Engineering Ingegneria Informatica Spa Registered Office in Rome - Via San Martino della Battaglia n.56 Fully subscribed and paid-up

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1 Engineering Ingegneria Informatica Spa Registered Office in Rome - Via San Martino della Battaglia n.56 Fully subscribed and paid-up share capital of 31, Euro registered in the Rome Company Register at no and Rome Chamber of Commerce Economic and Administrative Index at no STATUTORY FINANCIAL STATEMENTS, STATEMENT OF CHANGES TO SHAREHOLDERS' EQUITY, CASH FLOW STATEMENT AND EXPLANATORY NOTES as of Income Statement and Statement of Comprehensive Income Statement of changes in Shareholders Equity...5 Statement of Cash Flows...6 Net Financial Position Explanatory notes to the accounts General information Property, plant and equipment Intangible assets Goodwill Equity investments Deferred tax assets Other non-current assets Inventory Contract work in progress Trade Receivables Other current assets Cash and cash equivalents Active financial instruments summary table by category Information on shareholders' equity Share capital Reserves Retained earnings Non-current financial liabilities Liabilities for deferred taxes Other non-current liabilities

2 21 Post-employment benefits Current financial liabilities Due for current c taxes Provisions for current risks and charges Other current liabilities Trade payables Passive financial instruments summary table by category Revenues Other revenue Production costs Raw materials and consumables Services Personnel costs Amortisation tion Provisions and write-downs downs Other costs Net t financial proceeds (charges) Proceeds (charges) from equity investments Taxation Further information Transactions with related parties

3 Statement of Financial Position Statement of financial position - Assets Notes A) NON-CURRENT ASSETS Property, Plant and Equipment 2 12,875,192 13,438,744 Intangible Assets 3 6,158,548 9,141,261 Goodwill 4 43,648,341 43,648,341 Equity investments 5 61,879,434 62,056,633 Deferred Tax Assets 6 2,925,238 3,009,304 Other Non-Current Assets 7 701, ,948 TOTAL NON-CURRENT ASSETS 128,188, ,994,230 B) NON-CURRENT ASSETS HELD FOR SALE C) CURRENT ASSETS Inventory 8 114, ,757 Construction Contracts 9 96,438,446 94,560,141 of which from associated companies (*) 3,133,581 6,241,353 Trade Receivables ,836, ,821,243 of which from associated companies (*) 88,459,562 75,083,947 Other Current Assets 11 35,663,511 31,703,243 Cash and Cash Equivalents 12 92,728,502 83,636,515 TOTAL CURRENT ASSETS 603,781, ,860,899 TOTAL ASSETS ( A + B + C ) 731,969, ,855,129 Statement of financial position - Liabilities Notes D) SHAREHOLDERS' EQUITY Share Capital 15 31,084,431 31,084,431 Reserves ,237, ,237,812 Retained earnings 17 78,503,162 62,467,877 Profit for period 15,593,064 22,266,651 TOTAL SHAREHOLDERS' EQUITY ,418, ,056,771 E) NON-CURRENT LIABILITIES Non-current Financial Liabilities 18 18,402,825 9,372,541 Deferred Tax Liabilities 19 13,820,686 13,757,871 Non-current Provisions for Risks and Charges Other Non-Current Liabilities 20 2,621,208 2,239,059 Post-Employment Benefits 21 33,233,714 33,838,240 TOTAL NON-CURRENT LIABILITIES 68,078,433 59,207,710 F) CURRENT LIABILITIES Current Financial Liabilities 22 98,597, ,391,312 Due for Current Taxes 23 12,857,484 5,033,741 Provisions for Current Risks and Charges 24 2,787,268 2,904,782 Other Current Liabilities 25 88,092,618 80,847,672 of which from associated companies (*) 565, ,968 Trade Payables ,137, ,413,141 of which from associated companies (*) 69,983,774 64,269,390 TOTAL CURRENT LIABILITIES 384,472, ,590,647 G) TOTAL LIABILITIES ( E + F ) 452,551, ,798,357 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES (D +G) 731,969, ,855,129 3

4 Income Statement and Statement S of Comprehensive Income Income Statement Notes A) VALUE OF PRODUCTION Revenue 241,937, ,335,171 Other Revenue 29 10,442,872 8,853,253 TOTAL OPERATING REVENUE ,380, ,188,424 of which from associated companies 25,194,488 14,226,738 B) OPERATING COSTS Raw Materials and Consumables 31 1,510,214 2,287,026 Services 32 99,954, ,810,425 Personnel costs ,725, ,555,583 Amortisation 34 4,386,678 5,061,496 Accruals 35 3,395, ,056 Impairment Other Costs , ,721 TOTAL OPERATING COSTS ,816, ,188,307 of which from associated companies 25,767,252 25,192,106 C) OPERATING INCOME ( A - B ) 26,564,176 19,000,117 Other Financial Income 1,713,519 2,201,745 Other Borrowing Costs 1,986,325 2,053,348 D) NET FINANCIAL INCOME (BORROWING COSTS) 37 (272,806) 148,398 of which from associated companies 749,247 1,164,024 E) INCOME (COSTS) FROM EQUITY INVESTMENTS Income (Costs) from other equity investments 38 (310,000) (430,149) TOTAL INCOME (COSTS) FROM EQUITY INVESTMENTS (310,000) (430,149) F) EARNINGS BEFORE TAXES ( C + D + E ) 25,981,370 18,718,366 G) TAXES 39 10,388,307 8,841,112 H) PROFIT (LOSS) FROM OPERATIONS DURING THE YEAR 15,593,064 9,877,253 I) PROFIT (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXATION L) PROFIT (LOSS) FOR THE PERIOD 15,593,064 9,877,253 Statement of comprehensive income (Euro) M) PROFIT/(LOSS) FOR THE PERIOD 15,593, ,877, N) Other comprehensive profits/(loss) that will not be later reclassified in profit/(loss) for the year: Net actuarial gains (losses) of defined benefit plans 319, (1,053,371) Tax effect on Other comprehensive profits/(loss) that will not be later reclassified in profit/(loss) for the year (87,925.62) 289,677 Total Other comprehensive profits/(loss) that will not be later reclassified in profit/(loss) for the year, net of tax effect 231, (763,694) O) Other comprehensive profits/(loss) that will be later reclassified in profit/(loss) for the year: Gains/(losses) on cash flow hedge instruments 50, (90,819) Gains/(losses) from translation of foreign financial statements Tax effect on Other profits/(loss) that will be later reclassified in profit/(loss) for the year (13,969.73) 24,975 Total Other comprehensive profits/(loss) that will be later reclassified in profit/(loss) for the year, net of tax effect 36, (65,844) TOTAL OTHER COMPREHENSIVE PROFITS/(LOSS), NET OF TAX EFFECT 268,633 (829,538) P) TOTAL COMPREHENSIVE PROFIT/(LOSS) FOR THE PERIOD 15,861,697 9,047,716 4

