Business and Financial Review • May 14, 2019
Business and Financial Review
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REPLY INTERIM MANAGEMENT REPORT AT 31 MARCH 2019
| Board of Directors | 5 |
|---|---|
| Financial highlights | 7 |
| Reply Living Network | 11 |
| Summary report of the first quarter 2019 and expected business developments | 22 |
| Consolidated financial statements and notes | 24 |
| Declaration pursuant to article 154-bis, paragraph 2 of legislative decree no. 58 of 24 february 1998, "single text in matter of regulation of financial intermediation" and subsequent changes |
34 |
| Annexed tables | 37 |
Chairman and Chief Executive Officer
Mario Rizzante
Chief Executive Officer Tatiana Rizzante
Filippo Rizzante Daniele Angelucci Claudio Bombonato Elena Maria Previtera Fausto Forti (1) (2) (3) Secondina Giulia Ravera (1) (2) Francesco Umile Chiappetta (1) (2)
President Giorgio Mosci
Statutory Auditors Piergiorgio Re Ada Alessandra Garzino Demo
PwC S.p.A. (4)
(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 (4) Appointed by the General Shareholders' Meeting on April 19, 2019
This report has been translated into English from the original Italian version, in case of doubt the Italian version shall prevail.
5 | Interim Management Report at 31 March 2019
(thousand Euros)
| Economic figures | Q1 2019 (*) | % | Q1 2018 | % |
|---|---|---|---|---|
| Revenue | 283,544 | 100.0 | 238,880 | 100.0 |
| EBITDA | 42,344 | 149.0 | 32,201 | 13.5 |
| EBIT | 33,584 | 118.0 | 28,673 | 12.0 |
| EBT | 34,205 | 121.0 | 28,303 | 11.8 |
| 31/03/2019 | 31/03/2018 | |
|---|---|---|
| Investments | 4,207 | 3,206 |
| 31/03/2019 (*) | 31/12/2018 | |
|---|---|---|
| Net financial position | 50,037 | 66,552 |
| 31/03/2019 | 31/03/2018 | |
|---|---|---|
| Employees | 7,850 | 6,664 |
(*) Reply applied the new International Accounting Standard IFRS 16 prospectively from January 1, 2019 without restatement of comparative data.
(*) Region 1: ITA, USA, BRA, POL, ROU Region 2: DEU, CHE, CHN, HRV Region 3: GBR, LUX, BEL, NLD, FRA, BLR
60.3%
Reply is a group that specializes in consulting, system integration and digital services. Comprised of a network of companies, Reply partners with leading industrial groups in defining business models, made possible by new technological and communication paradigms such as artificial intelligence, big data, cloud computing, digital communication and the Internet of Things (IoT).
Reply operates through a network of companies that specialize in processes, applications and technologies, as well as centers of excellence in their respective fields.
Processes – For Reply, the understanding and use of technology involves the introduction of a new enabling factor for business processes, based on an in-depth knowledge of both the market and the specific industrial contexts of implementation.
Applications – Reply designs and implements application solutions aimed at satisfying core business needs.
Technologies – Reply optimizes the use of innovative technologies, implementing solutions capable of ensuring clients maximum efficiency and operational flexibility.
Consulting – With a focus on strategy, communication, design, processes and technology.
System Integration – Making the best use of potential technology, combining business consulting with innovative technological solutions.
Digital Services – Innovative services based on new communication channels and digital trends.
In every market segment in which it operates, Reply combines sector-specific expertise with a broad experience in the provision of services and a wealth of advanced technological capabilities.
Reply works with leading operators in the sector to define and implement digital transformation strategies. These are based on the renewal of systems that support products and services and to support the development of new service models that are customer-focused and delivered across all channels. Furthermore, the rising use of the Internet of Things (IoT) requires an increasing reconfiguration of networks that can transport large volumes of data in real time. This data is no longer solely generated by smartphones and mobile devices, but by a multitude of connected objects with widely different functional characteristics.
Reply offers integrated strategic and technological consulting services to support the design, definition and management of the new-generation networks, based on SDN (Software Defining Network) technologies, capable of integrating and managing virtual networks (Network Virtualization) through network engineering services and network operations. The arrival of 5G networks, furthermore, marks the end of the fixed/mobile barrier, eliminating communication-related distances connected to broadband limitations, to latency, and to the receptive capacity of the 3G network.
Reply is increasingly active in supporting the digital transformation of Europe's financial institutions. In this area, Reply works with some of the major players in the sector on many key issues, from the definition of multi-channel strategies, to the implementation of open banking. In particular, in the increasingly relevant fields of big data, robots and artificial intelligence, Reply is investing heavily and collaborating with leading financial institutions (banks and insurance companies) along two lines of development:
the concrete integration of the new big data technologies and architectures with existing systems; and the development of skills, analytics and machine learning models, aimed at extracting tangible business value from available databases.
Reply also boasts a strong and highly specialized presence in mobile payments and related m-commerce services. Reply offers consulting services, as well as a wide range of models and architectural solutions, aimed at the banking/insurance market and at emerging players in the payments industry.
Reply maintains a strong market presence in the wealth management arena and has developed a wide range of specific skills and solutions. These are focused on the emerging consulting models, on expanding the range of services offered and on "robo advice"-type solutions and platforms. In the area of Governance Risk Control (GRC), Reply operates with a dedicated consulting division highly specialized in issues relating to risk evaluation and risk control. Within this, Reply is working with several leading financial institutions on a broad range of initiatives connected to the implementation of EBU standards and the development of associated models and solutions.
