Star7 S p A : 1A Report on the management of the financial statements

STAR SPA

VIA ALESSANDRIA 37/B - 15122 VALLE SAN BARTOLOMEO (AL) Share Capital 500,000.00 euros fully paid up.

Reg. Imp. 01255170050 Rea 208355

C.F. and P.IVA 01255170050

Report on the management of the financial statements as at 31/12/2019

Dear Shareholders, the year ended on 31/12/2019 shows a profit of 1,346,901 euros.

Operating conditions and business development

Your company operates in the field of translation and interpreting, automation of translation processes and language technologies, technical editing and content engineering, dedicated IT development, and print-on-demand.

Pursuant to art. 2428 it should be underlined that the activity is carried out at the head office in Valle San Bartolomeo and at the local units in Asti, Turin, Pistoia, Maranello and La Spezia.

From a legal point of view, the company directly controls the following companies that carry out activities that are complementary and/or functional to the group's core business.

Company Star Log Srl Star Egineering Srl Star Comunicacao Ltd Cal Comunicação STAR USA LLC STAR Gmbh Austria AD Studio Srl RES Srl Star Albania

shareholding 60% 100% 75% 75% 100% 100% 100% 100% 100%

control 60% 100% 75% 75% 100% 100% 100% 100% 100%

activities logistics process engineering technical authoring printing logistics translation, authoring (in start up) technical authoring (in start up) technical authoring technical authoring technical authoring

Operating performance

General economic trends

From a commercial point of view, the past year was characterized by the consolidation of all the activities that represent the company's core business, which resulted in a significant increase in turnover.

At the same time, the activities of overseas subsidiaries were stepped up with the completion of an important contract with an automotive and capital goods company and the acquisition by the subsidiary, STAR USA LLC, of a translation company, which will enable significant penetration of the American market.

During the year, the Board of Directors took the important decision to start the process of listing the company on AIM Italia, a strategic and economic operation.

The company's presence on this trading system would offer an important opportunity for development in both financial terms and in terms of image, since the negotiation of the company's financial instruments on the stock exchange system makes it possible, on the one hand, to raise capital to a suitable extent to meet the company's development needs and, on the other, allows the company to have better visibility and, therefore, an undoubted return on its image in the sector to which it belongs.

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This process should be concluded by April of this year in the face of intense work carried out by the Administrative Management, trusting in a positive response.

Research and development activities

Pursuant to article 2428, paragraph 3, number 1, the following information is acknowledged:

During 2019, as well as in 2015, 2016, 2017 and 2018, as in part already formally explained in the report on operations of the Parent Company's previous individual financial statements, the Group carried out research and development projects, eligible for subsidies pursuant to article 3 of Decree no. 174 of May 29, 2015 of the Ministry of Economy and Finance (pursuant to Decree Law 145/2013 converted into Law 190/2014). As a leading Group in the field of language and translation services, both on the national and international geographic market, we have in fact implemented Experimental Development Projects, where the development activity consisted in the conceptual definition and implementation of new products, processes or services.

The Group has developed high value-added editorial technologies in the various Business Areas (Editorial, Language Services, After Sales), succeeding in developing innovative ideas and applications of already existing services, as well as co-developing - also with dedicated internal resources - and increasing the potential and integration of the software already available and creating new integrated platforms.

It is the Group's intention to continue to boost the development of new activities characterized by a degree of innovation with respect to its reference market, through a series of initiatives that will primarily involve human resources, external consultants and technical equipment.

Performance of operations in the sectors in which the company operates

As far as your company is concerned, the past financial year must be considered positive.

The Company has increased its market share in both the translation and print/editorial sectors and has increased revenue in the defense sector significantly.

Summary of financial statements (figures in Euros)

31/12/2019	31/12/2018	31/12/2017
Revenues Gross operating income (EBITDA) Operating income (EBIT) Profit (loss) for the year Fixed assets Total equity Net financial position	41,203,041 2,731,754 2,065,520 1,346,901 5,370,614 7,913,580 (15,098,003)	34,928,826 2,428,541 1,799,666 1,673,377 4,827,759 6,966,680 (6,724,917)	29,382,855 1,523,093 2,229,460 1,943,014 2,817,680 5,793,302 (6,754,982)

The following table shows the results achieved over the last three years in terms of value of production, EBITDA and earnings before tax.

