2015 CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 2015 CONSOLIDATED FINANCIAL STATEMENTS

2 S.A. CORPORATE INFORMATION TABLE OF CONTENTS Definitions, abbreviations and key... 3 Corporate Information... 4 Consolidated income statement... 6 Consolidated statement of other comprehensive income... 7 Consolidated statement of financial position... 8 Consolidated statement of changes in equity Consolidated statement of cash flows Reporting entity Basis of preparation Format of the financial statements Functional and presentation currency Use of estimates Accounting standards, amendments and interpretations adopted from January 1, Accounting standards, amendments and interpretations not yet applicable and not early adopted by the Group Segment information Information about geographical areas Basis of consolidation Significant accounting policies Business Combinations Financial instruments Property, plant and equipment Intangible assets Impairment of assets Inventories Employee Benefits Provisions Revenues recognition Income taxes Notes to the consolidated financial statements Revenues

3 S.A. CORPORATE INFORMATION 4.2. Other Income Cost of Goods Sold Other costs for product development Personnel costs Other operating expenses EBITDA Earning Before Interest, Tax, Depreciation and Amortization Stock option and Warrant Plans Amortization and depreciation Impairment and write up / down Non-recurring items EBIT Earning Before Interest and Tax Net Financial Income Income taxes Property, plant and equipment Intangible Assets Other non-current financial assets Trade receivables Inventories Other current assets Cash and cash equivalent Net Equity Severance indemnity reserve Trade payables Other Liabilities Income tax payables Current deferred tax liabilities Related party disclosures Fair value measurement Financial risk management objectives and policies Net financial Position Result per share Post closure events Introduction Acquisition details Decree 231/

4 S.A. CORPORATE INFORMATION Definitions, abbreviations and key The following definitions and style of abbreviation are used in this set of Consolidated Financial Statements: Company or EPS S.A. Electro Power Systems S.A. Group the Company and all its subsidiaries fully owned from time to time. IPO the Initial Public Offering that the Company launched on the French regulated market of Euronext. IFRS the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations (SIC/IFRIC) as adopted by the European Union. EPS Italy Electro Power Systems Manufacturing S.r.l. (formerly Electro Power Systems S.p.A.) EPS India Electro Power Systems India Pvt. Ltd. EPS UK Electro Power Systems UK Limited EPS Inc Electro Power Systems Inc. 3

5 S.A. CORPORATE INFORMATION Corporate Information NAME ELECTRO POWER SYSTEMS S.A REGISTERED OFFICE BOULEVARD POISSONNIÈRE, 14/ PARIS, FRANCE OTHER INFORMATIONS VAT NUMBER FR SIRET No SHARE CAPITAL EURO 1,576,470 4

6 S.A. CORPORATE INFORMATION SHAREHOLDERS BOARD OF DIRECTORS LUCA DAL FABBRO CARLALBERTO GUGLIELMINOTTI EMANUELA PAOLA BANFI MASSIMO PRELZ OLTRAMONTI GIUSEPPE ARTIZZU SONIA LEVY ODIER CESARE MAIFREDI DAVIDE PEIRETTI CHAIRMAN CHIEF EXECUTIVE OFFICER DEPUTY CHAIRMAN BOARD MEMBER EXECUTIVE DIRECTOR BOARD MEMBER BOARD MEMBER BOARD MEMBER AUDITORS RBB BUSINESS ADVISORS ERNST & YOUNG ET AUTRES 5

7 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Consolidated income statement CONSOLIDATED INCOME STATEMENT (in euros) NOTES 31/12/ /12/2014 Revenues from sales (4,1) 355, ,774 Margin from technology partnership agreements (4,1) 26,255 0 Other income (4,2) 266, ,030 Cost of goods sold (4,3) (135,357) (379,204) GROSS MARGIN FROM SALES 512,659 1,189,600 Other costs for product development (4,4) (595,890) Personnel costs (4,5) (1,720,150) (1,103,157) Other operating expenses (4,6)) (1,348,270) (1,553,800) EBITDA 1 (4,7) (3,151,651) (1,467,357) Stock option and warrant plans (4,8) (4,646,452) 0 Amortization and depreciation (4,9) (86,259) (54,269) Impairment and write down (4,10) 80,369 (335,214) Non recurring income and expenses (4,11) (2,850,353) 1,657,035 EBIT 1 (4,12) (10,654,346) (199,805) Net financial income and expenses (4,13) (7,984) (9,446) Income taxes (4,14) 64,806 (84,738) NET INCOME (LOSS) (10,597,524) (293,989) Weighted average number of ordinary shares 5,487,201 1,182,320 BASIC ERANINGS PER SHARE (1.93) (0.25) 1 EBITDA and EBIT are not defined by IFRS. They are defined in, respectively, notes 4.7 and