Finally, Reply has been involved in numerous projects relating to the most advanced frontiers of innovation, such as in the latest biometric recognition technologies and digital identity, as well as quantum computing.
Native Cloud platforms and applications, together with a focus on the enabling aspects of digital transformation, and development of Internet of Things are at the core of Reply's offering to the manufacturing market. Industry 4.0 and logistics 4.0 are increasingly critical aspects to the strategic development of companies in the sector. Reply has invested heavily to enhance its products and service offer in this area, with the re-engineering in 2017 and 2018 of its proprietary Supply Chain Execution and Manufacturing Execution System solutions.
The retail industry is experiencing a time of significant change driven by various factors, including the evolution of consumer purchasing behavior, the entry of new players and the digitization of products and services. Customer experience, on the other hand, is an increasingly key differentor for retailers. Consumers expect to be able to interact with a brand wherever they are, thereby strengthening the link between physical stores and e-commerce.
Reply partnered with various clients to support their digital transformation journeys. This work saw the merging of physical and virtual spaces through the development of multi-channel e-commerce platforms, of marketing automation solutions, of smart boxes and by re-engineering the logistics chain both on supplier and customers ends.
The energy and utilities sector saw the growth of innovative technologies on an industrial scale, across the entire value chain. Cloud Computing has become the leading provisioning tool for companies of all sizes, above all in the implementation of various digital transformation initiatives. The approach based on IoT models is increasingly widespread in the areas of generation, energy management and at the support of efficiency and smart city initiatives.
Against this backdrop of extensive transformation, Reply is one of the reference partners in the sector, combining knowledge of the market and of its unique processes, with a distinctive capability to design, implement and manage innovative digital solutions and technological platforms that support the "core business". The company's consolidated expertise in the introduction of new digital technologies has been further verticalised, with particular reference to the definition and development of new models in the energy management and downstream services sectors aimed at energy efficiency, areas in which Reply works with energy sales companies, as well as with end customers.
The increasingly evident need to bridge the gap between citizens and Public Administrations (PA) has led to the introduction of measures aimed not only at restructuring the management and control model (e.g. reorganization of the national health system) but also the enhancement of existing services through the introduction of increasingly more digital and smarter systems (e.g. new monitoring system for individuals affected by chronic conditions). A public sector that is closer to its citizens implies a greater reach of the services offered, increasing the levels of usability and therefore of supply possibilities. In the area of digital health, Reply's highly specialized delivery of IoMT (Internet of Medical Things) focuses on two main areas: developing a network of information sharing among the various stakeholders in the field (i.e. patients, professionals and networks of those affected); as well as monitoring and supporting the citizen/patient at each stage of their "care and cure" journey (e.g. healthcare, social care).
Technological innovation forms the basis of Reply's objective: providing its customers with the tools necessary to increase flexibility and efficiency. Reply is involved in a continuous process of research, selection and marketing of innovative solutions for sustaining the creation of value within organizations.
Reply's artificial intelligence offering is based on three key areas: human-machine interaction (with the development of conversation and natural language recognition systems or visual recognition systems), automation (through technologies such as intelligent process automation) and the creation of systems to support business decisions (data prediction). The essential factor for implementing artificial intelligence projects is the availability of data. AI offers effective results, provided that the datasets available are historical and updated in real time. Within this framework, Reply focuses not only on the technology, but also uses advanced models for the management and processing of vast amounts of data required to train the algorithms.
Specifically, Reply applies the results of its research on artificial intelligence to real-world scenarios, creating customized solutions that integrate machine learning, deep learning or reinforcement learning algorithms, with recommendation systems, predictive engines, conversational interfaces or video and image recognition systems. Reply collaborates in these areas with the world's leading AI technology players.
In a landscape of emerging technologies, blockchain will increasingly be able to foster new digital ecosystems based on distributed computational infrastructures. Today, the shared nature of blockchainbased digital registers represents an opportunity characterized by multi-industry application, with repercussions for the financial services sector and management of the supply chain. Moreover, the possible synergies with other exponential technologies – such as IoT and artificial intelligence – make blockchain an ideal convergence layer to support the data marketplaces of the future.
Reply has defined a portfolio of services, encompassing consulting, design and the implementation of solutions based on the blockchain and the distributed ledger technology (DLT). Among the major initiatives developed in 2018, Reply, alongside its insurance and academic sector partners, launched the first sandbox for the Italian insurance market. As a founding member of the "Trusted Smart Contract Association", it aims to define standards for the industrial adoption of legally enforceable smart contracts.
The Cloud has permanently established itself as one of the most important areas of transformation that companies have had to face. Virtual environments and services offered by leading, global vendors have modified the concept of IT, transforming it from being a simple commodity to one of the core elements on which to configure an organization's digital transformation.
At the same time, the ever-increasing maturity of the cloud in its various declinations (IaaS, PaaS or SaaS) is driving service providers and consulting companies to develop offerings to tackle highly strategic[EF1] issues, such as the coexistence in the cloud with traditional on premise applications and the challenge of data management security.
In the Cloud Computing field, Reply has defined a products and services offer that combines the following elements:
The rapid evolution of data analytics tools was triggered by the major innovations of technology companies. These tools use data-driven analysis methodologies made possible both by the large availability of data and the increasing computational capacity for analysis. Specifically, the data-driven approach is defining a new framework for the design and management of customer-focused marketing initiatives. Once the needs of the individual customer have been interpreted, based on data and analysis provided by CRM platforms, it becomes possible to tailor one-to-one marketing campaigns, launched in real time to meet specific needs.
