes in net equity whereas the ineffective portion of the Derivative instruments is recorded at the income statement.

The item Receivables from insurance companies mainly refers to the insurance premiums paid against pension plans of some German companies and to directors' severance indemnities.

Convertible loans relate to the option to convert into shares of the following start-up company in the field of IoT, detail is as follows:

Net fair
value
(thousand Euros) Value at
31/12/2022
Increases/
disposals
Equity
conversion
Capitalized
interests
adjustment
s
Exchange
differences
Value at
30/06/2023
Convertible loans 6,289 (257) (2,913) 133 (70) 18 3,200

Net fair value adjustments

The net fair value adjustments reflects the market value of the assets converted in the first half of 2023 into equity at the time of conversion.

Cash and cash equivalents are detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Bank accounts 284,988 283,653 1,335
Cash 49 42 7
Total 285,037 283,695 1,343

For further details please see note 26.

NOTE 22 - DEFERRED TAX ASSETS

Deferred tax assets, amounting to 66,745 thousand Euros as at 30 June 2023 (61,979 thousand Euros as at 31 December 2022), include the fiscal charge corresponding to the temporary differences deriving from income before taxes and taxable income in relation to deferred deductibility items.

The decision to recognize deferred tax assets is taken by assessing critically whether the conditions exist for the future recoverability of such assets on the basis of expected future results.

NOTE 23 – WORK IN PROGRESS

Contract work in progress, amounting to 167,810 thousand Euros, is recognized net of a provision amounting to 60,892 thousand Euros (54,726 thousand Euros at 31 December 2022) and is detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Contract work in progress 316,728 161,262 155,467
Advance payments from customers (148,918) (77,382) (71,537)
Total 167,810 83,880 83,930

Any advance payments from customers are deducted from the value of the inventories, within the limits of the accrued consideration, representing the assets deriving from the contracts; the exceeding amounts, as well as the advance payments related to work in progress not yet started, are accounted as liabilities.

Change in the provision is mainly due to the accrual made during the fiscal year amounting to 14,196 thousand euros.

NOTE 24 - TRADE RECEIVABLES

Trade receivables as at 30 June 2023 amounted to 419,797 thousand Euros with a net decrease of 237,771 thousand Euros.

(thousand Euros) 30/06/2023 31/12/2022 Change
Domestic clients 334,670 528,069 (193,399)
Foreign trade receivables 101,154 143,329 (42,175)
Credit notes to be issued (10,558) (8,225) (2,333)
Total 425,265 663,173 (237,908)
Allowance for doubtful accounts (5,468) (5,605) 137
Total trade receivables 419,797 657,568 (237,771)

Trade receivables are shown net of allowances for doubtful accounts, calculated by using the expected credit loss approach pursuant to IFRS 9, amounting to 5,468 thousand Euros at 30 June 2023 (5,605 thousand Euros at 31 December 2022).

The Allowance for doubtful accounts developed in the first half of 2023 as follows:

(thousand Euros) 31/12/2022 Provision Reversal Utilization Other changes 30/06/2023
Allowance for doubtful accounts 5,605 1,269 (1,316) (114) 25 5,468

The carrying amount of trade receivables, that at initial recognition is equal to its fair value adjusted for attributable transaction costs, is subsequently valued at the amortised cost appropriately adjusted to take into account any write-downs.

Trade receivables are all collectible within one year.

NOTE 25 - OTHER RECEIVABLES AND CURRENT ASSETS

Detail is as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Tax receivables 72,844 54,255 18,590
Accrued income and prepaid expenses 42,909 30,780 12,129
Other receivables 20,466 16,793 3,673
Other receivables and current assets 136,220 101,828 34,392

The item Tax receivables mainly includes:

  • credit to the Treasury for VAT amounting to 40,432 thousand Euros (35,034 thousand Euros at 31 December 2022).
  • income tax prepayments net of allocated liability amounting to 21,455 thousand Euros (9,792 at 31 December 2022);
  • receivables for withholding tax amounting to 1,968 thousand Euros (1,535 thousand Euros at 31 December 2022).

The item Other receivables includes the contributions receivable in relation to research projects for 6,483 thousand Euros (7,142 thousand Euros at 31 December 2022) and receivables from foreign tax administrations for 6,586 thousand Euros (5,455 thousand Euros at 31 December 2022).

NOTE 26 - CASH AND CASH EQUIVALENTS

The balance of 285,037 thousand Euros, with an increase of 1,343 thousand Euros compared to 31 December 2022, represents cash and cash equivalents at the end of reporting period.

Changes in cash and cash equivalents are fully detailed in the Consolidated statement of cash flows.

NOTE 27 - SHAREHOLDERS' EQUITY

Share capital

As at 30 June 2023 the share capital of Reply S.p.A., fully subscribed and paid, amounted to 4,863,486 Euros and comprises 37,411,428 ordinary shares of a nominal value of 0.13 Euros each. The number of shares in circulation as at 30 June 2023 total 37,278,236 (the same as at 31 December 2022).

Treasury shares

The value of the Treasury shares, amounting to 17,123 thousand Euros, refers to the shares of Reply S.p.A. held by the parent company, that at 30 June 2023 are equal to n. 133,192 (the same as at 31 December 2022).

Capital reserves

As at 30 June 2023 Capital reserves, amounting to 299,533 thousand Euros, were mainly comprised as follows:

  • Treasury share reserve amounting to 17,123 thousand Euros, relating to the shares of Reply S.p.A held by the Parent Company;
  • Reserve for the purchase of treasury shares amounting to 282,878 thousand Euros, formed via initial withdrawal from the share premium reserve. By means of a resolution of the Shareholders' Meeting of 20 April 2023 Reply S.p.A. re-authorized, in accordance with and for the purposes of Article 2357 of the Italian Civil Code, the purchase of a maximum of 300 million Euros of ordinary shares, corresponding to 20% of the share capital, in a lump sum solution or in several solutions within 18 months of the resolution.

Earning reserves

Earnings reserves amounted to 726,086 thousand Euros and were comprised as follows:

  • Reply S.p.A.'s Legal reserve amounted to 973 thousand Euros;
  • Retained earnings amounted to 646,663 thousand Euros (retained earnings amounted to 492,690 thousand Euros at 31 December 2022);
  • Profits attributable to shareholders of the Parent Company amounted to 78,451 thousand Euros (191,016 thousand Euros at 31 December 2022).

