Income Statement (*)

Statement of Comprehensive Income

Statement of Financial Position (*)

Statement of Changes in Equity

Statement of Cash Flows

Notes to the financial Statements

Note 1 - General information

Reply 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.

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.

Note 2 - Accounting principles and basis of consolidation

Compliance with international accounting principles
2022 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.

General principles
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 IFRS 9. The Financial Statements have been prepared on the going concern assumption. In this respect, despite operating in a difficult economic and financial environment, the Company’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.

Financial statements
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 non-current 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 assets
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:

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
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.

Other intangible assets
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:

• 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, on the following basis:

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.

Right of use Assets
According to IFRS 16, the accounting representation of leases (which do not establish the provision of services) takes place through the inclusion in the financial position of a financial liability, represented by the present value of future rents, against the inclusion in the assets of the ‘right of use of the leased asset’. Leases that were previously accounted for under IAS 17 as financial leases, have not changed compared to the current accounting representation, in full continuity with the past.

Contracts that are within the scope of IFRS 16 relate mainly to long term car-rental.

With reference to the options and exemptions provided by IFRS 16, the Company has made the following choices:

• IFRS 16 is not generally applied to intangible assets, short-term contracts (i.e. less than 12 months) and low unit value;

• rights of use and financial liabilities relating to leasing contracts are classified under specific items in the financial position;

• any component relating to the services included in the leasing fees is generally excluded from IFRS 16.

Intangible assets with indefinite useful life
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.

Impairment
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.

Equity investments
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, normally determined through the application of the market multiples to prospective EBIT or to the value in use.

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.

Current and non-current financial assets
Financial assets are classified, on the basis of both contractual cash flow characteristics and the entity’s business model for managing them, in the following categories:
(i) financial assets measured at amortized cost;
(ii) financial assets measured at fair value through other comprehensive income (hereinafter also OCI);
(iii) financial assets measured at fair value through profit or loss.

At initial recognition, a financial asset is measured at its fair value; at initial recognition, trade receivables that do not have a significant financing component are measured at their transaction price. After initial recognition, financial assets whose contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding are measured at amortized cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows (the so-called hold to collect business model). For financial assets measured at amortized cost, interest income determined using the effective interest rate, foreign exchange differences and any impairment losses (see the accounting policy for ”Impairment of financial assets”) are recognized in the profit and loss account. Conversely, financial assets that are debt instruments are measured at fair value through OCI (hereinafter also FVTOCI) if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (the so- called hold to collect and sell business model).
In these cases:
(i) interest income determined using the effective interest rate, foreign exchange differences and any impairment losses (see the accounting policy for ”Impairment of financial assets”) are recognized in the profit and loss account;
(ii) changes in fair value of the instruments are recognized in equity, within other comprehensive income.

The accumulated changes in fair value, recognized in the equity reserve related to other comprehensive income, is reclassified to the profit and loss account when the financial asset is derecognized. A financial asset represented by a debt instrument that is neither measured at amortized cost nor at FVTOCI, is measured at fair value through profit or loss (hereinafter FVTPL); financial assets held for trading fall into this category. Interest income on assets held for trading contributes to the fair value measurement of the instrument and is recognized in ”Finance income (expense)”, within ”Net finance income (expense) from financial assets held for trading”. When the purchase or sale of a financial asset is under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned, the transaction is accounted for on the settlement date.

Transfer of 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:

• If the entity substantially transfers all of the risks and benefits of ownership associated with the financial asset, the Company derecognizes the financial asset from the Financial Statements and recognizes separately as assets or liabilities any rights or obligations originated or maintained through the transfer;

• If the Company maintains substantially all of the risks and benefits of ownership associated with the financial assets, it continues to recognize it;

• If the Company does not transfer or maintain substantially all of the risks and benefits of ownership associated with the financial asset, it determines whether or not it has maintained control of the financial asset. In this case:

• If the Company has not maintained control, it derecognizes the financial asset from its Financial Statements and recognizes separately as assets or liabilities any rights or obligations originated or maintained through the transfer;

• If the Company has maintained control, it continues to recognize the financial asset to the extent of its residual involvement with such 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
Trade receivables are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. At initial recognition they are measured at fair value adjusted for transaction costs and subsequently measured at amortized cost determined using the effective interest rate, to account for foreign exchange differences and any impairment losses. At each reporting date, all financial assets, with the exception of those measured at fair value through profit and loss, are analyzed for any impairment indicators. Under IFRS 9, an entity calculates the allowance for credit losses by considering on a discounted basis the cash shortfalls it would incur in various default scenarios for prescribed future periods and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability weighted outcomes. Because every loan and receivable carries with it some risk of default, every such asset has an expected loss attached to it from the moment of its origination or acquisition.

Receivables and payables denominated in non EMU currencies are stated at the exchange rate at period end provided by the European Central Bank.

Cash and cash equivalents
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
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 investments
Financial liabilities and equity instruments issued by the Company are presented according to their substance arising from their contractual obligations and in accordance with the definitions of financial liabilities and equity instruments. The latter are defined as those contractual obligations that give the right to benefit in the residual interests of the Company’s assets after having deducted its liabilities. The accounting standards adopted for specific financial liabilities or equity instruments are outlined below:

• Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently stated at its amortized cost, using the prevailing market interest rate method.

