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Class Editori 2014 Report on Operations and Financial Statements Share capital € 28,321,907.40 fully paid up Registered offices: Via Burigozzo 5, Milan Tax code and VAT number: 08114020152 R.E.A. 1205471 Page 2 Table of contents Class Group Directors and officers ......................................................................................................... 4 Report on operations of the Publishing House ................................................................... 5 Financial statement highlights of subsidiaries and associates ............................................ 30 Consolidated financial statements of the Publishing House .............................................. 35 Statement of changes in consolidated shareholders’ equity in 2013 and 2014 ................. 38 Consolidated cash flow statement ..................................................................................... 39 Consolidated financial position at 31 December 2014 pursuant to Consob Resolution no. 15519 dated 27/07/2006 ............................................................................ 40 Explanatory notes to the consolidated financial statements .............................................. 42 Schedule of significant equity holdings pursuant to art. 120 of Legislative Decree 89 no. 58/1998 ........................................................................................................................ Related-party transactions at 31 December 2014 .............................................................. 92 Attestation of the consolidated financial statements pursuant to art. 81-ter of Consob Regulation no. 11971/1999 .................................................................................. 99 Report of the Board of Statutory Auditors on the consolidated financial statements .......................................................................................................................... 101 Report of the Auditing Firm on the consolidated financial statements ............................. 104 Class Editori Spa Report on the operations of the Parent Company .............................................................. 108 Separate financial statements of the Parent Company ....................................................... 120 Statement of changes in shareholders’ equity in 2013 and 2014 ....................................... 124 Cash flow statement of the Parent Company ..................................................................... 125 Notes to the separate financial statements of the Parent Company ................................... 126 Attestation of the separate financial statements pursuant to art. 81-ter of Consob Regulation no. 11971/1999 ................................................................................................ 174 Report of the Board of Statutory Auditors on the financial statements of the 176 Parent Company ................................................................................................................ Report of the Auditing Firm on the financial statements of the Parent Company ............. 191 Page 3 Directors and officers Board of Directors Chairman Victor Uckmar Vice Chairman and Managing Director Paolo Panerai Vice Chairman Luca Nicolò Panerai Vice Chairman Pierluigi Magnaschi Executive Director Gabriele Capolino Executive Director Andrea Mattei Directors William L. Bolster Maurizio Carfagna Elena Terrenghi Peter R. Kann Samanta Librio Maria Martellini Maria Grazia Vassallo Angelo Riccardi Board of Statutory Auditors Chairman Carlo Maria Mascheroni Serving Auditors Lucia Cambieri Mario Medici Alternate auditors Vieri Chimenti Pierluigi Galbussera Independent Auditor PKF Italia Spa The three-year mandates of the Board of Directors and the Board of Statutory Auditors, appointed at the Shareholders' Meeting held on 29 April 2013, will expire at the Shareholders' Meeting that approves the 2015 financial statements. The mandate of the auditing firm will expire at the Shareholders’ Meeting held to approve the 2021 financial statements. Page 4 Report on operations of the Publishing House Page 5 Class Editori Spa and subsidiaries Registered office - Via Marco Burigozzo 5, Milan DIRECTORS' REPORT ON OPERATIONS DURING THE YEAR ENDED 31 DECEMBER 2014 Company performance The 2014 revenues of the Publishing House amounted to 90.03 million euro, up 7.1% from 84.03 million euro in 2013. 37% of these revenues came from the Publishing House’s digital information area (up 5.5% on 2013), 21% from the daily newspapers area (-9.9%), 16% from the periodicals area (-6%), 13% from the professional services area (+14%) and 13% from other revenues. This last source included the revenues from disposal of the digital terrestrial broadcasting permit and associated position on LCN 27. Operating costs were 90.46 million euro compared with 97.55 million euro in the previous year, a fall of 7.3%. The decrease in operating costs reflects containment efforts and the savings achieved since the start of the year. The actions implemented became routine during the year, generating considerable benefits. The gross operating margin, defined as the difference between the value and the cost of production before depreciation/amortisation, non-recurring items and net financial charges, showed a loss of 0.42 million euro compared with 13.52 million euro in the previous year. Depreciation, amortisation and write-downs totalled 10.58 million euro, compared with 8.24 million euro in 2013. This rise followed investment in the digital area, which has resulted in an increased depreciation charge, but was also due to the recognition of non-recurring items. These included the write-down of intangible assets with an indefinite useful life (following the impairment test carried out in accordance with the IAS 36 compliance procedure approved by the Board of Directors on 12 March), provisions for liabilities and charges, provisions for receivables that are disputed or doubtful, and provisions for the cost of shutting down the Class TV channel. The pre-tax loss of Class Editori and subsidiaries for the year ended 31 December 2014 was 12.2 million euro, compared with 28.1 million euro in 2013. The net loss of the Group, after deducting the non-controlling interest and taxes, was 14.41 million euro, as against 22.78 million euro in 2013. Primary economic - financial events of the period With GDP falling 0.4%, 2014 was another year of recession for the Italian economy, with clear repercussions on consumer spending and in all market sectors, especially publishing, advertising and communications. Nielsen data for the advertising market in Italy in 2014 highlights an overall decline of 2.5% (-2.4% in the first half). The Publishing House’s advertising revenue was in line with the market performance, falling by around 2.7%, but performed better in the daily newspapers area (-4.8% against -8.5% for the Italian market) and the TV area (+6.6% against -0.5%). Page 6 Within the digital space, up 14% on 2013, turnover grew strongly in the areas of business information, news agency and financial reporting for the banks and on-line trading platforms. Traffic on the Publishing House’s website grew by 11.5% in the last quarter of 2014 compared with the same period in 2013. According to AudiWeb AWDatabase, the Total Digital Audience grew from 87,976 to 98,135 individual users of newspaper media, with a peak in October (109,403 individual users). In the same quarter, the average number of individual users accessing the websites using mobile devices reached 23.6% of the total for the Publishing House, demonstrating user appreciation of the mobile version of the sites: especially that of milanofinanza.it, which proved capable of interpreting correctly its readers’ new usage habits and preferences. Also in the last quarter of 2014, the average number of webpages read each day was 706 thousand, substantially in line (+0.1%) with the fourth quarter of 2013. The average daily reading time, 4:36 minutes is very significant and higher than that of the site's direct competitor. The number of readers that follow in real time the news on the site through Twitter reached 82,500 users for MF-Milano Finanza and 25,600 for Italia Oggi during the quarter. Both daily newspapers can be read in digital format on all tablet platforms available on the market (iPad, Android, Amazon Kindle Fire and Windows 8). The distribution of MF/Milano Finanza averaged 69 thousand copies during the period (81 thousand in 2013), while Class averaged about 56 thousand copies (79 thousand in 2013) and Capital averaged 56 thousand copies (75 thousand in 2013), in line with the average performance of the distribution market. This fall in distribution was accompanied by a production and sales mix that is gradually shifting from printed to digital. While the average selling price has fallen as a result (generating lower revenues from distribution), there has also been a more than proportional saving in industrial and distribution costs, with a very positive effect on industrial margins. In the fourth quarter of 2014 MF-Milano Finanza had average daily sales of 16,949 digital copies, whereas Italia Oggi sold 18,860 digital copies (source ADS), placing this associate among the leading Italian daily newspapers for digital distribution. Notable events during the year: • On 9 January, the Board of Directors approved the business plan which identified a need to strengthen the financial structure in order to operate more