8 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Consolidated statement of other comprehensive income OTHER COMPREHENSIVE INCOME (in euros) NET INCOME (LOSS) ( ) ( ) Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax) Exchange differences on translation of foreign operations (5,448) 69 Other comprehensive income not to be reclassified to profit or loss in subsequent periods (net of tax) Actuarial gain and (losses) on employee benefits (2,973) (24,447) Other comprehensive income (loss) for the year, net of tax (8.421) (24,378) Total comprehensive income for the year, net of tax ( ) (318,367) Attributable to Equity holders of the parent ( ) (318,367) 7

9 S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated statement of financial position ASSETS (in euros) NOTES 31/12/ /12/2014 Property, plant and equipment (4,15) 748,115 76,241 Intangible assets (4,16) 820, ,269 Other non-current financial assets (4,17) 65,582 0 TOTAL NON CURRENT ASSETS 1,633, ,510 Trade receivables (4,18) 1,152, ,967 Inventories (4,19) 938, ,661 Other current assets (4,20) 3,602,430 1,274,926 Cash and cash equivalent (4,21) 8,573, ,913 TOTAL CURRENT ASSETS 14,267,371 3,178,467 TOTAL ASSETS 15,901,311 3,399,977 8

10 S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITION EQUITY AND LIABILITIES (in euros) NOTES 31/12/ /12/2014 Issued capital (4,22) 1,576,470 1,004,255 Share premium (4,22) 18,082, ,054 Other reserves (4,22) 4,394,821 (183,724) Retained earnings (4,22) (1,029,060) (720,571) Profit (Loss) for the year (4,22) (10,597,524) (293,989) TOTAL EQUITY 12,427, ,025 Severance indemnity reserve (4,23) 336, ,683 TOTAL NON CURRENT LIABILITIES 336, ,683 Trade payables (4,24) 2,111,877 1,178,720 Other current liabilities (4,25) 1,025,606 1,342,600 Income tax payable (4,26) 0 19,579 Current deferred tax liabilities (4,27) 0 64,370 TOTAL CURRENT LIABILITIES 3,137,483 2,605,269 TOTAL EQUITY AND LIABILITIES 15,901,311 3,399,977 9

11 S.A. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in euros) NOTES Share Capital Premium Reserve Other Reserves Retained Earnings (Losses) Profit (Loss) for the period TOTAL NET EQUITY Net Equity as at December 31, ,364,639 4,639,873 (118,636) (6,892,117) (3,078,578) (3,084,819) Shareholder's capital contribution (1,360,384) (3,943,819) (39,008) 6,169,841 3,078,578 3,905,208 Loss for the period 0 0 (1,705) 1,705 (293,989) (293,989) Other Comprehensive Income 0 0 (24,375) 0 (24,375) of which: Actuarial gains and losses on defined benefit plans 0 0 (24,447) 0 (24,447) Currency translation differences Total comprehensive income 0 0 (26,080) 1,705 (293,989) (318,364) Net Equity as at December 31, 2014 (4.22) 1,004, ,054 (183,724) (720,571) (293,989) 502,025 EPS Group reorganization (4.22) 37, (14,500) 0 22,500 Previous year result allocation (4.22) (293,989) 293,989 0 Treasury shares (4.22) 0 0 (63,772) 0 0 (63,772) Stock option and warrants (4.22) 0 0 4,650, ,650,740 Shareholders capital contribution (IPO) (4.22) 394,915 12,957, ,352,188 Shareholders capital increase 140,300 4,429, ,569,691 Loss for the period (4.22) (10,597,524) (10,597,524) Other Comprehensive Income (4.22) 0 0 (8,423) 0 0 (8,423) of which: Actuarial gains and losses on defined benefit plans (4.22) 0 0 (2,973) 0 0 (2,973) Currency translation differences (4.22) 0 0 (5,448) 0 0 (5,448) Total comprehensive income (4.22) 0 0 (8,423) 0 (10,597,524) (10,605,947) Net Equity as at December 31, 2015 (4.21) 1,576,470 18,082,718 4,394,821 (1,029,060) (10,597,524) 12,427,425 10