• Equity instruments

Equity instruments issued by the Company are stated at the proceeds received, net of direct issuance costs.

• Non current financial liabilities
  

Liabilities are stated according to the amortization cost.

Derivative financial instruments and other hedging transactions
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 IFRS 9, 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 IFRS 9 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.

Employee benefits
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.

Share-based payment plans
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. Bonuses settled through the recognition of shares in the company (equity settlement) are recorded at their initial fair value and measured on a straight-line basis over the vesting period.

Incentive Plans (LTI)
Incentive plans linked to specific parameters (economic, financial, ESG and TSR) are recorded on the basis of their initial fair value and reviewed at each reporting date to adjust based on the probability of achieving the objectives and the permanence of the assignees (vesting condition).

Provisions and reserves for risks
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 recognition
Revenue from contracts with customers is recognized on the basis of the following five steps:

• identifying the contract with the customer;

• identifying the performance obligations, that are promises in a contract to transfer goods and/or services to a customer;

• determining the transaction price;

• allocating the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each good or service; and

• recognizing revenue when (or as) a performance obligation is satisfied, that is when a promised good or service is transferred to a customer.

A promised good or service is transferred when (or as) the customer obtains control of it. Control can be transferred over time or at a point in time. Revenue is measured at the fair value of the consideration to which the Company expects to be entitled in exchange for transferring promised goods and/or services to a customer, excluding amounts collected on behalf of third parties. Therefore, revenue is recognized when control over the goods or services is transferred to the customer either ”over time” or ”at a point in time”. 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.

Financial income and expenses
Financial income and expenses are recognized and measured in the income statement on an accrual basis.

Government grants
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.

Taxationbr />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 Company 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.

Earnings per share
Basic earnings per share is calculated with reference to the profit for the period of the Company 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.

Use of estimations
The preparation of the Financial Statements and relative notes under IFRS requires that management makes estimates and assumptions based also on subjective judgments, past experiences and assumptions considered reasonable and realistic in relation to the information at the time of estimation. These estimates shall affect items reported in the consolidated financial balance sheet and income statement and the disclosure of contingent assets and liabilities. The results of the financial statements may differ, even significantly, from these estimates as a result of possible changes in the factors considered in the determination of these estimates. Estimates are periodically reviewed.
The estimates are mainly referred to:

Equity investments
At each balance sheet date, the company verifies whether there are indications that the investments may have suffered a reduction in value. For this purpose, both internal and external sources of information are considered. The identification of value reduction indicators, the estimation of future cash flows and the determination of the fair value of each investment requires Management to make significant estimates and assumptions about the determination of the discount rate to be applied, the useful life and the residual value of the assets. These estimates can have a significant impact on the value of assets and the amount of any write-downs.

The reduction in value of trade receivables is carried out through the simplified approach, which provides for the estimation of the expected loss over the entire life of the credit at the time of initial recognition and in subsequent evaluations. For each customer segment, the estimate is made mainly through the determination of the expected default, based on historical-statistical indicators, possibly adjusted using prospective elements. For some categories of loans characterized by specific risk elements, detailed assessments are carried out on the individual credit positions.

Leasing liabilities and right of use assets
The determination of the value of the lease liability and the corresponding right of use asset is carried out by calculating the present value of the lease payments, also considering the estimate on the reasonable certainty of the renewal of the lease contracts.

Provisions, contingent liabilities and employee provisions
The provisions related to litigation are the result of a complex estimation process that is also based on the probability of failure. The provisions related to personnel provisions, and in particular to the employee severance indemnity, are determined on the basis of actuarial assumptions; changes in these assumptions could have significant effects on those provisions.

Derivative instruments and equity instruments
The fair value of derivatives and equity instruments is determined through valuation models that also take into account subjective valuations such as, for example, cash flow estimates, expected price volatility, etc., and/or through market values or quotes provided by financial counterparties.

Pursuant to IAS 8 (Accounting Standards, changes in accounting estimates and errors) paragraph 10, in the absence of a principle or interpretation applicable specifically to a certain transaction, Management defines, through subjective assessments, the accounting methodologies to be adopted in order to provide a financial statements that faithfully represent the financial position, the economic result and the financial flows of the Company, reflects the economic substance of the operations, is neutral, drafted on a prudential basis and comprehensive in all relevant aspects.

Estimations changes and reclassifications
It should be noted that at the balance sheet date there are no significant estimates related to uncertain future events and other causes of uncertainty that may cause significant adjustments to the values of assets and liabilities within the following year.

Recently issued accounting standards

The following are the amendments to the international accounting standards endorsed by the European Commission, which were already included in the 2022 Annual Report, which are effective from January 1, 2023, in addition to the amendments not yet endorsed by the European Commission, some of which issued in the first half of the current year.