To exploit this competitive advantage and establish a consultative and strategic platform, Reply has created a competence center focused on the customer robotics approach. Experience from initiatives across various sectors (e.g. automotive, financial services, utilities, retail, etc.), has enabled Reply to develop a framework for the development and implementation of processes related to the direct interaction with the customer, designed to recognize and anticipate needs across the various digital channels. This initiative integrates machine learning, artificial intelligence and cognitive systems models.
Customer robotics facilitates the conception, design and implementation of services aimed at interpreting the data and providing fully data-driven customer service tools. These include recommendation systems for products and conversational services able to understand and interact independently using natural language.
Reply constantly invests in developing its expertise in leading CRM and e-commerce platforms and solutions, thanks to a solid ecosystem of partnerships with world leaders in the industry, including Microsoft, Oracle, SAP and Salesforce.
Over the years, IT-related risks have increased dramatically in frequency and impact, leading to serious security violations. Millions of client data records have been compromised worldwide, affecting governments and other organizations. As a result, the mounting attention from regulatory bodies concerning the protection of information, personal data and critical infrastructures, requires an everincreasing commitment from companies to manage their cyber security.
To respond to this increasing complexity, Reply's coherent and complete set of integrated products and services protect the integrity of its customers' systems, from setting the best cybersecurity strategies, to the identification and implementation of the most suitable technological solutions to mitigate risk. Through its extensive network of partnerships, Reply offers wide-ranging expertise on the most innovative and widely used security technologies on the market. Furthermore, the company can help its customers to scout, select and implement protection solutions designed to mitigate advanced risks related to the latest technological drivers (cloud, IoT, Industry 4.0, automation, etc.).
Reply supports businesses throughout the implementation phase of its integrated information protection plan, from the identification of threats and vulnerabilities to the planning, design and employment of appropriate technological, legal, organizational and risk transfer (cyber insurance) countermeasures. Lastly, thanks to its cyber security command center, Reply assists large organizations with advanced computer security incident management and response action as well as threat intelligence services.
Data and its uses have become a key strategic factor in the digital transformation of businesses. By combining technological skills in data analysis, data modelling and data process re-engineering, Reply makes it easier for its clients to approach the issue of data, focusing on cultural change and a new approach to data management and to the use of data. In particular, Reply supports its customers in the definition and implementation of data analytics platforms that apply advanced models to core corporate processes.
In 2018, Reply continued to develop a specific offer portfolio in the machine learning field, designed to address growing demand from companies wishing to automate lower impact processes such as invoice reconciliation, while building value-added services based on innovative process automation models through deep learning, image recognition and prescriptive analytics.
In a world increasingly characterized by complex ecosystems, Reply supports its clients to create innovative and distinctive product-service experiences for the B2C and B2B sectors. From analyzing needs through to strategic business objectives and technological enablers, Reply can transform them into integrated customer journeys and prototypes that make the results immediately tangible and verifiable. Results are then developed in an iterative and agile way, until they are launched on the market.
At the same time, a customer-centric approach requires a change in the organization, to enable a successful customer experience journey. Reply supports organizations in managing such changes to make them really customer-centric, receptive to market inputs or feedback, agile in releasing new products and services, as well as mobilizing cross-functional teams that operate in full autonomy towards specific objectives.
In 2018, Reply continued to invest in this area through the acquisition of new talent and expertise. Its two studios in Milan and Munich were further expanded enabling support for customers in Europe and globally.
Real time marketing, artificial intelligence and analysis of the customer journey are the three transformation technologies set to impact most on the relationship of brands with customers. The use of these technologies enables brands to increase their marketing results through a continuous improvement of the customer experience in terms of loyalty and growth of its base.
Taking advantage of these emerging capabilities means building a more data-driven vision of the individual customer. The growing interest in cross-device identification tools and account-based marketing solutions (ABM) underlines the increasing interest among brands towards technologies offering targeted and coherent interactions among owned, earned and paid media.
Reply has developed a broad and highly specialized set of skills, including digital storytelling, contextual interaction, omnichannel loyalty, data recognition to capture large quantities of information and subsequent data analysis expertise to create effective market insights. To extend this scenario further, there is a need to ensure coherent communication between the various media involved, through a consolidated strategy that also incorporates a multimedia asset management component.
In recent years, Reply has developed specific expertise and solutions to support companies in the development of immersive experience projects through the application of augmented reality and virtual reality. These technologies are expected to have an increasingly strong impact on the marketing strategies of highly innovative brands.
Physical and digital, in-store and online: these are today's drivers of convergence and digitalization of companies, reaching far beyond the retail market.
Today, there is an increasing demand that the digital presence of a brand guarantees a purchase experience can be made in just a few clicks, allowing customers to quickly browse an interactive site. There should be no barriers, technological, physical, digital or relating to touch points that limit the user experience. For companies, these needs translate into targeted investments that aim at optimizing and extending processes and choosing enabling technologies, passing through the definition of a clear digitalization strategy.
The magnitude of the customers' digital identities is of increasing importance. Now, any strategic decision regarding investments in technology must be supported by increasingly sophisticated mathematical models based on data collected across the distribution chain, the sales chain and in all interactions with consumers. The value of this information is therefore twofold: the data is able to help streamline revenue reporting, quickly exerting influence on stock management, while the purchase conversion rate can be improved thanks to predictive analysis of purchasing behavior.
