Annual Report

ANNUAL REPORT

AT DECEMBER 31, 2017

ANNUAL REPORT AT DECEMBER 31, 2017 This is English translation of the Italian Annual Report, which is the sole authoritative version ANNUAL REPORT

NOTICE OF CALL OF ORDINARY AND EXTRAORDINARY SHAREHOLDERS’ MEETING

Those entitled to vote are called to the Ordinary and Extraordinary Shareholders’ Meeting of RCS MediaGroup S.p.A. (the “Company” or “RCS MediaGroup”) to be held at 10:30 am on April 26, 2018, in single call, at the Company’s offices in Via Balzan 3, Milan, to resolve on the following

Agenda

Ordinary session

1. Financial statements at December 31, 2017; Report on Operations; Independent Auditors’ Report; Report of the Board of Statutory Auditors; Presentation of the consolidated financial statements at December 31, 2017; related and consequent resolutions. 2. Appointment of the Board of Statutory Auditors: 2.1 Appointment of three Standing Auditors and three Alternate Auditors; 2.2 Appointment of the Chairman of the Board of Statutory Auditors; 2.3 Determination of the remuneration of the members of the Board of Statutory Auditors. 3. Appointment of the Independent Auditors for the 2018-2026 financial years and determination of their fee. Consequent resolutions. 4. Remuneration Report pursuant to Art. 123-ter, paragraph 6 of Legislative Decree 58/98; related and consequent resolutions.

Extraordinary session

1. Reduction of the share capital. Related and consequent resolutions. With regard to the only item on the agenda of the Extraordinary Shareholders' Meeting, we specify, also pursuant to Art. 2445, paragraph 2 of the Italian Civil Code, that: (i) it is proposed to proceed with reducing the share capital to cover the losses carried forward as reported in the financial statements at December 31, 2017 (by the amount remaining after using the profits from the 2017 financial year and the reserves), from €475,134,602.10 to €411,327,595.83; (ii) it is also proposed to proceed with an additional reduction in the share capital from €411,327,595.83 to €270,000,000.00 for the purpose of rebalancing the Company's capital structure between capital and reserves by allocating €141,327,595.83 as follows: (i) €54,000,000.00 to establish the legal reserve pursuant to Art. 2430 of the Italian Civil Code; and (ii) €87,327,595.83 to establish an available reserve without proceeding with any capital repayment to the shareholders. The resolution may be implemented after ninety days from its registration in the Company Register, so long as no creditor prior to registration has, within this period, filed an objection. For additional details, please refer to the explanatory report prepared in accordance with Art. 125-ter of Legislative Decree no. 58 of February 24, 1998, which will be made available within the terms and according to the methods set out by law.

III – ANNUAL REPORT

* * *

Shareholders’ entitlement to participate in the meeting Pursuant to law and the By-laws, entitlement to participate in the Shareholders’ Meeting and to exercise the right to vote is certified by a communication sent to the Company by an intermediary that holds the accounts in which the ordinary shares of RCS MediaGroup are recorded, in compliance with its accounting records, in favour of the subject with the right to vote on the basis of records as at the end of the accounting period on the seventh open market day preceding the date set for the shareholders’ meeting (i.e. April 17, 2018, the so-called “record date”); registrations of credits and debits on accounts carried out after said date are not relevant for the purposes of entitlement to exercise the right to vote at the Shareholders’ Meeting. Therefore, those who only acquire Company ordinary shares after said date will not be entitled to attend and vote at the Shareholders’ Mee- ting. The aforementioned intermediary communication must reach the Company by the end of the third open market day preceding the date set for the Shareholders’ Meeting (i.e. April 23, 2018). However, shareholders are still entitled to participate and to vote if the communication is received by the Company after said term, provided it is before the start of the shareholders’ meeting of this call. The communication is sent to the Company by the intermediary at the request of the subject with the right to vote.

Additions to the agenda and submission of new proposed resolutions Pursuant to Art. 126-bis of Legislative Decree no. 58 of February 24, 1998, shareholders who, including jointly, represent at least one fortieth of share capital may, within 10 days after publication of this notice (i.e. March 26, 2018), request the inclusion of additional items in the agenda of the Shareholders’ Meeting, specifying the proposed items in the request, or submit proposed resolutions on the items already included in the Shareholders’ Meeting agenda, indicating the further proposed resolutions in the request. The additions may not concern matters which the Shareholders resolve upon, in accordance with the applicable provisions, at the proposal of the Board of Directors or on the basis of a project or report prepared by them different from those set out in Art. 125-ter, paragraph 1, of Legislative Decree no. 58/1998. The request, along with the communication (or communications) issued in accordance with provisions in force by the intermediaries that hold the accounts in which the requesting shareholders’ ordinary shares are recorded, certifying ownership of the above-mentioned shareholding (to prove entitlement), must be sent in writing within the aforementioned term, via delivery or via registered letter to the Company’s registered office (Via Angelo Rizzoli 8, 20132 Milan) to the attention of the Corporate Affairs department, or sent by email to rcsme- [email protected], together with information that makes it possible to identify the submitting shareholders (for this purpose, it is also recommended that a telephone number be provided). Also by the same deadline and using the same procedures, any proposing shareholders must send a report containing the reasons for the proposed resolution on the new topics proposed for discussion and to be added to the agenda, or the reason for the additional proposed resolution concerning items already included in the agenda. The Company shall disclose any additions to the Shareholders’ Meeting agenda or the submission of additional proposed resolutions on topics already included in the agenda in the same manner as publication of this call notice, at least fifteen days before the date set for the Shareholders’ Meeting (i.e. before April 11, 2018). When the notice regarding additions to the agenda or the submission of proposed resolutions on items already included in the agenda is published, such proposals, as well as the relative report prepared by the submitting shareholders and the report of the shareholders requesting additions to the agenda, possibly accompanied by remarks from the Board of Directors, shall be provided to the public in accordance with the procedures set out under Art. 125-ter, paragraph 1 of Legislative Decree no. 58/1998. It should be noted that, pursuant to Art. 126, paragraph 1, of Legislative Decree no. 58/1998, each party entitled to vote may individually submit proposed resolutions for the Shareholders’ Meeting (without prejudice to the applicable provisions of the by-laws).

Representation at the shareholders’ meeting Persons entitled to attend the Shareholders’ Meeting may appoint a proxy to represent them, in accordance with applicable provisions of law and regulations, by means of written authorization (in particular, the proxy may also be conferred via an electronic document signed electronically pursuant to Art. 135-novies, paragraph 6 of Legislative Decree no. 58/1998). For this purpose, the person entitled may use the proxy form available on the company website www.rcsmediagroup.it (in the Governance/Shareholders’ Meetings/2018 section) or made available to shareholders at the Company’s registered office (Via Angelo Rizzoli 8, 20132 Milan) by the deadline for publication of this notice (i.e. by March 16, 2018). The proxy may be notified to the Company via regi-

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stered letter at the Company’s registered office, at the address already indicated, to the attention of the Corpora- te Affairs department and with reference to “Proxy voting – Ordinary and Extraordinary Shareholders' Meeting, April 26, 2018”, or also via the transmission of a fax to +39 02 25845443 or a communication via e-mail to the following address: [email protected]. If the representative delivers or sends a copy of the proxy to the company in place of the original, he must certify, under his own responsibility, the conformity of the proxy with the original and the identity of the delegating party. Any prior notification does not, therefore, exempt the proxy holder, regarding accreditation for the access to shareholders’ meetings, from the obligation of certifying that the proxy sent is a true copy of the original and the identity of the proxy issuer.

Appointed representative The Company has appointed, pursuant to Article 135-undecies of the Consolidated Finance Act, the company Società per Amministrazioni Fiduciarie "Spafid. S.p.A." as the party upon which to confer, without costs accruing to the delegating party, a proxy with voting instructions, written proxy for all or some of the proposals on the agenda of the Shareholders' Meeting. The proxy shall be conferred by signing a specific form with either a handwritten signature, a qualified electronic signature or digital signature, in compliance with the Italian law in force. The form is available on the Com- pany website www.rcsmediagroup.it (Governance/Shareholders' Meetings/2018 section) or at the Company headquarters. The original proxy must be received by the end of the second trading day prior to the date of the Shareholders' Meeting (i.e. by 24 April 2018) along with a copy of the delegating Shareholder's valid identification document or, if the delegating Shareholder is a legal entity, that of the pro-tempore legal representative or other authorized person, along with adequate documentation certifying their powers to Spafid S.p.A.: i) for proxies with a handwritten signature that are hand delivered or delivered by courier or via registered mail (Foro Buonaparte 10, 20121 Milano); and ii) for proxies with a qualified electronic signature or digital signature, via certified email to [email protected]. The proxy and voting instructions may be revoked within the same term. The proxy will only be effective for those proposals for which voting instructions have been given. It should be noted that the shares for which the proxy has been conferred, including partial, are counted for the purposes of the quorum required for the Shareholders’ Meeting. Regarding proposals in respect of which voting instructions have not been given, the shares are not considered for the purpose of calculation of the majority and the share of capital required for approval of resolutions. The communication sent to the Company by the authorized intermediary, certifying entitlement to participate in the Shareholders’ Meeting, is also necessary where a proxy is granted to the representative appointed by the Company; failing such communication, the proxy will be considered null and void.

Voting by correspondence No procedures are provided for voting by correspondence or electronic means.

Right to submit questions on the items on the agenda Pursuant to Art. 127-ter of Legislative Decree no. 58/1998, those entitled to vote may also submit questions on the items on the agenda before the Shareholders’ Meeting. Questions that are not related to the items on the agenda of the Shareholders' Meeting will not be taken into consideration by the Company. Questions can be sent, together with information that makes it possible to identify the party entitled to vote, via registered letter to the Company’s registered office (Via Angelo Rizzoli 8, 20132 Milan), to the attention of the Corporate Affairs department, or by fax to +39 02 25845443 or by email to [email protected]. In this regard, the Company must also receive a specific communication issued by the intermediary on whose accounts the ordinary shares held by the party entitled to vote, proving entitlement to exercise the right, are recorded. Questions must reach the Company by the end of the third day preceding the date set for the Shareholders’ Meeting (i.e. April 23, 2018). Responses are provided for the questions received prior to the Shareholders’ Meeting by the abovementioned deadline at the latest during the Meeting itself. Responses provided in hard copy at the beginning of the meeting to each party entitled to vote are deemed provided during the Meeting. The Company may provide one overall answer to questions with the same content. The Company also reserves the right to provide the information requested in queries received prior to the Shareholders’ Meeting in a dedicated “Questions and Answers” section that may be prepared and made available on the company website www.rcsmediagroup. it (Governance/Shareholders’ Meetings/2018 section), and in that case the response will not need to be provided during the Meeting.

V – ANNUAL REPORT

Share capital and shares with voting rights The share capital amounts to €475,134,602.10, divided into 521,864,957 ordinary shares with no par value. Each ordinary share carries the right to one vote (except for the treasury shares held by the Company, which currently number 4,561,615, whose voting right is suspended by law).

Item n. 2 on the agenda of the ordinary session It should be noted that the members of the Board of Statutory Auditors are appointed through a list vote pursuant to Art. 20 of the By-laws (available on the Company website www.rcsmediagroup.it, in the Corporate Governan- ce section) and to the applicable laws and regulations currently in force. In compliance with the By-laws, the Board of Statutory Auditors is composed of three Standing Auditors and three Alternate Auditors. Minority shareholders are entitled to appoint one standing and one alternate auditor. Statutory Auditors, which may be re-elected, are to be selected from candidates possessing the prerequisites, even those related to the total number of offices held, required by law or regulations currently in force, including those related to professional characteristics, in compliance with Ministerial Decree no. 162 of March 30, 2000 under article 1, paragraph 2, letters b) and c), which are intended to be strictly related to the Company's activities: (i) those related to commercial law, tax law, accounting, business administration, general and international business, financial markets, corporate finance, and (ii) the manufacturing and publishing sectors and those related to communications in general. With regard to the presentation of the lists, it should be noted that each list, which includes the names of one or more candidates, each of whom is marked with a progressive number that in total may not exceed the number of members to be elected, must specify whether each candidate is nominated for the office of Statutory Auditor or Alternate Auditor. Members of the Board of Statutory Auditors are appointed in accordance with the applicable laws and regulations in effect concerning gender equality, based on the lists submitted by the shareholders. Pursuant to Article 20 of the By-laws, the lists with a total number of candidates equal to or greater than three must be composed of candidates of both genders so that the least represented gender makes up at least one third (rounded up to the next whole number) of the candidates for the office of Standing Auditor and at least one third (rounded up to the next whole number) of the candidates for the office of Alternate Auditor. The lists may be submitted (considering the provisions set out in CONSOB resolution no. 20273 of 24 January 2018) by Shareholders who, individually or collectively with other Shareholders, hold voting shares, on the date the list is submitted, of at least 2.5% of the share capital with voting rights at the Ordinary Shareholders' Mee- ting. Each candidate may stand for election only on one list, on penalty of being deemed ineligible. No shareholder, either individually or in conjunction with others, may submit more than one list and no shareholder, or any other party entitled to vote, may vote for more than one list either directly or through intermediaries. Additional- ly, shareholders who: (i) are part of the same group (or, pursuant to Art. 93 of Legislative Decree 58/1998, are in a relationship of control with one another or are controlled by the same party, even if the controlling party is an individual), or (ii) are party to a shareholders' agreement concerning the Company's shares, pursuant to Art. 122 of Legislative Decree no. 58/1998, or (iii) are party to such a shareholders’ agreement and are, under the law, entities that control or are controlled by, or subject to joint control by one of the participating Shareholders, may not submit, individually or jointly with others, more than one list nor can they vote for different lists. Nomina- tions filed and votes cast in violation of the prohibition set forth in this paragraph will not be attributed to any list. The lists, together with the curriculum vitae of each candidate containing detailed information about the candidate’s personal and professional characteristics, along with a list of the administrative and control positions held in other companies if any, signed by the Shareholders that have submitted the nomination, or their representative, along with information on their respective identity and the total shares held at the submission date, must be filed at the registered office by the twenty-fifth day prior to the date of the Shareholders' Meeting on single call (i.e. April 1, 2018). A statement shall also be submitted with the lists by the submitting Shareholders, other than those that hold, even jointly, a controlling interest or relative majority share of the share capital with voting rights at the Shareholders’ Meeting, certifying that no relationship exists with the latter in compliance with the provisions set out by current legislation and regulations. The notice attesting to the previously mentioned shareholding issued by an authorized intermediary in accordance with the applicable legal provisions and regulations, may be submitted at a later date provided that it is at least twenty-one days prior to the date of the Shareholders' Meeting on single call (i.e. April 5, 2018). When submitting the list, the declarations from each individual candidate must also be submitted in which they accept their nomination and declare, under their own responsibility: 1) that there are no grounds for their ineligibility and incompatibility, and that they meet the prerequisites set out in the primary and secondary legislation;

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2) that they satisfy the independence requirements prescribed under Art. 148, paragraph 3 of Legislative Decree no. 58/1998.

Any lists that fail to observe the above conditions are deemed not to have been submitted.

In the event only one list is submitted within the term for filing the list of candidates for the Board of Statutory Auditors (i.e. April 1, 2018), or if the only lists submitted are from Shareholders that are deemed to be related according to Art. 144-quinquies of CONSOB regulation no. 11971/1999 and to current laws and regulations, additional lists may be submitted until 17:00 of the third day following the above term (i.e. April 4, 2018). The aforementioned minimum share for submitting a list is to be halved. It should be noted that the lists are to be submitted along with the documentation and information as set out in the By-laws and prevailing regulations. In this regard, it should be specifically noted that, along with the lists, the following are to be filed: (i) information on the identity of the shareholders submitting the lists, indicating the total percentage of shares held; (ii) detailed information on the personal and professional characteristics of the candidates and a declaration in which each candidate accepts their nomination and attests, under their responsibility, that they possess the prerequisites required under current legislation, and (iii) if the lists are submitted by shareholders other than those that hold, even jointly, a controlling interest or relative majority share, a statement, pursuant to Art. 147-ter, paragraph 3 of Legislative Decree no. 58/1998 and Art. 144-quinquies of CON- SOB regulation no. 11971/1999, certifying that no relationship exists between the minority shareholders and the shareholders that submitted or voted the list that received the highest number of votes (also considering the recommendations issued by CONSOB with Communication no. DEM/9017893 of February 26, 2009, to which reference is made). Also, considering the provision set out in Art. 2400, last paragraph of the Italian Civil Code, Shareholders are to immediately communicate any relevant changes to the disclosure that may arise up to the date of the Meeting. It should be noted that the Company adheres to the Corporate Governance Code for Listed Companies that specifically requires that Statutory Auditors be chosen from individuals who may be qualified as independent based also on the criteria for qualifying as an independent Director under the Corporate Governance Code as adopted by the Board of Directors. In this regard, reference is made to the Report on Corporate Governance and Owner- ship Structure (also available on the Company website www.rcsmediagroup.it, Corporate Governance section). Shareholders are therefore encouraged to take into consideration the above and provide, along with the nomination, a compliant declaration from each of the interested parties that attests, under their own responsibility, to their eligibility as an independent under these criteria. In cases where only one list was submitted that subsequently received a relative majority of the share capital represented at the Shareholders' Meeting, all the candidates on that list are elected. Where no lists are submitted, the Shareholders' Meeting shall, by majority vote of the share capital represented at the Meeting, appoint the Board of Statutory Auditors to ensure compliance with the laws and regulations in force on gender equality.

Filing of lists through remote means of communication and their disclosure The lists and the copies of the required accompanying documentation may be filed not only at the registered office, but may also be submitted via e-mail or certified email to [email protected] (in this regard, it is stressed that, along with the above documentation, information must be provided so as to allow identification of the person filing the documentation, along with their telephone number). The lists and the information accompanying them shall be made public in accordance with current regulations (or more specifically, they shall be made available at the Company's registered office and published on the Com- pany website in the section Corporate Governance/Shareholders' Meetings/2018, as well as being filed with Borsa Italiana S.p.A.) at least twenty one days prior to the date of the Shareholders' Meeting on single call (i.e. by April 5, 2018). Any proposals simultaneously brought forward by Shareholders that submit lists for appoin- ting the Board of Statutory Auditors and that relate to the appointment shall be made public using the same methods and within the same terms. Also, in compliance with Art. 144-octies, paragraph 2 of the Regulation adopted by CONSOB with resolution no. 11971/1999 and subsequent amendments and additions, disclosure shall be made without delay if no minority lists for the appointment of the Board of Statutory Auditors are submitted by April 1, 2018, as well as for the extension of the deadline and reduction in the minimum share thre- shold for submitting them as specified previously.

VII – ANNUAL REPORT

Documents and information The documentation on the items on the agenda, required under the applicable legal and regulatory provisions, is available to the public at the Company’s registered office and is published on the Company website www.rcsmediagroup.it (Governance/Shareholders’ Meetings/2018 section) in accordance with the procedures and deadlines prescribed by regulations in force. Shareholders and other persons entitled to participate in the Shareholders’ Meeting may obtain a copy of the documents. In particular, the following are available to the public: − by March 16, 2018, the Report on Operations on the matter under item 2 of the Agenda of the Ordinary Sha- reholders’ Meeting; − by March 27, 2018, the Report on Operations on the matter under item 3 of the Agenda of the Ordinary Sha- reholders’ Meeting; - by 5 April 2018, the report on the amendments to the by-laws pursuant to Art. 72, paragraph 1-bis on the matter referred to in the only item on the Agenda of the Extraordinary Shareholders’ Meeting; the 2017 Annual Report (the Directors’ Report on Operations contains the proposal to the Shareholders' Meeting regarding item 1 on the Agenda), the Non-Financial Statement, pursuant to Legislative Decree 254/2016, and the additional Reports pursuant to Art. 154-ter, paragraph 1, of Legislative Decree no. 58/1998, the Report on Corporate Governance and Ownership Structure, and the Remuneration Report pursuant to Art. 123-ter of Legislative Decree no. 58/1998; − by April 11, 2018, the documentation pursuant to Art. 77, paragraph 2-bis of the Regulation set forth in CON- SOB Resolution no. 11971/1999 as subsequently amended and supplemented.

Information on the Shareholders’ Meeting and participation in said meeting, also with reference to the provisions of Art. 125-quater of Legislative Decree no. 58/1998, is published on the Company website (in the Governance/ Shareholders’ Meetings/2018 section) by the required deadline.

Milan, March 16, 2018

On behalf of the Board of Directors

Chairman

Urbano Cairo

This notice was published on March 16, 2018 on the Company’s website www.rcsmediagroup.it (Corporate Governance/Shareholders’ Meetings/2018 section) and on March 17, 2018 in summary form in the daily newspaper Corriere della Sera.

For information on participation in the Shareholders’ Meeting, the Company’s Corporate Affairs Department can be contacted as follows: tel. no. +39.02.25845403, fax no. +39 02 25845443, email address: affarisocieta- [email protected]

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CONTENTS

Corporate Officers 3 Brief description of the Group 4 Information regarding shareholders 5 Consolidated Financial highlights of RCS MediaGroup 7

Report on operations Group performance at December 31, 2017 9 Information on ongoing disputes 17 Human resources 18 Environment 20 Principal risks and uncertainties 25 Operating segment performance 29 Financial highlights of RCS MediaGroup S.p.A. 44 Business outlook 49 Other Information 50 Additional information required by CONSOB pursuant to Art. 114, paragraph 5 of Legislative Decree no. 58/1998 of May 27, 2013 52 Proposed Resolution 56

Consolidated Financial Statements Income statement 59 Statement of comprehensive income 60 Statement of financial position 61 Statement of cash flows 62 Statement of changes in equity 63 Notes to the consolidated financial statements 67 Statement of the Financial Reporting Manager and the Chief Executive Officer 143

Separate Financial statements of RCS MediaGroup S.p.A. Income statement 147 Statement of comprehensive income 148 Statement of financial position 149 Statement of cash flows 150 Statement of changes in equity 151 Notes to the separate financial statements 153 Statement of the Financial Reporting Manager and the Chief Executive Officer 211

Annexes to the consolidated financial statements List of RCS Group equity investments 215 Exchange rates against the Euro 218 Quarterly consolidated income statement 219 Details on related party transactions 221

Tables attached to the separate financial statements of RCS MediaGroup S.p.A. Details on related party transactions 228 Investment portfolio at December 31, 2017 236 2016 Pro-forma statement 241 List of local branches of RCS MediaGroup S.p.A. at December 31, 2017 243

Independent Auditors’ Report 245 Independent Auditors’ Report on the statutory financial statements 253 Report by the Board of statutory Auditors 261

IX –

DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

CORPORATE OFFICERS

Honorary Chairman Cesare Romiti

Board of Directors (*) Urbano Roberto Cairo Chairman and Chief Executive Officer Marilù Capparelli Director Carlo Cimbri Director Alessandra Dalmonte Director Diego Della Valle Director Veronica Gava Director Gaetano Miccichè Director Stefania Petruccioli Director Marco Pompignoli (**) Director Stefano Simontacchi Director Marco Tronchetti Provera Director

(*) The Board of Directors in office at the date of approval of this Report was appointed by resolution of the Shareholders’ Meeting on September 26, 2016. The Direc- tors are in office for the years 2016-2017-2018 and therefore until the Shareholders’ Meeting called to approve the 2018 financial statements. (**) Director with delegated powers

Powers delegated by the Board of Directors

Without prejudice to internal observance of the functions and rules of corporate governance adopted, the Board of Directors has granted all the powers to the Chairman and Chief Executive Officer for the conduct of the Com- pany’s ordinary administration, as well as a set of powers for the Company’s management, with limits on the size of financial commitments and/or risks that may be assumed for certain types of transactions. The Board of Directors also assigned Director Marco Pompignoli the role of overseeing and supervising the administration, finance and management control, legal and corporate affairs, procurement and information systems functions of the RCS Group, in coordination with and in support of the Chairman of the Board of Directors and Chief Executive Officer, granting him within the scope of these functions a series of powers with limits on the financial commitments and/or risks that may be assumed for certain types of transactions. Director Marco Pompignoli was also designated by the Board of Directors as Director responsible for the internal control and risk management system.

Board of Statutory Auditors (*) Lorenzo Caprio Chairman Gabriella Chersicla Standing auditor Enrico Colombo Standing auditor Guido Croci (**) Alternate auditor Renata Maria Ricotti Alternate auditor Paola Tagliavini (**) Alternate auditor

(*) The Board of Statutory Auditors in office at the date of approval of this Report. The Statutory Auditors are in office for the years 2015-2016-2017 and therefore until the Shareholders’ Meeting called to approve the financial statements relating to the last of these years. (**) The Alternate auditors Guido Croci and Paola Tagliavini were appointed through resolution of the Ordinary Shareholders’ Meeting held on April 27, 2017, replac- ing the Alternate auditors Barbara Negri and Ugo Rock who resigned on February 9, 2017

Independent auditors (*) KPMG S.p.A.

(*) In office until the Shareholders’ Meeting called to approve the 2017 financial statements

3 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

BRIEF DESCRIPTION OF THE GROUP

RCS MediaGroup is one of the main European publishing groups. It is a leader in newspapers in Italy and Spain and active in magazines, television, radio and new media, is one of the top players in the advertising sales market and is also active in distribution. It is a reference in sport business through the production of high quality publishing content and the organization of major sporting events. July 2016 saw the successful conclusion of the purchase and exchange offer (OPAS) launched on RCS Medi- aGroup S.p.A. shares by Cairo Communication S.p.A., which has therefore become the direct parent of RCS MediaGroup S.p.A..

In a global context marked by disruptive changes in communication media, RCS MediaGroup is a leading play- er in the evolution process of the publishing sector, fortified by the founding values and principles which inspire it and the acknowledged influence underlying its content and brands.

In Italy, the RCS Group publishes Corriere della Sera and La Gazzetta dello Sport, leaders among national and sport dailies, in addition to numerous weekly and monthly magazines, including Amica, Living, Style Magazine, Dove, Oggi, Io Donna, Sportweek, 7 and Abitare. In Spain, the Group is one of the main players in the media sector with the Unidad Editorial Group, which publishes Spain’s number two daily newspaper El Mundo, Marca, leader in sports news, and Expansión, leader in business news, in addition to numerous magazines, including Telva, Marca Motor and Actualidad Económica. The Group is also the leader in Italy, but also present in Spain, Mexico and France in the early childhood sector with an offer that includes printing, online, e-commerce, direct marketing and trade shows dedicated to the sector. Through RCS Sport, the RCS Group organizes major world sporting events, including the Giro d’Italia, the Mi- lano-Sanremo, Il Lombardia, the Dubai Tour, the Abu Dhabi Tour, the Milan City Marathon and the Color Run, and is well-positioned as partner for the creation and organization of events through RCS Live. In Spain, with Last Lap, it is a point of reference for mass events. The Group works in Spain in the football and sport online betting sector with the Marca Apuestas website.

In Italy, RCS operates in the radio television communication sector, through both the subsidiary Digicast S.p.A. with the satellite channels Lei, Dove and Caccia & Pesca, and via the web TV channels of Corriere della Sera and La Gazzetta dello Sport. In Spain it is also present with the top Spanish national sports radio station Radio Marca, with the web TV channels of El Mundo and Marca and broadcasts through the two digital TV channels Gol Television and Discovery Max.

Digital innovation, in addition to the natural digital off-shoots of the group brands, is achieved through the creation of numerous innovative Apps.

RCS MediaGroup is a leading operator in advertising sales in Italy and in Spain, capable of offering its customers a broad and diversified communications offer through the prestige of the Group’s publications, including via more innovative means of communications such as digital editions, web, mobile, tablets, as well as a new, wide range of consumer engagement services and solutions. The RCS Pubblicità division, besides advertising sales for the Group’s publications, manages national advertising sales activities (print and web) for several important southern Italian publishers such as: Società Editrice Sud or SES for Gazzetta del Sud; Domenico Sanfilippo Editore for La Sicilia; Editrice del Sud Edisud for Gazzetta del Mezzogiorno; Giornale di Sicilia Editoriale Poligrafica for il Giornale di Sicilia. Until December 31, 2016, it managed national advertising sales activities for the Itedi Group (print and web) and, up to March 1, 2017, for the Monrif Group.

RCS MediaGroup holds an investment in m-dis Distribuzione Media S.p.A. and, through Unidad Editorial S.A., in Corporaciòn Bermont, leaders in distribution on the newsstand channel in Italy and in the daily press in Spain, respectively.

– 4 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

INFORMATION REGARDING SHAREHOLDERS

Shares (1)

No. of ordinary shares 521,864,957

Change in prices and volumes (ordinary shares)

2017 2016 Data May 9 August 22 Max. price (€) 1.46 1.05 Data January 31 April 7 Max. price (€) 0.79 0.41 December average price (€) 1.23 0.83 Average volumes (m) 0.87 3.41 Data March 24 July 11 Max. volumes (m) 6.70 52.97 Data February 23 November 1 Max. volumes (m) 0.11 0.09 Capitalization (€ m) (at December 31) 637.7 435.5 Source: Bloomberg

Shareholder composition (1)

Refer to the data published on the CONSOB website updated in January 2018

Shareholder Share % (*) Urbano Cairo (**) 59.831 Mediobanca S.p.A. 9.930 Diego Della Valle (**) 7.325 Unipol Gruppo S.p.A. (**) 4.891 China National Chemical Corporation (**) 4.732 Source: Consob (*) The above percentages are based on the notices sent pursuant to Art. 120 of the Consolidated Finance Act by the shareholders (thresholds: 3 if the listed company is not a SME, 5, 10, 15, 20, 25, 30, 50, 66.6, 90 and 95 percent). Therefore, these percentages may not align with figures processed and made public by other sources, if the change in the shareholding did not trigger shareholder reporting obligations. (**) The above shareholders are at the top of the shareholding chain and are not direct shareholders.

Share performance

2017 was a good year for the main stock markets, especially in the United States and in Europe. The Italian stock market reported an 11.6% increase in the FTSE MIB and a 13.6% increase in the FTSE AllShare. Two factors contributed to the positive performance: on the one hand, profits saw double digit growth thanks to positive worldwide macroeconomic growth and steady inflation particularly in the manufacturing and consumer sectors, while on the other hand, investor confidence increased in 2017 in the hope of witnessing a subsequent rebound. In this scenario, the RCS MediaGroup share performance at the start of the year was in line with the indices. Additionally, at the time of publication of the 2016 results, its share performance had exceeded the index and outperformed the market, closing the year at +46.4% versus the end of the prior year.

5 –

inflazione sotto controllo, in particolare nei settori industriali e dei consumi, dall’altro la fiducia degli investitori è aumentata nel 2017 nella speranza di assistere a un conseguente recupero delle valutazioni. In questo ambito, il titolo RCS MediaGroup ha registrato una performance, all’inizio dell’anno, in linea con gli indici. In corrispondenza poi della pubblicazione dei risultati del 2016, l’andamento del titolo ha superato DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP l’indice e mantenuto un andamento migliore del mercato, chiudendo l’anno con il +46,4% rispetto alla chiusura dell’anno precedente. inflazione sotto controllo, in particolare nei settori industriali e dei consumi, dall’altro la fiducia degli investitori è aumentata nel 2017 nella speranza di assistere a un conseguente recupero delle valutazioni. In questo ambito, il titolo RCS MediaGroup RCS RCSha registratoItalia FTSE All Share Italy una FTSE performance, All Share all’inizio dell’anno, in linea con gli indici. In corrispondenza poi della pubblicazione dei risultati del 2016, l’andamento del titolo ha superato l’indice 200 e mantenuto un andamento migliore del mercato, chiudendo l’anno con il +46,4% rispetto alla chiusura dell’anno precedente. 180 160 RCS Italia FTSE All Share 140 200 120 180 100 160 80 140 60 120 40 100 20 80 - 60 gen-17 Jan-17 feb-17 Feb-17 mar-17 Mar-17 apr-17 Apr-17 mag-17 May-17 giu-17 Jun-17 lug-17 Jul-17 ago-17 Aug-17 set-17 Sep-17 ott-17 Oct-17 nov-17 Nov-17 dic-17 Dec-17

Minimum 40 value (January 31): € 0.79 - Maximum value (9 May): € 1.46 - Average value (December): € 1.23 million Source: Bloomberg

Valore minimo (31 gennaio): 0,79 euro – Valore massimo (9 maggio): 1,46 euro – Prezzo medio (dicembre): 1,23 euro Fonte: Bloomberg 20

- gen-17 8,00 feb-17 mar-17 apr-17 mag-17 giu-17 lug-17 ago-17 set-17 ott-17 nov-17 dic-17

7,00 Valore minimo (31 gennaio): 0,79 euro – Valore massimo (9 maggio): 1,46 euro – Prezzo medio (dicembre): 1,23 euro Fonte: Bloomberg

6,00 8,00 8.00 5,00 7,00 7.00 4,00 6,00 6.00

Milioni di azioni 3,00 5,00 5.00 2,00 4,00 4.00 1,00 Milioni di azioni Million of shares 3,00 3.00 0,00 gen-17 feb-17 mar-17 apr-17 mag-17 giu-17 lug-17 ago-17 set-17 ott-17 nov-17 dic-17 2,00 2.00

Volume minimo (23 febbraio): 0,11 milioni – Volume massimo (24 marzo): 6,70 milioni – Volume medio: 0,87 milioni Fonte: Bloomberg 1,00 1.00

0,00

gen-17 Jan-17 feb-17 Feb-17 mar-17 Mar-17 apr-17 Apr-17 mag-17 May-17 giu-17 Jun-17 lug-17 Jul-17 ago-17 Aug-17 set-17 Sep-17 ott-17 Oct-17 nov-17 Nov-17 dic-17 Dec-17 13

Minimum volume (February 23): 0.11 million - Maximum volume (March 24): 6.70 million – Average volume: 0.87 million Source: Bloomberg Volume minimo (23 febbraio): 0,11 milioni – Volume massimo (24 marzo): 6,70 milioni – Volume medio: 0,87 milioni Fonte: Bloomberg

– 6 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

CONSOLIDATED FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP

(€/millions) Dec- 31-2017 Dec- 31-2016 INCOME STATEMENT Revenue 895.8 968.3 EBITDA (1) 138.2 89.9 OPERATING PROFIT (LOSS) 95.6 35.0 Profit (loss) before tax and non-controlling interests 87.4 5.0 Income taxes ( 16.5) ( 9.9) Loss from continuing operations 70.9 ( 4.9) Profit (loss) from assets held for sale and discontinued operations - 8.4 Profit (loss) for the year 71.1 3.5

Basic earnings per share: continuing operations 0.14 ( 0.01) Diluted earnings (losses) per share: continuing operations 0.14 ( 0.01) Basic earnings (losses) per share: assets held for sale and discontinued operations - 0.02 Diluted earnings per share: assets held for sale and discontinued operations - 0.02

(€/millions) Dec- 31-2017 Dec- 31-2016 STATEMENT OF FINANCIAL POSITION Net capital employed 458.9 466.5 Net financial debt (2) 287.4 366.1 Equity 171.5 100.4

Average number of employees 3,390 3,584

(1) Earnings before interest, tax, amortization/depreciation and impairment losses. Includes the share of profits and losses of equity-accounted investees. Also includes net non-recurring expense. (2) Indicator of financial structure, calculated as current and non-current loans and borrowings less cash and cash equivalents, current financial assets and non-current financial assets recognized for derivatives. Net Financial Debt as set out by CONSOB Communication DEM/6064293 dated July 28, 2006 excludes non-current financial assets. Non-current financial assets relating to derivatives at December 31, 2017 and December 31, 2016 amounted to zero; the RCS financial ratio at December 31, 2017 and December 31, 2016, therefore, matches the Net Financial Debt as set out by the abovementioned CONSOB Communication.

For complete disclosure purposes, the RCS Group’s financial highlights for the fourth quarter are as follows:

4th quarter 2017 % 4th quarter 2016 % Difference (€/millions) A B A-B % Revenue 238.1 100.0 258.9 100.0 (20.8) (8.0%) Publishing revenue 81.7 34.3 89.6 34.6 (7.9) (8.8%) Advertising revenue 125.4 52.7 133.2 51.4 (7.8) (5.9%) Other revenue 31.0 13.0 36.1 13.9 (5.1) (14.1%) EBITDA 53.8 22.6 49.5 19.1 4.3 8.7% Operating profit 48.5 20.4 35.8 13.8 12.7 35.5% Profit (loss) attributable to owners of the parent 51.2 21.5 21.0 8.1 30.2 143.8%

The Board of Directors approved the Group Consolidated Financial Statements and Separate Financial State- ments on March 15, 2018.

7 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

REPORT ON OPERATIONS

In 2017, the Italian economy continued the upward trend seen in 2016, posting a 1.5% increase in GDP, the highest rate from the 1.7% recorded in 2010 (Source: ISTAT). The increase is, however, still lower than the Europe- an average. Surveys show that business confidence is returning to pre-recession levels. These analyses are also corroborated by the acceleration in investment spending during the second half of the year (Source: Bank of Ita- ly Economic Bulletin). The Spanish economy continues to grow. Despite having sustained a much greater crisis in the past few years than the Italian economy, in 2016 its GDP was already very close to pre-crisis levels. In 2017 it grew by 3.1%, slightly lower than the 3.3% recorded in 2016 but nonetheless confirming, for the fourth consecutive year, an increasing trend in Gross Domestic Product (Source: INE).

Against this backdrop, in 2017 the Italian advertising market saw investments drop by 2.1% versus 2016. Print media were the worst hit, falling by 7.1%: specifically, newspapers lost 7.7%, affected by the poor trend of national business advertising (-8.9% versus 2016), while magazines fell by 6.2%. Advertising sales improved versus 2016 both from radio, with a 5.4% increase in investments, and from the online segment, which grew by 1.7% (Source: Nielsen). Spain continued the growth in gross advertising sales, rising by 2% versus 2016. However, the newspaper advertising market fell by 6.7%, while magazines lost 6.1% and supplements dropped by 9% versus 2016. The online segment, instead, did remarkably well, posting a 15.2% increase (Fonte: i2p, Arce Media).

In Italy, ADS figures show a 14.3% drop in the circulation of paper copies of the main national general interest newspapers in the January-December 2017 period (12.2% including digital copies). The decline in circulation of the main sports newspapers was more moderate, reaching 7.3% in 2017 (6.9% including digital copies). In Spain too, sales performance on the newspapers market declined versus 2016. Average circulation figures for the general interest newspaper market (publications with a circulation exceeding 60 thousand copies) in 2017 show an overall drop by 9.3%. Business newspapers fell by 3.3% in the same period, while sports newspapers followed the same downward pattern, with circulation down by 9.9% (Source: OJD).

Despite the challenging environment, the Group achieved its targets:

‒ EBITDA, of €138.2 million (€140 million before non-recurring expense), up by €48.3 million versus 2016; ‒ ef ficiencies of €58 million. ‒ profit for the year of €71.1 million, up by €67.6 million versus 2016; ‒ net cash flow (excluding acquisitions and disposals) at approximately €63.4 million; ‒ net financial debt at €287.4 million, improving by €78.7 million, thanks to the abovementioned cash generation and to net gains from disposals.

In 2017, we continued in our efforts to curb operating and structural expenses, accompanied by intense publishing development, with the aim of strengthening our competitive foothold in the Group’s strategic business segments, which will come to further fruition in 2018 in Italy as well as in Spain.

– 8 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

GROUP PERFORMANCE AT DECEMBER 31, 2017

The Group’s financial highlights and related comments are shown below.

Reference to Year ended Year ended the financial Dec-31- % Dec-31- % Difference Difference statements 2017 2016 (€/millions) (3) A B A-B % Revenue 895.8 100.0 968.3 100.0 (72.5) (7.5%) Publishing revenue I 344.9 38.5 380.4 39.3 (35.5) (9.3%) Advertising revenue I 409.8 45.7 451.2 46.6 (41.4) (9.2%) Other revenue (1) I 141.1 15.8 136.7 14.1 4.4 3.2% Operating expenses II (491.4) (54.9) (598.8) (61.8) 107.4 17.9% Personnel expense III (258.1) (28.8) (268.2) (27.7) 10.1 3.8% Provisions for risks IV (6.5) (0.7) (12.4) (1.3) 5.9 47.6% Allowance for impairment V (3.7) (0.4) (1.8) (0.2) (1.9) (105.6%) Share of profits of equity-accounted VI 2.1 0.2 2.8 0.3 (0.7) (25.0%) investees EBITDA (2) 138.2 15.4 89.9 9.3 48.3 53.7% Amortization of intangible assets VII (25.3) (2.8) (36.6) (3.8) 11.3 Depreciation of property, VIII (14.3) (1.6) (17.0) (1.8) 2.7 plant and equipment Depreciation of investment property IX (0.6) (0.1) (0.6) (0.1) 0.0 Other impairment losses X (2.4) (0.3) (0.7) (0.1) (1.7) on non-current assets Operating profit (loss) 95.6 10.7 35.0 3.6 60.6 Net financial expense XI (24.4) (2.7) (30.3) (3.1) 5.9 Gains (losses) on financial XII 16.2 1.8 0.3 0.0 15.9 assets/liabilities Profit (loss) before tax 87.4 9.8 5.0 0.5 82.4 Income taxes XIII (16.5) (1.8) (9.9) (1.0) (6.6) Loss from continuing operations 70.9 7.9 (4.9) (0.5) 75.8 Profit (loss) from assets held for sale and XIV 0.0 0.0 8.4 0.9 (8.4) discontinued operations Profit (loss) before 70.9 7.9 3.5 0.4 67.4 non-controlling interests Profit (loss) attributable to XV 0.2 0.0 0.0 0.0 0.2 non-controlling interests Profit (loss) attributable 71.1 7.9 3.5 0.4 67.6 to owners of the parent

(1) Other revenue includes primarily revenue for television activities, the organization of events and exhibitions, e-commerce activities, sales of customer lists and boxed sets and, in Spain, for betting activities. (2) Earnings before interest, tax, amortization/depreciation and impairment losses. Includes the share of profits and losses of equity-accounted investees.. (3) These references relate to the corresponding items in the Group’s Income Statement.

9 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The change in revenue versus December 31, 2016 is presented below.

Revenue M € Advertisng Publising/Other -72.5

968.3

(25.8) (5.6) 451.2 (19.1) 895.8 (17.8) -2.3 Advertising (4.2) -3.3 Publishing/Other 409.8

517.1 + 1.1 Advertising +5.1 Advertising-our product -12.5 Advertising -14.6 Publishing/Other -31.3 Third-party advertising -5.3 Publishing/Other 486.0

-12.3 Publishing add-ons +7.1 Publishing/Other

December 2016 Newspapers Magazines Unidad Other Corporate December 2017 Italy Italy and Sport Editorial

Revenue for 2017 stood at €895.8 million, down by €72.5 million versus €968.3 million in 2016 (-7.5%). The change is mostly explained by various discontinuities, such as the termination in 2017 of a number of advertising sales contracts with third-party publishers (-€31.3 million), and revenue from sporting events in 2016 (-€7.5 million). Net of the mentioned discontinuities, the change would be €33.7 million (-3% versus 2016), due to the decrease reported in publishing revenue and advertising revenue, respectively equal to €35.5 million (of which €17.5 million from the different publishing plan of add-ons and from the review of the promotional policy in Spain) and €2.7 million, only partly offset by the increase in other revenue (+€4.4 million).

Specifically, the drop in publishing revenue, totaling €18 million, net of the above elements, is attributable mainly to the following trends: ‒ The €8.9 million decrease posted by Newspapers Italy, due mainly to the downturn in circulation. Specifically, total circulation, both paper and digital for Corriere della Sera, dropped by 10% versus 2016 (Source: ADS), while Gazzetta dello Sport fell by 6.2% (Source: ADS). These trends outstripped the extremely poor results of the overall market. More specifically, general interest newspapers decreased by 12.2% and sports newspapers by 6.9% (Source: ADS). ‒ The €8.8 million decrease in publishing revenue reported by Unidad Editorial, affected by the negative trend of the relevant markets, even though a number of publications fell less in terms of circulation than the relevant market. A point worth mentioning is the trend in the circulation of paper copies recorded by Marca (-9.5% versus 2016), outperforming the market (-9.9%; source OJD). The decrease, including digital copies, would amount to 8.3% versus 2016 (Internal Source). Paper copies of Expansión decreased by 3.1% versus 2016, outperforming the relevant market (-3.3%). The decrease, including digital copies, would amount to 1.2%, confirming the publication’s leadership (Internal Source). The average daily circulation of El Mundo at December 31, 2017 (including digital copies) dropped by 9.2% versus 2016. ‒ Publishing revenue from Magazines Italy increased slightly (+0.2 million versus 2016). Mention should be made of the +10.5% increase versus 2016 in the distribution at newsstands of the weekly publication Oggi (sold individually and in combination with other publications), and of the successful relaunch at end June of Oggi Enigmistica Settimanale, which more than tripled its distribution at newsstands.

Publishing revenue from add-on products dropped from €64.6 million in 2016 to €49.6 million in 2017, falling by an overall €15 million, attributable mainly to the Newspapers Italy segment (-12.3 versus 2016), also as a result of the different add-on publishing plan mentioned previously.

Advertising revenue, which amounted to €409.8 million, decreased by €41.4 million versus the prior year (-9.2%). Net of the above discontinuity, advertising sales would have been basically steady versus 2016. In Ita-

– 10 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ly, even in non-homogeneous terms, advertising sales were up slightly, reversing a trend that started in 2011, despite the continued downturn in the relevant print market. On a like-for-like basis, as described in detail in the comments on business sector performance, the increase in advertising revenue in Newspapers Italy and the Sport segment (in total amounting to +€11.5 million on a like-for-like basis) largely offset the decrease in advertising revenue recorded by the other operating segments, mainly including Unidad Editorial (-€9.7 million on a like- for-like basis versus 2016).

Other revenue amounted to €141.1 million, up by €6.9 million on a like-for-like basis. Specifically, other revenue rose, due primarily to Sports (+€7 million versus 2016) and, to a lesser extent, to Unidad Editorial (+€4.4 million), partly offset by the downturn in other revenue in other areas.

The change in EBITDA versus 2016 is shown below.

EBITDA M €

+48.3

10.0 138.2 10.5 2.8 6.6 18.4

89.9

December 2016 Newspapers Magazines Unidad Other Corporate December 2017 Italy Italy and Sport Editorial

EBITDA came to a positive €138.2 million and improved by more than €48 million (+53.7%) versus 2016, thanks to the new initiatives launched in 2017 and also to the constant and effective cost-cutting measures that led to benefits amounting to €58 million for the year. These positive effects are attributable to the activities in Ita- ly (€38.2 million) and Spain (€19.8 million). Excluding net non-recurring expense of €1.8 million in 2017 (€10.6 million in 2016), EBITDA came to a positive €140 million.

11 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The following table shows the most significant results by operating segment:

Year ended Dec-31-2017 % % (€/millions) Revenue EBITDA of revenue EBIT of revenue Newspapers Italy 380.4 86.8 22.8% 71.6 18.8% Magazines Italy 93.6 14.2 15.2% 10.6 11.3% Advertising and Sport 313.2 22.7 7.2% 22.7 7.2% Unidad Editorial 300.5 32.1 10.7% 23.9 8.0% Other Corporate activities 23.1 (17.7) n.a (33.4) n.a Other and eliminations (215.0) 0.1 - 0.2 n.a Consolidated 895.8 138.2 15.4% 95.6 10.7%

Year ended Dec-31-2016 % % (€/millions) Revenue EBITDA of revenue EBIT of revenue Newspapers Italy 406.2 68.4 16.8% 54.5 13.4% Magazines Italy 99.2 7.6 7.7% 5.6 5.6% Advertising and Sport 332.3 12.2 3.7% 12.1 3.6% Unidad Editorial 318.3 29.3 9.2% 11.2 3.5% Other Corporate activities 33.7 (27.3) n.a (48.1) n.a Other and eliminations (221.4) (0.3) 0.1% (0.3) n.a Consolidated 968.3 89.9 9.3% 35.0 3.6%

Various operating segments contributed to the increase in EBITDA. As described in greater detail in the comments on operating segments performance, the segments contributing to the positive performance were: ‒ EBITDA in the Newspapers Italy segment , which increased by €18.4 million versus 2016 as a result of the initiatives for strengthening the advertising offering combined with the continuing efforts to make the processes more efficient. ‒ EBITDA in the Advertising and Sport segment (+€10.5 million), up due mainly to the growth in activities relating to RCS Sport, and to the tight cost control on the entire segment. ‒ EBITDA in the Magazines Italy segment (+€6.6 million), increasing both as a result of the growth in the circulation of Sistema Oggi and its add-ons, and for the great efforts in improving profitability through cost reductions on the entire segment. ‒ EBITDA in the Unidad Editorial segment (+€2.8 million), up as a result of the ongoing cost reduction and efficiency recovery initiatives (including the restructuring plan signed with workers’ representatives as early as 2016), and the gradual growth in digital and other revenue. These positive performances more than offset the decreases in print publishing and advertising revenue. ‒ EBITDA in Other Corporate activities improved by €9.6 million, due mainly to lower non-recurring expense versus 2016, and to a lesser extent, to the positive effects of the efficiency recovery initiatives that were implemented.

Net non-recurring expense in 2017 with an impact on EBITDA amounted to €1.8 million (€10.6 million in 2016). This is attributable to personnel expense (net of the provisions released) related to the ongoing restruc- turings at Unidad Editorial and Magazines Italy for €0.7 million, penalties arising from the early termination of contracts for €0.6 million, financial consultancy regarding unfinalized transactions for €0.4 million, rent expense for portions of buildings that are currently still unusable because of damage caused by flooding of the via Rizzoli offices in 2014 for €0.3 million. These expenses were partly offset by other revenue and operating income from previously recognized non-recurring cost savings tied to the closure of the Gazzetta TV channel in January 2016.

Personnel expense decreased by €10.1 million versus the prior year. Specifically, the average headcount dropped from 3,584 at December 31, 2016 to 3,390 at December 31, 2017. The decrease of 194 units is due primarily to the activities in Spain (-99 units) and Italy (-90 units), as explained in the paragraph on Human Resources.

– 12 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The share of profits of equity-accounted investees amounted to €2.1 million in 2017. This item includes the share of profits of the investees of the m-dis Distribuzione Media S.p.A. group, a distributor in Italy of RCS Group publishing products through the newsstand channel and other authorized resellers, and the RCS Group’s share of profits of the Spanish Corporacion Bermont group, which handles printing activities for the Unidad Edi- torial group’s publishing products.

Operating profit (EBIT) amounted to €95.6 million versus €35 million in 2016. The increase of €60.6 million is explained by the improvement in EBITDA, by lower amortization and depreciation (-€14 million), in particular intangible assets (-€11.3 million), and by higher impairment losses on non-current assets, from €0.7 million in 2016 to €2.4 million in 2017. The change in the amortization of intangible assets is attributable mainly to the effects for €9.7 million from changing from finite to indefinite useful life the daily newspaper titles Marca and Expansión in the Unidad Edi- torial segment. The estimated useful life was changed in light of the knowledge obtained thus far from the date the publications were acquired that made it possible to assess their potential and prospects, even internation- ally in Spanish speaking countries. This assessment considered: the characteristics of the publications (market leadership, reputation, year of establishment), the potential generated by being part of a Group that has seen a significant return to profitability in the last two years, as well as the evidence inferred from international practice. Leadership in the relevant sectors was also supported over time by the necessary investments in marketing to support the publications, thus reinforcing their comparability with the basket of publications with indefinite useful life (target with respect to competitors), to which they were compared. Amortization also decreased in the Other Corporate activities segment (-€3.1 million), due to the end of the useful life on software licenses and developmental enhancements, as well as amortization in the Magazines Italy area (-€0.2 million), as a result of the end of amortization of a user list in 2016. On the other hand, the Newspapers Italy segment recorded higher amortization, the subsidiary Digicast S.p.A. in particular (+€2 million) for new capital expenditure in executive productions and television rights, and for the reassessment of the useful life of a number of rights. The impairment losses amounting to €2.4 million refer to the goodwill of Sfera, impaired following the results of the impairment test.

Net financial expense amounted to €24.4 million, down by €5.9 million versus €30.3 million in 2016. The improvement is due to lower interest expense on bank loans (-€4.3 million), as a result of the decrease in average debt and a more favorable spread following renegotiation of the Loan Agreement concluded in August 2017. The positive effect of discounting financial statement items should be noted, as well as the lower financial expense on derivative contracts to hedge interest rate risk.

Net gains on financial assets/liabilities amounted to €16.2 million versus net gains of €0.3 million in 2016, improving by €15.9 million. They include capital gains from the sale of non-strategic investees (the minority interest held in I.E.O. – Istituto Europeo di Oncologia S.r.l.) for approximately €15 million, releases of pre-existing provisions upon better definition of the terms and conditions for the sale of previous equity investments as well as, to a lesser extent, impairment losses on minor available-for-sale equity investments.

The tax burden in 2017 came to €16.5 million (€9.9 million in 2016), due primarily to the reversal of deferred tax assets (€12.8 million), to the use of deferred liabilities (€1 million), to IRAP (€4.4 million), and to tax of minor companies mainly abroad (€0.3 million).

The gains on assets held for sale and discontinued operations came to zero versus a positive €8.4 million in 2016 (due to the realization of the translation reserve of the Books group effected at the same time as the sale).

Due to the aforementioned elements, profit attributable to owners of the parent for 2017 was €71.1 million, improving by €67.6 million versus the profit of €3.5 million in 2016.

13 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The highlights from the statement of financial position are summarized below:

Reference to the Dec-31- Dec-31- % % (€/millions) financial statements (2) 2017 2016 Intangible assets XVI 383.9 83.7 394.6 84.6 Property, plant and equipment XVII 73.8 16.1 87.0 18.6 Investment property XVIII 20.7 4.5 21.3 4.6 Non-current financial assets XIX 171.4 37.4 192.3 41.2 Non-current assets 649.8 141.6 695.2 149.0 Inventories XX 15.9 3.5 17.4 3.7 Trade receivables XXI 240.3 52.4 256.3 54.9 Trade payables XXII (236.3) (51.5) (292.9) (62.8) Other assets/liabilities XXIII (66.6) (14.5) (54.4) (11.7) Net working capital (46.7) (10.2) (73.6) (15.8) Provisions for risks and charges XXIV (50.4) (11.0) (58.5) (12.5) Deferred tax liabilities XXV (55.4) (12.1) (56.4) (12.1) Employee benefits XXVI (38.4) (8.4) (40.2) (8.6) Net capital employed 458.9 100.0 466.5 100.0 Equity XXVIII 171.5 37.4 100.4 21.5 Non-current loans and borrowings XXIX 235.8 51.4 275.1 59.0 Current loans and borrowings XXX 67.0 14.6 105.1 22.5 Current financial liabilities recognized for derivatives XXXI 1.0 0.2 -- Non-current financial liabilities XXXII 0.1 0.0 5.1 1.1 recognized for derivatives Financial assets recognized for derivatives XXXIII ---- Cash and cash equivalents and current loan assets XXXIV (16.5) (3.6) (19.2) (4.1) Net financial debt (1) 287.4 62.6 366.1 78.5 Total sources of financing 458.9 100.0 466.5 100.0

(1) Indicator of financial structure, calculated as current and non-current loans and borrowings less cash and cash equivalents, current financial assets and non-current financial assets recognized for derivatives. Net Financial Debt as set out by CONSOB Communication DEM/6064293 dated July 28, 2006 excludes non-current financial assets. Non-current financial assets relating to derivatives at December 31, 2017 and December 31, 2016 amounted to zero; the RCS financial ratio at December 31, 2017 and December 31, 2016, therefore, matches the Net Financial Debt as set out by the abovementioned CONSOB Communication. (2) These references relate to the corresponding items in the Group’s statement of financial position.

The main changes in the Group’s statement of financial position at December 31, 2017 versus December 31, 2016 will now be discussed.

Net capital employed, amounting to €458.9 million, dropped by €7.6 million versus December 31, 2016, as a result of the decrease of €45.4 million in non-current assets, offset by the increase of €26.9 million in net working capital, and the total decrease of €10.9 million in deferred tax liabilities, provisions for risks and charges and employee benefits.

Specifically: − Intangible assets fell by an overall €10.7 million versus December 31, 2016. This change reflects capital expenditure of €17.2 million, amortization of €25.3 million, impairment losses of €2.4 million and changes in the consolidation scope of -€0.2 million. Most of the capital expenditure refers to the Other Corporate activities segment (€8 million) and to Unidad Editorial (€4.2 million), and regards in particular the purchase of software licenses, infrastructure for the provision of web and mobile digital services, the purchase of copyrights as well as the implementation of new IT and multimedia projects. New capital expenditure was also reported in the Newspapers Italy area, particularly in the subsidiary Digicast S.p.A. (€3.8 million), for the acquisition of television rights used on the Lei, Dove and C&P channels. The impairment losses amounting to €2.4 million refer to the goodwill of Sfera, impaired following the results of the impairment test. − Property, plant and equipment and investment property fell by an overall €13.8 million versus December 31, 2016, due to depreciation of €14.9 million against capital expenditure of €1.1 million. Capital expenditure refers to property, plant and equipment and is mainly composed of audio-visual and air-conditioning equipment, extraordinary maintenance on leased buildings, as well as the purchase of ancillary production equipment. Expenditure was made primarily by the Unidad Editorial group (€0.5 million) and Newspapers Italy (€0.4 million).

– 14 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

− Non-current financial assets amounted to €171.4 million at December 31, 2017, down by €20.9 million versus €192.3 million at December 31, 2016. This change includes mainly the downturn in deferred tax assets (-€12.5 million), also in light of the expense from tax consolidation of RCS MediaGroup S.p.A. (-€4.4 million), as a result of the taxable profit. In addition, the share of profits of equity-accounted investees decreased (-€4.9 million), owing essentially to the distribution of the dividends due (-€7.1 million), partly offset by the positive contribution of net share of profits of equity-accounted investees (+€2.1 million). Contributing to the decrease was the reduction in available-for-sale financial assets (-€2.8 million), resulting mainly from the mentioned sale of the non-controlling interest in Istituto Europeo di Oncologia.

Working capital came to -€46.7 million versus -€73.6 million at December 31, 2016, increasing by €26.9 million, due to the reduction in trade payables of €56.6 million, only partly offset by changes in other working capital components. The main trends are highlighted below: − Inventories dropped from €17.4 million at December 31, 2016 to €15.9 million at December 31, 2017, down by €1.5 million. The change includes a €0.7 million decrease in inventories of raw materials, relating mainly to paper inventories of the Unidad Editorial group, due to reduced volumes also as a result of the use of a different type of paper. Inventories of finished goods and work in progress also decreased by a total of €0.8 million. − Trade receivables amounted to €240.3 million and were down by €16 million, mainly following termination of the advertising contracts with third-party publishers. Excluding this effect, the item remained basically steady. In particular, the decrease in trade receivables of the Spanish Unidad Editorial group (-€10.5 million) is virtually offset by higher receivables in the other operating segments, due also to the increase in advertising sales in Italy in the fourth quarter, and to higher receivables of the investees RCS Sport and Event DMCC

(Dubai), from the new F1 H2O powerboating event launched in December 2017, and also for the contracts related to 2018 events which were already concluded and therefore deferred to take into account the timing of their recognition. − Trade payables at December 31, 2017 decreased by €56.6 million versus 2016. All Group business areas contributed to the change, the Advertising area in particular with a decrease of €20.1 million, due primarily to the termination of advertising contracts with third-party publishers and, to a lesser extent, to the offsetting of payables to agents against paid agent advances. All other areas reported an overall decrease of €36.5 million, due primarily to a different payment trend versus the last quarter of 2016, as a result of the analysis and examination of relationships with suppliers being conducted at the time. Specifically, the decrease is attributable to the Spanish group Unidad Editorial for €14.5 million, to Newspapers Italy for €12.3 million, to Magazines Italy for €4.3 million, and to Other Corporate activities for €5.5 million. − Net other liabilities amounted to €66.6 million at December 31, 2017 (net other liabilities of €54.4 million at December 31, 2016), posting an increase in net liabilities of €12.2 million versus December 31, 2016. Assets decreased by approximately €14.5 million, due primarily to lower advances to agents (-€5.2 million) following a corresponding decrease in payables to agents mentioned above, as well as from lower receivables from social security institutions (-€4.7 million) relating to the recovery of advances paid in application of the extraordinary redundancy fund. Assets were also down, due to lower current tax assets (-€3.8 million) from the use of IRAP advances. Liabilities also decreased by €2.3 million, due to the decline in payables to employees by €11.5 million, owing mainly to the progress of personnel restructuring plans and the resulting reduction in headcount in Italy and Spain. The decrease was partly offset by the increase in deferred income (+€8.6 million) attributable to the Sport segment (+€4.7 million) from the conclusion of contracts for events in 2018, and to Newspapers Italy (+€3.2 million), and also following the issue of add-on products scheduled for the first months of 2018.

Provisions for risks and charges decreased from €58.5 million at December 31, 2016 to €50.4 million at Decem- ber 31, 2017 (down by €8.1 million), with increases of €12 million, uses and releases of €16.9 million, and reclassifications to liabilities of €3.2 million.

Increases included provisions for non-recurring expense of €1.5 million related primarily to the cost of personnel in the Newspapers Italy segment, as a result of the current restructuring, €5.5 million related to the legal disputes provision and additional €5 million related to various other risks or relating to expired contracts. Utilizations and releases relate to staff exits (€3.4 million) from the progress of the restructuring plans primarily in the Newspapers Italy segment, payment of non-recurring expense previously accrued for the renegotiation of a leases on a portion of the Via San Luis property in Madrid (€4.7 million), conclusion of legal disputes (€3.1 million, of which €2 million for legal disputes won or settled), use of provisions previously allocated for the suspension of broadcasting of Gazzetta TV (€1.2 million).

15 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Deferred tax liabilities decreased from €56.4 million at December 31, 2016 to €55.4 million at December 31, 2017, dropping by a net €1 million, due mainly to tax regarding Unidad Editorial group publications.

Provisions for personnel decreased by €1.8 million. The change is ascribable to the use of €2.5 million for headcount reduction during the year and net provisions of €0.8 million inclusive of the effects of actuarial valuation, in addition to actuarial gains of €0.1 million recognized in the statement of comprehensive income.

Net financial debt amounted to €287.4 million at December 31, 2017 (€366.1 million at December 31, 2016), dropping by €78.7 million versus 31 December, 2016, and by €135 million versus June 30, 2016. The improvement derives from significant positive cash flows from ordinary operations (approximately €94 million), as well as from the collection of net gains from divestments and acquisitions (€15.3 million), only partly offset by outlays for non-recurring capital expenditure and expense already accounted for. The net financial debt/EBITDA ratio before non-recurring expense is thus 2.1x versus 3.6x at December 31, 2016.

The abovementioned changes in total net financial debt are specified in detail below: M€ M €

78.7

EBITDA 140.0 Financial expense (26.6) Tax (0.7) Change NWC / Other (18.9)

15.3 93.8

(16.3) (14.1) (287.4)

(366.1) Net ﬁnancial debt Ordinary Disposals and Other (non- CAPEX Net ﬁnancial debt Dec 31 2016 opera ons acquisi ons recurring expense) Dec 31 2017 (*)

Source: Management reporting, based on the analysis of the main changes in total net financial debt. The analysis of flows of cash and cash equivalents in accordance with the provisions of IAS 7 is provided and commented on in the Consolidated Financial Statements. (*) Includes dividends received

The following table reconciles RCS MediaGroup S.p.A.’s equity and profit for the year with the corresponding consolidated amounts:

Dec-31-2017 Dec-31-2016 Equity Profit (loss) Equity Profit (loss) Equity and profit (loss) for the year of RCS MediaGroup S.p.A. 410.2 53.7 353.7 (9.2) Deferred taxes on consolidation adjustments (30.6) (9.6) (21.0) - Elimination of carrying amount 4.1 26.9 (23.1) 12.8 of consolidated equity investments Elimination of effects (213.5) 0.1 (213.6) (0.1) of transactions between consolidated companies Equity and profit for the year attributable to owners of the parent 170.2 71.1 96.0 3.5 Equity and result for the year attributable 1.3 4.4 to non-controlling interests (0.2) - Consolidated equity and profit for the year 171.5 70.9 100.4 3.5

– 16 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

INFORMATION ON ONGOING DISPUTES

RCS Sport events

With reference to the abovementioned events, please refer to the section “Information on ongoing disputes” in the Annual Financial Reports at December 31, 2015 and at December 31, 2016. Updates on the various events are reported below:

(i) As regards the proceedings joined as civil parties seeking damages from certain defendants, the case was adjourned to the hearing of October 27, 2017. At the hearings on June 9 and 16, 2017, the Chief Judge of the panel of judges declared that he has been assigned to another appointment and, as a result of the non-consent of the defence lawyers of the defendants to continuing the preliminary activities carried out up until now, the court hearings must be commenced ex novo due to the change of composition of the panel. The Court, in its new composition, after having admitted the testimonial and documentary evidence requested by the parties, postponed the dates of the hearings and adjourned the examination of witnesses. The dates of the next hearings are as follows: March 9, 2018 - April 13, 2018 - April 20, 2018 - May 4, 2018 - May 18, 2018 - May 25, 2018 - June 8, 2018 - June 22, 2018.

(ii) With regard to the writ of summons served on August 1, 2014, under which RCS Sport S.p.A. had filed a liability action, pursuant to articles 2393 and 2396 of the Italian Civil Code, against the former CEO and the former General Manager, at the hearing on June 28, 2017, a deferral was jointly asked and the case was adjourned to September 26, 2017. The Court held that the case was ready for trial and, following the specification of the pleadings, which occurred on October 24, 2017, the Parties filed their respective statements of claim and closing briefs. The hearing for oral discussion originally set for March 8, 2018, was adjourned to April 26, 2018. At end February 2018, a settlement agreement was reached on the ruling concerning such liability actions, with payment of € 2,600,000 by the insurance undertaking in favour of RCS Sport. The agreement provides, inter alia, for the waiver, in respect solely of the former CEO and the former General Manager, of the civil action proposed in the criminal proceedings.

(iii) As regards the objection to the dismissals imposed (appeal rejected by the Court of Milan), the former CEO and the former General Manager both filed an appeal. The next hearing is set for March 19, 2018 for the former CEO and March 27, 2018 for the former General Manager.

(iv) The following are pending before the Court of Milan against the Bank at which the current account was held: (a) the compensatory action brought by the Consorzio Milano Marathon (b) the compensatory actions brought by Associazione sportiva dilettantistica Milano City Marathon and other associations. The lawsuits were joined and are currently in the preliminary investigation phase. The first hearing is set for July 5, 2018 for the continuation of the appraisal and investigative activities.

17 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

HUMAN RESOURCES

Breakdown of the average number of employees by geographic segment

The exact headcount of the RCS Group at December 31, 2017 was 3,321, down by 78 units versus December 31, 2016. The decrease in the headcount was the result of the reduction in permanent contracts (down by 79 units). The change primarily includes the effects of the restructuring and efficiency plans, partly offset by targeted measures for the development of new publishing initiatives, resource stabilization and turnover management.

The exact headcount broken down by geographic segment is shown below.

ITALY SPAIN OTHER COUNTRIES TOTAL Dec-31 Dec-31 Dec-31 Dec-31 2017 2016 2017 2016 2017 2016 2017 2016 (*) Executives, middle managers and white-collars 1,005 1,058 738 739 53 57 1,796 1,854 Publication directors and journalists 767 769 521 541 2 2 1,290 1,312 Blue-collars 195 192 40 41 - - 235 233 Consolidated total 1,967 2,019 1,299 1,321 55 59 3,321 3,399

(*)When calculating the staff numbers for this Annual Report, the "administrative" criterion was applied (employees are counted based on the company they belong to from an administrative point of view), which is different from the "operational" criteria that was previously applied (employees are counted in the company which receives management input). The comparative data for 2016 have been reclassified accordingly.

The average number of RCS Group employees in 2017 was 3,390, down by 194 units versus 2016 (3,584). The reduction in average clerical staff in Italy was particularly significant (-73 average resources) while in Uni- dad Editorial the difference in average staff is virtually split evenly between editorial (-52 average resources) and clerical staff (-47 average resources).

The average number of people who worked under solidarity arrangements in Italy in 2017 were 749, with a reduction in working hours up to a maximum of 20% (83 average journalists for the publication La Gazzetta dello Sport, 666 other non-editorial staff) and 134 average journalists placed in the extraordinary redundancy fund (CIGS) up to a maximum of 25% in the Magazines segment (Sfera included).

Average employees working in the Group’s foreign operations accounted for approximately 41% of the Group’s average total at December 31, 2017.

The average headcount broken down by geographic segment is shown below.

ITALY SPAIN OTHER COUNTRIES TOTAL Jan-Dec Jan-Dec Jan-Dec Jan-Dec 2017 2016 2017 2016 2017 2016 2017 2016 Executives, middle managers and white-collars 1,035 1,108 739 786 55 60 1,829 1,954 Publication directors and journalists 782 800 541 593 2 2 1,325 1,395 Blue-collars 195 194 41 41 - - 236 235 Consolidated total 2,012 2,102 1,321 1,420 57 62 3,390 3,584

Changes in the organizational structure

The corporate structure of RCS was reshaped in 2017 with the objective of: − ensuring focus on key strategic elements and the ability to implement; − empowering and enabling publishing development and the implementation of new business initiatives; − optimizing productivity and achieving efficiencies to ensure the safety and competitiveness of the Group in all its markets of operation.

– 18 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

As a result, RCS has a more agile and flexible organization both as a result of the streamlined organizational structure and hierarchical levels, as well as from the redefinition of activities between the various units (even following the insourcing of activities that were previously carried out by third-party suppliers).

In line with the corporate strategy, organizational solutions were also developed to promote the development of the publishing business and new forms of revenue, while projects focused on the optimization and efficiency of operational processes and cost control, and the restructuring plans in both Italy and in Spain continued.

Skills development and training

In 2017, RCS MediaGroup provided more than 27 thousand hours of training, dedicated to the refreshing and development of internal professional skills. Skills development is a key issue for ensuring that employees are continuously aligned with the company's business objectives and the changing market environment. For this purpose, managerial interventions and training programs were organized, mainly focused on the development of technical skills and of context knowledge, and with a view to preparing professionals for career paths within the company, an instrument provided for by industrial relations. For example, training courses on the development of digital publishing and of journalistic skills. In compliance with workplace health and safety regulations, staff training programs continued, complemented by refresher initiatives on the gradual developments involving the relevant legislation. The number of training hours decreased from prior years, attributable mainly to the temporary suspension of managerial training activities to focus on the new processes and investment strategies for human resource development. Skills assessments and performance reviews were managed through the daily management activities of the Human Resources department along with the Area managers.

Industrial relations

With regard to relations with the trade unions in Italy, in 2017 the union agreements for the two newspapers were completed. Corriere della Sera closed the rotating extraordinary redundancy fund (CIGS) for early retirement in a period in which the requirements under Law no. 416 changed, raising the minimum retirement age from 58 to 60 years old. In July 2017, La Gazzetta dello Sport completed the two-year solidarity period and entered into a subsequent agreement to review second-level agreements. The finalization of the trade union agreements was accompanied by the expectation of productivity increases starting with the new publishing projects for both newspapers (in particular "Buone Notizie" at Corriere della Sera and “Geolocalizzazione” for La Gazzetta dello Sport).

In mid-February 2018, the crisis status with the rotating CIGS aimed at early retirement for the Group's Maga- zines was closed. Negotiations are in progress to rebalance personnel expense at the end of the CIGS. With regard to the white-collars of RCS MediaGroup, at the end of July an agreement was signed for the continuation of the defensive solidarity contract that had expired after two years and that had been extended until December 31, 2017 with different percentages depending on the division/department.

In 2017, Unidad Editorial signed its first collective labour agreement for all the companies in the Unidad Edito- rial group. The agreement defined a common regulatory framework covering all likely labour issues that could be unified under a single framework, including a variable remuneration scheme for all employees that is tied to the achievement of company objectives (EBITDA).

Additional agreements were also reached with the legal representatives of the employees of each company to sign a new collective labour agreement to address the items that are not covered by the abovementioned common regulatory framework, with regard to remuneration and the organization of working time.

19 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ENVIRONMENT

In 2017, the RCS Group continued its commitment, with a series of activities related to environmental issues, in keeping with past initiatives, with the aim of increasingly improving the use of resources across all group processes. These activities concerned both production processes and other processes. In accordance with the provisions of Article 5, paragraph 3, letter b, of Legislative Decree no. 254/2016, the RCS Group has prepared the consolidated non-financial statement, which constitutes a separate report. The 2017 consolidated non-financial statement, prepared according to the GRI Standards and subject to a review by KPMG S.p.A., is available on the Group website.

Environmental performance indicators The environmental performance of RCS was analyzed on the basis of the usual parameters:

● Waste ● Water ● Energy ● Atmospheric and electromagnetic emissions The information has been obtained by reworking available management accounting information and covers all the Group’s operating segments with the limitations specified in each paragraph.

● Waste The RCS Group is mainly active in Italy and in Spain. In these countries, a waste tracking system has been developed (mandatory by law in Italy, where waste removed must be accounted for in specific registers and meet specific requirements). This systematic recording guarantees the monitoring of the waste removed to landfills and favours the adoption of suitable measures to reduce waste.

Waste originates from the Group’s general offices and is also generated by the production process in Italy. In fact, the Unidad Editorial group has assigned printing operations to third parties.

The figures in the table refer to the quantity of waste removed from offices with more than 100 employees in Italy where a differentiated waste collection service is active. For all other smaller offices, waste is collected by the services run by the municipalities in which they are located.

Waste removed Waste removed % from offices in 2017 from offices in 2016 change Paper and cardboard Kg 276,110 328,050 (15.8)% Bulky goods Kg 41,490 19,800 n.s. Other hazardous waste Kg 1,900 0 n.s. Disused equipment Kg 1,125 0 n.s. Neon bulb lights Kg 10 12 (16.7)% Lead batteries Kg 20 42 (52.4)% Mixed Kg 0 5,500 n.s.

The greatest impact in terms of waste is essentially composed of two items: paper and cardboard and bulky waste: the first as they are connected to the main activities of the RCS Group, and the second as they are connected to the disposal of furnishings after relocations and/or the remodelling of internal spaces or the elimination of obsolete equipment. This last type of waste is tied to contingent situations. With regard to paper and cardboard, the continuous awareness raising process regarding the correct use of company tools such as photocopiers and printers, along with the adoption of company policies that are increasingly oriented towards the dematerializa- tion of document and print management processes, have further reduced the generation of this type of waste.

