Annual Report • Mar 30, 2015
Annual Report
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| Board of Directors and Controlling Bodies | 3 |
|---|---|
| The Group's financial highlights | 4 |
| Report on Operations | 8 |
| Main risks and uncertainties to which Reply S.p.A and | 9 |
| the Group are exposed | 9 |
| Review of the Group's economic and financial position | 12 |
| Significant operations in 2014 | 18 |
| The Parent Company Reply S.p.A. | 23 |
| Corporate Governance | 27 |
| Other information | 27 |
| Events subsequent to 31 December 2014 | 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 2014 | 32 |
| Consolidated income statement (*) | 33 |
| Consolidated statement of comprehensive income | 34 |
| Statement of financial position (*) | 35 |
| Statement of changes in consolidated equity | 36 |
| Statement of cash flows | 37 |
| Notes to the financial statements | 38 |
| Annexed tables | 87 |
| Attestation of the Consolidated Financial Statements in accordance with Article 154-bis of Legislative Decree 58/98 | 94 |
| Statutory Auditors' Report | 95 |
| Independent Auditors' Report | 98 |
| Financial Statements as at 31 December 2014 | 101 |
| Income statement (*) | 102 |
| Statement of comprehensive income | 103 |
| Statement of financial position (*) | 104 |
| Statement of changes in equity | 105 |
| Statement of cash flows | 106 |
| Notes to the financial statements | 107 |
| Annexed Tables | 151 |
| Disclosures pursuant to Article 149-duodecies | 157 |
| by Consob | 157 |
| Attestation of the Financial Statements in accordance with Article 154-bis of Legislative Decree 58/98 | 158 |
| Statutory Auditors' Report | 159 |
| Independent Auditors' Report | 167 |
Mario Rizzante
Chief Executive Officer Tatiana Rizzante
Daniele Angelucci Claudio Bombonato Oscar Pepino Filippo Rizzante Fausto Forti (1) (2) (3) Carlo Alberto Carnevale Maffè (1) (2) Marco Mezzalama (1) (2)
President Cristiano Antonelli
Statutory Auditors Paolo Claretta Assandri Ada Alessandra Garzino Demo
Reconta Ernst & Young S.p.A.
(1) Directors not invested with operational proxies.
(2) Independent Directors according to the Corporate Governance code drawn up by the Committee for Corporate Governance
(3) Lead Independent Director
This report has been transalted into English from the original Italian version. In case of doubt the Italian version shall prevail.
| Economic figures (Thsd Euros) | 2014 | % | 2013 | % | 2012 | % |
|---|---|---|---|---|---|---|
| Revenue | 632,184 | 100.0 | 560,151 | 100 | 494,831 | 100 |
| Gross operating income | 85,119 | 13.5 | 72,600 | 13.0 | 62,424 | 12.6 |
| Operating income | 80,663 | 12.8 | 64,171 | 11.5 | 52,249 | 10.6 |
| Income before taxes | 79,267 | 12.5 | 61,732 | 11.0 | 50,265 | 10.2 |
| Group net income | 47,909 | 7.6 | 34,450 | 6.2 | 27,094 | 5.5 |
| Financial figures (Thsd Euros) | 2014 | 2013 | 2012 |
|---|---|---|---|
| Group shareholders' equity | 251,908 | 211,808 | 175,757 |
| Non controlling interest | 936 | 799 | 2,704 |
| Total assets | 616,712 | 549,531 | 475,298 |
| Net working capital | 134,341 | 124,374 | 120,476 |
| Net invested capital | 236,531 | 207,596 | 178,834 |
| Cash flow | 49,578 | 44,132 | 31,986 |
| Net financial position | 16,313 | 5,011 | (373) |
| Data per share | 2014 | 2013 | 2012 | |
|---|---|---|---|---|
| Number of shares | 9,352,857 | 9,307,857 | 9,222,857 | |
| Operating income per share | 8.62 | 6.89 | 5.67 | |
| Net result per shares | 5.12 | 3.70 | 2.94 | |
| Cash flow per share | 5.30 | 4.74 | 3.47 | |
| Shareholders' equity per share | 26.93 | 22.76 | 19.06 |
| Other information | 2014 | 2013 | 2012 |
|---|---|---|---|
| Number of employees | 4,689 | 4,253 | 3,725 |
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 unfavourable 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 creditworthiness 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 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 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 2014 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 ended 2014 financial year with consolidated sales of 632.2 million Euros, an increase of 12.9% compared to the 560.2 million Euros reported in 2013.
EBITDA was 85.1 million Euros (72.6 million Euros in 2013) while EBIT achieved was 80.7 million Euros (64.2 million Euros in 2013).
Consolidated net profit reached 47.9 million Euros (34.5 million Euros in 2013).
Following the results achieved in 2014, the Reply Board of Directors decided to propose the distribution of a gross dividend of 0.85 Euros per share at the next Annual General Meeting. This will be paid from 6 May 2015, with the ex-dividend date set at 4 May 2015 (record date at 5 May 2015).
The Group's net financial position at 31 December 2014 was positive by 16.3 million Euros, a significant improvement over the 5.0 million Euros recorded at 31 December 2013.
The year 2014 has seen the Group achieve excellent results not only in economic and financial terms, but also as perceived by the market. Reply is, in effect, one of the leaders in Europe in the area of digital transformation, with a unique skill set, ranging from consulting and strategic communication to the design of technology architectures, and the design of integrated hardware-software.
The distinctive positioning in the main areas, now the basis of the future development of companies – such as Cloud Computing, Digital Services, Mobile, Big Data and the Internet of Things - combined with the ability to provide the customer with the best skills on the basic components of innovation and the main application domains of CRM, SCM, Risk Management and Digital Payments, lead to Reply's increasing involvement in the creation of solutions for the most important business areas.
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) | 2014 | % | 2013 | % |
|---|---|---|---|---|
| Revenues | 632,184 | 100 | 560,151 | 100 |
| Purchases | (12,227) | (1.9) | (10,644) | (1.9) |
| Personnel | (308,452) | (48.8) | (269,893) | (48.2) |
| Services and other costs | (222,135) | (35.1) | (200,419) | (35.8) |
| Other operating (costs)/income | (4,252) | (0.7) | (6,595) | (1.2) |
| Operating costs | (547,065) | (89) | (487,551) | (87.0) |
| Gross operating income (EBITDA) | 85,119 | 13.5 | 72,600 | 13.0 |
| Amortization, depreciation and write-downs | (8,021) | (1.3) | (7,949) | (1.4) |
| Other unusual (costs)/income | 3,565 | 0.6 | (480) | (0.1) |
| Operating income (EBIT) | 80,663 | 12.8 | 64,171 | 11.5 |
| Financial income/(expenses) | (1,396) | (0.2) | (2,439) | (0.4) |
| Income before taxes | 79,267 | 12.5 | 61,733 | 11.0 |
| Income taxes | (30,646) | (4.8) | (26,653) | (4.8) |
| Net income | 48,621 | 7.7 | 35,080 | 6.3 |
| Non controlling interests | (712) | (0.1) | (630) | (0.1) |
| Group net income | 47,909 | 7.6 | 34,450 | 6.2 |
Group key events of 2014 are summarized below:
October 2014: Reply continues to invest in the Internet of Things (IoT) and in Wearable Technologies with Breed Reply (www.breedreply.com), its advanced incubator for funding, accelerating and supporting the growth and establishment of ideas and start-ups around the IoT across Europe and the USA.
July 2014: Reply S.p.A. extends its presence in North America signing a term sheet, bound to exclusivity and confidentiality obligations, to take a 20% interest in Sensoria Inc., a leading wearable technology and Internet of Things developer.
July 2014: Cluster Reply has been nominated Microsoft Dynamics' strategic partner by Microsoft. This places Cluster Reply in the Microsoft Dynamics Inner Circle, a restricted group of highly-specialised international partners for Microsoft Dynamics technology.
July 2014: Power Reply, the Reply group company that specialises in consulting services and development of energy and utilities companies, and a Platinum level member of Oracle PartnerNetwork (OPN), announced that it is among the first Partners worldwide to achieve the OPN Specialized status for Oracle Utilities Meter Data Management.
April 2014: Storm Reply has been designated a Premier Consulting Partner by Amazon Web Services (AWS), making it part of an elite list of AWS' top 22 Consulting Partners worldwide. Storm Reply was recognized with this prestigious award thanks to the quality of the services it provides to customers on AWS and makes the company a point of reference in the whole cloud computing value chain.
February 2014: RSA, the Security Division of EMC, appoints Communication Valley Reply as the first Europe-based RSA Managed Security Program services provider. This endorsement further strengthens the two companies' long alliance, having worked together closely on key security projects for Europe's leading industrial groups. Communication Valley Reply and RSA have pooled their expertise to collaborate in the area of research and development, focused on managed security services projects.
The Group's financial structure is set forth below as at 31 December 2014, compared to 31 December 2013:
| (thousand Euros) | 31/12/2014 | % | 31/12/2013 | % | Change |
|---|---|---|---|---|---|
| Current operating assets | 353,927 | 318,530 | 35,397 | ||
| Current operating liabilities | (219,586) | (194,156) | (25,430) | ||
| Working capital, net (A) | 134,341 | 124,374 | 9,968 | ||
| Non current assets | 170,351 | 162,569 | 7,782 | ||
| Non current liabilities | (68,161) | (79,347) | 11,186 | ||
| Fixed capital (B) | 102,190 | 83,222 | 18,968 | ||
| Invested capital, net (A+B) | 236,531 | 100.0 | 207,596 | 100.0 | 28,935 |
| Shareholders' equity (C) | 252,843 | 106.9 | 212,607 | 102.4 | 40,237 |
| NET FINANCIAL POSITION (A+B-C) | (16,313) | (6.9) | (5,011) | (2.4) | (11,301) |
Net invested capital on 31 December 2014, amounting to 236,531 thousand Euros, was financed for 252,843 thousand Euros by net capital and reserves and by available overall funds of 16,313 thousand Euros.
The following table provides a breakdown of net working capital:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Work in progress | 40,801 | 21,910 | 18,891 |
| Trade receivables | 285,465 | 271,167 | 14,298 |
| Other current assets | 27,661 | 25,454 | 2,207 |
| Current operating assets (A) | 353,927 | 318,530 | 35,397 |
| Trade payables | 83,360 | 68,124 | 15,237 |
| Other current liabilities | 136,225 | 126,032 | 10,193 |
| Current operating liabilities (B) | 219,586 | 194,155 | 25,430 |
| Working capital, net (A-B) | 134,341 | 124,374 | 9,968 |
| % return on investments | 21.3 % | 22.2 % |
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Cash and cash equivalents, net | 50,745 | 38,861 | 11,884 |
| Current financial assets | 2,245 | 1,010 | 1,235 |
| Due to banks | (6,348) | (14,100) | 7,752 |
| Due to other providers of finance | (671) | (319) | (352) |
| Short-term financial position | 45,972 | 25,453 | 20,519 |
| Non current financial assets | 1,371 | 1,278 | 93 |
| Due to banks | (29,994) | (20,755) | (9,239) |
| Due to other providers of finance | (1,036) | (964) | (71) |
| M/L term financial position | (29,659) | (20,442) | (9,218) |
| Total net financial position | 16,313 | 5,011 | 11,301 |
Change in the item cash and cash equivalents is summarized in the table below:
| (thousand Euros) | 2014 |
|---|---|
| Cash flows from operating activities (A) | 49,578 |
| Cash flows from investment activities (B) | (31,933) |
| Cash flows from financial activities (C) | 5,761 |
| Change in cash and cash equivalents (D) = (A+B+C) | 11,884 |
| Cash and cash equivalents at beginning of period (*) | 38,861 |
| Cash and cash equivalents at year end (*) | 50,745 |
| Total change in cash and cash equivalents (D) | 11,884 |
(*) 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 the month of July 2014 Reply S.p.A extended its presence in North America signing a term sheet, bound to exclusivity and confidentiality obligations, to take 19.99% interest in Sensoria Inc., a leading wearable technology and Internet of Things developer. The investment, which amounts to USD 5 million, is part of Reply's development strategy connected to the Internet of Things.
Sensoria – Headquartered in Redmond, Washington – 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.
Sensoria's objective is to work with industry partners to enable the Internet of Everyone. After releasing the Sensoria Developer Kit, designed for developers of wearable solutions, Sensoria, will continue to work with leaders in each industry to create connected, biometric driven consumer experiences.
Internet of Things is at the basis of the next wave of technology innovation and Rely intends to play a key role in this epochal transition and the investment in Sensoria is part of this.
Reply launched in October 2014 Breed Reply a new Reply advanced incubator for funding, accelerating and supporting the growth and establishment of ideas and start-ups around IoT across Europe and the USA.
Breed Reply, based in London and with offices in Italy and Germany, offers three fundamental services: funding at "seed" and "early stage" level; considerable support with significant know how transfer of business, managerial and technological expertise; and thanks to Reply's ecosystem, medium-term involvement to establish start-ups in their market.
Breed Reply will offer the start-ups the opportunity to present their ideas and projects through IoT Best in Breed, an initiative that aims to identify the most innovative ideas in IoT space.
Breed Reply has already selected start-ups for their highly innovative solutions and their outstanding management teams, capable of combining excellent ideas and market potential:
Continuous profitable growth and consequent investments in future business opportunities have been the main value drivers for the Reply share in financial year 2014. Despite of significant geopolitical risks and economic concerns the share price increased 7% until the end of the year; on February 13, 2015 when this report was closed, the share was up 30%. Once again the share developed better than the main European indexes and outperformed most of the peer companies in the IT and agency spaces. In terms of valuation Reply is now traded at the average multiples of the peer group, top- and bottom-line. The longlasting valuation gap has been closed. We invite our shareholders to stay invested since Reply continues to belong to the strong-growing and highly profitable companies in our industry.
Until mid of May the Italian stock market and the Reply share price rose continuously. On April 22, 2014 the Reply share stood at Euro 67,90, its highest value in 2014. Despite of good Q1 results published mid of May the Reply share entered a downside corridor which led to the year-low value of Euro 47,70 on July 25, 2014. The general downward trend of the markets was enforced by an investment fund that had to close positions due to bigger money outflows. Given its strong past performance, the Reply share was among those affected by this development.
During summer the Reply share was able to close the gap with the development of the main indices and for the rest of the year more or less developed in parallel with the capital markets. At the end of 2014 the Reply share improved 7%, quite close to the increase of the STAR index (+9%) and well ahead of the development of the Italian MIB index who closed 2014 on the level of the beginning of the year.
Reply continued to elaborate its position in the capital markets. With a market capitalization of Euro 680 million Reply can get on the radar of additional investor groups, more focused on larger companies. In the Italian MidCap Index, where Reply is a constituent since March 2013, Reply improved its rank to number 44 (end of 2013: number 46).
The liquidity situation of the Reply share was mixed in 2014. Altogether the trading volume of the Reply share amounted to Euro 213 million, another strong increase by 57% year on year. However this development was mainly due to the increase of the share price. The number of traded Reply shares at the Italian Stock Exchange reduced by 3% to 3.6 million. The average traded shares per day amounted to 13.8 thousand following 14.7 thousand in the year before. Circa two-thirds of these shares were traded in the first half of 2014, only one-third in the second half. So a significant liquidity reduction took place in the second half of the year.
Although most of the liquid means produced shall stay in the group to finance future growth, Reply is sharing its positive course of business with its shareholders also by means of dividend distributions. In 2014 Reply achieved earnings per share of Euro 5.10 an increase of 37.8% compared to 2013. For the financial year 2014 the corporate bodies of Reply propose to the shareholders' meeting to approve the payment of a dividend of EUR 0.85 (dividend 2013: Euro 0.70). Referred to the share price of Reply at the end of 2014 this means a dividend yield of 1.4% (1.2% in 2013).
The following table gives an overview on the main parameters of the Reply share and their substantial developments during the last 5 years.
| 2014 | 2013 | 2012 | 2011 | 2010 | ||
|---|---|---|---|---|---|---|
| Share price | ||||||
| Year-end | Euro | 60.90 | 56.90 | 20.99 | 16.02 | 19.21 |
| High for the year | Euro | 67.90 | 56.90 | 21.00 | 21.49 | 20.44 |
| Low for the year | Euro | 47.70 | 20.92 | 15.89 | 14.86 | 14.94 |
| Trading | ||||||
| Number of shares traded (year) | # thousand | 3,586.0 | 3,705.0 | 1,497.3 | 1,403.1 | 1,693.6 |
| Number of shares traded (day) | # thousand | 13.8 | 14.7 | 5.9 | 5.5 | 6.6 |
| Trading volume (year) | Euro million | 212.7 | 123.9 | 27.323 | 26.615 | 28.529 |
| Trading volume (day) | Euro million | 0.844 | 0.492 | 0.108 | 0.104 | 0.111 |
| Number of shares | # thousand | 9,352.9 | 9,307.9 | 9,222.9 | 9,222.9 | 9,222.9 |
| Share capital | Euro million | 4.863 | 4.840 | 4.796 | 4.796 | 4.796 |
| Free Float | % | 43.1 | 42.1 | 41.8 | 42.3 | 42.3 |
| Market capitalization | Euro million | 569.6 | 529.6 | 193.6 | 147.8 | 177.2 |
| Earnings per share | Euro | 5.10 | 3.38 | 2.94 | 2.62 | 2.21 |
| Dividend 1) | Euro | 0.85 | 0.70 | 0.57 | 0.50 | 0.45 |
| Dividend payment | Euro million | 7.950 | 6.515 | 5.257 | 4.611 | 4.150 |
| Dividend yield 2) | % | 1.4% | 1.2% | 2.7% | 3.1% | 2.3% |
1) Amount proposed for shareholder approval for 2014
2) Related to year-end closing price
Based on the last information on the Reply shareholders' register 60.5% of the Reply shares are owned by the founders and the management of Reply whereas institutional shareholders increased their holdings to 32.7%. Accordingly the shares in the hands of retail shareholders dropped to 6.8%.
Also the regional distribution of the Reply shareholders changed slightly. The very strong performance of Reply in the last 2 years forced some investors to adjust their positions because of internal portfolio limits. In September 2014 68.4% of the shares were allotted to Italian shareholders (2013: 71.4%), 8% were held by shareholders from Germany (2013: 10%) whereas 7.7% were related to British (2013: 1.4%) and US shareholders (2013: 4.8%) each.
In December 2014 Reply was informed that the US-based Investor GMT Capital built a position of 5.1% of the Reply shares. This news explained the strong growth of US investors in the shareholder register of Reply.
Unchanged 4 analysts from Italy and Germany are covering the Reply share. All of them gave an "overweight" rating.