Reply supports its customers on their journey, offering the latest technological solutions and helping them to define the best digital transformation strategies for the specific market and budget.
The development of the videogame market is increasingly prevalent, attracting all age groups and remaining equally divided between males and females. The average age of gamers increased in 2018 to around 36 years old.
Videogames are more and more a communication language. A culture has developed that allows companies to continually improving the dialogue with customers, looking at new forms of "customer engagement" among which video games certainly playing an important role.
In addition to creating internationally acclaimed games, Reply has developed an offer that meets the communication needs of gaming brands within a 360° perspective. Reply is constantly investing in this area so that it can offer, through the use of the latest technologies, increasingly innovative and engaging game experiences.
Reply was able to further assert the company's ability to create quality products, with a focus on an international market. In particular, the release of Lone Wolf, a legacy Reply production, on the Nintendo Switch platform has had considerable success both in terms of visibility and sales performance.
Industry 4.0 models are quickly redefining production sites around the world, transforming them into systems closely interconnected with the supply chain, logistics, sales, the products themselves and the support and maintenance chain.
For this new global world of interconnected production, Reply has developed a suite of integrated solutions capable of ensuring its customers are flexible, connected and efficient. In particular, Reply's mission is to accompany its customers along the entire transformation journey: from the planning and development of solutions that open up the production sites and interconnect them to the entire digital world, to the design and implementation of solutions capable of rendering products "smart", connected and digital.
The digitization of companies is a transformation expected to take place in the medium term, made possible and concrete by the use of all the vertical and horizontal pillars offered by Industry 4.0 (robotics, digital twin, cloud and fog computing, augmented reality, big data, artificial intelligence and machine learning, etc.).
The last months saw the emergence of three main trends which steered the development of Reply's products and services offer in the IoT realm. The first is the growing need for differentiation in insurance, telco and utilities. In response, companies in these industries have consolidated connected objects as a cornerstone of product portfolio extension strategies for creating value and customer loyalty. The second trend is the growing opportunity for marketing in support of existing products. Through the increasing availability of connectivity, it is now possible to fundamentally transform the market approach of the manufacturing segment. The third and final trend has seen the exponential spread and popularity of new voice interaction mechanisms, such as smart speakers or voice assistants, as well as new systems of interaction, which are stimulating a different interaction between the physical world and the digital services world.
To tackle these challenges, Reply has designed and developed HI ConnectTM, a platform of services, devices and middleware, on which to base specific vertical applications such as ecosystems for the household appliances sector, advanced logistics, environmental security, contactless payment and product traceability. In 2018, Reply consolidated its position in the areas of home and professional appliances, connected insurance and in new telco offers and utilities for the connected home, as well as in the manufacturing, healthcare, insurance and automotive sectors.
Combining advanced technological skills, experimentation of new technologies that come to the market every month, and the ability to interpret customer needs and to produce high quality content in its proprietary laboratory, means Reply has developed a products and services offer for implementing augmented reality applications. This design and development offer enables users to enjoy an engaging experience, where they are transported into in a virtual and navigable environment.
AR and VR projects implemented by Reply during the course of the year have covered many areas including in healthcare, where installations aimed at motor rehabilitation and training were created. Numerous projects were also conducted in the marketing sphere, which saw VR and AR become excellent tools to support product presentation and customer engagement.
In the mobile sector, Reply supports companies' interactions with their users based on omnichannel applications and architectures capable of meeting needs of the new market by increasing the usability and performance of services, integrating new channels and types of devices seamlessly following specific guidelines of each platform.
With reference to the increasingly pervasive phenomenon of mobile video – where the quality and stability of the service are essential to ensuring its success – Reply is engaged in major European projects for the provision of Over The Top services, with design, development, validation and monitoring teams. Following the latest mobile developments, during 2018, Reply launched its first experiments on the iOS platform, based on the use of AR Kit for augmented reality solutions, as well as on the Android platform, based on the Android Auto and Android TV tools.
In addition, Reply strengthened the company's own application factory dedicated to mobile apps for both business and consumer worlds. The factory includes a user experience laboratory that closely collaborates with teams of developers specialized in various platforms, which bases its activity on a data-driven approach using tools and methods that focus on users' needs and behaviors.
Social networks are increasingly connected to digital marketing activities that Reply integrates into a universal relationship model, based on paid, owned and earned media analysis and activation skills to enable and optimize a company positioning integrated in the relationship channels with its own ecosystem: social networks, search engines, comparison sites, shopping and social shopping squares, affiliate networks, email, applications, lead generation channels.
Reply supports its clients in the quest for innovation with services and platforms designed to fully exploit new potentials offered by networks and by communication technologies. These platforms are:
Since the beginning of the year, the Group has recorded a consolidated turnover amounting to €283.5 million, an increase of 18.7% compared to the corresponding data for 2018.
All indicators are positive for the period (*). In the first quarter of 2019 the consolidated EBITDA was €42.3 million (compared to €32.2 million recorded in 2018), and is equal to 14.9% of the turnover. Consolidated EBITDA without the effects of applying IFRS 16 - would have been €36.5 million.
EBIT, from January to March, was €33.6 million (€28.7 million in 2018), and is equal to 11.8% of the turnover. EBIT, without the effects of applying IFRS 16, would have been €33.3 million.
The profit before tax, from January to March 2019, was €34.2 million (€28.3 million in 2018), equal to 12.1% of the turnover. The value, without the effects of applying IFRS 16, would have been equal to €34.4 million.