Other comprehensive income

Other comprehensive income can be analysed as follows:

(thousand Euros 1st half 2023 1
st half 2022
Other comprehensive income that will not be reclassified subsequently to profit or
loss, net of tax:
Actuarial gains/(losses) from employee benefit plans (836) 3,680
Total Other comprehensive income that will not be reclassified subsequently to
profit or loss, net of tax (B1):
(836) 3,680
Other comprehensive income that may be reclassified subsequently to profit or loss,
net of tax:
Gains/(losses) on cash flow hedges 323 1,561
Gains/(losses) on exchange differences on translating foreign
operations
2,639 11,213
Total Other comprehensive income that may be reclassified subsequently to
profit or loss, net of tax (B2):
2,962 12,774
Total other comprehensive income, net of tax (B) = (B1) +(B2) 2,126 16,454

Non-controlling interest

Non-controlling interest refer to the participation of non-controlling shareholders in the capital of companies included in consolidation and as at 30 June 2023 amounted to 1,730 thousand Euros (1,579 thousand Euros at 31 December 2022).

NOTE 28 - DUE TO MINORITY SHAREHOLDERS AND EARN-OUT

Due to minority shareholders and Earn-out at 30 June 2023 amounted to 131,336 thousand Euros (141,502 thousand Euros at 31 December 2022), of which 25,340 thousand Euros current.

The item refers to deferred consideration defined in the business combinations. The distinction between Due to Minority Shareholders and Earn-out stems solely from whether or not there is any legal minority interest related to the initial transition.

Detail is as follows:

(thousand Euros) 31/12/2022 Increases Fair value
adjustments
Payments Exchange
differences
30/06/2023
Payables to minority shareholders 9,539 - - - - 9,539
Payables for Earn out 131,963 - (1,092) (9,321) 246 121,798
Total due to minority shareholders
and Earn-out
141,502 - (1,092) (9,321) 246 131,336

The item Fair value adjustments in the first half of 2023 amounted to 1,092 thousand Euros with a balancing entry in Profit and loss, reflects the best estimate in relation to the deferred consideration originally posted at the time of acquisition.

Total payments made amounted to 9,321 thousand Euros and refer to the consideration paid in relation to the initial contracts signed at the time of acquisition.

NOTE 29 - FINANCIAL LIABILITIES

Detail is as follows:

30/06/2023 31/12/2022
(thousand Euros) Current Non
current
Total Current Non
current
Total
Bank overdrafts 293 - 293 20,443 - 20,443
Bank loans 32,239 66,018 98,257 22,643 74,533 97,175
Total due to banks 32,532 66,018 98,550 43,086 74,533 117,618
Other financial borrowings 470 - 470 660 - 660
IFRS 16 financial liabilities 30,080 96,207 126,287 27,829 97,624 125,453
Total financial liabilities 63,082 162,225 225,308 71,574 172,157 243,731

The following table illustrates the distribution of financial liabilities by due date:

30/06/2023 31/12/2022
(thousand Euros) Due in 12
months
From 1 to 5
years
Over 5
years
Total Due in 12
months
From 1 to
5 years
Over 5
years
Total
Bank overdrafts 293 - - 293 20,443 - - 20,443
M&A loans 25,236 39,094 - 64,330 20,952 51,214 - 72,167
Mortgage loans 1,990 14.307 10,220 26,517 325 11,459 8,960 20,744
Bank loans 5,013 2,397 - 7,411 2,150 5,991 - 8,141
Other financial borrowings 470 - - 470 660 - - 660
IFRS 16 financial liabilities 30,080 79,672 16,535 126,287 27,829 79,053 18,571 125,453
Derivative financial instruments - - - - (785) (2,076) (1,016) (3,876)
Total 63,082 135.470 26,755 225,308 71,572 145,642 26,515 243,731

M&A loans refer to credit lines to be used for acquisition operations carried out directly by Reply S.p.A. or via companies controlled directly or indirectly by the same.

Summarized below are the existing contracts entered into for such a purpose:

  • On 8 May 2020 Reply S.p.A. entered into a line of credit with Unicredit S.p.A. for a total amount of 50,000 thousand Euros to be used by 27 May 2022. As at 30 June 2023 this line had been used for 33,333 thousand Euros.
  • On 8 November 2021 Reply S.p.A. entered into a line of credit with Intesa Sanpaolo S.p.A. for a total amount of 75,000 thousand Euros to be used by 31 May 2023. The loan will be reimbursed on a half year basis deferred to commence on 29 September 2023 and will expire on 30 September 2026. As at 30 June 2023 this line had been used for 30,000 thousand Euros.
  • On 19 May 2022 Reply S.p.A. entered into a line of credit with Unicredit S.p.A. for a total amount of 50,000 thousand Euros to be used by 29 May 2024. As at 30 June 2023 this line had been used for 500 thousand Euros.
  • On 20 February 2023 Reply S.p.A. entered into a line of credit with Banco BPM S.p.A. for a total amount of 50,000 thousand Euros to be used by 1 April 2025. As at 30 June 2023 this line had been used for 500 thousand Euros.

Interest rates are also applied according to certain predetermined ratios (Covenants) of economic and financial nature calculated on the consolidated financial statements as at 30 June of each year and/or the consolidated interim report.

As contractually defined, such ratios are as follows:

  • Net financial indebtedness/Equity
  • Net financial indebtedness/EBITDA

At 30 June 2023, Reply fulfilled the Covenants under the various contracts.

The item Mortgages refers to financing granted to Tool Reply GmbH by Commerzbank for a total amount amounting to 2,500 thousand Euros to be used by 30 June 2028. The loan is reimbursed on a quarter-year basis (at 0.99%). As at 30 June 2023 this line had been used for 1,317 thousand Euros.