Accounting Standards and Interpretations issued by the IASB/IFRIC and endorsed by the European Commission

With Regulation No. 2021/2036, issued by the European Commission on November 19, 2021, the amendments to IFRS 17 ”Insurance Contracts” were endorsed which define the accounting treatment of insurance contracts issued and reinsurance contracts held. The provisions of IFRS 17, which supersede those currently provided for in IFRS 4 ”Insurance Contracts”, aim to help companies to implement the standard and to: (i) reduce costs by simplifying the requirements of the standard; (ii) make disclosures easier to report in the financial statements; (iii) facilitate the transition to the new standard, deferring its entry into force. The amendments are effective from January 1, 2023.

With Regulation No. 2022/357, issued by the European Commission on March 2, 2022, the amendments to IAS 1 and IFRS Practice Statement 2 ”Disclosure of Accounting Policies” were endorsed, requiring individual entities to supply more information about their accounting policies. The amendments clarify that information on accounting policies is relevant when, considered together with other information provided in the financial statements, it is reasonably possible to assume that they affect the decisions of the financial statement users. The description provided in relation to accounting policies must be ”entity specific”, highlighting the specific accounting methods adopted by the company and providing more useful information than a standardised description or one that merely replicates the IFRS provisions. The changes to the Practice Statement provide guidance on how to apply the concept of materiality to financial reporting. The amendments are effective from January 1, 2023.

With Regulation No. 2022/357, issued by the European Commission on March 2, 2022, the amendments to IAS 8 ”Definition of Accounting Estimates” were endorsed which defines the notion of accounting estimates, removing the definition of amendment in accounting estimates. In the new understanding, accounting estimates are defined as monetary amounts subject to measurement uncertainty and that, therefore, they must be estimated using judgements, assumptions, valuation techniques and inputs. Changes in accounting estimates are applied prospectively only to future transactions and other future events, whereas changes in accounting policies are generally applied retrospectively. The amendments are effective from January 1, 2023.

With Regulation No. 2022/1392, issued by the European Commission on August 11, 2022, the amendments to IAS 12 ”Deferred Tax related to Assets and Liabilities arising from a Single Transaction” were endorsed, which clarifies the methods of accounting for deferred tax related to assets and liabilities for some transactions, including lease transactions and decommissioning requirements, which during initial recognition produce temporary taxable and deductible differences of an equal amount, as well as to IFRS 1 ”First-time Adoption of International Financial Reporting Standards”, introducing a specific paragraph on the date of application of these amendments, and some paragraphs concerning Appendix B of IFRS 1. The amendments are effective from January 1, 2023.

With Regulation No. 2022/1491, issued by the European Commission on September 8, 2022, the amendments to IFRS 17 ”Insurance Contracts”: Initial Application of IFRS 17 and IFRS 9 - Comparative Information” where endorsed, which requires that if an entity applies IFRS 17 following the application of IFRS 9 (classification overlap), the entity must provide qualitative information that allows users of the financial statements to understand: (i) the extent to which the classification overlap was applied (for example, whether it was applied to all financial assets derecognised in the comparative period); and (ii) whether and to what extent the impairment provisions of IFRS 9 were applied. The IASB has consequently added a text block element to the IFRS taxonomy to reflect this new disclosure requirement. The amendments are effective from January 1, 2023.

At present Reply believes that the amendments described above will have no significant impact on the Group.

Accounting standards not yet approved by the European Union

On January 23, 2020, the IASB issued the Amendment to IAS 1 ”Classification of Liabilities as Current or Non current” and on October 31, 2022, published the Amendment to IAS 1 ”Non-Current Liabilities with Covenants”. These amendments provide clarifications on the classification of liabilities as current or non current. The amendments will be effective on or after January 1, 2024.

On January 23, 2020, the IASB issued the Amendment to IAS 1 ”Classification of Liabilities as Current or Non current” and on October 31, 2022, published the Amendment to IAS 1 ”Non-Current Liabilities with Covenants”. These amendments provide clarifications on the classification of liabilities as current or non current. The amendments will be effective on or after January 1, 2024.

On September 22, 2022, the IASB issued the Amendment to IFRS 16 ”Lease Liability in a Sale and Leaseback”, which requires the seller-lessee to value the Right-of-Use asset arising from a sale and leaseback transaction on the basis of the percentage of the previous carrying amount of the asset held by the seller-lessee. Consequently, in a sale and leaseback transaction, the seller-lessee will only recognise the amount of any gains or losses relating to the rights transferred to the buyer-lessor. Therefore, the initial value of the lease liabilities arising from a sale and leaseback transaction is a consequence of the way in which the seller-lessee measures the Right-of-use asset and the gains or losses recorded on the date of the transaction. The amendments will be effective on or after January 1, 2024.

On May 23, 2023, the IASB issued the Amendment to IAS 12 ”International Tax Reform - Pillar Two Model Rules”, which introduces a mandatory temporary exception to the requirements of IAS 12 for the recognition and specific disclosure of deferred tax assets and liabilities arising from the OECD ”Pillar Two Model Rules”. By introducing common rules, Pillar Two aims to ensure that in every jurisdiction, large multinationals with consolidated turnover of at least €750 million are subject to a minimum 15% tax rate. The temporary exception will take effect immediately after the publication of the Amendment and will be applied retrospectively in compliance with IAS 8, while the specific disclosure requirements will take effect starting from the annual statements starting on or after January 1, 2023.