Among waste generated this year are materials identified as hazardous as they are tied to disposals from site clo- sures of tools and equipment that contain dangerous substances. These are specific activities and are not connected to group processes.

– 20 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The figures relating to the quantities of the main residual waste are shown below for the Unidad Editorial group:

Unidad Editorial 2017 residual waste 2016 residual waste % change Paper Kg 194,470 197,753 (1.7)% Yellow category (carton) Kg 28,320 33,120 (14.5)% Trimmings Kg 9,420 4,580 n.s. Electronic material Kg 5,357 1,980 n.s. Fluorescent tubes Units 1,780 450 n.s. Toner Kg - 760 n.s. Other material Kg 2,253 1,309 72.1%

In Spain, the gradual focus on digital activities and the contraction of the relevant traditional paper product markets continues to push down the main paper waste. In 2017, the quantity of obsolete electronic equipment that was disposed of increased as did the number of fluorescent tubes as a result of the reorganization of an internal warehouse. New generation printing equipment was also used that led to improved energy efficiency, reduced CO2 emissions and the elimination of toner waste as these multifunction printers are managed by third-parties.

The evolution in the number of printed sheets in 2017 is shown below:

Unidad Editorial no. of sheets 2017 2016 % change A4 sheets 3,013,543 3,189,377 (5.5)% A3 sheets 264,311 321,084 (17.7)% Total consumption 3,277,854 3,510,461 (6.6)%

Figures relating to the quantities of industrial waste produced by the principal Italian printing plants for 2017 are as follows:

MILAN – Pessano ROME PADUA

2017 2017/2016 2017 2017/2016 2017 2017/2016 Hazardous waste kg 49,862 +11.9% 3,912 +17.7% 1,100 +5.8% Non-hazardous waste kg 270,280 +5.1% 230,745 (2.4)% 142,640 +13.5% Waste for recycling and kg 2,508,065 (27.7)% 972,790 (6.2)% 1,984,963 (2.1)% recovery Total waste kg 2,828,207 (25.1)% 1,207,447 (5.4)% 2,128,703 (1.2)%

The figures shown in the table refer to the quantity of industrial waste removed by specialist companies authorized to recover or dispose of it. The RCS Group is registered with SISTRI (the Italian tracking control system).

Pessano Plant. The increase in hazardous and non-hazardous waste is tied to an increase in maintenance and cleaning of printing machines (rubber/ink, etc.) needed to ensure constant levels of print quality. The overall reduction in waste is attributed to the suspension of a printing contract for-third party publishers and, in general, from lower production volumes (paper and aluminum sheets).

21 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Rome Plant. The increase in hazardous waste is due to disposals resulting from extraordinary maintenance. The considerable downturn in non-hazardous waste was linked to the lower production, which resulted in a reduction in maintenance activities, therefore in less liquid waste produced. The decline in recyclable materials is also the result of the decrease in copies produced.

Padua Plant. The overall decrease in waste, especially recyclables (paper and aluminum sheets), is due to the drop in the volume of copies produced. Non-hazardous waste rose significantly due to extraordinary maintenance on storage systems. The increase in hazardous waste is attributable to the extraordinary disposal of refrig- erant gas that is now obsolete.

As from 2009, the Unidad Editorial group no longer has direct management of its printing facilities. It nonetheless supports ECOEMBES, a non-profit making organization that organizes an integrated system of differentiated waste collection and recovery of packaging for subsequent transformation, recycling and utilization.

For this purpose, the Unidad Editorial group annually certifies its volumes, weights and types of packaging used for packing its products.

The Unidad Editorial group companies that generate packaging waste include: − Ediciones Cónica, publisher of the monthly Telva, − Unidad Editorial Revistas heading the rest of the group supplements and magazines.

Paper

As regards paper, a raw material widely used by the RCS Group, recycled paper is used to a significant extent for newspapers in Italy and in Spain.

Virtually all the suppliers used by the Group also guarantee their environmental commitment by using eco-sus- tainable production processes.

● Water The rationalization of water consumption at the Group's office locations has been implemented. Differences in consumption are therefore attributable to external circumstances such as changes in personnel.

Rome Plant. The drop in water consumption is the result of the lower use of the production facilities and from careful management of consumption when performing maintenance activities.

Milan and Padua Plants. The increase in water consumption was due to contingent factors linked to non-recurring technical failures. Specifically, the Padua plant suffered the low winter temperatures.

The figures shown in the tables refer to metered water consumption at the two Italian plants and for the Unidad Editorial headquarters in 2017:

MILAN - Pessano ROME PADUA Unidad Editorial 2017 2017/2016 2017 2017/2016 2017 2017/2016 2017 2017/2016 Water 34,411 +6.8% 2,206 (15.5)% 2,637 +2.2% 13,748 +20.0% consumption m3

– 22 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

● Energy The Group’s energy consumption is shown below.

Electricity

The RCS Group is constantly committed to a policy of containing electricity consumption. Specifically, this type of energy is used for air conditioning, lighting offices and for the office equipment power supply, as well as for production in the plants in Italy.

Electricity consumption at the office locations is strongly affected by the weather. At the Rizzoli and Solferino locations, air conditioning is performed using heat pumps which account for a significant share (50/60%) of total electricity consumption.

Electricity consumption at these locations represents more than 90% of the electricity consumption by the Group's Italian offices and has increased versus 2016 (net of changes in personnel) by a few percentage points (3-5%) as a result of the poor weather conditions in 2017.

The figures shown in the table below refer to metered electricity consumption at the principal Italian production plants in 2017:

MILAN - Pessano ROME PADUA

2017 2017/2016 2017 2017/2016 2017 2017/2016 Electricity consumption (kwh) 8,686,522 (4.9)% 4,745,952 (1.4)% 4,727,912 +4.3%

Milan and Rome Plants. The drop in electricity consumption is attributable to the lower production volumes. The change in Milan was also affected by the suspension of a printing contract for third-party publishers, partly offset by increased consumption during the summer months to counter the more humid weather versus the pri- or year.

Padua Plant. The increase in consumption is related to the particularly hot summer (July and August in particular) versus the prior year and the consequent need to increase air conditioning.

In 2017, the Unidad Editorial group’s energy consumption decreased by 11.4% versus 2016, which translates into 878 fewer tons of CO2 emitted into the atmosphere. The decrease is the result of the installation of new con- ditioners in the air conditioning system and from having reduced the amount of space used at the Unidad Edito- rial office in Madrid.

Details of consumption are shown in the table below:

Unidad Editorial 2017 2016 % change Electricity consumption (kwh) 6,175,090 6,967,915 (11.4)%

Energy for heating

The Via Rizzoli offices stopped using fossil fuel heating systems in 2010 to switch to heat-pump systems only.

Via Solferino still has two natural gas boilers used for hot water and for the pre-heating elements of the air han- dlers. Consumption is nonetheless down significantly. A similar trend emerges in the consumption figures for natural gas used for heating at the Via Campania location in Rome.

23 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The figures shown in the table below refer to the withdrawal of natural gas at the meter in the group printing plants:

MILAN - Pessano ROME PADUA

2017 2017/2016 2017 2017/2016 2017 2017/2016 Methane gas consumption m3 432,525 (2.8)% 199,685 +33.3% 295,011 +28%

Milan Plant. The drop in methane gas consumption is due to improvements made to the heating system following last year’s malfunctions. The improvement was partly offset by increased consumption in the first few months of the year because of the extremely low temperatures.

Padua and Rome Plants. The increase in methane gas consumption is attributable to the colder weather, with temperatures falling below the seasonal average, resulting in boilers remaining in operation for a longer period of time. The Padua plant in particular was also impacted by a number of heating system malfunctions which have since been resolved.

● Electromagnetic and atmospheric emissions

Fuel for vehicles Most of RCS’s vehicle fleet is made up of diesel vehicles, compliant with anti-pollution regulations and constantly evolving towards less polluting, lower-consumption models. RCS also encourages its employees to increase their use of trains as opposed to cars.

Climate change Energy management activities implemented by the RCS Group have helped to limit CO2 production. The group plants are free of substances harmful to the ozone layer.

Electromagnetic emissions The RCS Group’s attention to the issue of electromagnetic emissions is reflected in the careful management of its plants, compliance with applicable regulations, and the use and constant search for advanced technological instruments for control and verification. Its environments are monitored to check that they meet the limits of law.

– 24 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

PRINCIPAL RISKS AND UNCERTAINTIES

Risks relating to macroeconomic trends

Most of the RCS Group’s activities are on the European market, primarily in Italy and Spain. Therefore, the Group’s results are exposed to the risks caused by the economic environment in those countries and by the effectiveness of the economic policies adopted by the different Governments.

In 2017, the Italian GDP strengthened the positive trend reported in the last few years by achieving a 1.5% growth, the highest in seven years, almost reaching the GDP growth reported in 2010 (+1.7%), but remaining below the European average of +2.3%. Forecasts for the Italian economy in the three year period 2018-2020 point to GDP growth of 1.4% in 2018 and 1.2% in the two-year period 2019-2020 (Source: Bank of Italy Eco- nomic Bulletin).

The Spanish economy, which had achieved GDP growth that was very close to pre-crisis levels already in 2016, went on to grow by 3.1% in 2017 (Source: INE), while GDP growth for 2018 and 2019 is expected to be 2.6% and 2.1% respectively (Source: Economic Forecast European Commission September 2017). These estimates are nonetheless contingent on the risks of instability that could affect the two countries following the elections in Italy or the Catalonia crisis in Spain with consequent effects on the Group results.

Risks relating to the Group’s results

Among the Group’s activities, advertising represents nearly half of total revenue and, though it has generally more advantageous margins than other RCS businesses, it is significantly affected by the trend in the macroeconomic cycle, amplifying its trends and, as a result, influencing the Group’s results both in Italy and Spain. Despite the improved macroeconomic scenario, in 2017 the specific advertising markets in which RCS operates performed poorly with advertising down both in newspapers (7.7% in Italy and 7.1% in Spain) and magazines (6.2% in Italy and 2.7% in Spain).

The digital segment may help to mitigate this risk as it has progressively established itself (since it first appeared) both in Italy and in Spain; mention should be made, however, of Italy’s inconsistent performance over the past few years.

Moreover, it should be noted that the digital segment includes different types of advertising channels that are constantly evolving, the offer of which could impact customer preferences with margins that may vary based on the device (mobile, pc) and with strong competition coming from the OTT (Over-The-Top).

One of the other main group activities is the sale of publishing products to a market which, in Italy and Spain, has been undergoing a phase of change for the past few years and is heading towards increasing integration with online information systems. This transition is causing tension in terms of the distribution of printed products and the concurrent need to adopt suitable strategies for the development of new products and the enhancement of traditional products. Deterioration of the macroeconomic scenario may further aggravate these aspects, as has already partly occurred.

Additionally, the group activities correlated with sports and in particular the organization of sporting events, have an appreciable margin experiencing rapid development. These activities are also based on medium/long- term contractual licence and sponsorship agreements. The business is also seasonal in nature, as it is correlated with the frequency of the sporting events. This phenomenon directly influences the financial cycle, thereby concentrating greater inflows in certain parts of the year (coinciding with the date of the event, May for instance, for the Giro d’Italia) or every few years (European football championships, World Cup, Olympics).

The Group’s results are also shaped by the trend in the price of raw materials, essentially paper and energy costs. Possible increases in procurement costs could also negatively impact the Group’s results.

25 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Management of financial risks

The Group manages its capital structure and financial risks in accordance with the asset structure. Its aim is to maintain a suitable credit rating and adequate capital ratio levels over time, given the current lending dynamics in Italy, where banks are called for more stringent capital requirements by European legislation, and the potential funding opportunities offered by the capital markets. No changes were made to the operating objectives, policies and procedures in 2017 from the year ended December 31, 2016.

The Loan Agreement concluded in 2013 and subsequently amended in August 2014 and in June 2016 was fully refinanced through a New Loan Agreement concluded on August 4, 2017. The New Loan Agreement has deferred the final maturity from December 31, 2019 set for the previous Loan to December 31, 2022, and envisages a single covenant represented by the Leverage Ratio (Net financial Debt /EBITDA), verified annually.

The New Loan Agreement sets an annual interest rate equal to the sum of the Euribor rate and a variable margin depending on the Leverage Ratio, more favorable for the Company than the margins set forth in the previous Loan Agreement.

For additional details, please refer to the section “Additional information required by CONSOB pursuant to Art. 114, paragraph 5 of Legislative Decree no. 58/1998 of May 27, 2013” of this Annual Report.

Market and business risk are added, for the RCS Group, to the exposure to several financial risks: market risks (such as interest rate risk and, to a lesser extent, currency risk, while it is not exposed to price risk), liquidity risk and credit risk. The Company constantly monitors financial risks connected with its business and that of its subsidiaries.

Risks associated with employee and supplier relationships

The Group’s activities cover publishing, journalism and printing activities.

Work stoppages or other protests by certain categories of workers (journalists and print workers in particular, given the speed and frequency of the product’s economic cycle, regarding in particular the newspaper and, in some cases, the online business) could cause interruptions and, if extended over time, disruptions serious enough to impact the Group’s results of operations.

Additionally, for some types of supplies, in particular, paper, the main risks are those tied to the oligopolistic market, with possible ensuing difficulties in procurement and dependency on suppliers (specifically for coloured newsprint paper).

To increase the efficiency of its cost structure, the RCS Group has, in some cases, outsourced several functions, including for example Spanish printing activities and some other non-strategic activities supporting the core business, attaching greater importance to relationships of close collaboration with suppliers.

Risks relating to brand protection

The Group brands constitute a fundamental asset for the development of Group activities in both the traditional (print) and digital areas. The occurrence of events that harm the prestige of the brands could result in losses of profit.

– 26 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Legal and regulatory risks

The RCS Group operates within a complex regulatory environment in Italy and abroad. Developments in reference regulations involving the introduction of new legal specifications or the amendment of current laws could have significant effects on the group asset portfolio, as well as on corporate governance and on internal compliance processes, which may work against the economic need to simplify administrative processes and improve the quality of reporting in support of the business.

Risks related to management and key staff

The Group's success also depends on the ability of its executive directors and the other members of the management team to effectively manage the Group and the individual operating segments. Publication directors play an important role in the publications they manage. The loss of an executive director, publication director or other key person without having a suitable replacement, as well as difficulty in attracting and retaining new and qualified personnel could have adverse effects on the Group's business prospects, results of operations and financial position.

Risks relating to RCS MediaGroup S.p.A.

The Company is basically exposed to the same risks and uncertainties as described for the RCS Group.

27 –

OPERATING SEGMENT PERFORMANCE

DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

NEWSPAPERS ITALY

Segment profile

The Newspapers Italy segment is primarily dedicated to the editing, production and marketing of publishing products relating to the titles Corriere della Sera (Corriere publications) and La Gazzetta dello Sport (Gazzet- ta dello Sport publications). It also includes television activities for satellite channels and digital development activities.

Specifically, Corriere della Sera publications include the national newspaper, the leading national news and information daily, in addition to a structured, integrated platform of paper and digital information media, including a network of local newspapers, the weekly 7, special inserts and general interest and specialized supplements, as well as the entire digital offer consisting of the website corriere.it, the digital edition, mobile and apps.

La Gazzetta dello Sport publications include the national newspaper, the leading Italian sports information publication, the weekly Sportweek, special inserts and specialized supplements, the website gazzetta.it, the infotain- ment GazzaNet website, featuring the latest news and details about the main teams and athletes.

The Newspapers Italy segment also includes local editions of the two newspapers.

Television activities are carried out in Italy, through Digicast S.p.A., which operates in the satellite television broadcasting segment, offering five channels on SKY: Lei (channel 127), Lei+1 (channel 129) and Dove (channel 412), in addition to the optional channels Caccia (channel 235) and Pesca (channel 236).

The Newspapers Italy segment also includes the activities to develop newspapers on digital media as well as classified activities including Trovocasa and, through the company Trovolavoro S.r.l., the market segment dedicated to the search for qualified personnel.

As regards the distribution of Newspapers, m-dis Distribuzione Media S.p.A., an equity-accounted investee, which handles the distribution of publishing products of the Newspapers and Magazines Italy segments, contributed to the segment’s results.

Financial highlights

2017 2016 Change % Change (€/millions) Publishing revenue 209.4 230.7 (21.3) (9.2) Advertising revenue 154.9 153.8 1.1 0.7 Other revenue 16.1 21.7 (5.6) (25.8) Total revenue from sales and services (1) (2) 380.4 406.2 (25.8) (6.4) EBITDA 86.8 68.4 18.4 26.9

(1) of which add-on product sales: 44.3 58.7

(2) Revenue from add-ons at December 31, 2017 stood at €44.3 million, €42.8 million of which attributable to publishing revenue, €1.4 million to other revenue and €0.1 million to advertising revenue (the total at December 31, 2016 was €58.7 million, of which €55.1 million related to publishing revenue, €2.9 million to other revenue and €0.7 million to advertising revenue).

31 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Market trend

At the end of December 2017, the advertising market fell by 2.1% versus the same period last year. The print media segment dropped by an overall 7.1%: newspapers lost 7.7%, with a negative trend for national business advertising (-8.9% versus the same period in 2016) and magazines were down by 6.2% (Source: Nielsen). The online segment grew (+1.7%), while the advertising market for general television programmes fell (-1.6%) versus 2016 (Source: Nielsen).

In terms of circulation, in Italy the unfavourable trend in the paper products market also continued in 2017.

Specifically, the distribution of paper copies of general interest newspapers in 2017 was down by 14.3% (Source: ADS figures, January-December 2017). Including digital copies, the market was down by 12.2%. Sports newspapers lost 7.3% in 2017 (Source: ADS figures, January-December 2017), versus 2016. Including digital copies, the market dropped by 6.9% (Source: ADS figures, January-December 2017).

Segment results

Initiatives continued in 2017 to add value to the publications in the Newspapers Italy segment and to their net- works, on both traditional and digital channels. Mention should be made of the restyling of some historic publications such as L'Economia which, beginning on March 13, is in newsstands with a larger format and enhanced content, and the new 7 which, under the leadership of Beppe Severgnini, was given a radical overhaul for the thirtieth anniversary of the magazine. Mention should also be made of the launch of new free weekly supplements such as Buone Notizie – L’impre- sa del Bene, which delivers a compelling informative and ethical perspective on the non-profit world, and V come Volley, starting from February 10, 2017, which takes stock every Friday of the week’s events and provides insightful information on men's and women's championships and the weekend fixtures. These were also followed by special initiatives and events including the well-established Cibo a Regola D’Arte; il Tempo delle Donne, IoLeggo Perché, the specials dedicated to the Giro d’Italia and some collectors' issues of La Gazzetta dello Sport coinciding with major sporting events (Formula 1; MotoGP; Champions League Final; Football transfer market). In September, the Gazzetta.it website also celebrated its twentieth anniversary by offering its readers, across all platforms, the best of sport from the last 20 years and publishing an insert dedicated to the future of sport over the next 20 years. In the final part of the year, Corriere della Sera in collaboration with Bocconi University, presented the Snack News initiative; a series of 2-minute video clips aimed at high school students . Every clip focuses on a single subject with the objective of clearly and simply explaining current events in economy, technology and innovation. Additionally, partnerships continue with the primary cultural institutions in the Country. On October 28, the restyled Sportweek publication was launched with a new cover and larger format (23 x 28.7 centimeters), along with a highly dynamic way of swiping though the pages of the magazine. In November, a partnership was established with the editorial staff of La Lettura and with the Milan Triennale, for the exhibit The color of words. This exhibit marks another step in the focus on the informational role of graphic elements on the sixth anniversary of the La Lettura supplement. On November 24, Corriere Torino was launched, the new local edition of the Corriere della Sera, under the leadership of Umberto Rocca: the newspaper is comprehensive and articulate as it was conceived to talk about and promote Piedmont's leading city in a new light, without limiting itself to simply reporting the territory's news.

The publishing and managerial effort also focused on the add-on products, concentrating on high margin products. Among the most notable add-ons is surely the one dedicated to Cannavacciuolo's recipes that rode on the success of the Food sector, the works on Art and Philosophy in the information line and the works on Go Nagai in the comics sector.

Consolidated revenue of the Newspapers Italy segment amounted to €380.4 million in 2017, down by €25.8 million (-6.4%) versus of 2016. The drop was generated by publishing revenue for €21.3 million and other revenue for €5.6 million, while advertising revenue grew by € 1.1 million for the first time since 2011 , reversing a lengthy trend despite the continued downturn in the print market and being penalized by the effect of sporting events on the advertising sales of La Gazzetta dello Sport in 2016 as further commented on below. Digital revenue in the segment accounted for 14.5% of total segment revenue.

– 32 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Publishing revenue of the Newspapers Italy segment amounted to €209.4 million, down by 9.2% versus 2016. The decrease is attributable to lower add-on product sales for €12.3 million, also affected by the different publishing plan versus the prior year. This was in addition to the decrease in publishing revenue of both Corriere della Sera publications (-€5.8 million versus 2016), with growth in digital revenue (+€1.5 million versus 2016), which partly offset the drop in circulation of paper copies, and the decrease in La Gazzetta dello Sport publications (-€2.9 million concentrated on paper copies).

Both newspapers retained their circulation leadership in their respective market segments at December 2017 (Source: ADS figures January-December 2017). In the January-December period of 2017, Corriere della Sera recorded an average of 310 thousand copies distributed, including digital copies (Internal Source). Total circulation of La Gazzetta dello Sport in the January-December period of 2017 came to 183 thousand copies on average, including digital copies (Internal Source). As regards the comparison with the market, the newsstand channel (channels required by law) recorded a better performance than the relevant market, especially in relation to Corriere della Sera (which recorded a drop of 5.5%, versus -11.6% of the market) (Source: ADS January-December).

As regards paid digital offers, consumer subscribers at the end of the year increased versus the prior year end (+11%) with approximately 69 thousand paid subscribers between the digital edition, membership and m-site. In 2017, the average monthly unique browsers for the corriere.it site reached 47 million (+13.0% versus 2016), and the average unique browsers on weekdays totaled 3.2 million, up by 16.5% versus 2016. (Source: Adobe Analytics). The mobile version of the website, Corriere Mobile, recorded 25.2 million average monthly unique browsers in 2017, up by 25.1% versus 2016 (Source: Adobe Analytics). The site gazzetta.it recorded 29.6 million average monthly unique browsers in 2017 (up by 16.6% versus 2016). The average unique browsers on weekdays totaled 2.3 million, up by 11.3% versus 2016 (Source: Adobe Ana- lytics). Gazzetta Mobile reached 15.5 million unique browsers, up by 27.1% versus 2016 (Source: Adobe Analytics).

Advertising revenue of the Newspapers Italy segment amounted to €154.9 million, up by 0.7% versus 2016. Additionally, net of the benefits from advertising sales resulting from sporting events in 2016 (European Foot- ball Championship and the Summer Olympics), advertising revenue grew by 3.1%. Total advertising sales for online media reached roughly 25% of total advertising revenue for the segment, versus 23.7% in 2016, net of revenue from the abovementioned sporting events. Advertising revenue from Corriere della Sera publications (including supplements and online) increased versus 2016, with print in line with the prior year, despite the 7.7% drop of the print market and the 8.8% growth of the digital segment versus the market’s 1.7% increase (market data, source Nielsen January-December 2017). Advertising revenue from La Gazzetta dello Sport publications (including supplements and online) fell by 1.7% versus 2016, with print down by 5.2% and the digital segment up by 9.6%. Net of the benefits from sporting events in 2016, advertising revenue from La Gazzetta dello Sport publications would increase versus 2016, with print up by 9.8% and the digital segment up by 21.4%.

Other revenue amounted to €16.1 million, down by €5.6 million due to less revenue from add-on product sales (-€1.5 million) and to the decrease in other revenue with no effects on the margin. It includes other revenue from the television activities of the subsidiary Digicast S.p.A., whose revenue is in line with 2016.

33 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

* * *

EBITDA stood at €86.8 million, up by €18.4 million from €68.4 million reported in 2016 (+26.9% versus the prior year): net of the impact of non-recurring expense/income, the result improved by €16.8 million (€0.2 million in net income was reported in 2017 versus €1.4 million in net expense in 2016). The upward change is attributable to the good performance of advertising sales, and to the initiatives targeted at constantly expanding and enriching the publishing offer, combined with the tireless commitment to efficiency. Specifically, total operating costs, including personnel expense and excluding non-recurring expense in 2016, were down by 12.6% versus the prior year.

– 34 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

MAGAZINES ITALY

Segment profile

The Magazines Italy business segment is dedicated to the editing, production and marketing of a structured offer of publishing products. The Magazines segment mainly includes seven Italian magazines, including weeklies and monthlies, and concerns the following areas: Women’s (IO Donna and Amica), Home Furnishings and Inte- rior Design (Living and Abitare), Family (Oggi publications) and Men’s & Lifestyle (Style Magazine, Dove). On the multimedia front, the segment includes the Living.corriere.it, Iodonna.it, Amica.it, Oggi.it, Doveviaggi. corriere.it, Style.corriere.it, Doveclub.it and Abitare.it websites. Mention should be made that, in June 2017, the publication Oggi Enigmistica Settimanale was reclaimed (previously licenced to third parties) and relaunched in July.

The segment also includes the activities of Hotelyo SA, a company operating under the Dove Club name in the online travel segment in ‘flash sales’, catalogue and ‘tailor made’ mode.

On top of these are the Childhood Magazines specialized in the early childhood segment, including the publications Insieme and Io e il mio Bambino, the controlled distribution of boxed sets containing assorted products and test samples for mothers, the organization of events and fairs (Bimbinfiera), the offer of digital products (quimamme.it website and publication websites) and e-commerce and direct marketing functions. Thanks to its business model, the Sfera Group is the market leader in Italy and Spain and is also present in Mexico (with business models similar to Italy’s), in France and in Portugal, with an exclusively digital offer. Mention should be made that the direct marketing activities, now part of the Magazines Italy area, were previously included in the Other Corporate activities area, therefore the comparative period was reviewed accordingly.

As regards the distribution of Magazines, m-dis Distribuzione Media S.p.A., an equity-accounted investee, which handles the distribution of publishing products, contributed to the segment’s results.

Financial highlights

2017 2016 Change % Change (€/millions) Publishing revenue 28.1 28.5 (0.4) (1.4) Advertising revenue 48.8 51.1 (2.3) (4.5) Other revenue 16.7 19.6 (2.9) (14.8) Total revenue from sales and services (1) (2) 93.6 99.2 (5.6) (5.6) EBITDA 14.2 7.6 6.6 86.8

(1) of which add-on product sales: 2.9 3.7

(2) Revenue from add-ons in 2017 stood at €2.9 million, due entirely to publishing revenue (in 2016 the total was €3.7 million, €3.6 million of which related to publishing revenue and €0.1 million to other revenue).

Market trend

In 2017, the Italian advertising market for magazines in print media fell by 6.2% versus 2016 and against an advertising market that lost an overall 2.1%. Internet saw investments rise by 1.7% (Source: Nielsen).

In relation to the circulation market of publications stated in ADS in the first ten months of 2017, the magazines market generally fell by approximately 6% versus the same period in 2016: monthlies decreased by 12% and weeklies by 4% (Internal Source based on ADS data).

35 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The market for Childhood segment activities depends heavily also on the steady decline in the birth rate in both Italy and Spain in the 2008-2016 period (-103,000 births in Italy from 2008, equal to a decline of 17.8%; -109,000 in Spain equal to a decline of 20.9% - Source: Istat, Movimiento natural de la poblacion). For 2017, ISTAT still estimates a 2% decrease in births in Italy (464,000 births in 2017 versus 473,400 in 2016 and 576,700 in 2008).

Segment results

Revenue of the Magazines Italy segment amounted to €93.6 million in 2017, down by €5.6 million (-5.6%) versus 2016, as a result mainly of lower advertising and other revenue.

Publishing revenue fell by an overall €0.4 million versus 2016 (-1.4%), due to less revenue from add-on products, determined by the different type of products offered. On the other hand, this new offer, thanks to its high margins, enabled EBITDA from add-on products to triple versus 2016.

Mention should be made of the remarkable performance of the weekly Oggi, which reported a 10.5% increase in 2017 in newsstand distribution (sold individually and in combination with other publications in the Family area, brand extension of the Oggi trademark) versus 2016, while overall revenue increased by € 0.7 million.

The relaunch of Oggi Enigmistica Settimanale (from June 27) delivered a good performance, up from an average of 13 thousand copies in June to 73 thousand copies in the third quarter and 41 thousand copies in the fourth, 29 thousand of which sold at newsstands individually and 12 thousand copies bundled with Oggi.

The publishing revenue of the Home Furnishings and Interior Design area was basically steady, though dropping in both the Women’s area (-€0.3 million) and the Men's and Lifestyle area (-€0.3 million), due mainly to the different publication schedule of Dove specials. Publishing revenue of Childhood Magazines was in line with the same period of the prior year, despite there being one less publication (Dolce Attesa). The month of May saw the newsstand release of the new Insieme, the time-honoured monthly for families, which has had a complete makeover.

Regarding digital performance indicators, the IODonna.it site performed extremely well, with 2.1 million average unique browsers versus 1.7 million in 2016 (+27%), as did the Amica.it site, with 260 thousand average unique browsers (+ 46%), and the Doveviaggi.it website, with 756 thousand average unique browsers in 2017 versus 584 thousand in 2016 (+29%) (Source: Adobe SiteCatalyst). The Quimmamme.it network reported excellent results too, with 900 thousand average unique browsers in 2017 (+46% versus 2016).

Advertising revenue dropped by approximately 4.5% (-€2.3 million) versus the same period of the prior year. The decrease is attributable mostly to lower advertising sales of Childhood Magazines (-€1.7 million), mainly print copies (-€1.3 million) in the different countries. Online advertising revenue in Italy and Spain decreased by €0.4 million versus 2016, remaining basically steady in Mexico.

Advertising revenue on other magazines dropped by 1.3% versus 2016 (-€0.5 million). Specifically, advertising revenue from women's magazines (Amica and Io Donna) decreased and was only partly offset by increases in advertising sales of Living and Style. The figures for the other magazines and the websites are essentially in line with 2016.

Overall, advertising sales of the Magazines area outperformed the market (-4.3% versus the market’s -6.2%, Jan- uary-December 2017, source Nielsen). This gap, excluding Childhood Magazines from the comparison, becomes more evident with the decrease in RCS advertising revenue of 1.3% and the 6.2% contraction in the market.

Other revenue amounted to €16.7 million, down by €2.9 million (-14.8%) versus 2016. The decrease is attributable, for €2.8 million, to Childhood Magazines, due to the change of business model achieved through the outsourcing of some activities (including e-commerce in Italy and Spain), the lack of a trade fair event (with no impacts on the margin), and lower revenue from direct marketing and boxed set distribution activities.

– 36 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

* * *

EBITDA in 2017 amounted to €14.2 million, improving by €6.6 million versus 2016 (+86.8 versus the prior year).

The above improvement is attributable, for €5.6 million, to the Magazines segment, due not only to the excellent performance of Oggi Publications and their add-on products, but also to the strong cost-cutting commitment.

Despite lower revenue, Childhood Magazines too recorded a growth in EBITDA of +€1 million versus the pri- or year, due mainly to the efficiency actions (including the closure of lower profit margin activities) and the cost-cutting measures adopted in Italy.

37 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ADVERTISING AND SPORT

Segment profile

This includes the RCS Pubblicità (Italy) division, the advertising concessionaire of the RCS Group and RCS Live, as well as the activities regarding the organization of sporting events of RCS Sport S.p.A. (also through the company RCS Sports and Events DMCC with registered office in Dubai, active in the organization of sporting events in the United Arab Emirates).

The RCS Pubblicità division includes advertising sales activities in Italy, excluding Childhood Magazines, Clas- sifieds and Digicast S.p.A., which operate directly through their agency or via third-party agencies. Local advertising sales for customers in Tuscany, Emilia-Romagna, Trentino-Alto Adige, Veneto, Campania, Lazio and the provinces of Brescia and Bergamo are assigned to sub-concessionaires.

The division’s activities include advertising sales on the websites Kelkoo and Warner Music, as well as, for the first two months of 2017 only, national print advertising sales for the Monrif Group daily newspapers - QN, Il Giorno, Il Resto del Carlino and La Nazione - (“Poligrafici Editoriale”). Additionally, it should be noted that, following termination of the concession contract, from January 1, 2017, RCS Pubblicità no longer sells the advertising spaces of the Itedi Group.

The Pubblicità division is also the concessionaire for third-party publishers of domestic advertising sales (print and online) for some publications distributed in Southern Italy. The agreements were entered into with the following publishers: Società Editrice Sud or SES, which publishes Gazzetta del Sud, Gazzetta Avvisi (Friday insert also online), Noi Magazine (Thursday school insert) and gazzettadelsud.it; Domenico Sanfilippo Editore, which publishes La Sicilia and lasicilia.it; Editrice del Sud Edisud, the publisher of Gazzetta del Mezzogiorno and gazzettadelmezzogiorno.it; and Giornale di Sicilia Editoriale Poligrafica, which publishes Giornale di Sicil- ia and gds.it.

In 2016, the RCS Pubblicità division entered into a local sub-concession agreement for print and online advertising sales with Piemme S.p.A. regarding Leggo and Leggo.it.

The RCS Live events agency is known for its direct, multimedia and efficient approach to the design, planning and execution of business to consumer, business to business and corporate events.

RCS Sport (with the subsidiaries under Sporting Events) is a Sports and Media Company positioned as one of the top players on the Italian and international stage; it organizes and manages high-profile mass national and international events for a variety of sports, mainly cycling and running (including the Giro d’Italia, the Milano Sanremo, the Tirreno Adriatico, Il Lombardia, the Dubai Tour and the Abu Dhabi Tour in cycling and the Milano Marathon and The Color Run in running), by providing a full and customized range of services as well as advertising sales activities for itself and on behalf of third parties.

Financial highlights

2017 2016 Change % Change (€/millions) Advertising and sundry events (1) 238.3 268.5 (30.2) (11.2) Sporting Events (2) 74.9 63.8 11.1 17.4 Total revenue from sales and services 313.2 332.3 (19.1) (5.7) EBITDA 22.7 12.2 10.5 86.1 (1) In 2017, they include advertising revenue of €233.7 million (€263.1 million in 2016) and other revenue of €4.6 million (€5.4 million in 2016). (2) In 2017, they include advertising revenue of €28.1 million (€24.8 million in 2016) and other revenue of €46.8 million (€39 million in 2016).

– 38 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Market trend

In Italy, the advertising market (Source: Nielsen) closed 2017 falling by 2.1% versus 2016. Specifically, newspapers lost 7.7%, magazines 6.2%, Billboards 0.6% and TV 1.6%. Bucking this trend, advertising investments in Radio (+5.4%) and the Internet (+1.7%).

Segment results

Total revenue for the segment in 2017 amounted to €313.2 (€332.3 million in 2016), falling by €19.1 million versus the prior year. The trend reflects the increase in revenue from the organization of sporting events, offset by the drop in advertising sales of the RCS Pubblicità division, €31.3 million of which due to the aforementioned termination of advertising sales contracts of the publications of some third-party publishers. On a like-for-like basis, advertising revenue from the area as a whole increased by €10.2 million, while only the RCS Pubblicità division (net of both scope differences with third-party publishers and the effect of sporting events on revenue in 2016) reported an increase in advertising revenue of approximately €6.9 million, largely driven by growth in advertising revenue on digital media (+€6.5 million) and advertising revenue in magazines.

In 2017, Sporting Events achieved revenue of €74.9 million, up by €11.1 million versus 2016. This increase is mainly attributed to higher revenue from television rights and advertising sales tied to the Giro d’Italia and other cycling races held in Italy and in the United Arab Emirates, the EA7 Milano Marathon, and the new event in Abu Dhabi, F1 H2O - Formula 1 World Powerboat Championship. In contrast are the numbers related to registrations to The Color Run (due to the lower number of stages versus 2016) and the decision not to organize events with Lega Basket.

With regard to performance by revenue type, advertising revenue grew by €3.3 million (+14% versus 2016) as did other revenue by €7.8 million, as a result of the renewal of the contract granting transmission rights for Ital- ian cycling races on RAI for the two-year period 2017-2018.

* * *

EBITDA for the segment totaled €22.7 million, improving by €10.5 million versus the prior year, due mainly to the positive effects of both higher revenue (as explained above), and the improvement from the containment of general costs (both structural and events-related).

39 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

UNIDAD EDITORIAL

Segment profile

Unidad Editorial is one of the main players in the Iberian publishing market, where it operates under several media and brands. It operates in the daily and magazine press, in book publishing, in radio broadcasting, in event and conference organization (also in Portugal) and in distribution, with products in its own portfolio and numerous other national and international products, through its own distribution company Logintegral 2000 SAU. It also owns, through Veo TV, a multiplex for national digital television transmission.

As regards the product portfolio, the Group publishes El Mundo, Spain's number two daily newspaper in terms of circulation, and is leader in sports news, with the daily paper Marca, and in business news, with the daily newspaper Expansión. It maintains a web presence through sites for each of its publications, elmundo.es, marca.com and expansión. com. It is active in the magazines market with the women’s magazine Telva and specialist magazines (Marca Motor and Actualidad Económica). It operates in book publishing with the publishing houses La Esfera de los Libros and A Esfera dos Livros (Portugal).

It operates in radio with Radio Marca, the top national sports radio station. In digital TV, it broadcasts two television channels through its own multiplex: Discovery Max and Gol TV, produced by third parties.

Financial highlights

2017 2016 Change % Change (€/millions) Publishing revenue 108.3 121.8 (13.5) (11.1) Advertising revenue 133.2 145.7 (12.5) (8.6) Other revenue 59.0 50.8 8.2 16.1 Total revenue from sales and services (1) (2) 300.5 318.3 (17.8) (5.6) EBITDA 32.1 29.3 2.8 9.6

(1) of which add-on product sales: 4.2 6.3

(2) Revenue from add-ons in 2017 stood at €4.2 million, €3.9 million of which attributable to publishing revenue (€6 million in 2016) and €0.3 million to other revenue (€0.3 million in 2016).

Market trend

In 2017, the Spanish gross advertising sales market reported a 2% increase versus 2016 (Source: i2p, Arce Media). The newspapers market fell by 6.7%, magazines dropped by 6.1% and supplements lost 9% versus 2016. The Internet segment drove the market and posted a remarkable 15.2% increase.

In 2017, sales performance on the newspapers market declined versus 2016. Circulation figures for Spain at the end of the year (Source: OJD) regarding the general interest newspaper market (publications with a circulation exceeding 60 thousand copies), show an overall drop by 9.3%. Business newspapers dropped by 3.3% in the same year. Daily sports newspapers witnessed the same trend, with circulation down by 9.9%.

– 40 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Segment results

Consolidated revenue in 2017 came to €300.5 million, down by €17.8 million (-5.6%) versus 2016, also as a result of the continuous revision of the promotional policy for Group publications, and adversely impacted by the comparison with 2016, marked by the presence of the European Football Championships. Net of these effects, the downturn would amount to €12.5 million (-4%). Digital revenue in the area at December 31, 2017 accounted for 21.7% of total revenue, up by 8.4% versus 2016.

Publishing revenue came to €108.3 million in 2017, down by €13.5 million; however, excluding the varia- tion generated by the aforementioned revision of the promotional policy, the reduction would be €10.9 million (-9.1%), attributable to the general drop of the newspapers market.

The data published by EGM (Estudio General de Medios) in December confirm Unidad Editorial’s leadership in the newspapers sector which, through its brands, reaches around 2.7 million readers on a daily basis, outperforming main competitors by more than 500 thousand readers.

The average daily circulation of El Mundo in 2017, including digital copies, stood at a total of 119 thousand copies, dropping by 9.2% versus 2016. According to the OJD survey (December 2017) of the total paper circulation market, El Mundo, with an average of 97 thousand copies, is confirmed as the second general interest publication at national level. Mention should be made that, on May 9, a special issue was released to celebrate the publication of the 10,000th edition of the newspaper. From May 30 this year, the newspaper El Mundo is led by Francisco Rosell Fernández; in the second half of the year, the newspaper added the supplement Fuera de Serie to its Sunday edition at newsstands.

The circulation of the sports daily Marca (average daily circulation of roughly 135 thousand copies, including digital copies), fell by 8.3% versus 2016, with digital copies up by 10.3%. OJD figures (total paper circulation) for 2017 confirm Marca’s leadership with 126 thousand copies on average, also registering a better circulation performance than its direct competition, and the market average. As regards the publishing initiatives, it should be noted that, on June 9, on world environment day, a special edition of Marca was published, printed on green paper for the first time. The initiative was implemented in order to support protection of the environment, and envisaged the allocation of 10% of the price of each copy sold to WWF. Furthermore, a special edition of Marca was published on October 19: for the second consecutive year it was printed on pink paper, in order to support breast cancer research, donating 10% of every copy sold of that edition to the Spanish Association against Cancer. At the same time, a charity auction was held through the website Marca.com, with the participation of numerous Spanish sports stars who donated some of their gadgets.

For Expansión too, OJD figures for 2017 (total paper circulation) confirm the undisputed leadership of the newspaper, with 23 thousand average copies and a better performance than the market. At December 31, 2017, Expansión achieved average daily circulation of roughly 36 thousand copies, including digital copies, down by 1.2% versus the prior year.

In terms of online activities, elmundo.es reached an all-time high, with monthly average unique browsers (Source: Omniture) reaching 49.7 million in 2017 (+15.7% versus December 2016), while weekly average unique browsers in 2017 were 3.5 million (+16.8% versus 2016). In 2017, marca.com reached a monthly average of 44.5 million unique browsers (+11.2% versus the prior year), while average weekly unique browsers amounted to 4.7 million, up by 10.6% versus 2016. The new MARCAClaro portal was launched in Mexico in January 2017, in partnership with Claro, a company operating in the communications sector in Latin America, which resulted in significant growth in unique monthly users in terms of traffic in this area (+110%). January 2018 saw the launch of the new portal also in Colombia. Average monthly unique browsers of expansión.com reached 10.5 million at December 31, up by 11.4% versus 2016, while average weekly unique browsers amounted to 0.6 million (+10.0% versus 2016). All three websites recorded a significant increase in mobile access.

41 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Advertising revenue, amounting to €133.2 million, fell by €12.5 million (-8.6%) versus 2016. Total advertising sales for online media reached roughly 39.2% of total advertising revenue. The decrease in advertising revenue was also adversely impacted by the comparison with the first half of 2016, marked by the presence of the European Football Championships. Net of these extraordinary events, the decrease in advertising revenue dropped from €12.5 million to €9.9 million (-6.9%).

Other revenue, amounting to €59 million, increased by €8.2 million versus last year. The elements which contributed to this growth include the improvement in the revenue of the TV area achieved through the broadcasting of the new channel GOL TV which replaced Canal 13 previously broadcast via the Multiplex owned by the Group, and betting activities carried out through the Marca Apuestas platform.

* * *

EBITDA for 2017 stood at €32.1 million versus €29.3 million in 2016, improving by €2.8 million. The decrease in traditional revenue was more than offset by continuous cost reduction and efficiency recovery initiatives and by the growth in digital revenue.

– 42 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

OTHER CORPORATE ACTIVITIES

Segment profile

This segment includes the service structures providing support to other group companies and business units. These include, in particular, IT, administration and tax, management control, finance and treasury, procurement, legal and corporate affairs, human resources and facility management activities, serving the operating segments. Added to these are the structures responsible for group-wide policy-making, control and coordination.

The segment paid a contribution to support the Fondazione Corriere della Sera, targeted at the cataloguing and custody of the archives of the Corriere della Sera, RCS Group magazines and publishing houses. The Founda- tion increases the archive and cultural value of its assets through intense activities involving debates, conferenc- es, publications and photographic and documentary exhibitions.

Financial highlights

2017 2016 Change % Change (€/millions) Publishing revenue 0.1 0.4 (0.3) (75.0) Advertising revenue - - - - Other revenue 23.0 33.3 (10.3) (30.9) Total revenue from sales and services 23.1 33.7 (10.6) (31.5) EBITDA (17.7) (27.3) 9.6 (35.2)

Segment results

Revenue, amounting to €23.1 million, decreased by €10.6 million versus the prior year. Specifically, other revenue (-€10.3 million versus 2016), consisting mainly of chargebacks to other business segments, decreased as a result of the continuing cost cutting and efficiency measures being implemented across all the Group's functions. These lower chargebacks from Other Corporate Activities had a positive overall impact on the results of the other business segments of the Group. In 2017, EBITDA improved versus 2016 by €9.6 million thanks to the efficiencies achieved and to lower non-recurring expense (2016 included net non-recurring expense of €8.7 million versus €0.7 million in 2017).

43 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP S.P.A.

RCS MediaGroup S.p.A. publishes Corriere della Sera and La Gazzetta dello Sport, leaders among national and sport dailies, in addition to numerous weekly and monthly magazines, including Amica, Living, Style Magazine, Dove, Oggi, Io Donna, Sportweek, 7 and Abitare. It is also a leader in the early childhood segment with a product range encompassing print, online, e-commerce, events and fairs dedicated to that segment. Through the Advertising Department, aside from advertising sales for the RCS Group’s publications, RCS Medi- aGroup S.p.A. manages national advertising sales activities (print and web) for several third-party publishers. Additionally, RCS MediaGroup S.p.A. conducts management and coordination activities for the subsidiaries offering, in particular, IT, administration and tax, finance and treasury, procurement, legal and corporate affairs, human resources and facility management activities, serving the various operating segments.

On December 20, 2017, a merger deed was signed to merge RCS Investimenti S.p.A. into RCS MediaGroup S.p.A.; the accounting and tax effects of the merger apply as from January 1, 2017, and the legal effects as from December 31, 2017. The merger was carried out in execution of the Merger Plan approved by the Board of Directors of the participating companies and drafted in accordance with Art. 2505-bis and 2501-ter of the Italian Civil Code; based on the exchange ratio set out in the Plan, the right to 1 share of RCS MediaGroup S.p.A. was granted for every 2 shares of RCS Investimenti S.p.A.. The treasury shares of RCS MediaGroup S.p.A. made available to the minorities of RCS Investimenti amounted to 137,854 shares.

For easier comparison, the income statement and balance sheet figures of RCS MediaGroup S.p.A. for 2017, are, therefore compared with 2016 pro-forma, that takes account of the merger of RCS Investimenti S.p.A. as if it had occurred in 2016. Further information is found in the appropriate annexes.

RCS MediaGroup S.p.A. closed 2017 with a profit of €53.7 million, rising sharply versus 2016 pro-forma (loss of €9.3 million), thanks mainly to improved EBITDA, to the lower impact of depreciation and amortization and net financial expense, and to higher income from financial assets, including the gain from the sale of the investment in Istituto Europeo di Oncologia S.r.l..

– 44 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The Company’s restated income statement, together with pro-forma prior-year comparatives, is presented below:

Reference to the 2016 separate finan- 2017 % % Difference 2016 pro-forma (€/millions) cial statements (2) A B A-B Revenue I 500.2 100.0 559.3 100.0 ( 59.1) 559.4 Distribution revenue 237.4 47.5 260.0 46.5 ( 22.6) 260.0 Advertising revenue 241.4 48.3 272.5 48.7 ( 31.1) 272.5 Other publishing revenue 21.4 4.3 26.8 4.8 ( 5.4) 26.9 Operating expenses II ( 277.6) ( 55.5) ( 366.7) ( 65.6) 89.1 ( 366.3) Personnel expense III ( 149.8) ( 29.9) ( 158.3) ( 28.3) 8.5 ( 158.3) Provisions for risks IV ( 3.7) ( 0.7) ( 5.3) ( 0.9) 1.6 ( 5.3) Allowance for impairment V ( 1.8) ( 0.4) ( 1.0) ( 0.2) ( 0.8) ( 1.0) EBITDA (1) 67.3 13.5 28.0 5.0 39.3 28.5 Amortization of intangible assets VI ( 14.2) ( 2.8) ( 17.3) ( 3.1) 3.1 ( 17.3) Depreciation of property, VII ( 7.8) ( 1.6) ( 10.0) ( 1.8) 2.2 ( 10.0) plant and equipment Impairment losses VIII ( 3.4) ( 0.7) ( 0.1) 0.0 ( 3.3) ( 0.1) on non-current assets Operating profit 41.9 8.4 0.6 0.1 41.3 1.1 Net financial income (expense) IX ( 8.1) ( 1.6) ( 13.9) ( 2.5) 5.8 ( 34.6) Gains (losses) on financial assets/liabilities X 28.6 5.7 6.0 1.1 22.6 19.8 Profit (loss) before tax 62.4 12.5 ( 7.3) ( 1.3) 69.7 ( 13.7) Income taxes XI ( 8.7) ( 1.7) ( 2.0) ( 0.4) ( 6.7) 4.5 Profit (loss) for the year 53.7 10.7 ( 9.3) ( 1.7) 63.0 ( 9.2)

(1) Earnings before interest, tax, amortization/depreciation and impairment losses. (2) These references relate to the corresponding items in the income statement.

Net revenue in 2017 amounted to €500.2 million, down by 10.6% (€59.1 million) versus 2016 pro-forma. The decrease in revenue touches circulation revenue (-8.7%), advertising revenue (-11.4%) and other publishing revenue (-20.1%). The change is mostly explained by various discontinuities, such as the termination in 2017 of a number of advertising sales contracts with third-party publishers (-€31.3 million versus 2016), and advertising revenue from sporting events (European Football Championships and the Summer Olympics) in 2016 (-€5 million), as well as a reduction in other revenue of €2.7 million, referring mainly to services provided to companies sold. Net of these discontinuities, the change would amount to -€20.1 million, attributable to the decrease in distribution revenue, to the effect of the different publishing plan for add-ons, and to other revenue (for a total of -€25.3 million), partly offset by the increase in advertising revenue of €5.2 million.

As regards distribution revenue, the drop of €22.6 million versus 2016 pro-forma is due mainly to newspapers. In particular, total paper and digital circulation for Corriere della Sera dropped by 10% versus 2016 (Source: ADS), while Gazzetta dello Sport fell by 6.2% (Source: ADS). These trends are better than those of the paper and digital market that were much worse. More specifically, general interest newspapers decreased by 12.2% and sports newspapers decreased by 6.9% (Source: ADS). Publishing revenue from add-ons contributed to this fall, following the abovementioned different publishing plan. Publishing revenue from magazines rose slightly (+€0.2 million versus 2016). Mention should be made of the 10.5% increase versus 2016 in the distribution at newsstands of the weekly publication Oggi (sold individually and in combination with other publications), and of the successful relaunch at end June of Oggi Enigmistica Settimanale, which more than tripled its newsstand distribution.

45 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Advertising revenue amounted to €241.4 million, down by €31.1 million versus 2016 pro-forma, due entirely to the mentioned termination of a number of advertising sales contracts with third-party publishers.

Other publishing revenue amounted to €21.4 million, down by €5.4 million versus 2016 pro-forma. This change is attributable to lower chargebacks for services provided to group companies, relating to ongoing cost-cutting initiatives, in addition to lower revenue from the termination of service agreements following disposal to third parties of companies from the former Books segment, and to a reduction in other revenue.

Operating expenses fell by €89.1 million to €277.6 million (€366.7 million in 2016 pro-forma), as a result of the ongoing efficiency recovery initiatives and of lower costs associated with reduced revenue and volumes.

Personnel expense came to €149.8 million, down by €8.5 million versus 2016 pro-forma (€158.3 million), and includes non-recurring expense of €0.5 million (net non-recurring expense of €5 million in 2016 pro-forma). Net of the effect of non-recurring items, personnel expense would amount to €150.3 million versus €153.3 million in 2016 pro-forma, as a result mainly of the reduction in the average workforce.

Taking into account the above effects, EBITDA came to a positive €67.3 million, improving by €39.3 million versus 2016 pro-forma (a positive €28 million). Net of the effect of non-recurring items (net expense of €0.1 million in 2017 and net expense of €9.2 million in 2016 pro-forma), EBITDA would be up by €30.2 million, due mainly to the ongoing efficiency recovery initiatives.

Operating profit of €41.9 million (profit of €0.6 million in 2016) includes amortization and depreciation of €22 million, down by €5.3 million versus €27.3 million Euro in 2016 pro-forma and impairment losses on intangible assets of €3.4 million (€0.1 million in 2016 pro-forma). The impairment loss refers to the Sfera goodwill. Please refer to the specific notes in the separate financial statements of RCS MediaGroup S.p.A. for the measurement of intangible assets, including goodwill.

Net financial expense amounted to €8.1 million, down by €5.8 million (€13.9 million in 2016 pro-forma). The improvement resulted mainly from lower interest expense, due to the reduction in average debt, from lower expense from discounting, and from the lower negative effect of hedging derivatives. Mention should be made that following the merger of the subsidiary RCS Investimenti S.p.A., the total net financial expense of RCS MediaGroup S.p.A. in 2016 pro-forma (net expense of €13.9 million) versus end 2016 (net expense of €34.6 million) fell significantly, due to the absence of the financial expense of RCS MediaGroup S.p.A. towards RCS Investimenti S.p.A., and to increased financial income from Unidad Editorial SA, previously held by RCS Investimenti S.p.A..

Income from financial assets amounted to €28.6 million (€6 million in 2016 pro-forma) and relate primarily to dividends of €12.6 million received, and to gains from the sale of certain equity investments, including the interest held in Istituto Europeo di Oncologia S.r.l. (capital gain of €14.9 million, net of ancillary sale charges). Please refer to the specific notes in the separate financial statements of RCS MediaGroup S.p.A. for the measurement of equity investments.

Income tax in 2017 reported a net expense of €8.7 million, due mainly to the use of deferred tax assets (€6.7 million) and to the IRAP provision for the year (€3.2 million). Versus 2016 pro-forma, the increase in taxes of €6.7 million refers to the negative effect of deferred tax assets, relating mainly to interest expense and similar expense not deducted in prior years.

– 46 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The highlights from the statement of financial position are summarized below:

Reference to the separate financial Dec-31-2017 % Dec-31-2016 % Dec-31-2016 statements pro-forma (€/millions) (1) Property, plant and equipment XII 45.7 9.1 53.1 10.7 53.1 Intangible assets XIII 37.5 7.5 46.2 9.3 46.2 Investment property XIV 2.8 0.6 2.8 0.6 2.8 Financial assets XV 472.0 94.3 485.7 97.5 1,215.1 Non-current assets 558.0 111.5 587.8 118.0 1,317.2 Inventories XVI 10.7 2.1 11.2 2.2 11.2 Trade receivables XVII 166.6 33.3 173.1 34.8 173.1 Trade payables XVIII ( 136.3) ( 27.2) ( 178.4) ( 35.8) ( 178.4) Other assets/liabilities XIX ( 31.9) ( 6.4) ( 23.1) ( 4.6) ( 23.3) Net working capital 9.1 1.8 ( 17.2) ( 3.5) ( 17.4) Employee benefits XX ( 31.7) ( 6.3) ( 33.7) ( 6.8) ( 33.7) Provisions for risks and charges XXI ( 34.4) ( 6.9) ( 38.2) ( 7.7) ( 38.2) Deferred tax liabilities XXII ( 0.6) ( 0.1) ( 0.6) ( 0.1) ( 0.6) Net capital employed 500.4 100.0 498.1 100.0 1,227.3 Equity XXIII 410.2 82.0 353.8 71.0 353.7 Net financial debt (liquidity) (2) XXIV 90.2 18.0 144.3 29.0 873.6 Total sources of financing 500.4 100.0 498.1 100.0 1,227.3

(1) These references relate to the corresponding items in the statement of financial position. (2) Indicator of financial structure, calculated as current and non-current loans and borrowings less cash and cash equivalents, current financial assets and non-current financial assets recognized for derivatives. Net Financial Debt as set out by CONSOB in its Communication DEM/6064293 dated July 28, 2006 excludes non-current financial assets. At December 31, 2017, it amounted to €90.2 million (€144.3 million at December 31, 2016 pro-forma).

Non-current assets decreased from €587.8 million at December 31, 2016 pro-forma to €558.0 million at Decem- ber 31, 2017. The reduction of €29.8 million is due mainly to the change in property, plant and equipment and intangible assets (-€16.1 million, of which €22 million from depreciation and amortization, €9.4 million from capital expenditure in the year, and €3.4 million from the impairment loss on Sfera goodwill), in addition to the dynamics in non-current financial assets, including the disposal of the investment in Istituto Europeo di Oncolo- gia (carrying amount of €4.1 million) and the decrease in deferred tax assets (€12 million). Regarding change in equity investments, mention should be made of the acquisition of minority interests in the investments in Editoriale Veneto S.r.l. and Editoriale Fiorentina S.r.l. (for a total of €2.5 million), and the increase in the carrying amount of the investment in Sfera Editores Mexico S.A. (€0.5 million) following the waiver of a part of the receivables due from the company, and second, from the previously mentioned sale of the investment in Istituto Europeo di Oncologia S.r.l. and the sale of 75% of the share capital of the investee RCS Gaming S.r.l. (now SportPesa Italy S.r.l.). Regarding the measurement of equity investments, mention should be made of the impairment losses totaling €0.4 million, in order to align the carrying amounts of certain minor investees with their respective fair value. Please refer for further details to the specific notes in the separate financial statements of RCS MediaGroup S.p.A..

Net working capital at December 31, 2017 came to a positive €9.1 million (a negative €17.2 million at December 31, 2016 pro-forma). The increase of €26.3 million mainly relates to lower trade payables (€42.1 million) following lower operating costs, the termination of advertising contracts with third-party publishers, offsetting of payables to agents with agent advances, and also to a different payment trend versus the last quarter in 2016 as a result of the process of analysis and examination of relationships with suppliers being conducted at the time. The

47 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

drop of €6.5 million in trade receivables is due in part to lower turnover, and in part to the termination of commercial dealings with a number of third-party publishers. Other assets and liabilities include adjustments made to advances to agents to offset trade payables for the same amount (€5.3 million).

Provisions for risks and charges decreased by €3.8 million, from €38.2 million at December 31, 2016 pro-forma, to €34.4 million at December 31, 2017. The change is broken down into provisions for the year, mainly for legal disputes and personnel expense, more than offset by utilizations, primarily relating to the progress of corporate restructuring activities, and by utilizations for payment of expense referring to the disposal of equity investments made in the prior year. Additionally, there were a number of releases of portions of excess provisions and reclassifications to “payables to employees” for transactions with employees to be settled.

Net capital employed amounted to €500.4 million, up by €2.3 million versus 31 December, 2016 pro-forma (€498.1 million), as a result of the abovementioned effects.

Equity increased from €353.8 million at December 31, 2016 pro-forma to €410.2 million at December 31, 2017. The change is primarily correlated with the profit for the year of €53.7 million and partly with the positive effects from the changes in the hedging reserve.

The net financial debt of RCS MediaGroup S.p.A. stood at €90.2 million at December 31, 2017, improving by €54.1 million versus December 31, 2016 pro-forma. Mention should be made of the significant contribution from ordinary operations, as well as the gains from the sale of the interest in Istituto Europeo di Oncologia S.r.l. for €20 million and the receipt of dividends for €12.6 million. Conversely, there were outlays for non-recurring expense, outflows for capital expenditure, and for the purchase of non- controlling interests in the investees Edi- toriale Veneto S.r.l. and Editoriale Fiorentina S.r.l..

ADDITIONAL INFORMATION REGARDING RCS MEDIAGROUP S.P.A.

RCS MediaGroup S.p.A. has no branch offices. The list of local branches of RCS MediaGroup S.p.A. at Decem- ber 31, 2017 is shown in the annexes to the separate financial statements.

– 48 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

BUSINESS OUTLOOK

Against a backdrop of persisting uncertainty and shrinking core markets (circulation and advertising in Italy and circulation in Spain), in 2017 the Group’s performance improved significantly versus the prior year, accomplish- ing the targets set on margins and reduction of financial debt.

Considering the actions already implemented and those yet to be implemented to maintain and increase revenue, as well as for the ongoing pursuit of operating efficiency, in the absence of other events unforeseeable at this time, the Group deems that growth in 2018 in EBITDA and cash flow from current operations versus 2017 is achievable such as to allow for a reduction in financial debt to below €200 million at the end of 2018.

Developments in the overall economic climate and in the core segments could, however, affect the full achievement of these targets.

49 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

OTHER INFORMATION

Research and Development

For comments, please refer to Note 33 of this Annual Report; any research activities are recognized in the income statement in line with the provisions of IFRS.

Treasury shares

At December 31, 2017 a total of 4,575,114 treasury shares were held (137,854 of which made available to the minorities of RCS Investimenti S.p.A. following the merger by incorporation of the latter with RCS MediaGroup S.p.A., as explained in the paragraph "Changes in the consolidation scope" of the specific Notes), corresponding to an average carrying amount of €5.9 per share and representing 0.877% of the total share capital.

Related party transactions

Details of related party transactions can be found in the notes to the consolidated financial statements. As for the procedures adopted regarding related party transactions, also with reference to the provisions of Art. 2391-bis of the Italian Civil Code, in force in 2017, please refer to the procedure adopted by RCS MediaGroup S.p.A., also pursuant to the Regulations approved by CONSOB through resolution no. 17221 of March 12, 2010 and subsequent amendments, published on the Company website www.rcsmediagroup.it in the Governance section, with information also provided in the Report on Corporate Governance and Ownership Structure. The procedure was originally adopted by the Board of Directors on November 10, 2010, and almost all of the provisions entered into force in January 2011. They were then partly amended by the Board on December 18, 2013, effective as of Jan- uary 1, 2014, on September 30, 2015, effective as of October 1, 2015 and, lastly, on August 3, 2017, effective as of August 4, 2017.

Requirements under Articles 36 and 39 of the CONSOB market regulation

In relation to compliance with Articles 36 and 39 of the CONSOB Market Regulation regarding the conditions for the listing of shares of companies with control over companies established and regulated under the law of non-EU countries, it is reported that three subsidiaries fall under the scope of Art. 36 (none of them qualify as individually material for the purposes of the CONSOB definition), that the conditions contained in Art. 36, paragraph 1 have been complied with, and that there are procedures in place to ensure that such compliance is maintained.

Report on Corporate Governance and Ownership Structure (Art. 123-bis of Legislative Decree no. 58 of February 24, 1998)

The Report on corporate governance and ownership structure, containing information on RCS MediaGroup S.p.A.’s compliance with the Corporate Governance Code for Listed Companies promoted by Borsa Italiana S.p.A. as well as the additional information pursuant to paragraphs 1 and 2 of Art. 123-bis of Legislative Decree no. 58 of February 24, 1998, is also published by the required deadlines on the Company website www.rcsmediagroup.it in the Governance Section.

Participation in the regulatory simplification process adopted by CONSOB resolution no. 18079 of January 20, 2012. Disclosure pursuant to Articles 70, paragraph 8, and 71, paragraph 1-bis of CON- SOB regulation no. 11971/99 as amended

As of August 7, 2012, the RCS MediaGroup S.p.A. Board of Directors, pursuant to Art. 3 of CONSOB resolution no. 18079 of January 20, 2012 and in relation to the provisions of articles 70, paragraph 8, and 71, paragraph 1-bis of CONSOB regulation no. 11971/1999 as amended, decided to make use of the right to exemption from the informational document publication obligations set forth in the above-mentioned CONSOB regulation at the time of significant mergers, spin-offs, share capital increases through the contribution of goods in kind, acquisitions and disposals.

– 50 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Management and Coordination

Based on an RCS Board of Directors evaluation, the Company does not meet the requirements for being managed and coordinated pursuant to Art. 2497-sexies of the Italian Civil Code by Cairo Communication S.p.A. (“Cairo Communication”) - the company which exercises control by law over RCS pursuant to Art. 93 of the Consolidat- ed Finance Act - as there are no indicators typically deemed relevant in order to confirm the existence of management and coordination by the parent. The following circumstances, for example, were deemed relevant:

(i) Cairo Communication does not prepare or approve the business, financial and strategic plans or budgets of RCS, nor has it adopted group regulations;

(ii) there are no general or specific policies, programmes or directives issued by Cairo Communication on financial or credit matters or the selection of suppliers or other contracting parties;

(iii) there is no centralized treasury service or provision of other financial services by the parent Cairo Commu- nication in favour of RCS;

(iv) the parent Cairo Communication has not prepared strategies for human resources management or otherwise taken over functions useful or necessary for the conduct of the group’s business.

In consideration of the above, the Company’s Board of Directors deems, also on the basis of an opinion provided by independent experts, that RCS maintains its management, organizational and administrative autonomy and that there is no evidence pointing to the fact that the parent Cairo Communication acts as a “point of transmission” of organizational deeds, strategies, directives or policies such so as to call into question the decision-making autonomy of the Company and, therefore, to have any relevance for the purpose of management and coordination activities. Therefore, the Board also noted that the partial - albeit qualified - overlap between members of the board of directors of the Company holding special offices and members of the board of directors of the parent Cairo Communication (namely, the Chairman and Chief Executive Officer Urbano Cairo and the executive director with delegated powers Marco Pompignoli) is not sufficient, in and of itself, to eliminate the management, organizational and administrative autonomy of RCS with respect to its parent. The Issuer has put in place a periodic monitoring system to verify the possible recurrence of the main management and coordination indicators. Verification is performed by the Issuer’s internal units. The results of the monitoring are promptly reported to the Board of Directors.

Milan, March 15, 2018

On behalf of the Board of Directors:

Chairman and Chief Executive Officer

Urbano Cairo

(signed on the original)

51 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ADDITIONAL INFORMATION REQUIRED BY CONSOB PURSUANT TO ART. 114, PARAGRAPH 5 OF LEGISLATIVE DECREE NO. 58/1998 OF MAY 27, 2013 a) Net Financial Debt of the RCS Group and of its Parent showing short-term and medium/long- term components separately

Carrying amount Change (€/millions) Dec-31-2017 Dec-31-2016 Cash and cash equivalents 15.6 18.7 (3.1) Loan assets 0.9 0.6 0.3 Securities - - - Current financial assets recognised for derivatives - - A) TOTAL CURRENT FINANCIAL ASSETS 16.5 19.3 (2.8) Current loans and borrowings and financial liabilities (67.0) (105.2) 38.2 Current financial liabilities recognised for derivatives (1.0) - (1.0) B) TOTAL CURRENT FINANCIAL LIABILITIES (68.0) (105.2) 37.2

(A+B) Current net financial debt (51.5) (85.9) 34.4

Non-current financial assets recognised for derivatives - - - C) TOTAL NON-CURRENT FINANCIAL ASSETS - - - Non-current loans and borrowings and financial liabilities (235.8) (275.1) 39.3 Non-current financial liabilities recognised for derivatives (0.1) (5.1) 5.0 D) TOTAL NON-CURRENT FINANCIAL LIABILITIES (235.9) (280.2) 44.3

(C+D) Non-current net financial debt (235.9) (280.2) 44.3

Net financial debt (1) (287.4) (366.1) 78.7

Net financial debt amounted to €287.4 million (€366.1 million at December 31, 2016), decreasing by approximately €78 million versus December 31, 2016. The improvement derives from significant positive cash flows from ordinary operations (approximately €94 million), as well as from the collection of net gains from divestments and acquisitions (€15.3 million), only partly offset by outlays for non-recurring expense and outflows for capital expenditure already accounted for.

– 52 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The net financial debt of RCS MediaGroup S.p.A. is shown below, with short-term and long-term components displayed separately.

Carrying amount Dec-31-2016 (€/millions) Dec-31-2017 Change Dec-31-2016 pro-forma (*) Cash and cash equivalents 0.7 1.1 (0.4) 1.1 Current loan assets 270.3 274.5 (4.2) 19.5 A) TOTAL CURRENT FINANCIAL ASSETS 271.0 275.6 ( 4.6) 20.6 Bank loans and overdrafts ( 16.8) ( 39.0) 22.2 ( 38.9) Current loans and borrowings ( 110.0) ( 106.0) ( 4.0) ( 580.4) Current financial liabilities recognised for derivatives ( 1.0) - ( 1.0) - B) TOTAL CURRENT FINANCIAL LIABILITIES ( 127.8) ( 145.0) 17.2 ( 619.3)

(A+B) Total current net financial debt 143.2 130.6 12.6 ( 598.7)

Financial assets recognised for derivatives - - - - C) TOTAL NON-CURRENT FINANCIAL ASSETS - - - - Non-current loans and borrowings ( 233.3) ( 269.8) 36.5 ( 269.8) Non-current financial liabilities recognised for derivatives ( 0.1) ( 5.1) 5.0 ( 5.1) D) TOTAL NON-CURRENT FINANCIAL LIABILITIES ( 233.4) ( 274.9) 41.5 ( 274.9)

(C+D) Total non-current net financial debt ( 233.4) ( 274.9) 41.5 ( 274.9)

Net financial debt ( 90.2) ( 144.3) 54.1 ( 873.6)

(*) The amounts relating to 2016 were restated following the merger of RCS Investimenti S.p.A. on December 31, 2017, with accounting and tax effects applying as from January 1, 2017.

The net financial debt of RCS MediaGroup S.p.A. stood at €90.2 million at December 31, 2017, improving by €54.1 million versus December 31, 2016 pro-forma. One should note the significant contribution from ordinary operations, as well as the gains from the previously mentioned sale of the interest in Istituto Europeo di Onc- ologia S.r.l., and the receipt of dividends for €12.6 million. Conversely, there were outlays for non-recurring expense, outflows for capital expenditure, and for the purchase of non- controlling interests in the investees Edi- toriale Veneto S.r.l. and Editoriale Fiorentina S.r.l.. b) Past due borrowing positions broken down by type (financial, trade, tax and social security) and any related action taken by group creditors (reminders, injunctions, supply suspensions)

Analysis of past due borrowing positions (€/millions) 31 - 90 91 - 180 181-360 > 360 Total Falling Dec-31-2017 30 days days days days days past due due Total Trade borrowing positions 9.7 14.9 6.9 6.1 16.7 54.3 182.0 236.3 Financial borrowing positions 68.0 68.0 Tax borrowing positions 13.6 13.6 Social security borrowing 12.9 12.9 positions Other borrowing positions 0.1 0.1 0.1 0.1 0.1 0.5 68.8 69.3 Total current borrowing positions 9.8 15.0 7.0 6.2 16.8 54.8 345.3 400.1

The total of current borrowing positions excludes items with no contractual expiry such as short-term portions of provisions for risks.

53 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Short-term borrowing positions amounted to €400.1 million at December 31, 2017, down by an overall €12.8 million over September 30, 2017. The decrease is due to the reduction in trade and other payables of €20.8 million, partly offset by higher tax, social security and financial positions (+€8 million). Positions which are not past due, of €345.3 million, represent roughly 86.3% of the total (at September 30, 2017 they amounted to €345.7 million and accounted for 83.7% of the total). At December 31, 2017, there were no past due amounts for financial, tax or social security borrowing positions.

Past due positions, mainly trade positions, totaled €54.8 million, dropping by €12.4 million versus September 2017 (€67.2 million), and by €24.6 million versus December 31, 2016 (€79.4 million). The comparison with September 30, 2017 shows a decrease for almost all ranges, specifically: -€1.1 million below 30 days, -€1.8 million for 31-90 days, -€7.6 million for 91-180 days and -€3 million for 181-360 days. An increase is seen only for the range over 360 days, amounting to €1.1 million.

Past due positions include €9.8 million in amounts past due by less than 30 days (€10.9 million at September 30, 2017), basically associated with business operations. The remaining past due amounts of €45 million include a total of €12.7 million in past due amounts owed to agents (23.2% of the total past due). On the basis of sector practice, a monthly advance is paid to agents for their respective activities and is recognized in the consolidated financial statements under other assets. Agent advances associated with past due payables amount to approximately €12.3 million, almost equivalent to specific past due amounts. Amounts owed to agents past due by over 360 days represent approximately 52% of that past due range. Positions maturing on December 31, 2017, amounting to roughly €9.4 million, have been conventionally classified as maturing payables. Past due trade positions totaling €54.3 million (€66.8 million at September 30, 2017) relate to RCS MediaGroup S.p.A. (€30.4 million).

As part of its normal business, the Company has received a number of trade-related injunctions (for insignificant amounts to date fully handled), reminders and/or warnings from suppliers to comply, which were handled on a case by case basis. c) Related party transactions of the RCS Group and its Parent

The specific notes of this Annual Report contain detailed information on transactions with related parties of the Group and of RCS MediaGroup S.p.A. d) Failure to comply with covenants, negative pledges and any other group borrowing clause which limits the use of financial resources, including updated degree of compliance with such clauses

On June 14, 2013, RCS MediaGroup S.p.A. had concluded a Loan Agreement with a pool of banks for an original amount of €600 million. The agreement was periodically amended, most recently on June 16, 2016, and is composed of 2 credit lines (Restructured Loan Agreement) for a total of €352 million:

− credit Line A (amortizing), a term line of €252 million, to be repaid by December 31, 2019, − revolving Credit Line, a revolving line of €100 million, to be repaid on December 31, 2019.

It should be noted that the Restructuring Agreement of June 16, 2016 had reviewed the method for defining the spreads on the 3-month Euribor rate used as benchmark for each of the two Credit Lines. The spreads were initially 422.5 basis points on Line A and 397.5 basis points on the Revolving Line, with an expected decrease on an annual basis in relation to improvement in the Leverage Ratio (NFD/EBITDA): following approval of the 2016 consolidated financial statements, these spreads both reduced by 50 basis points: on line A down to 372.5 basis points effective from July 1, 2017 and down to 347.5 basis points on the Revolving line from April 28, 2017.

On August 4, 2017, a New Loan Agreement was concluded with a Pool of Banks for €332 million, with maturity on December 31, 2022, aimed at the total refinancing of the Rescheduled Loan Agreement. The Banks participating in the New Loan Agreement are: Banca IMI as Organizing Bank, Agent and coordinator, Intesa Sanpaolo S.p.A. as Lender and Banca BPM, Mediobanca, UBI Banca and UniCredit as Organizing Banks and Lenders.

– 54 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The main terms and conditions of the New Loan Agreement are, inter alia: a. the breakdown of the loan into an Amortizing Term Credit Line of €232 million and a Revolving Credit Line of €100 million; b. an annual interest rate equal to the sum of the Euribor rate and a variable margin based on the Leverage Ratio (NFD/EBITDA), more favourable for the Company than the margins set out in the Rescheduled Loan Agreement; c. the provision of a single covenant represented by the Leverage Ratio. This covenant must not be higher than: 3.45x at December 31, 2017 3.25x at December 31, 2018 3.00x at December 31 of each subsequent year; d. an initial repayment plan for the amortizing term line, which sets a repayment of €15 million on December 31, 2017, followed by half-yearly instalments of €12.5 million.