It should also be noted that on 24 May 2018 Reply S.p.A. undersigned with Unicredit S.p.A. a mortgage loan secured by guarantee for the purchase and renovation of the property De Sonnaz for a total amount of 40,000 thousand Euros. On November 15, 2021, an amendment was signed with the same institution, agreeing to extend the period of use from 36 to 66 months, without prejudice to the maximum total duration of 156 months (13 years). The mortgage is disbursed in relation to the progress of the work. Such credit line was used for 25,200 thousand Euros at 30 June 2023.

The item IFRS 16 financial liabilities is related to the financial lease liabilities at 30 June 2023 following the adoption of the Accounting Standard IFRS 16.

The carrying amount of the Financial Liabilities approximates the value determined through the application of the amortised cost method.

Net financial indebtedness

The net financial indebtedness reported below was prepared according to CONSOB communication no. DEM / 6064293 of July 28, 2006, updated with the provisions of ESMA guideline 32-382-1138 of March 4, 2021 as implemented by the CONSOB warning no. 5/21 of 29 April 2021:

(thousand Euros) 30/06/2023 31/12/2022 Change
A Cash 285,037 283,695 1,343
B Cash equivalents - - -
C Current financial assets 38,258 30,608 7,649
D Cash (A+B+C) 323,295 314,303 8,992
E Current financial liabilities 30,841 48,147 (17,305)
F Short-term portion of long financial liability 32,241 23,428 8,813
G Financial liabilities short-term (E+F) 63,082 71,574 (8,492)
H Net financial debt short-term (G-D) (260,212) (242,729) (17,484)
I Financial liabilities long-term 162,225 175,251 (13,026)
J Financial instruments (3,582) (3,095) (487)
K Other liabilities long-term 131,336 141,502 (10,166)
L Financial debt long-term (I+J+K) 289,979 313,659 (23,679)
Total financial debt 29,767 70,930 (41,163)

Net financial indebtedness includes IFRS 16 financial liabilities amounting to 126,287 thousand Euros, of which 96,207 thousand Euros were non-current and 30,080 were current.

The item Commercial and other non-current liabilities is related to liabilities to minority shareholders and Earn-out assimilated to unpaid debts with a significant implicit financial component.

For further details with regards to the above table see Note 26 as well as Note 29.

Pursuant to the aforementioned recommendations long term financial assets are not included in the net financial indebtedness.

As previously mentioned in Note 28, Due to minority shareholders and Earn-out are included in the invested capital and are not included in the net financial managerial position.

Change in financial liabilities during the first half of 2023 is summarized below:

(thousand Euros)
Total financial liabilities 2022 243,731
Bank overdrafts (20,433)
IRS 3,876
Non-current financial liabilities 2022 227,164
IFRS 16 financial liabilities 834
Cash flows (2,983)
Total non-current financial liabilities as at 30 June 2023 225,015
Bank overdrafts 293
IRS -
Total financial liabilities as at 30 June 2023 225,308

NOTE 30 - EMPLOYEE BENEFITS

Employee benefits are detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Employee severance indemnities 36,210 33,830 2,381
Employee pension funds 7,231 7,316 (85)
Directors severance indemnities 1,706 1,670 36
Other 16 16 -
Total 45,162 42,831 2,331

Employee severance indemnities

The Employee severance indemnity represents the obligation to employees under Italian law (amended by Law 296/06) that has accrued up to 31 December 2006 and that will be settled when the employee leaves the company. In certain circumstances, a portion of the accrued liability may be given to an employee during his working life as an advance. This is an unfunded defined benefit plan, under which the benefits are almost fully accrued, with the sole exception of future revaluations.

The procedure for the determination of the Company's obligation with respect to employees was carried out by an independent actuary according to the following stages:

  • Projection of the Employee severance indemnity already accrued at the assessment date and of the portions that will be accrued until when the work relationship is terminated or when the accrued amounts are partially paid as an advance on the Employee severance indemnities;
  • Discounting, at the valuation date, of the expected cash flows that the company will pay in the future to its own employees;

  • Re-proportioning of the discounted performances based on the seniority accrued at the valuation date with respect to the expected seniority at the time the company must fulfil its obligations. In order to allow for the changes introduced by Law 296/06, the re-proportioning was only carried out for employees of companies with fewer than 50 employees that do not pay Employee severance indemnities into supplementary pension schemes.

  • Reassessment of Employee severance indemnities in accordance with IAS 19 was carried out "ad personam" and on the existing employees, that is analytical calculations were made on each employee in force in the company at the assessment date without considering future work force.

The actuarial valuation model is based on the so-called technical bases which represent the demographic, economic and financial assumptions underlying the parameters included in the calculation.

In accordance with IAS 19, Employment severance indemnities at 30 June 2023 are summarized in the table below:

(thousand Euros) Balance as at 31/12/2022 33,830 Cost relating to current work (service cost) 3,120 Actuarial (gain)/loss 847 Interest cost 617 Indemnities paid during the year (2,183) Change in consolidation (21) Balance as at 30/06/2023 36,210

Employee pension funds

The Pension fund item relates to liability as regards the defined benefit pensions of some German companies.

Director's severance indemnities

This amount is related to Directors severance indemnities paid during the year.

NOTE 31 - DEFERRED TAX LIABILITIES

Deferred tax liabilities at 30 June 2023 amounted to 44,278 thousand Euros and are referred mainly to the fiscal effects arising from temporary differences of statutory income versus taxable income. Deferred tax liabilities have not been recognized on retained earnings of the subsidiary companies as the Group is able to control the timing of distribution of said earnings and in the near future does not seem likely.

NOTE 32 - PROVISIONS

Provisions amounted to 15,484 thousand Euros (of which 14,925 thousand Euros non-current). Change in the first half of 2023 is summarized in the table below:

(thousand Euros) Balance at
31/12/2022
Accruals Utilization Reversals Other changes Balance at
30/06/2023
Fidelity fund 814 52 (42) - - 823
Provision for risks 15,046 - (14) (396) 24 14,661
Total 15,860 52 (57) (396) 24 15,484

Employee fidelity provisions refer mainly to provisions made for the employees of some German companies in relation to anniversary bonuses. The liability is determined through actuarial calculations applying a 5.5% rate.

The Provision for risks is related to the accrual referred to the update of this estimate and to new legal ongoing controversies, lawsuits with former employees and other liabilities in Italy and abroad.

Other changes mainly refer to translation differences.