In 2014 Reply continued its manifold activities with the capital markets to keep shareholders informed. During the last year Reply more than doubled its participation in conferences, one-on-one meetings and roadshows all over Europe. Especially visits of and calls with US Investors and the France and UK activities increased significantly. Helsinki and Edinburgh were 2 new locations where Reply conducted roadshows. Also the number of brokers, Reply is working with, expanded significantly. In 2013 Reply was active with 3 brokers; this number increased to 11 in 2014. The beginning of 2015 shows the investor attention for Reply remains at high levels. We still meet many new investors during our capital market tours. Lyon, Barcelona and Stockholm have already been identified as venues for roadshows.
The tables presented and disclosed below were prepared on the basis of the financial statements as at 31 December 2014 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 2014 the Parent Company had 96 employees (89 employees in 2013).
Reply S.p.A. also carries out commercial fronting activities 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) | 2014 | 2013 | Change |
|---|---|---|---|
| Revenues from operating activities | 45,694 | 39,794 | 5,900 |
| Income from fronting activities | 252,614 | 243,723 | 8,891 |
| Purchases, services and other expenses | (281,823) | (273,670) | (8,153) |
| Personnel and related expenses | (17,703) | (16,081) | (1,622) |
| Other unusual operating (expenses)/income | (2,989) | 250 | (3,239) |
| Amortization, depreciation and write-downs | (672) | (698) | 26 |
| Operating income | (4,878) | (6,682) | 1,804 |
| Financial income/(expenses) | 2,526 | 443 | 2,084 |
| Gain on equity investments | 34,951 | 28,815 | 6,137 |
| Loss on equity investments | (7,460) | (8,393) | 933 |
| Income before taxes | 25,140 | 14,183 | 10,958 |
| Income taxes | (1,209) | 624 | (1,833) |
| NET INCOME | 23,932 | 14,807 | 9,125 |
Revenues from operating activities mainly refer to charges for:
Operating income 2014 marked a negative result of 4,878 thousand Euros after having deducted amortization expenses of 672 thousand Euros (of which 4,063 thousand Euros referred to intangible assets and 269 thousand Euros to tangible assets).
Financial income/(expenses) amounted to 2,526 thousand Euros, and included interest income for 2,766 thousand Euros and interest expenses for 1,760 thousand Euros mainly relating to financing for the M&A operations. Such result also includes net positive exchange rate differences amounting to 1,513 thousand Euros.
Income from equity investments which amounted to 34,951 thousand Euros refers to dividends received from subsidiary companies in 2014.
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 2014, amounted to 23,932 thousand Euros after income taxes of 1,209 thousand Euros
Reply S.p.A.'s financial structure as at 31 December 2014, compared to that as at 31 December 2013, is provided below:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Tangible assets | 1,095 | 447 | 648 |
| Intangible assets | 954 | 1,140 | (187) |
| Equity investments | 130,081 | 130,197 | (116) |
| Other fixed assets | 1,522 | 1,670 | (148) |
| Non financial liabilities - L/T | (8,956) | (17,011) | 8,055 |
| Fixed capital | 124,696 | 116,443 | 8,253 |
| Net working capital | 4,572 | 9,061 | (4,490) |
| INVESTED CAPITAL | 129,268 | 125,504 | 3,764 |
| Shareholders' equity | 163,936 | 145,504 | 18,432 |
| Net financial position | (34,668) | (19,999) | (14,669) |
| TOTAL SOURCES | 129,268 | 125,504 | 3,764 |
The net invested capital on 31 December 2014, amounting to 129,268 thousand Euros, was financed for 163,936 thousand Euros from Shareholders' equity and available overall funds of 34,668 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 2014, compared to 31 December 2013, is detailed as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Cash and cash equivalents, net | 4,193 | (3,615) | 7,808 |
| Financial loans to subsidiaries | 49,849 | 42,874 | 6,975 |
| Receivables from factor | 960 | 669 | 290 |
| Due to banks | (6,285) | (13,956) | 7,671 |
| Due to subsidiaries | (26,868) | (22,062) | 22,744 |
| Net financial position short term | 21,849 | 3,911 | 17,938 |
| Long term financial assets | 42,487 | 36,251 | 6,236 |
| Loans to third parties | - | - | - |
| Due to banks | (29,668) | (20,163) | (9,505) |
| Due to subsidiaries | - | - | - |
| Net financial position long term | 12,819 | 16,089 | (3,270) |
| Total net financial position | 34,668 | 19,999 | 14,669 |
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.
| 31/12/2014 | 31/12/2013 | ||||
|---|---|---|---|---|---|
| (thousand euros) | Shareholder's Equity |
Net Result Shareholder's Equity |
Net Result | ||
| Reply S.p.A.'s separate financial statements | 163,936 | 23,932 | 145,504 | 14,807 | |
| Results of the subsidiary companies | 143,235 | 53,955 | 133,592 | 52,793 | |
| Carrying value of investments in consolidated companies | (63,860) | - | (63,035) | - | |
| Elimination of dividends from subsidiary companies | - | (37,698) | - | (28,854) | |
| Adjustments to accounting principles and elimination of unrealized intercompany gains and losses, net of related tax effect |
9,531 | 8,432 | (3,453) | (3,668) | |
| Non controlling interests | (936) | (712) | (797) | (630) | |
| Net Group consolidated financial statement | 251,908 | 47,910 | 211,809 | 34,450 |
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 2014, 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.eu. - 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 2014 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 and concentrates on the following sectors:
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:
Amazon
Research and development activities are fully described in the Corporate information of "Reply Living Network".
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 2014 the Group had 4,689 employees compared to 4,253 in 2013. During the year 1,065 were employed and 629 left the Group.
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 597 treasury shares amounting to 9,127 Euros, nominal value equal to 310 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.
In the month of March 2015 Reply GmbH & Co. KG acquired the 100% share capital of Leadvise Region Mitte GmbH, incorporated under the German law, for 3,5 thousand euros. The company offers services in Management Consulting mainly in the areas of Innovation Management, Risk Management and Digital Optimization.
Reply was founded when Internet was just at its beginning and in no time at all, Reply has become an important exponent in which it is able to dominate the evolution of technologies, applications and processes, thanks to it audacity in anticipating the changing drivers.
Today the Group competes with the global leaders, and is a strong competitor regarding new technology and business areas such as Big Data, Cloud computing, Digital services and Social Media.
Reply has consolidated experience in the main core issues of the various industrial sectors which allows Reply to rapidly transform technology in innovation for its clients and support them in the search of new competitiveness that the markets impose on companies.
Today Reply is facing a new challenge which is the transforming of the combination among Digital Services, Big Data and Internet of Things. This new challenge is revolutionizing our way of living, working and thinking.
This is a great opportunity for Reply which intends to play a key role in this epochal transition which may influence all industrial sectors and services.
The financial and economic soundness of the group enable Reply to face this new scenario and to emerge and conquer new areas in the upcoming years.
The financial statements at year end 2014 of Reply S.p.A. prepared in accordance with International Financial Reporting Standards (IFRS), recorded a net income amounting to 23,931,709 Euros and net shareholders' equity on 31 December 2014 amounted to 163,935,517 Euros thus formed:
| (Euros) | 31/12/2014 |
|---|---|
| Share Capital | 4,863,486 |
| Share premium reserve | 23,302,692 |
| Legal reserve | 972,697 |
| Reserve for treasury shares on hand | 9,127 |
| Other reserves | 110,855,806 |
| Total share capital and reserves | 140,003,808 |
| Net income | 23,931,709 |
| Total | 163,935,517 |
The Board of Directors in submitting to the Shareholders the approval of the financial statements (Separate Statements) as at 31 December 2014 showing a net result of 23,931,709 Euros, proposes that the shareholders resolve:
Turin, 13 March 2015 /s/ Mario Rizzante
For the Board of Directors The Chairman
Mario Rizzante
Consolidated Financial Statement as at 31 December 2014
| (thousand Euros) | Note | 2014 | 2013 |
|---|---|---|---|
| Revenues | 5 | 632,184 | 560,151 |
| Other income | 17,085 | 14,307 | |
| Purchases | 6 | (12,227) | (10,644) |
| Personnel | 7 | (308,452) | (269,893) |
| Services and other costs | 8 | (239,220) | (214,726) |
| Amortization, depreciation and write-downs | 9 | (8,021) | (7,949) |
| Other unusual (cost)/income | 10 | (686) | (7,075) |
| Operating income | 80,663 | 64,171 | |
| Financial income/(expenses) | 11 | (1,396) | (2,439) |
| Income before taxes | 79,267 | 61,733 | |
| Income taxes | 12 | (30,646) | (26,653) |
| Net income | 48,621 | 35,080 | |
| Non-controlling interest | (712) | (630) | |
| Group net result | 47,909 | 34,450 | |
| Earnings per share | 13 | 5.12 | 3.81 |
| Diluted earnings per share | 13 | 5.12 | 3.79 |
(*) 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 34.
| (thousand euros) | Note | 2014 | 2013 |
|---|---|---|---|
| Profit of the period (A) Other comprehensive income that will not be reclassified subsequently to profit or loss: |
48,621 | 35,093 | |
| Actuarial gains/(losses) from employee benefit plans | 24 | (2,349) | 836 |
| Total Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1): |
(2,349) | 836 | |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
|||
| Gains/(losses) on cash flow hedges | 24 | 120 | (51) |
| Gains/(losses) on exchange differences on translating foreign operations | 24 | 339 | 405 |
| Total Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax (B2): |
459 | 354 | |
| Total other comprehensive income, net of tax | |||
| (B) = (B1) + (B2): | (1,890) | 1,190 | |
| Total comprehensive income (A)+(B) | 46,731 | 36,283 | |
| Total comprehensive income attributable to: | |||
| Owners of the parent | 46,019 | 35,639 | |
| Non-controlling interests | 712 | 644 |
| (thousand Euros) | Note | 31/12/2014 | 31/12/2013 |
|---|---|---|---|
| Tangible assets | 14 | 14,976 | 13,553 |
| Goodwill | 15 | 126,763 | 125,637 |
| Other intangible assets | 16 | 6,549 | 6,363 |
| Equity investments | 17 | 3,911 | 23 |
| Financial assets | 18 | 4,471 | 4,275 |
| Deferred tax assets | 19 | 15,052 | 13,997 |
| Non current assets | 171,722 | 163,847 | |
| Work in progress | 20 | 40,801 | 21,910 |
| Trade receivables | 21 | 285,465 | 271,167 |
| Other current assets | 22 | 27,661 | 25,454 |
| Financial assets | 18 | 2,245 | 1,010 |
| Cash and cash equivalents | 23 | 88,819 | 66,145 |
| Current assets | 444,990 | 385,684 | |
| TOTAL ASSETS | 616,712 | 549,531 | |
| Share capital | 4,864 | 4,840 | |
| Other reserves | 199,135 | 172,519 | |
| Group net income | 47,909 | 34,450 | |
| Group shareholders' equity | 24 | 251,908 | 211,809 |
| Non controlling interest | 936 | 799 | |
| SHAREHOLDERS' EQUITY | 24 | 252,843 | 212,608 |
| Payables to minority shareholders and corporate transactions | 25 | 13,306 | 35,364 |
| Financial liabilities | 26 | 31,030 | 21,719 |
| Employee benefits | 27 | 24,454 | 20,089 |
| Deferred tax liabilities | 28 | 15,630 | 12,458 |
| Provisions | 29 | 14,772 | 11,436 |
| Non current liabilities | 99,191 | 101,067 | |
| Financial liabilities | 26 | 45,092 | 41,702 |
| Trade payables | 30 | 83,360 | 68,124 |
| Other current liabilities | 31 | 135,202 | 125,048 |
| Provisions | 29 | 1,024 | 984 |
| Current liabilities | 264,678 | 235,858 | |
| TOTAL LIABILITIES | 363,869 | 336,925 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 616,712 | 549,531 |
(*)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.
| (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 2013 | 4,796 | (3,605) | 48,776 | 126,305 | (73) | 24 | (1,524) | 2,704 177,403 | |
| Share capital increase | 44 | - | 1,743 | - | - | - | - | - | 1,787 |
| Dividends distributed | - | - | - | (5,131) | - | - | - | (844) | (5,975) |
| Change in treasury shares |
- | 3,596 | - | - | - | - | - | - | 3,596 |
| Total profit (loss) | - | - | - | 34,449 | (51) | 405 | 836 | 644 | 36,283 |
| Other changes | - | 1,380 | 226 | - | - | (272) | (1,705) | (372) | |
| Balance at 31 December 2013 |
4,840 | (9) | 51,899 | 155,849 | (124) | 313 | (960) | 799 212,608 |
| (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 2014 | 4,840 | (9) | 51,899 | 155,849 | (124) | 313 | (960) | 799 | 212,607 |
| Share capital increase | 23 | - | 937 | - | - | - | - | - | 960 |
| Dividends distributed | - | - | - | (6,546) | - | - | - | (694) | (7,240) |
| Total profit (loss) | - | - | - | 47,909 | 120 | 339 | (2,349) | 712 | 46,731 |
| Other changes | - | - | - | (333) | - | - | - | 119 | (214) |
| Balance at 31 December 2014 |
4,864 | (9) | 52,836 | 196,878 | (4) | 652 | (3,309) | 936 | 252,843 |
| (thousand euros) | 2014 | 2013 |
|---|---|---|
| Group net income | 47,909 | 34,450 |
| Income taxes | 30,646 | 26,652 |
| Amortization and depreciation | 8,021 | 7,949 |
| Other non-monetary expenses/(income) | (6,201) | 7,075 |
| Change in inventories | (18,891) | (6,482) |
| Change in trade receivables | (14,298) | (27,511) |
| Change in trade payables | 15,237 | 9,191 |
| Change in other assets and liabilities | 15,306 | 16,163 |
| Income tax paid | (26,653) | (22,006) |
| Interest paid | (1,843) | (1,501) |
| Interest collected | 346 | 151 |
| Net cash flows from operating activities (A) | 49,578 | 44,132 |
| Payments for tangible and intangible assets | (9,630) | (9,979) |
| Payments for financial assets | (5,318) | 1,934 |
| Payments for the acquisition of subsidiaries net of cash acquired | (16,984) | (20,846) |
| Net cash flows from investment activities (B) | (31,933) | (28,892) |
| Shares issued | 960 | 1,787 |
| Dividends paid | (7,240) | (5,975) |
| In payments from loans | 15,348 | 21,720 |
| Repayment of loans | (13,437) | (12,715) |
| Other changes | (1,393) | 191 |
| Net cash flows from financing activities (C) | (5,762) | 5,008 |
| Net cash flows (D) = (A+B+C) | 11,884 | 20,249 |
| Cash and cash equivalents at the beginning of period | 38,861 | 18,613 |
| Cash and cash equivalents at period end | 50,746 | 38,861 |
| Total change in cash and cash equivalents (D) | 11,884 | 20,249 |
| 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 | - Financial income/(expenses) | |
| NOTE 12 | - Income taxes | |
| NOTE 13 | - Earnings per share | |
| Statement of financial position - Assets | NOTE 14 | - Tangible assets |
| NOTE 15 | - Goodwill | |
| NOTE 16 | - Other intangible assets | |
| NOTE 17 | - Equity Investments | |
| NOTE 18 | - Financial assets | |
| NOTE 19 | - Deferred tax assets | |
| NOTE 20 | - Work-in-progress | |
| NOTE 21 | - Trade receivables | |
| NOTE 22 | - Other receivables and current assets | |
| NOTE 23 | - Cash and cash equivalents | |
| Statement of financial position - Liabilities and equity |
NOTE 24 | - Shareholders' equity |
| NOTE 25 | - Payables to minority shareholders and Earn-out | |
| NOTE 26 | - Financial liabilities | |
| NOTE 27 | - Employee benefits | |
| NOTE 28 | - Deferred tax liabilities | |
| NOTE 29 | - Provisions | |
| NOTE 30 | - Trade payables | |
| NOTE 31 | - Other current liabilities | |
| Other information | NOTE 32 | - Segment Reporting |
| NOTE 33 | - Additional disclosures to financial instruments and risk management policies |
|
| NOTE 34 | - Transactions with related parties | |
| NOTE 35 | - Emoluments to Directors, Statutory Auditors and Directors with Key responsibilities |
|
| NOTE 36 | - Guarantees, commitments and contingent liabilities | |
| NOTE 37 | Events subsequent to 31 December 2014 |
Reply [MTA, STAR: REY] specialises 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.eu).
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.
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 2014 and 2013 financial statements of the foreign companies included in consolidation:
| Average 2014 | On 31 December 2014 |
Average 2013 | On 31 December 2013 |
|
|---|---|---|---|---|
| GBP | 0.806429 | 0.7789 | 0.84928 | 0.8337 |
| CHF | 1.214631 | 1.2024 | 1.23091 | 1.2276 |
| Real | 3.122768 | 3.2207 | 2.87401 | 3.2576 |
| US Dollar | 1.328842 | 1.2141 | 1.32826 | 1.3791 |
| Polish Zloty | 4.184467 | 4.2732 | 4.18474 | 4.074 |
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:
an asset is created that can be identified (such as software and new processes);
it is probable that the asset created will generate future economic benefits;
the development cost of the asset can be measured reliably.
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 labour 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:
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
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 2014". 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.
IFRS 10 introduces a new single model of control which is applied to all entities, including special purpose entities. IFRS 10 replaces the previous standards governing consolidated financial statements and special purpose entities (IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities). Under the new concept of IFRS 10, control exists when the potential parent company holds decision power over the potential subsidiary based on voting rights or other rights, it is exposed to positive and negative variability in returns from the subsidiary, and these returns may be affected by the decision power held by the parent. IFRS 10 did not affect the Group's scope of consolidation.
IFRS 11 substitutes IAS 31 Investments in Joint Ventures and SIC 13 Jointly Controlled Entities – Non Monetary Contributions by Venturers and disallows the proportionate accounting method for jointly controlled entities. Rather, interests in joint ventures must be accounted for by using the equity method.
L'IFRS 12 provides the disclosures requirements for an entity's interest in subsidiaries, joint ventures, associates and special purpose vehicles. The required disclosures of IFRS 12 in such entities have been significantly expanded regarding subsidiaries. For example, disclosures related to when a subsidiary was consolidated and the parent owned less than a majority of voting rights. The IFRS 12 had little effect on the Group's consolidated financial statements.
Insofar as the parent company meets the definition of an investment entity, an exception is provided in relation to the consolidation of subsidiaries required under IFRS 10. Rather than consolidate them, such parent companies are required to measure their investments in particular subsidiaries at fair value through profit or loss. This amendment did not impact the Group's financial statements as there are no entities within the Group that qualify as investment entities under IFRS 10.