The New Loan Agreement contains provisions relating to compulsory early repayment events, representations, obligations, revocation events and materiality thresholds which are overall more favourable for RCS than the previous Amended Loan Agreement. These clauses apply - for example - to the provisions relating to treasury agreements and intra-group loans and guarantees, acquisitions, joint ventures, permitted investments and reorganizations, the assumption of financial debt, deeds of disposal and share capital reductions.

In December 2017, the amortizing term line decreased to €208 million following the scheduled repayment and the mandatory prepayment of €10 million, which is the portion of the gains from the sale of the interest in IEO (Istituto Europeo di Oncologia). This repayment also led to a review, under the Loan Agreement, of the repayment plan, reducing the scheduled half-yearly payments from €12.5 million to €11.6 million. e) Business plan implementation status, including any variations between actual and forecast data

For comments on the Group’s performance in 2017, please refer to the extensive comments provided in the consolidated financial statements, while for the 2018 forecasts, please refer to the “Outlook” section of this Annual Report.

55 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

PROPOSED RESOLUTION

Dear Shareholders, we submit for your approval the separate financial statements as at and for the year ended December 31, 2017, comprising the statement of financial position, the income statement, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity and the notes, together with related attachments, which show profit for the year of €53,686,184.36, and the accompanying Report on Operations.

Given the above, we propose that you adopt the following resolution:

“The shareholders of RCS MediaGroup S.p.A. − have examined the report on operations; − acknowledge the reports of the Board of Statutory Auditors and the Independent Auditors KPMG S.p.A.; − have examined the separate financial statements as at and for the year ended December 31, 2017 presented by the Board of Directors, which show profit for the year of €53,686,184.36;

a n d h e r e b y r e s o l v e

I. to approve:

I. a) the report on operations;

I. b) the separate financial statements as at and for the year ended December 31, 2017 presented by the Board of Directors, which show profit for the year of €53,686,184.36, as a whole and in their individual parts, together with the proposed accruals and allocations;

II. to use profit for the year of €53,686,184.36 to partly cover prior-years’ losses, which decrease from €247,108,344.04 to €193,422,159.68;

III. to use the share premium reserve of €110,405,136.84 and the merger reserve of €130,389.61 to partly cover prior-years’ losses, which decrease from €193,422,159.68 to €82,886,633.23;

IV. to use the legal reserve of €19,079,626.96 to partly cover prior years’ losses, which decrease from €82,886,633.23 to €63,807,006.27.

Milan, March 15, 2018

On behalf of the Board of Directors:

Chairman and Chief Executive Officer

Urbano Cairo

(signed on the original)

– 56 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

Income statement (*)

Note Year ended 31 December (€/millions) 2017 2016 I Revenue 15 895.8 968.3 II Increase in internal work capitalized - - II Changes in work in progress, finished and semi-finished products 39 (0.3) 0.0 II Raw materials and services 17 (493.1) (596.5) III Personnel expense 18 (258.1) (268.2) II Other operating income 19 20.9 21.7 II Other operating expenses 20 (18.9) (24.0) IV Provisions 52 (6.5) (12.4) V Impairment losses on trade and other receivables 21 (3.7) (1.8) VI Share of profits of equity-accounted investees 22 2.1 2.8 VII Amortization of intangible assets 23 (25.3) (36.6) VIII Depreciation of property, plant and equipment 23 (14.3) (17.0) IX Depreciation of investment property 23 (0.6) (0.6) X Impairment losses on non-current assets 23 (2.4) (0.7) Operating profit (loss) 95.6 35.0 XI Financial income 24 1.3 1.2 XI Financial expense 24 (25.7) (31.5) XII Other gains (losses) on financial assets/liabilities 25 16.2 0.3 Profit (loss) before tax 87.4 5.0 XIII Income taxes 26 (16.5) (9.9) Loss from continuing operations 70.9 (4.9) XIV Profit (loss) from assets held for sale and discontinued operations 27 0.0 8.4 Profit (loss) for the year 70.9 3.5

Attributable to: XV Profit (loss) attributable to non-controlling interests 28 (0.2) 0.0 Profit (loss) attributable to owners of the parent 71.1 3.5 Profit (loss) for the year 70.9 3.5

Basic earnings (losses) per share: continuing operations 29 0.14 (0.01) Diluted earnings (losses) per share: continuing operations 29 0.14 (0.01) Basic earnings (losses) per share: assets held for sale and discontinued operations 29 - 0.02 Diluted earnings (losses) per share: assets held for sale and discontinued operations 29 - 0.02

(*) In accordance with CONSOB Resolution no. 15519 of July 27, 2006, the effects of related party transactions and of non-recurring income and expense on the income statement are reported in the specific income statement presented on a subsequent page and are described in detail in notes 16 and 30, respectively..

The notes form an integral part of these consolidated financial statements.

59 – CONSOLIDATED FINANCIAL STATEMENTS

Statement of comprehensive income

Year ended 31 December Note (€/millions) 2017 2016 Profit (loss) for the period 70.9 3.5

Other comprehensive income (expense):

Other comprehensive income/(expense) that will subsequently be reclassified to profit/(loss) for the year: Gains (losses) on foreign currency translation of foreign operations 50 - - Reclassification of gains (losses) on foreign currency translation of foreign operations 50 - (8.1) Losses on cash flow hedges 50 (0.2) (0.5) Reclassification of gains on cash flow hedges to profit or loss 50 3.6 4.9 Fair value gains (losses) on available-for-sale financial assets 50 - - Reclassification of fair value gains (losses) on available-for-sale financial assets to profit or loss 50 - - Share of comprehensive income (expense) of equity-accounted investees 50 - - Income tax on other comprehensive income 50 (0.9) (1.2)

Other comprehensive income/(expense) that will not be subsequently reclassified to profit/(loss) for the year: Actuarial (loss)/gain on defined benefit plans 50 0.1 (1.3) Actuarial (loss)/gain on defined benefit plans relating to equity-accounted investees 50 - - Income tax on other comprehensive income 50 - - Other comprehensive income (expense) 2.6 (5.9)

Comprehensive expense 73.5 (2.4)

Comprehensive income (expense) attributable to: non-controlling interests (0.2) - owners of the parent 73.7 (2.4)

Comprehensive income (expense) 73.5 (2.4)

The notes form an integral part of these consolidated financial statements.

– 60 CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position (*)

(€/millions) Note December 31 2017 December 31 2016 ASSETS XVII Property, plant and equipment 31 73.8 87.0 XVIII Investment property 32 20.7 21.3 XVI Intangible assets 33 383.9 394.6 XIX Investments in associates and joint ventures 34 42.8 47.7 XIX Available-for-sale financial assets 35 3.0 5.8 XXXIII Financial assets recognized for derivatives 36 - - XIX Non-current loan assets 37 3.7 4.2 XIX Other non-current assets 38 15.3 15.5 XIX Deferred tax assets 26 106.6 119.1 Total non-current assets 649.8 695.2 XX Inventories 39 15.9 17.4 XXI Trade receivables 40 240.3 256.3 XXIII Other receivables and current assets 41 27.0 37.7 XXIII Current tax assets 26 3.1 6.9 XXXIII Financial assets recognized for derivatives 36 - - XXXIV Current loan assets 42 0.9 0.5 XXXIV Cash and cash equivalents 42 15.6 18.7 Total current assets 302.8 337.5 XXVII Non-current assets held for sale - - TOTAL ASSET 952.6 1,032.7

EQUITY AND LIABILITIES XXVIII Share capital 43 475.1 475.1 XXVIII Other equity instruments - - XXVIII Treasury shares 45 (27.1) (27.1) XXVIII Reserves 44/46/47/48 (14.4) (17.6) XXVIII Losses carried forward (334.5) (337.9) XXVIII Profit (loss) for the year 71.1 3.5 Total equity attributable to owners of the parent 170.2 96.0 XXVIII Non-controlling interests 1.3 4.4 Total 171.5 100.4 Non-current loans and borrowings XXIX 42 235.8 275.1 and financial liabilities XXXII Financial liabilities recognized for derivatives 36 0.1 5.1 XXVI Employee benefits 51 38.4 40.2 XXIV Provisions for risks and charges 52 14.9 13.9 XXV Deferred tax liabilities 26 55.4 56.4 XXIII Other non-current liabilities 53 0.9 3.3 Total non-current liabilities 345.5 394.0 XXX Bank loans and overdrafts 42 16.8 38.9 XXX Current loans and borrowings 42 50.2 66.2 XXXI Financial liabilities recognized for derivatives 36 1.0 - XXIII Current tax liabilities 26 0.9 0.2 XXII Trade payables 54 236.3 292.9 XXIV Current portion of provisions for risks and charges 52 35.5 44.6 XXIII Other current liabilities 55 94.9 95.5 Total current liabilities 435.6 538.3 XXVII Liabilities relating to assets held for sale - - TOTAL EQUITY AND LIABILITIES 952.6 1,032.7 (*) In accordance with CONSOB Resolution 15519 of July 27, 2006, the effects of related party transactions on the statement of financial position are reported in the specific statement of financial position presented on a subsequent page and are described in detail in Note 16.

The notes form an integral part of these consolidated financial statements.

61 – CONSOLIDATED FINANCIAL STATEMENTS

Statement of cash flows (*)

(€/millions) Note 2017 2016 A) Cash flows from (used in) operating activities Pre-tax profit (loss) from continuing operations 87.4 5.0 Amortization, depreciation and impairment losses 23 42.6 54.9 (Gains) losses and other non-monetary items 56 (14.9) (3.0) (Gains) losses of equity-accounted investees 22 (2.1) (2.8) Dividends from equity-accounted investees 34 7.1 3.6 Net financial income (including dividend income) 24 24.4 29.4 - of which with related parties 16 1.0 8.8 Increase (decrease) in employee benefits and provisions for risks and charges 57 (7.1) (6.9) Changes in working capital 58 (38.9) 9.4 - of which with related parties 16 (1.8) (13.4) Income taxes paid (0.7) (0.6) Total 97.8 89.0 B) Cash flows from (used in) investing activities Acquisition of equity investments - 0.4 Capital expenditure in property, plant and equipment and intangible assets 59 (19.1) (31.7) (Purchase) sale of other non-current financial assets (0.2) - of which with related parties 16 - 0.2 Proceeds from sale of equity investments 60 18.1 120.3 Proceeds from sale of property, plant and equipment and intangible assets - 1.1 Total (1.0) 89.9 Free cash flow (A+B) 96.8 178.9 C) Cash flows used in financing activities Net change in loans and borrowings and other financial assets 61 (48.7) (144.3) - of which with related parties 16 (20.4) (175.3) Net interest received (paid) 62 (26.6) (28.7) - of which with related parties 16 (1.0) (8.8) Dividends paid -- Change in equity reserves 63 (2.5) (0.3) Total (77.8) (173.3) Net increase (decrease) in cash and cash equivalents (A+B+C) 19.0 5.6 Opening cash and cash equivalents (20.2) (25.8) - of which with related parties 16 (17.3) Closing cash and cash equivalents (1.2) (20.2) Increase (decrease) for the year 19.0 5.6

ADDITIONAL DISCLOSURES OF THE STATEMENT OF CASH FLOWS Opening cash and cash equivalents consisting of: (20.2) (25.8) Cash and cash equivalents 18.7 9.8 Cash and cash equivalents of assets held for sale and discontinued operations - 2.8 Current bank loans and overdrafts (38.9) (38.4) Closing cash and cash equivalents (1.2) (20.2) Cash and cash equivalents 15.6 18.7 Change in assets held for sale and discontinued operations -- Current bank loans and overdrafts (16.8) (38.9) Increase (decrease) for the year 19.0 5.6

(*) Also pursuant to CONSOB Resolution no. 15519 of July 27, 2006.

The notes form an integral part of these consolidated financial statements.

– 62 CONSOLIDATED FINANCIAL STATEMENTS ------

73.5 (2.4) (0.2) (2.2) (2.4) Equity Equity 171.5 100.4 100.4 105.2 ------1.3 4.4 4.4 5.2 (2.9) (0.2) (0.2) (0.6) Equity Equity non-control non-control ling interests ling interests attributable to attributable to ------0.5 73.7 96.0 96.0 (1.6) (2.4) 170.2 100.0 Equity Equity the parent the parent attributable attributable to owners of to owners of ------3.5 3.5 3.5 71.1 71.1 (3.5) 175.7 Profit Profit (175.7) the year the year (loss) for (loss) for ------) 3.5 (0.1) (5.8) ( * ) *** ( Losses (334.5) (337.9) carried carried Losses forward forward (337.9) (156.4) (175.7) ------2.5 3.2 (0.6) (6.3) (3.1) (3.1) reserve reserve Note 47 Nota 47 Hedging Hedging ------0.1 0.1 8.6 (0.3) (0.5) (9.1) (0.5) reserve reserve Note 46 Nota 46 Fair value Fair value

------0.5 5.8 (1.6) Equity Equity Note 45 Nota 45 (143.0) (147.7) (143.5) (143.5) transaction transaction ger by incorporation of the latter with RCS MediaGroup S.p.A.. ------(**) shares shares (27.1) (27.1) (27.1) Note 45 Nota 45 (27.1) Treasury Treasury Treasury ------19.1 19.1 19.1 Legal Legal 19.1 reserve reserve Note 48 Nota 48 ------Share Share 110.4 110.4 110.4 110.4 reserve reserve Note 44 Nota 44 premium premium ------475.1 Share Share 475.1 475.1 475.1 capital capital Note 43 Nota 43 ) Change in equity attributable to non-controlling interests Other movements Balance at Dec-31-2017 Equity transaction Total comprehensive income (expense) Total Allocation of profit for the year ended Meeting Dec-31-2016 as per Shareholders’ April 27, 2017 resolution of - to retained earnings (losses carried forward) (€/millions) Dividends paid to minority interests Dividends paid to minority interests comprehensive income (expense) Total Other movements Change in equity attributable to non-controlling interests Allocation of profit/loss for the year ended Meeting Dec-31-2015 as per Shareholders’ April 28, 2016 resolution of - to retained earnings (losses carried forward) Equity transaction ( €/millions Balance at Dec-31-2016 Balance at Dec-31-2015 the S.p.A. subsidiary Sport of RCS in force the By-laws with in accordance n° 91/81 and Law Italian to pursuant sports schools be youth allocated to may that earnings retained in unavailable €0.4 million of (*) Inclusive Balance at Dec-31-2016 (**) Includes 137,854 shares made available to the minority shareholders of RCS Investimenti S.p.A. following mer (***) Inclusive of €1.2 million in unavailable retained earnings that may be allocated to youth sports schools pursuant Italian Law n° 91/81 and accordance with the By-laws force subsidiary RCS Sport S.p.A. Statement of changes in equity

63 – CONSOLIDATED FINANCIAL STATEMENTS Income statement pursuant to CONSOB Resolution no. 15519 of July 27, 2006

Year ended Dec-31 Note (€/millions) 2017 2016 I Revenue 15 895.8 968.3 - of which from related parties 16 209.9 231.4 II Increase in internal work capitalized - - II Changes in work in progress, finished and semi-finished products 39 ( 0.3) - II Raw materials and services 17 ( 493.1) ( 596.5) - of which with related parties 16 ( 44.5) ( 56.0) - of which non-recurring 30 ( 1.3) ( 4.2) III Personnel expense 18 ( 258.1) ( 268.2) - of which to related parties 16 ( 3.8) ( 9.1) - of which non-recurring 30 ( 0.7) ( 1.3) II Other operating income 19 20.9 21.7 - of which from related parties 16 2.3 1.4 - of which non-recurring 30 0.2 - II Other operating expenses 20 ( 18.9) ( 24.0) - of which to related parties 16 - ( 0.3) - of which non-recurring 30 - ( 1.9) IV Provisions 52 ( 6.5) ( 12.4) - of which non-recurring 30 - ( 3.2) V Impairment losses on trade and other receivables 21 ( 3.7) ( 1.8) VI Share of profits of equity-accounted investees 22 2.1 2.8 VII Amortization of intangible assets 23 ( 25.3) ( 36.6) VIII Depreciation of property, plant and equipment 23 ( 14.3) ( 17.0) IX Depreciation of investment property 23 ( 0.6) ( 0.6) X Impairment losses on non-current assets 23 ( 2.4) ( 0.7) - of which non-recurring 30 - - Operating profit (loss) 95.6 35.0 XI Financial income 24 1.3 1.2 - of which from related parties 16 0.1 XI Financial expense 24 ( 25.7) ( 31.5) - of which to related parties 16 ( 1.0) ( 8.9) XII Other gains on financial assets/liabilities 25 16.2 0.3 - of which with related parties 16 ( 1.0) - Profit (loss) before tax 87.4 5.0 XIII Income taxes 26 ( 16.5) ( 9.9) Loss from continuing operations 70.9 ( 4.9) XIV Profit (loss) from assets held for sale and discontinued operations 27 - 8.4 - of which from related parties 16 - - Profit (loss) for the year 70.9 3.5

Attributable to: XV Profit (loss) attributable to non-controlling interests 28 ( 0.2) - Profit (loss) attributable to owners of the parent 71.1 3.5 Profit (loss) for the year 70.9 3.5

– 64 CONSOLIDATED FINANCIAL STATEMENTS Statement of financial position pursuant to CONSOB Resolution no. 15519 of July 27, 2006

(€/millions) Note December 31 2017 December 31 2016 ASSETS XVII Property, plant and equipment 31 73.8 87.0 XVIII Investment property 32 20.7 21.3 XVI Intangible assets 33 383.9 394.6 XIX Investments in associates and joint ventures 34 42.8 47.7 XIX Available-for-sale financial assets 35 3.0 5.8 XXXIII Financial assets recognized for derivatives 36 - - XIX Non-current loan assets 37 3.7 4.2 - of which from related parties 16 - - XIX Other non-current assets 38 15.3 15.5 XIX Deferred tax assets 26 106.6 119.1 Total non-current assets 649.8 695.2 XX Inventories 39 15.9 17.4 XXI Trade receivables 40 240.3 256.3 - of which from related parties 16 19.8 21.6 XXIII Other receivables and current assets 41 27.0 37.7 - of which from related parties 16 - - XXIII Current tax assets 26 3.1 6.9 XXXIII Financial assets recognized for derivatives 36 - - XXXIV Current loan assets 42 0.9 0.5 - of which with related parties 16 - 0.1 XXXIV Cash and cash equivalents 42 15.6 18.7 - of which from related parties 16 - - Total current assets 302.8 337.5 XXVII Non-current assets held for sale - - - of which from related parties 16 - - TOTAL ASSETS 952.6 1,032.7

EQUITY AND LIABILITIES XXVIII Share capital 43 475.1 475.1 XXVIII Other equity instruments - - XXVIII Treasury shares 45 (27.1) (27.1) XXVIII Reserves 44/46/47/48 (14.4) (17.6) XXVIII Losses carried forward (334.5) (337.9) XXVIII Profit (loss) for the year 71.1 3.5 Total equity attributable to owners of the parent 170.2 96.0 XXVIII Non-controlling interests 1.3 4.4 Total 171.5 100.4 XXIX Non-current loans and borrowings and financial liabilities 42 235.8 275.1 - of which with related parties 16 - 11.1 XXXII Financial liabilities recognized for derivatives 36 0.1 5.1 - of which with related parties 16 - 1.2 XXVI Employee benefits 51 38.4 40.2 XXIV Provisions for risks and charges 52 14.9 13.9 XXV Deferred tax liabilities 26 55.4 56.4 XXIII Other non-current liabilities 53 0.9 3.3 Total non-current liabilities 345.5 394.0 XXX Bank loans and overdrafts 42 16.8 38.9 - of which with related parties 16 - - XXX Current loans and borrowings 42 50.2 66.2 - of which with related parties 16 4.3 12.5 XXXI Financial liabilities recognized for derivatives 36 1.0 - XXIII Current tax liabilities 26 0.9 0.2 XXII Trade payables 54 236.3 292.9 - of which with related parties 16 16.1 20.6 XXIV Current portion of provisions for risks and charges 52 35.5 44.6 XXIII Other current liabilities 55 94.9 95.5 - of which with related parties 16 2.7 0.8 Total current liabilities 435.6 538.3 XXVII Liabilities relating to assets held for sale - - - of which with related parties 16 - - TOTAL EQUITY AND LIABILITIES 952.6 1,032.7 65 –

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FORMAT, CONTENT AND OTHER INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS

1 ▪ Corporate information

RCS MediaGroup S.p.A. is a publicly listed company at the head of the RCS Group. It is listed on Italy’s electronically-traded equities market, organized and managed by Borsa Italiana S.p.A.. It is headquartered in Via Ange- lo Rizzoli 8, Milan, and has been registered at number 12086540155 in the Milan Company Register since March 6, 1997 (ISIN: IT0004931496). RCS MediaGroup is an international multimedia publishing group that operates in daily newspapers, magazines, new media and digital and satellite TV, organizes highly important global sporting events and is among the leading operators in advertising sales and distribution in Italy and Spain. It is also present in the books and radio segments through the Unidad Editorial group. The Group’s principal activities are described in Note 15 “Operating segments”. The main indirect subsidiary of RCS MediaGroup S.p.A. is Unidad Editorial S.A., which operates predominant- ly in the Spanish market. At December 31, 2017, the consolidated financial statements included 51 direct and indirect subsidiaries consolidated on a line-by-line basis (56 at December 31, 2016). For additional details on equity investments, please refer to the attachment “List of the Group equity investments at December 31, 2017”. The consolidated financial statements of RCS MediaGroup S.p.A. Group as at and for the year ended Decem- ber 31, 2017 were approved by the Board of Directors on March 15, 2018 and also authorized for publication.

The entity which prepares the consolidated financial statements of the largest body of entities, of which the entity forms part as a subsidiary is U.T. Communications S.p.A., with registered office in Via Montenapoleone 8, Milan, where a copy of the consolidated financial statements is also available. The entity which prepares the consolidated financial statements of the smallest body of entities, of which the entity forms part as a subsidiary is Cairo Communication S.p.A., with registered office in Corso Magenta 55, Milano, where a copy of the consolidated financial statements is also available.

2 ▪ Format and content

The consolidated financial statements of the RCS Group were drawn up in accordance with the International Financial Reporting Standards (IFRS) endorsed by the European Union. These include the separate financial statements of RCS MediaGroup S.p.A. and its subsidiaries and the consolidated financial statements of the Unidad Editorial group. For some companies, the financial reporting package at December 31, 2017 was consolidated. As from 2006, the consolidated companies adopted the International Financial Reporting Standards, except for a few smaller Italian and foreign companies, whose financial statements are restated in specific financial reporting packages, for the purpose of the Group consolidated financial statements, to implement IFRS. The consolidated financial statements of the Unidad Editorial group have been prepared in compliance with IFRS. KPMG S.p.A. carried out the statutory audit of the consolidated financial statements.

The presentation currency of these consolidated financial statements is the Euro, which is used as the functional currency by most of the Group’s companies. Unless otherwise specified, all amounts are stated in millions of Euro.

3 ▪ Reporting formats

The RCS Group has adopted: ‒ The statement of financial position in which assets and liabilities are separately classified as current and non-current; ‒ The income statement in which income and expense are classified by nature; ‒ The statement of comprehensive income which presents all changes in equity generated by transactions other than those with owners of the parent;

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‒ The statement of cash flows using the indirect method, whereby profit (loss) for the year before tax is adjusted for the effects of non-monetary items, of any deferral or provision for past or future operating receipts or payments and of revenue or costs associated with cash flows from (used in) investing or financing activities.

With reference to CONSOB Resolution no. 15519 of July 27, 2006, significant related party transactions and non-recurring items have been highlighted in separate schedules.

4 ▪ Changes in the scope of consolidation

The changes in the scope of consolidation from December 31, 2016 are as follows.

Canali Digitali S.r.l. (in liquidation), previously consolidated on a line-by-line basis has left the scope of consolidation.

On December 20, 2017, a deed was signed to merge RCS Investimenti S.p.A. into RCS MediaGroup S.p.A.; the accounting and tax effects of the merger apply as from January 1, 2017, and the legal effects as from December 31, 2017. The merger was carried out in execution of the Merger Plan approved by the Board of Directors of the participating companies and drafted in accordance with Art. 2505-bis and 2501-ter of the Italian Civil Code; based on the exchange ratio set out in the Plan, the right to 1 share of RCS MediaGroup S.p.A. has been granted for every 2 shares of RCS Investimenti S.p.A.. The treasury shares of RCS MediaGroup S.p.A. made available to the minorities of RCS Investimenti S.p.A. amounted to 137,854 shares.

It should also be noted that Editoriale Veneto S.r.l. and Editoriale Fiorentina S.r.l. were merged into RCS Edizio- ni Locali S.r.l., and that RCS Gaming S.r.l., which was previously consolidated on a line-by-line basis, following disposal of most of the shares held, is classified among the “Available for sale” companies. This company changed its name from RCS Gaming S.r.l. to SportPesa Italy S.r.l..

5 ▪ Significant events during the year

● On January 27, 2017 RCS MediaGroup announced and published on the website www.rcsmediagroup.it: ‒ the calendar of the meetings of the Board of Directors and the Shareholders’ Meeting for 2017 and publications of the quarterly financial reporting; ‒ the model of the content of the quarterly financial reporting that the Company will continue to prepare and publish, on a voluntary basis, until decided otherwise; ‒ the methods and timing for approval by the Board of Directors of the quarterly financial reporting and the methods for publishing such reports.

● On March 7, 2017 the RCS MediaGroup S.p.A. Board of Directors, chaired by Urbano Cairo, accepted the resignations of the alternate statutory auditors Barbara Negri and Ugo Rock, received on February 9, 2017.

● On March 17, 2017, the Board of Directors of RCS MediaGroup S.p.A., which met under the chairmanship of Urbano Cairo, examined and approved the results at December 31, 2016.

● On April 27, 2017, RCS MediaGroup S.p.A.’s ordinary Shareholders’ Meeting, chaired by Urbano Cairo, by a wide majority: ‒ unanimously approved the separate financial statements at December 31, 2016; ‒ appointed Guido Croci and Paola Tagliavini, proposed by the shareholder Cairo Communication S.p.A., as Alternate Statutory Auditors of the Company’s Board of Statutory Auditors; ‒ expressed a favourable vote on Section I of the Remuneration Report drafted by the Board of Directors; ‒ approved the Board of Directors’ proposal for the disposal of treasury shares.

● With regard to the contract for the purchase of the investment held by the Company in RCS Libri S.p.A. signed on October 4, 2015 with Arnoldo Mondadori Editore S.p.A. (the “Contract”), as described in the 2016

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Annual Report, some disputes were raised. In 2017, a settlement agreement was reached, with the waiving of reciprocal claims that did not determine any expenses for the Company. In that context, a price adjustment was also defined, provided for in the contract, amounting to around €2 million in favour of the buyer. The Company remains entitled to an earn-out of up to a maximum of €2.5 million, subject to the achievement of given results in the Books segment by Arnoldo Mondadori Editore in 2017.

● On August 7, 2017, RCS MediaGroup S.p.A. announced that - in execution of the agreement with Intesa San- paolo S.p.A. announced on July 5, 2017 - on August 4 a loan agreement had been entered into with a pool of banks, with Banca IMI S.p.A. as Organizing Bank, Agent and coordinator, Intesa Sanpaolo S.p.A. as Lender and Banca Popolare di Milano S.p.A., Mediobanca – Banca di Credito Finanziario S.p.A., UBI Banca S.p.A. and UniCredit S.p.A. as Organizing Banks and Lenders. ● The agreement provides for a loan of €332 million, expiring on December 31, 2022, targeted at the full refinancing of the original bank loan taken out by the company with a pool of banks on June 14, 2013, as amended from time to time (most recently on June 16, 2016).

● The main terms and conditions of the loan are, inter alia: ● a) the breakdown of the loan into an Amortizing term Credit Line of €232 million and a Revolving Credit Line of €100 million; ● b) an annual interest rate equal to the sum of the reference Euribor and a variable margin depending on the Leverage Ratio, more favourable for the company than the margins set forth in the Loan Agreement in place at the time; ● c) the provision of a single covenant represented by the Leverage Ratio (i.e. Net financial debt/EBITDA). This covenant must not be higher than (i) 3.45x at December 31, 2017, (ii) 3.25x at December 31, 2018, and (iii) 3x at December 31 of each subsequent year; ● d) a repayment plan for the amortizing term credit line which envisages a repayment of €15 million on December 31, 2017, followed by half-yearly instalments of €12.5 million.

The loan agreement contains provisions relating to compulsory early repayment events, representations, obligations, revocation events and materiality thresholds which are overall more favourable for RCS MediaGroup S.p.A. with respect to the previous loan agreement. These clauses apply - for example - to the provisions relating to treasury agreements and intra-group loans and guarantees, acquisitions, joint ventures, permitted investments and reorganizations, the assumption of financial debt, deeds of disposal and share capital reductions.

6 ▪ Events after the reporting date

No other significant events requiring disclosure occurred in the period of time between the end of the year and the date this Annual Report was approved by the Board of Directors.

7 ▪ Consolidation methods

Subsidiaries indicated in the “List of the Group equity investments at December 31, 2017” attachment are consolidated as from their acquisition date, meaning the date on which the Group obtains control, and cease to be consolidated on the date on which control is lost. The Group controls a company when it is exposed to variable returns, it has rights to those returns deriving from its relationship with the entity and it also has the ability to affect the returns by exercising its power over the entity.

The income and expense of the subsidiaries acquired or sold during the year are included in the income statement from the date on which the Group gains control until the date on which the Group no longer controls the companies.

Companies under joint control and associates or companies over which the Group nonetheless has a significant influence have been consolidated using the equity method.

The accounting policies adopted are consistent for the companies included in the consolidation scope and the related financial statements are all prepared at December 31, 2017.

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The main procedures used for consolidation are as follows.

Profits arising from transactions between subsidiaries that have not yet been realized outside the Group are eliminated, as are receivables, payables, income and expense between consolidated companies when the amounts concerned are material.

Dividends paid by consolidated companies are eliminated from the income statement and added to prior year retained earnings if, and to the extent that, they have been drawn from the latter.

Equity and profit (loss) for the year attributable to non-controlling interests are shown separately in a dedicated item of equity, separately from equity attributable to owners of the parent, while the profit or loss for the year is broken down between attributable to non-controlling interests and owners of the parent.

Assets held for sale and which are highly likely to be sold in the next twelve months, if the conditions set out by IFRS 5 have been fulfilled, are classified in accordance with this standard. This means that, whereas formerly they would have been consolidated on a line-by-line basis, the related assets are now classified in “Non-current assets held for sale” with the related liabilities also separately recognized under liabilities. The results are shown in the income statement as “Profit (loss) from assets held for sale and discontinued operations”.

With reference to transactions with equity-accounted investees, profits and losses are eliminated to the extent of the Group’s interest in the associate, unless the unrealized losses are evidence that the transferred assets is impaired.

The financial statements of foreign subsidiaries expressed in currencies other than the Euro are translated into Euro on consolidation, using the closing rate for assets and liabilities and the average rate for the year for revenue and expense. The resulting translation differences are recognized in a separate equity reserve (translation reserve).

Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control or that refer to subsidiaries are accounted for as equity transactions and therefore recognized in equity.

8 ▪ Accounting policies

The consolidated financial statements have been prepared in compliance with the International Financial Repor- ting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and endorsed by the European Union. In compliance with document no. 2 published jointly by the Bank of Italy, CONSOB (the Italian Commission for Listed Companies and the Stock Exchange) and ISVAP (Italy’s insurance industry regulator) on February 6, 2009, it is reported that the consolidated financial statements of the RCS Group at December 31, 2017 have been prepared on a going concern basis.

With reference to CONSOB communication no. DEM/11070007 of August 5, 2011, it is also noted that the Group does not hold bonds in its portfolio issued by central or local governments or government authorities, and, therefore, it is not exposed to the risk of market fluctuations in the aforementioned bonds.

The consolidated financial statements have been prepared by adopting the general criteria of historical cost, amended as required for the measurement of certain financial instruments or for the application of the acquisition method established in IFRS 3.

This section summarizes the most important accounting policies adopted by the RCS Group.

Revenue

Revenue is recognized on an accruals basis when its amount can be reliably measured and the associated consideration is likely to be collected. Specifically: ‒ revenue from the sale of goods is recognized when ownership changes hands, generally considered to be on the publication date for newspapers, recognized net of a reasonable estimate for returns, and the shipment date for books in Spain;

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‒ revenue from the sale of advertising space in traditional media and publishing revenue for magazines is recognized according to the publication date of the publications concerned, with magazine sales stated net of a reasonable estimate for returns; ‒ advertising revenue from digital channels is recognized over the duration of delivery of the advertising mes- sages; ‒ revenue from services is recognized on an accruals basis, as set out in the respective contracts; ‒ royalties are recognized upon their maturity, as set out in the respective contracts; ‒ dividends are recognized on the payable date, i.e. the date of the shareholders’ resolution for allocation..

Costs

Costs and other operating expenses are recognized in the income statement when they are incurred using the accruals basis of accounting also used for revenue, or when they do not qualify for recognition as assets in the statement of financial position.

Government grants

Government grants are recognized when there is reasonable assurance that they will be received and that all the conditions attached to them are satisfied.

Financial income and expense

Financial income and expense are recognized in the income statement through the effective interest method. Interest income is recognized through the applicable effective rate.

Financial income and expense are presented in Note 24 according to the categories defined in IAS 39 and in the manners prescribed by IFRS 7.

Income taxes

Income taxes are calculated on the basis of applicable rules and laws in the different countries where group companies operate. In detail, the calculation takes account of the more significant tax adjustments and, in the case of companies filing for income tax on a group basis in Italy, the credit arising on tax losses that have been offset and may be offset against expenses arising from taxable profit.

Deferred tax assets and liabilities are recognized on temporary differences between the asset and liability carrying amounts used in the consolidation and the corresponding figures in the individual companies’ separate financial statements recognized for tax purposes, as well as on tax losses from prior years that are deductible from taxable profit. They are calculated at the rates (inferred from the prevailing law at the reporting date) that are expected to apply to the period when the tax asset is realized or the tax liability is settled.

Deferred tax assets are recognized only if it is likely that the Company will have sufficient taxable income to use them. Deferred tax assets are reviewed at the end of each period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available in the future to allow part or all of that asset to be utilized.

Deferred tax are not discounted.

Earnings per share

Basic earnings per share are calculated by dividing the consolidated profit for the year attributable to the ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated by taking into account, when calculating the number of outstanding shares, the potential dilutive effect arising from options granted to the beneficiaries of any stock option plans to subscribe to ordinary shares.

Statement of cash flows

The statement of cash flows prepared using the indirect method presents cash flows for the year based on whether they are associated with operating, investing or financing activities, with a separate indication of cash flows

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generated by assets held for sale and discontinued operations. Cash and cash equivalents are expressed net of current account overdrafts. Cash flows used in operations also include outlays for the payment of non-recurring expense. This does not include financial expense, which is classified under cash flows from financing activities. The statement of cash flows also shows cash flows associated with transactions with related parties separately.

Property, plant and equipment

Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset’s effective use during the year. Improvement expenditure is added to the carrying amount of the assets concerned only when it can be recovered through expected future economic benefits and can be reliably estimated.

Ordinary maintenance costs are charged to the income statement in the year in which they are incurred.

Any dismantling costs are estimated and added to the cost of the asset, with a corresponding credit recognized in a provision for dismantling charges. They are then depreciated over the residual useful life of the asset concerned.

The effects on the statement of financial position, statement of cash flows and income statement of assets acquired under finance leases are recognized in compliance with IAS 17. This standard requires such assets to be recognized at cost among assets owned by the Group and depreciated over the estimated useful life, on the same basis as other property, plant and equipment.

The principal portion of lease payments is deducted from the associated payable recognized as a liability, while the interest portion of payments is recognized on an accrual basis as a financial expense in the income statement.

This policy is also applied to leased assets that meet the specific conditions laid down by IAS 17, the most important of which are: − the present value of future lease payments envisaged in the contract is substantially higher than or equal to the fair value of the asset itself − the duration of the lease exceeds three quarters of the useful life of the asset itself.

Property, plant and equipment are reviewed if there are indicators of impairment to identify any associated losses as described in the section “Impairment of non-financial assets”.

Investment property

Investment property is recognized at cost, inclusive of any directly attributable expenditure, and is held to earn rental income or for capital appreciation or both. Investment property (except for the land component) is systematically depreciated on a straight-line basis in each individual period. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets. Improvement expenditure is added to the carrying amount of the assets concerned only when it can be reliably estimated and can be recovered through the associated expected future economic benefits. Assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset’s effective use during the year.

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Transfers to investment property are made when, and only when, there is a change in use indicated by events such as: the end of owner-occupation, the commencement of an operating lease to another party or the comple- tion of construction or development. Transfers from investment property are made when, and only when, there is a change in use indicated by events such as the commencement of owner-occupation. Investment property is tested if there are indicators of impairment to identify any associated losses as described in the section “Impairment of non-financial assets”.

Intangible assets

These are recognized at purchase cost if purchased separately or capitalized at fair value on the acquisition date if purchased through a business combination.

Advertising costs, start-up and expansion costs, research costs, internally-generated trademarks and publications are not capitalized.

Other intangible assets generated internally as a result of developing the Group’s products are capitalized only if all the following conditions are met: − the asset is identifiable; − it is probable that the asset developed will generate future economic benefits; − the costs of developing the asset can be measured reliably.

Intangible assets with finite useful life are systematically amortized on a straight-line basis over that life.

Goodwill and intangible assets with indefinite useful lives are not amortized but periodically tested for impairment, as described in the section “Impairment of non-financial assets”. If the recoverable amount is lower than the carrying amount, the asset is impaired accordingly.

If goodwill is allocated to an intangible asset with finite life upon first-time consolidation of a business combination in accordance with IFRS 3, it is amortized. If goodwill is allocated to intangible assets with indefinite life, it is not amortized. Those assets are tested for impairment, as required by IAS 36.

Additionally, if expense with future economic benefits is incurred but does not qualify for recognition as intangible assets, it is charged to the income statement when incurred, or in the case of acquiring goods, when the Group has a right to access such goods, or in the case of the supply of services, when the Group receives the services.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method, under which identifiable assets, liabilities and contingent liabilities of the acquired entity which qualify for recognition under IFRS 3, are recognized at their fair values at the date on which the Group effectively obtains control. Deferred taxes are also recognized on adjustments to carrying amounts to bring them in line with that value.

The very complexity of applying the acquisition method means that the standard provides for an initial, provisional calculation of the fair value of the assets, liabilities and contingent liabilities acquired, such as to allow initial recognition of the transaction in the consolidated financial statements at the end of the year in which the business combination took place. Such initial recognition must be completed and adjusted within twelve months of the acquisition date. Amendments to the initial consideration arising from facts or circumstances subsequent to the acquisition date are recognized in profit or loss.

Goodwill is recognized as the difference between: a) the aggregate of: − the consideration transferred; − the amount of any non-controlling interests in the acquired entity, measured for each acquisition in proportion to the identifiable net assets attributable to such non-controlling interests and measured in compliance with IFRS 3;

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− and, in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquired entity, with any resulting gain or loss recognized in profit or loss. b) the net fair value of the identifiable assets acquired and the liabilities assumed.

Once the fair value of the assets, liabilities and contingent liabilities is determined, if the value pursuant to point b) above exceeds the sum pursuant to point a), this excess is immediately recognized in profit or loss.

Transaction costs do not form part of the consideration transferred and so are accounted for as expense in the period they are incurred.

Goodwill is periodically tested to ensure that it is still recoverable through a comparison with the greater of fair value and value in use, calculated as the sum of discounted future cash flows generated by the underlying investment.

For the purpose of consistent assessment, goodwill acquired in a business combination is allocated, at the acquisition date, to the Group’s individual cash-generating units, or groups of cash-generating units expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or groups of units to which the goodwill is allocated: − represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets; − is not larger than any of the operating segments identified under IFRS 8.

If goodwill has been allocated to a cash-generating unit (or groups of cash-generating units) and an asset within that unit is disposed of, the goodwill associated with such an asset is included in the asset’s carrying amount when determining the gain or loss on disposal. Goodwill disposed of in such circumstances is measured on the basis of the related carrying amounts of the asset sold and the portion of the cash-generating unit retained.

If the disposal relates to a subsidiary, the difference between the disposal price and the net assets, plus cumulative exchange rate differences and residual goodwill, is recognized in the income statement.

On first-time adoption of IFRS, the Group decided not to apply IFRS 3 to acquisitions prior to the IFRS transition date, meaning that goodwill arising on acquisitions before this date has been kept at the amounts resulting from the application of Italian GAAP and is periodically tested for impairment. Business combinations carried out between January 1, 2004 and December 31, 2008 (prior to the early application date of the IFRS 3 2008 Revi- sed) are reflected in financial statements under the methods provided for by IFRS 3 (2004). The main differences in treatment refer to ancillary costs that were previously capitalized and are now recognized in profit or loss, changes in the opening amount due to transactions occurred after the acquisition and measurement at fair value of ownership interest previously owned in the equity investment.

Impairment of non-financial assets

IAS 36 requires impairment testing to be carried out for property, plant and equipment, intangible assets and equity investments whenever there are any indicators that they may be impaired. In the case of goodwill and other intangible assets with indefinite useful life or investments that give rise to trigger events, this test must be carried out at least once a year. For property, plant and equipment, for more significant cases an estimate of the recoverable amount from an independent expert is used.

The recoverability of the carrying amounts is tested by comparing them with the higher of fair value and value in use. Value in use is defined as the present value of estimated future cash flows expected to arise from the continuing use of an asset, or from its cash-generating unit, and from disposal at the end of its useful life. The cash-generating units have been identified in line with the Group’s organizational structure and business, as the smallest groups of assets that generate cash inflows from continuing use of the relevant groups of assets.

Investments in associates and joint ventures

Associates are entities over which the Group exercises significant influence, although it does not control or jointly control them. Significant influence refers to the power to contribute to deciding on financial and management policies of the investee without having control or joint control over it.

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A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control refers to the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Investments in associates and joint ventures are accounted for using the equity method, whereby the investee is recorded at purchase cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s equity. If the losses of an associate exceed the Group’s interest in the same, these are not recognized unless the Group has an obligation to cover such losses.

The income statement reflects the investor’s share of the associate’s profit or loss, reported in the line item “Sha- re of profit (loss) of equity-accounted investees”.

The positive difference between the acquisition cost and the Group’s share of the acquisition-date fair value of the investee’s identifiable assets, liabilities and contingent liabilities, remains included in the carrying amount of the investment. If the acquisition cost is lower than the Group’s share of the fair value of the investee’s identifiable assets and liabilities at the acquisition date, the difference is recognized in profit or loss.

If an associate or joint venture makes any adjustments directly to their equity and/or in the statement of comprehensive income, the Group recognizes its related share and reports such a change, where applicable, in the statement of changes in equity and/or as other of comprehensive income (expense).

An impairment loss recognized in accordance with IAS 36 is not allocated to goodwill or the fair value measurement of assets recognized in the financial statements of the equity investment, but to the entire carrying amount of the equity investment. Accordingly, any reversal of that impairment loss is recognized in full to the extent that the recoverable amount of the equity investment subsequently increases as determined by impairment testing.

Inventories

Inventories are measured at the lower of purchase or production cost (inclusive of any directly attributable expenditure) and their estimated realizable value as deduced from market trends. The purchase cost is calculated using the weighted average cost method. Inventories are adjusted to their net realizable value by taking into account market prices and costs to sell under normal business conditions. As regards the RCS Group’s product types, elements of technical and commercial obsolescence have an effect limited to certain cases such as add-on products, which are therefore relevant for the valuation of those products. The adjustment to the value thus estimated is made by recognizing accruals directly deducted from the assets.

Financial assets

Financial assets are initially recognized at fair value, which normally corresponds to the nominal amount for loan assets and purchase cost for other financial assets plus, for financial assets classified at fair value through profit or loss, any purchase-related costs. Management determines upon initial recognition how financial assets are to be classified, identified in Note 14 in accordance with IAS 39 criteria and as required by IFRS 7.

After initial recognition, financial assets are measured in accordance with their classification within one of the following categories. More specifically:

● “Financial assets, designated upon initial recognition at fair value through profit or loss” are measured at fair value at the reporting date; in the case of unquoted instruments, this amount is determined using generally accepted valuation techniques based on market information. Fair value gains and losses on assets in this category are recognized in profit or loss.

● “Loans assets and receivables” are measured at amortized cost using the effective interest method, in other words, recognizing in profit or loss the interest calculated using a rate that exactly discounts the financial asset’s estimated future net cash flows to its carrying amount. Losses are recognized in profit or loss when the loans and receivables are derecognized or when they become impaired. Receivables are impaired individually and recognized at their estimated realizable value (fair value) by means of the allowance for impairment, which is directly deducted from their carrying amount.

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● Receivables are impaired when there is objective evidence that the receivable is unlikely to be collected and also on the basis of past experience and statistics. ● If, in a subsequent period, the amount of previous impairment losses decreases, the carrying amount of the assets is reinstated up to the amount that would have derived from applying the amortization cost, if the impairment loss had not been recognized. ● The RCS Group mainly reports in this category assets due within twelve months, which are recognized at nominal amount as an approximation of amortized cost. If the terms of payment are longer than normal market terms and the loan or receivable does not earn interest, the amount recognized in the financial statements contains an implicit time value component and so must be discounted by recognizing the discount in profit or loss.

● Loans assets and receivables expressed in foreign currencies are converted at closing rates, and the gains or losses from their translation are taken to profit or loss.

● Available-for-sale financial assets are initially recognized at cost plus any directly attributable transaction costs. They are subsequently measured at fair value; gains and losses arising from changes in the fair value of these assets are recognized in other comprehensive income (expense) When available-for-sale financial assets are sold, redeemed or transferred, the cumulative gain or loss is reclassified from equity to profit or loss. If there is evidence that the asset may have undergone a significant or prolonged impairment loss, the cumulative loss recognized in equity must be reclassified to profit or loss.

● In the case of securities traded on active markets, fair value is determined with reference to the closing price on the last trading day of the reporting period.

● In the case of assets for which there is no active market, fair value is determined on the basis of the price used in recent transactions between independent parties in instruments that are substantially the same, or using valuation techniques based on discounted cash flow analysis. Only if no future plans for the underlying asset are available and there are no comparable transactions, is the valuation maintained at cost.

● The Group classifies less than 20% of its equity investments in this category. .

Derivative financial instruments

Derivatives are classified as “Hedging derivatives” when they meet the requirements for hedge accounting, otherwise, even if they have been taken out with the intent of managing exposure to risks, they are recognized as “Held-for-trading financial assets”. In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only when their relationship with the hedged item is formally documented and the hedge effectiveness is high (effectiveness test).

The effectiveness of hedging transactions is documented both at the inception of the hedge and periodically thereafter (quarterly or at least at every reporting date) and is measured by comparing changes in the hedging instrument’s fair value with those in the hedged item (dollar offset method) for back testing effectiveness. Prospecti- vely testing effectiveness involves developing aggregate discounted cash flows by year for the hedged item and its hedging derivative (regression method).

Fair value hedges, which hedge the exposure to changes in the fair value of the item being hedged, are recognized at fair value with any changes in this value recognized in profit or loss.

The effective portion of changes in the fair value of cash flow hedges, which hedge the exposure to changes in cash flows for the items hedged, is recognized in other comprehensive income (expense) and presented in the hedging reserve. The ineffective portion of changes in the fair value of the derivative financial instrument is immediately recognized in profit(loss). If the derivative instrument is sold or no longer qualifies as an effective hedge of the risk for which it was taken out or if the underlying transaction is no longer highly probable, the related portion of the hedging reserve is immediately reclassified to profit or loss.

Regardless of classification, all derivatives are stated at fair value, determined using valuation techniques based on market data (such as discounted cash flows, forward exchange rate method, Black-Scholes model and its variants).

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Specifically, this value is determined by the “Group Finance and Accounting Shared Services” department, using specific pricing instruments based on market parameters (i.e. interest rates, exchange rates and volatilities), recognized on individual valuation dates and compared with the figures communicated by the counterparties.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, bank and post office on-demand deposits and equity securities carried out as part of the treasury management function which have a short-term maturity, are highly liquid and subject to an insignificant risk of changing value.

They are stated at nominal amount.

For the purposes of the disclosures required by IFRS 7 and presented in Note 14, in which financial instruments are classified on the basis of the definitions contained in IAS 39, cash and cash equivalents have been classified under “Loans and receivables”, while in the statement of cash flows, they are presented as cash and cash equivalents, as defined above, net of bank overdrafts.

Loan and borrowings and other

Loan and borrowings and other are initially recognized at fair value, which is basically the consideration payable, less any related transaction costs. Management determines upon initial recognition how financial liabilities are to be classified, as identified in Note 14, in accordance with IAS 39 and as required by IFRS 7. If the loan agreements make provision for covenants and non-compliance with these is verified, and this situation is not resolved before the close of the year, the long-term portion of this loan is classified as a current liability.

After initial recognition, financial liabilities are measured on the basis of their classification under IAS 39. More specifically: − “ Financial liabilities at fair value through profit or loss” are measured at fair value on the reporting date; in the case of unquoted instruments (e.g. derivative financial instruments), this value is determined using valuation techniques based on market information. Fair value gains and losses on liabilities held for trading are recognized in profit or loss. − “ Financial liabilities at amortized cost” are measured at amortized cost, by recognizing in profit or loss the interest calculated using the effective interest method, applying a rate that exactly discounts the financial instrument’s estimated future net cash flows to its carrying amount. Instruments due within twelve months are measured at their nominal amount as an approximation of amortized cost.

Loan and borrowings and other expressed in foreign currencies are translated at closing rates, and the gains or losses from their translation are recognized in the income statement.

“Loan and borrowings and other" comprise trade payables, loans and borrowings, bank loans and overdrafts and other liabilities. These mostly fall due within twelve months and/or bear interest and therefore are not discounted.

Treasury shares

Treasury shares are recognized as a deduction from equity. The original cost of the treasury shares and the gains and losses arising on any subsequent sales are recognized as changes in equity.

Employee benefits

Post-employment benefits reported by Italian companies with at least 50 employees are treated as a defined benefit plan only for that part of the liability vested before January 1, 2007 (and not yet paid out at the reporting date), while amounts accruing thereafter are treated as a defined contribution plan. Italian companies with less than 50 employees treat their post-employment benefits as a defined benefit plan. All defined benefit plans are discounted using actuarial criteria: actuarial gains and losses are classified in the statement of comprehensive income. The actuarial valuation, based on financial and demographic assumptions, is carried out with the help of external professional actuaries.

Provisions for risks and charges

Provisions are recognized when the company has a present obligation, deriving from a past event, it is probable

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that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount and/or the timing of the obligation.

The amount recognized as a provision is the best estimate of the expenditure that the Group would reasonably pay to settle the obligation at the reporting date or to transfer it to a third party at that time. The estimate implicitly reflects a time value component if it is assumed that the obligation will be settled in the long term. If this component is material and the payment date for the obligation may be reliably estimated, the provision is discounted; the increase in the provision associated with the time value of money is recognized in the income statement under “Financial expense”.

If the liability relates to property, plant and equipment (e.g. site dismantling and restoration), the provision is recognized as a balancing entry to the carrying amount of the asset to which it refers; the cost is recognized in profit or loss through the process of depreciating the related asset.

Assets and liabilities held for sale

Assets and liabilities held for sale include non-current assets (or disposal groups) and the associated liabilities the sale of which is highly likely on the basis of a specific plan. These items are measured at the lower of the carrying amount of the assets and liabilities and their fair value less any foreseeable cost of sales. Any losses arising from this measurement are recognized in “Profit (loss) from assets held for sale and discontinued operations”.

Translation of foreign currency items

The consolidated financial statements are presented in Euro, being the functional and presentation currency adopted by RCS MediaGroup S.p.A.. Each company within the Group decides its own functional currency, which is used to recognize their individual financial statements items. Foreign currency transactions are recognized, on initial recognition in the functional currency, at the exchange rate between the functional currency and the foreign currency at the date of the transaction. Foreign currency monetary assets and liabilities are translated into the functional currency using the exchange rate at the reporting date.. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

At the reporting date, the assets and liabilities of subsidiaries which adopt a functional currency other than the Euro are converted into the presentation currency of the Group’s consolidated financial statements (Euro) using the closing rate, while their income statements are translated using the average exchange rate for the year. The resulting exchange rate differences are recognized in the statement of comprehensive income and as a separate component of equity. On disposal of one of these subsidiaries, the related cumulative exchange rate differences are reclassified from equity and recognized in profit or loss.

Goodwill and fair value adjustments arising from the acquisition of a foreign operation are recognized in the related currency and translated using the closing exchange rate.

9 ▪ Accounting standards, amendments and interpretations which came into force as from January 1, 2017

Amendment to IAS 12 - Recognition of deferred tax assets for unrealized losses

The amendment issued by the IASB in January 2016 and endorsed by the European Commission in November 2017, aims to provide further clarification on the recognition of deferred tax assets arising from unrealized losses. Specifically, the amendments clarify that the unrealized losses resulting from certain circumstances give rise to deductible temporary differences regardless of whether the entity expects to recover the carrying amount of the assets by holding it until maturity or selling it. The amendments clarify that when estimating taxable profit of future periods, an entity can assume that an asset will be recovered for more than its carrying amount if that recovery is probable. All these facts and circumstances must be considered when the entity performs this check.

– 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The adoption by RCS of these amendments, applicable retrospectively from January 1, 2017, had no effect on the figures in the Annual Report.

Amendment to IAS 7 - Statement of cash flows: Disclosure Initiative

In January 2016, the IASB issued an amendment to IAS 7 “Statement of cash flows”, endorsed by the Europe- an Commission in November 2017. The amendment aims to provide clarification to improve disclosures on financial liabilities. Specifically, the amendments require entities to provide a disclosure that allows financial statements users to evaluate changes in liabilities arising from financing activities, including therein both changes arising from cash and non-cash changes. The adoption by RCS of these amendments, applicable as from January 1, 2017, had no effect on the disclosures in the Annual Report.

10 ▪ Accounting standards, amendments and interpretations endorsed by the EU and applicable to financial periods beginning on or after January 1, 2017

IFRS 15 - Revenue from Contracts with Customers

The standard, issued by the IASB in May 2014, amended in April 2016 and endorsed by the European Commis- sion in September 2016, introduces a general framework to establish whether, when and to what extent revenue will be recognized. The standard replaces the recognition criteria set out in IAS 18 - Revenue, in IAS 11 - Con- struction Contracts and in IFRIC 13 - Customer Loyalty Programmes, in IFRIC 15 - Agreements for the Con- struction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC-31 Revenue - Barter Tran- sactions Involving Advertising Services. IFRS 15 applies to financial periods beginning on or after January 1, 2018, and early application is allowed. On first-time adoption, IFRS 15 must be applied retrospectively. However, some simplifications (“practical expedien- ts”) and an alternative approach (“cumulative effect approach”) which avoids restating comparative periods are allowed; in the latter case, the effects of the application of the new standard must be recognized in opening equity in the year of first-time application of IFRS 15. Following the amendment in April 2016, the IASB clarified certain provisions and, at the same time, provided further simplifications, in order to reduce costs and complexity for first-time adopters.

The Group will adopt the IFRS 15 - Revenue from contracts with Customers starting from January 1, 2018, using the cumulative effect approach. The analysis conducted on the effects of the first-time application of IFRS 15 on the consolidated financial statements led to results substantially limited to a different representation of costs/revenue due to the effect of the assessment of the role of principal/agent, but nevertheless without consequences on the Group’s equity at January 1, 2018. Though adopting the abovementioned cumulative effect approach and, therefore, not applying in 2018 the provisions of the new standard to the comparative period shown, and not noting any effects on the opening equity at January 1, 2018, for greater clarity and transparency, an estimate was made, nevertheless, of the relating effect of reclassification on the income statement items in 2017. This different presentation refers to both distribution activities and to organization and advertising activities tied to Sporting Events, as well as to certain advertising concession contracts in Spain. It should be noted that the effects of this adoption on January 1, 2018 may change since the Group has yet to complete its analytical checks and detailed assessment of controls over the related information processes and, in addition, certain assessments may undergo changes until the first consolidated financial statements are presented, which include the date of first-time application, also based on the subsequent views that may arise on certain situations more significantly exposed to interpretations of the standard.

The total estimated adjustments for revenue in 2017 amount to higher revenue of about €85 million. The increase is primarily attributed to the adjustment of publishing revenue to express it gross of the distribution margin which is consistent with the current interpretation in the sector. This change was only partly offset by the recognition in revenue solely of the margin realized on sporting event activities abroad and on certain advertising and third-party product distribution contracts (particularly in Spain).

IFRS 9 - Financial Instruments

The standard, issued by the IASB in July 2014 and endorsed by the European Commission in November 2016,

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supersedes IAS 39 - Financial Instruments: recognition and measurement. IFRS 9 introduces new provisions for the classification and measurement of financial instruments, including a new model for expected losses for the purpose of calculating impairment losses on financial assets, and new general provisions for hedge accounting. It also includes provisions for the recognition and derecognition of financial instruments in line with the current IAS 39. IFRS 9 is effective for financial periods beginning on or after January 1, 2018; early application is allowed. With the exception of hedge accounting, retrospective application of the standard is required, while it is not compulsory to provide comparative information. As regards hedge accounting, the standard is generally applied prospectively, with a few limited exceptions.

The Group will adopt IFRS 9 Financial instruments as from January 1, 2018, using the exemption that allows an entity not to recalculate prior-years’ comparative information regarding changes in classification and assessment, including impairment losses. Differences in carrying amounts of financial assets and liabilities arising from the adoption of IFRS 9 will be recognized in retained earnings at January 1, 2018. Additionally, on first-time application, an entity may decide whether to continue to apply the hedge accounting provisions in IAS 39 or to adopt those specified in IFRS 9. The Group intends to continue to apply the provisions in IAS 39 during the transition phase.

In 2017, a thorough analysis was conducted on the impacts of the elements dealt with in IFRS 9. On the basis of the activities carried out to date, the Group has estimated that the negative effects on equity, more precisely on retained earnings (losses carried forward), at January 1, 2018, will amount to about €1 million. It should be noted that the effects of the adoption of the above standard on January 1, 2018 may change, since the Group has yet to complete its checks and assessment of controls over the changes made on the IT systems and, in addition, new assessment criteria may undergo changes until the first consolidated financial statements of the Group are presented, which include the date of first-time application.

The adjustment reducing retained earnings refers to the recognition of additional, and possible losses due to impairment of financial assets arising from the application of the expected credit loss model introduced by IFRS 9, superseding the incurred credit loss model under IAS 39. Based on this new model, financial assets not past due, which do not show evidence of impairment, were also analyzed. For this purpose, the relevant balances were subdivided according to common credit characteristics such as: rating class, sector and geographic segment to highlight any possible signs of future non-performance. On the basis of these assessments, the relevant impairment percentages for each rating class were identified referring to Trade receivables, Other assets, Loan assets and Cash and cash equivalents. These percentages represent the point of view of the Group regarding expected losses over the next 12 months. Additionally, IFRS 9 introduces new provisions on the classification and assessment of financial assets, which reflect the business model according to which such assets and the characteristics of their cash flows are managed. IFRS 9 classifies financial assets into three main categories: at amortized cost, at fair value through profit or loss (FVTPL), and at fair value through other comprehensive income (FVOCI). The categories used under IAS 39, i.e. held to maturity, loans and receivables and available-for-sale, have been eliminated. Additionally, according to IFRS 9, derivatives embedded into contracts, where the prime element is a financial asset which comes within the application of the standard, must never be separated. Conversely, a hybrid instrument is examined in its entirety for the purposes of classification.

Based on the assessment conducted by the Group, the new classification requirements are believed not to have a significant effect on the accounting for trade receivables, loans and equity securities that are managed on a fair value basis. At December 31, 2017, the fair value of available-for-sale equity securities held for long-term strategic purposes amount to €3 million. In compliance with IFRS 9, these investments will be classified among other non-current equity instruments.

Amendment to IFRS 4 - “Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts”

In September 2016, the IASB published the document “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”. The amendment, endorsed by the European Commission in November 2017, applies as from January 1, 2018. The amendments to IFRS 4 aim to remedy the temporary accounting effects of the gap between the entry into force of IFRS 9 and the entry into force of the new reporting standard on insurance contracts that supersedes IFRS 4 (IFRS 17). IFRS 9 aims to improve the financial reporting of financial instruments by addressing concerns that arose in that area during the financial crisis. Specifically, IFRS 9 is a response to the invitation from the G20 to move towards a more far-sighted model for recognizing expected losses on financial assets.

– 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The amendments to IFRS 4 authorize entities whose core business is insurance to defer the application of IFRS 9 to January 1, 2021 and to continue to use IAS 39 Financial instruments: recognition and measurement. The amendments to IFRS 4 also allow entities which issue insurance contracts to remove, from the profit (loss) for the period, a part of the additional accounting mismatches and temporary volatility which may appear when they apply IFRS 9 before the implementation of IFRS 17. These amendments do not apply to the Group.

IFRS 16 – Leases

In January 2016, the IASB published “IFRS 16 – Leases”. The new standard, endorsed by the European Com- mission in October 2017, establishes a new single model of recognition and measurement of leases for the les- see, without making any distinction between operating leases and finance leases. Specifically, it provides for the recognition of the right of use of the underlying asset with the assets in the statement of financial position with a balancing entry as a finance lease liabilities. The standard provides the possibility of not recognizing contracts as leases that involve low-value assets and leases with a term equal to or less than 12 months. The standard, instead, introduces no material changes for the lessor. The standard introduces a criterion based on the control of the use of an asset to distinguish leases from service contracts, identifying the following distinguishing factors: ‒ the identification of the asset granted for use (i.e. without a right of replacement thereof by the lessor); ‒ the right to obtain substantially all economic benefits deriving from use of the asset; ‒ the right to establish how and why the asset is to be used.

The standard applies as of January 1, 2019, but early application is allowed, solely for companies that have applied IFRS 15 “Revenue from Contracts with Customers” early.

In 2018, the RCS Group will prepare the necessary intervention work on the IT processes, concluding the analyses aimed at defining and assessing the potential effects on the Consolidated Financial Statements arising from the application of IFRS 16.

11 ▪ Accounting standards, amendments and interpretations yet to be endorsed by the EU and applicable to financial periods beginning on or after January 1, 2017

IFRS 14 - Regulatory Deferral Accounts

IFRS 14, issued by the IASB in January 2014, allows an entity, whose activities are subject to regulated tariffs, to continue to apply the previous reporting standards which had been adopted for amounts relating to the rate regulation, at the time of the first adoption of the IFRS. IFRS 14 came into force on January 1, 2016, but the Europe- an Commission suspended the endorsement process while waiting for the new accounting standard on “rate-regulated activities”. It should be noted that this standard does not apply to the Group.

Amendment to IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and Joint Ventures

The changes made with the amendment issued by IASB in September 2014 deal with the inconsistency between IFRS 10 and IAS 28 with reference to the loss of control of a subsidiary that was sold or transferred to an associate or a joint venture. The changes clarify that the gain or loss resulting from the sale or transfer of assets that are a business, as defined by IFRS 3, between an investor and one of its associates or joint venture, must be fully recognized. Any gain or loss resulting from the sale or transfer of assets that are not a business, is nevertheless recognized only within the limits of the stake held by third-party investors in the associate or joint venture. The IASB, with a further adjustment in December 2015, cancelled the previous date of first-time application set for January 1, 2016, deciding to determine it at a later date.

Amendment to IFRS 2 - Classification and measurement of share-based payment transactions

In June 2016, the IASB published the amendments to IFRS 2 classification and measurement of share-based payment transactions, which aim to clarify the accounting of some types of share-based payment transactions. The amendments apply as of January 1, 2018. However, early application is allowed.

83 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Improvements to IFRSs: 2014-2016 Cycle

In December 2016, the IASB published the document “Improvements to IFRS: 2014-2016 Cycle”, the main amendments regard: IFRS 1 – First-time Adoption of International Financial Reporting Standards - The amendments eliminate some exemptions set forth in IFRS 1, as the benefit of said exemptions is now believed to have been super- seded. The amendments apply to financial periods beginning on or after January 1, 2018. IFRS 12 – Disclosure of Interests in Other Entities - The amendment clarifies the scope of application of IFRS 12, specifying that the information required by the standard also applies to investments classified as held for sale, held for distribution to shareholders or as discontinued operations in accordance with IFRS 5. The amendment aims to standardize the disclosures required by IFRS 5 and IFRS 12. The amendments apply to financial periods beginning on or after January 1, 2017. IAS 28 – Investments in Associates and Joint Ventures – The amendment clarifies that a venture capital organization or other qualifying entity may elect to measure investments in associates or joint ventures at FVTPL, Fair Value Through Profit and Loss (rather than using the equity method), for each individual investment at the moment of initial recognition. The amendments apply to financial periods beginning on or after January 1, 2018.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

In December 2016, the IASB published the document “IFRIC 22 Foreign Currency Transactions and Advance Consideration” in order to provide entities with guidelines on how to determine the date of a transaction, and consequently, the exchange rate to use when reporting transactions that are denominated in a foreign currency in which the payment is made or received in advance. The amendments apply to financial periods beginning on or after January 1, 2018.

Amendment to IAS 40 - Investment property: Transfers of Investment Property

In December 2016, the IASB published the document “Amendment to IAS 40 - Investment Property: Transfers of Investment Property”. The amendments provide a clarification on the transfers of an asset to, or from, investment property. Based on these amendments, an entity must reclassify an asset to, or from, investment property solely when the asset meets or ceases to meet the definition of “investment property” and there has been a clear change in use of the asset. This change must be traced back to a specific event that occurred and must not, therefore, be limited to a mere change in management’s intention to change the use. The amendments apply to financial periods beginning on or after January 1, 2018, but early application is allowed only where values can be estimated.

IFRS 17 - Insurance Contracts

In May 2017, the IASB published IFRS 17 - Insurance Contracts, which replaces IFRS 4, issued in 2004. IFRS 17 applies to all types of insurance contracts, regardless of the type of issuing entity, and also to certain guarantees and financial instruments with discretionary participation features. The general objective of IFRS 17 is to present an accounting model for insurance contracts which is more useful and coherent for all insurers. In contrast with the provisions of IFRS 4 which are largely based on the maintenance of the previous accounting policies, IFRS 17 provides a complete model for insurance contracts covering all the relevant accounting aspects. The standard is applicable beginning on January 1, 2021, but earlier application is allowed.

IFRIC 23 - Uncertainty over Income Tax Treatments

The interpretation IFRIC 23 - Uncertainty over Income Tax Treatments, published by IASB in June 2017, addresses the theme regarding the uncertainty of the tax treatment to be adopted over income tax, specifying that the uncertainties over the calculation of tax liabilities and assets are reflected in the financial statements only when it is likely that the entity will pay or recover the amount in question. The new interpretation applies as of January 1, 2019, but early application is allowed.

– 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amendment to IFRS 9 - Financial Instruments: Prepayment Features with Negative Compensation

Nell’ottobre 2017 lo IASB ha pubblicato le modifiche all’IFRS 9 Prepayment Features with Negative Compen- sation volte a consentire la misurazione al costo ammortizzato o al fair value through other comprehensive income (OCI) di attività finanziarie caratterizzate da un’opzione di estinzione anticipata con la cosiddetta “negative compensation”. The amendments apply to financial periods beginning on or after January 1, 2019.

Amendment to IAS 28 - Investments in associates: Long-term Interests in Associates and Joint Ventures

The amendments to IAS 28 Long-term Interests in Associates and Joint Ventures, published by the IASB in October 2017, are aimed at clarifying that IFRS 9 should also be applied to long-term interests in an associate or joint venture that are substantially a part of the net investment in the associate or joint venture. The IASB also published an example illustrating that the provisions of IFRS 9 and IAS 28 apply to long-term interests in an associate or joint venture.

The amendments apply to financial periods beginning on or after January 1, 2019.

Improvements to IFRSs: 2015-2017 Cycle

In December 2017, the IASB published the document “Improvements to IFRS: 2015-2017 Cycle”, the main amendments regard:

IFRS 3 – business combination e ifrs 11 – joint arrangements - The amendments to IFRS 3 clarify that when an entity obtains control of a joint operation, it must re-calculate the fair value of the ownership interest previously held in this joint operation. The amendments to IFRS 11 clarify that when an entity obtains joint control of a joint operation, the entity does not re-calculate the fair value of the interest previously held in this joint operation.

IAS 12 – income tax consequences of payments on financial instruments classified as equity - The proposed amendments clarify how an entity must recognize any tax effects deriving from the distribution of dividends.

IAS 23 – borrowing costs eligible for capitalization - The amendments clarify that where funds borrowed specifically for the acquisition and/or construction of an asset remain in place even after the asset itself is ready for use or sale, such funds cease to be considered specific and are included in the entity's general funding in order to determine the capitalization rate of the funds borrowed.

The amendments apply to financial periods beginning on or after January 1, 2019. Early application is allowed.

12 ▪ Main decisions when applying accounting standards and key sources of estimation uncertainty

Key sources of estimation uncertainty

The preparation of the consolidated financial statements and notes thereto has required using estimates and assumptions both for determining the carrying amounts of some assets and liabilities and for measuring contingent liabilities. The estimates and assumptions are based on past experience and other relevant factors. Howe- ver, future events might not fully confirm the forecast amounts. The estimates and assumptions are periodically reviewed and the effects of any changes are immediately reflected in the financial statements.

Owing to the persisting negative trend of the main markets of operation of the Group, and despite improvements in the macroeconomic environment, the estimates have been made on the basis of assumptions relating to a highly uncertain future. However, it is possible that actual events over the next year may have a different outcome to those forecasted at December 31, 2017, causing significant adjustments to the carrying amounts of assets and liabilities, amongst which goodwill because of its materiality.

In order to determine whether there are impairment losses on goodwill, it is necessary to estimate the value in use of the cash-generating unit (CGU) to which goodwill has been allocated. The determination of value in use

85 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

involves estimating the cash flows that the Company expects to derive from the CGU, and identifying an appropriate discount rate. As further explained in Note 33, the principal uncertainties affecting this estimate refer to the discount rate (WACC), the growth rate (g), and the assumptions about expected cash flows.

Projections are also used when determining the provisions for risks and charges, returns to receive (newspapers and magazines), the allowance for impairment and other allowances for write-downs, particularly for inventories, as well as depreciation and amortization, employee benefits and deferred taxes.

The following is a summary of the principal assumptions used by management in the Group’s most critical valuation process, namely the determination of the recoverable amount of non-current assets, including goodwill.

Principal assumptions for determining the recoverable amount of non-current assets

The Group periodically reviews the carrying amount of intangible assets with an indefinite life, even if there are no signs of impairment, to ensure that this is not higher than the recoverable amount. When indicators of impairment are identified, the carrying amounts of property and plant are also promptly reviewed.

In more detail, goodwill related to cash generating units is measured at least once a year, irrespective of any impairment indicators. At June 30, 2017, an analysis was conducted without identifying any impairment indicators, taking account of the significant amounts expressed by the Unidad Editorial group.

At December 31, 2017, the intangible assets of the Unidad Editorial group’s cash-generating unit amount to a total of €336 million, i.e. approximately 87.5% of the Group’s total intangible assets. With the Spanish macroeconomic environment showing signs of recovery and an increasing risk-free rate trend, the impairment testing conducted at December 31, 2017 showed that the carrying amounts of the cash-generating unit were lower than the recoverable amounts.

The recoverable amount of the goodwill identified by each impairment test is nonetheless sensitive to changes in assumptions, such as the growth in advertising revenue, changes in forecast EBITDA, among the calculation variables, the discount rate (WACC) and the assumption of constant cash flows beyond the explicit forecast period (g equal to zero, in nominal terms). In turn, WACC is sensitive to changes in its components, including the risk-free element that summarizes the country risk, which is increasing not only for the Spanish cash-generating unit.

Sensitivity analyses have been carried out (see Note 33) in order to understand the impact that minimal changes in the assumptions could have on the recoverable amounts calculated. These sensitivity analyses form an integral part of the impairment test.

The impairment tests performed at December 31, 2017 are based on forecasts of expected cash flows for the relevant cash-generating units, derived from the 2018 Budget, and, for years subsequent to 2018, from the Plans prepared by the heads of the Group’s various Operating Segments. The forecast data, adjusted if necessary only to take into account the requirements of IFRS, were then independently reviewed by the Board of Directors of the relevant group companies, prior to the approval of the financial statements.

13 ▪ Management of capital and financial risks

The Group manages its capital structure and financial risks in accordance with the asset structure. The Group’s objective is to maintain a suitable credit rating and capital ratio levels over time which are consistent with its asset structure, taking into consideration current trends in credit supply in the Italian economy, which remains stiff as it still represents a high percentage of sources of corporate funding with respect to other countries, where the capital markets play a significant role in funding. No changes were made to the operating objectives, policies and procedures in 2017 from the year ended 31 December, 2016.

– 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

maturity from December 31, 2019 set for the previous Loan to December 31, 2022, and envisages a single covenant represented by the Leverage Ratio (Net Financial Debt /EBITDA), verified annually.

As concerns financial risks, the RCS Group is exposed to market risk (such as interest rate risk, and to a lesser extent currency risk, while it is not exposed to price risk), liquidity risk and credit risk. The Group constantly monitors financial risks connected with

Interest rate risk

Interest rate risk refers to the risk of possible higher financial expense caused by an adverse, unexpected fluctua- tion in interest rates. The Group is exposed to this risk in relation to its floating-rate financial liabilities.

Interest rate risk is managed using specific policies defining the risk management objectives, limits, roles and responsibilities of the various departments involved in the process. Specifically: − it is the Group's objective to mitigate exposure to interest rate risk by establishing an adequate mix between floating-rate and fixed-rate liabilities, using derivatives where necessary; − interest rate risk is managed by the “Group Finance and Accounting Shared Services” department within the permitted operating limits; this department draws up strategies for hedging the exposure identified and presents them for top management approval; − using derivatives for speculative purposes is not permitted, in other words, it is not in line with the stated objective, unless previously authorized by the Board of Directors in cases of proven benefit; − the “Group Finance and Accounting Shared Services” department periodically informs top management of its work and results in different ways, including a report on the status of the derivatives portfolio and a report analyzing changes in the Net Financial Position (debt).