NOTA 33 – TRADE PAYABLES

Trade payables at 30 June 2023 amount to 158,674 thousand Euros and are detailed as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Domestic suppliers 141,992 147,271 (5,279)
Foreign suppliers 17,685 22,436 (4,750)
Advances to suppliers (1,003) (871) (131)
Total 158,674 168,835 (10,161)

Trade payables are initially recognised at fair value, adjusted for any transaction costs directly attributable to and are subsequently valued at amortised cost. The amortised cost of current trade payables corresponds to the nominal value.

NOTE 34 - OTHER CURRENT LIABILITIES

Other current liabilities at 30 June 2023 amounted to 484,543 thousand Euros with a decrease of 114,014 thousand Euros with respect to the previous financial year.

Detail is as follows:

(thousand Euros) 30/06/2023 31/12/2022 Change
Income tax payable 26,561 17,514 9,046
VAT payable 34,424 31,870 2,554
Withholding tax and other 5,092 6,961 (1,869)
Total due to tax authorities 66,077 56,346 9,730
National social insurance payable 58,519 69,306 (10,787)
Other 6,276 7,276 (1,000)
Total due to social securities 64,795 76,582 (11,787)
Employee accruals 118,049 115,484 2,565
Other payables 190,376 290,622 (100,247)
Accrued expenses and deferred income 45,247 59,523 (14,276)
Total other payables 353,672 465,629 (111,958)
Other current liabilities 484,543 598,557 (114,014)

Due to tax authorities amounting to 66,077 thousand Euros, mainly refers to payables due to tax authorities for withholding tax on employees and professionals' compensation.

Due to social security authorities amounting to 64,795 thousand Euros, is related to both Company and employee's contribution payables.

Other payables at 30 June 2023 amount to 353,672 thousand Euros and mainly include:

  • amounts due to employees that at the balance sheet date had not yet been paid;
  • remuneration of directors recognised as participation in the profits of the subsidiary companies;
  • amounts invoiced to customers exceeding the value of the work in progress amounting to 113,263 thousand Euros (203,857 thousand Euros at 31 December 2022).

Accrued Expenses and Deferred Income, that decrease in the first half of 2023 by 14,276 thousand Euros, mainly relate to advance invoicing in relation to T&M consultancy activities to be delivered in the subsequent financial period.

Other current payables and liabilities are initially recognised at fair value, adjusted for any transaction costs directly attributable to and are subsequently valued at amortised cost. The amortised cost of these liabilities corresponds to the nominal value.

NOTE 35 – SEGMENT REPORTING

Segment reporting has been prepared in accordance with IFRS 8, as a breakdown of revenues by geographic area, determined as the area in which the services are executed.

IoT Intersegm
(thousand Euros) Region 1 % Region 2 % Region 3 % Incubator % ent H1 23 %
Revenues 656,093 100 206,265 100 199,039 100 51 100 (22,540) 1,038,908 100
Operating costs (544,609) (83.0) (183,431) (88.9) (178,525) (89.7) (876) (1,733.5) 22,540 (884,901) (85.2)
Gross operating
income
111,484 17.0 22,833 11.1 20,514 10.3 (825) (1,633.5) 154,006 14.8
Amortization,
depreciation and
write-downs
(16,847) (2.6) (9,194) (4.5) (5,375) (2.7) (4) (7.5) (31,421) (3.0)
Other non-recurring
operating
(costs)/income
- - 64 - 1,028 1 - - 1,092 -
Operating income 94,637 14.4 13,703 6.6 16,166 8.1 (829) (1,641.0) 123,677 11.9
Gain/(loss) on
investments
- - - - - - (4,512) (8,932.0) (4,512) (0.4)
Financial
income/(loss)
6,869 1 (4,558) (2.2) (5,573) (2.8) (2,341) (4,634.7) (5,603) (0.5)
Income before taxes 101,506 15.5 9,145 4.4 10,593 5.3 (7,683) (15,207.7) 113,561 10.9
(thousand Euros) Region 1 % Region 2 % Region 3 % IoT
Incubator
% Interseg
ment
H1 22 %
Revenues 590,010 100 164,151 100 153,140 100 29 100 (17,608) 889,722 100
Operating costs (486,599) (82.5) (139,901) (85.2) (135,090) (88.2) (1,293) (4,465.4) 17,608 (745,276) (83.8)
Gross operating
income
103,411 17.5 24,250 14.8 18,049 11.8 (1,264) (4,365.4) 144,447 16.2
Amortization,
depreciation and write
downs
(13,714) (2.3) (6,173) (3.8) (4,789) (3.1) (5) (18.2) (24,681) (2.8)
Other non-recurring
operating (costs)/income
2,229 - 880 1 - - - - 3,109 -
Operating income 91,926 15.6 18,958 11.5 13,260 8.7 (1,270) (4,383.6) 122,874 13.8
Gain/(loss) on
investments
- - - - - - (9,981) (34,458.3) (9,981) (1.1)
Financial income/(loss) (14) (0.0) (1,335) (0.8) (801) (0.5) (2,089) (7,213.1) (4,240) (0.5)
Income before taxes 91,912 15.6 17,623 10.7 12,459 8.1 (13,340) (46,055.0) 108,654 12.2

Breakdown of revenues by type is as follows:

REGION 1 REGION 2 REGION 3 IoT INCUBATOR
BUSINESS LINE 1st half 23 1st half 22 1st half 23 1st half 22 1st half 23 1st half 22 1st half 23 1st half 22
T&M 19.3% 18.1% 59.8% 54.2% 63.7% 54.6% - -
FIXED PRICE PROJECTS 80.7% 81,9% 40.2% 45,8% 36.3% 45.4% - -
OTHER BUSINESS - - - - - - 100.0% 100.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

The following table provides a breakdown of net invested capital by Region:

