SG S p A : Directors’ Report 30.06.2021

DIRECTORS' REPORT

The consolidated half-yearly financial statements at 30 June 2021 of the SG Company group show gross revenue of € 4 million (-28,3% vs H1 2020).

Unfortunately, contrary to what had been assumed, the impact of Covid-19 on the events sector continued dramatically and for a longer period than expected. The main guidelines of the group's industrial plan remain substantially the same, but it has been necessary both to modify the economic/financial targets and the choices in the organizational and governance area and to integrate complementary business lines to the SG Company world.

Adjusted EBITDA came to (€ -79) thousand, while the net result shows a consolidated loss of € (559) thousand.

Group Profile

The Group is a specialized operator in the communications macro-sector, which it oversees with a very wide and diversified range of products and services. As a result of the important process of innovation and diversification currently being implemented, it is possible to group the Group's activities into the following main categories:

• Meeting and Events Industry: development of M.I.C.E. events. (Meetings, Incentives, Conferences, Exhibitions) and high-profile incentive travel. SG Company, in developing this activity for its clients, takes care of the entire product offering, from the planning and organization process to the production of the events and the final management of the trips, including catering, reception, and assistance services;
• Communication (digital and live): strategic live and digital communication projects (for both B2B and B2C channels), often ancillary to the MICE offering. The offer of this division globally covers the communication field from the promotion of products on the road to the organization of public events, from the organization of concerts in squares to the structuring of illuminations and Christmas decorations. Thanks to the development of "+ one", the Group will also be able to offer communication consultancy services, including activities such as logo positioning, logo design (including graphic design), and commercial strategy (mainly in the BTL area);
• Format: design of proprietary formats and events developed in-house or concerning third parties. An example of such formats is events such as Milano Food Week and Digital Design Days;
• Video Production: offers, also thanks to the know-how acquired through Double S.r.l., videos for events, emotional videos, poster videos, video pills for social media, and other types of promotional videos. The service offered by the company includes the conception of editorial content, direction, recording, and post-production. Video production services are aimed at both B2B and B2C channels.

The Group has strategically decided, as set out in the publication of its strategic guidelines, to integrate the use of technology in all video production, live and digital communication activities, choosing the most suitable ones from among the more than 8,000 possible MarTech solutions available on the market. This activity encompasses a broad spectrum of opportunities including database creation, data analysis, data visualization support, and the design, sale, licensing, and management of technology platforms.

Key results

Consolidated figures show a decline for the first half of the year of 28.3%, continuing the trend of 2020 with the start of the Covid-19 pandemic. The further decline shown compared to the previous half-year is due to the different contribution of this exogenous factor, the development of which saw marked differences between the first and second quarters between the two financial years:

The first quarter of 2020 (particularly the months of January and February) was able to develop in an ordinary national context and growth/recovery of the Group, projecting significant growth compared to the 2019 figures (revenue contribution of approximately € 4.6 million). The first quarter of 2021, on the other hand, saw the impact of the system of regional closures relating to the restriction of circulation and aggregation throughout the country for the management of the Covid-19 pandemic (i.e., the third wave effect).

The Group shows a significant improvement in the business margin in relative terms, going from 26.0% in 2019 to the current 36.6% (an improvement on the year-end 2020 figure of 32.7%), a change mainly due to a different product mix (relative weight of M.I.C.E. goes from 49% in 2019 to just over 17% in 2020). In particular, the phygital service, which by definition uses digital tools, has less recourse to external suppliers in terms of relations, space rental, staging, and set design, with a greater contribution in terms of creativity/strategy, equivalent to man-hours. This change is also due to intense internal reorganization activities, so much so that absolute values were higher than the 2020 figure: +€ 173 thousand despite a lower turnover of € 1.6 million.

Key balance sheet figures

The metrics of the trade net working capital (NWC) show only the items relating to receivables, payables and advances linked to the management of customers and suppliers. This item shows growth in absolute terms of € 584 thousand and shows an exceptionally negative value, not typical of the sector. This item shows an increase in absolute terms of € 584 thousand and exceptionally shows a negative value, not typical of the sector. This trend is explained by the contingency of the Covid-19 emergency and the consequent management of working capital, renegotiating more extensive payment terms with the entire value chain, and, above all, boasting a considerable customer advance position of € 1,554 thousand.

Key financials

The Net Financial Position at 30 June 2021 stands at € 2,182 thousand. This represents a generation of around € 1,169 thousand more than the figure at 31 December 2020 of € 3,351 thousand. This trend is explained by the capital increase concluded in February for approximately € 2.4 million.

Significant events during the year

• On 20 January 2021, the Board of Directors approved a share price of € 0.20 for the capital increase, of which € 0.05 was share capital and € 0.15 was share premium. This also produced an immediate change in the value of the capital increase, which became € 2,418,548.80. The maximum number of shares issued was 12,092,744 and the maximum number of warrants was 6,046,372, at a ratio of 1 warrant for every 2 shares issued.
• As published in the Press Release of 1 February, following the launch of the options offer, the subscription price of the conversion shares of the "Warrant SG Company Società Benefit S.p.A 2018-2025" (ISIN code IT0005347593), relating to each Exercise Period, was adjusted following Article 4.2 of the Rules of the "Warrant SG Company Società Benefit S.p.A 2018-2025" (the "Warrants"). The subscription price of the compendium shares for each Exercise Period was adjusted from € 0.80 to € 0.66.
• On 16 February 2021, with the advance conclusion of the stock market offering of the unexercised rights, the capital increase was 100% subscribed with the total subscription of 12,092,744 newly issued shares and the free assignment of 6,046,371 Warrants. The Company's share capital, therefore, amounts to € 1,209,274.40 divided into 24,185,488 ordinary shares and 11,796,371
  Warrants traded on AIM Italy are outstanding.
• On 8 March, MIT Sim S.p.A. was appointed as Specialist Operator and took over from Integrae Sim S.p.A. with effect from 15 March 2021.
• On 29 April, the Ordinary Shareholders' Meeting met and approved the financial statements and the 2020 consolidated financial statements of SG Company SB S.p.A., appointed the new members of the Board of Directors and the Board of Statutory Auditors for a three-year term, and appointed EY S.p.A. as a statutory auditor.
• On the same date, the Extraordinary Shareholders' Meetings of SG S.r.l. (now Sinergie S.r.l.) appointed new members of the Board of Directors and the Board of Statutory Auditors for a three- year term. (now Sinergie S.r.l.), Special S.r.l. (now renamed + uno S.r.l.) and Brainwaves S.r.l. resolved and saw their respective capital increases of € 2,500 thousand, € 250 thousand, and €
  250 thousand respectively, fully subscribed by the parent company SG Company SB S.p.A..
• In May, two new managers for Double and Brainwaves products joined the company, respectively with the mandate to develop the video business, also independently from the Group, and to implement the guidelines of the industrial plan in the digital and MarTech areas.

Significant events after the period

On 29 September 2021, Sinergie S.r.l., a subsidiary of the Group, received approval for the request for financing from Invitalia for the subscription of Financial Instruments. The settlement of the transaction will be concluded within 10 days from 29 September 2021 and the resources thus obtained, amounting to € 2,500 thousand, will be dedicated to the development of the business plan.

RECLASSIFIED CONSOLIDATED INCOME STATEMENT OF THE GROUP