While the offsetting rules for financial instruments remain unchanged, the application guidance of the standard clarifies the meaning of "currently has a legally enforceable right to set-off" and "simultaneous". The amendments did not impact the Group's financial statements.
These amendments allow a novation of an OTC derivative designated as a hedging instrument to be deemed to be a continuation of the existing hedging relationship. The amendments did not impact the Group's financial statements as it did not substitute its hedging instruments in the year end under review nor in previous reporting periods.
These amendments revise the involuntary consequences of the introduction of IFRS 13 on disclosure required by IAS 36. The Amendment to IAS 36 includes revisions to the disclosure requirements of the recoverable amount of the asset or CGU for which an impairment loss was detected during the fiscal year
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 creditworthiness 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.
As the Group operates mainly in a "Euros area" the exposure to currency risks is limited.
The Group mainly does not operate in areas with strong fluctuations in currency and therefore this risk is not significant.
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, and when the Group considers it appropriate, makes use of 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 2013 is as follows:
Revenues from sales and services, including changes in work in progress on orders, amounted to 632,184 thousand Euros (560,151 thousand Euros in 2013).
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 | 2014 | 2013 |
|---|---|---|
| Italy | 72.3 % | 73.3 % |
| Germany | 15.5 % | 14.8 % |
| UK | 12.2 % | 11.9 % |
| 100.0 % | 100.0 % |
Disclosure required by IFRS 8 ("Operating segment") is provided in Note 32 herein.
Detail is as follows:
| (thousand Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Software licenses for resale | 6,038 | 5,885 | 153 |
| Hardware for resale | 693 | 452 | 241 |
| Other | 5,496 | 4,308 | 1,189 |
| Total | 12,227 | 10,644 | 1,583 |
Purchases of Software licenses and Hardware licenses for resale are recognized net of any change in inventory.
The item Other includes the purchase of fuel for 2,472 thousand Euros and the purchase of consumption material for 1,836 thousand Euros.
Detail is as follows:
| (thousand Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Payroll employees | 276,767 | 237,659 | 39,108 |
| Executive Directors | 25,342 | 26,630 | (1,288) |
| Project collaborators | 6,343 | 5,604 | 739 |
| Total | 308,452 | 269,893 | 38,559 |
The increase in the cost of employees, amounting to 38,559 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) | 2014 | 2013 | Change |
|---|---|---|---|
| Directors | 270 | 269 | 1 |
| Managers | 713 | 627 | 86 |
| Staff | 3,706 | 3,357 | 349 |
| Total | 4,689 | 4,253 | 436 |
On 31 December 2014 the Group had 4,689, employees compared with 4,253 at the end of 2013.
The average number of employees in 2014 was 4,473, an increase with respect to n. 3,985 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) | 2014 | 2013 | Change |
|---|---|---|---|
| Commercial and technical consulting | 144,870 | 126,455 | 18,415 |
| Travelling and professional training expenses | 24,341 | 23,088 | 1,253 |
| Other services costs | 41,711 | 40,839 | 872 |
| Office expenses | 14,384 | 14,197 | 187 |
| Lease and rentals | 7,255 | 6,611 | 644 |
| Other | 6,659 | 3,536 | 3,123 |
| Total | 239,220 | 214,726 | 24,494 |
The change in Services and other costs, amounting to 24,494 Euros, is attributable to an overall increase in the Group's business.
The item Other services mainly include marketing services, administrative and legal services, telephone and canteen.
Office expenses include services rendered by related parties in connection to service contracts for the use of premises, domiciliation and provision of secretarial services for 635 thousand Euros and rent charged by third parties for 8,627 thousand Euros. This item also includes utility expense for 2,401 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 2014 of 4,987 thousand Euros. Details of depreciation are provided in the notes to tangible assets.
Amortization of intangible assets for the year ended 2014 amounted to an overall loss of 3,034 thousand Euros. Details of depreciation are provided in the notes to tangible assets.
Other unusual operating costs amounted to 686 thousand Euros (7,075 thousand Euros in 2013) and refer to:
Detail is as follows:
| (thousand Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Financial income | 378 | 154 | 224 |
| Interest expenses | (1,950) | (1,647) | (303) |
| Other | 176 | (946) | 1,122 |
| Total | (1,396) | (2,439) | 1,043 |
Financial gains mainly include interest on bank accounts amounting to 346 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 2014amounted to 30,646 thousand Euros and is detailed as follows:
| (thousand Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| IRES and other taxes | 20,365 | 20,095 | 270 |
| IRAP (Italy) | 9,000 | 8,509 | 491 |
| Current taxes | 29,365 | 28,604 | 760 |
| Deferred tax expenses | 3,035 | 2,805 | 230 |
| Deferred tax income | (1,754) | (4,756) | 3,003 |
| Deferred taxes | 1,281 | (1,951) | 3,232 |
| Total income taxes | 30,646 | 26,653 | 3,992 |
The tax burden on the result before taxes was equivalent to 38.7% (43.2% in the financial year of 2013).
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 | 79,267 | |
|---|---|---|
| Theoretical income taxes | 21,798 | 27.5 % |
| Effect of difference between foreign tax rates and the theoretical Italian tax rate | (1,453) | |
| Other differences | 18 | |
| Current and deferred income tax recognized in the financial statement excluding IRAP | 20,364 | 25.7 % |
| IRAP current and deferred | 9,000 | |
| Current and deferred income recognized in the financial statements | 29,364 | 37.0 % |
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 earnings per share as at 31 December 2014 2013 was calculated on the basis of the Group's net result amounting to 47,909 thousand Euros (34,450 thousand Euros as at 31 December 2013) divided by the weighted average number of shares as at 31 December 2014 which amounted to 9,350,986 (9,092,021 as at 31 December 2013).
| (Euros) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Group net income | 47,909,000 | 34,450,000 |
| Average number per shares | 9,350,986 | 9,092,021 |
| Earnings per share | 5.12 | 3.81 |
Diluted earnings per share as at 31 December 2014 was calculated with reference to the net profit for the Group which amounted to 47,909 thousand Euros, divided by the weighted average number of shares as at 31 December 2014, also taking into consideration the effect of future dilutions which could derive from the hypothetical use of financial instruments potentially convertible in shares (stock options).
| (Euros) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Group net income | 47,909,000 | 34,450,000 |
| Average number per shares | 9,350,986 | 9,092,021 |
| Diluting effect | - | 45,000 |
| Weighted number of diluted shares | 9,350,986 | 9,137,021 |
| Diluted earnings per share | 5.12 | 3.79 |
Tangible assets as at 31 December 2014 amounted to 14,976 thousand Euros and are detailed as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Buildings | 2,048 | 2,190 | (142) |
| Plant and machinery | 2,209 | 1,154 | 1,055 |
| Hardware | 3,586 | 3,507 | 78 |
| Other | 7,134 | 6,702 | 432 |
| Total | 14,976 | 13,553 | 1,423 |
Change in Tangible assets during 2014 is summarized below:
| Plant and | |||||
|---|---|---|---|---|---|
| (thousand Euros) | Buildings | machinery | Hardware | Other | Total |
| Historical Cost | 4,023 | 4,584 | 23,719 | 14,035 | 46,361 |
| Accumulated depreciation | (1,833) | (3,430) | (20,211) | (7,333) | (32,808) |
| 31/12/2013 | 2,190 | 1,154 | 3,507 | 6,702 | 13,553 |
| Historical cost | |||||
| Increases | 1,569 | 2,733 | 2,210 | 6,512 | |
| Disposals | (1) | (693) | (382) | (1,076) | |
| Other changes | (4) | 85 | 250 | 331 | |
| Provisions for depreciation | |||||
| Depreciation | (142) | (509) | (2,607) | (1,750) | (5,008) |
| Utilized | - | 618 | 195 | 814 | |
| Other changes | - | (59) | (91) | (150) | |
| Historical Cost | 4,023 | 6,147 | 25,844 | 16,113 | 52,127 |
| Accumulated depreciation | (1,975) | (3,938) | (22,259) | (8,979) | (37,151) |
| 31/12/2014 | 2,048 | 2,209 | 3,586 | 7,134 | 14,976 |
During the financial year the Group carried out total investments for 6,512 thousand Euros (3,707 thousand Euros at 31 December 2013).
The item Buildings mainly includes the net value of a building owned by the group amounting to 2,185 thousand Euros, located in Gutersloh, Germany.
Increase in the item Plant and machinery mainly refers to purchases of specific devices and to plant systems for the new offices in which the Group operates.
Change in the item Hardware is due to investments made by the Italian subsidiaries for 1,575 thousand Euros, 818 thousand Euros for purchases made by German companies, and 213 thousand Euros for purchases made by the English companies. Furthermore this item includes financial leases for 248 thousand Euros (628 at 31 December 2013).
The item Other assets as at 31 December 2014 mainly includes improvements to third party assets and office furniture. The increase of 2,210 Euros mainly refers to improvements made to the offices where the Group's companies operate. Such item also includes a financial leasing for furniture for a net value amounting to 294 thousand Euros (592 thousand Euros at 31 December 2013).
Other changes refer mainly to translation differences.
As at 31 December 2014 tangible assets were depreciated by 71.3% of their value, compared to 70.8% at the end of 2013.
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 2014 developed as follows:
| (thousand Euros) | |
|---|---|
| Beginning balance | 125,486 |
| Increases | - |
| Impairment | - |
| Other changes | (346) |
| Total | 125,140 |
| Exchange rate differences | 1,623 |
| Ending balance | 126,763 |
Other change in 2014 refers to the reduction of goodwill due to the redefinition of the consideration for the acquisition of Mind Services within the first year of the acquisition.
Goodwill was allocated to the cash generating units ("CGU"), identified in the countries in which the Group operates. Moreover the breakdown reflects the business management of the Group by Top Management and is summarized as follows:
| CGU | Euro/000 |
|---|---|
| Italy | 38,548.1 |
| Germany | 34,151.9 |
| UK | 52,440.4 |
| Total | 125,140,4 |
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 | Italy | Germany | UK |
|---|---|---|---|
| Terminal value growth rates: | 1% | 1% | 1% |
| Discount rate, net of taxes: | 10.09% | 8.01% | 8.71% |
| Discount rate, before taxes: | 13.92% | 11.37% | 11.02% |
| Multiple of EBIT | 8.3 | 8.3 | 8.3 |
As to all CGUs subject to the impairment tests at 31 December2014 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 2014 of the CGU is equal to 213% for Italy, 64% for Germany and 16% for the UK.
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:
would not lead to an excess of the carrying value of the CGU compared to its recoverable value, which tends to be significantly higher. From such analysis, had the growth rate been reduced by 10% an impairment of the CGU UK would have been necessary.
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 2014 amounted to 6,550 thousand Euros (6,363 thousand Euros on 31 December 2013) and are detailed as follows:
| (thousand Euros) | Cost original | Cumulative amortization |
Net book value as at 31/12/2014 |
|---|---|---|---|
| Development costs | 17,494 | (13,894) | 3,599 |
| Software | 16,189 | (13,775) | 2,414 |
| Trademarks | 537 | - | 537 |
| Other intangible assets | 3,150 | (3,150) | - |
| Total | 37,369 | (30,819) | 6,550 |
Change in intangible assets during 2014 is summarized in the table below:
| (thousand Euros) | Net book value as at 31/12/2013 |
Increase | Amortization | Other changes | Net book value as at 31/12/2014 |
|---|---|---|---|---|---|
| Development costs | 3,616 | 1,840 | (1,857) | - | 3,599 |
| Software | 2,209 | 1,377 | (1,178) | 6 | 2,414 |
| Trademark | 537 | - | - | - | 537 |
| Total | 6,363 | 3,216 | (3,034) | 6 | 6,550 |
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 167 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.
Other intangible assets mainly includes the know-how of the Security Operation Centre (SOC), which offers a range of Managed Security Services (MSS) aimed at avoiding and identifying real or potential threats to which the complex IT infrastructures are exposed, in addition to proposing and implementing adequate counter-measures to limit or remove such dangers.
The item Equity Investments amounting to 3,911 thousand Euros mainly refers to the acquisition of the 19,99% share capital of Sensoria Inc., in the month of July 2014. The company, incorporated under American law, specializes in wearable technology and is part of the Reply Group development strategy connected to the Internet of Things.
Current and non current financial assets amounted to a total of 6,716 thousand Euros with compared to 5,284 thousand Euros as at 31 December 2013.
Detail is as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Receivables from insurance companies | 3,082 | 2,984 | 98 |
| Guarantee deposits | 1,013 | 975 | 38 |
| Loans to non consolidated companies | 20 | 1 | 19 |
| Long term securities | 358 | 303 | 55 |
| Other financial assets | 18 | 13 | 5 |
| Receivables from factor | 960 | 669 | 290 |
| Short term securities | 1,265 | 340 | 926 |
| Total | 6,716 | 5,284 | 1,431 |
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.
Receivables from factoring companies refer to receivables for the assignment of invoices without recourse for 4,798 thousand Euros, net of advance payments received for 3,838 thousand Euros.
Short term securities mainly refer to Time Deposit investments made by the Brazilian subsidiary.
The items Receivables from insurance companies other financial assets are not included in the net financial position.
Such an item, amounting to 15,052 thousand Euros as at 31 December 2014 (13,997 thousand Euros as at 31 December 2013), 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:
| (thousand euros) | 31/12/2013 | Accruals | Utilization | 31/12/2014 |
|---|---|---|---|---|
| Prepaid tax on costs that will become deductible in future years |
6,153 | 2,272 | (2,406) | 6,019 |
| Prepaid tax on greater provisions for doubtful | ||||
| accounts | 3,702 | 3,361 | (1,203) | 5,861 |
| Deferred fiscal deductibility of amortization Consolidation adjustments and other items |
1,659 2,483 |
352 997 |
(282) (2,036) |
1,728 1,444 |
| Total | 13,997 | 6,982 | (5,927) | 15,052 |
The decision to recognise 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 40,801 thousand Euros, is detailed as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Contract work in progress | 112,045 | 63,669 | 48,376 |
| Advance payments from customers | (71,244) | (41,759) | (29,485) |
| Total | 40,801 | 21,910 | 18,891 |
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 2014 amounted to 285,465 thousand Euros with a net increase of 14,298 thousand Euros.
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Domestic clients | 227,900 | 219,053 | 8,847 |
| Foreign trade receivables | 59,368 | 57,244 | 2,125 |
| Credit notes to be issued | (42) | (150) | 108 |
| Total | 287,226 | 276,147 | 11,079 |
| Allowance for doubtful accounts | (1,761) | (4,980) | 3,219 |
| Total trade receivables | 285,465 | 271,167 | 14,298 |
Trade receivables are shown net of allowances for doubtful accounts amounting to 1,761 thousand Euros on 31 December 2014 (4,980 thousand Euros at 31 December 2013).
The Allowance for doubtful accounts developed in 2014 as follows:
| (thousand Euros) | 31/12/2013 | Provision | Utilized | Reversals | 31/12/2014 |
|---|---|---|---|---|---|
| Allowance for doubtful accounts | 4,980 | 180 | (2,696) | (703) | 1,761 |
Over-due trade receivables and the corresponding allowance for doubtful accounts, compared to 2012, is summarized in the tables below:
| (thousand Euros) | Trade receivables |
Current | 0 - 90 days |
91 - 180 days |
181 - 360 days |
Over 360 days |
Total overdue |
|---|---|---|---|---|---|---|---|
| Trade receivables | 287,226 | 243,922 | 37,374 | 3,346 | 856 | 1,728 | 43,304 |
| Allowance for doubtful accounts | (1,761) | (11) | (313) | (78) | (129) | (1,230) | (1,750) |
| Total trade receivables | 285,465 | 243,911 | 37,060 | 3,268 | 726 | 498 | 41,554 |
| (thousand Euros) | Trade receivables |
Current | 0 - 90 days |
91 - 180 days |
181 - 360 days |
Over 360 days |
Total overdue |
|---|---|---|---|---|---|---|---|
| Trade receivables | 276,147 | 227,857 | 35,750 | 5,777 | 2,464 | 4,299 | 48,290 |
| Allowance for doubtful accounts | (4,980) | (4) | (270) | (189) | (1,169) | (3,347) | (4,976) |
| Total trade receivables | 271,167 | 227,852 | 35,480 | 5,588 | 1,295 | 952 | 43,314 |
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 recognised 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 recognised when the assets are derecognised from the Group's financial-economic position.
As at 31 December 2014 the receivables transferred via Factoring operations with recourse amounted to 2,805 thousand Euros.
The book value of the assets assigned without recourse as at 31 December 2014 amounted to 17,328 thousand Euros, with an increase of available liquidity of 16,368 thousand Euros of which 3,838 thousand Euros received as an advance.
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) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Tax receivables | 8,339 | 8,243 | 96 |
| Advances to employees | 116 | 273 | (158) |
| Accrued income and prepaid expenses | 5,120 | 4,014 | 1,106 |
| Other receivables | 14,086 | 12,923 | 1,163 |
| Total | 27,661 | 25,454 | 2,207 |
The item Other receivables includes the contribution to research as regards projects financed for 12,484 thousand Euros (10,904 thousand Euros at 31 December 2013).
The balance of 88,819 thousand Euros, with an increase of 22,674 thousand Euros compared with 31 December 2013, represents cash and cash equivalents and the existence of cash on hand and valuables as at the end of the year.
Changes in cash and cash equivalents are fully detailed in the Consolidated statement of cash flow.
On 31 December 2014 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 increase during the period refers to the exercise of stock options, in the amount of 45,000 option rights for a total value of 960,255 Euros, of which 23,400 Euros is by way of increase in share capital and 936,855 Euros by way of share premiums.
The value of the Treasury shares, amounting to 9 thousand Euros, refers to the shares of Reply S.p.A. held by the parent company, that at 31 December 2014 were equal to n. 597.
On 31 December 2014 Capital reserves, amounting to 52,836 thousand Euros, were mainly comprised as follows:
Earnings reserves amounted to 196,878 thousand Euros and were comprised as follows:
Other comprehensive income can be analysed as follows:
| (thousand euros) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax: |
||
| Actuarial gains/(losses) from employee benefit plan | (2,349) | 836 |
| Total Other comprehensive income that will not be classified subsequently to profit or loss, net of tax (B1): |
(2,349) | 836 |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
||
| Gains/(losses) on cash flow hedges | 120 | (51) |
| Gains/(losses) from the translation of financial statements | 339 | 405 |
| Total Other comprehensive income that may be classified subsequently to profit or loss, net of tax (B2): |
459 | 354 |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): | (1,890) | 1,190 |
Non controlling interest amounting to 936 thousand Euros on 31 December 2014 (799 thousand Euros on 31 December 2013), refer to the following companies consolidated on a line-by-line basis:
| - |
|---|
| (22) |
| 52 |
| - |
| 2 |
| 678 |
| 54 |
| 64 |
| is4 GmbH & Co. KG | 39 | 32 |
|---|---|---|
| Inessence Reply GmbH | (361) | (56) |
| Portaltech Reply GmbH | (153) | (5) |
| Total | 936 | 799 |
During 2014 all existing stock options were exercised in relation to the stock option plans resolved by the Annual Shareholders' Meetings in previous years.