On May 25, 2023, the IASB issued the Amendment to IAS 7 and IFRS 7 ”Supplier Finance Arrangements”, which requires entities to provide additional information on supplier finance contracts allowing the users of the financial statements to assess how these supplier contracts affect liabilities and cash flows and to understand the effect on the exposure to liquidity risks. The amendments will be effective on or after January 1, 2024.

On August 15, 2023, the IASB published an amendment called ”Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability”. The document requires an entity to apply a methodology to be applied in a consistent manner in order to verify whether one currency can be converted into another and, when this is not possible, how to determine the exchange rate to be used and the disclosure to be provided in the notes to the financial statements. The change will apply from 1 January 2025, but an early application is allowed. Reply is currently assessing the possible impacts of the above-mentioned amendments.

Note 3 - Risk management

Reply S.p.A. operates at a worldwide 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.

Credit risk
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.

Liquidity risk
The Company 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 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.

Risks associated with fluctuations in currency and interest rates
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 M&A investments, as well as the necessity to deploy available liquidity. Changes in market interest rates may have the effect of either increasing or decreasing the Company’s net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions. The interest rate risk to which the Company is exposed derives from bank loans; to mitigate such risks, Reply S.p.A., when useful, uses derivative financial instruments designated as ”cash flow hedges”. The use of such instruments is disciplined by written procedures in line with the Company’s risk management strategies that do not contemplate derivative financial instruments for trading purposes.

Note 4 - Other information

Exception allowed under paragraph 4 of article 2423 of the italian Civil Code
No exceptions allowed under Article 2423, paragraph 4, of the Italian Civil Code were used in drawing up the annexed Financial Statements.

Fiscal consolidation
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.

Note 5 - Revenue

Revenues amounted to 792,261,247 Euros and are detailed as follows:

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 78,573,756 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 revenues refer to activities that Reply S.p.A. carries out for the subsidiaries, and more specifically:

• operational, co-ordination, technical and quality management;

• administration, personnel and marketing activities;

• strategic management services.

Note 6 - Other income

Other revenues that as at 31 December 2023 amounted to 22,794,238 Euros (25,668,033 Euros at 31 December 2022) 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.

Note 7 - Purchases

Detail is as follows:

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 mainly includes the purchase of supplies, e-commerce material, stationary and printed materials (168,464 Euros) and fuel (330,560 Euros).

Note 8 - Personnel expenses

Personnel expenses amounted to 33,309,178 Euros, with an increase of 6,773,415 Euros and are detailed in the following table:

Detail of personnel by category is provided below:

The average number of employees in 2023 was 110 (in 2022 106).

Note 9 - Services and other costs

Services and other costs comprised the following:

Professional Services from Group companies, which increased during the year by 79,178,923 Euros, are mainly related 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.

Note 10 - Amortization, depreciation and write-downs

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 2023 to an overall cost of 326,878 Euros. Details of depreciation are provided at the notes to tangible assets.

Amortization of intangible assets amounted in 2023 to an overall cost of 3,467,113 Euros. Details of depreciation are provided at the notes to intangible assets.

Amortization related to right of use assets arising from the application of IFRS 16 amounted to 651,017 Euros.

Note 11 - Other operating and non-recurring income/(expenses)

Other operating and non-recurring income, related to events and transactions that do not occur in the regular course of business, amounted to 6,482,920 and mainly refer to provisions for risks and reversal in relation to contractual, commercial and legal disputes. In particular, this item includes the provision of 6,700 thousand euros, relating to the liability disclosed in the paragraph ”Significant events occurring after the end of the financial year” to which reference is made; in relation to such event there is a possible liability, currently unquantifiable linked to any civil actions..

Note 12 - Gain/(losses) on equity investments

Detail is as follows:

Dividends include proceeds received by Reply S.p.A. from subsidiary companies during the year. Detail is as follows:

Net 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 21 herein.

Note 13 - Financial income/(expenses)

Detail is as follows:

Interest income from subsidiaries refers to the interest yielding cash pooling accounts of the Group companies included in the centralized pooling system.

Financial income include interest in bank accounts amounting to 4,237,225 Euros and interest income on tax refunds amounting to 29,151 Euros.

Interest expenses refer to the interest expenses on the use of credit facilities with Intesa Sanpaolo and Unicredit.

The item Other mainly includes:

• negative 2,777,684 Euros related to the gain on exchange rate differences arising from the translation of balance sheet items not recorded in Euros (positive 1,282,493 Euros at 31 December 2022);

• negative 1,043,804 Euros related to the non-effective portion of the IRS (positive 2,396,336 Euros at 31 December 2022);

• the financial losses related to the fair value adjustments of the investments held by Reply amounting to positive 1,063,254 Euros (negative 3,910,940 Euros at 31 December 2022);

• 931,262 Euros related to positive interests in relation to financial investments (844,042 Euros at 31 December 2022).

