Annual Report • Mar 31, 2017
Annual Report
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| Board of Directors | 4 |
|---|---|
| The Group's financial highlights | 6 |
| Report on Operations | 7 |
| Main risks and uncertainties to which Reply S.p.A and | 8 |
| the Group are exposed | 8 |
| Review of the Group's economic and financial position | 11 |
| Significant operations in 2016 | 18 |
| The Parent Company Reply S.p.A. | 23 |
| Corporate Governance | 27 |
| Other information | 27 |
| Events subsequent to 31 December 2016 | 29 |
| Outlook on operations | 30 |
| Motion for the approval of the financial statement and allocation of the result for the financial year | 31 |
| Consolidated Financial Statement as at 31 December 2016 | 32 |
| Consolidated income statement | 33 |
| Consolidated statement of comprehensive income | 34 |
| Consolidated Statement of financial position | 35 |
| Consolidated Statement of changes in equity | 36 |
| Consolidated Statement of cash flows | 37 |
| Notes to the financial statements | 38 |
| Annexed tables | 99 |
| Attestation of the Consolidated Financial Statements in accordance with Article 154-bis of Legislative Decree 58/98 | 107 |
| Statutory Auditors' Report | 108 |
| Independent Auditors' Report | 111 |
| Financial Statements as at 31 December 2016 | 114 |
| Income statement | 115 |
| Statement of comprehensive income | 116 |
| Statement of financial position | 117 |
| Statement of changes in equity | 118 |
| Statement of cash flows | 119 |
| Notes to the financial statements | 120 |
| Annexed Tables | 172 |
| Disclosures pursuant to Article 149-duodecies | 178 |
| Attestation of the Financial Statements in accordance with Article 154-bis of Legislative Decree 58/98 | 179 |
| Statutory Auditors' Report | 180 |
| Independent Auditors' Report | 189 |
| Report on Corporate Governance and Ownership Structure 2016 | 192 |
| Annual Report on Remuneration | 234 |
Chairman and Chief Executive Officer
Mario Rizzante
Chief Executive Officer Tatiana Rizzante
Daniele Angelucci Claudio Bombonato Oscar Pepino Filippo Rizzante Fausto Forti (1) (2) (3) Maria Letizia Jaccheri (1) (2) Enrico Macii (1) (2)
Board of Statutory Auditors President
Cristiano Antonelli
Paolo Claretta Assandri Ada Alessandra Garzino Demo
Independent auditors EY 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 Independet Director
This report has been translated into English form the original Italian version, in case of doubt the Italian version shall prevail.
4 | Annual Financial Report 2016
| Economic figures (Thsd Euros) | 2016 | % | 2015 | % | 2014 | % |
|---|---|---|---|---|---|---|
| Revenue | 780,739 | 100.0 | 705,601 | 100.0 | 632,184 | 100.0 |
| Gross operating income | 106,417 | 13.6 | 98,736 | 14.0 | 85,119 | 13.5 |
| Operating income | 99,594 | 12.8 | 90,558 | 12.8 | 80,663 | 12.8 |
| Income before taxes | 97,405 | 12.5 | 88,930 | 12.6 | 79,267 | 12.5 |
| Group net income | 67,544 | 8.7 | 56,748 | 8.0 | 47,909 | 7.6 |
| Financial figures (Thsd Euros) | 2016 | 2015 | 2014 |
|---|---|---|---|
| Group shareholders' equity | 337,017 | 295,425 | 251,908 |
| Non controlling interest | 520 | 653 | 936 |
| Total assets | 770,575 | 700,745 | 616,712 |
| Net working capital | 160,404 | 162,566 | 134,341 |
| Net invested capital | 308,779 | 267,893 | 236,531 |
| Cash flow | 79,497 | 44,334 | 49,578 |
| Net financial position | 28,758 | 28,186 | 16,313 |
| Data per share | 2016 | 2015 | 2014 |
|---|---|---|---|
| Number of shares | 9,352,857 | 9,352,857 | 9,352,857 |
| Operating income per share | 10.65 | 9.68 | 8.62 |
| Net result per shares | 7.22 | 6.07 | 5.12 |
| Cash flow per share | 8.50 | 4.74 | 5.30 |
| Shareholders' equity per share | 36.01 | 31.59 | 26.93 |
| Other information | 2016 | 2015 | 2014 |
|---|---|---|---|
| Number of employees | 6,015 | 5,245 | 4,689 |
Report on Operations
The Reply Group adopts specific procedures in managing risk factors that can have an influence on company results. Such procedures are a result of an enterprise management that has always aimed at maximizing value for its stakeholders putting into place all necessary measures to prevent risks related to the Group activities.
Reply S.p.A., as Parent Company, is exposed to the same risks and uncertainties as those to which the Group is exposed, and which are listed below.
The risk factors described in the paragraphs below must be jointly read with the other information disclosed in the Annual Report.
The informatics consultancy market is strictly related to the economic trend of industrialized countries where the demand for highly innovative products is greater. An unfavorable economic trend at a national and/or international level or high inflation could alter or reduce the growth of demand and consequently could have negative effects on the Group's activities and on the Group's economic, financial and earnings position.
The ICT service segment in which the Group operates is characterized by rapid and significant technological changes and by constant evolution of the composition of the professionalism and skills to be combined in the realization of such services, with the need to continuously develop and update new products and services. Therefore, future development of Group activities will also depend on the capability of anticipating the technological evolutions and contents of the Group's services even through significant investments in research and development activities.
The ICT market is highly competitive. Competitors could expand their market share squeezing out and consequently reduce the Group's market share. Moreover the intensification of the level of competition is also linked with possible entry of new entities endowed with human resources and financial and technological capacities in the Group's reference sectors, offering largely competitive prices which could condition the Group's activities and the possibility of consolidating or amplifying its own competitive position in the reference sectors, with consequent repercussions on business and on the Group's economic, earnings and financial situation.
The Group's solutions are subject to rapid technological changes that, together with the increasing needs of customers and their need to improve informatics, which results in a request of increasingly complex development activities, sometimes requires excessive efforts that are not proportional to the economic aspects. This in some cases could result in negative effects on the Group's activities and on the Group's economic, financial and earnings position.
The activities carried out by the Group are not subject to any particular segment regulation.
The Group's success is largely dependent on some key figures that have made a decisive contribution to its development, such as the Chairman and the Executive Directors of the Parent Company Reply S.p.A..
Reply also has a leadership team (Senior Partner, Partner) with many years of experience in the sector with a decisive role in the management of the Group's business.
The loss of any of these key figures without an adequate replacement or the inability to attract and retain new, qualified personnel could therefore have an adverse effect upon the Group's business prospects, earnings and financial position.
Management deems that in any case the Company has a sufficient operational and managerial structure capable of guaranteeing continuity in the running of the business.
The Group offers consulting services mainly to medium and large size companies operating in different market segments (Telco, Manufacturing, Finance, etc.).
A significant part of the Group's revenues, although in a decreasing fashion in the past years, is concentrated on a relatively limited number of clients. If such clients were lost this could have an adverse effect on the Group's activities and on the Group's economic, financial and earnings position.
The Group, with an internationalization strategy, could be exposed to typical risks deriving from the execution of its activities on an international level, such as changes in the political, macro-economic, fiscal and/or normative field, along with fluctuations in exchange rates.
These could negatively influence the Group's growth expectations abroad.
The Group develops solutions with a high technological content of significant value; the underlying related contracts can provide for the application of penalties in relation to timeliness and the qualitative standards agreed upon.
The application of such penalties could have adverse effects on the Group's economic, financial and earnings position.
The Group has undersigned adequate precautionary insurance contracts against any risk that could arise under professional responsibility for an annual maximum amount deemed to be adequate in respect of the actual risk.
Should the insurance coverage not be adequate and the Group is called to compensate damages greater than the amount covered, the Group's economic, financial and earnings position could be deeply jeopardized.
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.
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's companies are monitored or centrally managed under the control of the Group Treasury, with the objective of guaranteeing effective and efficient management of capital resources (maintaining an adequate level of liquid assets and funds obtainable via an appropriate committed credit line amount).
The difficult economic context of the markets and financial markets requires specific attention as regards the management of liquidity risk and in such a way that particular attention is given to shares tending to generate financial resources with operational management and to 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.
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 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.
The financial statements commented on and illustrated in the following pages have been prepared on the basis of the Consolidated financial statements as at 31 December 2016 to which reference should be made, prepared in compliance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and adopted by the European Union, as well as with the provisions implementing Article 9 of Legislative Decree No. 38/2005.
The Reply Group closed 2016 with a consolidated turnover of €780.7 million, an increase of 10.6% compared to €705.6 million in 2015.
The EBITDA was €106.4 million (€98.7 million in 2015), while the EBIT was at €99.6 million (€90.6 million in 2015).
The Group net profit was at €67.5 million, an increase of 19% relative to the €56.7 million recorded in 2015. As at 31 December 2016, the Group's net financial position was positive, at €28.8 million constant compared to the previous year (28.2 million Euros).
In 2016 the world has seen the definitive emergence of the digital revolution: there is no longer any industrial, processing or service sector that hasn't rethought their processes, redesigning them on the basis of technology and digital components. This paradigm shift has affected not only end customers, but also consultancies that have had to radically renew and extend their portfolio of products and services, readjusting to new, more complex demands.
Reply has always invested to position itself on the technological frontier, and topics that many are only now beginning to face, such as Artificial Intelligence, Big Data, Machine Learning, Mixed Reality, Industry 4.0 and the Internet of Things are for Reply, already structured proposals on which it has been working together with its customers for some time.
This competitive advantage, as reflected in the positive results of 2016, combined with Group's financial strength, allows to continue investing to make Reply's offering portfolio of products and services increasingly aligned with the demands of a new world, where the barrier between the physical and digital vanishes and the innovation component linked to technology changes from an enabling factor to a successful strategic lever for the companies.
Reply's performance is shown in the following reclassified consolidated statement of income and is compared to corresponding figures of the previous year:
| (thousand Euros) | 2016 | % | 2015 | % |
|---|---|---|---|---|
| Revenues | 780,739 | 100.0 | 705,601 | 100.0 |
| Purchases | (16,969) | (2.2) | (14,049) | (2.0) |
| Personnel | (379,713) | (48.6) | (349,721) | (49.6) |
| Services and other costs | (277,071) | (35.5) | (240,495) | (34.1) |
| Other operating (costs)/income | (569) | (0.1) | (2,601) | (0.4) |
| Operating costs | (674,322) | (86.4) | (606,865) | (86.0) |
| Gross operating income (EBITDA) | 106,417 | 13.6 | 98,736 | 14.0 |
| Amortization, depreciation and write-downs | (11,669) | (1.5) | (9,371) | (1.3) |
| Other unusual (costs)/income | 4,846 | 0.6 | 1,192 | 0.2 |
| Operating income (EBIT) | 99,594 | 12.8 | 90,558 | 12.8 |
| (Loss)/gain on investments | (668) | (0.1) | 440 | 0.1 |
| Financial income/(expenses) | (1,520) | (0.2) | (2,067) | (0.3) |
| Income before taxes (EBT) | 97,405 | 12.5 | 88,930 | 12.6 |
| Income taxes | (29,698) | (3.8) | (31,502) | (4.5) |
| Net income | 67,707 | 8.7 | 57,428 | 8.1 |
| Non controlling interests | (163) | - | (680) | (0.1) |
| Group net income | 67,544 | 8.7 | 56,748 | 8.0 |
Group key events of 2016 are summarized below:
July 2016: Reply is strengthening its European presence in the Digital Experience and Industry 4.0 realms, with the acquisition of Protocube, a company specializing in highly innovative content in the 3D technologies field.
July 2016: Reply is strengthening its presence in the Digital Experience space with the acquisition of Xister, digital creative agency and leader in consulting and in the development of digital branding strategies and solutions.
July 2016: Reply inaugurates the launch of Area360, Augmented and Virtual Reality Centre, developed based on the experience gained by Forge Reply, a Reply company specializing in Gaming and Digital User Engagement.
July 2016: Reply has signed an exclusive agreement with The Data Incubator, a programme aimed at the training of "Data Scientists", who in the coming years will become a vital fulcrum for companies, with the task of leveraging the enormous existing data repositories through new Big Data technologies, and the use of advanced Machine Learning models.
June 2016: Reply is strengthening its presence in Germany through the purchase of trommsdorff + drüner, innovation + marketing consultants GmbH (td) is a leading international business consultancy for Datadriven innovation and marketing.
May 2016: Breed Reply, Reply's IoT investor, funding and supporting startups in the Internet of Things space, announces that agreements have been signed with Connecterra (Netherlands), Kokoon (UK) and Sentryo (France).
May 2016: Communication Valley Reply (Business Unit of Security Reply S.r.l.), the Reply Group company specializing in managed security services, has been named by Cisco 'Security Partner of the Year' in Italy.
April 2016: In the Internet Agency Ranking of the BVDW the 'Reply - Digital Experience' companies in Germany reach the 5th place and are now among the Top 10 in the industry.
April 2016: For the second year in a row, Oracle has presented the prestigious "Cloud Partner of the Year" award to the Reply Group companies in Italy and Germany, which have distinguished themselves for the quality of services provided in consulting, design and implementation of solutions based on the Oracle technology.
February 2016: Reply is opening its first Design Thinking Lab for the development of innovative solutions in the area of digital transformation and Industry 4.0 in Guetersloh - Germany.
February 2016: Business Reply, the Reply Group company specializing in innovation processes application based on Oracle Applications, wins the Oracle "Cloud Partner of the year" for having successfully implemented the first European project based on Oracle ERP Cloud in the Utilities market.
February 2016: Portaltech Reply, the Reply Group company specializing in providing e-commerce implementation and Multichannel consulting services, has been recognized as "Global Service Delivery Partner of the Year" by SAP Hyb
(*) Region 1: ITA, USA, BRA, POL, ROU Region 2: DEU, CHE, CHN Region 3: GBR, LUX, BEL, NLD, FRA; BLR
Revenues by Region (*)
The Group's financial structure is set forth below as at 31 December 2016, compared to 31 December 2015:
| (thousand Euros) | 31/12/2016 | % | 31/12/2015 | % | Change |
|---|---|---|---|---|---|
| Current operating assets | 442,655 | 401,151 | 41,504 | ||
| Current operating liabilities | (282,251) | (238,585) | (43,665) | ||
| Working capital, net (A) | 160,404 | 162,566 | (2,162) | ||
| Non current assets | 232,441 | 191,259 | 41,182 | ||
| Non current liabilities | (84,067) | (85,932) | 1,865 | ||
| Fixed capital (B) | 148,374 | 105,327 | 43,047 | ||
| Invested capital, net (A+B) | 308,779 | 100.0 | 267,893 | 100.0 | 40,886 |
| Shareholders' equity (C) | 337,537 | 109.3 | 296,079 | 110.5 | 41,458 |
| NET FINANCIAL POSITION (A+B-C) | (28,758) | (9.3) | (28,186) | (10.5) | (572) |
Net invested capital on 31 December 2016, amounting to 308,779 thousand Euros, was funded by Shareholders' equity for 337,537 thousand Euros and by available overall funds of 28,758 thousand Euros.
The following table provides a breakdown of net working capital:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Work in progress | 58,651 | 57,929 | 722 |
| Trade receivables | 339,194 | 302,250 | 36,944 |
| Other current assets | 44,810 | 40,973 | 3,837 |
| Current operating assets (A) | 442,655 | 401,151 | 41,504 |
| Trade payables | 92,735 | 77,686 | 15,049 |
| Other current liabilities | 189,515 | 160,899 | 28,616 |
| Current operating liabilities (B) | 282,251 | 238,585 | 43,665 |
| Working capital, net (A-B) | 160,404 | 162,566 | (2,162) |
| % return on investments | 20.5% | 23.0% |
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Cash and cash equivalents, net | 76,511 | 70,109 | 6,402 |
| Current financial assets | 2,925 | 2,289 | (636) |
| Due to banks | (18,893) | (10,786) | (8,107) |
| Due to other providers of finance | (738) | (466) | (273) |
| Short-term financial position | 59,805 | 61,147 | (1,342) |
| Non current financial assets | 4 | 909 | (908) |
| Due to banks | (29,985) | (33,009) | 3,024 |
| Due to other providers of finance | (1,066) | (861) | (206) |
| M/L term financial position | (31,047) | (32,961) | 1,913 |
| Total net financial position | 28,758 | 28,186 | 572 |
Change in the item cash and cash equivalents is summarized in the table below:
| (thousand Euros) | 31/12/2016 |
|---|---|
| Cash flows from operating activities (A) | 79,497 |
| Cash flows from investment activities (B) | (67,909) |
| Cash flows from financial activities (C) | (5,186) |
| Change in cash and cash equivalents (D) = (A+B+C) | 6,402 |
| Cash and cash equivalents at beginning of period (*) | 70,109 |
| Cash and cash equivalents at year end (*) | 76,511 |
(*) Liquid assets and cash equivalents net are net of current account overdrafts
The complete consolidated cash flow statement and the details of cash and other cash equivalents net are set forth below in the financial statements.
In addition to conventional financial indicators required by IFRS, presented herein are some alternative performance measures, in order to allow a better understanding of the trend of economic and financial management.
These indicators, that are also presented in the periodical Interim management reports must not, however, be considered as replacements to the conventional indicators required by IFRS.
Set forth below are the alternative performance indicators used by the Group with relevant definition and basis of calculation:
The Net financial position having a positive sign means financial indebtedness.
WM360 Group, held by WM360 Limited, acquired in the month of March 2016 by Reply Ltd. that holds 100% of the shares. WM360 is a Group constituted of five companies incorporated under English law and one under Belorussian law, leader in consulting and system integration on Microsoft technology, in particular specializing in the development of intranet SharePoint platforms.
In March 2016 Protocube S.r.l., a company with headquarters in Turin, was acquired by Reply S.p.A. that holds 55% of the share capital. The company is leader in the 3D modelling and engineering.
trommsdorff + drüner, innovation + marketing consultants GmbH, acquired in the month of May 2016 by Reply AG that holds 100% of the share capital, leading in innovative and marketing consulting based on use of Data.
In July 2016 Xister S.r.l. was acquired by Reply S.p.A. that holds 89.2% of the share capital. The company is a digital creative agency, leader in consulting and development of solutions and strategies in digital branding.
Attention to design, propensity for leading-edge ideas and a focus on campaign results constitute the heart of Xister, a company able to attract great creative talents with highly specialized skills in digital communication. Recently, Xister was awarded two international gold medals in the "emerging platform" and "technical innovation" categories at the prestigious Promax international awards in marketing and design held in New York, in recognition of its "The Brain Show" project for National Geographic in Washington. With this acquisition, Reply confirms its position as an Italian digital agency leader in Europe in the development of marketing strategies and of integrated and multi-channel communication solutions.
In July 2016 Lynx Recruitment Ltd., a company incorporated under English law, was acquired by Reply Ltd. that holds 100% of the share capital. The company offers recruitment and selection services of temporary and permanent staff.
Reply's strategy is directed to creating long-term value for our shareholders. The performance of the Reply share and the dividend policy are sustaining this goal. The assets of an investor who invested 1,000 Euro in Reply shares at the end of 2006 – and reinvested the dividends in additional Reply shares – would have increased to 7,125 Euro at the end of 2016. This performance clearly outperformed the relevant benchmark indices and most of the members of the peer group of Reply.
The future continues to be exciting: The explosive influence of the Internet of Things, virtual reality and the cloud is radically changing the world. Today, technology can no longer be considered as a separate industry. People must deal with digital transformation as a singular event, based on interactions and continuous exchanges between machines and people. This new ecosystem requires the management of ever larger quantities of data, as well as the ability to very quickly adapt the business processes. Reply will play a leading role in this new scenario. We invite our shareholders to join Reply's development towards a point of reference for consultancy and technology in Europe.
For the European capital markets 2016 was a difficult year. Following 3 years of consecutive fund inflows, Europe registered an outflow of ca. 9% of assets under management, the highest outflow since the financial crisis in 2008 (according to an HSBC analysis). Especially Italy, Spain and Germany were hit by this development, whereas Norway, Switzerland and the UK posted relatively low negative flows.
The decline of the oil price and ongoing concerns about the economic situation in China affected the share price of Reply in the beginning of 2016. It started the year with Euro 125.90 and fell during the first weeks to Euro 105 on 8 February. Subsequently the share price – with strong underlying trading volumes –steadily increased to its year-high of Euro 135.90 on 16 March, shortly after the communication of the results of financial year 2015. The share afterwards entered into a lateral movement until in June the unexpected Brexit decision in the UK heavily hit the capital markets. The Reply share was able to compensate this severe dip until the beginning of August. Afterwards it became part of the rising discussions around the bad debt situation of Italian banks and the general Italian prospects in the wake of the referendum. This environment prevented the share from coming back to the performance of the first 7 months of the year. Only the result of the American elections lifted the share price during December, partially recovering previous losses. Due to this volatile environment the Reply share in total fell by 6%, trading at Euro 118 at the end of 2016. Reply outperformed the Italian MIB index by 4 percentage points; compared to the STAR index the performance was 10 percentage points lower.
Taking December 6, 2000, the date of the Reply IPO, as a reference the Italian main index MIB performed dissatisfying. It lost more than 60% of its starting value and never recovered substantially from the lows reached during the financial crisis. In the same period Reply increased its IPO value by more than 600%. In 2016 Reply stabilized the value creation adding another 4 percentage points to the outperformance versus the MIB.
During 2016 Reply stabilized its market capitalization, continuously exceeding Euro 1 billion. The liquidity situation with +1% year-on-year was basically stable. The average share price increased further by 24% going along with a further reduction of the number of traded shares by 19%. The number of trading days where the daily volume exceeded Euro 1 million further augmented throughout the financial year.
In 2016 the valuation of the Reply share converged with its peers: Reply valuations took a period of relief whereas peers who were neglected in 2015 picked up. As an outcome Reply was valued 10% above market average when considering the topline (enterprise value / revenue). In terms of profitability valuations (enterprise value / EBITDA or EBIT) Reply at the end of 2016 was valued at the average of the peer group. The same became true for the cash evaluation; Reply has closed the gap that had existed in the financial years before 2016.
Performance-based compensation is an essential pillar of the partnership-oriented business model of Reply. Like employees the Reply shareholders shall – in form of dividends - participate in the sustainable operational performance of the group. Each year this principle is balanced with the need of internal financing as a means to fund the investments of Reply (in new startup companies and new technologies). In 2016 Reply achieved earnings per share of Euro 7.22, an increase of 19% compared to 2015. For the financial year 2016 the corporate bodies of Reply propose to the shareholders' meeting to approve the payment of a dividend of EUR 1.15 (dividend 2015: Euro 1.00). Referred to the share price of Reply at the end of 2016 this corresponds to a dividend yield of 1.0%. Due to a reduced share price in conjunction with the operational progress of 2015 this yield is higher than the 2015 value of 0.8%. Assuming the approval of the shareholders' meeting Reply will pay to its shareholders a dividend sum of Euro 10.76 million. In 2015 Euro 9.35 million were distributed.
The subsequent table gives an overview on the main parameters of the Reply share and their substantial developments during the last 5 years.
| 2016 | 2015 | 2014 | 2013 | 2012 | ||
|---|---|---|---|---|---|---|
| Share price | ||||||
| Year-end | Euro | 118.0 | 125.9 | 60.90 | 56.90 | 20.99 |
| High for the year | Euro | 136.3 | 129.2 | 67.90 | 56.90 | 21.00 |
| Low for the year | Euro | 100.1 | 58.45 | 47.70 | 20.92 | 15.89 |
| Trading | ||||||
| Number of shares traded (year) | # thousand | 2,354.8 | 2,862.0 | 3,586.0 | 3,705.0 | 1,497.3 |
| Number of shares traded (day) | # thousand | 9.0 | 11.0 | 13.8 | 14.7 | 5.9 |
| Trading volume (year) | Euro million | 282.6 | 279.5 | 212.7 | 123.9 | 27.3 |
| Trading volume (day) | Euro million | 1.095 | 1.083 | 0.844 | 0.492 | 0.108 |
| Capital structure | ||||||
| Number of shares | # thousand | 9,352.9 | 9,352.9 | 9,352.9 | 9,307.9 | 9,222.9 |
| Share capital | Euro million | 4.863 | 4.863 | 4.863 | 4.840 | 4.796 |
| Free Float | % | 42.0 | 42.0 | 43.1 | 42.1 | 41.8 |
| Market capitalization | Euro million | 1,103.6 | 1,177.5 | 569.6 | 529.6 | 193.6 |
| Allocation of net income | ||||||
| Earnings per share | Euro | 7.22 | 6.07 | 5.12 | 3.70 | 2.94 |
| Dividend 1) | Euro | 1.15 | 1.00 | 0.85 | 0.70 | 0.57 |
| Dividend payment | Euro million | 10.756 | 9.353 | 7.950 | 6.515 | 5.257 |
| Dividend yield 2) | % | 1.0% | 0.8% | 1.4% | 1.2% | 2.7% |
1) Amount proposed for shareholder approval for 2016
2) Related to year-end closing price
According to the Reply shareholders' register the free float of the share amounted unchanged to 42%. 58% of the Reply shares are owned by the founders of Reply. As well the distribution between institutional and retail shareholders was quite stable with 33% and 9% of all shares respectively. In the institutional shareholders' base American investors made up the largest regional group (30% of institutional holdings), while the stake of British investors fell slightly to 15%. Also the relationship with French investors was further extended. Today 3 out of the top 10 institutional investors are coming from France.
3 Italian analysts currently are covering the Reply share. Reflecting the share price development ratings were set to "outperform" or "neutral" rating.
In 2016 Reply once again increased its activities with the capital markets. During 16 conferences and 5 roadshows Reply actively explained its equity story. Reply further intensified its activities to increase brand awareness in the US markets; in 2016 a roadshow in Boston, Chicago and Atlanta was conducted. As well Reply joined 3 investor conferences in New York. French, Spanish and UK investors were furthermore in the focus of our activities. Roadshows and conferences in Copenhagen, Lisbon, Vienna, Luxemburg and Düsseldorf completed the 2016 activities.
The tables presented and disclosed below were prepared on the basis of the financial statements as at 31 December 2016 to which reference should be made, prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and endorsed by the European Union, as well as with the regulations implementing Article 9 of Legislative Decree No. 38/2005.
The Parent Company Reply S.p.A. mainly carries out the operational co-ordination and the technical and quality management services for the Group companies as well as the administration, finance and marketing activities.
As at 31 December 2016 the Parent Company had 87 employees (87 employees in 2015).
Reply S.p.A. also carries out commercial fronting activities (pass-through revenues) for some major customers, whereas delivery is carried out by the operational companies. The economic results achieved by the Company are therefore not representative of the Group's overall economic trend and the performances of the markets in which it operates. Such activity is instead reflected in the item Revenue from fronting operations of the Income Statement set forth below.
The Parent Company's income statement is summarized as follows:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Revenues from operating activities | 54,356 | 52,095 | 2,262 |
| Pass-through revenues | 321,596 | 280,938 | 40,658 |
| Purchases, services and other expenses | (355,085) | (313,490) | (41,595) |
| Personnel and related expenses | (20,177) | (17,994) | (2,182) |
| Other unusual operating (expenses)/income | 1,781 | (3,750) | 5,531 |
| Amortization, depreciation and write-downs | (732) | (472) | (260) |
| Operating income | 1,739 | (2,674) | 4,413 |
| Financial income/(expenses) | (2,900) | 3,407 | (6,308) |
| Gain on equity investments | 20,189 | 39,578 | (19,389) |
| Loss on equity investments | (2,189) | (1,640) | (549) |
| Income before taxes | 16,839 | 38,671 | (21,832) |
| Income taxes | 425 | (1,757) | 2,182 |
| NET INCOME | 17,263 | 36,914 | (19,651) |
Revenues from operating activities mainly refer to charges for:
Operating income 2016 marked a positive result of 1,739 thousand Euros after having deducted amortization expenses of 732 thousand Euros (of which 390 thousand Euros referred to intangible assets and 342 thousand Euros to tangible assets).
Financial income/(expenses) amounted to 2,900 thousand Euros, and included interest income for 4,562 thousand Euros and interest expenses for 749 thousand Euros mainly relating to financing for the M&A operations. Such result also includes net negative exchange rate differences amounting to 6,283 thousand Euros.
Income from equity investments which amounted to 20,189 thousand Euros refers to dividends received from subsidiary companies in 2016.
Losses on equity investments refer to write-downs and losses reported in the year by some subsidiary companies that were considered to be unrecoverable.
Net income for the year ended 2016, amounted to 17,263 thousand Euros after income taxes of 425 thousand Euros
Reply S.p.A.'s financial structure as at 31 December 2016, compared to that as at 31 December 2015, is provided below:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Tangible assets | 723 | 765 | (42) |
| Intangible assets | 2,206 | 1,586 | 620 |
| Equity investments | 149,356 | 133,596 | 15,761 |
| Other fixed assets | 3,118 | 1,235 | 1,884 |
| Non financial liabilities - L/T | (10,743) | (13,388) | 2,645 |
| Fixed capital | 144,660 | 123,793 | 20,867 |
| Net working capital | 2,797 | 22,145 | (19,347) |
| INVESTED CAPITAL | 147,457 | 145,937 | 1,520 |
| Shareholders' equity | 200,742 | 192,907 | 7,835 |
| Net financial position | (53,285) | (46,970) | (6,315) |
| TOTAL SOURCES | 147,457 | 145,937 | 1,520 |
The net invested capital on 31 December 2016, amounting to 147,457 thousand Euros, was funded by Shareholders' equity in the amount of 200,742 thousand Euros from Shareholders' equity and available overall funds of 53,285 thousand Euros.
Changes in balance sheet items are fully analyzed and detailed in the explanatory notes to the financial statements.
The Parent Company's net financial position as at 31 December 2016, compared to 31 December 2015, is detailed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Cash and cash equivalents, net | 35,361 | 20,557 | 14,804 |
| Financial loans to subsidiaries | 62,430 | 57,779 | 4,652 |
| Receivables from factor | - | 744 | (744) |
| Financial loans | 738 | - | 738 |
| Due to banks | (18,778) | (10,475) | (8,303) |
| Due to subsidiaries | (64,428) | (41,141) | (23,287) |
| Net financial position short term | 15,324 | 27,463 | (12,139) |
| Long term financial assets | 67,299 | 52,112 | 15,187 |
| Due to banks | (29,339) | (32,606) | 3,267 |
| Net financial position long term | 37,960 | 19,506 | 18,454 |
| Total net financial position | 53,285 | 46,970 | 6,315 |
Change in the net financial position is analyzed and illustrated in the explanatory notes to the financial position.
In accordance with Consob Communication no. DEM/6064293 dated 28 July 2006, Shareholders' equity and the Parent Company's result are reconciled below with the related consolidated amounts.
| 31/12/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|
| (thousand Euros) | Net Equity | Net Income | Net Equity | Net Income | |
| Reply S.p.A.'s separate financial statements | 200,742 | 17,263 | 192,907 | 36,914 | |
| Results of the subsidiary companies | 211,675 | 77,365 | 161,236 | 68,655 | |
| Carrying value of investments in consolidated companies | (68,576) | - | (52,791) | - | |
| Elimination of dividends from subsidiary companies | - | (23,354) | - | (39,629) | |
| Adjustments to accounting principles and elimination of unrealized intercompany gains and losses, net of related tax effect |
(5,784) | (3,567) | (4,623) | (8,512) | |
| Non controlling interests | (520) | (163) | (653) | (680) | |
| Net Group consolidated financial statement | 337,537 | 67,544 | 296,079 | 56,748 |
The Corporate Governance system adopted by Reply adheres to the Corporate Governance Code for Italian Listed Companies issued by Borsa Italiana S.p.A. in March 2006, which was updated in July 2015, with the additions and amendments related to the specific characteristics of the Group.
In compliance with regulatory obligations the annually drafted "Report on Corporate Governance and Ownership Structures" contains a general description of the corporate governance system adopted by the Group, reporting information on ownership structures and compliance with the Code of Conduct, including the main governance practices applied and the characteristics of the risk management and internal control system also with respect to the financial reporting process.
The aforementioned Report is available on the Corporate Governance section of the website www.reply.com. - Investors – Corporate Governance.
The Corporate Governance Code is available on the website of Borsa Italiana S.p.A. www.borsaitaliana.it.
The Board of Directors, on an annual basis and at the proposal of the Remuneration Committee, establishes a Remuneration Policy which incorporates the recommendations of the Corporate Governance Code and regulations issued by Consob. In accordance with law, the Remuneration Policy forms the first part of the Report on Remuneration and will be submitted to the review of the Shareholders' Meeting called to approve the 2016 financial statements.
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, among which:
Human resources constitute a primary asset for Reply which bases its strategy on the quality of products and services and places continuous attention on the growth of personnel and in-depth examination of professional necessities with consequent definitions of needs and training courses.
The Reply Group is comprised of professionals originating from the best universities and polytechnics. The Group intends to continue investing in human resources by bonding special relations and collaboration with major universities with the scope of attracting highly qualified personnel.
The people who work at Reply are characterized by enthusiasm, expertise, methodology, team spirit, initiative, the capability of understanding the context they work in and of clearly communicating the solutions proposed. The capability of imagining, experimenting and studying new solutions enables more rapid and efficient innovation.
The group intends to maintain these distinctive features by increasing investments in training and collaboration with universities.
At the end of 2016 the Group had 6,015 employees compared to 5,245 in 2015. During the year 1,459 were employed, 947 left the Group and 258 new entries owe to change in consolidation.
As part of the requirements of Legislative Decree 196/03, the Italian "Data Protection Act", several activities to evaluate the system of data protection for information held by Group companies subject to this law, including specific audits, were performed. These activities confirmed that legislative requirements relating to the protection of personal data processed by Group companies had been substantially complied with, including preparation of the Security Planning Document.
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.
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.
Information on transactions with related parties as per Consob communication of 28 July 2006 is disclosed at the Note to the Consolidated financial statements and Notes to the financial statements.
At the balance sheet date, the Parent Company holds 1,007 treasury shares amounting to 24,502 Euros, nominal value equal to 524 Euros; at the balance sheet item net equity, the company has posted an unavailable reserve for the same amount.
At the balance sheet date the Company does not hold shares of other holding companies.
In relation to the use of financial instruments, the company has adopted a policy for risk management through the use of financial derivatives, with the scope of reducing the exposure to interest rate risks on financial loans.
Such financial instruments are considered as hedging instruments as they can be traced to the object being hedged (in terms of amount and expiry date).
In the notes to the financial statements more detail is provided to the above operations.
At the end of December 2016, an agreement was signed for the acquisition of the 100% share capital of comSysto GmbH, a company incorporated under German law based in Munich for an initial cash consideration of 6 million Euros. The agreement is effective commencing January 2017. The company is specialized in Agile solutions on Open Source technology.
Year ended 2016 was a remarkable year. The events of recent months have set the foundations for a new world, one in which things are rapidly changing and significantly different from what we have been accustomed to: the barriers between physical and digital, real and virtual have definitely collapsed.
Technology, a step outside the ICT boundaries, has become the key element that guides and influences daily life. Proof of this is the desire of freedom and independence, that for years many young generations sought through the purchase of a new car, means by which one could physically reach different destinations, and is now being substituted by the desire to "always be connected" or to have access to "a media" that allows, to be virtually connected at anytime and anyplace and to share experiences, contents and objects in real time.
Reply has always invested to position itself on the technological frontier, and topics that many are only now beginning to face, such as Artificial Intelligence, Big Data, Machine Learning, Mixed Reality, Industry 4.0 and the Internet of Things, are for Reply, already structured proposals on which it has been working together with its customers for some time.
Reply must seize and interpret future evolutions of technology, in particular for the development of algorithms and data processing; their transformation into relevant business information and their use in automation of processes and decisions, as well as in making "smart" objects and services.
Reply has the strength, determination and speed needed to emerge and conquer new markets, to innovate the quality of its services and grow further in this new context.
