Corporate Valuation. Massari Mario

over the next years, to do the following:

      ● Consolidate its positioning on the European market, within which it is among the major players.

      ● Increase its presence in the Canadian and U.S. markets.

      The next paragraphs will offer an overview of the main assumption formulated by Kappa management to develop its business plan (which spans a three-year time horizon).

      Assumptions on the Revenues

      Based on Kappa reference sector, revenues forecast have been developed on the basis of these expectations:

      ● Revenues linked to already-earned orders. Kappa has indeed a backlog of already-earned commissions, on which it is already working and already subjected to a final contract. Generally, the contracts signed by Kappa envisage fixed remuneration, whose payment is split in multiple tranches, based on the percentage of completion of the work. Moreover, the contracts precisely state the timeline of work completion status; as a consequence of this, there is usually a great visibility around both the quantum and the temporal distribution of revenues.

      ● Revenues from the new orders under acquisition/auction. In this respect, it is important to distinguish among:

      ● Orders for which negotiation with the counterparty is in already advanced phase. In this case, there is good visibility around nature of the activity to carry out and quantum of the payments. In some cases, there can also be some commercial offers already submitted.

      ● Orders for which negotiation with the counterparty is in initial phase. In these cases, the nature of the activity to carry out is known only partially, as is the compensation amount.

      ● Orders for which negotiation with the counterparty has not been initiated yet. In these cases, both the activity type and the compensation amount are not visible at all, but can just be hypothesized.

      Clearly, the trustworthiness of the assumptions carried out on the revenues varies as a function of the commission under consideration: high in the first case above, very low in the third one. Expected revenues linked to future potential commissions have been weighted by the probability of winning the commissions.

      ● Revenues from the orders that Kappa management thinks the company will win in the future. This is based on its past experience and knowledge of market dynamics.

Exhibit 2.17 shows the composition of the revenues expected over the time horizon covered by the business plan.

Exhibit 2.17 Expected revenues composition over business plan horizon

      Assumptions on the Direct Costs

      Kappa management has identified, in particular, three types of direct costs:

      1. Labor costs of internal staff: specialized digital technicians working for Kappa under an exclusivity agreement

      2. Labor costs of external staff: specialized digital technicians working for Kappa with no exclusivity obligations

      3. Services costs: specialized activities that Kappa outsources to other companies

      Having said this:

      ● In the case of already-won orders, the company has carried out detailed costs budgeting activity and, as such, there is great visibility around the relevance of the expected costs and of their temporal distribution.

      ● In the case of the orders under auction, the degree of precision of the estimated and, consequently, of their trustworthiness, is a function of how advanced the auction/negotiation with the counterparty is.

      ● In the case of the orders that Kappa management believes the company will likely win, direct costs have been assumed equal to a fixed percentage of revenues (specifically, 70 percent).

      Over the business plan years, the percentage incidence of direct costs over total revenues is equal to 68 percent (t1) and 70 percent (years t2 and t3).