12 CONSOLIDATED STATEMENT OF CASH FLOWS ELECTRO POWER SYSTEMS S.A. Consolidated statement of cash flows CASH FLOW STATEMENT (in euros) NOTES Operating activities Net profit (Loss) (10,597,524) (293,989) Non-cash adjustment to reconcile profit before tax to net cash flows Amortization and depreciation 86,259 54,269 Impairment and write down (80,369) 335,214 Stock option and warrant plan accrual 4,646,452 0 Defined Benefit Plan 31,956 0 Income related to composition with creditors (235,933) (1,693,105) Working capital adjustments Decrease (increase) in trade and other receivables and prepayments (3,790,569) (911,096) Decrease (increase) in inventories (158,903) (235,175) Increase (decrease) in trade and other payables 745, ,593 Increase (decrease) in non-current liabilities 11,764 35,258 Net cash flows from operating activities (9,341,641) (2,553,031) Investments Net Decrease (Increase) in intangible assets (706,846) (12,790) Net Decrease (Increase) in tangible assets (726,261) (9,596) Net cash flows from investments activities (1,433,107) (22,386) Financing Reimbursement of Financial Loans 0 (186,124) Increase (decrease) in bank debts 0 (8,631) Shareholders cash injection 0 3,167,441 Purchase of treasury shares (63,772) Warrants 4,397 0 Net proceeds from increases of Capital (4.22) 17,921,769 0 Receipt of government grants 781,253 0 Net cash flows from financing activities 18,643,647 2,972,686 EPS S.A. net cash and cash equivalent at January 1 (4.22) 37,000 0 Net Cash and cash equivalent at January 1 667, ,644 Net Cash and cash equivalent at December 31 8,573, ,913 11

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Reporting entity The consolidated financial statements of Electro Power Systems S.A. (the Company ) and its subsidiaries for the years ended December 31, 2014 and 2015 were authorised for issue in accordance with a resolution of the Board of Directors held on 8 April The Company is a Société par Actions (joint stock company) incorporated and domiciled in France and the registered office is located at Boulevard Poissonnière, 14/ Paris, France. On 21 April 2015, EPS France successfully completed its Initial Public Offering (the IPO ) on the Euronext regulated market in Paris, raising 14.4 million euros (over-allotment option included). The IPO resulted in the issuance of 1,974,032 additional shares (37.9% of the existing corporate capital) at 7.3 per share, corresponding to a market cap of 52.4 million euros In the framework of the IPO, EPS acquired 100% of the Electro Power Systems S.p.A. ( EPS Italy ) shares from its former shareholders through a capital contribution made on the basis of the value of the Company s shares emerging from the book-building process, as part of the admission of the Company s shares to trading on Euronext Paris (the Group Reorganization ). Pursuant to the contribution agreement, finalized amongst the shareholders of EPS Italy, each share of EPS Italy with a nominal value of Euro 1.00 each contributed to the Company, was remunerated by the issue of five Company shares with a nominal value of Euro 0.20 each. The No. 1,004,255 shares of EPS Italy contributed to the Company entailed the issuance of 5,021,275 EPS shares with a nominal value of Euro 0.20 each, with the difference between this amount and the contribution value (i.e. Euro 7.30 per share) being fully recorder in the issue premium The Group is principally engaged in the engineering, manufacturing and installation of energy storage and backup applications technologies Electro Power Systems Italy Consolidated Equity has been presented as comparative data as at December Line EPS Group Reorganization represents the Equity impact of the Group organization resulting in an increase in the Net Equity of 22,500 (remaining from 37,000 net of 2014 loss of EPS S.A. for statutory purposes). Shareholders capital contribution (IPO) is presented net of IPO direct costs ( 1,058,355). 12