At December 31, 2017, roughly 79% of loans and borrowings, including finance lease liabilities, were at a contractually fixed rate, or transformed to such via interest rate swaps (IRS) (43% at December 31, 2016).

At December 31, 2017, the hedging objective was pursued using the above types of derivatives taken out with highly-rated leading financial institutions. IRSs transform the floating rate into a fixed one (or vice versa) through the periodic swap, with the financial counterparty, of the difference between the fixed-rate interest (swap rate) and floating-rate interest, both calculated on the contractual notional amount. It should be noted that in Decem- ber 2017 a number of new IRS hedging contracts of €180 million were concluded, with an average duration of just under 2 years at an average weighted fixed rate (for the amount and duration of the hedges) of a negative 0.132%.

RCS now complies with Regulation (EU) No. 648/2012 on OTC (over the counter) derivatives, which came into force in Italy in 2014 and in all European countries (the EMIR Regulation) and introduced the requirement to report transactions on derivatives, carried out on official markets or on the OTC market, to a trade repository, i.e. a third party responsible for collecting and centrally storing reports received from trading counterparties to make them accessible to the supervisory authorities.

Notes 36 and 42 contain detailed information about the fair value of derivative financial instruments at the reporting date, and Note 42 contains the table summarizing interest rate risks.

Sensitivity analysis The following table shows the results of the sensitivity analysis of interest rate risk, reporting its impact on profit or loss and equity, as required by IFRS 7.

87 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

This sensitivity analysis was performed assuming a parallel 1% increase/decrease in the relevant interest rate curves by individual currency.

Sensitivity analysis of interest Increase/Decrease Impact Underlying Impact on equity rate risk on floating rate items in underlying interest rates on profit or loss 2017 (288.8) 1% (1.3) 3.7 2016 (368.7) 1% (1.8) 1.8

2017 (288.8) -1% 0.3 (3.8) 2016 (368.7) -1% 1.5 (1.9)

The Group held floating-rate debt financial instruments at December 31, 2017. The use of interest rate derivatives, transforming liabilities from floating rate to fixed rate, should be noted.

Floating-rate financial instruments included in the sensitivity analysis concern cash and cash equivalents, current and non-current financial assets and liabilities and any interest rate derivatives held. The analysis was conducted taking into account: − the change in interest income and expense during the year attributable to any reasonable changes in interest rates applicable to floating-rate assets and liabilities held during the year; − the opposite impact of the hypothetical rate shock in terms of fair value changes in interest rate derivatives recognized in equity (for the hedge component beyond the relevant year) and in the income statement, assuming a sudden change in the rate curve at the reporting date. Hedges of interest rate risk have a notional amount of €243.8 million at December 31, 2017 (€168.8 million in 2016) and refer solely to Interest Rate Swaps, as in 2016.

No impact is recognized in relation to fixed-rate financial instruments because the statement of financial position showed no significant financial assets or liabilities bearing fixed interest.

As far as risk factors generating significant exposures to risk were concerned, the sensitivity analysis at Decem- ber 31, 2017 revealed that an increase in interest rates would cause a potential loss of €1.3 million in the income statement (losses of €1.8 million in 2016) and an increase of €3.7 million in equity (€1.8 million in 2016). A decrease in interest rates, which takes account of contractual provisions, if any, on the application of negative rates, would give rise to potential income of €0.3 million in the income statement (€1.5 million income in 2016) and a decrease of €3.8 million in equity (€1.9 million in 2016).

Currency risk

Currency risk can be defined as the sum of negative effects on assets or liabilities in foreign currency caused by changes in exchange rates.

Although the RCS Group has an international presence, it does not have a large exposure to currency risk because the Euro is the functional currency in its principal areas of business.

The exposure to currency risk mainly refers to: certain trade and financial positions in US dollars, Swiss francs and United Arab Emirates dirhams referring in particular to RCS MediaGroup S.p.A. and RCS Sport and Even- ts DMCC.

Similarly to interest rate risk, currency risk is also managed using specific policies defining the risk management objectives, limits, roles and responsibilities within the process. Specifically: − it is the Group’s objective to mitigate the effects caused by an adverse movement in exchange rates, using derivatives where necessary; − currency risk is managed by the “Group Finance and Accounting Shared Services” department within the permitted operating limits established; this department draws up strategies for hedging the exposure identified and presents them for top management approval;

– 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

− using derivatives for speculative purposes it is not permitted, in other words, it is not in line with the stated objective; − the “Group Finance and Accounting Shared Services” department informs top management of its work and results through its report on the status of the derivatives portfolio; − for purposes of ensuring consistency between currency flows from trading activities and those generated by hedging financial instruments, the Group may use roll-over and unwinding transactions.

At December 31, 2017, there were no currency derivatives as presented in Note 36.

Sensitivity analysis The currencies to which the Group has the greatest currency risk exposure are the United Arab Emirates dirham, the US dollar and the Swiss franc.

As regards the exposure to the dirham, the net receivable position is €1.2 million. A 10% appreciation of the euro against the dirham would have produced consolidated losses of roughly €0.1 million (gains of €0.1 million in 2016 with a net payable position of €0.7 million).

As regards the exposure to the US dollar, the net receivable position is €0.4 million (net receivable position of €0.4 million in 2016). A 10% appreciation of the euro against the US dollar would thus have resulted in consolidated losses of less than €0.1 million (losses of €0.1 million in 2016).

Lastly, the exposure to the Swiss franc consists of an overall receivable position of €0.5 million (net receivable of €0.4 million in 2016), which in the event of a 10% appreciation of the euro against the franc would have caused a loss below €0.1 million (loss of approximately €0.1 million in 2016).

If the dirham, the dollar and the franc appreciated 10% against the euro, the impact on the income statement would have had the same amount but opposite sign.

Liquidity risk

Liquidity risk may arise owing to difficulties in obtaining financing in due time to support operations, also possibly for the purpose of repaying maturing loans. The Group manages liquidity on a centralized basis (using cash management systems for the main subsidiaries) in compliance with the objectives and policies defined by management.

On 4 August, 2017, the Company concluded a new Loan Agreement to fully refinance the Loan Agreement initially signed on June 14, 2013 and previously amended in August 2014 and in June 2016. The New Loan Agreement has 2 credit lines for a total of €332 million, including a term line of €232 million and a revolving line of €100 million, with the maturity date of both lines in December 2022, and the revision of the gain which is more favorable for the Company than the gains set out in the rescheduled Loan Agreement. Mention should be made that the Amortizing Term Credit Line of €232 million has approximately €208 million still in place at December 31, 2017, while the Revolving Credit Line of €100 million has €50 million drawn down at Decem- ber 31, 2017.

The Company’s objective regarding the negotiation of the New Loan was to keep a balance between the amount of the medium/long-term New Loan and the amount of the commercial short-term lines in relation to the planned requirements and flexibility of management through: − the optimal management of any available funds in relation to the requirements highlighted from time to time based on the seasonal nature of operations; − possible use of different types of finance, both short-term as well as medium/long-term.

89 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Liquidity analysis The following tables show the maturity analysis of the RCS Group’s financial and trade assets and liabilities at December 31, 2017 and December 31, 2016, based on undiscounted contractually agreed payments (including principal and interest even if not matured at the reporting date).

In the absence of an agreed repayment date, the payments have been included on the basis of the first date that payment could be requested. For this reason, bank overdrafts have been included in the first repayment period.

Mention should be made that the loan totaling €332 million consists of 2 lines: an Amortizing Term Credit Line of €232 million, approximately €208 million of which outstanding at December 31and a Revolving Credit Line of €100 million, €50 million of which drawn down at December 31, 2017.

The Group continues to monitor the trend in and possible development of the credit and capital markets, to plan the necessary actions for the correct handling of these maturities.

2017

Analysis of balances reported Contractual due date (interest and principal) at the end of 2017 (1) 0-6 6 months- 1-2 2-5 over 5 on demand Total months 1 year years years years Financial assets Trade receivables due from third parties (2) 60.0 163.4 2.0 - - - 225.4 Intragroup trade receivables (2) 27.8 19.4 - - - - 47.2 Other receivables and other assets (trade or financial) 15.7 0.6 0.6 0.7 1.6 1.6 20.8 Intragroup loan assets ------Hedging derivatives ------Cash and cash equivalents 15.6 - - - - - 15.6 Total financial assets 119.1 183.4 2.6 0.7 1.6 1.6 309.0

Financial liabilities Trade payables due to third parties 115.9 103.4 - - - - 219.3 Intragroup payables 7.1 9.9 - - - - 17.0 Loans and borrowings to third parties (including leases) 16.8 34.8 18.3 33.2 227.8 - 330.9 Intragroup loans and borrowings 4.3 - - - - - 4.3 Other payables (trade or financial) 25.7 0.1 - - - - 25.8 Hedging derivatives - 1.1 0.1 - (0.1) - 1.1 Committed credit facilities ------Total financial liabilities 169.8 149.3 18.4 33.2 227.7 - 598.4

(1) These figures include forecast interest not yet accrued at December 31, 2017 and, therefore, are not reconcilable with those reported in the statement of financial position. (2) Trade receivables are stated gross of expected product returns.

– 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2016

Analysis of balances reported Contractual due date (interest and principal) at the end of 2016 (1) 0-6 6 months- 1-2 2-5 over 5 on demand Total months 1 year years years years Financial assets Trade receivables due from third parties (2) 56.8 182.6 2.4 - - - 241.8 Intragroup trade receivables (2) 42.6 17.0 0.1 - - - 59.7 Other receivables and other assets (trade or financial) 22.7 0.3 0.2 0.7 1.8 2.0 27.7 Intragroup loan assets 0.1 - - - - - 0.1 Hedging derivatives ------Cash and cash equivalents 18.7 - - - - - 18.7 Total financial assets 140.9 199.9 2.7 0.7 1.8 2.0 348.0

Financial liabilities Trade payables due to third parties 170.1 101.1 0.1 - - - 271.3 Intragroup payables 9.9 11.7 - - - - 21.6 Loans and borrowings to third parties (including leases) 38.9 44.6 21.8 63.4 227.0 - 395.7 Intragroup loans and borrowings 11.1 - - - - - 11.1 Other payables (trade or financial) 32.2 - - - - - 32.2 Hedging derivatives - 2.4 1.8 0.9 - - 5.1 Committed credit facilities ------Total financial liabilities 262.3 159.8 23.7 64.3 227.0 - 737.0

(1) These figures include forecast interest not yet accrued at December 31, 2016 and, therefore, are not reconcilable with those reported in the statement of financial position. (2) Trade receivables are stated gross of expected product returns.

91 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Credit risk

Credit risk may be defined as the possibility that one party to a financial instrument will cause a financial loss by failing to discharge an obligation. The table below shows the maximum exposure to credit risk of items reported in the financial statements, including derivatives. Maximum exposure to risk is presented with the mitigating effects of netting agreements and guarantees given by third parties shown separately.

Carrying amount at Guarantees held at Financial Assets Note Dec-31-2017 Dec-31-2016 Dec-31-2017 Dec-31-2016 Financial assets at fair value through profit or loss Held-for-trading securities 42 - - - - Non-hedging derivatives 36 - - - - Loans and receivables Trade receivables (1) 40 272.6 301.5 - - Current loan assets 42 0.9 0.5 - - Cash and cash equivalents 42 15.6 18.7 - - Other receivables and current assets 41 13.7 20.6 - - Non-current loan assets 37 3.7 4.2 - - Other non-current assets 38 2.1 2.1 - - Hedging derivatives 36 - - - - Committed credit facilities - - - - Financial guarantees given - - - - Total 308.6 347.6 - -

(1) Trade receivables are stated gross of expected product returns.

When financial instruments are measured at fair value, the amounts shown represent the current credit risk but not the maximum exposure to credit risk which could arise in the future due to changes in fair value.

More details on the maximum exposure to credit risk for each category of financial instrument can be found in the specific notes.

The Group’s exposure to credit risk is distributed by geographic segment as follows, with no significant differences reported from the prior year:

Carrying amount at Carrying amount at Credit risk concentration by operating segments % % Dec-31-2017 Dec-31-2016 Newspapers Italy 65.9 22.5% 75.6 23.0% Magazines Italy 21.3 7.3% 22.6 6.9% Advertising and Sport 131.4 44.8% 145.3 44.2% Unidad Editorial 68.3 23.3% 79.4 24.1% Other Corporate activities 6.1 2.1% 6.0 1.9% Total 293.0 100% 328.9 100%

Carrying amount at Carrying amount at Credit risk concentration by geographic segments % % Dec-31-2017 Dec-31-2016 Italy 212.3 72.5% 241.3 73.4% Spain 70.5 24.1% 81.4 24.7% Other Countries 10.2 3.5% 6.2 1.9% Total 293.0 100% 328.9 100%

Trade receivables are managed by the Group’s individual companies in compliance with the Group’s financial objectives, agreed commercial strategies and operating procedures, which prevent products or services from being sold to customers without an adequate credit rating or collateral. New customers and their credit rating

– 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

are generally evaluated using an automated credit scoring system. The rating model applied to Italy uses the “expected default frequency” model prepared by a leading financial information and analysis group. The Uni- dad Editorial group also employs a system for assessing customers and assigning a financial rating, similar to the Italian system.

They are constantly controlled during the year with the aim of reducing late payments and limiting any losses on financial assets.

The table below provides information on the credit quality of financial assets in portfolio

Carrying amount at December 31, 2017 Not past due & Past due & not Past due & Allowance for not impaired impaired impaired impairment Total Trade receivables (1) 184.1 27.5 92.4 (31.4) 272.6 Current loan assets 0.9 - - - 0.9 Other current assets 13.7 - 10.3 (10.3) 13.7 Current portion 198.7 27.5 102.7 (41.7) 287.2 Non-current loan assets 3.7 - 0.8 (0.8) 3.7 Other non-current assets 2.1 - - - 2.1 Non-current portion 5.8 - 0.8 (0.8) 5.8 Total 204.5 27.5 103.5 (42.5) 293.0

Carrying amount at December 31, 2016 Not past due & Past due & not Past due & Allowance for not impaired impaired impaired impairment Total Trade receivables (1) 221.9 25.0 98.0 (43.4) 301.5 Current loan assets 0.5 - - - 0.5 Other current assets 20.6 - 10.3 (10.3) 20.6 Current portion 243.0 25.0 108.3 (53.7) 322.6 Non-current loan assets 4.2 - 2.7 (2.7) 4.2 Other non-current assets 2.1 - 0.2 (0.2) 2.1 Non-current portion 6.3 - 2.9 (2.9) 6.3 Total 249.3 25.0 111.2 (56.6) 328.9 (1) Trade receivables are stated gross of valuation reserves.

Total current trade receivables stood at €272.6 million, decreasing by €28.9 million versus 2016. It should be noted that in past due receivables for which no provision was made in the allowance for impairment, there is often an offsetting entry against trade payables in the liabilities section. Trade receivables overdue and impaired dropped from €98 million in 2016 to €92.4 million in 2017, a positive change of €5.6 million.

The allowance for impairment of trade receivables decreased by €12 million, due mainly to greater net utilizations by the Unidad Editorial subsidiary and, with regard to Italy, from the decrease in new litigation (-€1.8 million versus 2016), utilizations for losses on receivables (€4.7 million) and finally, from the collection of receivables through legal action whose values remained consistent with the prior year end (€4.2 million versus €4.4 million in 2016). The level of hedging of financial asset risk in percentage terms decreased from 12.6% in 2016 to 10.3% in 2017, due in particular to less needs to hedge disputed receivables.

Current loan assets and trade receivables, not past due and not impaired at December 31, 2016 and December 31, 2017 are summarized in the following table, on the basis of the credit rating assigned by the Group to individual debtors.

93 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Carrying amount at December 31 2017 Carrying amount at December 31 2016 Current Non-current Current Non-current Rating portion portion Total % portion portion Total % Rating A (low risk) 46.3 - 46.3 22.6% 65.7 - 65.7 26.4% Rating B (medium risk) 97.6 - 97.6 47.7% 109.5 - 109.5 43.9% Rating C (high risk) 6.9 - 6.9 3.4% 16.8 - 16.8 6.7% Rating Z (not rated) 47.9 5.8 53.7 26.3% 51.0 6.3 57.3 23.0% Total 198.7 5.8 204.5 100.0% 243.0 6.3 249.3 100.0%

The table above shows the breakdown of the credit portfolio, expressed in risk classes: ‒ loans and receivables with customers with a low risk profile Rating A saw their impact on the total fall from 26.4% at December 31,2016 to 22.6% at December 31 2017; ‒ rating category B (medium risk) accounts for the majority (47.7% of total loans and receivables), due also to the downward shift of a number of customers previously classified under Rating category A; ‒ exposure to customers with a higher risk profile Rating C reduced, whose impact on the total halved from 6.7% to a mere 3.4% in 2017; ‒ not rated loans and receivables (including the non-current portion), fell to €53.7 million, dropping by €3.6 million in absolute terms, but increased as a percentage of the total to 26.3% versus 23% at December 31, 2016.

The category of loans and receivables with a Z Rating mostly refers to loans and receivables from public entities, foreign customers and mass market customers.

The maturity of loans and receivables past due and not impaired reported in the financial statements at Decem- ber 31, 2017 and December 31, 2016 is shown below.

Loans and receivables past due & not impaired Loans and receivables Total past due & not not past due & not 30 31-60 61-90 91-180 181-360 impaired impaire days days days days days > 361 2017 204.5 8.2 3.5 2.1 4.1 3.9 5.7 27.5 2016 249.3 7.7 2.1 2.4 3.5 4.8 4.5 25.0

Impaired and past-due loan assets and trade receivables amount to €103.5 million and are recognized in the financial statements net of the allowance for impairment of €42.5 million. The allowance for impairment, referring only to trade receivables, fell by €12 million versus December 31,2016. This value is consistent with the quality of the credit portfolio, specifically for the reduction in disputed credit, and in line with the insolvency risk prevention and mitigation criteria adopted by the RCS Group, as outlined hereunder.

Under the adopted impairment procedures, individual impairment losses are recognized on large, individual trade positions which are objectively in default. Accruals are normally recognized for individual customer balances when a significant proportion of the balance is past due, as better shown in the following table.

% Rating class significance Customers Rating A (low risk) 15% Customers Rating B (medium risk) 10% Customers Rating C (high risk) 5% Customers Rating Z (not rated) 5% Customers Rating E (public entities) 5%

A deterioration in rating or another objectively prejudicial element may give rise to an impairment loss on a specific loan or receivable, even if it is not past due at the reporting date.

– 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The applicable impairment percentage is established in accordance with the past due age range, and periodically reviewed to take account of credit ratings given by the Group to individual counterparties.

The table below shows the impairment percentages applied at December 31, 2017 to loans and receivables based on past due age range.

Past due Rating class 1-30 30-60 60-90 90-180 180-360 360-540 540-720 > 720 days days days days days days days days Low-risk 4% 6% 8% 10% 20% 30% 40% 50% Medium-risk rating 6% 8% 10% 12% 30% 40% 50% 60% High-risk rating 8% 10% 12% 15% 40% 60% 70% 80% Public entities 1% 1% 1% 2% 5% 10% 20% 30% Not rated 6% 8% 10% 12% 30% 40% 50% 60%

* The percentages above apply to Italy; Spain adopts specific impairment percentages that take account of country risk.

Price risk

The Group is not exposed to significant price risks related to financial instruments included in the application field of IAS 39.

14 ▪ Financial Instruments: disclosures

As required by IFRS 7, the following table shows the carrying amounts of items included in each category identified by IAS 39.

The carrying amount usually coincides with the fair value of the financial instruments, except for non-current financial assets and liabilities and items included in net financial debt, whose fair value is reported in the specific notes, to which reference should be made.

95 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position

Carrying amount Carrying amount Financial instrument categories Note at Dec-31-2017 at Dec-31-2016 FINANCIAL ASSETS Financial assets at fair value through profit or loss Investment funds - - Bonds and Government securities - - Held-for-trading securities 42 - - Non-hedging derivatives 36 - - Available-for-sale financial assets Equity investments 35 3.0 5.8 Loans and receivables Trade receivables (1) 40 272.6 301.5 Current loan assets 42 0.9 0.5 Cash and cash equivalents 42 15.6 18.7 Other receivables and current assets 41 13.7 20.6 Non-current loan assets 37 3.7 4.2 Other non-current assets 38 2.1 2.1 Hedging derivatives 36 - - Total 311.6 353.4

FINANCIAL LIABILITIES Liabilities at amortized cost Trade payables 54 236.3 292.9 Current bank loans and overdrafts 42 16.8 38.9 Current loans and borrowings 42 50.2 66.2 Other current liabilities 55 25.8 32.2 Non-current loans and borrowings 42 235.8 275.1 Other non-current liabilities 53 - - Financial liabilities at fair value through profit or loss Non-hedging derivatives 36 - - Hedging derivatives 36 1.1 5.1 Total 566.0 710.4

(1) For IFRS 7 purposes, trade receivables are stated gross of expected product returns.

The following have been classified as “Financial assets at fair value through profit or loss”: ● financial assets designated upon initial recognition at fair value through profit or loss, as well as derivative financial assets that do not meet IAS 39 requirements to be designated as hedges; ● financial assets held for trading if they are: ‒ classified as held for trading or acquired or subscribed for the purpose of selling or reselling in the short term; ‒ part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; ‒ derivatives (except for derivatives that are designated and effective hedging instruments), details of which can be found in Note 36 on “Financial assets and liabilities recognized for derivatives”.

“Loans and receivables” comprise financial assets with fixed or determinable payments that are not quoted in an active market.

“Available-for-sale financial assets” include all those assets not classified in the preceding categories.

– 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

“Financial liabilities at fair value through profit or loss” include (i) financial liabilities designated by the Group upon initial recognition at fair value with changes in fair value through profit or loss and (ii) financial liabilities held for trading. “Financial liabilities at amortized cost” include all financial liabilities, except for those previously designated as held for trading.

IFRS 7 requires financial instruments recognized in the statement of financial position at fair value to be classified on the basis of a fair value hierarchy. For assets whose recoverable amount corresponds to the fair value net of cost of sales, the fair value hierarchy disclosure is presented in Note 33 relating to Intangible assets. The levels of the hierarchy are as follows: LEVEL 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; LEVEL 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); LEVEL 3: Inputs for the asset or liability which are not based on observable market data.

At December 31, 2016 and 2017 assets and liabilities have been classified in accordance with the fair value hierarchy as follows.

Hierarchy of fair value measurement for categories of financial instruments at December 31, 2017 Note Level 1 Level 2 Level 3 Total FINANCIAL ASSETS Financial assets at fair value through profit or loss Held-for-trading securities 42 - - - - Non-hedging derivatives 36 - - - - Available-for-sale financial assets Equity investments 35 - - 3.0 3.0 Hedging derivatives 36 - - - - Total - - 3.0 3.0

FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Non-hedging derivatives - - - - Hedging derivatives 36 - 1.1 - 1.1 Total - 1.1 - 1.1

Hierarchy of fair value measurement for categories of financial instruments at December 31, 2016 Note Level 1 Level 2 Level 3 Total FINANCIAL ASSETS Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss 42 - - - - Held-for-trading securities 36 - - - - Non-hedging derivatives Available-for-sale financial assets 35 - - 5.8 5.8 Equity investments 36 - - - - Hedging derivatives - - 5.8 5.8 Total FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Non-hedging derivatives - - - - Hedging derivatives 36 - 5.1 - 5.1 Total - 5.1 - 5.1

97 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The table below shows movements in the year in items classified in Level 3:

Gains/(losses) Transfers Balance at recognized Increases/ Decreases/ Gains and losses recognized as other to/from Balance at Dec-31-2016 in profit or loss acquisitions sales comprehensive income (expense) level 3 Dec-31-2017 5.8 (0.3) 1.6 (4.1) - - 3.0

Impact of financial instruments on profit or loss and equity, in compliance with IFRS 7

In compliance with IFRS 7, the following table presents the effects on profit or loss and equity of each category of financial instruments held by the Group in the 2016-2017 two-year period. These mainly consist of gains and losses arising on the purchase and sale of financial assets and liabilities as well as from fair value gains or losses and the interest income/expense relating to financial assets/liabilities measured at amortized cost.

The table below shows the effect on profit or loss and equity for IAS 39 financial instruments.

Note Dec-31-2017 Dec-31-2016

Net gains/losses recognized on financial instruments Held-for-trading financial assets/liabilities - - Hedging derivatives (0.2) (0.5) of which gains/losses recognized in equity (*) 36 3.4 4.4 of which gains/losses recognized in profit or loss (3.6) (4.9) Gains/losses on available-for-sale financial assets - - of which fair value gains/losses recognized in equity - - of which fair value gains/losses reclassified from equity to profit or loss - - Gains/losses on loans and receivables (1.4) (1.7) Interest income/expense (at internal rate of return) accrued on financial assets/liabilities not at FVTPL Interest income on 0.7 0.3 Loans/receivables 0.7 0.3 Available-for-sale assets - - Interest expense on (12.6) (18.3) Financial liabilities at amortized cost (12.6) (18.3)

Expenses and fees not included in effective interest rate relating to financial assets - - Loans/receivables - - Available-for-sale assets - - relating to financial liabilities - - Financial liabilities at amortized cost - -

Interest income accrued on impaired financial instruments Loans/receivables 0.1 0.2 Available-for-sale assets - -

Allowances for impairment of financial assets Loans/receivables 21 (3.7) (2.0) Available-for-sale assets 25 (0.3) (0.1)

(*) Figures are shown gross of tax effects.

More details on the characteristics of financial instruments held and the associated gains and losses can be found in the specific notes.

– 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15 ▪ Operating segments

Following the positive conclusion of the public purchase and exchange offer on the shares of RCS MediaGroup S.p.A. by Cairo Communication S.p.A. and the resulting change in control of the Company and the appointment of a new Board of Directors of RCS MediaGroup S.p.A., in the last four-month period of 2016, a process was launched for the review of the Group structure to ensure it better represented the business and allowed the effective adoption of judgments at the highest operating decision-making level, focused on the resources to be allocated to the various sectors and the subsequent evaluation of the results obtained.

As from 2017, results are represented according to the business areas identified on the basis of the Group’s current operating structure, consistent with the internal provisional and final reporting currently adopted.

The segment statement of financial position figures, in particular those for total assets for each segment subject to disclosure, are not currently periodically provided to the highest operating decision-making level. Therefore, these details are not provided in these notes in accordance with the amendment of IFRS 8 - Operating segments, in force from January 1, 2010. The accounting policies used for presenting the figures of reportable segments are consistent with those adopted for preparing the consolidated financial statements. Transactions between the different segments mostly refer to the exchange of goods and the provision of services. All such transactions are conducted on an arm’s length basis, in accordance with the quality of the goods and services provided. In application of IFRS 8, the following tables present information by operating segment. The comparative income statement figures for 2016 were revised to align them with the new disclosure and allow a homogeneous comparison.

The operating segments at December 31, 2017 are therefore: Newspapers Italy, Magazines Italy, Advertising and Sport, Unidad Editorial and Other Corporate activities. Specifically, the types of products and services from which each segment subject to disclosure obtains revenue, are detailed in this Annual Report, in the section dedicated to comments on the economic trend of the business segments, in the paragraphs “Segment profile”. The Group used a combination of factors in identifying the areas subject to disclosure, including the goods and services offered by operating geographic segment.

99 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2017

Other Operating segments reconciliation items Other Newspapers Magazines Advertising Unidad Eliminations/ Corporate Total Italy Italy and Sport Editorial adjustments (€/millions) activities Publishing revenue 209.4 28.1 - 108.3 0.1 (1.0) 344.9 Advertising revenue 154.9 48.8 261.8 133.2 - (188.9) 409.8 Other revenue 16.1 16.7 51.4 59.0 23.0 (25.1) 141.1 Segment revenue 380.4 93.6 313.2 300.5 23.1 (215.0) 895.8 Intersegment revenue (148.7) (42.7) (0.6) (2.2) (20.8) Revenue 231.7 50.9 312.6 298.3 2.3 895.8 Segment operating profit (loss) 71.6 10.6 22.7 23.9 (33.4) 0.2 95.6 - Share of profits (losses) 1.6 0.2 - 0.3 - - 2.1 of equity-accounted investees Net financial expense (24.4) Other gains 16.2 on financial assets/liabilities, net - of which dividends from non-current - equity investments Profit (Loss) before tax 87.4 Income taxes (16.5) Profit (Loss) 70.9 from continuing operations Profit (Loss) from assets held for sale - and discontinued operations Profit (Loss) for the year 70.9 Non-controlling interests 0.2 Owners of the parent 71.1

– 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2016

Other Operating segments reconciliation items Other Newspapers Magazines Advertising Unidad Eliminations/ Corporate Total Italy Italy and Sport Editorial adjustments (€/millions) activities Publishing revenue 230.7 28.5 - 121.8 0.4 (1.0) 380.4 Advertising revenue 153.8 51.1 288.0 145.7 - (187.4) 451.2 Other revenue 21.7 19.6 44.3 50.8 33.3 (33.0) 136.7 Segment revenue 406.2 99.2 332.3 318.3 33.7 (221.4) 968.3 Intersegment revenue (147.0) (43.1) (0.6) (1.7) (29.0) Revenue 259.2 56.1 331.7 316.6 4.7 968.3 Segment operating profit (loss) 54.5 5.6 12.1 11.2 (48.1) (0.3) 35.0 - Share of profits (losses) 1.8 0.2 (0.1) 1.0 (0.1) - 2.8 of equity-accounted investees Net financial expense (30.3) Other gains on financial 0.3 assets/liabilities, net - of which dividends from non-current - equity investments Profit (Loss) before tax 5.0 Income taxes (9.9) Profit (Loss) (4.9) from continuing operations Profit (Loss) from assets held 8.4 for sale and discontinued operations Profit (Loss) for the year 3.5 Non-controlling interests - Owners of the parent 3.5

Impairment losses on non-current assets are explained in Note 23. They amounted to €2.4 million (€0.7 million at December 31, 2016) and refer to the goodwill of Sfera, impaired down following the results of the impairment test.

Information by geographic segment

2017 Italy Spain Other countries Total Revenue 566.6 306.5 22.7 895.8

2016 Italy Spain Other countries Total Revenue 621.6 326.5 20.2 968.3

Information about major customers

No revenue was earned in 2017 from a single customer not belonging to the Group that amounted to more than 10% of the Group’s total revenue.

101 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16 ▪ Related party transactions

Prior to the changes made on August 4, 2017, pursuant to this Procedure and on a voluntary basis, shareholders of RCS MediaGroup S.p.A. and the associated corporate groups (legal entities in the form of parents, subsidiaries or jointly controlled companies) described in the fourth point of the above list, were also identified as related parties, in addition to the parties pursuant to annex 1 of CONSOB resolution no. 17221/2010 below. From August 4, 2017, following the amendments to the above Related Party Procedure, these entities were excluded from the list of related parties.

Effective from July 2016, the ultimate parent of the Group is U.T. Communications S.p.A., the de facto parent of the investee Cairo Communication S.p.A., which became, in turn, the direct parent controlling entity of RCS MediaGroup S.p.A.. At December 31, 2017, the interest in the RCS MediaGroup S.p.A. share capital held by Cairo Communication S.p.A. was 59.693% (59.831% if the percentage directly held by U.T. Communications S.p.A. at December 31, 2017 is also included - Source Consob).

That being said, the following were identified as related parties: ‒ the direct and indirect controlling entities of RCS MediaGroup S.p.A., their subsidiaries, jointly ventures and their associates; ‒ controlled entities (whose transactions are eliminated in the consolidation process), jointly controlled entities and associates of RCS MediaGroup S.p.A.; ‒ key management personnel, their close family members, and any companies directly or indirectly controlled by them or subject to joint control or significant influence; ‒ additionally , only until August 4, 2017, the date of effectiveness of the latest amendments to the Related Party Procedure adopted by the RCS Group, qualifying as related parties on a voluntary basis are all shareholders (and related corporate groups comprising controlling and controlled entities - direct and indirect - and jointly controlled companies) holding an interest in RCS MediaGroup S.p.A. with voting rights of more than 3%, excluding intermediaries responsible for asset management activities, where the independence requirements of the Issuer Regulation are met;

The following table shows the amount and proportion of related party transactions and balances included in each relevant financial statement item. Intragroup transactions eliminated on consolidation are excluded.

Financial transactions Current Trade loans and Trade Other current Commit- (€/millions) receivables borrowings payables liabilities ments Parents 0.7 - 0.4 - - Jointly controlled companies 17.6 4.3 1.9 - - Associates 0.1 - 13.0 - 0.8 Supplementary pension fund for executives - - - - - Other group companies (1) 0.3 - 0.8 - - Other related parties (2) 1.1 - - 2.7 2.7 Total 19.8 4.3 16.1 2.7 3.5 Total RCS Group 240.3 50.2 236.3 94.9 60.3 Related party % of the RCS Group total 8.2% 8.6% 6.8% 2.8% 5.8%

– 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other Trade transactions Raw Personnel Financial Other gains (losses) Revenue materials and expense operating expense on financial assets/ (€/millions) services income liabilities Parents - (0.4) - 0.5 - - Jointly controlled companies 204.3 (11.1) - 1.3 - - Associates 1.7 (29.0) - - - - Supplementary pension fund for executives - (0.1) (0.4) - - - Other group companies (1) 1.4 (1.4) - 0.5 (1.0) - Other related parties (2) 2.5 (2.5) (3.4) - - (1.0) Total 209.9 (44.5) (3.8) 2.3 (1.0) (1.0) Total RCS Group 895.8 (493.1) (258.1) 20.9 (25.7) 16.2 Related party % of the RCS Group total 23.4% 9.0% 1.5% 11.0% 3.9% n.s.

(1) Includes the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A.. The trade transactions also include transactions up to August 4, 2017 with the shareholders and the associated corporate groups (legal entities in the form of parents, subsidiaries or jointly controlled companies) that held, up to that date, an interest of more than 3% in RCS MediaGroup S.p.A. with voting rights. From August 4, following the amendments to the Group's Related Party Procedure, only companies that are directly or indirectly controlled or subject to joint control or significant influence by key management personnel will continue to be considered a related party. Therefore, the figures for 2017 referring to the companies belonging to Marco Tronchetti Provera and Diego della Valle were reclassified under "Other related parties".

(2) Refers mainly to transactions with key management personnel and their close family members and companies directly or indirectly controlled by them or subject to joint control or significant influence.

Statement of cash flows Changes in wor- Net change in loans Net financial income Net interest king capital and borrowings (including dividend income) received (€/millions) and other financial assets Related parties (1.8) (20.4) 1.0 (1.0) Reported total (38.9) (48.7) 24.4 (26.6)

Transactions with parents, associates and jointly controlled companies refer mostly to the exchange of goods, the provision of services, the provision and use of funds, as well as tax-related transactions. All such transactions are conducted on an arm’s length basis, in accordance with the quality of the goods and services provided.

Transactions with parents include consumption of materials and services of €0.4 million, other operating income of €0.5 million, trade receivables of €0.7 million and, lastly, trade payables of €0.4 million. They mainly relate to revenue for the rent of office space, revenue for the charge-backs of RCS personnel that perform operating activities at the Cairo Group and costs for the purchase of market surveys.

Transactions with jointly controlled companies refer to m-dis Distribuzione Media S.p.A. and its subsidiaries, in respect of which the Group earned €204.3 million in revenue, incurred €11.1 million in costs, earned €1.3 million in other revenue and operating income and reported €17.6 million in trade receivables, €4.3 million in current loans and borrowings, and €1.9 million in trade payables.

The most significant trade transactions between associates concerned the Bermont group companies, responsible for the printing of Unidad Editorial’s newspapers (total of: €13 million in trade payables, €0.1 million in trade receivables, €1.5 million in revenue and €28.3 million in costs).

Financial transactions with “Other group companies” refer to transactions with Cairo Group companies (€0.3 million in trade receivables and €0.8 million in trade payables). The trade transactions with “Other group companies” involve revenue of €1.3 million, costs of €1.4 million, other operating income of €0.5 million, referring mainly to transactions with Cairo Group companies. Revenue and other operating income refer mainly to the sale of television rights and advertising spaces, as well as to revenue for the organization of events and charge-backs of RCS personnel that perform operating activities at the Cairo Group; the costs incurred primarily concern the purchase of advertising spaces.

Net financial expense of €1 million refers to Mediobanca – Banca di Credito Finanziario S.p.A. Group companies (considered a related party up to August 4, 2017) and involves financial transactions relating to loan and derivative transactions.

Transactions with "Other related parties", apart from including compensation for key management personnel

103 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

as commented on below, include revenue of €2.5 million and trade receivables of €1.1 million from companies of the Della Valle group and the Pirelli group related to the sale of advertising space.

* * *

Group tax consolidation for IRES purposes. In 2017, RCS MediaGroup S.p.A. continued to file for tax on a group basis, as permitted by Legislative Decree no. 344 dated December 12, 2003 in order to achieve tax savings by calculating tax on a single tax base, with a consequent immediate offset of tax assets and tax liabilities for the year. Intragroup transactions deriving from group tax consolidation are based on the objectives of fairness and neutrality. The companies participating in group tax consolidation, where the consolidating company is RCS MediaGroup S.p.A. from 2017 t, are: Trovolavoro S.r.l., RCS Sport S.p.A., RCS Produzioni Padova S.p.A., Sfera Service S.r.l., Blei S.r.l. in liquidation, RCS Edizioni Locali S.r.l., RCS Produzioni S.p.A., RCS Digital Ventures S.r.l., Digicast S.p.A., Digital Factory S.r.l., RCS Produzioni Milano S.p.A. and Editoriale del Mezzogiorno S.r.l..

Group tax consolidation for VAT purposes. In 2017, RCS MediaGroup S.p.A. continued to make use of the rules allowing the RCS Group filing of VAT returns with a payable balance of €2.3 million. RCS MediaGroup S.p.A. transferred net tax liabilities totaling €17.3 million to the RCS Group VAT consolidation for 2017.

As regards key management personnel, please refer to the list in Section I of the Remuneration Report approved by the Shareholders’ Meeting of April 27, 2017 and published on the website www.rcsmediagroup.it.

Information is provided below in aggregate form concerning the fees for the key management personnel identified:

Other gains (losses) Service Personnel on financial assets/ Other current (€/millions) costs expense liabilities liabilities Board of Directors (2.3) - (1.0) 1.9 Board of Statutory Auditors (0.2) - - 0.2 Key management personnel - (3.4) - 0.6 Total related parties (2.5) (3.4) (1.0) 2.7 Total RCS Group (493.1) (258.1) 16.2 94.9 Related party % of the RCS Group total 0.5% 1.3% n.s. 2.8%

"Personnel expense" includes €3.4 million in remuneration paid to key management personnel. Personnel expense referring to related parties accounted for 1.3% of total personnel expense.

There are also commitments to key management personnel amounting to €2.7 million and to other related parties amounting to €0.8 million. Additionally, specifically as regards the additional commitments to the key management personnel of RCS MediaGroup S.p.A., please refer to the Remuneration Report (Section II - First Part) published on the website www.rcsmediagroup.it.

– 104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17 ▪ Raw materials and services

These amount to €493.1 million and consist of €108.4 million in costs for raw and ancillary materials, consumables and goods, €335.1 million in costs for services, and €49.6 million in use of hird party assets. This balance also includes €1.3 mi llion in non-recurring expense versus €4.2 million in 2016. The composition of this balance is discussed below:

Raw and ancillary materials, consumables and goods

Details of raw and ancillary materials, consumables and goods are presented below:

Description 2017 2016 Change Paper consumption 54.3 60.6 (6.3) Purchase of finished products 14.7 23.8 (9.1) Purchase of other materials 16.8 19.1 (2.3) Purchase of advertising space 21.9 49.9 (28.0) Increase in provision for write-downs 0.7 1.0 (0.3) Total 108.4 154.4 (46.0)

The total decrease of €46 million is attributable mainly to the purchase of advertising space (-€28 million), due mainly to the termination of a number of advertising sales contracts with third-party publishers in the Adverti- sing and Sport segments. Purchase of finished products decreased (-€9.1 million) both in the Unidad Editorial segment (-€5.4 million) as a result of the reduction in purchases of add-on products and products distributed for third parties, and in the Newspapers Italy segment (-€2.6 million), as a result of the different publishing plan for add-ons, the closure of certain online sales activities in 2016, and from the termination of an international distribution service for publishing products. Paper consumption also decreased (-€6.3 million) mainly in the Newspa- pers Italy (-€3.1 million) and in the Unidad Editorial (€2.4 million) segments due to the decrease in purchases as a result of a decrease in print runs, the use of cheaper paper formats, and from a reduction in the cost of paper.

The decrease in “Purchase of other materials" (-€2.3 million) is the result of the lower purchases for a total of €4.5 million in the Newspapers Italy and Magazines Italy areas (following the cost saving actions on purchases of production materials and due to the difference in the volume of add-on products purchased) and the increase in purchases by Unidad Editorial (+€2.6 million) of audio-visual content from the subsidiary VEO Television S.A. .

Service costs

Description 2017 2016 Change Subcontracted work 78.2 91.8 (13.6) Advertising, promotions, merchandising 43.1 53.5 (10.4) Transport costs 40.8 45.8 (5.0) Other services 56.0 53.4 2.6 Freelance staff and reporters 37.4 41.5 (4.1) Professional and consulting fees 26.8 44.6 (17.8) Commission expense 16.0 17.5 (1.5) Post, telephone and telegraph 6.4 7.2 (0.8) Travel and accommodation 9.7 10.9 (1.2) Maintenance and refurbishing 9.2 12.0 (2.8) Energy and power 7.2 7.9 (0.7) Directors' and statutory auditors' fees 2.8 1.1 1.7 Insurance 1.5 2.2 (0.7) Total 335.1 389.4 (54.3)

The item decreased by €54.3 million (-13.9% versus 2016), due to the reduction in expense for professional and consultancy services (-€17.8 million, -40% versus 2016), in costs for subcontracted work (-13.6 million, -14.8%), and for advertising, promotions and merchandising (-10.4 million, -19.4%) and for transport (-€5 million, -10.9%). The decrease in Professional and consulting fees relates to Other Corporate Activities (-€10.5

105 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

million), the Newspapers Italy segment (-€5.2 million) and the Magazines Italy segment (-€1.6 million), and is the result of the continued cost curbing initiatives in all the Group functions, particularly information technology, including through the reduction in consulting and services from third parties, and of lower non-recurring expense incurred during the year versus 2016 in relation to the public purchase and exchange offers on the share capital of RCS MediaGroup S.p.A.. The decrease in subcontracted work costs relates to all segments of the Group and in particular Unidad Editorial (€6.7 million) and Newspapers Italy (€5.2 million), due to the reduction in print-runs and from the renegotiation of both third-party printing fees for newspapers and productions services for add-ons. Advertising, promotions and merchandising expense decreased by €5.9 million in the Newspapers Italy area and by €3 million in Unidad Editorial as a result of the cost savings actions on advertising, the efficiencies achieved on marketing investments as well as from the different add-on publishing plan. Lastly, the decrease in transport costs related to the Newspapers Italy area (-€3.1 million) and Unidad Editorial (-€1.3 million), due to the reduction in the volume of publishing products distributed and to the implementation of cost saving policies.

Net of non-recurring expense of €1.3 million in 2017 (€4.2 million in 2016), the decrease amounts to €51.4 million. These expenses relate primarily to the expenses incurred by Unidad Editorial (€0.6 million) for penalties from the early termination of contracts, and net expenses incurred by Other Corporate Activities (€0.6 million) for financial consulting regarding unfinalized transactions, and lease payments for portions of buildings that are currently unusable because of damage caused by extreme weather.

Use of third party assets

Use of third party assets amounted to €49.6 million (€52.7 million in 2016), and refer mostly to copyrights for text and photographs, royalties on the sale of add-on products bundled with Corriere della Sera and La Gazzetta dello Sport, operating leases mainly for the use of office machinery and motor vehicles, and the lease of buildings.

The decrease of €3.1 million (-5.9% versus the prior year) is the result of the reduction in operating lease costs (-€1.5 million) and rental expense (-€0.6 million) mainly regarding the Unidad Editorial offices in Madrid, and of lower costs for rights (-€1 million), which was also due to the different purchasing plan for add-ons, as well as from cost saving actions for the purchase of video rights in the Newspapers Italy area.

18 ▪ Personnel expense

Personnel expense amounted to €258.1 million (€268.2 million in 2016), decreasing by €10.1 million (-3.8%), including net non-recurring expense equal to €0.7 million (non-recurring expense equal to €1.3 million in the prior year). Non-recurring expense is related to the ongoing Group restructuring primarily in the Newspapers Italy, Magazines Italy and Unidad Editorial segments. Excluding this expense, the comparison would show a net decrease of €9.5 million, due primarily to the Unidad Editorial group (-€5.3 million), the Other Corporate activities segment (-€3.2 million), and the Magazines Italy segment (-€1 million), also as a result of the reduction in average workforce which fell by 194 units in the year, involving executives, employees and journalists.

Description 2017 2016 Change Wages and salaries 186.5 198.8 (12.3) Social security charges 58.6 62.4 (3.8) Employee benefits 10.8 10.5 0.3 Other income (expense) 2.2 (3.5) 5.7 Total 258.1 268.2 (10.1)

– 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The average workforce during the year is broken down by category as follows:

Category 2017 2016 Change Managers/white collars 1,829 1,954 (125) Journalists 1,325 1,395 (70) Blue collars 236 235 1 Total 3,390 3,584 (194)

For additional information on headcount, please refer to the Human Resources section of the Directors’ Report on Operations.

19 ▪ Other operating income

Description 2017 2016 Change Cost recharges 5.7 6.5 (0.8) Grants related to income 0.9 0.4 0.5 Ordinary release of provision for risks 4.0 2.7 1.3 Rental income 2.6 3.0 (0.4) Sale of returns, leftovers and sundry materials 3.9 3.4 0.5 Capital gain on sales - 0.3 (0.3) Ordinary release and use of allowance for impairment 0.3 0.1 0.2 Other revenue 3.5 5.3 (1.8) Total 20.9 21.7 (0.8)

This item presents an overall decrease of €0.8 million versus the prior year, due, among other things, to lower cost recoveries (-€0.8 million), a decrease in other revenue (-€1.8 million) from lower co-publication income from Newspapers Italy, and lower revenue from the advertising concessionaire, along with lower rental income (-€0.4 million) following the sale of the RCS Libri group. On the other hand, the release of provisions for risks increased (+€1.3 million, of which €0.2 million from non-recurring income related to the closing of the Gazzet- ta TV channel in the prior year) mainly in the Unidad Editorial group, and from grants received (€0.5 million) from private entity by the Newspapers Italy segment.

107 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20 ▪ Other operating expense

This is detailed as follows:

Description 2017 2016 Change Other operating expenses 6.9 12.8 (5.9) VAT paid by the Publisher 4.8 4.4 0.4 Taxes 5.1 4.8 0.3 Contest prizes 2.1 2.0 0.1 Losses on loans - - - Total 18.9 24.0 (5.1)

The item amounted to €18.9 million, decreasing by €5.1 million versus the prior year; in 2016, it included non-recurring expense of €1.9 million from closure of a previous dispute of Digicast S.p.A.. Net of non-recurring expense, the decrease would amount to €3.2 million, due to the reduction in other operating expense (-€4 million) which includes, among other things, co-publication charges in the Newspapers Italy area, which dropped by €1.6 million.

“Other operating expense”, as explained, includes profits passed back to co-publishers activities developed by the Newspapers Italy and Magazines Italy segments, as well as membership fees, contributions, costs for enter- taining, gifts, settlement costs, fines and penalties.

21 ▪ Impairment losses on trade receivables and other assets

This item amounted to €3.7 million (€1.8 million at December 31, 2016), increasing by €1.9 million versus the prior year. It includes impairment losses on trade receivables (€3.6 million) and impairment losses on other assets and agent advances for a total of €0.1 million. The change is due mainly to the increase in impairment losses recognized by the Unidad Editorial group (+€1.4 million) and by Newspapers Italy (+€0.6 million).

22 ▪ Share of profit (loss) of equity-accounted investees

Description 2017 2016 Change Share of profit of equity-accounted investees 2.1 3.0 (0.9) Share of loss of equity-accounted investees - (0.2) 0.2 Total 2.1 2.8 (0.7)

The share of profit of equity-accounted investees amounted to €2.1 million (down by €0.7 million versus the prior year), and includes the profit of m-dis Distribuzione Media S.p.A. (€1.3 million) and of its investees (€0.5 million overall), as well as the profit of the Spanish group Corporacion Bermont (€0.3 million), which largely contributed to the decrease of the item versus the prior year (-€0.7 million).

23 ▪ Amortization, depreciation and impairment losses on non-current assets

These amounted to €42.6 million, down by €12.3 million versus the prior-year figure of €54.9 million. This item includes the following types of amortization and depreciation and impairment losses:

Description 2017 2016 Change Amortization of intangible assets 25.3 36.6 (11.3) Depreciation of property, plant and equipment 14.3 17.0 (2.7) Depreciation of investment property 0.6 0.6 - Impairment losses on non-current assets 2.4 0.7 1.7 Total 42.6 54.9 (12.3)

– 108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The decrease is attributable to both lower amortization of intangible assets (-€11.3 million) and to the decrease in depreciation of property, plant and equipment (-€2.7 million), while losses on non-current assets impairment increased from €0.7 million in 2016 to €2.4 million in 2017.

The decrease in amortization of intangible assets of €11.3 million is due, for €9.7 million, to the Unidad Editorial segment, as a result mainly of the reclassification from finite to indefinite useful life of a number of the segment's publications, as explained further in paragraph 33 on intangible assets. Amortization also decreased in the Other Corporate activities segment (-€3.1 million), due to the end of the useful life of software licenses and developmental enhancements, as well as amortization in the Magazines Italy segment (-€0.2 million), as a result of the end of amortization of a user list at December 31, 2016. On the other hand, the Newspapers Italy segment recorded higher amortization, the subsidiary Digicast S.p.A. in particular (+€2 million), for new capital expenditure in executive productions and television rights, and for the reassessment of the useful life of a number of rights.

Depreciation of property, plant and equipment decreased by €2.7 million, attributable to the Other Corporate activities segment (-€2 million) as a result of certain improvements made on the properties of the Rizzoli segment that reached the end of their useful life, as well as equipment, sundry hardware and furnishings. Depre- ciation also decreased in the Newspapers Italy area (-€0.4 million) and in Unidad Editorial (-€0.3 million), as a result of leased plants and machinery and sundry hardware reaching the end of their useful lives.

Depreciation of investment property was basically in line with 2016.

The impairment losses amounting to €2.4 million refer to the goodwill of Sfera, impaired down following the results of the impairment test as explained in Note 33.

24 ▪ Financial income and expense

Description 2017 2016 Change Interest income on bank deposits - - - Interest income on current receivables 0.2 0.2 - Exchange rate gains 0.4 0.7 (0.3) Gains on derivatives - - - Interest income on tax assets - - - Other financial income 0.7 0.3 0.4 Total financial income 1.3 1.2 0.1

Description 2017 2016 Change Interest expense on finance leases - - - Exchange rate losses (0.9) (0.5) (0.4) Interest expense on bank loans and overdrafts (0.3) (0.7) 0.4 Interest expense on loans (11.4) (15.3) 3.9 Losses on derivatives (3.6) (4.9) 1.3 Other financial expense (9.5) (10.1) 0.6 Total financial expense (25.7) (31.5) 5.8 Net financial expense (24.4) (30.3) 5.9

Net financial expense amounted to €24.4 million, down by €5.9 million (-19.5%) versus €30.3 million in 2016. Contributing to the reduction for to €4.3 million is the lower interest expense on bank loans, as a result of the decrease in average debt and a more favourable spread following renegotiation of the Loan Agreement in August 2017. Lower financial expense on derivative contracts to hedge interest rate risk, as well as lower other net financial expense are primarily the result of the positive effect of discounting financial statement items.

109 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25 ▪ Other gains (losses) on financial assets/liabilities

Description 2017 2016 Change Capital gains on sale of equity investments 15.2 0.1 15.1 Impairment losses on financial assets (0.3) (0.3) - Dividends - 0.9 (0.9) Other 1.3 (0.4) 1.7 Total 16.2 0.3 15.9

This item ended with a positive balance of €16.2 million at December 31, 2017, increasing by €15.9 million versus the prior year.

Capital gains on sale of equity investments (€15.2 million) include the gains on the sale of the 5.08% interest in Istituto Europeo di Oncologia S.r.l. (€14.9 million net of ancillary expenses related to the sale), and the sale of part of the investment held, equal to 75%, in RCS Gaming S.r.l. (0.3 million), now called SportPesa Italy S.r.l.. In 2016, the item had ended with gains of €0.1 million.

Impairment of financial assets amounted to €0.3 million and is mainly comprised of the impairment loss on the investee Mach2 Libri S.p.A.. In the prior year, the item mainly included the impairment loss on a non-current loan asset.

“Other” refers to recoveries of previous provisions relating to the sale of equity investments (1.3 million). In the prior year, it mainly included expenses related to the liquidation of certain equity investments.

26 ▪ Income taxes

The income taxes reported in the income statement are as follows:

Description 2017 2016 Change Current taxes: (4.7) (3.3) (1.4) - Income taxes (0.3) (0.6) 0.3 - IRAP (Italian regional business tax) (4.4) (2.7) (1.7) Deferred tax income/expense: (11.8) (6.6) (5.2) - Income (12.8) (8.1) (4.7) - Expense 1.0 1.5 (0.5) Total taxes (16.5) (9.9) (6.6)

Taxes for 2017 had a negative balance of €16.5 million (a negative €9.9 million in 2016), due mainly to the release of deferred tax assets totaling €12.8 million, IRAP of €4.4 million and IRES of companies outside the group tax consolidation and other foreign taxes, negative overall by €0.3 million. The negative balance of taxes was partly offset by the release of deferred tax liabilities of €1 million. Deferred tax assets show a greater negative balance of €4.7 million versus the prior year, due to the release of deferred tax assets referable mainly to interest expense and similar expenses not deducted in prior years, associated with improved performance by Italian companies.

Deferred tax liabilities were down, due mainly to the change in deferred tax liabilities recognized for Unidad Editorial group publications, in particular for El Mundo, Expansion and Marca publications..

The increase in IRAP of €1.7 million is due mainly to the improved results reported by RCS MediaGroup S.p.A..

– 110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Current tax assets and current tax liabilities are analyzed below:

Descrizione 2017 2016 Change Current tax assets 3.1 6.9 (3.8) Current tax liabilities 0.9 0.2 0.7 Total 2.2 6.7 (4.5)

Current tax assets, net of liabilities, decreased by €4.5 million versus the prior year, attributable mainly to RCS MediaGroup S.p.A..

Deferred tax assets and deferred tax liabilities are broken down as follows:

Recognised in profit or loss under the item taxes Recognised Reclassifica- Dec-31-2016 in equity tions Dec-31-2017 deferred tax income/expense Deferred tax assets - Carry forward tax losses 46.9 (4.6) - - 42.3 - Allowances for impairment of assets 3.4 (0.6) - - 2.8 - Provisions for risks and charges 6.5 0.2 - - 6.7 - Costs with deferred deductibility 0.3 0.2 - - 0.5 - Deferred tax arising from tax transparency criteria 1.4 - - - 1.4 - Property, plant and equipment and intangible assets 6.3 (0.9) - - 5.4 - Leases ------Measurement of derivatives 1.0 - (0.9) - 0.1 - Interest expense 33.0 (5.1) - - 27.9 - Other 20.3 (2.0) - 1.2 19.5 Total deferred tax assets 119.1 (12.8) (0.9) 1.2 106.6 Deferred tax liabilities - Leases ------Property, plant and equipment and intangible assets (56.0) 1.0 - - (55.0) - Provisions for risks and charges (0.4) - - - (0.4) Total deferred tax liabilities (56.4) 1.0 - - (55.4) Net total 62.7 (11.8) (0.9) 1.2 51.2

Deferred tax assets recognized at the reporting date represent amounts which are likely to arise, based on management estimates, on future taxable profit.

111 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The effective tax charge reported in the financial statements is reconciled to the theoretical tax charge, resulting from the application of current rates, as follows:

2017 2016 Profit before tax 87.4 5.0 Theoretical income tax 20.9 1.3 Net effect of permanent differences (1) (8.2) 5.4 Effect of using tax losses (0.9) (0.3) Net effect of temporary deductible and taxable differences (11.4) (6.0) Effect of rate change - (0.1) Taxes relating to prior years (0.1) 0.3 Current taxes 0.3 0.6 IRES - deferred taxes 11.8 6.0 IRES - deferred taxes - effect of rate change - 0.2 Income taxes reported in the financial statements, excluding current and deferred IRAP 12.1 6.8 IRAP - current taxes 4.4 2.7 IRAP - deferred taxes - 0.4 Income taxes reported in the financial statements (current and deferred) 16.5 9.9

(1) Includes the difference between the theoretical Italian tax rate and the tax rates of foreign companies

For a clearer understanding of the difference between the reported tax charge and the theoretical tax charge, IRAP (Italian regional business tax) is ignored because it uses a different tax base to profit before tax and its inclusion would create distortions between one year and the next. As a result, the theoretical tax has been determined by applying the current corporation tax rate in Italy (IRES of 24% in 2017 and 27.5% in 2016) to profit (loss) before tax.

27 ▪ Profit (loss) from assets held for sale and discontinued operations

The item came to zero in 2017 versus a positive €8.4 million in 2016, which had included the realization of the translation reserve of the RCS Libri group effected at the same time as the sale.

28 ▪ Profit (loss) for the year attributable to non-controlling interests

Profit (loss) for the year attributable to non-controlling interests is broken down as follows:

2017 2016 Unidad Editorial S.A. (0.2) (0.2) Hotelyo S.A. (0,1) (0.2) Editoriale Fiorentina S.r.l. - 0.2 Editoriale Veneto S.r.l. - 0.2 Sfera France 0.1 - Total (0.2) -

– 112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29 ▪ Earnings per share

December 31, 2017 December 31, 2016 Profit (Loss) from continuing operations attributable to owners of the parent 71.1 (4.9) Profit (Loss) for determining basic earnings per share 71.1 (4.9) Profit (loss) for the year from assets held for sale and discontinued operations - 8,4 No. of ordinary shares 521,864,957 521,864,957 No. of treasury shares (4,575,114) (4,575,114) No. of outstanding ordinary shares 517,289,843 517,289,843 Basic earnings (losses) per share: continuing operations 0.14 (0.01) Diluted earnings (losses) per share: continuing operations 0.14 (0.01) Basic earnings (losses) per share: assets held for sale and discontinued operations - 0.02 Diluted earnings (losses) per share: assets held for sale and discontinued operation - 0.02

30 ▪ Non-recurring income (expense)

Details of non-recurring income and expense at December 31, 2017 are shown below, also indicating their percentage share of the line items in which they have been classified:

Non-recurring Non-recurring %of the reported Description expense income Total Reported total total Raw materials and services (1.5) 0.2 (1.3) (493.1) - Personnel expense (2.2) 1.5 (0.7) (258.1) - Other operating income 0.2 0.2 20.9 1% Total (expense) / income (3.7) 1.9 (1.8) - -

Personnel expense included non-recurring expense of €2.2 million. A total of €1.5 million of expense is attributable to the Newspapers Italy area relating to reorganization and to individual employee departures; non-recurring income (€1.5 million), instead, is the result of the recovery of debts and provisions previously allocated as non-recurring expense and associated with staff restructuring plans launched in prior years. Additionally, non-recurring expense on personnel expense is attributable to the Unidad Editorial segment for €0.4 million, to Maga- zines Italy for €0.2 million, and to Other Corporate activities for €0.1 million.

Non-recurring expense relating to “Raw materials and services” totaled €1.5 million, and mainly regarded costs incurred by Other Corporate activities for financial consultancy regarding unfinalized transactions, for expense related to damage caused by flooding of the via Rizzoli offices, as well as expense for penalties arising from the early termination of contracts by Unidad Editorial. Non-recurring income of €0.2 million refers to cost savings on the offers launched on RCS MediaGroup S.p.A. shares in the prior year.

“Other operating income" includes non-recurring income of €0.2 million related to previously recognized cost savings tied to the closure of the Gazzetta TV channel in January 2016.

Net non-recurring expense totaled €10.6 million in 2016

113 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31 ▪ Property, plant and equipment

Movements in the year were as follows:

Assets Leased Leased Other Description Land Buildings Plant Equipment under con- Total buildings plant assets struction Cost 5.8 16.5 31.4 151.6 55.5 7.1 114.1 - 382.0 Reversals of impairment losses ------Impairment losses - (4.8) - (22.8) (3.7) (1.7) (0.3) - (33.3) Historical cost at Dec-31-2016 5.8 11.7 31.4 128.8 51.8 5.4 113.8 - 348.7 Additions -- 0.2 0.2 - 0.1 0.5 0.1 1.1 Reversals of impairment losses ------Impairment losses ------Sales/Disposals --- (4.9) (0.5) (0.1) (1.8) - (7.3) Exchange rate differences ------Change in scope of consolidation ------Other movements --- 0.4 (0.5) (0.1) -- (0.2) Historical cost at Dec-31-2017 5.8 11.7 31.6 124.5 50.8 5.3 112.5 0.1 342.3 Acc. depreciation at Dec-31-2016 - (4.0) (20.0) (102.2) (27.8) (4.8) (102.9) - (261.7) Depreciation - (0.5) (1.3) (5.0) (2.7) (0.3) (4.5) - (14.3) Sales/Disposals --- 4.9 0.5 0.1 1.8 - 7.3 Exchange rate differences ------Change in scope of consolidation ------Other movements --- (0.4) 0.5 0.1 -- 0.2 Acc. depreciation at Dec-31-2017 - (4.5) (21.3) (102.7) (29.5) (4.9) (105.6) - (268.5) Net balance at Dec-31-2016 5.8 7.7 11.4 26.6 24.0 0.6 10.9 - 87.0 Additions -- 0.2 0.2 - 0.1 0.5 0.1 1.1 Reversals of impairment losses ------Impairment losses ------Sales/Disposals ------Depreciation - (0.5) (1.3) (5.0) (2.7) (0.3) (4.5) - (14.3) Exchange rate differences ------Change in scope of consolidation ------Other movements ------Net balance at Dec-31-2017 5.8 7.2 10.3 21.8 21.3 0.4 6.9 0.1 73.8

Land is not depreciated. It is, however, subject to appraisal if there are indicators of impairment.

Other property, plant and equipment recognized in the financial statements are depreciated over the estimated useful life of each individual asset, using the following rates: Buildings from 3% to 20% Plant from 5% to 20% Equipment from 12% to 25% Other assets from 12% to 50%

No borrowing costs have been capitalized.

– 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Land and buildings

Buildings (€7.2 million), leased buildings (€10.3 million) and land (€5.8 million) refer mostly to owned civil and industrial properties, specifically to the industrial complex in Pessano con Bornago, as well as improvements on the Via Rizzoli and Via Solferino offices and on other industrial buildings not owned by the group.

The decrease in buildings, leased buildings and land (€1.6 million) is due to depreciation totaling €1.8 million, only partly offset by new capital expenditure of €0.2 million, mainly in the restructuring of the Turin editorial offices owned by third parties of Corriere Torino, the new local edition of Corriere della Sera out on newsstands since last November.

Plant

This item amounted to €43.1 million (€50.6 million at December 31, 2016), of which €21.3 million refers to leased assets, including printing presses and other machinery used primarily to print newspapers and magazines. The decrease of €7.5 million is attributable to the depreciation for the year of €7.7 million, due to new capital expenditure in the Newspapers Italy area of €0.2 million for printing machinery at the Pessano plant.

Other assets

This item declined by €4 million to €6.9 million. It consists mainly of servers and data storage supporting the publishing and management systems, as well as PCs, miscellaneous electronic devices, and furniture and furnishings. The change includes new acquisitions of €0.5 million and decreases due to depreciation of €4.5 million. Capital expenditure is attributable mainly to the Unidad Editorial group (€0.4 million) and to Other Corporate activities (€0.1 million) and refers to the purchase of IT equipment such as PCs, notebooks, smartphones, audiovisual equipment and air-conditioning systems.

Assets under construction

This item shows a balance of €0.1 million and refers to purchases of equipment awaiting use.

32 ▪ Investment property

Net balance at Dec-31-2016 21.3 Additions - Reversals of impairment losses - Impairment losses - Disposals - Depreciation (0.6) Exchange rate differences - Change in scope of consolidation - Other movements - Net balance at Dec-31-2017 20.7

This item, totaling €20.7 million, relates to the for €18 million and RCS MediaGroup S.p.A. for €2.7 million. It refers to industrial buildings currently not used in the cities of Madrid (Meco Industrial Park - Torrejon de Ardoz), Turin (via Reiss Romoli) and Piacenza (via Don Minzoni).

115 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33 ▪ Intangible assets

Movements in the year were as follows:

FINITE USEFUL LIFE INDEFINITE USEFUL LIFE Concessions, Concessions, Intellectual licenses, Assets under licenses, Goodwill Other intan- Descriptions property trademarks development trademarks Goodwill arising on Total gible assets rights and similar and advances and similar consolidation rights rights Historical cost at Dec-31-2016 59.3 592.7 0.5 8.5 144.1 25.6 34.6 865.3 Additions - acquired 2.3 13.7 1.2 - --- 17.2 Additions - internally generated ------Decreases (27.6) (2.2) -- --- (29.8) Impairment losses/ ---- - (2.4) - (2.4) Reversals of impairment losses Exchange rate differences ------Change in scope of consolidation - (0.3) -- --- (0.3) Other movements 0.1 (294.2) (0.2) - 311.9 -- 17.6 Historical cost at Dec-31-2017 34.1 309.7 1.5 8.5 456.0 23.2 34.6 867.6 Acc. amortization at Dec-31-2016 (56.3) (363.8) - (8.5) (20.9) - (21.2) (470.7) Amortisation (3.5) (21.8) -- --- (25.3) Decreases 27.6 2.2 -- --- 29.8 Exchange rate differences ------Change in scope of consolidation - 0.1 -- --- 0.1 Other movements (0.1) 112.8 -- (130.3) -- (17.6) Acc. amortization at Dec-31-2017 (32.3) (270.5) - (8.5) (151.2) - (21,2) (483.7) Net balance at Dec-31-2016 3.0 228.9 0.5 - 123.2 25.6 13.4 394.6 Additions 2.3 13.7 1.2 - --- 17.2 Additions - internally generated ------Decreases ------Amortisation (3.5) (21.8) -- --- (25.3) Impairment losses/Reversals of impairment losses ---- - (2.4) - (2.4) Exchange rate differences ------Change in scope of consolidation - (0.2) -- --- (0.2) Other movements - (181.4) (0.2) - 181.6 --- Net balance at Dec-31-2017 1.8 39.2 1.5 - 304.8 23.2 13.4 383.9

Intangible assets with finite useful lives are amortized over their useful lives, estimated on average as follows: Intellectual property rights from 2 to 5 years Concessions, licenses, trademarks and similar rights from 2 to 30 years Other intangible assets from 3 to 10 years

Development costs

The Group incurs costs for the development of IT applications classified directly in the item Concessions, licenses and trademarks. Other costs incurred linked to innovation activities were recognized in the income statement.

Intellectual property rights

This item amounted to €1.8 million (€3 million at December 31, 2016), decreasing by €1.2 million as a result of amortization of €3.5 million, partly offset by new capital expenditure of €2.3 million. Capital expenditure is mainly attributable to the television activities of the Newspapers Italy area, and of the subsidiary Digicast S.p.A. in particular (€1.8 million) for the purchase of rights for producing audiovisual material broadcast on the satellite channels Lei, Caccia e Pesca and DOVE and the (€0.5 million) for the purchase of literary rights.

– 116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Concessions, licenses, trademarks and similar rights

Concessions, licenses, trademarks and similar rights comprise assets with finite useful lives and indefinite useful lives, as discussed below.

Finite useful life

This item amounted to €39.2 million, decreasing by €189.7 million versus December 31, 2016, of which €181.6 million is attributable to a reclassification of the value of the Spanish newspapers Marca and Expansion from intangible assets with finite to intangible assets with indefinite useful life. The RCS Group periodically reviews the useful life estimates of its assets in order to update them based on the future evolution of the business. As previously stated in the Interim Management Report at September 30, 2017, in 2017 the Group carefully assessed the possibility of redefining the useful life of certain company assets, including the two Spanish newspapers mentioned above.

This assessment was affected primarily by the following elements: a. the development of the digital component; b. the geographic size of the customer base, being products in a language such as Spanish that is widely spoken around the world; c. the proportion of marketing investment needed to support the titles; d. the importance attached to product quality and the enhancement of publishing content within the strategic guidelines and also in relation to Management's publishing approach.

The RCS Group, after having entirely analyzed these aspects and considering the assessment of the potential and prospects of the aforementioned Spanish titles, which have been bolstered by being part of a Group that has seen a significant return to profitability in the last two years, as well as their characteristics (market leadership, reputation, year of establishment), concluded that the prerequisites existed for reconsidering the useful lives and therefore proceeded with reclassifying them, thus making the useful lives of the RCS Group's newspapers (Mar- ca, El Mundo and Expansiòn) homogeneous, corroborated also by the estimated useful life generally adopted by comparables for such type of titles.

The overall change in the item also includes amortization of €21.8 million and decreases of €0.2 million, due to changes in the consolidation scope, only partly offset by new capital expenditure of €13.7 million and positive reclassifications from assets under development of €0.2 million. Most of the capital expenditure refers to the Other Corporate activities area (€7.7 million) and regards the Group’s information technology function, in particular the purchase of software licenses, infrastructure for the provision of web and mobile digital services, and new developments on the Group's websites (mainly corriere.it and gazzetta.it and the relating digital editions of the two newspapers). New projects were also developed to support the central Group functions (management control, administration and human resources) along with projects in Digital Advertising. New capital expenditure was reported in the Newspapers Italy area (€2.2 million), particularly in the Digicast S.p.A. subsidiary (€1.9 million) for the acquisition of television broadcasting rights used on the channels Lei, Dove and C&P; in the Spanish Unidad Editorial group (€2.8 million) for the purchase of licences and the development of IT projects; and in the Magazines Italy area (€1 million), mainly for development on Group magazine websites to strengthen e-commerce, and for the purchase of software licenses.

Indefinite useful life

This item amounted to €304.8 million at December 31, 2017 and is entirely composed of assets belonging to the Spanish subsidiary Unidad Editorial. Specifically, it consists of: the publication El Mundo (€110.3 million), the television license for the digital terrestrial TV of VEO Television (€11.7 million), and other intangible assets (€1.2 million) comprising the radio frequency in Zaragoza. As from 2017, as mentioned above, the daily sports newspaper Marca, and the business newspaper Expansiòn (totaling €181.6 million) are classified in this item. These assets were subject to the impairment test as commented on below.

El Mundo, whose first edition dates back to October 1989, became one of the most widely circulated national newspapers in just under four years. Since 2001, it has been Spain’s number two newspaper in terms of number of copies sold, characterized by the ever-increasing importance of the internet in terms of readers, proof of the gradual integration among traditional publishing and multimedia activities. As a defined period for the genera-

117 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

tion of cash flows by the publication El Mundo cannot be predicted, it is regarded as an intangible asset with an indefinite useful life.

Marca was founded in 1938 and went on to become the market leader in the Spanish sports newspapers sector with news that covers all types of sports. Particular attention is devoted to football, the most popular sport, but there are also articles and news on all types of national and international sports. It was the first Spanish newspaper to dedicate a specific section to the world of motorsports in its various forms. In 1995, marca.com was launched to take advantage of the newspaper's popularity on the Internet. The site is currently the top information portal in Spain for number of hits. The new Marca portal was launched in Mexico in January 2017, in partnership with Claro, a company operating in the communications sector in Latin America, and in Colombia in January 2018.

Expansiòn was founded in 1986 and is the leader in the business-financial newspaper sector in Spain both for the number of readers and for advertising sales volume. expansion.com is an online communication model providing articles and reports on the financial, business, and regulatory matters..

Goodwill allocated to the higher unrecognized carrying amount of assets gives rise to deferred tax liabilities. In the case of assets with an indefinite life, these taxes will be released in the future if the asset is sold or impaired. In the case of assets with a finite life, these taxes are released along with the asset’s amortization. The tax rates used are always revised to reflect the latest tax rate in force in the country concerned.

Assets under development and advances

This item amounted to €1.5 million and posted a total increase of €1 million versus December 31, 2016, the result of new capital expenditure of €1.2 million, of which €0.9 million attributable to the Unidad Editorial group for the development of information technology and digital projects, and €0.3 million to Other Corporate Acti- vities for software projects currently under development. The increases were partly offset by decreases of €0.1 million, as well as by the reclassification of concessions, licenses and trademarks of €0.2 million relating to capital expenditure made and complete by the subsidiary Digicast S.p.A., and by Other Corporate Activities during the year under review.

Goodwill

This item, amounting to €23.2 million, decreased by €2.4 million due to the impairment loss on the goodwill if Sfera (Childhood Magazines) following the results of the impairment test. This item also includes, along with the previously mentioned goodwill of Sfera, the goodwill of RCS Produzione Padova S.p.A..

Goodwill arising on consolidation

The item amounted to €13.4 million at December 31, 2017, unchanged versus the prior year end. It consists mainly of goodwill arising on first-time consolidation or identified as a residual after allocating the difference to the relevant assets, liabilities and contingent liabilities of consolidated companies. In particular, it refers to the Spanish subsidiary Unidad Editorial following the acquisition of the Recoletos group (€9.4 million) and the goodwill of Editoriale del Mezzogiorno (€2.1 million) and RCS Digital Ventures S.r.l. (1.9 million).

Impairment test

Goodwill and intangible assets with indefinite useful life are not amortized, but are tested for impairment whenever certain facts or circumstances make it possible to assume an impairment risk, or at least once a year.

– 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The cash-generating units to which goodwill and intangible assets with an indefinite useful life have been allocated are as follows:

Goodwill arising on Concessions, licenses consolidation Goodwill and trademarks Segments CGU Dec-31- Dec-31- Dec-31- Dec-31- Dec-31- Dec-31- 2017 2016 2017 2016 2017 2016 Newspapers Italy RCS Produzioni Padova -- 2.4 2.4 -- Ed. del Mezzogiorno 2.1 2.1 ---- RCS Digital Ventures 1.9 1.9 ---- Unidad Editorial Unidad Editorial 9.4 9.4 -- 304.8 123.2 Magazines Italy Direct --- 9.0 -- Sfera -- 20.8 14.2 -- Total 13.4 13.4 23.2 25.6 304.8 123.2

Goodwill has been measured at the higher of fair value and value in use. Management has measured its tests on assets at December 31, 2017 using their value in use.