Payables to minority shareholders and for company operations (earn out) at 31 December 2014 amounted to 13,306 thousand Euros including an exchange rate adjustment in the amount of 1,110 thousand Euros (35,364 thousand Euros on 31 December 2013).
| (thousand euros) | 31/12/2013 | Increases | Fair value adjustments |
Payments | Exchange differences |
31/12/2014 |
|---|---|---|---|---|---|---|
| Avantage Reply Ltd. | 10,932 | - | (11,141) | 209 | - | |
| 4brands GmbH & Co. KG | 3,550 | - | 321 | - | - | 3,871 |
| Mind Services Informatica | ||||||
| Ltda | 2,307 | - | (1,192) | - | 62 | 1,177 |
| Other Italy | 650 | - | 180 | - | - | 830 |
| Total payables to minority shareholders |
17,439 | - | (691) | (11,141) | 271 | 5,878 |
| Arlanis AG | 376 | - | (203) | (173) | - | - |
| Avvio Ltd | 3,547 | - | (1,144) | - | 439 | 2,842 |
| Portaltech Ltd | 3,480 | - | - | (3,480) | - | - |
| Riverland Reply GmbH | 950 | - | - | (300) | - | 650 |
| Solidsoft Reply Ltd | 8,089 | - | (4,769) | (1,993) | 400 | 1,727 |
| Triplesense Reply GmbH | 1,483 | - | 1,012 | (287) | - | 2,208 |
| Total payables to Earn-out | 17,925 | - | (5,104) | (6,233) | 839 | 7,427 |
| Total payables to minority shareholders and earn-out |
35,364 | - | (5,795) | (17,374) | 1,110 | 13,306 |
The item Fair value adjustments in 2014 amounted to 5,795 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 17,374 thousand Euros and refer to the consideration paid in relation to the original contracts signed at the time of acquisition.
Detail is as follows:
| 31/12/2014 | 31/12/2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| (thousand Euros) | Current Non current | Total | Current | Non current | Total | |||
| Bank overdrafts | 38,073 | - | 38,073 | 27,284 | - | 27,284 | ||
| Bank loans | 6,348 | 29,994 | 36,342 | 14,100 | 20,755 | 34,855 | ||
| Total due to banks | 44,421 | 29,994 | 74,415 | 41,383 | 20,755 | 62,138 | ||
| Other financial borrowings | 671 | 1,036 | 1,707 | 319 | 964 | 1,283 | ||
| Total financial liabilities | 45,092 | 31,030 | 76,122 | 41,702 | 21,719 | 63,421 |
The following table illustrates the distribution of financial liabilities by due date:
| 31/12/2014 | 31/12/2013 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (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 | 38,073 | - | - | 38,073 | 27,284 | - | - | 27,284 | ||
| M&A loans | 5,967 | - | 29,801 | 35,768 | 13,621 | 20,420 | - | 34,041 | ||
| Carispe Bank | - | - | - | - | 19 | - | - | 19 | ||
| Mortgage loans | 115 | 460 | 58 | 633 | 112 | 487 | 173 | 772 | ||
| Other financial borrowings | 671 | 1,036 | - | 1,707 | 319 | 964 | - | 1,283 | ||
| Other | 266 | (325) | - | (59) | 347 | (325) | - | 22 | ||
| Total | 45,092 | 1,172 | 29,859 | 76,12 2 |
41,702 | 21,546 | 173 | 63,421 |
M&A financing 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 are existing summarized contracts entered into for such a purpose:
Interest rates are also applied according to certain predetermined ratios (Covenants) of economic and financial nature calculated on the consolidated financial statements as at 31 December of each year and/or the consolidated interim report.
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 Others item refers mainly to the evaluation of derivative hedging instruments. The underlying IRS amounted to 19,728 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 of the Reply Group at 31 December 2014.
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Cash and cash equivalents | 88,819 | 66,145 | 22,674 |
| Current financial assets | 2,245 | 1,010 | 1,235 |
| Non current financial assets | 1,371 | 1,278 | 93 |
| Total financial assets | 92,434 | 68,432 | 24,002 |
| Current financial liabilities | (45,092) | (41,702) | (3,390) |
| Non current financial liabilities | (31,030) | (21,719) | (9,311) |
| Total financial liabilities | (76,122) | (63,421) | (12,701) |
| Total net financial position | 16,313 | 5,011 | 11,302 |
For further details with regards to the above table see Notes 18 and 23 as well as Note 26
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Employee severance indemnities | 17,092 | 14,574 | 2,518 |
| Employee pension funds | 5,928 | 4,164 | 1,764 |
| Directors severance indemnities | 1,419 | 1,336 | 83 |
| Other | 16 | 16 | - |
| Total | 24,454 | 20,089 | 4,365 |
The Employee severance indemnity represents the obligation to employees under Italian law (amended by Law 296/06) that has accrued up to 31 December 2006 and that will be settled when the employee leaves the company. In certain circumstances, a portion of the accrued liability may be given to an employee during his working life as an advance. This is an unfunded defined benefit plan, under which the benefits are almost fully accrued, with the sole exception of future revaluations.
The procedure for the determination of the Company's obligation with respect to employees was carried out by an independent actuary according to the following stages:
Projection of the Employee severance indemnity already accrued at the assessment date and of the portions that will be accrued until when the work relationship is terminated or
when the accrued amounts are partially paid as an advance on the Employee severance indemnities;
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 2014 : 2.50% frequency of turnover in 2014: 10% |
| Annual discount rate | Average annual rate of 2.0% |
|---|---|
| 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 3.17% was used for the year 2014. |
| 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, Employment severance indemnities at 31 December 2014. are summarized in the table below:
| Balance at 31/12/2013 | 14,574 |
|---|---|
| Cost relating to current (service cost) work | 2,598 |
| Actuarial gain/loss | 1,567 |
| Interest cost | 41 |
| Indemnities paid during the year | (2,058) |
| Balance at 31/12/2014 | 17,092 |
The Pension fund item relates to liability as regards the defined benefit pensions of some German companies and is detailed as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Present value of liability | 6,256 | 5,134 |
| Fair value of plan assets | (329) | (970) |
| Net liability | 5,927 | 4,164 |
The amounts recognized for defined benefit plans are summarized as follows:
| (thousand Euros) | 31/12/2014 |
|---|---|
| Present value at beginning of 2012 | 5,134 |
| Service cost | - |
| Interest cost | 176 |
| Actuarial gains/(losses) | 1.112 |
| Indemnities paid during the year | (166) |
| Present value at year end | 6,256 |
This amount is related to Directors severance indemnities paid during the year. Change amounting to 83 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 2014.
Deferred tax liabilities at 31 December 2014 amounted to 15,630 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) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Deductible items off the books | 1,484 | 1,074 |
| Other | 14,146 | 11,384 |
| Total | 15,630 | 12,458 |
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 15,796 thousand Euros (of which 12,420 thousand Euros are not current).
Change in 2014 is summarized in the table below:
| (thousand euros) | Balance at 31/12/2013 |
Accruals | Utilization | Write-offs | Balance at 31/12/2014 |
|---|---|---|---|---|---|
| Fidelity fund | 765 | 188 | (449) | (12) | 492 |
| Provision for risks | 4,698 | 5,581 | (1,404) | (528) | 8,347 |
| Motorola research centre fund | 6,957 | - | - | 6,957 | |
| Total | 12,420 | 5,768 | (1,853) | (540) | 15,796 |
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, amounting to 8,347 thousand Euros at 31 December 2014, 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, as also described at Note 36.
The Provision for Motorola Research centre originates from the acquisition of the business branch Motorola Electronics S.p.A. in 2009 and reflects the best estimate of the residual costs to incur in relation to the agreements reached with the parties involved in the transaction to implement research and development projects, in accordance with IAS 37. This provision is used on the basis of the progression of the abovementioned research activities.
Acquisition of the Motorola Research Centre was carried out as a consequence of agreements reached with Motorola Electronics S.p.A, Trade Unions and the region of Piedmont and the commitment to carry out research activities on agreed upon themes.
The residual provision will be written off to profit and loss on the basis of the progress of the research activities, in part financed by the public administrations, for which the Group has committed to carry out to several parties in view of the undersigning of the aforesaid agreements.
During the financial year the provision remained unchanged as Reply is still waiting for the Public authorities, with whom Reply had undersigned the original agreements, to give instructions as to which other research projects to undertake on agreed contents
Trade payables at 31 December 2014 amounted to 83,360 thousand Euros and are detailed as follows:
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Domestic suppliers | 71,476 | 57,854 | 13,622 |
| Foreign suppliers | 12,786 | 11,102 | 1,684 |
| Advances to suppliers | (901) | (833) | (69) |
| Total | 83,360 | 68,124 | 15,237 |
The increase of Trade payables amounting to 15,237 thousand Euros is mainly owing to the overall increase of the Group's business.
Other current liabilities at 31 December 2014 amounted to 135,202 thousand Euros with an increase of 10,152 thousand Euros with respect to the previous financial year.
Detail is as follows:
employees contribution payables.
| (thousand Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Income tax payable | 5,465 | 6,265 | (800) |
| VAT payable | 7,675 | 5,288 | 2,387 |
| Withholding tax and other | 5,442 | 5,733 | (291) |
| Total due to tax authorities | 18,582 | 17,286 | 1,296 |
| National social insurance payable | 18,634 | 16,686 | 1,948 |
| Other | 1,347 | 1,285 | 62 |
| Total due to social securities | 19,981 | 17,972 | 2,010 |
| Employee accruals | 38,381 | 32,375 | 6,006 |
| Other payables | 48,048 | 46,400 | 1,648 |
| Accrued expenses and deferred income | 10,210 | 11,017 | (807) |
| Total other payables | 96,638 | 89,792 | 6,846 |
| Other current liabilities | 135,202 | 125,049 | 10,152 |
Due to tax authorities amounting to 18,582 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 19,981 thousand Euros, is related to both Company and
Other payables at 31 December 2014 amount to 96,638 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.
| United | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (thousand Euros) | Italy | % | Germany | % | Kingdom | % Intersegment | 2014 | % | |
| Revenues | 470,784 | 100 | 101,012 | 100 | 79,685 | 100 | (19,297) | 632,184 | 100 |
| Operating costs | (394,254) | (83.7) | (95,612) | (94.7) | (76,497) | (96.0) | 19,297 | (547,065) | (86.5) |
| Gross operating income | 76,530 | 16.3 | 5,400 | 5.3 | 3,189 | 4.0 | 85,119 | 13.5 | |
| Amortization, and | |||||||||
| depreciation | (6,097) | (1.3) | (1,297) | (1.3) | (627) | (0.8) | - | (8,021) | (1.3) |
| Atypical costs | (2,125) | (0.5) | - | - | 5,690 | 7.1 | - | 3,565 | 0.6 |
| Operating income | 68,308 | 14.5 | 4,103 | 4.1 | 8,251 | 10.4 | - | 80,663 | 12.8 |
| United | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (thousand euros) | Italy | % | Germany | % | Kingdom | % Intersegment | 2013 | % | |
| Revenues | 424,752 | 100 | 85,719 | 100 | 68,642 | 100 | (18,961) | 560,151 | 100 |
| Operating costs | (370,731) | (87.3) | (78,515) | (91.6) | (57,267) | (83.4) | 18,961 | (487,551) | (87.0) |
| Gross operating income | 54,022 | 12.7 | 7,204 | 8.4 | 11,375 | 16.6 | - | 72,600 | 13.0 |
| Amortization and depreciation |
(6,217) | (1.5) | (1,201) | (1.4) | (531) | (0.8) | (7,949) | (1.4) | |
| Atypical costs | 1,307 | - | (750) | (0.9) | (1,036) | (1.5) | - | (480) | (0.1) |
| Operating income | 49,111 | 11.6 | 5,252 | 6.1 | 9,808 | 14.3 | - | 64,171 | 11.5 |
| (thousandeuros) | Italy | Germany | United Kingdom |
Intraseg | Total | Italy | Germany | United Kingdom |
Intraseg | Total |
|---|---|---|---|---|---|---|---|---|---|---|
| Current operating assets |
310,817 | 31,196 | 31,190 | (19,276) | 353,927 | 280,930 | 29,805 | 25,057 | (17,263) | 318,530 |
| Current operating liabilities |
(196,728) | (25,365) | (16,768) | 19,276 | (219,586) | (177,474) | (17,676) | (16,269) | 17,263 | (194,156) |
| Net working capital (A) |
114,088 | 5,831 | 14,422 | - | 134,341 | 103,456 | 12,130 | 8,788 | - | 124,374 |
| Non current assets | 123,118 | 17,593 | 29,639 | 170,351 | 117,726 | 17,224 | 27,620 | 162,569 | ||
| Non financial liabilities long term |
(52,292) | (11,271) | (4,598) | (68,161) | (55,673) | (8,534) | (15,139) | (79,347) | ||
| Fixed capital (B) | 70,826 | 6,323 | 25,041 | - | 102,190 | 62,052 | 8,689 | 12,481 | - | 83,222 |
| Net invested capital (A+B) |
184,914 | 12,154 | 39,463 | - | 236,531 | 165,508 | 20,819 | 21,269 | - | 207,596 |
Breakdown of employees by country is as follows:
| Country | 2014 | /2013 | Change |
|---|---|---|---|
| Italy | 3,617 | 3,319 | 298 |
| Germany | 674 | 619 | 55 |
| United Kingdom | 398 | 315 | 83 |
| Total | 4,689 | 4,253 | 436 |
Reply S.p.A. has determined the guide lines in managing financial risks. In order to maximise costs and the resources Reply S.p.A. has centralised 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 2014 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 optimise 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, unfavourable and instantaneous change of 50 basis points in short-term interest rates at 31 December 2014 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 296 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 2014, according to the fair value hierarchical assessment level.
| (thousand Euros) | Note | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Financial securities | 18 | 1,623 | - | - |
| Other assets | - | - | - | |
| Total Assets | 1,623 | - | - | |
| Derivative financial liabilities (IRS) | 26 | - | 20 | - |
| Liabilities to minority shareholders and earn out | 25 | - | - | 13,306 |
| Total Liabilities | - | 20 | 13,306 |
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 lastly mentioned, 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 reenters 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 2014, 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 summarised below.
| (thousand euros) | |||
|---|---|---|---|
| Financial transactions | 31/12/2014 | 31/12/2013 | Nature of transaction |
| Trade receivables | 48 | 46 | Receivables from professional services |
| Financial receivables | - | Financial receivables from guarantee deposits | |
| Trade payables and other | 218 | 466 | Payables for professional services and official rentals offices |
| Other payables | 4,348 | 4,342 | Payables for emoluments to Directors and Managers with strategic responsibilities and Board of Statutory Auditors |
| Economic transactions | 2014 | 2013 | Nature of operation |
| Revenues from professional services |
14 | 96 | Receivables from professional services |
| Services from Parent company and related parties |
932 | 4,950 | Service contracts relating to office rental, and office administration |
| Personnel | 8,464 | 8,424 | Emoluments to Directors and Key Management with strategic responsibilities |
| Services and other costs | 148 | 142 | Emoluments to Statutory Auditors |
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) | 2014 | 2013 |
|---|---|---|
| Executive Directors | 5,461 | 5,449 |
| Statutory auditors | 148 | 142 |
| Total | 5,609 | 5,591 |
Emoluments to Key management amounted to approximately 3,003 thousand Euros (2,994 thousand Euros at 31 December 2013).
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 recognises specific provision for this purpose.
In the month of March 2015 Reply GmbH & Co. KG acquired the 100% share capital of Leadvise Region Mitte GmbH, incorporated under the German law, for 3,5 thousand euros. The company offers services in Management Consulting mainly in the areas of Innovation Management, Risk Management and Digital Optimization.