Note 14 - Income taxes

The details are provided below:

IRES theoretical rate
The following table provides the reconciliation between the IRES theoretical rate and the fiscal theoretical rate:

Temporary differences, net refer to:

• deductible differences amounting to 173,697 thousand Euros arising mainly from the non-taxable share of the dividends received in the financial year (155,939 thousand Euros), earnings on valuation changes (3,276 thousand Euros), Directors’ fees to be paid (8,205 thousand Euros) and the deduction of the implicit goodwill of the investment in Xister (1,442 thousand Euros);

• non-deductible differences amounting to 46,878 thousand Euros owing mainly to write-down/losses of equity investments (23,540 thousand Euros), risks provision (6,700 thousand Euros), loss on loans valuation changes (7,195 thousand Euros) and Directors’ fees to be paid (8,300 thousand Euros).

Calculation of taxable IRAP

Temporary differences, net refer to:

• non-deductible differences amounting to 17,582 thousand Euros mainly due to emoluments to Directors (9,654 thousand Euros) risks provision (6,700 thousand Euros) and to bank fees (410 thousand Euros);

• deductible differences amounting to 1,659 thousand Euros mainly due to the implicit goodwill of the investment in Xister (1,442 thousand Euros) and proceeds from provisions (217 thousand Euros).

Note 15 - Earnings per share

Basic earnings and diluted earnings per share as at 31 December 2023 is calculated with reference to the net profit which amounted to 161,129,698 Euros (94,141,693 Euros at 31 December 2022) divided by the weighted average number of shares outstanding as at 31 December 2023, net of treasury shares, which amounted to 37,278,236 (37,252,650 at 31 December 2022).

Reply does not have any financial instruments potentially convertible in shares (stock options) therefore the basic earnings per share corresponds to the diluted earnings per share.

Note 16 - Contributions

Disclosure on the transparency of public disbursements required by Article 1, paragraph 125 of Law 124/2017
Pursuant to Article 1, paragraph 125 of Law 124/2017, the Company in 2023 has received the following public contributions:

Note 17 - Tangible assets

Tangible assets as at 31 December 2023 amounted to 546,470 Euros are detailed as follows:

The item Other mainly includes mobile phones and furniture and fittings.

Change in Tangible assets during 2023 is summarized below:

During the year under review the Company made investments amounting to 342,338 Euros, which mainly refer to hardware, mobile phones and general devices.

Note 18 - Goodwill

Goodwill as at 31 December 2023 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.

Note 19 - Other intangible assets

Intangible assets as at 31 December 2023 amounted to 5,565,338 Euros (7,535,237 Euros at 31 December 2022) and are detailed as follows:

Change in intangible assets in 2023 is summarized in the table below:

The item Software and increase in software is related mainly to software licenses purchased and used internally by the company.

The item Trademark expresses the value of the ”Reply” trademark granted to the Parent Company Reply S,p,A, (before Reply Europe Sàrl) on 9 June, 2000, in connection to the Company’s share capital increase that was resolved and undersigned by the Parent Company Alister Holding SA, Such amount is not subject to systematic amortisation, and the expected future cash flows are deemed adequate.

Note 20 - Right of use assets

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

The net change mainly refers to the signing of new lease agreements.

Note 21 - Equity investments

The item Equity investments at 31 December 2023 amounted to 208,916,189 Euros, with an increase of 30,927,736 Euros compared to 31 December 2022.

Acquisitions and subscriptions

WM Reply S.r.l.
In the month of January 2023 WM Reply S.r.l. was constituted, a company in which Reply S.p.A. holds 80% of the share capital.

Logistics Reply Roma S.r.l.
In the month of January 2023 Logistics Reply Roma S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.

Tender Reply S.r.l.
In the month of February 2023 Tender Reply S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.

Shield Reply S.r.l.
In the month of April 2023 Shield Reply S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.

Business Reply P.S. S.r.l.
In the month of May 2023 Business Reply P.S. S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.

Storm Reply Roma S.r.l.
In the month of May 2023 Storm Reply Roma S.r.l. was constituted, a company in which Reply S.p.A. holds 100% of the share capital.

The other changes refer to the acquisition of additional shares in the share capital of investments already held in previous years.

Financial loan remission
The amounts are referred to the waiver of financial loan receivables from some subsidiaries in order to increase their equity position.

Write-downs
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.

Note 22 - Non-current financial assets

Detail is as follows:

Financial receivables from subsidiaries are referred to loans, underwritten and granted to the following companies:

Note 23 - Deferred tax assets

This item amounted to 9,384,763 Euros at 31 December 2023 (6,728,474 Euros at 31 December 2022), and included the fiscal charge corresponding to the temporary differences on statutory income and taxable income related to deferred deductible items.

The decision to recognize deferred tax assets is taken by assessing critically whether the conditions exist for the future recoverability of such assets on the basis of expected future results. There are no deferred tax assets on losses carried forward.

Note 24 - Trade receivables

Trade receivables at 31 December 2023 amounted to 569,853,187 Euros and are all collectible within 12 months.

Detail is as follows:

Reply manages business relationships on behalf of some of its major clients. This activity is reflected in the item Third party trade receivables which increased by 10,267,982 Euros.

Receivables from subsidiaries are related to services that the Parent Company Reply S.p.A. carries out in favor of the subsidiary companies at normal market conditions.