5 Statement of changes in Shareholders Equity Description Share Capital Reserves Retained Earnings (Losses carried forward) Profit (loss) for year SHAREHOLDERS' EQUITY Balance at ,109, ,237,812 62,302,308 7,664, ,313,707 Profit (loss) for year 9,877,253 9,877,253 Other net comprehensive income statement items 0 (829,538) (829,538) Comprehensive income for period 0 0 (829,538) 9,877,253 9,047,716 Allocation of profit 2,164,245 (2,164,245) 0 Distribution of profit (5,500,000) (5,500,000) Increase/decrease in treasury shares (24,911) (144,216) (169,127) SHARE CAP. INC/DEC Transactions with shareholders (24,911) 0 2,020,030 (7,664,245) (5,669,127) Other changes Balance at ,084, ,237,812 63,492,800 9,877, ,692,296 Balance at ,084, ,237,812 62,467,877 22,266, ,056,771 Profit (loss) for year 15,593,064 15,593,064 Other net comprehensive income statement items 0 268, ,634 Comprehensive income for period ,634 15,593,064 15,861,697 Allocation of profit 15,766,651 (15,766,651) 0 Distribution of profit (6,500,000) (6,500,000) Increase/decrease in treasury shares SHARE CAP. INC/DEC Transactions with shareholders ,766,651 (22,266,651) (6,500,000) Other changes 0 0 (0) 0 (0) Other changes 0 0 (0) 0 (0) Balance at ,084, ,237,812 78,503,162 15,593, ,418,468 5

6 Statement of Cash Flows The statement of cash flows summarises the trend in cash flows according to the direct method. For cash flows derived from acquisitions during the year, please see the information in the group's report on operations. DESCRIPTION 2013.JUN 2012.JUN CASH FLOWS FROM OPERATING ACTIVITIES MONETARY REVENUE FROM THE SALE OF PRODUCTS AND SERVICES FROM OTHERS 264,032, ,522,565 MONETARY REVENUE FROM THE SALE OF GROUP PRODUCTS AND SERVICES 465, ,389 MONETARY COSTS FOR THE PURCHASE OF GOODS AND SERVICES BY OTHERS (98,124,262) (119,407,752) MONETARY COSTS FOR THE PURCHASE OF GROUP GOODS AND SERVICES (8,922,891) (43,343,404) PAYMENTS FOR PERSONNEL COSTS (111,347,176) (112,171,863) INTEREST RECEIVED FOR OPERATING ACTIVITIES 494, ,180 INTEREST PAID FOR OPERATING ACTIVITIES (1,594,949) (1,635,736) ADJUSTMENTS RELATED TO FOREIGN EXCHANGE DIFFERENCES (1,018) (9,051) TAX PAYMENTS AND REFUNDS (24,856,700) (23,514,421) CASH POOLING (1,520,156) 27,351,871 A) TOTAL CASH FLOW FROM OPERATING ACTIVITIES 18,624,502 (8,727,222) SALE OF PROPERTY, PLANT AND EQUIPMENT 6,874 7,865 PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (631,468) (1,003,130) PURCHASE OF INTANGIBLE ASSETS (169,635) (149,035) PURCHASE OF EQUITY INVESTMENTS IN SUBSIDIARIES (252,146) PURCHASE OF OTHER EQUITY INVESTMENTS AND SECURITIES (1,801) (4,500) B) TOTAL CASH FLOW FROM INVESTING ACTIVITIES (796,030) (1,400,946) OPENING OF LOANS 182,615, ,028,183 REPAYMENT OF LOANS (183,507,042) (211,025,633) LOANS TO GROUP COMPANIES (1,050,000) (200,000) LOANS REIMBURSED BY GROUP COMPANIES (83,692) 350,000 SALE OF TREASURY SHARES 678,880 PURCHASE OF TREASURY SHARES (919,888) DISTRIBUTION OF DIVIDENDS (6,479,574) INTEREST RECEIVED FOR FINANCING ACTIVITIES 3,699 INTEREST PAID FOR FINANCING ACTIVITIES (231,392) (263,516) A) TOTAL CASH FLOW FROM FINANCING ACTIVITIES (8,736,485) (6,348,276) D) = (A+B+C) CHANGE IN CASH AND CASH EQUIVALENTS 9,091,988 (16,476,444) E) OPENING CASH AND CASH EQUIVALENTS 83,636,515 77,377,384 F) = (D+E) CLOSING CASH AND CASH EQUIVALENTS 92,728,502 60,900,941 6

7 Net Financial Position The composition of the Net Financial Position is shown below as required by the Consob communication of 28 July 2006 and in compliance with the ESMA recommendation of the month of March It should be noted that the item cash and cash equivalents includes liquid assets at the reporting date as well as treasury shares held at for an amount totalling 6,711,246 Euro. Description Cash on hand 19,324 15,614 Other cash and cash equivalents 99,420,424 90,332,147 Liquid assets 99,439,749 90,347,761 Current financial receivables Current bank payables (3,436) (3,122) Current financial borrowing (96,334,811) (106,299,653) Other current financial payables (2,259,287) (4,088,537) Current financial borrowing (98,597,534) (110,391,312) Current Net Financial Position 842,214 (20,043,550) Non-current financial borrowing (18,439,111) (9,366,412) Other non-current payables 36,287 (6,129) Non-current financial borrowing (18,402,825) (9,372,541) NET FINANCIAL POSITION (17,560,610) (29,416,091) 7