Annexed tables
| Of which related |
Of which related |
|||||
|---|---|---|---|---|---|---|
| (thousand euros) | 2014 | parties | % | 2013 | parties | % |
| Revenues | 632,184 | 14 | - | 560,151 | 96 | - |
| Other income | 17,085 | - | - | 14,307 | - | - |
| Purchases | (12,227) | - | - | (10,644) | - | - |
| Personnel | (308,452) | (8,464) | 2.7 % | (269,893) | (5,092) | 1.9 % |
| Services and other costs | (239,220) | (1,080) | 0.5 % | (214,726) | (8,424) | 3.9 % |
| Amortization, depreciation and write downs | (8,021) | - | - | (7,949) | - | - |
| Other unusual (cost)/income | (686) | - | - | (7,075) | - | - |
| Operating income | 80,663 | - | - | 64,171 | - | - |
| Financial income/(expenses) | (1,396) | - | - | (2,439) | - | - |
| Income before taxes | 79,267 | - | - | 61,732 | - | - |
| Income taxes | (30,646) | - | - | (26,653) | - | - |
| Net income | 48,621 | - | - | 35,080 | - | - |
| Non controlling interest | (712) | - | - | (630) | - | - |
| Group net result | 47,909 | - | - | 34,450 | - | - |
| (thousand euros) | 31/12/2014 | Of which related parties |
% | 31/12/2013 | Of which related parties |
% |
|---|---|---|---|---|---|---|
| Tangible assets | 14,976 | - | - | 13,553 | - | - |
| Goodwill | 126,763 | - | - | 125,637 | - | - |
| Other intangible assets | 6,549 | - | - | 6,363 | - | - |
| Equity investments | 3,911 | - | - | 23 | - | - |
| Other financial assets | 4,471 | - | - | 4,275 | - | - |
| Deferred tax assets | 15,052 | - | - | 13,997 | - | - |
| Non current assets | 171,722 | - | - | 163,847 | - | - |
| Work in progress | 40,801 | - | - | 21,910 | - | - |
| Trade receivables | 285,465 | 48 | - | 271,167 | 46 | - |
| Other current assets | 27,661 | - | - | 25,454 | - | - |
| Financial assets | 2,245 | - | - | 1,010 | - | - |
| Cash and cash equivalents | 88,819 | - | - | 66,145 | - | - |
| Current assets | 444,990 | - | - | 385,684 | - | - |
| TOTAL ASSETS | 616,712 | - | - | 549,531 | - | - |
| Share capital | 4,864 | - | - | 4,840 | - | - |
| Other reserves | 199,135 | - | - | 172,519 | - | - |
| Group net income | 47,909 | - | - | 34,450 | - | - |
| Group Shareholder's equity | 251,908 | - | - | 211,809 | - | - |
| Non controlling interest | 936 | - | - | 799 | - | - |
| SHAREHOLDER'S EQUITY | 252,843 | - | - | 212,608 | - | - |
| Payables to minority shareholders and corporate transactions |
13,306 | - | - | 35,364 | - | - |
| Financial liabilities | 31,030 | - | - | 21,719 | - | - |
| Employee benefits | 24,454 | - | - | 20,089 | - | - |
| Deferred tax liabilities | 15,630 | - | - | 12,458 | - | - |
| Provisions | 14,772 | - | - | 11,436 | - | - |
| Non current liabilities | 99,191 | - | - | 101,067 | - | - |
| Financial liabilities | 45,092 | - | - | 41,702 | - | - |
| Trade payables | 83,360 | 218 | 0.3 % | 68,124 | 466 | 0.7 % |
| Other current liabilities | 135,202 | 4,348 | 3.2 % | 125,048 | 4,342 | 3.5 % |
| Provisions | 1,024 | - | - | 984 | - | - |
| Current liabilities | 264,678 | - | - | 235,858 | - | - |
| Total liabilities | 363,869 | - | - | 336,925 | - | - |
| TOTAL SHAREHOLDER'S EQUITY AND LIABILITES |
616,712 | - | - | 549,531 | - | - |
| Company name | Headquarter | Group interest |
|---|---|---|
| Parent company | ||
| Reply S.p.A. | Turin – Corso Francia, 110 - Italy | |
| Subsidiaries 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 GmbH | Munich, Germany | 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) Sarl | 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 | 51.00% |
| Blue Reply S.r.l. | Turin, Italy | 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% |
| Concept Reply GmbH | Munich, Germany | 90.00% |
| Consorzio Reply Public Sector | Turin, Italy | 100.00% |
| Discovery Reply S.r.l. | Turin, Italy | 100.00% |
| e*finance consulting Reply S.r.l. | Turin, Italy | 100.00% |
| Ekip Reply S.r.l. | Turin, Italy | 100.00% |
| Engage Reply S.r.l. | Turin, Italy | 85.00% |
| EOS Reply S.r.l. | Turin, Italy | 100.00% |
| Forge Reply S.r.l. | Turin, Italy | 100.00% |
|---|---|---|
| France Reply Ltd | London, United Kingdom | 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% |
| Iriscube Reply SA | Savosa, Switzerland | 100.00% |
| Juice Reply S.r.l. | Turin, Italy | 100.00% |
| Lem Reply S.r.l. | Turin, Italy | 100.00% |
| Live Reply GmbH | Düsseldorf, Germany | 100.00% |
| Macros Reply GmbH | Munich, Germany | 100.00% |
| Mind Services Ltda. (*) | San Paolo, Brazil | 76.00% |
| Open Reply S.r.l. | Turin, Italy | 92.50% |
| Pay Reply S.r.l | Turin, Italy | 100.00% |
| Portaltech Reply Ltd. | London, United Kingdom | 100.00% |
| Portaltech Reply S.r.l. (*) | Turin, Italy | 85.00% |
| Portaltech Reply GmbH | Gutersloh, Germany | 68.00% |
| Power Reply S.r.l. | Turin, Italy | 100.00% |
| Power Reply GmbH & CO. KG (**) | Munich, Germany | 100.00% |
| Profondo Reply GmbH | Gutersloh, Germany | 100.00% |
| Reply Consulting S.r.l. | Turin, Italy | 100.00% |
| Reply GmbH & CO. KG. | Gutersloh, Germany | 100.00% |
| Reply do Brasil Sistemas de Informatica Ltda | Belo Horizonte, Brazil | 100.00% |
| Reply Inc. | Michigan, USA | 100.00% |
| Reply Ltd. | London, United Kingdom | 100.00% |
| Reply Belgium SA | Mont Saint Guibert, Netherlands | 100.00% |
| Reply France Sarl | Paris, France | 100.00% |
| Reply Luxembourg Sarl | Sandweiler, Luxembourg | 100.00% |
| Reply Services S.r.l. | Turin, Italy | 100.00% |
| Ringmaster S.r.l. | Turin, Italy | 50.00% |
| Risk Reply Ltd | London, United Kingdom | 100.00% |
| Riverland Reply GmbH | Munich, Germany | 100.00% |
| Santer Reply S.p.A. | Milano, Italy | 100.00% |
| Security Reply S.r.l. | Turin, Italy | 100.00% |
| Solidsoft Reply S.r.l. (*) | Turin, Italy | 85.00% |
| Solidsoft Reply Ltd. | London, United Kingdom | 100.00% |
| Square Reply S.r.l. | Turin, Italy | 100.00% |
| Storm Reply S.r.l. (*) | Turin, Italy | 80.00% |
| Storm Reply GmbH | Gutersloh, Germany | 80.00% |
|---|---|---|
| Syskoplan Reply S.r.l. | Turin, Italy | 100.00% |
| Syskoplan Reply GmbH | Zurich, Switzerland | 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% |
| Technology Reply S.r.l. | Turin, Italy | 100.00% |
| Tool Reply Gmbh | Gutersloh, Germany | 100.00% |
| Triplesense Reply GmbH | Frankfurt, Germania | 100.00% |
| Twice Reply S.r.l. | Turin, Italy | 98.00% |
| Twice Reply GmbH | Munich, Germany | 100.00% |
| Whitehall Reply S.r.l. | Turin, Italy | 100.00% |
| Xpress Reply GmbH & CO. KG (**) | Gutersloh, Germany | 100.00% |
| Xuccess Reply GmbH | Munich, Germany | 100.00% |
| Consorzio Reply Energy (***) | Turin, Italy | 100.00% |
|---|---|---|
| Sensoria Inc. | Delaware, USA | 19.99% |
(*) 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 2014 Annual Financial Report.
(**) These companies are exempt from filing statutory financial statements in Germany under the German law § 264b HGB
(***) Company not consolidates as non operating.
The following table, prepared in accordance with Art. 149-duodeciesof Consob's Regulations for Issuers reports the amount of fees charged in 2014 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 2014 |
|---|---|---|---|
| Audit | Reconta Ernst & Young S.p.A. | Parent company - Reply S.p.A. | 31 |
| Reconta Ernst & Young S.p.A. | Subsidiaries | 166 | |
| Ernst & Young GmbH | Subsidiaries | 198 | |
| Ernst & Young LLP | Subsidiaries | 99 | |
| Ernst & Young Auditores Independentes S.S. | Subsidiaries | 21 | |
| Total | 515 | ||
| Audit related services |
Reconta Ernst & Young S.p.A. | Parent company - Reply S.p.A.(1) | 1 |
| Reconta Ernst & Young S.p.A. | Subsidiaries (1) | 14 | |
| Total | 15 | ||
| Other services | Ernst & Young GmbH | Subsidiaries (2) | 20 |
| Total | 20 | ||
| Total | 550 |
(1) Signed tax forms (Modello Unico, IRAP and Form 770)
(2) Limited voluntary review of interim situations for some German subsidiaries.
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 2014.
The assessment of the adequacy of administrative and accounting procedures used for the preparation of the statutory financial statements at 31 December 2014 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, 13 March 2015
/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
Dear Shareholders,
The Board of Directors is submitting the Consolidated Financial Statements as at 31 December 2012 to you 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 2014 present a consolidated Shareholders' equity amounting to 251.908 thousand Euros, including a consolidated profit 47.91 thousand Euros. The Report on Management adequately illustrates the financial, economic and earnings position, the trend, including 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 2014 in addition to the Parent Company, eighty companies and a consortium, all consolidated on a line-by-line basis.
The controls made by the Independent Auditor Reconta Ernst & Young S.p.A. concluded that the amounts reported in the Consolidated Financial Statements as at 31 December 2014 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 transmitted 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.
Reconta Ernst & Young S.p.A., the company entrusted with the audit of Reply's Consolidated Financial Statements, has issued its report on the date set forth below, in which it confirms that, in its opinion, the Consolidated Financial Statements of the Reply Group as at 31 December 2014 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 Management and the information pursuant to Article 123-bis(1)(c)(d)(f)(l)(m) and (2)(b) 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:
To conclude we would like to remind you that our three year mandate has expired and would like to thank you for the trust you have placed in us and would like to invite you to take the necessary actions.
(Prof. Cristiano Antonelli) (Dott.ssa Ada Alessandra Garzino Demo) (Dott. Paolo Claretta Assandri)
Independent Auditors' Report
Reconta Ernst & Young S.p.A. Via Confienza, 10 10121 Torino
Tel: +39 011 5161611 Fax: +39 011 5612554 ey.com
Independent auditors' report pursuant to art. 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.
For the opinion on the consolidated financial statements of the prior year, which are presented for comparative purposes, reference should be made to our report dated 24 March 2014.
001 issued by the Italian Accounting Profession (CNDCEC) and recommended by CONSOB. In our opinion, the Report on Operations and the information presented in compliance with art. 123-bis of Legislative Decree n. 58/1998, paragraph 1, letters c), d), f), l), m) and paragraph 2), letter b) in the Report on Corporate Governance and Proprietary Assets, are consistent with the consolidated financial statements of the Reply Group at 31 December 2014.
Turin, 27 March 2015
Reconta Ernst & Young 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 2014
| (Euros) | Note | 2014 | 2013 |
|---|---|---|---|
| Revenue | 5 | 291,648,905 | 274,691,960 |
| Other income | 6 | 6,659,301 | 8,825,156 |
| Purchases | 7 | (4,982,858) | (3,636,912) |
| Personnel | 8 | (17,702,836) | (16,080,630) |
| Services and other costs | 9 | (276,839,606) | (270,032,805) |
| Amortization, depreciation and write-downs | 10 | (671,513) | (697,944) |
| Other unusual operating income/(expenses) | 11 | (2,988,997) | 249,563 |
| Operating income | (4,877,604) | (6,681,612) | |
| Gain/(loss) on equity investments | 12 | 27,491,426 | 20,421,456 |
| Financial income/(expenses) | 13 | 2,526,409 | 442,727 |
| Income before taxes | 25,140,231 | 14,182,571 | |
| Income taxes | 14 | (1,208,521) | 624,358 |
| Net income | 23,931,709 | 14,806,929 | |
| Net income per share | 15 | 2.56 | 1.63 |
| Diluted net income per share | 15 | 2.56 | 1.62 |
(*) 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.
| (in euros) | Note | 2014 | 2013 |
|---|---|---|---|
| Profit of the period (A) | 23,931,709 | 14,806,929 | |
| Other comprehensive income that will not be reclassified subsequently to profit or loss |
|||
| Actuarial gains/(losses) from employee benefit plans | 26 | (33,636) | 25,988 |
| Total Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax (B1): |
(33,636) | 25,988 | |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
|||
| Gains/(losses) on cash flow hedges | 26 | 119,974 | (50,362) |
| Total Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax (B2): |
119,974 | (50,362) | |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): |
86,338 | (24,374) | |
| Total comprehensive income (A)+(B) | 24,018,047 | 14,782,555 |
| (Euros) | Note | 31/12/2014 | 31/12/2013 |
|---|---|---|---|
| Tangible assets | 16 | 1,095,038 | 446,674 |
| Goodwill | 17 | 86,765 | 86,765 |
| Other intangible assets | 18 | 866,734 | 1,053,650 |
| Equity investments | 19 | 130,081,311 | 130,196,800 |
| Other financial assets | 20 | 42,486,824 | 36,251,023 |
| Deferred tax assets | 21 | 1,521,880 | 1,669,848 |
| Non current assets | 176,138,552 | 169,704,758 | |
| Trade receivables | 22 | 221,291,693 | 196,904,149 |
| Other receivables and current assets | 23 | 31,666,601 | 28,958,870 |
| Financial assets | 24 | 50,808,755 | 43,543,322 |
| Cash and cash equivalents | 25 | 40,913,939 | 28,321,938 |
| Current assets | 344,680,988 | 297,728,279 | |
| TOTAL ASSETS | 520,819,540 | 467,433,037 | |
| Share Capital | 4,863,486 | 4,840,086 | |
| Other reserves | 135,140,323 | 125,856,496 | |
| Net income | 23,931,709 | 14,806,929 | |
| SHAREHOLDERS' EQUITY | 26 | 163,935,517 | 145,503,511 |
| Due to minority shareholders | 27 | 3,686,707 | 14,391,089 |
| Financial liabilities | 28 | 29,668,015 | 20,162,569 |
| Employee benefits | 29 | 435,868 | 405,582 |
| Deferred tax liabilities | 30 | 911,232 | 469,153 |
| Provisions | 33 | 3,921,700 | 1,745,000 |
| Non current liabilities | 38,623,522 | 37,173,393 | |
| Financial liabilities | 28 | 69,873,787 | 67,954,479 |
| Trade payables | 31 | 222,959,775 | 195,102,211 |
| Other current liabilities | 32 | 23,360,939 | 21,189,443 |
| Provisions | 33 | 2,066,000 | 510,000 |
| Current liabilities | 318,260,501 | 284,756,133 | |
| TOTAL LIABILITIES | 356,884,023 | 321,929,526 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 520,819,540 | 467,433,037 |
(*)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.
| Share | Treasury | Capital | Earning | Cash flow hedge |
Reserve for actuarial |
||
|---|---|---|---|---|---|---|---|
| (in euros) | capital | shares | reserves | reserves | reserve | gains/(losses) | Total |
| Balance at 1 January 2013 |
4,795,886 | (3,605,255) | 50,155,937 | 72,852,064 | (73,224) | (4,433) | 124,120,975 |
| Share capital increase | 44,200 | - | 1,742,845 | - | - | - | 1,787,045 |
| Dividends distributed | - | - | - | (5,131,165) | - | - | (5,131,165) |
| Change in treasury shares |
- | 3,596,127 | - | - | - | - | 3,596,127 |
| Total profit (loss) | - | - | - | 14,806,929 | (50,362) | 25,988 | 14,782,555 |
| Other changes | - | - | 6,347,964 | 10 | - | - | 6,347,974 |
| Balance at 31 December 2013 |
4,840,086 | (9,128) | 58,246,746 | 82,527,838 | (123,586) | 21,555 | 145,503,511 |
| Share | Treasury | Capital | Earning | Cash flow hedge |
Reserve for actuarial |
||
|---|---|---|---|---|---|---|---|
| (in euros) | capital | shares | reserves | reserves | reserve | gains/(losses) | Total |
| Balance at 1 January 2014 |
4,840,086 | (9,127) | 58,246,746 82,527,838 | (123,586) | 21,555 145,503,511 | ||
| Share capital increase | 23,400 | - | 936,855 | - | - | - | 960,255 |
| Dividends distributed | - | - | - | (6,546,295) | - | - | (6,546,295) |
| Total profit (loss) | - | - | - | 23,931,709 | 119,974 | (33,636) | 24,018,047 |
| Other changes | - | - | - | - | - | - | |
| Balance at 31 December 2014 |
4,863,486 | (9,127) | 59,183,601 99,913,252 | (3,612) | (12,081) 163,935,518 |
| Result 23,931,709 14,806,929 Income taxes (1,208,521) (624,358) Amortization and depreciation 671,513 697,944 Other non-monetary expenses/(income) 7,059,460 5,743,207 Change in trade receivables (24,387,545) (21,075,795) Change in trade payables 27,857,564 13,201,668 Change in other assets and liabilities 4,039,635 2,001,535 Income tax paid 624,358 1,088,471 Interest paid (1,476,674) (1,242,590) |
|---|
| Net cash flows from operating activities (A) 37,111,500 14,597,011 |
| Payments for tangible and intangible assets (1,132,961) (734,799) |
| Payments for financial assets (10,123,234) (22,160,342) |
| Payments for the acquisition of subsidiaries net of cash acquired (11,922,922) (8,620,567) |
| Net cash flows from investment activities (B) (23,179,117) (31,515,708) |
| Shares issued 960,255 1,787,045 |
| Dividends paid (6,546,295) (5,131,165) |
| In payments from treasury shares 15,540,266 21,720,010 |
| Payment of instalments (16,206,083) (11,261,249) |
| Other changes 86,337 (24,362) |
| Net cash flows from financing activities (C) (6,165,520) 7,090,279 |
| Net cash flows (D) = (A+B+C) 7,766,862 (9,828,419) |
| Cash and cash equivalents at the beginning of period 20,366,606 30,195,025 |
| Cash and cash equivalents at period end 28,133,468 20,366,606 |
| Total change in cash and cash equivalents (D) 7,766,862 (9,828,419) |
| 31/12/2014 31/12/2013 Detail of cash and cash equivalents |
| (in euros) |
| 20,366,606 30,195,025 Cash and cash equivalents at beginning of period: |
| 28,321,938 27,741,728 Cash and cash equivalents |
| Other 669,342 833,521 |
| Transaction accounts - surplus 42,873,980 50,324,134 |
| Transaction accounts - overdraft (19,562,205) (14,552,863) |
| Bank overdrafts (31,936,449) (34,151,495) |
| Cash and cash equivalents at the end of the year: 28,133,468 20,366,606 |
| Cash and cash equivalents 40,913,939 28,321,938 |
| Other 959,512 669,342 |
| Transaction accounts - surplus 49,849,243 42,873,980 Transaction accounts - overdraft (26,868,340) (19,562,205) |
| 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 2014 |
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.eu).
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 2014 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 re-presented 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:
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 2014 reporting period.
L'IFRS 12 provides the disclosures requirements for an entity's interest in subsidiaries, joint ventures, associates and special purpose vehicles. The required disclosures of IFRS 12 in such entities have been significantly expanded regarding subsidiaries. For example, disclosures related to when a subsidiary was consolidated and the parent owned less than a majority of voting rights. The IFRS 12 had little effect on the company's financial statements.
While the offsetting rules for financial instruments remain unchanged, the application guidance of the standard clarifies the meaning of "currently has a legally enforceable right to set-off" and "simultaneous". The amendments did not impact the company's financial statements.
These amendments allow a novation of an OTC derivative designated as a hedging instrument to be deemed to be a continuation of the existing hedging relationship. The amendments did not impact the Company's financial statements as it did not substitute its hedging instruments in the year end under review nor in previous reporting periods.
These amendments revise the involuntary consequences of the introduction of IFRS 13 on disclosure required by IAS 36. The Amendment to IAS 36 includes revisions to the disclosure requirements of the recoverable amount of the asset or CGU for which an impairment loss was detected during the fiscal year
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. 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 off-set at a Group level and remunerated according to the terms established in the consolidation agreement stipulated among the Group companies.