31/12/2019	31/12/2018	31/12/2017
value of production EBITDA Profit before tax	41,120,475 2,731,754 2,213,027	34,884,928 1,616,601 2,123,357	29,396,206 1,523,093 2,446,901

Main income data

The Company's reclassified Income Statement compared with that of the previous year is as follows (in euros):

31/12/2019	31/12/2018	Change
Net revenues External costs Value Added	41,203,041 27,902,135 13,300,906	34,928,826 24,708,581 10,314,172	6,274,215 3,287,481 2,986,734
Personnel costs EBITDA	10,569,152 2,731,754	7,885,631 2,428,541	2,683,521 303,213
Amortisation, depreciation, write-downs and other provisions Operating profit (loss)	666,234 2,065,520	628,875 1,799,666	37,359 265,854
Financial income and charges Profit (loss) before non-recurring items	147,507 147,507	323,691 323,691	(176,184) (176,184)

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Revaluations and write-downs Profit before tax	2,213,027	2,123,357	89,670
Income taxes Net profit (loss)	866,126 1,346,901	449,980 1,673,377	416,146 (326,476)

In order to provide a clearer picture of the Company's earnings performance, the table below shows certain profitability indicators compared with the same indicators for previous years' financial statements.

31/12/2019	31/12/2018
Net ROE Gross ROE ROI ROS	17.02% 27.96% 6% 5%	24.02% 30.48% 7% 5%

Main balance sheet data

The reclassified Balance Sheet of the Company compared with the previous year's figures is as follows (in Euros):

31/12/2019	31/12/2018	Change
Net intangible fixed assets Net property, plant and equipment Equity investments and other financial fixed assets Capital assets	1,499,405 946,201 2,568,794 5,014,400	1,532,645 662,952 2,564,651 4,760,248	(33,240) 283,249 4,143 254,152
Inventories Trade receivables Other receivables Accrued income and prepaid expenses Short-term operating assets	52,478 21,781,998 5,721,192 673,840 28,229,508	143,580 19,281,522 1,552,427 433,533 21,411,062	(91,102) 2,500,476 4,168,765 240,307 6,818,446
Trade payables Payments on account Tax and social security payables Other payables Accrued expenses and deferred income Short-term operating liabilities	3,629,410 1,131,553 3,460,835 16,696 8,238,494	4,968,900 753,385 4,647,921 450,954 10,821,160	(1,339,490) 378,168 (1,187,086) (434,258) (2,582,666)
Net working capital	19,991,014	10,589,902	9,401,112
Employee severance indemnity Taxes and social security payables (beyond the year) Other medium- and long-term liabilities Medium/long-term liabilities	1,892,901 100,930 1,993,831	1,583,088 75,465 1,658,553	309,813 25,465 335,278
Invested Capital	23,011,583	13,691,597	9,319,986
Net equity Medium/long-term net financial positionShort-term net financial position	(7,913,580) (2,032,695) (13,065,308)	(6,966,680) 67,511 (6,792,428)	(946,900) (2,100,206) (6,272,880)
Equity and net financial debt	(23,011,583)	(13,691,597)	(9,319,986)

The reclassified balance sheet shows the company's financial soundness (i.e. its ability to maintain a financial balance in the medium/long term).

In order to provide a better description of the company's financial solidity, the table below shows some balance sheet ratios relating both to (i) the methods of financing medium/long-term loans and (ii) the composition of the sources of financing, compared with the same ratios for the financial statements of previous years.

31/12/2019	31/12/2018	31/12/2017
Primary structural margin (equity-fixed assets) Primary structural quotient (capital/fixed assets) Secondary structural margin (permanent sources of capital / fixed assets) Secondary Structure Quotient	2,830,466 1.56 6,925,706 2.36	2,138,921 1.44 3,797,474 1.79	2,975,622 2.06 4,452,866 2.58

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Financial highlights

The net financial position as at 31/12/2019, was as follows (in Euros):

31/12/2019	31/12/2018	Change
Bank deposits Cash and other valuables on hand Cash on hand	1,568,153 3,361 1,571,514	1,000,776 4,244 1,005,020	567,377 (883) 566,494
Current financial assets
Bonds and convertible bonds (within the next financial year) Due to shareholders for loans (within the next financial year) Due to banks (within one year ) Due to other financial institutions (within one year ) Advances for foreign payments Short-term portion of loans Financial receivables Short-term financial payables	14,924,322 (287,500) 14,636,822	7,797,448 7,797,448	7,126,874 (287,500) 6,839,374
Net short-term financial position	(13,065,308)	(6,792,428)	(6,272,880)
Bonds and convertible bonds (beyond the subsequent year) Due to shareholders for loans (beyond the next financial year) Due to banks (beyond the next financial year) Due to other financial institutions (beyond the subsequent year) Advances for foreign payments Long-term portion of loans Financial receivables Medium and long-term net financial position	2,101,409 (68,714) (2,032,695)	(67,511) 67,511	2,101,409 (1,203) (2,100,206)
Net financial position	(15,098,003)	(6,724,917)	(8,373,086)

In order to provide a better description of the financial situation, the table below shows some balance sheet ratios, compared with the same ratios relating to the financial statements of previous years.