The value in use for impairment testing has been calculated in accordance with the requirements of IAS 36 (also considering the recommendations set forth in the document published by the ESMA “European enforces review of impairment of goodwill and other intangible assets in the IFRS financial statements” of January 2013, in Document no. 4 of the coordination board between Bank of Italy, CONSOB and Isvap of March 3, 2010, in the document published by ESMA on October 28, 2014, the Public Statement “European common enforcement priorities for 2014 financial statements”, as well as in CONSOB Communication no. 3907 of January 19, 2015).

The recoverable amount of each asset with an indefinite useful life and of goodwill is calculated by estimating future incoming and outgoing cash flows generated by use of the assets over time, using a discount rate that reflects the specific risks. For goodwill and assets with an indefinite useful life whose cash flows are largely independent of those derived from other assets or groups of assets, this assessment is performed considering the recoverable amount of the cash generating unit to which each is attributed.

The following table shows for, each cash-generating unit, the principal assumptions used for the purposes of the impairment test:

Years of explicit Method of calculating Expected Average discount rate forecast terminal value growth rate net of taxation CGU of yield adopted “g” WACC Dec-31- Dec-31- Dec-31- Dec-31- 2017/2016 Dec-31-2017 Dec-31-2016 2017 2016 2017 2016 Unidad Editorial 5 years 5 years perpetuity perpetuity 0 8.12% 7.71% Sfera 3 years 3 years perpetuity perpetuity 0 7.61% 6.81% Ed. del Mezzogiorno 3 years 3 years perpetuity perpetuity 0 7.59% 6.77% RCS Digital Ventures 3 years 3 years perpetuity perpetuity 0 7.59% 6.77% RCS Produzioni Padova 3 years 3 years perpetuity perpetuity 0 7.59% 6.77%

The breakdown of group assets into cash-generating units and their identification criteria did not undergo any changes from the financial statements at December 31, 2016, except for the Direct cash-generating unit, whose main assets and goodwill were transferred to the Sfera cash-generating unit, following reorganization. The above cash-generating units represent the individual cash-generating units or groups of cash-generating units that benefit from synergies of aggregation.

For the cash-generating units, except as explained for the Direct cash-generating unit, as in the past year, the overall duration of the time horizon, as well as the growth rate (g), were confirmed. The explicit forecast period of the cash-generating units is between 3 and 5 years.

119 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The change in the discount rate used in the Unidad Editorial group impairment test is discussed in the paragraphs below; for the remaining cash-generating units, there was an increase of 82 basis points in the WACC versus the rate used last year, attributable mainly to the increase in the risk-free rate, in addition to the increased cost of debt (resulting it too from the increase in medium/long-term rates, the 10-year IRS in particular).

The Practitioners method was adopted for all cash-generating units to avoid double counting country risk. Using this approach, the definition of the discount rate used the risk-free rate (thus including country risk in this parameter) which can be inferred from the returns on 10-year bonds issued by the government of the specific country, calculated as one year’s average (to reduce short-term effects of speculation in the government bond market) and the market risk premium of a virtuous country – therefore, removing the country risk already included in the risk-free rate. The determination of the WACC also considered (as benchmark) the most recent estimates of the discount rate made by financial analysts in valuing RCS shares.

At December 31, 2017, explicit cash flows were developed on the basis of the three-year plan and, for the first year, on the basis of the 2018 budget approved by the RCS MediaGroup S.p.A. Board of Directors on March 5, 2018, adjusted, if necessary, only to ensure that they meet the requirements established by IAS 36.

The forecasts were also independently reviewed by the Board of Directors of the relevant group companies (or by RCS MediaGroup S.p.A.), prior to the approval of the financial statements, with particular regard to the development of capital flows.

* * *

The main assumptions used by management for calculating value in use refer to the discount rate (WACC), the growth rate (g) and the expected changes in selling prices and in costs over the calculation period.

The discount rate used for discounting future cash flows is the post-tax weighted average cost of capital (WACC), comprising a weighted average for the financial structure of the following two elements: ‒ the cost of risk capital determined as the return on risk-free assets (including the country risk of the specific country implicit in the stock market value), summed with the product obtained by multiplying the Beta and the risk premium of a virtuous country, in accordance with the dictates of the Practitioners method plus the Firm Specific Risk Premium; ‒ the cost of debt.

The risk-free return has been assumed as the return on government bonds of the CGU’s country of origin (one year’s average), whose duration is consistent with the valuation period. The Beta has been calculated with reference to the average of a sample of comparable companies. The risk premium is equal to the historical additional return required on equity over the government bonds of a virtuous country, the method used by Practitioners (Source: Market consensus), while the Firm Specific Risk Premium is the additional premium aimed at including the risk of reaching the forecast objectives established by management (execution risk) in the assessment, also with respect to the Group’s size. The entity’s cost of debt is determined using the 10-year swap rate (one year’s average) plus the spread on debt. In particular, for RCS the spread was inferred by analyzing the available market data for a basket of companies with ratings consistent with those indicated by the Italian Valuation Organization (Source: Damodaran Credit Rating Spread [BBB]).

The financial structure used has been defined on the basis of the comparable companies analysis, using the average financial structure of the reference sample (Source: S&P Capital IQ and Bloomberg).

The discount rate used has been calculated post-tax.

The growth rate in future cash flows after the forecast period (g) has been assumed to be zero (negative in real terms in the presence of inflation), similar to the tests carried out in the prior year. This means that the cash flows after the end of the explicit forecast period have been assumed to be same as those in the last year of the forecast and so with no future growth at all.

– 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

* * *

The impairment test of the Unidad Editorial cash-generating unit is of particular importance since intangible assets amount to €336 million (€336.9 million in the prior year). They represent approximately 87.5% of the Group’s total intangible assets (goodwill and other intangible assets) versus 85.4% in the prior year. These comprise intangible assets with an indefinite useful life of €314.2 million (81.9% of the RCS Group’s total intangible assets versus last year) and intangible assets with a finite useful life. Specifically, the financial forecasts used in the impairment test have been prepared by taking as a reference base the latest parameters available from official sources and relating to both medium-term macroeconomic expectations of Spain (Source: IMF) and to the expected trends in the markets in which the Unidad Editorial group operates, namely Media and Publishing and Internet (Source: I2P processed by Media Hot Line, PWC), supplemented with specific business assumptions formulated by the management of Unidad Editorial, including in relation to the positioning and specificity of the products of Unidad Editorial.

Given the materiality of these figures and in line with the approach adopted last year, the impairment test was prepared on the Unidad Editorial CGU with the assistance of a leading consulting firm, which used the forecast cash flows for 2018-2022 for the valuation. Cash flows for the first year of the explicit forecast period correspond to the 2018 budget data approved by Board of Directors of Unidad Editorial on January 23, 2018. Cash flows for the remaining years of the explicit forecast (2019-2022) were developed on the basis of the Unidad Editorial plan approved by the Board of Directors of Unidad Editorial on March 13, 2018. The estimate of the terminal value takes account of a normalized EBITDA, calculated by applying the average profit margins in the 2016-2022 period to the forecast revenue of 2022.

In the explicit forecasts, given the decrease in circulation of print newspapers, expectations are for an increase in revenue from digital versions, as well as for the continuation of actions being taken to reduce costs and generate efficiencies. The projections include a gradual increase in advertising revenue that is in line with the expectations of an economic recovery in the country and the advertising market by leveraging on Unidad Edi- torial's competitive advantages in the market, the launch of new products and digital initiatives. EBITDA is expected to increase beginning from the first year of the explicit forecast, driven by the growth of digital revenue, by new projects, and by the continuation of the effective cost-recovery plan.

The WACC applied was 8.12% after tax, 41 basis points higher than the WACC applied in the impairment test at December 31, 2016, as a result mainly of the increase in the risk-free rate and in the cost of debt (also caused by the increase in medium/long-term rates, in particular of the 10-year IRS).

The market risk premium was evaluated using the Practitioner method (Guatri-Bini) with the objective of avoi- ding a “duplication” of country risk (already reflected in the Spanish Risk-Free Rate – Bonos – whose estimate is made using the average yields from 10-year Spanish Government bonds as a reference, over the reference time period of one year, so as to dilute any distortion from yield volatility). The growth rate (g) expected for the years following the explicit forecast period is, as already stated, assumed to be zero in nominal terms (negative in real terms due to inflation) and the terminal value in the goodwill impairment test is calculated with an infinite time horizon, consistently with last year. The calculated discount rate was compared with the estimated WACC of the main Spanish comparables of Unidad Editorial (Source: Equity researches), calculated by market analysts. The combined rate in terms of WACC and (g), equal to zero, calculated as the average of the values published by market analysts, is in line with the rate used for the Unidad Editorial impairment test.

The discounted cash flow method applied to the carrying amount of the cash-generating unit confirms by far the carrying amount.

121 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of the main data resulting from the sensitivity analysis is shown below, which is an integral part of the measurement of Unidad Editorial, showing the change in the excess recoverable amount with respect to the carrying amount which would have been brought about with changes in the WACC and in the (g) rate.

Growth rate

-1.00% -0.50% - +0.50% +1.00% 7.62% 242.5 264.8 290.2 319.0 352.2 7.87% 228.0 248.9 272.4 299.2 329.8 WACC 8.12% 214.3 233.8 255.8 280.6 309.0 8.37% 201.3 219.6 240.1 263.3 289.5 8.62% 189.0 206.2 225.4 246.9 271.3

As suggested by the ESMA, which on October 28, 2014 published the Public Statement “European common enforcement priorities for 2014 financial statements”, the result of the impairment test was also subject to sensitivity analysis to determine how it would change with EBITDA changes for the explicit time horizon, since this variable is a key assumption.

EBITDA % change

-15.00% -10.00% - +10.00% +15.00% 7.62% 261.1 270.8 290.2 309.6 319.3 7.87% 243.5 253.2 272.4 291.7 301.3 WACC 8.12% 227.1 236.7 255.8 274.9 284.5 8.37% 211.7 221.2 240.1 259.1 268.6 8.62% 197.1 206.6 225.4 244.2 253.7

Even in the presence of a 15% negative change, the sensitivity analysis shows a surplus. Additionally, this change would transfer the risks connected to this aspect of measuring the WACC to the underlying forecasting plan, and would therefore result in the definition of a more favourable WACC.

* * *

The recoverable amount of the titles was determined in prior years at fair value less costs to sell, by applying the Relief from Royalty method. A business model has been established in recent years, given the decreasing revenue from traditional publishing, hinged on effective and on-going generation of cost efficiencies that have resulted in an increase in profitability. Over time, this has rendered the application of the Relief from Royalty method of valuation always less suitable and representative. The Group, thanks to the evolution of the control model, is now able to accurately estimate cash flows, differentiating them, in some cases through specific allocation, to the individual publications. As a result, the method used for impairment in the year under review was the value in use. The outcome of the impairment test resulted in a value in use that is greater than the carrying amount of the individual publications.

Even though the value in use is greater than the carrying amount of the individual publications, based on the following observations: − the turnaround of the Spanish businesses is still in progress, as is the expected recovery in profitability, which should be confirmed and evaluated over the course of the following years; − the trend in rates of yields on Spanish government bonds, which has been decreasing since 2012, posted a reversal in 2017 with a resulting increase in the reference WACC (41 basis points), therefore a further increase in interest rates could significantly change the values of the test;

– 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

− despite the macroeconomic recovery reflected in the growth in GDP, the trends of the relevant markets in which the publications that are subject to the Test operate remain negative. the Group decided not to recognize, in this year, any reversal of impairment losses on the publications subject to the test.

* * *

The Sfera cash-generating unit has intangible assets for a total amount of €21.4 million, equal to 5.6% of the Group’s total (including €20.8 million in goodwill). The increase versus 2016 is due to the grouping of the main activities of the Direct cash-generating unit, which have always been strongly correlated to the activities of Sfera. The WACC of 7.61% applied was calculated with reference to the relevance of the activities in the different countries in which the cash-generating unit operates. The projection indicates, for Italy and Spain, for the 2018-2020 period, a slight decrease in sales from traditional activities (printing, boxed sets and trade shows) and an increase in digital revenue determined by customers’ increasingly greater focus on this channel. During the period of the plan, the recovery actions on all business and structural costs will continue and will allow activity to become more efficient and enable part of the resources to be used for enhancing the range of audiovisual solutions. The impairment test led to an impairment loss of €2.4 million, due mainly to the lower margins from Direct activities.

The remaining cash-generating units passed the impairment test as they have carrying amounts lower than the recoverable amounts arising as a result of the impairment testing; the CGUs show total intangible assets of €6.8 million, accounting for 1.8% of RCS’s total, of which €6.4 million for goodwill.

34 ▪ Investments in associates and joint ventures

Investments in associates and joint ventures at December 31, 2017 total €42.8 million (€47.7 million at Decem- ber 31, 2016). The list of equity investments is attached to these notes.

Movements in the year were as follows:

Investments Investments Note in joint ventures in associates Total Balance at Dec-31-2016 3.3 44.4 47.7 Share of profit of equity-accounted investees 22 1.8 0.3 2.1 Share of loss of equity-accounted investees 22 - - - Acquisitions/to cover losses 0.1 - 0.1 Transfers/liquidations - - - Other movements 2.1 (2.1) - Dividends distributed (1.7) (5.4) (7.1) Balance at Dec-31-2017 5.6 37.2 42.8

Investments in joint ventures at December 31, 2017, totaling €5.6 million (€3.3 million at December 31, 2016), were measured using the equity method and mainly include the investment in m-dis Distribuzione Media S.p.A. and its subsidiaries. This item increased due to the reclassification of the investees controlled by m-dis Distri- buzione Media S.p.A. from investments in associates, and to the profit for the year of €1.8 million. The increase in this item was reduced by the dividends distributed by m-dis Distribuzione Media S.p.A.. During the year, m-dis Distribuzione Media S.p.A acquired control of the subsidiary To-dis S.r.l. and now directly holds a 100% interest.

Investments in associates at December 31, 2017, totaling €37.2 million (€44.4 million at December 31, 2016), were measured using the equity method and mainly include the equity investment in Corporacion Bermont. The

123 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

decrease is attributable in particular to the distribution of dividends of €5.4 million by Corporacion Bermont, and to the abovementioned reclassification to the joint ventures of the investees controlled by m-dis Distribuzione Media S.p.A., partly offset by the profit of €0.3 million.

Figures at December 31, 2017 for the joint ventures and associates are shown below:

Total current Total non-cur- Total current Total non-cur- 2017 Total equity assets rent assets liabilities rent liabilities Joint Venture (1) 143.9 10.8 125.7 10.5 18.5 Associates (1) 26.7 83.6 7.9 2.7 99.7

Other Profit (loss) Total com- Operating Profit/(loss) comprehen- 2017 Total revenue from continu- prehensive expensesi for the year sive income ing operations income (expense) Joint Venture (1) 328.1 (322.4) 5.0 5.0 (0.2) 4.8 Associates (1) 43.0 (32.7) 1.0 1.0 - 1.0

(1) Figures taken from financial statements currently in the approval phase.

35 ▪ Available-for-sale financial assets

Carrying amount Fair value Change Change in fair Dec-31- Dec-31- Dec-31- Dec-31- in carrying value 2017 2016 2017 2016 amount 13 TV SA 2.0 0.4 2.0 0.4 1.6 1.6 Istituto Europeo di Oncologia S.r.l. - 4.1 - 4.1 (4.1) (4.1) Wouzee Media SL 0.2 0.2 0.2 0.2 - - Ansa Società Cooperativa 0.2 0.2 0.2 0.2 - - H-Farm S.p.A. 0.2 0.2 0.2 0.2 - - Digital Magics S.p.A. 0.1 0.1 0.1 0.1 - - Mach 2 Libri S.p.A. - 0.3 - 0.3 (0.3) (0.3) Other minor companies 0.3 0.3 0.3 0.3 - - Total 3.0 5.8 3.0 5.8 (2.8) (2.8)

Securities and investments in companies which are not subsidiaries, associates or held for trading are defined as available-for-sale financial assets and at December 31, 2017 were equal to €3 million. These assets are recognized at fair value. Equity investments for which no fair value is available are recognized at cost, net of impairment losses, if any.

The decrease of €2.8 million in this item versus December 31, 2016 is mainly attributable to the sale of the 5.08% interest in Istituto Europeo di Oncologia S.r.l. (-€4.1 million), and to the impairment loss on the investee Mach2 Libri S.p.A. (-€0.3 million). The decrease was partly offset by the increase in the investment in 13TV S.A. (1.6 million).

– 124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

36 ▪ Financial assets and liabilities recognized for derivatives

The item includes derivative financial instruments. Such instruments are recognized as financial assets or financial liabilities at fair value.

The principal types of derivative contracts taken out are analyzed below, specifying whether they are hedging or trading instruments.

December 31 2017 December 31 2016 Note Assets Liabilities Assets Liabilities Interest rate caps for hedging cash flows ---- Interest rate swaps for hedging cash flows - (0.1) - (5.1) Non-current - (0.1) - (5.1) Interest rate swaps for hedging cash flows - (1.0) -- Forward foreign exchange contracts for trading ---- Current - (1.0) - - Total 13 - (1.1) - (5.1)

Interest rate derivative notional amounts mature as follows:

Notional Description amount Parameter Rate 0-6 6 months- 1-2 2-5 over 5 outstanding months 1 year years years years IRS 243.8 Euribor 3 M 0.098% (63.8) (50.0) (80.0) (50.0) Total 243.8 (63.8) (50.0) (80.0) (50.0)

The notional amount of interest rate swaps at December 31, 2017 is €243.8 million (hedging derivatives totaled €168.8 million at December 31, 2016).

The average contractual fixed interest rate of the interest rate swaps for the entire length of the contracts is 0.098% (2.561% in the prior year); the reference parameter for the floating rate is the three-month Euribor.

Contracts taken out by RCS MediaGroup refer to interest rate swaps to cover exposure to interest rate risk on short and medium/long-term debt, primarily represented by the Term and Revolving lines of the loan renegotiated in 2017. In December 2017, a number of new IRS hedging contracts totaling €180 million were concluded with an average duration of just under 2 years and an average rate of a negative 0.132% for the entire duration of the contracts.

At December 31, 2017, there were no foreign currency hedges.

The above instruments, relating to hedges of the interest rate risk, have been negotiated for hedging purposes. In compliance with International Financial Reporting Standards they have been submitted to the so-called effectiveness testing (prospective and retrospective), to see whether they qualify for hedge accounting, in accordance with the specific requirements for hedges.

Fair Value Amount recognized Hedged item Type of Hedged risk in comprehensive hedge Dec-31-2017 Dec-31-2016 Change income (1) NFD hedge IRS Interest rate risk (1.1) (5.1) 4.1 3.4 Total (1.1) (5.1) 4.1 3.4

(1) Figures are shown gross of tax effects

125 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The total net financial debt at year end is broken down by currency as follows:

Dec-31-2017 Dec-31-2016 EUR (293.0) (373.7) US dollar 0.3 0.2 British pound 0.1 - Swiss franc 0.2 - United Arab Emirates dirham 4.3 6.9 Mexican peso 0.6 0.4 Chinese renminbi - - Total (287.4) (366.1) As required by IFRS 7, the following table shows movements in the hedging reserve in the past two years, reporting separately the amounts recognized in equity for increases/decreases in hedge effectiveness in the year and the amounts transferred to profit or loss to cover the underlying cash flows.

(€/millions) Balance at 31 December 2015 (1) (8.5) + hedging gains 0.2 - hedging losses (0.7) - hedging losses to profit or loss (4.3) + hedging gains to profit or loss 9.2 Balance at 31 December 2016 (1) (4.1) + hedging gains - hedging losses (0.2) - hedging losses to profit or loss (2.8) + hedging gains to profit or loss 6.4 Balance at 31 December 2017 (1) (0.7) (1) The hedging reserve, shown in detail in the table compared to the amounts shown in the statement of changes in consolidated equity, does not consider tax effects.

The expected outlays represent the interest on the amount of debt hedged, calculated using the market interest rate curve consistent with the mark-to-market measurement of the hedging instruments. The exposure on which the net outlays for financial expense are calculated takes account of the volumes and the contractual maturities of the hedging derivatives.

Dec-31-2017

Actual impact of underlying flows Expected 1-2 2-5 over 5 cash flows 1 year years years years Interest rate risk Expected outflows for floating-rate interest (9.2) (5.2) (2.7) (1.4) - Totale (9.2) (5.2) (2.7) (1.4) -

Dec-31-2016

Expected 1-2 2-5 over 5 Actual impact of underlying flows cash flows 1 year years years years Interest rate risk Expected outflows for floating-rate interest (6.7) (5.6) (1.1) - - Total (6.7) (5.6) (1.1) - -

– 126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37 ▪ Non-current loan assets

The item amounted to €3.7 million, decreasing by €0.5 million versus the prior year end, due to the reclassification of the current portion of loan assets from third parties. Following the debt restructuring agreement, a previously impaired receivable was partly written off.

The fair value of non-current loans to third parties was estimated by discounting future cash flows at the market rate. A comparison of carrying amount and fair value is shown below.

Carrying amount Fair value Change Change Description Dec-31- Dec-31- Dec-31- Dec-31- carrying fair value 2017 2016 2017 2016 amount Non-current loans to third parties 4.5 6.7 3.7 4.2 (2.2) (0.5) Allowance for impairment of loan assets (0.8) (2.5) -- 1.7 - Non-current loans to associates ------Total 3.7 4.2 3.7 4.2 (0.5) (0.5)

38 ▪ Other non-current assets

The item amounted to €15.3 million, decreasing by €0.2 million versus the prior year.

Description Dec-31-2017 Dec-31-2016 Change Security deposits given 2.0 2.0 - Term bank deposits 0.1 0.1 - Non-current prepayments 0.5 0.7 (0.2) Non-current tax assets 12.7 12.7 - Total 15.3 15.5 (0.2)

The following items are shown in Note 13 (as required by IFRS 7). Non-current tax assets and non-current prepayments are not considered as part of IAS 39. The carrying amount of these assets reflects their fair value.

Carrying amount Description Change Dec-31-2017 Dec-31-2016 Security deposits given 2.0 2.0 - Term bank deposits 0.1 0.1 - Total 2.1 2.1 -

127 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

39 ▪ Inventories

The following table shows inventories by type along with the provisions made to adjust their cost to market values:

Gross balance at Allowance Net balance at Description Dec-31-2017 for impairment Dec-31-2017 Raw and ancillary materials and consumables 13.0 0.4 12.6 Work in progress 1.7 - 1.7 Finished products 2.0 0.4 1.6 Total 16.7 0.8 15.9

Gross balance at Allowance Net balance at Description Dec-31-2016 for impairment Dec-31-2016 Change Raw and ancillary materials and consumables 13.7 0.4 13.3 (0.7) Work in progress 2.0 - 2.0 (0.3) Finished products 2.5 0.4 2.1 (0.5) Total 18.2 0.8 17.4 (1.5)

This item decreased by €1.5 million versus December 31, 2016, due to all inventory classes: paper, ink and other consumables (-€0.7 million), finished products (-€0.5 million), and work in progress (-€0.3 million). The decrease in the stock of paper refers mainly to Unidad Editorial following a reduction in quantities and the use of a different type of paper (-€0.6 million). The drop reported by finished products is attributable mainly to the Sfera segment of Magazines Italy (-€0.4 million), resulting from the planned interruption of mail order sales activities. The decrease in work in progress is attributable mainly to Newspapers Italy (-€0.3 million).

Details of inventories by operating sector are provided below:

Raw and ancillary Work in progress Description materials and and semi-finished Finished Inventories consumables products products at Dec-31-2017 Newspapers Italy 8.5 1.4 - 9.9 Magazines Italy 2.0 0.2 0.1 2.3 Advertising and Sport - - - - Unidad Editorial 2.1 0.1 1.5 3.7 Other Corporate activities - - - - Total 12.6 1.7 1.6 15.9

“Change in inventories” in the income statement is broken down as follows:

Description 2017 2016 Change Work in progress (0.3) - (0.3) Finished products (1) (0.5) (0.4) (0.1) Raw and ancillary materials and consumables (1) (0.7) (3.6) 2.9 Total changes in finished and semi-finished products (1.5) (4.0) 2.5

(1) These amounts are classified under raw and ancillary materials, consumables and goods.

– 128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

40 ▪ Trade receivables

Trade receivables are broken down as follows:

Description Dec-31-2017 Dec-31-2016 Change Due from customers 251.2 279.0 (27.8) Allowance for impairment (31.4) (43.4) 12.0 Due from customers - net 219.8 235.6 (15.8) Due from other Group companies 20.5 20.7 (0.2) Total 240.3 256.3 (16.0)

Amounts “due from customers” and “due from other group companies” are shown net of expected returns (of newspapers and magazines) amounting to €32.3 million versus €45.2 million at the prior year end.

The allowance for impairment of receivables, totaling €31.4 million, reflects the measurement of trade receivables and decreased by €12 million versus December 31, 2016. Changes in the year were as follows:

Allowance for impairment Dec-31-2017 Dec-31-2016 Opening balance 43.4 49.2 Provisions 3.6 1.8 Utilizations (15.3) (7.5) Release of allowance for impairment (0.3) (0.1) Closing balance 31.4 43.4

The increase in provision utilizations in 2017 versus 2016 is attributable to Unidad Editorial in relation to the write-off of disputed receivables deemed unrecoverable, already accrued for in prior years, according to the requirements set out under Spanish tax regulations.

For an explanation of credit risk, see Note 13.

Trade receivables amounted to €240.3 million and were down by €16 million versus €256.3 million at Decem- ber 31, 2016, due mainly to termination of the advertising contracts with third-party publishers. Excluding this effect, this item remained basically steady. The decrease in trade receivables of the Spanish Unidad Editorial group, amounting by €10.5 million, was virtually offset by increased receivables from almost all Italy segments. The Sport segment in particular showed an increase (+€3.4 million) due mainly to sporting events planned for the first months of 2018, as well as to the new F1 H2O powerboating event in December 2017 in Abu Dhabi.

Receivables due from Group companies relate mainly to transactions with the associate m-dis Distribuzione Media S.p.A..

The following items are shown in Note 13 (as required by IFRS 7). Trade receivables are disclosed without taking account of expected product returns, amounting to €32.3 million (€45.2 million in the prior year). The carrying amount of these assets reflects their fair value.

Carrying amount Description Change Dec-31-2017 Dec-31-2016 Due from customers 256.8 285.1 (28.3) Due from customers - non-current portion - - - Due from associates 45.0 59.0 (14.0) Due from other group companies 2.2 0.8 1.4 Allowance for impairment (31.4) (43.4) 12.0 Total 272.6 301.5 (28.9)

129 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

41 ▪ Other receivables and current assets

Description Dec-31-2017 Dec-31-2016 Change Agent advances 12.4 17.6 (5.2) Allowance for impairment of agent advances (1.3) (1.3) - Net agent advances 11.1 16.3 (5.2) Other receivables 4.7 5.2 (0.5) Allowance for impairment of other receivables (4.3) (4.3) - Net other receivables 0.4 0.9 (0.5) Government grants - - - Tax assets 1.6 3.2 (1.6) Prepayments 8.4 5.6 2.8 Supplier advances 1.2 2.1 (0.9) Receivables from employees 0.9 1.2 (0.3) Receivables from social security institutions 3.3 8.0 (4.7) Advances to freelance staff 0.1 0.4 (0.3) Total 27.0 37.7 (10.7)

Other receivables and current assets decreased by €10.7 million versus December 31, 2016, the drop regarding almost all items. It should be noted that the decrease in advances to agents (€5.2 million) is associated with the corresponding decrease in payables to agents following their offsetting. The lower receivables from social security institutions (-€4.7 million) are associated with the recovery of special lay-off fund advances. The decrease also included the decline in agent advances (€0.9 million) from the downturn in purchase volumes and the redefinition of existing supplier relationships, as well as tax assets (-€1.6 million). Conversely, the increase in Prepay- ments of €2.8 million, coming mainly from the Newspapers Italy area, is associated with the collectible works to be issued in the first months of 2018, as well as from the Sport area for sporting events taking place in early 2018.

The following items are shown in Note 13 (as required by IFRS 7). Tax assets, receivables from social security institutions (€4.9 million in total), and prepayments (€8.4 million) have not been considered for the purposes of IFRS 7 in 2017. The carrying amount of these assets reflects their fair value.

Carrying amount Description Change Dec-31-2017 Dec-31-2016 Receivables from employees 0.9 1.2 (0.3) Other receivables 4.7 4.9 (0.2) Allowance for impairment of other receivables (4.3) (4.3) - Supplier advances 1.2 2.1 (0.9) Advances to freelance staff 0.1 0.4 (0.3) Agent advances 11.1 16.3 (5.2) Total 13.7 20.6 (6.9)

– 130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

42 ▪ Total net financial debt

Details of the net financial debt are provided below at carrying amount and fair value.

Comparison of carrying amount vs. fair value

Carrying amount Fair Value Dec-31-2017 Dec-31-2016 Dec-31-2017 Dec-31-2016 Financial assets Cash and cash equivalents 15.6 18.7 15.6 18.7 Other financial assets - 0.1 - 0.1 Loan assets 0.9 0.5 0.9 0.5 Held-for-trading securities - - - TOTAL FINANCIAL ASSETS 16.5 19.3 16.5 19.3 Financial liabilities Current bank loans and overdrafts (57.1) (88.3) (57.1) (88.3) Other financial liabilities (4.3) (11.1) (4.3) (11.1) Loans: Fixed rate loans (0.8) (0.9) (0.8) (0.9) Non-current floating rate loans (231.2) (265.2) (231.2) (265.2) Current and non-current financial liabilities recognised for derivatives (1.1) (5.1) (1.1) (5.1) Floating rate finance lease payables (9.4) (14.8) (9.2) (14.1) Fixed rate finance lease payables TOTAL FINANCIAL LIABILITIES (303.9) (385.4) (303.7) (384.7)

The improvement of €78.7 million in net financial debt is explained by the significant positive cash flows from ordinary operations (approximately €94 million) and by the gains from the sale of the non-controlling interest held in Istituto Europeo di Oncologia (€20 million), only partly offset by outlays for non-recurring expense recognized on an accruals basis mainly in prior years (€16.3 million), by capital expenditure (€14.1 million) and, to a lesser extent, by outlays for the purchase of non-controlling interests in Editoriale Fiorentina S.r.l. and Edito- riale Veneto S.r.l..

The Loan Agreement concluded in 2013 and subsequently amended in August 2014 and in June 2016 was fully refinanced through a New Loan Agreement concluded in August 2017. The New Agreement has deferred final maturity from December 31, 2019 set for the previous Loan to December 31, 2022, and envisages a single covenant represented by the Leverage Ratio (Net Financial Debt /EBITDA), verified annually.

The New Loan Agreement sets an annual interest rate equal to the sum of the Euribor rate and a variable margin depending on the Leverage Ratio, more favourable for the Company than the margins set out in the previous Loan Agreement. The New Loan Agreement totaling €332 million consists of 2 lines: an Amortizing Term Credit Line initially of €232 million, approximately €208 million of which outstanding at December 31 following the repayments made; a Revolving Credit Line of €100 million, €50 million of which drawn down at December 31.

131 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The table below analyzes the carrying amount at December 31, 2017, broken down by maturity, of the Group’s financial instruments that are exposed to interest rate risk.

Interest rate risk

0-6 6 months 1-2 2-3 3-4 4-5 over 5 FIXED RATE months 1 year years years years years years Total Loans - (0.5) (0.3) --- (0.8) Total liabilities - (0.5) (0.3) - - - - (0.8) Loan assets - 0.4 0.4 0.4 0.1 -- 1.3 TotaleTotal assets - 0.4 0.4 0.4 0.1 - - 1.3 TOTAL fixed rate - (0.1) 0.1 0.4 0.1 - - 0.5

0-6 6 months 1-2 2-3 3-4 4-5 over 5 FLOATING RATE months 1 year years years years years years Total Loans (29.8) (11.6) (23.2) (23.2) (23.2) (165.2) - (276.2) Other borrowing positions (4.3) ------(4.3) Bank overdrafts (16.8) ------(16.8) Leases (2.5) (2.6) (4.3) ---- (9.4) Total liabilities (53.4) (14.2) (27.5) (23.2) (23.2) (165.2) - (306.7) Cash and cash equivalents 15.6 ------15.6 Other lending positions 0.4 0.3 0.3 0.3 0.3 0.3 1.5 3.4 Total assets 16.0 0.3 0.3 0.3 0.3 0.3 1.5 19.0 TOTAL floating rate (37.4) (13.9) (27.2) (22.9) (22.9) (164.9) 1.5 (287.7)

The amounts shown in this table, unlike those reported in total net financial debt, exclude the fair value of derivatives (a negative €1.1 million), the effect of debt being accounted for using the amortized cost method (a positive €4.6 million), and include the interest-bearing portion of non-current loan assets (€3.7 million).

The average annual rate on financial positions at December 31, 2017 is 0.47% for the return on investments and 4.22% for the cost of borrowing. The cost of borrowing reflects the effect of outstanding hedging derivatives.

Finance lease payables

The RCS Group’s leases refer mostly to machinery and printing presses of RCS MediaGroup S.p.A.. The present value of the minimum lease payments is less than at the end of the prior year as a result of payments in the year.

The finance leases have been made with major financial institutions and generally last for 10 years, with a pre-a- mortization period of around 2 years. The underlying amortization schedules have been mainly calculated on the basis of constant repayments, in which a growing proportion relates to principal and which are adjusted for any interest-rate changes.

Dec-31-2017 Dec-31-2016 Minimum Present value of Minimum Present value of lease Interest minimum lease lease Interest minimum lease payments payments payments payments Finance lease payables: - due within 1 year 5.1 - 5.1 5.5 0.1 5.4 - due within 5 years 4.4 0.1 4.3 9.5 0.1 9.4 - due after 5 years ------Total 9.5 0.1 9.4 15.0 0.2 14.8

The fair value of finance lease payables contracted by the Group is €9.2 million.

– 132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

43 ▪ Share capital

The share capital is divided into 521,864,957 ordinary shares with no par value. At December 31, 2017 a total of 4,575,114 ordinary treasury shares were held (137,854 of which made available to the minorities of RCS Inve- stimenti S.p.A. following the merger of the latter with RCS MediaGroup S.p.A., as explained in the paragraph "Changes in the consolidation scope"), worth €27.1 million, corresponding to an average carrying amount of €5.9 per ordinary share and representing 0.877% of the total share capital.

Outstanding Ordinary Number of shares issued ordinary shares treasury shares Total At Dec-31-2016 517,289,843 4,575,114 521,864,957 At Dec-31-2017 517,289,843 4,575,114 521,864,957

The main features of the ordinary shares consist of full voting rights and the right to attend ordinary and extraordinary shareholders’ meetings and to participate in the allocation of profit for the period/year and equity, if the company is wound up. These shares are registered shares.

No dividends were paid in 2017 or 2016.

44 ▪ Share premium reserve

Share premium reserve: represents an equity reserve that contains sums received by the Company for issuing or converting shares at a price above their carrying amount, as well as expense associated with the share capital increase and the conversion of savings shares to ordinary shares. It amounted to €110.4 million at December 31, 2017.

45 ▪ Treasury shares and equity transaction reserves

The first reserve is deducted from the Company's equity. The equity transaction reserve represents the higher amount paid for the acquisition of non-controlling interests with respect to the carrying amount of the corresponding equity interests acquired and is deducted from Group equity for a total of €143 million (€143.5 million at December 31, 2016).

46 ▪ Fair value reserve

La riserva da valutazione comprende principalmente la riserva di conversione, utilizzata per registrare le diffe- renze di cambio emergenti dalla traduzione in euro dei bilanci di controllate estere. Comprende inoltre la rileva- zione di utili e perdite attuariali nell’ambito del processo di attuarizzazione del trattamento di fine rapporto. La riserva da valutazione è complessivamente negativa per 0,3 milioni.

47 ▪ Hedging reserve

The hedging reserve has a negative balance of €0.6 million and contains the effects directly recognized in equity of the fair value measurement of derivative financial instruments taken out to hedge the risk of fluctuations in interest rates as well as the positive tax effect of €0.2 million (€1 million at December 31, 2016).

48 ▪ Legal reserve

This amounts to €19.1 million and is increased through the compulsory allocation of at least one-twentieth of annual profit, until reaching an amount corresponding to one-fifth of share capital.

133 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

49 ▪ Dividends paid

In 2017 and 2016 no dividends were paid to minorities.

50 ▪ Tax effect of other comprehensive income (expense)

The tax effect of profits and losses included in other comprehensive income (expense) is as follows:

Year ended December 31, 2017 Year ended December 31, 2016 Tax Tax Other comprehensive income (expense): Gross benefit/ Net Gross benefit/ Net amount (charge) amount amount (charge) amount

Reclassifiable to profit (loss) for the year: Gains (losses) on foreign currency translation of foreign operations --- (8.1) - (8.1) Gains (losses) on cash flow hedges 3.4 (0.9) 2.5 4.4 (1.2) 3.2 Share of comprehensive income (expense) of equity-accounted investees ------Fair value gains (losses) on available-for-sale financial assets ------

Not reclassifiable to profit or loss: Actuarial (loss)/gain on defined benefit plans 0.1 - 0.1 (1.3) 0.3 (1.0) Other comprehensive income (expense): 3.5 (0.9) 2.6 (5.0) (0.9) (5.9)

51 ▪ Employee benefits

These include the actuarial amount of benefits for employees following termination of the employment relationship.

Provisions in income statement Actuarial gains/ Balance at Personnel Financial (losses) recognized Balance at Dec-31- Current expense from expense Utilizations in statement of Dec-31- 2016 service cost actuarial calcu- (income) comprehensive 2017 lations income Provisions for post-employment 39.5 1.0 (0.7) 0.5 (2.5) (0.1) 37.7 benefits Provisions for post-employment be- 0.7 - -- - - 0.7 nefits for executives Total 40.2 1.0 (0.7) 0.5 (2.5) (0.1) 38.4

Post-employment benefits of €37.7 million represent a type of employee remuneration, whose payment is deferred until termination of employment. These benefits accumulate in proportion to the length of service and represent an additional employment cost for the company.

Post-employment benefits for executives of €0.7 million refer mainly to the payment due under the national contract for executives of the Newspapers Italy segment, calculated on the basis of length of service and with reference to the employee’s remuneration in the last twenty-four months. Payment of this amount is deferred until termination of employment.

– 134 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

These provisions have been valued with the assistance of independent actuaries.

The amounts recognized in 2016 in respect of the above post-employment benefits are as follows:

2016 Descrizione Personnel expense Current from actuarial Financial expense Total service cost calculations (income) Provisions for post-employment benefits 0.9 (0.6) 0.8 1.1 Provisions for post-employment benefits for executives - - - - Total 0.9 (0.6) 0.8 1.1

The table below shows the actuarial assumptions used by the Group’s main companies for the calculation:

2017 2016 Discount rates 1.3% 1.3% Expected rates of salary increases Inflation Inflation

The discount rate was calculated using the Iboxx Eurozone Corporate AA index with an average remaining term consistent with the term of the collective being assessed. Effective from 2016, the expected rates of salary increase will be linked to the forecast inflation rates.

The following table shows the results of the sensitivity analysis of the discount rate risk upon a change of +/- 0.5%.

Sensitivity analysis of discount rate 2017 + 0.5% - 0.5% Post-employment benefits 37.7 36.1 39.1 Post-employment benefits for executives 0.7 0.7 0.7 Total 38.4 36.8 39.8

52 ▪ Provisions for risks and charges

Movements in the year were as follows:

Other Balance at provisions: Releases Balance at Dec-31- Provisions personnel Utilizations (2) Reclassifications Dec-31- 2016 expense (1) 2017 Non-current: Legal disputes provision 6.2 2.8 - (0.6) (1.2) (1.3) 5.9 Other provisions for risks and charges 7.7 0.2 1.2 (0.1) - - 9.0 Total non-current 13.9 3.0 1.2 (0.7) (1.2) (1.3) 14.9 Current: Legal disputes provision 6.7 2.7 - (0.5) (0.8) 1.1 9.2 Other provisions for risks and charges 37.9 0.8 4.3 (9.7) (4.0) (3.0) 26.3 Total current 44.6 3.5 4.3 (10.2) (4.8) (1.9) 35.5 Total provisions for risks 58.5 6.5 5.5 (10.9) (6.0) (3.2) 50.4

(1) Includes provisions classified under personnel expense. (2) Includes non-recurring releases on personnel of €0.8 million, and releases of €1.2 million classified under Other gains (losses) on financial assets/liabilities.

135 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

“Other provisions for risks and charges” amounted to €35.3 million. The main components of this item are: ‒ €14.7 million in provisions for personnel expense, mainly for personnel departures and terminations of employment; ‒ €18.7 million in provisions for risks, attributable mainly to the Other Corporate Activities segment, the Spa- nish group Unidad Editorial and the Advertising and Sport segment; ‒ €1.9 million in provisions for agents’ termination indemnities, payable to agents at the end of their mandate.

Allocations to “other provisions for risks and charges”, totaling €6.5 million, are classified in profit or loss under personnel expense for €5.5 million, and in provisions for risks for €1 million. The allocations classified in personnel expense relate to the Newspapers Italy segment for €4.5 million (€1.5 million of which non-recurring expense), the Other Corporate Activities segment for €0.5 million, the Magazines segment for €0.3 million, and the Advertising and Sport segment for €0.2 million. Other allocations, totaling €1 million, refer to the Spanish group Unidad Editorial (€0.6 million), to the Advertising and Sport segment for provisions for agents’ termination indemnities (€0.3 million), and to the Newspapers Italy segment (€0.1 million).

Releases of “Other provisions for risks and charges” amounted to €4 million, of which €0.8 million for non-recurring income in personnel expense, €1.2 million for releases in Other gains (losses) on financial assets/liabilities, and €2 million for ordinary releases of the provisions for risks.

The utilizations of “Other provisions for risks and charges” amounted to €9.8 million, of which €4.7 million related to the renegotiated lease for a portion of the building located in Madrid used by the Unidad Editorial group, and €2.6 million related to staff departures (€1.8 million of which attributable to the Newspapers Italy area). Additional utilizations are for selling expenses related to the disposal of equity investments in the prior year, and for expenses incurred to suspend the broadcasting of Gazzetta TV.

The legal disputes provision amounted to €15.1 million and included accruals of €5.5 million, attributable mainly to the Newspapers Italy segment (€2.9 million), to the Spanish Unidad Editorial group (€1.3 million), and to the Advertising and Sport segment (€0.7 million). Utilizations, totaling €1.1 million, refer to the Newspapers Italy segment (€0.5 million), to the Advertising and Sport segment (€0.5 million), and to the Magazines segment (€0.1 million). Releases, relating to the positive settlement of legal disputes, amounted to €2 million and refer mainly to Newspapers Italy segment (€1.6 million). Reclassifications, totaling €0.2 million, include those provisions that have become certain and therefore were classified under payables as a result of the changed circumstances underlying the allocations made in due course.

The legal disputes provision refers to probable charges resulting from disputes with third parties and related legal fees. At December 31, 2017, 41% of the outstanding disputes regarded civil lawsuits, 19% were work-related, and around 14% regarded publishing activities. The remainder is attributable mainly to the Spanish group, Uni- dad Editorial.

In compliance with IFRS, the non-current portion of provisions for risks has been discounted to take account of the effect of the time value of money, using a rate of approximately 0.154% for the specific provision for risks, 0.432% for the legal disputes provision, and 1.3% for the provision for agents’ termination indemnities, diversi- fying them based on their average financial duration.

The following table shows the results of the sensitivity analysis of the discount rate risk assuming a parallel change of +/- 0.5%.

Sensitivity analysis of discount rate Basic rate 2017 + 0.5% - 0.5% Non-current legal disputes provision 0.432% 5.9 5.7 6.0 Provision for agents’ termination indemnities 1.30% 1.7 1.7 1.7 Non-current provision for sundry risks 0.154% 7.3 7.3 7.3 Total 14.9 14.7 15.0

For the sake of full disclosure, please refer also to the comment on “Information on ongoing disputes” in the Report on Operations of RCS MediaGroup in this Annual Report.

– 136 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

53 ▪ Other non-current liabilities

The item, totaling €0.9 million, fell by €2.4 million versus the prior year end and includes a tax liability as a portion of a non-current tax asset booked following a claim for an IRES reimbursement . The decrease in this item is due to the reclassification to current of a liability from the dispute with INPGI.

This item does not include other non-current financial liabilities. In application of IFRS 7 requirements, tax liabilities were not included.

54 ▪ Trade payables

Description Note Dec-31-2017 Dec-31-2016 Change Due to suppliers 183.4 227.6 (44.2) Due to agents 19.3 24.5 (5.2) Due to freelance staff 7.4 8.9 (1.5) Payables to parents 0.4 - 0.4 Due to associates 14.9 19.8 (4.9) Due to group companies 1.7 1.8 (0.1) Advances from subscribers 8.4 9.3 (0.9) Advances from customers 0.8 1.0 (0.2) Total 13 236.3 292.9 (56.6)

Trade payables decreased by an overall €56.6 million versus December 31, 2016.

The decrease in payables to suppliers of €44.2 million is attributable primarily to the Advertising and Sport segment (-€15 million) mainly from the termination of advertising contracts with third-party publishers, the New- spapers Italy segment (-€10.5 million) and the Spanish group Unidad Editorial (€9.5 million) as a result of the decrease in operating costs tied to the efficiency initiatives, and of a different payment trend versus the last quarter in 2016 as a result of the process of analysis and examination of relationships with suppliers being conducted at the time.

Payables to agents decreased by €5.2 million, offset against advances paid to the agents and relate primarily to the Advertising and Sport segments.. Lower payables to associates (-€4.9 million) are primarily associated with the Unidad Editorial group (-€4.1 million) and relate to transactions with the Bermont group, as well as with Newspapers Italy (-€0.6 million) for transactions with the joint venture, m-dis Distribuzione Media S.p.A.

The carrying amount of trade payables reflects their fair value, also in accordance with the application of IFRS 7.

55 ▪ Other current liabilities

Description Dec-31-2017 Dec-31-2016 Change Payables to employees 32.2 43.7 (11.5) Tax liabilities 12.7 11.9 0.8 Payables to social security institutions 12.9 14.9 (2.0) Deferred income 28.7 20.1 8.6 Other liabilities 7.9 4.8 3.1 Security deposits received 0.5 0.1 0.4 Total 94.9 95.5 (0.6) This item decreased by €0.6 million versus the prior year. The change is attributable to the decrease in payables to employees (-€11.5 million) and in payables to social security institutions (-€2 million), as a result mainly of the reduction in the workforce of Unidad Editorial and in Italy, as part of the previous restructuring actions taken (involving Unidad Editorial in particular).

137 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The decrease was offset by the increase in deferred income (+€8.6 million) attributable, for €4.7 million, to the Sport segment for sporting events organized in the first months of 2018, and to Newspapers Italy (+€3.2 million), also following the issue of collectible products scheduled for the first months of 2018. Also contributing to the increase were other liabilities (+€3.1 million) also from the recognition of an advance on the liquidation of the investee Emittenti Titoli S.p.A., and tax liabilities (+€0.8 million), attributed mainly to the Spanish group Unidad Editorial.

The carrying amount of these payables reflects their fair value.

The following items are shown in Note 13 (as required by IFRS 7). The carrying amount of these liabilities reflects their fair value.

Carrying amount Description Change Dec-31-2017 Dec-31-2016 Payables to employees 17.4 27.3 (9.9) Other liabilities 7.9 4.8 3.1 Security deposits received 0.5 0.1 0.4 Total 25.8 32.2 (6.4)

Tax liabilities and payables to social security institutions (€25.6 million) have not been included. Payables to employees differ from those reported in the financial statements because IFRS 7 ignores both untaken holiday entitlement (€14.8 million) and deferred income (€28.7 million).

56 ▪ Gains (losses) and other non-monetary items adjusted in the statement of cash flows

Details of the item which adjusts cash flows from operating activities , reported in the statement of cash flows, are provided below:

Description Note Dec-31-2017 Dec-31-2016 (Gains) losses on sale of equity investments 25 (15.2) - Other (gains) losses on financial assets/liabilities 25 0.3 0.6 Other non-monetary expense - (3.6) Total (14.9) (3.0)

57 ▪ Increase (decrease) in employee benefits and provisions for risks and charges reported in the statement of cash flows

The overall decrease reported in the statement of cash flows excludes the effect of discounting provisions, which has also been netted of net financial income (expense). This item does not include the reclassification related to the recognition of the amounts due to employees.

Descrizione Note Dec-31-2016 Dec-31-2017 Reclassifications Discounting Change Employee benefits 51 40.2 38.4 - (0.4) (2.2) Provisions for risks and charges 52 58.5 50.4 3.2 - (4.9) Total 98.7 88.8 3.2 (0.4) (7.1)

– 138 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

58 ▪ Changes in working capital reported in the statement of cash flows

Description Dec-31-2017 Dec-31-2016 Change in working capital (26.9) 9.4 Adjustments to capital expenditure for cash outflows (4.2) 4.5 Reclassification of provisions (3.2) (5.0) Change in net income tax liabilities (3.8) (2.7) Adjustments for non-monetary changes (0.8) 3.2 Total (38.9) 9.4

The item does not include the non-monetary changes, such as the recognition of the payable relating to items previously posted to provisions for risks. This item has also been adjusted to exclude movements not attributable to operations deriving, in particular, from the adjustment of trade payables for capital expenditure not settled in cash in the period under review.

59 ▪ Capital expenditure in property, plant and equipment and intangible assets reported in the statement of cash flows

This refers to capital expenditure made in 2017 (€18.3 million), which excludes purchases that did not involve changes in the cash flows, and includes the capital expenditure recorded in the prior year but paid in the year under review. Capital expenditure recognized in the statement of financial position at December 31,2017 is reconciled with the expenditure in the statement of cash flows as follows:

Descrizione Note Dec-31-2017 Dec-31-2016 Capital expenditure in property, plant and equipment 31 (1.1) (1.6) Capital expenditure in intangible assets 33 (17.2) (18.4) Total (18.3) (20.0) Adjustments to capital expenditure for cash outflows (0.8) (11.7) Total (19.1) (31.7)

60 ▪ Proceeds from the sale of equity investments reported in the statement of cash flows

The item, totaling €18.1 million, includes the proceeds from the disposal of the investment held in Istituto Euro- peo di Oncologia S.r.l., the investment held in a Spanish company, and from the disposal of a majority stake in RCS Gaming S.r.l.. The item also includes the financial advance payment on the result of the liquidation of Emittenti Titoli S.r.l., partly offset by cash outflows for expense incurred in the sale of equity investments in the prior year.

61 ▪ Net change in loans and borrowings and other financial assets reported in the statement of cash flows

This item refers to the monetary changes included in Net Financial Debt. As required by IFRS, current bank loans and overdrafts form part of the change in cash and cash equivalents.

The reconciliation with the changes in net financial debt is shown below:

Description Note Dec-31-2017 Dec-31-2016 Change in net financial debt 42 (78.7) (120.6) Change in cash and cash equivalents 19.0 8.4 Change in derivatives 3.4 4.4 Adjustments to investments for lease principal 5.0 7.2 Non-monetary change in results of financing activities 2.6 0.5 Change in assets held for sale and discontinued operations - (44.2) Total (48.7) (144.3)

139 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

62 ▪ Net interest received/paid reported in the statement of cash flows

This item, amounting to €26.6 million, has been adjusted to exclude items without any monetary consequences during the year, related to discounts in application of IFRS and changes in fair value of derivatives recognized in the income statement.

63 ▪ Change in equity reserves reported in the statement of cash flows

The item includes the cash outlays to acquire non-controlling interests in some subsidiaries.

64 ▪ Commitments and contingencies

The principal guarantees given are listed below. Trends in the main guarantees given in 2017 are as follows: ‒ Sureties and endorsements provided amounted to €41.6 million, basically steady versus the prior year. This item includes sureties issued in favour of public administration and other public entities for prize contests, concessions and disputes, sureties in favour of third parties for leases, as well as sureties issued to Rizzoli Libri (formerly RCS Libri S.p.A.) and its subsidiaries Marsilio S.p.A. and Librerie Rizzoli S.r.l. in favour of the Italian Tax Authorities for VAT assets relating to 2015, for which RCS MediaGroup S.p.A. is jointly obligated. ‒ Other guarantees totaled €16 million, down by €13.4 million compared to December 31, 2016. The decrease relates primarily to the termination of the guarantee for VAT assets for 2013. The item includes guarantees issued to Rizzoli Libri S.p.A. and its subsidiaries Marsilio S.p.A. and Librerie Rizzoli S.r.l. in favour of the Tax Authorities for VAT assets relating to 2014, and the indemnities issued in favour of Agenzia per lo Svi- luppo dell’Editoria and of SIAE for reimbursements received. This item also includes €0.8 million in other guarantees with related parties. ‒ Commitments amounted to €2.7 million, steady versus the prior year end. The item includes existing and potential contractual commitments relating to personnel, which refer solely to agreements in force at Decem- ber 31, 2017, subject to contractual clauses at that date under the exclusive control of RCS. These commitments include €2.7 million in commitments entered into with related parties. Additionally, as regards the additional commitments to key management personnel of RCS MediaGroup S.p.A., please refer to the Remu- neration Report (Section II - First Part) published on the website www.rcsmediagroup.it.

As part of disposals or contributions of equity interests or businesses, the RCS Group has given guarantees still in force in relation to tax, social security and employment. Such guarantees have been given in accordance with standard market practice.

The main operating leases refer to property leases, company cars, plant and equipment and electronic devices and publications.

The amount of outstanding lease payments still owed by the Group at the reporting date for irrevocable operating leases is as follows:

Minimum lease payments Dec-31-2017 Dec-31-2016 Future operating lease payments: - due within 1 year 29.2 26.8 - due within 5 years 112.0 104.3 - due after 5 years 139.2 165.0 Total 280.4 296.1

Minimum operating lease payments decreased (-€15.7 million), due mainly to the lower number of leases to be paid, particularly for the Via Rizzoli and Via Solferino complexes in Milan.

– 140 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Expected future collections from property sub-leases amount to €9.9 million, mainly attributable to RCS MediaGroup S.p.A.

65 ▪ Information required by Art. 149-duodecies of the CONSOB Issuer Regulations

The following table, prepared in accordance with Art. 149-duodecies of the CONSOB Issuer Regulations, reports the fees earned in 2017 for audit and other services provided by the Independent Auditors and members of their network..

Party performing Recipient Fees paid in 2017 (€/millions) the service Audit KPMG S.p.A. Parent 0.4 KPMG S.p.A. Italian subsidiaries 0.3 KPMG (*) Foreign subsidiaries 0.7 Attestation services KPMG S.p.A. - Other services KPMG (1) 0.3 Total 1.7

(*) Other companies included in the network of KPMG S.p.A. (1) Other services of €0.3 million refer mainly to consulting for methodological support and assistance in the testing phase, as per Art. 154 bis of the Consolidated Finan- ce Act, as well as financial consulting.

141 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

66 ▪ Events after the reporting date

After the reporting date, no events occurred which would require adjustments to the amounts reported, or additional disclosure with respect to the information already provided in the Annual Report.

Milan, March 15, 2018

On behalf of the Board of Directors:

Chairman and Chief Executive Officer

Urbano Cairo

(signed on the original)

– 142 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF THE MANAGER IN CHARGE OF FINANCIAL REPORTING AND THE CHIEF EXECUTIVE OFFICER

Statement on the consolidated financial statements pursuant to Art. 81-ter of CONSOB Regulation no. 11971 dated May 14, 1999 as subsequently amended and supplemented

1. The undersigned, Urbano Cairo, Chairman and Chief Executive Officer, and Riccardo Taranto, Manager in charge of Financial Reporting for RCS MediaGroup S.p.A., hereby attest to, also taking account of the provisions of paragraphs 3 and 4, Art. 154-bis of Legislative Decree no. 58 dated February 24, 1998:

− the adequacy in relation to the company’s characteristics and − the effective application,

1. of the administrative and accounting procedures in preparing the 2017 Consolidated Financial Statements

2. The assessment of the adequacy of the administrative and accounting procedures for preparing the consolidated financial statements as at and for the year ended December 31, 2017 was carried out on the basis of the process defined by RCS MediaGroup S.p.A., in line with the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organizations of the Treadway Commission as the reference framework generally accepted at international level.

3. It is also stated that: 3.1 the consolidated financial statements of RCS MediaGroup S.p.A. at December 31, 2017: a) have been prepared in accordance with the International Financial Reporting Standards endorsed by the European Union pursuant to EC Regulation no. 1606/2002 of the European Parliament and Coun- cil dated July 19, 2002; b) correspond to the books and accounting records; c) are suitable to provide a true and fair view of the Issuer’s financial position, results of operations and cash flows and those of the group of companies included in the consolidation. 3.2 The report on operations contains a reliable analysis of the performance and results of operations, and of the situation of the issuer and the group of companies included in the consolidation, together with a description of the principal risks and uncertainties to which they are exposed.

Milan, March 15, 2018

Chairman and Chief Executive Officer Manager in charge of Financial Reporting Urbano Cairo Riccardo Taranto (signed on the original) (signed on the original)

143 –

PARENT’S SEPARATE FINANCIAL STATEMENTS

Income statement (*)

2016 (€) Note 2017 pro-forma 2016 I Revenue 12 500,134,329 559,318,478 559,419,478 Distribution revenue 12 237,382,911 259,990,630 259,990,630 - of which from related parties 13 204,029,187 223,579,826 223,579,826 Advertising revenue 12 241,396,612 272,484,239 272,484,239 - of which from related parties 13 3,348,624 7,267,123 7,267,123 Other publishing revenue 12 21,354,806 26,843,609 26,944,609 - of which from related parties 13 7,891,995 8,793,972 8,894,972 II Changes in work in progress, finished and semi-finished products 14 ( 492,150) ( 229,532) ( 229,532) II Raw materials and services 15 ( 289,812,940) ( 377,635,566) ( 377,405,637) Raw materials and goods 15 ( 77,399,924) ( 116,532,678) ( 116,532,678) - of which with related parties 13 ( 22,590,039) ( 29,132,461) ( 29,132,461) Service costs 15 ( 175,733,777) ( 222,379,566) ( 222,153,031) - of which with related parties 13 ( 49,320,995) ( 56,480,867) ( 56,707,402) - of which non-recurring 25 ( 248,998) ( 4,144,300) ( 4,144,300) Use of third party assets 15 ( 36,679,239) ( 38,723,322) ( 38,719,928) - of which with related parties 13 ( 5,889) ( 408,661) ( 405,267) - of which non-recurring 25 ( 322,800) - - III Personnel expense 16 ( 149,813,704) ( 158,265,279) ( 158,265,279) - of which to related parties 13 ( 2,810,359) ( 8,107,617) ( 8,107,617) - of which non-recurring 25 498,814 ( 5,034,921) ( 5,034,921) II Other operating income 17 24,202,372 25,599,730 25,674,912 - of which from related parties 13 10,157,437 10,594,261 10,669,443 II Other operating expenses 18 ( 11,342,310) ( 14,464,630) ( 14,352,670) - of which to related parties 13 ( 54,949) ( 488,801) ( 376,841) IV Provisions 19 ( 3,739,805) ( 5,273,565) ( 5,273,565) V Allowance for impairment 20 ( 1,800,718) ( 1,036,114) ( 1,036,114) VI Amortization of intangible assets 21 ( 14,274,513) ( 17,277,226) ( 17,277,226) VII Depreciation of property, plant and equipment 21 ( 7,762,694) ( 9,998,874) ( 9,998,874) VIII Impairment losses on non-current assets 21 ( 3,435,028) ( 117,135) ( 117,135) Operating profit 41,862,839 620,287 1,138,358 IX Financial income 22 10,612,806 11,957,363 2,474,492 - of which from related parties 13 9,973,561 11,483,110 2,000,239 IX Financial expense 22 ( 18,717,431) ( 25,894,528) ( 37,089,244) - of which to related parties 13 ( 1,525,814) ( 9,165,307) ( 20,360,023) X Other gains on financial assets/liabilities 23 28,640,521 6,014,199 19,742,475 - of which from related parties 13 11,473,786 5,208,563 18,936,839 Profit (loss) before tax 62,398,735 ( 7,302,679) ( 13,733,919) XI Income taxes 24 ( 8,712,551) ( 1,950,645) 4,522,944 Profit for the year 53,686,184 ( 9,253,324) ( 9,210,975)

(*) Also pursuant to CONSOB Resolution no. 15519 of July 27, 2006.

For easier comparison, the 2017 financial statementsfigures of RCS MediaGroup S.p.A. for 2017 are compared versus 2016 pro-forma, that takes account of the merger of RCS Investimenti S.p.A. as if it had occurred in 2016. Further information is found in the appropriate annexes and in the introduction.

The notes form an integral part of these separate financial statements.

147 – PARENT’S SEPARATE FINANCIAL STATEMENTS

Statement of comprehensive income

2016 (€) Note 2017 2016 pro-forma Profit (loss) for the year 37 53,686,184 ( 9,253,324) ( 9,210,975)

Other comprehensive income (expense):

► will be subsequently reclassified to profit or loss Losses on cash flow hedges ( 231,735) ( 500,220) ( 500,220) Fair value measurement of financial assets - - - Reclassification of gains on cash flow hedges to profit or loss 3,595,714 4,880,563 4,880,563 Tax effect on cash flow hedges ( 807,355) ( 1,213,766) ( 1,213,766) Fair value gains (losses) on available-for-sale financial assets - - - Reclassification of fair value gains (losses) on available-for-sale financial assets to profit or loss - - -

► will not be subsequently reclassified to profit or loss Actuarial (loss)/gain on defined benefit plans 89,562 ( 1,024,291) ( 1,024,291) Tax effect on actuarial valuation of defined benefit plans ( 21,495) 245,830 245,830 Other comprehensive income 2,624,691 2,388,116 2,388,116

Total comprehensive income (expense) 56,310,875 ( 6,865,208) ( 6,822,859)

The notes form an integral part of these separate financial statements.

– 148 PARENT’S SEPARATE FINANCIAL STATEMENTS

Statement of financial position (*)

December 31, 2016 Note December 31, 2017 December 31, 2016 (€) pro-forma ASSETS XII Property, plant and equipment 26 45,708,782 53,126,488 53,126,488 XIV Investment property 27 2,759,222 2,773,283 2,773,283 XIII Intangible assets 28 37,477,778 46,196,177 46,196,177 XV Equity investments at cost 29 408,668,429 405,662,357 1,135,203,563 - of which with related parties 13 408,668,429 405,662,357 1,135,203,563 XV Available-for-sale financial assets 30 560,664 4,887,675 4,887,675 XV Non-current loan assets 31 2,772,066 2,928,066 2,928,066 XV Other non-current assets 32 13,704,897 13,871,125 13,818,475 XV Deferred tax assets 24 46,310,699 58,304,931 58,304,931 Total non-current assets 557,962,537 587,750,102 1,317,238,658 XVI Inventories 33 10,654,535 11,176,302 11,176,302 XVII Trade receivables 34 166,553,039 173,092,556 173,131,740 - of which with related parties 13 31,646,424 31,207,677 31,246,861 XIX Other receivables and current assets 35 21,420,426 31,038,463 30,899,713 - of which with related parties 13 26,202 202,910 64,160 XIX Current tax assets 24 4,516,713 8,442,892 8,405,411 - of which from related parties 13 2,117,563 2,480,414 2,442,933 XXIV Current loan assets 36 270,331,661 274,491,638 19,491,638 - of which with related parties 13 269,884,680 274,491,638 19,491,638 XXIV Cash and cash equivalents 36 679,005 1,138,967 1,138,967 Total current assets 474,155,379 499,380,818 244,243,771 TOTATOTAL ASSETS 1,032,117,916 1,087,130,920 1,561,482,429

EQUITY AND LIABILITIES XXIII Share capital 37 475,134,602 475,134,602 475,134,602 XXIII Reserves 37 128,445,225 125,878,591 125,690,143 XXIII Treasury shares 37 ( 27,150,528) ( 27,150,528) ( 27,150,528) XXIII Losses carried forward 37 ( 219,957,816) ( 210,746,841) ( 210,746,841) XXIII Profit (Loss) for the year 37 53,686,184 ( 9,253,324) ( 9,210,975) Total equity 410,157,667 353,862,500 353,716,401 XXIV Non-current loans and borrowings 36 233,325,736 269,776,915 269,776,915 - of which with related parties 13 - 11,125,000 11,125,000 XXIV Financial liabilities recognized for derivatives 36 88,620 5,145,194 5,145,194 - of which with related parties 13 - 1,163,720 1,163,720 XX Employee benefits 38 31,694,903 33,702,716 33,702,716 XXI Provisions for risks and charges 39 9,530,105 8,612,669 8,612,669 XXIII Deferred tax liabilities 24 606,253 595,532 595,532 XIX Other non-current liabilities 40 1,790,443 3,744,271 3,744,271 - of which with related parties 13 877,397 877,397 877,397 Total non-current liabilities 277,036,060 321,577,297 321,577,297 XXIV Bank loans and overdrafts 36 16,772,980 38,943,442 38,943,392 XXIV Current loans and borrowings 36 110,049,365 106,016,240 580,407,164 - of which with related parties 13 69,624,652 61,365,178 535,756,102 XXIV Financial liabilities recognized for derivatives 36 963,125 - - XIX Current tax liabilities 24 4,800,810 5,368,113 5,522,853 - of which with related parties 13 4,369,510 5,322,037 5,476,777 XVIII Trade payables 41 136,336,366 178,408,441 178,395,908 - of which with related parties 13 10,705,459 15,223,854 15,211,321 Current portion of provisions for risks and XXI 39 24,816,943 29,624,332 29,624,332 charges XIX Other current liabilities 42 51,184,600 53,330,555 53,295,082 - of which with related parties 13 2,436,628 1,418,586 1,383,113 Total current liabilities 344,924,189 411,691,123 886,188,731 TOTAL EQUITY AND LIABILITIES 1,032,117,916 1,087,130,920 1,561,482,429 (*) Also pursuant to CONSOB Resolution no. 15519 of July 27, 2006.

The notes form an integral part of these financial statements.

149 – PARENT’S SEPARATE FINANCIAL STATEMENTS

Statement of cash flows (*)

2016 Note 2017 2016 (€/millions) pro-forma A) Cash flows from operating activities Pre-tax profit (loss) from continuing operations 62.4 ( 7.3) ( 13.7) Amortization, depreciation and impairment losses 21 25.5 27.4 27.4 (Gains) losses and other non-monetary items ( 15.1) - - Impairment losses on equity investments 23 0.4 4.4 ( 9.3) - of which with related parties 13 0.1 4.3 ( 9.4) Net financial income (expense) including dividend income 22-23 ( 4.5) 3.4 24.1 - of which with related parties 13 21.1 ( 2.4) 8.8 Decrease in provisions 43 ( 6.2) ( 11.7) ( 11.7) Changes in working capital 44 ( 38.5) 14.4 14.3 - of which with related parties 13 4.7 ( 1.3) ( 1.3) Income taxes received 24 12.2 2.7 9.6 Total 36.2 33.3 40.7 B) Cash flows from investing activities Acquisition of equity investments (net of dividends received) 45 9.8 0.8 0.8 - of which with related parties 13 9.8 ( 0.2) ( 0.2) Capital expenditure in property, plant and equipment 46 ( 8.1) ( 15.8) ( 15.8) and intangible assets Proceeds from the sale of equity investments 29 20.3 129.8 129.8 Proceeds from the sale of non-current assets 26 0.1 0.1 0.1 Other changes 0.2 ( 0.8) ( 1.0) Total 22.3 114.1 113.9 Free cash flow (A+B) 58.5 147.4 154.6 C) Cash flows used in financing activities Net change in loans and borrowings and other financial assets 47 ( 25.5) ( 136.3) ( 121.3) - of which with related parties 13 0.6 46.2 ( 208.5) Financial interest collected/paid 48 ( 11.3) ( 12.9) ( 35.1) - of which with related parties 13 ( 8.4) ( 7.2) ( 18.4) Total ( 36.8) ( 149.2) ( 156.4) Net increase (decrease) in cash and cash equivalents (A+B+C) 21.7 ( 1.8) ( 1.8) Opening cash and cash equivalents ( 37.8) ( 36.0) ( 36.0) Closing cash and cash equivalents ( 16.1) ( 37.8) ( 37.8) Increase (decrease) for the year 21.7 ( 1.8) ( 1.8)

ADDITIONAL DISCLOSURES OF THE STATEMENT OF CASH FLOWS (€/millions) Opening cash and cash equivalents consisting of: ( 37.8) ( 36.0) ( 36.0) Cash and cash equivalents 1.1 2.3 2.3 Current bank loans and overdrafts ( 38.9) ( 38.3) ( 38.3) Closing cash and cash equivalents ( 16.1) ( 37.8) ( 37.8) Cash and cash equivalents 0.7 1.1 1.1 Current bank loans and overdrafts ( 16.8) ( 38.9) ( 38.9) Increase (decrease) for the year 21.7 ( 1.8) ( 1.8) (*) Also pursuant to CONSOB Resolution no. 15519 of July 27, 2006.

The notes form an integral part of these separate financial statements.

– 150 PARENT’S SEPARATE FINANCIAL STATEMENTS - - 0.1 56.4 (6.8) Equity 360.5 353.7 353.8 410.2 9.3 53.7 49.7 (9.2) (0.1) 53.7 ( 9.2) ( 9.3) N ota 37 ( 49.7) for the year for Profit (Loss) Profit ------27.1 27.1 27.1 27.1 N ota 37 Retained ear nings to cover nings to cover treasury shares treasury - - - (9.2) (49.7) N ota 37 ed forward ( 188.2) ( 237.9) ( 237.9) ( 247.1) Losses carri ------0.2 0.2 0.1 (0.1) reserve Merger Merger N ota 37 - - - 0.1 0.1 (0.8) ( 0.7) ( 0.7) ( 0.6) N ota 37 Actuarial valuation of post-employ - ment benefits - - - 3.2 2.6 reserve ( 6.3) ( 3.1) ( 3.1) ( 0.5) N ota 37 Hedging - - - - - shares N ota 37 Treasury Treasury ( 27.1) ( 27.1) ( 27.1) ( 27.1) - - - - - Legal 19.1 19.1 19.1 19.1 reserve N ota 37 - - - - - reserve N ota 37 110.4 110.4 110.4 110.4 110.4 110.4 110.4 Share premium premium Share - - - - - Share Share capital N ota 37 475.1 475.1 475.1 475.1 The notes form an integral part of these financial statements. of €0.2 million S.p.A. interests of RCS Investimenti of RCS Investimenti is ascribable to the reserve from exchange non –controlling The impact of the merger (*) and to the loss of -€0.1 million. Further details are found in appropriate annexes. Statement of changes in equity (€/millions) Balance at Dec-31-2015 - transfer of 2015 losses RCS MediaGroup S.p.A. comprehensive income (expense) Total of RCS Investimenti S.p.A. Effects of the merger (*) in 2016 pro-forma - transfer of 2016 losses RCS MediaGroup S.p.A. adjustments and merger comprehensive income (expense) Total Balance at Dec-31-2016 Balance at Dec-31-2016 pro-forma Balance at Dec-31-2017

151 – PARENT’S SEPARATE FINANCIAL STATEMENTS

The following statement shows the availability and permitted distribution of the reserves that comprise equity, as required by Art. 2427, 7-bis) of the Italian Civil Code:

Utilizations in past three years Equity Amount Permitted use Permitted distribution to cover other (€/millions) losses reasons Share capital 475.1 B - - - Share premium reserve 110.4 A, B - - - Legal reserve 19.1 B - - - Treasury shares (27.1) - - - Hedging reserve (0.5) - - - Actuarial valuation of post-employment benefits (0.6) - - - Merger reserve 0.1 A, B - - - Losses carried forward (220.0) - - - Profit (loss) for the year 53.7 A, B - - - Total 410.2 - - -

Key: A: for share capital increase B: to cover losses C: dividends

– 152 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

NOTES TO THE SEPARATE FINANCIAL STATEMENTS

FORMAT, CONTENT AND OTHER INFORMATION ON THE FINANCIAL STATEMENTS

1 ▪ Corporate information

The financial statements of RCS MediaGroup S.p.A. as at and for the year ended December 31, 2017 were approved and authorized for publication by the Board of Directors on March 15, 2018, and will be submitted for approval by the shareholders in the Shareholders’ Meeting.

RCS MediaGroup S.p.A., in addition to the direction and co-ordination of its subsidiaries and the provision of centralized services and financial management, carries out activities for the main publishing and advertising companies of the RCS Group.

2 ▪ Format and content

The 2017 financial statements represent the separate financial statements of RCS MediaGroup S.p.A., prepared under the International Financial Reporting Standards (IFRS) issued or revised by the International Accounting Standards Board and endorsed and adopted by the European Union.

These separate financial statements have undergone the statutory audit, which was performed by KPMG S.p.A. pursuant to Art. 14, paragraph 1 of Legislative Decree no. 39 of January 27, 2010 and Art. 165 of Legislative Decree no. 58/98.

The presentation currency of these separate financial statements is the Euro, which is also used to present the RCS Group's consolidated financial statements. Unless otherwise specified, all amounts reported in these notes are stated in Euro.

3 ▪ Separate financial statements

RCS MediaGroup S.p.A. has adopted: ‒ the statement of financial position in which assets and liabilities are separately classified as current and non-current; ‒ the income statement in which income and expense are classified by nature; ‒ the statement of comprehensive income which presents the revenue and cost items that are not included in profit or loss for the year but are reflected directly in equity; ‒ the statement of cash flows using the indirect method, whereby profit (loss) for the year before tax is adjusted for the effects of non-monetary items, of any deferral or provision for past or future operating receipts or payments and of revenue or costs associated with cash flows from (used in) investing or financing activities; ‒ the statement of changes in equity, in which the individual reserves are presented separately, with their movements and transactions carried out with shareholders.

With reference to CONSOB Resolution no. 15519 of July 27, 2006 significant related party transactions and non-recurring items have been reported separately on the face of the separate financial statement schedules.

155 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

4 ▪ Basis of preparation – use of going concern assumption in preparing the separate financial statements

The 2017 separate financial statements of RCS MediaGroup S.p.A. have been prepared on a going concern basis, as detailed by the directors in the Annual Report.

