GOTHAM CITY RESEARCH LLC

Response to the SES Imagotag July 10 Press Release

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Response to the SES-Imagotag July 10, 2023 Press Release
On July 7, we published Part II of our report, and the Company provided their detailed response to Part II
on July 10. We would like to share a few important observations regarding their response:

 The SES-imagotag press release appears to strongly deny our assertions. For example, the
company, in the title to its press release, affirms that “SES-imagotag unequivocally rejects second
part of Gotham City’s inaccurate and deliberately misleading publication”.
 However, the actual details in the press release contradict this strongly worded denial. For
example, the details of the company’s response confirms that we were correct about nearly all of
the accounting irregularities we identified.
 The company effectively acknowledges most of our core points or does not deny them.

Gotham City Research presents the following clarifications and responses set out in this document
which address in detail the topics listed below:

1. SESL responses confirm that we were correct about 11 out of the 12 accounting irregularities
identified in the other accounting irregularities and unexplained red flags section of the Part II
report (SESL referred to this report as “inaccurate and deliberately misleading publication”).
2. These accounting irregularities occurred under the oversight of an audit committee that SESL
describes as “independent” and having “the right mix of skills and experience.”
3. We found only 1 out of the SBF 120 comparable companies whose board member holds a larger
proportion of its company’s shares than SESL’s audit committee directors. For this reason, we
find these directors’ independence compromised.
4. Among the SBF 120 constituents, we found only 2 out of the 120 with a management company
such as SESIM. Therefore, the SESIM structure is not a common vehicle, as claimed by SESL.
5. SESL claims that the Austrian undisclosed related party agreement does not require to be
disclosed. Yet SESL has referred to MM. Moosburger and Roessl as members of SES Imagotag’s
Executive Committee. Thus, SESL should disclose related party transactions with them.
6. The JV’s 2021 revenue growth was 47%, yet SESL falsely claims “revenue growth from the JV was
limited” to justify the JV’s suspiciously low sale price to BOE Yiyun.
7. The Chongqing exclusivity agreement was made in 2019, a time when SESL was already cash
constrained, and could not afford to make such large payments with existing resources.
8. SESL continued to promote itself alongside Wirecard, well after public allegations of fraud and
the Financial Times excellent series exposing Wirecard’s malfeasance.

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 1. SESL responses confirm that we were correct about 11 out of the 12 accounting irregularities
identified in the other accounting irregularities and unexplained red flags section of the Part II
report (again, SESL referred to the entirety of report part II as “inaccurate and deliberately
misleading publication”).

SESL claims the following (p. 1):

“SES-imagotag unequivocally rejects second part of Gotham City’s inaccurate and deliberately misleading
publication”

We reviewed the company’s responses to our part II report. We specifically observed that among the 12
main accounting irregularities we identified in the other accounting irregularities and unexplained red
flags section, the company’s responses confirmed that 11 out of 12 of our observations were correct:

 8 out of the 12 accounting irregularities the company simply dismisses as “typos”. Based on our
understanding on what “typo” means, their accounting errors are not merely “typos”, i.e. not
merely misspellings. They are fundamental errors involving numeral values in an audited and
accounting context, i.e., accounting irregularities and/or financial misstatements. We believe it
is important for everyone to be clear that the company’s portrayal of these accounting
irregularities as mere “typos” is false and misleading.
 3 out of the 12 observations suggest that the financial figures might have been accurate, but
then financials disclosures were inaccurate or incomplete. It is important to note that SES
Imagotag did not provide these disclosures until Gotham City Research publicly revealed publicly
problems. The public would not have known them without our reports.

Let’s examine these 3 examples:

Value-added services – SES Imagotag attributes the accounting irregularity we identified to “fixings
revenues”. The issue here is that the company has never previously disclosed such a category in their
previous public disclosures. Nor does the company define what “fixings revenues” are.

2021 goods and services revenues – The company claims “The Group first reported in 2022 on the
revenue split between goods and services”. This is demonstrably false. We identified an inconsistency
between the 2021 goods and services revenue as disclosed in 2022 AR vs the 2021. This split was
available and disclosed before 2022.

2022 EBITDA irregularity – The company attributes the 2022 EBITDA irregularity we identified in our
Part II report to IFRS 16. The issue here is that the company never previously disclosed IFRS 16 as the
reason for these two different EBITDA figures, in their previous public disclosures.