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Basis of preparation EPS Group presented its Consolidated Financial Statements, prepared in accordance with IFRS as issued by the International Accounting Standards Board ( IASB ) and adopted by the European Union, in euros. The designation IFRS also includes all valid International Accounting Standards ( IAS ), as well as all interpretations of the IFRS Interpretations Committee, formerly the Standing Interpretations Committee ( SIC ) and then the International Financial Reporting Interpretations Committee ( IFRIC ). The financial statements are prepared under the historical cost convention, modified as required for the measurement of certain financial instruments, as well as on a going concern basis. In this respect, although continuing to operate in a challenging economic and financial environment, the Group s assessment is that no material uncertainties (as defined in paragraph 25 of IAS 1) exist about its ability to continue as a going concern, in view also of the measures already undertaken by the shareholders to provide the Company with the financial support required to cover cash needs resulting from the short term projections Format of the financial statements The consolidated financial statements have been prepared on the base of the historical costs, except for the following material items in the statement of financial position: derivative financial instruments are measured at fair value; non-derivative financial instruments at fair value through profit and loss are measured at fair value; held to maturity loans at amortized cost, using the effective interest method. The Group presents an income statement using a classification based on the nature of expenses, rather than one based on their function, as this is believed to provide information that is more relevant. For the statement of financial position, a mixed format has been selected to present current and noncurrent assets and liabilities, as permitted by IAS 1. The statement of cash flows is presented using the indirect method Functional and presentation currency The consolidated financial statements are prepared in Euro, which is the Company s functional currency. All financial information presented in Euro has been rounded to the nearest unit. 13

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.3. Use of estimates The consolidated financial statements require the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosures relating to contingent assets and liabilities and the amounts of income and expense reported for the period. The estimates and associated assumptions are based on elements that are known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed periodically and if the items subject to estimates do not perform as assumed, then the actual results could differ from the estimates. Estimates and assumptions are reviewed periodically and the effects of any changes are recognized in the income statement in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical measurement processes and key assumptions and estimates which may have significant effects on the amounts recognized in the consolidated financial statements or for which there is a risk that a significant difference may arise in respect to the carrying amounts of assets and liabilities in the future: Recoverable amount of non-current assets: specifically, non-current assets include property, plant and equipment, intangible assets with definite useful lives (development costs) and other financial assets. The Group periodically reviews the carrying amount of non-current assets held and used when events and circumstances warrant such a review. For intangible assets with indefinite useful lives such analysis is carried out at least annually and when events and circumstances warrant such a review. The analysis of the recoverable amount of non-current assets is usually performed using estimates of future expected cash flows from the use or disposal of the asset and a suitable discount rate in order to calculate present value or fair value less cost to sell. Post-retirement benefits are measured on an actuarial basis which takes into consideration parameters of a financial nature such as the discount rate, the rates of salary increases and the rates of health care cost increases and the likelihood of potential future events estimated by using demographic assumptions such as mortality rates, dismissal and retirement rates. Allowance for doubtful accounts: the allowance for doubtful accounts reflects the management s estimate of losses inherent in the credit portfolio. This allowance is based on the Group s estimate of the losses to be incurred, which derives from past experience with similar receivables, current and historical past due amounts, write-offs and collections, the careful monitoring of portfolio credit quality and current and projected economic and market conditions. Should the present economic and financial situation persist or even worsen, there could be a further deterioration in the financial situation of the Group s debtors compared to that already taken into consideration in calculating the allowances recognized in the financial statements. Allowance for obsolete and slow-moving inventory: the allowance for obsolete and slow-moving inventory reflects the management s estimate of the expected loss in value, and has been 14