The net financial position of the Group on 31 March 2019 is positive by €50.0 million (€134.3 million without the effects of applying IFRS 16). The net financial position on 31 December 2018 was positive for €66.6 million.
The mission of the Group has always been to support its customers in a process of continuous innovation. The growth registered in 2018 and the positive start in 2019 are solid foundation on which to further develop Reply; the goal now is to strengthen Reply as a reference point for the new technology frontiers such as Artificial Intelligence, Data, Internet of Things and new cloud platforms.
(*) Reply has applied the new international accounting standard IFRS 16 prospectively from 1 January 2019, therefore without restating the comparative data.
Reply's performance is summarized in the following reclassified consolidated statement of income. Reply applied the new IFRS 16 accounting standard starting 1 January 2019, without restatement of the previous periods used for comparison (modified retrospective approach).
At the bottom of the consolidated financial statements shown below, the effects of the application of the new accounting standard are reported as at 31 March 2019.
| (thousand Euros) | Note | Q1 2019 (*) | % | Q1 2018 | % |
|---|---|---|---|---|---|
| Revenue | 4 | 283,544 | 100,0 | 238,880 | 100,0 |
| Purchases | 5 | (4,727) | (1.7) | (4,044) | (1.7) |
| Personnel | 6 | (142,026) | (50.1) | (118,365) | (49.6) |
| Services and other expenses | 7 | (94,720) | (33.4) | (84,373) | (35.3) |
| Other operating (expenses)/income | 272 | 0.1 | 104 | - | |
| Operating expenses | (241,201) | (85.1) | (206,678) | (86.5) | |
| Gross operating margin | 42,344 | 14.9 | 32,202 | 13.5 | |
| Amortization and write-downs | 8 | (8,760) | (3.1) | (3,528) | (1.5) |
| Operating margin | 33,584 | 11.8 | 28,673 | 12.0 | |
| Income/(loss) on investments | 9 | 1,171 | 0.4 | - | - |
| Financial (loss)/income | 10 | (549) | 0.2 | (370) | 0.2 |
| Income before taxes | 34,206 | 12.1 | 28,303 | 11.8 |
(*) The first quarter data of 2019 include the following impacts relating to the application of the new Accounting Standard IFRS 16:
cancellation of rents and rental fees with an impact on EBITDA of 5,812 thousand Euros;
depreciation and amortization increase for 5,509 thousand euro with a positive impact on EBIT of 303 thousand Euros;
increase in financial charges for 531 thousand Euros with a negative impact on EBT of 228 thousand Euros.
The Group's net financial position as at 31 March 2019, analyzed by due date and with comparative figures as at 31 December 2018, is shown in the following statement:
| (thousand Euros) | 31/03/2019 | 31/12/2018 |
|---|---|---|
| Cash and cash equivalents | 182,201 | 122,481 |
| Current financial assets | 1,769 | 997 |
| Due to banks | (29,215) | (31,990) |
| Due to other providers of finance | (557) | (689) |
| Financial lease liability- current | (21,169) | - |
| Net financial position - Short term | 133,028 | 90,799 |
| Due to banks | (18,957) | (23,366) |
| Due to other providers of finance | (932) | (881) |
| Financial lease liability - non current | (63,103) | - |
| Net financial position - Long term | (82,992) | (24,247) |
| Total net financial position | 50,037 | 66,552 |
(*) The first quarter data of 2019 include financial debts for 84,272 thousand Euros following the application of the new accounting standard IFRS 16. Net of this effect, the group's net financial position at 31 March 2019 would have amounted to 134,309 thousand Euros.
Notwithstanding Legislative Decree no. 25 of 15 February 2016 has eliminated the obligation to publish Interim Management Statements, these have as at 31 March 2019, in relation to the first quarter of financial year 2019, been prepared, in capacity of STAR segment issuer, as required by Borsa Italiana S.p.A. under communication no. 7587 of 21 April 2016. The contents herein are pursuant to Art. 154-ter, paragraph 5 of Legislative Decree 24 February 1998, no. 58.
The interim report herein has been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB") 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").
The accounting policies applied in these financial statements are consistent with those adopted in preparing the annual report, with the addition of the accounting standards endorsed by the European Union and applicable from 1 January 2019, to which reference should be made.
The preparation of the interim report requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities the financial statements reported herein. If in the future such estimates and assumptions, which are based on management's best judgment at the date of the interim financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.
Moreover, these valuation procedures, in particular those of a more complex nature regarding matters such as any impairment of non-current assets, are only carried out in full during the preparation of the annual financial statements, when all the information required is available, other than in the event that there are indications of impairment, when an immediate assessment is necessary.
The values indicated in the accounting statements are expressed in thousands of Euros.
The Interim Management report as at 31 March 2019, was not subject to audit by Reply's Independent auditors, as allowed by existing laws.
The application of the IFRS 16 accounting standard, in use since 1 January 2019, did not result in the restatement of the previous periods used for comparison (modified retrospective approach). According to this standard, liabilities for leasing are measured based on the residual payments set forth in the lease agreement, discounted using the incremental borrowing rate on the date of first adoption. The book value of the right-of-use asset ("RoU asset") is equal to the book value of the liabilities for leasing on the date of first application. The effects resulting from the application of the new standard are as follows:
| Economic figures (K/000) |
1° Q 2018 | 1° Q 2019 | ||
|---|---|---|---|---|
| pre IFRS 16 | post IFRS 16 | Impact | ||
| Services and other costs | 84,373 | 100,532 | 94,720 | (5,812) |
| EBITDA | 32,202 | 36,532 | 42,344 | 5,812 |
| Amortization and depreciation | 3,528 | 3,251 | 8,760 | 5,509 |
| EBIT | 28,673 | 33,281 | 33,584 | 303 |
| Financial expenses | 370 | 18 | 549 | 531 |
| Income before taxes | 28,303 | 34,433 | 34,205 | (228) |
| Financial figures (K/000) |
31/12/2018 | 31/03/2019 | ||
| pre IFRS 16 | post IFRS 16 | Impact | ||
| RoU asset | - | - | 84,312 | 84,312 |
| Net financial position | 66,552 | 134,309 | 50,137 | (84,272) |
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 offers consulting, system integration, application management and business process outsourcing www.reply.com.