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In addition to these 11 accounting irregularities identified in the other accounting irregularities and
unexplained red flags section of the Part II report, the company also confirmed we were correct about
another one we flagged regarding SES-Imagotag Japan K.K:

In the 2022 URD, there is a typo in the footnote 6 below the note 3 related to financial assets. The
amount of € 18,668,000 is related to YiYun investment and not Japan’s subsidiary investment.

2. These accounting irregularities occurred under the oversight of an audit committee that SESL
describes as “independent” and having “the right mix of skills and experience.”

SESL claims the following (p. 2):

“SES-imagotag’s Audit Committee is comprised of independent directors with the right mix of skills and
experience to oversee the Company’s financial reporting process”

Every issuer that Gotham City Research has published on has included directors with convincing pedigrees
and resumes. None of this matters, however, if these directors do not have forensic accounting and audit
experience, nor the correct incentives to uncover and correct such behaviors.

And even if the SESL audit committee members possessed the relevant background and skills, the fact
remains: accounting irregularities occurred under the oversight of this audit committee.

Perhaps the reason these and other problems festered is simply that SESL’s audit committee is highly
conflicted, not independent.

3. We found only 1 out of the SBF 120 comparable companies whose board member holds a larger
proportion of its company’s shares than SESL’s audit committee independent directors. For this
reason, we find these directors’ independence compromised.

SESL claims the following (p. 4):

“Such an approach is followed by many French listed companies where directors hold (directly or
indirectly) stakes at comparable levels.”

SES’s “independent” board members’ SESL share stake via the SESIM structure are disproportionately
large relative to those held by board members of similarly sized French companies, severely compromising
their de facto independence.

We checked the shareholdings of board members of SBF 120 companies (CAC 40 excluded, given the much
larger market capitalisations of those companies compared to SESL’s market capitalization). Out of 80
companies, and after excluding legal entities (e.g., private equity firms, banks, etc.) which are not personal
holdings, we found that nearly all board members’ stakes are much lower than €1mn of their company’s
shares (most of them only hold stakes worth a few dozens of thousands of euros).

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We found only two independent board members (physical persons) holding more than €1 million of their
company’s shares: Christian de Gournay, holding 329 278 shares of Altarea directly and indirectly (€33.8
million), and Ian Meakins, holding 115 250 shares of Rexel (€2.7 million). Both are chairmen of the
supervisory committees of their respective companies (which both have a dual executive board /
supervisory committee structure).

Compare that against Franck Moison and Helene Ploix, who held 192,678 and 154,142 shares
respectively in SESIM and thus SESL shares. Moison and Ploix head the audit committee. Neither are
chairmen of SESL. This shows that the holdings of SES’s board members through the management co
are completely disproportionate large relative to those held by board members of comparable French
companies in size. This poses a major and fundamental conflict of interest.

Instead of addressing this core conflict of interest, the company has instead resorted to extremely vague
and purely formal answers to claim that the directors are independent: we’re making a statement as to
their actual conflicts of interests, not a tick-boxing exercise based on the AFEP-MEDEF code. SES does not
refute in any way the problems of independence affecting “independent” directors otherwise than by
claiming compliance to the AFEP-MEDEF code. The fact that Ms Ploix does not own an important stake in
SESIM as a proportion of SESIM’s capital does not mean that this stake does not form a meaningful part
of her own wealth. Answers relating to other independent directors follow a narrow box-ticking approach
and are so vague groundless that they do not deserve further comment from us. No explanation is given
as to why board members and managers are pooled in the same vehicle, which is managed by SES’s
managers.

The problems identified in SESIM (in particular the mix of board members and managers within its
shareholder base) are not addressed. Here as elsewhere, SES provides vague and inaccurate answers
(SESIM “gives management a long-term vision and creates an alignment of interests between
management and shareholders”, management cos of this sort are “observed in many SBF 120 French
listed companies”, “GC’s vision is again completely incorrect and demonstrates their bad faith”, etc) that
are characteristic of the company’s failure to provide valid counterarguments refuting GC’s claims.

