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Buongiorno Vitaminic SpA Half-Year Report as of June 30, 2004 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 1 Contents Company Boards Economic and Financial Highlights of the Buongiorno Vitaminic Group Stock Performance and Capitalization 1 Report on Operations 1.1 The Group at June 30, 2004, and Related Developments 1.2 Business Model of Buongiorno Vitaminic 1.3 Trend of the Markets 1.4 The Evolution of Buongiorno Vitaminic Business 1.5 Operations of the Buongiorno Vitaminic Group 1.5.1 Economic operations 1.5.2 Financing and investment operations 1.5.3 Financial operations 1.6 Foreseeable Evolution 1.7 Performance of the Parent Company (Buongiorno Vitaminic S.p.A.) 1.7.1 Economic Operations of the Parent Company 1.7.2 Financing and Investment Operations of the Parent Company 1.8 Human Resources 1.9 Technological Innovation 1.10 Main Corporate Events in the Half-Year 1.11 Events Following June 30, 2004 1.12 Main Shareholders 1.13 Report on the Stock Option Plan 1.14 Treasury Stocks 2 Financial Statements for the Period Ended June 30, 2004 2.1 Consolidated Financial Statements for the Period Ended June 30, 2004 – Buongiorno Vitaminic Group 2.2 Consolidated Financial Statements for the Period Ended June 30, 2004 – Buongiorno Vitaminic S.p.A. 3 Company Data and Information for Shareholders Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 2 Company Boards Board of Directors Chairman Mauro Del Rio Sant'Ilario d'Enza (RE), 02/20/1964 Managing Director Andrea Casalini Parma, 05/02/1962 Deputy Chairman Gianluca Dettori Turin, 03/26/1967 Director Giorgio Luca Bruno Milan, 02/23/1960 Deputy Chairman Jorge Mata Jimenez Madrid, (Spain) 04/03/1963 Director Riccardo Lia La Spezia, 02/03/1965 Independent Director Rolando Polli Milan, 11/10/1940 Independent Director Carlo Alberto Carnevale Maffè Vigevano (PV), 09/09/1961 Independent Director Francisco Moreno de Alboran y Vierna Ferrol (Spain), 06/29/1944 Board of Statutory Auditors Chairman Mario Tardini Sassari, 04/29/1961 Statutory Auditor Alberto Guiotto Pordenone, 02/04/1967 Alternate Auditor David John Ferrari Cardiff (UK), 11/16/1966 Stautory Auditor Sergio Gibelli Calamandrana (AT), 11/18/1955 Alternate Auditor Paolo Ribetto Turin, 10/15/1963 Independent Auditors PricewaterhouseCoopers SpA The Company Boards were renewed as part of the extraordinary meeting of shareholders held on April 28, 2003, and are to remain in office for three years. The appointment of the statutory auditor, Sergio Gibelli, and the alternate auditor, Paolo Ribetto, took place during the ordinary meeting of shareholders held on November 6, 2003, following the untimely death of Pietro Agostino Viotto in July. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 3 Economic and Financial Highlights of the Buongiorno Vitaminic Group Pro-forma figures (in thousands of Euro) Pro-forma figures H1 H1 FY 2004 2003 2003 Economic and financial highlights Sales of services 35,341 25,113 52,672 Value of production 36,371 26,180 55,376 Added Value (Val. of prod. - Mat. Cons. and Services) 10,611 7,650 16,475 2,412 (750) 518 (1,558) (5,181) (8,106) Financial operations (320) (400) (1,230) Extraordinary operations (423) (691) (1,382) (2,301) (6,272) (10,719) Gross operating margin Operating profit / loss Profit/Loss before taxes Balance sheet highlights Capital and reserves 11,625 9,771 5,800 Net financial position 3,006 (1,606) (4,470) 30.0% 30.5% 31.3% 6.8% -3.0% 1.0% 28.0% -6.6% 5.0% Earnings ratios Added value/Revenues Gross operating margin/Revenues Gross Operating Margin/Net invested capital Cost of staff Staff (period average) Revenues/Annual staff Buongiorno Vitaminic S.p.A. 319 273 277 221.6 184.0 190.2 Half-Year Report as of June 30, 2004 Page 4 Stock Performance and Capitalization July 18, 2003, was the first day of trading of Buongiorno Vitaminic shares (Nuovo Mercato, BVIT), following the merger of Buongiorno S.p.A. into Vitaminic S.p.A. At June 30, 2004, Buongiorno Vitaminic’s share capital amounted to Euro 18,935,354.36, divided into 72,828,286 ordinary shares of a par value of Euro 0.26 each. Capitalisation at June 30, 2004, was Euro 125 million. BUONGIORNO VITAMINIC 1/7/04 3.20 8000 3.00 7000 2.80 6000 2.60 5000 2.40 4000 2.20 3000 2.00 2000 1.80 1.60 1000 1.40 0 AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN BUONGIORNO VITAMINIC BUONGIORNO VITAMINIC - TURNOVER BY VOLUME(R.H.SCALE) HIGH 3.17 18/7/03, LOW 1.48 25/7/03, LAST 1.70 30/6/04 Source: DATASTREAM Mean daily trading volumes in the first half of 2004 amounted to over 350,000 shares, equivalent to Euro 615,000, making Buongiorno Vitaminic one of the most traded stocks on the Nuovo Mercato. On January 20, 2004, the Company announced an agreement with Banca IMI under which the latter undertook to subscribe or place with institutional investors a capital increase in several tranches, to be called by the Company, up to an overall countervalue of Euro 25 million. The first two tranches of this capital increase involved the issue and placement with institutional investors of 2.27 and 2.71 million new shares each, at offer prices of Euro 1.6184 and 1.624 per share. Stock Exchange symbol: BVIT Reuters Code: BVTA.MI Bloomberg Code: BVIT.IM Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 5 1 Report on Operations 1.1 The Group at June 30, 2004, and related developments In the first half of 2004, the Buongiorno Vitaminic Group continued to pursue the streamlining and simplification of its corporate structure, launched following the merger between Buongiorno and Vitaminic, closing or merging certain companies that have long been dormant or no longer in operation. In June, the Group sold its 100% stake in Vitaminic Sverige A.B., a non-operating Swedish entity based in Stockholm. During the half year, Skala Soft EOOD, a Bulgarian company fully owned by the Spanish subsidiary MyAlert.com S.A. was removed from the consolidation area, under a management buy-out agreement finalized in August. The disposal of the Bulgarian software house was aimed at focusing the Group’s technical resources on the core platform and at decentralizing applications competencies on the various markets of reference. In the coming months, the Group intends to simplify the structure of its French, German and Spanish operations. The management target is to set up a single company operating on each market, with the exception of the UK where, at least in the near future, the current three companies will continue to operate. In June the Mexican limited liability company MyAlert S de R.I. de CV was set up in Mexico City, with a view to launching the Group’s activities in Mexico and later in other Latin American countries, on the basis of the important agreement entered into with ESMAS, a company that manages the interactive services of the Televisa Group, the largest media group amongst Spanish-speaking countries and an international leader in the entertainment industry. The Group’s layout at June 30, 2004, is presented in the following chart. BUONGIORNO VITAMINIC S.p.A. Italy BUONGIORNO Austria Società non operative Buongiorno Vitaminic S.p.A. BUONGIORNO France BUONGIORNO Germany MYALERT.COM Spain BUONGIORNO UK VITAMINIC France VITAMINIC Germany QUANTUM GAP Spain VITAMINIC UK EUREKAN MULTIMEDIA France PEOPLESOUND Germany VITAMINIC Spain PEOPLESOUND UK PEOPLESOUND France VITAMINIC Holland MYALERT S de Rl de CV Mexico Half-Year Report as of June 30, 2004 Page 6 1.2 Business Model of Buongiorno Vitaminic Buongiorno Vitaminic is one of the leading European companies in the market of design, production and/or aggregation and distribution of multimedia content, mainly in the field of entertainment services via e-mail or telephone. Buongiorno Vitaminic has local teams in the main European markets (Italy, the United Kingdom, Spain, France, Germany, and Austria) and in Mexico. Moreover, the Group distributes its services in a large number of other countries, including Portugal, Switzerland, Greece, Poland, Croatia, Kuwait, the United Arab Emirates and South Africa, through partnerships with local operators such as telephone service providers, mobile telephony retailers or media groups. Buongiorno Vitaminic operates with two lines of business – value-added Consumer Services for fixed and mobile telephony and digital Marketing Services – whose synergies enhance the content aggregation, digital marketing, and technology management skills of a team of about 350 European professionals coming from 18 different nationalities. Within Consumer Services, Buongiorno offers an ample portfolio of services and content which includes information and entertainment services via SMS/MMS, audio (ringtones, sound effects, true tones, etc.), images (logos, wallpaper, screen savers), Java games, videos, and music and song dedications. The Buongiorno catalogue includes a wide range of licensed content, including cartoons: South Park (MTV Networks International), Spiderman 2 (Sony Pictures), Garfield (Paws) and the Pink Panther (MGM), Just for Laugh video gags, Cocoasoft’s Java games and over 400,000 music tracks under agreements with 1,500 recording companies. Consumer services are marketed through a multi-channel strategy that includes direct distribution and partnerships with telecom companies and media groups, for a potential target of over 250 million fixed and mobile telephone users across Europe. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 7 Within Marketing Services, Buongiorno Vitaminic works with businesses to define and manage digital marketing programs that focus on acquiring new customers, as well as increasing customer retention and satisfaction. These services include access to an advertising audience of over 40 million individuals in Europe, the use of a proprietary platform to manage single-source content and message services, as well as custom implementation of formats, communications programs and interactive entertainment programs. Buongiorno Vitaminic can count on a customer base of over 500 corporations in Europe, most of which are companies listed with Fortune 500. All Buongiorno Vitaminic’s services are managed through a proprietary technology platform that manages the entire process from the acquisition and management of content, to the acquisition and management of customers and the delivery of the digital products through various channels (e-mails, mobile messaging services, web/wap services, IVR/voice channels), reporting and after-sales support. Use of the platform is also included as a marketing service offering to customers and partners that directly access the platform through a web interface, under ASP or licensing agreements. On the overall, over 1,200 user IDs are active, and over 400 million messages are managed each month. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 8 1.3 Trends of the Markets Buongiorno Vitaminic’s markets of reference, Value Added Services (VAS) linked to mobile telephony and digital marketing services, are still young and not sufficiently defined to allow for a precise measurement of their half-yearly trends. It could however be said that market trends in the first half of 2004 have been in line with expectations. The market for Value Added Services (VAS) continues to grow rapidly, especially as a result of: - the widespread dissemination of cell phones and the services accessible through them, as one of the main “style symbols”, the personalisation of which is bound to gradually attract more attention and resources; - the gradual extension of the potential customer base that covers new age brackets “in both directions” (the very young and adults); - the increasingly active role played by telecommunications operators in the development of VAS; - the growing synergies with television and conventional media; - the constant extension of offerings, especially in terms of the wealth of digital content, thanks to the dissemination of new increasingly sophisticated handsets capable of supporting multimedia content and the growth of available bandwidth. Growth does not however seem to be uniform on the various markets and for various services, but progresses in steps, with sudden spurts for certain services and downtrends in the case of others. Competition is high, with a very few pan-European operators competing with a large number of local players on the main European markets. The market for Marketing Services has shown signs of recovery, especially in the sector of online advertising. Growth was not however uniform in all the various segments that, quite to contrary, featured rather differing dynamics. Market growth in recent months was focused mainly on the “search” segment, linked to search engines. E-mail advertising, a field in which Buongiorno specialises, maintains high potential, but seems to suffer in the current phase of the negative effects of spamming and rampant viruses. There are however signs that these problems may be overcome, thanks especially to joint initiatives by sector operators, and that e-mail advertising may recover. Growth prospects in the mobile advertising sector, in which Buongiorno also specialises, seem to be promising. These prospects however vary from country to country depending on market approach, the privacy regulations applicable to telecommunications operators and differences in the availability of specific databases. The Business Services sector continues to feature considerable potential, even though large companies seem to be cautious when making investments. In terms of offerings, the market is highly pulverised, with leading companies in niche sectors and geographical areas, but without a European player capable of offering a wide range of services and solutions. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 9 1.4 The Evolution of Buongiorno Vitaminic Business The Group’s rapid growth continued in the first half of 2004, with revenues up 41% over H1 2003, thus exceeding the high annual target of 30% and showing the expected significant improvement both in gross operating margin and net result. The Consumer Services business line, in particular, grew by 79% compared to the first half of 2003. The rapid and continuous growth in this area is the result of the Group’s strategy, based on the development and expansion of the portfolio of digital content, and the setting up of a multi-channel distribution model that includes partnerships with telecommunications operators, agreements with media companies and proprietary channels. The partnerships that generated the most significant results in H1 2004 include the collaborative relationships underway with Tim and Rai in Italy, Antena3 and Tele5 in Spain, mmO2 in the UK, ProSieben and T-Mobile in Germany, the Vodafone group in various countries, the H3G group worldwide, and Teljoy in South Africa. Direct service offerings on the market also plaid a significant role and, in the half-year in question, were supported by marketing expenses amounting to nearly Euro 4.4 million. The growth in Consumer Services sales for H1 was driven by a significant increase in the value of individual transactions – with average per-unit revenues up from Euro 0.18 in 2003 to Euro 0.23 in Q1 2004 and Euro 0.26 in Q2 2004. This phenomenon is the result of a shift in consumer demand towards services of greater value, such as polyphonic ring tones or Java games, boosted by the gradual dissemination of new mobile handsets. In the first half of 2004, Buongiorno Vitaminic sold about 84 million units of consumer products/services against payment. The “objects" sold, fall into the content category of infotainment (various information services, horoscopes, sentences sent via SMS, MMS, WAP, etc.) or downloadable content (logos, ringtones, wallpaper, java games) and interactive content (chat, voting, etc.). End users (individual GSM numbers) amounted to about 11 million in the period, about half of whom made at least one purchase in both the first and the second quarters of the year. mn digital objects sold Quarterly trend of the number of “objects” sold in the Consumer Services sector 48.9 6.5 11.6 Q1 2002 Q2 2002 38.9 29.4 32.4 29.9 Q4 2002 Q1 2003 Q2 2003 45 39 18.5 Q3 2002 Q3 2003 Q4 2003 Q1 2004 Q2 2004 During the six-month period, the Group also implemented a program to stimulate the online digital music business by expanding the catalogue of licensed music tracks – which currently includes all of the hits of the Majors – and signing high-profile distribution agreements such as the partnerships with Telecom Italia/ Rosso Alice and Rai. In the first half of this year, revenues from Marketing Services returned to a growth rate of 7% compared to the previous year (+11% in the second quarter), despite market trends that are still unsatisfying in the e-mail advertising segment. Mobile advertising helped to offset this negative market effect in H1, particularly in the domestic market Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 10 where the company signed an agreement with TIM for the sale of advertising space regarding TimSpot. The Business Services area achieved positive results in demonstration of the growing strength of the Group in assisting large corporations in the use of the digital channel as a customer retention tool. In particular, eCRM services increased with a series of new customers in the Italian finance industry, as did musical marketing products (Premium CDs), particularly in the UK. Geographic areas of operations in H1 2004 confirm the international scope of the Buongiorno Vitaminic Group, which generates over 65% of its sales outside Italy, primarily on the Iberian Peninsula (Spain and Portugal) and the UK. Despite high growth rates in the other European countries in which the Group operates, the Group has acquired a level of market competition that still falls short of that attained by market leaders. Growth is expected to be further boosted with the setting up of the new Mexican subsidiary and the implementation of new important collaboration agreements in the US and the Far East. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 11 1.5 Operations of the Buongiorno Vitaminic Group 1.5.1 Economic operations CONTO ECONOMICO CONSOLIDATO RICLASSIFICATO (migliaia di Euro) 1° semestre 2004 RICAVI DELLE VENDITE E DELLE PRESTAZIONI Anno 2003 1° semestre 2003 Variazioni 1° sem '04 vs 1° sem '03 35.341 52.672 25.113 10.228 1.030 2.704 1.067 (37) 36.371 (32) (25.728) (8.199) 55.376 (150) (38.756) (15.952) 26.180 (132) (18.403) (8.395) 10.191 100 (7.325) 196 2.412 (3.388) (80) (188) (314) 518 (6.644) (286) (987) (707) (750) (2.994) (206) (990) (241) 3.162 (394) 126 802 (73) Proventi / (oneri) straordinari netti (1.558) (200) (120) (423) (8.106) (723) (507) (1.383) (5.181) (401) 1 (691) 3.623 201 (121) 268 RISULTATO PRIMA DELLE IMPOSTE (2.301) (10.719) (6.272) 3.971 Altri ricavi e proventi ed incrementi di imm.ni per lavori int. TOTALE VALORE DELLA PRODUZIONE Materiali di consumi e merci Servizi e godimento beni di terzi Costi del personale MARGINE OPERATIVO LORDO Ammortamenti Svalutazioni immobilizzazioni immateriali e materiali Svalutazione crediti ed altri accantonamenti Oneri diversi di gestione RISULTATO OPERATIVO Proventi / (oneri) finanziari netti Rettifiche di valore di attività finanziarie The Value of Production as of June 30, 2004, amounted to Euro 36.37 million, up 38.9% over the pro-forma figure for 2003 of Euro 26.18 million. In particular, the Group’s characteristic revenues reached Euro 35.34 million, up 40.7% compared to the same period of the previous year, already surpassing the Group’s targets for the year underway. A breakdown by business areas shows H1 2004 Consumer Services revenues of Euro 21 million, which accounts for approximately 59.5% of total revenues, for growth of 79% over the same period of the previous year. Marketing Services generated Euro 14,3 million, with an increase by 7%. In terms of geographical area, in the first half of 2004, over 65% of overall revenues was generated outside Italy (67% in the case of Consumer Services taken alone). Revenues in Italy grew by 13.4% compared to the previous year, and by 61.3% abroad. (thousand of Euros) H1 2004 - INCOME FOR EACH LINE OF BUSINESS AND FOR EACH GEOGRAPHICAL AREA Italy Marketing Services Consumer Services Total income Europe Total H1 2004 Italy Europe Total H1 2003 Delta % Delta 5,318 6,922 8,986 14,115 14,304 21,037 4,597 6,198 8,737 5,581 13,334 11,779 970 9,258 7% 79% 12,240 23,100 35,341 10,795 14,318 25,113 10,228 41% The item “Other income and revenue and increase of fixed assets for internal works” includes amongst other things, about Euro 400 thousand by way of other revenues and about Euro 620 thousand by way of the capitalization of internal costs for the development of the technological platform. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 12 Gross operating margin (GOM) for the period amounted to Euro 2.4 million, a clear improvement compared to the loss of Euro 750 thousand recorded in the first half of 2003. GOM currently stands at about 7% of the turnover for the period, as against -3% for the corresponding period of 2003. This result was attained thanks to growth in revenues and the constant optimization of operating costs. Improved operating efficiency was reflected in a reduction in the incidence of personnel costs on turnover from 44.5% to 23.2%, with a turnover per employee that grew by over 20% from Euro 184 thousand to Euro 221 thousand on an annual basis. The incidence of other costs of production was reduced from 73.8% to 72.9%, despite a product mix that entailed an increase in the incidence of variable product costs. . 