Gruppo Editoriale L'espresso Interim Management Report at 31
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Gruppo Editoriale L’Espresso Società per Azioni Interim management report at 31 March 2017 Gruppo Editoriale L’Espresso SpA Via Cristoforo Colombo, 90 - 00147 Rome Fully paid-up share capital €61,805,893.20 - Economic and Administrative Index (R.E.A.) Rome no. 192573 - VAT no. 00906801006 - Tax ID code and registration Rome Companies’ Register No. 00488680588 Company subject to the management and coordination of CIR SpA TABLE OF CONTENTS Report of the Board of Directors at 31 March 2017 Operating performance and consolidated results of the Espresso Group at 31 pag. 4 March 2017 Introduction pag. 4 Market Review pag. 5 Espresso Group operating performance for the 1st quarter of 2017 pag. 5 Subsequent events to close of first quarter and outlook pag. 6 Consolidated financial statements of the Espresso Group at 31 March 2017 Income Statement and Statement of comprehensive income pag. 8 Statement of Financial Position pag. 9 Changes in the Consolidated Net Financial Position pag. 10 Cash Flow Statement pag. 11 Net financial position pag. 12 Notes to the interim management report at 31 March 2017 Introduction pag. 14 Scope of consolidation pag. 14 Income Statement pag. 15 Statement of Financial Position pag. 18 Declaration pursuant to paragraph 2 of Art. 154 bis of Italian Legislative Decree No. 58 of 24 February 1998 21 Report of the Board of Directors at 31 March 2017 Gruppo Editoriale L’Espresso — Interim management report at 31 March 2017 REPORT OF THE BOARD OF DIRECTORS AT 31 March 2017 OPERATING PERFORMANCE AND CONSOLIDATED RESULTS OF THE ESPRESSO GROUP AT 31 MARCH 2017 Consolidated results (€mil) Jan-Mar Jan-Mar Jan-Mar 2016 2016 pro-forma 2017 Revenues, of which: 140.8 135.9 136.4 • circulation 50.2 44.4 42.3 • add-on products and others 11.0 11.9 9.1 • advertising 79.6 79.6 85.0 Gross operating profit 13.2 12.3 13.1 Operating profit 9.5 8.8 9.7 Net profit (loss) of assets destined to continue 6.0 5.4 4.8 Profit (loss) from discontinued operations and assets held for 0.2 0.2 0.2 sale (1) Net profit (loss) 6.1 5.5 5.0 (€mil) 31 December 31 March 2016 2017 Net financial position 31.7 29.0 Shareholders’ Equity (incl. minority interests) 598.4 603.4 • Group Shareholders’ Equity 597.9 602.8 • minority interests 0.5 0.5 Employees 1,940 1,946 (1) The “Net profit (loss) of assets destined for sale” includes the capital gains realised with the sale of All Music, a company of the publishing Group of Italian general television station Deejay TV, to the new publisher Discovery Italia on 30 January 2015 INTRODUCTION On 30 July 2016 the Espresso Group and ITEDI, following the memorandum of understanding signed on 2 March 2016, signed a framework agreement for the merger of the two companies aimed at creating the leading Italian editorial Group, as well as one of the main European groups in the daily and digital news sector. In the scope of the deconsolidation plan to guarantee compliance with the circulation threshold standards established by current regulations, with the view to the future integration with newspapers “La Stampa” and “Il Secolo XIX”, the Espresso Group finalised the following transactions during 2016: • sale on 28 October 2016 of the entire stake of 71% in Seta SpA, publishing company of the “Alto Adige” and “Il Trentino” newspapers; • sale on 1 November 2016 of the business unit including the newspapers “Il Centro” and the relative printing centre, and “La Città di Salerno”; • as from 1 December 2016 leasing of the business unit including the newspaper “La Nuova Sardegna” to the company DB Information SpA. Advertising sales remained with the concessionaire A. Manzoni & C in respect of all publications. 4 Gruppo Editoriale L’Espresso — Interim management report at 31 March 2017 To ensure that data is comparable, a pro-forma Income Statement was prepared for the first quarter of 2016, representing the results for the current scope of consolidation, i.e. taking into account only revenue and the costs of the concessionaire for the 5 deconsolidated publications. In the report, the comparisons with the previous period refer to the pro-forma data. MARKET REVIEW After the slight recovery in 2016, advertising investments in the first two months of 2017 came down by 2.3% compared to the corresponding period in 2016 (Nielsen Media Research figures). The drop referred to all media, albeit in varying degrees: while revenue for television and radio was almost equivalent to the corresponding period in 2016 (-0.5% and -0.3% responsibility), internet (excluding Search and Social) recorded a drop of 2.9% and printing 8.6%, with daily newspapers at -9.7% (-10.9% national revenue and -9.1% local revenue) and periodicals at -6.4%. With regard to circulation, the ADS (Accertamento Diffusione Stampa) figures referring to the first two months of 2017 indicate a 9.3% drop in sales of newspapers at newsstands and via subscriptions. ESPRESSO GROUP OPERATING PERFORMANCE FOR THE FIRST QUARTER OF 2017 The Group ended the first quarter of 2017 with a net profit of €5.0 million. Consolidated revenues, amounting to €136.4 million, showed an increase of 0.4% on the first quarter of 2016 (-3.1% scope not being the same). Circulation revenues, amounting to €42.3 million, disclosed a decrease of 4.6% when compared with the same period last year scope being the same, in a market which, as indicated above, continues to report a significant decrease in the circulation of daily newspapers. Advertising revenues rose by 6.8%, recording a 6.6% drop on the Group’s media and a significant increase in terms of third party concessions, due to the new Radio Italia, La Stampa and il Secolo XIX concessions for national advertising. With reference to the Group’s media, radio revenues grew by 1.5%, confirming the positive trend recorded in the previous period. Revenue from the internet dipped slightly (-1.5%), coming in lower than the market level. Finally, printing services showed a significant drop (-10.4%), reflecting the negative trend in the daily newspapers and periodicals market, which was especially evident in national newspapers, whereas local newspapers held steady. 5 Gruppo Editoriale L’Espresso — Interim management report at 31 March 2017 Costs came down by 6.4%; both fixed personnel costs (-5.4%) and other costs (-7.2%) dropping. The gross operating profit amounted to €13.1 million (€12.3 million in the first quarter of pro- forma2016). The consolidated operating profit was €9.7 million (€8.8 million in the same period of the pro- forma previous year). Consolidated net profit amounted to €5.0 million against €5.5 million in the first quarter of pro- forma 2016. The net financial position at the end of March 2017 was positive for €29.0 million, compared to €31.7 million at the end of 2016 and the €15.5 million at 31 March 2016. The Group’s workforce, including fixed-term employees, at the end of March, numbered 1,946 employees and the average workforce for the period, scope being equal, was 2.3% lower than in the first quarter of 2016. SUBSEQUENT EVENTS AND OUTLOOK At the start of 2017, favourable conditions arose for the implementation of the integration between the Espresso Group and ITEDI, which is being submitted for the approval of today’s Shareholders’ Meeting of the Espresso Group. In particular, on 9 March 2017, the AGCM authorised the operation subject to the introduction of certain corrective measures, which have now been adopted by the Group. Furthermore, on 17 March 2017, AGCOM published the figures for the circulation of daily newspapers in Italy for 2016, which showed that the integration between the Espresso Group and ITEDI will not create a dominant position in the daily newspapers market. Based on the trends already recorded in the first quarter, there are no improvements expected in 2017 for the trends that have marked the sector for a number of years now; to counteract this, the Group continues in its commitment to developing the digital sector, where it is a sector leader, and to containing costs. The upcoming integration with ITEDI will provide new opportunities on both fronts. 6 Financial Statements Espresso Group Consolidated Income Statement Jan - Mar Jan - Mar Jan - Mar (€ million) 2016 pro-forma 2016 2017 Revenues 140.8 135.9 136.4 Change in inventories 0.4 0.4 0.4 Other operating income 4.1 4.1 4.8 Purchases (14.4) (13.5) (11.5) Costs for services (61.3) (63.1) (68.3) Other operating charges (1.7) (1.6) (1.5) Personnel costs (54.7) (49.8) (47.2) Depreciation, amortisation and write-downs (3.7) (3.5) (3.4) Operating profit 9.5 8.8 9.7 Net financial income (expense) (2.3) (2.3) (2.3) Valuation of investments at equity 0.8 0.8 (0.5) Profit (loss) before taxes 8.0 7.3 6.9 Taxes (2.0) (2.0) (2.1) Net profit (loss) of assets destined to continue 6.0 5.4 4.8 Profit (loss) from discontinued operations and assets held for 0.2 0.2 0.2 sale Net profit (loss) 6.1 5.5 5.0 Minority interests (0.0) (0.0) (0.0) GROUP NET PROFIT 6.1 5.5 5.0 Earnings per share, basic 0.016 0.014 0.013 Earnings per share, diluted 0.013 0.012 0.011 Consolidated Statement of Comprehensive Income Jan - Mar Jan - Mar Jan - Mar (€ million) 2016 pro-forma 2016 2017 NET PROFIT LESS MINORITY INTERESTS 6.1 5.5 5.0 Other comprehensive income components: Profit (loss) on restatement of available-for-sale financial assets - - - Tax effect of other profit (loss) - - - Other comprehensive income components, net of tax effect - - - Total comprehensive income attributable to: Shareholders of the Parent 6.1 5.5 5.0 Company Minority interests 0.0 0.0 0.0 8 Espresso Group Consolidated