Revenues amounted to 291,648,905 Euros and are detailed as follows:
| (Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Revenues from services | 250,782,488 | 239,159,847 | 11,622,641 |
| Royalties on "Reply" trademark | 14,751,519 | 13,275,839 | 1,475,680 |
| Intercompany services | 17,837,146 | 15,408,671 | 2,428,476 |
| Other intercompany revenues | 8,277,751 | 6,847,603 | 1,430,148 |
| Total | 291,648,905 | 274,691,960 | 16,956,945 |
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 11,622,641 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 2014 amounted to 6,659,301 Euros (8,825,156 Euros at 31 December 2013) 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) | 2014 | 2013 | Change |
|---|---|---|---|
| Software licenses for resale | 2,357,017 | 2,099,411 | 257,606 |
| Hardware for resale | 2,164,421 | 1,060,466 | 1,103,955 |
| Other | 461,421 | 477,035 | (15,614) |
| Total | 4,982,858 | 3,636,912 | 1,345,946 |
The items Software and Hardware licenses for resale 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, stationary, and printed materials (219,291 thousand Euros) and fuel (222,854 thousand Euros).
Personnel costs amounted to 17,702,836 Euros, with an increase of 1,622,206 Euros and are detailed in the following table:
| (Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Payroll employees | 13,215,794 | 11,412,782 | 1,803,012 |
| Directors | 4,487,042 | 4,607,536 | (120,494) |
| Project collaborators | 60,313 | (60,313) | |
| Total | 17,702,836 | 16,080,630 | 1,622,206 |
Detail of personnel by category is provided below:
| (number) | 2014 | 2013 | Change |
|---|---|---|---|
| Directors | 52 | 45 | 7 |
| Managers | 10 | 10 | - |
| Staff | 34 | 34 | - |
| Total | 96 | 89 | 7 |
The average number of employees in 2014 was 93 (in 2013 92).
Service and other costs comprised the following:
| (Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Commercial and technical consulting | 2,623,211 | 3,825,394 | (1,202,183) |
| Travelling and training expenses | 1,625,197 | 1,058,859 | 566,339 |
| Professional services from group companies | 252,871,116 | 240,795,014 | 12,076,101 |
| Marketing expenses | 1,555,958 | 1,557,200 | (1,242) |
| Administrative and legal services | 987,618 | 2,001,819 | (1,014,201) |
| Statutory auditors and Independent auditors fees | 148,012 | 143,240 | 4,773 |
| Leases and rentals | 874,837 | 866,961 | 7,876 |
| Office expenses | 3,497,085 | 3,147,756 | 349,329 |
| Other services from group companies | 3,361,047 | 5,515,137 | (2,154,090) |
| Expenses incurred on behalf of group companies | 4,640,689 | 4,264,279 | 376,410 |
| Other | 4,654,836 | 6,857,147 | (2,202,311) |
| Total | 276,839,606 | 270,032,805 | 6,806,802 |
Professional Services from Group companies, which changed during the year by 12,076,101 Euros, relate to revenues from services to third parties.
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 2014 to an overall cost of 268,415 Euros. Details of depreciation are provided at the notes to tangible assets.
Amortization of intangible assets amounted in 2014 to an overall cost of 403,098 Euros. Details of depreciation are provided at the notes to intangible assets.
Other unusual operating income/(expenses) amounted to 2,988,997 Euros and refer to accruals to risk and expense provisions (2,000 thousand Euros), and to the fair value adjustment of liabilities to minority shareholders (989 thousand Euros).
Detail is a follows:
| (Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| Dividends | 34,951,226 | 28,814,456 | 6,136,770 |
| Loss on equity investments | (7,459,800) | (8,393,000) | 933,200 |
| Total | 27,491,426 | 20,421,456 | 7,069,970 |
Dividends include proceeds from dividends received by Reply S.p.A. from subsidiary companies during the year.
Detail is as follows:
| (Euros) | 31/12/2014 |
|---|---|
| @logistics Reply S.r.l. | 905,000 |
| Arlanis Reply S.r.l. | 110,000 |
| Aktive Reply S.r.l. | 810,000 |
| Atlas Reply S.r.l. | 830,000 |
| Blue Reply S.r.l. | 3,715,000 |
| Bridge Reply S.r.l. | 66,000 |
| Business Reply S.r.l. | 40,000 |
| Cluster Reply S.r.l. | 5,260,000 |
| Reply Consulting S.r.l. | 370,000 |
| Discovery Reply S.r.l. | 480,000 |
| Eos Reply S.r.l. | 96,852 |
| E*finance Consulting S.r.l. | 415,000 |
| Hermes Reply S.r.l. | 1,125,000 |
| Iriscube Reply S.p.A. | 840,000 |
| Power Reply S.r.l. | 2,345,000 |
| Ringmaster S.r.l. | 650,000 |
| Santer Reply S.p.A. | 2,275,000 |
| Syskopan Reply S.r.l. | 650,000 |
| Sytel Reply Roma S.r.l. | 4,360,000 |
| Sytel Reply S.r.l | 2,530,000 |
| Target Reply S.r.l. | 980,000 |
| Technology Reply S.r.l. | 2,445,000 |
| Whitehall Reply S.r.l. | 1,045,000 |
| Reply GmbH & Co. KG | 2,608,374 |
| Total | 34,951,226 |
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) | 2014 | 2013 | Change |
|---|---|---|---|
| Interest income from subsidiaries | 2,673,846 | 1,791,820 | 882,026 |
| Interest income on bank accounts | 15,288 | 31,652 | (16,364) |
| Interest expenses | (1,538,137) | (1,325,442) | (212,695) |
| Other | 1,375,412 | (55,303) | 1,430,715 |
| Total | 2,526,409 | 442,727 | 2,083,682 |
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 includes a loss on exchange rate differences amounting to 367 thousand Euros and a gain on exchange rate differences amounting to 1,880 thousand Euros arising from the translation of balance sheet items not recorded in Euros.
The details are provided below:
| (Euros) | 2014 | 2013 | Change |
|---|---|---|---|
| IRES | 231,541 | 329,733 | (98,192) |
| IRAP | 520,000 | 425,000 | 95,000 |
| Current taxes | 751,541 | 754,733 | (3,192) |
| Deferred tax liabilities | 442,079 | (29,803) | 471,882 |
| Deferred tax assets | 14,902 | (1,349,288) | 1,364,190 |
| Deferred taxes | 456,981 | (1,379,091) | 1,836,072 |
| Total income taxes | 1,208,521 | (624,358) | 1,832,880 |
The item IRES and other taxes includes the positive tax effect deriving from the domestic tax consolidation and the German tax (Kst) arising from the profits in the subsidiary company Reply GmbH & Co. KG. owed by Reply S.p.A. as shareholder of the company in compliance to the fiscal transparency system applicable in Germany.
The following table provides the reconciliation between the IRES theoretical rate and the fiscal theoretical rate:
| (Euros) | Amount | Taxation |
|---|---|---|
| Result before taxes | 25,140,230 | |
| Theoretical tax rate | 27.5 % | 6,913,563 |
| Temporary differences, net | (24,438,932) | |
| Taxable income | 701,298 | 192,857 |
| Total IRES | 198,000 |
Temporary differences, net refer to:
| (Euros) | Amount | Taxation |
|---|---|---|
| Difference between value and cost of production | (4,877,604) | |
| IRAP net | 17,119,073 | |
| Taxable IRAP | 12,241,469 | |
| Total IRAP | 520,000 |
Temporary differences, net refer to:
Basic earnings per share as at 31 December 2014 was calculated with reference to the net profit which amounted to 23,931,709 Euros (14,806,929 Euros at 31 December 2013) divided by the weighted average number of shares outstanding as at 31 December 2014 which amounted to 9,350,986 (9,092,021 at 31 December 2013).
| (Euros) | 2014 | 2013 |
|---|---|---|
| Net profit for the year | 23,931,709 | 14,806,929 |
| Weighted number of shares | 9,350,986 | 9,092,021 |
| Basic earnings per share | 2.56 | 1.63 |
Diluted earnings per share as at 31 December 2014 were calculated with reference to the net profit which amounted to 23,931,709 Euros divided by the weighted average number of shares outstanding as at 31 December 2014, considering the future diluting effect which could derive from the hypothetical exercising of financial instruments potentially convertible in shares (stock options).
| (Euros) | 2014 | 2013 |
|---|---|---|
| Net profit for the year | 23,931,709 | 14,806,929 |
| Weighted number of shares | 9,350,986 | 9,092,021 |
| Diluting effect | - | 45,000 |
| Weighted number of diluted shares | 9,350,986 | 9,137,021 |
| Diluted shares per earnings | 2.56 | 1.62 |
Tangible assets as at 31 December 2014 amounted to 1,095,038 Euros are detailed as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Plant and machinery | 378,995 | 128,375 | 250,619 |
| Hardware | 110,165 | 66,984 | 43,180 |
| Other tangible assets | 605,878 | 251,314 | 354,564 |
| Total | 1,095,038 | 446,674 | 648,364 |
The item Other mainly includes office equipment, furniture, and costs for improvements to leased assets.
Change in Tangible assets during 2014 is summarized below:
| (Euros) | - | - | - | - |
|---|---|---|---|---|
| Historical cost | 1,311,847 | 1,377,124 | 1,911,627 | 4,600,599 |
| Accumulated depreciation | (1,183,472) | (1,310,140) | (1,660,313) | (4,153,925) |
| 31/12/2013 | 128,375 | 66,984 | 251,314 | 446,674 |
| Historical cost | ||||
| Purchases | 318,100 | 105,147 | 643,491 | 1,066,738 |
| Disposals | - | (19,111) | (162,089) | (181,200) |
| Other | - | |||
| Accumulated depreciation | ||||
| Depreciation | (67,481) | (58,207) | (142,728) | (268,415) |
| Disposals | - | 15,351 | 15,890 | 31,241 |
| Other | - | |||
| Historical cost | 1,629,947 | 1,463,161 | 2,393,030 | 5,486,137 |
| Accumulated depreciation | (1,250,952) | (1,352,996) | (1,787,151) | (4,391,100) |
| 31/12/2014 | 378,995 | 110,165 | 605,878 | 1,095,038 |
During the year under review the Company made investments amounting to 1,066,738 Euros, which mainly refer to improvements to third party assets, to office furniture and plants for the new office located in Via del Giorgione 59 in Rome.
Goodwill as at 31 December 2014 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 2014 amounted to 866,734 Euros (1,053,650 Euros at 31 December 2013) and are detailed as follows::
| Net book value at | |||
|---|---|---|---|
| (Euros) | Historical cost | Accumulated depreciation | 31/12/2014 |
| Software | 4,672,006 | (4,341,336) | 330,670 |
| Trademark | 536,064 | - | 536,064 |
| Total | 5,208,070 | (4,341,336) | 866,734 |
Change in intangible assets in 2014 is summarized in the table below:
| Net book value | Net book value | ||||
|---|---|---|---|---|---|
| (Euros) | 31/12/2013 | Increases | Disposals | Depreciation | 31/12/2014 |
| Software | 517,586 | 216,182 | - | (403,098) | 330,670 |
| Trademark | 536,064 | - | - | - | 536,064 |
| Total | 1,053,650 | 216,182 | - | (403,098) | 866,734 |
The item Software is related mainly to software licenses purchased and used internally by the company. The item Trademarks 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 amortisation, and the expected future cash flows are deemed adequate.
The item Equity investments at 31 December 2014 amounted to 130,081,311 Euros, with a decrease of 115,489 Euros compared to 31 December 2013.
| (Euros) | Balance at 31/12/2013 |
Acquisitions and subscriptions |
Disposals | Write downs | Balance at 31/12/2014 |
Interest |
|---|---|---|---|---|---|---|
| @logistics Reply S.r.l. | 1,049,167 | 1,049,167 | 100.0 % | |||
| Air Reply S.r.l.(*) | - | 8,500 | 90,000 | 98,500 | 85.0 % | |
| Aktive Reply S.r.l. | 512,696 | 512,696 | 100.0 % | |||
| Arlanis Reply AG | 2,435,000 | (1,430,000) | 1,005,000 | 100.0 % | ||
| Arlanis Reply GmbH | 25,000 | 25,000 | 100.0 % | |||
| Arlanis Reply S.r.l. | 588,000 | 588,000 | 100.0 % | |||
| Atlas Reply S.r.l. | 356,575 | 356,575 | 100.0 % | |||
| Avantage Ltd. | 12,626,484 | (3,143,000) | 9,483,484 | 100.0 % | ||
| Bitmama S.r.l. | 217,019 | 40,800 | (40,800) | 217,019 | 51.0 % | |
| Blue Reply S.r.l. | 527,892 | 527,892 | 100.0 % | |||
| Breed Reply Ltd | - | 12,477 | 12,477 | 100.0 % | ||
| Breed Reply Investments Ltd | 103 | 103 | 80.0 % | |||
| Bridge Reply S.r.l. | 6,000 | 6,000 | 60.0 % | |||
| Business Reply S.r.l. | 268,602 | 268,602 | 100.0 % | |||
| Cluster Reply S.r.l. | 2,610,032 | 2,610,032 | 100.0 % | |||
| Concept Reply GMBH | 25,000 | 25,000 | 90.0 % | |||
| Consorzio Reply Public Sector | 32,500 | 32,500 | 41.4 % | |||
| Consorzio Reply Energy | - | 1,000 | 1,000 | 25.0 % | ||
| Discovery Reply S.r.l. | 1,311,669 | 1,311,669 | 100.0 % | |||
| e*finance Consulting Reply S.r.l. | 3,076,385 | 3,076,385 | 100.0 % | |||
| Engage Reply S.r.l. | 8,500 | 241,000 | 249,500 | 85.0 % | ||
| Ekip Reply S.r.l. | 30,000 | 50,000 | (50,000) | 30,000 | 100.0 % | |
| EOS Reply S.r.l. | 155,369 | 155,369 | 80.7 % | |||
| Forge Reply S.r.l. | 12,000 | 770,000 | (770,000) | 12,000 | 100.0 % | |
| Hermes Reply Polska zoo | 10,217 | 10,217 | 100.0 % | |||
| Hermes Reply S.r.l. | 199,500 | 199,500 | 100.0 % | |||
| Inessence Reply GmbH | 17,500 | 17,500 | 70.0 % | |||
| IrisCube Reply S.p.A. | 6,724,952 | 6,724,952 | 100.0 % | |||
| Juice Reply S.r.l | 140,000 | 140,000 | 100.0 % | |||
| Lem Reply S.r.l. | 400,012 | 265,000 | (265,000) | 400,012 | 100.0 % | |
| Live Reply GmbH | 27,500 | 27,500 | 100.0 % | |||
| Open Reply S.r.l.(*) | 1,417,750 | 1,417,750 | 92.5 % | |||
| Pay Reply S.r.l | 10,000 | 10,000 | 100.0 % | |||
| Portaltech Reply S.r.l.(*) | 104,500 | 65,000 | (65,000) | 104,500 | 85.0 % | |
| Portaltech Reply GmbH | 17,000 | 17,000 | 68.0 % | |||
| Power Reply S.r.l. | 2,500,850 | 2,500,850 | 100.0 % | |||
| Reply Consulting S.r.l. | 3,518,434 | 3,518,434 | 100.0 % |
| (Euros) | Balance at 31/12/2013 |
Acquisitions and subscriptions |
Disposals | Write downs | Balance at 31/12/2014 |
Interest |
|---|---|---|---|---|---|---|
| Reply GmbH & CO. KG | 41,302,722 | 41,302,722 | 100.0 % | |||
| Reply do Brasil Sistemas de Informatica Ltda |
206,816 | 206,816 | 98.5 % | |||
| Reply Inc | 40,596 | 40,596 | 100.0 % | |||
| Reply Ltd | 11,657,767 | 11,657,767 | 100.0 % | |||
| Reply Services S.r.l. | 10,000 | 10,000 | 100.0 % | |||
| Ringmaster S.r.l. | 5,000 | 5,000 | 50.0 % | |||
| Riverland Reply GmbH | 10,269,989 | 10,269,989 | 100.0 % | |||
| Santer Reply S.p.A. | 11,386,966 | 11,386,966 | 100.0 % | |||
| Security Reply S.r.l. | 392,866 | 392,866 | 100.0 % | |||
| Sensoria Inc. | - | 3,887,432 | 3,887,432 | 20.0 % | ||
| Solidsoft Reply S.r.l.(*) | 8,500 | 217,000 | 225,500 | 85.0 % | ||
| Square Reply S.r.l. | 100,000 | 140,000 | (140,000) | 100,000 | 100.0 % | |
| Storm Reply S.r.l.(*) | 188,000 | 188,000 | 80.0 % | |||
| Syskoplan Reply S.r.l. | 949,571 | 949,571 | 100.0 % | |||
| Sytel Reply Roma S.r.l. | 894,931 | 894,931 | 100.0 % | |||
| Sytel Reply S.r.l. | 4,991,829 | 4,991,829 | 100.0 % | |||
| Target Reply S.r.l. | 778,000 | 778,000 | 100.0 % | |||
| Technology Reply S.r.l. | 216,658 | 216,658 | 100.0 % | |||
| Triplesense Reply GmbH | 5,153,070 | 5,153,070 | 100.0 % | |||
| Twice Reply S.r.l. | 521,202 | 521,202 | 98.0 % | |||
| Whitehall Reply S.r.l. | 160,211 | 160,211 | 100.0 % | |||
| Total | 130,196,799 | 3,909,511 | 1,878,800 | (5,903,800) | 130,081,310 |
(*) 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 of such options reflect management's best estimate at the closing date.
In July 2014 Air Reply Srl., was constituted, a company in which Reply S.p.A. holds 85% of the share capital. The company specializes in the design and integration of the NetSuite cloud-based application.
In June 2014 Breed Reply, a company incorporated under English law was constituted in which Reply S.p.A. holds 100% of the share capital. The company specializes in funding and developing start-ups on the Internet of Things (IoT).
In December 2014 Breed Reply Investments Ltd, a company incorporated under English law was constituted in which Reply S.p.A holds 80% of the share capital. The company will acquire the shares of the start-up in the incubator Breed Reply.
In March 2014 Consorzio Reply Energy was constituted, a company in which Reply S.p.A. holds 25% of the consortium fund. At 31 December 2014 the consortium was composed by Reply S.p.A., Power Reply S.r.l., Security Reply S.r.l. and Syskoplan Reply S.r.l. The consortium will operate in the Energy market.
In July 2014 a term sheet was signed, bound to exclusivity and confidentiality obligations, to take a 19.99% interest in Sensoria Inc., a leading wearable technology and Internet of Things developer. The investment which amounts to USD 5 million is part of Reply's development strategy connected to the Internet of Things.