The financial statements at year ended 2016 of Reply S.p.A. prepared in accordance with International Financial Reporting Standards (IFRS), recorded a net income amounting to 17,263,478 Euros and net shareholders' equity on 31 December 2016 amounted to 200,741,730 Euros thus formed:
| (Euros) | 31/12/2016 |
|---|---|
| Share Capital | 4,863,486 |
| Share premium reserve | 23,302,692 |
| Legal reserve | 972,697 |
| Reserve for treasury shares on hand | 24,502 |
| Other reserves | 154,314,874 |
| Total share capital and reserves | 183,478,251 |
| Net income | 17,263,478 |
| Total | 200,741,730 |
The Board of Directors in submitting to the Shareholders the approval of the financial statements (Separate Statements) as at 31 December 2016 showing a net result of 17,263,478 Euros, proposes that the shareholders resolve:
Turin, 15 March 2017 /s/ Mario Rizzante For the Board of Directors The Chairman Mario Rizzante
Consolidated Financial Statement as at 31 December 2016
| (thousand Euros) | Note | 2016 | 2015 |
|---|---|---|---|
| Revenues | 5 | 780,739 | 705,601 |
| Other income | 19,579 | 15,643 | |
| Purchases | 6 | (16,969) | (14,049) |
| Personnel | 7 | (379,713) | (349,721) |
| Services and other costs | 8 | (296,650) | (256,138) |
| Amortization, depreciation and write-downs | 9 | (11,669) | (9,371) |
| Other unusual (cost)/income | 10 | 4,277 | (1,408) |
| Operating income (EBIT) | 99,594 | 90,558 | |
| (Loss)/gain on investments | 11 | (668) | 440 |
| Financial income/(expenses) | 12 | (1,520) | (2,067) |
| Income before taxes (EBT) | 97,405 | 88,930 | |
| Income taxes | 13 | (29,698) | (31,502) |
| Net income | 67,707 | 57,428 | |
| Non controlling interest | (163) | (680) | |
| Group net result | 67,544 | 56,748 | |
| Earnings per share | 14 | 7.22 | 6.07 |
| Diluted earnings per share | 14 | 7.22 | 6.07 |
(*) 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 Annexed tables herein and fully described in Note 35.
| (thousand Euros) | Note | 2016 | 2015 |
|---|---|---|---|
| Profit of the period (A) | 67,703 | 57,428 | |
| Other comprehensive income that will not be reclassified subsequently to profit or loss: |
|||
| Actuarial gains/(losses) from employee benefit plans | (1,597) | 567 | |
| Total Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1): |
(1,597) | 567 | |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
|||
| Gains/(losses) on cash flow hedges | (62) | (4) | |
| Gains/(losses) on exchange differences on translating foreign operations | (10,562) | 894 | |
| Total Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax (B2): |
(10,624) | 898 | |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): |
25 | (12,221) | 1,465 |
| Total comprehensive income (A)+(B) | 55,842 | 58,894 | |
| Total comprehensive income attributable to: | |||
| Owners of the parent | 55,323 | 58,213 | |
| Non-controlling interests | 159 | 680 |
| (thousand Euros) | Note | 31/12/2016 | 31/12/2015 |
|---|---|---|---|
| Tangible assets | 15 | 17,686 | 17,022 |
| Goodwill | 16 | 157,429 | 133,376 |
| Other intangible assets | 17 | 17,016 | 9,696 |
| Equity investments | 18 | 14,110 | 9,105 |
| Other financial assets | 19 | 9,739 | 5,629 |
| Deferred tax assets | 20 | 16,466 | 17,339 |
| Non current assets | 232,445 | 192,167 | |
| Inventories | 21 | 58,651 | 57,929 |
| Trade receivables | 22 | 339,194 | 302,250 |
| Other receivables and current assets | 23 | 44,810 | 40,973 |
| Financial assets | 19 | 2,925 | 2,289 |
| Cash and cash equivalents | 24 | 92,550 | 105,137 |
| Current assets | 538,130 | 508,577 | |
| TOTAL ASSETS | 770,575 | 700,745 | |
| Share Capital | 4,863 | 4,863 | |
| Other reserves | 264,610 | 233,814 | |
| Net result of the period | 67,544 | 56,748 | |
| Group shareholders' equity | 25 | 337,017 | 295,425 |
| Non controlling interest | 25 | 520 | 653 |
| NET EQUITY | 337,537 | 296,079 | |
| Due to minority shareholders and for earn-out | 26 | 24,558 | 19,746 |
| Financial liabilities | 27 | 31,051 | 33,869 |
| Employee benefits | 28 | 30,401 | 25,866 |
| Deferred tax liabilities | 29 | 18,563 | 21,471 |
| Provisions | 30 | 10,545 | 18,849 |
| Non current liabilities | 115,118 | 119,801 | |
| Financial liabilities | 27 | 35,670 | 46,280 |
| Trade payables | 31 | 92,735 | 77,686 |
| Other current liabilities | 32 | 189,144 | 160,640 |
| Provisions | 30 | 371 | 260 |
| Current liabilities | 317,921 | 284,865 | |
| TOTAL LIABILITIES | 433,038 | 404,666 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 770,575 | 700,745 |
(*)Pursuant to Consob Regulation No. 15519 of 27 July 2006, the effects of related-party transactions on the Statement of Financial Position are reported in the annexed Tables and further described in Note 35.
| (thousand Euros) | Share capital |
Treasury shares |
Capital reserves |
Earning reserves |
Cash flow hedge reserve |
Translation reserve |
Reserve for actuarial gains/(losses) |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|
| On 1 January 2015 | 4,863 | (9) | 52,836 | 196,878 | (4) | 652 | (3,309) | 936 | 252,843 |
| Dividends distributed | - | - | - | (7,950) | - | - | - | (1,012) | (8,962) |
| Change in treasury shares |
- | (15) | 20,000 | (20,000) | - | - | - | - | (15) |
| Total profit (loss) | - | - | - | 56,748 | 4 | 894 | 567 | 680 | 58,894 |
| Other changes | - | - | - | (6,730) | - | - | - | 49 | (6,681) |
| On 31 December 2015 | 4,863 | (25) | 72,836 | 218,946 | - | 1,546 | (2,742) | 653 | 296,079 |
| (thousand Euros) | Share capital |
Treasury shares |
Capital reserves |
Earning reserves |
Cash flow hedge reserve |
Translation reserve |
Reserve for actuarial gains/(losses) |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|
| On 1 January 2016 | 4,863 | (25) | 72,836 | 218,194 | - | 1,546 | (1,990) | 653 | 296,079 |
| Dividends distributed | - | - | - | (9,353) | - | - | - | (816) | (10,169) |
| Total profit (loss) | - | - | - | 67,544 | (62) | (10,562) | (1,597) | 159 | 55,482 |
| Other changes | - | - | - | (4,378) | - | - | - | 523 | (3,855) |
| On 31 December 2016 | 4,863 | (25) | 72,836 | 272,007 | (62) | (9,016) | (3,586) | 520 | 337,537 |
| (thousand Euros) | 2016 | 2015 |
|---|---|---|
| Group net income | 67,544 | 56,748 |
| Income taxes | 29,698 | 31,502 |
| Amortization and depreciation | 11,669 | 9,371 |
| Other non-monetary expenses/(income) | (3,464) | (2,604) |
| Change in inventories | (974) | (17,128) |
| Change in trade receivables | (28,882) | (16,785) |
| Change in trade payables | 13,508 | (5,674) |
| Change in other assets and liabilities | 22,376 | 20,545 |
| Income tax paid | (31,502) | (30,646) |
| Interest paid | (755) | (1,372) |
| Interest collected | 278 | 377 |
| Net cash flows from operating activities (A) | 79,497 | 44,334 |
| Payments for tangible and intangible assets | (19,344) | (14,564) |
| Payments for financial assets | (4,253) | (1,202) |
| Payments for the acquisition of subsidiaries net of cash acquired | (44,311) | (9,561) |
| Net cash flows from investment activities (B) | (67,909) | (25,328) |
| Dividends paid | (10,169) | (8,962) |
| In payments from loans | 15,294 | 28,615 |
| Repayment of loans | (10,553) | (21,543) |
| Other changes | 242 | 2,247 |
| Net cash flows from financing activities (C) | (5,186) | 357 |
| Net cash flows (D) = (A+B+C) | 6,402 | 19,363 |
| Cash and cash equivalents at the beginning of period | 70,109 | 50,746 |
| Cash and cash equivalents at period end | 76,511 | 70,109 |
| Total change in cash and cash equivalents (D) | 6,402 | 19,363 |
| (thousand Euros) | 2016 | 2015 |
|---|---|---|
| Cash and cash equivalents at beginning of period: | 70,109 | 50,745 |
| Cash and cash equivalents | 105,137 | 88,819 |
| Bank overdrafts | (35,028) | (38,073) |
| Cash and cash equivalents at period end: | 76,511 | 70,109 |
| Cash and cash equivalents | 92,550 | 105,137 |
| Bank overdrafts | (16,039) | (35,028) |
| 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 | - Purchases | |
| NOTE 7 | - Personnel | |
| NOTE 8 | - Services and other costs | |
| NOTE 9 | - Amortization, depreciation and write-downs | |
| NOTE 10 | - Other unusual operating income/(expenses) | |
| NOTE 11 | - (Loss)/gain on investments | |
| NOTE 12 | - Financial income/(expenses) | |
| NOTE 13 | - Income taxes | |
| NOTE 14 | - Earnings per share | |
| Statement of financial position - Assets | NOTE 15 | - Tangible assets |
| NOTE 16 | - Goodwill | |
| NOTE 17 | - Other intangible assets | |
| NOTE 18 | - Equity Investments | |
| NOTE 19 | - Financial assets | |
| NOTE 20 | - Deferred tax assets | |
| NOTE 21 | - Work-in-progress | |
| NOTE 22 | - Trade receivables | |
| NOTE 23 | - Other receivables and current assets | |
| NOTE 24 | - Cash and cash equivalents | |
| Statement of financial position - Liabilities and equity |
NOTE 25 | - Shareholders' equity |
| NOTE 26 | - Payables to minority shareholders and Earn-out | |
| NOTE 27 | - Financial liabilities | |
| NOTE 28 | - Employee benefits | |
| NOTE 29 | - Deferred tax liabilities | |
| NOTE 30 | - Provisions | |
| NOTE 31 | - Trade payables | |
| NOTE 32 | - Other current liabilities | |
| Other information | NOTE 33 | - Segment Reporting |
| - Additional disclosures to financial instruments and risk management | ||
| NOTE 34 | policies | |
| NOTE 35 | - Transactions with related parties | |
| - Emoluments to Directors, Statutory Auditors and Directors with Key | ||
| NOTE 36 | responsibilities | |
| NOTE 37 | - Guarantees, commitments and contingent liabilities | |
| NOTE 38 | Events subsequent to 31 December 2016 | |
| Approval of the Consolidated financial statements and authorization to | ||
| NOTE 39 | publish |
Reply [MTA, STAR: REY] specializes in the implementation of solutions based on new communication channels and digital media. Reply, consisting of a network of specialist companies, supports important European industries belonging to the Telco & Media, Manufacturing & Retail, Bank & Insurances and Public Administration segments, in defining and developing new business models utilizing Big Data, Cloud Computing, CRM, Mobile, Social Media and Internet of Things paradigms. Reply offers consultancy, system integration and application management and business process outsourcing (www.reply.com).
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 consolidated financial statements have 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.
The consolidated financial statement is 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 IAS 39.
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.
The consolidated financial statements include 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 added showing the amounts of related party transactions.
The financial statements of subsidiaries are included in the consolidated financial statements as at 31 December of each year. Control exists when the Group has the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting principles used into line with those used by other members of the Group.
All significant intercompany transactions and balances between group companies are eliminated on consolidation.
Non controlling interest is stated separately with respect to the Group's net equity. Such Non controlling interest is determined according to the percentage of the shares held of the fair values of the identifiable assets and liabilities of the company at the date of acquisition and post-acquisition adjustments. According to IAS 27, overall loss (including the profit/(loss) for the year) is attributed to the owners of the Parent and minority interest also when net equity attributable to minority interests has a negative balance.
Difference arising from translation of equity at historical exchange rates and year end exchange rates are recorded at an appropriate reserve of the consolidated shareholders' equity.
Acquisition of subsidiary companies is recognized according to the purchase method of accounting. The acquisition cost is determined by the sum of the fair value, at the trading date, of all the assets transferred, liabilities settled and the financial instruments issued by the group in exchange of control of the acquired company. In addition, any cost directly attributable to the acquisition.
The identifiable assets, liabilities and contingent liabilities of the company acquired that respect the conditions to be recognized according with IFRS 3 are stated at their fair value at the date of acquisition with the exception of those non current assets (or groups in discontinued operations) that are held for sale in accordance with IFRS 5, which are recognized and measured at fair value less selling costs.
The positive difference between the acquisition costs and Group interest of the reported assets and liabilities is recorded as goodwill and classified as an intangible asset having an indefinite life.
Minority interest in the company acquired is initially measured to the extent of their shares in the fair value of the assets, liabilities and contingent liabilities recognized.
The accounting of the put and call options on the minority shareholdings of the subsidiary company are recorded according to IAS 32, taking into account therefore, depending on the case, the existence and the determinability of the consideration to the minority shareholders if the option was exercised.
An associate is a company over which the Group is in a position to exercise significant influence, but not control, through the participation in the financial and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting, with the exception of investments held for future disposal.
Where a group company transacts with an associate of the Group, unrealized profits and losses are eliminated to the extent of the Group's interest in the relevant associate, except to the extent that unrealized losses provide evidence of an impairment of the asset transferred.
With regard to investments in associated companies held, either directly or indirectly through venture capital or similar entities, in order to realize capital gains, these are carried at fair value. This treatment is permitted by IAS 28 "Investments in Associates", which requires that these investments are excluded from its scope and are designated, from the time of initial recognition, at fair value through profit or loss and accounted for in accordance with IAS 39 " financial instruments: recognition and Measurement "and any change therein is recognized in profit and loss.
All significant intercompany balances and transactions and any unrealized gains and losses arising from intercompany transactions are eliminated in preparing the consolidated financial statements. Unrealized gains and losses arising from transactions with associates and jointly controlled entities are eliminated to the extent of the company's interest in those entities.
Transactions in foreign currencies are recorded at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate prevailing at that date. Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements, are recognized in the income statement.
All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are translated using the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the period. Translation differences resulting from the application of this method are classified as equity until the disposal of the investment. Average rates of exchange are used to translate the cash flows of foreign subsidiaries in preparing the consolidated statement of cash flows. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are recorded in the relevant functional currency of the foreign entity and are translated using the period end exchange rate. In the context of IFRS First-time Adoption, the cumulative translation difference arising from the consolidation of foreign operations was set at nil, as permitted by IFRS 1; gains or losses on subsequent disposal of any foreign operation only include accumulated translation differences arising after 1 January 2004.
The following table summarizes the exchange rates used in translating the 2016 and 2015 financial statements of the foreign companies included in consolidation:
| On 31 | On 31 | |||
|---|---|---|---|---|
| Average2016 | December 2016 | Average 2015 | December 2015 | |
| GBP | 0.818896 | 0.85618 | 0.726002 | 0.73395 |
| Brazilian Real | 3.861627 | 3.4305 | 3.691603 | 4.3117 |
| Rumanian Leu | 4.490754 | 4.539 | 4.445215 | 4.5240 |
| Belarussian Ruble | 2.20087 | 2.17226 | - | - |
| US Dollar | 1.106598 | 1.0541 | 1.109625 | 1.0887 |
| Chinese Yuan | 7.349579 | 7.39643 | - | - |
| Polish Zloty | 4.363635 | 4.4103 | 4.182785 | 4.2639 |
Tangible fixed assets are stated at cost, net of accumulated depreciation and impairment losses.
Goods made up of components, of significant value, that have different useful lives are considered separately when determining depreciation.
Depreciation is charged so as to write off the cost or valuation of assets, over their estimated useful lives, using the straight-line method, on the following bases:
| Buildings | 3% |
|---|---|
| Equipment | 30% |
| Plants | 40% |
| Hardware | 40% |
| Furniture and fittings | 24% |
The recoverable value of such assets is determined through the principles set out in IAS 36 and outlined in the paragraph ("Impairment") herein.
Ordinary maintenance costs are fully expensed as incurred. Incremental maintenance costs are allocated to the asset to which they refer and depreciated over their residual useful lives.
Improvement expenditures on rented property are allocated to the related assets and depreciated over the shorter between the duration of the rent contract or the residual useful lives of the relevant assets.
Assets held under finance leases, which provide the Group with substantially all the risks and rewards of ownership, are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the financial statement as a debt. The assets are amortized over their estimated useful life or over the duration of the lease contract if lower.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income.
Goodwill is an intangible asset with an indefinite life, deriving from business combinations recognized using the purchase method, and is recorded to reflect the positive difference between purchase cost and the Group's interest at the time of acquisition, after having recognized all assets, liabilities and identifiable contingent liabilities attributable to both the Group and third parties at their fair value.
Goodwill is not amortized but is (tested for impairment) annually or more frequently if events or changes in circumstances indicate that it might be impaired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Impairment losses are recognized immediately as expenses that cannot be recovered in the future.
On disposal of a subsidiary or associate, the attributable amount of unamortized goodwill is included in the determination of the profit or loss on disposal.
Intangible fixed assets are those lacking an identifiable physical aspect, are controlled by the company and are capable of generating future economic benefits.
Other purchased and internally-generated intangible assets are recognized as assets in accordance with IAS 38 – Intangible Assets, where it is probable that the use of the asset will generate future economic benefits and where the costs of the asset can be determined reliably.
Such assets are measured at purchase or manufacturing cost and amortized on a straight-line basis over their estimated useful lives, if these assets have finite useful lives.
Other intangible assets acquired as part of an acquisition of a business are capitalized separately from goodwill if their fair value can be measured reliably.
In case of intangible fixed assets purchased for which availability for use and relevant payments are deferred beyond normal terms, the purchase value and the relevant liabilities are discounted by recording the implicit financial charges in their original price.
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
Development costs can be capitalized on condition that they can be measured reliably and that evidence is provided that the asset will generate future economic benefits.
An internally-generated intangible asset arising from the Group's e-business development (such as informatics solutions) is recognized only if all of the following conditions are met:
These assets are amortized when launched or when available for use. Until then, and on condition that the above terms are respected, such assets are recognized as construction in progress. Amortization is determined on a straight line basis over the relevant useful lives.
When an internally-generated intangible asset cannot be recorded at balance sheet, development costs are recognized in the statement of income in the period in which they are incurred.
Intangible assets with indefinite useful lives consist principally of acquired trademarks which have no legal, contractual, competitive, economic, or other factors that limit their useful lives. Intangible assets with indefinite useful lives are not amortized in accordance with IAS 36 criteria, but are tested for impairment annually or more frequently whenever there is an indication that the asset may be impaired. Any impairment losses are not subject to subsequent reversals.
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment annually or more frequently, whenever there is an indication that the asset may be impaired.
The recoverable amount of an asset is the higher of fair value, less disposal costs and its value in use. In assessing its value in use, the pre-tax estimated future cash flows are discounted at their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Its value in use is determined net of tax in that this method produces values largely equivalent to those obtained by discounting cash flows net of tax at a pre-tax discount rate derived, through an iteration, from the result of the post-tax assessment. The assessment is carried out for the individual asset or for the smallest identifiable group of cash generating assets deriving from ongoing use, the so-called Cash generating unit.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately.
Where the value of the Cash generating unit, inclusive of goodwill, is higher than the recoverable value, the difference is subject to impairment and attributable firstly to goodwill; any exceeding difference is attributed on a pro-quota basis to the assets of the Cash generating unit.
Where an impairment loss subsequently reverses, the carrying amount of the asset, (or cash-generating unit), with the exception of goodwill, is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount that would have been determined had no impairment loss been recognized for the asset. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Investments in other companies that are available-for-sale financial assets are measured at fair value, when this can be reliably determined. Gains or Losses arising from change in fair value are recognized in Other comprehensive income/(losses) until the assets are sold or are impaired, at that time, the cumulative Other comprehensive income/(losses) are recognized in the Income Statement. Investments in other companies for which fair value is not available are stated at cost less any impairment losses.
Dividends received are included in Other income/(expenses) from investments.
In the event of write-down for impairment, the cost is recognized in the income statement; the original value is restored in subsequent years if the assumptions for the write-down no longer exist.
The risk resulting from possible losses beyond equity is entered in a specific provision for risks to the extent to which the Parent Company is committed to fulfil its legal or implicit obligations towards the associated company or to cover its losses.
Financial assets are recognized in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Investments are recognized and written-off the balance sheet on a trade-date basis and are initially measured at cost, including transaction costs.
At subsequent reporting dates, financial assets that the Group has the expressed intention and ability to hold to maturity (held-to-maturity securities) are measured and amortized at cost according to the prevailing market interest rate method, less any impairment loss recognized to reflect irrecoverable amounts.
Investments other than held-to maturity securities are classified as either held-for-trading or available-forsale, and are measured at subsequent reporting dates at fair value. Where financial assets are held for trading purposes, gains and losses arising from changes in fair value are included in the net profit or loss for the period; for available-for-sale investments, gains and losses arising from changes in fair value are recognized directly in equity, until the security is disposed of or is determined to be impaired; at which time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period.
This item is stated in the current financial assets.
The Group removes financial assets from its balance sheet when, and only when, the contractual rights to the cash flows from the assets expire or the Group transfers the financial asset. In the case of transfer of the financial asset
At the time of removal of financial assets from the balance sheet, the difference between the carrying value of assets and the fees received or receivable for the transfer of the assets is recognized in the income statement.
Work in progress mainly comprise construction contracts; when the result of a specific order can be reliably estimated, proceeds and costs referable to the related order are indicated as proceeds and costs respectively in relation to the state of progress of activities on the date of closure of the financial statement, based on the relationship between costs sustained for activities taking place up to the date of the financial statement and total costs estimated from the order, except for that which is not considered as representative of the state of progress of the order.
Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs that it is probable will be recoverable. Contract costs are recognized as expenses in the period in which they are incurred.
When it is probable that the total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Any advance payments are subtracted from the value of work in progress within the limits of the contract revenues accrued; the exceeding amounts are accounted as liabilities.
Product inventories are stated at the lower of cost and net realizable value. Cost comprises direct material and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method.
Trade payables and receivables and other current assets and liabilities are measured at nominal value and eventually written down to reflect their recoverable amount.
Write-downs are determined to the extent of the difference of the carrying value of the receivables and the present value of the estimated future cash flows.
Receivables and payables denominated in non EMU currencies are stated at the exchange rate at period end provided by the European Central Bank.
The item cash and cash equivalents includes cash, banks and reimbursable deposits on demand and other short term financial investments readily convertible in cash and are not subject to significant risks in terms of change in value.
Treasury shares are presented as a deduction from equity. The original cost of treasury shares and proceeds of any subsequent sale are presented as movements in equity.
Financial liabilities and equity instruments issued by the Group are presented according to their substance arising from their contractual obligations and in accordance with the definitions of financial liabilities and equity instruments. The latter are defined as those contractual obligations that give the right to benefit in the residual interests of the Group's assets after having deducted its liabilities.
The accounting standards adopted for specific financial liabilities or equity instruments are outlined below:
In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only when at the inception of the hedge there is formal designation and sufficient documentation that the hedge is highly effective and that its effectiveness can be reliably measured. The hedge must be highly effective throughout the different financial reporting periods for which it was designated.
All derivative financial instruments are measured in accordance with IAS 39 at fair value.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows relating to the Group's contractual commitments and forecast transactions are recognized directly in Shareholders' equity, while any ineffective portion is recognized immediately in the Income Statement.
If the hedged company commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognized, associated gains or losses on the derivative that had previously been recognized in equity are included in the initial measurement of the asset or liability.
For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognized in the income statement in the same period in which the hedge commitment or forecasted transaction affects net profit or loss, for example, when the future sale actually occurs.
For effective hedging against a change in fair value, the hedged item is adjusted by the changes in fair value attributable to the risk hedged with a balancing entry in the Income Statement. Gains and losses arising from the measurement of the derivative are also recognized at the income statement.
Changes in the fair value of derivative financial instruments that no longer qualify as hedge accounting are recognized in the Income Statement of the period in which they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction is no longer expected to occur; the net cumulative gain or loss recognized in equity is transferred to the net profit or loss for the period.
Implicit derivatives included in other financial instruments or in other contractual obligations are treated as separate derivatives, when their risks and characteristics are not strictly related to the underlying contractual obligation and the latter are not stated at fair value with recognition of gains and losses in the Income Statement.
The scheme underlying the employee severance indemnity of the Italian Group companies (the TFR) was classified as a defined benefit plan up until 31 December 2006. The legislation regarding this scheme was amended by Law No. 296 of 27 December 2006 (the "2007 Finance Law") and subsequent decrees and regulations issued in the first part of 2007. In view of these changes, and with specific reference to those regarding companies with at least 50 employees, this scheme only continues to be classified as a defined benefit plan in the Consolidated financial statements for those benefits accruing up to 31 December 2006 (and not yet settled by the balance sheet date), while after that date the scheme is classified as a defined contribution plan.
For Italian companies with less than 50 employees, severance pay ("TFR") remains a "post-employment benefit", of the "defined benefit plan" type, whose already matured amount must be planned to estimate the amount to settle at the time of annulment of working relations and subsequently updated, using the "Projected unit credit method". Such actuarial methodology is based on an assumption of demographic and financial nature in order to carry out a reasonable estimate of the amount of benefits that each employee had already matured based on his employment performances.
Through actuarial valuation, current service costs are recognized as "personnel expenses" in the Income Statement and represent the amount of rights matured by employees at the reporting date, and the interest cost is recognized as "Financial gains or losses" and represents the figurative expenditure the Company would bear by securing a market loan for an amount corresponding to the Employee Termination Indemnities ("TFR").
Actuarial income and losses that reflect the effects resulting from changes in the actuarial assumptions used are directly recognized in Shareholders' equity without being ever included in the consolidated income statement.
According to local conditions and practices, some employees of the Group benefit from pension plans of defined benefits and/or a defined contribution.
In the presence of defined contribution plans, the annual cost is recorded at the income statement when the service cost is executed.
The Group's obligation to fund defined benefit pension plans and the annual cost recognized in the Income Statement is determined on an actuarial basis using the "ongoing single premiums" method. The portion of net cumulative actuarial gains and losses which exceeds the greater of 10% of the present value of the defined benefit obligation and 10% of the fair value of plan assets at the end of the previous year is amortized over the average remaining service lives of the employees.
The post-employment benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses, arising from the application of the corridor method and past service costs to be recognized in future years, reduced by the fair value of plan assets.
The Group has applied the standard set out by IFRS 2 "Share-based payment". Share-based payments are measured at fair value at granting date. Such amount is recognized in the Income Statement, with a balancing entry in Shareholders' equity, on a straight-line basis over the "vesting period". The fair value of the option, measured at the granting date, is measured through actuarial calculations, taking into account the terms and conditions of the options granted. Following the exercise of the options assigned in previous years, the Group has no more stock option plans.
For cash-settled share-based payment transactions, the Group measures the goods and services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group is required to remeasure the fair value of the liability at each reporting date and at the date of settlement, with the changes in value recognized in profit or loss for the period.
Provisions for risks and liabilities are costs and liabilities having an established nature and the existence of which is certain or probable that at the reporting date the amount cannot be determined or the occurrence of which is uncertain. Such provisions are recognized when a commitment actually exists arising from past events of legal or contractual nature or arising from statements or company conduct that determine valid expectations from the persons involved (implicit obligations).
Provisions are recognized when the Group has a present commitment arising from a past event and it is probable that it will be required to fulfil the commitment. Provisions are accrued at the best estimate of the expenditure required to settle the liability at the balance sheet date, and are discounted when the effect is significant.
Revenue is recognized if it is probable that the economic benefits associated with the transaction will flow to the Group and the revenue can be measured reliably.
Revenue from sales and services is recognized when the transfer of all the risks and benefits arising from the passage of title takes place or upon execution of a service.
Revenues from sales of products are recognized when the risks and rewards of ownership of goods are transferred to the customer. Revenues are recorded net of discounts, allowances, settlement discounts and rebates and charged against profit for the period in which the corresponding sales are recognized.
Government grants are recognized in the financial statements when there is reasonable assurance that the company concerned will comply with the conditions for receiving such grants and that the grants themselves will be received. Government grants are recognized as income over the periods necessary to match them with the related costs which they are intended to compensate.
Income tax represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit defers from the profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Current income tax is entered for each individual company based on an estimate of taxable income in compliance with existing legislation and tax rates or as substantially approved at the period closing date in each country, considering applicable exemptions and tax credit.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates and interests arising in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
In the event of changes to the accounting value of deferred tax assets and liabilities deriving from a change in the applicable tax rates and relevant legislation, the resulting deferred tax amount is entered in income statement, unless it refers to debited or credited amounts previously recognized to Shareholders' equity.
Dividends are entered in the accounting period in which distribution is approved.
Basic earnings per share is calculated with reference to the profit for the period of the Group and the weighted average number of shares outstanding during the year. Treasury shares are excluded from this calculation.
Diluted earnings per share is determined by adjusting the basic earnings per share to take account of the theoretical conversion of all potential shares, being all financial instruments that are potentially convertible into ordinary shares, with diluting effect.
The preparation of the financial statements and relative notes under IFRS requires that management makes estimates and assumptions that have effect on the measurement of assets and liabilities and on disclosures related to contingent assets and liabilities at the reporting date. The actual results could differ from such estimates. Estimates are used to accrue provisions for risks on receivables, to measure development costs, to measure contract work in progress, employee benefits, income taxes and other provisions. The estimations and assumptions are reviewed periodically and the effects of any changes are recognized immediately in income.
In this context it is made known that the situation caused by the current economic and financial crisis has included the need to carry out undertakings regarding future progress characterized by significant uncertainty, for which the materialization cannot be excluded in the next financial year of results different from that estimated and that therefore could require rectification, up to the present day, neither assessable or foreseeable in the accounting value of the related items. The items of the financial statements mainly effected by such uncertainty are the impairment funds, risk funds, goodwill and deferred taxes.
The accounting principles newly adopted by the Group and their outcomes are described in the subsequent paragraph "Accounting principles, amendments and interpretations applied since 1 January 2016". There have been no further changes other than those described in the aforementioned paragraph.
At the reporting date, there are no significant estimates regarding the unforeseeable outcome of future events and other causes of uncertainty that might result in significant adjustments being made to the value of assets and liabilities in the coming year.
The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2016. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2016, they did not have a material impact on the annual consolidated financial statements of the Group. The nature and the impact of each new standard or amendment is described below.
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 February 2015. This amendment is not relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties.
These improvements are effective for accounting periods beginning on or after 1 February 2015. The Group has applied these improvements for the first time in these consolidated financial statements. They include:
This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:
The clarifications are consistent with how the Group has identified any performance and service conditions which are vesting conditions in previous periods. Thus, these amendments did not impact the Group's financial statements or accounting policies.
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39. This is consistent with the Group's current accounting policy and, thus, this amendment did not impact the Group's accounting policy.
The amendments are applied retrospectively and clarify that:
An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are 'similar'.
The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. The Group has not applied the aggregation criteria in IFRS 8.12. The Group has presented the reconciliation of segment assets to total assets in previous periods and continues to disclose the same in Note 33 in this period's financial statements as the reconciliation is reported to the chief operating decision maker for the purpose of decision making.
The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact to the revaluation adjustments recorded by the Group during the current period.
The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Group as it does not receive any management services from other entities.
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3 Business Combinations principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Group as there has been no interest acquired in a joint operation during the period.
The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets.
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in their separate financial statements will have to apply that change retrospectively. First-time adopters of IFRS electing to use the equity method in their separate financial statements will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Group's consolidated financial statements.
These improvements are effective for annual periods beginning on or after 1 January 2016. They include:
Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively.
The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments.
The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively.
The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.
The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Group.
The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:
Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Group.
The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group plans to adopt the new standard on the required effective date. Overall, the Group expects no significant impact on its balance sheet and equity.
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date using the full retrospective method. During 2016, the Group performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Group is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments. On the basis of the preliminary analysis, no significant impacts are expected on the Group.
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively.
The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Group.
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.
These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Group.
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential effect of the amendments on its consolidated financial statements.
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.
In 2017, the Group plans to assess the potential effect of IFRS 16 on its consolidated financial statements.
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.
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.
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 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.
Companies included in consolidation are consolidated on a line-by-line basis.
Change in consolidation compared to 31 December 2015 is related:
Change in the consolidation does not significantly affect the Group's revenues and profits before tax on 31 December 2016 (approximately 2.6% on consolidated revenue).
Furthermore, the list of the Reply Group's companies and equity investments, presented as an annex herein, also includes in consolidation the following newly incorporated companies with respect to 31 December 2015:
Revenues from sales and services, including changes in work in progress on orders, amounted to 780,739 thousand Euros (705,601 thousand Euros in 2015).
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 geographic area. Moreover the breakdown reflects the business management of the Group by Top Management and the allocation approximates the localization of services provided:
| Country (*) | 2016 | 2015 |
|---|---|---|
| Region 1 | 70.90% | 71.00% |
| Region 2 | 16.50% | 16.50% |
| Region 3 | 12.30% | 12.30% |
| IoT Incubator | 0.30% | 0.20% |
| Total | 100.0% | 100.0% |
(*) Region 1: ITA, USA, BRA, POL, ROU Region 2: DEU, CHE, CHN Region 3: GBR, LUX, BEL, NLD, FRA, BLR
Disclosure required by IFRS 8 ("Operating segment") is provided in Note 33 herein.
Detail is as follows:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Software licenses | 9,389 | 6,268 | 3,121 |
| Hardware | 2,068 | 1,548 | 520 |
| Other | 5,512 | 6,232 | (721) |
| Total | 16,969 | 14,049 | 2,921 |
Purchases of Software licenses and Hardware are recognized net of any change in inventory. The item Other includes the purchase of fuel for 2,236 thousand Euros and the purchase of consumption material for 1,819 thousand Euros.
Detail is as follows:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Payroll employees | 357,867 | 317,485 | 40,382 |
| Executive Directors | 21,847 | 26,673 | (4,826) |
| Project collaborators | - | 5,563 | (5,563) |
| Total | 379,713 | 349,721 | 29,992 |
The increase in the cost of employees, amounting to 29,992 thousand Euros, is attributable to the total registered increase in the Group's business and in the increase in employees.
Detail of personnel by category is provided below:
| (number) | 2016 | 2015 | Change |
|---|---|---|---|
| Directors | 326 | 294 | 32 |
| Managers | 836 | 774 | 62 |
| Staff | 4,853 | 4,177 | 676 |
| Total | 6,015 | 5,245 | 770 |
On 31 December 2016 the Group had 6,015, employees compared with 5,245 at the end of 2015.
Change in consolidation brought an increase of 258 employees.
The average number of employees in 2016 was 5,663 marking an increase with respect to n. 4,949 in the previous year.
Payroll employees comprise mainly electronic engineers and economic, computer science, and business graduates from the best Universities.
Services and other costs comprised the following:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Commercial and technical consulting | 178,885 | 152,500 | 26,385 |
| Travelling and professional training expenses | 29,569 | 27,826 | 1,744 |
| Other services costs | 52,315 | 43,458 | 8,857 |
| Office expenses | 18,910 | 16,158 | 2,752 |
| Lease and rentals | 8,143 | 7,773 | 370 |
| Other | 8,827 | 8,424 | 404 |
| Total | 296,650 | 256,138 | 40,512 |
The change in Services and other costs, amounting to 40,512 Euros, is attributable to an overall increase in the Group's business.
The item Other services mainly includes marketing services, administrative and legal services, telephone and canteen.
Office expenses include services rendered by third parties for 438 thousand Euros and related parties for 808 thousand Euros, in connection to service contracts for the use of premises, domiciliation and provision of secretarial services, and rent charged by third parties for 11,637 thousand Euros. This item also includes utility expenses for 3,276 thousand Euros.
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 31 December 2016 of 6,120 thousand Euros. Details of depreciation are provided in the notes to tangible assets.
Amortization of intangible assets for the year ended 2016 amounted to an overall loss of 5,548 thousand Euros. Details of depreciation are provided in the notes to tangible assets.
Other unusual operating income amounted to 4,277 thousand Euros (other unusual operating expenses amounting to 1,408 thousand Euros in 2015) and refer to:
This item amounting to negative 668 thousand Euros is related to:
Detail is as follows:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Financial income | 342 | 427 | (84) |
| Interest expenses | (1,017) | (1,335) | 318 |
| Other | (846) | (1,159) | 313 |
| Total | (1,520) | (2,067) | 547 |
Financial gains mainly include interest on bank accounts amounting to 278 thousand Euros. Interest expenses mainly include expenses related to loans for M&A operations.
The item Other includes the Exchange rate differences from the translation of balance sheet items not stated in Euros, as well as changes in fair value of financial liabilities pursuant to IAS 39.
Income taxes for the financial year ended 2016 amounted to 29,698 thousand Euros and is detailed as follows:
| (thousand Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| IRES and other taxes | 31,114 | 24,276 | 6,838 |
| IRAP (Italy) | 4,734 | 5,206 | (472) |
| Current taxes | 35,848 | 29,481 | 6,367 |
| Deferred tax expenses | (4,593) | 5,272 | (9,865) |
| Deferred tax income | (1,557) | (3,252) | 1,695 |
| Deferred taxes | (6,150) | 2,020 | (8,170) |
| Total income taxes | 29,698 | 31,502 | (1,804) |
The tax burden on the result before taxes was equivalent to 30.5% (35.4% in the financial year of 2015).
The reconciliation between the tax charges recorded in the consolidated financial statements and the theoretical tax charge, calculated on the basis of the theoretical tax rate in effect in Italy, is the following:
| Profit/(loss) before taxes from continuing operations | 97,405 | |
|---|---|---|
| Theoretical income taxes | 26,786 | 27.5% |
| Effect of fiscal permanent differences | (1,488) | |
| Effect of difference between foreign tax rates and the theoretical Italian tax rate | (333) | |
| Other differences | 1 | |
| Current and deferred income tax recognized in the financial statement excluding IRAP | 24,964 | 25.6% |
| IRAP current and deferred | 4,734 | |
| Current and deferred income recognized in the financial statements | 29,698 | 30.5% |
In order to render the reconciliation between income taxes recognized in the financial statements and theoretical income taxes more meaningful, IRAP tax is not taken into consideration since it has a taxable basis that is different from the result before tax of continuing operations. Theoretical income taxes are therefore calculated by applying only the tax rate in effect in Italy ("IRES"), equal to 27.5%, on the result before tax of continuing operations.
The basic and diluted earnings per share as at 31 December 2016 was calculated on the basis of the Group's net result amounting to 67,544 thousand Euros (56,748 thousand Euros as at 31 December 2015) divided by the weighted average number of shares, net of treasury shares, as at 31 December 2016 which amounted to 9,351,850 (9,351,850 as at 31 December 2015).
| (Euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Group net result | 67,544,000 | 56,748,000 |
| Average no. shares | 9,351,850 | 9,351,850 |
| Earnings per share | 7.22 | 6.07 |
Tangible assets as at 31 December 2016 amounted to 17,686 thousand Euros and are detailed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Buildings | 1,764 | 1,906 | (142) |
| Plant and machinery | 3,132 | 2,805 | 326 |
| Hardware | 3,920 | 3,357 | 564 |
| Other | 8,870 | 8,955 | (85) |
| Total | 17,686 | 17,023 | 663 |
Change in tangible assets during 2016 is summarized below:
| (thousand Euros) | Buildings | Plant and machinery |
Hardware | Other | Total |
|---|---|---|---|---|---|
| Historical Cost | 4,023 | 8,165 | 26,777 | 19,331 | 58,296 |
| Accumulated depreciation | (2,117) | (5,359) | (23,420) | (10,377) | (41,274) |
| 31/12/2015 | 1,906 | 2,805 | 3,357 | 8,955 | 17,022 |
| Historical Cost | |||||
| Increases | - | 1,285 | 3,099 | 2,664 | 7,048 |
| Disposals | - | (433) | (980) | (810) | (2,223) |
| Other changes | - | 288 | 383 | (312) | 360 |
| Accumulated depreciation | |||||
| Depreciation | (142) | (1,124) | (2,590) | (2,265) | (6,120) |
| Utilized | - | 426 | 789 | 681 | 1,895 |
| Other changes | - | (115) | (138) | (43) | (296) |
| Historical Cost | 4,023 | 9,305 | 29,279 | 20,874 | 63,481 |
| Accumulated depreciation | (2,259) | (6,173) | (25,359) | (12,004) | (45,795) |
| 31/12/2016 | 1,764 | 3,132 | 3,920 | 8,870 | 17,686 |
During the financial year the Group carried out total investments for 7,048 thousand Euros (7,686 thousand Euros at 31 December 2015).
The item Buildings mainly includes the net value of a building owned by the group amounting to 1,762 thousand Euros, located in Guetersloh, Germany.
Increase in the item Plant and machinery mainly refers to purchases of specific devices and to plant systems for the offices in which the Group operates.
Change in the item Hardware is due to investments made by operating companies for purchases of specific equipment about mobile and the construction of plants for the new headquarters of Group. Furthermore this item includes financial leases for 556 thousand Euros (230 at 31 December 2015).
The item Other as at 31 December 2016 mainly includes improvements to third party assets and office furniture. The increase of 2,664 Euros mainly refers to improvements made to the offices where the Group companies operate. Such item also includes a financial lease for furniture for a net value amounting to 894 thousand Euros (1,412 thousand Euros at 31 December 2015).
Other changes mainly refer to change in consolidation and to translation differences.
As at 31 December 2016 tangible assets were depreciated by 72.1% of their value, compared to 70.8% at the end of 2015.
This item includes goodwill arising from consolidation of subsidiaries and the value of business branches purchased against payment made by some Group companies.
Goodwill in 2016 developed as follows:
| (thousand Euros) | |
|---|---|
| Beginning balance | 133,376 |
| Increases | 27,537 |
| Impairment | - |
| Total | 160,913 |
| Exchange rate differences | (3,484) |
| Ending balance | 157,429 |
Increase in Goodwill owes to the acquisition of:
The following table summarizes the calculation of goodwill and the aggregate book value of the companies as at the acquisition date.
| (thousand Euros) | Fair value (*) |
|---|---|
| Tangible and intangible assets | 416 |
| Trade receivables and other current assets | 9,532 |
| Cash and cash equivalents | 5,281 |
| Financial liabilities | (820) |
| Trade payables and other current liabilities | (8,179) |
| Deferred taxes, net | 37 |
| Net assets acquires | 6,268 |
| Compensation | 39,724 |
| Difference | 33,805 |
| Goodwill | 27,537 |
| Other intangible assets, net of fiscal effect | 5,919 |
(*) book value is equal to fair value
Goodwill was allocated to the cash generating units ("CGU"), identified in the Region in which the Group operates. Moreover the breakdown reflects the business management of the Group by Top Management and is summarized as follows:
| CGU | At 31/12/2015 | Increases | Translation differences |
At 31/12/2016 |
|---|---|---|---|---|
| Region 1 | 39,003 | 9,249 | - | 48,252 |
| Region 2 | 39,572 | 14,210 | - | 53,782 |
| Region 3 | 54,801 | 4,078 | (3,484) | 55,394 |
| Total | 133,376 | 27,537 | (3,484) | 157,429 |
Reply has adopted a structured and periodic planning and budgeting system aimed at defining objectives and business strategies in order to draft the annual budget.
The impairment model adopted by the Reply Group is based on future cash flows calculated using the Discounted cash flow analysis.
In applying this model, Management uses different assumptions, which are applied to the single CGU over two years of extrapolation subsequent to the annual budget, in order to estimate:
The recoverable value of the CGU, to which the single goodwill is referred, is determined as the highest between the fair value less any selling costs (net selling price) and the present value of the estimated future cash flows expected from the continuous use of the good (value in use). If the recoverable value is higher than the carrying amount of the CGU there is no impairment of the asset; in the contrary case, the model indicates a difference between the carrying amount and the recoverable value as the effect of impairment.
The following assumptions were used in calculating the recoverable value of the Cash Generating Units:
| Assumption | Region 1 | Region 2 | Region 3 |
|---|---|---|---|
| Terminal value growth rates: | 1% | 1% | 1% |
| Discount rate, net of taxes: | 8.16% | 6.06% | 7.32% |
| Discount rate, before taxes: | 11.26% | 8.62% | 9.15% |
| Multiple of EBIT | 11.4 | 11.4 | 11.4 |
As to all CGUs subject to the impairment tests at 31 December 2016 no indications emerged that such businesses may have been subject to impairment.
The positive difference between the value in use thus estimated on the accounting value of the net invested capital on 31 December 2016 of the CGU is equal to 206.9% for Region 1, 357.7% for Region 2 and 110.1% for Region 3.
Reply has also developed a sensitivity analysis of the estimated recoverable value. The Group considers that the growth rate of revenues and the discount rate are key indicators in estimating the fair value and has therefore determined that:
This analysis would not lead to an excess of the carrying value of the CGU compared to its recoverable value, which tends to be significantly higher.
Finally, it is appropriate to note that the estimates and budget data to which the above mentioned parameters have been applied are those determined by management on the basis of past performance and expectations of developments in the markets in which the Group operates. Moreover, estimating the recoverable amount of the Cash-Generating Units requires discretion and the use of estimates by Management. The Group cannot guarantee that there will be no goodwill impairment in future periods. Circumstances and events which could potentially cause further impairment losses are constantly monitored by Reply management.
Net intangible assets as at 2016 amounted to 17,016 thousand Euros (9,696 thousand Euros on 31 December 2015) and are detailed as follows:
| (thousand Euros) | Historical cost | Accumulated amortization |
Net book value 31/12/2016 |
|---|---|---|---|
| Development costs | 24,675 | (18,667) | 6,007 |
| Software | 22,276 | (18,464) | 3,812 |
| Trademark | 537 | - | 537 |
| Other intangible assets | 7,400 | (741) | 6,659 |
| Total | 54,888 | (37,872) | 17,016 |
Change in intangible assets during 2016 is summarized in the table below:
| (thousand Euros) | Net book value 31/12/2015 |
Increases | Amortization | Other changes | Net book value 31/12/2016 |
|---|---|---|---|---|---|
| Development costs | 5,436 | 3,064 | (2,493) | - | 6,007 |
| Software | 3,723 | 2,284 | (2,278) | 83 | 3,812 |
| Trademark | 537 | - | - | - | 537 |
| Other intangible assets | - | - | (777) | 7.436 | 6,659 |
| Total | 9,696 | 5,348 | (5,548) | 7.519 | 17,016 |
Development costs refer to software products 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 505 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.