350 319 312 273 300 Employees 221 250 184 200 150 Value of Production/Employees 118 100 Lineare (Value of Production/Employees) 50 0 H1 2002 H1 2003 H1 2004 Operating loss amounted to Euro -1.56 million, reflecting a clear improvement compared to the first half of 2003 (Euro -5.18 million). The main cost item under the gross operating margin was amortization and depreciation, including Euro 1.563 million (on a half-yearly basis) in respect of the goodwill arising from the acquisitions of MyAlert.com and Peoplesound.com Ltd, finalized between 2001 and 2002. Other amortization and depreciation for the period amounted to approximately Euro 1,825 million. The gradual reduction of amortization and depreciation is due to the features of the business model that allows for limited investments at full regime. Write-downs and provisions fell sharply, moving from about Euro 1.2 million in the first half of 2003 to Euro 268 million in the same period of 2004, primarily as a result of the reduction of provisions to the credit risk fund, arising from improvements in the quality of working capital. Other operating expenses that amounted to Euro 240 thousand in the first half of 2003, increased to Euro 314 thousand, essentially in line with the growth in turnover. Loss before taxation went from Euro 6.27 million in the first half of 2003 to Euro 2.30 million in the same period of this year, reflecting an improvement of 63.3% compared to the corresponding period of last year. Excluding goodwill amortization, loss for the period amounted to only Euro 0.74 million. The following items have an impact on the result before taxation: - net financial charges amounting to Euro 201 thousand: mainly including interest on loans from banks and the loan from shareholders amounting to Euro 1.5 million and expiring at the end of the year; value adjustments of financial assets: amounting to Euro 120 thousand, mainly as a result of deficits arising from the disposal of the stake in Skala Soft Food (Euro 60 thousand), the total write off of the minority stakes in Future 121 OYO (Euro 37 thousand) and Proffer (Euro 9 thousand); Net exceptional charges in the amount of Euro 423 thousand, reflecting a sharp drop compared to the same period of the previous year, as a result of the completion of post-merger restructuring and integration. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 13 Economic breakdown by quarter The second quarter of 2004 saw an increase of 5.2% in characteristic revenues and 5.5% of Total Value of Production, compared to the first quarter of 2004. The increase in gross operating margin is even more significant, having grown from Euro 1,014 thousand to Euro 1,398 thousand (+37.9%). The gross margin in the second quarter therefore grew from 5.7% to 7.5%, confirming the soundness of the growth policy and the strategy to increase margins, launched following the merger last year, especially with a view to attaining a leading position on Western European markets. GROSS OPERATING MARGIN - COMPARISON BY QUARTERS Q2 2004 (in thousands of Euro) SALES OF GOODS AND SERVICES Other income and revenues and increase of fixed t f i t l k TOTAL VALUE OF PRODUCTION Consumables and goods Services and use of third-party assets Personnel costs GROSS OPERATING MARGIN Buongiorno Vitaminic S.p.A. Q1 2004 Change Q2 2004 vs. % change Q2 Q1 2004 2004 vs. Q1 2004 18,116 557 17,224 474 892 83 5.2% 17.5% 18,673 (17) (13,183) (4,074) 17,698 (15) (12,545) (4,125) 0 1,014 975 (3) (639) 51 5.5% 17.3% 5.1% -1.2% 385 37.9% 1,398 Half-Year Report as of June 30, 2004 Page 14 1.5.2 Financing and investment operations RECLASSIFIED CONSOLIDATED BALANCE SHEET STATEMENT (in thousands of Euro) 6/30/2004 12/31/2003 6/30/2003 Change 6/30/2004 vs. 12/31/03 FIXED ASSETS 10,948 1,451 601 13,000 12,776 1,547 685 15,008 13,924 1,808 772 16,504 -1,828 -96 -85 -2,009 20,550 2,532 -19,711 -6,040 -2,669 20,609 2,906 -20,665 -5,319 -2,469 19,214 3,873 -20,369 -5,601 -2,883 -59 -375 954 -721 -200 SEVERANCE INDEMNITY FUND -917 -849 -725 -68 FUNDS FOR RISKS AND CHARGES -795 -1,420 -1,519 626 8,618 10,270 11,377 -1,652 18,935 -4,989 -2,294 -28 11,625 17,605 -763 -11,022 -20 5,800 17,481 -1,077 -6,382 -251 9,771 1,330 -4,226 8,728 -8 5,825 1,500 1,500 - - Intangible fixed assets Tangible fixed assets Investments NET WORKING CAPITAL Inventories Trade debtors Other assets Trade creditors Other liabilities NET INVESTED CAPITAL CAPITAL AND RESERVES Paid-up capital Reserves and profit (loss) carried forward Consolidated profit (loss) for the period Minority interests MEDIUM AND LONG-TERM BORROWINGS SHORT-TERM BORROWINGS -17 -54 -2,019 37 Debts to banks and other financial institutions -7,530 3,040 -4,506 -1,646 4,670 2,970 -2,471 6,096 1,606 -5,883 -1,630 -7,476 NET BORROWINGS -3,006 4,470 1,606 -7,476 8,618 10,270 11,377 -1,652 Financial assets that are not fixed assets Cash and cash equivalents* TOTAL SHAREHOLDERS' BORROWINGS EQUITY AND *: if negative, it constitutes an asset for the company At June 30, 2004, the Buongiorno Vitaminic Group’s net invested capital amounted to Euro 8,618 thousand, represented by: - Net fixed assets: amounted to Euro 13 million, down from 2003 due to depreciation and amortization, which was only partially offset by new investments. New capitalizations, of a limited amount, are related primarily to costs for the development of new modules for the technology platform; Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 15 - Net working capital of Euro –2.7 million that has remained substantially unchanged since December 31, 2003, against an increase in business volumes, attained through a reduction in collection times and the use of financial solutions for the collection of receivables; - Severance indemnity fund amounting to 917 thousand reflected an increase of Euro 70 thousand since the end of financial year 2003; - Funds for risks and charges, amounting to Euro 795 thousand, reflected a sharp fall as a result of a gradual use of the Fund set up to cover restructuring charges associated with the closure of operations in countries that are no longer strategic or in which overlaps required operations to be streamlined. Net invested capital is covered by shareholders’ equity amounting to Euro 11.62 million, reduced by the positive net financial position of Euro 3.0 million. Consolidated shareholders’ equity rose by Euro 5.8 million, to reach Euro 11.6 million at the end of June 2004. The movement was determined by a reduction of Euro 2.3 million due to the loss for the period and an increase of Euro 8.2 million following the completion of the first two tranches of the increase in share capital subscribed in April and May 2004, as well as the exercise of stock options. Net financial position at the end of June 2004 was a positive Euro 3.0 million, up Euro 7.5 million over the same figure at the end of 2003 of a negative Euro 4.47 million. The movement in the financial position reflects Euro 7.6 million by way of capital increases, net of banking commissions, completed in April and May 2004 and the partial subscription of stock options amounting to about Euro 100 thousand. Investments and liquid assets amounted to Euro 7.55 million at June 30, 2004, while the Group’s financial debt amounted to Euro 4.54 million made up of Euro 3.04 million by way of exposure to banks secured by invoices and Euro 1.5 million in exposure towards shareholders. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 16 1.5.3 Financial operations RECLASSIFIED CONSOLIDATED CASH FLOW STATEMENT (in thousands of Euro) H1 2004 FY 2003 H1 2003 Change 30/06/04 vs. 30/06/03 NET FINANCIAL POSITION AT PERIOD START (4,470) 2,479 2,479 (6,949) (2,294) 3,588 (11,022) 7,163 (6,382) 3,303 4,088 285 68 (626) (8) 729 148 (583) (29) (4,324) 24 (485) 0 (3,540) 44 (141) (8) 4,269 200 1,703 2,117 (1,917) (1,385) (186) (36) 27 (1,579) (4,889) (5) (243) 247 (4,890) (2,645) 75 (231) 151 (2,650) 1,260 (261) 195 (124) 1,071 8,242 (108) 8,133 106 268 374 0 32 32 8,242 (140) 8,101 0 (101) 0 0 0 (8) (8) 101 187 188 0 (44) (44) 0 36 36 3,006 (4,470) (1,606) 4,612 CASH FLOW FROM ORDINARY ACTIVITY Consolidated Group profit (loss) for the period Amortization and write-down of intangible fixed assets and investments Net change in the severance indemnity fund Net change in funds for risks and charges Other ordinary activities items CHANGE IN CURRENT ASSETS CASH FLOW FROM INVESTING ACTIVITIES Intangible fixed assets Tangible fixed assets Investments Change in consolidation area CASH FLOW FROM FINANCING Paid increase of capital Other changes OTHER CHANGES IN THE EQUITY AND FINANCIAL SITUATION THAT DO NOT ENTAIL CASH FLOWS Allotment and acquisition of companies through issuing of stocks Capital increase through contribution in-kind Minority interests NET FINANCIAL POSITION AT PERIOD END The clear improvement in the Buongiorno Vitaminic Group’s net financial position at the end of the period of reference is due to a combination of some of the main factors that emerge from an analysis of the cash flow statement: - significant cash flow generated by financing activities, arising from capital increases amounting to a total of Euro 8.2 million; - a reduction in cash flow from investing activities, especially with regard to intangible fixed assets (including about Euro 500 thousand in bank commissions for the capital increases); - a significant improvement in the cash flow from characteristic transactions that, for the first time, shows a positive balance of Euro 729 thousand; - a small movement of Euro 200 thousand in net working capital, a clear drop compared to the movement recorded in the same period of the previous year. In addition, free cash flow for Q2 2004, net of charges related to the increases in capital, was positive for the first time. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 17 1.6 Foreseeable Evolution In the second half of the year, Group revenues are expected to continue their rapid growth over the previous year. The management believes that there are opportunities for growth in all geographic areas in which the Company currently operates, particularly in the Consumer Services line. The new markets, such as Mexico and the US, with respect to which agreements were recently signed, are expected to gradually make increasingly significant contributions to growth in revenues. Revenues from Consumer Services are expected to grow at the same rate as in previous quarters, albeit with a slowdown in “quarter-on-quarter” terms towards the very end the year. To achieve this growth the Group will focus on updating its range of services and multimedia content and on further broadening its multi-channel distribution capacity, including in non-European countries. The Group intends to stimulate growth in Marketing Services, both by taking advantage of its good positioning in mobile advertising and by increasing the sales force in the Business Services area. The Group also intends to develop new ideas and approaches aimed at converging Consumer and Marketing Services, for instance, through the integration of e-mail and mobile initiatives. The acquisition of Gsmbox SpA, expected to be completed in September 2004, will also allow for the consolidation of further revenues. Moreover, operations will remain focused on increasing profitability, with growth in the cost structure that will allow a further reduction of the ratio to sales and an emphasis on lines of revenue which can provide good margins despite intense competition on the markets in which the Group operates. Lastly, side by side with the industrial integration of Gsmbox, the Group may also grasp new acquisition opportunities. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 18 1.7 Performance of the Parent Company (Buongiorno Vitaminic S.p.A.) During the first half of 2004, Buongiorno Vitaminic S.p.A. posted an increase in core business revenues, which rose by 13.5% compared to the same period last year. This confirms its role as a leader in the segment of Interactive Mobile Service (IMS) in Italy. The sector of Consumer Services – i.e. value-added services (VAS) offered to mobile users – confirms the characteristics of an expanding and constantly growing market that is nevertheless marked by powerful competition among operators. According to the latest market estimates published by the Permanent Observatory on Mobile VAS of the Milan Polytechnic Institute, this market in Italy rose to a value of over Euro 400 million by the end of 2003, and it grew by more than 20% in the first quarter of 2004. The VAS segment in relation to telephone services has benefited from various aspects that have effectively made it possible to expand the target of end users and thus increase the size of the market. We are convinced that, in particular, the following factors drove development in the first half of the year: - expansion of the portfolio of products and digital content also offered in an evolved form for third-generation handsets; - the definitive start-up of services offered by the UMTS network (by mid-August, H3G had approximately 1.3 million subscribers in Italy); - the growth in distribution channels, also through media partnerships or collaboration agreements between VAS service providers and media actors (television, printed press and radio); - increasingly sophisticated terminals available on the market, allowing end users to appreciate the evolution in this offer; - powerful dynamism in terms of marketing and promotional actions by the entire VAS production chain. Instead, the market for Marketing Services has demonstrated signs of an upswing with respect to the past few years. According to the most recent studies conducted by UPA (association of major companies investing in advertising), the advertising market has started to grow again after a three-year slump. Initial forecasts indicate an increase in aggregate investments of at least 3%, most of which going to television and the new media (Internet and telephone). Activities in the Advertising sector have been stimulated by advertising via SMS (mobile advertising), an area in which Buongiorno Vitaminic is Italy’s leading company in terms of commercial and operative management capacity, as well as the effect of the important commercial collaboration with TIM through the TIMSpot service. In Business Services, the introduction of an offer integrated with music solutions (e.g. CDs and ringtones) has made it possible to propose innovative marketing solutions to acquire customers and ensure their loyalty to leading companies in the banking and insurance sector (BNL, Unicredito, SanPaoloIMI, Zuritel and 6Sicuro), consumer sector (L’Oreal, Barilla, Danone), large-scale retail sector (GS, Metro and Autogrill) and hi-tech sector (TDK, Philips, HP and 3M). In this line of services, note must also be made of the good trend in revenues connected with the sale, on a licensing basis, of the technological platform to H3G; this contract, stipulated in 2002, envisaged part of the price tied to the number of service subscribers. At June 30, 2004, the Parent Company Buongiorno Vitaminic S.p.A. had 149 employees, an increase with respect to the staff of 123 at the end of 2004. The increase in internal resources was determined by the increase in turnover of the Italian Business Unit, as well as the decision to bolster several central functions (particularly the technological area and the Global Mobile Unit). As activities serving the Group, these areas required the recruitment of specialized employees to manage growing operating complexity and international vocation. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 19 1.7.1 Economic Operations of the Parent Company RECLASSIFIED PROFIT AND LOSS ACCOUNT (in thousands of Euro) First Half 2004 Year 2003 First Half 2003 Change H1 2004 vs. H1 2003 SALES OF GOODS AND SERVICES Other income and revenues and increase of fixed assets for internal works 13,885 861 25,451 2,095 13,530 942 355 (81) TOTAL VALUE OF PRODUCTION 14,745 (32) (9,978) (3,709) 27,546 (59) (19,854) (7,220) 14,472 (31) (11,048) (3,892) 273 (1) 1,070 183 1,026 (1,047) 0 0 (129) 413 (1,987) (173) (498) (175) (499) (719) (158) (519) (112) 1,525 (328) 158 519 (17) Net exceptional earnings / (charges) (151) (228) (1,449) (429) (2,421) (14) (8,577) (925) (2,007) 203 (3,590) (426) 1,856 (431) 2,141 (3) PROFIT (LOSS) BEFORE TAXATION (2,257) (11,936) (5,820) 3,563 Consumables and goods Services and use of third-party assets Personnel costs GROSS OPERATING MARGIN Amortization, depreciation and write-downs Intangible and tangible fixed assets write-downs Allowance for bad debts and other provisions Other operating costs OPERATING PROFIT / (LOSS) Net financial earnings / (charges) Value adjustments of financial assets During the first half of 2004 Buongiorno Vitaminic S.p.A. posted an aggregate growth of approximately 13.5% in core business revenues, with a growth of 2.6% in the Value of Production, which rose from Euro 13,530 thousand to Euro 13,885 thousand. The Value of Production rose by just 2.6% due to the notable decrease in intercompany revenues. This can be attributed to the reduction in services provided by the Parent Company following completion of the start-up activities and the transfer to Peoplesound.com Ltd of the purchases of premium CDs, formerly managed centrally. (in thousands of Euro) First Half 2004 First Half 2003 Marketing Services 5,318 4,597 Consumer Services 6,922 6,198 12,240 10,795 Total Intercompany services Total 1,645 2,735 13,885 13,530 A breakdown of turnover shows an increase in revenues attributable to the excellent performance of both lines of business. Consumer Services rose by 11.7%, whereas Marketing Services increased by 15.7%. During the first half of 2004 the gross operating margin (GOM) of the Parent Company was Euro 1,025 thousand, as opposed to a loss of Euro 499 thousand posted during the same period last year. This clear-cut improvement is due not only to the growth in revenues but also to the significant reduction in costs for services as well as personnel costs. The former decreased by nearly 10% on a six-monthly basis due to full exploitation of the synergies arising from the merger between Buongiorno S.p.A. and Vitaminic S.p.A., which commenced effective July 16, 2003. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 20 The decrease in personnel costs (about 5% on a six-monthly basis), despite the increase in employees (+26), arose from the different composition of company staff (more “junior” staff on average) and the lower incidence of variable bonuses. The Operating Loss was Euro 151 thousand, reflecting a decisive improvement over the loss of approximately Euro 2 million posted in the first half of 2003. An important factor in these results was the fact that no provisions were made – in general or to the fund for bad debts – due to the good quality of current assets (Euro 519 thousand in the first half of 2003), coupled with the lack of write-downs on tangible and intangible fixed assets. ”Amortization, depreciation and write-downs” for the period rose by approximately Euro 328 thousand to Euro 1,047 thousand, as opposed to Euro 719 thousand in the first half of 2003. ”Other operating costs” rose slightly (from Euro 112 to 129 thousand), in keeping with the growth in turnover. Loss before taxes went from Euro 5,820 thousand in 2003 to Euro 2,257 thousand in 2004. A significant contribution to this improvement came from the decrease in “Value adjustments to financial assets” compared to the same period last year, by virtue of the improved economic results of all the subsidiaries. Increased bank exposure, above all during the first quarter of 2004, led to higher financial management costs compared to the same period in 2003. At the end of the first half of the year, net financing operations totaled Euro 228 thousand. Instead, net extraordinary operations essentially remained the same, generating costs of Euro 429 thousand during the period, attributable mainly to the last phases of the integration process between Buongiorno and Vitaminic. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 21 1.7.2 Financing and Investment Operations of the Parent Company RECLASSIFIED BALANCE SHEET (in thousands of Euro) 6/30/2004 12/31/2003 6/30/2003 Change 6/30/2004 vs. 12/31/03 FIXED ASSETS Intangible fixed assets Tangible fixed assets Investments 4,142 989 29,292 34,423 3,756 1,044 26,473 31,273 3,606 1,337 29,545 34,488 386 (55) 2,819 3,150 12,442 1,164 (14,605) (3,791) (4,790) 17,017 1,100 (14,998) (3,349) (230) 15,195 6,066 (16,781) (3,451) 1,029 (4,576) 65 393 (442) (4,560) (913) (845) (725) (68) (4,179) (4,914) (4,970) 735 24,541 25,284 29,822 (742) 18,935 10,508 (2,257) 27,186 17,605 15,865 (12,269) 21,202 17,481 15,783 (5,975) 27,289 1,330 (5,357) 10,012 5,985 1,500 1,500 - - NET WORKING CAPITAL Inventories Trade receivables Other assets Trade payables Other liabilities SEVERANCE INDEMNITY FUND FUNDS FOR RISKS AND CHARGES NET INVESTED CAPITAL CAPITAL AND RESERVES Paid-up capital Reserves and profit (loss) carried forward Profit (loss) for the period MEDIUM AND LONG-TERM BORROWINGS SHORT-TERM BORROWINGS (13) (43) (1,753) 31 Debts to banks and other financial institutions (5,232) 1,100 (4,145) (676) 3,302 2,582 (1,109) 5,395 2,533 (4,556) (2,202) (6,727) NET BORROWINGS (2,645) 4,082 2,533 (6,727) 24,541 25,284 29,822 (742) Financial assets that are not fixed assets Cash and cash equivalents* TOTAL SHAREHOLDERS' BORROWINGS EQUITY AND *: if negative, it constitutes an assets for the company Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 22 At June 30, 2004 the Parent Company Buongiorno Vitaminic S.p.A. posted a net invested capital of Euro 24.5 million, composed of net fixed assets of Euro 34.4 million and negative net current assets of Euro 4.8 million, net of the fund for risks and charges of Euro 4.2 million and the severance indemnity fund of Euro 913 thousand. Net invested capital is covered by financial resources composed of Capital and Reserves of Euro 27.18 million, less the positive net financial position of Euro 2,645 thousand. The main changes in the balance sheet for the period of reference relate to the following movements due to utilization: - - net current assets posted a negative change of approximately Euro 4,560 thousand, attributable to the conversion of debtors from subsidiaries into capital, the reduction of trade receivables due to improved collection conditions and timing, as well as the use of financial solutions to unblock debtors; the fund for risks and charges decreased by approximately Euro 735 thousand due to the partial use of funds created to cover losses generated by the subsidiaries in previous years and, to a lesser extent, by the partial use of the fund established to restructure the companies of the former Vitaminic Group, which was involved in the corporate and operational streamlining process. Likewise, among the sources of financing, capital and reserves rose to Euro 27,186 thousand, up approximately Euro 6 million as a result of capital increases worth approximately Euro 8.2, million, adjusted for the losses accrued during the period. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 23 RECLASSIFIED CASH FLOW STATEMENT (in thousands of Euro) H1 2004 FY 2003 H1 2003 Change 6/30/2004 vs. 6/30/2003 NET FINANCIAL POSITION AT PERIOD START (4,082) 824 824 (4,906) (2,257) 1,047 (12,269) 2,160 (5,974) 877 10,012 (1,113) 1,495 68 1,227 1,580 6,582 150 3,371 (6) 2,799 29 1,093 (1,176) (5,087) (82) (2,145) 1,586 2,848 1,785 1,409 1,063 (1,290) (89) (4,564) (5,943) (3,381) 127 (3,537) (6,792) (2,146) (68) (1,375) (3,589) 2,091 (216) (1,027) 849 8,242 8,242 106 106 0 0 8,136 8,136 Allotment and acquisition of companies through the issuing of stocks Capital increases through contribution in-kind 0 (101) 0 101 0 101 0 (101) Balancing of losses of subsidiaries through a reduction in credits Balancing of losses of subsidiaries through the use of the shareholding write-down fund 1,962 25,373 23,039 (1,962) (25,373) (23,039) 23,411 0 0 0 0 2,645 (4,083) (2,532) 6,727 CASH FLOW FROM ORDINARY ACTIVITIES Consolidated profit (loss) for the period Amortization and write-downs of intangible fixed assets Shareholdings write-downs Net change in severance indemnity fund Net change in funds for risks and charges CHANGE IN CURRENT ASSETS (*) CASH FLOW FROM INVESTING ACTIVITIES Intangible fixed assets Tangible fixed assets Investments CASH FLOW FROM FINANCING ACTIVITIES Paid increase of capital OTHER CHANGES IN THE EQUITY AND FINANCIAL SITUATION THAT DO NOT ENTAIL CASH FLOWS NET FINANCIAL POSITION AT PERIOD END (*) net of intercompany account payables used to balance losses of subsidiaries Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 24 During the reference period, for the very first time the Company’s management of current assets generated positive net cash flows of approximately Euro 1,580 thousand, thereby achieving economic/financial balance on an operating level. Instead, investment activities absorbed resources totaling Euro 6 million, of which approximately Euro 4.6 million in investments, tied mainly to the recapitalization of subsidiaries, and Euro 1.3 million in intangible fixed assets. Recapitalization of the foreign companies was handled mainly through the conversion of the Parent Company’s trade and financial debtors, a financing method that essentially influenced the trend in current assets. The first two portions of the capital increase and the partial subscription of stock options brought in Euro 8,242 thousand in resources. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 25 1.8 Human Resources During the first half of 2004, great emphasis was placed on enhancing human capital by developing internal resources but also through a widespread and high-quality recruiting plan. With regard to internal resources, several programs were developed for training and evaluating key resources, and these programs will be extended to all personnel in the coming months. Moreover, several micro-organizational activities were set up to harmonize structures and internal processes in the different Group companies. The project focuses on improving the effectiveness and efficiency of the operating structures, and it is based on the possibility of standardized comparison among the structures of the various countries, identifying within each one internal best practices and benchmarks to be extended to the entire Group. As to recruitment, special attention was paid to the selection process from both a qualitative standpoint – with specific selection processes to hire resources showing great potential – and a quantitative one, reducing the timeframe for bringing in new resources. As a result of these activities, over 60 new employees have been hired, 90% of which in Italy, Spain and the United Kingdom. They were hired following over 500 job interviews. 1.9 Technological Innovation During the first half of 2004, the development of Buongiorno Vitaminic’s technological architecture was oriented above all towards implementing new technical functions required for efficiently backing the increasingly complex business demands of the Consumer Services area. Specifically, the offer to the public of increasingly complex items, such as music, videos and Java games, has required the integration in Be3A of more sophisticated functions, such as modules to develop Web, WAP and voice portals, and modules to manage music rights (DRM) and to manage electronic payment systems. Moreover, there has been significant expansion in the quantity and potential of active connections towards the main mobile operators of all the countries in which Buongiorno Vitaminic works, not only in Europe but also around the world. In the development of digital music services, synergies have been exploited between the technical assets of the former Vitaminic and those of the former Buongiorno, adopting hardware and software solutions focusing on further reducing costs over the medium term. Development continues to be conducted entirely with in-house company resources, whose expertise contributes to reinforcing capabilities and making the Group’s offer unique. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 26 1.10 Main Corporate Events in the Half-Year The main corporate events that occurred during the first half of 2004 are detailed below. January • On January 20, 2004, an agreement with Banca IMI SpA was signed, by which the bank undertakes to underwrite and/or place with institutional investors new Buongiorno Vitaminic shares up to a maximum total value of €25 million (par value plus additional paid-in capital). The issue of new shares can take place in stages through December 31, 2005, at the discretion of Buongiorno Vitaminic, with each tranche being of no more than 5 million shares. February • On February 12, 2004, the Board of Directors approved the Quarterly Report as of December 31, 2003. March • On March 8, the Extraordinary Shareholders’ Meeting unanimously approved the proposal to increase share capital, on a divisible basis, with a premium and excluding option rights as provided for by Article 2441, Paragraph 5, of the Italian Civil Code, for a maximum nominal value of Euro 4,680000. This will be implemented by issuing a maximum of 18,000,000 ordinary shares with a par value of Euro 0.26 each, cum coupon, to be offered to institutional investors for subscription. The Board of Directors was vested with the authority to delegate one or more of its members to decide on the timing and procedures for the approved increase and to determine the issue price; approval of this capital increase reserved by the Shareholders’ Meeting of Buongiorno Vitaminic represented a condition precedent to the agreement signed with Banca IMI S.p.A. on January 20, 2004. • On March 23 the Board of Directors approved the draft of the 2002 Annual Report. April • On April 13 the first tranche of the capital increase was called, closing on April 28 with the issue of 2.27 million new shares at the offer price of Euro 1.6184 placed with institutional investors. • On April 28, the General Shareholders Meeting unanimously approved the Financial Statements for the year ended December 31, 2003. At the time, it unanimously resolved to pay the directors who are not vested with special responsibilities a gross aggregate fee of Euro 30,000 for 2004, giving the Board of Directors the power to determine how this fee would be distributed among the parties involved. • On April 29, the Company announced its agreement with ESMAS, a company that manages the interactive services of the Televisa Group, the leading Spanish-language media group, through which Buongiorno Vitaminic has expanded its activities to South America. When the agreement was announced, the opening of new offices in Mexico City was also announced, together with the establishment of subsidiary Buongiorno MyAlert Srl, under Mexican law. Its goal is to post revenues of Euro 3 million by the end of this year and immediately reach the breakeven point in EBITDA. May • On May 11 the Board of Directors approved the Quarterly Report at March 31, 2004. • On May 18 the second tranche of the capital increase was called, closing on June 1 with the issue of 2.71 million new shares at the offer price of Euro 1.624 placed with institutional investors. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 27 June • On June 10 Buongiorno Vitaminic signed the definitive agreement for the acquisition of a 95.1% stake in Gsmbox SpA, a leading mobile media company in the area of interaction and TV participation in Italy and Spain. Gsmbox SpA holds 55% of the share capital of Gsmbox España S.A., a company in which Telecinco holds a 45% stake. In turn, Gsmbox holds 50% of the share capital of Endemol-Gsmbox SpA, a joint venture recently established with Endemol Finance BV. The transaction will be completed via a stock contribution, which will give Gsmbox shareholders approximately 4.36 million Buongiorno Vitaminic shares, for a countervalue – at the reference price of June 9 – of approximately Euro 7.2 million. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 28 1.11 Events Following June 30, 2004 In July • Based on the provisions of the Shareholders’ Agreement signed on February 4, 2003, the number of shares participating in the agreement and subject to the lock-up restriction was automatically reduced on July 16, 2004. • On July 26, the Board of Directors called an Extraordinary Shareholders’ Meeting to discuss the proposal for a capital increase totaling 4,589,372 new shares reserved for the contribution of 100% of the shares of Gsmbox S.p.A. and the proposal to amend the Company Bylaws, in order to adapt them to the new regulations envisaged by corporate law reforms in Italy. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 29 1.12 Main Shareholders (Holdings as indicated in the Share Register and/or notifications pursuant to Art. 120 of Legislative Decree No. 58/1998.) The chart below shows the shares held by the shareholders who have Buongiorno Vitaminic S.p.A. stock exceeding 2% of the Share Capital at June 30, 2004. Del Rio Mauro* 29,40% Mercato 61,92% Mata Jiménez Jorge 6,00% Barilla Holding SpA 2,68% *directly and indirectly Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 30 1.13 Report on the Stock Option Plan Both Buongiorno S.p.A. and Vitaminic S.p.A. have always favored the possibility of implementing stock option plans, feeling that they are an appropriate tool in building relationships between the company and its employees/directors by providing an incentive to create a professional, long-lasting relationship. As such, over the years various equitybased incentive plans have been implemented, in compliance with Consob notice No. 11,508 of February 15, 2000 regarding stock option plans, as described below. In particular, in 2003 the following stock option plans were “active”: a) the stock incentive plan promoted in 2000 by Vitaminic S.p.A. As of January 1, 2003, this plan included 81,051 stock options with an exercise price of €30.78. No options were exercised in 2003. On June 30, 2003, this stock option plan came to a close, so there are no further options to be exercised. b) the conversion of the Buongiorno S.p.A. stock incentive plan in effect at the time of the merger into Vitaminic S.p.A.; c) the launch of new stock incentive plans following the merger. Below are the details of points (b) and (c) above. Conversion of the Buongiorno S.p.A. stock incentive plan in effect at the time of the merger into Vitaminic S.p.A. Foreword At the time of the merger agreement entered into by Buongiorno S.p.A. and Vitaminic S.p.A., Buongiorno S.p.A. had outstanding stock option plans giving the option holders the right to Buongiorno shares at strike prices set by the Board of Directors based on the market value of the stock at the time the options were allocated. These options, as established by Article 14 of the regulations of each of the stock option plans, have remained in effect after the merger, as well, ensuring that the option holders be granted the same rights after the merger as they had prior to the merger. As a result, the merger agreement itself established that for each option held on Buongiorno stock a new option would be issued giving the option holder the right to a number of Buongiorno Vitaminic S.p.A. shares based on the swap ratio adopted for the merger. The Buongiorno S.p.A. plans, as described below, were thereby transferred to Buongiorno Vitaminic S.p.A. with the same option holders (i.e., those who held valid options which had not been exercised as of the effective date of the merger), the same regulations, and the same strike prices as for the Buongiorno S.p.A. plans based on the swap ratio adopted for the merger. Structure and conditions of the Buongiorno S.p.A. stock option plans The Buongiorno S.p.A. stock option plans were the result of three separate increases in share capital as authorized by the shareholders on the following dates: 1. February 26, 2000 (the “First stock option plan”) 2. November 29, 2000 (the “Second stock option plan”) 3. August 30, 2001 (the “Third stock option plan”) These plans were covered by three separate regulations which were all essentially similar: (a) each beneficiary was granted options, free of charge, to purchase Buongiorno S.p.A. shares, issued in relation to the previously authorized increases in share capital; each option gave the holder the right to one share; (b) the beneficiaries were divided into two categories: (i) “Category A”: holders of options which could be exercised when certain objectives were reached (as established from time to time by the Buongiorno S.p.A. Board of Directors); (ii) “Category B”: other holders of options which could be exercised based on time of employment with the Group; (c) the options could be exercised in stages, and four exercise periods were established each year, as described in more detail below; (d) the options matured had to be exercised by December 31, 2005. The individual regulations established that the matured options could be exercised between “the fifteenth and last day of the months of February, May, August, and November of each year, or in other periods established either by the Board of Directors itself or by proxy as approved by the Board”. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 31 Status of Buongiorno S.p.A. stock option plans as of the increase in share capital for the merger, and methods of conversion As of April 28, 2003, the date of approval of the increase in share capital for the merger, the Board of Directors of Buongiorno S.p.A. had granted a total of 1,300,525 options for the three stock option plans. Of these options: - 927,830 had a strike price of Euro 7.75; - 372,695 had a strike price of Euro 23.66. Vitaminic S.p.A. shareholders were then asked to approve three additional increases in share capital in their extraordinary meeting of April 28, 2003, as described in more detail below, in order to convert the three Buongiorno S.p.A. stock option plans into the same number of post-merger Buongiorno Vitaminic stock option plans. • The conversion of the first stock option plan As of the date of approval of the increase in share capital for the merger, the Board of Directors of Buongiorno S.p.A. had granted a total of 799,434 options for the first stock option plan, of which: - 637,334 had a strike price of Euro 7.75 - 162,100 had a strike price of Euro 23.66. Consequently, based on the swap ratio of 13 Vitaminic shares for every 2 Buongiorno shares, Vitaminic S.p.A. shareholders were asked to approve, for the purposes of the conversion of the first stock option plan with the same terms and conditions, a divisible increase in share capital up to a maximum value of Euro 1,351,043.46 by issuing a maximum of 5,196,321 new Vitaminic ordinary shares at a par value of Euro 0.26 with standard dividend rights. In particular, of these 5,196,321 new Vitaminic shares: - up to 4,142,671 new shares can be settled at a strike price of Euro 1.19 (amount calculated by applying the swap ratio specified above to the original strike price: Euro 7.75:6.5=Euro 1.19); - up to 1,053,650 new shares can be settled at a strike price of Euro 3.64 (amount calculated by applying the swap ratio specified above to the original strike: Euro 23.66:6.5=Euro 3.64). • The conversion of the second stock option plan As of the date of approval of the increase in share capital for the merger, the Board of Directors of Buongiorno S.p.A., in addition to approving the regulations for this plan, had granted a total of 31,326 options for the second stock option plan at a strike price of Euro 23.66. Consequently, based on the swap ratio of 13 Vitaminic shares for every 2 Buongiorno shares, Vitaminic S.p.A. shareholders were asked to approve, for the purposes of the conversion of the second stock option plan with the same terms and conditions, a divisible increase in share capital up to a maximum value of Euro 52,940.94 by issuing a maximum of 203,619 new Vitaminic ordinary shares at a par value of Euro 0.26 with standard dividend rights. In particular, these 203,619 new Vitaminic shares can be settled by exercising an equivalent number of options at a strike price of Euro 3.64. • The conversion of the third stock option plan As of the date of approval of the increase in share capital for the merger, the Board of Directors of Buongiorno S.p.A. had then granted a total of 469,765 options for the third stock option plan, of which: - 290,496 had a strike price of Euro 7.75; - 179,269 had a strike price of Euro 23.66. Consequently, based on the swap ratio of 13 Vitaminic shares for every 2 Buongiorno shares, Vitaminic S.p.A. shareholders were asked to approve, for the purposes of the conversion of the third stock option plan with the same terms and conditions, a divisible increase in share capital up to a maximum value of Euro 793,902.72 by issuing a maximum of 3,053,472 new Vitaminic ordinary shares at a par value of Euro 0.26 with standard dividend rights. In particular, of these 3,053,472 new Vitaminic shares: - up to 1,888,224 could be settled at a strike price of Euro 1.19; - up to 1,165,248 could be settled at a strike price of Euro 3.64. Specification of beneficiaries and assignment of options In fulfillment of the merger agreement between Vitaminic S.p.A. and Buongiorno S.p.A. dated February 4, 2003, the Board of Directors of Buongiorno Vitaminic in their meeting of July 29 executed the shareholders’ resolutions regarding the three stock option plans by specifying beneficiaries and thereby ensuring the full conversion of the plans by these beneficiaries. As a result of the above, as of the date of preparation of this report, the beneficiaries are now holders of options for a total of 8,453,412 shares in Buongiorno Vitaminic S.p.A. as follows: Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 32 Launch of new stock incentive plans following the merger. Buongiorno Vitaminic Group is passing through a particularly important phase of its development. The company, following the recent completion of the merger of Buongiorno S.p.A. and Vitaminic S.p.A., is approaching a period of significant change and business expansion, which will require the hiring and motivation of new personnel and the further development of those who are already working for the Group, all of whom possess skills and experience which will ensure success in the future. As such, the existing stock option plans would appear insufficient, both because of the current market price of the stock (which makes the options no longer attractive) and because the plans in effect are approaching their conclusion. In the meeting of shareholders of November 6, 2003, Buongiorno Vitaminic S.p.A. defined two new increases in share capital for the purposes of assigning options to employees and directors who merit such incentives. The Employee Plan The objective of this plan is to make it possible for the company to: - grant new stock options to employees of the Company and of other Group companies who merit particular recognition or to new hires for which similar treatment is appropriate (“New Employee Stock Options”); - grant new stock options to employees of the Company and of other Group companies who merit particular recognition or to new hires for which similar treatment is appropriate, in the event that the stock options granted as part of previous plans are no longer exercisable (“Additional New Stock Options”). For this plan, a reserved capital increase of up to 2,600,000 newly issued shares was approved in order to grant up to 1,400,000 New Employee Stock Options and 1,200,000 Additional New Stock Options. The Directors Plan The objective of this plan is to make it possible for the company to grant stock options to Directors (or to third parties or employees who are considered of key importance to the company) in order to motivate them to achieve strategic and operational objectives (“New Stock Options for Directors”). For this plan, a reserved capital increase of up to 1,400,000 newly issued shares was approved in order to grant up to 1,400,000 New Stock Options for Directors. Characteristics of the new incentive plans The plans are covered by two Regulations, which are essentially the same, issued by the Board of Directors based on the regulations for existing plans in effect within the Group. Some of the most important terms and conditions are as follows: - deadline for assigning stock options: December 31, 2007 - stock option maturity: upon reaching objectives and/or following a minimum time of employment/service with the company; - determination of the stock option issue price: in general, the regulations are based on the principle of fiscal neutrality. The strike price is therefore calculated based on the average market price over the last month. In particular, with regard to the increase reserved to Directors, the Board of Directors also considered the shareholders’ equity of the company and the average price of the share prior to assigning the options, in accordance with the criteria defined by applicable Law (Article 2441(6) of the Italian Civil Code), where such value is greater than the average market value over the last month. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 33 Summary of active stock option plans as of June 30, 2004 Further details on the stock option plans in effect as of the end of the year are provided in the table below. Plan 1 (based on Buongiorno S.p.A. shareholders’ resolution of February 26, 2000) strike price (Euro ) options assigned and not exercised at 12/31/2003 1.19 options assigned in FY 2004 options exercised options expired in FY 2004 in FY 2004 4,112,671 options extant at 6/30/2004 85,540 - 4,027,131 - - 1,053,650 85,540 - 5,080,781 3.64 1,053,650 - TOTAL 5,166,321 - Plan 2 (based on Buongiorno S.p.A. shareholders’ resolution of November 29, 2000) strike price (Euro ) options assigned and not exercised at 12/31/2003 3.64 options assigned in FY 2004 options exercised options expired in FY 2004 in FY 2004 203,619 - options extant at 6/30/2004 - 203,619 Plan 3 (based on Buongiorno S.p.A. shareholders’ resolution of August 30, 2001) strike price (Euro ) options assigned and not exercised at 12/31/2003 1.19 options assigned in FY 2004 options exercised options expired in FY 2004 in FY 2004 1,829,224 options extant at 6/30/2004 38,726 - 1,790,498 - - 1,165,248 38,726 - 2,955,746 3.64 1,165,248 - TOTAL 2,994,472 - Plan 4 (based on Buongiorno Vitaminic S.p.A. shareholders’ resolution of November 6, 2003) strike price (Euro ) options assigned and not exercised at 12/31/2003 2.12 options assigned in FY 2004 options exercised options expired in FY 2004 in FY 2004 412,000 options extant at 6/30/2004 - - 412,000 - - 652,500 - - 1,161,000 - - 2,225,500 2.21 652,500 - 1.74 1,161,000 TOTAL 1,064,500 1,161,000 Plan 5 (based on Buongiorno Vitaminic S.p.A. shareholders’ resolution of November 6, 2003) strike price (Euro ) options assigned and not exercised at 12/31/2003 2.29 TOTAL PLANS options assigned in FY 2004 520,000 9,948,912.,00 Buongiorno Vitaminic S.p.A. options exercised options expired in FY 2004 in FY 2004 1,161,000 124,266 Half-Year Rport as of June 30, 2004 - options extant at 6/30/2004 520,000 10,985,646 Page 34 1.17 Treasury Stocks As of June 30, 2004, Buongiorno Vitaminic S.p.A. did not hold any treasury stocks, nor has it made any acquisitions or sales of such stocks during the first half of 2004, either directly or indirectly, nor through trust companies or other third parties. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 35 2. Half-Year Report as of June 30, 2004 2.1 Consolidated Half-Year Report for the Period Ended June 30, 2004 – Buongiorno Vitaminic Group FINANCIAL STATEMENTS BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 30.06.2004 CONSOLIDATED BALANCE SHEET - ASSETS A) CALLED-UP SHARE CAPITAL NOT PAID 1) 2) 3) 4) 5) 5) bis 6) 7) I a b 2) a b 3) a b 4) a b 5) 1) a b c 2) a b d 3) 4) Tangible fixed assets Land and buildings Costs and possible revaluations Depreciation fund Plant and machinery Costs and possible revaluations Depreciation fund Industrial and commercial equipment Costs and possible revaluations Depreciation fund Other assets Costs and possible revaluations Depreciation fund Work in process and advances to suppliers II - Total tangible fixed assets Net investments Shareholdings Subsidiaries Affiliated companies Other companies -Shareholding write-down fund Debtors Subsidiaries Affiliated companies Other companies Other securities Treasury stock III - Total investments B) I 1) 2) 3) 4) 5) 1) 2) 3) 1,803 1,280 132 681 227 6,567 409 1,675 12,774 195 601 174 733 341 8,133 1,948 1,799 13,924 0 0 0 18 19 2 3 1,431 1,453 0 1,451 C) TOTAL CURRENT ASSETS D) PREPAYMENTS AND ACCRUED INCOME (A+B+C+D) Half-Year Rport as of June 30, 2004 0 1,808 216 3 168 45 0 429 Cash and cash equivalents Bank and postal accounts Cheques Cash in hand and cash equivalents IV - Total cash and cash equivalents 1,771 2,822 (1,051) 73 1,548 172 0 0 429 7 17 (10) 4,373 (2,920) 4 0 168 0 30 57 (27) 13 (10) 4,560 (3,129) 0 0 0 50 (31) 13 (11) Short-term financial assets Shareholdings in subsidiaries Shareholdings in affiliated companies Other shareholdings Tresury stock Other securities Total short-term financial assets - financial assets write-down fund III - Short-term financial assets Buongiorno Vitaminic S.p.A. 2,073 1,432 183 640 114 4,990 528 988 10,948 52 (34) Debtors Trade debtors Subsidiaries Affiliated companies Parent companies Other companies Total debtors - Fund for bad debt II - Total net debtors TOTAL ASSETS 0 0 Inventories Raw materials, supplies and merchandise Work in process, semi-finished goods and compon. Contract work in process Finished goods and merchandise Advances Total inventories - Inventory write-down fund - Total net inventories 30.06.2003 0 0 0 TOTAL FIXED ASSETS 1) 2) 3) 4) 5) 1) 2) 3) 4) 5) Net intangible fixed assets Start-up and expansion costs R&D and advertising Patents and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Consolidation difference Work in process and advances to suppliers Other fixed assets - Total intangible fixed assets 31.12.2003 0 255 3 207 45 0 469 0 44 425 517 0 0 517 0 0 601 0 0 685 0 0 772 13,000 15,007 16,504 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20,612 614 30 0 512 21,768 0 21,768 20,636 1,397 36 0 632 22,701 0 22,701 18,831 1,792 30 0 2,865 23,518 0 23,518 0 0 0 0 4 4 0 4 0 0 0 0 12 12 0 12 0 0 0 0 266 266 0 266 7,513 15 1 7,529 1,625 19 3 1,647 2,448 15 8 2,471 29,301 24,360 26,255 1,389 883 1,415 43,690 40,250 44,174 Page 36 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 CONSOLIDATED BALANCE SHEET - LIABILITIES 1) 2) 3) 4) 5) 6) 7) 8) 9) 30.06.2004 18,935 10,508 0 0 0 0 622 (16,119) (2,294) 17,605 7,795 0 0 0 0 8,808 (17,366) (11,022) 17,481 7,712 0 0 0 0 (8,789) 0 (6,382) TOTAL CAPITAL AND RESERVES OF THE GROUP 11,652 5,820 10,022 (28) (20) (251) 11,624 5,800 9,771 0 0 795 0 0 1,420 0 0 1,519 TOTAL CAPITAL AND RESERVES a b Funds for risks and charges for pensions and similar rights for deferred taxes and sanctions for other risks -Exchange risk coverage -Legal practises c d -Product guarantees -Other 1) 2) 3) 30.06.2003 Capital and Reserves Share capital Share premium account Revaluation reserve Legal reserve Reserve for treasury stock Statutory reserve Total other reserves Reserve and profit (loss) carried forward Profit (loss) for the period MINORITY INTERESTS A) 31.12.2003 0 40 0 755 0 40 0 1,380 0 40 0 1,479 B) TOTAL FUNDS FOR RISKS AND CHARGES 795 1,420 1,519 C) SEVERANCE INDEMNITY FUND 917 849 725 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) Creditors Bonds Convertible bonds Banks Financial payables Payments on account Trade creditors Securities Subsidiaries Affiliated companies Parent companies Taxes payable Providence and social security charges Other creditors 0 0 3,040 1,500 63 19,678 0 33 0 0 2,238 688 1,300 0 0 4,670 1,500 27 19,842 0 762 61 0 1,883 838 1,692 0 0 5,351 745 93 18,917 0 1,351 101 0 1,382 915 1,539 D) TOTAL CREDITORS 28,540 31,275 30,394 E) ACCRUED EXPENSES AND DEFERRED INCOME 1,814 906 1,765 43,690 40,250 44,174 TOTAL LIABILITIES (A+B+C+D+E) MEMORANDUM ACCOUNTS 1) Commitments to Leasing companies 0 0 0 2) Mortgage guarantee 0 0 0 3) Guranteees for L/C import 0 0 0 4) Sureties 480 280 699 5) Our goods deposited with third parties TOTAL MEMORANDUM ACCOUNTS Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 0 0 0 480 280 699 Page 37 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 First Half 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT A) VALUE OF PRODUCTION 1) Sales and services revenues Year 2003 First Half 2003 35,341 52,672 25,113 - Allowances and discounts to customers 0 0 0 2) Change in inventory of finished goods 0 0 0 3) Change in contract work in process 0 0 0 4) Increases in fixed assets for internal work 623 1,368 430 5) Other income and revenues 407 1,336 637 36,371 55,376 26,180 32 145 127 24,871 36,892 17,445 857 1,865 958 TOTAL VALUE OF PRODUCTION (A) B) COSTS OF PRODUCTION 6) Raw materials, supplies, consumables and goods 7) Services 8) Use of third-party assets 9) Personnel costs a Wages and salaries 6,371 12,366 6,497 b Welfare contributions 1,616 3,167 1,718 c Severance indemnity fund 180 338 153 d Pensions and similar rights 0 0 0 e Other personnel costs 32 81 27 8,199 Total personnel costs 10) 8,395 3,129 6,066 2,697 259 578 297 Other fixed assets write-downs 80 286 206 Bad debts and cash 91 838 a Amortization of intangible fixed assets b Depreciation of tangible fixed assets c d Total amortization, depreciation and write-downs 11) 15,952 Amortization, depreciation and write-downs Changes in stock of raw materials, 819 3,559 7,768 4,019 0 5 5 supplies, consumables and goods 12) Provision for risks 13) Other provisions 14) Other operating expenses TOTAL COSTS OF PRODUCTION (B) DIFFERENCE BETWEEN VALUE AND COSTS OF PRODUCTION (A-B) Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 97 14 0 0 135 171 314 708 242 37,929 63,484 31,362 (1,558) (8,108) (5,182) Page 38 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 First Half 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT C) Year 2003 First Half 2003 FINANCIAL EARNINGS AND CHARGES 15) Earnings from shareholdings a Earnings from shareholdings in subsidiaries and affiliated companies 0 b Earnings from other companies 0 Total earnings from shareholdings 16) Other financial earnings a from debtors entered in shareholdings 0 0 0 b from securities entered in fixed assets that 0 0 0 1 64 0 171 172 557 are not shareholdings c from securities entered in current assets that are not shareholdings d Interest and other financial earnings e Exchange gains f Other earnings 172 Total other earnings 17) 236 557 Interest and other financial charges a Interest to subsidiaries and affiliated companies 0 0 0 b Interest to parent companies (1) 0 0 c Interest to other companies d Interest and other financial charges e Exchange losses f (24) (5) (1) (348) (954) (957) Other financial charges Total interest and other financial charges TOTAL FINANCIAL EARNINGS AND (CHARGES) D) (C) (373) (959) (958) (201) (723) (401) ADJUSTMENTS OF FINANCIAL ASSETS VALUE 18) Revaluations: a Of shareholdings 0 135 135 b Of investments that 0 0 0 0 0 0 are not shareholdings c Of securities entered in current assets that are not shareholdings 0 Total revaluations 19) 135 135 Write-downs a Of shareholdings b Of investments that (120) (642) (134) 0 0 0 0 0 0 are not shareholdings c Of securities entered in current assets that are not shareholdings E) Total write-downs (120) (642) TOTAL ADJUSTMENTS OF FINANCIAL ASSETS VALUE (D) (120) (507) (134) 1 EXCEPTIONAL EARNINGS (CHARGES) 20) Exceptional earnings: a Gains b Contingent assets c Other earnings 1 50 0 487 1,577 918 43 21) 66 531 Total exceptional earnings 38 1,693 956 Exceptional charges: a Losses 0 (279) (103) b Contingent liabilities (486) (1,743) (634) c Other charges (468) Total exceptional charges TOTAL EXCEPTIONAL EARNINGS (CHARGES) (E) PROFIT (LOSS) BEFORE TAXES (A-B+C+D+E) 23) Income taxes 26) CONSOLIDATED PROFIT (LOSS) FOR THE PERIOD PROFIT (LOSS) FOR THE PERIOD ATTRIBUTABLE TO MINORITY INTERESTS PROFIT (LOSS) FOR THE YEAR ATTRIBUTABLE TO THE GROUP Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 (1,051) (909) (954) (3,073) (1,646) (423) (1,380) (690) (2,302) (10,718) (6,272) 0 (333) (154) (2,302) (11,051) (6,426) (8) (29) (44) (2,294) (11,022) (6,382) Page 39 BUONGIORNO VITAMINIC S.p.A. Registered office: B.go Masnovo, 2 – Parma (Italy) Wholly paid-up capital stock Euro 18,935,354 Parma Register of Companies No. 02699820045 Tax code 02699820045 Vat Code 07863930017 Parma Index R.E.A. No. 225247 NOTES ON THE FINANCIAL STATEMENTS General principles followed in drawing up the consolidated half-year report General principles followed in drawing up the consolidated half-year report These consolidated half-year financial statements include the Balance Sheet, the Profit and Loss Account, and the notes on the financial statements, and were drawn up in accordance with the provisions of the Italian Civil Code, as introduced by Legislative Decree 127/91, and with CONSOB regulation No. 11971 of May 14, 1999, as amended by Resolution No. 12475 of April 6, 2000. Figures are expressed in thousands of euro and any other units are specifically indicated. The Financial Statements as indicated above refer to the figures from the Consolidated Financial Statements of Buongiorno Vitaminic S.p.A. at June 30, 2004, at December 31, 2003 and at June 30, 2003; the figures for FY 2003 are the ones resulting from the merger of the companies Vitaminic S.p.A. and Buongiorno S.p.A. on July 16, 2003, with statutory and fiscal effects commencing as of January 1, 2003. The evaluation criteria adopted to draw up the Consolidated Financial Statements do not diverge from the ones used to draw up the 2003 Consolidated Financial Statements. They comply with Italian laws on Consolidated Financial Statements and accounting principles recommended by the National Councils of Accountants, in particular from Document No. 30 for interim reports. Consolidation Area Consolidation Area The table below lists the companies included in the consolidation area. As can be noted, several changes have arisen in the consolidation area with respect to December 31, 2003 due to the transfer or liquidation of nonstrategic shareholdings, in keeping with the Group’s plan to focus on the markets of Western Europe, as well as the opening of the Mexican company MyAlert S. de R.L. de CV. In keeping with the representation of the Financial Statements for the year 2003, the companies of the former Vitaminic Group that ceased operations as of December 31, 2002 were also excluded from the consolidation area. The companies in the Buongiorno Vitaminic Group that were part of the consolidation area at June 30, 2004 are listed in the table below (the percentage of the each holding is also listed): Company name Registered office 6/30/2004 Buongiorno.at email services GmbH Buongiorno Deutschland GmbH Buongiorno France S.a.r.l. MyAlertcom S.a. Buongiorno.uk Ltd Peoplesound.com Ltd Vitaminic Ltd Quantum Gap S.l. Vienna Berlin Paris Madrid London London London Madrid 100% 100% 97.96% 99.91% 99.55% 100% 100% 100% 12/31/2003 6/30/2003 100% 100% 97.96% 99.91% 99.55% 100% 100% 100% 90% 100% 97.9% 99.9% 99.5% 100% 100% 100% The companies in the Buongiorno Vitaminic Group that were not part of the consolidation area at June 30, 2004 and that will be part of the corporate streamlining and simplification process (with the exception of the Mexican company, which was not included in the consolidation area since it was started up at the end of June and its volume of business is not significant yet) are reported in terms of shareholding percentages in the following table: Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 40 Company name Skala Soft EOOD (*) Eurekan Multimedia S.a. Peoplesound.fr Eurl (**) Peoplesound.de GmbH (**) Vitaminic S.a.r.l. Vitaminic S.l. MyAlert S. de R.L. CV(***) Vitaminic GmbH Vitaminic B.V. Registered office Bulgaria Paris Paris Munich Paris Madrid Mexico City Hamburg Amsterdam 6/30/2004 12/31/2003 6/30/2003 100% 100% 100% 100% 100% 100% 99% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (*) Skala Soft EOOD was sold through a management buyout and this transaction was finalized in August 2004. The stake was held directly by MyAlertcom S.A. (**) 100% held by Peoplesound.com Ltd. (***) Company under Mexican law established in June 2004, held 99% by Buongiorno Vitaminic S.p.A. and 1% by MyAlertcom S.A. Consolidation principles The Group’s half-year consolidated Financial Statements were drawn up in compliance with the following principles: - line-by-line consolidation of entries of the Balance Sheets and Profit and Loss Accounts of companies included in the consolidation area; - elimination of the net accounting value of shareholdings in consolidated companies against the corresponding fractional portion of subsidiaries’ equity; - elimination of equity and economic relations among consolidated companies; - elimination of any profit and loss generated by operations among consolidated companies that at period-end were not generated by operations with third parties; - conversion of the Balance Sheets of foreign subsidiaries whose currency has no fixed parity with the euro (Vitaminic Ltd., Peoplesound.com Ltd, Buongiorno.uk LTD) at period-end exchange rates. The Profit and Loss Accounts were converted at the average exchange rate for the period. Any conversion difference is entered directly as an increase or decrease in the “Exchange reserve”, included in the consolidated reserves under item “Other reserves”. Evaluation criteria The main evaluation criteria used to draw up the consolidated Half-Year Report, pursuant to Article 2426 of the Italian Civil Code and further recalled by Article 35 of Legislative Decree No. 127/1997 are as follows: Intangible fixed assets Intangible fixed assets have been entered at purchase or production cost, including accessory charges, and they have been amortized based on their potential residual use. Start-up and expansion costs are amortized over a five-year period. The costs borne for the creation and registration of trademarks are amortized at a fixed percentage over a period of ten years. Consolidation differences arising from the higher value of shareholdings with respect to the subsidiary’s share of capital and reserves at the time it was taken over are amortized over a five-year period. Other intangible fixed assets are amortized over a five-year period, with the exception of software, which is amortized at an annual allowance of 33.33% due to its faster technical and economic obsolescence. Extraordinary maintenance and improvements made on third-party assets are amortized based on the duration of the contracts. Tangible fixed assets Tangible fixed assets were entered at purchase or production cost, inclusive of accessory charges. Depreciation was calculated at fixed percentages based on the technical and economic rates established in accordance with the possible residual use of the assets. Depreciation goes into effect as of the year in which use of the asset begins. For the year of purchase or production, the applied rates are reduced by 50%. Costs for ordinary maintenance are entered fully on the profit and loss account; any such costs that increase the life of the asset to which they refer are attributed at increasing rates for the cost of the assets and are depreciated in relation to possible residual use. It must also be noted that during the period, there were no write-ups of the assets, nor were any financial charges capitalized to increase their value. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 41 The annual depreciation rates that were used are detailed below: Plant and machinery Rate 10% Industrial and commercial equipment 15% Other assets: - Furnishings and ordinary office equipment 12% - Electrical and electronic office equipment 20% - Assets with a unit value of less than ITL1 million 100% Net investments This account shows the non-controlling interests held by the Parent Company or by other Group companies, as well as investments in unconsolidated subsidiaries. Shareholdings in affiliated companies were evaluated using the equity method, whereas those in other companies held by the Parent Company have been evaluated at cost, and write-downs were taken only in the event of losses that are considered permanent and long-term. Investments in subsidiaries excluded from the consolidation area have been measured using the equity method. Inventories Inventories were evaluated at the lesser value between purchase or production cost, and the value assumed based on market trends. Debtors and creditors Debtors are entered based on presumable break-up value, done via entry in a write-down fund to lower their nominal value. Creditors are entered at their nominal value. Financial assets that are not fixed assets Financial assets intended for short-term use are entered under current assets and evaluated at either purchase/subscription cost or the value assumed based on market trends, whichever of the two is lower. Accruals and deferrals Accruals and deferrals include shares of costs and income for the period that accrue in two or more periods to comply with the accrual principle. Funds for risks and charges These were allocated to cover specific losses or charges that are certain or likely but whose amount or occurrence was still undetermined at period end. The allocations were made respecting the general accruals and prudence concepts, and they reflect the best possible estimate based on the elements that were available. Severance indemnity fund This was allocated as required by law and by the labor contracts in force, and reflects the liabilities that have fallen due to employees of the Parent Company at period-end, net of any advances that were disbursed. Acknowledgement of income and costs Income and costs are recorded in accordance with the principle of prudence and the accruals concept, and are net of returns, discounts, rebates and premiums. In particular, income and costs have been recorded as follows: • • Advertising income and costs: these have been posted to the Profit and Loss Account in accordance with the underlying contract, based on the accruals concept (as regards length of contract) or on the actual number of advertising campaigns that took place in the year; Income and costs for Business Services: these are shown in the Profit and Loss Account in relation to underlying contracts; Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 42 • Income and costs for Consumer Services: these are shown in the Profit and Loss Account based on the actual number of contacts made by the end user and/or on the actual telephone traffic generated. Conversion criteria for entries in other currencies Debtors and creditors expressed in foreign currency were initially converted into euro at contractual exchange rates or the rates in force at the time of the individual transactions. The exchange differences that arose when debtors were collected and creditors were paid in foreign currency are entered in the Profit and Loss Account. Losses or profits on entries in currencies that are not part of the European Monetary Union and that arise from the adjustment to the precise exchange rates at the end of June are reflected in the Profit and Loss Account for the year. Financial earnings and charges These have been recorded in the accounts based on the principles of accruals-basis accounting. Exceptional earnings and charges These include non-operating and other exceptional earnings and charges resulting from events outside of the normal operations or positive and negative components of income related to previous periods. Current and deferred taxes With reference to the period being examined, taxes were not allocated in observance of the provisions of Art. 81, paragraph 7, of the regulations implementing Legislative Decree No. 58 of February 24, 1998 regarding the regulations of issuers adopted by CONSOB with Resolution No. 11971 of May 14, 1999, as amended. Where applicable, deferred taxes were calculated for the main temporary and taxable differences arising from the differences between the book value of consolidated balance-sheet assets and liabilities and the values for tax purposes. Any benefits for tax losses that can be carried forward to subsequent periods were not entered on the Balance Sheet as a prudential measure. Guarantees, endorsements and risks Guarantees and sureties granted or received are expressed in the memorandum accounts at their nominal value. Other information Pursuant to Art. 2428 of the Italian Civil Code, as well as Art. 40 of Legislative Decree 127/1991, we hereby specify that: - the Parent Company, Buongiorno Vitaminic S.p.A., is not, in turn, controlled by other companies; - no subsidiaries hold shares in the Parent Company, either directly or through trust companies or other intermediaries; - the Parent Company does not hold its own shares, either directly or through intermediaries. Furthermore, in line with the recommendations issued by the Committee of European Securities Regulators (CESR), below is a brief explanation of how Buongiorno Vitaminic has dealt with the transition to IAS/IFRS, which is expected to be quite a challenge given the nature of the Company and the primary differences between current Italian standards and the international accounting standards to be adopted in 2005. As specified in European Regulation (EC) 1606/2002, as of 2005 all listed European companies will be required to adopt IAS/IFRS in the preparation of consolidated financial statements. This obligation will most likely be extended to company financial statements for listed companies. This is a significant event for the European economic environment as these standards present significant differences from standards commonly adopted throughout Europe, including the Italian standards currently adopted in the preparation of Buongiorno Vitaminic financial statements. We are currently identifying the key differences; however, there are a number of standards which are still only available in draft form or which have not yet been fully endorsed in accordance with the regulation mentioned above. This project is expected to be completed by the end of 2004, and involves the following activities: 1. In-depth analysis of the impact and assessment of both the alternatives available for each of the standards and the options related to IFRS 1 for the transition phase 2. Preparation of the necessary models and of what-if scenarios so as to be in a position to make informed decisions 3. Preparation of an IFRS Balance Sheet for December 31, 2003, which will be used for the opening balances for the preparation of the first real IFRS financial statements Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 43 4. Analysis of the impact on the release of information 5. Preparation of quarterly reports for 2004 to be used for comparison in 2005 Below is a list of the most significant areas of difference between IAS/IFRS and the Italian accounting standards used thus far by the company in the preparation of the consolidated financial statements: • • • • Intangible fixed assets Net investments Severance indemnities Treatment of non-recurring items Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 44 NOTES ON THE ASSET ITEMS OF THE CONSOLIDATED BALANCE SHEET (B) FIXED ASSETS I. Intangible fixed assets The net values of intangible fixed assets are as follows: (in thousands of Euro) 12/31/2003 Start-up and expansion costs R&D and advertising Patents and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Consolidation difference Work in process and advances to suppliers Other intangible assets Total Increases Depreciation 1,803 1,280 132 535 244 112 (299) (472) (47) 681 19 (60) 227 6,567 409 557 (114) (1,63) - 1.675 12,776 2 1,469 (574) (3,129) Change in consolidation area Write-downs and other movements 6/30/2004 34 379 (11) 2,073 1,432 183 - 640 (14) (438) 114 4,990 528 (3) (19) (113) (149) 988 10,948 (2) “Start-up and expansion costs” rose due to the effect of bank brokerage fees for the two capital increases, totaling approximately Euro 500 thousand; the remaining portion of the increase is due to costs borne to complete the merger process. “Research and development costs” take into account the investments made in technological updates and innovations for the multi-channel platform for transmitting digital content. The increases in “Works in process and advances to suppliers” refer essentially to costs borne for R&D projects that had not yet been started up at the closing date of the accounts (e.g. the CRM project in the area of advertising customers, and the projects to develop the technological platform by in-house personnel). The item “Consolidation differences” can be attributed to the takeovers of subsidiary Peoplesound.com Ltd. (whose residual value at June 30, 2004 was Euro 2,483 thousand) and of the MyAlertcom S.A. Group (whose aggregate residual value at June 30, 2004 was Euro 2,507 thousand). The column “Write-downs and other movements” includes reclassification of the works in process that started to generate their economic utility during the period, as well as any write-downs or divestments of assets that are no longer utilized. II. Tangible fixed assets Below is a description of the changes to tangible fixed assets in terms of historical cost, depreciation, and net value. Historical cost (in thousands of Euro) Plant and machinery Industrial and commercial equipment Other fixed assets Work in process Total fixed assets Depreciation fund 52 13 4,560 4,625 Net value 6/30/2004 (34) (11) (3,129) (3,174) Net Value 12/31/2003 18 2 1,431 1,451 18 3 1,453 73 1,547 Plant and machinery This item includes telephone and electrical systems. The following changes took place during the six-month period: Historical cost (in thousands of Euro) December 31, 2003 Increases Decreases Depreciation June 30, 2004 Buongiorno Vitaminic S.p.A. Depreciation fund 49 3 52 Half-Year Rport as of June 30, 2004 Net valueV (31) 18 3 (3) (34) (3) 18 Page 45 Industrial and commercial equipment The following changes took place during the six-month period: Historical cost (in thousands of Euro) December 31, 2003 Increases Decreases Depreciation June 30, 2004 Depreciation fund 13 - Net value (10) (1) (11) 13 3 (1) 2 Other fixed assets This item includes furnishings, office machinery and computers. Movements during the period were as follows: December 31, 2003 Increases Decreases Changes in consolidation area and other changes Depreciation June 30, 2004 Historical cost 4,372 145 43 4,560 Depreciation fund (2,920) 4 (214) 3,129 Net value 1,453 145 47 (214) 1,431 III. Net investments 1) Shareholdings This item groups minority shareholdings pertaining to the Parent Company or to other Group companies, as well as the shareholdings that have not been consolidated because they pertain to companies for which the liquidation process is in an advanced phase, or companies whose values in the accounts are currently irrelevant and are thus not listed. At June 30, 2004 the unconsolidated subsidiaries whose net shareholding value is zero were Vitaminic S.a.r.l., Peoplesound.fr Eurl and Eurekan Multimedia S.A. in France; Vitaminic BV in the Netherlands; Peoplesound.de GmbH in Germany; Vitaminic S.L. in Spain. The tables below lists the gross book value of the shareholdings, the write-downs that were taken, and the net value posted in the Financial Statements: Company Held by Shareholding value Write-down Balance MyAlert Portal S.l. MyAlertcom S.a. 3 - 3 MyAlert S. de R.L. CV Buongiorno Vitaminic S.p.A. 1 - 1 4 - 4 Total shareholdings in subsidiaries Other shareholdings World Investment Partners (WIP) Buongiorno Vitaminic S.p.A. 168 - 168 Profero S.r.l. Buongiorno Vitaminic S.p.A. 9 (9) - Future 121 OY MyAlertcom S.a. 36 (36) - Total shareholdings in other companies 213 (45) 168 TOTAL SHAREHOLDINGS 217 (45) 172 Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 46 The entire shareholding in Digibrands S.p.A. was transferred at the end of May to the Luxembourg company World Investment Partners (WIP), the leading business of the Allaxia Group, which offers integrated solutions for public and private organizations in social research, marketing and consulting. Payment was handled via an exchange of stock. Buongiorno Vitaminic S.p.A. currently holds 1.13% of WIP’s capital. Two other minority shareholdings (Profero S.r.l. and Future 121 OY) were definitively written down by canceling the value of the shareholding as a result of long-term losses of value that brought down the value of their capital and reserves. 2) Debtors a) Subsidiaries At June 30, 2004 there were no receivables from subsidiaries. b) Affiliated companies At June 30, 2004 there were no receivables from affiliated companies. c) Other companies Financial receivables totaled Euro 429 thousand and include amounts paid as guarantee deposits at the time of stipulating rental contracts for the offices used by the various companies of the Group. C) CURRENT ASSETS II. Debtors 1) Trade debtors The balance at June 30, 2004 is detailed below: (in thousands of Euro) Trade debtors Fund for bad debts Total 6/30/2004 21,239 (627) 12/31/2003 21,682 (1,046) 6/30/2003 20,223 (1,392) 20,612 20,636 18,831 The decrease in the value of trade debtors compared to the end of 2003 – despite an increase in turnover – is due mainly to the following reasons: - ongoing optimization of the collection process, which has gradually made it possible to improve the average collection time for invoices; - improvement in the quality of the customer portfolio (which in turn has also led to a large reduction in allocations to the fund for bad debts); - the use of financial instruments to unfreeze receivables. The fund for bad debts was decided pursuant to specific and timely analysis and is considered to be appropriate to adjust the debtors based on probable break-up value. All trade debtors are due within twelve months. 2) Subsidiaries This item includes amounts due by unconsolidated subsidiaries to the Parent Company Buongiorno Vitaminic S.p.A. and the subsidiary Peoplesound.com Ltd, which have been taken into consideration when valuating the shareholdings and the relative fund for risks. At June 30, 2004 receivables totaled Euro 614 thousand, compared to approximately Euro 1.4 million at December 31, 2003. (in thousands of Euro) Vitaminic BV Vitaminic S.a.r.l. Vitaminic S.l. Peoplesound.fr Eurekan Multimedia E.u.r.l. Vitaminic A.S. Vitaminic GmbH Vitaminic Sverige A.B. Vitaminic USA Inc. Total debtors – Parent Company Peoplesound.fr (to Peoplesound.com Ltd.) Total debtors Group Buongiorno Vitaminic S.p.A. 6/30/2004 34 55 51 55 25 - 12/31/2003 318 172 51 10 219 252 - 03/30/2003 318 364 353 219 247 291 220 394 614 1,022 375 1,397 1,792 1,792 Half-Year Rport as of June 30, 2004 Page 47 3) Affiliated companies This item is composed of receivables owed to MyAlertcom S.A. by two companies that, in terms of the organizational and management plan, are part of the Iberia division. (in thousands of Euro) Vitaminic S.l. Digibrands S.p.A. MyAlert S. de R.L. de CV Group total 6/30/2004 28 2 30 12/31/2003 36 36 6/30/2003 30 30 5) Other debtors This item is composed as follows: (in thousands of Euro) VAT credit Credit from the State Treasury Trade debtors for advances Other debtors Total 6/30/2004 14 108 2 387 512 12/31/2003 39 110 26 458 633 6/30/2003 2,005 338 75 447 2,865 Under the item “Other debtors”, the decrease with respect to December 31, 2003 is due mainly to “Other”, and in particular to the collection of contributions for the EU project “eContent” – completed at the end of the year and definitively approved by the European Commission in April 2004 – for which Buongiorno Vitaminic acted as Project Coordinator. At June 30, 2004 the outstanding amount due from the European Commission was approximately Euro 154 thousand. Inversely, there was a net decrease in VAT credits as a result of the increase in turnover and in the collection of VAT refunds accrued in previous periods. III. Financial assets that are not fixed assets 5) Other securities This item totals approximately Euro 4 thousand. Cash and cash equivalents At June 30, 2003, this item totaled Euro 7,529 thousand and was divided as follows: (in thousands of Euro) Bank and postal accounts Checks Cash in hand and cash equivalents Total 6/30/2004 7,513 15 1 12/31/2003 1,625 19 3 6/30/2003 2,448 15 8 7,529 1,647 2,471 Investment flows relating to the period are shown in the cash flow statement (Annex B). D) ACCRUED INCOME AND PREPAYMENTS 2) Other accrued income and prepayments This item is made up as follows: (in thousands of Euro) Accrued income Prepayments Total 6/30/2004 315 1,074 1,389 12/31/2003 326 557 883 6/30/2003 652 763 1,415 The change in accrued income compared to the same period last year is due mainly to a decrease, in terms of both number and volume, in advertising campaigns and business services still underway at the end of the reference period. Prepayments refer mainly to operating costs and rent. The significant increase here can be attributed to the contractual terms for content offered by the Majors, which required payment of guaranteed minimums as well as advance payment for the licensing they offer. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 48 NOTES ON THE LIABILITY ITEMS OF THE CONSOLIDATED BALANCE SHEET A) CAPITAL AND RESERVES Annex B details the reconciliation between the capital and reserves item and the results of Buongiorno Vitaminic S.p.A. with the same items for the Group, while the variations for the items composing the consolidated capital and reserves are shown in Annex C. I. Share capital During the first half of 2004, the share capital of Buongiorno Vitaminic S.p.A. rose from Euro 17,605,190 to Euro 18,935,354 as a result of: capital increase of Euro 1,297,855; capital increase for the stock option plan in the amount of Euro 32,309; IX. Consolidated loss for the period This item includes the loss of the Buongiorno Vitaminic Group for the period of Euro 2,294 thousand. Since Buongiorno Vitaminic S.p.A. does not fully control some of its subsidiaries, there are shares of the income (loss) for the period and of capital and reserves at June 30, 2004 that total approximately Euro 28 thousand and pertain to minority interests. (in thousands of Euro) Capital and reserves of Parent Company Capital and reserves of Minority Interests Total capital and reserves 6/30/2004 11,652 12/31/2003 5,820 6/30/2003 10,022 (28) (20) (251) 11,624 5,800 9,771 B) FUNDS FOR RISKS AND CHARGES Funds for risks and charges include: the funds for restructuring charges, the funds covering losses of unconsolidated subsidiaries, the funds to cover future costs or losses arising from operations, and the funds for legal practices or commercially-related contractual risks. The variation with respect to previous periods is due mainly to the partial use of funds to cover losses of unconsolidated companies to compensate for negative capital and reserves following their liquidation and closing, as set forth in the table below: (in thousands of Euro) Funds for legal practices Other funds Total funds for risks and charges 6/30/2004 40 755 795 12/31/2003 40 1,380 1,420 6/30/2003 40 1,479 1,519 ”Other funds” of Euro 755 thousand are composed as follows: approximately Euro 514 thousand for the fund for write-downs on shareholdings, entered to cover the negative capital and reserves of companies not included in the consolidation area, of which Euro 120 thousand for the subsidiaries of the Parent Company and Euro 394 thousand for the subsidiaries of Peoplesound.com LTD; Euro 102 thousand for the restructuring fund to cover restructuring activities already approved during the previous period but accruing in this period and subsequent periods; other funds, in the amount of Euro 139 thousand, to cover future costs or losses resulting from operations. C) SEVERANCE INDEMNITIES The severance indemnity fund shows the actual amount due by the Parent Company for severance indemnities at June 30, 2004 for the employees on the payroll at that time, net of advances paid and payments following the departure of personnel. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 49 Movements during the period were as follows: (in thousands of Euro) Severance indemnity fund at December 31, 2003 Allocations Payments 849 180 (112) Severance indemnity fund at June 30, 2004 917 D) CREDITORS At June 30, 2004, there were no amounts falling due after more than one year, nor any borrowing secured by collateral (“real securities”). 3) Banks Amounts due to banks totaled Euro 3,040 thousand, reflecting a decrease compared to the figure of Euro 4,670 thousand at December 31, 2003. Investment flows relating to the first half of 2004 are detailed and commented upon in the cash flow statement (Annex A). 4) Other financial institutions This item includes the interest-bearing medium-term loan issued in 2003, chiefly by shareholders and falling due at the end of 2004, for a total of Euro 1,500 thousand. 6) Trade creditors Trade creditors at the end of the period mainly involve content-production services, rebates to telephone and media operators on revenues from telephone traffic, and advertising and promotion of Consumer Services. All these trade creditors are due within twelve months. At June 30, 2004, trade creditors totaled Euro 19,678 thousand, declining slightly compared to December 31, 2003. (in thousands of Euro) Trade creditors 6/30/2004 19,678 12/31/2003 19,842 6/30/2003 18,917 8) Subsidiaries Amounts due to subsidiaries at June 30, 2004, totaling Euro 33 thousand, involve amounts owed by the Parent Company Buongiorno Vitaminic S.p.A. to companies not included in the consolidation area because they ceased operations at the beginning of the year. (in thousands of Euro) Vitaminic GmbH Vitaminic S.a.r.l. Group total Total creditors 19 14 33 11) Taxes payable Taxes payable at June 30, 2004 totaled Euro 2,238 thousand, and they can be broken down into Euro 509 thousand in withholding for employees and independent workers, Euro 341 thousand in income taxes (IRAP, the Regional Business Tax), and Euro 1,388 thousand in VAT. 12) Providence and social security charges This item refers to contributions that have accrued but have not yet been paid to providence and social security institutions. At the end of the first half of 2004, these charges were Euro 688 thousand. 