31/12/2019	31/12/2018	31/12/2017
Primary liquidity Secondary liquidity Indebtedness Coverage rate of fixed assets	1.26 1.26 2.15 1.47	1.19 1.20 2.84 1.77	1.28 1.29 2.73 2.52

The primary liquidity ratio is 1.26. The company's financial situation is to be considered good.

The secondary liquidity ratio is 1.26. The value assumed by the net working capital is certainly satisfactory in relation to the amount of current payables.

The debt ratio is 2.15. The amount of debt is considered significant in relation to existing shareholders' equity. The coverage ratio of fixed assets of 1.47 shows that the amount of consolidated shareholders' equity and debt is appropriate in relation to the amount of fixed assets. Shareholders' equity together with consolidated payables are considered to be of an appropriate amount in relation to the amount of fixed assets.

Environmental and personnel information

Taking into account the social role of the company as also highlighted by the document on the management report of the Consiglio Nazionale dei Dottori Commercialisti e degli esperti contabili (National Council of Chartered Accountants and Accounting Experts), it is deemed appropriate to provide the following information regarding the environment and personnel.

Staff

No on-the-job deaths occurred during the year among personnel listed in the register.

During the year, there were no serious accidents at work involving serious or very serious injuries to personnel listed in the register of employees.

During the year there were no charges relating to occupational illnesses on employees or former employees and mobbing cases.

Investments

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During the year, investments were made in the following areas:

Fixed assets	Acquisitions during the year
Land and buildings Plant and machinery Industrial and commercial equipment Other assets	13,600 1,280 295,367

The most significant item in fixed assets, "Other assets", consists of expenses for the construction of new offices in front of the company's headquarters; these works are financed by means of a building lease stipulated with UBI Leasing Spa.

Relations with subsidiary, associated, parent and sister companies

The following table shows the data from the latest approved financial statements of the subsidiaries, understood to be those companies in which STAR Spa holds the majority of votes that can be exercised at the Shareholders' Meeting (art.2359 of the Italian Civil Code)

Details of long-term investments in subsidiaries

Name	City or foreign state	Tax code (for Italian companies)	Capital euroin	Profit (loss) last year in euro	Shareholders' equity in euros	Share held in euros	Share held in %	Book value/corresp onding credit balance
STAR LOG	ASTI	01495260059	10,000	(192,674)	245,718	6,000	60	6,000
STAR COMUNICACAO	Brazil	320,704	1,553,843	2,631,312	240,528	75	379,679
CAL COMUNICACAO	Brazil	110,725	(7,454)	33,009	83,043	75	122,228
STAR ENGINEERING	Maranello (MO)	02436770065	40,000	587,834	765,852	40,000	100	674,920
STAR AUSTRIA GMBH	Austria	ATU71651312	35,000	47,039	62,808	35,000	100	199,350
STAR USA LLC	USA	6,114	222,744	3,276,247	6,114	100	292,474
AD STUDIO SRL	Lugo (RA)	02552920395	10,000	17,040	61,696	10,000	100	10,000
RES SRL	Valle SB Alessandria	10111260013	10,000	36,214	394,178	10,000	100	880,000
STAR ALBANIA	ALBANIA	4,106	(3,767)	339	4,106	100	4,143
Total	2,568,794

The company has had the following dealings with subsidiary group companies

COMPANY	FINANCIAL RECEIVABL ES	FINANCIAL PAYABLES	TRADE RECEIVABL ES	TRADE PAYABLES	TRADE REVENUES	TRADE COSTS
STAR LOG SRL	2,328	764,089	2,089	4,521,821
STAR ENGINEERING	58,565	73,512	22,436	405,606
AD STUDIO SRL	60,190	182,000	48,811	1,090,894
RES SRL	427	630,083	350	1,045,950
STAR AUSTRIAGMBH	2,920	15,000	2,920	370,000
STAR ALBANIA SHPK	30,000	30,000
STAR USA LLC	4,217,388
STAR COMUNICACAO LTD	49,833
TOTAL	4,391,651	1,694,684	76,606	7,464,271

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