Increase in Other changes of the item Other intangible assets is related to the Purchase price allocation following several Business combinations in 2016.
The item Equity investments amounts to 14,110 thousand Euros and includes for 6 thousand Euros nonconsolidated subsidiary companies as they were not operational at the closing date and for 14,104 to investments in start-up companies in the IoT field made principally by the Investment company Breed Investments Ltd.
Note that the companies listed below, mainly held through an Investment Entity as defined by IFRS 10, are designated at fair value and accounted for in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". The fair value is determined using the International Private Equity and Venture Capital valuation guideline (IPEV) and any change therein is recognized in profit ( loss ) in the period in which they occurred.
| Company name | Country | % acquired |
Value at 31/12/2015 |
Increase/ decrease |
Fair value evaluation |
Impairment | Exchange differences |
Value at 31/12/2016 |
|---|---|---|---|---|---|---|---|---|
| Cocoon Alarm Limited | UK | 22.09% | 2,990 | - | - | - | (427) | 2,565 |
| Xmetrics Sports Limited | UK | 30.00% | 920 | - | - | (788) | (131) | - |
| iNova Design Ltd. | UK | 25.95% | 704 | 302 | 156 | - | (107) | 1,055 |
| Zeeta Networks Ltd. | UK | 23.23% | 579 | 496 | - | - | (82) | 994 |
| Amiko Digital Health Ltd. | UK | 20.00% | - | 993 | - | - | - | 993 |
| Sentryo | France | 12.64% | - | 750 | - | - | - | 750 |
| Connecterra B.V. | Netherlands | 16.50% | - | 1,250 | - | - | - | 1,250 |
| Iotic Labs | UK | 9.50% | - | 934 | - | - | - | 934 |
| RazorSecure Ltd. | UK | 18.52% | - | 438 | - | - | - | 438 |
| Senseye Ltd. | UK | 15.59% | - | 1,051 | - | - | - | 1,051 |
| Wearable Technologies Ltd. | UK | 7.24% | - | 730 | - | - | - | 730 |
| Sensoria | USA | 24.00% | 3,888 | - | - | - | (545) | 3,343 |
| Total | 9,081 | 6,944 | 156 | (788) | (940) | 14,104 |
A UK based start-up that has created a smart home security system that senses unusual activity throughout the house in real time, without the need for any additional sensors or professional installation. It avoids false alarms by learning what is normal for home, only sending alerts and high quality video straight to your smartphone via the mobile app. Cocoon received a London Design Award and has been listed in Forbes as one of the top new businesses to keep an eye on in 2015. The investments was valued at the market value of the last round that took place on October 12, 2015.
A company that offers innovative devices for swimmers Xmetrics uses sensors, electronic components and software via mobile devices, to enhance the training sessions of professional and amateur swimmers, analyzing their main biometric parameters and their real time performance. The investment was completely impaired due to non-favorable financial conditions.
Inova Design is a technology company specializing in design, development and marketing of new solutions for detecting body parameters in order to optimize performance and prevention of illnesses. The product is a headset capable of offering the accurate measurement of all the physiological parameters together with the monitoring of the movement, all in a single miniaturized device, not- invasive and that provides the user data in a continuous, real-time and wireless way. The Inova's patented technology can be applied in many fields such as sports, health and defense. The investment was valued at the price paid upon acquisition. The increase is related to the payment of the third tranche defined in the first round of investment on 24 February 2016. The investment was valued at fair value of the last operation dated 14 July 2016.
Zeeta Networks offers NetOS®: a powerful orchestration software which manages, automates and monitors an ICT network while significantly reducing its operating costs. The increase is related to the payment of the second tranche defined in the first round of investment, following the acquirement of previewed milestones. The investment was valued at the price paid upon acquisition of the second tranche on 2 November 2016.
Quantified medicine to improve healthcare with real-world data. Amiko's Quantified Medicine is a connected health platform that enables a smarter management of chronic treatments based on the acquisition and analysis of medication usage data. Amiko's sensor-based technology is improving care, cost efficiency and outcomes by transforming drug delivery devices into smart objects that collect data to empower patients, caregivers, physicians and researchers. The investment was valued at the price paid upon acquisition.
Sentryo ICS Cybervision prevents cyberattacks by monitoring machine to machine networks, detecting abnormal events and streamlining incident response.
Sentryo is pioneering the market for cybersecurity protection for machine-to-machine networks and critical industrial systems. ICS CyberVision passively monitors the network and detects abnormal events utilizing machine learning algorithms, therefore preventing cyber-attacks, streamlining incident response and avoiding damage. ICS CyberVision simplifies operational and information technology collaboration to keep critical industrial infrastructure owners ahead of the threat. Sentryo addresses the energy, transportation, telco and aerospace segments and more broadly all companies needing to meet the Industry 4.0 challenge. The investment was valued at the price paid upon acquisition.
The Connecterra dairy health service provides actionable insights to farmers to improve farm productivity. Using advanced sensors and machine learning, the system provides near real time analytics for end users. combines the power of sensor technologies and deep learning to provide a complete health monitoring service for dairy cattle. Connecterra's end-to-end solution consists of a wearable device, which monitors the herd in real-time and transmits the data to a cloud platform for analysis and prediction of behavioral patterns.
This allows farmers to free up labor time, improve production per animal and save a significant amount of money by optimizing their breeding cycles. The investment was valued at the price paid upon acquisition.
Iotic Labs provides access to Iotic Space, a place where things can share data, where data can be mashed with different sorts of data from others things, where anything can be related to anything else.
Iotic Labs has created an Internet-like environment for things. Data from anything can be shared or exchanged with anything else creating new relationships, insights and whole new ways to interact.
It is free from pre-defined formats, database structures and any other pre-determined model. Just like the Internet you are free to interact with myriads of data sources and mash data together with Iotic Mashapps. The investment was valued at the price paid upon acquisition.
Active monitoring software monitors systems continuously and alerts the instant that a system breach occurs. Combined with automated defence system and a low cost, low maintenance approach, RazorSecure is the ideal solution for difficult to manage small scale/IoT systems in harsh environments. The investment was valued at the price paid upon acquisition.
PROGNOSYS by Senseye helps manufacturers avoid downtime and save money. It automatically monitors the condition of machines and predicts future breakdowns, it's scalable, simple to use and able to work with any equipment. The investment was valued at the price paid upon acquisition.
Is an English early stage company active in the "connected worker" segment of the rapidly growing industrial IoT market, to address worker safety and reporting in complex hazardous environments. The company's end-to-end solution, protected by more than 40 patents, trademarks and proprietary know-how, is based on sensors and communication devices directly embedded into Personal Protection Equipment (PPE) connected via mesh networks to colleagues, machinery and control rooms. WTL aims to improve not only accident reporting and responses, but also to allow companies to capture in real time "near miss" and non-compliant working to improve working practices and safety. The investment was valued at the price paid upon acquisition.
Headquartered in Redmond, Washington – Sensoria is a leading developer of wearable platforms and devices. The company was founded on the vision that clothing would become the fulcrum between Internet of Things and People as a seamless, naturally wearable body-sensing computer. The investment was valued at the price paid upon acquisition.
All fair value assessments shall be part of the hierarchy level 3.
Current and non-current financial assets amounted to 12,664 thousand Euros compared to 7,918 thousand Euros as at 31 December 2015.
Detail is as follows:
| 31/12/2016 | 31/12/2015 | Change |
|---|---|---|
| 3,190 | 3,194 | (4) |
| 1,039 | 853 | 186 |
| - | 68 | (68) |
| - | 55 | (55) |
| 759 | 14 | 745 |
| 5,489 | 1,512 | 3,977 |
| - | 744 | (744) |
| 2,187 | 1,478 | 709 |
| 12,664 | 7,918 | 4,746 |
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.
At year end no invoices were assigned to factoring companies without recourse.
Convertible loans are related to the option to convert into shares of the following start-up companies in the IoT field:
| Start-up | Value at 31/12/2015 |
Increase/ Decrease |
Capitalized interests |
Write-off | Exchange differences |
Value at 31/12/2016 |
|---|---|---|---|---|---|---|
| enModus Ltd. | 993 | 1,041 | 118 | - | (142) | 2,011 |
| Gymcraft Ltd. | 519 | 437 | - | - | (74) | 881 |
| Kokoon Technology Ltd. | - | 569 | 35 | - | - | 605 |
| Xmetrics Sports Limited | - | 467 | - | (467) | - | - |
| Inova Design Solutions Limited | - | 438 | 11 | - | - | 449 |
| Callsign, Inc | - | 1,460 | - | - | 84 | 1,544 |
| Total | 1.512 | 4,413 | 164 | (467) | (131) | 5,489 |
Kokoon Technology Ltd.: Kokoon's headphones are designed to help you relax and sleep better, anywhere. Using advanced sensor technology and machine learning, the headphones adapt and respond to the body and environment, enabling improved sleep quality and waking the user at the perfect point in the natural sleep cycle.
Xmetrics: during 2016 the investment was completely impaired due to non-favorable financial conditions.
Short term securities mainly refer to Time Deposit investments.
Such an item, amounting to 16,466 thousand Euros as at 31 December 2016 (17,339 thousand Euros as at 31 December 2015), includes the fiscal charge corresponding to the temporary differences originating among the anti-tax result and taxable income relating to entries with deferred deductibility.
Detail of deferred tax assets is provided at the table below:
| (thousands Euros) | 31/12/2015 | Change in consolidation |
Accruals | Utilization | 31/12/2016 |
|---|---|---|---|---|---|
| Prepaid tax on costs that will become deductible | |||||
| in future years | 6,254 | 891 | 3,103 | (2,644) | 7,604 |
| Prepaid tax on greater provisions for doubtful accounts |
7,054 | - | 1,855 | (3,811) | 5,097 |
| Deferred fiscal deductibility of amortization | 1,677 | - | 274 | (268) | 1,684 |
| Consolidation adjustments and other items | 2,353 | - | 5,409 | (5,682) | 2,080 |
| Total | 17.339 | 891 | 10,642 | (12,406) | 16,466 |
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. There are no deferred tax assets on losses carried forward.
Work in progress, amounting to 58,651 thousand Euros, is detailed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Contract work in progress | 169,802 | 141,309 | 28,493 |
| Advance payments from customers | (111,151) | (83,380) | (27,771) |
| Total | 58,651 | 57,929 | 722 |
Any advance payments made by the customers are deducted from the value of the inventories, within the limits of the accrued consideration; the exceeding amounts are accounted as liabilities.
Trade receivables as at 31 December 2016 amounted to 339,194 thousand Euros with a net increase of 36,944 thousand Euros.
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Domestic clients | 265,976 | 233,502 | 32,474 |
| Foreign trade receivables | 75,076 | 71,178 | 3,897 |
| Credit notes to be issued | (9) | (9) | - |
| Total | 341,042 | 304,672 | 36,370 |
| Allowance for doubtful accounts | (1,848) | (2,422) | 574 |
| Total trade receivables | 339,194 | 302,250 | 36,944 |
Trade receivables are shown net of allowances for doubtful accounts amounting to 1,848 thousand Euros on 31 December 2016 (2,422 thousand Euros at 31 December 2015).
The Allowance for doubtful accounts developed in 2016 as follows:
| (thousands Euros) | 31/12/2015 | Accruals | Utilization | Reversal | 31/12/2016 |
|---|---|---|---|---|---|
| Allowance for doubtful accounts | 2,422 | 795 | (925) | (444) | 1,848 |
Over-due trade receivables and the corresponding allowance for doubtful accounts, compared to 2014, are summarized in the tables below:
31/12/2016
| (thousand Euros) | Trade receivables |
Current | 0 - 90 days | 91 - 180 days |
181 - 360 days |
Over 360 days |
Total overdue |
|---|---|---|---|---|---|---|---|
| Trade receivables | 341,042 | 310,338 | 27,283 | 1,773 | 341 | 1,306 | 30,704 |
| Allowance for doubtful accounts | (1,848) | (25) | (307) | (128) | (183) | (1,205) | (1,824) |
| Total trade receivables | 339,194 | 310,313 | 26,976 | 1,645 | 158 | 101 | 28,881 |
31/12/2015
| (thousand Euros) | Trade receivables |
Current | 0 - 90 days | 91 - 180 days |
181 - 360 days |
Over 360 days |
Total overdue |
|---|---|---|---|---|---|---|---|
| Trade receivables | 304,672 | 256,601 | 41,039 | 3,574 | 1,615 | 1,843 | 48,071 |
| Allowance for doubtful accounts | (2,422) | (11) | (301) | (220) | (499) | (1,391) | (2,411) |
| Total trade receivables | 302,250 | 256,590 | 40,738 | 3,354 | 1,116 | 452 | 45,660 |
The Group assigns part of its trade receivables through factoring operations.
The assignments of receivables can be with or without recourse; some assignments without recourse can include deferred payment clauses (for example, payment by the factor of a minor part of the purchase price is subordinated on the collection of the total amount of the receivables), require a deductible from the assignor, or require maintaining significant exposure to the cash flow trend deriving from the assigned receivables. This type of operation does not comply with the requirements of IAS 39 for the elimination of the assets from the financial statements, since the risks and benefits related to their collection have not been substantially transferred.
Consequently, all receivables assigned through factoring operations that do not satisfy the requirements for elimination provided by IAS 39 continue to be recognized in the Group's financial statements, even though they have been legally assigned and a financial liability for the same amount is recognized in the consolidated financial statements as Liabilities for advance payments on assignments of receivables. Gains and losses related to the assignment of these assets are only recognized when the assets are derecognized from the Group's financial-economic position.
As at 31 December 2016 the receivables transferred via Factoring operations with recourse amounted to 18,028 thousand Euros.
As at 31 December 2016 no assets were assigned without recourse. The carrying amount of Trade receivables is in line with its fair value.
Trade receivables are all collectible within one year.
Detail is as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Tax receivables | 14,543 | 15,425 | (882) |
| Advances to employees | 131 | 100 | 31 |
| Accrued income and prepaid expenses | 9,254 | 6,049 | 3,205 |
| Other receivables | 20,882 | 19,399 | 1,483 |
| Total | 44,810 | 40,973 | 3,837 |
The item Tax receivables mainly includes:
The item Other receivables mainly includes the grant receivables in relation to research projects for 12,762 thousand Euros (15,761 thousand Euros at 31 December 2015).
This item furthermore includes the advance payment made for the acquisition of comSysto GmbH for a total of 6 million Euros.
The balance of 92,550 thousand Euros, with a decrease of 12,587 thousand Euros compared with 31 December 2015, represents cash and cash equivalents at year end.
Changes in cash and cash equivalents are fully detailed in the Consolidated statement of cash flow.
On 31 December 2016 the company capital of Reply S.p.A, wholly undersigned and paid up, was amounting to 4,863,486 Euros and is composed of n. 9,352,857 ordinary shares with nominal value of 0.52 Euros each.
The value of the Treasury shares, amounting to 25 thousand Euros, refers to the shares of Reply S.p.A. held by the parent company, that at 31 December 2016 were equal to n. 1,007.
On 31 December 2016 Capital reserves, amounting to 72,836 thousand Euros, were mainly comprised as follows:
Earnings reserves amounted to 272,007 thousand Euros and were comprised as follows:
Other comprehensive income can be analyzed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax: |
||
| Actuarial gains/(losses) from employee benefit plan | (1,597) | 567 |
| Total Other comprehensive income that will not be classified subsequently to profit or loss, net of tax (B1): |
(1,597) | 567 |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
||
| Gains/(losses) on cash flow hedges | (62) | 4 |
| Gains/(losses) from the translation of assets in foreign currencies | (10,562) | 894 |
| Total Other comprehensive income that may be classified subsequently to profit or loss, net of tax (B2): |
(10,624) | 898 |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): | (12,221) | 1,465 |
There are no stock option plans resolved by the General Shareholders' meetings.
Payables to minority shareholders and for company operations (Earn out) owed on 31 December 2016 amounted to 24,558 thousand Euros inclusive of a negative exchange difference amounting to 333 thousand Euros and are detailed as follows:
| (thousand Euros) | 31/12/2015 | Increases | Fair value adjustments |
Payments | Exchange differences |
31/12/2016 |
|---|---|---|---|---|---|---|
| Payable to minority shareholders Payables for Earn-out |
11,942 7,803 |
2,000 8,394 |
2 (2,563) |
(434) (2,253) |
226 (559) |
13,736 10,822 |
| Total payables to minority shareholders and Earn-out |
19,746 | 10,394 | (2,561) | (2,687) | (333) | 24,558 |
The increase in this item amounting to 10,394 thousand Euros reflects the best estimate of the liability for the option to acquire the minority shares in future reporting periods, subject to the achievement of profitability parameters contractually defined and the best estimate of future considerations for earn-outs in relation to the original contracts signed.
The increase is related to:
The item Fair value adjustments in 2016 amounted to 2,561 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 2,687 thousand Euros and refer to the consideration paid in relation to the original contracts signed at the time of acquisition.
Detail is as follows:
| 31/12/2016 | 31/12/2015 | |||||
|---|---|---|---|---|---|---|
| (thousand Euros) | Current | Non current | Total | Current | Non current | Total |
| Bank overdrafts | 16,039 | - | 16,039 | 35,028 | - | 35,028 |
| Bank loans | 18,893 | 29,985 | 48,877 | 10,786 | 33,008 | 43,794 |
| Total due to banks | 34,932 | 29,985 | 64,916 | 45,814 | 33,009 | 78,822 |
| Other financial borrowings | 737 | 1,066 | 1,803 | 466 | 860 | 1,326 |
| Total financial liabilities | 35,669 | 31,051 | 66,720 | 46,280 | 33,869 | 80,149 |
The following table illustrates the financial liabilities by due date:
| 31/12/2016 | 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| (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 | 16,039 | - | - | 16,039 | 35,028 | - | - | 35,028 |
| M&A loans | 18,767 | 29,985 | - | 48,752 | 10,553 | 32,606 | - | 43,159 |
| Mortgage loans | 115 | - | - | 115 | 311 | 403 | - | 714 |
| Other financial borrowings | 737 | 1,066 | - | 1,803 | 466 | 860 | - | 1,326 |
| Other | 11 | - | - | 11 | (78) | - | (78) | |
| Total | 35,669 | 31,051 | - | 66,720 | 46,280 | 33,869 | - | 80,149 |
M&A financing refers to credit lines to be used for acquisition operations carried 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:
was entirely used at 31 December 2016 and the residual loan amounted to 20,000 thousands Euros.
As contractually defined, such ratios are as follows:
At the balance sheet date, Reply fulfilled the Covenants under the various contracts.
The item Mortgages refers to financing granted to Tool Reply GmbH, for the acquisition of the building where the German company has its registered office.
Reimbursement takes place via six monthly instalments (at 4.28%) with expiry on 30 September 2019.
Other financial borrowings are related to financial leases determined according to IAS 17.
The item Other mainly refers to the evaluation of derivative hedging instruments. The underlying IRS amounted to 23,143 thousands Euros.
The carrying amount of Financial liabilities is deemed to be in line with its fair value.
In compliance with Consob regulation issued on 28 July 2006 and in accordance with CESR's Recommendations for the consistent implementation of the European's regulation on Prospectuses issued on 10 February 2005, the Net financial position of the Reply Group at 31 December 2016 is illustrated below:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Cash and cash equivalents | 92,550 | 105,137 | (12,587) |
| Current financial assets | 2,925 | 2,289 | 636 |
| Non current financial assets | 4 | 908 | (904) |
| Total financial assets | 95,479 | 108,335 | (12,856) |
| Current financial liabilities | (35,670) | (46,280) | 10,610 |
| Non current financial liabilities | (31,051) | (33,869) | 2,818 |
| Total financial liabilities | (66,721) | (80,149) | 13,428 |
| Total net financial position | 28,758 | 28,186 | 572 |
For further details with regards to the above table see Note 24 as well as Note 27.
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Employee severance indemnities | 22,094 | 18,489 | 3,605 |
| Employee pension funds | 6,771 | 5,860 | 911 |
| Directors severance indemnities | 1,520 | 1,502 | 18 |
| Other | 16 | 16 | - |
| Total | 30,401 | 25,866 | 4,534 |
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:
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.
The assumptions adopted can be summarized as follows:
| Mortality | RG 48 survival tables of the Italian population |
|---|---|
| Inability | INPS tables divided by age and gender |
| Retirement age | Fulfilment of the minimum requisites provided by the General Mandatory Insurance |
| Advances on Employee severance indemnities |
Annual frequency of advances and employee turnover were assumed from historical data of the company: frequency of advances in 2016 : 2.50% frequency of turnover in 2016: 10% |
| Annual discount rate | Average annual rate of 1.5% |
|---|---|
| Annual growth rate of the Employee severance indemnities |
Calculated with reference to the valuation date of primary shares on the stock market in which the company belongs and with reference to the market yield of Federal bonds. An annual constant rate equal to 1.31% was used for the year 2016. |
| Annual increase in salaries | The employee severance indemnities (TFR) are revalued on an annual basis equal to 75% of the inflation rate plus a spread of one and a half percentage point. |
| Annual inflation rate | The annual increase of salaries used was calculated in function of the employee qualifications and the Company's market segment, net of inflation, from 1.0% to 1.50% |
In accordance with IAS 19, development of Employment severance indemnities at 31 December 2016 is summarized in the table below:
| (thousand Euros) | |
|---|---|
| Balance at 31/12/2015 | 18,489 |
| Cost relating to current (service cost) work | 3,638 |
| Actuarial gain/loss | 1,146 |
| Interest cost | 303 |
| Change in consolidation | 684 |
| Indemnities paid during the year | (2,166) |
| Balance at 31/12/2016 | 22,094 |
The Pension fund item relates to liability as regards the defined benefit pensions of some German companies and is detailed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Present value of liability | 7,641 | 6,209 |
| Fair value of plan assets | (870) | (349) |
| Net liability | 6,771 | 5,860 |
The amounts recognized for defined benefit plans is summarized as follows:
| (thousand Euros) | |
|---|---|
| Present value at beginning of the year | 6,209 |
| Change in consolidation area | 789 |
| Service cost | 36 |
| Interest cost | 145 |
| Actuarial gains/(losses) | 640 |
| Indemnities paid during the year | (178) |
| Present value at year end | 7,641 |
This amount is related to Directors severance indemnities paid during the year.
Change amounting to 18 thousand Euros refers to the resolution made by the Shareholders Meeting of several subsidiary companies to pay an additional indemnity to some Members of the Board in 2016 and to a partial payment of the indemnity.
Deferred tax liabilities at 31 December 2016 amounted to 18,563 thousand Euros and are referred mainly to the fiscal effects arising from temporary differences deriving from statutory income and taxable income related to deferred deductibility.
| (thousand Euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Deductible items off the books | 1,767 | 1,836 |
| Other | 16,766 | 19,635 |
| Total | 18,563 | 21,472 |
The item Other mainly includes the measurement of contract work in progress, employee benefits, capitalization of development costs and reversal of amortization of intangible assets.
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.
Provisions amounted to 10,916 thousand Euros (of which 10,545 thousand Euros are non-current).
| (thousand Euros) | Balance at 31/12/2015 |
Other changes |
Accruals | Utilization | Reversals | Balance at 31/12/2016 |
|---|---|---|---|---|---|---|
| Fidelity provisions | 305 | - | 22 | (4) | - | 323 |
| Provision for risks | 11,847 | 145 | 864 | (1,193) | (1,068) | 10,593 |
| Motorola research Centre provision |
6,957 | - | - | - | (6,957) | - |
| Total | 19,108 | 145 | 886 | (1,198) | (8,025) | 10,916 |
Change in 2016 is summarized in the table below:
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 represents the best estimate for contingent liabilities. The accrual of the year is referred to the update of this estimate and to new legal ongoing controversies, lawsuits with former employees and other liabilities in Italy and abroad.
The Motorola Research Centre provision, originally accrued to cover the difference between total costs of the financed projects and the government grants, as well as the receivables due from the Ministry, partially written-off in past accounting periods, has been completely reversed in 2016. Management has taken such measures as a consequence of not having reached an agreement with the counterparties involved in the operation.
The Company is in fact still waiting the judgment of the case concerning the obtaining from the Ministry compensation of damages and loss of earnings, as a result of failure to provide the funding that should have been granted with the acquisition of the Motorola Research Centre.
Trade payables at 31 December 2016 amounted to 92,735 thousand Euros and are detailed as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Domestic suppliers | 80,369 | 66,790 | 13,579 |
| Foreign suppliers | 13,383 | 11,577 | 1,807 |
| Advances to suppliers | (1,017) | (681) | (336) |
| Total | 92,735 | 77,686 | 15,049 |
Other current liabilities at 31 December 2016 amounted to 189,144 thousand Euros with an increase of 28,505 thousand Euros with respect to the previous financial year.
Detail is as follows:
| (thousand Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Income tax payable | 8,114 | 3,641 | 4,474 |
| VAT payable | 9,630 | 7,451 | 2,179 |
| Withholding tax and other | 6,691 | 5,886 | 805 |
| Total due to tax authorities | 24,436 | 16,978 | 7,458 |
| National social insurance payable | 22,927 | 20,578 | 2,349 |
| Other | 1,758 | 1,512 | 246 |
| Total due to social securities | 24,685 | 22,090 | 2,595 |
| Employee accruals | 52,965 | 46,578 | 6,387 |
| Other payables | 78,564 | 64,154 | 14,410 |
| Accrued expenses and deferred income | 8,495 | 10,840 | (2,346) |
| Total other payables | 140,023 | 121,572 | 18,451 |
| Other current liabilities | 189,144 | 160,640 | 28,505 |
Due to tax authorities amounting to 24,436 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 24,685 thousand Euros, is related to both Company and employees contribution payables.
Other payables at 31 December 2016 amount to 140,023 thousand Euros and mainly include:
Accrued Expenses and Deferred Income mainly relate to advance invoicing in relation to T&M consultancy activities to be delivered in the subsequent financial year.
Segment reporting has been prepared in accordance with IFRS 8, determined as the area in which the services are executed.
| (thousand Euros) | Region 1 | % | Region 2 | % | Region 3 | % | IoT Incubator |
% | Interseg | Total 2016 |
% |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | 564,678 | 100 | 131,592 | 100 | 98,273 | 100 | 2,667 | 100 | (16,472) | 780,739 | 100 |
| Operating costs | (477,774) | (84.6) | (120,215) | (91.4) | (89,715) | (91.3) | (3,090) | (115.9) | 16,472 | (674,322) | (86.4) |
| Gross operating income |
86,905 | 15.4 | 11,377 | 8.6 | 8,558 | 8.7 | (423) | (15.9) | 106,417 | 13.6 | |
| Amortization, depreciation and write-downs |
(8,618) | (1.5) | (1,595) | (1.2) | (1,431) | (1.5) | (24) | (0.9) | (11,669) | (1.5) | |
| Other non-recurring (costs)/income |
1,251 | - | 983 | 0,7 | 2,612 | 3 | - | - | 4,846 | 1 | |
| Operating income | 79,538 | 14.1 | 10,764 | 8.2 | 9,739 | 9.9 | (447) | (16.8) | 99,594 | 12.8 | |
| Gain/(loss) on investments |
- | - | - | - | - | - | (668) | (25.1) | (668) | (0.1) | |
| Financial income/(loss) | 1,785 | 0,3 | (2,036) | (1.5) | 782 | 1 | (2,051) | (76.9) | (1,520) | (0.2) | |
| Income before taxes | 81,322 | 14.4 | 8,729 | 6.6 | 10,522 | 10.7 | (3,167) | (118.8) | 97,405 | 12.5 | |
| Income taxes | (25,151) | (4.5) | (3,250) | (2.5) | (1,851) | (1.9) | 553 | 21 | (29,698) | (3.8) | |
| Net income | 56,171 | 9.9 | 5,479 | 4.2 | 8,671 | 8.8 | (2,614) | (98.0) | 67,707 | 8.7 |
| (thousand Euros) | Region 1 | % | Region 2 | % | Region 3 | % | IoT Incubator |
% | Interseg | Total 2015 |
% |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | 514,177 | 100 | 119,186 | 100 | 89,156 | 100 | 1,578 | 100 | (18,496) | 705,601 | 100 |
| Operating costs | (436,354) | (84.9) | (105,986) | (88.9) | (80,014) | (89.7) | (3,008) | (190.6) | 18,496 | (606,865) | (86.0) |
| Gross operating income |
77,824 | 15.1 | 13,200 | 11.1 | 9,142 | 10.3 | (1,430) | (90.6) | 98,736 | 14.0 | |
| Amortization, depreciation and write-downs Other non-recurring |
(7,424) | (1.4) | (1,337) | (1.1) | (589) | (0.7) | (20) | (1.3) | (9,371) | (1.3) | |
| (costs)/income | 250 | - | - | - | 942 | 1 | - | - | 1,192 | - | |
| Operating income | 70,649 | 13.7 | 11,863 | 10.0 | 9,495 | 10.7 | (1,450) | (91.9) | 90,558 | 12.8 | |
| Gain/(loss) on investments |
- | - | - | - | - | - | 440 | 28 | 440 | - | |
| Financial income/(loss) | 1,223 | - | (1,505) | (1.3) | (1,372) | (1.5) | (411) | (26.1) | (2,065) | (0.3) | |
| Income before taxes | 71,873 | 14.0 | 10,358 | 8.7 | 8,123 | 9.1 | (1,422) | (90.1) | 88,932 | 12.6 | |
| Income taxes | (28,031) | (5.5) | (2,703) | (2.3) | (541) | (0.6) | (228) | (14.4) | (31,502) | (4.5) | |
| Net income | 43,842 | 8.5 | 7,655 | 6.4 | 7,582 | 8.5 | (1,650) | (104.5) | 57,430 | 8.1 |
| IoT | Total | IoT Incuba |
Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousand Euros) | Region 1 | Region 2 | Region 3 | Incubator | Interseg. | 2016 | Region 1 | Region 2 | Region 3 | tor | Interseg. | 2015 |
| Currentoperating assets |
380,286 | 44,726 | 37,405 | 730 | (20,492) | 442,655 | 340,676 | 42,516 | 31,447 | 397 | (13,885) | 401,151 |
| Current operating liabilities |
(242,703) | (29,082) | (27,094) | (3,864) | 20,492 | (282,251) | (206,935) | (28,660) | (14,989) | (1,885) | 13,885 | (238,585) |
| Net working capital (A) |
137,583 | 15,644 | 10,312 | (3,135) | - | 160,404 | 133,741 | 13,856 | 16,458 | (1,488) | - | 162,566 |
| Non current assets | 134,541 | 39,236 | 38,605 | 20,059 | - | 232,441 | 126,487 | 22,414 | 31,687 | 10,671 | - | 191,259 |
| Non-financial liabilities long term |
(49,388) | (27,033) | (7,646) | - | - | (84,067) | (63,567) | (18,165) | (3,975) | (225) | - | (85,932) |
| Fixed capital (B) | 85,153 | 12,203 | 30,959 | 20,059 | - | 148,374 | 62,920 | 4,249 | 27,712 | 10,446 | - | 105,327 |
| Net invested capital (A+B) |
222,736 | 27,847 | 41,271 | 16,294 | - | 308,779 | 196,661 | 18,106 | 44,170 | 8,958 | - | 267,893 |
Breakdown of employees by Region is as follows:
| Region | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Region 1 | 4,507 | 4,069 | 438 |
| Region 2 | 951 | 769 | 182 |
| Region 3 | 549 | 400 | 149 |
| IoT Incubator | 8 | 7 | 1 |
| Total | 6,015 | 5,245 | 770 |
Reply S.p.A. has determined the guide lines in managing financial risks. In order to maximize costs and the resources Reply S.p.A. has centralized all of the groups risk management. Reply S.p.A. has the task of gathering all information concerning possible risk situations and define the corresponding hedge.
As described in the section "Risk management", Reply S.p.A. constantly monitors the financial risks to which it is exposed, in order to detect those risks in advance and take the necessary action to mitigate them. The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the company.
The quantitative data reported in the following do not have any value of a prospective nature, in particular the sensitivity analysis on market risks, is unable to reflect the complexity of the market and its related reaction which may result from every change which may occur.
The maximum credit risk to which the company is theoretically exposed at 31 December 2016 is represented by the carrying amounts stated for financial assets in the balance sheet.
Balances which are objectively uncollectible either in part or for the whole amount are written down on a specific basis if they are individually significant. The amount of the write-down takes into account an estimate of the recoverable cash flows and the date of receipt, the costs of recovery and the fair value of any guarantees received. General provisions are made for receivables which are not written down on a specific basis, determined on the basis of historical experience.
Refer to the note on trade receivables for a quantative analysis.
Reply S.p.A. is exposed to funding risk if there is difficulty in obtaining finance for operations at any given point in time.
The two main factors that determine the company's liquidity situation are on one side the funds generated by or used in operating and investing activities and on the other the debt lending period and its renewal features or the liquidity of the funds employed and market terms and conditions.
As described in the Risk management section, Reply S.p.A has adopted a series of policies and procedures whose purpose is to optimize the management of funds and to reduce the liquidity risk, as follows:
Management believes that the funds and credit lines currently available, in addition to those funds that will be generated from operating and funding activities, will enable the Group to satisfy its requirements resulting from its investing activities and its working capital needs and to fulfil its obligations to repay its debts at their natural due date.
Reply S.p.A. has a limited exposure to exchange rate risk, therefore the company does not deem necessary hedging exchange rates.
Reply S.p.A. makes use of external funds obtained in the form of financing and invest in monetary and financial market instruments. Changes in market interest rates can affect the cost of the various forms of financing, including the sale of receivables, or the return on investments, and the employment of funds, causing an impact on the level of net financial expenses incurred by the company.
In assessing the potential impact of changes in interest rates, the company separates fixed rate financial instruments (for which the impact is assessed in terms of fair value)) from floating rate financial instruments (for which the impact is assessed in terms of cash flows).
Floating rate financial instruments include principally cash and cash equivalents and part of debt.
A hypothetical, unfavorable and instantaneous change of 50 basis points in short-term interest rates at 31 December 2016 applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivatives financial instruments, would have caused increased net expenses before taxes, on an annual basis, of approximately 288 thousand Euros.
This analysis is based on the assumption that there is a general and instantaneous change of 50 basis points in interest rates across homogeneous categories. A homogeneous category is defined on the basis of the currency in which the financial assets and liabilities are denominated.
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:
The following table presents the assets and liabilities which were assessed at fair value on 31 December 2015, according to the fair value hierarchical assessment level .
| (thousand Euros) | Note | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Investments | 18 | 14,110 | ||
| Convertible loans | 19 | 5,489 | ||
| Financial securities | 19 | 2,188 | - | - |
| Total financial assets | 2,188 | - | 19,599 | |
| Derivative financial liabilities (IRS) | 27 | 62 | ||
| Liabilities to minority shareholders and earn out | 26 | - | - | 24,558 |
| Other financial liabilities | 32 | 828 | ||
| Total financial liabilities | - | 62 | 25,386 |
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 IFRS7 the fair value used by the Group for the exploitation of hedging derivatives contracts in existence at the end of the financial year re-enters 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. Cash settled share-based payments of companies belonging to the Group included within the caption Other financial liabilities, are valued on the basis of profitability parameters. Since these parameters are not observable market parameters (directly or indirectly ) such debts fall under the hierarchy of Level 3 .
As at 31 December 2016, there have not been any transfers within the hierarchy levels.
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.
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 is summarized below.
| (thousand euros) | |||
|---|---|---|---|
| Financial transactions | 31/12/2016 | 31/12/2015 | Nature of transaction |
| Trade receivables | 28 | 3 | Receivables from professional services |
| Trade payables and other | 2 | 8 | Payables for professional services and official rentals offices |
| Other payables | 2,965 | 3,924 | Payables for emoluments to Directors and Managers with strategic responsibilities and Board of Statutory Auditors |
| Economic transactions | 2016 | 2015 | Nature of transaction |
| Revenues from professional services |
- | - | Receivables from professional services |
| Services from Parent company and related parties |
1,164 | 1,024 | Service contracts relating to office rental, and office administration |
| Personnel | 6,850 | 8,083 | Emoluments to Directors and Key Management with strategic responsibilities |
| Services and other costs | 122 | 122 | Emoluments to Statutory Auditors |
(thousand euros)
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 present the Consolidated Income statement and Balance Sheet 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.
The fees of the Directors and statutory Auditors of Reply S.p.A. for carrying out their respective function, including those in other subsidiary companies, are as follows:
| (thousand Euros) | 2016 | 2015 |
|---|---|---|
| Executive Directors | 5,224 | 5,276 |
| Statutory auditors | 122 | 122 |
| Total | 5,346 | 5,398 |
Emoluments to Key management amounted to approximately 1,626 thousand Euros (2,807 thousand Euros at 31 December 2015).
Guarantees and commitments where existing, have been disclosed at the item to which they refer.
It is reported that:
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. All shareholders of Reply Deutschland will have the right to benefit from a possible increase in the exchange ratio determined by the Judge or on the basis of an agreement between the parties, and that is to say independently of their participation in the evaluation procedure.
On the contrary, from the possible increase of the corresponding amount in cash determined by the Judge or on the basis of an agreement between the parties only the shareholders who verbally annotated their disagreement in the general meeting in respect of conditions of the law can benefit.
In the case where evaluation procedures include a modification of the exchange ratio, every single difference shall be regulated in cash.
At present, some minority shareholders have commenced the aforementioned procedures.
With specific reference to the request to obtain the corresponding amount in cash, the time limit for exerting such an authority shall expire starting from the shortest time limit between the day following it expiring from the two months subsequent to the final ruling of the qualified court or the publication of a binding agreement between the parties. During the said period, the former Reply Deutschland shareholders can freely decide on whether to obtain the corresponding amount in cash or whether to remain shareholders of Reply.
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.
At the end of December 2016, an agreement was signed for the acquisition of the 100% share capital of comSysto GmbH, a company incorporated under German law based in Munich for an initial cash consideration of 6 million Euros. The agreement is effective commencing January 2017. The company is specialized in Agile solutions on Open Source technology.
The Consolidated financial statements at 31 December 2016 were approved by the Board of Directors on March 15, 2017 which authorized the publication within the terms of law.