Companies included in consolidation are consolidated on a line-by-line basis.
Change in consolidation compared to 31 March 2018 is related to:
Change in consolidation affects the Group's revenues and profits before tax of the first quarter 2019 by 6.5% and 0.4% respectively.
Revenues from sales and services, including change in work in progress, amounted to 283,544 thousand Euros (238,880 thousand Euros in the first quarter of 2018) with an increase of 18.7%.
This item includes revenues generated from consulting activities, turn-key projects and assistance and maintenance services and other minor amounts.
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:
| Region (*) | Q1 2019 | Q1 2018 |
|---|---|---|
| Region 1 | 68.10% | 67.90% |
| Region 2 | 22.30% | 19.40% |
| Region 3 | 9.50% | 12.60% |
| IoT Incubator | 0.1% | 0.10% |
| Total | 100.0% | 100.0% |
(*) Region 1: ITA, USA, BRA, POL, ROU Region 2: DEU, CHE, CHN, HRV Region 3: GBR, LUX, BEL, NLD, FRA, BLR The following table shows the percentage breakdown of revenues by business line:
| Q1 2019 | Q1 2018 | |
|---|---|---|
| Technologies | 60.3% | 55.4% |
| Applications | 30.4% | 33.9% |
| Processes | 9.3% | 10.7% |
| Total | 100.0% | 100.0% |
Detail is as follows:
| (thousand Euros) | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Software licenses for resale | 2,458 | 2,580 | (122) |
| Hardware for resale | 996 | 133 | 863 |
| Other | 1,273 | 1,330 | (57) |
| Total | 4,727 | 4,044 | 684 |
The items Software licenses for resale and Hardware licenses for resale include change in inventory of software and hardware products for resale.
The item Other mainly includes costs incurred for fuel expenses and the purchase of office material.
Increase in personnel expenses amounting to 23,661 thousand Euros owes to the overall increase of the Group's business and to the increase of the number of employees.
Detail of personnel by category is provided below:
| (number) | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Directors | 283 | 240 | 43 |
| Managers | 961 | 783 | 178 |
| Staff | 6,606 | 5,641 | 965 |
| Total | 7,850 | 6,664 | 1,186 |
Change in consolidation brought an increase of 563 employees.
Services and other costs amounting to 94,720 thousand Euros (84,373 thousand Euros in the first quarter 2018) comprised the following:
| (thousand Euros) | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Consulting and commercial | 64,867 | 50,219 | 14,648 |
| Travelling and professional training expenses | 9,503 | 8,339 | 1,164 |
| Other services | 12,990 | 14,293 | (1,303) |
| Office charges | 3,535 | 6,959 | (3,424) |
| Rental and leasing | 1,155 | 2,092 | (937) |
| Other | 2,669 | 2,472 | 197 |
| Total | 94,720 | 84,373 | 10,346 |
Change in Services and other costs, amounting to 10,346 thousand Euros, is attributable to an overall increase in the Group's business.
The item Other services mainly includes marketing services, administrative and legal services, telephone and canteen expenses.
Office charges relate to costs incurred for the management of the locations in which the Group operates (expenditure on utilities, security services and cleaning services).
The decrease of the items Office charges and Rental and leasing compared to the first quarter 2018 is mainly due to the reversal of the rent fees following the application of IFRS 16.
Depreciation of tangible assets, amounting to 2,204 thousand Euros at 31 March 2019 has been determined on a straight-line basis at economic-technical rates that reflect the useful lives of the asset.
Amortization of intangible assets at 31 March 2019 amounted to 1,045 thousand Euros and is mainly related to:
Amortization related to RoU assets arising from the adoption of IFRS 16 amounted to 5,509 thousand Euros.
The item amounted to a net gain of 1,171 thousand Euros and was related to the net change in fair value of investments made by Breed Investments Ltd in IoT.
Detail is as follows:
| (thousand Euros) | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Financial income | 131 | 69 | 62 |
| Financial losses | (280) | (134) | (146) |
| Other | (400) | (305) | (96) |
| Total | (549) | (370) | (179) |
The item Financial income mainly includes interest on bank accounts.
Financial losses mainly include the interest costs related to bank advances and to the use of the credit lines for M&A operations.
The item Other includes:
The net financial position as at 31 March 2019 was positive for 50,037 thousand Euros; without the effects arising from the application of IFRS 16, the net financial position would have amounted to 134,309 thousand Euros (66,552 thousand Euros at 31 December 2018).
Due to banks, amounting to 48,172 thousand Euros, is referred mainly to credit lines for M&A operations.
No significant events have occurred subsequent to 31 March 2019.
The following is to be noted:
For the Board of Directors
/s/ Mario Rizzante
Chairman
Mario Rizzante
The director responsible for preparing the Company's financial reports, Dott. Giuseppe Veneziano, declares, pursuant to paragraph 2 of Article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this interim management report at 31 March 2019 corresponds to the results documented in the books, accounting and other records of the company.