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS determined on the basis of past experience, as well as on historical and expected future trends. A worsening of the economic and financial situation could cause a further deterioration of the conditions in the used vehicle market compared to those taken into consideration in calculating the allowances recognized in the financial statements. Deferred tax assets: tax assets are recorded at the amount that management believes is more likely than not to be recovered. From a conservative approach, in making such estimation, management has taken into consideration figures from budgets and plans for 2016 only Accounting standards, amendments and interpretations adopted from January 1, 2015 On December 16, 2011, the IASB issued certain amendments to IAS 32 Financial Instruments: Presentation, to clarify the application of certain offsetting criteria for financial assets and financial liabilities in IAS 32. The Group retrospectively applied these amendments from January 1, The application of these amendments did not have any effect on these Consolidated Financial Statements. On May 20, 2013, the IASB issued IFRIC Interpretation 21: Levies, an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, on the accounting for levies imposed by governments other than income taxes. The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy and includes guidance illustrating how it should be applied. The interpretation is effective retrospectively for annual periods beginning on or after January 1, The application of this interpretation had no effect on these Consolidated Financial Statements. On May 29, 2013, the IASB issued amendments to IAS 36 Impairment of Assets, entitled Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36), addressing the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less cost of disposal. The Group retrospectively applied these amendments from January 1, 2014 excluding periods and comparative periods, in which IFRS 13 Fair Value Measurement, was not applied. The application of these amendments did not have any effect on these Consolidated Financial Statements. On June 27, 2013, the IASB issued amendments to IAS 39 Financial Instruments: Recognition and Measurement, entitled Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39), that allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. The Group retrospectively applied these amendments from January 1, The application of these amendments did not have any effect on these Consolidated Financial Statements. 15

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.5. Accounting standards, amendments and interpretations not yet applicable and not early adopted by the Group On November 21, 2013, the IASB issued an amendment to IAS 19 Employee Benefits, entitled Defined Benefit Plans: Employee Contributions (Amendments to IAS 19). The amendment applies to contributions from employees or third parties to defined benefit plans, in order to simplify the accounting for contributions that are independent of the number of years of employee service (for example, employee contributions that are calculated according to a fixed percentage of salary). The amendment is effective, retrospectively, from July 1, 2014, with earlier application permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for this amendment. On December 12, 2013, the IASB issued the Annual Improvements to IFRSs Cycle and Annual Improvements to IFRSs Cycle. The most important topics addressed in these amendments are, among others, the definition of vesting conditions in IFRS 2 Share Based Payment, the aggregation of operating segments in IFRS 8 Operating Segments, the definition of key management personnel in IAS 24 Related Party Disclosures, the extension of the exclusion from the scope of IFRS 3 Business Combinations to all types of joint arrangements (as defined in IFRS 11 Joint Arrangements) and clarifications about the application of certain exceptions in IFRS 13 Fair Value Measurement. These amendments are effective for annual periods beginning on or after July 1, 2014, with early application permitted. On May 6, 2014 the IASB issued amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations, adding a new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. These amendments are effective, retrospectively, for annual periods beginning on or after January 1, 2016, with earlier application permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. On May 12, 2014, the IASB issued an amendment to IAS 16 Property, Plant and Equipment and to IAS 38 Intangible Assets. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate and also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. These amendments are effective for annual periods beginning on or after January 1, 2016, with early application permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. On May 28, 2014, the IASB issued the new standard IFRS 15 Revenue from Contracts with Customers. The standard requires that an entity recognizes revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The new standard supersedes IAS 11 16

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Construction Contracts, IAS 18 Revenue and IFRICs 13, 15 and 18, as well as SIC-31, and is effective on a retrospectively basis for annual periods beginning on or after January 1, At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for this standard. The Group is in the process of assessing the impact of the adoption of this standard on its consolidated financial statements. On July 24, 2014 the IASB completed and issued the new IFRS 9 Financial Instruments. The improvement package introduced by the new standard includes a logical model for classification and measurement of financial instruments, a single expected loss impairment model for financial assets and a substantially reformed approach for hedge accounting. Entities should apply this new standard retrospectively from January 1, Early application is permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for this standard. On September 11, 2014, the IASB issued amendments to IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and Joint Ventures (2011). The amendments deal with the sale or contribution of assets between an investor and its associate or joint venture, and provide that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be effective from annual periods commencing on or after 1 January At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. On September 25, 2014, the IASB issued the Annual Improvements to IFRSs Cycle. The most important topics addressed in these amendments are changes in method of disposal in IFRS 5 Non-current Assets Held for Sale and Discontinued operations, the definition of servicing contracts and the applicability of the amendments to IFRS 7 Financial Instruments: Disclosures to condensed interim financial statements, the issue of the discount rate to be used for regional markets in IAS 19 Employee benefits and other disclosures to be incorporated by cross-reference to information outside the interim financial statements according to IAS 34 Interim Financial Reporting. These amendments are effective for annual periods beginning on or after January, At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. On December 18, 2014, the IASB issued Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28), narrow-scope amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 - Disclosure of Interests in Other Entities and IAS 28 - Investments in Associates and Joint Ventures that introduce clarifications to the requirements when accounting for investment entities. The application of these amendments is mandatory for annual periods beginning on or after January 1, 2016, with early application permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments. 17