Annexed tables
| of which | of which | |||||
|---|---|---|---|---|---|---|
| (thousand euros) | 2016 | related parties |
% | 2015 | related parties |
% |
| Revenues | 780,739 | - | - | 705,601 | - | - |
| Other income | 19,579 | - | - | 15,643 | - | - |
| Purchases | (16,969) | - | - | (14,049) | - | - |
| Personnel | (379,713) | (6,850) | 1.8% | (349,721) | (8,083) | 2.3% |
| Services and other costs | (296,650) | (1,286) | 0.4% | (256,138) | (1,146) | 0.4% |
| Amortization, depreciation and write downs | (11,669) | - | - | (9,371) | - | - |
| Other unusual (cost)/income | 4,277 | - | - | (1,408) | - | - |
| Operating income | 99,594 | - | - | 90,558 | - | - |
| (Loss)/gain on investments | (668) | - | - | 440 | - | - |
| Financial income/(expenses) | (1,520) | - | - | (2,067) | - | - |
| Income before taxes | 97,405 | - | - | 88,930 | - | - |
| Income taxes | (29,698) | - | - | (31,502) | - | - |
| Net income | 67,707 | - | - | 57,429 | - | - |
| Non controlling interest | (163) | - | - | (680) | - | - |
| Group net result | 67,544 | - | - | 56,748 | - | - |
| (thousand Euros) | 31/12/2016 | of which related parties |
% | 31/12/2015 | of which related parties |
% |
|---|---|---|---|---|---|---|
| Tangible assets | 17,686 | - | - | 17,023 | - | - |
| Goodwill | 157,429 | - | - | 133,376 | - | - |
| Other intangible assets | 17,016 | - | - | 9,696 | - | - |
| Equity investments | 14,110 | - | - | 9,105 | - | - |
| Other financial assets | 9,739 | - | - | 5,629 | - | - |
| Deferred tax assets | 16,466 | - | - | 17,339 | - | - |
| Non current assets | 232,445 | - | - | 192,167 | - | - |
| Work in progress | 58,651 | - | - | 57,929 | - | - |
| Trade receivables | 339,194 | 28 | 0.0% | 302,250 | 3 | 0.0% |
| Other current assets | 44,810 | - | - | 40,973 | - | - |
| Financial assets | 2,925 | - | - | 2,289 | - | - |
| Cash and cash equivalents | 92,550 | - | - | 105,137 | - | - |
| Current assets | 538,130 | - | - | 508,578 | - | - |
| TOTAL ASSETS | 770,575 | - | - | 700,745 | - | - |
| Share capital | 4,863 | - | - | 4,864 | - | - |
| Other reserves | 264,610 | - | - | 233,814 | - | - |
| Group net income | 67,544 | - | - | 56,748 | - | - |
| Group Shareholder's equity | 337,017 | - | - | 295,425 | - | - |
| Non controlling interest | 520 | - | - | 653 | - | - |
| SHAREHOLDER'S EQUITY | 337,537 | - | - | 296,079 | - | - |
| Payables to minority shareholders and corporate transactions |
24,558 | - | - | 19,746 | - | - |
| Financial liabilities | 31,051 | - | - | 33,869 | - | - |
| Employee benefits | 30,401 | - | - | 25,866 | - | - |
| Deferred tax liabilities | 18,563 | - | - | 21,472 | - | - |
| Provisions | 10,545 | - | - | 18,849 | - | - |
| Non current liabilities | 115,118 | - | - | 119,801 | - | - |
| Financial liabilities | 35,670 | - | - | 46,280 | - | - |
| Trade payables | 92,735 | 2 | 0.0% | 77,686 | 8 | - |
| Other current liabilities | 189,144 | 2,965 | 1.6% | 160,640 | 3,924 | 2.4% |
| Provisions | 371 | - | - | 260 | - | - |
| Current liabilities | 317,921 | - | - | 284,865 | - | - |
| Total liabilities | 433,038 | - | - | 404,666 | - | - |
| TOTAL SHAREHOLDER'S EQUITY AND LIABILITES | 770,575 | - | - | 700,745 | - | - |
| Company name | Headquarters | Group interest |
|---|---|---|
| Parent company | ||
| Reply S.p.A. | Turin – Corso Francia, 110 - Italy | |
| Companies consolidated on a line-by-line basis | ||
| logistics Reply S.r.l. | Turin, Italy | 100.00% |
| logistics Reply GmbH | Munich, Germany | 100.00% |
| 4brands Reply GmbH & CO. KG. | Minden, Germany | 51.00% |
| Air Reply S.r.l. (*) | Turin, Italy | 85.00% |
| Arlanis Reply S.r.l. | Turin, Italy | 100.00% |
| Arlanis Reply AG | Potsdam, Germany | 100.00% |
| Aktive Reply S.r.l. | Turin, Italy | 100.00% |
| Atlas Reply S.r.l. | Turin, Italy | 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% |
| Bitmama S.r.l. | Turin, Italy | 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 | 60.00% |
| Business Reply S.r.l. | Turin, Italy | 100.00% |
| Breed Reply Ltd. | London, United Kingdom | 100.00% |
| Breed Reply Investment Ltd. | London, United Kingdom | 80.00% |
| Cluster Reply S.r.l. | Turin, Italy | 100.00% |
| Cluster Reply GmbH & CO. KG | Munich, Germany | 100.00% |
| Cluster Reply Informatica LTD.A. (*) | San Paolo, Brazil | 76.00% |
| Cluster Reply Roma S.r.l. | Turin, Italy | 100.00% |
| Concept Reply GmbH | Munich, Germany | 100.00% |
| Consorzio Reply Energy | Turin, Italy | 100.00% |
| Consorzio Reply Public Sector | Turin, Italy | 100.00% |
| Data Reply S.r.l. | Turin, Italy | 100.00% |
| Data Reply GmbH (*) | Munich, Germany | 70.00% |
| 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% |
|---|---|---|
| EOS Reply S.r.l. | Turin, Italy | 100.00% |
| First Development Hub, LLC | Minsk, Belarus | 100.00% |
| Forge Reply S.r.l. | Turin, Italy | 100.00% |
| France Reply Ltd. | London, United Kingdom | 80.00% |
| Go Reply S.r.l. | Turin, Italy | 100.00% |
| Healthy Reply GmbH | Düsseldorf, Germany | 100.00% |
| Hermes Reply S.r.l. | Turin, Italy | 100.00% |
| Hermes Reply Polska zo.o | Katowice, Poland | 100.00% |
| InEssence Reply GmbH | Düsseldorf, Germany | 70.00% |
| IrisCube Reply S.p.A. | Turin, Italy | 100.00% |
| Leadvise Reply GmbH | Darmstad, Germany | 100.00% |
| Lem Reply S.r.l. | Turin, Italy | 100.00% |
| Like Reply S.r.l. | Turin, Italy | 100.00% |
| Live Reply GmbH | Düsseldorf, Germany | 100.00% |
| Lynx Recruitment Ltd. | London, United Kingdom | 100.00% |
| Macros Reply GmbH | Munich, 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% |
| Portaltech Reply GmbH (*) | Guetersloh, Germany | 68.00% |
| Power Reply S.r.l. | Turin, Italy | 100.00% |
| Power Reply GmbH & CO. KG | Munich, Germany | 100.00% |
| Profondo Reply GmbH | Guetersloh, Germany | 100.00% |
| Protocube Reply S.r.l. | Turin, Italy | 55.00% |
| Reply Consulting S.r.l. | Turin, Italy | 100.00% |
| Reply AG | Guetersloh, Germany | 100.00% |
| Reply do Brasil Sistemas de Informatica Ltd.a | Belo Horizonte, Brazil | 100.00% |
| Reply Inc. | Michigan, USA | 100.00% |
| Reply Ltd. | London, United Kingdom | 100.00% |
| Reply Belgium SA | Mont Saint Guibert, Netherland | 100.00% |
| Reply France Sarl | Paris, France | 100.00% |
| Reply Luxembourg Sarl | Sandweiler, Luxembourg | 100.00% |
| Reply NL Ltd. | London, United Kingdom | 100.00% |
| Reply Services S.r.l. | Turin, Italy | 100.00% |
| Reply Verwaltung GmbH | Guetersloh, Germany | 100.00% |
| Ringmaster S.r.l. | Turin, Italy | 50.00% |
|---|---|---|
| Risk Reply Ltd. | London, United Kingdom | 80.00% |
| Riverland Reply GmbH | Munich, Germany | 100.00% |
| Santer Reply S.p.A. | Milano, Italia | 100.00% |
| Security Reply S.r.l. | Turin, Italy | 100.00% |
| Solidsoft Reply Ltd. | London, United Kingdom | 100.00% |
| Spark Reply S.r.l. | Turin, Italy | 85.00% |
| Spark Reply GmbH | Germany | 100.00% |
| Square Reply S.r.l. | Turin, Italy | 100.00% |
| Storm Reply S.r.l. (*) | Turin, Italy | 95.00% |
| Storm Reply GmbH (*) | Guetersloh, Germany | 80.00% |
| Syskoplan Reply S.r.l. | Turin, Italy | 100.00% |
| Syskoplan Reply GmbH | Zurich, Switzerland | 100.00% |
| Syskoplan Reply GmbH & CO. KG | 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% |
| TamTamy Reply S.r.l. | Turin, Italy | 100.00% |
| Technology Reply S.r.l. | Turin, Italy | 100.00% |
| Technology Reply S.r.l. | Bucharest, Romania | 100.00% |
| TD China (TD Marketing Consultants, Beijing Co. Ltd.) | China | 100.00% |
| Tool Reply Gmbh | Guetersloh, Germany | 100.00% |
| Triplesense Reply S.r.l. | Turin, Italy | 100.00% |
| Triplesense Reply GmbH | Frankfurt, Germany | 100.00% |
| Twice Reply S.r.l. | Turin, Italy | 98.00% |
| Twice Reply GmbH | Munich, Germany | 100.00% |
| Trommsdorf+druner, innovation+marketing consultants GmbH |
Berlin, Germany | 100.00% |
| WM360 Ltd. | London, United Kingdom | 100.00% |
| WM360 Consultancy Services Ltd. | London, United Kingdom | 100.00% |
| WM360 Crashpad Ltd. | London, United Kingdom | 100.00% |
| WM Reply Ltd. | London, United Kingdom | 100.00% |
| Wm360 Resourcing Ltd. | London, United Kingdom | 100.00% |
| Whitehall Reply S.r.l. | Turin, Italy | 100.00% |
| Xister Reply S.r.l. (*) | Turin, Italy | 89.20% |
| Xister USA Corporation | Beverly Hills, USA | 100.00% |
| Xuccess Reply GmbH | Munich, Germany | 100.00% |
| Amiko Digital Health Ltd. | England | 11.11% |
|---|---|---|
| Cocoon Alarm Ltd. | England | 22.09% |
| iNova Design Ltd. | England | 30.00% |
| Sensoria Inc. | USA | 24.00% |
| Zeeta Networks Ltd. | England | 15.83% |
| Iotic Labs Ltd. | England | 9.50% |
| Sentryo SAS | France | 12.64% |
| Connecterra BV | Belgium | 16.50% |
| RazorSecure Ltd. | England | 18.52% |
| Senseye Ltd. | England | 15.59% |
| Wearable Technologies Ltd. | England | 7.24% |
| Technology Reply Roma S.r.l. | Turin, Italy | 100.00% |
|---|---|---|
(*) For these companies an option exists for the acquisition of their minority shares; the exercise of such option in future reporting periods is subject to the achievement of profitability parameters. The accounting reflects Management's best estimate as at the closing date of the 2016 Annual Financial Report.
(**) These companies are exempt from filing statutory financial statements in Germany under the German law § 264b HGB.
(***) As permitted under English law, these subsidiary companies have claimed audit exemption under Companies Act 2006.
The following table, prepared in accordance with Art. 149-duodeciesof Consob's Regulations for Issuers reports the amount of fees charged in 2016 for the audit and audit related services provided by the Independent Auditors and by entities that are part of the Independent Auditors' network.
| (thousand Euros) | Service provider | Group entity | Fee 2016 |
|---|---|---|---|
| Audit | EY S.p.A. | Parent Company - Reply S.p.A. | 28 |
| EY S.p.A. | Subsidiaries | 192 | |
| Ernst & Young GmbH | Subsidiaries | 195 | |
| Ernst & Young LLP | Subsidiaries | 117 | |
| Ernst & Young Auditores Independentes S.S. | Subsidiaries | 27 | |
| Total | 560 | ||
| Audit related services | EY S.p.A. | Parent Company - Reply S.p.A.(1) | 1 |
| EY S.p.A. | Subsidiaries .(1) | 18 | |
| Total | 19 | ||
| Other services | Ernst & Young LLP | Parent Company - Reply S.p.A.(2) | 144 |
| Ernst & Young GmbH | Subsidiaries (3) | 29 | |
| Total | 173 | ||
| Total | 752 |
(1) Signed tax forms (Modello Unico, IRAP and Form 770)
(2) Due Diligence activities (3) Activities in relation to the group reorganization of investments
The undersigned, Mario Rizzante, in his capacity as Chairman and Chief Executive Officer, and Giuseppe Veneziano, Director responsible for drawing up Reply S.p.A.'s financial statements, hereby attest, pursuant to the provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998:
of the administration and accounting procedures applied in the preparation of the Consolidated financial statements for the year ended 2016.
The assessment of the adequacy of administrative and accounting procedures used for the preparation of the statutory financial statements at 31 December 2016 was carried out on the basis of regulations and methodologies defined by Reply prevalently coherent with the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organisations of the Treadway Commission, an internationally-accepted reference framework.
The undersigned also certify that:
3.1 the Consolidated Financial Statement
3.2 the report on operations includes a reliable operating and financial review of the Company and of the Group as well as a description of the main risks and uncertainties to which they are exposed.
Turin, 15 March 2017 /s/ Mario Rizzante /s/ Giuseppe Veneziano
Chairman and Chief Executive Officer Director responsible of drawing up the accounting documents
Mario Rizzante Giuseppe Veneziano
Statutory Auditors' Report
The Board of Directors is submitting to you the Consolidated Financial Statements as at 31 December 2016 prepared in conformity with the International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB"), which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Changes in Shareholders' Equity, Consolidated Cash Flow Statement, and the Notes to the Financial Statements.
The Consolidated Financial Statements as at 31 December 2016 present a consolidated Shareholders' equity amounting to 337,017 thousand Euros, including a consolidated profit of 67,544 thousand Euros.
The Report on Operations adequately illustrates the financial, economic and earnings position, the trend, at a consolidated level, of Reply S.p.A. and its subsidiaries during the financial year and after its end, as well as the sub-division of the volumes of assets of the principal business lines and the consolidated results.
The consolidation area is determined in such context, which included as at 31 December 2016 in addition to the Parent Company, 103 companies and 2 consortiums, all of which consolidated on a line-by-line basis.
The controls made by the Independent Auditor EY S.p.A. concluded that the amounts reported in the Consolidated Financial Statements as at 31 December 2016 are supported by the Parent Company's accounting records, in the financial statements for the reporting period of the subsidiaries, and in the information that they have formally communicated.
Such financial statements submitted by the subsidiaries to the Parent Company, for purposes of the preparation of the Consolidated Financial Statements, prepared by the respective competent corporate bodies, have been reviewed by the bodies and/or persons in charge of the audit of the individual companies, according to their respective legal systems, and by the Independent Auditor in the context of the procedures followed for the audit of the Consolidated Financial Statements.
The Board of Statutory Auditors did not audit the financial statements of such companies.
EY S.p.A., the company entrusted with the audit of Reply's Consolidated Financial Statements, has issued its report on today's date, in which it confirms that, in its opinion, the Consolidated Financial Statements of the Reply Group as at 31 December 2016 conform to the International Financial Reporting Standards (IFRS) endorsed by the European Union, as well as to the measures issued to implement Article 9 of Legislative Decree 38/2005 and, therefore, they were prepared with clarity and represent a true and fair view of the financial and economic position, the economic result and the cash flows of the Reply Group as at such date, and further, the Report on Operations and the information pursuant to Article 123-bis, paragraph 4 of Legislative Decree 58/1998 presented in the Report on Corporate Governance and Ownership Structure are consistent with the Consolidated Financial Statements.
On the basis of the audits and controls carried out, we certify that:
Turin, 30 March 2017. THE STATUTORY AUDITORS (Prof. Cristiano Antonelli) (Dott.ssa Ada Alessandra Garzino Demo) (Dott. Paolo Claretta Assandri)
Independent Auditors' Report
EY S.p.A. Via Meucci, 5 10121 Torino
Tel: +39 011 5161611 Fax: +39 011 5612554 ey.com
Independent auditor's report in accordance with articles 14 and 16 of Legislative Decree n. 39, dated 27 January 2010 (Translation from the original Italian text)
To the Shareholders of Reply S.p.A.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Reply Group, which comprise the consolidated statement of financial position as at December 31, 2016, and the consolidate income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other notes.
The Directors of Reply S.p.A. are responsible for the preparation of these consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union as well as with the regulations issued to implement art. 9 of Legislative Decree n. 38, dated 28 February 2005.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia) implemented in accordance with article 11 of Legislative Decree n. 39, dated 27 January 2010. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of Group Reply as at December 31, 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with article 9 of Legislative Decree n. 38, dated 28 February 2005.
Report on other legal and regulatory requirements
Opinion on the consistency of the Report on Operations and of specific information of the Report on Corporate Governance and Ownership Structure
We have performed the procedures required under audit standard SA Italia n. 720B in order to express an opinion, as required by law, on the consistency of the Report on Operations and of specific information of the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4 of Legislative Decree n. 58, dated 24 February 1998, with the consolidated financial statements. The Directors of Reply S.p.A. are responsible for the preparation of the Report on Operations and of the Report on Corporate Governance and Ownership Structure in accordance with the applicable laws and regulations. In our opinion the Report on Operations and the specific information of the Report on Corporate Governance and Ownership Structure are consistent with the consolidated financial statements of Reply Group as at December 31, 2016.
Turin, March 30, 2017
EY S.p.A. Signed by: Luigi Conti, partner
This report has been translated into the English language solely for the convenience of international readers.
Financial Statements as at 31 December 2016
| (Euros) | Note | 2016 | 2015 |
|---|---|---|---|
| Revenue | 5 | 367,952,177 | 326,911,581 |
| Other income | 6 | 7,999,405 | 6,120,821 |
| Purchases | 7 | (16,293,478) | (8,741,850) |
| Personnel | 8 | (20,176,553) | (17,994,188) |
| Services and other costs | 9 | (338,791,654) | (304,748,471) |
| Amortization, depreciation and write-downs | 10 | (731,885) | (471,681) |
| Other unusual operating income/(expenses) | 11 | 1,780,821 | (3,750,000) |
| Operating income | 1,738,834 | (2,673,788) | |
| Gain/(loss) on equity investments | 12 | 18,000,006 | 37,937,457 |
| Financial income/(expenses) | 13 | (2,900,297) | 3,407,322 |
| Income before taxes | 16,838,543 | 38,670,992 | |
| Income taxes | 14 | 424,935 | (1,756,577) |
| Net income | 17,263,478 | 36,914,414 | |
| Net income per share | 15 | 1.85 | 3.95 |
| Diluted net income per share | 15 | 1.85 | 3.95 |
(*) Pursuant to Consob Regulation No. 15519 of 27 July 2006, the effects of related-party transactions on the Income Statement are reported in the annexed Tables and further described in Note 34.
| (Euros) | Note | 2016 | 2015 |
|---|---|---|---|
| Profit of the period (A) | 17,263,478 | 36,914,414 | |
| Other comprehensive income that will not be reclassified subsequently to profit or loss |
|||
| Actuarial gains/(losses) from employee benefit plans | 26 | (14,351) | 17,617 |
| Total Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1): |
(14,351) | 17,617 | |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
|||
| Gains/(losses) on cash flow hedges | 26 | (62,261) | 3,612 |
| Total Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax (B2): |
(62,261) | 3,612 | |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): |
(76,612) | 21,229 | |
| Total comprehensive income (A)+(B) | 17,186,867 | 36,935,643 |
| (Euros) | Note | 31/12/2016 | 31/12/2015 |
|---|---|---|---|
| Tangible assets | 16 | 722,796 | 764,619 |
| Goodwill | 17 | 86,765 | 86,765 |
| Other intangible assets | 18 | 2,118,907 | 1,498,954 |
| Equity investments | 19 | 149,356,195 | 133,595,730 |
| Other financial assets | 20 | 67,399,932 | 52,112,144 |
| Deferred tax assets | 21 | 3,017,480 | 1,234,807 |
| Non current assets | 222,702,075 | 189,293,019 | |
| Trade receivables | 22 | 304,557,549 | 259,856,229 |
| Other receivables and current assets | 23 | 20,042,881 | 33,158,420 |
| Financial assets | 24 | 63,168,559 | 58,522,084 |
| Cash and cash equivalents | 25 | 50,108,291 | 55,745,286 |
| Current assets | 437,877,280 | 407,282,018 | |
| TOTAL ASSETS | 660,579,355 | 596,575,038 | |
| Share Capital | 4,863,486 | 4,863,486 | |
| Other reserves | 178,614,766 | 151,128,813 | |
| Net income | 17,263,478 | 36,914,414 | |
| SHAREHOLDERS' EQUITY | 26 | 200,741,730 | 192,906,713 |
| Due to minority shareholders | 27 | 2,364,114 | 4,468,788 |
| Financial liabilities | 28 | 29,338,628 | 32,605,828 |
| Employee benefits | 29 | 436,717 | 416,302 |
| Deferred tax liabilities | 30 | 1,121,147 | 1,105,248 |
| Provisions | 33 | 6,821,300 | 7,398,000 |
| Non current liabilities | 40,081,906 | 45,994,165 | |
| Financial liabilities | 28 | 97,952,769 | 86,803,962 |
| Trade payables | 31 | 296,231,941 | 252,342,479 |
| Other current liabilities | 32 | 24,371,010 | 16,501,719 |
| Provisions | 33 | 1,200,000 | 2,026,000 |
| Current liabilities | 419,755,719 | 357,674,160 | |
| TOTAL LIABILITIES | 459,837,625 | 403,668,324 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 660,579,355 | 596,575,038 |
(*)Pursuant to Consob Regulation No. 15519 of 27 July 2006, the effects of related-party transactions on the Statement of Financial Position are reported in the annexed Tables and further described in Note 34.
| (Euros) | Share capital |
Treasury shares |
Capital reserves |
Earning reserves |
Cash flow hedge reserve |
Reserve for actuarial gains/(losses) |
Total |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2015 |
4,863,486 | (9,127) | 59,183,600 | 99,913,252 | (3,612) | (12,081) | 163,935,518 |
| Dividends distributed | - | - | - | (7,949,073) | - | - | (7,949,073) |
| Change in treasury shares | - | (15,375) | 20,000,000 | (20,000,000) | - | 17,617 | (15,375) |
| Total profit | - | - | - | 36,914,414 | 3,612 | - | 36,935,643 |
| Balance at 31 December 2015 |
4,863,486 | (24,502) | 79,183,600 | 108,878,593 | - | 5,536 | 192,906,714 |
| (Euros) | Share capital |
Treasury shares |
Capital reserves |
Earning reserves |
Cash flow hedge reserve |
Reserve for actuarial gains/(losses) |
Total |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2016 | 4,863,486 | (24,502) | 79,183,600 | 108,878,593 | - | 5,536 | 192,906,714 |
| Dividends distributed | - | - | - | (9,351,850) | - | - | (9,351,850) |
| Total profit | - | - | - | 17,263,478 | (62,261) | (14,351) | 17,186,867 |
| Balance at 31 December 2016 |
4,863,486 | (24,502) | 79,183,600 | 116,790,222 | (62,261) | (8,815) | 200,741,730 |
| (Euros) | 31/12/2016 | 31/12/2016 |
|---|---|---|
| Result | 17,263,478 | 36,914,414 |
| Income taxes | (424,935) | 1,756,577 |
| Amortization and depreciation | 731,885 | 471,681 |
| Other non-monetary expenses/(income) | (3,958,627) | (747,557) |
| Change in trade receivables | (44,701,320) | (38,564,536) |
| Change in trade payables | 43,889,462 | 29,382,704 |
| Change in other assets and liabilities | 20,729,321 | (4,034,321) |
| Income tax paid | (1,756,577) | (1,208,521) |
| Interest paid | (712,037) | (966,951) |
| Net cash flows from operating activities (A) | 31,060,651 | 23,003,490 |
| Payments for tangible and intangible assets | (1,310,015) | (773,483) |
| Payments for financial assets | (15,925,279) | (9,625,320) |
| Payments for the acquisition of subsidiaries net of cash acquired | (13,906,512) | (1,984,781) |
| Net cash flows from investment activities (B) | (31,141,806) | (12,383,583) |
| Dividends paid | (9,351,850) | (7,949,073) |
| In payments from treasury shares | 15,500,000 | 28,418,972 |
| Payment of instalments | (10,641,506) | (21,291,041) |
| Other changes | - | 5,854 |
| Net cash flows from financing activities (C) | (4,493,356) | (815,287) |
| Net cash flows (D) = (A+B+C) | (4,574,511) | 9,804,619 |
| Cash and cash equivalents at the beginning of period | 37,938,088 | 28,133,468 |
| Cash and cash equivalents at period end | 33,363,577 | 37,938,088 |
| Total change in cash and cash equivalents (D) | (4,574,511) | 9,804,619 |
| (in euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Cash and cash equivalents at beginning of period: | 37,938,088 | 28,133,468 |
| Cash and cash equivalents | 55,745,286 | 40,913,939 |
| Other | 743,560 | 959,512 |
| Transaction accounts - surplus | 57,778,523 | 49,849,243 |
| Transaction accounts - overdraft | (41,140,870) | (26,868,340) |
| Bank overdrafts | (35,188,412) | (36,720,886) |
| Cash and cash equivalents at the end of the year: | 33,363,577 | 37,938,088 |
| Cash and cash equivalents | 50,108,291 | 55,745,286 |
| Other | (19,164) | 743,560 |
| Transaction accounts - surplus | 62,449,382 | 57,778,523 |
| Transaction accounts - overdraft | (64,428,008) | (41,140,870) |
| Bank overdrafts | (14,746,924) | (35,188,412) |
| General information | NOTE 1 | - General information |
|---|---|---|
| NOTE 2 | - Accounting principles | |
| NOTE 3 | - Financial risk management | |
| NOTE 4 | - Other | |
| Income statement | NOTE 5 | - Revenues |
| NOTE 6 | - Other revenues | |
| NOTE 7 | - Purchases | |
| NOTE 8 | - Personnel | |
| NOTE 9 | - Services and other costs | |
| NOTE 10 | - Amortization, depreciation and write-downs | |
| NOTE 11 | - Other unusual operating income/(expenses) | |
| NOTE 12 | - Result of equity investments | |
| NOTE 13 | - Financial income/(expenses) | |
| NOTE 14 | - Income taxes | |
| NOTE 15 | - Earnings per share | |
| Financial position- Assets | NOTE 16 | - Tangible assets |
| NOTE 17 | - Goodwill | |
| NOTE 18 | - Other intangible assets | |
| NOTE 19 | - Equity Investments | |
| NOTE 20 | - Non current financial assets | |
| NOTE 21 | - Deferred tax assets | |
| NOTE 22 | - Trade receivables | |
| NOTE 23 | - Other receivables and current assets | |
| NOTE 24 | - Current financial assets | |
| NOTE 25 | - Cash and cash equivalents | |
| Financial position- Liabilities and shareholders' equity | NOTE 26 | - Shareholders' equity |
| NOTE 27 | - Payables to minority shareholders | |
| NOTE 28 | - Financial liabilities | |
| NOTE 29 | - Employee benefits | |
| NOTE 30 | - Deferred tax liabilities | |
| NOTE 31 | - Trade payables | |
| NOTE 32 | - Other current liabilities | |
| NOTE 33 | - Provisions | |
| Other information | NOTE 34 | - Transactions with related parties |
| NOTE 35 | - Additional disclosures to financial instruments and risk management policies |
|
| NOTE 36 | - Significant non-recurring transactions | |
| NOTE 37 | - Transactions resulting from unusual and/or abnormal operations | |
| NOTE 38 | - Guarantees, commitments and contingent liabilities | |
| Other information | NOTE 39 | - Emoluments to Directors, Statutory Auditors and Directors with Key responsibilities |
| NOTE 40 | -Events subsequent to 31 December 2016 | |
| NOTE 41 | -Approval of the financial statements and authorization for publication |
Reply [MTA, STAR: REY] is specialized in the implementation of solutions based on new communication and digital media. Reply, consisting of a network of specialized companies, assists important European industries belonging to Telco & Media, Manufacturing & Retail, Bank & Insurances and Public Administration sectors, in defining and developing new business models utilizing Big Data, Cloud Computing, CRM, Mobile, Social Media and Internet of Things paradigms. Reply's services include: consulting, system integration, application management and Business Process Outsourcing. (www.reply.com)
The company mainly carries out the operational coordination and technical management of the group and also the administration, financial assistance and some purchase and marketing activities. Reply also manages business relations for some of its main clients.
The 2016 Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and endorsed by the European Union, and with the provisions implementing Article 9 of Legislative Decree No. 38/2005. 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").
In compliance with European Regulation No. 1606 of 19 July 2002, beginning in 2005, the Reply Group adopted the International Financial Reporting Standards ("IFRS") for the preparation of its Consolidated Financial Statements. On the basis of national legislation implementing the aforementioned Regulation, those accounting standards were also used to prepare the separate Financial Statements of the Parent Company, Reply S.p.A., for the first time for the year ended 31 December 2006.
It is hereby specified that the accounting standards applied conform to those adopted for the preparation of the initial Statement of Assets and Liabilities as at 1 January 2005 according to the IFRS, as well as for the 2005 Income Statement and the Statement of Assets and Liabilities as at 31 December 2005, as represented according to the IFRS and published in the special section of these Financial Statements.
The Financial Statements were prepared under the historical cost convention, modified as required for the measurement of certain financial instruments. The criterion of fair value was adopted as defined by IAS 39. 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 relative to its ability to continue as a going concern.
These Financial Statements are expressed in Euros and are compared to the Financial Statements of the previous year prepared in accordance with the same principles.
These Financial Statements have been drawn up under the general principles of continuity, accrual based accounting, coherent presentation, relevancy and aggregation, prohibition of compensation and comparability of information.
The fiscal year consists of a twelve (12) month period and closes on the 31 December each year.
The Financial Statements include 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 company classifies costs according to their nature, which is deemed to properly represent the company'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 is further noted that, to comply with the indications provided by Consob Resolution No. 15519 of 27 July 2006 "Provisions as to the format of Financial Statements", in addition to mandatory tables, specific supplementary Income Statement and Balance Sheet formats have been added that report significant amounts of positions or transactions with related parties indicated separately from their respective items of reference.
Tangible fixed assets are stated at cost, net of accumulated depreciation and impairment losses.
Goods made up of components, of significant value, that have different useful lives are considered separately when determining depreciation.
In compliance with IAS 36 – Impairment of assets, the carrying value is immediately remeasured to the recoverable value, if lower.
Depreciation is charged so as to write off the cost or valuation of assets, over their estimated useful lives, using the straight-line method, on the following bases:
| Equipment | 30% |
|---|---|
| Plant and machinery | 40% |
| Hardware | 40% |
| Furniture and fittings | 24% |
Ordinary maintenance costs are fully expensed as incurred. Incremental maintenance costs are allocated to the asset to which they refer and depreciated over their residual useful lives.
Improvement expenditures on rented property are allocated to the related assets and depreciated over the shorter between the duration of the rent contract or the residual useful lives of the relevant assets.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income.
Goodwill is an intangible asset with an indefinite life, deriving from business combinations recognized using the purchase method, and is recorded to reflect the positive difference between purchase cost and the Company's interest at the time of acquisition of the fair value of the assets, liabilities and identifiable contingent liabilities attributable to the subsidiary.
Goodwill is not amortized, but is tested for impairment annually or more frequently if specific events or changes in circumstances indicate that it might be impaired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Impairment losses are recognized immediately as expenses that cannot be recovered in the future.
Goodwill deriving from acquisitions made prior to the transition date to IFRS are maintained at amounts recognized under Italian GAAP at the time of application of such standards and are subject to impairment tests at such date.
Intangible fixed assets are those lacking an identifiable physical aspect, are controlled by the company and are capable of generating future economic benefits.
Other purchased and internally-generated intangible assets are recognized as assets in accordance with IAS 38 – Intangible Assets, where it is probable that the use of the asset will generate future economic benefits and where the costs of the asset can be determined reliably.
Such assets are measured at purchase or manufacturing cost and amortized on a straight-line basis over their estimated useful lives, if these assets have finite useful lives.
Other intangible assets acquired as part of an acquisition of a business are capitalized separately from goodwill if their fair value can be measured reliably.
In case of intangible fixed assets purchased for which availability for use and relevant payments are deferred beyond normal terms, the purchase value and the relevant liabilities are discounted by recording the implicit financial charges in their original price.
Expenditure on research activities is recognized as an expense in the period in which it is incurred. Development costs can be capitalized on condition that they can be measured reliably and that evidence is provided that the asset will generate future economic benefits.
An internally-generated intangible asset arising from the company's e-business development (such as informatics solutions) is recognized only if all of the following conditions are met:
These assets are amortized when launched or when available for use. Until then, and on condition that the above terms are respected, such assets are recognized as construction in progress. Amortization is determined on a straight line basis over the relevant useful lives.
When an internally-generated intangible asset cannot be recorded at balance sheet, development costs are recognized to the statement of income in the period in which they are incurred.
Intangible assets with indefinite useful lives consist principally of acquired trademarks which have no legal, contractual, competitive, economic, or other factors that limit their useful lives. Intangible assets with indefinite useful lives are not amortized, as provided by IAS 36, but are tested for impairment annually or more frequently whenever there is an indication that the asset may be impaired. Any impairment losses are not subject to subsequent reversals.
At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment annually or more frequently, whenever there is an indication that the asset may be impaired.
The recoverable amount of an asset is the higher of fair value less disposal costs and its value in use. In assessing its value in use, the pre-tax estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Its value in use is determined net of tax in that this method produces values largely equivalent to those obtained by discounting cash flows net of tax at a pre-tax discount rate derived, through an iteration, from the result of the post-tax assessment.
The assessment is carried out for the individual asset or for the smallest identifiable group of cash generating assets deriving from ongoing use, (the so-called Cash generating unit). With reference to goodwill, Management assesses return on investment with reference to the smallest cash generating unit including goodwill.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. When the recognition value of the Cash generating unit, inclusive of goodwill, is higher than the recoverable value, the difference is subject to impairment and attributable firstly to goodwill; any exceeding difference is attributed on a pro-quota basis to the assets of the Cash generating unit.
Where an impairment loss subsequently reverses, the carrying amount of the asset, (or cash-generating unit), with the exception of goodwill, is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount that would have been determined had no impairment loss been recognized for the asset. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Investments in subsidiaries and associated companies are valued using the cost method. As implementation of such method, they are subject to an impairment test if there is any objective evidence that these investments have been impaired, due to one or more events that occurred after the initial measurement if such events have had an impact on future cash flows, thus inhibiting the distribution of dividends. Such evidence exists when the subsidiary's and associate's operating margins are repetitively and significantly negative. If such is the case, impairment is recognized as the difference between the carrying value and the recoverable value, normally determined on the basis of fair value less disposal costs. At each reporting period, the Company assesses whether there is objective evidence that a write-down due to impairment of an equity investment recognized in previous periods may be reduced or derecognized. Such evidence exists when the subsidiary's and associate's operating margins are repetitively and significantly positive. In this case, the recoverable value is re-measured and eventually the investment is restated at initial cost.
Equity investments in other companies, comprising non current financial assets not held for trading, are measured at fair value, if it can be determined. Any subsequent gains and losses resulting from changes
in fair value are recognized directly in Shareholders' equity until the investment is sold or impaired; the total recognized in equity up to that date are recognized in the Income Statement for the period.
Minor investments in other companies for which fair value is not available are measured at cost, and adjusted for any impairment losses.
Dividends are recognized as financial income from investments when the right to collect them is established, which generally coincides with the shareholders' resolution. If such dividends arise from the distribution of reserves prior to the acquisition, these dividends reduce the initial acquisition cost.
Financial assets are recognized on the Company's balance sheet when the Company becomes a party to the contractual provisions of the instrument.
Investments are recognized and written-off the balance sheet on a trade-date basis and are initially measured at cost, including transaction costs.
At subsequent reporting dates, financial assets that the Company has the expressed intention and ability to hold to maturity (held-to-maturity securities) are measured at amortized cost according to the effective interest rate method, less any impairment loss recognized to reflect irrecoverable amounts, and are classified among non current financial assets.
Investments other than held-to maturity securities are classified as either held-for-trading or available-forsale, and are measured at subsequent reporting dates at fair value. Where financial assets are held for trading purposes, gains and losses arising from changes in fair value are included in the net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period. This item is stated in the current financial assets.
The Company derecognizes financial assets from its Financial Statements when, and only when, the contractual rights to the cash flows deriving from the assets expire or the Company transfers the financial asset. In the case of transfer of the financial asset:
At the time of removal of financial assets from the balance sheet, the difference between the carrying value of assets and the fees received or receivable for the transfer of the asset is recognized in the income statement.
Trade payables and receivables and other current assets and liabilities are measured at nominal value and eventually written down to reflect their recoverable amount.
Write-downs are determined to the extent of the difference of the carrying value of the receivables and the present value of the estimated future cash flows.
Receivables and payables denominated in non EMU currencies are stated at the exchange rate at period end provided by the European Central Bank.
The item cash and cash equivalents includes cash, banks and reimbursable deposits on demand and other short term financial investments readily convertible in cash and are not subject to significant risks in terms of change in value.
Treasury shares are presented as a deduction from equity. All gains and losses from the sale of treasury shares are recorded in a special Shareholders' equity reserve.
Financial liabilities and equity instruments issued by the Company are presented according to their substance arising from their contractual obligations and in accordance with the definitions of financial liabilities and equity instruments. The latter are defined as those contractual obligations that give the right to benefit in the residual interests of the Company's assets after having deducted its liabilities.
The accounting standards adopted for specific financial liabilities or equity instruments are outlined below:
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently stated at its amortized cost, using the prevailing market interest rate method.
Equity instruments
Equity instruments issued by the Group are stated at the proceeds received, net of direct issuance costs.
Non current financial liabilities
Liabilities are stated according to the amortization cost.
The Company's activities are primarily subject to financial risks associated with fluctuations in interest rates. Such interest rate risks arise from bank borrowings; In order to hedge such risks the Company's policy consists of converting fluctuating rate liabilities in constant rate liabilities and treating them as cash flow hedges. The use of such instruments is disciplined by written procedures in line with the Company risk strategies that do not contemplate derivative financial instruments for trading purposes.
In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only when at the inception of the hedge there is formal designation and sufficient documentation that the hedge is highly effective and that its effectiveness can be reliably measured. The hedge must be highly effective throughout the different financial reporting periods for which it was designated.
All derivative financial instruments are measured in accordance with IAS 39 at fair value.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows relating to Company commitments and forecasted transactions are recognized directly in Shareholder's equity, while the ineffective portion is immediately recorded in the Income Statement. If the hedged company commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognized, associated gains or losses on the derivative that had previously been recognized in equity are included in the initial measurement of the asset or liability.
For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognized in the income statement in the same period in which the hedge commitment or forecasted transaction affects net profit or loss, for example, when the future sale actually occurs.
For effective hedging against a change in fair value, the hedged item is adjusted by the changes in fair value attributable to the risk hedged with a balancing entry in the Income Statement. Gains and losses arising from the measurement of the derivative are also recognized at the income statement.
Changes in the fair value of derivative financial instruments that no longer qualify as hedge accounting are recognized in the Income Statement of the period in which they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction is no longer expected to occur; the net cumulative gain or loss recognized in equity is transferred to the net profit or loss for the period.
Embedded derivatives included in other financial instruments or in other contractual obligations are treated as separate derivatives, when their risks and characteristics are not closely related to those of the financial instrument that houses them and the latter are not measured at fair value with recognition of the relative gains and losses in the Income Statement.
The scheme underlying the employee severance indemnity of the Italian Group companies (the TFR) was classified as a defined benefit plan up until 31 December 2006. The legislation regarding this scheme was amended by Law No. 296 of 27 December 2006 (the "2007 Finance Law") and subsequent decrees and regulations issued in the first part of 2007. In view of these changes, and with specific reference to those regarding companies with at least 50 employees, this scheme only continues to be classified as a defined benefit plan in the Financial Statements for those benefits accruing up to 31 December 2006 (and not yet settled by the balance sheet date), while after that date the scheme is classified as a defined contribution plan.
Employee termination indemnities ("TFR") are classified as a "post-employment benefit", falling under the category of a "defined benefit plan"; the amount already accrued must be projected in order to
estimate the payable amount at the time of employee termination and subsequently be discounted through the "projected unit credit method", an actuarial method based on demographic and finance data that allows the reasonable estimate of the extent of benefits that each employee has matured in relation to the time worked. Through actuarial measurement, interest cost is recognized as financial gains or losses and represents the figurative expenditure that the Company would bear by securing a market loan for an amount corresponding to the Employee Termination Indemnities ("TFR").
Actuarial income and losses that reflect the effects resulting from changes in the actuarial assumptions used are directly recognized in Shareholders' equity.
The Company has applied the standard set out by IFRS 2 "Share-based payment".
Share-based payments are measured at fair value at granting date. Such amount is recognized in the Income Statement, with a balancing entry in Shareholders' equity, on a straight-line basis and over the (vesting period). The fair value of the option, measured at the granting date, is assessed through actuarial calculations, taking into account the terms and conditions of the options granted.
The stock options resolved in the previous financial years have been exercised and therefore the Company does not have existing stock option plans.
Provisions for risks and liabilities are costs and liabilities having an established nature and the existence of which is certain or probable that at the reporting date the amount cannot be determined or the occurrence of which is uncertain. Such provisions are recognized when a commitment actually exists arising from past events of legal or contractual nature or arising from statements or company conduct that determine valid expectations from the persons involved (implicit obligations).
Provisions are recognized when the Company has a present commitment arising from a past event and it is probable that it will be required to fulfil the commitment. Provisions are accrued at the best estimate of the expenditure required to settle the liability at the balance sheet date, and are discounted when the effect is significant.
Revenue is recognized if it is probable that the economic benefits associated with the transaction will flow to the Company and the revenue can be measured reliably.
Revenue from sales and services is recognized when the transfer of all the risks and benefits arising from the passage of title takes place or upon execution of a service.
Revenues from services include the activities the Company carries out directly with respect to some of its major clients in relation to their businesses. These activities are also carried out in exchange for services provided by other Group companies, and the costs for such services are recognized as Services and other costs.
Revenues from sales of products are recognized when the risks and rewards of ownership of goods are transferred to the customer. Revenues are recorded net of discounts, allowances, settlement discounts and rebates and charged against profit for the period in which the corresponding sales are recognized.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable that represents the discounted interest rate of the future estimated proceeds estimated over the expected life of the financial asset in order to bring them to the accounting value of the same asset.
Dividends from investments is recognized when the shareholders' rights to receive payment has been established.
Financial income and expenses are recognized and measured in the income statement on an accrual basis.
Income tax represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit defers from the profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Current income tax is entered for each individual company based on an estimate of taxable income in compliance with existing legislation and tax rates or as substantially approved at the period closing date in each country, considering applicable exemptions and tax credit.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the Financial Statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates and interests arising in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
In the event of changes to the accounting value of deferred tax assets and liabilities deriving from a change in the applicable tax rates and relevant legislation, the resulting deferred tax amount is entered in income statement, unless it refers to debited or credited amounts previously recognized to Shareholders' equity.
Basic earnings per share is calculated with reference to the profit for the period of the Group and the weighted average number of shares outstanding during the year. Treasury shares are excluded from this calculation.
Diluted earnings per share is determined by adjusting the basic earnings per share to take account of the theoretical conversion of all potential shares, being all financial instruments that are potentially convertible into ordinary shares, with diluting effect.
The preparation of the Financial Statements and relative notes under IFRS requires that management makes estimates and assumptions that have effect on the measurement of assets and liabilities and on disclosures related to contingent assets and liabilities at the reporting date. The actual results could differ from such estimates. Estimates are used to accrue provisions for risks on receivables, to measure development costs, to measure contract work in progress, employee benefits, income taxes and other provisions. The estimations and assumptions are reviewed periodically and the effects of any changes are recognized immediately in income.
