Esprinet S p A : Independent auditor’s report – Consolidated Financial Statement 2020

Independent auditor's report

in accordance with article 14 of Legislative Decree No. 39 of 27 January 2010 and article 10 of Regulation (EU) No. 537/2014

To the Shareholders of Esprinet SpA

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Esprinet Group (hereinafter, also, "the Group"), which comprise the consolidated statement of financial position as of 31 December 2020, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2020, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia).

Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of this report. We are independent of Esprinet SpA (the Company) pursuant to the regulations and standards on ethics and independence applicable to audits of financial statements under Italian law. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matters	Auditing procedures performed in
	response to key audit matters

Assessment of the recoverability of goodwill

Note 2 "Goodwill" to the consolidated financial statements as of 31 December 2020

In the consolidated financial statements as of 31 December 2020 the goodwill balance amounted to Euro 108 million. The balance is a result of business combinations that occurred in previous years and is allocated to the two Cash Generating Unit (CGU) identified by Esprinet Group, detailed below:

• CGU1 - B2B Distribution of Information Technology and Consumer Electronics (Italy) (Euro 19 million),
• CGU2 - B2B Distribution of Information Technology and Consumer Electronics (Iberian Peninsula) (Euro 89 million).

On an annual basis the Group directors assess the recoverability of goodwill by comparing the carrying amount per CGU to the recoverable amount based on the higher of fair value less costs of disposal and value in use, which has been determined as the present value of future cash flows.

The recoverable amount of each CGU has been determined as of 31 December 2020 based on the value in use. Value in use has been calculated discounting the future cash flows forecasted for 2021-2025 and the estimate of a terminal value.

Moreover, the Group directors have performed sensitivity analysis to evaluate the impact of changes to relevant assumptions on the recoverable amount.

We considered goodwill a key audit matter due to its materiality and the level of judgement required by directors in the estimation process with reference to cash flow forecasts and the definition of the interest rate used to discount future cash flows (WACC).

We analyzed the procedures implemented by the directors to verify the compliance with the requirements established by the International Accounting Standard "IAS 36 -Impairment of Assets", adopted by the European Union.

We analyzed the reasonableness of the assessment made by the directors on the CGUs identified and the process of allocating goodwill to the various CGUs, verifying its consistency with the structure of the Group and of the segments in which it operates.

In order to confirm the directors' forecasting abilities, we verified that the results reported for 2020 were consistent with the forecast projections set out in business plans prepared in previous years. We analyzed the business plans of each CGU used by the directors to assess the recoverability of goodwill, verifying their consistency with the business plans approved by the board of directors.

We verified the valuation method utilized to perform the impairment test, the mathematical accuracy of the model and the reasonableness of the assumptions used for the discount rate and for the definition of the terminal value.

We verified the accuracy of assets and liabilities pertaining to each CGU, including the allocated goodwill, which were compared to its value in use.

We analyzed the directors' sensitivity analyses performed on some parameters used in the impairment test such as variances in the estimation of future cash flows or in the discount rate used.

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Key Audit Matters	Auditing procedures performed in
	response to key audit matters

Revenue recognition, net of rebates and discounts

Note 2.7.2 "Critical accounting estimates and assumptions - Revenues adjustments and credit notes to be issued toward customers" to the consolidated financial statements as of 31 December 2020

The Esprinet Group operates in the 'business-to- business' (B2B) distribution of Information Technology (IT) and consumer electronics.

In line with industry's practices, the Group recognizes rebates and discounts to customers based on contractual agreements in place. Such adjustments, including the year-end estimates, are accounted for as a reduction in revenues and account receivables.

Revenue recognition, net of rebates and discounts, required audit focus due to the significant number of transactions and elements of uncertainty inherent in the estimation process due to numerous contracts with a variety of contractual terms and complex calculations.

Furthermore, we analyzed the changes in cash flows or in the discount rate that would reduce the headroom to nil.

In order to support the analyses, we engaged experts belonging to the PwC network.