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On December 18, 2014, the IASB issued amendments to IAS 1 - Presentation of Financial Statements as part of its major initiative to improve presentation and disclosure in financial reports. The amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. The application of these amendments is mandatory for annual periods beginning on or after January 1, 2016, with early application permitted. At the date of these Consolidated Financial Statements, the European Union has not yet completed its endorsement process for these amendments Segment information Given that the business is still in a development stage, the Group is not yet organised into business units and no segments have been identified and/or measured by management. As a consequence, segment information disclosures required by IFRS 8 are considered not applicable Information about geographical areas Revenues have been generated and non-current assets have been acquired/developed by the Italian entity. The Note 4.1 details the revenues by client geographical areas. 18

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.8. Basis of consolidation Area of Consolidation The consolidation perimeter as at 31 December 2014 and 2015 is as follows: Company Country Percentage of consolidation EPS S.A. France 100% N/A Parent Company EPS Italy Italy 100% Parent Company Line by Line EPS UK UK 100% N/A N/A EPS Inc USA 100% Line by Line Line by Line During 2014 EPS UK was wound up, as a consequence, has been excluded from the consolidated financial statements, also considering they are not material in terms of impact on assets, liabilities, revenues and costs Subsidiaries Subsidiaries are legal entities controlled by the Group. Control exists when the Group is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Non-controlling interests in the net assets of consolidated subsidiaries and non-controlling interests in the profit or loss of consolidated subsidiaries are presented separately from the interests of the owners of the parent in the consolidated statement of financial position and income statement respectively. Losses applicable to non-controlling interests which exceed the non-controlling interests in the subsidiary s equity are debited to non-controlling interests. Changes in the Group's ownership interests in subsidiaries that do not result in the loss of control are accounted for as equity transactions. The carrying amounts of the equity attributable to owners of the parent and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the book value of the non-controlling interests and the fair value of the relevant consideration is recognized directly in the equity attributable to the owners of the parent. If the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the relevant consideration and the fair 19

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS value of any retained interest and (ii) the carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests. Any profits or losses recognized in other comprehensive income in respect of the subsidiary are accounted for as if the subsidiary had been sold (i.e. are reclassified to profit or loss or transferred directly to retained earnings depending on the applicable IFRS). The Subsidiaries that are either dormant or generate a negligible volume of business, are not consolidated. Their impact on the Group s assets, liabilities, financial position and profit/(loss) attributable to the owners of the parent is immaterial Investments in other companies Investments in other companies for which fair value is not available or is not reliable are stated at cost less any impairment losses Transactions eliminated in consolidation All significant intragroup balances and transactions and any unrealized gains and losses arising from intragroup transactions are eliminated in preparing the consolidated financial statements Foreign currency transactions Transactions in foreign currencies are recorded at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate prevailing at that date. Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements, are recognized in profit or loss Consolidation of foreign entities All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are translated using the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the year. Translation differences resulting from the application of this method are classified as equity until the disposal of the investment. Average rates of exchange are used to translate the cash flows of foreign subsidiaries in preparing the consolidated statement of cash flows. 20

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The exchange rates used in 2014, 2015 and in FTA to translate the foreign currency financial statements of foreign entities into Euro are the followings: Currency (Foreign exchange Dollar/Euro rates) Average At 31/12/2015 Average At 31/12/2014 US dollar