13) Other creditors At June 30, 2004, other creditors totaled Euro 1,300 thousand and can be broken down as follows: (in thousands of Euro) Accruals to personnel Buongiorno Vitaminic S.p.A. 6/30/2004 795 Half-Year Rport as of June 30, 2004 12/31/2003 1,294 6/30/2003 1,044 Page 50 Other Total 505 398 495 1,300 1,692 1,539 Payables to employees and collaborators are composed of liabilities related to bonuses, paid holidays and leaves that were not taken, and reimbursement of expenses to staff. The item “Other creditors” includes those related to EU contributions paid on a quota basis to participants in the project for which the Parent Company Buongiorno Vitaminic S.p.A. is acting as the Project Coordinator, as well as creditors for fees to directors and statutory auditors matured in the fiscal year but not yet paid. E) ACCRUALS AND DEFERRED INCOME Accruals and deferred income totaled Euro 1,814 thousand at June 30, 2004 and can be broken down as follows: (in thousands of Euro) Accruals to personnel Other Total Deferred income Total 6/30/2004 187 4 191 1,623 1,814 12/31/2003 37 15 52 854 906 6/30/2003 569 251 820 945 1,765 Accruals to personnel include deferred portions of salaries such as the “thirteenth” and the “fourteenth month” of salary. Deferred income refers to amounts accruing in the next fiscal periods for advertising campaigns and business services already invoiced by the Company and which will be completed in 2004, and are recorded based on the completed percentage of the campaign or service. SURETYSHIPS AND OTHER GUARANTEES GRANTED Memorandum accounts include suretyships for a sum total of Euro 480 thousand, for guarantees granted by the Parent Company Buongiorno Vitaminic SpA to banks for foreign loans issued to subsidiaries in Austria (Euro 80 thousand) and Germany (Euro 400 thousand). Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 51 NOTES ON THE MAIN ITEMS OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT A) VALUE OF PRODUCTION 1) Sales of goods and services Breakdown of income for each line of business and for each geographical area is as follows: Income for each line of business (in thousands of Euro) Italy Europe Total First Half 2004 Total First Half 2003 Marketing Services 5,318 8,986 14,304 13,334 Consumer Services 6,922 14,115 21,037 11,779 12,240 23,101 35,341 25,113 TOTAL CORE BUSINESS SALES Marketing services includes the revenues from both advertising and business services. For more information on sales performance, see section 1.5.1 above. The revenue item relating to “non-monetary transactions” was not significant during this six-month period. Value of production can be broken down as follows: (in thousands of Euro) Total First Half 2004 Total First Half 2003 35,341 25,113 Increase in fixed assets for internal work 623 430 Other income and revenues 407 637 36,371 26,180 Core business revenues TOTAL VALUE OF PRODUCTION Capitalizations refer to internal costs borne for the expansion and further development of management operating programs, e-mail and SMS transmission services, and the upgrade of the technological platform to meet growing business needs arising from the rapid growth of the Consumer Services market on both a domestic and international level. Notably, the item “Other income and revenues” includes recovery arising from the release of the fund for bad debts, payment of damages, mistaken estimates of costs for previous periods, and office sublets. B) COSTS OF PRODUCTION 7) Costs for services This item can be broken down as follows: (in thousands of Euro) Costs of production Marketing & sales Overheads and administrative expenses TOTAL COSTS FOR SERVICES First Half 2004 17,791 4,343 2,736 24,871 First Half 2003 9,981 3,872 3,592 17,445 Costs of production include bandwidth leasing costs, costs for the purchase of SMS and content, amounts recognized to list owners and telcos, and technology costs for housing and hosting, royalties and the Majors’ and the artists’ rights. Sales and marketing costs include advertising investments for all media channels, marketing consulting, commissions paid to media centers, and all production costs for marketing initiatives. Included among the overheads and administrative expenses are expenses for consulting, office expenses, maintenance costs, insurance expenses, costs for various services, and travel expenses for all employees. 8) Use of third-party assets Costs related to the use of third-party assets include primarily the rental of office space and operative leasing fees for the hardware systems used by Group companies. Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 52 9) Personnel costs This item includes the costs for employees, including provisions required by the law and by collective contracts, as well as the cost of holidays that had matured but were still unused at June 30, 2004. The staff is distributed as follows (mean number of employees for the period): Employees and middle management Executives Total 6/30/2004 279 12/31/2003 240 6/30/2003 235 40 319 37 277 38 273 The increase of 41 employees for the period is due to the constant growth in business requiring additional personnel, particularly on an international level (Spain, Great Britain and France), as foreign sales now represent over 65% of the total turnover of the Buongiorno Vitaminic Group. 10) Amortization, depreciation and write-downs (in thousands of Euro) Amortization of intangible fixed assets Amortization of tangible fixed assets Other fixed asset write-downs Write-downs of bad debt and cash Total depreciation, amortization and write-downs First Half 2004 3,129 259 80 91 3,559 First Half 2003 2,697 297 206 819 4,019 Amortization of intangible fixed assets The allocation for the period (a total of Euro 3,129 thousand) is detailed in the notes on intangible fixed assets. Depreciation of tangible fixed assets Depreciation for the period, amounting to Euro 259 thousand was determined using technical and economic rates established based on possible residual asset use as previously illustrated in the Notes on evaluation criteria for tangible fixed assets. Write-downs of intangible fixed assets The write-down of Euro 80 thousand refers to write-downs on intangible fixed assets (ASP software for managing email services) no longer used by the Group. Write-down of debtors entered in current assets This entry corresponds to the allocation of Euro 91 thousand to the write-down fund for bad debts, a measure taken after specific analysis to adjust the total amount to its probable break-up value. Specifically, adjustment allocations were made to the accounts receivable of Buongiorno France, for Euro 19 thousand, and of Buongiorno Deutschland, for Euro 72 thousand. 14) Other operating expenses Other operating expenses, amounting to Euro 314 thousand, include residual entries of individually non-significant amounts which could not be included in the other items of section “B – Production Costs”, as well as miscellaneous costs of operations. C) FINANCIAL EARNINGS (CHARGES) 16) Other financial earnings This item is composed as follows: (in thousands of Euro) Income from repurchasing agreements Earned banking interest Currency exchange differences Other minor items Total Buongiorno Vitaminic S.p.A. First Half 2004 - First Half 2003 - 17 154 1 172 81 476 557 Half-Year Rport as of June 30, 2004 Page 53 17) Interest and other financial charges This item is composed as follows: (in thousands of Euro) Interest to others Interest and banking fees Currency exchange differences Other minor items Total First Half 2004 74 251 21 27 373 First Half 2003 16 904 39 959 E) EXCEPTIONAL EARNINGS (CHARGES) 20) Earnings Exceptional earnings amounted to Euro 531 thousand at June 30, 2004, and are detailed as follows: (in thousands of Euro) Gains on the transfer of realty Contingent assets Other earnings Total exceptional earnings First Half 2004 1 487 43 531 First Half 2003 918 38 956 Contingent assets refer mainly to mistaken estimates of revenues and costs for previous periods, or from positive entries arising from agreements for the settlement of disputes, which varied the costs of services provided in previous periods. 21) Charges Exceptional charges amounted to Euro 954 thousand and can be broken down as follows: (in thousands of Euro) Losses on the disposal of fixed assets Contingent liabilities Other charges Total exceptional charges First Half 2004 486 468 954 First Half 2003 103 634 909 1,646 Contingent liabilities include mistaken estimates for revenues and costs from previous periods. On behalf of the Board of Directors The Chairman Mauro Del Rio Buongiorno Vitaminic S.p.A. Half-Year Rport as of June 30, 2004 Page 54 Pro forma cash flow statement (Annex A) BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock 18,935,354 Registered office Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 Consolidated Cash Flow Statement at June 30, 2004 H1 2004 (in thousands of Euro) Group loss Amortization, depreciation and write-downs Intangible assets write-downs Write-down of non-consolidated shareholdings Net change in severance indemnity fund Net change in funds for risks and charges FY 2003 H1 2003 (2,294) (11,022) (6,382) 3,388 6,644 2,994 80 286 309 120 233 - 68 148 24 (626) (583) (484) Minority interests (8) (29) (44) Other ordinary activities items - - Cash flow from ordinary activities (Increase) / decrease in trade debtors Increase / (decrease) in trade creditors Change in other current assets items Change in consolidation area Cash flow from ordinary activities (A) - 729 (4,324) (3,583) (948) 59 (2,820) (225) 1,745 860 313 3,412 2,647 53 (634) (441) 929 (2,621) (1,467) (1,385) (4,889) (2,645) (186) (5) 75 (36) (243) (231) Net investments/disinvestments in: - intangible fixed assets - tangible fixed assets - investments - change in consolidation area Cash flow from investing activities (B) Cash flow from operating and investing activities (A+B) Paid capital increases 27 248 151 (1,579) (4,890) (2,650) (650) (7,511) (4,117) 8,242 106 - 116 397 32 Other changes in capital and reserves (224) (128) - Cash flow from financing activities (C) 8,133 374 32 (101) - Exchange reserve Other changes in the equity and financial situation that do not entail cash flows (D): Allotment of intangible assets and acquisition of companies through issuing of stocks Capital increases through contribution in-kind Minority interests Cash flow for the period (A+B+C+D) Cash and cash equivalents at period start - 101 - (8) 188 - 7,476 (6,949) (4,085) (4,470) 2,479 2,479 Cash flow for the period 7,476 (6,949) (4,085) Cash and cash equivalents at period end 3,006 (4,470) (1,606) Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 55 (Annex B) Reconciliation between the Financial Statements of Buongiorno Vitaminic S.p.A. and the Consolidated Financial Statements: Capital and Reserves, and Consolidated Profit (Loss) of Buongiorno Vitaminic S.p.A. at June 30, 2004 Reconciliation between the Buongiorno SpA FS and the Consolidated FS: Buongiorno S.p.A. and Consolidated capital and reserves and profit (loss) for the period (in thousands of Euro) Capital and reserves Movements in Change in Profit (loss) Capital and reserves 01/01/04 capital and reserves consolidation area for the period 6/30/04 Buongiorno Vitaminic SpA 21,202 Elimination of shareholdings (15,316) Goodwill Other lesser items Capital and reserves of the Group Capital and reserves of minority interests Consolidated capital and reserves Buongiorno Vitaminic S.p.A. 8,242 (115) (88) (2,257) 27,187 (80) (15,511) 43 (45) 22 5,820 22 8,242 (115) (20) 5,800 Relazione Semestrale al 30.06.2004 8,242 (115) (2,294) 11,653 (8) (28) (2,302) 11,625 Pag. 56 (Annex C) Statement of the changes in the items composing the Consolidated Capital and Reserves, and the Net Profit (Loss) of Buongiorno Vitaminic S.p.A. at June 30, 2004 Statement of changes in consolidated capital and reserves at 6/30/2004 (in thousands of Euro) DESCRIPTION Balance at period start - Allocation of profit (loss) for the period: Paid-up dividends Share to the Board of Directors - Capital increases (decreases): - Transfer of My Alert stocks to third parties - Capital increase and Stock Option plan - change in % held - Available reserve ex MyAlert stocks - Exchange differences - Change in consolidation area - Other movements due to reclassification - Profit (loss) for the period Balance at period end Buongiorno Vitaminic S.p.A. Share capital MOVEMENTS AT 6/30/2004 Profit Profit Share Other (loss) (loss) premium reserves reserve carried forward of the Group 17,605 7,795 (4,198) 1,330 6,912 8,808 (8,071) (17,366) 1,247 (11,022) 11,022 (16,119) (2,294) (2,294) (116) 18,935 10,508 621 Half-Year Report as of June 30, 2004 Total Group capital and reserves Capital and reserves of minority interests 5,820 0 8,242 (116) (2,294) 11,652 Page 57 Profit (loss) of minority interests 9 (29) (29) 29 (20) (8) (8) Total capital and reserves of minority interests (20) (8) (28) Total consolidated capital and reserves 5,800 0 8,242 -116 (2,301) 11,624 2.2 Half-Year Report of the Parent Company (Buongiorno Vitaminic S.p.A.) for the Period Ended June 30, 2004 FINANCIAL STATEMENTS BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 BALANCE SHEET - ASSETS A) 6/30/2004 CALLED-UP SHARE CAPITAL NOT PAID Net intangible fixed assets Start-up and expansion 1) 12/31/2003 6/30/2003 0 0 0 1,788 1,441 37 2) R&D and advertising 724 389 130 3) Patents and intellectual property rights 113 43 65 Concessions, licenses, trademarks and similar rights 603 646 690 48 97 145 0 0 0 528 409 1,855 4) 5) Goodwill 5) bis Consolidation difference 6) Work in process and advances to suppliers 7) Other fixed assets I - Total intangible fixed assets 338 730 684 4,142 3,755 3,606 Tangible fixed assets Land and buildings a b 2) 0 Costs and possible revaluations 0 Depreciation fund 0 Plant and machinery a b 3) Costs and possible revaluations 41 Depreciation fund (27) b 4) Costs and possible revaluations Depreciation fund Depreciation fund 5) 1,883 Work in process and advances to suppliers II - Total tangible fixed assets (2) 956 1,724 (908) 4 6 (2) 975 b (20) 0 2 (2) Costs and possible revaluations 27 47 (24) 0 Other assets a 0 15 39 2 0 0 0 14 Industrial and commercial equipment a 0 0 1,306 1,671 (768) (365) 0 73 0 989 1,044 1,337 Net investments 1) Shareholdings a Subsidiaries b Affiliated companies c Other companies 28,075 -Shareholding write-down fund 2) Subsidiaries Affiliated companies d Other companies 27,423 25,072 27,134 280 0 168 168 9 9 0 0 0 Debtors a b 25,249 27,907 1,217 1,224 2,122 1,145 1,110 2,030 0 44 0 72 70 92 3) Other securities 0 0 4) Treasury stock 0 0 0 29,292 26,473 29,545 34,423 31,272 34,488 III - Total investments B) TOTAL FIXED ASSETS 0 Inventories 1) 2) Raw materials, supplies and merchandise 0 0 0 Work in process, semifinished goods and compon. 0 0 0 3) Contract work in process 0 0 0 4) Finished goods and merchandise 0 0 0 5) Advances 0 0 0 Total inventories 0 0 0 - Inventory write-down fund 0 0 0 0 0 0 I - Total net inventories Debtors 1) Trade debtors 7,820 9,428 9,928 2) Subsidiaries 4,684 7,581 9,801 3) Affiliated companies 0 36 30 4) Parent companies 0 0 0 5) Other companies 395 487 2,501 Total debtors 12,899 - Fund for bad debt II - Total net debtors 17,532 22,260 0 0 0 12,899 17,532 22,260 0 Short-term financial assets 1) Shareholdings in subsidiaries 0 0 2) Shareholdings in affiliated companies 0 0 0 3) Other shareholdings 0 0 0 4) Treasury stock 0 0 0 5) Other securities 0 2 0 Total short-term financial assets 0 2 0 - Financial assets write-down fund 0 0 0 0 2 0 III - Net short-term financial assets Cash and cash equivalents 1) Banks and postal accounts 5,232 667 1,108 2) Cheques 0 9 0 3) Cash in hand and cash equivalents 0 0 1 5,232 676 1,109 18,131 18,210 23,369 782 654 847 53,336 50,136 58,704 IV - Total cash and cash equivalents C) TOTAL CURRENT ASSETS D) PREPAYMENTS AND ACCRUED INCOME TOTAL ASSETS Buongiorno Vitaminic S.p.A. (A+B+C+D) Half-Year Report as of June 30, 2004 Page 58 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 BALANCE SHEET - LIABILITIES 30.06.2004 31.12.2003 30.06.2003 Capital and reserves 1) Share capital 18,935 17,605 17,481 2) Share premium account 10,508 7,795 7,712 3) Revaluation reserves 0 0 0 4) Legal reserve 0 0 0 5) Reserve for treasury stock 0 0 0 6) Statutory reserve 0 0 0 7) Total other reserves 0 8,071 8,071 8) Reserve and profit (loss) carried forward 9) Profit / (loss) for the period TOTAL CAPITAL AND RESERVES 0 0 0 (2,257) (12,269) (5,975) 27,186 21,202 27,289 0 0 0 27,186 21,202 27,289 0 MINORITY INTERESTS A) TOTAL CAPITAL AND RESERVES 1) for pensions and similar rights 0 0 2) for deferred taxes and sanctions 0 0 0 3) for other risks 4,179 4,914 4,970 Funds for risks and charges a -Exchange risk coverage b -Legal practices c -Product guarantees d -Other B) TOTAL FUNDS FOR RISKS AND CHARGES C) SEVERANCE INDEMNITY FUND 0 0 0 40 40 40 0 0 0 4,139 4,874 4,930 4,179 4,914 4,970 913 845 725 0 Creditors 1) Bonds 0 0 2) Convertible bonds 0 0 0 3) Banks 1,100 3,302 4,650 4) Financial payables 1,500 1,500 745 5) Payments on account 62 27 93 6) Trade creditors 9,625 10,358 11,062 7) Securities 8) Subsidiaries 0 0 0 4,980 4,579 5,618 101 9) Affiliated companies 0 61 10) Parent companies 0 0 0 11) Taxes payable 1,453 896 802 12) Providence and social security charges 13) Other creditors D) TOTAL CREDITORS E) ACCRUED EXPENSES AND DEFERRED INCOME TOTAL LIABILITIES (A+B+C+D+E) 443 617 497 1,120 1,295 931 20,283 22,635 24,499 775 541 1,221 53,336 50,137 58,704 MEMORANDUM ACCOUNTS 1) Commitments to Leasing companies 0 0 0 2) Mortgage guarantee 0 0 0 3) Guarantees for L/C import 4) Sureties 5) Our goods deposited with third parties TOTAL MEMORANDUM ACCOUNTS Buongiorno Vitaminic S.p.A. 0 0 0 480 280 699 0 0 0 480 280 699 0 (0) 0 Half-Year Report as of June 30, 2004 Page 59 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 PROFIT AND LOSS ACCOUNT A) First Half 2004 Year 2003 First Half 2003 VALUE OF PRODUCTION 1) 13,885 25,451 13,530 - Allowances and discounts to customers Sales and service revenues 0 0 0 2) Change in inventory of finished goods 0 0 0 3) Change in contract work in process 0 0 0 4) Increases in fixed assets for internal work 569 776 269 5) Other income and revenues 291 1,319 673 14,745 27,546 14,472 32 54 26 9,586 19,032 10,620 393 822 428 TOTAL VALUE OF PRODUCTION (A) B) COSTS OF PRODUCTION 6) Raw materials, supplies, consumable and goods 7) Services 8) Use of third-party assets 9) Personnel costs: a wages and salaries 2,694 5,178 2,845 b welfare contributions 835 1,706 894 c severance indemnity fund 180 336 153 d pensions and similar rights 0 0 0 e other personnel costs 0 0 Total personnel costs 10) 3,709 3,892 amortization, depreciation and write-downs: a amortization of intangible fixed assets 904 1,709 539 b Depreciation of tangible fixed assets 143 278 180 c Other fixed assets write-downs 0 173 158 d Bad debts and cash 0 363 Total amortization, depreciation and write-downs 11) 0 7,220 Changes in stock of raw materials, 367 1,047 2,524 1,244 0 5 5 supplies, consumables and goods 12) Provision for risks 0 0 0 13) Other provisions 0 135 152 14) Other operating expenses 129 175 112 14,896 29,967 16,479 (151) (2,421) (2,007) TOTAL COSTS OF PRODUCTION (B) DIFFERENCE BETWEEN VALUE AND COSTS OF PRODUCTION (A-B) Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 60 BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 First Half 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT C) Year 2003 First Half 2003 FINANCIAL EARNINGS AND CHARGES 15) Earnings from shareholdings a Earnings from shareholdings in subsidiaries and affiliated companies 0 b Earnings from other companies 0 Total earnings from shareholdings 16) Other financial earnings: a from debtors entered in shareholdings b from securities entered in fixed assets that 0 0 21 11 0 0 1 104 0 17 507 540 are not shareholdings c from securities entered in current assets that are not shareholdings d Interest and other financial earnings e Exchange gains f Other earnings Total other financial earnings 17) 29 611 561 Interest and other financial charges a Interest to subsidiaries and affiliated companies 0 0 0 b Interest to parent companies 0 0 0 c Interest to other companies d Interest and other financial charges e Exchange losses f Other financial charges (6) (1) (0) (251) (624) (358) Total interest and other financial charges TOTAL FINANCIAL EARNINGS AND (CHARGES) D) (C) (257) (625) (358) (228) (14) 203 ADJUSTMENTS OF FINANCIAL ASSETS VALUE 18) Revaluations: a Of shareholdings 0 135 135 b Of investments that 0 0 0 0 0 0 are not shareholdings c Of securities entered in current assets that are not shareholdings Total revaluations 19) 0 135 135 Write-downs: a Of shareholdings b Of investments that (1,449) (8,712) (3,725) 0 0 0 0 0 0 are not shareholdings c Of securities entered in current assets that are not shareholdings E) Total write-downs (1,449) (8,712) (3,725) TOTAL ADJUSTMENTS OF FINANCIAL ASSETS VALUE (D) (1,449) (8,577) (3,590) EXCEPTIONAL EARNINGS (CHARGES) 20) Exceptional earnings: a Gains b Contingent assets c Other earnings 0 0 0 190 1,212 371 0 1 Total exceptional earnings 21) 190 1 1,213 372 Exceptional charges: a Losses 0 (279) 0 b Contingent liabilities (411) (1,174) (344) c Other charges (208) (685) Total exceptional charges TOTAL EXCEPTIONAL EARNINGS (CHARGES) PROFIT (LOSS) BEFORE TAXES (A-B+C+D+E) 23) Income taxes 26) PROFIT (LOSS) FOR THE PERIOD Buongiorno Vitaminic S.p.A. (454) (619) (2,138) (798) (429) (925) (426) (2,257) (11,937) (5,820) 0 (333) (154) (2,257) (12,270) (5,974) (E) Half-Year Report as of June 30, 2004 Page 61 BUONGIORNO VITAMINIC S.p.A. Registered office: Parma, Borgo Masnovo 2 Wholly paid-up capital stock Euro 18,935,354 Parma Register of Companies No. 02699820045 Tax code 02699820045 Vat Code 07863930017 Parma Index R.E.A. No. 225247 NOTES ON THE FINANCIAL STATEMENTS General principles followed in drawing up the half-year report of Buongiorno Vitaminic S.p.A.l principles followed in drawing up the half-year report of Buongiorno Vitaminic S.p.A. These consolidated half-year financial statements include the Balance Sheet, the Profit and Loss Account, the Cash Flow Statement and the notes on the financial statements, and were drawn up in accordance with the provisions of the Italian Civil Code, as introduced by Legislative Decree 127/91, and with CONSOB regulation No. 11971 of May 14, 1999, as amended by Resolution No. 12475 of April 6, 2000. Figures are expressed in thousands of euro and any other units are indicated. The evaluation criteria adopted to draw up the Consolidated Half-Year Report do not diverge from the ones used to draw up the 2003 Financial Statements. They comply with Italian laws on Financial Statements and accounting principles recommended by the National Councils of Accountants, in particular from Document No. 30 for interim reports. Evaluation criteria The main evaluation criteria used to draw up the Half-Year Report, pursuant to Article 2426 of the Italian Civil Code and further recalled by Article 35 of Legislative Decree No. 127/1997 are as follows: Intangible fixed assets Intangible fixed assets are recorded at purchase or production cost, including related additional expenses, and have been systematically amortized based on their expected useful life. Startup and expansion costs are amortized over a five-year period. The costs borne for the creation and registration of trademarks are amortized at a fixed percentage over a period of ten years. Consolidation differences arising from the higher value of shareholdings with respect to the subsidiary’s share of capital and reserves at the time it was taken over are amortized over a five-year period. Other intangible fixed assets are amortized over a five-year period, with the exception of software, for which a shorter period of three years is applied, and of trademarks and patents, for which a ten-year period is applied. The main change with respect to the previous period is related specifically to advertising and promotional expenses. Starting with the current fiscal year, Buongiorno Vitaminic has already applied one of the most important changes that will be introduced as of 2005 by the International Accounting Standards (IAS), envisaging the obligation that the charges Italian legislation has considered as deferred charges, such as marketing expenses, if attributable to more than one year, instead be posted as they accrue. Extraordinary maintenance and improvements made on third-party assets are amortized based on the duration of the contracts. Tangible fixed assets Tangible fixed assets were entered at purchase or production cost, inclusive of accessory charges. Depreciation was calculated at fixed percentages based on the technical and economic rates established in accordance with the possible residual use of the assets. Depreciation goes into effect as of the year in which use of the asset begins. For the year of purchase or production, the applied rates are reduced by 50%. Costs for ordinary maintenance are entered fully on the profit and loss account; any such costs that increase the life of the asset to which they refer are attributed at increasing rates for the cost of the assets and are depreciated in relation to possible residual use. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 62 It must also be noted that during the period, there were no write-ups of the assets, nor were any financial charges capitalized to increase their value. The annual depreciation rates that were used are detailed below: Rate Plant and machinery 10% Industrial and commercial equipment 15% Other assets: - Furnishings and ordinary office equipment 12% - Electrical and electronic office equipment 20% - Assets with a unit value of less than ITL1 million 100% Net investments - The following items are recorded among net investments: Shareholdings in subsidiaries, affiliated and other companies; Long-term debtors. Shareholdings are recorded at incorporation value or purchase price (where applicable increased by additional costs related to the acquisition itself) and are written down in the event of permanent loss of value. As regards this valuation, beginning with the fiscal year ended December 31, 2001, we have prudently established that payments made or to be made in favor of subsidiaries to cover losses they may experience are not added to the value of the investment, but are deducted directly on the Profit and Loss Account or added to the reserve for risks related to loss coverage. Therefore, with the exception of the specifications in section III-B.III.1 Shareholdings of the notes to the financial statements below, the book value of shareholdings in subsidiaries and affiliated companies is not in excess of the value calculated with the equity method (adjusted equity), corresponding to the value of capital and reserves held also taking into consideration goodwill and higher/lower values assigned to the assets of the shareholdings as compared to their book value. Financial debtors are related to loans granted to subsidiaries and, to a lesser extent, guarantee deposits. These debtors have been recorded at their nominal value. Inventories Inventories were evaluated at the lesser value between purchase or production cost, and the value assumed based on market trends. Debtors and creditors Debtors are entered based on presumable break-up value, done via entry in a write-down fund to lower their nominal value. Creditors are entered at their nominal value. Financial assets that are not fixed assets Financial assets intended for short-term use are entered under current assets and evaluated at either purchase/subscription cost or the value assumed based on market trends, whichever of the two is lower. Accruals and deferrals Accruals and deferrals include shares of costs and income for the period that accrue in two or more periods to comply with the accrual principle. Funds for risks and charges These were allocated to cover specific losses or charges that are certain or likely but whose amount or occurrence was still undetermined at period end. The allocations were made respecting the general accruals and prudence concepts, and they reflect the best possible estimate based on the elements that were available. Severance indemnity fund This was allocated as required by law and by the labor contracts in force and reflects the liabilities that have fallen due to employees of the Parent Company at period-end, net of any advances that were disbursed. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 63 Acknowledgement of income and costs Income and costs are recorded in accordance with the principle of prudence and the accruals concept, and are net of returns, discounts, rebates and premiums. In particular, income and costs have been recorded as follows: • • • Advertising income and costs: these have been posted to the profit and loss account in accordance with the underlying contract, based on the accruals concept (as regards length of contract) or on the actual number of advertising campaigns that took place in the period; Income and costs for Business Services: these are shown in the profit and loss account in relation to underlying contracts; Income and costs for Consumer Services: these are shown in the profit and loss account based on the actual number of contacts made by the end user and/or on the actual telephone traffic generated. Conversion criteria for entries in other currencies The debtors and creditors expressed in foreign currency were initially converted into euro at contractual exchange rates or the rates in force at the time of the individual transactions. The exchange differences that arose when debtors were collected and creditors were paid in foreign currency are entered in the Profit and Loss Account. Losses or profits on entries in currencies that are not part of the European Monetary Union and that arise from the adjustment to the precise exchange rates at the end of June are reflected in the Profit and Loss Account for the year. Financial earnings and charges These have been recorded in the financial statements based on the principles of accruals-basis accounting. Exceptional earnings and charges These include non-operating and other exceptional earnings and charges resulting from events outside of the normal operations or positive and negative components of income related to previous periods. Current and deferred taxes With reference to the period being examined, taxes were not allocated in observance of the provisions of Art. 81, paragraph 7, of the regulations implementing Legislative Decree no. 58 of February 24, 1998 regarding the regulations of issuers adopted by CONSOB with Resolution no. 11971 of May 14, 1999, as amended. Guarantees, endorsements and risks Guarantees and sureties granted or received are expressed in the memorandum accounts at their nominal value. Other information Pursuant to Art. 2428 of the Italian Civil Code, as well as Art. 40 of Legislative Decree 127/1991, we hereby specify that: • Buongiorno Vitaminic S.p.A., is not, in turn, controlled by other companies; • no subsidiaries hold shares in the Parent Company, either directly or through trust companies or other intermediaries; • Buongiorno Vitaminic S.p.A. does not hold its own shares, either directly or through intermediaries. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 64 NOTES ON THE ASSET ITEMS OF THE BALANCE SHEET OF BUONGIORNO VITAMINIC S.p.A. The items that characterize the Financial Statements of Buongiorno Vitaminic S.p.A., as compared to the items commented in the Consolidated Financial Statements, are explained below. (B) FIXED ASSETS I. Intangible fixed assets The net values of intangible fixed assets are as follows: 12/31/2003 Increases Depreciation Write-downs 6/30/2004 and other movements Start-up and expansion costs R&D and advertising Patents and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Work in process and advances to suppliers Other intangible assets 1,441 389 43 646 535 241 107 2 (222) (303) (26) (45) 34 397 (11) - 1,788 724 113 603 97 409 730 557 2 (49) (259) (438) (135) 48 528 338 Total 3,755 1,444 (904) (153) 4,142 (in thousands of Euro) The increase in “Start-up and expansion costs” can be attributed mainly to bank brokerage fees for the two capital increases in April and May. “Research and development costs” refer to the capitalization of internal costs, specifically for personnel in the R&D area involved in the constant development of new modules for the B!3A technological platform to keep it up to date in a very dynamic competitive context. The increases in “Works in process and advances to suppliers” refer to investments in projects that have not been completed yet. The column “Write-downs and other movements” includes reclassification of the works in process that started to generate their economic utility during the period, as well as any write-downs or divestments of assets that are no longer utilized. II. Tangible fixed assets (in thousands of Euro) Plant and machinery Industrial and commercial equipment Other fixed assets Work in process Total fixed assets Historical cost Depreciation fund 41 2 1,884 1,927 (27) (2) (909) (938) Net value 6/30/2004 14 975 989 Net value 12/31/2003 15 956 73 1,044 Plant and machinery This item includes telephone and electrical systems. The following changes took place during the period: Historical cost Depreciation fund Net value 39 2 (24) 15 2 41 (3) (27) (3) 14 Historical cost Depreciation fund Net value 2 - (2) (2) - (in thousands of Euro) December 31, 2003 Increases Decreases Depreciation June 30, 2004 Industrial and commercial equipment The following changes took place during the period: (in thousands of Euro) December 31, 2003 Increases Decreases Depreciation June 30, 2004 Buongiorno Vitaminic S.p.A. 2 Half-Year Report as of June 30, 2004 Page 65 Other fixed assets This item includes furnishings, office machinery and computers. Movements during the period were as follows: (in thousands of Euro) December 31, 2003 Increases Decreases Other movements Depreciation June 30, 2004 Historical cost Depreciation fund Net value 1,724 87 73 (768) (141) (909) 956 87 73 (141) 975 1,884 III. Net investments 1) Shareholdings The company holds shares in subsidiaries and affiliated and other companies, all of which are valuated at cost and written down, if necessary, in the event of permanent losses of value, either directly or through funds for risks to cover losses, in the event of equity deficit. In addition, it should be noted that of the shareholdings contained in the financial statements, all those previously held by Vitaminic S.p.A., with the sole exception of Peoplesound.com Ltd, have been written down in their entirety in previous periods in order to bring the value into line with the share of capital and reserves. When the losses exceeded the book value of the stake, the shareholding was entered in the fund for risks and charges. With regard to the shareholding in MyAlertcom S.A., during the year ended December 31, 2001 the decision was made to maintain the book value of this company, despite the fact that it was higher than the company’s capital and reserves. This decision stemmed from the fact that this value arose from a contribution made in the final months of 2001, against an expert appraisal drawn up in accordance with the provisions of Art. 2343 of the Italian Civil Code, which showed an economic evaluation of the company that was much higher than its capital and reserves. The book value in excess of capital and reserves was thus justified by the latent surplus values in this company, related to technological and market value, above all in the wireless sector. When the Annual Report for 2003 was drawn up, an impairment test of the company was conducted by Ernst&Young, according to which this shareholding was worth between Euro 21.8 and 22.6 million. Prudentially, the shareholding was entered at the lowest value in this reference range. For the half-yearly report, given the Spanish subsidiary’s positive performance, with a gross operating margin (GOM) of approximately Euro 1 million and a net income of approximately Euro 250 thousand, it was not considered necessary to vary the value of this shareholding. The shareholding in the company Peoplesound.com Ltd. totaled Euro 1,895 thousand at the end of 2003 versus capital and reserves that, due to net income for the period, rose by approximately Euro 600 thousand to Euro 793 thousand. Nevertheless, during the six-month period examined here, a write-down of Euro 318 thousand was taken on this shareholding (bringing it to a net value of Euro 3,277 thousand), equivalent to the goodwill amortization allowance. During the first half of 2004, the shareholdings account was affected by the following other transactions: • increase in share capital through trade and financial debtors in: Buongiorno.at email services GmbH for Euro 800 thousand; Buongiorno Deutschland GmbH for Euro 1 million; Peoplesound.com Ltd. for Euro 1,700 thousand; Vitaminic Ltd. for Euro 900 thousand; • write-down of the shareholding in the company Profero S.p.A. in the amount of Euro 9 thousand to reflect the losses accumulated by the company which are deemed to be long-term; • the exchange of the shareholding in Digibrands S.p.A. with the shareholding in the Luxembourg company World Investment Partners, a holding that is part of the Allaxia Group, for an equivalent counter-value; • establishment of the Mexican company MyAlert S. de R.L. de C.V in June 2004, in which Buongiorno Vitaminic S.p.A. holds a 99% stake and the remainder is held by MyAlertcom S.A.; • transfer of the shareholding in Vitaminic Sverige to a Swedish company, completed in June 2004. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 66 Based on the above, changes to the investment account can be summarized as follows: data in or converted to Euro thousand Balance at 12/31/2003 Increases Decreases Write-down Balance at 6/30/2003 Vitaminic S.a.r.l. (France) - - - - - Vitaminic S.L. (Spain) - - - - - Vitaminic Ltd. (UK) - 900 - (638) 262 Vitaminic BV (Holland) - - - - - Eurekan Multimedia S.a. (France) - - - - - Peoplesound.com Ltd. (UK) 1,895 1,700 - (318) 3,277 Buongiorno.at e-mail services GmbH 1,149 800 - (77) 1,872 109 - - (109) - 8 - - - 8 25 1,000 - (423) 602 Buongiorno.Uk Ltd. Buongiorno France S.a.s Buongiorno Deutschland GmbH MyAlertcom S.A. 21,800 - - - 21,800 86 - - - 86 - (0) - - (0) 25,072 4,400 - (1,565) 27,907 Digibrands S.p.A. 168 - (168) - - Total shareholdings in affiliated companies 168 - (168) - - World Investment Partners (WIP) - 168 - - 168 Profero S.p.A. 9 - - (9) - WinWin Technologies Ltd. - - - - - Total shareholdings in other companies 9 168 - (9) 168 25,249 4,568 (168) (1,574) 28,075 Quantum Gap S.a. MyAlert S. de R.L. de CV Total shareholdings in subsidiaries TOTAL SHAREHOLDINGS Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 67 In addition to these write-downs, as shown above, the amounts of losses for the first half of 2004 have been accumulated to fund for risks related to loss coverage and should be reasonably settled during 2003, so changes to these reserves can be detailed as follows: data in or converted to Euro Vitaminic S.a.r.l. Vitaminic GmbH Vitaminic S.L. Vitaminic Ltd. Vitaminic BV Vitaminic Sverige Eurekan Peoplesound.com Ltd. Buongiorno.at e-mail services GmbH Buongiorno Deutschland GmbH. Buongiorno France S.a.s Buongiorno.Uk Ltd. Balance at 01/01/2004 pro-forma Utilization Allocations Balance at 6/30/2003 (179) 162 - (17) - - - (5) (5) - - (559) 559 - - - - - - (15) 15 - - (97) - - (97) - - - - (1,878) - (1,878) (411) - (411) (1,193) (348) (1,541) - (86) (86) MyAlertcom S.A. Total fund for risks - subsidiaries Digibrands S.p.A. Total fund for risks – affiliated companies Profero S.p.A. Win Win Technologies S.p.A. World Investment Partners Total fund for risks – other companies TOTAL FUNDS FOR RISKS – SHAREHOLDINGS (4,337) 736 (434) (4,035) - - - - - - - - - - - - - - - - - - - - - - - - (4,337) 736 (434) (4,035) These funds are found at line item B.3 of the liabilities section. In addition to the above, the following information is also provided: Annex B) Shareholdings in compliance with Article 126 of CONSOB resolution No. 11971 dated May 14, 1999. Annex C) Shareholdings in subsidiaries, affiliates, and other companies 2) Financial debtors a) Subsidiary companies This item refers exclusively to medium/long-term loans with interest, which totaled Euro 1,145 thousand, composed of Euro 680 thousand for Buongiorno France S.a.s. and Euro 465 thousand for Buongiorno Deutschland GmbH. (in thousands of Euro) Buongiorno Deutschland GmbH Buongiorno.at Email services GmbH Buongiorno France S.a.s. TOTAL 6/30/2004 12/31/2003 465 330 6/30/2003 330 - 250 1,550 680 530 150 1,145 1,110 2,030 d) Other companies Financial debtors totaled Euro 72 thousand and essentially include amounts paid as guarantee deposits at the time of stipulating rental contracts for operating offices. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 68 C) CURRENT ASSETS II. Debtors 1) Trade debtors The balance at June 30, 2004 is detailed below: (in thousands of Euro) Trade debtors Fund for bad debts Total 6/30/2004 8,050 (230) 7,820 12/31/2003 10,113 (685) 9,428 6/30/2003 10,666 (738) 9,928 The significant decrease in receivables during the six-month period is due essentially to two main factors: recourse to transfer (without recourse) to selected factoring firms of receivables that have matured with primary customers as part of consolidated collaboration agreements; improved performance in collecting payments. All trade debtors are due within twelve months. 2) Subsidiaries Listed below are the receivables owed to the Parent company by subsidiaries: (in thousands of Euro) Company Vitaminic S.a.r.l. Vitaminic GmbH 6/30/2004 55 12/31/2003 172 6/30/2003 172 219 - 218 Vitaminic SL 51 51 364 Vitaminic Ltd. 72 972 1.286 Vitaminic BV 34 318 318 - 253 247 Eurekan Multimedia S.a. 25 10 10 Peoplesound.com Ltd. 583 2,248 2,961 Vitaminic Sverige AB Peoplesound.fr S.a.r.l. 55 - - Buongiorno.at email services GmbH 50 446 790 Buongiorno Deutschland GmbH 513 1,005 817 Buongiorno France S.a.s. 1,225 1,047 756 Buongiorno.uk Ltd. 1,624 332 449 397 509 536 Vitaminic USA Inc. - - 291 Vitaminic A/S - - 354 Zipmind - - 231 4,684 7,581 9,801 MyAlertcom S.A. TOTAL 5) Other debtors (in thousands of Euro) VAT credit Credit from the State Treasury Trade debtors for advances Other debtors Total 6/30/2004 108 287 395 12/31/2003 104 384 488 6/30/2003 1,753 237 511 2,501 Under the item “Other debtors”, the decrease with respect to December 31, 2003 can be attributed mainly to the reduction in “Other amounts receivable” due to the collection of sums arising from completion of the EU project “eContent” at the end of 2003 and definitively approved by the European Commission in April 2004. The item also includes Euro 44 thousand for the loan with interest that Buongiorno Vitaminic S.p.A. disbursed to Digibrands S.p.A., falling due within the next few months after having been renewed pursuant to the agreement to transfer the shareholding to WIP. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 69 Credits from the State Treasure at the end of the six-month period totaled Euro 108 thousand, which is essentially the same as the previous period. The VAT credit, arising from assets in the previous period for which a refund was requested, was collected during the second half of 2003. IV. Cash in hand and cash equivalents At June 30, 2004 the Parent Company had Euro 5,232 million in cash in hand and cash equivalents. With regard to the Company’s bank and postal accounts, it should be noted that these include a tied-up current account in the amount of Euro 502 thousand. Cash in hand and cash equivalents are broken down as follows: (in thousands of Euro) Bank and postal accounts Checks Cash in hand and cash equivalents Total 06/30/004 5,232 - 12/31/2003 667 9 - 06/30/2003 1,108 1 5,232 676 1,109 Investment flows relating to the period are shown in the cash flow statement (Annex A) D) ACCRUALS AND DEFERRALS Accrued income, attributable mainly to advertising campaigns and business services started at the end of the sixmonth period and extending into the second half of 2004, have essentially remained the same as the values reported at December 31, 2003. Prepayments are related to the supply of services invoiced in advance and discounted in relation to effective maturation of the right or supply of the service that is used. The situation can be broken down as follows: (in thousands of Euro) Accrued income Prepayments Total 6/30/2004 315 467 782 12/31/2003 326 328 654 6/30/2003 403 444 847 NOTES ON THE LIABILITY ITEMS OF THE BALANCE SHEET OF BUONGIORNO VITAMINIC S.p.A. A) CAPITAL AND RESERVES I. Share capital During the first half of 2004, share capital increased from Euro 17,605,190.20 to Euro 18,935,354.36 as a result of: capital increases coordinated by Banca IMI S.p.A. totaling Euro 1,297,855; capital increases for the stock option plans, subscribed in the amount of Euro 32,309; As of June 30, 20043, the share capital of Buongiorno Vitaminic S.p.A. is therefore composed of 72,828,286 ordinary shares with a par value of Euro 0.26 each. II. Share premium account This includes the amounts paid up by the shareholders for the share premium during the capital increases occurring between the date the Company was established and June 30, 2004, net of amounts paid to cover losses for previous periods. X. Loss for the year This item includes the loss of Buongiorno Vitaminic S.p.A. for the year of Euro 2,257 thousand. B) FUNDS FOR RISKS AND CHARGES (in thousands of Euro) Funds for legal practices 6/30/2004 12/31/2003 6/30/2003 40 40 40 Other funds 4,139 4,874 4,930 Total 4,179 4,914 4,970 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 70 The item “Other funds” includes: - the shareholding write-down fund, in the amount of Euro 4,036 thousand, to cover the negative capital and reserves of the related shareholdings (see section B.III (1) Shareholdings for more information); - the fund for restructuring charges, in the amount of Euro 102 thousand, to cover restructuring activities approved during the year but which will take place in subsequent periods; The change from the previous periods is due primarily to the partial use of the funds to cover losses of the consolidated and unconsolidated companies to settle the negative capital and reserves. C) SEVERANCE INDEMNITIES The severance indemnity fund shows the actual amount due by the Parent Company for severance indemnities at June 30, 2004 for the employees of Parent Company on the payroll at that time, net of advances paid and liquidations. The fund totals Euro 913 thousand, with a net increase of Euro 68 thousand for the six-month period. Movements during the period are shown in the table below: (in thousands of Euro) Severance indemnity fund at December 31, 2003 845 Allocations 180 Payments (112) Severance indemnity fund at June 30, 2004 913 D) CREDITORS At June 30, 2004, there were no amounts falling due after more than one year, nor any borrowing secured by collateral (“real securities”). 3) Banks Payables to the banks and related systems totaled Euro 1,100 thousand and are composed mainly of advances on invoices and factoring operations with recourse. Investment flows relating to the period are shown and commented upon in the cash flow statement (Annex A) 4) Other financial institutions This item involves the interest-bearing loan disbursed by shareholders in 2003 and falling due at the end of 2004, in the amount of Euro 1,500 thousand. 6) Trade creditors Trade creditors at the end of the reference period totaled Euro 9,625 thousand. The decrease in trade creditors with respect to the end of 2003 (Euro 10,358) – despite growth in turnover – is due mainly to: the definitive settlement of outstanding items from previous periods; improved terms of supply, not only with regard to accepted economic conditions but also agreed financial conditions. 8) Amounts due to subsidiaries Payables to subsidiaries are for services that Buongiorno Vitaminic S.p.A. acquired from other Group companies for its own use or within a Group-related concept. The situation at June 30, 2004 has greatly been simplified as a result of the definitive closing/liquidation of many companies that were formerly part of Vitaminic. This item is detailed below: (in thousands of Euro) Company 6/30/2004 12/31/2003 Vitaminic S.a.r.l. 14 - - Vitaminic GmbH 19 238 238 1,326 Vitaminic Ltd. 6/30/2003 1,043 1,536 Vitaminic BV 284 284 Vitaminic Sverige AB 227 227 Eurekan Multimedia S.a. 14 - Buongiorno.at email services GmbH 10 50 31 Buongiorno Deutschland GmbH 92 23 87 Buongiorno France S.a.s. 28 9 7 695 193 226 Buongiorno.uk Ltd. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 71 MyAlertcom S.a. 2,796 2,498 Peoplesound.com Ltd. - - 57 Vitaminic S.l. - - 312 Vitaminic U.S.A. Inc - - 275 Skalasoft EOOD - - 47 4,980 4,579 5,618 TOTAL 2,291 11) Taxes payable Taxes payable at June 30, 2004, totaling Euro 1,453 thousand, were mainly for withholding tax for employees and independent workers, as well as taxes for the period (IRAP – Regional Business Tax) and VAT that matured on services provided. 12) Providence and social security charges This item includes contributions accrued but not yet paid to providence and social security institutions related to salaries for the month of June, unused holiday time, and bonuses for employees and collaborators. As of June 30, 2003, this item amounted to Euro 443 thousand. 13) Other creditors ”Amounts payable to employees” and collaborators is composed of sums that have matured for bonuses, as well as paid holidays and leaves that were not taken, totaling Euro 643 thousand. This has decreased with respect to December 31, 2003 due to the payment of employee and collaborator bonuses that matured in 2003. The item “Other” totaled Euro 477 thousand. This item can be broken down as follows: (in thousands of Euro) Amounts payable to employees 6/30/2004 643 12/31/2003 927 6/30/2003 677 477 368 254 1,120 1,295 931 Other Total E) ACCRUALS AND DEFERRED INCOME This item amounted to Euro 775 and is broken down as follows: (in thousands of Euro) Accruals to personnel Other Total Deferred income Total 6/30/2004 187 4 191 584 775 12/31/2003 30 5 35 506 541 6/30/2003 485 5 490 731 1,221 Accruals to personnel include deferred portions of salaries such as the “thirteen” and the “fourteenth month” of salary. Deferred income refers to amounts accruing in the next fiscal year for advertising campaigns already invoiced by the Company and which will be completed in 2004, and are recorded based on the completed percentage of the campaign. SURETYSHIPS AND OTHER GUARANTEES GRANTED The memorandum accounts include suretyships for a sum total of Euro 480 thousand, for guarantees granted by the Parent Company Buongiorno Vitaminic S.p.A. to banks for foreign loans disbursed to subsidiaries in Austria (Euro 80 thousand) and Germany (Euro 400 thousand). Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 72 NOTES ON THE PROFIT AND LOSS ACCOUNT ITEMS OF BUONGIORNO VITAMINIC S.p.A. A) VALUE OF PRODUCTION Breakdown of income for each line of business, set forth in the table below, shows 13.4% growth in core business revenues, most of which from Consumer Services. With regard to income for Intercompany Services, i.e. services the Parent Company has provided to subsidiaries, at June 30, 2004 this item totaled Euro 1,645 thousand. (in thousands of Euro) First Half 2004 First Half 2003 Marketing Services 5,318 4,597 Consumer Services 6,922 6,198 12,240 10,795 Total Intercompany services Total 1,645 2,735 13,885 13,530 Value of production amounted is Euro 14,745 thousand. Increases in fixed assets for internal work (internal capitalizations) totaled approximately Euro 570 thousand and stem from applied R&D activities required for ongoing adaptation of the multi-channel technological platform to handle the growing and increasingly tough competitive context. The item “Other revenues” is composed of the release of the fund for bad debts, insurance claims and mistaken estimates from previous periods. The revenue item “no monetary transaction” was not significant during this six-month period. (in thousands of Euro) First Half 2004 First Half 2003 13,885 13,530 Incr. in fixed assets for internal work 569 269 Other income and revenues 291 673 14,745 14,472 Core business sales Total revenues B) COSTS OF PRODUCTION 7) Costs for services This item includes: costs of production including bandwidth rental costs, costs for the purchase of contents, SMS costs and costs for rebates on revenues from telephone traffic; marketing costs for promoting VAS services and for Corporate Image; overheads and administrative expenses, which include consulting costs, office maintenance, insurance, and employee travel and room/board expenses. Listed below is the detailed breakdown of costs only for the first half of 2004, compared against the corresponding period in 2003. This comparison shows a reduction in overheads and administrative expenses, as well as marketing expenses due to the effect of merger synergies and the increase in production costs following the increase in turnover. (in thousands of Euro) First Half 2004 First Half 2003 Costs of production 6,167 5,285 Marketing & sales 1,945 2,990 Overheads and administrative expenses Total 1,474 2,345 9,586 10,620 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 73 8) Use of third-party assets Costs related to the use of third-party assets include primarily the rental of office space and operative leasing fees for the hardware systems. 9) Personnel costs This item includes costs for the employees of Buongiorno Vitaminic S.p.A., which at the end of the six-month period totaled Euro 3,709 thousand versus Euro 3,892 thousand for the corresponding period in 2003. This reduction bucks the trend with respect to the number of employees, which rose by 26 employees during the first half of 2004 (from 123 people at the end of 2003 to 149 at the end of the first half of 2004). The decrease in the average cost of human resources is due to the need to adapt the skills and responsibilities of the structure to the new business needs, and to the leaner managerial structure following the merger between Buongiorno and Vitaminic. First Half 2004 First Half 2003 Average employment 2004 127 101 114 22 22 24 149 123 138 Employees and middle management Executives Total 10) Amortization, depreciation and write-downs Amortization, depreciation and write-downs at the end of the first half of 2004 totaled Euro 1,047 thousand. This item is broken down in the following table: (in thousands of Euro) First Half 2004 First Half 2003 Amortization of intangible fixed assets 904 539 Depreciation of tangible fixed assets 143 180 Other fixed asset write-downs - 158 Write-downs of bad debt and cash - 367 1,047 1,244 Total Amortization of intangible fixed assets The allocation for the first half of 2004 (a total of Euro 904 thousand) is detailed in the notes on intangible fixed assets. The increase is due mainly to the amortization of merger costs during 2003 and to capital increases in 2004. Depreciation of tangible fixed assets Depreciation for the period, amounting to Euro 143 thousand was determined using technical and economic rates established based on possible residual asset use as previously illustrated in the Notes on evaluation criteria for tangible fixed assets. Write-down of debtors entered in current assets The fund for bad debts was commensurate to the current accurate quantification of receivables at risk in the customer portfolio opened at the end of the reference period. As a result, no additional sums were allocated to the funds. C) FINANCIAL EARNINGS (CHARGES) 16) Other financial earnings This item comprises interest income that has matured on liquid deposits, interest that has matured on intercompany loans, and interest that has matured on the loan to Digibrands S.p.A. At the end of the first half of 2004, the item “Other income and financial charges” totaled Euro 29 thousand. (in thousands of Euro) Interest from Group companies Interest earned from other companies First Half 2004 First Half 2003 11 21 1 - Interest and other financial earnings 17 540 Total 29 561 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 74 17) Interest and other financial charges This item is composed almost exclusively of interest charges on the use of lines of credits from banks and on the medium/long-term interest-bearing loan disbursed by shareholders in mid-2003 and falling due at the end of the year. (in thousands of Euro) First Half 2004 Interest to other companies First Half 2003 6 - Interest and other financial charges 251 358 Total 257 358 D) ADJUSTMENTS OF FINANCIAL ASSET VALUE 19) Write-downs The write-downs coincide with the net losses posted by each subsidiary, with the exception of Peoplesound.com LTD, which posted an adjustment equal to the amortization of goodwill, thereby adjusting the value of this shareholding. The write-downs on shareholdings totaled Euro 1,449 thousand, a figure that is significantly less than last year due to the decisive improvement in the economic results of all Group companies. The situation is detailed in the following table: (in thousands of Euro) Write-downs First Half 2004 - Write-downs First Half 2003 95 Vitaminic Ltd. 80 607 Zipmind S.r.l. - 49 Eurekan E.u.r.l. - 175 Peoplesound.com Ltd. Buongiorno.at e-mail services GmbH 318 77 1,132 279 Buongiorno.Uk Ltd. 195 343 Buongiorno France S.a.s 347 504 Buongiorno Deutschland GmbH 423 127 - - 1,440 3,311 Vitaminic S.a.r.l. MyAlertcom S.A. Total write-downs of shareholdings in subsidiaries Digibrands S.p.A. - 350 Total write-downs of shareholdings in affiliated companies - 350 Winwin technologies LTD - 64 Profero S.p.A. 9 - Total write-downs of shareholdings in other companies 9 64 1,449 3,725 TOTAL WRITE-DOWNS OF SHAREHOLDINGS E) EXCEPTIONAL EARNINGS (CHARGES) 20) Earnings The Parent Company’s exceptional earnings totaled approximately Euro 190 thousand in the first half of the year, most of which arising from contingent assets for the renegotiation of debts and from payable invoicing mistakes during previous periods. 21) Charges Extraordinary charges for the Parent Company during the first half of the year totaled Euro 619 thousand. Part of this amount (approximately Euro 411 thousand) came under contingent liabilities, whereas the remaining portion is Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 75 composed of other charges for services that did not take place during the reference period or that, in any event, denote their exceptional or extraordinary character with respect to the Company’s core business. On behalf of the Board of Directors The Chairman Mauro Del Rio Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 76 Cash Flow Statement (Annex A) BUONGIORNO VITAMINIC SpA Wholly paid-up capital stock Euro 18,935,354 Registered office: Parma, Borgo Masnovo 2 Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 Tax code 02699820045 Vat Code 07863930017 Cash flow statement at June 30, 2004 (in thousands of Euro) H1 2004 Group loss FY 2003 H1 2003 -2,257 -12,269 1,047 1,987 719 0 173 158 1,495 6,582 2,799 68 150 29 Net change in funds for risks and charges 1,227 3,371 1,093 Cash flow from ordinary activities 1,580 -6 -1,177 (Increase) / decrease in trade debtors 2,828 -610 -3,819 Increase / (decrease) in trade creditors -393 -294 2,929 413 2,688 2,299 4,428 1,779 232 -1,290 -3,381 -2,146 -89 127 -68 - investments -4,564 -3,537 -1,375 Cash flow from investing activities (B) -5,943 -6,792 -3,590 Cash flow from operating and investing activities (A+B) -1,515 -5,012 -3,357 Paid capital increase 8,242 106 Cash flow from financing (C) 8,242 106 - (101) Amortization, depreciation and write-downs Intangible assets write-downs Shareholdings write-downs Net change in the severance indemnity fund Change in other current assets items Net cash flow from ordinary activities (A) -5,974 net investments/disinvestments in: - intangible fixed assets - tangible fixed assets Other changes in the equity and financial situation that do not entail cash flows (D): Allotment of intangible assets and acquisition of companies through the issuing of stocks Capital increase through contributions in-kind - 101 - - Balancing of losses of subsidiaries through a reduction in credits 1,962 25,373 23,039 Balancing of losses of subsidiaries through the use of the shareholdings write-down fund -1,962 (25,373) (23,039) Cash flow for the period (A+B+C+D) 6,727 (4,906) (3,357) Cash and cash equivalents at period start (4,082) 824 824 Cash flow for the period 6,727 (4,906) (3,357) Cash and cash equivalents at period end 2,645 (4,082) (2,533) Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 77 (Annex B) Statement of Relevant Shareholdings Pursuant to Article 126 of CONSOB Resolution No.11971 dated May 14, 1999 Company Headquarters % of voting capital held Title to ownership Direct holder Shareholdings in subsidiaries Buongiorno Deutschland GmbH Berlin Buongiorno France Sarl Paris Buongiorno.at email serv. GmbH Eurekan Multimédia S.A. Vienna Buongiorno.uk LTD London MyAlert Portal S.L. Madrid 100.00% ownership MyAlertcom S.A. MyAlertcom S.A. Madrid 99.91% ownership Buongiorno Vitaminic S.p.A. Paris 100% ownership 97.96% ownership Buongiorno Vitaminic S.p.A. 100% ownership Buongiorno Vitaminic S.p.A. 100% ownership Buongiorno Vitaminic S.p.A. 99.55% ownership Buongiorno Vitaminic S.p.A. Buongiorno Vitaminic S.p.A. MyAlert S. de R.L. de CV Mexico City 99.00% ownership Buongiorno Vitaminic S.p.A. Peoplesound.com Ltd London 100% ownership Buongiorno Vitaminic S.p.A. Peoplesound.de GmbH Munich 100% ownership Peoplesound.com Ltd Peoplesound.fr Eurl Paris 100% ownership Peoplesound.com Ltd Quantum Gap Madrid 100% ownership Buongiorno Vitaminic S.p.A. Skala Soft EOOD Sofia 100% ownership MyAlertcom S.A. Vitaminic BV Amsterdam 100% ownership Buongiorno Vitaminic S.p.A. Vitaminic GmbH Hamburg 100% ownership Buongiorno Vitaminic S.p.A. Vitaminic Ltd London 100% ownership Buongiorno Vitaminic S.p.A. Vitaminic S.a.r.l. Paris 100% ownership Buongiorno Vitaminic S.p.A. Vitaminic SL Madrid 100% ownership Buongiorno Vitaminic S.p.A. Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 78 Shareholdings of Buongiorno Vitaminic S.p.A. in subsidiaries, affiliates and other companies (in thousands of Euro) Company Status Headquarters % of voting shares held Title Share capital at 6/30//04 Capital and reserves of Parent Company at 6/30/2004 (local FS) (Annex C) Valued using the equity method (100%) Valued using the equity method Net value of shareholding entered in FS at 6/30/04 Shareholdings in subsidiaries Buongiorno Deutschland GmbH (a) operative Berlin 100% ownership 100 166 (270) (270) 191 Buongiorno France Sarl (a) operative Paris 97.96% ownership 3,108 (1,541) (1,518) (1,487) (1,533) Buongiorno.at email serv. GmbH (a) Eurekan Multimédia S.A. (b) operative Vienna 100% ownership 86 (37) (26) (26) (6) 100% ownership 234 (97) (97) (97) (97) non operative Paris Buongiorno.uk LTD (a) operative London 99.55% ownership 769 (87) (75) (75) (86) MyAlertcom S.A. (a) operative Madrid 99.95% ownership 2,446 4,401 6,691 6,688 21,800 MyAlert S. de R.L. de CV (b) operative Mexico City 99.00% ownership 0 0 0 0 0 Peoplesound.com Ltd (a) operative London 100% ownership 11 794 3,277 3,277 3,277 Quantum Gap (a) operative Madrid 100% ownership 22 151 151 151 86 Vitaminic BV (b) non operative Amsterdam 100% ownership 18 0 0 0 0 Vitaminic GmbH (b) in liquidation Hamburg 100% ownership 25 0 0 0 0 Vitaminic Ltd (b) operative London 100% ownership 1 262 262 262 262 Vitaminic S.a.r.l. (b) non operative Paris 100% ownership 8 (17) (17) (17) (17) Vitaminic SL (b) operative 100% ownership 3 (5) (5) (5) (5) Madrid Shareholdings in affiliated companies Shareholdings in other companies Profero S.p.A. operative Parma 9% ownership n.a. - Win Win Technologies Ltd in liquidation London 4% ownership n.a. - World Investment Partners S.a.r.l. operative Luxembourg 1.13% ownership n.a. 168 (a): share capital and capital and reserves taken from the local Financial Statements for the period ended 6/30/2004 (b): share capital and capital and reserves inferred from the balance sheet at 6/30/2004 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 79 Statement of changes in capital and reserves of Buongiorno Vitaminic S.p.A. (Annex D) Statement of changes in capital and reserves at 6/30/2004 (in thousands of Euro) DESCRIPTION Balance at period start - Allocation of profit (loss) for the year: Paid-out dividends Share to the Board of Directors - Capital increases (decreases): - Capital increase and Stock Option plan - Other movements due to reclassification - Profit (loss) for the period Balance at period end Buongiorno Vitaminic S.p.A. Share capital MOVEMENTS AT 6/30/2004 Profit Share Other (loss) premium reserves account carried forward 17,605 7,795 (4,198) 1,330 6,912 18,935 10,508 Half-Year Report as of June 30, 2004 Profit (loss) 8,071 (8,071) 0 0 (12,269) 12,269 0 0 (2,257) (2,257) Page 80 Total capital and reserves 21,202 8,242 (2,257) 27,186 3 Company Data and Information for Shareholders Buongiorno Vitaminic SpA Registered office and headquarters: Borgo Masnovo 2, 43100 Parma, Italy Offices: Via Cosimo Del Fante 10 2012 Milan, Italy www.buongiorno.com Fully subscribed and paid-up capital: Euro 18,935,354.36 Tax ID and Parma Register of Companies No. 02699820045 Parma Index R.E.A. No. 225247 VAT code No. 07863930017 Investor Relations: Email: [email protected] Telephone: +39 02 582125.1 Fax: +39 02 58431008 Buongiorno Vitaminic S.p.A. Half-Year Report as of June 30, 2004 Page 81