8 Explanatory notes to the accounts 1 General information Engineering Ingegneria Informatica S.p.A., with registered office in Rome at Via San Martino della Battaglia, 56, is a major Italian player in Information Technology services, over multiple lines of business, including system integration, the provision of organizational consulting and specialist services, its own application solutions and application management. Engineering S.p.A.s market consists of medium to large customers in all primary market segments, including both private companies (banks, insurance firms, service industry, telecommunications and utility firms) and public bodies (local and central public administrations) Engineering stock has been listed on the Stock Exchange of Milan since 12 December 2000 and in the FTSE ITALIA STAR sector since 2004 (Reuters code: ENG.MI, Bloomberg code ENG.IM) used for shares with higher industrial and equity requirements. 1.2 Significant transactions Please see the group report on operations for significant transactions in the first half of the year. 8

9 STATEMENT OF FINANCIAL POSITION A) ) NON_CURRENT ASSETS 2 Property, plant and equipment (amounts in Euro) Property, Plant and Equipment 12,875,192 13,438,744 (563,552) The following changes to property, plant and equipment occurred during the period: (amounts in Euro) Description Land and buildings Plants and machinery Ind. and Comm. equipment Other assets Assets under construction Leasehold improvements Total Balance at ,159, ,737 3,185,393 1,598, ,830 15,454,928 Increase 0 197, ,572 23, , ,839 Decrease 0 (273) (7,088,218) (84,251) 0 0 (7,172,742) Depreciation allowance decrease Depreciation allowance decrease ,085,615 64, ,150,341 Depreciation (294,399) (250,202) (1,712,215) (458,157) 0 (274,648) (2,989,621) Balance at ,865, ,355 2,212,146 1,143, ,378 13,438,744 Increase 0 146, , , , ,829 Decrease 0 0 (19,421) (41,833) 0 0 (61,254) Depreciation allowance decrease Depreciation allowance decrease ,104 41, ,937 Depreciation (145,990) (128,959) (741,464) (201,356) 0 (95,296) (1,313,064) Balance at ,719, ,650 1,918,577 1,054, ,292 12,875,192 All property, plant and equipment are functional and effectively used in the company's activities and there are no obsolete assets of significant amount or whose replacement is required in the short-term that have not been depreciated. Increases are substantially due to asset purchases during the first half of the year and decreases due to the disposal of obsolete assets. No increases were posted for "Land and buildings". Please note that all buildings are lien-free. The 146,254 Euro increase in "Plants and machinery" concerns the installation of new air conditioning and telecommunications systems in some company offices. The 450,212 Euro increase in "Industrial and commercial equipment" concerns the purchase of computers for internal use while the 19,421 Euro decrease is due to the disposal and/or donation of obsolete computers. 9

10 The 112,154 Euro increase in "Other assets" refers to the purchase of furniture and furnishing. The decrease is due to the disposal of unusable furniture. The 43,210 Euro increase in "Leasehold improvements" is due to renovation work on leased premises. 3 Intangible assets Intangible Assets 6,158,548 9,141,261 (2,982,713) The following changes to intangible assets occurred during the period: Description Development costs Industrial patents and Intellectual property rights Concessions, licenses and trademarks Assets under construction Other assets Total Balance at ,372, , ,540 10,581,948 Increase 905, ,694 0 (905,700) 5,300,000 5,674,694 Decrease Depreciation allowance decrease Depreciation allowance decrease Depreciation (301,900) (6,185,714) (419) 0 (627,348) (7,115,381) Balance at ,800 3,561, ,976,193 9,141,261 Increase 0 90, ,901 Decrease Depreciation allowance decrease Depreciation allowance decrease Depreciation (149,709) (2,326,959) (69) 0 (596,876) (3,073,614) Balance at ,091 1,325, ,379,317 6,158,548 No significant changes were posted for intangible assets. 10

11 The following shows the average remaining period of amortisation: Description Remaining Years of Depreciation Remaining Amount Development costs 2 454,091 Tot. Development costs 454,091 Industrial patent and intellectual property rights 3 1,325,105 Tot. Industrial patent and intellectual property rights 1,325,105 Concessions, licenses and trademarks 1 35 Tot. Concessions, licenses and trademarks 35 Other assets 4 4,379,317 Tot. Other assets 4,379,317 Total Intangible Assets 6,158,548 4 Goodwill Goodwill 43,648,341 43,648,341 - FINANCE GOODWILL 21,603,000 21,603,000 0 PA GOODWILL 2,169,000 2,169,000 0 T&M GOODWILL 6,833,340 6,833,340 0 E&U GOODWILL 13,043,000 13,043,000 0 Total 43,648,341 43,648, Equity investments Equity investments 61,879,434 62,056,633 (177,199) Changes in equity investments 11

12 Equity investments in Value at Increase Decrease Write-downs Value at in subsidiary companies 61,907, ,001 (310,000) 61,797,634 in associated companies 149,000 1,800 (69,000) 81,800 Total 62,056, ,801 - (379,000) 61,879,434 a) in subsidiaries Value at Increase Decrease Write-downs Value at Engineering Tributi S.P.A. 10,000,000 10,000,000 Over I.T. S.R.L. 1,297,893 1,297,893 Nexen Srl 3,267,533 3,267,533 Engineering.It Spa 47,026,000 47,026,000 Engineering Sardegna S.R.L. 20,000 20,000 Engineering International Inc. 7 7 Engineering.mo S.P.A. 1 1 Engineering Belgium 46,200 46,200 Engiweb Security S.R.L. 250, ,000 (310,000) 140,000 Total 61,907, ,001 (310,000) 61,797,634 Equity investments in subsidiaries increased by 1 Euro due to the 100% purchase of subsidiary T-Systems Italia S.p.A. (now Engineering.mo S.p.A.) and a 200,000 Euro increase in subsidiary Engiweb Security S.R.L. Recapitalisation was made necessary to cover part of losses and to allow the subsidiary to undergo the reorganisation planned at the beginning of the first half of the year, which should generate benefits in the near future. In the meantime, however, the amount of equity investments posted in the financial statements was decreased by 310,000 Euro. An overview of equity investments in subsidiary companies is detailed below: CITY Business activities Liabilities Share Capital Shareholders Equity Revenue Result for the period Value at % EngO SpA in liquidation Rome 2,963,004 5,890,880 1,300,000 (2,927,876) 2,452,642 (4,217,708) 100 Engineering.IT S.p.A Pont S. Martin (AO) 329,485, ,657,710 25,000, ,827, ,838,845 16,773,397 47,026, Engineering Sardegna Srl Cagliari 1,114, ,021 20, , ,457 1,340 20, ENGINEERING TRIBUTI S.P.A Rome 32,969,343 18,414,020 10,000,000 14,555,324 20,669, ,651 10,000, ENGIWEB SECURITY S.R.L. Trento 3,582,347 3,562,827 50,000 19,519 1,431,695 80, , NEXEN S.p.A. Padua 9,316,524 4,583,372 1,500,000 4,733,151 9,501, ,124 3,267, OVER.I.T. S.R.L. Fiume V. (PN) 12,996,764 7,511,154 98,800 4,733,151 15,627,049 1,442,773 1,297, ENG. INTERNATIONAL BELGIUM SA Brussels 3,830,917 3,071,890 61,500 5,485,610 7,124, ,863 46, ENGINEERING INTERNATIONAL INC Delaware (USA) ,