5 ▪ Accounting policies

The separate financial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and endorsed by the Euro- pean Union. In compliance with document no. 2 published jointly by the Bank of Italy, CONSOB (the Italian Commission for Listed Companies and the Stock Exchange) and ISVAP (Italy’s insurance industry regulator) on February 6, 2009, it is reported that RCS’ separate financial statements at December 31, 2017 have been prepared on a going concern basis (see Note 4).

With reference to CONSOB communication no. DEM/11070007 of August 5, 2011, it is also noted that the Com- pany does not hold bonds in its portfolio issued by central or local governments or government authorities, and, therefore, it is not exposed to the risk of market fluctuations in the aforementioned bonds.

This section summarizes the most important accounting policies adopted by RCS MediaGroup S.p.A..

Revenue

I ricavi sono rilevati in bilancio nel rispetto del principio della competenza, quando il valore degli stessi può essere determinato attendibilmente ed è probabile che venga riscosso il corrispettivo, in particolare: ‒ revenue from the sale of goods is recognized when ownership changes hands, generally considered to be on the publication date for both newspapers and magazines, net of reasonably estimated returns; ‒ revenue from the sale of advertising space on traditional media is recognized according to the issue date of the publications; ‒ advertising revenue from digital channels is recognized over the duration of delivery of the advertising mes- sages; ‒ revenue from services is recognized on an accruals basis, as set out in the respective contracts; ‒ royalties are recognized on an accruals basis, as set out in the respective contracts; ‒ dividends are recognized on the payable date, i.e. the date of the shareholders’ resolution for allocation.

Costs

Government grants

Government grants are recognized when there is reasonable assurance that they will be received and that all the conditions attached to them are satisfied.

Financial income and expense

Financial income and expense are recognized in the income statement through the effective interest method. Interest income is recognized through the applicable effective rate.

Financial income and expense are presented in Note 11 in accordance with the categories defined in IAS 39 and in the ways prescribed by IFRS 7.

– 156 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Income taxes

These include both current and deferred taxes. The charge or income relating to current income taxes for the year is determined using the tax rules actually in force. As part of the Group’s tax management, RCS MediaGroup S.p.A. has made a three-year Italian group tax election, as allowed by Legislative Decree no. 344 dated December 12, 2003. This election makes it possible to obtain a group benefit by directly offsetting its own tax losses against the taxable profit transferred by the Italian companies in this tax group. In addition, the Company has made a three-year fiscal transparency election together with m-dis Distribuzione Media S.p.A., under Art. 115 of the Income Tax Consolidation Act. As a result of this election, the taxable income received from m-dis Distribuzione Media S.p.A. also forms part of the company’s taxable base for the purposes of calculating IRES (Italian corporate income tax). Deferred tax assets and liabilities are determined on the basis of temporary differences between the carrying amount of assets and liabilities reported for accounting purposes and the corresponding amounts that are applicable for tax purposes. Deferred tax assets are recognized only to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized, while deferred tax liabilities must be recognized for all taxable temporary differences. They are calculated at the tax rates that are expected to apply to the period when the tax asset is realized or the tax liability is settled.

Statement of cash flows

The statement of cash flows prepared using the indirect method presents cash flows for the year based on whether they are associated with operating, investing or financing activities, with a separate indication of cash flows generated by assets held for sale and discontinued operations. Cash and cash equivalents are expressed net of current account overdrafts. Cash flows used in operations also include outlays for the payment of non-recurring expense. This does not include financial expense, which is classified under cash flows from financing activities. The statement of cash flows also shows cash flows associated with transactions with related parties separately.

Property, plant and equipment

Property, plant and equipment are reported at historical cost if purchased separately or at fair value on the acquisition date if purchased through a business combination, and are systematically depreciated over their residual useful lives. Assets held for sale are classified separately under non-current assets held for sale and no longer depreciated, but impaired to their fair value if the latter is lower than their carrying amount. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset’s effective use during the year. Improvement expenditure is added to the carrying amount of the assets concerned only when it can be recovered through expected future economic benefits and can be reliably estimated. Ordinary maintenance costs are charged to the profit or loss in the year in which they are incurred. Any dismantling costs are estimated and added to the cost of the asset, with a corresponding credit recognized in a provision for dismantling charges. They are then depreciated over the residual useful life of the asset concerned. The effects on the statement of financial position, statement of cash flows and income statement of assets acquired under finance leases are recognized in compliance with IAS 17. This standard requires such assets to be recognized at cost among assets owned by the Group and depreciated over the estimated useful life, on the same basis as other property, plant and equipment. The principal portion of lease payments is deducted from the associated payable recognized as a liability, while the interest portion of payments is recognized on an accrual basis as a financial expense in theproft or loss.

This policy is also applied to leased assets that meet the specific conditions laid down by IAS 17, the most important of which are: ‒ the present value of future lease payments envisaged in the contract is substantially higher than or equal to the fair value of the asset itself; ‒ the duration of the lease exceeds three quarters of the useful life of the asset itself.

157 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The carrying amount of an item of property, plant and equipment is derecognized on disposal or fully impaired when no future economic benefits are expected from its use or disposal. Any associated gains or losses (calculated as the difference between the net disposal proceeds and the carrying amount of the item) are included in the income statement at the time of the abovementioned derecognition. Property, plant and equipment are reviewed if there are indicators of impairment to identify any associated losses as described in the section “Impairment of non-financial assets”.

Investment property

Investment property is recognized at cost, inclusive of any directly attributable expenditure, and is held to earn lease income or for capital appreciation or both. Investment property (except for the land component) is systematically depreciated on a straight-line basis in each individual period. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets. Improvement expenditure is added to the carrying amount of the assets concerned only when it can be reliably estimated and can be recovered through the associated expected future economic benefits. Assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset’s effective use during the year. Transfers to investment property are made when, and only when, there is a change in use indicated by events such as: the end of owner-occupation, the commencement of an operating lease to another party or the comple- tion of construction or development. Transfers from investment property are made when, and only when, there is a change in use indicated by events such as the commencement of owner-occupation. Investment property is periodically tested for impairment as described in the section “Impairment of non-financial assets”.

Intangible assets

These are recognized at purchase cost if purchased separately or capitalized at fair value on the acquisition date if purchased through a business combination. Advertising costs, start-up and expansion costs, research costs, internally-generated trademarks and publications are not capitalized. Other intangible assets generated internally as a result of developing the Company’s products are capitalized only if all the following conditions are met: ‒ the asset is identifiable;; ‒ it is probable that the asset developed will generate future economic benefits; ‒ the costs of developing the asset can be measured reliably.

Intangible assets with finite useful life are systematically amortized on a straight-line basis over that life. Goodwill and intangible assets with indefinite useful lives are not amortized but periodically tested for impairment, as described in the section “Impairment of non-financial assets”. If the discounted expected cash flows do not allow the initial investment to be recovered, the carrying amount of the asset is impaired accordingly. The higher value attributed to an intangible asset with a finite life, recognized in accordance with IFRS 3, as a result of a merger or acquisition of a business unit, is amortized if referring to assets with finite life. If goodwill is allocated to intangible assets with an indefinite life, it is not amortized. Those assets are tested for impairment, as required by IAS 36. Additionally, if expense with future economic benefits is incurred but does not qualify for recognition as intangible assets, it is charged to the profit or loss when incurred, or in the case of acquiring goods, when the Group has a right to access such goods, or in the case of the supply of services, when the Group receives the services.

Impairment of non-financial assets

IAS 36 requires impairment testing to be carried out for property, plant and equipment, intangible assets and investments in subsidiaries and associates, whenever there are any indicators that they may be impaired. Invest- ments in subsidiaries or associates and other intangible assets with an indefinite useful life or assets not available for use must be tested for impairment at least once a year, particularly for those investments where the investor’s portion of equity is lower than the carrying amount.

– 158 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The recoverability of the carrying amount is tested by comparing it with the higher of fair value less costs to sell, if an active market exists, and value in use. Value in use is defined as the present value of estimated future cash flows of the related cash-generating unit. In the case of investments in subsidiaries and associates, the discounted future cash flows and the terminal value expected from disposal at the end of useful life are adjusted by the year-end net financial debt reported in the investee’s financial statements. The equity value thus determined is then compared with the investment’s carrying amount. The cash-generating units have been identified in line with the organizational structure and business of the Company and its investees. They consist of groups of homogeneous assets that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are stated at cost and tested for impairment if there is such evidence. These tests are carried out whenever any investments display evidence that they might be impaired. These investments are measured using the Discounted Cash Flow model, adopting the methods described in the section “Impairment of assets”, or at fair value, calculated as the amount that could be obtained from the sale of the investments in a free market transaction between knowledgeable and available parties, less sales costs. If it is necessary to recognize an impairment loss, it is recognized in the profit or loss in the period in which it is identified.

Inventories

Inventories are measured at the lower of purchase or production cost and their estimated realizable value as deduced from market trends. The purchase cost of raw materials is calculated using the weighted average cost method, while the FIFO method is used for finished products. Inventories are adjusted to their net realizable value by taking into account market prices, costs to sell under normal business conditions, and technical and commercial obsolescence. The resulting provisions for write-downs are deducted directly from the cost of inventories.

Financial assets

Financial assets are initially recognized at fair value, which normally corresponds to the nominal amount for loans and receivables and purchase cost for financial assets plus, for financial assets or liabilities classified at fair value through profit or loss, any purchase-related costs. Management determines upon initial recognition how financial assets are to be classified, identified in Note 11 in accordance with IAS 39 criteria and as required by IFRS 7. After initial recognition, financial assets are measured in accordance with their classification within one of the following categories. More specifically: ‒ “Financial assets, designated upon initial recognition at fair value through profit or loss” are measured at fair value at the reporting date; in the case of unquoted instruments, this amount is determined using generally accepted valuation techniques based on market information. Fair value gains and losses on assets in this category are recognized in profit or loss. ‒ “Loans and receivables” are measured at amortized cost using the effective interest method, in other words, recognizing in profit or loss the interest calculated using a rate that exactly discounts the financial asset’s estimated future net cash flows to its carrying amount. Losses are recognized in profit or loss when the loans and receivables are derecognized or when they become impaired. Receivables are impaired individually and recognized at their estimated realizable value (fair value) by means of the allowance for impairment, which is directly deducted from their carrying amount. ‒ Receivables are impaired when there is objective evidence that the receivable is unlikely to be collected and also on the basis of past experience and statistics. ‒ If, in a subsequent period, the amount of previous impairment losses decreases, the carrying amount of the assets is reinstated up to the amount that would have derived from applying the amortization cost, if the impairment loss had not been recognized. ‒ The Company mainly reports in this category assets due within twelve months, which are therefore recognized at nominal amount as an approximation of amortized cost. If the terms of payment are longer than normal market terms and the loan or receivable does not earn interest, the amount recognized in the financial statements contains an implicit time value component and so must be discounted by recognizing the discount in profit or loss.

159 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

‒ Loans and receivables expressed in foreign currencies are converted at closing rates, and the gains or losses from their translation are taken to profit or loss. ‒ Available-for-sale financial assets are initially recognized at cost plus any directly attributable transaction costs. They are subsequently measured at fair value; gains and losses arising from changes in the fair value of these assets are recognized in other comprehensive income. When available-for-sale financial assets are sold, redeemed or transferred, the cumulative gain or loss is reclassified from equity to profit or loss. If there is evidence that the asset may have undergone a significant or prolonged impairment loss, the cumulative loss recognized in equity must be reclassified in profit or loss. ‒ In the case of securities traded on active markets, fair value is determined with reference to the closing price on the last trading day of the reporting period. ‒ In the case of assets for which there is no active market, fair value is determined on the basis of the price used in recent transactions between independent parties in instruments that are substantially the same, or using valuation techniques based on discounted cash flow analysis. Only if no future plans for the underlying asset are available and there are no comparable transactions, is the valuation maintained at cost. ‒ At the reporting date, the Group has classified less than 20% of its equity investments in this category, similar to the prior year.

Derivative financial instruments

Derivatives are classified as “Hedging derivatives” when they meet the requirements for hedge accounting, otherwise, even if they have been taken out with the intent of managing exposure to risks, they are recognized as “Held- for-trading financial assets”. In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only when their relationship with the hedged item is formally documented and the hedge effectiveness is high (effectiveness test). The effectiveness of hedging transactions is documented both at the inception of the hedge and periodically thereafter (quarterly or at least at every reporting date) and is measured by comparing changes in the hedging instrument’s fair value with those in the hedged item (dollar offset method) for back testing effectiveness. Prospective- ly testing effectiveness involves developing aggregate discounted cash flows by year for the hedged item and its hedging derivative (regression method). Fair value hedges, which hedge the exposure to changes in the fair value of the item being hedged, are recognized at fair value with any changes in this value recognized in profit or loss. The effective portion of changes in the fair value of cash flow hedges, which hedge the exposure to changes in cash flows for the items hedged, is recognized in other comprehensive income and presented in the hedging reserve. The ineffective portion of changes in the fair value of the derivative financial instrument is immediately recognized in profit/(loss) for the year. If the derivative instrument is sold or no longer qualifies as an effective hedge of the risk for which it was taken out or if the underlying transaction is no longer highly probable, the related portion of the hedging reserve is immediately reclassified to profit or loss. Regardless of classification, all derivatives are stated at fair value, determined using valuation techniques based on market data (such as discounted cash flows, forward exchange rate method, Black-Scholes model and its variants). Specifically, this value is determined by the “Group Finance and Accounting Shared Services” department, using specific pricing instruments based on market parameters (i.e. interest rates, exchange rates and volatilities), recognized on individual valuation dates and compared with the figures communicated by the counterparties.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, bank and post office on-demand deposits and investments in securities carried out as part of the treasury management function which have a short-term maturity, are highly liquid and subject to an insignificant risk of changing value. They are stated at nominal amount. For the purposes of the disclosures required by IFRS 7 and presented in Note 11, in which financial instruments are classified on the basis of the definitions contained in IAS 39, cash and cash equivalents have been classified under “Loans and receivables”, while in the statement of cash flows, they are presented as cash and cash equivalents, as defined above, net of bank overdrafts.

Financial liabilities

Financial liabilities are initially recognized at fair value, which is basically the consideration payable, less any

– 160 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

related transaction costs. Management determines upon initial recognition how financial liabilities are to be classified, as identified in Note 13, in accordance with IAS 39 criteria and as required by IFRS 7. If the loan agreements make provision for covenants and non-compliance with these is verified, and this situation is not resolved before the close of the year, the long-term portion of this loan is classified as a current liability.

After initial recognition, financial liabilities are measured on the basis of their classification under IAS 39. More specifically: ‒ “ Financial liabilities at fair value through profit or loss” are measured at fair value on the reporting date; in the case of unquoted instruments (e.g. derivative financial instruments), this value is determined using valuation techniques based on market information. Fair value gains and losses on liabilities held for trading are recognized in profit or loss. ‒ “ Financial liabilities at amortized cost” are measured at amortized cost, by recognizing in profit or loss the interest calculated using the effective interest method, applying a rate that exactly discounts the financial instrument’s estimated future net cash flows to its carrying amount. Instruments due within twelve months are measured at their nominal amount as an approximation of amortized cost.

Financial liabilities expressed in foreign currencies are translated at closing rates, and the gains or losses from their translation are recognized in the profit or loss. “Financial liabilities" comprise trade payables, loans and borrowings, bank loans and overdrafts and other liabilities. These mostly fall due within twelve months and/or bear interest and therefore are not discounted.

Treasury shares

Treasury shares are recognized as a deduction from equity. The original cost of the treasury shares and the gains arising on any subsequent sales are recognized as changes in equity.

Employee benefits

Post-employment benefits reported by Italian companies with at least 50 employees are treated as a defined benefit plan only for that part of the liability vested before January 1, 2007 (and not yet paid out at the reporting date), while amounts accruing thereafter are treated as a defined contribution plan. Italian companies with less than 50 employees treat their post-employment benefits as a defined benefit plan. All defined benefit plans are discounted using actuarial criteria: actuarial gains and losses are classified in the statement of comprehensive income. The actuarial valuation, based on financial and demographic assumptions, is carried out with the help of external professional actuaries.

Provisions for risks and charges

Provisions are recognized when the company has a present obligation, deriving from a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation and/or the timing. The amount recognized as a provision is the best estimate of the expenditure that the Company would reasonably pay to settle the obligation at the reporting date or to transfer it to a third party at that time. The estimate implicitly reflects a time value component if it is assumed that the obligation will be settled in the long term. If this component is material and the payment date for the obligation may be reliably estimated, the provision is discounted; the increase in the provision associated with the time value of money is recognized in the income statement under “Financial expense”. If the liability relates to property, plant and equipment (e.g. site dismantling and restoration), the provision is recognized as a balancing entry to the carrying amount of the asset to which it refers; the cost is recognized in profit or loss through the process of depreciating the related asset.

Assets and liabilities held for sale

161 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

6 ▪ Accounting standards, amendments and interpretations which came into force as from January 1, 2017

Amendment to IAS 12 - Recognition of deferred tax assets for unrealized losses

The amendment issued by the IASB in January 2016 and endorsed by the European Commission in November 2017, aims to provide further clarification on the recognition of deferred tax assets arising from unrealized losses. Specifically, the amendments clarify that the unrealized losses resulting from certain circumstances give rise to deductible temporary differences regardless of whether the entity expects to recover the carrying amount of the assets by holding it until maturity or selling it. The amendments clarify that when estimating taxable profit of future periods, an entity can assume that an asset will be recovered for more than its carrying amount if that recovery is probable. All these facts and circumstances should be taken into consideration when an entity makes such an assessment. The adoption by RCS of these amendments, applicable retrospectively as from January 1, 2017, had no effect on the figures of the Separate Financial Statements of RCS MediaGroup S.p.A..

Amendment to IAS 7 – Statement of cash flows: Disclosure Initiative

In January 2016, the IASB issued an amendment to IAS 7 “Statement of cash flows”, endorsed by the Europe- an Commission in November 2017. The amendment aims to provide clarification to improve disclosures on financial liabilities. Specifically, the amendments require entities to provide a disclosure that allows financial statements users to evaluate changes in liabilities arising from financing activities, including therein both changes arising from cash and non-cash changes. The adoption by RCS of these amendments, applicable as from January 1, 2017, had no effect on the figures of the Separate Financial Statements of RCS MediaGroup S.p.A..

7 ▪ Accounting standards, amendments and interpretations endorsed by the EU and applicable from financial periods beginning on or after after January 1, 2017

IFRS 15 - Revenue from Contracts with Customers

The standard, issued by the IASB in May 2014, amended in April 2016 and endorsed by the European Commis- sion in September 2016, introduces a general framework to establish whether, when and to what extent revenue will be recognized. The standard replaces the recognition criteria set out in IAS 18 - Revenue, in IAS 11 - Con- struction Contracts and in IFRIC 13 - Customer Loyalty Programmes, in IFRIC 15 - Agreements for the Con- struction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC-31 Revenue - Barter Transac- tions Involving Advertising Services. IFRS 15 applies to financial periods beginning on or after January 1, 2018, and early application is allowed. On first-time adoption, IFRS 15 must be applied retrospectively. However, some simplifications (“practical expedi- ents”) and an alternative approach (“cumulative effect approach”) which avoids restating comparative periods are allowed; in the latter case, the effects of the application of the new standard must be recognized in opening equity in the year of first-time application of IFRS 15. Following the amendment in April 2016, the IASB clarified certain provisions and, at the same time, provided further simplifications, in order to reduce costs and complexity for first-time adopters.

The Company will adopt IFRS 15 - Revenue from contracts with Customers as of January 1, 2018, using the cumulative effect approach. The analysis conducted on the effects of the first-time application of IFRS 15 on the financial statements led to results substantially limited to a different representation of costs/revenue due to the effect of the assessment of the role of principal/agent, but nevertheless without consequences on the Company's equity as at January 1, 2018. Though adopting the abovementioned cumulative effect approach and, therefore, not applying in 2018 the provisions of the new standard to the comparative period shown, and not noting any effects on the opening equity at January 1, 2018, for greater clarity and transparency, an estimate was made, nevertheless, of the relating effect of reclassification on the income statement items in 2017. This different representation refers to the distribution activities. It should be noted that the actual effects of this adoption on January 1, 2018 may change since the Company has not yet completed its checks and assessment of controls over the related information process-

– 162 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

es and, in addition, certain assessments may undergo some changes until the separate financial statements as at December 31, 2018 are presented, also based on the subsequent emergence of sectoral views on certain situations more significantly exposed to interpretations of the standard.

The total estimated adjustments for revenue amount to higher revenue by approximately €86 million, due basically to an increase in publishing revenue. The analysis of contracts for outsourced distribution activities was concluded with RCS recognized in the role of principal in the distribution (mainly of newspapers and magazines), with a consequent increase in publishing revenue due to the recognition of the entire revenue to the publishers and a similar increase in operating costs for the recognition of distribution commission for the outsourced distribution service.

IFRS 9 - Financial Instruments

The standard, issued by the IASB in July 2014 and endorsed by the European Commission in November 2016, supersedes IAS 39 - Financial Instruments: recognition and measurement. IFRS 9 introduces new provisions for the classification and measurement of financial instruments, including a new model for expected losses for the purpose of calculating impairment losses on financial assets, and new general provisions for hedge accounting. It also includes provisions for the recognition and derecognition of financial instruments in line with the current IAS 39. IFRS 9 is effective for financial periods beginning on or after January 1, 2018; early application is allowed. With the exception of hedge accounting, retrospective application of the standard is required, while it is not compulsory to provide comparative information. As regards hedge accounting, the standard is generally applied prospectively, with a few limited exceptions.

The Company will adopt IFRS 9 Financial instruments from January 1, 2018, using the exemption that allows an entity not to recalculate the comparative information for prior years regarding changes in classification and assessment including impairment losses. Differences in carrying amounts of financial assets and liabilities arising from the adoption of IFRS 9 will be recognized in retained earnings (losses carried forward) at January 1, 2018. Additionally, on first-time application, an entity may decide whether to continue to apply the hedge accounting provisions in IAS 39 or to adopt those specified in IFRS 9. The Company intends to continue to apply the provisions in IAS 39 during the transition phase.

In 2017, a thorough analysis was conducted on the impacts of the elements dealt with in IFRS 9. On the basis of the activities carried out to date, the Company has estimated that the negative effects on equity, more precisely on Retained earnings (losses carried forward), as at January 1, 2018, will amount to approximately €2 million. It should be noted that the effects of the adoption of the above standard at January 1, 2018 may change, since the Company has yet to complete its checks and assessment of controls over the changes made on the IT systems and, in addition, new assessment criteria may undergo changes until the consolidated financial statements as at December 31, 2018 are presented.

Additionally, IFRS 9 introduces new provisions on the classification and assessment of financial assets, which reflect the business model according to which such assets and the characteristics of their cash flows are managed. IFRS 9 classifies financial assets into three main categories: at amortized cost, at fair value recognized through profit and loss (FVTPL), and at fair value through other comprehensive income (expense) (FVOCI). The categories used under IAS 39, i.e. held to maturity, loans and receivables and available-for-sale, have been eliminated. Additionally, according to IFRS 9, derivatives embedded into contracts, where the prime element is a financial asset which comes within the application of the standard, must never be separated. Conversely, a hybrid instrument is examined in its entirety for the purposes of classification.

163 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Amendment to IFRS 4 - “Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts”

IFRS 16 – Leases

In January 2016, the IASB published “IFRS 16 – Leases”. The new standard, endorsed by the European Com- mission in October 2017, establishes a new single model of recognition and measurement of leases for the les- see, without making any distinction between operating leases and finance leases. Specifically, it provides for the recognition of the right of use of the underlying asset with the assets in the statement of financial position with a balancing entry as a finance lease liabilities in financial liabilities. The standard provides the possibility of not recognizing contracts as leases that involve low-value assets and leases with a term equal to or less than 12 months. The standard, instead, introduces no material changes for the lessor. The standard introduces a criterion based on the control of the use of an asset to distinguish leases from service contracts, identifying the following distinguishing factors: − the identification of the asset granted for use (i.e. without a right of replacement thereof by the lessor); − the right to obtain substantially all economic benefits deriving from use of the asset; − the right to establish how and why the asset is to be used.

The standard applies as of January 1, 2019, but early application is allowed, solely for companies that have applied IFRS 15 “Revenue from Contracts with Customers” early. In 2018, the Company will prepare the necessary intervention work on the IT processes, concluding the analyses aimed at defining and assessing the potential effects on the Financial Statements arising from the application of IFRS 16.

8 ▪ Accounting standards, amendments and interpretations yet to be endorsed by the EU and applicable from financial periods beginning on or after January 1, 2017

IFRS 14 - Regulatory Deferral Accounts

IFRS 14, issued by the IASB in January 2014, allows an entity, whose activities are subject to regulated tariffs, to continue to apply the previous reporting standards which had been adopted for amounts relating to the rate regulation, at the time of the first adoption of the IFRS. IFRS 14 came into force on January 1, 2016, but the European Commission suspended the endorsement process while waiting for the new accounting standard on “rate-regulated activities”. It should be noted that this standard does not apply to the Group.

Amendment to IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and Joint Ventures

– 164 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

are a business, as defined by IFRS 3, between an investor and one of its associates or joint venture, must be fully recognized. Any gain or loss resulting from the sale or transfer of assets that are not a business, is nevertheless recognized only within the limits of the interest held by third-party investors in the associate or joint venture. The IASB, with a further adjustment in December 2015, cancelled the previous date of first-time application set for January 1, 2016, deciding to determine it at a later date.

Amendment to IFRS 2 - Classification and measurement of share-based payment transactions

In June 2016, the IASB published the amendments to IFRS 2 Classification and measurement of share-based payment transactions, which aim to clarify the accounting of certain categories of share-based payment transactions. The amendments apply as of January 1, 2018. However, early application is allowed.

Improvements to IFRSs: 2014-2016 Cycle

In December 2016, the IASB published the document “Improvements to IFRS: 2014-2016 Cycle”, the main amendments regard:

IFRS 1 – First-time Adoption of International Financial Reporting Standards – The amendments eliminate some exemptions set forth in IFRS 1, as the benefit of said exemptions is now believed to have been super- seded. The amendments apply to financial periods beginning on or after January 1, 2018.

IFRS 12 – Disclosure of Interests in Other Entities – The amendment clarifies the scope of application of IFRS 12, specifying that the information required by the standard also applies to investments classified as held for sale, held for distribution to shareholders or as discontinued operations in accordance with IFRS 5. The amendment aims to standardize the disclosures required by IFRS 5 and IFRS 12. The amendments apply to financial periods beginning on or after January 1, 2017.

IAS 28 – Investments in Associates and Joint Ventures – The amendment clarifies that a venture capital organization or other qualifying entity may elect to measure investments in associates or joint ventures at FVT- PL (rather than using the equity method), for each individual investment at the moment of initial recognition. The amendments apply to financial periods beginning on or after January 1, 2018.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

Amendment to IAS 40 - Investment property: Transfers of Investment Property

IFRS 17 - Insurance Contracts

165 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

nance of the previous accounting policies, IFRS 17 provides a complete model for insurance contracts covering all the relevant accounting aspects. The standard is applicable beginning on January 1, 2021, but earlier application is allowed.

IFRIC 23 - Uncertainty over Income Tax Treatments

The interpretation IFRIC 23 - Uncertainty over Income Tax Treatments, published by IASB in June 2017, addresses the theme regarding the uncertainty of the tax treatment to be adopted over income tax, specifying that the uncertainties over the calculation of tax liabilities and assets are reflected in the financial statements only when it is likely that the entity will pay or recover the amount in question. The new interpretation applies as of January 1, 2019, but early application is allowed.

Amendment to IFRS 9 - Financial Instruments: Prepayment Features with Negative Compensation

In October 2017, the IASB published the amendments to IFRS 9 Prepayment Features with Negative Compensa- tion aimed at allowing the measurement at amortized cost or at fair value through other comprehensive income (OCI) of financial assets featuring a prepayment option with the so-called “negative compensation”. The amendments apply to financial periods beginning on or after January 1, 2019.

Amendment to IAS 28 - Investments in associates: Long-term Interests in Associates and Joint Ventures

Improvements to IFRSs: 2015-2017 Cycle

In December 2017, the IASB published the document “Improvements to IFRS: 2015-2017 Cycle”, the main amendments regard:

IFRS 3 – Business Combination and IFRS 11 – Joint Arrangements – The amendments to IFRS 3 clarify that when an entity obtains control of a joint operation, it must re-calculate the fair value of the ownership interest previously held in this joint operation. The amendments to IFRS 11 clarify that when an entity obtains joint control of a joint operation, the entity does not re-calculate the fair value of the interest previously held in this joint operation.

IFRS 12 – Income tax consequences of payments on financial instruments classified as equity – The proposed amendments clarify how an entity must recognize any tax effects deriving from the distribution of dividends.

IAS 23 – Borrowing costs eligible for capitalization – The amendments clarify that where funds borrowed specifically for the acquisition and/or construction of an asset remain in place even after the asset itself is ready for use or sale, such funds cease to be considered specific and are included in the entity's general funding in order to determine the capitalization rate of the funds borrowed. The amendments apply to financial periods beginning on or after January 1, 2019. Early application is allowed.

9 ▪ Main decisions when applying reporting standards and key sources of estimation uncertainty

Key sources of estimation uncertainty

The preparation of the financial statements and notes thereto has required using estimates and assumptions both for determining the carrying amounts of some assets and liabilities and for measuring contingent liabilities. The estimates and assumptions are based on past experience and other relevant factors. However, future events might not fully confirm the forecast amounts. The estimates and assumptions are periodically reviewed and the effects of any changes are immediately reflected in the financial statements.

– 166 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Owing to the persisting negative trend of the main markets of operation of the Company, and despite improvements in the macroeconomic environment, the estimates have been made on the basis of assumptions relating to a highly uncertain future. However, it is possible that actual events over the next year may have a different outcome to those forecasted at December 31, 2017, causing significant adjustments to the carrying amounts of assets and liabilities, amongst which equity investments and goodwill because of their materiality.

In order to determine whether there are impairment losses on fixed assets, including the carrying amount of equity investments and goodwill, it is necessary to estimate the value in use of the cash-generating unit (CGU) to which the fixed asset has been allocated. The determination of value in use involves estimating the cash flows that the Company expects to derive from the CGU, and identifying an appropriate discount rate. As further explained in Notes 28 and 29, the principal uncertainties affecting this estimate refer to the discount rate (WACC), the growth rate (g), and the assumptions about expected cash flows.

The following is a summary of the principal assumptions used by management in the Group’s most critical valuation process, namely the determination of the recoverable amount of non-current assets, including goodwill.

Principal assumptions for determining the recoverable amount of non-current assets

The Company periodically reviews the carrying amount of equity investments and intangible assets with indefinite life, even if there are no signs of impairment, to ensure that this is not higher than the recoverable amount. When indicators of impairment are identified, the carrying amounts of property and plant are also promptly reviewed. The carrying amount of equity investments is measured, as is goodwill, each time there is an indication that the carrying amounts may have been impaired and, in any event, annually. The carrying amount of equity investments in the portfolio stands at €408.7 million and represents about 73% of total non-current assets.

10 ▪ Management of capital and financial risks

The Company manages its capital structure and financial risks in accordance with the asset structure. Its aim is to maintain a suitable credit rating and adequate capital ratio levels over time, given the current lending dynamics in Italy, where banks are called for more stringent capital requirements by European legislation, and the potential funding opportunities offered by the capital markets. No changes were made to the operating objectives, policies and procedures in 2017 from the year ended 31 December, 2016.

The New Loan Agreement sets an annual interest rate equal to the sum of the reference Euribor and a variable margin depending on the Leverage Ratio, more favourable for the Company than the margins set forth in the previous Loan Agreement. For additional details, please refer to the section “Additional information required by CONSOB pursuant to Art. 114, paragraph 5 of Legislative Decree no. 58/1998 of May 27, 2013” of this Annual Report.

Market and business risk are added, for the Company, to the exposure to several financial risks: market risks (such as interest rate risk, and to a lesser extent currency risk, while it is not exposed to price risk), liquidity risk and credit risk. The Company constantly monitors financial risks connected with its business and that of its subsidiaries.

RCS MediaGroup S.p.A. provides a centralized treasury service to group companies, including through the use of a zero-balance cash pooling system. This means that the cash needs of group companies are satisfied by RCS MediaGroup S.p.A..

167 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Interest rate risk

Interest rate risk refers to the risk of possible higher financial expense caused by an adverse, unexpected fluc- tuation in interest rates. The Company is exposed to this risk in relation to its floating-rate financial liabilities. Interest rate risk is managed using specific policies defining the risk management objectives, limits, roles and responsibilities of the various departments involved in the process. Specifically: ‒ it is the Company’s objective to mitigate exposure to interest rate risk by establishing an adequate mix between floating-rate and fixed-rate liabilities, using derivatives where necessary; ‒ interest rate risk is managed by the “Group Finance and Accounting Shared Services” department within the permitted operating limits; this department draws up strategies for hedging the exposure identified and presents them for top management approval; ‒ using derivatives for speculative purposes is not permitted, in other words, it is not in line with the stated objective, unless previously authorized by the Board of Directors in cases of proven benefit; ‒ the “Group Finance and Accounting Shared Services” department periodically informs top management of its work and results in different ways, including a report on the status of the derivatives portfolio and a report analyzing changes in the net financial position (debt).

At December 31, 2017, approximately 67% of Company loans and borrowings, including finance lease liabilities, were at a contractually fixed rate, or transformed to such via interest rate swaps (IRS) (19% at December 31, 2016). Hedging, at Group level, was approximately 79% (43% at December 31, 2016).

At December 31, 2017, the hedging objective was pursued using the above types of derivatives taken out with highly-rated leading financial institutions. IRSs transform the floating rate into a fixed one (or vice versa) through the periodic swap, with the financial counterparty, of the difference between the fixed-rate interest (swap rate) and floating-rate interest, both calculated on the contractual notional amount. It should be noted that in December 2017 a number of new IRS hedging contracts of €180 million were concluded, with an average duration of just under 2 years at an average weighted fixed rate (for the amount and duration of the hedges) of a negative 0.132%.

Note 36 contains detailed information about the fair value of derivative financial instruments at the reporting date, and the table summarizing interest rate risks.

Sensitivity analysis The following table shows the results of the sensitivity analysis of interest rate risk, reporting its impact on profit or loss and equity, as required by IFRS 7.

This sensitivity analysis was performed assuming a parallel 1% increase/decrease in the relevant interest rate curves by individual currency.

Sensitivity analysis of interest rate risk on floating rate items Increase/decrease in Impact Impact Underlying underlying interest rates on profit or loss on equity (€/millions) 2017 (92.0) 1% 0,6 3.7 2016 pro-forma (147.3) 1% (0.3) 1.8

2017 (92.0) -1% (1.9) (3.8) 2016 pro-forma (147.3) -1% (0.5) (1.9)

The Company held exclusively floating-rate financial instruments at December 31, 2017. The use of interest rate derivatives, transforming liabilities from floating rate to fixed rate, should be noted.

– 168 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Floating-rate financial instruments included in the sensitivity analysis concern cash and cash equivalents, current and non-current financial assets and liabilities and any interest rate derivatives held. The analysis was conducted taking into account: ‒ the change in interest income and expense during the year attributable to any reasonable changes in interest rates applicable to floating-rate assets and liabilities held during the year; ‒ the matching and opposite impact of the hypothetical rate shock in terms of fair value changes in interest rate derivatives recognized in equity (for the hedge component beyond the relevant year) and in profit and loss, assuming a sudden change in the rate curve at the reporting date. Hedges of interest rate risk have a notional amount of €243.8 million at December 31, 2017 (€168.8 million in 2016) and refer solely to Interest Rate Swaps.

No impact is recognized in relation to fixed-rate financial instruments because the statement of financial position showed no significant financial assets or liabilities bearing fixed interest.

As far as risk factors generating significant exposures to risk were concerned, the sensitivity analysis at Decem- ber 31, 2017 revealed that an increase in interest rates would produce a potential income of €0.6 million in profit or loss (losses of €0.3 million in 2016 pro-forma) and an increase of €3.7 million in equity (€1.8 million in 2016 pro-forma). A decrease in interest rates would produce potential losses of €1.9 million in profit and loss (€0.5 million losses in 2016 pro-forma) and a decrease of €3.8 million in equity (€1.9 million in 2016 pro-forma).

It should be noted that the centralized treasury service provided by RCS MediaGroup has loan assets with the Group companies; this has an effect on the sensitivity results, also with regard to the hedges on the Group's financial exposure.

Currency risk

Currency risk can be defined as the sum of negative effects on assets or liabilities in foreign currency caused by changes in exchange rates. RCS MediaGroup S.p.A. has minimum exposure to currency risk (in terms of transactions and economically) in that the commercial cash flows are primarily carried out in euro; hence there are no active hedges on currency risk in place. The exposure to currency risk for net investments in a foreign entity is not hedged. Given the small amount of foreign currency balances, the results of the associated sensitivity analysis were immaterial.

Liquidity risk

Liquidity risk may arise owing to difficulties in obtaining financing in due time to support operations, also possibly for the purpose of repaying maturing loans. The Company manages liquidity on a centralized basis (using cash management systems for the main subsidiaries) in compliance with the objectives and policies defined by management.

On 4 August, 2017, the Company concluded a new Loan Agreement to fully refinance the Loan Agreement initially signed on June 14, 2013 and previously amended in August 2014 and in June 2016. The New Loan Agree- ment has two credit lines for a total (on signing) of €332 million, including a term line of €232 million (reduced to €208 million as at December 31 due to repayments) and a revolving line of €100 million, with the maturity date of both lines in December 2022, and the revision of the gain which is more favourable for the Company than the gains set out in the rescheduled Loan Agreement.

The New Loan Agreement contains provisions relating to compulsory early repayment events, representations, obligations, revocation events and materiality thresholds which are overall more favourable for RCS than the previous Loan Agreement. For additional details, please refer to the section “Additional information required by CONSOB pursuant to Art. 114, paragraph 5 of Italian Legislative Decree no. 58/1998 of May 27, 2013” of this Annual Report. The Company’s objective regarding the negotiation of the New Loan was to keep a balance between the amount of the medium/long-term New Loan and the amount of the commercial short-term lines in relation to the planned requirements and flexibility of management through:

169 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

‒ the optimal management of any available funds in relation to the requirements highlighted from time to time based on the seasonal nature of operations; ‒ possible use of different types of finance, both short-term as well as medium/long-term.

Liquidity analysis The following tables show the maturity analysis of the Company’s financial and trade assets and liabilities at December 31, 2017 and December 31, 2016 pro-forma, based on undiscounted contractually agreed payments (including principal and interest even if not matured at the reporting date).

Mention should be made that the loan totaling €332 million consists of two lines: an Amortizing Term Credit Line of €232 million, approximately €208 million of which outstanding at December 31 and a Revolving Credit Line of €100 million, of which €50 million drawn down at December 31. The Company continues to monitor the trend in and possible development of the credit and capital markets, to plan the necessary actions for the correct handling of these maturities.

– 170 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Analysis of balances reported at the end of 2017 (1)

Contractual due date (interest and principal) on 0-6 6 months 1-2 2-5 over 5 (€/millions) demand months 1 year years years years Total Financial assets Trade receivables due from third parties (2) 25.8 107.8 1.5 - - - 135.1 Intragroup trade receivables (2) 40.0 103.3 - - - - 143.3 Other receivables (trade or financial) 12.7 0.2 0.2 0.3 1.0 1.6 16.0 Intragroup loan assets for overdrafts 14.9 256.7 - - - - 271.6 Cash and cash equivalents 0.7 - - - - - 0.7 Total financial assets 94.1 468.0 1.7 0.3 1.0 1.6 566.7

Financial liabilities Trade payables due to third parties (83.6) (41.1) - - - - (124.7) Loans and borrowings (with leases) (16.8) (31.9) (15.6) (30.8) (227.7) - (322.8) Intragroup loans and borrowings (35.9) - - - - - (35.9) Intragroup trade payables (0.2) (11.5) - - - - (11.7) Other payables (trade or financial) (16.6) - - - - - (16.6) Intragroup loans and borrowings - (33.8) - - - - (33.8) Hedging derivatives - (1.1) (0.1) - 0.1 - (1.1) Total financial liabilities (153.1) (119.4) (15.7) (30.8) (227.6) - (546.6)

(1) These figures include forecast interest not yet accrued at December 31, 2017 and, therefore, not reconcilable with those reported in the statement of financial position. (2) Trade receivables are stated gross of expected product returns.

Analysis of balances reported at the end of 2016 - Pro-forma (1)

Contractual due date (interest and principal) on 0-6 6 months 1-2 2-5 over 5 (€/millions) demand months 1 year years years years Total Financial assets Trade receivables due from third parties (2) 24.9 117.9 1.5 - - - 144.3 Intragroup trade receivables (2) 50.2 18.8 0.2 - - - 69.2 Other receivables (trade or financial) 19.0 - - 0.3 0.8 2.0 22.1 Intragroup loan assets for overdrafts 19.4 257.3 - - - - 276.7 Cash and cash equivalents 1.1 - - - - - 1.1 Total financial assets 114.6 394.0 1.7 0.3 0.8 2.0 513.4

Financial liabilities Trade payables due to third parties (131.3) (30.9) (0.1) - - - (162.3) Loans and borrowings (with leases) (38.9) (37.1) (20.6) (60.9) (224.5) - (382.0) Intragroup loans and borrowings (37.4) - - - - - (37.4) Intragroup trade payables (8.8) (7.3) - - - - (16.1) Other payables (trade or financial) (17.7) - - - - - (17.7) Intercompany loans and borrowings - (22.6) - - - - (22.6) Hedging derivatives - (2.4) (1.8) (0.9) - - (5.1) Total financial liabilities (234.1) (100.3) (22.5) (61.8) (224.5) - (643.2)

(1) These figures include forecast interest not yet accrued at December 31, 2016 and, therefore, not reconcilable with those reported in the statement of financial position. (2) Trade receivables are stated gross of expected product returns.

171 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Credit risk

Credit risk may be defined as the possibility that one party to a financial instrument will cause a financial loss by failing to discharge an obligation.

RCS MediaGroup S.p.A.’s exposure to credit risk refers to loans and trade receivables. Any liquidity is deposited with highly reputable banking counterparties. In addition, there are loans to group companies as part of the Group’s centralized treasury management.

The table below shows the maximum exposure to credit risk of items reported in the financial statements, including derivatives. Maximum exposure to risk is presented with the mitigating effects of netting agreements and guarantees given by third parties shown separately, if applicable.

Carrying amount at Maximum exposure to credit risk Note Dec-31-2016 (€/millions) Dec-31-2017 pro-forma FINANCIAL ASSETS Loans and receivables Trade receivables (gross of expected product returns) 34 194.3 213.5 Current loan assets 36 270.3 274.5 Cash and cash equivalents 36 0.7 1.1 Other receivables and current assets 35 11.9 18.4 Non-current loan assets 31 2.8 2.9 Other non-current assets 32 0.6 0.6 Financial guarantees given - - Total 480.6 511.0

The balance of assets fell versus the prior year, referring mainly to trade receivables (€19.2 million) related to lower turnover, and following termination of trade transactions with a number of third-party publishers, to current loan assets (€4.2 million), due to lower loans to subsidiaries, and to other receivables and current assets (€6.5 million), mainly attributable to the offsetting of agent payables against agent advances (€5.3 million).

Trade receivables are recognized in the financial statements after deducting impairment losses.

Trade receivables are managed by the divisions in compliance with the Group’s financial objectives, agreed commercial strategies and operating procedures, which prevent products or services from being sold to customers without an adequate credit record or collateral guarantees. New customers and their credit rating are accurately evaluated using an automated credit scoring system. The rating model applied uses the expected default frequency model prepared by a leading financial information and analysis group.

They are constantly controlled during the year with the aim of reducing late payments and limiting losses of financial assets.

– 172 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The table below provides information on the credit quality of financial assets in portfolio.

Carrying amount at Dec-31-2017 Not past due & Past due & not Past due & Allowance for (€/millions) not impaired impaired impaired impairment Total Trade receivables (1) 126.2 10.9 65.9 (8.7) 194.3 Other receivables and current assets 11.9 - 6.4 (6.4) 11.9 Current loan assets 270.3 - - - 270.3 Current portion 408.4 10.9 72.3 (15.1) 476.5 Non-current loan assets 2.8 - 1.0 (1.0) 2.8 Other non-current assets 0.6 - - - 0.6 Non-current portion 3.4 - 1.0 (1.0) 3.4 Total 411.8 10.9 73.3 (16.1) 479.9

Carrying amount at Dec-31-2016 pro-forma Not past due & Past due & not Past due & Allowance for (€/millions) not impaired impaired impaired impairment Total Trade receivables (1) 153.5 8.2 63.5 (11.7) 213.5 Other receivables and current assets 18.4 - 6.4 (6.4) 18.4 Current loan assets 274.5 - - - 274.5 Current portion 446.4 8.2 69.9 (18.1) 506.4 Non-current loan assets 2.9 - 2.7 (2.7) 2.9 Other non-current assets 0.6 - - - 0.6 Non-current portion 3.5 - 2.7 (2.7) 3.5 Total 449.9 8.2 72.6 (20.8) 509.9

(1) For IFRS 7 purposes, trade receivables are stated gross of expected product returns.

Total current receivables (trade and other) stood at €206.2 million, dropping by €25.7 million versus 2016 pro-forma. An analysis of the trade receivables portfolio shows an increase in past due and not impaired receivables of €2.7 million, from €8.2 million to €10.9 million in 2017, partly offset against suppliers under liability items. For the Newspapers segment only, these values amount to over €3 million. The past-due impaired receivables rose from €63.5 million to €65.9 million (+€2.4 million). These receivables relate mostly to prime customers, and, even if they are past due such as to justify a prudential provision, this does not lead to an increased risk of insolvency.

The allowance for impairment of trade and other receivables dropped by €3.0 million, due to reduced requirement for covering non-performing loans and due to favourable progress in recovering amounts in trade litigation.

The hedging of financial asset risk stood at 3.2% in 2017 (3.9% in 2016 pro-forma). Net of the loans of RCS MediaGroup S.p.A. to the subsidiary Unidad Editorial (€265 million in 2017 versus €261 million in 2016 pro-forma), the hedging of financial asset risk in 2017 stood at 7.0%.

173 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Current loan assets and trade receivables, not past due and not impaired at December 31, 2016 pro-forma and December 31, 2017, are summarized in the following table, on the basis of the credit rating assigned by the Com- pany to individual debtors.

Carrying amount at Dec-31-2017 Carrying amount at Dec-31-2016 pro-forma Rating Current Non-current Total Current Non-current Total (€/millions) portion portion portion portion Rating A (low risk) 15.2 - 15.2 26.0 - 26.0 Rating B (medium risk) 81.7 - 81.7 97.4 - 97.4 Rating C (high risk) 7.2 - 7.2 7.9 - 7.9 Rating Z (not rated) 304.3 3.4 307.7 315.1 3.5 318.6 Total 408.4 3.4 411.8 446.4 3.5 449.9

The table above shows the breakdown of the credit portfolio, expressed in risk classes; ‒ lower concentration of loans to customers with a low risk profile (Rating A), whose impact on the total fell from 5.8% at December 31, 2016 pro-forma to 3.7% at December 31, 2017; ‒ Rating category B (medium risk) accounts for the majority* (19.8% of total loans), composed of reclassified customers from rating category A and rating category Z; ‒ the exposure to higher-risk customers (Rating C) decreased from €7.9 million in 2016 pro-forma to €7.2 million, with an impact of 1.7% on the total; ‒ the decrease in the category of not rated receivables fell to €304.3 million, dropping by €10.9 million versus 2016 pro-forma, €4 million from the reduction of the Unidad Editorial portion.

‒ * Net of the effect of the loan to Unidad Editorial classified among Rating Z loans.

The category of loans with a Rating Z, in addition to the abovementioned outstanding loan of €265 million (€261 million in 2016 pro-forma) to the subsidiary Unidad Editorial, refers to receivables from public entities and mass market customers.

The maturity of loans and receivables reported in the financial statements at December 31, 2017 and December 31, 2016 pro-forma is shown below.

Loans and receivables ageing

Loans and receivables past due & not impaired Loans and recei- Total past due & vables not past due 181-360 not impaired (€/millions)) & not impaired 30 days 31-60 days 61-90 days 91-180 days days >361 2017 411.8 3.1 0.2 0.9 1.5 1.7 3.5 10.9 2016 pro-forma 449.9 2.2 0.5 0.4 1.1 2.0 2.0 8.2

Past due and not impaired receivables increased by €2.7 million. This change is due mainly to the increase in receivables with possible offsetting in particular for the past-dues of over 180 days and loans to subsidiaries, parents and associates.

Trade receivables and other assets amounted to €206.2 million and are reported in the financial statements net of the allowance for impairment of €15.1 million (€231.9 million in 2016 pro-forma with the respective allowance at €18.1 million). The allowance for impairment, down versus 2016 pro-forma, due to reduced requirement for covering non-performing loans and to the favourable trend in legal disputes, is consistent with the quality of the credit portfolio and in line with the insolvency risk prevention and mitigation criteria adopted by the RCS Group, as outlined hereunder.

Under the adopted impairment procedures, individual impairment losses are recognized on large, individual trade positions which are objectively in default.

– 174 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Accruals are normally recognized for individual customer balances when a significant proportion of the balance is past due, as better shown in the following table:

A deterioration in rating or another objectively prejudicial element may give rise to an impairment loss on a specific loan or receivable, even if it is not past due at the reporting date. The applicable impairment percentage is established according to the past due age range, and periodically reviewed to take account of credit ratings given by the Company to individual counterparties.

The table below shows the impairment percentages applied at December 31, 2017 to loans and receivables based on past due age range.

Past due Risk range 1-30 30-60 60-90 90-180 180-360 360-540 540-720 days days days days days days days >720 days Low-risk rating 4% 6% 8% 10% 20% 30% 40% 50% Medium-risk rating 6% 8% 10% 12% 30% 40% 50% 60% High-risk rating 8% 10% 12% 15% 40% 60% 70% 80% Public entities 1% 1% 1% 2% 5% 10% 20% 30% Not rated 6% 8% 10% 12% 30% 40% 50% 60%

Receivables put into legal hands are generally impaired by at least 80%.

Price risk

RCS MediaGroup S.p.A. is not exposed to significant price risks related to financial instruments included in the application field of IAS 39.

175 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

11 ▪ Financial instruments: disclosures

As required by IFRS 7, the following table shows the carrying amounts of items included in each category identified by IAS 39.

Carrying amount Note Dec-31-2016 (€/millions) Dec-31-2017 pro-forma FINANCIAL ASSETS Financial assets at fair value through profit or loss Held-for-trading securities - - Available-for-sale financial assets Equity investments 30 0.6 4.9 Loans and receivables Trade receivables 34 194.3 213.5 Current loan assets 36 270.3 274.5 Cash and cash equivalents 36 0.7 1.1 Other receivables and current assets 35 11.9 18.3 Non-current loan assets 31 2.8 2.9 Other receivables and non-current assets 32 0.6 0.6 Total financial assets 481.2 515.8

FINANCIAL LIABILITIES Liabilities at amortized cost Trade payables 41 136.4 178.4 Bank loans and overdrafts 36 16.8 38.9 Current loans and borrowings 36 110.0 106.0 Current loans and borrowings (hedging derivatives) 36 0.9 - Other current liabilities 42 16.6 17.7 Non-current loans and borrowings 36 233.3 269.8 Non-current loans and borrowings (hedging derivatives) 36 0.1 5.2 Total financial liabilities 514.1 616.0

IFRS 7 requires financial instruments recognized in the statement of financial position at fair value to be classified on the basis of a three-level fair value hierarchy. The levels of the hierarchy are as follows:

Livello 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities;

Livello 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Livello 3: Inputs for the asset or liability which are not based on observable market data.

– 176 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

At December 31, 2017 assets and liabilities have been classified according to the fair value hierarchy as follows.

(€/millions) Note Level 1 Level 2 Level 3 Total FINANCIAL ASSETS Financial assets at fair value through profit or loss Held-for-trading securities ---- Non-hedging derivatives ---- Available-for-sale financial assets Equity investments 30 - - 0.6 0.6 Hedging derivatives ---- Total financial assets - - 0.6 0.6

FINANCIAL LIABILITIES Hedging derivatives 36 - 1.0 - 1.0 Total financial liabilities - 1.0 - 1.0

The table below shows movements in the year in items classified in Level 3:

Balance at Gains/(losses) Additions/ Decreases/ Gains and losses recognized as Transfers to/ Balance at Dec-31-2016 recognized in profit or loss purchases sales other comprehensive income from level 3 Dec-31-2017 4.9 (0.2) - (4.2) - 0.1 0.6

The following have been classified as “Financial assets at fair value through profit or loss”:: ‒ financial assets designated upon initial recognition at fair value through profit or loss, as well as derivative instruments that do not meet IAS 39 requirements to be designated as hedges; ‒ financial assets held for trading if they are: ‒ ► classified as held for trading or acquired or incurred for the purpose of selling or reselling in the short term; ‒ ► part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; ‒ ► derivatives (except for derivatives that are designated and deemed effective as hedging instruments), details of which can be found in the “Net financial debt” section.

“Loans and receivables” comprise financial assets with fixed or determinable payments that are not quoted in an active market, except for those designated as held for trading or available for sale.

“Available-for-sale financial assets” include all those assets not classified in the preceding categories.

“Financial liabilities at fair value through profit or loss” include financial liabilities designated by the Compa- ny upon initial recognition at fair value with changes in fair value through profit or loss and financial liabilities held for trading. “Financial liabilities at amortized cost” include all financial liabilities, except for those previously designated as held for trading. In compliance with IFRS 7, the following table presents the effects on profit or loss and equity of each category of financial instruments held by the Company. These mainly consist of gains and losses arising on the purchase and sale of financial assets and liabilities as well as from fair value gains or losses and the interest income/ expense relating to financial assets/liabilities measured at amortized cost.

177 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Impact of financial instruments on profit or loss and equity, in compliance with IFRS 7

This table reports the effect on profit or loss and the statement of financial position of financial instruments classified in accordance with IAS 39, and so not directly reconcilable with the classification contained in the financial statements.

2016 (€/millions) Note 2017 pro-forma Net gains/losses recognized on financial instruments 27.7 8.2 Held-for-trading financial assets/liabilities - - Hedging derivatives 22 (1.0) (1.7) - of which gains recognized in equity 2.6 3.2 - of which losses recognized in income statement (3.6) (4.9) Gains/losses on available-for-sale financial assets 23 28.7 9.9 - of which dividends from equity investments 12.6 10.4 - of which expense on equity investments - (0.5) - of which gains from disposals on equity investments 14.9 - - of which other income on equity investments 1.2 - Interest income/expense (at internal rate of return) accrued on financial assets/liabilities not at FVTPL (2.2) (27.1) Interest income on 22 10.6 2.3 - loans/receivables 10.6 2.3 Interest expense on 22 (12.8) (29.4) - financial liabilities (12.8) (29.4) Expenses and fees not included in effective interest rate (1.0) (1.3) relating to financial assets 22 (1.0) (1.3) - loans/receivables (1.0) (1.3) Allowances for impairment of financial assets (2.1) (1.2) - Loans/receivables 20 (1.9) (1.1) - Available-for-sale assets 23 (0.2) (0.1)

More details on the characteristics of financial instruments held and the associated gains and losses can be found in the related specific notes. The figures showed in the tables and notes are in millions of Euro, unless otherwise indicated.

12 ▪ Revenue

2016 2017 pro-forma Change 2016 Distribution revenue 237.4 260.0 (22.6) 260.0 Advertising revenue 241.4 272.5 (31.1) 272.5 Other publishing revenue 21.4 26.8 (5.4) 26.9 Total 500.2 559.3 (59.1) 559.4

Revenue amounted to €500.2 million in 2017, down by 10.6% (€59.1 million) versus 2016 pro-forma. The decrease in revenue touched circulation revenue (-8.7%), advertising revenue (-11.4%) and other publishing revenue (-20.1%). The change is mostly explained by a number of discontinuities, such as the termination in 2017 of a number of advertising sales contracts with third-party publishers (-€31.3 million), and advertising revenue from sporting events (European Football Championships and the Summer Olympics) in 2016 (-€5 million), as well as a reduction in other revenue of €2.7 million, referring mainly to services provided to companies sold. Net of these discontinuities, the change would amount to -€20.1 million, attributable to the decrease in distribution revenue, to the effect of the different publishing plan for add-ons, and to other revenue (for a total of -€25.3 million), partly offset by the increase in advertising revenue of €5.2 million.

– 178 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

As regards distribution revenue, the drop of €22.6 million versus 2016 pro-forma is due mainly to newspapers, in particular, total paper and digital circulation for Corriere della Sera dropped by 10% versus 2016 (Source: ADS), while La Gazzetta dello Sport, fell by 6.2% (Source: ADS). These trends outstripped the extremely poor results of the overall market. More specifically, general interest newspapers decreased by 12.2% and sports newspapers decreased by 6.9% (Source ADS). Publishing revenue from add-ons contributed to this fall, following the abovementioned different publishing plan. Publishing revenue from magazines rose slightly (+€0.2 million versus 2016). Mention should be made of the 10.5% increase versus 2016 in the distribution at newsstands of the weekly publication Oggi (sold individually and in combination with other publications), and of the successful relaunch at end June of Oggi Enigmistica Set- timanale, which more than tripled its newsstand distribution.

Advertising revenue amounted to €241.4 million, down by €31.1 million versus 2016 pro-forma, due exclusively to the above discontinuities, net of which revenue would have grown by approximately €5 million.

13 ▪ Related party transactions

As required by CONSOB Communication pursuant to Article 114, paragraph 5 of Italian Legislative Decree no. 58/98, protocol number 13046378 of May 27, 2013, transactions with the related parties of the RCS Group are shown below. Specifically, as regards the Regulations approved by CONSOB with resolution no. 17221 of March 12, 2010 and subsequent amendments, on November 10, 2010 RCS MediaGroup S.p.A. adopted a related party transaction procedure covering authorizations and communication with the market and CONSOB. This procedure was subject to certain revisions effective as from January 1, 2014 and subsequently effective as from October 1, 2015. The latest amendments came into force on August 4, 2017. A copy of this edition of the Procedure is published in the “Governance” section of the Company’s website. This procedure, as the previous provisions, has also been described in the Report on Corporate Governance and Ownership Structure. In this regard, in consideration of the provisions of said Procedure, in addition to the more significant transactions indicated above, several less significant transactions were subject to the prior opinion of the Related Party Transactions Committee provided for therein. Prior to the amendments made on August 4, 2017, pursuant to this Procedure and on a voluntary basis, shareholders of RCS MediaGroup S.p.A. and the associated corporate groups (legal entities in the form of parents, subsidiaries or jointly controlled companies) described in the fourth point of the above list, were also identified as related parties, in addition to the parties pursuant to annex 1 of CONSOB resolution no. 17221/2010 below. From August 4, 2017, following the amendments to the above Related Party Procedure, these entities were excluded from the list of related parties. Effective from July 2016, the ultimate parent of the Group is U.T. Communications S.p.A., the de facto parent of the investee Cairo Communication S.p.A., which became, in turn, the direct controlling entity of RCS Medi- aGroup S.p.A.. At December 31, 2017, the interest in the RCS MediaGroup S.p.A. share capital held by Cairo Communication S.p.A. was 59.693% (59.831% if the percentage directly held by U.T. Communications S.p.A. at December 31, 2017 is also included - Source CONSOB).

That being said, the following were identified as related parties: ‒ the direct and indirect controlling entities of RCS MediaGroup S.p.A., their subsidiaries, joint ventures and their associates; ‒ controlled entities, jointly controlled entities and associates of RCS MediaGroup S.p.A.; ‒ key management personnel, their close family members, and any companies directly or indirectly controlled by them or subject to joint control or significant influence; ‒ additionally, only until August 4, 2017, the date of effectiveness of the latest amendments to the Related Par- ty Procedure adopted by the RCS MediaGroup S.p.A., qualifying as related parties on a voluntary basis are all shareholders (and related corporate groups comprising controlling and controlled entities - direct and indirect - and jointly controlled companies) holding an interest in RCS MediaGroup S.p.A. with voting rights of

179 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

more than 3%, excluding intermediaries responsible for asset management activities, where the independence requirements of the Issuer Regulation are met;

The following table shows the amount and proportion of related party transactions and balances included in each relevant item of the statement of financial position and income statement.

Equity investments Trade receivables Current tax assets Current loan assets at cost Parents - 0.7 - - Subsidiaries 400.6 12.1 2.1 269.9 Associates 8.1 17.5 - - Other group companies - 0.3 - - Other related parties (1) - 1.0 - - Total related parties 408.7 31.6 2.1 269.9 Reported total 408.7 166.6 4.5 270.3 % of reported total 100.00% 18.97% 46.67% 99.85%

Other non-current Current loans Current tax Other current Commit- Trade payables liabilities and borrowings liabilities liabilities ments Parent - - - 0.4 - - Subsidiaries 0.9 65.3 4.4 7.7 0.2 17.0 Associates - 4.3 - 1.9 - - Other group companies - - - 0.7 - - Other related parties (1) - - - - 2.6 - Total related parties 0.9 69.6 4.4 10.7 2.8 17.0 Reported total 1.8 110.0 4.8 136.3 51.2 53.4 % of reported total 50.00% 63.27% 91.67% 7.85% 5.47% 31.84%

Other gains Raw Other Other Personnel Financial Financial (losses) on Revenue materials operating operating expense income expense financial assets/ and services income expenses liabilities Parents - ( 0.3) - 0.5 - - - - Subsidiaries 7.6 ( 56.6) - 8.0 - 9.9 ( 0.5) 10.8 Associates 204.5 ( 11.1) - 1.3 ( 0.1) 0.1 - 1.7 Other group companies 0.9 ( 1.3) - 0.4 - - - - Supplementary pension fund - ( 0.4) - - - - - for executives Sub-holdings and their ------( 1.0) - parents Other related parties (1) 2.2 ( 2.6) ( 2.4) - - - - ( 1.0) Total related parties 215.2 ( 71.9) ( 2.8) 10.2 ( 0.1) 10.0 ( 1.5) 11.5 Reported total 500.1 ( 289.8) ( 149.8) 24.2 ( 11.3) 10.6 ( 18.7) 28.6 % of reported total 43.03% 24.81% 1.87% 42.15% 0.88% 94.34% 8.02% 40.21%

(1) Refers mainly to transactions with key management personnel and their close family members, as specified below.

For a detailed analysis on related party transactions that took place throughout the year, refer to the specific attachment to these notes.

Transactions between RCS MediaGroup S.p.A. and subsidiaries and associates mainly involve the exchange of goods, the provision of services and the provision and use of funds, as well as tax transactions.

The transactions are part of ordinary operations and are undertaken at market conditions, taking into account the service quality rendered or received in compliance with procedures aimed at ensuring the fairness of the transaction.

– 180 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Transactions with parents include revenue of €0.5 million, costs for services of €0.3 million, trade receivables of €0.7 million and trade payables of €0.4 million. These amounts mainly refer to the purchase and sale of advertising space made between the Company and Cairo Communication S.p.A..

The transactions with Mediobanca – Banca di Credito Finanziario S.p.A. Group are mainly related to financial expense from financing transactions and from contracts for interest rate hedging instruments (considered a related party until August 4, 2017).

RCS MediaGroup S.p.A. provided services including administrative, tax, receivables management, legal and corporate assistance and assistance in finance and treasury transactions, human resources and insurance, purchasing and logistics, communication and assistance for the Prevention and Protection Service, IT and digital-related assistance, facilities management and general services to Italian and foreign subsidiaries and associates, most of which were managed and coordinated by RCS MediaGroup S.p.A., in order to optimize the available resources and to achieve economies of scale for RCS Group.

RCS MediaGroup S.p.A. has commercial dealings for the leasing of office space and operations areas with the subsidiaries RCS Produzioni S.p.A., RCS Produzioni Milano S.p.A., RCS Produzioni Padova S.p.A., RCS Sport S.p.A., RCS Factor S.r.l. in liquidation, Trovolavoro S.r.l., Sfera Service S.r.l., Blei S.r.l. in liquidation, Digicast S.p.A., RCS Edizioni Locali S.r.l., SSD Active Team S.a r.l. and with the associate m-dis Distribuzione Media S.p.A..

RCS MediaGroup S.p.A. purchased advertising space from the subsidiaries RCS Edizioni Locali, RCS Digital Ventures S.r.l., Trovolavoro S.r.l., Unidad Editorial S.A. and Editoriale del Mezzogiorno S.r.l..

RCS MediaGroup S.p.A. uses distribution services provided by m-dis Distribuzione Media S.p.A., which is not managed and coordinated by RCS MediaGroup S.p.A., for distribution in Italy in the newsstand channel.

RCS MediaGroup S.p.A. uses the company Logintegral 2000 S.a. (part of Unidad Editorial Group) for newspaper distribution in Spain.

RCS MediaGroup S.p.A. provided production and printing services to the subsidiaries RCS Edizioni Locali S.r.l. and Editoriale del Mezzogiorno S.r.l. and received the same service from RCS Produzioni S.p.A., RCS Produz- ioni Milano S.p.A. and RCS Produzioni Padova S.p.A..

Additionally, key management personnel have been identified as the Directors, Statutory Auditors, the Chief Executive Officer and Chief Operating Officer, the Manager in charge of Financial Reporting Manager and the Key management personnel of RCS MediaGroup S.p.A., details of whose remuneration in the various forms received are provided in the following table.

The RCS Group’s organizational structure was reviewed on March 14, 2016, which led to the identification of new Key management personnel, as commented on in the section “Brief description of the Group” of this Annu- al Report. Other gains (losses) Service Personnel on financial assets/ Other current costs expense liabilities liabilities Board of Directors - fees 2.3 - (1.0) 0.9 Board of Statutory Auditors - fees 0.2 - - 0.2 Key management personnel - 2.4 - 1.5 Total related parties 2.5 2.4 (1.0) 2.6 Reported total 175.7 149.8 28.6 51.2 % of reported total 1.42% 1.60% -3.50% 5.08%

Relationships with subsidiaries, associates and other RCS Group companies are indicated in the notes as part of the specific comments on the individual items of the statement of financial position and the income statement.

181 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Group tax consolidation for IRES purposes In 2017, RCS MediaGroup S.p.A. continued to file for tax on a group basis, as permitted by Legislative Decree no. 344 dated December 12, 2003 in order to achieve a tax saving by calculating tax on a single tax base, with a consequent immediate offset of tax assets and tax liabilities for the year.

Group tax consolidation for VAT purposes In 2017, RCS MediaGroup S.p.A. continued to make use of the rules allowing the RCS Group filing of VAT returns with a payable balance of €2.3 million. RCS MediaGroup S.p.A. transferred net tax liabilities totaling €17.3 million to the RCS Group VAT consolidation for 2017.

14 ▪ Changes in work in progress, finished and semi-finished products

The €0.3 million change is related to work in progress (-€0.5 million), mainly attributable to a different publishing plan for add-on products. Lower write-downsare reported on finished products (-€0.2 million), relating essentially to e-commerce products in the Sfera sub-segment sold via websites.

2016 Description 2017 pro-forma Change 2016 Change in inventories of work in progress (0.4) 0.1 (0.5) 0.1 Inc. in provision for write-downs of finished products (0.1) (0.3) 0.2 (0.3) Total (0.5) (0.2) (0.3) (0.2)

15 ▪ Raw materials and services

Raw materials and goods

2016 Description 2017 pro-forma Change 2016 Purchase of paper 40.2 42.8 (2.6) 42.8 Purchase of advertising space 21.5 49.3 (27.8) 49.3 Purchase of finished products 11.7 14.7 (3.0) 14.7 Purchase of other materials 3.9 7.7 (3.8) 7.7 Change in raw and ancillary materials and goods 0.1 1.4 (1.3) 1.4 Increase in provision for write-downs - 0.6 (0.6) 0.6 Total 77.4 116.5 (39.1) 116.5

The reduction versus the pro-forma prior year is €39.1 million and is attributable mainly to lower purchases of third-party publisher advertising spaces (€27.8 million, of which €27.4 million following termination of the abovementioned trade transactions), to lower purchases of finished products and other material (€6.8 million) as a result of the different publishing plan of add-on products, and to lower costs for paper purchases, due mainly to the lower price of paper from last year (€2.6 million).

– 182 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Service costs

2016 Description 2017 pro-forma Change 2016 Subcontracted work 63.0 75.1 ( 12.1) 75.1 Freelance staff and reporters 22.3 26.5 ( 4.2) 26.5 Promotional and advertising expenses 18.1 25.0 ( 6.9) 25.0 Transport costs 13.4 16.6 ( 3.2) 16.6 Professional and consulting fees 12.7 27.2 ( 14.5) 27.1 Commission expense and other sales costs 12.1 13.4 ( 1.3) 13.4 Postal expenses 5.8 6.0 ( 0.2) 6.0 Other service costs 5.8 7.4 ( 1.6) 7.5 Travel and accommodation 3.8 4.5 ( 0.7) 4.5 Maintenance 3.3 5.4 ( 2.1) 5.4 Utilities 3.0 3.4 ( 0.4) 3.4 Directors' and statutory auditors' fees 2.6 0.9 1.7 0.8 News agencies 2.5 2.6 ( 0.1) 2.6 Market survey services 2.3 2.8 ( 0.5) 2.8 Personnel services 1.9 2.3 ( 0.4) 2.3 Services of seconded personnel 1.8 1.6 0.2 1.6 Insurance 1.0 1.4 ( 0.4) 1.3 Bank expenses and fees 0.3 0.3 - 0.3 Total 175.7 222.4 ( 46.7) 222.2

A significant decrease of €46.7 million (-21%) was registered in costs for services versus the pro-forma prior year. This decline is the result of the continuous and constant process to save and increase the efficiency of the majority of costs, as well as the result of a different publishing plan for add-on products.

Service costs include €0.6 million in non-recurring expense (€4.1 million in 2016 pro-forma) from financial consulting. Excluding the impact of non-recurring expense, service costs would drop by €43.2 million.

In compliance with Legislative Decree no. 39/2010, the fees for the statutory audit of these separate financial statements total €0.4 million (€0.4 million in 2016 pro-forma).

Rentals and leases

2016 Description 2017 pro-forma Change 2016 Rentals 18.7 18.6 0.1 18.6 Rights 10.2 12.1 (1.9) 12.1 Leases 7.8 8.0 (0.2) 8.0 Total 36.7 38.7 (2.0) 38.7

This category amounts to €36.7 million and includes fees for the operating leases mainly for the facilities in Via Rizzoli and Via Solferino in Milan and for the plants in Rome and Padua, royalties recognized for sales of add- on products bundled with Corriere della Sera and La Gazzetta dello Sport and for the acquisition of photogra- phy rights for the Magazines segment. The most significant change concerns the decrease of €1.9 million in “Rights”, relating to the different publishing plan for add-on products.

183 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

16 ▪ Personnel expense

2016 Description 2017 pro-forma Change 2016 Wages and salaries 104.4 111.2 (6.8) 111.2 Social security charges 34.0 36.6 (2.6) 36.6 Employee benefits 8.5 8.1 0.4 8.1 Other costs/recoveries 3.4 (2.6) 6.0 (2.6) Non-recurring expense (income) (0.5) 5.0 (5.5) 5.0 Total 149.8 158.3 (8.5) 158.3

Personnel expense amounted to €149.8 million, down by €8.5 million versus 2016 pro-forma. The amounts include net non-recurring income of €0.5 million (net non-recurring expense of €5 million in 2016 pro-forma) relating partly to expense (€1.1 million) for company reorganization processes and individual employees leav- ing, and partly to income (€1.6 million) for recoveries of debts and provisions previously allocated as non-recurring expense and associated with staff restructuring plans launched in prior years. Net of the effect of non-recurring expense and income, personnel expense would decrease by €3 million, as a result mainly of the reduction in the average workforce.

The average workforce during the year is broken down by category as follows:

2016 Category 2017 pro-forma Change 2016 Executives, middle managers and white collars 895 957 (62) 957 Publication directors and journalists 652 663 (11) 663 Blue collars 46 51 (5) 51 Total 1,593 1,671 (78) 1,671

The average number of employees fell by 78 versus 2016. The trend in the workforce was characterized by efficiency initiatives and transfers to other Group companies, partly offset by the development of new publishing initiatives, stabilizations and the management of staff turnover.

17 ▪ Other revenue and income

2016 Description 2017 pro-forma Change 2016 Cost recharges 7.8 10.7 (2.9) 10.7 Lease income 5.4 5.8 (0.4) 5.8 Sale of returns, leftovers and sundry materials 3.2 2.4 0.8 2.4 Ordinary release of provisions for risks 2.1 1.4 0.7 1.4 Revenue for chargeback of personnel expense 2.0 1.3 0.7 1.3 Co-publication income 1.5 1.9 (0.4) 1.9 Other revenue 1.3 1.7 (0.4) 1.8 Grants relating to income 0.9 0.4 0.5 0.4 Total 24.2 25.6 (1.4) 25.7

“Other revenue and income” dropped by an overall €1.4 million, due mainly to lower recoveries of costs, referring partly to recovery of paper from subsidiaries, and partly to recovery of sundry costs, down thanks to ongoing efficiency actions.

– 184 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

18 ▪ Other operating expense

2016 Description 2017 pro-forma Change 2016 Taxes 6.3 6.0 0.3 5.9 Other operating expenses 4.7 6.5 (1.8) 6.5 Co-publication expense 0.3 2.0 (1.7) 2.0 Total 11.3 14.5 (3.2) 14.4

“Other operating expense” amounted to €11.3 million, down by €3.2 million versus 2016 pro-forma. The change is attributable mainly to other operating expense (€1.8 million), relating essentially to lower membership fees, gifts, travel and entertainment expense, in addition to lower co-publication charges (€1.7 million), as a result of a different publishing plan for add-on products.

19 ▪ Provisions

Provisions totaled €3.7 million (€5.3 million in 2016 pro-forma), and refer to provisions for risks associated with legal disputes for civil cases, lawsuits and employment-related actions outstanding at the end of the year (€3.4 million), and provisions for contractual risks of €0.3 million. The decrease versus the prior year is attributable to legal disputes.

20 ▪ Allowance for impairment

The item amounts to €1.8 million and reflects provisions made for default risks on trade receivables. Pro-forma prior year impairment losses on receivables totaled €1 million.