There were no changes of estimates or reclassifications during the 2015 reporting period.
Reply S.p.A. applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2016. Reply S.p.A. has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2016, they did not have a material impact on the annual financial statement of Reply S.p.A.. The nature and the impact of each new standard or amendment are described below.
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 February 2015. This amendment is not relevant to the Company, since the entity hasn't defined benefit plans with contributions from employees or third parties.
These improvements are effective for accounting periods beginning on or after 1 February 2015. The Company has applied these improvements for the first time in this financial statement. They include:
This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:
If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied.
The clarifications are consistent with how the Company has identified any performance and service conditions which are vesting conditions in previous periods. Thus, these amendments did not impact the Reply's financial statement or accounting policies.
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39. This is consistent with the Reply's current accounting policy and, thus, this amendment did not impact the Company's accounting policy.
The amendments are applied retrospectively and clarify that:
Reply S.p.A. has not applied the aggregation criteria in IFRS 8.12 because has only one operating segment.
The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact to the revaluation adjustments recorded by the Company during the current period.
The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Company as it does not receive any management services from other entities.
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3 Business Combinations principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Company as there has been no interest acquired in a joint operation during the period.
The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact to the Company given that Reply S.p.A. has not used a revenuebased method to depreciate its non-current assets.
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in their separate financial statements will have to apply that change retrospectively. First-time adopters of IFRS electing to use the equity method in their separate financial statements will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Company's financial statement.
These improvements are effective for annual periods beginning on or after 1 January 2016. They include:
Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively.
The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively.
However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments.
The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively.
The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.
The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Company.
The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:
Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments do not have any impact on the Company.
The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Company plans to adopt the new standard on the required effective date. Overall, the Company expects no significant impact on its balance sheet and equity.
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Company plans to adopt the new standard on the required effective date using the full retrospective method. During 2016, the Company performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Company is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments. On the basis of the preliminary analysis, no significant impacts are expected on the Company.
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively.
The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Company.
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.
These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Company.
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Company is assessing the potential effect of the amendments on its financial statement.
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.
In 2017, the Company plans to assess the potential effect of IFRS 16 on its financial statement.
Reply S.p.A. operates at a world-wide level and for this reason its activities are exposed to various types of financial risks: market risk (broken down in exchange risk, interest rate risk on financial flows and on "fair value", price risk), credit risk and liquidity risk.
To minimize risks Reply utilizes derivative financial instruments. At a central level it manages the hedging of principle operations. Reply S.p.A. does not detain derivate financial instruments for negotiating purposes.
For business purposes, specific policies are adopted in order to guarantee that clients honor payments. With regards to financial counterparty risk, the company does not present significant risk in creditworthiness or solvency. For newly acquired clients, the Company accurately verifies their capability in terms of facing financial commitments. Transactions of a financial nature are undersigned only with primary financial institutions.
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 Group companies are monitored and managed on a centralized basis through the Group Treasury. The aim of this centralized system is to optimize the efficiency and effectiveness of the management of the Group's current and future capital resources (maintaining an adequate level of cash and cash equivalents and the availability of reserves of liquidity that are readily convertible to cash and committed credit).
The difficulties both in the markets and in the financial markets require special attention to the management of liquidity risk, and in that sense particular emphasis is being placed on measures taken to generate financial resources through operations and on maintaining an adequate level of available liquidity. The Company 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.
As the company operates mainly in a "Euros area" the exposure to currency risks is limited.
The exposure to interest rate risk arises from the need to fund operating activities and the necessity to deploy surplus. Changes in market interest rates may have the effect of either increasing or decreasing the company's net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
The exposure to interest rate risk arises from the need to fund operating activities and M&A 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 Company's net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
The interest rate risk to which the Company is exposed derives from bank loans; to mitigate such risks, Reply S.p.A., when useful, uses derivative financial instruments designated as "cash flow hedges". The use of such instruments is disciplined by written procedures in line with the Company's risk management strategies that do not contemplate derivative financial instruments for trading purposes.
No exceptions allowed under Article 2423, paragraph 4, of the Italian Civil Code were used in drawing up the annexed Financial Statements.
The Company has decided to enter into the National Fiscal Consolidation pursuant to articles 117/129 of the TUIR.
Reply S.p.A., Parent Company, acts as the consolidating company and determines just one taxable income for the Group companies that adhere to the Fiscal Consolidation, and will benefit from the possibility of compensating taxable income having fiscal losses in just one tax return.
Each company adhering to the Fiscal Consolidation transfers to Reply S.p.A. its entire taxable income, recognizing a liability with respect to the Company corresponding to the payable IRES; The companies that transfer fiscal losses can register a receivable with Reply, corresponding to IRES on the part of the loss offset at a Group level and remunerated according to the terms established in the consolidation agreement stipulated among the Group companies.
Revenues amounted to 367,952,177 Euros and are detailed as follows:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Revenues from services | 319,687,582 | 279,688,517 | 39,999,065 |
| Royalties on "Reply" trademark | 21,691,597 | 19,540,814 | 2,150,783 |
| Intercompany services | 18,478,081 | 18,815,682 | (337,600) |
| Other intercompany revenues | 8,094,917 | 8,866,569 | (771,652) |
| Total | 367,952,177 | 326,911,581 | 41,040,596 |
Reply manages business relationships on behalf of some of its major clients. Such activities were recorded in the item Revenues from services to third parties which increased by 39,999,065 Euros.
Revenues from Royalties on the "Reply" trademark refer to charges to subsidiaries, corresponding to 3% of the subsidiaries' turnover with respect to third parties.
Revenues from Intercompany services and Other intercompany charges refer to activities that Reply S.p.A. carries out for the subsidiaries, and more specifically:
Other revenues that as at 31 December 2016 amounted to 7,999,405 Euros (6,120,821 Euros at 31 December 2015) mainly refer to expenses incurred by Reply S.p.A. and recharged to the Group companies, and include expenses for social events, telephone and training courses.
Detail is as follows:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Software licenses | 10,502,020 | 5,838,205 | 4,663,815 |
| Hardware | 5,249,071 | 2,477,880 | 2,771,191 |
| Other | 542,387 | 425,765 | 116,622 |
| Total | 16,293,478 | 8,741,850 | 7,551,628 |
The items software licenses and hardware refer to the costs incurred for software licenses for resale to third parties carried out for the Group companies.
The item Other includes the purchase of supplies, e-commerce material, stationary and printed materials (340,276 Euros) and fuel (198,297 Euros).
Personnel costs amounted to 20,176,553 Euros, with an increase of 2,182,365 Euros and are detailed in the following table:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Payroll employees | 15,982,802 | 13,699,901 | 2,282,901 |
| Directors | 4,193,751 | 4,294,287 | (100,537) |
| Total | 20,176,553 | 17,994,188 | 2,182,365 |
Detail of personnel by category is provided below:
| (number) | 2016 | 2016 | Change |
|---|---|---|---|
| Directors | 58 | 56 | 2 |
| Managers | 8 | 8 | - |
| Staff | 21 | 23 | (2) |
| Total | 87 | 87 | - |
The average number of employees in 2016 was 90 (in 2015 91).
Service and other costs comprised the following:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Commercial and technical consulting | 2,813,911 | 2,488,978 | 324,933 |
| Travelling and training expenses | 2,059,581 | 1,718,375 | 341,207 |
| Professional services from group companies | 302,717,479 | 272,051,485 | 30,665,994 |
| marketing expenses | 3,263,321 | 2,466,410 | 796,911 |
| Administrative and legal services | 1,459,381 | 1,294,805 | 164,576 |
| Statutory auditors and Independent auditors fees | 152,424 | 171,234 | (18,810) |
| Leases and rentals | 1,316,967 | 889,648 | 427,319 |
| Office expenses | 3,179,460 | 2,851,088 | 328,373 |
| Other services from group companies | 11,699,912 | 11,420,839 | 279,073 |
| Expenses incurred on behalf of group companies | 5,986,389 | 4,682,000 | 1,304,389 |
| Other | 4,142,829 | 4,713,609 | (570,781) |
| Total | 338,791,654 | 304,748,471 | 34,043,183 |
Professional Services from Group companies, which changed during the year by 30,665,994 Euros, relate to revenues from services to third parties (pass-through revenues).
Reply S.p.A. carries out commercial fronting activities for some of its major clients, whereas delivery is carried out by the operational companies.
Office expenses include services rendered by related parties in connection with service contracts for the use of premises, legal domicile and secretarial services, as well as utility costs.
Depreciation of tangible assets was calculated on the basis of technical-economic rates determined in relation to the residual useful lives of the assets, and which amounted in 2016 to an overall cost of 341,577 Euros. Details of depreciation are provided at the notes to tangible assets.
Amortization of intangible assets amounted in 2016 to an overall cost of 390,309 Euros. Details of depreciation are provided at the notes to intangible assets.
Other unusual operating income/(expenses) amounted to 1,780,821 Euros and refers to the fair value adjustment of liabilities to minority shareholders (1,250,821 Euros) and to the reversal of provisions for risks (530,000 Euros).
Detail is a follows:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Dividends | 20,189,006 | 39,577,457 | (19,388,451) |
| Loss on equity investments | (2,189,000) | (1,640,000) | (549,000) |
| Total | 18,000,006 | 37,937,457 | (19,937,451) |
Dividends include proceeds from dividends received by Reply S.p.A. from subsidiary companies during the year.
Detail is as follows:
| (in euro) | 2016 |
|---|---|
| logistics Reply S.r.l. | 110,000 |
| Arlanis Reply S.r.l. | 80,000 |
| Aktive Reply S.r.l. | 480,000 |
| Atlas Reply S.r.l. | 130,000 |
| Bitmama S.r.l. | 105,083 |
| Blue Reply S.r.l. | 1,860,000 |
| Bridge Reply S.r.l. | 99,000 |
| Business Reply S.r.l. | 330,000 |
| Cluster Reply S.r.l. | 2,460,000 |
| Reply Consulting S.r.l. | 420,000 |
| Discovery Reply S.r.l. | 230,000 |
| Eos Reply S.r.l. | 104,923 |
| E*finance Consulting S.r.l. | 670,000 |
| Hermes Reply S.r.l. | 710,000 |
| Data Reply S.r.l. | 20,000 |
| Iriscube Reply S.p.A. | 970,000 |
| Open Reply S.r.l. | 970,000 |
| Pay Reply S.r.l. | 360,000 |
| Power Reply S.r.l. | 1,100,000 |
| Ringmaster S.r.l. | 750,000 |
| Santer Reply S.p.A. | 1,110,000 |
| Security Reply S.r.l. | 570,000 |
| Square Reply S.r.l. | 80,000 |
| Syskoplan Reply S.r.l. | 230,000 |
| Sytel Reply Roma S.r.l. | 1,820,000 |
| Sytel Reply S.r.l | 1,660,000 |
| Target Reply S.r.l. | 610,000 |
| Technology Reply S.r.l. | 1,560,000 |
| Whitehall Reply S.r.l. | 590,000 |
| Total | 20,189,006 |
Losses on equity investments refer to write-downs and the year-end losses of several subsidiary companies that were prudentially deemed as non-recoverable with respect to the value of the investment.
For further details see Note 19 herein.
Detail is as follows:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| Interest income from subsidiaries | 4,562,480 | 3,183,172 | 1,379,308 |
| Interest income on bank accounts | 10,349 | 6,672 | 3,677 |
| Interest expenses | (738,646) | (966,951) | 228,305 |
| Other | (6,734,480) | 1,184,430 | (7,918,909) |
| Total | (2,900,297) | 3,407,322 | (6,307,619) |
Interest income from subsidiaries refers to the interest yielding cash pooling accounts of the Group companies included in the centralized pooling system.
Interest expenses refer to the interest expenses on the use of credit facilities with Intesa Sanpaolo and Unicredit.
The item Other mainly includes losses on exchange rate differences amounting to 6,464 thousand Euros and gains on exchange rate differences amounting to 181 thousand Euros arising from the translation of balance sheet items not recorded in Euros.
The details are provided below:
| (Euros) | 2016 | 2015 | Change |
|---|---|---|---|
| IRES | 1,136,839 | 1,011,488 | 125,351 |
| IRAP | 205,000 | 264,000 | (59,000) |
| Current taxes | 1,341,839 | 1,275,488 | 66,351 |
| Deferred tax liabilities | 15,899 | 194,016 | (178,117) |
| Deferred tax assets | (1,782,673) | 287,073 | (2,069,746) |
| Deferred taxes | (1,766,774) | 481,089 | (2,247,863) |
| Total income taxes | (424,935) | 1,756,577 | (2,181,512) |
The following table provides the reconciliation between the IRES theoretical rate and the fiscal theoretical rate:
| (EUROS) | Amount | Taxation |
|---|---|---|
| Result before taxes | 16,838,543 | |
| Theoretical tax rate | 27.5 % | 4,630,599 |
| Temporary differences, net | (12,545,636) | |
| Taxable income | 4,292,907 | 1,180,550 |
| Total IRES | 1,186,000 | |
| Benefit arising from the National Fiscal Consolidation | 49,161 | |
| Total current IRES | 1,136,839 |
Temporary differences, net refer to:
| (Euros) | Amount | Taxation |
|---|---|---|
| Difference between value and cost of production | 3,764,834 | |
| IRAP net | 966,566 | |
| Taxable IRAP | 4,731,400 | |
| Total IRAP | 205,000 |
Temporary differences, net refer to:
Basic earnings and diluted earnings per share as at 31 December 2016 was calculated with reference to the net profit which amounted to 17,263,478 Euros (36,914,414 Euros at 31 December 2015) divided by the weighted average number of shares outstanding as at 31 December 2016, net of treasury shares, which amounted to 9,351,380 (9,351,380 at 31 December 2015).
| 2016 | 2015 |
|---|---|
| 17,263,478 | 36,914,414 |
| 9,351,380 | 9,351,380 |
| 1.85 | 3.95 |
Tangible assets as at 31 December 2016 amounted to 722,796 Euros are detailed as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Plant and machinery | 369,202 | 299,310 | 69,892 |
| Hardware | 119,055 | 140,995 | (21,940) |
| Other tangible assets | 234,540 | 324,315 | (89,775) |
| Total | 722,796 | 764,619 | (41,823) |
The item Other mainly includes furniture and costs for improvements to leased assets.
Change in Tangible assets during 2016 is summarized below:
| (Euros) | Plant and machinery |
Hardware | Other | Total |
|---|---|---|---|---|
| Historical cost | 1,654,860 | 1,563,774 | 1,982,950 | 5,201,583 |
| Accumulated depreciation | (1,355,550) | (1,422,779) | (1,658,635) | (4,436,964) |
| 31/12/2015 | 299,310 | 140,995 | 324,315 | 764,619 |
| Historical cost | ||||
| Increases | 204,641 | 69,359 | 51,249 | 325,249 |
| Disposals/write off | (151,838) | (6,313) | (344,297) | (502,447) |
| Accumulated depreciation | ||||
| Depreciation | (130,135) | (90,497) | (120,946) | (341,577) |
| Disposals/write off | 147,223 | 5,511 | 324,219 | 476,952 |
| Historical cost | 1,707,663 | 1,626,820 | 1,689,902 | 5,024,385 |
| Accumulated depreciation 31/12/2016 |
(1,338,462) 369,202 |
(1,507,765) 119,055 |
(1,455,362) 234,540 |
(4,301,589) 722,796 |
During the year under review the Company made investments amounting to 325,249 Euros, which mainly refer to general plant and machinery (205 thousands Euros) and hardware (67 thousands Euros).
The write off amounting to 502,447 Euros mainly refer to improvements to third party assets (263 thousands Euros) and plant and machinery (152 thousands Euros) related to the disposal of the assets located in the office in Rome (Via Regina Margherita 8) no longer in activity.
Goodwill as at 31 December 2016 amounted to 86,765 Euros and refers to the value of business branches (consulting activities related to Information Technology and management support acquired in July 2000.
Goodwill recognized is deemed adequately supported in terms of expected financial results and related cash flows.
Intangible assets as at 31 December 2016 amounted to 2,118,907 Euros (1,498,954 Euros at 31 December 2015) and are detailed as follows:
| Net book value at | |||
|---|---|---|---|
| (Euros) | Historical cost | Accumulated depreciation | 31/12/2016 |
| Software | 6,465,399 | (4,882,555) | 1,582,843 |
| Trademark | 536,064 | - | 536,064 |
| Total | 7,001,463 | (4,882,555) | 2,118,907 |
Change in intangible assets in 2016 is summarized in the table below:
| Net book value at | Net book value at | |||
|---|---|---|---|---|
| (Euros) | 31/12/2015 | Increases | Depreciation | 31/12/2016 |
| Software | 962,890 | 1,061,261 | (390,309) | 1,582,843 |
| Trademark | 536,064 | - | - | 536,064 |
| Total | 1,498,954 | 1,061,261 | (390,309) | 2,118,907 |
The increase of item Software is related to software licenses purchased and used internally by the company.
The item Trademark expresses the value of the "Reply" trademark granted to the Parent Company Reply S.p.A. (before Reply Europe Sàrl) on 9 June, 2000, in connection to the Company's share capital increase that was resolved and undersigned by the Parent Company Alister Holding SA. Such amount is not subject to systematic amortization, and the expected future cash flows are deemed adequate.
The item Equity investments at 31 December 2016 amounted to 149,356,195 Euros, with an increase of 15,760,465 Euros compared to 31 December 2015.
| (Euros) | Balance at 31/12/2015 |
Acquisitions and subscriptions |
Disposal. | Write downs | Other | Balance at 31/12/2016 |
0.00% |
|---|---|---|---|---|---|---|---|
| logistics Reply S.r.l. | 1,049,168 | 1,049 | 100.0 % | ||||
| Air Reply S.r.l. | 378,500 | 180,000 | 559 | 85.0 % | |||
| Aktive Reply S.r.l. | 512,697 | 513 | 100.0 % | ||||
| Arlanis Reply S.r.l. | 588,001 | 588 | 100.0 % | ||||
| Arlanis Reply AG | 1,005,000 | (1,005,000) | - | 0.00% | |||
| Atlas Reply S.r.l. | 356,576 | 357 | 100.0 % | ||||
| Avantage Ltd. | 9,483,485 | 9,484 | 100.0 % | ||||
| Bitmama S.r.l. | 217,020 | 4,000,000 | 220,000 | (220,000) | 4,217 | 100.0 % | |
| Blue Reply S.r.l. | 527,893 | 528 | 100.00% | ||||
| Breed Reply Ltd. | 12,477 | 13 | 100.0 % | ||||
| Breed Reply Investment Ltd. | 103 | - | 80.00% | ||||
| Bridge Reply S.r.l. | 6,001 | 6 | 60.00% | ||||
| Business Reply S.r.l. | 268,603 | 269 | 100.00% | ||||
| Cluster Reply S.r.l. | 2,610,033 | (69,184) | 2,541 | 100.0 % | |||
| Cluster Reply Roma S.r.l. | 227,000 | 69,184 | 296 | 100.0 % | |||
| Concept Reply GMBH | 25,000 | 18,000 | (43,000) | - | 0.00% | ||
| Consorzio Reply Public Sector | 32,501 | 33 | 36.70% | ||||
| Consorzio Reply Energy | 1,000 | 1 | 25.00% | ||||
| Data Reply S.r.l. | 140,000 | 177,662 | 318 | 100.00% | |||
| Discovery Reply S.r.l. | 1,311,670 | 1,312 | 100.0 % | ||||
| e*finance Consulting Reply S.r.l. | 3,076,386 | 3,076 | 100.0 % | ||||
| Ekip Reply S.r.l. | 30,000 | 30 | 100.0 % | ||||
| Eos Reply S.r.l. | 155,370 | 155 | 80.70% | ||||
| Forge Reply S.r.l. | 12,000 | 1,020,000 | (1,020,000) | 12 | 100.00% | ||
| Go Reply S.r.l. | 200,000 | 1,720,000 | 1,920 | 100.0 % | |||
| Hermes Reply Polska zoo | 10,217 | 10 | 100.0 % | ||||
| Hermes Reply S.r.l. | 199,500 | 200 | 100.0 % | ||||
| InEssence Reply GmbH | 17,500 | (17,500) | - | 0.00% | |||
| IrisCube Reply S.p.A. | 6,724,953 | 6,725 | 100.0 % | ||||
| Lem Reply S.r.l. | 400,012 | 395,000 | (395,000) | 400 | 100.0 % | ||
| Like Reply S.r.l. | 132,317 | 695,000 | (695,000) | 132 | 100.0 % | ||
| Live Reply GmbH | 52,500 | (52,500) | - | 0.00% | |||
| Open Reply S.r.l. | 1,417,751 | 1,418 | 100.0 % | ||||
| Pay Reply S.r.l. | 10,000 | 10 | 100.00% | ||||
| Portaltech Reply S.r.l. | 104,500 | 210,000 | (210,000) | 105 | 100.0 % | ||
| Portaltech Reply GmbH | 2,017,000 | (2,017,000) | - | 0.00% | |||
| Power Reply S.r.l. | 2,500,850 | 2,500,850 | 100.00% | ||||
| Protocube Reply S.r.l. | - | 287,000 | 280,000 | (280,000) | 287,000 | 55.00% |
| (Euros) | Balance at 31/12/2015 |
Acquisitions and subscriptions |
Disposal. | Write downs | Other | Balance at 31/12/2016 |
0.00% |
|---|---|---|---|---|---|---|---|
| Reply Consulting S.r.l. | 3,518,435 | 3,518,435 | 100.0 % | ||||
| Reply AG | 41,277,722 | 16,558,060 | 57,835,782 | 100.0 % | |||
| Reply do Brasil Sistemas de Informatica Ltd.a |
206,817 | 206,817 | 98.5 % | ||||
| Reply Inc | 40,596 | 40,596 | 100.0 % | ||||
| Reply Ltd. | 11,657,768 | 11,657,768 | 100.0 % | ||||
| Reply Services S.r.l. | 104,132 | 104,132 | 100.0 % | ||||
| Ringmaster s.r.l. | 5,000 | 5,000 | 50.0 % | ||||
| Riverland Reply GmbH | 10,269,990 | (10,269,990) | - | 0.00% | |||
| Santer Reply S.p.A. | 11,386,967 | 11,386,967 | 100.0 % | ||||
| Sensoria Inc. | 3,887,432 | 3,887,432 | 24.00% | ||||
| Spark Reply S.r.l. | 8,500 | 395,000 | 403,500 | 85.00% | |||
| Spike Reply | 392,867 | 392,867 | 100.0 % | ||||
| Square Reply S.r.l. | 100,000 | 100,000 | 100.00% | ||||
| Storm Reply S.r.l. (*) | 986,000 | 986,000 | 95.00% | ||||
| Syskoplan Reply S.r.l. | 949,573 | 949,573 | 100.00% | ||||
| Sytel Reply S.r.l. | 4,991,829 | 4,991,829 | 100.0 % | ||||
| Sytel Reply Roma S.r.l. | 894,931 | 894,931 | 100.0 % | ||||
| Tamtamy Reply S.r.l. | 254,551 | 254,551 | 100.0 % | ||||
| Target Reply S.r.l. | 778,001 | (177,662) | 600,339 | 100.0 % | |||
| Technology Reply Roma | - | 10,000 | 10,000 | 100.0 % | |||
| Technology Reply S.r.l. | 216,659 | 216,659 | 100.0 % | ||||
| Technology Reply S.r.l. (Romania) |
9,919 | 9,919 | 100.0 % | ||||
| Triplesense Reply S.r.l. | 10,000 | 160,000 | (160,000) | 10,000 | 100.00% | ||
| Triplesense Reply GmbH | 5,153,070 | (5,153,070) | - | 0.00% | |||
| Twice Reply S.r.l. | 521,203 | 521,203 | 98.00% | ||||
| Whitehall Reply S.r.l. | 160,213 | 160,213 | 100.00% | ||||
| Xister Reply S.r.l. | - | 11,150,465 | - | - | - | 11,150,465 | 89.20% |
| Total | 133,595,730 | 17,185,465 | 3,555,000 | (2,980,000) | (2,000,000) | 149,356,195 |
(*) For this company an option exists for the acquisition of their minority shares; the exercise of such option in future reporting periods is subject to the achievement of profitability parameters. The accounting of such options reflect management's best estimate at the closing date.
In the month of May 2016 Reply S.p.A. acquired the remaining 49% of the share capital of Bitmama S.r.l.
During the year Reply re-funded the investment.
In the month of March 2016 Reply S.p.A. acquired the 55% of the share capital of Protocube S.r.l., with headquarters in Turin, leader in 3D modelling and engineering.
In November 2016 Technology Reply Roma S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.
In the month of July 2016 Reply S.p.A. acquired 89.2% of the share capital of Xister S.r.l.. The company is a digital agency, leader in consulting and development of solutions and strategies in digital branding.
The amounts are referred to the waiver of financial loan receivables from some subsidiaries in order to increase their equity position.
The amounts recorded reflect losses on some equity investments that are deemed not to be recoverable.
These amounts are related to a company reorganization under which several companies incorporated under German law were transferred to the subsidiary Reply AG.
The list of equity investments in accordance with Consob communication no. 6064293 of 28 July 2006 is included in the attachments.
The negative differences arising between the carrying value of the investments and the corresponding portion of their shareholders' equity are not related to permanent impairment of value, as the carrying value is supported by positive economic and financial forecasts that guarantee the recoverable amount of the investment.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Guarantee deposits | 100,850 | 162,066 | (61,216) |
| Loans to subsidiaries | 67,299,082 | 51,950,078 | 15,349,004 |
| Total | 67,399,932 | 52,112,144 | 15,287,788 |
Guarantee deposits are mainly related to deposits on lease contracts.
Financial receivables from subsidiaries are referred to loans granted to the following companies:
| Company | Amount |
|---|---|
| Air Reply S.r.l. | 20,000 |
| Breed Reply Investments Ltd. | 17,934,119 |
| Breed Reply Ltd. | 1,810,367 |
| Concept Reply GmbH | 900,000 |
| Hermes Reply Polska Sp zo.o | 516,045 |
| InEssence Reply Gmbh | 2,250,000 |
| InEssence Reply Gmbh - Italia | 400,000 |
| Cluster do Brasil (ex Mind Services Informàtica LTD.A) | 1,215,000 |
| Portaltech Reply Ltd. | 500,000 |
| Portaltech Reply Gmbh | 1,250,000 |
| Reply do Brazil Sist. De Inf Ltd.a | 1,561,740 |
| Reply Inc. | 687,169 |
| Reply Ltd. | 37,154,642 |
| Spark Reply S.r.l. | 300,000 |
| Technology Reply Romania | 650,000 |
| Reply France Sarl | 150,000 |
| Total | 67,299,082 |
This item amounted to 3,017,480 Euros at 31 December 2016 (1,234,807 Euros at 31 December 2015), and included the fiscal charge corresponding to the temporary differences on statutory income and taxable income related to deferred deductible items.
| TEMPORARY DEDUCTIBLE DIFFERENCES | Taxable | Tax |
|---|---|---|
| Total deferred tax assets at 31/12/2015 | 4,906,402 | 1,234,807 |
| Accrued | 11,607,399 | 2,785,775 |
| Utilization | (4,002,718) | (1,003,102) |
| Total deferred tax assets at 31/12/2016 | 12,511,082 | 3,017,480 |
| Of which: | ||
| - directors fees and employee bonuses accrued but not yet paid |
3,201,300 | 783,132 |
| - unrealized foreign exchange losses |
5,958,563 | 1,430,055 |
| - taxable amounts greater than book value |
3,351,219 | 804,292 |
| Total | 12,511,082 | 3,017,480 |
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.
There are no deferred tax assets on losses carried forward.
Trade receivables at 31 December 2016 amounted to 304,557,549 Euros and are all collectible within 12 months.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Third party trade receivables | 182,690,437 | 166,995,031 | 15,695,406 |
| Allowance for doubtful accounts | (266,951) | (251,285) | (15,666) |
| Third party trade receivables | 182,423,485 | 166,743,745 | 15,679,740 |
| Receivables from subsidiaries | 122,133,909 | 93,111,017 | 29,022,892 |
| Receivables from Parent Company | 155 | 1,467 | (1,312) |
| Trade receivables from subsidiaries and Parent Company |
122,134,064 | 93,112,484 | 29,021,580 |
| Total trade receivables | 304,557,549 | 259,856,229 | 44,701,320 |
Reply manages business relationships on behalf of some of its major clients. This activity is reflected in the item Third Party Receivables which increased by 15,679,740 Euros.
Receivables from subsidiaries are related to services that the Parent Company Reply S.p.A. carries out in favor of the subsidiary companies at normal market conditions.
Trade receivables are all due within 12 months and do not include significant overdue balances.
In 2016 the provision for doubtful accounts was increased by 15,666 Euros following a specific risk analysis of all the trade receivables.
The Company assigns part of its trade receivables through factoring operations.
The assignments of receivables can be with or without recourse; Some assignments without recourse can include deferred payment clauses (for example, payment by the factor of a minor part of the purchase price is subordinated on the collection of the total amount of the receivables), require a deductible from the assignor, or require maintaining significant exposure to the cash flow trend deriving from the assigned receivables. This type of operation does not comply with the requirements of IAS 39 for the elimination of the assets from the Financial Statements, since the risks and benefits related to their collection have not been substantially transferred.
Consequently, all receivables assigned through factoring operations that do not satisfy the requirements for elimination provided by IAS 39 continue to be recognized in the Company's Financial Statements, even though they have been legally assigned and a financial liability for the same amount is recognized in the consolidated Financial Statements as Liabilities for advance payments on assignments of receivables. Gains and losses related to the assignment of these assets are only recognized when the assets are derecognized from the Company's financial-economic position.
As at 31 December 2016 the assignment of receivables through factoring operations with recourse amounted to 18,028 thousand Euros.
As at 31 December 2016 no assets were assigned without recourse.
The carrying amount of Trade receivables in line with its fair value.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Tax receivables | 3,360,938 | 5,359,875 | (1,998,937) |
| Other receivables from subsidiaries | 12,851,076 | 20,914,569 | (8,063,493) |
| Other receivables | 172,850 | 1,078,809 | (905,959) |
| Accrued income and prepaid expenses | 3,658,017 | 5,805,168 | (2,147,151) |
| Total | 20,042,881 | 33,158,420 | (13,115,539) |
The item Tax receivables includes VAT receivables net (1,697,837 Euros) and IRAP and IRESS tax prepayments (413,051 Euros).
Other receivables from subsidiary companies refer to IRES receivables, calculated on taxable income, and transferred by the Italian subsidiaries under national fiscal consolidation.
Accrued income and prepaid expenses refer to prepaid expenses arising from the execution of services, lease contracts, insurance contracts and other utility expenses, which are accounted for on an accrual basis.
The carrying value of Other receivables and current assets is deemed to be in line with its fair value.
This item amounted to 63,168,559 Euros (58,522,084 Euros at 31 December 2015) and refers to:
This item amounted to 50,108,291 Euros, with a decrease of 5,636,995 Euros compared to 31 December 2015 and is referred to cash at banks and on hand at year-end.
As at 31 December 2016 the fully subscribed paid-in share capital of Reply S.p.A., amounted to 4,863,486 Euros and is made up of no. 9,352,857 ordinary shares having a nominal value of euro 0.52 each.
The value of the Treasury shares, amounting to 24,502 Euros, refers to the shares of Reply S.p.A. that at 31 December 2016 were equal to no. 1.007.
At 31 December 2016 amounted to 79.183.600 Euros, and included the following:
Earning reserves amounted to 116,790,222 Euros and were comprised as follows:
Other comprehensive income can be analyzed as follows:
| (thousand euros) | 31/12/2016 | 31/12/2015 |
|---|---|---|
| Other comprehensive income that will not be reclassified subsequently to profit or loss: |
||
| Actuarial gains/(losses) from employee benefit plans | (14,351) | 17,617 |
| Total Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1): |
(14,351) | 17,617 |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
||
| Gains/(losses) on cash flow hedges | (62,261) | 3,612 |
| Total Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax (B2): |
(62,261) | 3,612 |
| Total Other comprehensive income, net of tax (B) = (B1) + (B2) | (76,612) | 21,229 |
Payables to Minority shareholders and for operations (earn-out) at 31 December 2016 amounted to 2,364,114 Euros (4,468,788 Euros at 31 December 2015) and are detailed as follows:
| (Euros) | 31/12/2015 | Increases | Fair value adjustments |
Other | Payments | 31/12/2016 |
|---|---|---|---|---|---|---|
| Payables to minority shareholders | 2,798,000 | 2,000,000 | - | (2,000,000) | (433,886) | 2,364,114 |
| Payables for Earn-out | 1,670,788 | - | (1,383,627) | - | (287,161) | - |
| Total payables to minority shareholders and earn-out |
4,468,788 | 2,000,000 | (1,383,627) | (2,000,000) | (721,047) | 2,364,114 |
The increase of the item Payables to minority shareholders amounting to 2,000,000 Euros reflects the best estimate in relation to the acquisition of the share capital of Xister S.r.l. in the month of July 2016.
The item Fair value adjustments in 2016 amounted to 1,383,627 Euros with a balancing entry in Profit and loss, and reflects the best estimate in relation to the deferred consideration originally posted at the time of acquisition.
The item Other refers to the transfer of payable to minority shareholders following the Corporate reorganization.
Total payments made amounted to 721,047 Euros and refer to the consideration paid in relation to the original contracts signed at the time of acquisition.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|---|
| Current | Non current |
Total | Current | Non current | Total | |
| Bank overdrafts | 14,746,924 | - | 14,746,924 | 35,188,412 | 35,188,412 | |
| Bank loans | 18,767,199 | 29,338,628 | 48,105,827 | 10,552,913 | 32,605,828 | 43,158,741 |
| Transaction accounts | 64,428,008 | - | 64,428,008 | 41,140,870 | - | 41,140,870 |
| Other | 10,637 | - | 10,637 | (78,233) | - | (78,233) |
| Total financial liabilities | 97,952,769 | 29,338,628 | 127,291,397 | 86,803,962 | 32,605,828 | 119,409,790 |
The future out payments of the financial liabilities are detailed as follows:
| (in euro) | 31/12/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|---|
| Due in 12 months |
From 1 to 5 years |
Total | Due in 12 months |
From 1 to 5 years |
Total | |
| Bank overdrafts | 14,746,924 | - | 14,746,924 | 35,188,412 | 35,188,412 | |
| Bank loans | 18,767,199 | 29,338,628 | 48,105,827 | 10,552,913 | 32,605,828 | 43,158,741 |
| Transaction accounts | 64,428,008 | - | 64,428,008 | 41,140,870 | - | 41,140,870 |
| Other | 10,637 | - | 10,637 | (78,233) | - | (78,233) |
| Total financial liabilities | 97,952,769 | 29,338,628 | 127,291,397 | 86,803,962 | 32,605,828 | 119,409,790 |
M&A loans refers 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.
Following and summarized by main features the ongoing contracts entered into for such a purpose:
Summarized below are the existing contracts entered into for such a purpose:
o Tranche B, amounting to 20,000,000 Euros, to be used by 30 September 2016.The loan will be reimbursed on a half-year basis to commence on 31 March 2017. Such credit line was entirely used at 31 December 2016 and the residual loan amounted to 20,000 thousands Euros.
On 8 April 2015 Reply S.p.A. entered into a line of credit with Unicredit S.p.A. for a total amount of 10,000,000 Euros entirely used for the reimbursement of the credit line dated 19 September 2012. The loan is reimbursed on a half-year basis deferred to commence on 31 October 2016. The residual loan amounted to 7,500 thousand Euros at 31 December 2016.
As contractually defined, such ratios are as follows:
At the balance sheet date, Reply fulfilled the Covenants under the various contracts.
The item Other refers to the valuation of derivative hedging instruments. The underlying IRS amounted to 23,143 thousand Euros.
The carrying amount of Financial liabilities is deemed to be in line with its fair value.
In compliance with Consob regulation issued on 28 July 2006 and in accordance with CESR's "Recommendations for the consistent implementation of the European's regulation on Prospectuses" issued on 10 February 2005 the Net financial position at 31 December 2016 was as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Cash and cash equivalents | 50,108,291 | 55,745,286 | (5,636,995) |
| Transaction accounts, asset | 62,430,218 | 57,778,523 | 4,651,695 |
| Receivables from factor | - | 743,560 | (743,560) |
| Loans to third parties | 738,341 | - | 738,341 |
| Total current financial assets | 113,276,850 | 114,267,370 | (990,520) |
| Other financial assets | - | 162,066 | (162,066) |
| Loans to subsidiaries | 67,299,082 | 51,950,078 | 15,349,004 |
| Total non current financial assets | 67,299,082 | 52,112,144 | 15,186,938 |
| Total financial assets | 180,575,933 | 166,379,514 | 14,196,419 |
| Due to banks | (33,524,760) | (45,663,092) | 12,138,332 |
| Transaction accounts | (64,428,008) | (41,140,870) | (23,287,138) |
| Current financial liabilities | (97,952,769) | (86,803,962) | (11,148,807) |
| Due to banks | (29,338,628) | (32,605,828) | 3,267,200 |
| Non current financial liabilities | (29,338,628) | (32,605,828) | 3,267,200 |
| Total financial liabilities | (127,291,397) | (119,409,790) | (7,881,607) |
| Total net financial position | 53,284,536 | 46,969,724 | 6,314,812 |
| of which related parties | 65,320,456 | 68,857,731 | (3,267,275) |
For further details with regards to the above table see Notes 20, 24 and 25 as well as Note 28.
The Employee severance indemnity represents the obligation to employees under Italian law (amended by Law no. 296/06) accrued by employees up to 31 December 2006 which will be paid 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:
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.
The assumptions adopted can be summarized as follows:
| Mortality | RG 48 survival tables of the Italian population |
|---|---|
| Inability | INPS tables divided by age and gender |
| Retirement age | Fulfilment of the minimum requisites provided by the General Mandatory Insurance |
| Advances on Employee severance indemnities |
Annual frequency of advances and employee turnover were assumed from historical data of the company: frequency of advances in 2016: 2.50% frequency of turnover in 2016: 10% |
| Economic and financial assumptions | |
| Annual discount rate | Constant average annual rate equal to 1.50% |
| Annual growth rate of the Employee severance indemnities |
Calculated with reference to the valuation date of primary shares on the stock market in which the company belongs and with reference to the market yield of Federal bonds. The annual discount used for 2016 was 1.31% |
| Annual increase in salaries | The employee severance indemnities (TFR) are revalued on an annual basis equal to 75% of the inflation rate plus a spread of one and a half percentage point. |
| Annual inflation rate | The annual increase of salaries used was calculated in function of the employee qualifications and the Company's market segment, net of inflation, from 1.0% to 1.50% |
In accordance with IAS 19, development of Employment severance indemnities at 31 December 2016 is summarized in the table below:
| 31/12/2015 | 416,302 |
|---|---|
| Actuarial gains/(losses) | 14,351 |
| Interest cost | 6,541 |
| Indemnities paid | (15,615) |
| Transfers | 15,138 |
| 31/12/2016 | 436,717 |
Deferred tax liabilities at 31 December 2016 amounted to 1,121,147 Euros and are referred mainly to the fiscal effects arising from temporary differences between the statutory income and taxable income.
| TEMPORARY TAXABLE DIFFERENCES | Taxable | Tax |
|---|---|---|
| Balance at 31/12/2015 | 4,503,984 | 1,105,248 |
| Accruals | 66,247 | 15,899 |
| Utilization | - | - |
| Total at 31/12/2016 | 4,570,231 | 1,121,147 |
| -deductions allowance for doubtful accounts | 718,805 | 172,513 |
| - different goodwill/trademark measurements | 622,828 | 173,769 |
| - gains on unrecognized differences and other minor differences | 3,162,351 | 774,865 |
| Total at 31/12/2016 | 4,570,231 | 1,121,147 |
Trade payables at 31 December 2016 amounted to 296,231,941 Euros with an increase of 43,889,462 Euros.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Due to suppliers | 14,481,539 | 16,959,933 | (2,478,393) |
| Due to subsidiaries | 185,959,407 | 166,034,822 | 19,924,585 |
| Advance payments from customers - asset | 95,790,995 | 69,347,724 | 26,443,271 |
| Total | 296,231,941 | 252,342,479 | 43,889,462 |
Due to suppliers mainly refers to services from domestic suppliers (13,908,528 Euros).
Due to subsidiary companies recorded a change of 19,924,585 Euros, and refers to professional services in connection to third party agreements with Reply S.p.A. Reply S.p.A. carries out commercial fronting activities for some of its major clients, whereas delivery is carried out by the operational companies.
Advance payments from customers include advances received from customers for contracts subcontracted to subsidiary companies, which at the balance sheet date were not yet completed. The carrying amount of trade payables is deemed to be in line with its fair value.