Trade receivables are all due within 12 months and do not include significant overdue balances.

In 2023, following a specific risk analysis of all the trade receivables, the provision for doubtful accounts was of 272,989 Euros and calculated by using the expected credit loss approach pursuant to IFRS 9; detail is as follows:

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

Note 25 - Other receivables and current assets

Detail is as follows:

The item Tax receivables mainly includes IRES receivables and advances for withholding taxes suffered amounting to 1,871,710 (1,438,599 Euros at 31 December 2022), IRAP receivables and advances amounting to 846,253 Euros (amounting zero at 31 December 2022) and VAT receivables net amounting to 741,291 Euros (2,216 Euros at 31 December 2022).

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

Note 26 - Current financial assets

This item amounted to 86,097,755 Euros (93,913,784 Euros at 31 December 2022) and mainly refers to:

• the total of interest yielding cash pooling accounts of subsidiaries included in the centralized pooling system of the Parent Company Reply S.p.A. for 55,113,331 Euros (66,596,349 at 31 December 2022); the interest yield on these accounts is in line with current market conditions.

• the investments held by Reply for 28,578,737 Euros. The valuation of short-term investments, based on market valuations at 31 December 2023, showed a positive difference of 1,063,254 Euros compared to the purchase cost of the same.

• the amount of 1,983,032 Euros at the fair value of the IRS contracts signed with Unicredit in order to hedge fluctuations in the variable interest rate on loans and/or mortgages.

Note 27 - Cash and cash equivalents

This item amounted to 233,202,949 Euros, with a decrease of 151,185,476 Euros compared to 31 December 2022 and is referred to cash at banks and on hand at year-end.

Note 28 - Shareholders’ equity

Share capital
As at 31 December 2023 the fully subscribed paid-in share capital of Reply S.p.A., amounted to 4,863,486 Euros and is made up of no. 37,411,428 ordinary shares having a nominal value of euro 0.13 each. The number of shares in circulation as at 31 December 2023 totaled 37,278,236, unchanged compared to 31 December 2022.

Treasury shares
The value of the Treasury shares, amounting to 17,122,489 Euros, refers to the shares of Reply S.p.A. that at 31 December 2023 were equal to no. 133,192 (unchanged compared to 31 December 2022).

Capital reserves
At 31 December 2023 amounted to 305,880,909 Euros, and included the following:

• Treasury share reserve amounting to 17,122,489 Euros, relating to the shares of Reply S.p.A. which at 31 December 2023 were equal to no. 133,192.

• Reserve for the purchase of treasury shares amounting to 282,877,511 Euros, formed via initial withdrawal from the share premium reserve. By means of a resolution of the Shareholders’ Meeting of 20 April 2023 Reply S.p.A. re-authorized it, in accordance with and for the purposes of Article 2357 of the Italian Civil Code, the purchase of a maximum of 300 million Euros of ordinary shares, corresponding to 20% of the share capital, in a lump sum solution or in several solutions within 18 months of the resolution.

• Reserves arising from the merger operation of Reply Deutschland AG. in Reply S.p.A, and include:

• Share swap surplus reserve amounting to 3,445,485 Euros;

• Surplus annulment reserve amounting to 2,902,479 Euros.

Earnings Reserve
Earning reserves amounted to 435,925,817 Euros and were comprised as follows:

• The Legal reserve amounting to 972,697 Euros (972,697 Euros at 31 December 2022);

• Extraordinary reserve amounting to 271,000,721 Euros (214,137,264 Euros at 31 December 2022);

• Retained earnings amounting to 2,822,701 Euros (2,822,701 Euros at 31 December 2022);

• Net result totaling 161,129,698 Euros (94,141,693 Euros at 31 December 2022).

Other comprehensive income
Other comprehensive income can be analyzed as follows:

Note 29 - Financial liabilities

Detail is as follows:

The future out payments of the financial liabilities are detailed as follows:

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:

• On 8 May 2020 Reply S.p.A. entered into a line of credit with Unicredit S.p.A. for a total amount of 50,000 thousand Euros to be used by 27 May 2022. As at 31 December 2023 this line had been used for 25,000 thousand Euros.

• On 8 November 2021 Reply S.p.A. entered into a line of credit with Intesa Sanpaolo S.p.A. for a total amount of 75,000 thousand Euros to be used by 31 March 2023. The loan will be reimbursed on a half year basis deferred to commence on 29 September 2023 and will expire on 30 September 2026. As at 31 December 2023 this line had been used for 25,714 thousand Euros.

• On 19 May 2022 Reply S.p.A. entered into a line of credit with Unicredit S.p.A. for a total amount of 50,000 thousand Euros to be used by 29 May 2024. As at 31 December 2023 this line had been used for 500 thousand Euros.

• On 20 February 2023 Reply S.p.A. entered into a line of credit with Banco BPM S.p.A. for a total amount of 50,000 thousand Euros to be used by 1 April 2025. As at 31 December 2023 this line had been used for 500 thousand Euros.

Interest rates are also applied according to certain predetermined ratios (Covenants) of economic and financial nature calculated on the consolidated financial statements as at 31 December of each year and/or the consolidated interim report.