Furthermore, SESIM’s leverage through its margin loans (that is, debt raised by SESIM and secured by
shares in SES Imagotag) encourages its shareholders and managers to manipulate the share price so as to
(i) benefit from the multiplier effect the leverage provides and (ii) avoid margin calls from SESIM’s lenders
(i.e., the anticipated reimbursement of the debt through the distribution of SES Imagotag shares) in case
the decrease in the share price is such that those lenders are entitled by the loan agreements to make
such margin calls. This is to a large extent what happened in the Rallye / Casino case. This incentive to
manipulate the share price is likely to be much stronger than the incentives it may provide the board and
managers to create value, particularly when faced with adversity.

4. Among the constituents of the SBF 120, we found only 2 out of the 120 with a management
company such as SESIM. Therefore, SESIM is, in fact, a highly unusual structure.

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 SESL claims the following (p. 5):

“Indeed, the use of a vehicle dedicated to the holding of the management’s stake in the company, with the
management (and in some cases members of the Board) holding shares in such vehicle, is observed in
many SBF 120 French listed companies.”

We evaluated this claim. Contrary to SESL management’s claim, we only found 2 out of 120 SBF 120
members with such companies with a management co to this date. These companies are Ipsos and
Voltalia. These examples show that the use of management companies is highly unusual for companies of
SES’s size. Furthermore, out of these two companies, only Voltalia’s management company, Voltalia
Investissement, counts a board member in its capital. This board member is the company’s chairman, who
holds less than €200,000 in shares of the management co (which is mainly a family holding company).

5. SESL claims that the Austrian undisclosed related party agreement does not require to be
disclosed. Yet SESL has referred to MM. Moosburger and Roessl as members of SES Imagotag’s
Executive Committee. Thus, SESL is required to disclose related party transactions with them.

SESL claims the following (p. 2):

“Therefore, the so called “undisclosed related party agreement” does not require to be disclosed”

Previous SES Imagotag annual reports stated that MM. Moosburger and Roessl are on the executive
committee which SES also describes as “top management level”. Per IAS 24, a related party includes “a
member of the key management personnel of the reporting entity or of a parent of the reporting entity”
(irrespective of whether they are board members). Thus, we believe SES Imagotag should have been
disclosing the related party transactions between the company and MM. Moosburger and Roessl.

“The Austrian related-party agreement is contracted on an arm’s length basis and reported every year to
Auditors”: reporting these related party transactions to auditors is not in any way equivalent to publicly
disclosing them. Also, these related party transactions don’t appear to be “arm’s length” to us, as SES
managers are involved. The fact that French law does not formally require their disclosure makes their
opacity no less problematic, especially from an IFRS perspective (IAS 24).

6. The JV’s 2021 revenue growth was 47%, yet SESL falsely claims “revenue growth from the JV was
limited” to justify the JV’s suspiciously low sale price to BOE Yiyun.

SESL claims the following (p. 7):

“It is important to remind shareholders that the revenue growth from the JV was limited.”

This is simply false (unless the JV’s revenues are fake, a possibility we have raised). in 2021 the JV’s
reported revenue growth was 47%, while the group overall grew at 46%. SES described the JV’s 46%
revenue growth as “strong” and “stellar” at the time, so why is the company now playing down the growth

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of the JV? It seems SESL promoted this lie to justify the otherwise absurdly low valuation of the JV, as
evidenced by SESL’s justification “it was therefore not a “low price” but a fair market value” following its
false claim that revenue growth from the JV was limited.

Yes, it’s true that the JV had a history of losses, but so has SESL since SES and Imagotag merged in 2014.
If SESL shares were valued in the same way as the JV shares were, at 1x cash, we calculate SESL shares
would be worth €2/share.

Regarding the JV transaction “coincidences”: does lightning strike twice?

Even after the company’s responses, we remain highly suspicious of the JV and SES Imagotag’s sale of the
JV to BOE YiYun. The company claims not once, but twice that “coincidences” explain suspiciously similar
numerical amounts directly related to the JV transaction:

 The valuation of the China JV at the point of transaction is €18.6 million and the cash impact of
the China JV on SES financial statement at the point of transaction is also €18.6 million. And this
is just a pure coincidence, according to the company.
 The amount of cash of the China JV at the point of deconsolidation is € 13.8mn and SES-Imagotag’s
initial investment into the JV is also € 13.8mn. And this too, is just a mere coincidence according
to the company.

SESL claims the following (p. 7):

There is no discrepancy between sources, cash balance figures reported are correct and the Group did not
inject € 13.8mn cash in the China JV in 2019.