Detail is as follows:
| (Euros) | 31/12/2016 | 31/12/2015 | Change |
|---|---|---|---|
| Income tax payable | 5,572,864 | 871,779 | 4,701,085 |
| Withholding tax and other | 1,275,175 | 785,709 | 489,466 |
| Total payable to tax authorities | 6,848,039 | 1,657,488 | 5,190,551 |
| INPS (National Italian insurance payable) | 848,457 | 812,927 | 35,530 |
| Other | 306,550 | 274,390 | 32,160 |
| Total social security payable | 1,155,006 | 1,087,316 | 67,690 |
| Employee accruals | 1,592,652 | 1,442,349 | 150,303 |
| Payable to subsidiary companies | 8,973,992 | 3,754,469 | 5,219,524 |
| Miscellaneous payables | 2,962,237 | 3,280,323 | (318,086) |
| Accrued expenses and deferred income | 2,839,083 | 5,279,774 | (2,440,690) |
| Total other payables | 16,367,965 | 13,756,914 | 2,611,050 |
| Total other current liabilities | 24,371,010 | 16,501,719 | 7,869,291 |
Due to tax authorities mainly refers to payables due for withholding tax on employees and free lancers' compensation.
Due to social security authorities is related to both Company and employees contribution payables.
Employee accruals mainly include payables to employees for remunerations due but not yet paid at yearend.
Due to subsidiary companies represents the liability on tax losses recorded by subsidiaries under national tax consolidation for 2016 and for the tax credits that subsidiaries transferred to Reply S.p.A as part of the tax consolidation.
The carrying amount of the item Other current liabilities is deemed to be in line with its fair value.
The item Provisions amounting to 8,021,300 Euros is summarized as follows:
| (Euros) | 31/12/2015 | Accruals | Utilized | Reversals | 31/12/2016 |
|---|---|---|---|---|---|
| Provision for risks | 7,398,000 | 373,300 | (420,000) | (530,000) | 6,821,300 |
| Provision for losses on equity investments | 2,026,000 | 1,200,000 | - | (.2,026,000) | 1,200,000 |
| Total | 9,424,000 | 1,573,300 | (420,000) | (2,556,000) | 8,021,300 |
The item Provision for risks reflects the best estimate of contingent liabilities deriving from ongoing legal litigations, at 31 December 2016 an accrual of 373,300 euros was made.
The item Provision for losses on equity investments has been adjusted following the impairment test on the value of the equity investments.
With reference to CONSOB communications no. DAC/RM 97001574 of 20 February 1997 and no. DAC/RM 98015375 of 27 February 1998 concerning relations with related parties, the economic and financial effects on Reply S.p.A.'s year ended 2015 Financial Statements related to such transactions are summarized below.
Transactions carried out by Reply S.p.A. with related parties are considered ordinary business and are carried out at normal market conditions.
Financial and business transactions among the Parent Company Reply S.p.A. and its subsidiaries and associate companies are carried out at normal market conditions.
| (thousand Euros) | With subsidiary and associate companies |
With related parties |
With subsidiary and associate companies |
With related parties |
Nature of transaction |
|---|---|---|---|---|---|
| Financial transactions Financial receivables |
31/12/2016 67,299 |
- | 31/12/2015 51,950 |
- | Financial loans |
| Guarantee deposits | - | 80 | - | 80 | Guarantee deposits |
| Transaction accounts, net | (1,979) | - | 16,638 | - | Transaction accounts held by the Parent company |
| Trade receivables and other | 135,683 | - | 114,026 | - | Royalties, administration services, marketing, quality management services and office rental |
| Trade payables and other | 195,851 | - | 169,787 | - | Services carried out in relation to contracts signed by the Parent company and subsequently committed to subsidiary companies |
| Other payables | - | 2,300 | - | 2,400 | Compensation paid to Directors and Key Management |
| Economic transactions | 2016 | 2015 | |||
| Revenues from Royalties | 21,692 | 19,541 | Licensing of the "Reply" trademark consisting in a 3% fee on third party revenues |
||
| Revenues from services | 28,288 | - | 26,854 | 7 | Administrations services, marketing, quality management and office rental |
| Revenues from management services | 6,793 | - | 7,129 | - | Strategic management services |
| Costs for professional services | 331,065 | - | 292,140 | - | Services carried out in relation to contracts signed by the Parent company and subsequently committed to subsidiary companies |
| Other services | 1,370 | 420 | 1,214 | 420 | Services related to office rental and office of the secretary |
| Personnel | - | 5,224 | - | 5,276 | Emoluments to Directors and Key Management |
| Interest income, net | 4,562 | - | 3,183 | - | Interest on financial loans: 3 month Euribor + spread of 3 percentage points |
In accordance with Consob Resolution no. 15519 of 27 July 2006 and Consob communication no. DEM/6064293 of 28 July 2006, in the annexed tables herein, the Statement of income and the Statement of financial position reporting transactions with related parties separately, together with the percentage incidence with respect to each account caption has been provided.
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.
Reply S.p.A. has determined the guide lines in managing financial risks. In order to maximize costs and the resources Reply S.p.A. has centralized all of the groups risk management. Reply S.p.A. has the task of gathering all information concerning possible risk situations and define the corresponding hedge.
As described in the section "Risk management", Reply S.p.A. constantly monitors the financial risks to which it is exposed, in order to detect those risks in advance and take the necessary action to mitigate them.
The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the company.
The quantitative data reported in the following do not have any value of a prospective nature, in particular the sensitivity analysis on market risks, is unable to reflect the complexity of the market and its related reaction which may result from every change which may occur.
The maximum credit risk to which the company is theoretically exposed at 31 December 2016 is represented by the carrying amounts stated for financial assets in the balance sheet.
Balances which are objectively uncollectible either in part or for the whole amount are written down on a specific basis if they are individually significant. The amount of the write-down takes into account an estimate of the recoverable cash flows and the date of receipt, the costs of recovery and the fair value of any guarantees received. General provisions are made for receivables which are not written down on a specific basis, determined on the basis of historical experience.
Refer to the note on trade receivables for a quantitate analysis.
Reply S.p.A. is exposed to funding risk if there is difficulty in obtaining finance for operations at any given point in time.
The two main factors that determine the company's liquidity situation are on one side the funds generated by or used in operating and investing activities and on the other the debt lending period and its renewal features or the liquidity of the funds employed and market terms and conditions.
As described in the Risk management section, Reply S.p.A has adopted a series of policies and procedures whose purpose is to optimize the management of funds and to reduce the liquidity risk, as follows:
Management believes that the funds and credit lines currently available, in addition to those funds that will be generated from operating and funding activities, will enable the Group to satisfy its requirements resulting from its investing activities and its working capital needs and to fulfil its obligations to repay its debts at their natural due date.
Reply S.p.A. has a limited exposure to exchange rate risk; therefore the company does not deem necessary hedging exchange rates.
Reply S.p.A. makes use of external funds obtained in the form of financing and invest in monetary and financial market instruments. Changes in market interest rates can affect the cost of the various forms of financing, including the sale of receivables, or the return on investments, and the employment of funds, causing an impact on the level of net financial expenses incurred by the company.
In order to manage these risks, the Reply S.p.A uses interest rate derivative financial instruments, mainly interest rate swaps, with the object of mitigating, under economically acceptable conditions, the potential variability of interest rates on the net result.
In assessing the potential impact of changes in interest rates, the company separates fixed rate financial instruments (for which the impact is assessed in terms of fair value) from floating rate financial instruments (for which the impact is assessed in terms of cash flows).
Floating rate financial instruments include principally cash and cash equivalents and part of debt.
A hypothetical, unfavorable and instantaneous change of 50 basis points in short-term interest rates at 31 December 2016 applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivatives financial instruments, would have caused increased net expenses before taxes, on an annual basis, of approximately 643 thousand Euros.
This analysis is based on the assumption that there is a general and instantaneous change of 50 basis points in interest rates across homogeneous categories. A homogeneous category is defined on the basis of the currency in which the financial assets and liabilities are denominated.
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:
The following table presents the assets and liabilities which were assessed at fair value on 31 December 2016, according to the fair value hierarchical assessment level.
| (thousands Euros) | Note | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Financial securities | - | - | - | |
| Total Assets | - | - | - | |
| Derivative financial liabilities (IRS) | 28 | - | 62 | |
| Liabilities to minority shareholders and earn out | 27 | - | - | 2,364 |
| Total Liabilities | - | 62 | 2,364 |
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 IFRS7 the fair value used by the Company for the exploitation of hedging derivatives contracts in existence at the end of the financial year re-enters 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 31 December 2016, there have not been any transfers within the hierarchy levels.
Pursuant to Consob communication no. 6064293 of 28 July 2006, there were no significant non-recurring transaction during 2016.
Pursuant to Consob communication no. 6064293 of 28 July 2006, in 2016 Reply S.p.A. has not taken part in any unusual and/or abnormal operations as defined in that Communication, under which unusual and abnormal transactions are those which because of their significance or importance, the nature of the parties involved, the object of the transaction, the means of determining the transfer price or of the timing of the event (close of the year end) may give rise to doubts regarding the accuracy/completeness of the information in the Financial Statements, conflicts of interest, the safeguarding of the entity's assets or the protection of minority interests.
Guarantees and commitments where existing, have been disclosed at the item to which they refer.
It is reported that:
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. All shareholders of Reply Deutschland will have the right to benefit from a possible increase in the exchange ratio determined by the Judge or on the basis of an agreement between the parties, and that is to say independently of their participation in the evaluation procedure.
On the contrary, from the possible increase of the corresponding amount in cash determined by the Judge or on the basis of an agreement between the parties only the shareholders who verbally annotated their disagreement in the general meeting in respect of conditions of the law can benefit.
In the case where evaluation procedures include a modification of the exchange ratio, every single difference shall be regulated in cash.
At present, some minority shareholders have commenced the aforementioned procedures.
With specific reference to the request to obtain the corresponding amount in cash, the time limit for exerting such an authority shall expire starting from the shortest time limit between the day following it expiring from the two months subsequent to the final ruling of the qualified court or the publication of a binding agreement between the parties. During the said period, the former Reply Deutschland shareholders can freely decide on whether to obtain the corresponding amount in cash or whether to remain shareholders of Reply.
As an international company, Reply 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 Company 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 Company recognizes specific provision for this purpose.
The fees of the Directors and Statutory Auditors of Reply S.p.A. for carrying out their respective functions, including those in other consolidated companies, are fully explained in the Annual Report on Remuneration annexed herein.
No significant events have occurred subsequent to 31 December 2016.
The financial statements for the year-ended 31 December 2016 were approved by the Board of Directors on March 15, 2017 which approved their publication.
Annexed Tables
| Euros | 2016 | Of which with related parties |
% | 2015 | Of which with related parties |
% |
|---|---|---|---|---|---|---|
| Revenue | 367,952,177 | 51,395,823 | 14.0% | 326,911,581 | 43,399,565 | 15.1% |
| Other income | 7,999,405 | 6,091,535 | 76.1% | 6,120,821 | 4,871,450 | 79.6% |
| Purchases | (16,293,478) | (15,694,310) | 96.3% | (8,741,850) | (8,158,512) | 93.3% |
| Personnel | (20,176,553) | (5,224,000) | 25.9% | (17,994,188) | (5,276,000) | 29.3% |
| Services and other costs | (338,791,654) | (322,573,699) | 95.2% | (304,748,471) | (289,788,209) | 95.1% |
| Amortization and depreciation | (731,885) | (471,681) | ||||
| Non recurring income/(expenses) | 1,780,821 | (3,750,000) | ||||
| Operating income (EBIT) | 1,738,834 | (2,673,788) | ||||
| Gain/(loss) on equity investments | 18,000,006 | 37,937,457 | ||||
| Financial income/(loss) | (2,900,297) | 4,562,480 | (157.3%) | 3,407,322 | 3,183,172 | 93.4% |
| Income before taxes | 16,838,543 | 38,670,992 | ||||
| Income taxes | 424,935 | (1,756,577) | ||||
| Net income | 17,263,478 | 36,914,414 | ||||
| Earnings per share | 1.85 | 3.95 | ||||
| Diluted earnings per share | 1.85 | 3.95 |
Statement of financial position pursuant to Consob Resolution no. 15519 of 27 July 2006
| (Euros) | 31/12/2016 | of which with related parties |
% | 31/12/2015 | of which with related parties |
% |
|---|---|---|---|---|---|---|
| Tangible assets | 722,796 | 764,619 | ||||
| Goodwill | 86,765 | 86,765 | ||||
| Other intangible assets | 2,118,907 | 1,498,954 | ||||
| Equity investments | 149,356,195 | 133,595,730 | ||||
| Other financial assets | 67,399,932 | 67,299,082 | 99.9% | 52,112,144 | 51,950,078 | 99.7% |
| Deferred tax assets | 3,017,480 | 1,234,807 | ||||
| Non-current assets | 222,702,075 | 189,293,019 | ||||
| Trade receivables | 304,557,549 | 122,134,064 | 40.1% | 259,856,229 | 92,942,484 | 35.8% |
| Other receivables and current assets | 20,042,881 | 13,548,794 | 67.6% | 33,158,420 | 20,914,569 | 63.1% |
| Financial assets | 63,168,559 | 62,430,218 | 98.8% | 58,522,084 | 57,778,523 | 98.7% |
| Cash and cash equivalents | 50,108,291 | 55,745,286 | ||||
| Current assets | 438,877,280 | 407,282,018 | ||||
| TOTAL ASSETS | 660,579,355 | 596,575,038 | ||||
| Share Capital | 4,863,486 | 4,863,486 | ||||
| Other reserves | 178,614,766 | 151,128,813 | ||||
| Net income | 17,263,478 | 36,914,414 | ||||
| SHAREHOLDERS' EQUITY | 200,741,730 | 192,906,713 | ||||
| Due to minority shareholders | 2,364,114 | 4,468,788 | ||||
| Financial liabilities | 29,338,628 | 32,605,828 | ||||
| Employee benefits | 436,717 | 416,302 | ||||
| Deferred tax liabilities | 1,121,147 | 1,105,248 | ||||
| Provisions | 6,821,300 | 7,398,000 | ||||
| Non-current liabilities | 40,081,906 | 45,994,165 | ||||
| Financial liabilities | 97,952,769 | 64,428,008 | 65.8% | 86,803,962 | 41,140,870 | 47.4% |
| Trade payables | 296,231,941 | 185,959,406 | 62.8% | 252,342,479 | 166,034,822 | 65.8% |
| Other current liabilities | 24,371,010 | 9,537,061 | 39.1% | 16,501,719 | 3,857,513 | 23.4% |
| Provisions | 1,200,000 | 2,026,000 | ||||
| Current liabilities | 419,755,719 | 357,674,160 | ||||
| TOTAL LIABILITIES | 459,837,625 | 403,668,324 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
660,579,355 | 596,575,038 |
Equity investments in subsidiaries with additional information required by Consob (communication no. 6064293 of 28 July 2006)
| Company | Registered office | Currency | Share capital | Total shareholders' equity |
Net result | Interest | Carrying value at 31/12/2016 |
|---|---|---|---|---|---|---|---|
| logistics Reply S.r.l. | Turin | € | 78,000 | 2,732,078 | 1,963,829 | 100.00% | 1,049,168 |
| Air Reply S.r.l. | Turin | € | 10,000 | 14,602 | (181,240) | 85.00% | 558,500 |
| Arlanis Reply S.r.l. | Turin | € | 10,000 | 1,037,049 | 761,514 | 100.00% | 512,697 |
| Aktive Reply S.r.l. | Turin | € | 10,000 | 3,325,413 | 1,734,105 | 100.00% | 588,001 |
| Atlas Reply S.r.l. | Turin | € | 10,000 | 870,569 | 133,849 | 100.00% | 356,576 |
| Avantage Reply Ltd. | London | GBP | 5,086 | 2,971,539 | (40,397) | 100.00% | 9,483,485 |
| Bitmama S.r.l. | Turin | € | 29,407 | 42,828 | (479,220) | 100.00% | 4,217,020 |
| Blue Reply S.r.l. | Turin | € | 10,000 | 11,435,553 | 7,078,683 | 100.00% | 527,893 |
| Breed Reply Ltd. | London | GBP | 10,000 | (1,880,891) | (389,775) | 100.00% | 12,477 |
| Breed Reply Investments Ltd. | London | GBP | 100 | (1,963,231) | (1,811,343) | 80.00% | 103 |
| Bridge Reply S.r.l. | Turin | € | 10,000 | 268,780 | 241,795 | 60.00% | 6,001 |
| Business Reply S.r.l. | Turin | € | 78,000 | 3,129,063 | 1,987,449 | 100.00% | 268,603 |
| Cluster Reply S.r.l. | Turin | € | 139,116 | 13,449,382 | 8,319,181 | 100.00% | 2,540,849 |
| Cluster Roma Reply S.r.l. | Turin | € | 10,000 | 1,052,204 | 819,822 | 100.00% | 296,184 |
| Consorzio Reply Public Sector | Turin | € | 88,500 | 20,320 | - | 36.72% | 32,501 |
| Consorzio Reply Energy | Turin | € | 4,000 | 4,000 | - | 25.00% | 1,000 |
| Data Reply S.r.l | Turin | € | 10,000 | 410,018 | 178,667 | 100.00% | 317,662 |
| Discovery Reply S.r.l. | Turin | € | 10,000 | 1,168,867 | 772,853 | 100.00% | 1,311,670 |
| e*finance Consulting Reply S.r.l. | Turin | € | 34,000 | 4,710,363 | 2,874,263 | 100.00% | 3,076,386 |
| Ekip Reply S.r.l. | Turin | € | 10,400 | 92,082 | 55,249 | 100.00% | 30,000 |
| Eos Reply S.r.l. | Turin | € | 14,000 | 1,012,466 | 398,753 | 80.71% | 155,370 |
| Forge Reply S.r.l. | Turin | - | 10,000 | 13,661 | (1,021,993) | 100.00% | 12,000 |
| Go Reply S.r.l. | Turin | € | 50,000 | 2,032,124 | 557,654 | 100.00% | 1,920,000 |
| Hermes Reply Polska zo.o | Katowice | ZLT | 40,000 | 5,622,930 | 2,232,198 | 100.00% | 10,217 |
| Hermes Reply S.r.l. | Turin | € | 10,000 | 3,325,787 | 1,371,728 | 100.00% | 199,500 |
| IrisCube Reply S.p.A. | Turin | € | 651,735 | 7,264,169 | 4,688,908 | 100.00% | 6,724,953 |
| Lem Reply S.r.l. | Turin | € | 47,370 | 54,555 | (393,222) | 100.00% | 400,012 |
| Like Reply S.r.l. | Turin | € | 10,000 | 12,219 | (698,146) | 100.00% | 132,317 |
| Open Reply S.r.l. | Turin | € | 10,000 | 9,088,282 | 2,459,689 | 100.00% | 1,417,751 |
| Pay Reply S.r.l. | Turin | € | 10,000 | 2,373,589 | 1,744,784 | 100.00% | 10,000 |
| Portaltech Reply S.r.l. | Turin | € | 10,000 | 13,377 | (212,730) | 100.00% | 104,500 |
| Power Reply S.r.l. | Turin | € | 10,000 | 6,092,565 | 1,685,494 | 100.00% | 2,500,850 |
| Protocube Reply S.r.l. | Turin | € | 10,200 | 17,440 | (217,734) | 55.00% | 287,000 |
| Reply Consulting S.r.l. | Turin | € | 10,000 | 2,624,084 | 1,082,790 | 100.00% | 3,518,435 |
| Company | Registered office | Currency | Share capital | Total shareholders'' equity |
Net result | Interest | Carrying value at 31/12/2016 |
|---|---|---|---|---|---|---|---|
| Reply AG | Gutersloh | € | 100,200 | 47,809,813 | (2,937,188) | 100.00% | 57,835,782 |
| Reply Services S.r.l. | Turin | € | 10,000 | 93,594 | (135,143) | 100.0 % | 104,132 |
| Reply Inc. | Michigan | \$ | 50,000 | (1,207,994) | (1,661,435) | 100.00% | 40,596 |
| Reply Ltd. | London | GBP | 54,175 | 8,654,923 | 6,458,629 | 100.00% | 11,657,768 |
| Reply do Brasil Sistemas de Informatica Ltd.a |
Belo Horizonte | R\$ | 650,000 | 5,747,885 | 1,258,097 | 98.50% | 206,817 |
| Ringmaster S.r.l. | Turin | € | 10,000 | 1,540,978 | 1,450,222 | 50.00% | 5,000 |
| Santer Reply S.p.A. | Milan | € | 2,209,500 | 12,421,230 | (93,404) | 100.0 % | 11,386,967 |
| Security Reply S.r.l. | Turin | € | 50,000 | 4,778,552 | 3,728,649 | 100.00% | 392,867 |
| Sensoria Inc. | Washington | \$ | - | - | - | 24.00% | 3,887,432 |
| Square Reply S.r.l. | Turin | € | 10,000 | 464,945 | 340,306 | 100.00% | 100,000 |
| Spark Reply S.r.l. | Turin | € | 10,000 | 14,365 | (390,635) | 85.00% | 403,500 |
| Storm Reply S.r.l. | Turin | € | 10,000 | 3,137,914 | 1,530,666 | 80.00% | 986,000 |
| Syskoplan Reply S.r.l. | Turin | € | 32,942 | 688,008 | 178,139 | 100.00% | 949,573 |
| Sytel Reply S.r.l. | Turin | € | 115,046 | 12,428,347 | 7,205,897 | 100.00% | 4,991,829 |
| Sytel Reply Roma S.r.l. | Turin | € | 10,000 | 8,809,818 | 3,848,648 | 100.0 % | 894,931 |
| Tamtamy Reply S.r.l. | Turin | € | 10,000 | 421,474 | 405,819 | 100.0 % | 254,551 |
| Target Reply S.r.l. | Turin | € | 10,000 | 4,288,661 | 2,618,105 | 100.0 % | 600,339 |
| Technology Reply Roma S.r.l. | Turin | € | - | - | - | 100.0 % | 10,000 |
| Technology Reply S.r.l. | Turin | € | 79,743 | 9,498,131 | 5,898,599 | 100.0 % | 216,659 |
| Technology Reply S.r.l. (Romania) | Romania | RON | 44,000 | (1,083,780) | 244,301 | 100.00% | 9,919 |
| Triplesense Reply S.r.l. | Turin | € | 10,000 | 15,218 | (154,782) | 100.00% | 10,000 |
| Triplesense Reply GmbH | Frankfurt | € | 51,000 | 1,101,789 | 33,712 | 100.0% | 5,153,070 |
| Twice Reply S.r.l. | Turin | € | 10,000 | 3,847,636 | (2,946) | 98.0% | 521,202 |
| Whitehall Reply S.r.l. | Turin | € | 21,224 | 1,714,326 | 1,604,825 | 100.0% | 160,211 |
| Xister Reply S.r.l. | Rome | € | 10,000 | 2,135,959, | 706,072 | 89.20% | 11,150,465 |
| Summary of the amounts used in the prior three fiscal years. |
|||||
|---|---|---|---|---|---|
| Possibility of | For coverage of | ||||
| Nature/description | Amount | utilization | Available | losses | other |
| Capital | 4,863,486 | ||||
| Capital reserve | |||||
| Reserve for treasury shares | 24,502 | ||||
| Share premium | 23,302,692 | A,B,C | 23,302,692 | ||
| Reserve for treasury shares | 29,990,873 | A,B,C | 29,990,873 | ||
| Income reserves | |||||
| Legal reserve | 972,697 | B | |||
| Extraordinary reserve | 95,731,345 | A,B,C | 95,731,345 | ||
| Surplus merger reserve | 6,347,964 | A,B,C | 6,347,964 | ||
| Retained earnings | 674,740 | A,B,C | 674,740 | ||
| Reserve for purchases of treasury shares |
19,984,625 | A,B,C | 19,984,625 | ||
| Total | 176,032,238 | ||||
| Not available amount | - | ||||
| Residual available amount | 176,032,238 |
| Reserves from transition to IAS/IFRS | ||
|---|---|---|
| FTA Reserve | 303,393 | |
| Retained earnings | 2,147,961 | |
| Reserve for cash flow hedge | (62,261) | |
| IAS reserve | (24,502) | |
| Reserve for treasury shares | (8,815) | |
| Accounting expenses according to IAS 32 |
(770,448) | |
| 1,585,328 |
Legend
A: for share capital increase
B: for coverage of losses
C: distribution to shareholders
The following table, prepared in accordance with Art. 149-duodecies of the Regolamento Emittenti issued by Consob, reports the amount of fees charged in 2016 for the audit and audit related services provided by the Audit Firm and by entities that are part of the Audit Firm network. There were no services provided by entities belonging to its network.
| (Euros) | Service provider | 2016 Fees |
|---|---|---|
| Audit | EY S.p.A. | 35,884 |
| Audit related services | EY S.p.A. (1) | 1,800 |
| Total | 37,684 |
(1) Attestation of tax forms (tax return, IRAP and Form 770)
The undersigned, Mario Rizzante, in his capacity as Chairman and Chief Executive Officer, and Giuseppe Veneziano, Director responsible for drawing up Reply S.p.A.'s financial statements, hereby attest, pursuant to the provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998:
of the administration and accounting procedures applied in the preparation of the financial statements for the year ended 2016.
The assessment of the adequacy of administrative and accounting procedures used for the preparation of the statutory financial statements at 31 December 2016 was carried out on the basis of regulations and methodologies defined by Reply prevalently coherent with the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organisations of the Treadway Commission, an internationally-accepted reference framework.
The undersigned also certify that:
3.1 the Financial Statements
3.2 the report on operations includes a reliable operating and financial review of the Company and of the Group as well as a description of the main risks and uncertainties to which they are exposed.
Turin, 15 March 2017 /s/ Mario Rizzante /s/ Giuseppe Veneziano Mario Rizzante Giuseppe Veneziano
Chairman and Chief Executive Officer Director in charge of signing the financial statements
Statutory Auditors' Report
pursuant to Article 153 of Legislative Decree No. 58/1998, as well as in compliance with outstanding laws and regulations, the Board of Statutory Auditors is reporting to the Shareholders' meeting on the supervisory activity performed, and any omissions or censurable acts that emerged and can make proposals with respect to the approval of the Financial Statements.
During the course of the financial year ended 31 December 2016, we complied with the duties set forth in Article 149 of Legislative Decree No. 58/1998 and we are providing the following information with reference to the recommendations contained in the Consob communications issued up to the present day concerning the Regulations for Issuers:
We obtained timely and adequate information from the Directors with respect to the most significant operations from an economic, financial and earnings standpoint carried out by the Company and/or by its subsidiaries in 2016 or subsequent to the end of the financial year, among which we note:
English company Lynx Recruitment Ltd.;
During 2016 Reply S.p.A. also signed two loans / lines of credit with the following banks and for the following amounts:
In the month of February 2017 Reply S.p.A. has also taken steps to reduce to Euro 1,500,000 the credit line originally signed in 2015 with Unicredit S.p.A. for an amount of € 25 million.
On the basis of meetings held with the Directors and with representatives of the Independent Auditing firm, it did not appear that any atypical or unusual transactions occurred during the financial year, nor following the year ended.
With reference to intra-group transactions, we advise that:
Reply S.p.A. obtained professional services from Group companies related to revenues connected to contracts undersigned with major clients;
Reply S.p.A. gave bank guarantees, payable on first request, to subsidiaries;
Reply S.p.A. granted the following subsidiaries loans without restrictions on use, aimed at supporting their activity:
Air Reply S.r.l., Cluster Reply Roma S.r.l. (formerly Solidsoft S.r.l.), Spark Reply S.r.l. and Storm noninterest bearing loan;
Arlanis AG, Breed Investments Ltd, Breed Reply Ltd, Reply Ltd., Concept Reply GmbH, Hermes Reply Polska Sp Zoo, InEssence Reply Gmbh, InEssence Reply Gmbh Italian Branch, Cluster do Brazil Ltda (ex Mind Services Informatica Ltda), Portaltech Reply Ltd, Portaltech Reply GmbH, Reply do Brazil Sistemas de Informatica Ltda, Reply Inc., Reply Ltd, Technology Reply S.r.l. (Romania), Triplesense Reply GmbH and Reply France Sarl– interest bearing loans;
Reply S.p.A. provided subsidiaries with management, administrative, commercial and marketing services, the lease of premises, as well as services to manage the corporate internet network, electronic mail and web;
.
Reply S.p.A. centrally managed the Group's treasury by means of correspondence bank accounts held by the individual subsidiaries;
Reply S.p.A. granted Group companies the use of the "REPLY" trademark that it owns;
Transactions with related parties in 2016, which took place in accordance with market conditions, are related to Emoluments to Directors and Key Management and to "office services, in particular to the office situated in Corso Francia, 110 Turin, provided by Alika S.r.l., Reply S.p.A.'s direct parent company. For these operations the Procedure for Related party transactions was not applied as these transactions are exempt as defined by art. 4.1 and 4.4. of the Procedure.
Such situation also exist as at the date of this report.
The information provided by the Directors in the Report on Operations accompanying the Financial Statements as at 31 December 2016 and in the Notes to the Consolidated Financial Statements of the Reply Group and to the Financial Statements as at 31 December 2016 regarding the most significant transactions from an economic, financial and earnings standpoint, as well as transactions with subsidiaries, associated companies and related parties, are adequate.
The Report does not reveal that any atypical and/or unusual transactions occurred during the year or after it ended.
EY S.p.A., the company entrusted with the audit of the Financial Statements and Consolidated Financial Statements as at 31 December 2016, issued its Report on today's date, in which it confirms:
No complaints have been acknowledged pursuant to Article 2408 of the Italian Civil Code in 2014 and at present.
The Company's Directors did not advise us of any complaints filed against the Company in the financial year, nor subsequent to the date it ended.
During 2016, in addition to the appointment to audit the Financial Statements as at 31 December 2016, EY S.p.A. received the following appointments:
The consideration for such appointment was 18 thousand Euros.
In 2016 Reply S.p.A. assigned to Ernst & Young LLP services to perform a Due Diligence on a target acquisition company incorporated under American law in the United States.
The consideration for such assignment was 144 thousand Euros.
Furthermore, in 2016 Ernst & Young GmbH was assigned in providing a fair opinion in relation to the transfer of several equity investments held by Reply S.p.A. in favor of Reply AG.
During the financial year the opinions requested by the Board of Statutory Auditors were issued as provided by law.
During the financial year, the Board of Directors met 4 times, and the Board of Statutory Auditors 8 times. The Internal Control and Risk Management Committee 4 times, whereas the Remuneration Committee met
once, and the Committee for Related Party Transactions did not meet.
The Board of Statutory Auditors attended the meetings of the Board of Directors, and through its Chairman, those of the Internal Control and Risk Management Committee and the Remuneration Committee.
The instructions given by Reply S.p.A. to subsidiaries, pursuant to the second paragraph of Article 114 of Legislative Decree 58/1998 appear to be adequate; similarly, the subsidiaries provided the Parent Company with the necessary information for its timely knowledge of the business situation.
We advise you that in order to guarantee the timely communication of the information requested, Mr. Daniele Angelucci, Executive Director and Finance and Control Manager of Reply S.p.A., also acted as advisor within all of the administrative bodies of the Italian subsidiaries, with the exclusion of the company Ringmaster S.r.l., as well as Director in numerous foreign subsidiaries and is also a member of the Supervisory Board of Reply AG.
We further advise you that the Chairman of Reply S.p.A.'s Board of Directors, Mr. Mario Rizzante, is the Director of the English subsidiaries Reply Ltd., Portaltech Reply Ltd., Avantage Reply Ltd, Breed Reply Ltd, Breed Reply Investments Ltd. and is also a member of the Supervisory Board of Reply AG. Tatiana Rizzante, Chief Executive Officer is Director of the English subsidiaries Avantage Reply Ltd and Reply Ltd and is the Managing Director of the German subsidiaries, InEssence Reply GmbH, Portaltech Reply GmbH and Reply AG. Filippo Rizzante, Executive Director holds office as Vice President of Ringmaster S.r.l.
During the meetings held with representatives of the Independent Auditors, no significant issues emerged that are worthy of mention.
Commencing from 2000, the Company adheres to the Corporate Governance Code promoted by Borsa Italiana S.p.A., and revised in July 2015.
On 15 March 2017 the Board of Directors approved the annual Report on Corporate Governance and Ownership Structure prepared pursuant to Article 123 bis of Legislative Decree 58/1998.
The Board's supervisory activity was carried out through:
Participation at the meetings of the Company's governing bodies;
Acquiring information during periodic meetings with the Independent Auditor concerning both the activity it performed as well as any risks related to its independence;
Acquiring information during meetings with members of the Board of Statutory Auditors of the subsidiaries to exchange information on the Group's activities and coordinate control and supervisory activities;
Gathering additional information during meetings with the Chairman of the Company, the Director responsible for drawing up the Company's Financial Statements, the Person in charge of internal control and the Supervisory Body;
Participation at the meetings of the Internal Control and Risk Management Committee and the Remuneration Committee;
The analysis of any new provisions of law or Consob communications of interest to the Company.
The Board confirmed that the organizational requirements were met to comply with the relevant Company by-laws, laws and regulations, in the constant evolution and search for improvement. In particular, we advise the Shareholders that:
On the basis of the principles mentioned and the information acquired during the audits and participation at meetings with the persons responsible for administration and the internal control, we reached the following conclusions:
The Board of Statutory Auditors, having participated at the meetings of the Board of Directors, on the basis of the information obtained at such time, acknowledges that it has verified, with the exclusion of control of the merits of the opportunity and economic convenience of the choices made by such body, that the transactions performed and being carried out by the Company are based on principles of proper administration, conform to law and the By-laws, do not conflict with the resolutions of the Shareholders' meetings or compromise the integrity of the Company's assets.
Within the scope of the responsibilities bestowed on us by the rules set forth in Legislative Decree 58/1998 and in compliance with the Governance Rules of the Board of Statutory Auditors, we met periodically with the Directors of the Independent Auditor and the organizational department, to gather the necessary information.
This allowed the Board of Statutory Auditors to thoroughly supervise the Company's organizational structure and to arrive at a judgment of overall adequacy with respect to its size.
Within the Board of Directors there is a Committee for Internal Control and Risk Management, a Remuneration and Nominating Committee, and a Committee for Transactions with Related Parties, whose activities are carried out according to a program in line with the needs of the Company.
The participation of the Director in charge of the Internal Control, as well as our participation at the meetings of the Internal Control and Risk Management Committee, allowed us to coordinate our functions as the Internal Control and Audit Committee, assumed pursuant to Article 19 of Legislative Decree 39/2010, with the activities of the Internal Control and Risk Management Committee, and, in particular, to carry out the supervisory activities provided by Article 19 of Legislative Decree No. 39/2010.
On the basis of our analysis and the audits conducted, the overall system appears to be substantially fair and reliable.
We received from EY S.p.A. the notice issued pursuant to Article 17(9)a) of Legislative Decree 39/2010, as well as the report set forth in Article 19(3) of Legislative Decree No. 39/2010 which states that no fundamental issues emerged during the audit, nor significant gaps in the Internal Control System in relation to the financial reporting process.
On the basis of our analysis and the audits conducted, the overall system appears to be substantially fair and reliable.
Our assessment of the administrative-accounting procedures is positive, and they also appear to be imposed on the companies belonging to the Group.
We therefore deem that the administrative-accounting system is suitable to represent and monitor management, the presentation of the data for the reporting period, the identification, prevention and management of financial and operational risks, and any fraud that could damage the Company.
The Chairman and the Director in charge of drawing up the Company's Financial Statements have issued, pursuant to Article 81-ter of Consob Regulation No. 11971/1999 and subsequent modifications and supplements, the attestation required by Article 154-bis(5) of TUF (Legislative Decree 58/1998).
In relation both to the provision of the second paragraph of Article 153 of Legislative Decree 58/1998 and the general supervisory obligation pursuant to Article 149(1) of such Decree, as well as the agenda of the Shareholders' meeting which includes discussion of the Financial Statements for the reporting period, the Board of Statutory Auditors states that it has supervised compliance with the procedural rules and law with respect to their preparation.
We note that the Financial Statements as at 31 December 2016 were prepared in compliance with European Regulation No. 1606/2002 of 19 July 2002, in compliance with International Financial Reporting Standards (IAS/IFRS).
On the basis of the controls made directly and the information exchanged with the Independent Auditor, and also in view of the latter's report pursuant to Article 14 of Legislative Decree 39/2010 which expresses a judgment without reservations, the Board of Statutory Auditors has no comments or proposals with respect to the Financial Statements or Report on Operations and the proposals set forth therein, which it consequently considers, to the extent of its specific expertise, should meet your approval.
Similarly, with specific reference to the provision of the second paragraph of Article 153 of Legislative Decree 58/1998, the Board does not have any proposals to make with respect to the other matters within its scope of expertise.
With reference to the point on the agenda concerning the purchase and disposal of treasury shares, recalling disclosures made by the Directors, the Board states that the resolution proposed is in accordance with articles 2357, 2357-ter of the Italian Civil Code, in accordance with Article 132 of Legislative Decree 58/1998, as well as those of Art. 144-bis of Consob's Issuers Regulation no. 11971 of 14 May 1999.
Turin, 30 March, 2017
The Statutory Auditors (Prof. Cristiano Antonelli) (Dott.ssa Ada Alessandra Garzino Demo) (Dott. Paolo Claretta Assandri)
Independent Auditors' Report
EY S.p.A. Via Meucci, 5 10121 Torino Tel: +39 011 5161611 Fax: +39 011 5612554 ey.com
Independent auditor's report in accordance with articles 14 and 16 of Legislative Decree n. 39, dated January 27, 2010 (Translation from the original Italian text)
To the Shareholders of Reply S.p.A.
Report on the financial statements
We have audited the accompanying financial statements of Reply S.p.A., which comprise the statement of financial position as at December 31, 2016, and the consolidate income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other notes.
The Directors of Reply S.p.A. are responsible for the preparation of these financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union as well as with the regulations issued to implement art. 9 of Legislative Decree n. 38, dated 28 February 2005.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia) implemented in accordance with article 11 of Legislative Decree n. 39, dated January 27, 2010. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's professional judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements give a true and fair view of the financial position of Group Reply as at December 31, 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with article 9 of Legislative Decree n. 38, dated 28 February 2005.
Report on other legal and regulatory requirements
Opinion on the consistency of the Report on Operations and of specific information of the Report on Corporate Governance and Ownership Structure
We have performed the procedures required under audit standard SA Italia n. 720B in order to express an opinion, as required by law, on the consistency of the Report on Operations and of specific information of the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4 of Legislative Decree n. 58, dated 24 February 1998, with the financial statements. The Directors of Reply S.p.A. are responsible for the preparation of the Report on Operations and of the Report on Corporate Governance and Ownership Structure in accordance with the applicable laws and regulations. In our opinion the Report on Operations and the specific information of the Report on Corporate Governance and Ownership Structure are consistent with the financial statements of Reply S.p.A. as at December 31, 2016.
Turin, March 30, 2017
EY S.p.A. Signed by: Luigi Conti, partner
This report has been translated into the English language solely for the convenience of international readers.
Approved by the Board of Directors on 15 March 2017 www.reply.com
Pursuant to art.123 bis Legislative Decree no. 58/1998.
Changes subsequent to the year-end under review
The Corporate governance system adopted by the company, that is, the set of laws and bylaws adopted in order to ensure the efficient and transparent functioning of the corporate bodies and of the control systems, adheres to the Corporate Governance Code issued by Borsa Italiana in March 2006, updated in July 2015 (hereinafter "the Code").
The Company is incorporated under Italian law and listed on the stock exchange on the MTA market, STAR segment. The governance structure of Reply S.p.A. – based on the traditional model, is made up of the following bodies: The General Shareholders' meeting, the Board of Directors (that carries out its function through Executive Directors and is advised by an Internal Control and Risks Committee and a Remuneration and Nomination Committee), the Board of Statutory Auditors and Independent Auditors.
The General Shareholders' meeting is the corporate body, which expresses the requests of the shareholders through its resolutions. Resolutions passed in compliance with the law and the by-laws are binding on all shareholders independently whether they agree or disagree unless the latter draw out, in the cases allowed. The Shareholders are convened according to the rules set out for listed companies.
The Board of Directors has the function to define and approve the company's strategic, operating and financial plans in addition to the corporate structure it heads. The Board is invested with the broadest powers of management of the company in order to perform all the actions held to be most appropriate in the pursuit of the company object, with the exception of those reserved to the Shareholders' meeting. The Board of Statutory Auditors is responsible for the supervision of compliance with the law and by-laws and more specifically:
The Board of Statutory Auditors is not responsible for the legal audit which is a function performed by an independent company appointed by the Shareholders' meeting.
The independent audit firm is responsible for checking that the company's accounts are properly kept and that managerial operations are correctly reflected in the accounting records. The auditors also verify that the separate and consolidated accounts correspond to the accounting records and to verifications performed and that they are in compliance with the applicable regulations. The Independent Auditors can also perform other services upon request of the Board of Directors, if not incompatible with the legal audit engagement.
Governance also includes the Internal Control System, the Organizational and management Model pursuant to Article 6 of Legislative Decree no. 231/2011 and the structure of the powers and proxies, as presented herein.
The following Report - and where it is deemed necessary in Report on Remuneration- includes the governance structure examined by the Board of Directors on 15 March 2016 and it accounts for the recommendations of the Code that the Board of Directors has decided not to adopt, providing related motivations and/or, where pertinent, the alternative recommendations adopted.
The Report on Corporate Governance, that is an integral part of the Report on Operations, along with the company's by-laws, are available on the company's website (www.reply.com – Investors – Corporate Governance).
The share capital structure of Reply S.p.A. is summarized below.
The share capital fully paid and subscribed at 15 March 2017, amounts to 4,863,485.64 Euros, divided in 9,352,857 ordinary shares having nominal value of 0.52 Euros- no other form of shares exist.