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. Significant accounting policies 3.1. Business Combinations Business combinations are accounted for using the acquisition method. Under this method: the consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred and liabilities assumed by the Group and the equity interests issued in exchange for control of the acquired. Acquisition-related costs are generally recognized in profit or loss as incurred; at the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at that date, except for deferred tax assets and liabilities, assets and liabilities relating to employee benefit arrangements, liabilities or equity instruments relating to share-based payment arrangements of the acquired or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquisition assets (or disposal groups) that are classified as held for sale, which are measured in accordance with the relevant standard; goodwill is measured as the excess of the aggregate of the consideration transferred in the business combination, the amount of any non-controlling interest in the acquired and the fair value of the acquirer's previously held equity interest in the acquired (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquired and the fair value of the acquirer's previously held interest in the acquired (if any), the excess is recognized immediately in profit or loss as a gain from a bargain purchase; non-controlling interest is initially measured either at fair value or at the non-controlling interest s proportionate share of the acquired's identifiable net assets. The selection of the measurement method is made on a transaction-by-transaction basis; any contingent consideration arrangement in the business combination is measured at its acquisition-date fair value and included as part of the consideration transferred in the business combination in order to determine goodwill. Changes in the fair value of the contingent consideration that qualifies as measurement period adjustments are recognized retrospectively, with corresponding adjustments to goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date) about facts and circumstances that existed as of the acquisition date. Any changes in fair value after the measurement period are recognized in profit or loss. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is re-measured at its acquisition-date fair value and the resulting gain or loss, if any, is 22

24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS recognized in profit or loss. Changes in the equity interest in the acquired that have been recognized in Other comprehensive income in prior reporting periods are reclassified to profit or loss as if the interest had been disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete in the Consolidated Financial Statements. Those provisional amounts are adjusted during the above-mentioned measurement period to reflect new information obtained about facts and circumstances that existed at the acquisition date which, if known, would have affected the amounts recognized at that date Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit and loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of the ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: loans and receivables; and cash and cash equivalents. Loans and receivables Loans and receivables are financial assets with fixes or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, and trade and other receivables. Cash and cash equivalents 23

25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Financial asset and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivate financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, other short-term financial liabilities, and trade and other payables. Bank overdrafts that are repayable on demand and form an integral part of the Group s cash management are included as a component of cash and cash equivalents Share capital Ordinary Shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects Property, plant and equipment Cost Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. 24

26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Gain and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in profit and loss. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-by-day servicing of property, plant and equipment are recognised in profit and loss as incurred Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit and loss on a straight-line basis over the estimated useful live of each component of an item of property, plan and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows: Equipment and machinery 6, 7 years Electronic hardware 5 years Furniture 6, 7 years Vehicles 5 years Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate Intangible assets Development costs and other intangible assets Other intangible assets consist of internally generated item in the development phase which are recognised if, and only if, the Group can demonstrate all of the following: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete the intangible asset and use or sell it; its ability to use or sell the intangible asset; 25

27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS how the intangible asset will generate probable future economic benefits among other things, the Group can demonstrate the existence of a market for the output of the intangible assets or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and its ability to measure reliably the expenditure attributable to the intangible asset during its development. Internally generated brands, customer lists and items similar in substance are not recognised as intangible assets. The cost of the internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria and comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit and loss as incurred Amortisation Amortisation is based on the cost of an asset less its residual value. Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangibles asset, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows: development costs 5 years; improvements to third party assets 6 years patents and licenses with definite useful life 10 years (anyway not longer than the patent or the license life). Amortisation method, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. The Group intangible assets do not include any goodwill or other intangible assets with indefinite useful life. 26

28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.5. Impairment of assets The Group assesses at the end of each reporting period whether there is any indication that its intangible assets (including development costs) and its property, plant and equipment may be impaired. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit ( CGU ) exceed its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. The Group is considered a one and only cash generating unit because it s not possible to detect a smaller group of assets that are largely independent of the cash inflows from other assets. The Group s corporate assets do not generate separate cash inflows and the impairment testing is performed on the whole Group. An impairment loss is recognized if the recoverable amount is lower than the carrying amount. Impairment losses are recognised in profit and loss. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised. The reversal of an impairment loss is recognized in the income statement immediately Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average method, and includes expenditure incurred in acquiring the inventories, conversion costs and other costs incurred in bringing them to their existing location and condition. Cost also may include transfer from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchase of inventories. Provision is made for obsolete and slow-moving raw material, finished goods, spare parts and other supplies based on their expected recoverable amount and realizable value. Net realisable value is estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 27