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.
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) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Guarantee deposits | 188,066 | 356,566 | (168,500) |
| Loans to subsidiaries | 42,298,758 | 35,894,456 | 6,404,302 |
| Total | 42,486,824 | 36,251,023 | 6,235,802 |
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 |
|---|---|
| Arlanis Reply AG | 800,000 |
| Arlanis Reply GmbH | 1,000,000 |
| Concept Reply GmbH | 200,000 |
| Hermes Reply Polska Sp Zoo | 520,410 |
| InEssence Reply | 1,550,000 |
| Live Reply GmbH | 700,000 |
| Mind Services Informàtica LTDA | 1,215,000 |
| Open Reply S.r.l. | 250,000 |
| Portaltech Reply Gmbh | 600,000 |
| Reply do Brazil Sist. De Inf Ltda | 1,724,156 |
| Reply Inc. | 453,010 |
| Reply Ltd | 32,766,182 |
| Storm Reply S.r.l | 120,000 |
| Triplesense Reply GmbH | 400,000 |
| Total | 42,298,758 |
This item amounted to 1,521,880 Euros at 31 December 2014 (1,669,848 Euros at 31 December 2013), 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 31/12/2013 | 5,940,280 | 1,669,848 |
| Accrued | 3,847,818 | 1,058,150 |
| Utilization | (3,902,008) | (1,073,052) |
| Utilized within fiscal consolidation | (483,876) | (133,066) |
| Total deferred assets at 31/12/2014 | 5,402,215 | 1,521,880 |
| Of which: | ||
| - Directors fees and employee bonuses accrued but not yet paid |
5,201,700 | 1,466,738 |
| - unrealized foreign exchange losses | 43,807 | 12,047 |
| - depreciation and amortization deductible in future years |
156,708 | 43,095 |
| Total | 5,402,215 | 1,521,880 |
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 is no deferred tax assets on losses carried forward.
Trade receivables at 31 December 2014 amounted to 221,291,693 Euros and are all collectible within 12 months.
Detail is as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Third party trade receivables | 148,040,319 | 145,219,321 | 2,820,999 |
| Credit notes to be issued | (31,660) | (85,870) | 54,210 |
| Allowance for doubtful accounts | (262,030) | (428,375) | 166,344 |
| Third party trade receivables | 147,746,629 | 144,705,076 | 3,041,553 |
| Receivables from subsidiaries | 73,543,421 | 52,193,547 | 21,349,874 |
| Receivables from Parent Company | 1,644 | 5,526 | (3,882) |
| Trade receivables from subsidiaries and Parent Company |
73,545,065 | 52,199,073 | 21,345,992 |
| Total trade receivables | 221,291,693 | 196,904,149 | 24,387,545 |
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 3,041,553 Euros.
Receivables from subsidiaries are related to services that the Parent Company Reply S.p.A. carries out in favour of the subsidiary companies at normal market conditions.
Trade receivables are all due within 12 months and do not include significant overdue balances.
In 2014 the provision for doubtful accounts was written off by 166,344 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 2014 the assignment of receivables through factoring operations with recourse amounted to 2,807 thousand Euros.
The book value of the assets assigned without recourse as at 31 December 2014 amounted to 17,328 thousand Euros, with an increase of available liquidity of 16,368 thousand Euros net of advances received amounting to 3,838 thousand Euros.
The carrying amount of Trade receivables in line with its fair value.
Detail is as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Tax receivables | 3,848,614 | 5,041,342 | (1,192,728) |
| Other receivables from subsidiaries | 20,643,219 | 17,596,577 | 3,046,642 |
| Other receivables | 74,144 | 250,886 | (176,742) |
| Accrued income and prepaid expenses | 7,100,624 | 6,070,065 | 1,030,559 |
| Total | 31,666,601 | 28,958,870 | 2,707,731 |
The item Tax receivables includes VAT receivables net (3,097,837 Euros), withholding tax and also includes receivables from German tax authorities following the merger of Reply A.G. (659,213 Euros), and IRAP tax prepayments (32,171 Euros).
Other receivables from subsidiary companies refer to IRES receivables which are 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 50,808,755 Euros (43,543,322 Euros at 31 December 2013) and refers to:
This item amounted to 40,913,939 Euros, with an increase of 12,592,001 Euros compared to 31 December 2013, and is referred to cash at banks and on hand at year-end.
As at 31 December 2014 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 increase during the period refers to the exercise of stock options, in the amount of 45,000 option rights for a total value of 960,225 Euros, of which 23,400 Euros is by way of increase in share capital and 936,855 Euros by way of share premium.
The value of the Treasury shares, amounting to 9,127 Euros, refers to the shares of Reply S.p.A. that at 31 December 2014 were equal to no. 597.
At 31 December 2014 amounted to 59,183,601 Euros, and included the following:
Earning reserves amounted to 99,913,252 Euros and were comprised as follows:
Other comprehensive income can be analysed as follows:
| (Euros) | 31/12/2014 | 31/12/2013 |
|---|---|---|
| Other comprehensive income that will not be reclassified subsequently to profit or loss, net of tax: |
||
| Actuarial gains/(losses) from employee benefit plan | (33,636) | 25,988 |
| Total Other comprehensive income that will not be classified subsequently to profit or loss, net of tax (B1): |
(33,636) | 25,988 |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
||
| Gains/(losses) on cash flow hedges | 119,974 | (50,362) |
| Total Other comprehensive income that may be classified subsequently to profit or loss, net of tax (B2): |
119,974 | (50,362) |
| Total other comprehensive income, net of tax (B) = (B1) + (B2): |
86,338 | (24,374) |
During 2014 the company no longer has stock options as they were exercised in relation to the stock option plans resolved by the Annual Shareholders' Meeting in previous years.
Payables to Minority shareholders and for operations (earn-out) at 31 December 2014 amounted to 3,686,707 Euros (14,391,089 Euros at 31 December 2013) and are detailed as follows:
| Fair value | Exchange | |||||
|---|---|---|---|---|---|---|
| (Euros) | 31/12/2013 | Increases | adjustments | Payments | differences | 31/12/2014 |
| Avantage Reply Ltd. | 10,933,221 | (11,140,685) | 207,463 | - | ||
| Reply Deutschland AG | - | - | ||||
| Riverland Reply GmbH | - | - | ||||
| Other Italy | 648.758 | 180,000 | 828,758 | |||
| Total payables to minority shareholders |
11,581,979 | - | 180,000 | (11,140,685) | 207,463 | 828,758 |
| Arlanis AG | 376,000 | (203,003) | (172,997) | - | ||
| Riverland Reply GmbH | 950,000 | (300,000) | 650,000 | |||
| Triplesense Reply GmbH | 1,483,110 | 1,012,000 | (287,161) | 2,207,949 | ||
| Total payables to Earn-out | 2,809,110 | - | 808,997 | (760,158) | - | 2,857,949 |
| Total payables to minority shareholders and earn-out |
14,391,089 | - | 988,997 | (11,900,843) | 207,463 | 3,686,707 |
The item Fair value adjustments in 2014 amounted to 988,997 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 11,900,843 Euros and refer to the consideration paid in relation to the original contracts signed at the time of acquisition.
Detail is as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | ||||
|---|---|---|---|---|---|---|
| Current | Non current | Total | Current | Non current | Total | |
| Bank overdrafts | 36,720,886 | - | 36,720,886 | 31,936,449 | 31,936,449 | |
| Bank loans | 5,966,666 | 29,801,215 | 35,767,881 | 13,621,144 | 20,420,010 | 34,041,154 |
| Loans from third parties | 67,872 | 191,445 | 259,317 | 26,145 | 67,203 | 93,348 |
| Loans from subsidiaries | - | - | - | 2,500,000 | - | 2,500,000 |
| Transaction accounts | 26,868,340 | - | 26,868,340 | 19,562,205 | - | 19,562,205 |
| Other | 250,023 | (324,644) | (74,621) | 308,535 | (324,644) | (16,109) |
| Total financial liabilities | 69,873,787 29,668,015 99,541,802 67,954,479 20,162,569 88,117,048 |
The future out payments of the financial liabilities are detailed as follows:
| (Euros) 31/12/2014 |
31/12/2013 | |||||
|---|---|---|---|---|---|---|
| Due in 12 | From 1 to 5 | Due in 12 | From 1 to 5 | |||
| months | years | Over 5 years | Total | months | years | |
| Bank overdrafts | 36,720,886 | - | 36,720,886 | 31,936,449 | - | 31,936,449 |
| M&A loans | 5,966,666 | 29,801,215 | 35,767,881 | 13,621,144 | 20,420,010 | 34,041,154 |
| Loan from subsidiaries | - | - | - | 2,500,000 | - | 2,500,000 |
| Transaction accounts | 26,868,340 | - | 26,868,340 | 19,562,205 | - | 19,562,205 |
| Other | 317,895 | (133,199) | 184,696 | 334,681 | (257,441) | 77,240 |
| Total | 69,873,787 | 29,668,015 | 99,541,802 | 67,954,479 | 20,162,569 | 88,117,048 |
M&A loans 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.
Following and summarized by main features the ongoing contracts entered into for such a purpose:
a half-year basis deferred to commence on 30 June 2016 and will expire on 31 December 2018. On 31 December such a line of credit was used for 8,374 thousand Euros.
On 25 November 2013 Reply S.p.A entered into a line of credit with Unicredit S.p.A for a total of 25,000,000 Euros to be used by 31 December 2015. The loan will be reimbursed on a halfyear basis deferred to commence on 31 May 2016 and will expire on 30 November 2018. On 31 December such a line was used for 16,794 thousand Euros.
Interest rates are also applied according to certain predetermined ratios (Covenants) of economic and financial nature calculated on the consolidated financial statements as at 31 December of each year and/or the consolidated interim report.
As contractually defined, such ratios are as follows:
At the balance sheet date, Reply fulfilled the Covenants under the various contracts.
The Loan from subsidiaries was related to an interest bearing loan from Reply GmbH & CO. KG the conditions and interest rate are in line with those of the market. This liability was entirely reimbursed in 2014.
The item Other refers to the valuation of derivative hedging instruments. The underlying IRS amounted to 3,612 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 2014 was as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Cash and cash equivalents | 40,913,939 | 28,321,938 | 12,592,001 |
| Transaction accounts, asset | 49,849,243 | 42,873,980 | 6,975,263 |
| Receivables from factor | 959,512 | 669,342 | 290,170 |
| Total current financial assets | 91,722,694 | 71,865,260 | 19,857,434 |
| Guarantee deposits | 188,066 | 356,566 | (168,500) |
| Loans to subsidiaries | 42,298,758 | 35,894,456 | 6,404,302 |
| Total non current financial assets | 42,486,824 | 36,251,023 | 6,235,802 |
| Total financial assets | 134,209,518 | 108,116,282 | 26,093,236 |
| Due to banks | (43,005,447) | (45,892,274) | 2,886,827 |
| Transaction accounts | (26,868,340) | (19,562,205) | (7,306,135) |
| Loans from subsidiaries | (2,500,000) | 2,500,000 | |
| Current financial liabilities | (69,873,787) | (67,954,479) | (1,919,308) |
| Due to banks | (29,668,015) | (20,162,569) | (9,505,447) |
| Non current financial liabilities | (29,668,015) | (20,162,569) | (9,505,447) |
| Total financial liabilities | (99,541,802) | (88,117,048) | (11,424,754) |
| Total net financial position | 34,667,716 | 19,999,235 | 14,668,481 |
| of which related parties | 64,279,661 | 56,706,231 | 7,573,430 |
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 2014: 2.50% frequency of turnover in:2014 10% |
| Annual discount rate | Constant average annual rate equal to 2.00% |
|---|---|
| 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 2014 was 3.17% |
| 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, Employment severance indemnities at 31 December 2014 is summarised in the table below:
| 31/12/2013 | 405,582 |
|---|---|
| Actuarial gains/(losses) | 33,637 |
| Interest cost | 11,199 |
| Indemnities paid | (14,550) |
| 31/12/2014 | 435,868 |
Deferred tax liabilities at 31 December 2014 amounted to 911,232 Euros and are referred mainly to the fiscal effects arising from temporary differences between the statutory income and taxable income.
| Temporary taxable differences | Taxation | Amount |
|---|---|---|
| Balance at 31/12/2013 | 1,617,680 | 469,153 |
| Accruals | 1,743,425 | 479,442 |
| Utilization | (135,867) | (37,363) |
| Total at 31/12/2014 | 3,225,237 | 911,232 |
| - On deductible items of the books | 718,805 | 197,671 |
| - different goodwill measurements | 622,828 | 195,568 |
| - gains on unrecognised differences | 1,883,604 | 517,992 |
| Total at 31/12/2014 | 3,225,237 | 911,232 |
Trade payables at 31 December 2014 amounted to 222,959,775 Euros with an increase of 27,857,564 Euros.
Detail is as follows:
| (Euros) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Due to suppliers | 15,253,895 | 10,470,906 | 4,782,990 |
| Due to subsidiaries | 157,589,662 | 149,067,953 | 8,521,709 |
| Advance payments from customers - asset | 50,116,218 | 35,563,352 | 14,552,866 |
| Total | 222,959,775 | 195,102,211 | 27,857,564 |
Due to suppliers mainly refers to services from domestic suppliers (14,063,354 Euros).
Due to subsidiary companies recorded a change of 8,521,709 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) | 31/12/2014 | 31/12/2013 | Change |
|---|---|---|---|
| Income tax payable | 3,026,992 | 2,508,100 | 518,892 |
| Withholding tax and other | 1,922,328 | 1,618,336 | 303,992 |
| Total payable to tax authorities | 4,949,320 | 4,126,436 | 822,884 |
| INPS (National Italian insurance payable) | 844,069 | 755,414 | 88,655 |
| Other | 256,206 | 212,402 | 43,804 |
| Total social security payable | 1,100,275 | 967,816 | 132,460 |
| Employee accruals | 1,359,345 | 1,182,968 | 176,377 |
| Payable to subsidiary companies | 6,301,517 | 5,452,596 | 848,922 |
| Miscellaneous payables | 3,451,517 | 3,845,313 | (393,795) |
| Accrued expenses and deferred income | 6,198,965 | 5,614,314 | 584,650 |
| Total other payables | 17,311,344 | 16,095,191 | 1,216,153 |
| Total other current liabilities | 23,360,939 | 21,189,443 | 2,171,497 |
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 2014 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 5,987,700 Euros is summarized as follows:
| (Euros) | 31/12/2013 | Accruals | Utilization | Reversals | 31/12/2014 |
|---|---|---|---|---|---|
| Provisions | 1,745,000 | 2,671,700 | (180,000) | (315,000) | 3,921,700 |
| Provision for losses on equity investments | 510,000 | 1,556,000 | - | - | 2,066,000 |
| Total | 2,255,000 | 4,227,700 | (180,000) | (315,000) | 5,987,700 |
The accrual posted in 2014 reflects the best estimate of any contingent liability deriving from ongoing legal litigations.
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 2014 Financial Statements related to such transactions are summarised 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.
| With | |||||
|---|---|---|---|---|---|
| With subsidiary and associate |
With related |
subsidiary and associate |
With related |
||
| (thousand Euros) | companies | parties | companies | parties | Nature of transaction |
| Financial transactions | 31/12/2014 | 31/12/2013 | |||
| Financial loans | |||||
| Financial receivables | 42,299 | - | 35,894 | - | |
| Guarantee deposits | - | 80 | - | 177 | Guarantee deposits |
| Transaction accounts. net | 22,981 | - | 23,312 | - | Transaction accounts held by the Parent company |
| Trade receivables and other | 94,187 | 2 | 69,790 | 6 | Royalties, administration services, marketing, quality management services and office rental |
| Financial liabilities | - | - | 2,500 | - | Financial borrowings |
| Trade payables and other | 162,689 | - | 154,521 | 3 | Services carried out in relation to contracts signed by the Parent company and subsequently committed to subsidiary companies |
| Other payables | - | 2,600 | - | 2,600 | Compensation paid to Directors, Key Management |
| Economic transactions | 2014 | 2013 | |||
| Revenues from Royalties | 14,752 | - | 13,276 | - | Licensing of the "Reply" trademark consisting in a 3% fee on third party revenues |
| Revenues from services | 29,544 | 13 | 21,822 | - | Administrations services, marketing, quality management and office rental |
| Revenues from management services |
5,872 | - | 6,790 | - | Strategic management services |
| Costs for professional services |
261,162 | 9 | 249,391 | 76 | Services carried out in relation to contracts signed by the Parent company and subsequently committed to subsidiary companies |
| Other services | 1,010 | 350 | 604 | 704 | Services related to office rental and office of the secretary |
| Personnel | - | 5,461 | - | 5,340 | Emoluments to Directors and Key Management |
| Interest income, net | 2,674 | - | 1,792 | - | 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 2014 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 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, unfavourable and instantaneous change of 50 basis points in short-term interest rates at 31 December 2014 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 287 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 2014, according to the fair value hierarchical assessment level.
| (thousand euros) | Note | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Financial securities | - | - | - | |
| Other assets | - | - | - | |
| Total Assets | - | - | - | |
| Derivative financial liabilities (IRS) | 28 | - | 4 | - |
| Liabilities to minority shareholders and | 27 | - | - | 3,687 |
| earn out | ||||
| Total Liabilities | - | 4 | 3,687 |
To determine the effect of interest rate derivate financial instruments Reply refers to evaluation deriving from third parties (banks and financial institutes). The lastly mentioned, 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 reenters 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 2014, there have not been any transfers within the hierarchy levels.
Pursuant to Consob communication no. 6064293 of 28 July 2006, there were no significant nonrecurring transaction during 2014..
Pursuant to Consob communication no. 6064293 of 28 July 2006, in 2014 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 recognises 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.
During the financial year under review no. 45,000 stock options were exercised. For further information please see the Annual Report on Remuneration annexed herein.
No significant events have occurred subsequent to 31 December 2014.