At present, the stock option plans, no longer exist as the stock options have been entirely exercised.
| OWNERSHIP STRUCTURE | ||||
|---|---|---|---|---|
| Ordinary | % with respect to | Listed/non-listed | Rights and obligations | |
| shares | S.C. | |||
| Ordinary shares | 9,352,857 | 100% | Listed | ex law |
| Plural voting share | - | - | - | - |
| Limited voting share | - | - | - | - |
| Non voting share | - | - | - | - |
| Other | - | - | - | - |
The by-laws do not foresee restrictions on the transfer of shares.
According to the Shareholders' Ledger, to the notifications received in compliance to the laws and according to other available information as at 15 March 2017, the shareholders that directly or indirectly hold stakes greater than 3% of the share capital having the right to vote are the following:
| Shareholder | Direct Shareholder | Ownership % over share capital | Ownership % over voting |
|---|---|---|---|
| capital | |||
| Rizzante Mario | Alika S.r.l. | 52.7775 | 52.7775 |
| Rizzante Mario | 0.1080 | 0.1080 | |
| Total | 52.8855 | 52.8855 | |
| Goldman Sachs Segregation | Goldman Sachs Segregation |
3.628 | 3.628 |
No shares have been issued that grant special rights of control.
In the case of employee shareholdings, a system by which the voting right can be exercised directly by someone else does not exist.
The company by-laws have not established restrictions on voting rights.
At present, the Company has the following lock-up agreements in compliance to art. 122 of Legislative Decree n. 58/1998, in which shareholders have more than 2% of the share capital:
Agreement dated 9 November 2004, tacitly renewed for a further three year period and until 9 November 2010, and tacitly renewed for a further three-year period until 9 November 2019, by which the shareholders of Alika S.r.l., with headquarters in Torino Corso Francia no. 110, share capital of 90,600.00 Euros entirely called up, fiscal code and Torino company registration no. 07011510018, for a stake of 46,206.00 Euros equivalent to 51% (fifty-one percent) of the share capital and more specifically:
have signed a lock up agreement according to ex Article 122 of TUF for a three year period and renewable for equal periods as long as one of the shareholders does not communicate the cancellation with a six months written notice, having the right to vote in the company Alika S.r.l., holding of Reply S.p.A..
With reference to agreements that could be cancelled in relation to a change of control in Reply S.p.A., the following is noted:
Reply S.p.A., has entered into the following loan agreement with Intesa San Paolo:
Reply S.p.A., has entered into the following loan agreements with Unicredit S.p.A.:
These contracts, having the scope of financing the Group for acquisitions on the Italian or European market, allow the funding banks the faculty to call off the contract in case of a change of control directly or indirectly in Reply S.p.A., in accordance with Art. 2359 of the Italian Civil Code.
Within some business agreements and contracts undersigned by Reply S.p.A. it is mandatory to notify the change of control: the Company has also undersigned contracts in which the clause "Change of control" implies immediate cancellation of the contract.
Such agreements, which are not very significant when compared to the whole of Group activities, are subject to confidentiality clauses.
Reply's by-laws do not provide any regulations in relation to the passivity rule provided for by art. 104, paragraph 1 and 2 of TUF nor does it foresee the application of the neutralization rules contemplated in art. 104-bis, paragraphs 2 and 3 of the TUF.
The General Shareholders' meeting has given proxy to the Board of Directors to increase the share capital, pursuant to Article 2443 of the civil code.
The information regarding the current proxies is detailed in the table below:
| Resolution | Amount | Proxy executed | ||||
|---|---|---|---|---|---|---|
| Proxy | ||||||
| The General Shareholders' meeting |
Proxy | Expiry date | Euros | Shares | The General Shareholders' meeting |
Proxy |
| 21/04/2016 | The Board of Directors has the proxy to increase the share capital with the exclusion of pre-emptive rights, payable in different forms and to be executed separately against payment in shares of enterprises having the same business scope or instrumental to the development of the Company's activities. |
21/04/2021 | 312,000 | 600,000 | - | - |
On 21 April 2016 the Company resolved to grant the Board of Directors, pursuant to Article 2443 of the Civil Code, the powers to increase the share capital in one or more tranches for a period of five years pursuant to art. 2441 paragraph 4, for a maximum nominal value of 312,000 Euros through the issue of 600,000 Reply S.p.A ordinary shares with a par value of 0.52 Euros each, to be executed in one or more tranches and therefore separable, for a maximum five year period;
The new shares will be issued separately against payment in shares of enterprises having the same business scope or instrumental to the development of the Company's activities.
The Board of Directors pursuant to Article 2441, paragraph 6 of the Civil Law, shall determine the price of the shares with reference to the trend of the stock market for the operation in the increase of share capital, and subordinated to the best practice methods of evaluation at an international level that take into consideration the market multipliers of comparable companies and to financial economic models commonly recognized and used in the respect of the minimum share price calculated as the single value of the share of the consolidated net equity resulting in the most recently approved Financial Statements by the Board of Directors prior to the resolution of the increase in share capital.
The Shareholder's, following resolution passed on 21 April 2016, have authorized the acquisition of treasury shares in accordance with art. 2357 of the Italian Civil Code as follows:
number of shares: considering the treasury shares already held by the Company at the said date, a maximum number of 1,869,564 ordinary shares at 0.52 Euros, corresponding to 19.9892% of the existing share capital within the maximum spending limit of 30,000,000 Euros;
duration: for a period of 18 months, that is from 21 April 2016 to 21 October 2017, in substitution of the previous authorization resolved by the Shareholders' meeting of 23 April 2015;
minimum purchase price: nominal value of the ordinary shares (presently 0.52 Euros);
maximum purchase price: not greater than the official trade price on the MTA Market the day prior to the purchase applying a spread of 15%, and a disbursement of maximum 50,000,000 Euros;
authorization to sell: (i)on the market or in blocks, through a public bid; (ii) sale, transfer, or trade of shares for investment acquisitions or negotiations with strategic partners (iii) following agreements made with individual Directors, employees and or collaborators of the Company or with directly or indirectly controlled companies, that do not meet the requirements of Stock granting pursuant to ex. Art. 114 bis of the TUF (iv) against payment in kind pursuant to the regulations of the Stock Granting plans.
At the reporting date the company held 1.007 treasury shares.
It is to be noted that:
Reply S.p.A. is not subject to management and coordination activities pursuant to Article 2497 and subsequent of the civil code.
The Parent company does not exercise control and coordination activities over Reply S.p.A. in as much as it qualifies as a holding, lacking an autonomous organizational structure and consequently does not carry out management activities for Reply S.p.A.
All the Italian subsidiaries held, directly or indirectly, by Reply S.p.A. have accurately disclosed the control and coordination to which they are subject by Reply S.p.A. in accordance with art. 2497 – bis of the Italian Civil Code.
The Report herein reflects and illustrates the corporate governance structure that the Company has adopted in compliance to the requirements of the Code, available on Borsa Italiana's website http://www.borsaitaliana.it/borsaitaliana/regolamenti/corporategovernance/codice2015.pdf and to which the Company has adhered.
The Board of Directors is always inclined at evaluating any new views and orientations that the Corporate Governance Code could consider and eventually integrate and amend the Company's Corporate Governance only if, and compatible with the company's reality, and that such integration enables the Company to further strengthen its reliability with investors.
Reply S.p.A. and its key strategic subsidiaries, to the Board of Directors knowledge, are not subject to foreign laws that have an influence on the corporate governance structure of the Issuer.
The nomination and substitution of Directors is disciplined by art. 16 (Nomination of Directors) of the bylaws, and is available on the Company's website (www.reply.com under – Investors – Corporate Governance).
Art. 16 of the Company by-laws, regulates that:
Considering the current composition of the Board of Directors and the participation of various members, a succession plan for Executive Directors has not been adopted also in light of the fact that the business management is guaranteed through a prompt substitution of executives.
The Company's Board of Directors is made up of a variable number of members from a minimum of 3 to a maximum of 11. The number of members is resolved by the Annual General Shareholders' meeting.
As required by the Corporate Governance Code, the Board of Directors is made up of Executive and Non-Executive Directors, the number, competence, authority and time availability of Non-Executive Directors shall be such as to ensure that their judgment may have a significant impact on the taking of board's decisions.
At present the Board of Directors is made up of nine (9) Directors of which six (6) Executive:
and three (3) Non-Executive and Independent Directors:
Mr. Fausto Forti (Lead Independent Director)
Mrs. Maria Letizia Jaccheri
The Directors operate and take decisions in an informed and unconditioned matter, pursuing the primary objective of creating value for the shareholders. They hold office with the awareness of being able to dedicate the necessary time in order to carry out their actions diligently.
The members above were nominated through the Annual Shareholders' resolution on April 23, 2015 based on the list presented by the majority shareholder Alika S.r.l. Office for the above members terminated with the approval of the 2017 financial statements.
The Chairman coordinates the activities and conducts the Board of Directors Meetings and takes the necessary actions so as to inform the members well in advance on significant points and useful items in order to participate in a profitable manner with the exception of urgent and confidential matters.
The Chairman furthermore, by means of the operational members of the company, makes sure that the Directors participate in initiatives aimed at increasing knowledge of the company reality and its evolution and that they are informed about the major new legislation and regulations that concern the Company and its governing bodies.
With regard to the application of the criterion of apportionment in relation to the election of Directors, based on a criteria that satisfies an equal gender balance, pursuant to Art. 147 ter, paragraph 1 ter of the TUF, the Company has applied it as from the renewal of the corporate bodies that took place in 2015.
| Name | Position held | Date of Birth |
Date of first nomination |
Board of Directors | Internal control and risks committee |
Remuneration and Nomination committee |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In office | L (**) |
E | N.E | I. code | I. TUF | % | Other offices |
Attendance | % | Attendance | % | ||||
| Mario Rizzante | Chairman and Chief Executive Officer |
1948 | 10/07/2000 | From 1/1/15 to 31/12/17(*) |
M | X | - | - | - | 100.00% | - | - | - | - | - |
| Tatiana Rizzante |
Chief Executive Officer |
1970 | 10/06/2003 | From 1/1/15 to 31/12/17(*) |
M | X | - | - | - | 100.00% | - | - | - | - | - |
| Oscar Pepino | Executive Director |
1952 | 10/07/2000 | From 1/1/15 to 31/12/17(*) |
M | X | - | - | - | 75.00% | - | - | - | - | - |
| Claudio Bombonato |
Executive Director |
1946 | 13/12/2007 | From 1/1/15 to 31/12/17 |
M | X | - | - | - | 75.00% | 2 | - | - | - | - |
| Daniele Angelucci |
Executive Director |
1956 | 27/04/2012 | From 1/1/15 to 31/12/17(*) |
M | X | - | - | - | 100.00% | - | - | - | - | - |
| Filippo Rizzante | Executive Director |
1972 | 27/04/2012 | From 1/1/15 to 31/12/17(*) |
M | X | - | - | - | 75.00% | - | - | - | - | - |
| Fausto Forti | Lead Independent Director |
1949 | 19/04/2004 | From 1/1/15 to 31/12/17(*) |
M | - | X | X | X | 100.00% | - | X | 100% | X | 100% |
| Maria Letizia Jaccheri |
Non-Executive independent Director |
1965 | 23/04/2015 | From 23/4/15 to 31/12/17 (**) |
M | - | X | X | X | 100.00% | - | X | 100% | X | 100% |
The table below discloses the main information related to the Board of Directors in compliance with Article 144-duodecies issued by Consob
202 | Annual Financial Report 2016
| Enrico Macii | Non-Executive independent Director |
1966 | 23/04/2015 | From 23/4/15 to 31/12/17 (*) |
M | - | X | X | X | 100.00% | - | X | 100% | X | 100% |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of meetings held in 2016 | Board meeting: 4 | Meetings of the Risk and Control Committee: 4 |
Meetings of the Remuneration Committee: 1 |
(*) in office until the Shareholders' meeting for the approval of 31 December 2017 Financial Statements
(**) the last quorum for the presentation of the lists reached 2.5%. Nomination was unanimous with votes in favors amounting to 57.618% of share capital.
Legend
L: list M/m: M/majority list m/minority list
E: Executive
N.E.: Non-Executive
I: independent
I TUF: independent pursuant to Art. 148 TUF
Following is a brief description of personal and professional qualities of the members of the Board of Directors of the Company.
Mr. Rizzante received a graduate in Science of Informatics at the University of Turin. In the 70's, within the Fiat Group, Mr. Rizzante worked on several projects for manufacturing automation. In 1981 Mr. Rizzante left Fiat and founded Mesarteam S.p.A., a System Integration company that in a few years became one of the leading Italian companies in the ICT sector. In 1990 Mesarteam was sold to Sligos, company belonging to the Group Crédit Lyonnais and Mr. Rizzante contributed as Chairman and strengthened relations with important international clients. In 1994 Mr. Rizzante joined Digital (now HP), as Southern Europe Territory Manager of System Integration and Consulting. In June 1996, together with other partners Mr. Rizzante decided to undertake a new entrepreneur endeavor: constructing a system integration and consulting company specialized in new internet technologies. Reply comes to life. Within only four years since its constitution, in December 2000, Mr. Rizzante leads Reply to the Stock market, listing it on the market in Milan. Under his leadership, Reply embarks on a path of internationalization, which sees it grow and expand in Europe, particularly in Germany and England, as well as in America, becoming a point of reference for companies that consider technological innovation one of the main competitive levers. Reply, today, is a multinational, over 6,000 employees and with offices in Germany, Italy, England, Benelux, United States and Brazil. In 2014 Mr. Rizzante was nominated "Cavaliere del Lavoro" (Historian of the Workforce) by the Premier of the Italian Republic, Mr. Giorgio Napolitano.
Degree in computer engineering from the Turin Polytechnic, married with a daughter, she has always been passionate about new technologies. After some research experiences at the Politecnico of Turin, in 1995 enters Cselt (today Tlab) where she carries out testing and research on technologies and Internet services to the public. In 1996 she becomes part of Reply's founders, an entrepreneurial challenge based on a new business model: exploit the opportunities that the internet technologies make available by creating a cluster of companies, each specialized in application expertise or technology. From the start, Tatiana Rizzante handles the creation and skills development in areas with high rate of innovation, such as value added services to telecommunications operators, new media and the new digital channels. Over the years, she covers ever-increasing responsibilities within the group, assuming direct responsibility for various lines of business, including architectures and technologies, Digital Media and Mobile Networks and contributing to the emergence of Reply in important Italian and foreign clients. Since 2006, after several experiences in the field of Innovation Management, she takes on the role of Managing Director, with the direct responsibility of the Group's overall offer definition and development of Reply.
Mr. Pepino graduated in Science Informatics at the University of Turin in 1977. In 1981 he founded Mesarteam S.p.A., a System Integration company fulfilling his management role from the headquarters in Milan. After Mesarteam was sold to Sligos, company belonging to the Group Crédit Lyonnais in 1990, Mr. Pepino joins Digital (now HP), covering the role of informatics consultant. In June 1996 he participates in the foundation of Reply and fulfils the role of Chief Executive Officer with the task of Technical and Quality Director of the Reply Group.
Mr. Pepino is currently in charge of the Reply Group Operations Office and Audit & Compliance which run the informatics system, quality management, the management of operational quarters, PM Academy and Cmmi; Safety at work and Privacy, supervision of the Internal Control System and tasks associated to this role in accordance with the Procedures for Operations with Related Parties.
Mr. Claudio Bombonato graduated in Aeronautics Engineering from the Polytechnics of Turin. He holds a Doctorate in Philosophy in Aerospace Engineering from the Turin University, and also a Masters degree in Business Administration from Università Commerciale Luigi Bocconi. After a 10 year professional experience in Fiat Aviation Division and IBM Italy, he started working at McKinsey (in 1981) where he was mainly involved in the banking sector and ICT. In 1986 he became Partner and leader in financial institutional practices and ICT in Italy. In 1990, he was appointed Director of the company by McKinsey and was a member of the European leadership group on Financial Institutions. Mr. Claudio Bombonato was the European Supervisor overseeing Commercial Banking practices for a number of years. In 2006 he left Mckinsey and was appointed European Senior Advisor for Morgan Stanley (Financial Institution sector in Italy). He has published many articles on strategic thematic, organization and technology both for the financial and public sectors. He was Member of the Board at Sl Holding and Banca Fonspa S.p.A. until November 2013 At present he is a Member of the Board at Whysol S.p.A. a financial holding company active in the energy sector. Since March 2014 he is Chairman of Anima Holding S.p.A., a company which is listed on the Italian stock exchange.
Daniele Angelucci worked from 1976 to 1986 at the Centre of Study & Laboratories of Telecommunications (CSELT, now Telecom Italy Lab) as a researcher; From 1986 to 1995 he worked in Mesarteam S.p.A. fulfilling various roles including Technical Director of the Rome office, Head of Technical Software and then Technical Director of Turin. He joined Reply as a Senior Partner in 1996. In 1996 he became President and founding member of Cluster Reply, a group company focused on ebusiness solutions using Microsoft technology. From 2000 to 2002 he was Director of operations in the Turin area. In 2003 he became CEO of Santer S.p.A., a company specialized in the health market and local government. From 2006 to 2010 he was Chief Financial Officer of Reply Deutschland AG. Since 2011 he has been Chief Financial Officer of Reply S.p.A.
A computer engineering graduate from the Polytechnic University of Turin, whom has always been fascinated by new technologies. He began his career with Reply in 1999. In the early years, he worked within the Group mainly in consultancy and projects for the web division, focusing in particular on the development of B2B and B2C portals. In 2003 he held the position of Technical Manager of Technology Reply Rome, and then continued his career within YH Reply (now Whitehall Reply) as CEO. In 2006 he became Executive Partner of the Reply Group, overseeing the Group companies that deal with Oracle technologies, Safety, Information Lifecycle Management, Web 2.0 and Open Source. Over the years his responsibilities within the Group grew and he assumed direct responsibility for various business lines, including Architecture and Technologies, Digital and Mobile Media – in addition to contributing to the success of the Reply offer in the context of Cloud Computing, Digital Media and Social Media for significant Italian and foreign clients. Since 2012, in the capacity of Reply CTO, he has led the development of new offer elements associated with technological innovation and assumed Group responsibility for all partnerships.
Mr. Forti has a graduate degree in mathematics. From 1974 to 1983 he held several positions in Inveco S.p.A. (Fiat Group) among which: IS and in charge of Spare parts for the Brazilian affiliate; from 1983 to 1994 in Fiat S.p.A. he held the position of Director of Logistics. From 1994 to 2004 joins the TNT Group – Logistics division – where he covers the role of Chief Executive Officer of the Italian Business Unit and South America. In 2005 he joins DHL Express Mediterranean (Italy, Greece, Cyprus, Malta and Israel), Deutsche Post Group World Net, and is appointed Chairman and Chief Executive Officer, position that he held until March 2013. From April 2013 to April 2015 he was the Chairman of DHL Express Italy S.r.l. From 2000 to 2006 he was Chairman of Assologistica (Associazione Italiana delle Aziende di Logistica). Since April 2010 he is Chairman of Confetra (Confederazione italiana delle Associazioni di Trasporto e Logistica).
Norwegian nationality, holds a PhD in Computer Engineering at the Politecnico of Turin, achieved in 1994 and a degree in Computer Science from the University of Pisa in 1988. Since 2002,she is Professor at the Norwegian University of Science and Technology (NTNU) and since 2013 appointed Director of the Department of Computer and Information Science NTNU),managing a group of 210 employees (professors, administrators, graduates and researchers), more than 2,000 students and numerous research activities for the innovation of the department with several projects funded by the Norwegian Research Council and by the European community and industry.
Since 2014 , she is an alternate member of the Sintef Council, a Norwegian research organization with about 2,000 employees. Since April 2015 Independent Director of Reply S.p.A.. She has published more than 100 scientific papers since 1989, for which she obtained over 1,700 mentions according to Google Scholar.
Since 2001 Enrico Macii is a Full Professor of Computer Engineering at Politecnico di Torino. Prior to that, he was an Associate Professor (1998-2001) and an Assistant Professor (1993-1998) at the same institution. From 1991 to 1997 he was also an Adjunct Faculty at the University of Colorado at Boulder. He holds a Degree in Electrical Engineering from Politecnico di Torino (1990), a Degree in Computer Science from Università di Torino (1991) and a PhD degree in Computer Engineering from Politecnico di Torino (1995). Since 2007, he is the Vice Rector for Research at Politecnico di Torino; he was also the Rector's Delegate for Technology Transfer (2009-2015) and for International Affairs (2012-2015). His research interests are in the design of electronic circuits and systems, with particular emphasis on low-power consumption aspects. In the last few years, he has been growingly involved in projects focusing on the development of new technologies, methodologies and policies for achieving energy efficiency in buildings, districts and cities, therefore addressing multi-disciplinary activities regarding clean energy deployment, low-pollution mobility, sustainable urban development, pointing towards the actuation of the concept of smart city. In the fields above he has authored over 450 scientific publications.
electronic systems. The scientific results obtained in his career have given rise to a total of about 500 publications in journals, books and conferences internationally.
The criteria in evaluating the requisites of independence of the Board of Directors has not been integrated or modified.
The Board of Directors has verified, at the date of approval of the Report herein, the offices of Directors and Statutory Auditors, held by the Directors in other listed companies, finance, bank, and insurance companies or big enterprises.
The following arose:
Mr. Claudio Bombonato is a Director of Whysol S.p.A., a financial holding company active in the energy sector and Chairman of Anima Holding S.p.A..
Although recommended by the Code, the Board of Directors has preferred not to express an opinion in relation to the maximum number of offices compatible with the execution of the Directors' role and this, beyond the limit of five appointments at Italian companies with shares listed on Italian regulated markets (excluding subsidiaries of the parent Company or the latter) indicated in art. 16 of the Statute the Board believes that such assessment firstly should be made by the shareholders when appointing the Directors and secondly by the individual Director when accepting the office.
In accordance to the Group's practices that have been adopted in relation to induction programmes, several initiatives are foreseen aimed at providing Directors and Top Management an adequate knowledge of the area in which the company operates, of the dynamics of the company and its evolution and of the regulatory framework. More specifically, it is provided that a full set of documents containing the principle regulations and laws regarding the Board of Directors, the various internal Committees within the Board and the main related corporate documents be made available.
The Board of Directors is the statutory managing body vested with the broadest powers for the ordinary and extraordinary management of the Company.
The Board of Directors primarily carry out a management and control function with relation to the general activities of the company and the subsidiary companies.
More specifically the Board of Directors, in compliance with the Code:
e) Evaluates the general performance of the company, paying particular attention to the information received from the Executive committee (when established) and the managing Directors, and periodically comparing the results achieved with those planned;
f) Decides on operations carried out by the issuer and its subsidiaries when said operations have significant strategic, economic or financial relevance to such issuer; to this end, the board shall establish general criteria for identifying the transactions which might have a significant impact;
The Board of Directors meets on a regular basis, at least every three months, as established by the Company by-laws, or when deemed necessary.
The Chairman, under the company's by-laws, has the power to convene the Board of Directors' meetings. The Directors report to the Statutory Auditors on a quarterly basis with regards to the activities carried out during the year, the significant operations carried out by the company or its subsidiaries and with regards to operations that could be of potential conflict of interest and provide adequate information on atypical, unusual or with related party transactions, that are not subject to the Board of Directors approval.
During 2016 the Board of Directors met four (4) times and the average duration was approximately one hour and half (1.5).
The Board of Directors is scheduled to meet at least four (4) times in 2017. The Board of Directors has held no meetings at the present date of this Report.
During 2016, the Chairman, in accordance to the Corporate Governance, provided documents containing information relevant to the discussion to directors and statutory auditors a few days preceding the meeting as to ensure the directors and statutory auditors timely and complete access to information in advance of the Board meeting. In particular, to simplify access and consultation of such documents, a synthesis of the most relevant items (new amendments, regulations) has been provided. The documentation shall be sent a few days prior to the established date of the meeting, except documentation which is not available or particularly urgent or unforeseen.
The Chairman of the Board of Directors ensured that each meeting was carried out appropriately, ensuring that each item on the minutes was treated accordingly, and that adequate time was spent to establish an advantageous comparison among the members of the board.
The participating members of the Board are also allowed to intervene through audiovisual connection. In order to facilitate the participation of a greater number of Managers and Statutory Auditors, a calendar of the annual meetings scheduled is drafted.
The Director in charge of drawing up the financial statements, systematically takes part in the Board of Directors meetings; the main business functions are represented directly by members of the Board of directors who hold such functions in the Organization of the Company.
The Board of Directors, upon the approval of the annual and half-year financial report and considering the duties carried out by the Control and Risk Committee (which in turn is based on controls carried out by the Internal Audit), examine and evaluate periodically the adequacy of the organizational, administrative, and accounting structure and the general performance of the system of the internal control and risk management.
This point is fully detailed in "Internal Control and risks Committee".
In accordance with the Corporate Governance Code (art. 1.C.1, letter f), the company has granted the Board of Directors the examination and approval of the operations deemed "significant" and some specific operations with related parties, fully detailed in this Report in the section dedicated to the topic.
Coherent to the Code, the Board of Directors, on an annual basis, evaluate the activities performed by the Board and its Committees with particular emphasis on size, composition and functioning. The evaluation takes into account the relative mix of executive, non-executive and independent directors, as well as their specific technical abilities and professional background and experience and the length of time on the board.
During the meeting held on 2 August 2016, the Board of Directors deemed that the standing Board and its Committees, with particular emphasis on size, composition and functioning meet the requirements set forth by the Code.
The Board of Directors, pursuant to the Group's consolidated practices, has considered not to express its position with regards to the nominations of 2015, as this valuation is already carried out by the shareholders upon presentation of the mentioned lists.
The shareholders have relieved the Board of Directors from the obligations pursuant to art 2390 paragraph 1 of the Civil Code.
The Board of Directors currently holding office comprises of two Chief Executive Officer, (who also fulfils the role of Chairman of the Board of Directors) four Executive Directors and has empowered the Chairman (who also fulfils the role of Chief Executive Officer) with the broadest operational delegations, in light of the resolutions passed on 23 April 2015.
209 | Annual Financial Report 2016 Mr. Mario Rizzante, Chairman of the Board of Directors, is empowered with the ordinary and extraordinary administration of the company with the exception of those specifically empowered by law to the Board of Directors and excluding the operations empowered to the Board of Directors, as set out by the Regulation on Significant Operations and with related parties.
The Chairman, is responsible for the management of the Company and is also major shareholder, as illustrated here within.
Mrs. Tatiana Rizzante, Chief Executive Officer, has the following main powers:
Mr. Oscar Pepino, Executive Officer, has the following main powers:
The main proxies empowered to the Executive Director, Mr. Claudio Bombonato, with the scope of supporting the Company in the development of its activities, are the following:
a) Represent the Company Reply S.p.A. with external contacts and business negotiations and authorize the issuing of the related business offer with a limit of 5,000,000 Euros per transaction;
b) Negotiate and undersign contracts for goods and services, and execute any subsequent act useful for the proper outcome of the contracts for a value not greater than 5,000,000.00 Euros for each operation;
211 | Annual Financial Report 2016 c) Participate in any public or private bidding – even in temporary groups of similar enterprises or even through the constitution of mixed enterprises with the scope of acquiring public investments with an auction value not greater than 5,000,000.00 Euros; and can:
draw up, undersign and present all the documentation and any necessary deed for the Company to participate in the bid;
confer or receive the necessary mandate in the case of temporary joint ventures;
undersign contracts following the awarding of the bid;
subcontract to third parties within the law, the contracts awarded as well as signing subcontracts with companies, who have been awarded contracts;
d) To carry out in the interest of the Company whatever is necessary or convenient within his powers;
Executive Director, Mr. Claudio Bombonato in capacity of Executive Director, has been assigned further powers related to activities under Network Finance & Security within the Reply Group. The main proxies empowered to the Executive Director, Mr. Daniele Angelucci:
law, allow penalties to payments, assist in inventories, appoint lawyers, carry out transactions, appoint arbiters and sign compromises;
The main proxies empowered to the Executive Director, Mr. Filippo Rizzante:
insurance policies and other insurance contracts deemed to be necessary and expedient; all subject to a maximum limit of 50,000.00 Euros.
Hire employees with annual salaries of up to 40,000 Euros, modify or retract from work contracts up to a maximum fee of 100,000 Euros and settle the related disputes, representing the Company in front of trades unions;
In order to have a better management of the Group activities, the Board of Directors of Reply S.p.A. and the Chairman have the possibility to attribute specific delegation powers to several key managers of the Group Companies that can act in name and on behalf and interest of the Company.
As previously stated, the three Directors members of the Board of Directors qualifying as being independent are:
The independent Directors constitute as a whole the Remuneration and Nomination Committee and the Internal Control and Risks Committee.
The same Independent Directors also qualify as, in the capacity of members of the Internal Control and Risks Committee, members of the Related party transaction committee established by the related procedure.
The Independent Non-Executive Directors have the same characteristics as the Independent Directors, in compliance with paragraph 3.C.1. of the 2015 edition of the Corporate Governance Code that provides that a Director usually does not appear independent in the following events, to be considered merely as an example and not limited to:
– with the issuer, one of its subsidiaries, or any of its significant representatives;
– with a subject who, jointly with others through a shareholders' agreement, controls the issuer, or – in case of a company or an entity – with the relevant significant representatives;
or is, or has been in the preceding three fiscal years, an employee of the abovementioned subjects;
The Board of Directors, in its entirety, verified, in the meeting held 23 April 2015, and in the following meetings called to approve the 2016 draft financial statements also being the first meeting following its renewal and subsequently on an annual basis, with positive results, the independence of the abovementioned Directors, by drawing on information provided by each of the Directors in accordance with the definition provided by the Corporate Governance Code, resolving not to apply the criteria stated in point e) in view of the Directors' authority, reputation and moral statute. This was verified with regards to Mr. Fausto Forti from April 2013.
The Independent directors shall communicate in due time to the Board of directors any situation which may compromise independency and assume the necessary and/or consequent decisions.
The Board of Statutory Auditors verifies the proper application of the assessment criteria and procedures adopted by the board in order to annually assess the independence of its members, communicating the outcome of such controls in its report to the shareholders.
During the periodic meetings held throughout the year, the Board of Statutory Auditors has not disclosed any situations which could compromise independency in accordance to the regulations in force.
In November there was a meeting of only independent directors, during which the independent directors discussed their roles within the administrative body of the company.
The Code requires that, in case the Chairman of the Board of Directors is the key person in charge of the running of the company, and even when office is held by the person that controls the Company, the Board must designate a "Lead Independent Director", that represents a reference and coordination point of the motions of the Non-Executive Directors and more specifically the independent ones; and cooperate with the chairman of the Board of Directors in order to ensure that Directors receive adequate information in good time; for this scope, should these circumstances occur, in accordance with article 2.C.3 of the Code, the role of Lead Independent Director is head by the Non-Executive and Independent Director, Mr. Fausto Forti.
The Chairman and Chief Executive Officer, Mr. Mario Rizzante and the Investor Relator, Mr. Riccardo Lodigiani, handle the processing of internal and external communication of confidential company information in order to avoid the spreading of such information through means not in compliance with law, provisions or rulings or by means that are not timely, or that are incomplete or inadequate.
More specifically, all company communication to outsiders and all press releases are accurately drawn up and under the strict supervision of the abovementioned persons that verify the correctness and compliance, in terms of content and means of diffusion, to the existing laws.
Furthermore, all employees, and in particular those having a managing position, have been instructed as to their duties concerning confidentiality of information of a listed company and must verify that the Chief Executive officer's directions are followed.
Following the introduction in Italy of the so-called "market abuse" directive enacted by Community Law 2004 (Law 18, April 2005 no. 62) and endorsed by the corresponding Consob regulation, a law was passed concerning the obligation to notify the public about any transactions carried out by "key persons" and people strictly associated to them in relation to financial instruments of the company.
Consequently, Reply S.p.A., who has already adopted since 2003 an Internal Conduct Code on Internal Dealing, adopted from 1 April 2006, following the resolution of the Board of Directors of 31 March 2006, a new Corporate Governance Code aimed at regulating, with binding force, information flows of "Relevant Persons" and "Related parties to them" with respect to the Company and related obligations and information and communications in respect of Consob and the transactions carried out by such persons; code subsequently amended by resolution of November 13, 2014.
Finally, following the entry into force, on July 3, 2016 of Regulation (EU) no 596/2014 of April 16, 2014 said "market abuse Regulation" or "MAR", supplemented by implementing Regulation (EU) 2016/523 of March 10, 2016 and the delegated Regulation (EU) 2016/522, directly applicable, the company approved the updated text of the "Internal Dealing procedure" on August 2, 2016.
More specifically, the Procedure with reference to Internal Dealing concerning operations on financial derivative instruments issued by Reply S.p.A. executed by the so called "key persons", disciplines the information to provide the Company, Consob and the market when purchase, sales, undersigning and negotiating of shares or financial derivative instruments connected to the shares, are executed for personal reasons by "Key Persons" and by "Closely related persons", that is those being close to the Company that can legitimately negotiate his shares having access to information concerning the parent Company's or its subsidiaries financial-economic trends.
The code comprises ten paragraphs that define the conduct in terms of "internal dealing" and the ways of applying the same. The code disciplines more specifically, the identification of the "Key Parties" and "Closely related persons", the types of operations subject to mandatory communication, identification of the party in charge of receiving such information and the notification to Consob and to the market, timing and the means of communication that must be carried out by the "Key persons"; all in accordance with the regulations included in "Market Abuse Regulations" and the delegated and implementing regulations. Executive Director, Mr. Daniel Angelucci, is the person responsible for the handling of confidential information.
The complete version of the Corporate Governance Code is available on the Company's website (www.reply.com – Investors – Corporate Governance).
Aside from the above, the Board of Directors of the Company has not, for the moment, adopted additional resolutions for the adoption of procedures concerning internal management and external communication of documents and information concerning the issuer.
The Board of Directors has set up consulting committees, The Internal Control and Risks Committee and the Remuneration and Nomination Committee.
The Board of Directors during the meeting held on 23 April 2015, decided not to set up an internal committee to propose candidates for appointment to the position of Director.
Considering the current ownership structure, proven to be concentrated and the governance structure of Reply S.p.A. and considering the circumstances that this function is already carried out by the shareholders upon presentation of the lists for renewal of the governing bodies.
Information concerning the meetings of the internal committee is given in the following Board of Directors meetings.
With reference to what has been stated reference shall be made to the Annual Report on Remuneration published in accordance with Article 123-ter of TUF.
The Board of Directors has internally constituted a Remuneration Committee composed of Professor Maria Letizia Jaccheri and Prof. Enrico Macii, Non-Executive and Independent Directors and Mr. Fausto Forti, Lead Independent Director, who has gained adequate knowledge and experience in financial matters and of remuneration policies in view of his professional experience characterized by taking operational responsibilities in companies of significant size.
In 2016 the Remuneration Committee, in order to carry out its duties, met once (1) with the presence of all members.
In 2017 one (1) meeting has been planned and has already been held.
At present, the Committee has not utilized external consultants.
In consideration of the current composition of the Remuneration Committee, it has been deemed not necessary to proceed with the nomination of a President of the committee, also in light of the fact that the Lead Independent Director already carries out functions in coordinating and programming activities for the Committee and relating to the Board.
In accordance with art. 6.C.6 of the Corporate Governance Code, no Director shall participate in meetings of the Remuneration and Nomination Committee in which proposals are submitted to the Board of Directors relating to his/her remuneration; meetings will be attended by the Chairman of the Board of Statutory Auditors.
With reference to what has been stated reference shall be made to the Annual Report on Remuneration published in accordance with Article 123-ter of TUF.
Remuneration of Directors not invested with operational proxies, for each year in office, was resolved by the Shareholders' meeting of 27 April 2012, upon nomination, and equal to 30,000.00 Euros gross of any withholding amounts foreseen by law.
Remuneration of Directors invested with special roles, was established by the Board of Directors in line with the Remuneration and Nomination Committee, upon proposal of the Committee, authorized by the Board of Statutory Auditors.
In compliance with article 20 of the Company by-laws the total amount of remuneration to Directors, including those invested with strategic powers, can also be determined by the Annual General Shareholders' meeting.
In compliance with Article 6.C.1 of the Code of the March 2006 release, article 22 of the Company bylaws provides the possibility to attribute a variable fee to the Directors invested with special powers, as participation in the profits of the parent Company, and dependent of the economic trends of the Group and more specifically to the Consolidated Gross Margin, which is resolved by the Annual General Shareholders' meeting approving the annual Financial Statements.
Such a possibility, that has already been adopted ever since allocation of the 2004 net result (with the exception of 2009), considering that this alternative does not exclude the distribution of dividends to the shareholders, will be once again applied in relation to 31 December 2016.
Under the Article 7.P.4 of the Code, the Board of Directors has internally constituted a Control and Risk Committee composed by Prof. Maria Letizia Jaccheri and Enrico Macii, Non-Executive and Independent Directors and Mr. Fausto Forti, Non Executive Director and Lead Independent Director.
The Chairman of the Board of Statutory Auditors or another auditor appointed by the aforementioned and a Director in charge of the internal control system participate in the work of the Control and Risk Committee; a written report shall be prepared at the end of each meeting, which will include the Committee's proposals.
In order to carry out its duties, the Committee can request information and data from the head of the Internal Audit function, the Board of Statutory Auditors and the independent auditors.
During 2016 the Internal Control and Risks committee met four (4) times and twice (2) in 2017. All the members were present and examined the following:
With reference to the examination of issues related to the Financial Statements, the Committee requested the participation, further to that of the Head of Internal Audit, but also the presence of Mr. Conti on behalf of the audit firm EY S.p.A..
During 2016 the Committee reported three (3) times to the Board of Directors in relation to the activities carried out and with reference to the adequate functioning of the Internal Control and Risks System, while during 2017, at present the Committee has referred only once.
The internal control and risk management system is a set of rules, procedures and organizational structures that contribute to safeguarding the company's assets, the efficiency and effectiveness of business transactions, the reliability of financial information, the identification and monitoring of the main risks, and the compliance with laws and regulations.
The Board of Directors is responsible for the system of internal control and risk management, that, after receiving the opinion of the Control and Risks Committee, establishes guidelines and a work plan, evaluating its adequacy.
In this regard, during the year, the Board of Directors and the Control and Risks Committee expressed a favorable judgment regarding the adequacy of the Internal Control System for monitoring the level of risk consistent with the objectives of the Group.
Reply has put in place a system of internal control and risk management for financial reporting based on the "COSO Framework", defined as a set of rules, procedures and tools designed to provide, through an adequate process of identification, the measurement, management and monitoring, of the major risks related to the disclosure of financial data and reasonable assurance of the achievement of corporate objectives.
The objective of the internal control and risk management system is also to ensure that the financial reporting disclosed within the required timeframe provides a fair and correct representation of operations, in order to guarantee the reliability, accuracy, truthfulness and timeliness of the financial information.
In relation to the Company's objectives, whether business or compliance, as well as reporting, the Company has adopted the following key instruments:
• Planning and management control – Reply S.p.A. has implemented a structured and periodic system in order to forecast and monitor company activities, aimed at defining the Company's objectives/strategies and operational planning through a budget and monitoring them by means of a monthly review of performance.
• Company operational procedure system - Reply S.p.A. has implemented a group of procedures that regulate internal processes, in order to properly apply the Company directives and to limit the risks connected with the achievement of the Company's objectives, regulating both the activities carried out within individual departments, as well as relations with other entities.
• Risk Management System- Reply S.p.A. has implemented a Risk Management system, based on the Control Risk Self-Assessment model, a self-assessment methodology recognized by sector standards.
The objective of such procedure is to develop a corporate culture in view of raising risk awareness, through a continuous and pervasive process, implemented by the Board of Directors and by top management, aimed at identifying any potential events that might involve the Company as well as pursuing a risk level that is consistent with achieving the Company's objectives.
The methodology used is articulated in the following phases:
Such system thus enables the identification, measurement, management and control of the Company's level of exposure to the different risk factors, considering (i) the probability that the risk occurs, (ii) the impact of the risk on the Company's objectives, (iii) the overall scope of the risk, (iv) the Company's ability to reduce the impact of the risk on business operations, and (v) possible relationships among the different risk factors.
The procedure provides for monitoring the adequacy and effective functioning of the internal control and risk management system, as well as its review, to be completed annually, in order to consider the trend of business operations and the context of reference. Such process, coordinated by the Internal Audit department, provides for the use of questionnaires so that risk belonging to each profile can be assessed by Top Management and the Directors of the Company's various departments as well as by the Partners of the Italian subsidiaries.
• Law 262/2005 on financial and accounting reporting – Consistently with what is provided by Law 262/2005 on the protection of savings, Reply S.p.A. implemented accounting and administrative processes relevant for purposes of the reliability of the financial-economic reporting disclosed to the market, that provide for:
Assessment of the adequacy of the existing controls and ongoing implementation of further controls in view of compliance and increased reliability of the processes considered;
Drafting of a series of procedures and consequently the drafting of an Administration Procedures Manual;
• Security, environment and quality – Reply has implemented a system of procedures and an organizational structure dedicated to the management of data security (also in view of the laws on Privacy), environmental protection, the safety of equipment and personnel and the quality of the services carried out (ISO certification 9001:2008).