(thousand Euros) Region 1 Region 2 Region 3 IoT
Incubator
Intersegment 30/06/2023
Current operating assets 533,206 121,000 149,725 1,103 (81,208) 723,827
Current operating liabilities (498,328) (70,752) (162,005) (19,239) 81,208 (669,116)
Net working capital (A) 34,879 50,248 (12,280) (18,136) - 54,711
Non current assets 423,479 339,122 254,676 52,358 1,069,634
Non financial liabilities long term (112,241) (58,699) (39,655) 235 (210,361)
Fixed capital (B) 311,238 280,423 215,021 52,592 - 859,273
Net invested capital (A+B) 346,117 330,670 202,741 34,456 - 913,984
IoT
(thousand Euros) Region 1 Region 2 Region 3 Incubator Intersegment 31/12/2022
Current operating assets
Current operating liabilities
657,942
(591,634)
135,430
(116,629)
115,496
(136,529)
942
(18,426)
(66,534)
66,534
843,276
(796,686)
Net working capital (A) 66,307 18,801 (21,033) (17,485) - 46,590
Non current assets 420,089 340,389 250,562 59,531 1,070,572
Non financial liabilities long term
Fixed capital (B)
(109,781)
310,308
(59,850)
280,539
(46,460)
204,102
227
59,758
- (215,864)
854,708

Breakdown of employees by operating segment is as follows:

Region st half 2023
1
st half 2022
1
Change
Region 1 9,223 8,030 1,193
Region 2 3,003 2,167 836
Region 3 2,079 1,404 675
IoT Incubator 2 5 (3)
Total 14,037 11,606 2,701

NOTE 36 – TRANSACTIONS WITH RELATED PARTIES

In accordance with IAS 24 Related parties are Group companies and persons that are able to exercise control, joint control or have significant influence on the Group and on its subsidiaries and key management with strategic responsibilities and related families.

Transactions carried out by the group companies with related parties that as of the reporting date are considered ordinary business and are carried out at normal market conditions.

The main economic and financial transactions with related parties are summarized below.

(thousand Euros)
Financial transactions 30/06/2023 31/12/2022 Nature of transactions
Trade receivables 4 - Receivables from professional services
Trade payables 519 326 Payables for professional services and office rentals
offices
Other payables 14,853 13,626 Payables for emoluments s to Directors and Managers
with strategic responsibilities and Board of Statutory
Auditors
Economic transactions 1st half 2023 st half 2022
1
Revenues from professional services 10 9 Professional services executed
Services from Parent company and
related parties
644 653 Service contracts relating to office rental
and administration office
Personnel 9,145 6,278 Emoluments to Directors and Key Management
with strategic responsibilities
Services and other costs 74 74 Emoluments to Statutory Auditors

With reference the Cash flow statement, the above mentioned transactions impact the change in working capital by 1,417 thousand Euros.

Reply Group Main economic and financial transactions

In accordance with IAS 24, emoluments to Directors, Statutory Auditors and Key Management are also included in transactions with related parties.

In accordance with Consob Resolution no, 15519 of 27 July 2006 and Consob communication no, DEM/6064293 of 28 July 2006 the financial statements annexed herein present the Consolidated Income statement and Consolidated Statement of Financial position showing transactions with related parties separately, together with the percentage incidence with respect to each account caption.

Pursuant to Art, 150, paragraph 1 of the Italian Legislative Decree n, 58 of 24 February 1998, no transactions have been carried out by the members of the Board of Directors that might be in potential conflict of interests with the Company.

NOTE 37 - GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES

Guarantees

Guarantees and commitments where existing, have been disclosed at the item to which they refer.

Note that:

  • the Domination Agreement contract undersigned in 2010 between Reply Deutschland SE, dominated company, and Reply S.p.A, dominating company, ceased to exist from the date of legal efficacy of the merger for incorporation of Reply Deutschland SE in Reply S.p.A and with this, the obligations taken on by Reply. It is reported that the judgment of the qualified German Court is still pending for deciding on the suitability of the strike value of the acquisition option of shares on request of the minority shareholders of Reply Deutschland SE at a pre-determined price (8.19 euros). On June 2018, the German court took note of the agreement reached between the parties also affected by the agreement related to the merger of the following point. With regard to shareholders who did not join the settlement agreement, in February 2019, the German Court issued a judgment that provides for an increase of 1.81 euros in the price paid per share and an increase of 0.07 euros gross of the dividends paid in 2010-2013. The financial effects on the Group are covered by specific provisions.
  • with regards the merger operation for the incorporation of Reply Deutschland SE in Reply S.p.A. the assessment procedures foreseen in the measures of Article 122j of Umwandlungsgesetz find application – German law on extraordinary operations – with reference to the exchange ratio and the corresponding amount in cash. Within three months from the registration of the merger in the Turin Companies Register, each minority shareholder was able to present a petition for the purpose of commencing, in compliance with German law, before a Judge qualified in Germany – who shall have exclusive jurisdiction – the assessment inherent in the Share Swap ratio and the corresponding amount in cash. Some minority shareholders have commenced the aforementioned procedures and, following exchanges with the minority shareholders and their appointed representative, the Company has reached a settlement agreement where the payment of an additional amount. The expenses arising from this agreement amounting to approximately 5 million Euros is covered by specific provisions (please see Note 33). In relation to the above accruals, as a result of the utilizations, the provision for risks has a residual amount of 87 thousand Euros at 30 June 2023.

Contingent liabilities

As an international company, the Group is exposed to numerous legal risks, particularly in the area of product liability, environmental risks and tax matters. The outcome of any current or future proceedings cannot be predicted with certainty. It is therefore possible that legal judgments could give rise to expenses that are not covered, or not fully covered, by insurers' compensation payments and could affect the Group financial position and results.

Instead, when it is probable that an overflow of resources embodying economic benefits will be required to settle obligations and this amount can be reliably estimated, the Group recognizes specific provision for this purpose.

NOTA 38 – EVENTS SUBSEQUENT TO 30 JUNE 2023

No significant events have occurred subsequent to 30 June 2023.

NOTA 39 – APPROVAL OF THE HALF YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND AUTHORIZATION TO PUBLISH

The Half year condensed consolidated financial statements at 30 June 2023 were approved by the Board of Directors on August 1, 2023 which authorized the publication within the terms of law.