21 ▪ Amortization, depreciation and impairment losses on non-current assets

2016 Description 2017 pro-forma Change 2016 Amortization of intangible assets 14.3 17.3 (3.0) 17.3 Depreciation of property, plant and equipment 7.8 10.0 (2.2) 10.0 Impairment losses on non-current assets 3.4 0.1 3.3 0.1 Total 25.5 27.4 (1.9) 27.4

Amortization and depreciation of intangible assets and property, plant and equipment totaled €22.1 million (€27.3 million in 2016 pro-forma). The decrease relates mainly to the conclusion of the useful life of some plants and software licences.

Impairment losses on non-current assets amounted to €3.4 million (€0.1 million in 2016 pro-forma), and refer to the Sfera goodwill, partly impaired following the impairment test performed at the end of the year. Further details are found in Note 28.

185 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

22 ▪ Financial income (expense)

2016 Description 2017 pro-forma Change 2016 Interest on non-current loans to third parties 0.1 0.2 ( 0.1) 0.2 Interest on current intragroup receivables 10.0 11.5 ( 1.5) 2.0 Interest income on other current receivables 0.1 0.1 - 0.1 Exchange rate gains - 0.2 ( 0.2) 0.2 Income on discounting to present value 0.4 - 0.4 - Total financial income 10.6 12.0 ( 1.4) 2.5 Exchange rate losses ( 0.1) ( 0.1) - ( 0.1) Interest expense on bank loans and overdrafts ( 0.3) ( 0.6) 0.3 ( 0.6) Interest expense on non-current loans ( 11.0) ( 13.6) 2.6 ( 13.6) Interest expense on current loans ( 0.2) ( 1.3) 1.1 ( 1.3) Interest payable to Group companies ( 0.5) ( 0.5) - ( 11.7) Losses on derivatives ( 3.6) ( 4.9) 1.3 ( 4.9) Other financial expense ( 2.4) ( 2.8) 0.4 ( 2.8) Expense on discounting to present value ( 0.6) ( 2.1) 1.5 ( 2.1) Total financial expense ( 18.7) ( 25.9) 7.2 ( 37.1) Net financial expense ( 8.1) ( 13.9) 5.8 ( 34.6)

Net financial expense amounted to €8.1 million, down by €5.8 million (€13.9 million in 2016 pro-forma). The improvement resulted mainly from lower interest expense, due to the reduction in average debt, from lower expense from discounting, and from the lower negative effect of hedging derivatives. Mention should be made that following the merger of the subsidiary RCS Investimenti S.p.A., total net financial expense of RCS MediaGroup S.p.A. in 2016 pro-forma (net expense of €13.9 million) versus end 2016 (net expense of €34.6 million) fell due to the elimination of financial expense of RCS MediaGroup S.p.A. towards RCS Investimenti S.p.A. and due to increased financial income from Unidad Editorial SA, previously held by RCS Investimenti S.p.A..

23 ▪ Other gains (losses) on financial assets/liabilities

2016 Description 2017 pro-forma Change 2016 Dividends 12.6 10.5 2.1 10.5 Reversals of impairment losses - 0.5 (0.5) 14.2 Impairment losses (0.4) (4.4) 4.0 (4.4) Gains from sale of equity investments 15.2 - 15.2 - Other gains (losses) on financial assets/liabilities 1.2 (0.6) 1.8 (0.6) Total 28.6 6.0 22.6 19.7

Dividends received amounted to €12.6 million (€10.5 million in 2016 pro-forma), from the following investees: RCS Sport S.p.A. (€6.9 million), RCS Produzioni S.p.A. (€1.5 million), RCS Produzioni Milano S.p.A. (€1.4 million), RCS Produzioni Padova S.p.A. (€1.1 million), and m-dis Distribuzione Media S.p.A. (€1.7 million).

Impairment losses amounted to €0.4 million (€4.4 million in 2016 pro-forma) and refer mainly to the investees Hotelyo SA (€0.1 million) and Mach 2 Libri S.p.A. (€0.3 million), in order to align the carrying amounts with the respective fair values at December 31, 2017.

The capital gains from the sale of equity investments amounted to €15.2 million and refer for €14.9 million to the capital gain, net of ancillary expense, from the sale of the investee Istituto Europeo di Oncologia S.r.l., sold last December for €20 million, and for €0.3 million from the sale of 75% of the investee RCS Gaming S.r.l. (now SportPesa Italy S.r.l.), that took place last July for €0.5 million.

– 186 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Other net gains from financial assets amounting to €1.2 million (expense of €0.6 million in 2016 pro-forma) refer to recoveries of previous provisions relating to the sale of equity investments.

24 ▪ Income taxes

The income taxes recognized in the profit or loss in application of current tax rates (24% for IRES and 5.57% for IRAP) are as follows:

2016 Descrizione 2017 pro-forma Change 2016 Prior year taxes: 0.1 (0.3) 0.4 (0.4) - IRES (Italian corporate income tax) 0.1 (0.4) 0.5 (0.4) - IRAP (Italian regional business tax) - 0.1 (0.1) - Current taxes: (2.1) (1.7) (0.4) 4.8 - IRES (Italian corporate income tax) 1.1 (0.1) 1.2 5.4 - IRAP (Italian regional business tax) (3.2) (1.6) (1.6) (0.6) Deferred tax income/expense: (6.7) - (6.7) 0.1 - Income (6.7) - (6.7) - - Expense - - - 0.1 Total taxes (8.7) (2.0) (6.7) 4.5

Income taxes in 2017 reported a net expense of €8.7 million, due mainly to the use of deferred tax assets (€6.7 million) and to the IRAP provision for the year (€3.2 million). The increase in taxes of €6.7 million versus 2016 pro-forma refers to the negative effect from the release of deferred tax assets, relating mainly to interest paid and kindred expense not deducted in prior years, associated with the improved operating result of the Company.

Current tax assets and current tax liabilities are analyzed below:

2016 Description 2017 pro-forma Change 2016 Current tax assets 4.5 8.4 (3.9) 8.4 Current tax liabilities (4.8) (5.4) 0.6 (5.5) Total assets net of current tax liabilities ( 0.3) 3.0 ( 3.3) 2.9

Current tax assets, net of liabilities, decreased by €3.3 million, due mainly to higher IRAP payable (€1.7 million), to the transfer of IRES credit surpluses to RCS Group companies (€1.2 million), and to lower tax consolidation payables following deconsolidation of RCS Gaming S.r.l. (now SportPesa Italy S.r.l.) (€0.2 million).

187 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Deferred tax assets and deferred tax liabilities are broken down as follows:

2016 Recognized in Recognized in Other pro-forma profit or loss equity changes 2017 Deferred tax assets -Carry forward tax losses 21.8 - - (4.5) 17.3 -Allowances for impairment of assets 2.9 (0.6) - - 2.3 -Provisions for risks and charges 5.5 - - - 5.5 -Costs with deferred deductibility 0.2 0.3 - - 0.5 -Actuarial valuation of employee benefits 0.4 - - - 0.4 -Deferred tax arising from tax transparency criteria 1.4 - - - 1.4 -Property, plant and equipment and intangible assets 4.7 (0.5) - 0.1 4.3 -Leases 0.1 - - (0.1) - -Interest expense pursuant to Art. 96 19.5 (5.2) - - 14.3 -Measurement of derivatives 0.9 - (0.8) - 0.1 -Expense for share capital increase and share conversion 0.9 (0.7) - - 0.2 Total deferred tax assets 58.3 (6.7) (0.8) (4.5) 46.3 Deferred tax liabilities -Property, plant and equipment and intangible assets (0.2) - - - (0.2) -Deferred tax arising from tax transparency criteria (0.1) - - - (0.1) -Discounting of provisions for risks and charges (0.3) - - - (0.3) Total deferred tax liabilities (0.6) - - - (0.6) Net total 57.7 (6.7) (0.8) (4.5) 45.7

Deferred tax assets recognized at the reporting date represent amounts which are likely to arise, based on management estimates, on future taxable profit, taking into account the effects of participation in the Group tax consolidation. There are no other deferred tax assets not recognized on temporary differences.

The effective tax charge reported in the financial statements is reconciled to the theoretical tax charge as follows:

2016 2017 pro-forma 2016 Profit (loss) before tax 62.4 6.4 (13.7) Theoretical income tax 15.0 1.8 (3.8) Net effect of permanent differences (9.6) (2.1) (2.1) Effect of temporary taxable differences 2.7 6.6 6.6 Effect of temporary deductible differences (9.2) (6.1) (6.1) Taxes relating to prior years IRES (0.1) 0.4 0.4 IRES - Current taxes (1.2) 0.6 (5.0) IRES - deferred taxes before effect of rate change 6.7 (0.4) (0.4) IRES - deferred taxes - effect of rate change - 0.1 0.1 IRES - deferred taxes 6.7 (0.3) (0.3) Income taxes reported in the financial statements, excluding current and deferred IRAP 5.5 0.3 (5.3) Taxes relating to prior years IRAP - (0.1) - IRAP - current taxes 3.2 1.6 0.6 IRAP - deferred taxes - 0.2 0.2 Income taxes reported in the financial statements (current and deferred) 8.7 2.0 (4.5)

The effect of the permanent differences of -€9.6 million on taxes refers mainly to the benefits gained from the use of the “ACE” (Support for Economic Growth) used on its own account and partly transferred to Group Tax Consolidation (-€4.8 million), to the capital gains from the sale of equity investments (-€3.5 million) and from dividends (-€2.9 million), partly offset by the impairment on Sfera goodwill (€0.8 million).

– 188 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Temporary differences are, for the most part, related to accruals to and utilizations of provisions for risks and charges, and to interest and kindred expense not deducted in prior years.

25 ▪ Non-recurring income (expense)

Rentals and Description Service costs leases Personnel expense Total Non-recurring expense (0.3) (0.3) - (0.6) Non-recurring income - - 0.5 0.5 Net non-recurring expense (0.3) (0.3) 0.5 (0.1) Reported total (175.7) (36.7) (149.8) (337.4) % of reported total 0.2% 0.8% (0.3)% 0.0%

Non-recurring income and expense amounted to a total of €0.1 million and refer to: ‒ Service costs totaling €0.3 million, relating to expense incurred for financial consultancy. ‒ Net income from personnel of €0.5 million relating partly to expense (€1.1 million) for company reorganization processes and individual employees departures, and partly to income (€1.6 million) for recoveries of debts and provisions previously allocated as non-recurring expense and associated with staff restructuring plans launched in prior years. Net non-recurring expense totaled €9.2 million at December 31, 2016.

26 ▪ Property, plant and equipment

Movements in the year were as follows:

Buildin- Leased Leased Other Assets under Description Land Plant Equipment Total gs buildings plant assets construction Cost 5.8 16.3 30.7 83.1 22.9 1.9 71.1 - 231.8 Impairment losses - (4.8) - (10.9) (3.5) - - - (19.2) Historical cost at Dec-31-2016 5.8 11.5 30.7 72.2 19.4 1.9 71.1 - 212.6 HISTORICAL COST AT Dec-31-2016 5.8 11.5 30.7 72.2 19.4 1.9 71.1 - 212.6 pro-forma Additions - - 0.2 - - - 0.1 0.1 0.4 Decreases - - - - (0.5) - (1.6) - (2.1) Impairment losses ------Other changes in allowance for impair------ment Other movements ------(0.2) - (0.2) Historical cost at Dec-31-2017 5.8 11.5 30.9 72.2 18.9 1.9 69.4 0.1 210.7 Acc. depreciation at Dec-31-2016 - (3.9) (19.4) (57.2) (11.4) (1.4) (66.2) - (159.5) Acc. depreciation at Dec-31-2016 - (3.9) (19.4) (57.2) (11.4) (1.4) (66.2) - (159.5) pro-forma Depreciation - (0.5) (1.3) (2.7) (0.9) (0.2) (2.1) - (7.7) Decreases - - - - 0.5 - 1.6 - 2.1 Other movements ------0.1 - 0.1 Acc. depreciation at Dec-31-2017 - (4.4) (20.7) (59.9) (11.8) (1.6) (66.6) - (165.0) Net balance at Dec-31-2016 pro-forma 5.8 7.6 11.3 15.0 8.0 0.5 4.9 - 53.1 Additions - - 0.2 - - - 0.1 0.1 0.4 Decreases ------Other changes in allowance for impair------ment Depreciation - (0.5) (1.3) (2.7) (0.9) (0.2) (2.1) - (7.7) Other movements ------(0.1) - (0.1) NET BALANCE AT Dec-31-2017 5.8 7.1 10.2 12.3 7.1 0.3 2.8 0.1 45.7

Land is not depreciated.

189 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Other property, plant and equipment recognized in the financial statements are depreciated over the estimated useful life of each individual asset, using the following rates:

Buildings from 2% to 5% Leased buildings from 5% to 6% Plant from 10% to 30% Leased plant from 5% to 20% Equipment from 10% to 25% Other assets from 10% to 25%

No borrowing costs have been capitalized.

“Property, plant and equipment”, amounting to €45.7 million, decreased by €7.4 million versus December 31, 2016 pro-forma, due mainly to the depreciation charge in the year (€7.7 million), partly offset by increases of €0.4 million, relating mainly to a number of improvements on leased assets and to the purchase of other assets.

“Other movements” refer entirely to reclassifications amongst the various non-current asset categories.

Land

This item includes the land for the industrial complex in Pessano con Bornago (€3.4 million) and the sports field in Via Cefalù, Milan (€2.4 million).

Buildings

This item includes the industrial complex in Pessano con Bornago (€6.2 million) and the buildings located in Via Rizzoli and Via Cefalù, Milan (totaling €0.9 million); the decrease by €0.5 million versus December 31, 2016 pro-forma relates to the depreciation charge of the year.

Leased buildings

This item refers to the capitalization of improvements on printing operations buildings in Padua and Rome, on the buildings on Via Rizzoli and Via Solferino in Milan. The decrease by €1.1 million versus December 31, 2016 pro-forma reflects the depreciation charge in the year (€1.3 million) and improvements (€0.2 million). Increases amounted to €0.2 million and refer mainly to improvements on leased assets in Turin.

Plant, leased plant and equipment

“Plant”, “Leased plant” and “Equipment” refer mainly to the assets acquired under a finance lease regarding the Corriere della Sera and La Gazzetta dello Sport production lines. The decrease by €3.8 million versus Decem- ber 31, 2016 pro-forma mainly reflects the depreciation charge in the year.

Other assets

This item mostly contains furniture and furnishings for €1.5 million and electronic machinery for €1.3 million. The decrease versus December 31, 2016 pro-forma mainly reflects the depreciation charge of the year.

– 190 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

27 ▪ Investment property

Investment property Description Total Land Buildings Cost 3.8 9.2 13.0 Impairment losses (1.5) (6.8) (8.3) Historical cost at Dec-31-2016 2.3 2.4 4.7 Historical cost at Dec-31-2016 pro-forma 2.3 2.4 4.7 Additions - - - Decreases - - - Impairment losses - - - Other movements - - - Historical cost at Dec-31-2017 2.3 2.4 4.7 Acc. depreciation at Dec-31-2016 - (1.9) (1.9) Acc. depreciation at Dec-31-2016 - (1.9) (1.9) Depreciation - (0.1) (0.1) Decreases - - - Acc. depreciation at Dec-31-2017 - (2.0) (2.0) Net balance at Dec-31-2016 pro-forma 2.3 0.5 2.8 Additions - - - Decreases - - - Impairment losses - - - Depreciation - (0.1) (0.1) Other movements - - - Net balance at Dec-31-2017 2.3 0.4 2.7

At December 31, 2017, investment property refers to the building and pertinent land of an unused property in Turin (€2.3 million) and a property located in Piacenza (€0.4 million). The decrease by €0.1 million in the year reflects the depreciation charge of the year of the property in Piacenza.

191 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

28 ▪ Intangible assets

Movements in the year were as follows:

Finite useful life Indefinite useful life Concessions, Description licenses, tra- Assets under develop- Total demarks and ment and advances Other intangible assets similar rights Cost 243,9 0,4 45,5 289,8 Impairment losses (7,6) - (21,1) (28,7) Historical cost at Dec-31-2016 236,3 0,4 24,4 261,1 Historical cost at Dec-31-2016 pro-forma 236,3 0,4 24,4 261,1 Additions 8,7 0,3 - 9,0 Decreases - - - Impairment losses - - (3,4) (3,4) Other movements 0,1 (0,1) - - Historical cost at Dec-31-2017 245,1 0,6 21,0 266,7 Acc. amortization at Dec-31-2016 (214,9) - - (214,9) Acc. amortization at Dec-31-2016 pro-forma (214,9) - - (214,9) Amortization (14,3) - - (14,3) Decreases - - - - Acc. amortization at Dec-31-2017 (229,2) - - (229,2) Net balance at Dec-31-2016 pro-forma 21,4 0,4 24,4 46,2 Additions 8,7 0,3 - 9,0 Decreases - - - - Impairment losses - - (3,4) (3,4) Amortization (14,3) - - (14,3) Other movements 0,1 (0,1) - - Net balance at Dec-31-2017 15,9 0,6 21,0 37,5

Intangible assets with finite useful lives are amortized over their useful lives, estimated as follows:

Patents 5 years Concessions, licenses and trademarks from 3 years to 5 years Other intangible assets 5 years

Concessions, licenses, trademarks and similar rights

The item mainly includes software application licenses and related consulting for enhancements (carrying amount €15.9 million). The increases by €8.7 million are primarily related to purchases of licenses and web platform development for digital projects and developments relating to corriere.it and gazzetta.it, and amortization in the year totaling €14.3 million.

Other intangible assets

The item includes solely goodwill relating to the Sfera (€21 million) cash generating unit. The prior year end reported the Direct cash generating unit, whose goodwill (€9 million), following reorganization in 2017, was attributed to the Sfera CGU. The Sfera goodwill was partly impaired by €3.4 million following the impairment test at the end of the year.

– 192 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The Company reviews the carrying amount of the aforementioned goodwill whenever facts or circumstances cause an impairment risk, and in any event each year, to ensure that this amount is not higher than the recoverable amount, determined by using the value in use resulting from the respective impairment tests.

The main assumptions used by management for calculating value in use refer to the discount rate (WACC), the growth rate (g) and the expected changes in selling prices and in direct costs over the calculation period.

The discount rate used for discounting future cash flows is the post-tax weighted average cost of capital (WACC), comprising a weighted average for the financial structure of the following two elements: ‒ the cost of risk capital determined as the return on risk-free assets (including the country risk of the specific country implicit in the stock market value), summed with the product obtained by multiplying the Beta and the risk premium of a virtuous country, in accordance with the dictates of the Practitioners method plus the Firm Specific Risk Premium; ‒ and the cost of financial debt.

The risk-free return has been assumed as the return on government bonds of the CGU’s country of origin (one year’s average), whose duration is consistent with the valuation period. The Beta has been calculated with reference to the average of a sample of comparable companies. The risk premium is equal to the historical additional return required on equity over the government bonds of a virtuous country, the method used by Practitioners (Source: Market consensus), while the Firm Specific Risk Premium is the additional premium aimed at including the risk of reaching the forecast objectives established by management (execution risk) in the assessment, also with respect to the Group’s size. The entity’s cost of debt is determined using the 10-year swap rate (one year’s average) plus the spread on debt. In particular, for RCS the spread was inferred by analyzing the available market data for a basket of companies with ratings consistent with those indicated by the Italian Valuation Organization (Source: Damodaran Credit Rating Spread (BBB)).

The financial structure used has been defined on the basis of the comparable companies analysis, using the average financial structure of the reference sample (Source: S&P Capital IQ and Bloomberg).

The discount rate used has been calculated post-tax.

The basic assumptions relating to the developments of expected cash flows beyond the explicit forecast periods and the outcomes of the impairment tests are listed below.

The parameters used for impairment testing on goodwill for the Sfera sub-segment (€21 million) were: WACC of 7.61% applied, calculated with reference to the relevance of the activities in the different countries in which the cash-generating unit operates. The projection indicates, for Italy and Spain, for the 2018-2020 period, a slight decrease in sales from traditional activities (printing, boxed sets and trade shows) and an increase in digital revenue determined by customers’ increasingly greater focus through this channel. During the period of the plan, the recovery actions on all business and structural costs will continue and will allow activity to become more efficient and enable part of the resources to be used for enhancing the range of audiovisual solutions. The impairment test led to a impairment loss of €3.4 million, due mainly to the lower profit margins from Direct assets.

193 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

29 ▪ Investments in subsidiaries and associates

The list of equity investments, including changes in the carrying amounts over the course of the year, is attached to these notes.

Movements in the year were as follows:

Subsidiaries Associates Total Balance at Dec-31-2016 1,127.1 8.1 1,135.2 Effects of the merger of RCS Investimenti S.p.A. (729.5) - (729.5) Balance at Dec-31-2016 pro-forma 397.6 8.1 405.7 Additions 3.3 - 3.3 Disposals (0.2) - (0.2) Impairment losses (0.1) - (0.1) Balance at Dec-31-2017 400.6 8.1 408.7

In “Subsidiaries”, the change in final balances at December 31, 2016 pro-forma versus those at December 31, 2017 refers partly to the elimination of the carrying amount of the equity investment in RCS Investimenti S.p.A. (€817.4 million), and partly to the direct holding of the carrying amount of the investee Unidad Editorial SA (€87.9 million), following the aforesaid merger of RCS Investimenti S.p.A.. Further details are found in the appropriate annexes.

Increases in 2017 refer to: ‒ payment of €0.1 million to cover losses for RCS Digital Ventures S.r.l. made in March 2017; ‒ payment of €0.2 million to cover losses for RCS Gaming S.r.l. (now SportPesa Italy S.r.l.) made in March 2017; ‒ purchases of non-controlling interests made respectively in May and September 2017, of 49% as regards the equity investment in Editoriale Veneto S.r.l. and of 49.91% as regards the equity investment in Editoriale Fior- entina S.r.l., for a total of €2.5 million. With these purchases, the interests held by RCS MediaGroup S.p.A. increased to 100% for both these equity investments. It should be noted that the aforesaid companies were merged to form RCS Edizioni Locali S.r.l. on December 31, 2017, effective for accounting and tax purposes as from January 1, 2017; ‒ the increase in the carrying amount of Sfera Editores Mexico of €0.5 million following partial waiver of trade receivables from the investee, in order to cover losses.

Disposals amounted to €0.2 million and refer solely to the investee SportPesa Italy S.r.l. (former RCS Gaming S.r.l.), 75% of which was disposed to third parties in July 2017.

Impairment losses, amounting to €0.1 million, refer to the investee Hotelyo SA and to the investee Blei S.r.l. in liquidation, in order to align the carrying amounts to the relating pro-rata share of equity, representing the fair value at year end.

Regarding the measurement of equity investments, with evidence indicating impairment, impairment tests were carried out to assess the recoverability of the carrying amounts recorded in the statement of financial position.

Particular importance is attached to the test conducted on the investee Unidad Editorial SA, with the direct ownership of a 26.24% interest following the aforesaid merger of RCS Investimenti S.p.A. and indirect ownership of a 73.75% interest through the investee RCS International Newspapers BV. Therefore, the carrying amount of Unidad Editorial SA represents about 84% of the total carrying amounts of equity investments held.

– 194 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

dad Editorial plan approved by the Board of Directors of Unidad Editorial on March 13, 2018. The estimate of the terminal value takes account of a normalized EBITDA, calculated by applying the average profit margins in the 2016-2022 period to the forecast revenue of 2022.

Regarding the explicit forecasts provided and the analyses conducted in order to calculate the tests, reference is made to Note 33 to the consolidated financial statements. The outcome of the test highlighted an equity value of the investee Unidad Editorial approximately €12 million higher than the carrying amounts recognized in RCS MediaGroup S.p.A. and in RCS International Newspapers BV.

The outcome of the impairment tests conducted on the investees RCS Digital Ventures S.r.l., Trovolavoro S.r.l. and Editoriale del Mezzogiorno S.r.l. confirmed the recoverability of the carrying amounts.

30 ▪ Available-for-sale financial assets

Balance at Balance at Balance at Description Dec-31-2016 Change Dec-31-2017 Dec-31-2016 pro-forma Istituto Europeo di Oncologia S.r.l. - 4.1 (4.1) 4.1 Ansa S.r.l 0.2 0.2 - 0.2 H-Farm Ventures S.p.A. 0.2 0.2 - 0.2 Mach 2 Libri S.p.A. - 0.2 (0.2) 0.2 Immobiliare Editori Giornali S.r.l. 0.1 0.1 - 0.1 Emittenti Titoli S.p.A. 0.1 0.1 - 0.1 Total 0.6 4.9 (4.3) 4.9

Securities and investments in companies which are not subsidiaries, associates or held for trading are defined as available-for-sale financial assets and, at December 31, 2017, were equal to €0.6 million. The change versus December 31, 2016 pro-forma refers to the sale of the investee Istituto Europeo di Oncologia S.r.l., that took place in December 2017 for €20 million, and to an impairment lossof €0.2 million on Mach 2 Libri S.p.A. in order to align the carrying amount of the investee to the fair value at year end.

These assets are recognized at fair value. Equity investments for which no fair value is available are recognized at cost, net of impairment losses, if any.

31 ▪ Non-current loan assets

Non-current loan assets, amounting to €2.8 million, refer mainly to the non-current portion of a loan granted to a third-party company. At the end of the prior year, these assets amounted to €2.9 million.

32 ▪ Other non-current assets

Balance at Description Balance at Dec-31-2016 Change Balance at Dec-31-2017 pro-forma Dec-31-2016 Security deposits given 0.5 0.5 - 0.5 Term bank deposits 0.1 0.1 - 0.1 Non-current prepayments 0.4 0.6 (0.2) 0.5 Non-current tax assets 12.7 12.7 - 12.7 Total 13.7 13.9 (0.2) 13.8 Other non-current assets amounted to €13.7 million (€13.9 million at December 31, 2016 pro-forma). The change refers mainly to the portion of non-current prepayments of certain multi-year insurance policies.

195 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

33 ▪ Inventories

The following table shows inventories by type along with the provisions made to adjust their cost to market value:

Raw and ancillary materials and consumables Work in progress Finished products Total Dec-31-2016 Gross balance 9.2 2.0 0.8 12.0 Allowance for write-downs (0.4) (0.4) (0.8) Net balance 8.8 2.0 0.4 11.2 Dec-31-2017 Gross balance 9.4 1.6 0.5 11.5 Allowance for write-downs (0.4) (0.4) (0.8) Net balance 9.0 1.6 0.1 10.7 Change 0.2 (0.4) (0.3) (0.5)

The decrease in inventories versus the end of the prior year (€0.5 million) is due mainly to work in progress (-€0.4 million) and finished products (-€0.3 million), whereas the value of raw materials is up by €0.2 million. The allowance for write-downsof inventories remained unchanged at €0.8 million.

34 ▪ Trade receivables

Trade receivables are broken down as follows:

Balance at Description Balance at Dec-31-2016 Change Balance at Dec-31-2017 pro-forma Dec-31-2016 Due from customers 143.9 155.9 ( 12.0) 155.9 Expected returns ( 1.0) ( 1.3) 0.3 ( 1.3) Allowance for impairment ( 8.7) ( 11.7) 3.0 ( 11.7) Due from customers - net amounts 134.2 142.9 ( 8.7) 142.9 Due from subsidiaries 12.1 10.3 1.8 10.3 Due from associates 45.9 58.3 ( 12.4) 58.3 Expected returns ( 26.7) ( 39.1) 12.4 ( 39.1) Due from associates - net amounts 19.2 19.2 - 19.2 Due from parents 0.7 0.2 0.5 0.2 Due from other Group companies 0.3 0.5 ( 0.2) 0.5 Total 166.5 173.1 ( 6.6) 173.1

Trade receivables at December 31, 2017 amounted to €166.5 million, down by €6.6 million versus December 31, 2016 pro-forma. The decrease is attributable mainly to lower receivables due from customers (€8.7 million), partly offset by higher receivables due from subsidiaries (€1.8 million). The decrease in receivables due from customers is explained mainly by the abovementioned termination of a number of trade transactions with third-party publishers.

The allowance for impairment was used by €4.5 million and was increased by €1.5 million to adjust to the effective risk of these receivables at the end of the year.

The carrying amount of trade receivables reflects their fair value and the only item that differed from the carrying amount relates to expected product returns, which are not considered for IFRS 7 purposes.

– 196 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

35 ▪ Other receivables and current assets

Balance at Description Balance at Dec-31-2016 Change Balance at Dec-31-2017 pro-forma Dec-31-2016 Tax assets 0.6 0.8 (0.2) 0.7 Receivables from social security institutions 2.7 7.4 (4.7) 7.4 Receivables from employees 0.7 0.9 (0.2) 0.9 Other receivables 4.7 4.7 - 4.7 Allowance for impairment of other receivables (4.5) (4.5) - (4.5) Net other receivables 0.2 0.2 - 0.2 Other receivables - 0.1 (0.1) 0.1 Total other receivables 4.2 9.4 (5.2) 9.3 Supplier advances 0.5 1.1 (0.6) 1.1 Advances to freelance staff 0.1 0.3 (0.2) 0.3 Agent advances 11.6 16.9 (5.3) 16.9 Allowance for impairment of agent advances (1.2) (1.2) - (1.2) Net agent advances 10.4 15.7 (5.3) 15.7 Prepayments 6.2 4.5 1.7 4.5 Total other current assets 17.2 21.6 (4.4) 21.6 Total 21.4 31.0 (9.6) 30.9

Other receivables and current assets decreased by €9.6 million versus December 31, 2016 pro-forma, due mainly to the decrease in agent advances (€5.3 million) relating to offsettings in the year against the relating agent trade payables, and to the lower receivable from social security agencies (€4.7 million) relating to the recovery of special lay-off fund advances.

For IFRS 7 purposes, tax assets, receivables from social security institutions, and prepayments are not considered, hence, other receivables and current assets at December 31, 2017 would total €11.9 million (€18.3 million at December 31, 2016 pro-forma). The carrying amount of these assets for IFRS 7 purposes reflects their fair value.

36 ▪ Net financial debt

Financial assets and liabilities recognized for derivatives

The item includes derivative financial instruments. Such instruments are recognized as financial assets or financial liabilities at fair value.

The main types within this category are presented below.

December 31, 2017 December 31, 2016 Assets Liabilities Assets Liabilities Interest rate swaps for hedging cash flows - 0.1 - 5.1 Non-current - 0.1 - 5.1 Interest rate swaps for hedging cash flows - 1.0 -- Current - 1.0 -- Total - 1.1 - 5.1

197 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The instruments related to interest rate risk have been taken out for hedging purposes and are submitted to the so-called effectiveness test to check that they meet the specific IFRS conditions for hedge accounting. The effectiveness test was carried out on the derivatives of RCS MediaGroup S.p.A. considering the debt exposure of the medium/long-term loan.

Details of the net financial debt are provided below at carrying amount and fair value.

Comparison of carrying amount vs. fair value

Carrying amount Fair Value Dec-31-2016 Dec-31-2016 Dec-31-2017 pro-forma Dec-31-2017 pro-forma Current financial assets Cash and cash equivalents 0.7 1.1 0.7 1.1 Other financial assets 14.9 19.4 14.9 19.4 Current loan assets 255.4 255.1 255.4 255.1 Held-for-trading securities - - - - Total financial assets 271.0 275.6 271.0 275.6 Financial liabilities Current bank loans and overdrafts (54.7) (82.6) (54.7) (82.6) Current loans and borrowings (69.6) (59.9) (69.6) (59.9) Loans and borrowings per IAS 17 - leasing (4.6) (7.1) (4.5) (6.7) Non-current loans and borrowings (231.2) (265.2) (231.2) (265.2) Financial liabilities recognized for derivatives (1.1) (5.1) (1.1) (5.1) Total financial liabilities (361.2) (419.9) (361.1) (419.5) Total net financial debt (1) (90.2) (144.3) (90.1) (143.9) Net financial debt with related parties 200.3 200.8 - - % of the reported total > 100% > 100%

The net financial debt of RCS MediaGroup S.p.A. stood at €90.2 million at December 31, 2017, improving by €54 million versus December 31, 2016 pro-forma. Mention should be made of the significant contribution from ordinary operations, as well as the gains from the sale of Istituto Europeo di Oncologia S.r.l. for €20 million and the receipt of dividends for €12.6 million. Conversely, there were outlays for non-recurring expense, outflows for capital expenditure and for the purchase of non-controlling interests (€2.5 million) of certain equity investments.

– 198 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

c. a single covenant represented by the Leverage Ratio (measured on the amounts of the consolidated financial statements). This covenant must not be higher than: ► 3.45x at December 31, 2017 ► 3.25x at December 31, 2018 ► 3.00x at December 31 of each subsequent year; d. an initial repayment plan for the amortizing term line, which sets a repayment of €15 million on December 31, 2017, followed by half-yearly instalments of €12.5 million.

The New Loan Agreement contains provisions relating to compulsory early repayment events, representations, obligations, revocation events and materiality thresholds which are overall more favourable for RCS than the previous Amended Loan Agreement. These clauses apply - for example - to the provisions relating to treasury agreements and intragroup loans and guarantees, acquisitions, joint ventures, permitted investments and reorganizations, the assumption of financial debt, deeds of disposal and share capital reductions.

In December 2017, the amortizing term line was reduced by approximately €208 million following the scheduled half-yearly repayment and the compulsory prepayment of €10 million as the portion of the gains from the sale of the equity investment in IEO (Istituto Europeo di Oncologia). This repayment also led to a review, under the Loan Agreement, of the repayment plan, reducing the scheduled half-yearly payments from €12.5 million to €11.6 million.

Financial Assets (€271 million) may be analyzed as follows: − bank deposits and current accounts amounting to €0.7 million (value at December 31, 2016 pro-forma: 1.1 million); − loans to RCS Group companies amounting to €269.9 million (value at December 31, 2016 pro-forma: €274.5 million), consisting of €255 million in intragroup deposits and €14.9 million relating to intragroup current accounts; mention should be made that, following the merger by incorporation of the subsidiary RCS Inves- timenti S.p.A., the value of intragroup loan assets rose significantly, since RCS Investimenti S.p.A. had loan asset positions with the investee Unidad Editorial SA transferred to the parent RCS MediaGroup S.p.A.; − loan assets amounting to €0.4 million (zero at December 31, 2016 pro-forma).

Financial liabilities (€361.2 million) may be analyzed as follows: − current bank loans and overdrafts amounting to €54.7 million (value at December 31, 2016 pro-forma: €82.6 million), €16.8 million of which for bank overdrafts and €37.9 million for a bank loan; − non-current bank loans and overdrafts of €231.2 million (at December 31, 2016 pro-forma: €265.2 million); − current loans from RCS Group companies for €69.6 million, €33.7 million of which in loans from subsidiaries and associates and €35.9 million in intragroup current accounts (value at December 31, 2016 pro-forma: €59.9 million, €22.9 million of which in loans from subsidiaries and associates and €37 million in intragroup current accounts); − lease liabilities of €4.6 million (value at December 31, 2016 pro-forma: €7.1 million) for finance leases on plants and printing presses in the Newspapers division, down in relation to the repayment of principal amounts as per the repayment plan; − financial liabilities recognized for derivatives totaling €1.1 million (value at December 31, 2016 pro-forma: €5.1 million).

The methods of measuring fair value are summarized below for the principal categories of financial instruments to which they have been applied: − Derivative instruments: the standard calculation models have been used, based on market interest rates by maturity, currency and on the corresponding exchange rates;

199 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

− Asset and liability positions: the calculation methods used for interest rate derivatives have been applied with appropriate adaptations.

The fair value of both current and non-current liabilities has been assessed by taking account of the new financial environment's impact on the credit spread.

The breakdown of the net financial debt by currency is as follows:

Dec-31-2016 Currency Dec-31-2017 pro-forma Dec-31-2016 EUR (90.8) (144.5) (873.8) US dollars 0.3 0.2 0.2 British pound 0.1 - - Swiss francs 0.2 - - Total net financial debt (90.2) (144.3) (873.6)

The table below shows the carrying amount at December 31, 2017, broken down by maturity, of the Company’s financial instruments that are exposed to interest rate risk:

FIXED RATE >0M<6M >6m<1 >1<2Y >2<3Y >3<4Y >4<5Y >5Y Total TOTAL fixed rate ------FLOATING RATE <6M 6M>x<1Y >1<2Y >2<3Y >3<4Y >4<5Y >5Y Total Loans (1) (27.4) (11.6) (23.2) (23.2) (23.2) (165.2) - (273.8) Intragroup loans (69.6) ------(69.6) Leases (1.3) (1.3) (2.0) - - - - (4.6) Bank overdrafts (16.8) ------(16.8) Total liabilities (115.1) (12.9) (25.2) (23.2) (23.2) (165.2) - (364.8) Cash and cash equivalents 0.7 ------0.7 Intragroup loans 269.9 ------269.9 Other lending positions 0.3 0.2 0.3 0.3 0.3 0.3 1.5 3.2 Total assets 270.9 0.2 - - - - - 273.8 Total floating rate 155.8 (12.7) (25.2) (23.2) (23.2) (165.2) - (91.0) (1) The debt exposure has been hedged with interest rate derivatives (Interest Rate Swaps) totaling €243.8 million (€168.8 million at December 31, 2016 pro-forma).

The amounts shown above, unlike the net financial debt figures, exclude the fair value of derivatives (€1.1 million).

The use of derivatives on interest rates allows for the transformation of floating-rate liabilities into fixed-rate liabilities.

It should be noted that the hedging strategy is implemented at a Group financial exposure level.

Interest rate derivatives mature as follows at December 31, 2017:

Notional Parameter Description Description value range % <6M 6M5Y Cash flow hedge 3-month from floating to fixed 243.8 Euribor 0.098 (63.8) (50.0) (80.0) (50.0) - IRS 243.8 (63.8) (50.0) (80.0) (50.0) -

The disclosures required by IFRS 7 in relation to the cash flow hedges are provided below:

– 200 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Cash Flow Hedge

Hedged item Fair Value Amount in Type of hedge Hedged risk equity (€/millions) Dec-31-2017 Dec-31-2016 Loan hedge IRS Interest rate risk (1.1) (5.1) 3.4 Total (1.1) (5.1) 3.4

The following table shows movements in the hedging reserve during the year, reporting separately the amounts recognized in equity for increases/decreases in hedge effectiveness in the year and corresponding amounts transferred to profit or loss.

(€/millions) Total Opening balance (4.1) + hedging gains - - hedging losses (0.2) - hedging losses to profit or loss (2.8) + hedging gains to profit or loss 6.4 Closing balance (0.7)

The figures presented in the tables above for the hedging reserve are shown gross of their tax effects, which amounted to €0.2 million at December 31, 2017.

The hedging reserve reflects hedges of expected cash flows relating to underlying loans, whose payments and related effect on profit or loss fall in the following periods.

The expected outlays represent the interest on the amount of debt hedged, calculated using the hypothetical interest rate curve consistent with the mark-to-market measurement of the hedging instruments. For lease agreements, the underlying loans evolve according to the natural maturity, while for the loan, the volumes and analogous contractual maturities of the hedging derivatives were taken into consideration.

December 31, 2017

(€/millions) Total Actual impact of underlying flows expected 1Y 1-2Y 2-5Y >5Y cash flows Interest rate risk Expected outflows for floating-rate interest ( 9.2) ( 5.1) ( 2.7) ( 1.4) -

December 31, 2016 pro-forma

(€/millions) Total Actual impact of underlying flows expected 1Y 1-2Y 2-5Y >5Y cash flows Interest rate risk Expected outflows for floating-rate interest ( 6.7) ( 5.6) ( 1.1) - -

The Company has finance lease agreements related to plants and machinery used to produce La Gazzetta dello Sport.

The primary component of capital for plant relates to printing presses for €4.1 million, while shipping and ancillary machinery amounted to €0.5 million.

201 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The key data of finance lease agreements is presented below:

Dec-31-2017 Dec-31-2016 pro-forma Dec-31-2016 Present Present Present Minimum Minimum Minimum value of mi- value of mi- value of mi- lease Interest lease Interest lease Interest nimum lease nimum lease nimum lease payments payments payments payments payments payments Finance lease payables: - due within 1 year 2.6 0.1 2.5 0.1 2.5 2.6 2.5 0,1 2,5 - due within 5 years 2.1 - 2.1 - 4.6 4.6 4.6 - 4,6 - due after 5 years ------Total 4.7 0.1 4.6 0.1 7.1 7.2 7.1 0,1 7,1

The fair value of finance lease payments contracted by the Company is €4.5 million.

The following shows the average rate on financial positions at December 31, 2017.

December 31, 2016 December 31, 2017 pro-forma December 31, 2016 Yield of investments 3.35% 3.78% 3.43% Cost of borrowing 3.77% 4.34% 3.34%

37 ▪ Share capital and reserves

The share capital is divided into 521,864,957 ordinary shares with no par value. At December 31, 2017 a total of 4,575,114 ordinary treasury shares were held (137,854 of which unavailable, servicing the exchange transactions arising from the merger of RCS MediaGroup S.p.A. with the subsidiary RCS Investimenti S.p.A., as explained in the paragraph "Changes in the consolidation scope" in the directors’ Report on Operations), worth €27.1 million, corresponding to an average carrying amount of €5.9 per ordinary share and representing 0.877% of the total share capital.

Outstanding ordinary Number of shares issued shares Treasury shares Total At Dec-31-2016 517,289,843 4,575,114 521,864,957 At Dec-31-2017 517,289,843 4,575,114 521,864,957

The share capital is made up entirely of ordinary shares, which carry full voting rights. They entitle their owners to attend ordinary and extraordinary shareholders' meetings and to participate in the allocation of profit for the year and equity, if the company is wound up. These shares are registered shares.

The nature and purpose of the equity reserves is summarized below: ‒ Share premium reserve: represents an equity reserve that contains sums received by the Company for issuing shares at a price above their carrying amount and incorporates the effect of expense associated with the share capital increase and the conversion of savings shares to ordinary shares, net of the associated expense; ‒ Legal reserve: increased through the compulsory allocation of at least one-twentieth of annual profit, until reaching an amount corresponding to one-fifth of share capital. Pursuant to Art. 109 of the Consolidated Tax Act, the legal reserve is restricted for €0.6 million representing the sum of depreciation/amortization and other negative components deducted off-balance sheet for tax purposes, net of deferred taxes; ‒ Treasury shares: are deducted from the Company's equity; ‒ Hedging reserve: contains the effects directly recognized in equity of the fair value measurement of derivative financial instruments taken out to hedge the risk of fluctuations in exchange rates and interest rates. The hedging reserve is shown net of related tax effects; ‒ The reserve for the actuarial valuation of post-employment benefits was established on January 1, 2013 in compliance with the amendment to IAS 19; ‒ Mer ger reserve: this includes the effects, with a positive value of €0.1 million, arising from the merger of RCS

– 202 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Investimenti S.p.A., referring mainly to the exchange transaction with the interests of non-controlling shareholders of RCS Investimenti; ‒ Retained earnings (losses carried forward): include the results from prior years, after paying dividends, the reserve for treasury shares and the IFRS transition reserve.

Details of and movements during the year in the equity reserves can be found in the statement of changes in equity.

At December 31, 2017,the profit for the year amounted to €53,686,184.

38 ▪ Employee benefits

Balance at Discounting to Balance at Description Dec-31-2016 Provisions Utilizations present value Dec-31-2017 Pension benefits 33.1 0.5 (2.3) (0.2) 31.1 Pension benefits for executives 0.6 - - - 0.6 Total 33.7 0.5 (2.3) (0.2) 31.7

This item includes the actuarial value of the payable to employees. Post-employment benefits of €31.1 million represent a type of employee remuneration, whose payment is deferred until termination of employment.

Pension benefits for executives of €0.6 million refer to the payment due under the national contract for newspaper-industry executives, calculated on the basis of length of service and with reference to the employee's remuneration in the last twenty-four months. Payment of this amount is deferred until termination of employment.

The measurement of post-employment benefits, which are considered a defined contribution plan, was assigned to an independent actuary.

The amounts recognized in the income statement and equity in respect of the above post-employment benefits are as follows:

2017 Personnel Current Financial expense from Actuarial service cost (income) actuarial (gains) losses Total expense calculations in equity Provisions for pension benefits 8.8 0.4 (0.5) (0.1) 8.6 Provisions for pension benefits for executives - - - -- Total 8.8 0.4 (0.5) (0.1) 8.6

2016 Personnel Current Financial expense from Actuarial service cost (income) actuarial (gains) losses Total expense calculations in equity Provisions for pension benefits 8.6 0.7 (0.5) 1.0 9.8 Provisions for pension benefits for executives - - - -- Total 8.6 0.7 (0.5) 1.0 9.8

203 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The principal actuarial assumptions used for the calculation are as follows:

Description 2017 2016 Discount rate 1.3% 1.3% Expected rate of salary increases inflation inflation

The discount rate was calculated using the Iboxx Eurozone Corporate AA index with an average remaining term consistent with the term of the collective being assessed. The expected rates of salary increase are linked to the inflation rates.

Accruals to post-employment benefits shown in the above table in relation to 2017 include €7.7 million referring to payments to social security funds and €0.6 million for contributions and withholdings required by law.

The following table shows the results of the sensitivity analysis of the discount rate risk upon a change of +/- 0.5%.

Sensitivity analysis of discount rate 2017 + 0.5% - 0.5% Pension benefits 31.1 29.8 32.3 Pension benefits for executives 0.6 0.6 0.6 Total 31.7 30.4 32.9

39 ▪ Provisions for risks and charges

Movements in the year were as follows:

Balance at Utilizations / Discounting to Balance at Description Dec-31-2016 Provisions Releases present value Reclassifications Dec-31-2016 Non-current: Legal disputes provision 5.4 2.6 (1.5) 0.1 (1.3) 5.3 Other provisions for risks and charges 3.2 1.0 - 0.1 - 4.3 Total non-current 8.6 3.6 (1.5) 0.2 (1.3) 9.6 Current: Legal disputes provision 4.1 1.0 (1.2) - 0.6 4.5 Other provisions for risks and charges 25.5 3.6 (5.9) - (2.9) 20.3 Total current 29.6 4.6 (7.1) - (2.3) 24.8 Total provisions for risks 38.2 8.2 (8.6) 0.2 (3.6) 34.4

The “legal disputes provision” was set up for outstanding litigation with third parties resulting from the carrying out of the Company’s publishing activities and includes civil actions, lawsuits and employment-related disputes. Accruals for the year relate to civil actions, labour-related proceedings and lawsuits. Utilizations and releases mainly refer to the conclusion of civil actions and lawsuits; €0.6 million was also reclassified to the item “trade payables”, as the portion of legal expense relating to the cases settled awaiting payment.

“Other provisions for risks and charges” include potential liabilities related to operations and personnel liabilities.

Potential liabilities from operating activities include: provisions for disputes with social security agencies, customer indemnity provisions to be paid to agents at the end of their mandate, with the remainder related to provisions for various risks. The rather insignificant increase relates mainly to the sales network agents in the Adver- tising area.

Potential personnel liabilities refer mainly to expense from personnel departures, terminations of employment, and contractual renewals under the law, if any. These provisions show a total increase of €4.1 million, of which €0.8 million non-recurring.

– 204 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

“Utilizations/Releases”, in other provisions for risks and charges, refers to utilizations relating primarily to staff exits due to the continued Company reorganization plan, to the use of the provision for risks for expense related to the sale of RCS Libri, and to releases of excess portions allocated in prior years, €0.8 million of which non-recurring.

The reclassifications of other provisions for risks and charges, totaling €2.9 million, refer partly to the utilization for the payment of sales costs concerning the sale of equity investments in the prior year (€2 million), and partly to the reclassifications under “payables to employees” for agreements with employees to settle (€0.9 million).

In compliance with IFRS, the non-current portion of provisions for risks has been discounted to take account of the effect of the time value of money. The rate used to discount the legal disputes provision is roughly 0.4%, while the rate used to discount the provision for specific risks is approximately 0.2%.

The following table shows the results of the sensitivity analysis of the discount rate risk upon a change of +/- 0.5%.

Sensitivity analysis of discount rate Basic rate 2017 + 0.5% - 0.5% Legal disputes provision 0.43% 5.3 5.1 5.3 Provision for agents’ termination indemnities 1.30% 1.8 1.8 1.9 Other provisions for risks and charges 0.15% 2.7 2.6 2.7 Total 9.8 9.5 9.9

40 ▪ Other non-current liabilities

Other non-current liabilities, totaling €1.8 million, fell by €1.9 million versus December 31, 2016 pro-forma (€3.7 million), and consist mainly of tax liabilities, including a liability associated with a claim for an IRES reimbursement, recognized under “non-current tax assets”. The decrease OF €1.9 million refers mainly to the payable regarding the legal dispute with INPGI, that was paid principally during the year and with a smaller amount classified under other current liabilities.

41 ▪ Trade payables

Balance at Description Balance at Dec-31-2016 Change Balance at Dec-31-2017 pro-forma Dec-31-2016 Due to agents 18.0 23.4 (5.4) 23.4 Due to freelance staff 6.2 7.5 (1.3) 7.5 Trade payables to subsidiaries 7.7 11.8 (4.1) 11.8 Trade payables to associates 1.9 2.7 (0.8) 2.7 Trade payables to parents 0.4 - 0.4 - Trade payables to other Group companies 1.7 1.5 0.2 1.5 Due to suppliers 97.0 127.8 (30.8) 127.8 Advances from subscribers 3.4 3.7 (0.3) 3.7 Total 136.3 178.4 (42.1) 178.4

Trade payables decreased by an overall €42.1 million versus December 31, 2016 pro-forma. The change relates mainly to lower payables to suppliers (€30.8 million) following lower operating costs due to ongoing efficiency actions, the termination of advertising contracts with certain third-party publishers, and also an overall decrease in past due payables versus the last quarter of 2016, as a result of the process of analysis and examination of relationships with suppliers being conducted at the time. Mention should also be made of the lower payables to agents (€5.4 million), following the offsetting against agent prepayments already made, lower payables to subsidiaries and associates (€4.9 million) and lower payables to freelance staff (€1.3 million).

The carrying amount of trade payables reflects their fair value, also in accordance with the application of IFRS 7.

205 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

42 ▪ Other current liabilities

Balance at Description Balance at Dec-31-2016 Change Balance at Dec-31-2017 pro-forma Dec-31-2016 Tax liabilities 5.8 6.0 (0.2) 6.0 Payables to social security institutions 9.2 11.2 (2.0) 11.2 Payables to employees 21.5 26.6 (5.1) 26.6 Other payables 7.0 3.8 3.2 3.8 Security deposits received 0.1 0.1 - 0.1 Other payables to subsidiaries 0.2 0.5 (0.3) 0.5 Deferred income 7.4 5.1 2.3 5.1 Total 51.2 53.3 (2.1) 53.3

Other current liabilities, totaling €51.2 million, fell by €2.1 million versus December 31, 2016 pro-forma (€53.3 million), due mainly to the drop in payables to employees (€5.1 million), and to social security institutions (€2 million) in relation to a lower average headcount and the increased use of liabilities for untaken holidays. Con- versely, mention should be made of higher other payables (€3.2 million) and deferred income (€2.3 million), referring to publishing revenue from add-on products to be released in 2018.

For IFRS 7 purposes, tax liabilities and payables to social security institutions, deferred income, and the liabilities for untaken holidays (equal to €12.1 million at December 31, 2017 and €13.3 million at December 31, 2016 pro-forma) are not included in payables to employees. Hence, other current liabilities at December 31, 2017 would total €15.7 million (€17.7 million at December 31, 2016 pro-forma).

The carrying amount of these payables reflects their fair value.

Lastly, the liabilities for the untaken holidays of journalists, which are expected to be used over the long term, have been discounted by applying a rate of 1.5%.

43 ▪ Increase (decrease) in employee benefits and provisions for risks and charges

The change indicated in the statement of cash flows, amounting to -€6.2 million, does not include the effect of the discounting in 2017 (totaling +€0.3 million).

Dec-31-2016 Discounting in Description Dec-31-2017 pro-forma Discounting equity Change Employee benefits ( 31.7) ( 33.7) 0.4 ( 0.1) ( 2.3) Provisions for risks and charges ( 9.5) ( 8.6) - - 0.9 Current portion of provisions for risks and charges ( 24.8) ( 29.6) - - ( 4.8) Total ( 66.0) ( 71.9) 0.4 ( 0.1) ( 6.2)

44 ▪ Changes in working capital reported in the statement of cash flows

Dec-31-2016 Description Dec-31-2017 pro-forma Change Change in working capital ( 27.7) 7.5 35.2 Adjustments to capital expenditure for cash outflows ( 1.3) 5.9 7.2 Change in net income tax liabilities ( 9.7) 2.0 11.7 Other changes 0.2 ( 1.0) ( 1.2) Total ( 38.5) 14.4 52.9

– 206 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

This item has been adjusted to exclude movements not attributable to operations deriving, in particular, from the adjustment of trade payables for capital expenditure not settled in cash in the year under review. Changes in working capital do not include the change in income tax liabilities for collections received, which are reported separately in the statement of cash flows.

45 ▪ Acquisition of equity investments

The acquisition of equity investments totaled €9.8 million (for comments, please refer to Note 29), net of dividends received of €12.6 million (see Note 23).

46 ▪ Capital expenditure in property, plant and equipment and intangible assets

This refers to capital expenditure made in the year (€9.4 million), net of purchases not affecting cash flows, and including capital expenditure, which, while having been carried out in the prior year, was paid for in the current year (€1.3 million).

Capital expenditure recognized in the statement of cash flows is reconciled with the expenditure in the statement of financial position as follows:

Dec-31-2016 Description Note Dec-31-2017 pro-forma Capital expenditure in property, plant and equipment 26 ( 0.4) ( 1.2) Capital expenditure in intangible assets 28 ( 9.0) ( 8.7) Total ( 9.4) ( 9.9) Adjustments to capital expenditure for cash outflows 1.3 ( 5.9) Total ( 8.1) ( 15.8)

47 ▪ Net change in loans and borrowings and other financial assets

This item refers to the monetary changes included in Net Financial Debt. As required by IFRS, current bank loans and overdrafts form part of the change in cash and cash equivalents.

The reconciliation with the changes in the net financial debt is shown below:

Dec-31-2016 Description Note Dec-31-2017 pro-forma Change in net financial debt 36 ( 54.1) ( 139.8) Change in cash and cash equivalents ( 0.4) ( 1.2) Change in bank loans and overdrafts 22.1 ( 0.6) Non-monetary change in derivatives 0.7 1.5 Change in derivatives to equity 3.4 4.4 Non-monetary change in results of financing activities 2.8 ( 0.6) Total ( 25.5) ( 136.3)

48 ▪ Financial interest collected/paid

This item amounted to €11.3 million and represents the balance of net financial expense of €8.1 million, net of the net expense related to the discounting of liabilities and risk provisions for €0.3 million, derivatives (€2.7 million) and interest accrued in the year but paid in cash in other years, for expenses totaling €0.8 million.

207 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

49 ▪ Commitments and contingencies

The key commitments and contingencies are presented below: − Bank sureties given totaled €26.7 million and are represented by sureties issued to third parties (€10.1 million), mainly for lease contracts and to RCS Group companies (€17.1 million) for endorsement loans, and partly for VAT assets. − Insurance sureties issued to third parties, totaling €11.5 million, include sureties of €9.7 million issued to Riz- zoli Libri S.p.A., Marsilio S.p.A. and Librerie Rizzoli S.r.l. in favour of the Tax Authorities for VAT assets relating to 2015, for which RCS MediaGroup S.p.A. is jointly obligated. The remainder of €1.8 million relates to sureties issued primarily for prize contests. − Other guarantees given amounted to €15.2 million and refer, for €12.4 million, to guarantees issued to Rizzoli Libri S.p.A., Marsilio S.p.A. and Librerie Rizzoli S.r.l. in favour of the Tax Authorities for VAT assets relating to 2014, and for €2.8 million mainly to indemnities issued in favour of Agenzia per lo Sviluppo dell’Editoria S.r.l. and in favour of SIAE for reimbursements received.

As part of disposals or contributions of equity interests or lines of business, the Company has given guarantees still in force mainly in relation to tax, social security and employment. Such guarantees have been given in accordance with standard market practices and conditions.

The amount of outstanding lease payments still due by RCS MediaGroup S.p.A. at the reporting date for irrevocable operating leases is as follows:

Minimum lease payments Dec-31-2017 Dec-31-2016 Change Future operating lease payments: - due within 1 year 24.1 23.7 0.4 - due within 5 years 84.3 82.0 2.3 - due after 5 years 139.1 156.7 (17.6) Total 247.5 262.4 (14.9)

The decrease versus December 31, 2016 is due mainly to the lease payments made in 2017, relating to building leases and car operating leases.

The Company expects to collect a total of approximately €20 million (approximately €12 million of which from RCS Group companies) in the future from sub-letting the leased buildings, mainly under six-year renewable agreements.

– 208 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

50 ▪ Information required by Art. 149-duodecies of the CONSOB Issuer Regulations

The following table, prepared in accordance with Art. 149-duodecies of the CONSOB Issuer Regulations, reports the fees for 2017 for audit and other services provided, only to RCS MediaGroup S.p.A, by the Independent Auditors and members of their network (information on services rendered to subsidiaries is given in the Report on Operations of the consolidated financial statements).

Party performing Fees paid in 2017 (€/millions) the service Audit KPMG S.p.A. 0.4 Attestation services KPMG S.p.A. 0.0 Other services KPMG S.p.A. (1) 0.3 Total 0.7 (1) Other services of €0.3 million refer mainly to consulting providing methodological support and assistance in the testing phase as per Art. 154 bis of the Consolidated Finance Act, and to consulting assignments for financial transactions.

209 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

EVENTS AFTER THE REPORTING DATE

For comments on the events occurred after the reporting date, please refer to the directors’ Report on Operations.

Milan, March 15, 2018

On behalf of the Board of Directors:

Chairman and Chief Executive Officer

Urbano Cairo (signed on the original)

– 210 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

STATEMENT OF THE MANAGER IN CHARGE OF FINANCIAL REPORTING AND THE CHIEF EXECUTIVE OFFICER

Statement on the separate financial statements pursuant to Art. 81-ter of CONSOB Regulation no. 11971 dated May 14, 1999 as subsequently amended and supplemented

1. The undersigned, Urbano Cairo, Chairman and Chief Executive Officer, and Riccardo Taranto, Manager in Charge of Financial Reporting for RCS MediaGroup S.p.A., hereby attest to, also taking account of the provisions of paragraphs 3 and 4, Art. 154-bis of Legislative Decree no. 58 dated February 24, 1998:: ‒ the adequacy in relation to the company’s characteristics and ‒ the effective application of administrative and accounting procedures in preparing the 2017 separate ‒ financial statements.

2. The assessment of the adequacy of the administrative and accounting procedures for preparing the separate financial statements as at and for the year ended December 31, 2017 was carried out on the basis of the process defined by RCS MediaGroup S.p.A., in line with the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organizations of the Treadway Commission as the reference framework generally accepted at international level.

3. It is also stated that:

3.1 the separate financial statements of RCS MediaGroup S.p.A. at December 31, 2017: a) have been prepared in accordance with the International Financial Reporting Standards endorsed a) by the European Union pursuant to EC Regulation no. 1606/2002 of the European Parliament and a) Council dated July 19, 2002; b) correspond to the books and accounting records; c) are suitable to give a true and fair view of the Issuer's financial position, results of operations and c) cash flows;

3.2 the report on operations contains a reliable analysis of performance and the results of operations, and of the situation of the issuer, together with a description of the principal risks and uncertainties to which it is exposed.

Milan, March 15, 2018

Chairman and Chief Executive Officer Financial Reporting Manager Urbano Cairo Riccardo Taranto (signed on the original) (signed on the original)

211 –

ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

LIST OF RCS GROUP EQUITY INVESTMENTS

Fully-consolidated companies

Registered Operating Cur- Share/quota % by % held Company name office segment rency capital Group Held by directly

Geographic segment - Italy RCS Factor S.r.l. in liquidation Milan Factoring EUR 100,000.00 90.00 RCS MediaGroup S.p.A. 90.00 RCS Digital Ventures S.r.l. Milan Multimedia EUR 118,000.00 100.00 RCS Mediagroup S.p.A. 100.00 MyBeautyBox S.r.l. Milan Multimedia EUR 10,000.00 60.00 RCS Digital Ventures s.r.l. 60.00 Blei S.r.l. in liquidation Milan Advertising EUR 1,548,000.00 100.00 RCS Mediagroup S.p.A. 100.00 RCS Produzioni S.p.A. Rome Production EUR 1,000,000.00 100.00 RCS MediaGroup S.p.A. 100.00 RCS Produzioni Milano S.p.A. Milan Production EUR 1,000,000.00 100.00 RCS MediaGroup S.p.A. 100.00 RCS Produzioni Padova S.p.A. Milan Production EUR 500,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Consorzio Milano Marathon S.r.l. Milan Services EUR 20,000.00 100.00 RCS Sport S.p.A. 100.00 RCS Sport S.p.A. Milan Services EUR 100,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Società Sportiva Dilettantistica RCS Active Team–SSD RCS AT a r.l. Milan Services EUR 10,000.00 100.00 RCS Sport S.p.A. 100.00 Digital Factory S.r.l. Milan Television EUR 500,000.00 100.00 Digicast S.p.A. 100.00 Sfera Service S.r.l. Milan Services EUR 52,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Planet Sfera S.r.l. in liquidation Milan Services EUR 40,000.00 51.00 Sfera Service S.r.l. 51.00 RCS Edizioni Locali S.r.l Milan Publishing EUR 1,002,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Editoriale Del Mezzogiorno S.r.l. Naples Publishing EUR 1,000,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Trovolavoro S.r.l. Milan Advertising EUR 674,410.00 100.00 RCS Mediagroup S.p.A. 100.00 Digicast S.p.A. Milan Television EUR 211,560.00 100.00 RCS MediaGroup S.p.A. 100.00

Geographic segment - Spain Canal Mundo Radio Cataluna S.L. Barcelona Radio EUR 3,010.00 99.98 Unidad Editorial S.A. 99.99 Corporación Radiofónica Informacion y Deporte S.L.U. Madrid Radio EUR 900,120.00 99.99 Unedisa Comunicaciones S.L.U. 100.00 Ediciones Cónica S.A. Madrid Publishing EUR 432,720.00 99.39 Unidad Editorial S.A. 99.40 Ediservicios Madrid 2000 S.L.U. Madrid Publishing EUR 601,000.00 99.99 Unidad Editorial Revistas S.L.U. 100.00 Editora De Medios De Valencia, Alicante Y Castellon S.L. Valencia Publishing EUR 72,055.00 99.98 Unidad Editorial Informaciòn General S.L.U. 99.99 La Esfera de los Libros S.L. Madrid Publishing EUR 48,000.00 74.99 Unidad Editorial S.A. 75.00 Información Estadio Deportivo S.A. Sevilla Publishing EUR 154,339.91 84.96 Unidad Editorial Informaciòn Deportiva S.L.U. 84.97 Last Lap S.L. Madrid Services EUR 6,010.00 99.99 Unidad Editorial Informaciòn Deportiva S.L.U. 100.00 Logintegral 2000 S.A.U. Madrid Distribution EUR 500,000.00 99.99 Unidad Editorial S.A. 100.00 Rey Sol S.A. Palma de Mallorca Publishing EUR 68,802.00 99.99 Unidad Editorial S.A. 66.67 Unidad Editorial Informaciòn General S.L.U. 33.33 Unedisa Comunicaciones S.L.U. Madrid Multimedia EUR 610,000.00 99.99 Unidad Editorial S.A. 100.00 Unedisa Telecomunicaciones S.L.U. Madrid Multimedia EUR 1,100,000.00 99.99 Unidad Editorial S.A. 100.00 Unedisa Telecomunicaciones de Levante S.L. Valencia Multimedia EUR 3,010.00 51.15 Unedisa Telecomunicaciones S.L.U. 51.16 Unidad Editorial S.A. Madrid Publishing EUR 125,896,898.00 99.99 RCS International Newspapers B.V. 73.75 RCS MediaGroup S.p.A. 26.24 Unidad Liberal Radio S.L. Madrid Multimedia EUR 10,000.00 54.99 Unidad Editorial S.A. 55.00 Unidad de Medios Digitales S.L. Madrid Advertising EUR 3,000.00 50.00 Unidad Editorial S.A. 50.00 Unidad Editorial Informaciòn Deportiva S.L.U. Madrid Multimedia EUR 4,423,043.43 99.99 Unidad Editorial S.A. 100.00 Unidad Editorial Informaciòn Economica S.L.U. Madrid Publishing EUR 102,120.00 99.99 Unidad Editorial S.A. 100.00 Unidad Editorial Formacion S.L.U. Madrid Television EUR 1,693,000.00 99.99 Unedisa Telecomunicaciones S.L.U. 100.00 Unidad Editorial Informaciòn General S.L.U. Madrid Publishing EUR 102,120.00 99.99 Unidad Editorial S.A. 100.00 Unidad Editorial Juegos S.A. Madrid Multimedia EUR 100,000.00 99.99 Unidad Editorial S.A. 100.00 Unidad Editorial Información Regional S.L. Madrid Publishing EUR 4,109,508.00 98.15 Unidad Editorial S.A. 94.03 Unidad Editorial Informaciòn General S.L.U. 4.12 Unidad Editorial Revistas S.L.U. Madrid Publishing EUR 1,195,920.00 99.99 Unidad Editorial S.A. 100.00 Veo Television S.A. Madrid Television EUR 27,328,752.00 99.99 Unidad Editorial S.A. 100.00 Feria Bebe S.L. Barcellona Publishing EUR 10,000.00 60.00 Sfera Editores Espana S.L. 60.00 Sfera Direct S.L. Barcellona Publishing EUR 3,006.00 100.00 Sfera Editores Espana S.L. 100.00 Sfera Editores Espana S.L. Barcellona Publishing EUR 174,000.00 100.00 RCS Mediagroup S.p.A. 100.00

Geographic segment - Other countries RCS International Newspapers B.V. Amsterdam Publishing EUR 6,250,000.00 100.00 RCS Mediagroup S.p.A. 100.00 Publishing/ Sfera Editores Mexico S.A. Colonia Anzures Services MXN 20,598,100.00 100.00 RCS Mediagroup S.p.A. 99.99 Sfera Service S.r.l. 0.01 Sfera France SAS Paris Publishing EUR 240,000.00 66.70 Sfera Editores Espana S.L. 66.70 Hotelyo S.A. Chiasso Digital CHF 100,000.00 51.00 RCS Mediagroup S.p.A. 51.00 A Esfera dos Livros S.L.U. Lisbon Publishing EUR 5,000.00 74.99 La Esfera de los Libros S.L. 100.00 Last Lap Organiçao de eventos S.L. Lisbon Services EUR 30,000.00 99.99 Last Lap S.L. 99.67 Unidad Editorial Informaciòn Deportiva S.L.U. 0.33 RCS Sports and Events DMCC Dubai Services EUR 20,077.00 100.00 RCS Sport S.p.A. 100.00

215 – ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity-accounted investees

Registered Operating Share/ % held Company name Currency Held by office segment quota capital directly

Geographic segment - Italy Quibee S.r.l. Turin Digital EUR 15,873.02 RCS Digital Ventures s.r.l. 37.00 Gold 5 S.r.l. in liquidation Milan Advertising EUR 250,000.00 RCS MediaGroup S.p.A. 20.00 Consorzio C.S.I.E.D. Milan Distribution EUR 103,291.00 M-Dis Distribuzione Media S.p.A. 20.00 Liguria Press S.r.l. Genoa Distribution EUR 240,000.00 M-Dis Distribuzione Media S.p.A. 40.00 GD Media Service S.r.l. Milan Distribution EUR 789,474.00 M-Dis Distribuzione Media S.p.A. 24.00 M-Dis Distribuzione Media S.p.A. Milan Distribution EUR 6,392,727.00 RCS MediaGroup S.p.A. 45.00 MDM Milano Distribuzione Media S.r.l. Milan Distribution EUR 611,765.00 M-Dis Distribuzione Media S.p.A. 51.00 Pieroni Distribuzione S.r.l. Milan Distribution EUR 750,000.00 M-Dis Distribuzione Media S.p.A. 51.00 TO-dis S.r.l. Milan Distribution EUR 510,000.00 M-Dis Distribuzione Media S.p.A. 100.00 Trento Press Service S.r.l. Trento Distribution EUR 260,000.00 M-Dis Distribuzione Media S.p.A. 36.92

Geographic segment - Spain Planet Sfera S.L. Barcelona Services EUR 40,000.00 Sfera Editores Espana S.L. 50.00 Corporacion Bermont S.L. Madrid Printing EUR 21,003,100.00 Unidad Editorial S.A. 37.00 Bermont Catalonia S.A. Barcelona Printing EUR 60,101.21 Corporacion Bermont S.L. 100.00 Bermont Impresion S.L. Madrid Printing EUR 321,850.00 Corporacion Bermont S.L. 100.00 Calprint S.L. Valladolid Printing EUR 1,856,880.00 Corporacion Bermont S.L. 39.58 Escuela de Cocina Telva S.L. Madrid Training EUR 61,000.00 Ediciones Cónica S.A. 50.00 Fabripress S.A.U. Madrid Publishing EUR 961,600.00 Corporacion Bermont S.L. 100.00 Impresiones y distribuciones de Prensa Europea S.A. Madrid Printing EUR 60,101.21 Corporacion Bermont S.L. 100.00 Lagar S.A. Madrid Printing EUR 150,253.03 Corporacion Bermont S.L. 60.00 Bermont Impresion S.L. 40.00 Madrid Deportes y Espectáculos S.A. (in liquidation) Madrid Multimedia EUR 600,000.00 Unidad Editorial Informaciòn Deportiva S.L.U. 30.00 Newsprint Impresion Digital S.L. Tenerife Printing EUR 93,000.00 TF Print S.A. 50.00 Santa Maria Omniprint S.A. Printing EUR 2,790,000.00 Corporacion Bermont S.L. 100.00 del Cami Radio Salud S.A. Barcelona Radio EUR 200,782.08 Unedisa Comunicaciones S.L.U. 30.00 Recoprint Dos Hermanas S.L.U. Madrid Printing EUR 2,052,330.00 Corporacion Bermont S.L. 100.00 Recoprint Güimar S.L.U. Madrid Printing EUR 1,365,140.00 Corporacion Bermont S.L. 100.00 Recoprint Impresiòn S.L.U. Madrid Printing EUR 3,010.00 Corporacion Bermont S.L. 100.00 Recoprint Pinto S.L.U. Madrid Printing EUR 3,652,240.00 Corporacion Bermont S.L. 100.00 Recoprint Rábade S.L.U. Madrid Printing EUR 1,550,010.00 Corporacion Bermont S.L. 100.00 Recoprint Sagunto S.L.U. Madrid Printing EUR 2,281,920.00 Corporacion Bermont S.L. 100.00 Santa Cruz TF Press S.L. Printing EUR 3,005.06 Corporacion Bermont S.L. 100.00 de Tenerife Santa Cruz TF Print S.A. Printing EUR 1,382,327.84 Corporacion Bermont S.L. 75.00 de Tenerife Bermont Impresion S.L. 25.00 Unidad Liberal Radio Madrid S.L. Madrid Multimedia EUR 10,000.00 Unidad Editorial S.A. 45.00 Libertad Digital S.A. 55.00

Geographic segment - Other countries Inimm Due S.à.r.l. Luxembourg Real Estate EUR 240,950.00 RCS MediaGroup S.p.A. 20.00

– 216 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Available-for-sale companies

Operating Share/ % held Company name Registered office Currency Held by segment quota capital directly Geographic segment - Italy Ansa Società Cooperativa Rome Publishing EUR 10,783,361.63 RCS Mediagroup S.p.A. 4.38 Cefriel S.c.a.r.l Milan Research EUR 1,173,393.00 RCS Mediagroup S.p.A. 5.46 Consuledit S.c.a.r.l. (in liquidation) Milan Publishing EUR 20,000.00 RCS Mediagroup S.p.A. 19.55 Emittenti Titoli S.p.A. in liquidation Milan Finance EUR 4,264,000.00 RCS MediaGroup S.p.A 1.46 H-Farm S.p.A. Roncade (TV) Services EUR 8,924,165.00 RCS MediaGroup S.p.A 0.75 Immobiliare Editori Giornali S.r.l. Rome Publishing EUR 830,462.00 RCS MediaGroup S.p.A 7.49 ItaliaCamp S.r.l. Rome Services EUR 10,000.00 RCS MediaGroup S.p.A 3.00 Mode et Finance Société par actions simplifiée Paris Apparel EUR 6,965,714.00 RCS MediaGroup S.p.A 4.62 in liquidation Mach 2 Libri S.p.A. Peschiera B. Publishing EUR 646,250.00 RCS MediaGroup S.p.A 19.09 Digital Magics S.p.A. Milan Multimedia EUR 6,573,113.00 RCS Digital Ventures s.r.l. 0.39 Mperience S.r.l. Rome Digital EUR 26,718.00 RCS Digital Ventures s.r.l. 2.00 Trova La Zampa s.r.l Milan Digital EUR 10,000.00 RCS Digital Ventures s.r.l. 5.00 Fantaking Interactive S.r.l. Brescia Digital EUR 10,000.00 RCS Digital Ventures s.r.l. 15.00 The Gira s.r.l. Milan Services EUR 11,111.11 RCS Sport S.p.A. 9.25 Consorzio Edicola Italiana Milan Digital EUR 60,000.00 RCS Mediagroup S.p.A. 16.66 Onering S.r.l. (in liquidation) Montegrotto Terme (PD) Digital EUR 10,000.00 RCS Mediagroup S.p.A. 15.00 SportPesa Italy S.r.l. Milan Multimedia EUR 10,000.00 RCS MediaGroup S.p.A. 25.00 Premium Publisher Network (Consortium) Milan Advertising EUR 19,425.77 RCS Mediagroup S.p.A. 20.51 Giorgio Giorgi Srl Calenzano (FI) Distribution EUR 1,000,000.00 M-Dis Distribuzione Media S.p.A. 5.00

Geographic segment - Spain Cronos Producciones Multimedia S.L.U. Madrid Publishing EUR 3,010.00 Libertad Digital Television S.A. 100.00 Digicat Sis S.L. Barcelona Radio EUR 3,200.00 Radio Salud S.A. 25.00 Libertad Digital S.A. Madrid Multimedia EUR 2,582,440.00 Unidad Editorial S.A. 1.16 Libertad Digital Publicidad y Marketing S.L.U Madrid Advertising EUR 3,010.00 Libertad Digital S.A. 100.00 Libertad Digital Television S.A. Madrid Television EUR 2,600,000.00 Libertad Digital S.A. 99.66 Editora De Medios De Valencia, Medios de Azahar S.A. Castellon Services EUR 825,500.00 6.12 Alicante Y Castellon S.A. Palacio del Hielo S.A. Madrid Multimedia EUR 1,617,837.91 Unidad Editorial S.A. 8.53 Suscribe S.L. Palma de Mallorca Publishing EUR 300,000.00 Logintegral 2000 S.A.U. 15.00 Wouzee Media S:L Madrid Multimedia EUR 14,075.00 Unidad Editorial S.A. 10.00 13 TV S.A Madrid Multimedia EUR 2,953,140.00 Unidad Editorial S.A. 0.77

Geographic segment - Other countries Yoodeal Ltd Crowborough Digital GBP 12,004.00 RCS Digital Ventures s.r.l. 2.00

217 – ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EXCHANGE RATES AGAINST THE EURO

The main exchange rates used to translate financial statements drawn up in currencies other than the Euro are as follows:

Exact Average Exact Average exchange rate exchange rate exchange rate exchange rate Dec-31-2017 2017 Dec-31-2017 2016 Canadian dollar CAD 1.50390 1.46470 1.41880 1.46588 US dollar USD 1.19930 1.12970 1.05410 1.10690 Swiss franc CHF 1.17020 1.11170 1.07390 1.09016 British pound GBP 0.88723 0.87667 0.85618 0.81948 Mexican peso MXN 23.66120 21.32860 21.77190 20.66731 Brazilian real BRL 3.97290 3.60540 3.43050 3.85614 Australian dollar AUD 1.53460 1.47320 1.45960 1.48828 Chinese renminbi CNY 7.80440 7.62900 7.32020 7.35222 United Arab Emirates dirham AED 4.40440 4.14753 3.86960 4.06344

– 218 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS - 3.5 8.4 2.8 5.0 0.3 3.5 89.9 35.0 (4.9) (9.9) (1.8) (0.7) (0.6) 2016 136.7 451.2 380.4 968.3 (12.4) (30.3) (17.0) (36.6) (268.2) (598.8) Year Year 0.2 0.0 2.1 70.9 70.9 87.4 16.2 95.6 71.1 (3.7) (6.5) (2.4) (0.6) 2017 138.2 141.1 409.8 344.9 895.8 (16.5) (24.4) (14.3) (25.3) (258.1) (491.4) - - 1.2 0.2 0.1 21.0 49.5 21.0 29.3 35.8 36.1 89.6 21.0 (8.3) (7.5) (6.6) (0.5) (0.1) (4.2) (8.9) 2016 133.2 258.9 (62.3) (141.0) 4th quarter 0.1 0.4 0.0 1.7 51.1 53.8 51.1 57.5 14.6 48.5 31.0 81.7 51.2 (6.4) (1.1) (2.6) (5.6) (2.4) (0.1) (3.2) 2017 125.4 238.1 (65.6) (116.7) - - - 6.6 0.4 25.9 82.0 97.4 (9.2) (1.0) (1.1) (0.6) (7.6) (7.1) (0.1) (0.2) (4.2) 2016 205.3 (15.3) (15.3) (15.3) (65.7) (15.3) (131.3) 3rd quarter 0.2 0.0 0.0 0.4 3.1 0.0 15.4 23.7 71.9 90.4 (8.6) (4.3) (4.3) (1.8) (0.7) (2.5) (1.2) (6.0) (0.2) (3.5) (4.1) 2017 186.0 (60.8) (107.9) 8.4 0.6 0.7 11.7 20.1 37.6 16.4 23.8 47.1 98.6 19.9 (0.2) (9.3) (4.7) (0.6) (2.2) (8.1) (0.1) (0.2) (4.2) 2016 138.6 284.3 (68.9) (175.6) - - - 2nd quarter 0.1 1.2 29.7 56.9 29.7 39.2 44.6 51.9 86.7 29.7 (8.5) (9.5) (0.6) (1.3) (6.6) (0.2) (3.6) 2017 119.7 258.3 (64.2) (135.4) - - 0.2 0.6 3.2 0.1 27.7 97.4 94.7 (9.2) (3.7) (0.4) (1.6) (8.0) (0.2) (4.4) 2016 219.8 (22.2) (22.2) (25.4) (71.1) (17.5) (22.0) (151.0) - - - - 1st quarter 0.3 1.3 12.1 34.5 92.8 86.1 (8.8) (5.7) (5.7) (1.3) (7.0) (1.4) (6.4) (0.6) (0.1) (3.8) (5.7) 2017 213.4 (67.5) (131.4) (Profit) loss attributable to non-controlling interests Amortisation of intangible assets Profit (loss) before non-controlling interests interests non-controlling (loss) before Profit EBITDA EBITDA Profit (loss) from assets held for sale Profit (loss) from continuing operations (loss) from Profit Share of profits equity-accounted investees Income taxes Allowance for impairment Profit (loss) before tax (loss) before Profit Provisions for risks Gains (losses) on financial assets/liabilities Personnel expense Net financial expense Operating expenses Operating profit (loss) Operating profit Other publishing revenue Other impairment losses on non-current assets Advertising revenue Depreciation of investment property Distribution revenue Depreciation of property, plant and equipment Depreciation of property, (€/millions) Revenue Profit (loss) for the period (loss) for Profit QUARTERLY INCOME STATEMENT OF THE GROUP OF INCOME STATEMENT QUARTERLY

219 –

RELATED PARTY TRANSACTIONS

Current loans and Parents Trade Trade borrowings and Financial transactions receivables payables financial liabilities Cairo Communication S.p.A. 0.7 - 0.4 U.T. Communication S.p.A. - - - Total 0.7 - 0.4

Jointly controlled companies Trade Current loans and Trade Financial transactions receivables borrowings payables m-dis Distribuzione Media S.p.A. 17.5 1.5 1.9 MDM Milano Distribuzione Media S.r.l. - 2.3 - To-dis S.r.l. - 0,6 - Planet Sfera S.L. 0.1 - - Total 17.6 4.3 1.9

Associates Trade Trade Other current Commitments Financial transactions receivables payables liabilities Fabripress S.A. (Gruppo Bermont) - 6.8 - - Calprint S.L. (Gruppo Bermont) - 1.8 - 0.8 Recoprint Dos hermanas S.L.U. (Gruppo Bermont) - 1.4 - - Recoprint Sagunto S.L.U. (Gruppo Bermont) - 0.7 - - Bermont Catalonia S.A. (Gruppo Bermont) - 0.9 - - Recoprint Ràbade S.L.U. (Gruppo Bermont) - 0.7 - - TF Print S.A. (Gruppo Bermont) - 0.6 - - Omniprint S.A. (Gruppo Bermont) - - - - Recoprint Impresiòn S.L.U. (Gruppo Bermont) 0.1 - - - Total 0.1 13.0 - 0.8

Other group companies (1) Trade Trade Financial transactions receivables payables Cairo group companies 0.3 0.8 Total 0.3 0.8 (1) Includes the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A. The trade transactions also include transactions up to August 4, 2017 with the shareholders and the associated corporate groups (legal entities in the form of parents, subsidiaries or jointly controlled companies) that had, up to that date, an interest of more than 3% in RCS MediaGroup S.p.A. with voting rights. From August 4, following the amendments to the Group's Related Party Procedure, only companies that are directly or indirectly controlled or subject to joint control or significant influence by key management personnel will continue to be considered a related party. Therefore, the figures for 2017 referring to the companies belonging to Marco Tronchetti Provera and Diego della Valle were reclassified under "Other related parties".