Turin, 14 May 2019
/s/ Giuseppe Veneziano
(Director responsible of drafting financial statements)
Giuseppe Veneziano
| Company name | Headquarters | Group interest |
|---|---|---|
| Parent company | ||
| Reply S.p.A. | Turin – Corso Francia, 110 - Italy | |
| Companies consolidates on a line-by-line basis 4brands Reply GmbH & CO. KG. |
Minden, Germany | 51.00% |
| Air Reply S.r.l. (*) | Turin, Italy | 85.00% |
| Arlanis Reply S.r.l. | Turin, Italy | 100.00% |
| Arlanis Reply AG | Potsdam, Germany | 100.00% |
| Aktive Reply S.r.l. | Turin, Italy | 100.00% |
| Atlas Reply S.r.l. | Turin, Italy | 100.00% |
| Avantage Reply Ltd. | London, United Kingdom | 100.00% |
| Avantage Reply GmbH | Munich, Germany | 100.00% |
| Avantage Reply (Belgium) Sprl | Brussels, Belgium | 100.00% |
| Avantage Reply (Luxembourg) Sarl | Itzig, Luxembourg | 100.00% |
| Avantage Reply (Netherlands) BV | Amsterdam, Netherland | 100.00% |
| Avvio Reply Ltd. | London, United Kingdom | 100.00% |
| Blue Reply S.r.l. | Turin, Italy | 100.00% |
| Blue Reply GmbH | Guetersloh, Germany | 100.00% |
| Bridge Reply S.r.l. | Turin, Italy | 60.00% |
| Business Reply S.r.l. | Turin, Italy | 100.00% |
| Breed Reply Ltd. | London, United Kingdom | 100.00% |
| Breed Reply Investment Ltd. | London, United Kingdom | 80.00% |
| Cluster Reply S.r.l. | Turin, Italy | 100.00% |
| Cluster Reply GmbH & CO. KG | Munich, Germany | 100.00% |
| Cluster Reply Informatica LTDA. | San Paolo, Brazil | 100.00% |
| Cluster Reply Roma S.r.l. | Turin, Italy | 100.00% |
| ComSysto Reply GmbH (*) | Munich, Germany | 100.00% |
| Concept Reply GmbH | Munich, Germany | 100.00% |
| Consorzio Reply Energy | Turin, Italy | 100.00% |
| Consorzio Reply Public Sector | Turin, Italy | 100.00% |
| Core Reply S.r.l. | Turin, Italy | 90.00% |
| Data Reply S.r.l. | Turin, Italy | 100.00% |
| Data Reply GmbH (*) | Munich, Germany | 92.50% |
| Discovery Reply S.r.l. | Turin, Italy | 100.00% |
| e*finance consulting Reply S.r.l. | Turin, Italy | 100.00% |
|---|---|---|
| Ekip Reply S.r.l. | Turin, Italy | 100.00% |
| Elbkind Reply GmbH | Hamburg, Germany | 100.00% |
| Eos Reply S.r.l. | Turin, Italy | 100.00% |
| Envision Reply S.r.l. | Turin, Italy | 100.00% |
| First Development Hub, LLC | Minsk, Belarus | 100.00% |
| Forge Reply S.r.l. | Turin, Italy | 100.00% |
| France Reply Ltd. | London, United Kingdom | 80.00% |
| Go Reply S.r.l. | Turin, Italy | 100.00% |
| Go Reply GmbH | Guetersloh, Germany | 100.00% |
| Hermes Reply S.r.l. | Turin, Italy | 100.00% |
| Hermes Reply Polska zo.o | Katowice, Poland | 100.00% |
| Implico LLC | Seattle, USA | 100.00% |
| Industrie Reply GmbH | Munich, Germany | 100.00% |
| Industrie Reply LLC | Michigan, USA | 100.00% |
| InEssence Reply GmbH | Düsseldorf, Germany | 100.00% |
| Infinity Reply GmbH | Düsseldorf, Germany | 100.00% |
| IrisCube Reply S.p.A. | Turin, Italy | 100.00% |
| Leadvise Reply GmbH | Darmstadt, Germany | 100.00% |
| Lem Reply S.r.l. | Turin, Italy | 100.00% |
| Like Reply S.r.l. | Turin, Italy | 100.00% |
| Live Reply GmbH | Düsseldorf, Germany | 100.00% |
| Logistics Reply S.r.l. | Turin, Italy | 100.00% |
| Lynx Recruiting Ltd. | London, United Kingdom | 100.00% |
| Macros Reply GmbH | Munich, Germany | 100.00% |
| MCG Systems AG | Colony, Germany | 100.00% |
| Modcomp GmbH | Colony, Germany | 100.00% |
| Neveling.net GmbH | Hamburg, Germany | 100.00% |
| Open Reply GmbH | Guetersloh, Germany | 100.00% |
| Open Reply S.r.l. | Turin, Italy | 100.00% |
| Pay Reply S.r.l | Turin, Italy | 100.00% |
| Portaltech Reply Ltd. | London, United Kingdom | 100.00% |
| Portaltech Reply S.r.l. | Turin, Italy | 100.00% |
| Portaltech Reply GmbH | Guetersloh, Germany | 100.00% |
| Portaltech Reply Süd GmbH | Munich, Germany | 100.00% |
| Power Reply S.r.l. | Turin, Italy | 100.00% |
| Power Reply GmbH & CO. KG. | Munich, Germany | 100.00% |
| Profondo Reply GmbH | Guetersloh, Germany | 100.00% |
| Protocube Reply S.r.l. | Turin, Italy | 55.00% |