We find this inaccurate and misleading. SESL has never previously disclosed that “A first paid-in capital
contribution from all the shareholders was effective in 2019 for US$ 10mn, including US$ 5.1mn (51%)
for SES-imagotag”. This disclosure regarding the $5.1 million has come as a reaction to our reports.

Regarding the $5.1 million vs 15.3 million: We precisely raise this point in our second report, as only third-
party sources local to the JV in China indicate that SES funded 5.1, NOT 15.3. Given that a reputable third
party has indicated the funding was only 5.1, it would throw into doubt the soundness of SES’s financial
statements – again, this is a question for SES and the auditor as to why local filings indicate they only
invested 5.1 when their filings do not reveal 5.1 million, instead the only figure they explicitly disclose is
$15.3 million (or the EUR equivalent).

Because the Company never disclosed the 5.1 million in their filings, the calculation on Page 18 of our
second report – which shows discrepancies – is not only factually correct, but meritorious. It is pointing
out how the difference between those values is very small. That could be a coincidence, or not. As for
intercompany transactions, the company does not disclose them, so we cannot conduct such an analysis.
Theoretically, there may be more cash within the consolidated SES perimeter, but SES does not provide
this data. We would also posit that there may be significant cash in the SES group besides the JV and the

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parent, but our calculation precisely makes clear that if the JV was funded as described, and the JV cash
was consolidated, this means that the entire rest of the SES group only has EUR 197 thousand in their
bank accounts!

SESL claims the following (p. 10):

“GC considers that cash flows equal net income. The firm made the same mistake in Part I of their
publication, omitting the € 4.8mn working capital impact in the case of the China JV.”

Like their other responses, this is a highly misleading claim. As investors in publicly traded securities, we
base our research on publicly available information. As a result, we frequently need to make assumptions,
as do most investors and analysts. In this case we made clear that we made the simplifying assumption
that cash flow = net income. This assumption has been clearly stated as such in our Report. We believe
that absent detailed cash flow and/or balance sheet data, the closest approximation of cash flow is net
income. Over time companies with proper accounting will see cumulative net income and cumulative
cash flow converge. Should SES like to provide the public more information, we will happily amend our
calculations to take into account further data. In the interim we have made clear what our assumption
was and believe it is not unfounded. Should SESL like to provide detailed, audited financial statements
for the JV, we are happy to update our analysis. Merely sneaking in the 4.8 million while failing to mention
that this figure was never previously publicly disclosed is highly deceptive.

Regarding the company’s claim that we failed to understand the capital gains arising from the JV sale:
Firstly, as we noted in this report, the foundation of the JV valuation is rooted in a lie: the JV grew revenue,
yet the company states it did not. Secondly, we make it clear in our report that “we are unable to
reconcile” the capital gains issue. We are unable to reconcile how the gain has come to fruition. In many
financial reports we see clearly how gains and losses on disposals have come about, as well as goodwill
(or negative goodwill) attribution. Despite conducting 2 related party M&A transactions in a single year,
the Company has provided no information to assist a public investor in its shares to reconcile how the
gain comes about, which is precisely our point. As such if the company questions our inability to reconcile
the gain, we believe it should provide us and all other market participants with the data so we can
reconcile a claimed gain on sale. We are surprised that this is not already disclosed. This is a testament
to how poor the financial reporting of this company is.

7. The Chongqing exclusivity agreement was made in 2019, a time when SESL was already cash
constrained, and could not afford to make such large payments with existing resources.

SESL claims the following (p. 11):

“The Chongqing exclusivity agreement has not incurred additional debt.”

The company’s response increases our conviction that the Chongqing exclusivity agreement looks strange.
SESL does not deny our central observation: this agreement made little to no financial sense for SESL in
2019, with existing resources. Instead, SESL engages in subterfuge: “There was no additional debt increase

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because of this payment.” In other words, they are saying the additional debt was not tied solely to the
agreement.

8. SESL continued to promote itself alongside Wirecard, well after public allegations of fraud and
the Financial Times excellent series exposing Wirecard’s malfeasance.

SESL claims the following (p. 15):

“As partners [with Wirecard], both companies attended some marketing events.”

As we clearly show in our report Part II, SESL did not merely attend some marketing events alongside
Wirecard: SES Imagotag cross promoted with Wirecard until nearly the very end, despite many public
warnings from the Financial Times and others.

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