As contractually defined, such ratios are as follows:

• Net financial indebtedness/Equity

• Net financial indebtedness/EBITDA

At the balance sheet date, Reply fulfilled the Covenants under the various contracts.
It should also be noted that on 24 May 2018 Reply S.p.A. undersigned with Unicredit S.p.A. a mortgage loan secured by guarantee for the purchase and renovation of the property De Sonnaz for a total amount of 40,000,000 Euros.

On October 23, 2023, an amendment was signed with the same institution, agreeing to extend the period of use to 78 months, compare to the 66 months of amendment of November 15, 2021, with the possibility to obtain grants till November 30, 2024. The mortgage is disbursed in relation to the progress of the work. Such credit line was used for 25,200 thousand Euros at 31 December 2023.

The item IFRS 16 financial liabilities is related to the financial lease liabilities at 31 December 2023 related to the adoption of IFRS 16 starting from 1st January 2019.

The item Derivative financial instruments refer to several loans established with Unicredit S.p.A. to hedge changes in floating interest rates on loans and/or mortgages; the total underlying notional amounts to 55,000,000 Euros. The effective component of the instrument is stated in the Statement of changes in net equity whereas the ineffective portion of the Derivative instrument is recorded at the income statement.

The carrying amount of Financial liabilities is deemed to be in line with its fair value. The carrying amount of the Financial Liabilities estimates the value determined through the application of the amortised cost method.

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

Net financial debt includes IFRS 16 financial liabilities amounting to 1,264,480 thousand Euros, of which 740,965 Euros were non-current and 523,515 were current.
Pursuant to the aforementioned recommendations long term financial assets are not included in the net financial position.

For further details with regards to the above table see Notes 26 and 27 as well as Note 29. Change in Financial liabilities during 2023 is summarized below:

Note 30 - Employee benefits

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:

• Projection of the Employee severance indemnity already accrued at the assessment date and of the portions that will be accrued until when the work relationship is terminated or when the accrued amounts are partially paid as an advance on the Employee severance indemnities;

• Discounting, at the valuation date, of the expected cash flows that the company will pay in the future to its own employees;

• Re-proportioning of the discounted performances based on the seniority accrued at the valuation date with respect to the expected seniority at the time the company must fulfil its obligations.

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:

In accordance with IAS 19, Employment severance indemnities at 31 December 2023 is summarized in the table below:

Note 31 - Deferred tax liabilities

Deferred tax liabilities at 31 December 2023 amounted to 5,934,786 Euros and are referred mainly to the fiscal effects arising from temporary differences between the statutory income and taxable income.

Note 32 - Trade payables

Trade payables at 31 December 2023 amounted to 476,954,890 Euros with an increase of 33,141,560 Euros.
Detail is as follows:

Due to suppliers mainly refers to services from domestic suppliers.

Due to subsidiaries recorded a change of 16,699,381 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 amounts invoiced to customers for contracts subcontracted to subsidiary companies, which at the balance sheet date were not yet completed. Trade payables are initially recognised at fair value, adjusted for any transaction costs directly attributable to and are subsequently valued at amortised cost. The amortised cost of current trade payables corresponds to the nominal value.

Note 33 - Other current liabilities

Detail is as follows:

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 year-end. Due to subsidiary companies represents the liability on tax losses recorded by subsidiaries under national tax consolidation for 2023 and for the tax credits that subsidiaries transferred to Reply S.p.A. as part of the tax consolidation. Miscellaneous payables mainly refer to remuneration and bonus of directors recognized as participation in the profits of the company. Accrued expenses and deferred income are mainly related to advance invoicing in relation to fronting activities carried out for subsidiaries.

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

Note 34 - Provisions

The item Provisions amounting to 37,316,101 Euros is summarized as follows:

The item Provision for risks reflects the best estimate of contingent liabilities deriving from ongoing legal litigations. This item at 31 December 2023 includes an accrual of 6,700 thousand Euros relating to the liability disclosed in paragraph ”Significant events subsequent to December, 31 2023” to which reference is made; in relation to such event there is a possible liability, currently unquantifiable linked to any civil actions..

In 2023 the Company accrued an additional 20,775,000 Euros as a provision for losses on equity investments.

Note 35 - Transactions with related parties

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 2022 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.

Reply S.p.A. main economic and financial transactions

With reference to the Cash flows statement, the above mentioned transactions impact the change in working capital by 22,932 thousand Euros. 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.

Nota 36 - Additional disclosure to financial instruments and risk management policies

Types of financial risks and corresponding hedging activities
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.

Credit risk
The maximum credit risk to which the company is theoretically exposed at 31 December 2023 is represented by the carrying amounts stated for financial assets in the balance sheet.

Balances which are objectively uncollectible either in part or for the whole amount are written down on a specific basis if they are individually significant. The amount of the write- down takes into account an estimate of the recoverable cash flows and the date of receipt, the costs of recovery and the fair value of any guarantees received. General provisions are made for receivables which are not written down on a specific basis, determined on the basis of historical experience. Refer to the note on trade receivables for a quantitate analysis.