• Other laws and regulations - Monitoring the evolution of laws and regulations and that relative compliance is carried out internally.
• Accounting disclosures - the drafting of accounting disclosures and disclosures in the consolidated and separate Financial Statements is regulated by the procedures of an administrative-accounting system.
• Confidential Information: see the relevant paragraph.
• Internal Communications – Reply S.p.A. has implemented an internal communications system aimed at facilitating and promoting internal communications within the Company and the Group, including by means of a structured management and coordination Committee system.
The approach adopted by Reply in relation to the assessment, monitoring and continuous updating of the internal control and risk management system is based on a process that is consistent with the "CoSO Framework" model, which allows making assessments focusing on areas of higher risk and/or materiality, that is, where there are risks of significant errors in elements of the Financial Statements and related documents.
The key components of the process are:
Identification of the risk of misstatements which could have material effects on financial reporting is carried out through an administrative-accounting risk assessment process, under the supervision of the Director in charge of drawing up the Financial Statements along with the Group Finance Director that identify the organizational entities, processes and the related accounting items that are generated, in addition to specific activities which could potentially generate significant errors. According to the methodology adopted by Reply, risks and related controls are associated with the accounting and business processes upon which accounting information is based.
Significant risks, identified through the risk assessment process, require definition and evaluation of specific controls ("key controls") that guarantee "coverage", thereby mitigating the risk that financial reporting will contain any material misstatements.
According to international best practice, there are two principal types of existing controls:
Such controls can be "preventive" aimed at preventing errors or fraud which could result in misstatements in financial reporting, or "detective", aimed at revealing errors or fraud which has already occurred. They may also be defined as manual or automatic, such as application-based controls relating to the technical characteristics and configuration of IT systems supporting business activities.
The process of identifying the above risks and key controls has led to the elaboration of control matrixes (RCM – "Risk Control Matrix") that identify, for each significant process, the potential impact on financial reporting:
The control activities related to significant processes of financial reporting are fully detailed in the "Reply Group's Manual of administration and accounting procedures", recently updated/integrated pursuant to Law No. 262/2005, commented on below.
As Reply S.p.A.'s shares are listed and negotiated on the Italian stock market, it is mandatory for the Board of Directors to nominate a Director in charge of drawing up the Financial Statements (Nominated Director); The Director in charge of drawing up the Financial Statements is responsible for setting up adequate administrative and accounting procedures to prepare the financial information disclosed to the market, and to monitor the proper application of such procedures. The Administration and accounting procedures manual defines the guidelines that must be applied within Reply and more specifically with reference to obligations under art. 154-bis of legislative decree 58/1998 governing company's Financial Statements and related attestation obligations.
More specifically the Administrative Procedures Manual:
the correct functioning of the Accounting Control System pursuant to Law 262/2005 related to the accounting processes/flows regulated by such law and which fall within their administrative responsibility, the completeness and reliability of the information flows, as well as the adequacy and effective application of the key controls summarized in the control matrixes.
The company processes, the administrative-accounting procedures and the related control matrixes, along with the list of persons in charge of the operational units enacting the control, are subject to periodic assessments and if the case are updated.
The administrative-accounting procedures and the related control matrixes are shared with the relative process-owners, who attest that the controls have been planned and are operational, Administrative Management, with the support of the Internal Audit department, agree upon the implementation of any corrective measures.
The Internal Audit department carries out periodic assessments of the adequacy and effective application of the key controls every six months at the time of the preparation of the Financial Statements and interim report through audit procedures performed on specific areas determined by the Director in charge of drawing up the Financial Statements.
The persons in charge of the relevant administrative and accounting processes pursuant to Law 265/2005 issue an attestation letter addressed to the Director in charge of drawing up the Financial Statements, confirming the effective application of the administrative-accounting procedures for which they are responsible.
The audit plan is aimed at identifying a number of processes to be tested in order to cover the major processes during the year. The audit is performed on several Group companies, selected according to quantative parameters, (material thresholds with respect to the consolidated Financial Statements) and qualitative ones.
In order to carry out the monitoring controls check lists are prepared according to the different processes being controlled which summarize the ways of testing the key controls included in the Procedures Manual and in the RCM, the sample to be tested and the outcome of the test.
Sample testing is the criteria used and the data and assessments included in the check lists are supported by the documentation gathered during the monitoring activities, that are an integral part of the same check lists.
The outcome of the tests performed and any suggestions made concerning the opportunity of implementing further controls where shortages were identified, are summarized by the Internal Audit Officer in a special report, object of an internal communications flow, and addressed to the Director in charge of drawing up the Financial Statements and to the Board of Directors.
By sharing this document, two flows are activated:
The Head of the Internal Audit department periodically refers to the Internal Control and Risk Management Committee, the Board of Statutory Auditors and to the Supervisory Body with reference to the activities carried out within the assessment process of the Internal Control System.
The Board of Directors, at its meeting of 23 April 2015, confirmed Mr. Oscar Pepino as the Director in charge of the Internal Control and Risk Management system, responsible for maintaining the internal control and risk management system in an efficient manner and in conformity with what is required by the Corporate Governance Code, and allows the Head of the Internal Audit department to carry out his role in accordance with the cited provisions of the Code.
The Board of Directors, at its meeting of 23 April 2015, appointed Mr. Edoardo Dezani as the Head of the Internal Audit department, upon a proposal of the Director responsible for the Internal Control System, with the favorable opinion of the Internal Control and Risk Management Committee and having heard the Board of Statutory Auditors, who is responsible for controlling that the internal control and risk management system is operational and adequate.
The Head of the Internal Audit department works on the basis of an audit plan approved by the Board of Directors, which provides for periodic reports on the assessment of the internal control and risk management system's adequacy and the reliability of the reporting systems, including the accounting reporting systems, advising the members of the Board of Directors, Top Management, the Internal Control and Risk Management Committee and the Board of Statutory Auditors of his activities.
In November 2004 the Company's Board of Director's approved an "Ethics Code", which confirmed the ethical principles and transparency that guide the Company's internal and external activities, outlining all of the fundamental principles required to guarantee legality, loyalty, and correctness when conducting Reply's business.
In 2007 a project was initiated to adopt an updated organizational, management and control Model pursuant to the provisions of Article 6 of Legislative Decree 231/2001 (the "Model") in relation to the responsibilities of enterprises, in order to prevent the crimes provided by such Decree. The Model was approved by the Board of Directors at a meeting held 28 March 2008, and was subsequently updated periodically through resolutions on 1 August 2013 and on 31 July 2015 which was limited to the Ethic Code.
The Model adopted, starting from an accurate analysis of the company activities with the objective of identifying the potential activities at risk, is the set of general principles, rules of conduct, control instruments and organizational procedures, formation and informational activities and disciplinary system finalized at assuring, the prevention of offences.
The types of crime contemplated by Legislative Decree No. 231/2001 and that have been considered at risk for the Group, as outlined in the annex to the Model, are the following:
(vi) Laundering crimes;
(vii) Offences related to violation of copyright laws.
The Model was adopted in 2008 and updated periodically and the latest version in 2015 by all the Italian Group companies.
The Organizational Model of Reply S.p.A is available on the company website (www.reply.com – Investors – Corporate Governance).
The Model and the Code of Ethics have been distributed to all Group employees and collaborators through the company Intranet. The Code of Ethics is also supplied to newly hired employees of the Group.
The Board of Directors has appointed a Supervisory Body, which has the duty to verify the correct functioning of the Model and to update it accordingly. The Compliance Committee refers to the Board of Directors and to the Internal Control and Risk Management Committee. The Supervisory Body, which has its own internal Regulations, is comprised of an outsider (Eng. Franco Gianolio) as its President, the Lead Independent Director (Mr. Fausto Forti), and the Head of the Internal Audit department (Mr. Edoardo Dezani), who will remain in office until the approval of the Financial Statements as at 31 December 2017.
The Italian Group companies have entrusted the function of the Compliance Committee to their Directing body, which performs the functions of compliance through resources within the Supervisory Body of the Parent Company, on the basis of specific agreements.
In 2016 the Supervisory Body met four (4) times and referred to the Board of Directors and to the Statutory Auditors in relation to their activities and the state of the art concerning the Model.
The Shareholders' General Meeting held on 29 April 2010, approved the appointment of EY S.p.A. as the Company's independent auditors for the nine-year period 2010-2018 which includes the audit of the separate Financial Statements, the annual consolidated Financial Statements and the half-year condensed consolidated Financial Statements.
The Board of Directors, at its meeting of 23 April 2015, in accordance with the provisions of Law 262/2005, confirmed as the Director responsible for drawing up the Company's Financial Statements, upon the proposal of the Chairman and Chief Executive Officer, and with the favorable opinion of the Board of Statutory Auditors, Mr. Giuseppe Veneziano, based on the experience matured in such department during the previous three years, as well as in the context of the Group's administrative and management control areas ever since it was listed; on 25 June 2015, the power of attorney was renewed for the same Director in order to enable him to carry out the powers attributed to him.
Pursuant to article 24 of the Company by-laws, the Director must set up adequate administration and accounting procedures for the drawing up of the statutory Financial Statements, the consolidated statements and any other financial communication.
The Director, together with the other Executive organs, must undersign an attestation, annexed to every Financial Statement and to any other financial communication in accordance with specific laws and regulations.
With reference to his tasks, the Director responsible for drawing up the Financial Statements and legal documents has the same responsibilities and liabilities as those foreseen by law for the Directors, with the exception of those executed under work relations with the company.
At present, the company does not consider it necessary to set up formal procedures for coordination between the various parties involved in the Internal Control and Risk Management system, as they already work in a spirit of mutual cooperation.
In compliance with the Corporate Governance Code transactions carried out with related parties are performed in a transparent manner and meet criteria of substantial and procedural fairness. Directors who have an interest, even if only potential or indirect with related parties shall:
The Board of Directors can however, under certain circumstances, allow the Directors to participate and/or vote.
In accordance with Consob regulation no. 17221 of 12 March 2010, the Company has adopted, effective 1 January 2011, procedures for transaction with related parties (the "Procedures") to ensure full transparency and substantial and procedural fairness in transactions with related parties and is available on the Company website (www.reply.com – Investors – Corporate Governance).
Recalling the definition of Consob Regulation no. 17221 of 12 March 2010, the Procedures establish "significant transactions" those requiring the prior approval of the Board of Directors, with the exception of those subject to law and/or the General Shareholders, "minor transactions" (unless pertaining to the residual category of non significant transactions) those that can be delegated to one or more members of the Board and "exempt transactions" those falling under the types disciplined by Consob regulations.
In the past the Company has exercised the option to apply the procedures related to minor transactions to significant transactions, as it is a smaller sized company; in the month of May 2015, as the Company no longer falls under a small sized company and therefore cannot exercise such faculty, the procedure was modified.
Under a procedural perspective, when a transaction with a related party is deemed probable, the Designated Director (that is the Director in charge of supervising the Internal Control System) timely provides the Committee (identified within the Internal Control Committee) written communication with a brief description of the transaction.
If the transaction falls under the significant transaction category, the Committee must express a motivated and binding opinion concerning the convenience and substantial correctness of the terms and conditions of the transaction. Should the Committee express an unfavorable opinion, the Board of Directors could choose to submit to the General Shareholders' meeting the decision concerning the transaction; in this case, the transaction cannot be approved unless the majority of the non Related Shareholders express a favorable vote, provided that they represent at least 10% of the voting share capital.
If the transaction falls under the minor transaction category, the Committee submits to the Director its non binding opinion concerning the convenience and substantial correctness of the terms and conditions of the transaction prior to the presentation of the contractual proposal, or, in case the decision is taken by the Board of Directors of the Company, at least three days prior to the board's meeting.
If the transaction falls under the General Shareholders' competencies or must be authorized by the latter, in addition to what has been described above, depending on whether the transaction is significant or minor, the Committee must express a motivated opinion in relation to the Company's interest in carrying out the transaction along with the convenience and substantial correctness of the terms and conditions of the transaction when the Board of Directors is called to approve the motion to submit to the General Shareholders' meeting the decision.
If, in relation to a significant operation the motion to submit to the General Shareholders' meeting the decision is approved by the Board of Directors despite an unfavorable opinion expressed by the Committee, the transaction – having respected the constituent and voting quorum requested for the adoption of ordinary and extraordinary resolutions by the General Shareholders' meeting – cannot be approved unless the majority of the non Related Shareholders express a favorable vote, provided that they represent at least 10% of the voting share capital.
In case there is an urgency, the operation, as long it is not competence of the Shareholders and does not need their authorization, may be concluded in derogation of the procedures as long as all mandatory information has been provided to the public and under the condition that:
The Designated Director, on at least a quarterly basis, submits to the Committee, to the Board of Directors and to the Board of Statutory Auditors, a detailed report concerning transactions previously approved by the Board of Directors and/or carried out by the Chief Executive Officer.
The Head of the Internal Control Function periodically carries out –on an annual basis – control activities over the fulfilment of obligations of the Procedures herein by the competent company departments and refers to the Committee and Board of Statutory Auditors.
In 2016 the Committee for transaction with related parties, identified within the Internal Control Committee (now called the Control and Risks Committee), did not meet.
The appointment and substitution of Auditors is disciplined by Art. 23 (Board of Statutory Auditors) of the by-laws, and is available on the Company's website (www.reply.com under –Investors – Corporate Governance).
Art. 23 of the Company by-laws, regulates that:
With regard to the application of the criterion of allocation in connection with the election of auditors, under Art. 148, paragraph 1 bis of the TUF, Reply to S.p.A. applied the renewal of the corporate bodies on 23 April 2015.
The Board of Statutory Auditors is made up of three standing auditors and two alternate auditors and the Board is comprised as follows:
| - Mr. Cristiano Antonelli | President |
|---|---|
| - Dott.ssa Ada Alessandra Garzino Demo | Statutory Auditor |
| - Mr. Paolo Claretta – Assandri | Statutory Auditor |
| - Dott.ssa Giuliana Monte | Alternate auditor |
| - Mr. Alessandro Pedretti | Alternate auditor |
The Board of Statutory Auditors was appointed during the Shareholders' meeting on 23 April 2015 based on the list which was presented by the majority shareholders of Alika S.r.l..
The office expires on 31 December 2017 with the approval of the Financial Statements.
On an annual basis and upon nomination, the Committee, verifies the requisites of independence of its members in accordance to Article 144-novies of the Regolamento Emittenti and in compliance to the Code of Conduct.
During the periodic controls carried out in 2015 and in compliance to the Code, the Committee has not disclosed any situations which could compromise independence and it has been resolved not to apply the criteria stated in Article 3.C.1 letter f) of the Code, in view of member's authority, even in light of the resolutions made by the Board of Directors.
This was verified with regards to Mrs. Ada Alessandra Garzino Demo from June 2012.
Considering the professional experience of the members of the Statutory auditors, the Company deemed not necessary to proceed with training courses, finalized at providing an adequate knowledge of Reply S.p.A's business and norms and regulations.
Statutory auditors who have an interest, even if only potential or indirect in a given transaction shall promptly inform the members of the Board of Statutory Auditors and the Chairman of the Board of Directors of the interest and the related circumstances.
During the periodic controls carried out in 2015 by the main controlling committees, the Statutory Auditors coordinated its activities with the functions of the Internal Audit, the Internal Control committee and with the Supervisory Board.
The exchange of information is carried out on a quarterly basis during Statutory Auditors meetings and also through the participation of the President during the Internal Control and Risk Committee meetings.
The table below summarizes the Board of Statutory Auditors with the main information requested in accordance with Article 144-duodecies issued by Consob
| Name | Office | Date of birth |
Date of first nomination |
In office List(*) |
Independent from code |
% of attendance in meetings of Board of Statutory Auditors |
Other offices held (1) |
|
|---|---|---|---|---|---|---|---|---|
| Cristiano Antonelli |
President | 1951 | 29/04/2009 | From1.1.15 to 31.12.17 |
M | X | 100% | - |
| Ada Alessandra Garzino Demo |
Statutory Auditor | 196 | 10/06/2003 | From 1.1.15 to 31.12.17 |
M | X | 88% | 20 |
| Paolo Claretta Assandri |
Statutory Auditor | 1954 | 01/01/2003 (**) |
From 1.1.15 to 31.12.17 |
M | X | 100% | 32 |
| Giuliana Monte | Alternative Auditor |
1964 | 22/07/2013 | From 1.1.15 to 31.12.17 |
M | X | NA | NA |
| Alessandro Pedretti |
Alternative Auditor |
1969 | 29/04/2009 | From 1.1.15 to 31.12.17 |
M | X | NA | NA |
Key:
M/m: M/majority list m/minority list
(1) Where applicable a list of all positions held has been annexed, according to Art. 144-quinquies decies of RE, as replaced by Resolution no. 17326 of 13 May 2010.
(*) the last quorum for the presentation of the lists reached 2.5%. Nomination was unanimous and reached favorable votes equal to 59.199% of the share capital.
(**) office not held on a continuous basis
Following is a brief description of personal and professional qualities of the members of the Statutory Auditors of the Company:
Cristian Antonelli is a professor of political economics, at the Economic Department Salvatore Cognetti de Martiis at the University of Turin; Director of BRICK (Bureau of Research in Innovation Complexity and Knowledge) at Carlo Alberto College. He is the editor of the 'Economics of Innovation and New Technology' magazine. In the past he was Director at the Economic Department Salvatore Cognetti de Martiis at the University of Turin (2004-2010) His education background includes a Master in Economics at ISTAO of Ancona. During 1978 and 1979 he was a junior economist of the Science and Technology department of the OCSE and Rockefeller Fellow in the Sloan School of Massachusetts Institute of Technology from 1983 to 1985. He has taught in the universities of Sassari, Calabria, the Polytechnic of Milan and in the universities of Manchester, Nice, Lyon, Lumiere, Aix-en-Provence, Paris XIII and Paris XII. During the academic year 1999-2000 he taught in the university of Dauphine Paris IX. He is President of Reply's Statutory Board of Auditors since 2009. In the past Mr. Antonelli was member of the Board of Directors of Telecom Italia in the two-year period 1998-99 and of Pirelli&C for the three-year period 2008-2011; Member of the Science Committee of Confindustria in 1999 and 2000; Techno-scientific Committee of ENEA from 2000-2004. Furthermore he held office as Chairman of ICER (International Centre for Economic Research from 2008 to 2011 and was Vice-president of the International Schumpeter Society from 1999 to 2004.
Mrs. Ada Alessandra Garzino Demo graduated in Economics at the University of Turin in 1987. She has been registered on the Registry of Qualified Accountants and Bookkeepers ever since 1991 and the Registry of Auditors ever since 1995. She works as a Charted accountant and provides fiscal and corporate consultancy for medium-large companies as well as Multinationals. Mrs. Ada Alessandra Garzino Demo is specialized in Telecommunication tax matters and fiscal planning. She covers the role of both Statutory Auditor and president in other companies.
Mr. Paolo Claretta Assandri received a graduate degree in Economics and Commerce at the University of Turin in 1978, has been registered on the Registry of Qualified Accountants and Bookkeepers ever since 1981 and the Registry of Auditors ever since 1983. She works as a Charted accountant in Turin and provides fiscal and corporate consultancy for medium-large companies as well as Multinationals.
In 2016 the Statutory Auditors met eight (8) times.
The compensations paid to the Statutory Auditors is disclosed in the Annual Report on Remuneration pursuant to Article 123-ter of TUF.
Legislative decree 39/2010 assigns the Board of Statutory Auditors the role of the committee for control and risks and audits responsible for supervising: (i) the financial disclosure process, (ii) the effectiveness of the internal control, internal audit and risk management systems, (iii) the audit of the annual separate and consolidated accounts, (iv) the independence of the independent auditors and, starting from 2017, following the amendments made to the Decree 39/2010 by Legislative Decree No. 135/2016, as (i) inform the governing body of the outcome of the statutory audit; (ii) be responsible for the procedure aimed at selecting the auditor.
The Board of Directors ensures that a person in charge of relations with investors is identified and periodically assesses the need to constitute a structural function within the company.
With a resolution of the Board on 23 April 2015 Mr. Riccardo Lodigiani, in charge of relations with institutional investors and with shareholders (Investor relator) in order to create an ongoing dialogue with the market.
The abovementioned person must exclusively and periodically inform the Chairman and the designated member of the board of his activities.
On the Company's website (www.reply.com, Investors – Corporate Governance), the following documents are available:
The company encourages and facilitates the participation at the Annual General Meetings providing any necessary information or explanation in order to guarantee a smooth and conscientious participation of the Shareholders.
The Company, with the resolution by the Board of Directors on 26 October 2010 and by the Extraordinary Shareholders' meeting on 28 April 2011, has introduced the amendments to the Company's by-laws required by Legislative Decree no. 27 of 27 January 2010 enacting the Community Directive no. 2997/36/EC in relation to the shareholders' rights in listed companies.
Art. 12 of the Company by-laws establishes that shareholders are entitled to intervene during the General Shareholders' meeting if they are shareholders at the end of the seventh accounting day of open markets preceding the General Shareholders' meeting and have provided written notice pursuant to art. 2370, paragraph two of the Italian Civil Code.
The Company can designate for each general meeting one or two persons to whom confer the voting rights with specific instructions for one or more proposals on the agenda.
The designated persons, the means and terms of the conferred delegation are communicated on the notice calling the general meeting.
The company does not deem necessary the adoption of an Annual General Meeting legislation (aimed at regulating the running of the meetings), as the Company's by-laws provide adequate provisions concerning the matter.
At the Ordinary General Shareholders' meeting held on 21 April 2016, nine (9) Directors out of nine (9) spoke. On that occasion, the Board of Directors reported on its activities during the year 2015.
System of the Company's operational procedures – in order to properly apply the Company's regulations and to reduce risks connected with achieving the Company's objectives, Reply S.p.A. has adopted a set of procedures that regulate internal processes, governing both the activities carried out by the single departments as well as relations with other entities; Reference is made in this regard to what has been described in the paragraph on the Internal Control and Risk Management System.
Following the year end close no significant changes have been made to the structure of the Corporate Governance, other than what has been disclosed above.
Turin, 15 March 2017
For the Board of Directors The Chairman Mr. Mario Rizzante
Annual Report on Remuneration
This document ("The Annual Report on Remuneration", the "Report"), was prepared and approved by the Board of Directors on 15 March 2016 according to Article 123-ter of Legislative Decree No. 58/1998 ("TUF") and Article 6 of the Corporate Governance Code, the July 2015 version, approved by the Corporate Governance Committee established at Borsa Italiana S.p.A..
The Report describes the Remuneration policy adopted by Reply S.p.A (hereon "Reply") with reference to remuneration to (i) members of the Board of Directors and in particular to Executive Directors and Directors invested with special charges (ii) Directors with Strategic Responsibility.
The corporate bodies and persons responsible for drafting, approving and implementing the remuneration Policy are the following:
With regard to remuneration, the Shareholders' meeting:
Resolves on the Remuneration Plans based on shares or other financial instruments for Directors, employees and collaborators, including Managers with strategic responsibilities pursuant to Article 114 bis TUF.
The Board of Directors:
Establishes a Remuneration and Nominating Committee from among its members. One member must have adequate knowledge and experience with regards to financial and remuneration policy; the persons competence is evaluated by the Board when he/she is elected;
Determines, upon a proposal of the Remuneration and Nominating Committee, the remuneration policy for members of the administrative bodies. The remuneration policy defines guidelines which all company members involved must follow as to determine the remuneration of Executive Directors, Directors invested with special charges and Directors with strategic responsibilities. Such guidelines are illustrated in the present document;
Approves the Annual Report on Remuneration which shall be submitted to the General Shareholders' meeting;
Upon the proposal or opinion of the Remuneration and Nominating Committee determines, based on the guidelines of the Remuneration Policy, and in any case upon consulting the Board of Statutory Auditors, the remuneration of the Executive Directors and other Directors with specific responsibilities; prepares, with the assistance of the Remuneration and Nominating Committee, the remuneration plans based on the allocation of shares or other financial instruments and submits them to the approval of the Shareholders' meeting in accordance with Article 114-bis TUF;
Carries out the Remuneration plans based on shares or other financial instruments delegated by the Shareholders' meeting.
Considering the current structure of the Board of Directors and the shares held in Reply S.p.A., by various members, no succession plan which regulates the substitution of Executive Directors or Directors with Strategic position or those who have ceased has been implemented. In particular, the substitution of an Executive is carried out in accordance to Article 2386 of the Italian Civil Code, in which the Board of Directors chooses the Executive. Whereas the substitution of Directors with strategic responsibility is agreed upon by top management of the company.
The remuneration committee:
Makes proposals and advises the Board of Directors in relation to the remuneration to Executive Directors and other Directors with special charges, and furthermore advises on the identification and fixing of adequate performance objectives that enable the calculation of the variable components of the compensation;
Makes proposals to the Board of Directors on the remuneration policy;
Assists the Board of Directors in drawing up and implementing remuneration plans based on shares or other financial instruments;
Periodically evaluates the adequacy and correct application of the remuneration policy, making use of information provided by the Executive Directors when the evaluation is referred to a Director with strategic responsibility;
Provides the Board of Directors' opinions and proposals about remuneration;
Monitors implementation of the decisions adopted by the Board of Directors regarding remuneration, evaluating that the performance target has been achieved;
Refers to the Shareholders' the methods of the Committees functions; for such reason, the presence of the Chairman of the Remuneration and Nominating Committee or another member of the Committee is recommended at the annual Shareholders' meeting;
If it is deemed necessary or appropriate an external consultant with expertise in remuneration policy can be utilized to carry out such task; the independent expert must not carry out any form of activity in favor of Reply Human resource department, shareholders', Executive Directors and Directors with strategic responsibilities. The independence of external consultants is verified by the Remuneration and Nominating Committee before they are appointed.
On 27 April 2012, Reply S.p.A.'s Board of Directors appointed the members of the Remuneration and Nominating Committee. As at the date of approval of this Report, the Remuneration and Nominating Committee was comprised as follows:
Fausto Forti, Chairman of the Committee and Lead Independent Director;
Maria Letizia Jaccheri, Independent Director;
Enrico Macii, Independent Director.
The Chairman of the Remuneration and Nominating Committee has gained adequate knowledge and experience on financial issues and remuneration policy given his professional experience characterized by operational responsibility in large companies.
In 2016 the Remuneration Committee did not rely on the support of independent remuneration policy experts to draw up the Remuneration Policy.
For further information regarding the operation and activities of the Remuneration and Nominating Committee for the financial year ended as at 31 December 2016, see the 2016 Report on Corporate Governance and Ownership Structure.
.
Executive Directors:
The Board of Statutory Auditors has the task of providing opinion in relation to the Remuneration Policy; in particular the Board provides opinions on the remuneration of Executive Directors and Directors invested with special charges; in expressing their opinion the Board verifies the consistency of the proposals with the Remuneration Policy:
The 2017 Remuneration Policy has undergone some changes with respect to 2016, in view of the assessments made by the Remuneration and Nominating Committee at the meeting of 15 March 2017 and subsequently, on the same date, by the Board of Directors.
In that regard, it should be noted that the Board of Directors at its meeting of March 15, 2017 has seen fit to make changes to the remuneration policy adopted in the previous year, confirming the General principles contained in it and introducing a greater articulation of the variable remuneration component.
The Remuneration Policy is intended to ensure the Company has the ability to attract, retain and motivate individuals who have professional skills and experience to pursue the achievement of the Company's objectives. The Policy is also instrumental in aligning the interests of the Company's management with those of the shareholders, pursuing the primary objective of the creation of value over a medium-long term period, through the creation of a strong link between remuneration and individual performance.
With reference to 2016 the Directors were as follows:
| Mario Rizzante | Chairman and Chief Executive Officer |
|---|---|
| Tatiana Rizzante | Chief Executive Officer |
| Oscar Pepino | Executive Director |
| Claudio Bombonato | Executive Director |
| Daniele Angelucci | Executive Director |
| Filippo Rizzante | Executive Director |
| Fausto Forti | Non-Executive Director, Independent and Lead Independent Director |
| Maria Letizia Jaccheri | Non-Executive Director and Independent |
| Enrico Macii | Non-Executive Director and Independent |
In 2016 remuneration of Directors not invested with operational proxies is as follows:
30,000 Euros annually for each member of the Board, as resolved by the Shareholders' meeting of 23 April 2015.
In 2016 the remuneration of Board members of the Supervisory Body – with reference to Mr. Fausto Forti – was determined as follows:
1,000 Euros for each participation in the Supervisory Body meeting.
A specific remuneration component in relation to the participation in the Committee meetings or to the execution of specific engagements not related to operational proxies is not foreseen, being the beneficiaries of the compensation only the Executive Directors that are also members of the Committee, the compensation to the Directors already takes into consideration the commitment deriving from the participation in the Committee meetings.
In line with best practices, Non-Executive Directors are not eligible for any variable form of compensation linked to the achievement of financial targets.
In line with best practice, the Company has an insurance policy on third party liability for damage inflicted by the Board of Directors (apart from the General Manager, but also Directors with Strategic Responsibilities) in performing their duties, with the aim of safeguarding the beneficiaries and the Company from any connected indemnity, excluding cases of malice or gross negligence.
Under a legal and statutory perspective, remuneration of the Company's Executive Directors are established in accordance with:
From the perspective of the Remuneration Policy, the remuneration of the Executive Directors is generally comprised of the following elements:
A gross annual fixed component;
A variable component linked to general predetermined, measurable objectives connected to the creation of value over a medium period of time.
The Board of Directors keeps in mind two factors when determining remuneration and its single components: (i) the specific proxy that each Executive Directors holds and/or (ii) the function and the role actually carried out by each Executive Director within the Company, thus ensuring that the variable component is coherent with the tasks assigned.
Under an accounting perspective, the remuneration of the Executive Directors is recorded in the Financial Statements in the year in which the services are rendered both for the fixed gross annual component and the variable component, even though payment is made through profit sharing in accordance with Article 22 of the Company By-laws; This is consistent with the International Financial Reporting Standards IAS/IFRS in as much as profit-sharing is considered to all effects as part of the remuneration and therefore the relative al location is recorded in the Financial Statements in the year in which the Executive Directors' services are rendered; for such reason, the proposal to attribute profit-sharing is the object of resolution by the Board of Directors at the same time as approval of the draft annual Financial Statements.
With reference to 2017, remuneration is based on the following criteria:
The consistency between the elements as to determine remuneration and the objectives;
The correct balance between the fixed and variable component of short and long term based on the strategic objectives and risk management policy of the Company, keeping in mind the field in which it operates and the characteristics of the activities concretely carried out;
The weight of the variable component is approximately 2/3 of the whole remuneration package, being understood that the fixed component must be sufficient to compensate the performance of Executive Directors in case the variable component is not paid out when performance objectives established by the Board of Directors are not achieved;
Pre-established performance targets, i.e. financial results or other specific objectives linked to the payment of the variable component, are measurable and linked to the creation of value for shareholders over the medium to long term;
The relationship between the variance of the results achieved and the variance of the short-term remuneration is guaranteed through scaling of the variable compensation up to a maximum limit related to a scale of objectives;
Deferral of payment of the variable components with respect to when the compensation matures in order to verify the fulfillment of the objectives and moreover enable a proper risk management of the company within the Remuneration Policy requirements.
With reference to the variable components of the remuneration for the Executive Directors, the Remuneration Committee proposes objectives and, during the subsequent year, performance checks in order to verify whether the objectives established the previous year were achieved.
The criteria utilized in defining remuneration for Executive Directors for 2017 was established by the Board of Directors and is as follows:
The Executive Directors can also be granted other types of benefits typical of the office held and recognized within the Group to Directors having strategic responsibilities and/or managers (i.e. company car).
At present, Directors' severance indemnity (TFM) has been allocated for Executive Directors and Managers with strategic responsibilities having analogous characteristics to employee severance indemnity (TFR) pursuant to Article 2120 of the Italian Civil Code to which the Group's Italian managers are legally entitled.
The Board of Directors can propose to the Shareholders the adoption of the incentive mechanisms through the attribution of financial options. At present no incentive plans of this kind have been established.
The Company deems that the Remuneration Policy is consistent with the pursuit of the long-term interests of the company and its risk management.
As at 15 March 2017 the role of General Manager is non existent in the Company's organization.
Four Directors have Strategic Responsibility at 15 March 2017.
Remuneration to Directors with Strategic Responsibilities is composed by a fixed and variable component and established with the same principles and criteria described above for the Executive Directors. For further information see point 2.4 Remuneration to Executive Directors. Directors with Strategic Responsibilities have the right to severance indemnity (TFR) ex Art. 2120 of the Italian Civil Code. Furthermore some Directors who cover strategic positions in subsidiaries have also been assigned post termination treatment determined in the same manner as severance indemnity.
The remuneration to the Director in charge of drawing up the Financial Statements and the Internal Audit manager are in line with the tasks assigned.
At the date of the present Report no allowance has been set in event of cessation of office or termination of employment on behalf of Executives and Directors with Strategic Responsibilities apart from what is provided by the ex law and/or the Collective labor agreement in case the persons have a dependent work contract.
Considering the current structure and how the variable component of remuneration is determined, of the Directors and Directors with strategic responsibility, in the case of cessation of office due to inadequate results achieved, and if remuneration has been paid, no return mechanisms have been defined.
3.1. Remuneration paid to members of the Board of Directors, Statutory Auditors, General Managers and Executives with Strategic Responsibilities
Remuneration paid in 2016 to members of the Board of Directors, Statutory Auditors, General Managers with Strategic Responsibilities
(figures in thousands of Euros)
| Name | Office held | Period of office Term of office (*) |
Fixed | Remuneration for | non equity variable remuneration | Non Other |
Total | Fair value | Post mandate | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Surname | Reply S.p.A. | Remunerati on |
the participation in internal committees |
Bonus and other incentives |
Profit Sharing | monetary benefits |
remuneratio n |
of the equity remunerati on |
indemnity | |||
| Mario Rizzante | Chairman and Chief Executive Officer |
1/01/2015-31/12/2016 | 31/12/2017 | 460(1) | - | - | 450 | - | - | 910 | - | - |
| Remuneration paid by subsidiaries | 270(2) | - | - | - | - | - | 270 | - | - | |||
| Total | 730 | 450 | 1.180 | - | - | |||||||
| Chief Executive Officer |
1/01/2015-31/12/2016 | 31/12/2017 | 210(3) | - | - | 450 | - | - | 660 | - | - | |
| Tatiana Rizzante |
Remuneration paid by subsidiaries | 348(4) | - | - | - | - | - | 348 | - | - | ||
| Total | 558 | - | - | 450 | - | - | 1,008 | - | - | |||
| Oscar Pepino | Executive Director |
1/01/2015-31/12/2016 | 31/12/2017 | 300 | - | - | 200 | - | 500 | - | - | |
| Claudio Bombonato |
Executive Director |
1/01/2015-31/12/2016 | 31/12/2017 | 400 | - | - | 300 | - | - | 700 | - | - |
| Executive Director |
1/01/2015-31/12/2016 | 31/12/2017 | 100 | - | - | 450 | - | - | 550 | - | - | |
| Filippo Rizzante |
Remuneration paid by subsidiaries | 345 | - | - | - | - | - | 345 | ||||
| Total | 445 | - | - | 450 | - | - | 895 | |||||
| Daniele Angelucci |
Executive Director |
1/01/2015-31/12/2016 | 31/12/2017 | 220 | - | - | 450 | - | - | 670 | - | - |
243 | Annual Financial Report 2016
| Remuneration paid by subsidiaries | 147(5) | - | - | - | - | 30(6) | 177 | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 367 | - | - | 450 | - | 30 | 847 | |||||
| Fausto Forti | Non-Executive Director and Independent |
1/01/2015-31/12/2016 | 31/12/2017 | 34(7) | - | - | - | - | - | 34 | - | - |
| Maria Letizia Jaccheri |
Non-Executive Director and Independent - |
23/4/2015 – 31/12/2016 | 31/12/2017 | 30 | 30 | |||||||
| Enrico Macii | Non-Executive Director and Independent - |
23/4/2015 – 31/12/2016 | 31/12/2017 | 30 | 30 | |||||||
| Cristiano Antonelli |
Chairman of the Board of Statutory Auditors |
1/01/2014-31/12/2016 | 31/12/2014 | 48 | - | - | - | - | - | 48 | - | - |
| Statutory Auditor | 1/01/2014-31/12/2016 | 31/12/2014 | 32 | - | - | - | - | - | 32 | - | - | |
| Ada Alessandra Garzino Demo |
Remuneration paid by subsidiaries | 10(8) | - | - | - | - | - | 10 | ||||
| Total | 42 | - | - | - | - | - | 42 | |||||
| Paolo Claretta Assandri |
Statutory Auditor | 1/01/2014-31/12/2014 | 31/12/2014 | 32 | - | - | - | - | - | 32 | - | - |
| Remuneration paid by Reply S.p.A. | 82 | - | - | - | - | - | 82 | - | - | |||
| Directors Responsibility |
with Strategic |
Remuneration paid by subsidiaries | 936 | - | - | 543 | - | 65(6) | 1,544 | - | - | |
| Total | 1,018 | - | - | 543 | - | 65 | 1,626 | - | - |
(*) Office expires upon approval of the financial statements .
To be noted that where no indication has been made, no compensation has been given to Reply S.p.A. subsidiaries.
Remuneration to Directors is as follows:
(1) Gross emolument for the office of Chairman and Chief Executive Officer of the Board of Directors in Reply S.p.A.;
(2) Gross emolument for the office of Chief Executive Officer in subsidiaries;
At present no stock options are held, have been assigned, exercised or have expired in 2016.
| First name and |
Office | Shares | No. of shares | No. of | No. of | No. of | |
|---|---|---|---|---|---|---|---|
| Surname | held | held at | shares | shares | shares | ||
| 31/12/2015 | bought | sold | held at | ||||
| 31/12/2016 | |||||||
| Chairman and Chief | Reply | ||||||
| Mario Rizzante | Executive Officer | S.p.A. | 1 | 11,381 | - | - | 11,381 |
| Reply | |||||||
| Tatiana Rizzante | Chief Executive Officer | S.p.A. | 2 | 15,734 | - | - | 15,734 |
| Oscar Pepino | Executive Director | Reply | 3 | 12,252 | - | 12,252 | |
| S.p.A. | - | ||||||
| Claudio Bombonato | Executive Director | Reply | 17,500 | - | 5,120 | 12,380 | |
| S.p.A. | |||||||
| Filippo Rizzante | Executive Director | Reply | 3,400 | - | - | 3,400 | |
| S.p.A. | |||||||
| Daniele Angelucci | Executive Director | Reply | 4 | 139,090 | - | - | 139,090 |
| S.p.A. | |||||||
| Fausto Forti | Non- Executive Director | Reply | - | - | - | - | |
| and Independent | S.p.A. | ||||||
| Maria Letizia | Non- Executive Director | Reply | - | - | - | - | |
| Jaccheri | and Independent | S.p.A. | |||||
| Enrico Macii | Non- Executive Director | Reply | - | - | - | - | |
| and Independent | S.p.A. | ||||||
| Cristiano Antonelli | President of the Board of | Reply | - | - | - | - | |
| Statutory Auditors | S.p.A. | ||||||
| Ada Alessandra | Statutory Auditor | Reply | - | - | - | - | |
| Garzino Demo | S.p.A. | ||||||
| Paolo Claretta | Statutory Auditor | Reply | - | - | - | - | |
| Assandri | S.p.A. |
1 of which 10,101 shares held personally;
2 of which 12,170 shares held personally;
3 di cui 12,252 shares held personally;
4 of which 96,990 shares held personally and 38,400 shares held in usufruct
At 31/12/2016 the following members of the Board of Directors hold shares in the Company:
| Number of Directors having strategic responsibility |
Shares in | No. Of shares held at 31/12/2015 |
No. of shares bought |
No. of shares sold | No. Of shares held at 31/12/2016 |
|---|---|---|---|---|---|
| 4 | Reply S.p.A. | 316,358 | - | 13,300 | 303,058 |
In the present document the definitions of the words in upper case is as follows:
"Board": means all the Board members of Reply, whether Executive, Non- Executive, Independent, etc.;
"Executive Directors": means, in accordance with the criteria of the Corporate governance Code for Listed Companies:
Directors of Reply who have been nominated as Chief Executive Directors of the Company or subsidiaries which has strategic importance;
Members of the Reply Board of Directors with management duties in the Company or subsidiaries which has strategic importance;
The Directors of Reply, who may also be the Chairman of the Company, holder of specific individual proxies or having a specific role in the development of the company strategies;
"Other Directors invested with special charges" means Directors who are assigned special charges (i.e. Chairman, Vice- Chairman), different from the Executive Directors;
"Executives with Strategic responsibilities" means those who have power and responsibility in – directly or indirectly- planning, managing and controlling the activities of the Company, in accordance with the Market Abuse Regulation (Regolamento UE n. 596/2014), pursuant to art. 3, paragraph 1, point 25, let. b).
Reply S.p.A. Corso Francia, 110 10143 TURIN – ITALY Tel. +39-011-7711594 Fax +39-011-7495416 www.reply.com
Share capital: Euro 4,863,485.64 i.v. Fiscal code and Company register of Turin no. 97579210010 VAT no. 08013390011 REA of Turin 938289
E-mail: [email protected] Tel. +39-011-7711594 Fax +39-011-7495416
E-mail: [email protected] Tel. +39-02-535761 Fax +39-02-53576444
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