Other related parties (1) Trade Revenue Income and financial-related transactions receivables Della Valle group companies 2.2 1.0 Pirelli group companies 0.3 0.1 Total 2.5 1.1

(1) Compensation for key management personnel, details of which are in Note 16 Related party transactions, is not included.

223 – RELATED PARTY TRANSACTIONS

Parents Raw materials and Revenue Other operating income Income-related transactions services Cairo Communication S.p.A. - (0.4) 0.5 U.T. Communication S.p.A. - - - Total - (0.4) 0.5

Jointly controlled companies Raw materials and Revenue Other operating income Income-related transactions services m-dis Distribuzione Media S.p.A. 204.3 (11.0) 1.3 MDM Milano Distribuzione Media S.r.l. - (0.1) - Total 204.3 (11.1) 1.3

Associates Raw materials and Revenue Income-related transactions services Fabripress S.A. (Gruppo Bermont) 1.5 (12.3) Calprint S.L. (Gruppo Bermont) - (4.3) Bermont Catalonia S.A. (Gruppo Bermont) - (2.9) Recoprint Dos Hermanas S.L.U. (Gruppo Bermont) - (2.9) Recoprint Sagunto S.L.U. (Gruppo Bermont) - (2.3) Recoprint Rábade S.L.U. (Gruppo Bermont) - (1.3) TF Print S.A. (Gruppo Bermont) - (1.2) Radio Salud S.A. 0.2 (0.7) Omniprint S.A. (Gruppo Bermont) - (0.7) Recoprint Pinto S.L.U. (Gruppo Bermont) - (0.5) Total 1.7 (29.0)

Other group companies (1) Raw materials and Financial Revenue Other operating income Income-related transactions services expense Cairo group companies 1.2 (1.4) 0.5 - Mediobanca group companies (2) - - - (1.0) UnipolSai S.p.A. group companies (2) 0.2 - - - Total 1.4 (1.4) 0.5 (1.0) (1) Includes the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A. The trade transactions also include transactions up to August 4, 2017 with the shareholders and the associated corporate groups (legal entities in the form of parents, subsidiaries or jointly controlled companies) that had, up to that date, an interest of more than 3% in RCS MediaGroup S.p.A. with voting rights. From August 4, following the amendments to the Group's Related Party Procedure, only companies that are directly or indirectly controlled or subject to joint control or significant influence by key management personnel will continue to be considered a related party. Therefore, the figures for 2017 referring to the companies belonging to Marco Tronchetti Provera and Diego della Valle were reclassified under "Other related parties". (2) At December 31, 2017, Mediobanca and UnipolSai S.p.A. group companies are no longer considered related parties. The income statement balances concern the transactions up to August 4, 2017, the date on which the Related Party Procedure adopted by the RCS MediaGroup S.p.A. was updated.

– 224 RELATED PARTY TRANSACTIONS

Commitments and guarantees to related parties (€/millions) Parents - Associates 0.8 Other group companies - Other related parties 2.7 Total 3.5

Supplementary pension fund for executives Raw materials and Personnel expense (FIPDIR) services RCS Medigroup S.p.A. (0.1) (0.4) Total (0.1) (0.4)

225 –

TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A. TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Details on Related Party Transactions at December 31, 2017

Company name Distribution Advertising Other publishing Purchasing costs for Personnel Other operating Other operating Financial Financial Other gains (losses) revenue revenue revenue raw materials Service costs Rentals and leases expense income expenses income expense on financial assets/ (€/millions) liabilities Parents Cairo Communication S.p.A. - (23,824.00) - - 304,500.00 - - (477,657.94) - - - - U.T. Communications S.p.A. - (338.00) ------Total parents - (24,162.00) - - 304,500.00 - - (477,657.94) - - - - Subsidiaries Trovolavoro S.r.l. - (332,739.37) (327,000.00) 2,229.38 63,504.02 - - (92,450.53) - (1,818.75) 65.32 - RCS Sport S.p.A. (6,775.63) (4,120.75) (1,785,905.56) 334,003.11 - - (730,093.64) 261.00 - 308,356.53 (6,900,000.00) Editoriale del Mezzogiorno S.r.l. - - (211,432.96) 6,343,714.66 518,920.93 - - (381,538.90) - - 4,378.27 - Sfera Editores Espana S.l. - - (345,640.50) ------237.57 - Sfera Editores Mexico S.A. - - (33,532.24) - 8,600.00 - - (189,996.00) - - - RCS Edizioni Locali S.r.l. (7,047.10) - (1,228,438.40) 13,724,227.56 422,059.15 5,520.11 - (1,886,441.48) 1,910.00 (3,267.39) 72,494.12 - RCS Produzioni S.p.A. - - (165,000.00) - 6,767,339.61 - - (921,196.90) - (6.55) 9,484.19 (1,500,000.00) Sfera Service S.r.l. (263,602.14) - (121,415.96) - 410,674.60 - - (317,964.00) - (1,227.98) 45.04 - RCS Factor S.r.l. in liquidation - - (3,000.00) - - - - (27,045.08) - - 10,904.75 - Unidad Editorial S.A. - - (226,821.44) 2,322,438.83 - - - (623,834.49) - (9,438,527.04) - Blei S.r.l. in liquidation - - (3,000.00) - - - - (8,018.00) - - 36,045.24 21,000.00 RCS Produzioni Padova S.p.A. - - (155,000.04) - 5,925,932.49 - - (429,356.09) - - 41,876.39 (1,100,000.00) RCS Digital Ventures S.r.l. - - (154,000.04) 112,405.24 160,000.00 - - (222,852.43) 22,238.00 (33,976.23) - - Digicast S.p.A. (0.15) - (281,000.04) - 68,080.71 - - (400,187.95) - (181,396.11) - - Digital Factory S.r.l. - - - - 336,321.56 - - 530.36 - (514.36) 12,835.47 - Logintegral 2000 S.A. (556,279.87) ------Unidad Editorial Revistas S.L.U. - - (48,640.00) ------Consorzio Milano Marathon S.r.l. - - (15,000.00) ------36,704.86 - Hotelyo S.A. - - (165,813.57) 1,500.00 18,823.00 - - (8,639.24) - - - 116,000.00 RCS Produzioni Milano S.p.A. - - (366,999.96) - 18,963,474.36 368.97 - (1,577,206.66) - (251,205.39) - (1,400,000.00) SSD RCS Active Team S.r.l. - - (95,000.04) - - - - (59,683.12) - (53.74) 6,354.71 - MyBeautyBox S.r.l. - - (3,000.00) - 500.00 - - (18,000.00) - - - - RCS Sports and Events DMCC - (9,902.76) (638,531.46) - 57,500.00 - - (112,126.61) - - - - Total subsidiaries (833,704.89) (346,762.88) (6,374,172.21) 22,506,515.67 34,055,733.54 5,889.08 - (8,006,100.76) 24,409.00 (9,911,993.54) 539,782.46 (10,763,000.00) Associates M-Dis Distribuzione Media S.p.A. (203,192,630.48) (230.75) (1,107,154.96) - 11,030,177.76 - - (1,253,789.17) 30,540.34 (37,167.60) 5,475.09 (1,726,036.20) To-Dis S.r.l. ------(132.00) - (269.74) 1,357.73 - MDM Milano Distribuzione Media - - - 83,523.01 - - - (99.00) - - 2,342.10 - Inimm Due S.a.r.l. ------(15,250.00) - 15,250.00 SportPesa Italy S.r.l. - (225,641.80) (14,999.96) - - - - (1,630.00) - (8,880.17) 3.62 - Gold 5 S.r.l. ------8,800.00 - Total associates (203,192,630.48) (225,872.55) (1,122,154.92) 83,523.01 11,030,177.76 - - (1,255,650.17) 30,540.34 (61,567.51) 17,978.54 (1,710,786.20) Other group companies Cairo Pubblicità S.p.A. - (529.75) (120,870.00) - 1,191,568.14 - - (35,063.03) - - - - Cairo Editore S.p.A. (2,701.80) (162,226.50) - - 381.02 - - (319,697.58) - - - - Torino FC S.p.A. - (37,481.50) ------LA7 S.p.A. - (323,655.50) (274,797.84) - 120,000.00 - - (56,967.78) - - - - Il Trovatore S.r.l. - - - - 24,000.00 ------Cairo Publishing S.r.l. (150.00) ------Totale other group companies (2,851.80) (523,893.25) (395,667.84) - 1,335,949.16 - - (411,728.39) - - - -

NB: negative signs are "revenue", positive signs are "costs"

– 228 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

continued ►

229 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Details on Related Party Transactions at December 31, 2017 ►continued

Supplementary pension Fund for executives - - - - 43,151.42 - 381,384.22 - - - - - Board of Directors - - - - 2,326,920.00 ------Board of Statutory Auditors - - - - 224,563.00 ------Key management personnel ------2,428,975.00 - - - - 1,000,000.00 Gruppo Pirelli & C. S.p.A. - (58,838.00) ------Della Valle Group - (2,141,584.72) ------Total other related parties - (2,200,422.72) - - 2,551,483.00 - 2,428,975.00 - - - - 1,000,000.00

Reported total (204,029,187.17) (3,348,623.90) (7,891,994.97) 22,590,038.68 49,320,994.88 5,889.08 2,810,359.22 (10,157,437.26) 54,949.34 (9,973,561.05) 1,525,814.00 (11,473,786.20)

NB: negative signs are "revenue", positive signs are "costs"

– 230 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Reported total (204,029,187.17) (3,348,623.90) (7,891,994.97) 22,590,038.68 49,320,994.88 5,889.08 2,810,359.22 (10,157,437.26) 54,949.34 (9,973,561.05) 1,525,814.00 (11,473,786.20)

231 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Details on Related Party Transactions at December 31, 2017

Company name Equity investments Trade Other receivables Current tax Current loan Other non-current Current loans and Current tax Trade Other current Guarantees given (€/millions) at cost receivables and current assets assets assets liabilities borrowings liabilities payables liabilities Parents Cairo Communication S.p.A. - 721,540.93 ------(372,370.00) - - U.T. Communications S.p.A. - 412.36 ------Total parents - 721,953.29 ------(372.370,00) - - Subsidiaries Trovolavoro S.r.l. 870,552.67 228,506.25 21.17 - 36,591.31 - - (307,912.00) (33,678.84) (419.00) - RCS Sport S.p.A. 19,588,445.83 2,642,223.25 1,305.66 2,102,810.92 - (97,448.61) (38,435,025.92) (3.38) (366,413.26) - 4,950,000.00 Editoriale del Mezzogiorno S.r.l. 3,594,612.92 150,794.83 6,548.49 14,752.00 - - (2,147,197.82) (1,639,650.83) - - Rcs Edizioni Locali S.r.l. 7,669,084.90 2,633,701.48 232.33 - (316,964.24) (10,551,707.03) (947,140.65) (3,957,185.00) - 262,000.00 Sfera Editores Espana S.L. 177,299.96 953,017.36 - - - - (217,025.82) (2,018.69) - - Sfera Editores Mexico S.A. 848,409.32 915,750.23 ------RCS Produzioni S.p.A. 3,043,779.92 476,075.05 - - - (241,607.70) (2,261,600.28) (500,051.55) (9,174.77) - - Sfera Service S.r.l. 51,645.69 713,706.78 - - - - (17,269.32) (36,167.90) (406,673.58) - - RCS Factor S.r.l. in liquidation 532,361.76 9,893.75 - - - (18,914.00) (1,088,050.07) - - - - Unidad Editorial S.A. 87,847,666.33 776,981.95 - - 264,982,042.51 - - - (632,439.92) (42,769.85) 11,630,000.00 Blei S.r.l. in liquidation 2,060,568.89 2,915.00 - - - (132,889.71) (2,244,946.28) (89,471.02) (40,882.42) 42,000.00 RCS Produzioni Padova S.p.A. 2,142,430.39 730,098.91 - - - (69,572.90) (4,539,968.76) (386,633.25) - - 73,000.00 RCS Digital Ventures S.r.l. 3,767,574.04 242,848.02 - - 681,085.47 - - (250,730.67) (454,073.86) - 60,000.00 Digicast S.p.A. 1,236,740.59 441,236.76 36.78 - 1,451,871.64 - - (522,314.94) (14,363.72) (65,575.00) - Digital Factory S.r.l. - 268,400.00 - - - - (750,324.92) (1,031,761.25) (101,149.56) - 29,000.00 Logintegral 2000 S.A. ------(3,728.45) - - Unidad Editorial Revistas SLU - 15,290.00 ------RCS International Newspapers B.V. 257,126,259.15 ------Consorzio Milano Marathon S.r.l. - 4,575.00 - - - - (2,346,328.47) - - - - Hotelyo S.A. 167,683.52 226,049.89 ------(22,074.00) - - RCS Produzioni Milano S.p.A. 9,890,640.00 460,615.59 - - 2,733,088.97 - - (297,322.93) (39,047.24) (31,783.07) - SSD RCS Active Team S.r.l. - 36,874.40 13.19 - - - (704,160.25) - - - - MyBeautyBox S.r.l. - 23,568.00 ------(610.00) - - RCS Sports and Events DMCC - 141,378.53 ------(57,500.00) - - Total subsidiaries 400,615,755.88 12,094,501.03 8,157.62 2,117,562.92 269,884,679.90 (877,397.16) (65,303,604.94) (4,369,509.54) (7,739,781.72) (181,429.34) 17,046,000.00 Associates m-dis Distribuzione Media S.p.A. 8,052,673.43 17,494,753.22 6,196.00 - - - (1,467,787.16) - (1,860,093.05) - - To-Dis S.r.l. ------(595,623.76) - - - - MDM Milano Distribuzione Media S.r.l. ------(2,257,636.24) - (3,541.14) - - Total associates 8,052,673.43 17,494,753.22 6,196.00 - - - (4,321,047.16) - (1,863,634.19) - - Other group companies Cairo Pubblicità S.p.A. - 28,565.39 ------(651,656.92) - - Cairo Editore S.p.A. - 223,176.71 ------(7,865.84) - - Torino FC S.p.A. - 8,244.15 ------Il Trovatore S.r.l. ------(70,150.00) - - Cairo Publishing S.r.l. - 150.00 ------LA7 S.p.A. - 68,994.67 ------Total other group companies - 329,130.92 ------(729,672.76) - - Total sub-holdings and their parents ------NB: negative signs are “liabilities", positive signs are “assets"

– 232 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

233 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Details on Related Party Transactions at December 31, 2017 ►continued Company name Equity investments Trade Other receivables Current tax Current loan Other non-current Current loans and Current tax Trade Other current Guarantees given (€/millions) at cost receivables and current assets assets assets liabilities borrowings liabilities payables liabilities Supplementary pension Fund for executives - - 11,848.58 ------Board of Directors ------(863,667.00) - Board of Statutory Auditors ------(242,364.00) - Key management personnel ------(1,579,168.00) - Gruppo Pirelli & C. S.p.A. - 61,000.00 ------Della Valle Group - 945,085.00 ------Total other related parties - 1,006,085.06 ------(2,685,199.00) -

Reported total 408,668,429.31 31,646,424.06 26,202.20 2,117,562.92 269,884,679.90 (877,397.16) (69,624,652.10) (4,369,509.54) (10,705,458.67) (2,866,628.34) 17,046,000.00

NB: negative signs are “liabilities", positive signs are “assets"

– 234 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Reported total 408,668,429.31 31,646,424.06 26,202.20 2,117,562.92 269,884,679.90 (877,397.16) (69,624,652.10) (4,369,509.54) (10,705,458.67) (2,866,628.34) 17,046,000.00

235 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

List of equity investments pursuant to Art. 2427, paragraph 5 of the Italian Civil Code with supplementary information recommended by CONSOB in its communication of 23, February 1994 and subsequent communications

Subsidiaries Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year RCS Factor S.r.l. (in liquidation) - Milan At 12/31/16 0.1 - 0.9 90.00 1 0.5 At 12/31/17 0.1 - 0.9 90.00 (b) 1 0.5

RCS Digital Ventures S.r.l. - Milan At 12/31/16 0.1 (0.2) - 100.00 1 3.6 At 31/12/17 0.1 0.1 0.2 100.00 (a) 1 3.7

Digicast S.p.A. - Milan At 12/31/16 0.2 2.2 2.6 100.00 41,000 1.2 At 12/31/17 0.2 2.2 4.9 100.00 (a) 41,000 1.2

RCS Investimenti S.p.A. - Milan At 12/31/16 39.1 13.7 817.5 99.69 96,211,020 817.4 - Purchase of interests non-controlling shareholders for 24,560 0.0 withdrawal right - Merger into RCS MediaGroup S.p.A. (817.4) At 12/31/17 ------

Unidad Editorial S.A. - Madrid At 12/31/16 ------Amount entered following merger of RCS Investimen- 26.24 1 87.8 ti S.p.A. At 12/31/17 123.9 14.8 6.2 26.24 (a) 1 87.8

Trovolavoro S.r.l. - Milan At 12/31/16 0.7 (0.2) 0.7 100.00 1 0.9 At 12/31/17 0.7 (0.3) 0.5 100.00 (a) 1 0.9

SportPesa Italy S.r.l. (former RCS Gaming S.r.l.) - Milan At 12/31/16 - (1.4) (0.1) 100.00 1 - - Payment to cover losses 0.2 - Disposal of equity investment (75.00) (0.2) - Reclassification to available-for-sale financial assets (25.00) - At 12/31/17 ------

RCS Sport S.p.A. - Milan At 12/31/16 0.1 7.7 8.7 100.00 100,000 19.6 At 12/31/17 0.1 15.9 17.7 100.00 (a) 100,000 19.6

Editoriale Del Mezzogiorno S.r.l. - Naples At 12/31/16 1.0 0.2 1.1 100.00 1 3.6 At 12/31/17 1.0 0.2 1.4 100.00 (a) 1 3.6

– 236 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year RCS Produzioni Padova S.p.A. - Milan At 12/31/16 0.5 1.2 3.4 100.00 500,000 2.1 At 12/31/17 0.5 0.4 2.7 100.00 (a) 500,000 2.1

RCS International Newspapers BV - Amsterdam At 12/31/16 6.2 0.4 257.1 100.00 62,500 257.1 At 12/31/17 6.2 0.4 257.1 100.00 (b) 62,500 257.1

Editoriale Veneto S.r.l. - Padua At 12/31/16 1.8 0.3 3.7 51.00 1 0.9 - Purchase of 49% quota 49.00 1.5 - Merger into RCS Edizioni Locali S.r.l. (100.00) (1) (2.4) At 12/31/17 ------

Editoriale Fiorentina S.r.l. - Florence At 12/31/16 1.0 0.4 2.2 50.09 1 0.9 - Purchase of 49.91% quota 49.91 1.0 - Merger into RCS Edizioni Locali S.r.l. (100.00) (1) (1.9) At 12/31/17 ------

RCS Produzioni S.p.A. - Milan At 12/31/16 1.0 1.6 4.0 100.00 1,000,000 3.0 At 12/31/17 1.0 0.4 2.9 100.00 (a) 1,000,000 3.0

RCS Produzioni Milano S.p.A. - Milan At 12/31/16 1.0 1.7 11.3 100.00 1,000,000 9.9 At 12/31/17 1.0 0.6 10.6 100.00 (a) 1,000,000 9.9

RCS Edizioni Locali S.r.l. - Milan At 12/31/16 1.0 0.3 3.6 100.00 1 3.4 - Merger of Editoriale Veneto S.r.l S.r.l. 2.4 - Merger of Editoriale Fiorentina S.r.l. 1.9 At 12/31/17 1.0 (0.4) 9.2 100.00 (a) 1 7.7

Sfera Service S.r.l. - Milan At 12/31/16 0,1 0,1 0,2 100,00 1 0,1 At 12/31/17 0,1 0,0 0,2 100,00 (a) 1 0,1

Sfera Editores Espana S.l. - Barcelona At 12/31/16 0.2 0.4 1.0 100.00 1 0.2 At 12/31/17 0.0 0.1 1.1 100.00 (a) 1 0.2

Sfera Editores Mexico S.a. - Colonia Anzures At 12/31/16 0.4 (0.4) - 99.99 88,070 0.3 - Partial waiver of trade receivables 0.5 At 12/31/17 0.9 (0.4) 0.1 99.99 (a) 205,980 0.8

237 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year Canali Digitali S.r.l. (in liquidation) - Milan At 12/31/16 - - - 99.20 1 - - Striking off of the company from the Company Register - At 12/31/17 ------

Hotelyo S.A. - Chiasso At 12/31/16 0.1 (0.1) 0.6 51.00 51,000 0.3 - Capital payment - outright grant 0.0 - Impairment losses (0.1) At 12/31/17 0.1 (0.2) 0.3 51.00 (a) 51,000 0.2

Blei S.r.l. in liquidation - Milan At 12/31/16 1.5 0.1 2.1 100.00 1 2.1 - Impairment losses 0.0 At 12/31/17 1.5 0.2 2.1 100.00 (a) 1 2.1

Total carrying amount of “subsidiaries” at 12/31/17 400.5

Associates and joint ventures

Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year m-dis Distribuzione Media S.p.A. - Milan At 12/31/16 6.4 4.0 11.8 45.00 2,876,727 8.1 At 12/31/17 6.4 3.6 11.6 45.00 (a) 2,876,727 8.1

Inimm Due S.à.r.l. - Luxembourg At 12/31/16 0.2 (0.2) (0.2) 20.00 1,928 0.0 At 12/31/17 0.2 (0.2) (0.2) 20.00 (c) 1,928 0.0

Gold 5 S.r.l. (in liquidation) - Milan At 12/31/16 0.2 0.1 0.4 20.00 1 - At 12/31/17 0.0 0.0 0.0 20.00 (a) 1 -

Total carrying amount of “associates” at 12/31/17 8.1

– 238 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Available-for-sale financial assets

Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year SportPesa Italy S.r.l. (former RCS Gaming S.r.l.) - Milan At 12/31/16 ------Reclassification from subsidiaries 0.0 25.00 1 0.0 At 12/31/17 0.0 (1.4) (0.1) 25.00 (b) 1 0.0

Immobiliare Editori Giornali S.r.l. - Rome At 12/31/16 0.8 (0.1) 5.2 7.49 1 0.1 At 12/31/17 0.8 (0.1) 5.2 7.49 (b) 1 0.1

Mode et Finance (in liquidazione) - Paris At 12/31/16 7.0 (2.8) 1.1 4.62 60,980 0.0 At 12/31/17 7.0 (2.8) 1.1 4.62 (c) 60,980 -

Istituto Europeo di Oncologia S.r.l. - Milan At 12/31/16 80.6 6.8 102.8 5.08 1 4.1 - Disposal of equity investment (4.1) At 12/31/17 ------

ItaliaCamp S.r.l. - Rome At 12/31/16 0.0 0.2 0.3 3.00 1 0.0 At 12/31/17 0.0 0.2 0.3 3.00 (b) 1 -

H-Farm S.p.A. - Roncade At 12/31/16 8.9 (6.4) 37.9 1.35 673,333 0.2 At 12/31/17 8.9 (6.4) 37.9 0.75 (b) 673,333 0.2

Emittenti Titoli S.p.A. - Milan At 12/31/16 4.3 1.0 11.9 1.46 120,000 0.1 At 12/31/17 4.3 1.0 11.9 1.46 (b) 120,000 0.1

Mach 2 Libri S.p.A. - Milan At 12/31/16 0.6 ( 2.1) 4.3 19.09 23,864 0.2 - Impairment losses (0.2) At 12/31/17 0.6 (4.0) 0.3 19.09 (d) 23,864 0.0

Vital Stream Holding Inc - Irvine, CA, USA At 12/31/16 n.d. n.d. n.d. 0.03 8,998 0.0 At 12/31/17 n.d. n.d. n.d. 0.03 8,998 0.0

Cardio Now - Encinitas, CA, USA At 12/31/16 n.d. n.d. n.d. n.d. - 0.0 At 12/31/17 n.d. n.d. n.d. n.d. - 0.0

Ansa S.r.l. - Rome At 12/31/16 10.8 (0.1) 18.1 4.38 5 0.2 At 12/31/17 10.8 (0.1) 18.1 4.38 (b) 5 0.2

239 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Name and registered office Profit (loss) Share % Number of Carrying most recent Equity Capital held share/quotas amount (€/millions) year Premium Publisher Network (Consorzio) - Milan At 12/31/16 - - - 20.51 1 0.0 - Impairment losses 0.0 At 12/31/17 - - - 20.51 (b) 1 0.0

Consuledit S.c.ar.l. (in liquidazione) - Milan At 12/31/16 - - - 19.55 1 0.0 - Impairment losses 0.0 At 12/31/17 - - - 19.55 (b) 1 0.0

Cefriel S.c.a.r.l. - Milan At 12/31/16 1.1 0.4 2.7 5.46 1 0.0 At 12/31/17 1.1 0.4 2.7 5.46 (b) 1 0.0

Consorzio Edicola Italiana - Milan At 12/31/16 0.0 0.0 0.0 16.67 1 0.0 - Impairment losses 0.0 At 12/31/17 0.0 0.0 0.0 16.67 (b) 1 0.0

Onering S.r.l. (in liquidation) - Montegrotto Terme (PD) At 12/31/16 - - - 15.00 1 0.0 - Impairment losses 0.0 At 12/31/17 - - - 15.00 (b) 1 0.0

Carrying amount of “available-for-sale financial assets” at 12/31/17 0.6

Net balance of “total equity investments” at 12/31/17 409.2

(a) Figures refer to financial statements at 12/312017 (b) Figures refer to financial statements at 12/31/2016 (c) Figures refer to financial statements at 12/31/2015 (d) Figures refer to estimates at 08/31/2017

– 240 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

PRO-FORMA AT DECEMBER 31, 2016

Income statement

RCS RCS RCS Intra-group Merger MediaGroup Investimenti MediaGroup eliminations entries (€/millions) (before entries) (pro-forma)

Reversal of value December 31, 2016 December 31, 2016 December 31, 2016 reinstatement in December 31, 2016 pro-forma RCS MG I Revenue 559,419,478 - ( 101,000) - 559,318,478 Distribution revenue 259,990,630 - - - 259,990,630 Advertising revenue 272,484,239 - - - 272,484,239 Other publishing revenue 26,944,609 - ( 101,000) - 26,843,609 II Changes in work in progress, finished and ( 229,532) - - - ( 229,532) semi-finished products II Raw materials and services ( 377,405,637) ( 406,666) 176,737 - ( 377,635,566) Raw materials and goods ( 116,532,678) - - - ( 116,532,678) Service costs ( 222,153,031) ( 391,700) 165,165 - ( 222,379,566) Rentals and leases ( 38,719,928) ( 14,966) 11,572 - ( 38,723,322) III Personnel expense ( 158,265,279) - - - ( 158,265,279) II Other operating income 25,674,912 600 ( 75,782) - 25,599,730 II Other operating expenses ( 14,352,670) ( 112,005) 45 - ( 14,464,630) IV Provisions ( 5,273,565) - - - ( 5,273,565) V Allowance for impairment ( 1,036,114) - - - ( 1,036,114) VI Amortization of intangible assets ( 17,277,226) - - - ( 17,277,226) VII Depreciation of property, plant and equipment ( 9,998,874) - - - ( 9,998,874) VIII Impairment losses on non-current assets ( 117,135) - - - ( 117,135) Operating profit (loss) 1,138,358 ( 518,071) - - 620,287 IX Financial income 2,474,492 20,679,891 ( 11,197,020) - 11,957,363 IX Financial expense ( 37,089,244) ( 2,304) 11,197,020 - ( 25,894,528) X Other gains on financial assets/liabilities 19,742,475 - - ( 13,728,276) 6,014,199 Profit (loss) before tax ( 13,733,919) 20,159,516 - ( 13,728,276) ( 7,302,679) XI Income taxes 4,522,944 ( 6,473,589) - - ( 1,950,645) Profit (loss) from continuing operations ( 9,210,975) 13,685,927 - ( 13,728,276) ( 9,253,324) XII Profit (loss) from assets held for sale and discon------tinued operations Profit (loss) for the year ( 9,210,975) 13,685,927 - ( 13,728,276) ( 9,253,324)

241 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

Statement of financial position

RCS RCS RCS Intra-group MediaGroup Investimenti Merger entries MediaGroup eliminations (€/millions) (before entries) (pro-forma)

December 31, 2016 Carrying amounts/ December 31, 2016 December 31, 2016 December 31, 2016 pro-forma Equity ASSETS XIII Property, plant and equipment 53,126,488 - - - 53,126,488 XV Investment property 2,773,283 - - - 2,773,283 XIV Intangible assets 46,196,177 - - - 46,196,177 XVI Equity investments at cost 1,135,203,563 87,847,666 - ( 817,388,872) 405,662,357 XVI Available-for-sale financial assets 4,887,675 - - - 4,887,675 XVI Non-current loan assets 2,928,066 - - - 2,928,066 XVI Other non-current assets 13,818,475 52,650 - - 13,871,125 XVI Deferred tax assets 58,304,931 - - - 58,304,931 Total non-current assets 1,317,238,658 87,900,316 - ( 817,388,872) 587,750,102 XVII Inventories 11,176,302 - - - 11,176,302 XVIII Trade receivables 173,131,740 - ( 39,184) - 173,092,556 XX Other receivables and current assets 30,899,713 138,750 - - 31,038,463 XX Current tax assets 8,405,411 192,221 ( 154,740) - 8,442,892 XXVI Current loan assets 19,491,638 729,390,924 ( 474,390,924) - 274,491,638 XXVI Cash and cash equivalents 1,138,967 - - - 1,138,967 Total current assets 244,243,771 729,721,895 ( 474,584,848) - 499,380,818 Non-current assets held for sale - - - - - Total assets 1,561,482,429 817,622,211 ( 474,584,848) ( 817,388,872) 1,087,130,920 EQUITY AND LIABILITIES XXV Share capital 475,134,602 39,129,066 - ( 39,129,066) 475,134,602 XXV Reserves 125,690,143 907,825,813 - ( 907,637,365) 125,878,591 XXV Treasury shares ( 27,150,528) - - - ( 27,150,528) XXV Losses carried forward ( 210,746,841) ( 143,105,835) - 143,105,835 ( 210,746,841) XXV Loss for the year ( 9,210,975) 13,685,927 - ( 13,728,276) ( 9,253,324) Total equity 353,716,401 817,534,971 - ( 817,388,872) 353,862,500 XXVI Non-current loans and borrowings 269,776,915 - - - 269,776,915 XXVI Financial liabilities recognized for derivatives 5,145,194 - - - 5,145,194 XXI Employee benefits 33,702,716 - - - 33,702,716 XXII Provisions for risks and charges 8,612,669 - - - 8,612,669 XXIII Deferred tax liabilities 595,532 - - - 595,532 XX Other non-current liabilities 3,744,271 - - - 3,744,271 Total non-current liabilities 321,577,297 - - - 321,577,297 XXVI Bank loans and overdrafts 38,943,392 50 - - 38,943,442 XXVI Current loans and borrowings 580,407,164 - ( 474,390,924) - 106,016,240 XX Current tax liabilities 5,522,853 - ( 154,740) - 5,368,113 XIX Trade payables 178,395,908 51,717 ( 39,184) - 178,408,441 XXII Current portion of provisions for risks and 29,624,332 - - - 29,624,332 charges XX Other current liabilities 53,295,082 35,473 - - 53,330,555 Total current liabilities 886,188,731 87,240 ( 474,584,848) - 411,691,123 Liabilities relating to assets held for sale - - - - - Total equity and liabilities 1,561,482,429 817,622,211 ( 474,584,848) ( 817,388,872) 1,087,130,920

– 242 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP SPA

LIST OF LOCAL BRANCHES OF RCS MEDIAGROUP S.P.A. AT DECEMBER 31, 2017

Via San Marco n. 21 20121 MILAN Via Solferino n. 28 20121 MILAN Via A. Rizzoli n. 9 20132 MILAN Via Cefalù n. 40 20151 MILAN Via Solferino n. 36 20121 MILAN C.so Galileo Ferraris n. 124 10129 TURIN Galleria San Federico n. 16 10129 TURIN Piazza Piccapietra n. 73/8 16121 GENOA Piazza della Libertà n. 10 24121 BERGAMO Via Francesco Crispi n. 3 25121 BRESCIA Piazza Gaetano Salvemini n. 13 35131 PADUA Via Della Valverde n. 45 37122 VERONA Via Campagnoli n. 11 40128 BOLOGNA Via Codignola n. 20 50018 SCANDICCI Viale dei Mille n. 9 50131 FLORENCE Viale Gramsci n. 42 50132 FLORENCE Via Benedetto Croce n. 23 73100 LECCE Vico II San Nicola alla Dogana 80123 NAPLES Via XXV Aprile n. 1 31057 SILEA (TV) Via Campania n. 59 00187 ROME

(as per tax returns submitted to the Italian Inland Revenue)

243 –

INDEPENDENT AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT

(Translation from the Italian original which remains the definitive version)

Independent auditors’ report pursuant to article 14 of Legislative decree no. 39 of 27 January 2010 and article 10 of Regulation (EU) no. 537 of 16 April 2014

To the shareholders of RCS MediaGroup S.p.A.

Report on the audit of the consolidated financial statements

Opinion We have audited the consolidated financial statements of the RCS MediaGroup Group (the “Group”), which comprise the statement of financial position as at 31 December 2017, the income statement and the statements of comprehensive income, changes in equity and cash flows for the year then ended and notes thereto, which include a summary of the significant accounting policies. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the RCS MediaGroup Group as at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards endorsed by the European Union and the Italian regulations implementing 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 “Auditors’ responsibilities for the audit of the consolidated financial statements” section of our report. We are independent of RCS MediaGroup S.p.A. (the “Company”) in accordance with the ethics and independence rules and standards applicable in Italy to audits of financial statements. 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 judgement, were of most significance in the audit of the consolidated financial statements of the current year. 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.

247 – INDEPENDENT AUDITORS’ REPORT

RCS MediaGroup Group Independent auditors’ report 31 December 2017

Recoverability of the carrying amount of goodwill and intangible assets with an indefinite useful life Notes to the consolidated financial statements: Notes 8 “Accounting policies” and 33 “Income taxes”

Key audit matter Audit procedures addressing the key audit matter The consolidated financial statements at 31 Our audit procedures included: December 2017 comprise intangible assets — understanding the process adopted to of €383.9 million, including goodwill of €36.6 prepare the impairment tests approved million and intangible assets with an by the Company’s board of directors. indefinite useful life of €304.8 million. — understanding the process adopted to The Group tests the carrying amounts of prepare the forecasts from which the these assets for impairment at least annually expected cash flows used for impairment and whenever there are indicators of testing have been derived; impairment, by comparing them to the estimated recoverable amount. — analysing the reasonableness of the assumptions used by the Group to The Group calculated the recoverable prepare the forecasts; amount of goodwill and intangible assets with an indefinite useful life by estimating — checking any discrepancies between the their value in use, using the discounted cash previous year forecast and actual flow model. The model is very complex and figures, in order to check the accuracy of entails the use of estimates which, by their the estimation process; very nature, are uncertain and subjective, — comparing the expected cash flows used about: for impairment testing to those used for — the expected cash flows, calculated by the forecasts and analysing the taking into account the general reasonableness of any discrepancies; economic performance and that of the — involving experts of the KPMG network Group’s sector, the actual cash flows for in the assessment of the recent years and the projected growth reasonableness of the impairment rates; testing model and related assumptions, — the financial parameters used to including by means of comparison with calculate the discount rate. external data and information; For the above reasons and due to the — checking the sensitivity analysis materiality of the relevant captions, we presented in the notes in relation to the believe that the recoverability of the carrying key assumptions used for impairment amount of goodwill and intangible assets testing; with an indefinite useful life is a key audit — assessing the appropriateness of the matter. disclosures provided in the notes about goodwill, intangible assets with an indefinite useful life and the related impairment tests.

– 248

2 INDEPENDENT AUDITORS’ REPORT

RCS MediaGroup Group Independent auditors’ report 31 December 2017

Measurement of deferred tax assets and liabilities Notes to the consolidated financial statements: Notes 8 “Accounting policies” and 26 “Income taxes”

Key audit matter Audit procedures addressing the key audit matter The consolidated financial statements at 31 Our audit procedures included: December 2017 include deferred tax assets — understanding the process used to of €106.6 million, of which €42.3 million estimate the deferred tax assets’ relating to tax loss carryforwards and €64.3 recoverable amount and the deferred tax million to temporary differences, and liabilities’ settlement amount; deferred tax liabilities of €55.4 million. — analysing the reasonableness of the The Group calculated the recoverable assumptions used by the Group to amount of deferred tax assets and the prepare the forecasts; settlement amount of deferred tax liabilities considering many factors, including: — checking any discrepancies between the previous year forecast and actual — the calculation of temporary differences figures, in order to check the accuracy of and tax loss carryforwards; the estimation process; — the estimated taxable profits based on — checking the consistency between forecasts and assumed tax adjustments; forecasts and estimated taxable profits; — the effect of the domestic tax — assessing the appropriateness of the consolidation scheme. disclosures provided in the notes about Measuring these captions entails the use of deferred tax assets and liabilities. estimates which, by their very nature, are uncertain and subjective. For the above reasons and due to the materiality of the relevant captions, we believe that the measurement of deferred tax assets and liabilities is a key audit matter.

Responsibilities of the directors and board of statutory auditors (“Collegio Sindacale”) of RCS MediaGroup S.p.A. 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 the International Financial Reporting Standards endorsed by the European Union and the Italian regulations implementing article 9 of Legislative decree no. 38/05 and, within the terms established by the Italian law, for such internal control as they determine is necessary to enable the preparation of 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 for the appropriate use of the going concern basis in the preparation of the consolidated financial statements and for the adequacy of the related disclosures. The use of this basis of accounting is appropriate unless the directors believe that the conditions for liquidating the Company or ceasing operations exist, or have no realistic alternative but to do so. The Collegio Sindacale is responsible for overseeing, within the terms established by the Italian law, the Group’s financial reporting process.

249 –

3 INDEPENDENT AUDITORS’ REPORT

RCS MediaGroup Group Independent auditors’ report 31 December 2017

Auditors’ responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA Italia will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISA Italia, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: — identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; — obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; — evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors; — conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern; — evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; — obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance, identified at the appropriate level required by ISA Italia, regarding, among other matters, the planned scope and

– 250

4 INDEPENDENT AUDITORS’ REPORT

RCS MediaGroup Group Independent auditors’ report 31 December 2017

timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the ethics and independence rules and standards applicable in Italy and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are, therefore, the key audit matters. We describe these matters in our auditors’ report.

Other information required by article 10 of Regulation (EU) no. 537/14 On 28 April 2009, the shareholders of RCS MediaGroup S.p.A. appointed us to perform the statutory audit of its separate and consolidated financial statements as at and for the years ending from 31 December 2009 to 31 December 2017. We declare that we did not provide the prohibited non-audit services referred to in article 5.1 of Regulation (EU) no. 537/14 and that we remained independent of the Company in conducting the statutory audit. We confirm that the opinion on the consolidated financial statements expressed herein is consistent with the additional report to the Collegio Sindacale, in its capacity as audit committee, prepared in accordance with article 11 of the Regulation mentioned above.

Report on other legal and regulatory requirements

Opinion pursuant to article 14.2.e) of Legislative decree no. 39/10 and article 123-bis.4 of Legislative decree no. 58/98 The directors of RCS MediaGroup S.p.A. are responsible for the preparation of the Group’s directors’ report and report on corporate governance and ownership structure at 31 December 2017 and for the consistency of such reports with the related consolidated financial statements and their compliance with the applicable law. We have performed the procedures required by Standard on Auditing (SA Italia) 720B in order to express an opinion on the consistency of the directors’ report and the specific information presented in the report on corporate governance and ownership structure indicated by article 123-bis.4 of Legislative decree no. 58/98 with the Group’s consolidated financial statements at 31 December 2017 and their compliance with the applicable law and to state whether we have identified material misstatements. In our opinion, the directors’ report and the specific information presented in the report on corporate governance and ownership structure referred to above are consistent with the consolidated financial statements of the RCS MediaGroup Group at 31 December 2017 and have been prepared in compliance with the applicable law. With reference to the above statement required by article 14.2.e) of Legislative decree no. 39/10, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have nothing to report.

251 –

5 INDEPENDENT AUDITORS’ REPORT

RCS MediaGroup Group Independent auditors’ report 31 December 2017

Statement pursuant to article 4 of the Consob regulation implementing Legislative decree no. 254/16 The directors of RCS MediaGroup S.p.A. are responsible for the preparation of a consolidated non-financial statement pursuant to Legislative decree no. 254/16. We have checked that the directors had approved such consolidated non-financial statement. In accordance with article 3.10 of Legislative decree no. 254/16, we attested the compliance of the consolidated non-financial statement separately.

Milan, 28 March 2018

KPMG S.p.A.

(signed on the original)

Fabio Vittori Director

– 252

6 INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

(Translation from the Italian original which remains the definitive version)

Independent auditors’ report pursuant to article 14 of Legislative decree no. 39 of 27 January 2010 and article 10 of Regulation (EU) no. 537 of 16 April 2014

To the shareholders of RCS MediaGroup S.p.A.

Report on the audit of the separate financial statements

Opinion We have audited the separate financial statements of RCS MediaGroup S.p.A. (the “Company”), which comprise the statement of financial position as at 31 December 2017, the income statement and the statements of comprehensive income, changes in equity and cash flows for the year then ended and notes thereto, which include a summary of the significant accounting policies. In our opinion, the separate financial statements give a true and fair view of the financial position of RCS MediaGroup S.p.A. as at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards endorsed by the European Union and the Italian regulations implementing 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 “Auditors’ responsibilities for the audit of the separate financial statements” section of our report. We are independent of RCS MediaGroup S.p.A. in accordance with the ethics and independence rules and standards applicable in Italy to audits of financial statements. 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 judgement, were of most significance in the audit of the separate financial statements of the current year. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

255 – INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

RCS MediaGroup S.p.A. Independent auditors’ report 31 December 2017

Measurement of equity investments at cost Notes to the separate financial statements: Notes 5 “Accounting policies” and 29 “Investments in subsidiaries and associates”

Key audit matter Audit procedures addressing the key audit matter The separate financial statements at 31 Our audit procedures included: December 2017 include equity investments — understanding the process adopted to measured at cost of €408.7 million, mainly prepare the impairment tests approved relating to the subsidiaries RCS International by the Company’s board of directors. Newspapers BV (€257.1 million), Unidad Editorial S.A. (€87.8 million) and RCS Sport — understanding the process adopted to S.p.A. (€19.6 million). prepare the forecasts from which the expected cash flows used for impairment At least annually, the directors test these testing have been derived; equity investments for impairment and check their recoverability by comparing their — analysing the reasonableness of the carrying amounts with their value in use assumptions used by the Company to calculated using the discounted cash flow prepare the forecasts; model. The model is very complex and — checking any discrepancies between the entails the use of estimates which, by their previous year forecast and actual very nature, are uncertain and subjective, figures, in order to check the accuracy of about: the estimation process; — the expected cash flows, calculated by — comparing the expected cash flows used taking into account the general for impairment testing to those used for economic performance and that of the the forecasts and analysing the subsidiaries’ sector, the actual cash reasonableness of any discrepancies; flows for recent years and the projected — involving experts of the KPMG network growth rates; in the assessment of the — the financial parameters used to reasonableness of the impairment calculate the discount rate. testing model and related assumptions, For the above reasons and considering the including by means of comparison with materiality of the financial statements external data and information; caption, we believe that the measurement of — checking the sensitivity analysis equity investments at cost is a key audit presented in the notes in relation to the matter. key assumptions used for impairment testing; — assessing the appropriateness of the disclosures provided in the notes about the measurement of equity investments at cost.

– 256

2 INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

RCS MediaGroup S.p.A. Independent auditors’ report 31 December 2017

Measurement of deferred tax assets Notes to the separate financial statements: Notes 5 “Accounting policies” and 24 “Income taxes”

Key audit matter Audit procedures addressing the key audit matter The separate financial statements at 31 Our audit procedures included: December 2017 include deferred tax assets — understanding the process used to of €46.3 million, of which €17.3 million estimate the deferred tax assets’ relating to tax loss carryforwards and €29.0 recoverable amount; million to temporary differences. — analysing the reasonableness of the The Company calculated the recoverable assumptions used by the Company to amount of deferred tax assets considering prepare the forecasts; many factors, including: — checking any discrepancies between the — the calculation of temporary differences previous year forecast and actual and tax loss carryforwards; figures, in order to check the accuracy of — the estimated taxable profit based on the estimation process; forecasts and assumed tax adjustments; — checking the consistency between — the effect of the domestic tax forecasts and estimated taxable profits; consolidation scheme. — assessing the appropriateness of the Measuring deferred tax assets entails the disclosures provided in the notes about use of estimates which, by their very nature, deferred tax assets. are uncertain and subjective. For the above reasons and due to the materiality of the relevant caption, we believe that the measurement of deferred tax assets is a key audit matter.

Responsibilities of the directors and board of statutory auditors (“Collegio Sindacale”) of RCS MediaGroup S.p.A. for the separate financial statements The directors are responsible for the preparation of separate financial statements that give a true and fair view in accordance with the International Financial Reporting Standards endorsed by the European Union and the Italian regulations implementing article 9 of Legislative decree no. 38/05 and, within the terms established by the Italian law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The directors are responsible for assessing the Company’s ability to continue as a going concern and for the appropriate use of the going concern basis in the preparation of the separate financial statements and for the adequacy of the related disclosures. The use of this basis of accounting is appropriate unless the directors believe that the conditions for liquidating the Company or ceasing operations exist, or have no realistic alternative but to do so. The Collegio Sindacale is responsible for overseeing, within the terms established by the Italian law, the Company’s financial reporting process.

257 –

3 INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

RCS MediaGroup S.p.A. Independent auditors’ report 31 December 2017

Auditors’ responsibilities for the audit of the separate financial statements Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA Italia will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements. As part of an audit in accordance with ISA Italia, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: — identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; — obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control; — evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors; — conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern; — evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance, identified at the appropriate level required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the ethics and independence rules and standards applicable in Italy and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. – 258

4 INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

RCS MediaGroup S.p.A. Independent auditors’ report 31 December 2017

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate financial statements of the current year and are, therefore, the key audit matters. We describe these matters in our auditors’ report.

Other information required by article 10 of Regulation (EU) no. 537/14 On 28 April 2009, the shareholders of RCS MediaGroup S.p.A. appointed us to perform the statutory audit of its separate and consolidated financial statements as at and for the years ending from 31 December 2009 to 31 December 2017. We declare that we did not provide the prohibited non-audit services referred to in article 5.1 of Regulation (EU) no. 537/14 and that we remained independent of the Company in conducting the statutory audit. We confirm that the opinion on the separate financial statements expressed herein is consistent with the additional report to the Collegio Sindacale, in its capacity as audit committee, prepared in accordance with article 11 of the Regulation mentioned above.

Report on other legal and regulatory requirements

Opinion pursuant to article 14.2.e) of Legislative decree no. 39/10 and article 123-bis.4 of Legislative decree no. 58/98 The directors of RCS MediaGroup S.p.A. are responsible for the preparation of the Company’s directors’ report and report on corporate governance and ownership structure at 31 December 2017 and for the consistency of such reports with the related separate financial statements and their compliance with the applicable law. We have performed the procedures required by Standard on Auditing (SA Italia) 720B in order to express an opinion on the consistency of the directors’ report and the specific information presented in the report on corporate governance and ownership structure indicated by article 123-bis.4 of Legislative decree no. 58/98 with the Company’s separate financial statements at 31 December 2017 and their compliance with the applicable law and to state whether we have identified material misstatements. In our opinion, the directors’ report and the specific information presented in the report on corporate governance and ownership structure referred to above are consistent with the separate financial statements of RCS MediaGroup S.p.A. at 31 December 2017 and have been prepared in compliance with the applicable law.

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5 INDEPENDENT AUDITORS’ REPORT ON THE STATUTORY FINANCIAL STATEMENTS

RCS MediaGroup S.p.A. Independent auditors’ report 31 December 2017

With reference to the above statement required by article 14.2.e) of Legislative decree no. 39/10, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have nothing to report.

Milan, 28 March 2018

KPMG S.p.A.

(signed on the original)

Fabio Vittori Director

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6 REPORT BY THE BOARD OF STATUTORY AUDITORS

REPORT BY THE BOARD OF STATUTORY AUDITORS

Statutory Auditors’ Report to the Shareholders’ Meeting pursuant to Art. 153, of Legislative Decree no. 58 of February 24, 1998

To the Shareholders’ Meeting of RCS MediaGroup S.p.A.

Dear Shareholders, this Report was prepared by the Board of Statutory Auditors appointed for the 2015-2017 period by the Shareholders’ Meeting held on April 23, 2015, and therefore consisting of Lorenzo Caprio (Chairman), Gabriella Chersicla and Enrico Colombo (Standing Auditors). In the course of the year ended at December 31, 2017, the Board of Statutory Auditors carried out the supervisory activity prescribed by law, in accordance with the Principles of Conduct of the Board of Statutory Auditors recommended by the Italian Accounting Profession, which we describe in this Report, prepared in accordance with Art. 153 of Legislative Decree no. 58 of February 24, 1998, also taking into account the recommendations issued by CONSOB with its Communication no. 1025564 of April 6, 2001 as subsequently revised. In the course of the year, the Board of Statutory Auditors acquired the information necessary to carry out its duties both through meeting with company organizations and by virtue of the matters discussed during the meetings of the Board of Directors and of the Committees. In performing its institutionally assigned activities, the Board of Statutory Auditors reports that it:  monitored the observance of the law and of the by-laws;  attended all Shareholders’ Meetings and meetings of the Board of Directors, and acquired knowledge of the activity carried out and on the most significant transactions completed by the company, or by its subsidiaries, in accordance with the law and the by-laws; the Board of Statutory Auditors also reports that it participated in, through one or more of its members, all meetings of the Committees established within the Board of Directors;  acquired the information needed to carry out its assigned duties on compliance with the law and the by- laws, on compliance with the principles of proper administration and on the degree of adequacy of the organisational structure of the Company and of the internal control and administrative-accounting systems, by means of the collection of data, analysis and acquisition of information from the Heads of the main departments involved and from the Independent Auditors KPMG S.p.A.;  ascertained the functionality of the system of controls and the adequacy of the instructions handed down to the subsidiaries, also in accordance with Art. 114, paragraph 2, of Legislative Decree no. 58/98;  supervised, as “internal control and audit committee” in accordance with Art. 19 of Legislative Decree no. 39/2010, with reference to i) the financial reporting process, ii) the effectiveness of the internal control, internal audit and risk management systems, iii) the statutory audit of the annual separate and consolidated financial statements and iv) the independence of the entity appointed to perform the legally-required audit, with particular regard to the performance of non-audit services for the Company;

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 included in its meeting agendas the results of the quarterly audits carried out by the company appointed to perform the statutory audit and received information on the audit plan;  supervised the preparation of the procedure for selecting the auditors, followed the various phases of said selection procedure and formulated, pursuant to Art. 13 of Legislative Decree no. 39/2010, a reasoned recommendation on the appointment of the Company’s Independent Auditors for the years 2018-2026;  met with the boards of statutory auditors of the subsidiaries for the exchange of information on the results of supervision activities;  received the Independent Auditors’ “Additional Report to the Internal Control and Audit Committee”, which among other things describes the “key aspects of the audit of the accounts” resulting from the statutory audit and any “significant deficiencies” noted in the internal control system in relation to the financial reporting process; this Report did not include any critical issues that need to be brought to your attention;  received, in accordance with Art. 6, paragraph 2, letter a) of European Regulation no. 537/2014, from the Independent Auditors, confirmation of their independence and the disclosure of the services other than statutory audit performed for the Company by the Independent Auditors and by entities belonging to the same network;  discussed, in accordance with Art. 6, paragraph 2, letter b) of European Regulation no. 537/2014, with the Independent Auditors, the risks relating to the independence thereof and the measures implemented by the Independent Auditors to limit said risks;  assessed the potential risks to the independence of the auditors in relation to non-audit services (as referred to in Art. 5, paragraph 4, of Regulation (EU) no. 537/2014) requested from the Independent Auditors, and approved the services deemed not susceptible to compromise the independence of the Independent Auditors;  received regular disclosure from the Supervisory Body prescribed by the Organization, Management and Control System adopted by the Company in accordance with Legislative Decree 231/01;  monitored the actual methods of implementation of the corporate governance rules prescribed by the Corporate Governance Code for Listed Companies promoted by Borsa Italiana S.p.A., as adopted by the Company;  supervised, in accordance with Art. 4, paragraph 6, of the Regulations approved by CONSOB with its resolution no. 17221 of March 12, 2010 as subsequently amended, compliance with the Procedure on Related Party Transactions, which the Company adopted under resolution dated November 10, 2010, recently amended by means of resolution of September 30, 2015;  acknowledged, on the basis of the statements issued by the Directors and of the judgments expressed by the Board of Directors, that the verification criteria and procedures adopted by the Board of Directors to assess the independence of its members are correctly enforced;

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 supervised compliance with the provisions of Legislative Decree no. 54 of 30 December 2016 on the disclosure of non-financial information.

In the course of the supervisory activity of the Board of Statutory Auditors, carried out in accordance with the methods described above, no significant facts emerged as such to require notification to the Supervisory Authorities. As in the prior year, the Board of Statutory Auditors supervised the Board of Directors’ assessment of the absence of management and coordination activities over the Company, pursuant to Art. 2497-sexies of the Italian Civil Code, by Cairo Communication. The Board of Directors found that the conditions that would constitute management and coordination by the parent do not exist at this time.

*** The Board also verified compliance with laws and regulations pertaining to the formation, layout and statements of the separate and consolidated financial statements and the related accompanying documents. The Board paid particular attention to the monitoring of the process for the impairment testing of intangible assets in the consolidated financial statements, and intangible assets and equity investments in the separate financial statements of the parent; the Board examined the criteria applied in the performance of the tests, for which the company enlisted the help of an external advisor as regards the Spain CGU. The Board of Statutory Auditors, nonetheless, more generally speaking, verified the compliance of the Report on Operations for 2017 relating to the separate financial statements of the Company and to the consolidated financial statements of the Group with current laws and regulations and their consistency with the resolutions adopted by the Board of Directors. Finally, the Board verified actual compliance with legal requirements as regards the provisions of Legislative Decree no. 54 of 30 December 2016 on the disclosure of non-financial information, and reported on it herein. The Board of Directors therefore prepared the consolidated non-financial statement of the RCS Group at 31/12/2017, pursuant to Articles 3 and 4 of the Decree, which is submitted for your attention together with the report of the statutory auditor KPMG S.p.A. pursuant to Art. 3, paragraph 10, of the Decree and to Art. 5 of CONSOB Regulation no. 20267. *** The specific indications to be provided hereby are listed below, in accordance with the order prescribed by the aforementioned CONSOB Communication of April 6, 2001 as subsequently revised. 1. Considerations on the transactions having a significant impact on the balance sheet, income statement and cash flows carried out by the Company and on their compliance with the law and with by-laws Adequate information was acquired on the transactions having a significant impact on the balance sheet, income statement and cash flows carried out by RCS MediaGroup S.p.A. and by its subsidiaries. The main initiatives implemented in the year are detailed at length in the Report on Operations and in the section “Significant events during the year” in the Notes to the financial statements. In general, the Board of Statutory Auditors certifies that, based on the information acquired, the transactions performed by the Company comply with the law and with the by-laws, are not manifestly imprudent or hazardous, in conflict of interest, in contrast with the resolutions passed by the Shareholders’ Meeting or, in any case, as such to compromise the integrity of the company’s assets. 2. Indication of the existence of any atypical and/or unusual transactions, including intragroup or related party transactions Based on the information available to the Board of Statutory Auditors, the existence of no atypical and/or unusual transactions emerged. Information about the ordinary transactions carried out intragroup or with related parties, as well as their main effects on the statement of financial position and income statement, provided by the Directors in the Report on Operations and in the Notes to the separate and consolidated financial statements, to which reference is made herein, is adequate. On the basis of the information acquired, the Board of Statutory Auditors ascertained that said transactions comply with the law and with the by-

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laws, are in the Company’s best interest and are not susceptible to give rise to doubts about the correctness and completeness of the related disclosure, the existence of conflicts of interest, the safeguarding of the Company’s assets and the protection of non-controlling interests. 3. Assessment of the adequacy of the information provided, in the report on operations, with regard to atypical and/or unusual transactions, including intragroup and related party transactions In the Reports on Operations and in the specific Notes to both the separate and consolidated financial statements, the Directors adequately reported and illustrated the main transactions with third parties and intragroup and related party transactions, describing their characteristics. 4. Notes and proposals on the observations and disclosures contained in the independent auditors’ report The Independent Auditors KPMG S.p.A., tasked with the statutory audit, issued the reports on the separate financial statements and on the consolidated financial statements of RCS MediaGroup S.p.A. at December 31, 2017 on March 28, 2018, expressing a judgement of compliance without any additional disclosure. 5. Indication of the presentation of any reports pursuant to Art. 2408 of the Italian Civil Code, of any initiatives undertaken and of their outcomes

On 13 April 2017 and 17 April 2017, the Board of Statutory Auditors received two reports regarding the content of several Corriere della Sera articles and the editorial policies of the publication. The Board of Statutory Auditors found that these reports were beyond the scope of Art. 2408 of the Italian Civil Code. In a letter dated 24 April 2017, a shareholder submitted a report pursuant to Art. 2408 of the Italian Civil Code, requesting that Cairo Communication S.p.A. be recognized as the entity who exercises management and coordination over the Company. In this regard, please refer to the contents of last year’s report of the Board of Statutory Auditors and this document. On 17 September 2017, a shareholder sent the Board of Statutory Auditors a report complaining about the circulation of allegedly untrue information regarding the pay received by Mr. Fabio Fazio, a well- known television presenter. The Board of Statutory Auditors found that this report was beyond the scope of Art. 2408 of the Italian Civil Code. On 19 September 2017, the same shareholder submitted a report regarding the activities of a company outside the scope of RCS MediaGroup’s subsidiaries. On 24 October, the shareholder submitted requests relating to the “Premio Cairo” event of 24 October, which did not in any way concern the RCS Group. On 13 November, the shareholder made requests for further information relating to safety as regards starting the Giro d’Italia in Israel. The requests were examined by the Board of Statutory Auditors and the Internal Control Committee, which found no specific critical issues. On 6 December 2017, the shareholder sent a report demanding sanctions against an editor and managing deputy editor “of RCS” as regards the content of an article that appeared in the Corriere della Sera which the Board of Statutory Auditors found to be outside the scope of the subjects covered by Art. 2408 of the Italian Civil Code. 6. Indication of the presentation of any complaints, of any initiatives undertaken and of their outcomes The Board of Statutory Auditors received no further complaints. 7. Indication of any assignment of additional duties to the independent auditors and of the related costs In 2017, RCS MediaGroup S.p.A. conferred upon KPMG S.p.A. a number of assignments in addition to the audit. KPMG examined the forecast data included in the prospectus on a possible bond issue by the company for a fee of €80,000; it issued a comfort letter on the financial information included in said prospectus for a fee of €40,000; it carried out gap analysis with regard to IFRS 15 for a fee of €30,000; and it performed a limited audit of the consolidated non-financial statement for a fee of €30,000. For completeness of information, it is noted that KPMG provided RCS Investimenti S.p.A. with an opinion on the criteria for determining the market value of the shares in said company, pursuant to Art. 2437-ter of the Italian Civil Code, for a fee of €12,000; it issued a report pursuant to ISA 805 as regards RCS Sport S.p.A. for a fee of €2,000; and it performed agreed-upon procedures for Fondo Pensione Dirigenti RCS MediaGroup S.p.A. as regards the veracity of the accounts at 31 December 2016 of the 229

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FIPDIR fund for a fee of €3,000. During the year, no critical aspects were identified with regard to the independence of the auditors, also taking into account the provisions of Legislative Decree no. 39/2010. 8. Indication of any appointments to entities connected to the independent auditors and of the related costs In 2017, RCS MediaGroup S.p.A. conferred assignments to entities with ongoing relationships with the Independent Auditors KPMG S.p.A., for a remuneration of €128,500. Of these, €81,500 related to testing of the procedures under Law no. 262/2005, €32,000 related to consulting activities as regards the non-financial statement, and €15,000 related to a tax comfort letter in relation to a possible bond issue. For complete disclosure, it is pointed out that the costs of other companies of the group headed up by RCS MediaGroup S.p.A. pertaining to duties assigned to companies belonging to the KPMG S.p.A. network, totalling €25,381, were recognized. As mentioned above, during the year, no critical aspects emerged with regard to the independence of the auditors, also taking into account the provisions of Legislative Decree no. 39/2010.

9. Indication of the existence of opinions issued in accordance with the law during the year During the year, the Board of Statutory Auditors expressed, in accordance with Art. 2389, paragraph 3 of the Italian Civil Code, its favourable opinion at the time of the determination of the fees to directors assigned with particular appointments. 10. Indication of the frequency and of the number of the meetings of the Board of Directors and of the Board of Statutory Auditors During the year, the Board of Directors held 10 meetings, the Control and Risk Committee (acting also as the Related Parties Board Committee) held 7 meetings, the Remuneration and Appointments Committee held 2 meetings; the Board of Statutory Auditors or some of its members attended said meetings. During the same year, the Board of Statutory Auditors held 17 meetings. 11. Observations on compliance with the correct management practices The Board of Statutory Auditors has no observations to raise on compliance with the correct management practices, which appear to have been consistently observed. 12. Observations on the adequacy of the organisational structure The Board of Statutory Auditors monitored the adequacy of the organisational structure and has no observations to make to the Shareholders’ Meeting in this regard. 13. Observations on the adequacy of the internal control system, in particular on the work carried out by internal control personnel, and description of any corrective actions undertaken and/or still to be undertaken The Internal Control System appeared adequate to the dimensional and operational characteristics of the Company, as was also ascertained during the meetings of the Control and Risk Committee, in which, in accordance with the adopted governance rules, at least one of the members of the Board of Statutory Auditors participated. Moreover, the Head of the Internal Audit Department acted as the necessary functional and informational liaison regarding the methods of performance of his institutional control duties and on the results of the audits performed, also by participating in meetings of the Board of Statutory Auditors. 14. Observations on the adequacy of the administrative-accounting system and on its reliability in correctly representation operating events The Board of Statutory Auditors has no observations to make on the adequacy of the administrative- accounting system and on its reliability to provide a correct representation of operating events. With reference to the disclosure contained in the separate and consolidated financial statements at December 31, 2017, the statement of the Chief Executive Officer and of the Financial Reporting Manager in

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accordance with Art. 81-ter of CONSOB Regulation no. 11971 of May 14, 1999 as amended was duly provided. 15. Observations on the adequacy of the instructions handed down by the Company to the subsidiaries in accordance with Art. 114, paragraph 2 of Legislative Decree no. 58/1998 The Board of Statutory Auditors has no observations to make on the adequacy of the information flows provided by the Subsidiaries to the Parent to assure timely compliance with the disclosure obligations set out by the law. 16. Observations on any significant aspects that emerged during the meetings held with the Independent Auditors in accordance with Art. 150, paragraph 2 of Legislative Decree no. 58/1998 In the course of the periodic exchange of data and information between the Board of Statutory Auditors and the firm appointed to carry out the statutory audit of the accounts, also in accordance with Art. 150, paragraph 3, of Legislative Decree no. 58/1998, no aspects emerged that should be reported herein. 17. Indication of the Company’s adoption of the Corporate Governance Code for listed companies The Board of Directors and, for directly applicable matters, the Board of Statutory Auditors of RCS MediaGroup S.p.A. have adopted corporate governance rules in accordance with (barring some very limited exceptions and some additions/specifications) the recommendations contained in the Corporate Governance Code for listed companies promoted by Borsa Italiana S.p.A. The Report on Corporate Governance and Ownership Structure, prepared also in accordance with Art. 123-bis of Legislative Decree no. 58/1998, illustrates in detail the principles and application criteria adopted by the Company, in order to expose which recommendations of the aforesaid Corporate Governance Code were adopted and in force for 2017, and by which procedures and behaviours they were actually enforced (reference is also made to the disclosure on remuneration also provided in the Remuneration Report approved by the Board of Directors in particular in accordance with Art. 123-ter of Legislative Decree no. 58/1998). The reason for any non or partial application of the recommendations is also described. For matters within its specific competence, the Board of Statutory Auditors supervised the manner of actual implementation of the corporate governance rules which the Company, by means of a public disclosure, declared to have adopted, ensuring, inter alia, that the Report on Corporate Governance of RCS MediaGroup S.p.A. disclosed the outcome of the periodic audit by the Board of Statutory Auditors as to whether the Auditors met the independence requirements, determined in accordance with the same criteria prescribed with reference to the Independent Directors under the current Corporate Governance Code adopted by the Company. 18. Conclusions with regard to the supervisory activity carried out and to any omissions, reprehensible actions or irregularities noted in the course of said activity The supervisory activity of the Board of Statutory Auditors was carried out in 2017 in normal circumstances, and it brought to light no omissions, reprehensible actions or irregularities to be reported, also with reference to the provisions of Art. 36 of the CONSOB Market Regulations. 19. Indication of any proposals to be presented to the Shareholders’ Meeting in accordance with Art. 153, paragraph 2, of Legislative Decree no. 58/1998 Upon conclusion of the supervisory activity carried out during the year, the Board of Statutory Auditors has no proposals to formulate in accordance with Art. 153, paragraph 2, of Legislative Decree no. 58/1998, with regard to the separate financial statements at December 31, 2017 of RCS MediaGroup S.p.A., to their approval and to matters within its competence. The Board informs you that you are convened in extraordinary session, pursuant to Art. 2445, paragraph 2 of the Italian Civil Code, for the proposal: (i) to proceed with a reduction of the share capital to cover the losses carried forward as resulting from the financial statements for the year ended December 31, 2017 (in the residual amount following use of profit in 2017 and the reserves), from €475,134,602.10 to €411,327,595.83; (ii) and to proceed with an additional reduction of the share capital from €411,327,595.83 to €270,000,000.00 for the purpose of rebalancing the Company's capital structure between capital and reserves by allocating €141,327,595.83: (a) €54,000,000.00 to establish 231

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the legal reserve pursuant to Art. 2430 of the Italian Civil Code; and (b) €87,327,595.83 to establish an available reserve without proceeding with any capital repayment to the shareholders. The explanatory report prepared in accordance with Art. 125-ter of Legislative Decree no. 58 of February 24, 1998, was made available within the terms and according to the manners set out by law. The Board finds that it has no specific observations to make with regard to the proposal and its motivations, as set out in the mentioned explanatory report, which provides adequate information for the purposes of your resolutions. Finally, the Board of Statutory Auditors wishes to draw your attention to the fact that its term of office, in its current composition, expires this year. Shareholders are therefore required, in accordance with the law and the company by-laws, to appoint the members of the Board of Statutory Auditors for the three years 2018-2020. The Board of Statutory Auditors wishes to thank the shareholders for the trust they have placed in the performance of its duties.

Milan, March 28, 2018

The Chairman of the Board of Statutory Auditors Lorenzo Caprio (signed on the original)

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