Annexed tables

Consolidated Statement of income prepared pursuant to Consob Resolution No. 15519 of 27 July 2006

(thousand Euros) st half 2023
1
of which with
related
parties
% st half 2022 (*)
1
of which
with related
parties
%
Revenues 1,038,908 10 - 889,722 9 -
Other income 8,063 6,141
Purchases (15,139) (17,027)
Personnel (574,295) (9,145) 1.6% (465,683) (6,278) 1.3%
Services costs (306,037) (718) 0.3% (282,706) (727) 0.3%
Amortization, depreciation and
write-downs
(31,421) (24,681)
Other operating and non
recurring (cost)/income
3,598 17,109
Operating income 123,677 122,874
(Loss)/gain on investments (4,512) (9,981)
Financial income/(expenses) (5,603) (4,240)
Income before taxes 113,561 108,654
Income taxes (33,618) (32,923)
Net income 79,944 75,731
Non-controlling interest (1,493) (133)
Net result of the Parent
company
78,451 75,598

(*) For a better comprehension of the income statement, it should be noted that some reclassifications of the values shown in the comparative figures have been made, which have not in any case changed the results originally exposed

Consolidated Statement of financial position prepared pursuant to Consob Resolution No. 15519 of 27 July 2006

of which
with
of which
with
related related
(thousand Euros) 30/06/2023 parties % 31/12/2022 parties %
Tangible assets
Goodwill
103,156
630,084
98,068
630,255
Intangible assets 99,107 105,173
RoU Assets 112,438 112,341
Equity investments 49,189 51,049
Other financial assets 8,915 11,706
Deferred tax assets 66,745 61,979
Non-current assets 1,069,634 1,070,572
Inventories 167,810 83,880
Trade receivables 419,797 4 - 657,568
Other receivables and current assets 136,220 101,828
Financial assets 41,840 30,608
Cash and cash equivalents 285,037 283,695
Current assets 1,050,704 1,157,578
TOTAL ASSETS 2,120,338 2,228,150
Share Capital 4,863 4,863
Other reserves 930,509 774,411
Net result of the period 78,451 191,016
Equity of the Parent company 1,013,823 970,291
Non-controlling interest 1,730 1,579
NET EQUITY 1,015,554 971,869
Due to minority shareholders and Earn-out 105,996 112,827
Financial liabilities 66,018 74,533
Financial liabilities from RoU 96,207 97,624
Employee benefits 45,162 42,831
Deferred tax liabilities 44,278 44,964
Provisions 14,925 15,242
Non-current liabilities 372,586 388,021
Due to minority shareholders and Earn-out 25,340 28,675
Financial liabilities 33,003 43,745
Financial liabilities from RoU 30,080 27,829
Trade payables 158,674 519 0.03% 168,835 326 0.2%
Other current liabilities 484,543 14,853 3.1% 598,557 13,626 2.3%
Provisions 559 619
Current liabilities 732,198 868,260
TOTAL LIABILITIES 1,104,785 1,256,281
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
2,120,338 2,228,150