13 CITY Business activities Liabilities Share Capital Shareholders Equity Revenue Result for the period Value at % EngO SpA in liquidation Rome 1,520,395 5,559,948 1,300,000 (4,039,553) 750,597 (227,405) 100 Engineering.IT S.p.A Pont S. Martin (AO) 325,806, ,313,699 25,000, ,492, ,897,142 2,460,763 47,026, Engineering Sardegna Srl Cagliari 1,613,536 1,591,339 20,000 22, ,851 (101,174) 20, ENGINEERING TRIBUTI S.P.A Rome 37,977,925 23,709,154 10,000,000 14,268,772 9,069,146 (289,647) 10,000, ENGIWEB SECURITY S.R.L. Trento 3,473,877 3,342,882 50, , ,807 (103,476) 140, NEXEN S.p.A. Padua 8,563,209 3,799,686 1,500,000 4,763,523 4,276,123 26,905 3,267, OVER.I.T. S.R.L. Fiume V. (PN) 14,220,507 8,353,471 98,800 5,867,036 8,925, ,186 1,297, ENG. INTERNATIONAL BELGIUM SA ENGINEERING INTERNATIONAL INC Brussels 4,659,529 3,694,696 61, ,833 3,819, ,806 46, Delaware (USA) Note: 75 % of Engineering International Belgium SA is owned by Engineering Ingegneria Informatica SpA and 25% owned by Engineering.it SpA. b) Associated companies Value at Increase Decrease Write-downs Value at Consorzio Engbas Servizi Globali 25,000 25,000 In Italy - Il Consorzio Dell'Informatica Italiana 50,000 50,000 CENTO-6 Società consortile a r.l. 5,000 5,000 SI Lab Calabria scarl 1,800 1,800 Engineering Fonderie Multimediali 69,000 (69,000) Total 149,000 1,800 (69,000) 81,800 On June 4, 2013, Engineering Fonderie multimediali in liquidation approved the final liquidation financial statements. An overview of equity investments in associated companies is illustrated below: (amounts in Euro) CITY Business activities Liabilities Share Capital Shareholders Equity Revenue Result for the period Value at % Engineering Fonderie Multimediali S.p.A. Rome 69, Consorzio Engbas Servizi Globali Florence 51, ,000 51,666 (865) 25, In Italy - Il consorzio dell'informatica Rome 195, , , , CENTO-6 società consortile a.r.l. Milan 4, ,000 4,121 (6,623) 5, (amounts in Euro) CITY Business activities Liabilities Share Capital Shareholders Equity Revenue Result for the period Value at % Consorzio Engbas Servizi Globali Florence 51, ,000 51,666 (865) 25, In Italy - Il consorzio dell'informatica Rome 195, , , , CENTO-6 società consortile a.r.l. Milan 4, ,000 4,121 (6,623) 5, SI LAB Calabria scarl Rende 30,000 1,

14 The data refer to the latest approved financial statements. Company SI Lab - Calabria scarl was incorporated in May d) Indirectly controlled companies CITY Business activities Liabilities Share Capital Shareholders Equity Revenue Result for the period Value at % SI.TE.L SRL in liquidation Rome 171,507 77, ,000 94,324 (1,592) 100, SICILIA e-servizi VENTURE SCRL Palermo 96,044,180 92,481, ,000 3,562,258 9,517, , , SETESI SRL in liquidation Palermo 1,055, ,214 10, , ,877 (32,081) 10, ENGINEERING DO BRASIL S, Paolo (Brazil) 22,210,405 22,155,604 2,076,125 54,802 26,616,402 (3,957,258) 1,896, Deferred tax assets Deferred Tax Assets 2,925,238 3,009,304 (84,067) Deferred tax assets, calculated at the current rates (27.5% for IRES and IRAP based on regional decisions), are calculated on the following entries: Description Amount of timing differences Tax Effect Amount of timing differences Tax Effect Employee bonus accrual 2,621, ,832 2,239, ,741 IAS amortisation 1,127, ,157 1,127, ,157 Goodwill 263,515 82, , ,141 Directors' Emoluments 776, , , ,440 Derivative Fair Value 57,730 15, ,529 29,845 Provision for bad debts 229,036 62, ,036 62,985 Provision for risks 1,851, ,237 1,968, ,137 Adjustments for IFRS adjustments 25,065 7,870 25,602 8,039 Adjustments for IFRS IAS 19 adjustments 3,381, ,894 3,701,161 1,017,819 Total 10,333,787 2,925,238 10,598,173 3,009,304 14

15 Changes in deferred tax assets are detailed below: Description Deferred Tax Assets Balance at ,371,739 Increase 1,491,587 Decrease (1,854,021) Balance at ,009,304 Increase 460,204 Decrease (544,271) Balance at ,925,238 7 Other non-current assets Other Non-Current Assets 701, ,948 1,689 The balances consist of the following: In Other Companies 552, ,686 - Non-current Financial Assets 148, ,261 1,689 Total 701, ,948 1,689 a) Equity investments in other companies An overview of investments in other companies is detailed below: (amounts in Euro) Equity investments in other companies Value at Increase Decrease Write-downs Value at B.ca Popolare Di Credito E Servizi 7,747 7,747 Comitato Prom. B.Ca Dell'Urbe 6,197 6,197 Consorzio Cifte 3,749 3,749 B.Ca Cred. Cooperativo Roma 1,033 1,033 Know Change Srl 15,488 15,488 Terzo Millennio Srl 1,033 1,033 Consorzio Foodnet Consorzio Fastigi 10,919 10,919 15