We verified the completeness and accuracy of the disclosures reported in the notes to the consolidated financial statements.

We gained an understanding and evaluated the internal control system implemented by the Group related to the revenue recognition process under IFRS 15, including adjustments for rebates and discounts towards customers. We validated the operating effectiveness of key controls (manual and automated) identified, in certain instances engaging experts in IT systems and business process analysis belonging to the PwC network.

We carried out testing procedures on a sample basis and analyzed the supporting documentation obtained to verify the existence, completeness, accuracy and cut-off of transactions.

Additionally, we verified the reasonableness of the directors' assumptions by comparing prior year's estimate against actual results and comparing estimates as of 31 December 2020 with credit notes issued after year-end.

We analyzed the main commercial agreements in place with customers to verify that related contractual terms were properly evaluated by the directors in the

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Key Audit Matters	Auditing procedures performed in
	response to key audit matters
	revenue's adjustments computation.
	We performed external confirmation
	procedures on a sample basis with the aim of
	obtaining additional evidence to support
	trade receivables booked and related
	revenues.

Accounting of costs adjustments from suppliers

Note 2.7.2 "Critical accounting estimates and assumptions - Costs adjustments and credit notes due from vendors" to the consolidated financial statements as of 31 December 2020.

The Esprinet Group has agreements in place with suppliers for reimbursements of joint marketing activities, contractual stock protection, rebates for achieving targets and incentives of various kind. These adjustments, including the year-end estimate, are accounted for as a reduction in costs and account payables.

The accounting for costs adjustments from suppliers required audit focus, due to the significant number of transactions and elements of uncertainty inherent to the estimation process due to numerous contracts with a variety of contractual terms and complex calculations.

We gained an understanding and evaluated the internal control system implemented by the Group related to adjustments from suppliers.

We validated the operating effectiveness of the key controls (manual and automated) identified.

We carried out testing procedures on a sample basis through the analysis of the supporting documentation and the contractual terms in place with suppliers.

Additionally, we verified the reasonableness of the directors' assumptions by comparing prior year's estimate against actual results and comparing estimates as of 31 December 2020 with credit notes received after year- end.

We performed external confirmation procedures on a sample basis with the aim of obtaining additional evidence to support trade payables and related costs.

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Key Audit Matters	Auditing procedures performed in
	response to key audit matters

Contingent liabilities and Provisions for risks and charges

Note 26 "Non-current provisions and other liabilities" to the consolidated financial statements as of 31 December 2020.

The Group is involved in several tax disputes.

Consistent with previous years, the Group directors, with the support of external legal and tax counsel, do not consider the risk of occurrence of significant liabilities related to these matters to be probable. As such, no specific provision has been recorded.

The Group directors' judgement is high in connection with these disputes, specifically with reference to the assessment of the uncertainties related to their expected results.

Management's assessment of risks related to these proceedings was an area of focus in the context of our audit activities. This was due to the complexity and uncertainty of management's estimate.

We analyzed management's process to identify and evaluate contingent liabilities and estimate related accruals.

Among other things, these activities have been performed through various discussions held with Esprinet's directors with the aim of gaining an understanding of the liabilities' estimation process, the defensive strategy and actions which have been defined based on claims received.

We analyzed supporting documentation underlying the facts of these disputes and have obtained confirmations directly from the company's external tax and legal counsel.

We verified the adequacy of the financial statements disclosure based on international financial reporting standards requirements, also considering information and data obtained during our audit.

Responsibilities of the Directors and the Board of Statutory Auditors for the Consolidated Financial Statements

The directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05 and, in the terms prescribed by law, for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

The directors are responsible for assessing the Group's ability to continue as a going concern and, in preparing the consolidated financial statements, for the appropriate application of the going concern basis of accounting, and for disclosing matters related to going concern. In preparing the consolidated financial statements, the directors use the going concern basis of accounting unless they either intend to liquidate Esprinet SpA or to cease operations or have no realistic alternative but to do so.

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