LIST OF COMPANIES AT 30 JUNE 2023

Company name Headquarters Group interest
Parent company
Reply S.p.A. Turin – Corso Francia, 110 - Italy
Companies consolidated on a line-by-line basis
4brands Reply GmbH & CO. KG. Minden, Germany 51.00%
Air Reply S.r.l. Turin, Italy 100.00%
Airwalk Holding Ltd. Kent, United Kingdom 100.00%
Airwalk Consulting Ltd. Edinburgh, Scotland 100.00%
Airwalk Consulting Ltd. (Hong Kong) Shueng Wan, Hong Kong 100.00%
AWC Partners Ltd. London, United Kingdom 100.00%
Alpha Reply GmbH Guetersloh, Germany 100.00%
Aim Reply Ltd London, United Kingdom 100.00%
Arlanis Reply S.r.l. Turin, Italy 100.00%
Arlanis Reply AG Potsdam, Germany 100.00%
Arlanis Reply Ltd London, United Kingdom 100.00%
Aktive Reply S.r.l. Turin, Italy 100.00%
Atlas Reply S.r.l. Turin, Italy 100.00%
Autonomous Reply GmbH Guetersloh, Germany 100.00%
Auxulus Reply GmbH Munich, Germany 100.00%
Atomic Reply Ltd. London, United Kingdom 100.00%
Avantage Reply Ltd. London, United Kingdom 100.00%
Avantage Reply (Belgium) Sprl Brussels, Belgium 100.00%
Avantage Reply (Luxembourg) Sarl Itzig, Luxembourg 100.00%
Avantage Reply (Netherlands) BV Amsterdam, Netherland 100.00%
Avvio Reply Ltd. London, United Kingdom 100.00%
Avvio Reply S.r.l. Turin. Italy 100.00%
Blowfish Digital Holdings Ltd. London, United Kingdom 100.00%
Blue Reply S.r.l. Turin, Italy 100.00%
Blue Reply GmbH Guetersloh, Germany 100.00%
Bridge Reply S.r.l. Turin, Italy 100.00%
Business Elements Group BV Belgium 100.00%
Business Reply S.r.l. Turin, Italy 100.00%
Business Reply Public Sector S.r.l. Turin, Italy 100.00%
Breed Reply Ltd. London, United Kingdom 100.00%
Breed Reply Investment Ltd. London, United Kingdom 100.00%
Bside S.r.l. Rome, Italy 100.00%
Canvas Reply GmbH (formerly Neveling.net GmbH) Hamburg, Germany 100.00%
Cluster Reply S.r.l. Turin, Italy 100.00%
Cluster Reply Dynamics GmbH Guetersloh, Germany 100.00%
Cluster Reply Informatica LTDA. San Paolo, Brazil 100.00%
Cluster Reply Roma S.r.l. Turin, Italy 100.00%
Comwrap Reply GmbH Frankfurt, Germany 100.00%
Comsysto D.O.O. Zagreb, Croatia 100.00%
ComSysto Reply GmbH Munich, Germany 100.00%
Concept Reply GmbH Munich, Germany 100.00%
Concept Reply LLC Michigan, USA 100.00%
Consorzio Reply Public Sector Turin, Italy 100.00%
Core Reply S.r.l. Turin, Italy 100.00%
Data Reply S.r.l. Turin, Italy 100.00%
Data Reply GmbH Munich, Germany 100.00%
Discovery Reply S.r.l. Turin, Italy 100.00%
e*finance consulting Reply S.r.l. Turin, Italy 100.00%
Ekip Reply S.r.l. Turin, Italy 100.00%
Elbkind Reply GmbH Hamburg, Germany 100.00%
Enowa LLC Philadelphia, USA 100.00%
Eos Reply S.r.l. Turin, Italy 100.00%
Everlo Reply GmbH Guetersloh, Germany 100.00%
Fincon Reply GmbH Hamburg, Germany 100.00%
Forge Reply S.r.l. Turin, Italy 100.00%
Frank Reply GmbH (formerly Vivametric Reply Gmbh) Guetersloh, Germany 100.00%
France Reply Ltd. London, United Kingdom 100.00%
G-Force Demco Ltd. London, United Kingdom 100.00%
Go Reply S.r.l. Turin, Italy 100.00%
Go Reply GmbH Guetersloh, Germany 100.00%
Gray Matter Ltd London, United Kingdom 100.00%
Hermes Reply S.r.l. Turin, Italy 100.00%
Hermes Reply Consulting (Nanjing) Co. Ltd. China 100.00%
Industrie Reply LLC Michigan, USA 100.00%
Infinity Reply GmbH Düsseldorf, Germany 100.00%
IrisCube Reply S.r.l. Turin, Italy 100.00%
Ki Reply GmbH Guetersloh, Germania 100,00%
Laife Reply GmbH Munich, Germany 100.00%
Leadvise Reply GmbH Darmstadt, Germany 100.00%
Like Reply GmbH Guetersloh, Germany 100.00%
Like Reply S.r.l. Turin, Italy 100.00%
Liquid Reply GmbH Guetersloh, Germany 100.00%
Live Reply GmbH Düsseldorf, Germany 100.00%
Logistics Reply S.r.l. Turin, Italy 100.00%
Logistics Reply GmbH Munich, Germany 100.00%
Logistics Reply Roma S.r.l. Turin, Italy 100.00%
Lynx Recruiting Ltd. London, United Kingdom 100.00%
Machine Learning GmbH Guetersloh, Germany 100.00%
Macros Reply GmbH Munich, Germany 100.00%
Mansion House Consulting Ltd London, United Kingdom 100.00%
Mansion House Consulting PTE Limited Singapore 100.00%
MHC Holding Us Ltd. London, United Kingdom 100.00%
Mansion House Consulting Inc. Wilmington, USA 100.00%
MCG Systems AG Colony, Germany 100.00%
Modcomp GmbH Colony, Germany 100.00%
Net Reply LLC Michigan, USA 100.00%
Net Reply S.r.l. Turin, Italy 100.00%
Nexi Digital S.r.l. Turin, Italy 51.00%
Nexi Digital Polska Sp. z o.o. Warsaw, Poland 51.00%
Next Reply S.r.l. Turin, Italy 100.00%
Next Reply GmbH Guetersloh, Germany 100.00%
Open Reply GmbH Guetersloh, Germany 100.00%
Open Reply S.r.l. Turin, Italy 100.00%
Pay Reply S.r.l. Turin, Italy 100.00%
Portaltech Reply Ltd. London, United Kingdom 100.00%
Portaltech Reply S.r.l. Turin, Italy 100.00%
Power Reply S.r.l. Turin, Italy 100.00%
Power Reply GmbH & CO. KG. Munich, Germany 100.00%
Protocube Reply S.r.l. Turin, Italy 70.00%
Red Reply GmbH Frankfurt, Germany 100.00%
Reply Consulting S.r.l. Turin, Italy 100.00%
Reply Deutschland SE Guetersloh, Germany 100.00%
Reply GmbH Zurich, Switzerland 100.00%
Reply do Brasil Sistemas de Informatica Ltda Belo Horizonte, Brazil 100.00%
Reply Inc. Michigan, USA 100.00%
Reply Ltd. London, United Kingdom 100.00%
Reply Belgium Sprl Mont Saint Guibert, Netherland 99.00%
Reply Digital Experience S.r.l. Turin, Italy 100.00%
Reply France SAS Paris, France 100.00%
Reply Sarl Luxembourg 100.00%
Reply Services S.r.l. Turin, Italy 100.00%
Reply Polska Sp. z o.o. Katowice, Poland 100.00%
Retail Reply S.r.l. Turin, Italy 100.00%
Ringmaster S.r.l. Turin, Italy 50.00%
Riverland Reply GmbH Munich, Germany 100.00%
Roboverse Reply GmbH Guetersloh, Germany 100.00%
Sagepath LLC Atlanta, USA 70.00%
Santer Reply S.p.A. Milan, Italy 100.00%
Security Reply S.r.l. Turin, Italy 100.00%
Sense Reply S.r.l. Turin, Italy 100.00%
Sensor Reply S.r.l. Turin, Italy 100.00%
Shield Reply S.r.l. Turin, Italy 100.00%
Solidsoft Reply Ltd. London, United Kingdom 100.00%
Spark Reply S.r.l. Turin, Italy 100.00%
Spark Reply GmbH Germany 100.00%
Spike Reply GmbH Colony, Germany 100.00%
Spike Digital Reply GmbH Guetersloh, Germany 100.00%
Sprint Reply SA Belgium 100.00%
Sprint Reply S.r.l. Turin, Italy 100.00%
Sprint Reply GmbH Munich, Germany 100.00%
Spot Digital Ltd. London, United Kingdom 100,00%
Storm Reply S.r.l. Turin, Italy 100.00%
Storm Reply Roma S.r.l. Turin, Italy 100.00%
Storm Reply GmbH Guetersloh, Germany 100.00%
Storm Reply Inc USA 80.00%
Syskoplan Reply S.r.l. Turin, Italy 100.00%
Syskoplan Reply GmbH Guetersloh, Germany 100.00%
Syskoplan LLC Philadelphia, USA 100.00%
Syskoplan IE Reply GmbH Guetersloh, Germany 100.00%
Sytel Reply Roma S.r.l. Turin, Italy 100.00%
Sytel Reply S.r.l. Turin, Italy 100.00%
Target Reply S.r.l. Turin, Italy 100.00%
Target Reply GmbH Guetersloh, Germany 100.00%
TamTamy Reply S.r.l. Turin, Italy 100.00%
Technology Reply S.r.l. Turin, Italy 100.00%
Technology Reply Roma S.r.l. Turin, Italy 100.00%
Technology Reply S.r.l. Bucharest, Romania 100.00%
Tender Reply S.r.l. Turin, Italy 100.00%
TD Reply GmbH Berlin, Germany 100.00%
TD Marketing Consultants, Beijing Co. Ltd. China 100.00%
Threepipe Reply Ltd. London, United Kingdom 100,00%
The Spur Group LLC Seattle, USA 100.00%
Tool Reply GmbH Guetersloh, Germany 100.00%
Triplesense Reply GmbH Frankfurt, Germany 100.00%
Up Reply GmbH Munich, Germany 100.00%
Valorem LLC Kansas City, USA 100.00%
Valorem Private Ltd India 99.99%
Valorem GmbH Zurich, Switzerland 100.00%
Vanilla Reply GmbH Guetersloh, Germany 100.00%
Wemanity Group SAS Paris, France 100.00%
WM Reply Inc. Illinois, USA 80.00%
WM Reply Ltd Auckland, NZ 80.00%
WM Reply LLC Minsk, Belarus 100.00%
WM Reply Ltd London, United Kingdom 100.00%
WM Reply GmbH Guetersloh, Germany 100.00%
WM Reply Malaysia Ltd Malaysia 100.00%
Whitehall Reply S.r.l. Turin, Italy 100.00%
Xenia Reply S.r.l. Turin, Italy 100.00%
Xister Reply S.r.l. Turin, Italy 100.00%