16 Global Riviera 1,314 1,314 Tecnoalimenti S.C.P.A. 65,832 65,832 Gene. S.I. S.C.R.L Dhitech Distretto Tecnologico High-Tech S.C.A.R.L. 36,314 36,314 Consorzio E.O.S. 2,000 2,000 Distretto Tecnol.Micro E Nanosistemi Scrl 34,683 34,683 Wimatica S.C.A.R.L. (Da Esel) 6,000 6,000 S.I.R.E. S.p.A. 15,000 15,000 Meridionale Innovazione Trasporti S.C.A.R.L Consorzio Cefriel 43,512 43,512 Consorzio Abi Lab 1,000 1,000 Consorzio Siro 78,598 78,598 Editrice D.U.E.M.I.L.A Soc. Coop. Arl 10,000 10,000 Consorzio Co.Di.Log 1,000 1,000 Equity investment in Ce.R.T.A Consorzio B.R.A.I.N. 4,500 4,500 Consorzio Arechi Ricerca 5,000 5,000 Consorzio Health Innovation Hub 3,000 3,000 EIT ICT LAbs Trento 2,000 2,000 EHEALTHNET SCARL 10,800 10,800 Seta S.R.L. 82,192 82,192 Servizi Previdenziali Spa 101, ,918 Total 552, ,686. b) Non-current financial assets Guarantee deposits 148, ,261 1,689 Total 148, ,261 1,689 C) CURRENT ASSETS 8 Inventory Inventory 114, ,757 (24,983) 16

17 9 Contract work in progress Construction Contracts 96,438,446 94,560,141 1,878,305 The table below shows the composition and changes in construction contracts. Opening construction contracts 94,560,141 97,762,686 (3,202,545) Amount of costs incurred increased by profit recognised based on the percentage of completion net losses 93,865, ,469,791 (96,604,480) Invoicing work in progress (91,987,007) (193,672,336) 101,685,329. TOTAL 96,438,446 94,560,141 1,878, Trade Receivables Trade Receivables 378,836, ,821,243 11,014,808 Accounts receivable at are as follows Due from Customers 287,406, ,983,254 (4,576,813) Due from subsidiaries 88,459,562 75,083,947 13,375,615 Other 2,970, ,042 2,216,006 Total 378,836, ,821,243 11,014,808 a) Trade accounts Receivables for issued invoices 238,099, ,256,307 (22,156,534) of which past due 135,560, ,377,792 6,182,637 Receivables for invoices to issue 56,946,343 39,591,260 17,355,083 Credit notes to issue to customers (555,619) (467,619) (88,000) Provision for bad debts (5,555,757) (5,865,981) 310,225 Provision for interest on arrears (1,528,299) (1,530,712) 2,413 Total 287,406, ,983,254 (4,576,813) 17

18 Receivables due from customers, net of provisions for bad debt, totalled 287,406 thousand Euro. The provision for bad debt was used for 326 thousand Euro following the settlement of some disputes where the risks had already been accrued in previous years, while it was increased by 17 thousand Euro to adjust the provision to the presumed receivable realisation value. The table below shows an analysis of past due receivables by product sector: Description Days past due beyond 120 Total at Public Administration 9,070,777 6,184,748 9,023,265 5,241,542 50,982,804 80,503,137 Finance 15,347,855 3,172, , ,211 5,406,916 24,693,531 Service industry 3,205,581 1,884,326 87, ,098 1,024,274 6,597,871 TLC and Utilities 8,616,029 1,868,771 1,165, ,520 5,191,764 17,583,253 TOTAL 36,240,242 13,110,493 10,674,926 6,746,371 62,605, ,377,792 Description Days past due beyond 120 Total at Public Administration 16,173,036 14,454,396 5,354,672 9,787,703 54,423, ,193,575 Finance 5,665, ,143 1,447, ,391 3,694,364 11,552,010 Service industry 3,015, ,255 1,837, , ,223 6,489,851 TLC and Utilities 8,054, ,390 1,130,281 2,382,503 4,774,525 17,324,992 TOTAL 32,908,451 16,608,185 9,769,371 12,812,541 63,461, ,560,429 During the first half of the year, total past due increased mainly due to the public administration's late payments which, as usual, are paid in the second half of the year. Past due for the Finance segment decreased while the TLC and Utilities segment posted a constant trend. There are no risks of non-collection with the exception of the part for the provision of bad debts. b) Due from subsidiaries The receivables in question consist as follows: Receivables for issued invoices 24,482,984 25,093,908 (610,924) Receivables for invoices to issue 15,582,449 4,034,656 11,547,793 Cash Pooling 48,647,301 44,481,517 4,165,784 Provision for bad debts (2,478,067) (2,478,067) Credit notes to be issued - (6,651) 6,651 18

19 Loan receivables 2,036,288 1,269, ,308 Other 188, ,538 (21,931) Total 88,459,562 75,083,947 13,375,615 Provisions for bad debt for receivables from subsidiaries is made up of doubtful receivables from subsidiary Engo S.P.A., placed under liquidation during this half of the year and whose failed collection is presumed. For further information, please see paragraph 41, "relations with associated parties", in this note. c) Due from others Change Trade prepaid expenses 2,970, ,042 2,216,006 Total 2,970, ,042 2,216, Other current assets Other Current Assets 35,663,511 31,703,243 3,960,268 Other current assets consist of: Current Financial Assets 8,199,520 7,702, ,808 Other 27,463,991 24,000,531 3,463,460 Total 35,663,511 31,703,243 3,960,268 a) Current financial assets Current financial assets are broken down as follows: Tax assets 7,883,069 7,679, ,685 Receivables due for Social Security 316,450 23, ,123 Total 8,199,520 7,702, ,808 19

20 b) Others The item, Others, includes the following: Grants for applied research 25,933,805 22,588,557 3,345,249 Others 1,530,186 1,411, ,212 Total 27,463,991 24,000,531 3,463,460 Other receivables mainly refer to receivables accrued for applied research on the projects financed by national or EU public organisations. 12 Cash and cash equivalents Cash and Cash Equivalents 92,728,502 83,636,515 9,091,988 This balance includes liquid funds composed of cash and bank account funds as well as short-term investments that are readily convertible into cash. Bank and postal deposits are remunerated at a rate in line with the market rate. Liquid assets consist of the following: Bank and post office deposits 92,709,178 83,620,901 9,088,277 Cash and cash equivalents 19,324 15,614 3,710 Total 92,728,502 83,636,515 9,091,988 20