Liquidity risk
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:

• Centralizing the management of receipts and payments, where it may be economical in the context of the local civil, currency and fiscal regulations of the countries in which the company is present;

• Maintaining an adequate level of available liquidity;

• Monitoring future liquidity on the basis of business planning.

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.

Currency risk
Reply S.p.A. has a limited exposure to exchange rate risk; therefore the company does not deem necessary hedging exchange rates.

Interest rate risk
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.

Sensitivity Analysis
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 2023 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 438 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:

• Level 1 inputs are prices quoted (not rectified) in markets active for identical assets and liabilities which the entity can access on the date of assessment;

• Level 2 inputs are variable and different from the prices quoted included in Level 1 observable directly or indirectly for assets or liabilities;

• Level 3 inputs are variable and not observable for assets or liabilities.

The following table presents the assets and liabilities which were assessed at fair value on 31 December 2023, according to the fair value hierarchical assessment level.

 

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

To determine the effect of interest rate derivate financial instruments Reply refers to evaluation deriving from third parties (banks and financial institutes). The latter, in the calculation of their estimates made use of data observed on the market directly (interest rates) or indirectly (interest rate interpolation curves observed directly): consequently, for the purposes of IFRS7 the fair value used by Reply for the exploitation of hedging derivatives contracts in existence as at 31 December re-enters under the hierarchy profile in level 2.

As at 31 December 2023, there have not been any transfers within the hierarchy levels.

Note 37 - Significant non-recurring transactions

Pursuant to Consob communication no. 6064293 of 28 July 2006, there were no significant non-recurring transaction during 2023.

Note 38 - Transactions resulting from unusual and/or abnormal operations

Pursuant to Consob communication no. 6064293 of 28 July 2006, in 2023 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.

Note 39 - Guarantees, commitments and contingent liabilities

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

Commitments
Note that:

• the Domination Agreement contract undersigned in 2010 between Reply Deutschland SE, dominated company, and Reply S.p.A, dominating company, ceased to exist from the date of legal efficacy of the merger for incorporation of Reply Deutschland SE in Reply S.p.A and with this, the obligations taken on by Reply. It is reported that the judgment of the qualified German Court is still pending for deciding on the suitability of the strike value of the acquisition option of shares on request of the minority shareholders of Reply Deutschland AG at a pre-determined price (8.19 euros). On June 2018, the German court took note of the agreement reached between the parties also affected by the agreement related to the merger of the following point. With regard to shareholders who did not join the settlement agreement, in February 2019, the German Court issued a judgment that provides for an increase of 1.81 euros in the price paid per share and an increase of 0.07 euros gross of the dividends paid in 2010-2013. The financial effects on the Group are covered by specific provisions.

• with regards the merger operation for the incorporation of Reply Deutschland SE in Reply S.p.A. the assessment procedures foreseen in the measures of Article 122j of Umwandlungsgesetz find application - German law on extraordinary operations - with reference to the exchange ratio and the corresponding amount in cash. Within three months from the registration of the merger in the Turin Companies Register, each minority shareholder was able to present a petition for the purpose of commencing, in compliance with German law, before a Judge qualified in Germany - who shall have exclusive jurisdiction - the assessment inherent in the Share Swap ratio and the corresponding amount in cash. Some minority shareholders have commenced the aforementioned procedures and, following exchanges with the minority shareholders and their appointed representative, the Company has reached a settlement agreement where the payment of an additional amount. The expenses arising from this agreement amounting to approximately 5 million Euros is covered by specific provisions (please see Note 33). In relation to the above accruals, as a result of the utilizations, the provision for risks has a residual amount of 87 thousand Euros at 31 December 2023.

Contingent liabilities
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.

Note 40 - Emoluments to directors, statutory auditors and key management

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 in the related table.

Note 41 - Events subsequent to 31 December 2023

On the afternoon of February 28, 2024, was notified to Reply S.p.A. a preventive seizure decree issued on 8 February 2024 by the Court of Milan. With this Decree, amounts totaling approximately 322 million Euros were subjected to preventive seizure to the companies and natural persons allegedly involved in various capacities, of which €7,949,544.98 to Reply S.p.A. From what is indicated in the decree, the contested crime is the one referred in the art. 640-ter paragraphs 1 and 3 of the Criminal Code, in the period 2017-2019.According to what emerges from the Decree, a fraudulent mechanism would have been put in place in relation to the telephone operator TIM, which would have allowed unsolicited activations to be carried out by so-called users value added services (VAS) offered by so-called Content Service Provider (CSP), such as, for example, logos, ringtones etc.; such unsolicited activations would have resulted in the related fee being charged to the users’ telephone credit and therefore would have resulted, through a revenue share mechanism, in revenues for the entities in the supply chain: from the telephone operator to other operators, including the CSP (recipients of most of the residual proceeds) and also to those who carried out purely commercial and technical roles (such as Reply). The seizure decree contains extracts of declarations from certain individuals who allegedly implicate an employee of one of the Reply Group companies in the mentioned fraudulent mechanism. The criminal case is still in the preliminary investigation phase.

Note 42 - Approval of the financial statements and authorization to publish

The financial statements for the year-ended 31 December 2023 were approved by the Board of Directors on March 13, 2024 which approved their publication.