Companies carried at fair value

BlueGrove AS (già CageEye AS) Norway 11.60%
Callsign Inc United Kingdom 3.61%
Canard Drones Ltd Spain 35.41%
Connecterra BV Belgium 16.00%
Connecterra Group Ltd United Kingdom 26.14%
Dcbrain SAS France 8.46%
FoodMarble Digestive Health Ltd United Kingdom 18.50%
Gymcraft Ltd. United Kingdom 0.02%
iNova Design Ltd United Kingdom 27.25%
Iotic Labs Ltd United Kingdom 16.28%
Kokoon Technology Ltd United Kingdom 26.22%
Metron Sas France 8.32%
RazorSecure Ltd United Kingdom 30.73%
Sensoria Inc. USA 24.00%
TAG Sensors AS Norway 19.67%
Ubirch GmbH Germania 18.51%
We Predict Ltd United Kingdom 16.64%
Zeetta Networks Ltd United Kingdom 24.00%
Yellow Line Parking Ltd United Kingdom 8.94%

Attestation of the Half-year condensed financial statements pursuant to 154 bis of Legislative Decree No. 58/98

The undersigned, Mario Rizzante, in his capacity as Chief Executive Officer and Giuseppe Veneziano, director responsible of drawing up the Company's financial statements pursuant to the provisions of article 154-bis, paragraph 3 and 4 of legislative decree no. 58 of February 24, 1998, hereby attest:

  • the adequacy with respect to the Company's structure and
  • the effective application of the administrative and accounting procedures applied in the preparation of the Company's Half-year condensed financial statements at June 30 2023,

The assessment of the adequacy of the administrative and accounting procedures used for the preparation of the condensed financial statements as of and for the period ended June 30, 2023 as based on a process defined by Reply in accordance with the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organizations of the Treadway Commission, an internationally-accepted reference framework.

The undersigned moreover attest that:

    1. the Half-year condensed financial statements at June 30, 2023:
  • have been prepared in accordance with International Financial Reporting Standards, as endorsed by the European Union through Regulation (EC) 1606/2002 of the European Parliament and Counsel, dated 19 July 2002, as well as the measures issued t implement article 9 of Legislative Decree no.38/2005;
  • correspond to the amounts shown in the Company's accounts, books and records; and
  • provide a fair and correct representation of the financial conditions, results of operations and
  • cash flows of the Company and its consolidated subsidiaries;
    1. the related interim management report includes a reliable analysis of the significant events affecting the Company in the first six months of the current fiscal year and the impact of such events on the Company's condensed financial statements as well as a description of the main risks and uncertainties.

Turin, August 1, 2023

/s/ Mario Rizzante /s/ Giuseppe Veneziano
Chairman and Chief Executive Officer Director
responsible
of
drawing
up
the
accounting documents

Mario Rizzante Giuseppe Veneziano

Independent auditors' report

REPLY SPA

REVIEW REPORT ON CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

REVIEW REPORT ON CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

To the Shareholders of Reply SpA

Foreword

We have reviewed the accompanying consolidated condensed interim financial statements of Reply SpA and its subsidiaries (the "Reply Group") as of 30 June 2023, comprising the consolidated statement of financial position, consolidated statement of income, consolidated statement of comprehensive income, statement of changes in consolidated equity, consolidated statement of cashflows and related notes. The directors of Reply SpA are responsible for the preparation of the consolidated condensed interim financial statements in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these consolidated condensed interim financial statements based on our review.

Scope of Review

We conducted our work in accordance with the criteria for a review recommended by Consob in Resolution No. 10867 of 31 July 1997. A review of consolidated condensed interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a fullscope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated condensed interim financial statements.

1 di 2

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated condensed interim financial statements of the Reply Group as of 30 June 2023 are not prepared, in all material respects, in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union.

Turin, 3 August 2023

PricewaterhouseCoopers SpA

Signed by

Monica Maggio (Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers

CORPORATE INFORMATION

HEADQUARTER

Reply S.p.A. Corso Francia. 110 10143 TURIN – ITALY Tel. +39-011-7711594 Fax +39-011-7495416 www.reply.com

CORPORATE INFORMATION

Share capital: Euro 4,863,485.64 i.v. Fiscal code and R.I. of Turin no. 97579210010 VAT 08013390011 REA of Turin 938289

MARKETING

E-mail: [email protected] Tel. +39-011-7711594 Fax +39-011-7495416

INVESTOR RELATOR

E-mail: [email protected] Tel. +39-02-535761 Fax +39-02-53576444

Reply S.p.A. Corso Francia, 110, 10143 Torino – Italia

Tel. +39-011-7711594 Fax. +39-011-7495416 [email protected] www.reply.com

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