21 13 Active financial instruments summary table by category Company financial instruments are classified below according to IAS 39 regulations: Balance sheet items Assets stated at FV in the Income Statement Investments held to expiration Loans and receivables Financial assets available for sale Other non-current assets 701,637 Trade Receivables 378,836,051 Other current assets 35,663,511 Liquid funds and equivalents 92,728,502 Total 507,929,701 Balance sheet items Assets stated at FV in the Income Statement Investments held to expiration Loans and receivables Financial assets available for sale Other non-current assets 699,948 Trade Receivables 367,821,243 Other current assets 31,703,243 Liquid funds and equivalents 83,636,515 Total 483,860,948 D) SHAREHOLDERS' EQUITY 14 Information on shareholders' equity Shareholders Equity 279,418, ,056,771 9,361,697 21

22 Changes are shown in the table below: Net equity Value at Increase Decrease Value at Share Capital 31,875, ,875,000 Treasury Shares in Portfolio (790,569) 0 0 (790,569) Receivables from shareholders for share capital to be paid-in 0 0 Total share capital 31,084, ,084,431 Legal reserve 6,375, ,375,000 Reserve for purchase of treasury shares 87,978, ,978,827 Share premium reserve 0 0 Merger reserve 59,562, ,562,264 Change in IAS21 exchange conversion reserves 0 0 Other reserves 321, ,721 Total reserves 154,237, ,237,812 Undivided profit from previous years 63,183,013 15,766, ,949,664 First application of IAS/IFRS 2,221, ,221,746 IAS 19 actuarial gains/losses (2,858,199) 231,804 0 (2,626,395) Fair value reserve covering cash flows for the effective amount Retained Earnings (Losses carried forward) (78,684) 36,829 0 (41,854) 62,467,877 16,035, ,503,162 Profit (loss) for year 22,266,651 15,593,064 (22,266,651) 15,593,064 Total net equity 270,056,771 31,628,348 (22,266,651) 279,418, Share capital Subscribed and paid-up share capital amounts to 31,875,000 Euro and is subdivided into 12,500,000 shares each having a nominal value of 2.55 Euro. Treasury shares held totalled no. 310,027 and are posted at purchase cost. They total 6,711,246 Euro. They are posted par value decreasing share capital (790,569 Euro) and the remaining part (5,920,677 Euro) decreasing retained earnings, as set by the instructions introduced by IAS 32. The average carrying price per share is Euro. On 24 April 2012, Engineering Ingegneria Informatica S.p.A. s Shareholders Meeting voted in favour of a treasury share repurchase plan for a maximum of 2,500,000 shares, within a maximum time period of 18 (eighteen) months. All issued ordinary shares are entirely paid up and there are no shares burdened with constraints relative to the distribution of dividends, with the exception of the provisions of article 2357 of the Italian Civil Code in respect of treasury shares. 22

23 16 Reserves In relation to the possible utilization and distribution of reserves, the following should be noted: Legal reserve: the legal reserve of 6,375,000 Euro is available for the covering of losses is not distributable. Reserve for the repurchase of treasury shares: of 87,978,827 Euro is not available or distributable. Merger reserve: 59,562,264 Euro refers to the subsidiary mergers in 2003 and 2009, the reserve concerns the income earned in the years prior to the incorporated company merger: - 54,960,814 Euro is available and distributable; - 4,601,450 Euro is not available or distributable. Other Reserves posted for 321,721 Euro refer to: -Other available reserves: of 81,721 Euro is available and distributable. -Special Egov research reserve: of 72,000 Euro is not available or distributable. -Special Erp Light research reserve: of 168,000 Euro is not available or distributable. 17 Retained earnings Retained earnings for Euro 78,503,162 include: Undivided profit from previous financial years for 78,949,664 Euro. The change during the year concerns the increase for the 15,766, Euro profit allocation. This reserve is available and distributable. First application of IAS/IFRS of 2,221,746 Euro The reserve is not available nor distributable. It concerns the first application of the IAS. Actuarial gains/losses: Actuarial losses total (2,626,395) Euro net of deferred taxes. Fair value reserve covering cash flows for the effective amount: The (41,854) Euro reserve, net of deferred taxes, includes hedge derivative fair value changes calculated as the lower value between the accumulated changes in hedge derivative fair value and the changes in fair value of the hypothetical derivative. E) NON-CURRENT LIABILITIES 18 Non-current financial liabilities Non-current Financial Liabilities 18,402,825 9,372,541 9,030,284 23

24 Non-current financial liabilities refer to payables due to lenders and other non-current financial liabilities: Payables due to lenders 18,439,111 9,366,412 9,072,699 Other non-current financial liabilities (36,287) 6,129 (42,415) Total 18,402,825 9,372,541 9,030,284 Payables due to Lenders as of are as follows. Lender Year of extinction Interest rate Within 12 months Beyond 12 months LOAN FROM MINISTRY OF PRODUCTION ACTIVITIES MCC/EX ESEL ,79 28,387 LOAN FROM MINISTRY OF PRODUCTION ACTIVITIES MCC/EX ESEL ,79 76, ,868 LOAN FROM MINISTRY OF PRODUCTION ACTIVITIES MCC/IRM&M ,96 292, ,550 LOAN FROM BANCA INTESA SANPAOLO 2013 EURIBEUR033m ,000,000 LOAN FROM EDUCATION, RESEARCH AND UNIVERSITY MINISTRY PROG RIST ,25 97,678 97,922 LOAN FROM EDUCATION, RESEARCH AND UNIVERSITY MINISTRY PROG PASAF ,25 145, ,767 LOAN FROM EDUCATION, RESEARCH AND UNIVERSITY MINISTRY PROG.4452IC/5 LOCOSP ,25 26,660 80,381 LOAN FROM MIN. ECONOMIC DEVELOPMENT PIA E-GOV ,74 85, ,996 LOAN FROM MIN. ECONOMIC DEVELOPMENT PIA EX ENGISUD ,96 215, ,646 LOAN FROM MIN. ECONOMIC DEVELOPMENT PIA ODCDN ,74 170, ,941 LOAN FROM MIN. ECONOMIC DEVELOPMENT PIA SINIM ,74 196, ,040 BEI/SERAPIS N EURIBEUR363m ,000,000 Total 11,334,811 18,439,111 Payables due to lenders total 29,773,922 Euro of which 18,439,111 Euro are loans due beyond 12 months and 11,334,881 Euro are loans due within 12 months, posted among current financial liabilities. As for the floating rate loans opened with the Banca Intesa San Paolo and European Investment Bank (BEI), the later granted on January 30, 2013 for 15 million Euro, the contracts include some financial obligations be met, as well as those established by laws and regulations in effect regarding disclosures to the public by issuers of financial instruments and the companies which control them. Specifically,Engineering Ingegneria Informatica S.p.A. agreed to meet the following Financial Parameters: - as for the loan granted by Banca Intesa Sanpaolo: Net Borrowing/EBITDA not greater then 2.75 (two point seventy-five). - as for the loan granted by European Investment Bank (BEI): Net Borrowing/EBITDA not greater then 2.00 (two). Debt Service Cover Ratio (DSCR) not under 5.00 (five); The Financial Parameters are measured twice a year in reference to the Consolidated Financial Statements and Half-Year Consolidated Figures. 24