|---|---|---|
| Reply Consulting S.r.l. | Turin, Italy | 100.00% |
| Reply AG | Guetersloh, Germany | 100.00% |
| Reply GmbH | Zurich, Switzerland | 100.00% |
| Reply do Brasil Sistemas de Informatica Ltda | Belo Horizonte, Brazil | 100.00% |
| Reply Inc. | Michigan, USA | 100.00% |
| Reply Ltd. | London, United Kingdom | 100.00% |
| Reply Belgium Sprl | Mont Saint Guibert, Netherland | 100.00% |
| Reply Digital Experience S.r.l. | Turin, Italy | 100.00% |
| Reply France Sarl | Paris, France | 100.00% |
| Reply Luxembourg Sarl | Sandweiler, Luxembourg | 100.00% |
| Reply NL Ltd. | London, United Kingdom | 80.00% |
| Reply Services S.r.l. | Turin, Italy | 100.00% |
| Reply Verwaltung GmbH | Guetersloh, Germany | 100.00% |
| Retail Reply S.r.l. | Turin, Italy | 100.00% |
| Ringmaster S.r.l. | Turin, Italy | 50.00% |
| Risk Reply Ltd. | London, United Kingdom | 80.00% |
| Riverland Reply GmbH | Munich, Germany | 100.00% |
| Santer Reply S.p.A. | Milan, Italy | 100.00% |
| Security Reply S.r.l. | Turin, Italy | 100.00% |
| Sense Reply S.r.l. | Turin, Italy | 90.00% |
| Solidsoft Reply Ltd. | London, United Kingdom | 100.00% |
| Spark Reply S.r.l. | Turin, Italy | 100.00% |
| Spark Reply GmbH | Germany | 100.00% |
| Spike Reply GmbH | Colony, Germany | 100.00% |
| Sprint Reply S.r.l. | Turin, Italy | 100.00% |
| Storm Reply S.r.l. (*) | Turin, Italy | 95.00% |
| Storm Reply GmbH | Guetersloh, Germany | 100.00% |
| Syskoplan Reply S.r.l. | Turin, Italy | 100.00% |
| Syskoplan Reply GmbH & CO. KG | Guetersloh, Germany | 100.00% |
| Sytel Reply Roma S.r.l. | Turin, Italy | 100.00% |
| Sytel Reply S.r.l. | Turin, Italy | 100.00% |
| Target Reply S.r.l. | Turin, Italy | 100.00% |
| TamTamy Reply S.r.l. | Turin, Italy | 100.00% |
| Technology Reply S.r.l. | Turin, Italy | 100.00% |
| Technology Reply Roma S.r.l. | Turin, Italy | 100.00% |
| Technology Reply S.r.l. | Bucharest, Romania | 100.00% |
| TD Reply GmbH | Berlin, Germany | 100.00% |
| TD Marketing Consultants, Beijing Co. Ltd. | China | 100.00% |
|---|---|---|
| Tool Reply GmbH | Guetersloh, Germany | 100.00% |
| Triplesense Reply GmbH | Frankfurt, Germany | 100.00% |
| Twice Reply S.r.l. | Turin, Italy | 100.00% |
| Twice Reply GmbH | Munich, Germany | 100.00% |
| Valorem LLC (*) | Kansas City, USA | 70.00% |
| Valorem Private Ltd | India | 99.99% |
| Valorem GmbH | Zurich, Switzerland | 100.00% |
| WM Reply Ltd | London, United Kingdom | 100.00% |
| Whitehall Reply S.r.l. | Turin, Italy | 100.00% |
| Xister Reply S.r.l. (*) | Turin, Italy | 89.20% |
| Companies carried at fair value | ||
|---|---|---|
| Amiko Digital Health Limited | England | 22.73% |
| CageEye AS | Norway | 10.16% |
| Callsign Inc. | England | 3.61% |
| Canard Drones Ltd. | Spain | 24.06% |
| Connecterra BV | Belgium | 23.06% |
| enModus Ltd. | England | 19.18% |
| Food Marble Digestive Health Ltd. | England | 23.45% |
| iNova Design Ltd. | England | 34.68% |
| Iotic Labs Limited | England | 18.31% |
| Kokoon Technology Ltd. | England | 39.14% |
| Metron Sas | France | 10.95% |
| RazorSecure Ltd. | England | 32.06% |
| Senseye Ltd. | England | 12.72% |
| Sensoria Inc. | USA | 24.00% |
| Sentryo SAS | France | 13.30% |
| TAG Sensors AS | Norway | 19.06% |
| Ubirch GmbH | Germany | 25.74% |
| We Predict Ltd. | England | 16.64% |
| Wearable Technologies Ltd. | England | 20.05% |
| Yellow Line Parking Ltd. | England | 10.34% |
| Zeetta Networks Limited | England | 29.28% |
(*) 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 reporting date.
Reply S.p.A. Corso Francia. 110 10143 TURIN – ITALY Tel. +39-011-7711594 Fax +39-011-7495416 www.reply.com
Share capital: Euro 4,863,485.64 i.v. Fiscal code and R.I. of Turin no. 97579210010 VAT 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
Corso Francia, 110, 10143 Turin – Italy Tel. +39-011-7711594 Fax. +39-011-7495416 [email protected] www.reply.com
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