Annexed Tables
| (Euros) | 2014 | of which with related parties |
% | 2013 | of which with related parties |
% |
|---|---|---|---|---|---|---|
| Revenue | 291,648,905 | 45,353,699 | 15.6 % | 274,691,960 | 37,626,105 | 13.7 % |
| Other income | 6,659,301 | 4,827,392 | 72.5 % | 8,825,156 | 4,176,731 | 47.3 % |
| Purchases | (4,982,858) | (4,521,438) | 90.7 % | (3,636,912) | (3,069,877) | 84.4 % |
| Personnel | (17,702,836) | (5,461,000) | 30.8% | (16,080,630) | (5,340,000) | 33.2 % |
| Services and other costs | (276,839,606) | (258,009,583) | 93.1% | (270,032,805) | (250,774,886) | 92.9% |
| Amortization and depreciation | (671,513) | - | - | (697,944) | - | - |
| Non recurring income/(expenses) | (2,988,997) | - | - | 249,563 | - | - |
| Operating income (EBIT) | (4,877,604) | - | - | (6,681,612) | - | - |
| Gain/(loss) on equity investments | 27,491,426 | - | 20,421,456 | - | - | |
| Financial income/(loss) | 2,526,409 | 2,673,846 | 105.8 % | 442,727 | 1,731,820 | 404.7 % |
| Income before taxes | 25,140,231 | - | 14,182,571 | - | - | |
| Income tax | (1,208,521) | - | 624,358 | - | - | |
| Net income | 23,931,709 | - | 14,806,929 | - | - | |
| Earnings per share | 2.56 | 1.63 | ||||
| Diluted earnings per share | 2.56 | 1.62 |
| of which with | of which with related |
|||||
|---|---|---|---|---|---|---|
| (in euro) | 31/12/2014 | related parties | % | 31/12/2013 | parties | % |
| Tangible assets | 1,095,038 | - | - | 446,674 | - | - |
| Goodwill | 86,765 | - | - | 86,765 | - | - |
| Other intangible assets | 866,734 | - | - | 1,053,650 | - | - |
| Equity investments | 130,081,311 | - | - | 130,196,800 | - | - |
| Other financial assets | 42,486,824 | 42,298,458 | 99.6% | 36,251,023 | 36,071,456 | 99.5% |
| Deferred tax assets | 1,521,880 | - | - | 1,669,848 | - | - |
| Non current assets | 176,138,552 | - | - | 169,704,758 | - | - |
| Trade receivables | 221,291,693 | 73,545,065 | 33.2% | 196,904,149 | 52,199,547 | 26.5% |
| Other receivables and current assets |
31,666,601 | 20,643,219 | 65.2% | 28,958,870 | 17,596,577 | 60.8% |
| Financial assets | 50,808,755 | 49,849,243 | 98.1% | 43,543,322 | 42,873,980 | 98.5% |
| Cash and cash equivalents | 40,913,939 | - | - | 28,321,938 | - | - |
| Current assets | 344,680,988 | - | - | 297,728,279 | - | - |
| TOTAL ASSETS | 520,819,540 | - | - | 467,433,037 | - | - |
| Share Capital | 4,863,486 | - | - | 4,840,086 | - | - |
| Other reserves | 135,140,323 | - | - | 125,856,496 | - | - |
| Net income | 23,931,709 | - | - | 14,806,929 | - | - |
| SHAREHOLDERS' EQUITY | 163,935,517 | - | - | 145,503,511 | - | - |
| Due to minority shareholders | 3,686,707 | - | - | 14,391,089 | - | - |
| Financial liabilities | 29,668,015 | - | - | 20,162,569 | - | - |
| Employee benefits | 435,868 | - | - | 405,582 | - | - |
| Deferred tax liabilities | 911,232 | - | - | 469,153 | - | - |
| Provisions | 3,921,700 | - | - | 1,745,000 | - | - |
| Non current liabilities | 38,623,522 | - | - | 37,173,393 | - | - |
| Financial liabilities | 69,873,787 | 26,868,340 | 38.5% | 67,954,479 | 22,062,205 | 32.5% |
| null | 222,959,775 | 157,098,852 | 70.7% | 195,102,211 | 149,067,953 | 76.4% |
| Other current liabilities | 23,360,939 | 8,189,652 | 35.1% | 21,189,443 | 8,055,311 | 38.0% |
| Provisions | 2,066,000 | - | - | 510,000 | - | - |
| Current liabilities | 318,260,501 | - | - | 284,756,133 | - | - |
| TOTAL LIABILITIES | 356,884,023 | - | - | 321,929,526 | - | - |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
520,819,540 | - | - | 467,433,037 | - | - |
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 |
Result | Interest | Carrying value at 31/12/2014 |
|---|---|---|---|---|---|---|---|
| @logistics Reply S.r.l. | Turin | EUR | 78,000 | 1,288,015 | 710,398 | 100.0 % | 1,049,167 |
| Air Reply S.r.l. | Turin | EUR | 10,000 | 10,861 | (89,139) | 85.0 % | 98,500 |
| Arlanis Reply S.r.l. | Turin | EUR | 10,000 | 424,687 | 286,964 | 100.0 % | 588,000 |
| Arlanis Reply AG | Potsdam | EUR | 70,000 | 59,278 | (100,307) | 100.0 % | 1,005,000 |
| Arlanis Reply GmbH | Munich | EUR | 25,000 | (938,695) | (453,745) | 100.0 % | 25,000 |
| Aktive Reply S.r.l. | Turin | EUR | 10,000 | 2,232,292 | 1,476,208 | 100.0 % | 512,696 |
| Atlas Reply S.r.l. | Turin | EUR | 10,000 | 532,888 | (182,150) | 100.0 % | 356,575 |
| Avantage Reply Ltd. | London | GBP | 5,086 | 3,351,273 | (233,723) | 100.0 % | 9,483,484 |
| Bitmama S.r.l. | Turin | EUR | 29,407 | 829,965 | 797,160 | 51.0 % | 217,019 |
| Blue Reply S.r.l. | Turin | EUR | 10,000 | 6,218,727 | 5,076,390 | 100.0 % | 527,892 |
| Breed Reply Ltd | London | GBP | 10,000 | (445,539) | (455,539) | 100.0 % | 12,477 |
| Breed Reply Investments Ltd | London | GBP | 100 | - | - | 80.0 % | 103 |
| Bridge Reply S.r.l. | Turin | EUR | 10,000 | 152,458 | 134,552 | 60.0 % | 6,000 |
| Business Reply S.r.l. | Turin | EUR | 78,000 | 1,705,698 | 1,122,279 | 100.0 % | 268,602 |
| Cluster Reply S.r.l. | Turin | EUR | 139,116 | 5,240,227 | 4,165,600 | 100.0 % | 2,610,032 |
| Concept Reply GMBH | Munich | EUR | 25,000 | (1,135) | (88,354) | 90.0 % | 25,000 |
| Consorzio Reply Public Sector | Turin | EUR | 78,500 | 10,320 | - | 41.4 % | 32,500 |
| Consorzio Reply Energy | Turin | EUR | 4,000 | - | - | 25.0 % | 1,000 |
| Discovery Reply S.r.l. | Turin | EUR | 10,000 | 572,864 | 555,265 | 100.0 % | 1,311,669 |
| e*finance Consulting Reply S.r.l. | Turin | EUR | 34,000 | 3,170,856 | 2,475,385 | 100.0 % | 3,076,385 |
| Ekip Reply S.r.l. | Turin | EUR | 10,400 | 10,055 | (51,654) | 100.0 % | 30,000 |
| Engage Reply S.r.l. | Turin | EUR | 10,000 | 10,546 | (240,454) | 85.0 % | 249,500 |
| Eos Reply S.r.l. | Turin | EUR | 14,000 | 728,931 | 326,233 | 80.7 % | 155,369 |
| Forge Reply S.r.l. | Turin | EUR | 10,000 | 11,926 | (769,970) | 100.0 % | 12,000 |
| Hermes Reply Polska | Katowice | ZLT | 40,000 | 1,209,396 | 1,202,455 | 100.0 % | 10,217 |
| Hermes Reply S.r.l. | Turin | EUR | 10,000 | 2,579,230 | 1,838,106 | 100.0 % | 199,500 |
| Inessence Reply GmbH | Düsseldorf | EUR | 25,000 | (1,446,306) | (1,244,226) | 70.0 % | 17,500 |
| IrisCube Reply S.p.A. | Turin | EUR | 651,735 | 3,467,099 | 2,558,314 | 100.0 % | 6,724,952 |
| Juice Reply S.r.l. (*) | Turin | EUR | 10,000 | 208,179 | 197,845 | 100.0 % | 140,000 |
| Lem Reply S.r.l. | Turin | EUR | 47,370 | 51,407 | (261,508) | 100.0 % | 400,012 |
| Live Reply GmbH | Düsseldorf | EUR | 25,000 | 2,910,665 | 1,235,966 | 100.0 % | 27,500 |
| Open Reply S.r.l. | Turin | EUR | 10,000 | 5,120,942 | 2,109,062 | 92.5 % | 1,417,750 |
| Pay Reply S.r.l. | Turin | EUR | 10,000 | 536,962 | 524,867 | 100.0 % | 10,000 |
| Portaltech Reply GmbH | Gutersloh | EUR | 25,000 | (482,764) | (463,361) | 68.0 % | 17,000 |
| Portaltech Reply S.r.l. | Turin | EUR | 10,000 | 11,279 | (64,521) | 85.0 % | 104,500 |
| Power Reply S.r.l. | Turin | EUR | 10,000 | 5,077,695 | 2,562,691 | 100.0 % | 2,500,850 |
| Reply Consulting S.r.l. | Turin | EUR | 10,000 | 1,400,533 | 577,017 | 100.0 % | 3,518,434 |
| Reply GmbH & CO. KG. | Gutersloh | EUR | 25,200 | 31,933,273 | 986,223 | 100.0 % | 41,302,722 |
| Company | Registered | office Currency | Share capital |
Total shareholders' equity |
Result | 2014 Interest | Carrying value at 2014 |
|---|---|---|---|---|---|---|---|
| Reply Services S.r.l. | Turin | EUR | 10,000 | 132,359 | 120,706 | 100.0 % | 10,000 |
| Reply Inc. | Michigan | US | 50,000 | 251,364 | 232,041 | 100.0 % | 40,596 |
| Reply Ltd. | London | GBP | 54,175 | 107,483 | 1,717,664 | 100.0 % | 11,657,767 |
| Reply do Brasil Sistemas de Informatica Ltda |
Belo Horizonte | BRL | 650,000 | 5,198,507 | 4,122,054 | 98.5 % | 206,816 |
| Ringmaster S.r.l. | Turin | EUR | 10,000 | 1,386,165 | 1,330,530 | 50.0 % | 5,000 |
| Riverland Reply GmbH | Munich | EUR | 25,000 | 6,259,206 | 1,095,046 | 100.0 % | 10,269,989 |
| Santer Reply S.p.A. | Milan | EUR | 2,209,500 | 15,247,138 | 4,653,092 | 100.0 % | 11,386,966 |
| Security Reply S.r.l. | Turin | EUR | 50,000 | 1,101,216 | 1,046,630 | 100.0 % | 392,866 |
| Sensoria Inc. | Washington | US | - | - | - | 20.0 % | 3,887,432 |
| Square Reply S.r.l. | Turin | EUR | 10,000 | 9,807 | (142,927) | 100.0 % | 100,000 |
| Solidsoft Reply S.r.l. | Turin | EUR | 10,000 | 10,126 | (216,874) | 85.0 % | 225,500 |
| Storm Reply S.r.l. | Turin | EUR | 10,000 | 858,409 | 679,853 | 80.0 % | 188,000 |
| Syskoplan Reply S.r.l. | Turin | EUR | 32,942 | 430,675 | 319,757 | 100.0 % | 949,571 |
| Sytel Reply S.r.l. | Turin | EUR | 115,046 | 7,077,172 | 4,744,329 | 100.0 % | 4,991,829 |
| Sytel Reply Roma S.r.l. | Turin | EUR | 10,000 | 6,670,270 | 4,876,054 | 100.0 % | 894,931 |
| Target Reply S.r.l. | Turin | EUR | 10,000 | 2,358,062 | 1,539,069 | 100.0 % | 778,000 |
| Technology Reply S.r.l. | Turin | EUR | 79,743 | 5,548,801 | 4,662,372 | 100.0 % | 216,658 |
| Triplesense Reply GmbH | Frankfurt | EUR | 51,000 | 1,068,077 | (18,319) | 100.0 % | 5,153,070 |
| Twice Reply S.r.l. | Turin | EUR | 10,000 | 3,909,062 | 755,113 | 98.0 % | 521,202 |
| Whitehall Reply S.r.l. | Turin | EUR | 21,224 | 699,291 | 590,208 | 100.0 % | 160,211 |
Details of shareholders' equity stated according to origin, possibility of utilization, possibility of distribution, availability and the utilization in the previous three fiscal years.
| Summary of the amounts used in the prior three fiscal years |
|||||
|---|---|---|---|---|---|
| Nature/description | Amount | Possibility of utilization |
Available | For coverage of losses |
Other |
| Capital | 4,863,486 | ||||
| Capital reserve | |||||
| Reserve for treasury shares | 9,127 | ||||
| Share premium | 23,302,692 | A,B,C | 23,302,692 | ||
| Reserve for purchases of treasury shares |
29,990,873 | A,B,C | 29,990,873 | ||
| Income reserves | |||||
| Legal reserve | 972,697 | B | |||
| Extraordinary reserve | 72,186,144 | A,B,C | 72,186,144 | ||
| Surplus merger reserve | 6,347,963 | A,B,C | 6,347,963 | ||
| Retained earnings | 674,740 | A,B,C | 674,740 | ||
| Total | 132,502,412 | ||||
| Non available amount | - | ||||
| Residual available amount | 132,502,412 | ||||
| Reserves from transition to IAS/IFRS |
|||||
| FTA reserve | 303,393 | ||||
| Retained earnings | 2,327,634 | ||||
| Reserve for cash flow hedge | (3,612) | ||||
| Treasury shares | (9,127) | ||||
| IAS reserve | (191,755) | ||||
| Accounting expenses according to IAS 32 |
(770,448) | ||||
| 1,656,085 |
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 2014 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 | 2014 fees |
|---|---|---|
| Audit | Reconta Ernst & Young S.p.A. | 30,950 |
| Audit related services | Reconta Ernst & Young S.p.A. (1) | 1,075 |
| Total | 32,025 |
(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 2014.
The assessment of the adequacy of administrative and accounting procedures used for the preparation of the statutory financial statements at 31 December 2014 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:
3.2 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, 13 March 2015
/s/ Mario Rizzante /s/ Giuseppe Veneziano
Chairman and Chief Executive Officer Director in charge of drawing up the financial statements Mario Rizzante Giuseppe Veneziano
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 2014, 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 2014 or subsequent to the end of the financial year, among which we note:
We can reasonably state that such operations occurred in compliance with law and the Company's bylaws.
On the basis of meetings with the Directors and with representatives of the Independent Auditor, it did not appear that any atypical or unusual transactions occurred during the financial year, nor after it ended. With reference to intra-group transactions, we advise that:
Transactions with related parties in 2014, took place under normal market conditions, and are related 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 the above mentioned transactions the Procedures with Related Parties was not applied as the underlying transactions were insignificant, as defined by art. 4.4 of the procedures.
The information provided by the Directors in the Report on Operations accompanying the Financial Statements as at 31 December 2014 and in the Notes to the Consolidated Financial Statements of the Reply Group and to the Financial Statements as at 31 December 2014 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.
Reconta Ernst & Young S.p.A., the company entrusted with the audit of the Financial Statements and Consolidated Financial Statements as at 31 December 2014, issued its Report on the date set forth herein, in which it confirms that the Financial Statements as at 31 December 2014 of Reply S.p.A. conform to the International Financial Reporting Standards endorsed by the European Union, as well as to the measures issued in implementation of Article 9 of Legislative Decree 38/2005, and were therefore prepared with clarity and represent in a true and fair manner the economic and financial situation, economic result and cash flows of Reply S.p.A. for the financial year ended on such date, and further the Report on Operations and the information set forth in paragraph 1, sections (c)(d)(f)(l)(m) and (2)(b) of Article 123-bis(1)(c)(d)(f)(l)(m) and (2)(b) of Legislative Decree 58/1998 presented in the Report on Corporate Governance and the Ownership Structure are consistent with the Financial Statements.
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 them in the financial year, nor subsequent to the year ended.
During the course of 2014, in addition to the appointment to audit the Financial Statements as at 31 December 2014, Reconta Ernst & Young S.p.A. received the following appointments:
The signing of Reply S.p.A.'s various tax forms (Modelli Unico, IRAP, 770)
The consideration for such appointment was 1.1 thousand Euros;
The signing of various tax forms of Reply S.p.A.'s Italian subsidiaries (Modelli Unico, IRAP, 770)
The consideration for such appointment was 14.4 thousand Euros.
Reconta Ernst & Young S.p.A. notified us that in 2014 professional appointments were granted to parties connected to Reconta Ernst & Young S.p.A. by ongoing relationships and/or by parties belonging to its network.
Specifically, Arlanis Reply AG and Triplesense Reply GmbH appointed Ernst & Young GmbH to conduct the voluntary statutory audit at 31 December 2014.
The consideration for such appointment was 9.8 thousand Euros, for each company.
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 5 times.
The Internal Control and Risk Management Committee met 4 times, 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.
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 the Managing Director Tatiana Rizzante is the Management Director of the German subsidiaries Arlanis Reply GmbH, Live Reply GmbH, InEssence Reply GmbH, Portaltech Reply GmbH, Profondo Reply GmbH, Riverland Reply GmbH.
During the meetings held with representatives of the Independent Auditor, 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 2014
On 14 March 2015 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:
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:
We verified compliance with the laws on "Market abuse" and "Protection of savings" in matters of corporate disclosures of information and "Internal Dealings".
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 Reconta Ernst & Young 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 2012 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.
To conclude we would like to remind you that our three year mandate has expired and would like to thank you for the trust you have placed in us and would like to invite you to take the necessary actions.
Turin, 27 March 2015.
The Statutory Auditors (Prof. Cristiano Antonelli) (Dott.ssa Ada Alessandra Garzino Demo) (Dott. Paolo Claretta Assandri)
Independent Auditors' Report
Reconta Ernst & Young S.p.A. Via Confienza, 10 10121 Torino
Tel: +39 011 5161611 Fax: +39 011 5612554 ey.com
Independent auditors' report pursuant to art. 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.
For the opinion on the financial statements of the prior year, which are presented for comparative purposes, reference should be made to our report dated 24 March 2014.
compliance with art. 123-bis of Legislative Decree n. 58/1998, paragraph 1, letters c), d), f), l), m) and paragraph 2), letter b) in the Report on Corporate Governance and Proprietary Assets, are consistent with the financial statements of Reply S.p.A. at 31 December 2014.
Turin, 27 March 2015
Reconta Ernst & Young S.p.A.
Signed by: Luigi Conti, partner
This report has been translated into the English language solely for the convenience of international readers.
Reply S.p.A. Corso Francia, 110 10143 TURIN – ITALY Tel. +39-011-7711594 Fax +39-011-7495416 www.reply.eu
Share capital: Euro 4,863,485.64 i.v. Fiscal Code and R.I. 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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