25 Failure to observe the Financial Parameter values, unless they are reinstated within 30 (thirty) business days, may be cause for the Bank to withdraw as per article 1845 of the Italian Civil Code and the exercise the right to meet all claims for repayment to it resulting from the contract. All the parameters set in the contract have been met. The other loans are all at a subsidised fixed rate and are connected to the implementation of financed research projects. Other non-current financial liabilities are composed as follows: Derivative (Cash Flow Hedge) 57, ,529 (50,799) Guarantee deposits 3,419 3,419 - Financial payables evaluated at depreciated cost (97,436) (105,819) 8,384 Total (36,287) 6,129 (42,415) The other non-current financial liabilities refer to the effective component of the hedge (Interest Rate Swap) and is calculated as the lower value between the accumulated changes in hedge derivative fair value and the changes in fair value of the hypothetical derivative, whose contra-entry is recorded in a shareholders equity reserve. 19 Liabilities for deferred taxes Deferred Tax Liabilities 13,820,686 13,757,871 62,814 Deferred tax liabilities, calculated at the current rates of 27.5% for IRES and IRAP based on regional decisions, are calculated on the following entries: Description Amount of timing differences Tax Effect Amount of timing differences Tax Effect Tax amortisation 13,041 3, Goodwill 6,902,715 2,167,453 6,448,066 2,024,693 Research grants 4,367,868 1,371,511 4,558,264 1,429,306 Research grants taxed in 5 years only IRES 31,562,509 8,679,690 30,703,044 8,443,337 Provision for bad debts 1,157, ,294 1,991, ,609 Property leases 1,348, ,476 1,369, ,160 Capital gains 19,500 5,363 39,000 10,725 IFRS compliance adjustments 2,711, ,315 2,778, ,041 Total 48,082,908 13,820,686 47,888,440 13,757,871 25

26 Changes in deferred tax liabilities are illustrated below: Description ,080,465 Increase 3,926,950 Decrease (3,249,544) ,757,871 Increase 1,864,171 Decrease (1,801,357) ,820, Other non-current liabilities lities Other Non-Current Liabilities 2,621,208 2,239, ,149 The payable refers to benefits due to some company managers upon termination based on a stability agreement signed during the year The gross payable upon termination totals 3,000 thousand Euro. 21 Post-employment benefits Post-Employment Benefits 33,233,714 33,838,240 (604,525) Due to Law no. 296 of 27 December 2006 and subsequent decrees and Regulations issued in the first months of 2007, the state termination indemnities (Italian TFR) as of 1 January 2007 have been transformed from a defined benefit plan to a defined contribution plan with the consequence that their accounting treatment changes based on TFR accruing before or after Termination indemnities accruing starting 1 January 2007 represent a defined contribution plan. The company periodically deposits the portions of accrued termination indemnities to a separate entity (e.g. INPS Italian Social Security and/or Pension Funds) and with this payment fulfils its obligation to its employees. The accounting treatment is similar to contributions of another nature and therefore the accrued termination indemnities are booked as a cost for the period and the payable is entered in current payables. While termination indemnities accrued up to 31 December 2006 continue to represent a defined benefit plan which are certain in terms of their existence and sum but uncertain in terms of manifestation. The total amount of the defined benefit obligation is calculated and certified on an annual basis by an external independent actuary on the basis of the "Projected Unit Credit" method. 26

27 A summary of the actuarial assumptions adopted in the measurement is provided below: Financial Assumptions: Future annual inflation rates were set according to the average inflation rates in Italy in recent years, based on data provided by ISTAT. Future annual revaluation rates for the existent fund and subsequent fixed deposits, as set by current rules, equal 75% of the inflation rate plus 1.50% net of taxes; Annual discount rates float between 0.105% and 3.97% and were deduced from a rate curve built by combining actual rates of return on Euro bonds issued by leading companies with AA or higher ratings. Demographic assumptions: To evaluate length of employment with the company, the Tavola di permanenza nella posizione di attivo RG48 (a table for longevity with companies prepared by the Italian Treasury Department based on data for the generation born in 1948) was used, selected, projected and separated by gender, supplemented with the probability of additional reasons for leaving (resignations, advances, which are a cause for a financial type of leaving, measurable in terms of probability, etc.). Actuarial profits and losses are booked under the items of shareholders' equity on an accrual basis. Changes are detailed below: Description Balance at ,041,812 Allowances and reserve revaluation (Current Service Cost Interest Cost) 11,468,266 Amounts allocated to other welfare funds + Inps (10,686,016) Actuarial (Profit)/Loss 2,433,387 Benefits Paid (612,630) Post-employment benefits from Group business branch/company purchase 193,419 Balance at ,838,240 Allowances and reserve revaluation (Current Service Cost Interest Cost) 5,326,493 Amounts allocated to other welfare funds + Inps (5,029,086) Actuarial (Profit)/Loss (319,730) Benefits Paid (609,741) Post-employment benefits from Group business branch/company purchase 27,538 Balance at ,233,714 27

28 F) CURRENT LIABILITIES 22 Current financial liabilities Current Financial Liabilities 98,597, ,391,312 (11,793,777) Current financial liabilities totalled 98,597,534 Euro and mainly refer to payables to lenders for 11,334,811 Euro, broken down in paragraph 18 "Non-current financial liabilities" hereto, to loans under six months for 67,500,000 Euro, to payables to banks for overdrafts for 17,503,437 Euro, to shares to be paid-in for 57,142 Euro and payables to research project partners for 2,202,144 Euro. 23 Due for current taxes Due for Current Taxes 12,857,484 5,033,741 7,823,743 The following shows the breakdown for the period: IRES 8,148,995 4,908,072 3,240,923 IRAP 4,708, ,669 4,582,820 Total 12,857,484 5,033,741 7,823,743 Tax payables are posted net of relevant receivables. 24 Provisions for current risks and charges Provisions for Current Risks and Charges 2,787,268 2,904,782 (117,514) Reserves for risks and charges: Provisions for Risks and Charges 2,300,994 1,410, ,480 Provision for Risks and Losses on Projects 486,274 1,494,268 (1,007,994) Total 2,787,268 2,904,782 (117,514) 28

29 The project risk reserve was adjusted to probable future expenses to be incurred for projects in which critical situations emerged. The allocated amount represents the best estimate based on the information in our possession to date. Changes in the provisions for current risks and charges during the periods in question are as follows: Description ,579,114 Increase 2,790,270 Decrease (2,464,603) ,904,782 Increase 900,000 Decrease (1,017,514) ,787, Other current liabilities Other Current Liabilities 88,092,618 80,847,672 7,244,945 This item is broken down as follows: Directors and statutory auditors 565, ,968 (111,901) Freelancers 102, ,200 (5,762) Payables for acquisition of business branch 601, ,116 - Payables for withholding taxes 147, ,247 (4,594) Tax liabilities 27,454,594 30,730,138 (3,275,544) Payables due to RTI partners 1,783, , ,365 Social security liabilities 4,737,190 8,761,277 (4,024,086) Payables due to other companies 1,186,035 2,397,417 (1,211,381) Payables due to employees 48,672,533 33,601,865 15,070,668 Payables due to research project partners 2,248,694 2,053, ,993 Accrued liabilities for interest on m/l term loans 254, , ,442 Other accrued liabilities 212, ,797 (352,254) Other deferred income 126, ,935 - Total 88,092,618 80,847,672 7,244,945 29

30 The most significant changes refer to tax payables broken down in the following table, payables to employees allocated for 13th month salary and holidays accrued but not yet taken. The change in payables to welfare institutions is due to the lower welfare payable calculated in the month of June compared to December in the previous year. Below, we provide details regarding tax liabilities: Change VAT 6,128,165 8,505,537 (2,377,371) Suspended VAT 18,293,385 16,848,621 1,444,763 IRPEF 3,033,042 5,375,979 (2,342,937) Other Total 27,454,594 30,730,138 (3,275,544) 26 Trade payables Trade Payables 182,137, ,413, ,727 The balance as of consists as follows: Due to Suppliers 90,301,723 95,693,931 (5,392,208) Due from subsidiaries 69,983,774 64,281,979 5,701,795 Other 21,852,371 21,437, ,140 Total 182,137, ,413, ,727 a) Due to suppliers Payables due to suppliers 73,874,687 77,426,360 (3,551,673) Payables due to foreign suppliers 1,189,441 1,199,538 (10,097) Invoices to receive 15,367,025 17,282,607 (1,915,582) Credit notes to receive (129,430) (214,575) 85,145 Total 90,301,723 95,693,931 (5,392,208) 30

31 The lower amount due to the payment of amounts accrued is mainly attributable to both the decrease in service costs and the improvement in customer collections. b) Due to subsidiaries Invoices to receive 23,299,674 15,812,090 7,487,584 Invoices received 44,038,475 48,469,892 (4,431,417) Deferred income (3) (3) - Cash Pooling payables 2,645,629-2,645,629 Total 69,983,774 64,281,979 5,701,795 c) Due to others Advances for work accruing in future year 21,852,371 21,437, ,140 Total 21,852,371 21,437, , Passive financial instruments summary table by category Company financial instruments are classified below according to IAS 39 regulations: Balance sheet items Liabilities stated at FV in the Income Statement Hedge instrument liabilities Liabilities stated at depreciated cost Non-current financial liabilities 57,730* 18,345,095 Other non-current liabilities Current financial liabilities 98,597,534 Other current liabilities 88,092,618 Trade Payables 182,137,868 Total 0 57,730* 387,173,114 Balance sheet items Liabilities stated at FV in the Income Statement Hedge instrument liabilities Liabilities stated at depreciated cost Non-current financial liabilities 108,529* 9,264,012 Other non-current liabilities 31

32 Current financial liabilities 110,391,312 Other current liabilities 80,847,672 Trade Payables 181,413,141 Total 0 108,529* 381,916,136 *In order to meet the information requirements set by IFRS 7 on the fair value posted in the table above, please note that this is level 2 as more thoroughly discussed in paragraph 3.17 Derivative financial instruments. 32

33 INCOME STATEMENT A) OPERATING REVENUE Revenues 252,380, ,188,424 14,192, Revenues Revenue from Sales and Services 240,084, ,598,164 18,486,312 Change in Finished Product Inventories and Construction Contracts 1,853,322 7,737,008 (5,883,686) Other Revenue 10,442,872 8,853,253 1,589,619 Total 252,380, ,188,424 14,192,246 For information on the indicated income items, please see the Report on Operations. 29 Other revenue Other revenue 10,442,872 8,853,253 1,589,619 Other revenue may be broken down as follows: Grants 5,876,280 5,577, ,358 Sundry income 2,063,301 1,018,695 1,044,606 Other income from subsidiaries 2,503,291 2,256, ,656 Total 10,442,872 8,853,253 1,589,619 33

34 B) OPERATING COSTS 30 Production costs c Operating costs 225,816, ,188,307 6,628,187 Operating costs are broken down as follows: Raw Materials and Consumables 1,510,214 2,287,026 (776,812) Services 99,954, ,810,425 (1,855,986) Personnel costs 115,725, ,555,583 7,169,625 Amortisation 4,386,678 5,061,496 (674,818) Accruals 3,395, ,056 2,556,420 Other Costs 844, , ,757 Total 225,816, ,188,307 6,628, Raw materials and consumables Raw Materials and Consumables 1,510,214 2,287,026 (776,812) The cost of raw materials and consumables are broken down as follows: Hardware costs 321, ,713 (250,237) Software costs 1,051,893 1,591,980 (540,087) Consumables 136, ,334 13,513 Total 1,510,214 2,287,026 (776,812) 32 Services Services 99,954, ,810,425 (1,855,986) Service costs are broken down as follows: 34